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                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
                    FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
           FOR THE TRANSITION PERIOD FROM             TO

                           DECISIONONE HOLDINGS CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                <C>                                <C>
             DELAWARE                           0-28090                           13-3435409
 (STATE OR OTHER JURISDICTION OF          (COMMISSION FILE #)                  (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                                             IDENTIFICATION NO.)
</TABLE>

                            DECISIONONE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                <C>                                <C>
             DELAWARE                          333-28411                          23-2328680
 (STATE OR OTHER JURISDICTION OF          (COMMISSION FILE #)                  (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                                             IDENTIFICATION NO.)
</TABLE>

                            50 EAST SWEDESFORD ROAD
                           FRAZER, PENNSYLVANIA 19355
                                 (610) 296-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
                  PRINCIPAL EXECUTIVE OFFICES OF REGISTRANTS)

       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                              TITLE OF EACH CLASS

                          DECISIONONE HOLDINGS CORP.:
                  11 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
                            DECISIONONE CORPORATION:
                   9 3/4% SENIOR SUBORDINATED NOTES DUE 2007

           DECISIONONE HOLDINGS CORP.:  COMMON STOCK, $.01 PAR VALUE

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

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

     The aggregate market value of the voting stock of DecisionOne Holdings
Corp. held by non-affiliates, based upon the closing price of Common Stock on
September 10, 1999, as reported by the OTC Bulletin Board, was approximately
$738,000. In making such calculation, registrant is not making a determination
of the affiliate or non-affiliate status of any holders of shares of Common
Stock. All of the voting stock of DecisionOne Corporation is held by DecisionOne
Holdings Corp.

     At September 10, 1999, 12,564,485 shares of DecisionOne Holdings Corp.
common stock were outstanding and one share of DecisionOne Corporation common
stock was outstanding.

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

     DecisionOne Corporation meets the conditions set forth in General
Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with
the reduced disclosure format.
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<PAGE>   2

                               TABLE OF CONTENTS

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<CAPTION>
ITEM NO.                                                                 PAGE
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<C>        <S>                                                           <C>
                                   PART I
   1.      Business....................................................    1
   2.      Properties..................................................   15
   3.      Legal Proceedings...........................................   15
   4.      Submission of Matters to a Vote of Security Holders.........   16

                                   PART II
   5.      Market for Registrant's Common Equity and Related
           Stockholder Matters.........................................   16
   6.      Selected Financial Data.....................................   17
   7.      Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................   18
    7A.    Quantitative and Qualitative Disclosures about Market
           Risk........................................................   30
   8.      Financial Statements and Supplementary Data.................   31
   9.      Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure....................................   31

                                  PART III
  10.      Directors and Executive Officers of the Registrant..........   31
  11.      Executive Compensation......................................   32
  12.      Security Ownership of Certain Beneficial Owners and
           Management..................................................   36
  13.      Certain Relationships and Related Transactions..............   39

                                   PART IV
  14.      Exhibits, Financial Statement Schedules, and Reports on Form
           8-K.........................................................   40
</TABLE>
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     The information herein contains forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. These factors include,
but are not limited to the ability to complete the Restructuring, as described
herein, the competitive environment in the computer maintenance and technology
support services industry in general and in the Company's specific market areas;
changes in prevailing interest rates and the availability of and terms of
financing to fund the anticipated growth of the Company's business; inflation;
changes in costs of goods and services; economic conditions in general and in
the Company's specific market areas; demographic changes; changes in or failure
to comply with federal, state and/or local government regulations; liability and
other claims asserted against the Company; changes in operating strategy or
development plans; the ability to attract and retain qualified personnel; the
significant indebtedness of the Company; labor disturbances; changes in the
Company's acquisition and capital expenditure plans; and other factors
referenced herein. In addition, such forward looking statements are necessarily
dependent upon assumptions, estimates and dates that may be incorrect or
imprecise and involve known and unknown risks, uncertainties and other factors.
Accordingly, any forward looking statements included herein do not purport to be
predictions of future events or circumstances and may not be realized. Forward
looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "pro forma," "anticipates," or "intends" or the negative of
any thereof, or other variations thereon or comparable terminology, or by
discussions of strategy or intentions. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward looking
statements. The Company disclaims any obligations to update any such factors or
to publicly announce the results of any revisions to any of the forward looking
statements contained herein to reflect future events or developments.

                                     PART I

ITEM 1.  BUSINESS

     Item 1. is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. ("Holdings") and DecisionOne Corporation
(collectively, the "Company").

GENERAL

     The Company is the largest independent provider of multivendor computer
maintenance services in the United States, based on Dataquest Incorporated
("Dataquest") estimates for calendar year 1998. The Company offers its customers
a single-source solution for virtually all of their computer maintenance and
technology support requirements, including hardware maintenance services,
software support, end-user/help desk services, network support and other
technology support services. The Company believes that it is the most
comprehensive independent (i.e., not affiliated with an original equipment
manufacturer, or "OEM") provider of these services across a broad range of
computing environments, including data center, midrange, network and desktops.
The Company provides support for over 30,000 hardware products manufactured by
more than 1,000 OEMs. The Company also supports most major operating systems and
over 150 off-the-shelf software applications. The Company delivers its services
through an extensive service delivery organization comprised of more than 3,500
service professionals located in more than 150 service locations throughout the
United States and Canada, as well as through strategic alliances in selected
international markets.

     The Company services over 36,000 customers at over 145,000 sites across the
United States and Canada. The Company's customers include a diverse group of
national and multinational corporations, including SABRE Group, Inc., (an
affiliate of American Airlines, Inc.), Sun Microsystems, Inc., Bank of America,
DuPont Company, Southwestern Bell Corporation, Netscape Communications
Corporation and Bell Atlantic.

     General Business Development.  The Company's roots extend back to 1969,
when it was first known as Decision Data, then a provider of keypunch machines.
During the 1980's, its operations expanded to include
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the sale of midrange computer hardware products and related maintenance
services. In 1992, the Company sold off its computer hardware products business
and focused primarily on providing computer maintenance and technology support
services.

     Proceeds from the sale of the hardware business allowed the Company to
embark upon a strategy of selective acquisitions aimed at bolstering its
infrastructure and capabilities. The Company also acquired key "books of
business" designed to help it leverage its infrastructure by increasing the
geographic density of its customer base. Through this strategy, the Company
established a major presence in the servicing of midrange computer systems by
successfully acquiring and integrating nearly 30 companies in just over three
years. The first significant acquisition was the 1994 purchase of IDEA Servcom,
Inc., which raised the Company's customer base to 27,000 and, in following
months, increased the revenues to where they had been before the sale of the
hardware unit.

     In October 1995, the Company completed its largest acquisition -- that of
Bell Atlantic Business Systems Services, Inc. ("BABSS"), with approximately
4,400 employees and more than $500 million in sales. BABSS possessed a breadth
of services, market presence, a blue-chip customer base and over 30 years of
experience in the computer service business that complemented and strengthened
the Company. Upon the acquisition, the Company changed its name to DecisionOne.

     In 1996, the Company purchased the assets of the U.S. service business of
Memorex Telex Corporation, a hardware manufacturer and computer service company
with annual revenues of more than $100 million. In 1997, acquisitions included
certain assets of Xerox Technology Services (Canada) and the maintenance
business on several types of tape-drive storage machines from EMC(2)
Corporation.

     In October 1997, the Company acquired the network service and support
business of Gandalf Technologies, a provider of ISDN and frame relay remote
access equipment. As a result, the Company gained key network technical
expertise to support its growing network service portfolio. Additionally, in its
fiscal year 1998, the Company acquired the assets of General Diagnostics
Incorporated, a hardware depot repair firm. This transaction added eight
additional depot repair centers spread across the United States to the Company's
network of repair centers.

     Merger.  On August 7, 1997, the Company consummated a merger with an
affiliate of DLJ Merchant Banking Partners II, L.P. ("DLJMB") pursuant to which
DLJMB and certain of its affiliates (collectively, the "DLJMB Group") acquired
approximately 10.9 million shares, or 87.4%, of the Holdings Common Stock in
exchange for approximately $225 million (the "Merger"). Such equity proceeds,
along with $145.5 million of net proceeds from the sale of the 9 3/4% Senior
Subordinated Notes due 2007 (the "9 3/4% Notes"), $81.6 million of net proceeds
from the sale of 148,400 units consisting of 11 1/2% Senior Discount Debentures
due 2008 and warrants to purchase 281,960 shares of Holdings common stock
exercisable at $23 per share (the "11 1/2% Notes") and borrowings of $470
million under a $575 million senior secured loan facility (the "Existing Credit
Facility") were used to repurchase approximately 26.5 million shares of common
stock of Holdings for approximately $609.7 million, cash out then existing
Holdings options and warrants, repay the Company's then existing revolving
credit facility, and pay various fees and expenses incurred in connection with
the Merger. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

     Current Operating Plan.  The Company's results from operations have been
significantly below those anticipated at the time of the Merger. The Company has
continued to experience declining trends in revenues, earnings and EBITDA
throughout fiscal 1998 and 1999, and has incurred net losses in both fiscal
years. The declining trends have resulted principally from lower sales of new
service contracts, continued erosion of the Company's existing revenue base,
minimal acquisition growth and decreased per-incident revenues.

     On January 28, 1999, the Company initiated an operating plan intended to
restore revenue growth and improve financial performance (the "Operating Plan").
The Operating Plan included the following key components: (i) focusing all
aspects of the Company's operations -- from sales through service delivery -- on
providing information technology support services to three customer groups:
large corporate customers (also known as "Enterprise" customers), medium-sized
accounts (also known as "Middle-Market" customers),

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<PAGE>   5

and alliance customers, including OEMs, software publishers, systems
integrators, distributors and resellers, etc. (also known as "Strategic
Alliance" customers); (ii) a cost-reduction program designed to reduce the
Company's cost structure by $40 million annually upon full implementation,
including a workforce reduction of more than 500 employees; and (iii) financial
structure changes, including an additional $7.3 million investment by DLJMB and
certain of its affiliates in the form of 14% Senior Unsecured Notes due 2006
(the "14% Notes"), and the Company's agreement with its lenders to waive all
financial covenants under the Existing Credit Facility through July 29, 1999
(the "Waiver").

     On July 14, 1999, Holdings' common stock was delisted from the NASDAQ
National Market System. Since that date, Holdings' common stock has been quoted
on the OTC Bulletin Board.

     Indebtedness Restructuring.  On July 29, 1999, the Waiver expired. As a
result, since July 29, 1999, the Company has been in default of certain
financial covenants under the Existing Credit Facility. In addition, on August
2, 1999, the Company failed to make the interest payments due on both the 9 3/4%
Notes and the 14% Notes. Given the existing events of default under the Existing
Credit Facility, the Existing Credit Facility lenders (the "bank lending group")
had previously delivered to the Company a notice prohibiting such payments. As a
result of the Company's failure to comply with such financial covenants and to
make such interest payments, events of default have occurred under the Existing
Credit Facility and under the indentures for the 9 3/4% Notes and the 14% Notes.
Accordingly, the bank lending group and the holders of the 9 3/4% Notes and the
14% Notes could declare the amounts outstanding under these debt instruments
immediately due and payable and seek to exercise remedies, including, in the
case of the Existing Credit Facility, foreclosure on the collateral securing
such amounts.

     On August 2, 1999, the Company announced an agreement in principle with the
bank lending group and the holders of the 14% Notes on the restructuring of its
indebtedness (the "Indebtedness Restructuring"). Under the terms of the final
agreement, the bank lending group would exchange approximately $523 million in
existing indebtedness for approximately 94.6 percent of the reorganized
Company's equity and $250 million in new senior secured bank debt (the "New
Credit Agreement"). The agreement further provides that the holders of the 14%
Notes would exchange their notes for (a) warrants equal to approximately 4.2
percent of the reorganized Company's fully diluted equity, at an exercise price
based on an enterprise value of $350 million and (b) warrants equal to
approximately 2.0 percent of the reorganized Company's equity, at an exercise
price based on an equity valuation of $280 million. The holders of the 9 3/4%
Notes would exchange their notes for (a) approximately 5.0 percent of the
reorganized Company's equity; (b) warrants equal to approximately 2.8 percent of
the reorganized Company's fully diluted equity, at an exercise price based on an
enterprise value of $350 million; (c) warrants equal to approximately 5.0
percent of the reorganized Company's equity, at an exercise price based on an
equity valuation of $200 million; and (d) warrants equal to approximately 3.0
percent of the reorganized Company's equity, at an exercise price based on an
equity valuation of $280 million. In addition, the holders of the 11 1/2% Notes
and the holders of unsecured claims of Holdings would receive a total of
approximately 0.4 percent of the reorganized Company's equity.

     The proposed Indebtedness Restructuring will be implemented pursuant to a
prepackaged bankruptcy subject to the approval of a United States Bankruptcy
Court (the "Bankruptcy Court") pursuant to Chapter 11 of Title 11 of the United
States Code, as amended (the "Bankruptcy Code") and the approval of the bank
lending group and the holders of the 14% Notes. Management does not anticipate
any adverse impact on customers, vendors or employees as a result of the
Indebtedness Restructuring, since the Indebtedness Restructuring will address
only the de-leveraging of the Company's balance sheet through the reduction of
its indebtedness. However, there can be no assurance that the Indebtedness
Restructuring will be approved by the Bankruptcy Court, nor that any adverse
impact to the Company, its customers, creditors or employees will be avoided.
See Note 2 to the Company's Consolidated Financial Statements as of and for the
fiscal year ended June 30, 1999 for additional information.

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INDUSTRY BACKGROUND

     According to Dataquest projections, the U.S. hardware maintenance and
technology support services market was approximately $35.2 billion in 1998 and
is projected to grow at a compound annual rate of 10.1% to $51.8 billion by the
year 2002. Within the market surveyed by Dataquest, Dataquest estimates that the
independent/multivendor segment was approximately $9.3 billion in 1997 and
projects the segment to grow at an 11% compound annual rate to $14.1 billion by
the year 2001. According to Dataquest, independent/ multivendor service
providers such as the Company are taking market share from the OEM service
providers faster than OEMs are contracting new business. The Company believes
that this is occurring because: (i) customers are looking for single source
providers who support multiple computer hardware and software platforms, (ii)
independent service providers are viewed as being unbiased toward computer
purchase decisions and (iii) OEMs are increasingly outsourcing customer
maintenance service (including warranty and post-warranty services) and
technical customer support such as help desk services to independents in order
to focus on their core design, technology and marketing competencies. According
to Dataquest, within the independent/multivendor segment, hardware maintenance
was the dominant service, accounting for approximately 73% of 1997 revenues,
with technology support services, including software support, network support
and end-user training, comprising the remaining 27% of 1997 revenues.

     The Company believes that the independent/multivendor segment is also
fragmented and consolidating. Participants in the independent/multivendor
segment include: (i) independent service providers, (ii) the multivendor
segments of OEM service organizations and (iii) hundreds of smaller independent
companies servicing either product niches or limited geographical areas of the
United States. The significant market position of OEMs is due largely to their
traditional role of servicing their own installed base of equipment and their
customers' former reliance on centralized, single vendor solutions (i.e.,
mainframe systems).

COMPANY SERVICES

     The Company has built a service portfolio and infrastructure that is
designed to offer its customers a single-source solution for virtually all of
their computer maintenance and technology support requirements. The Company's
portfolio includes services such as hardware support, software support, network
support, and planning and consulting services for customers with mainframe,
midrange and distributed computing environments. The Company also provides
multivendor parts repair and refurbishment and inventory management services as
part of its logistics services portfolio, targeted at OEMs, resellers and other
third-party service providers.

     While many of its services and its heritage are rooted in providing
equipment maintenance and technical support, the Company has expanded its
portfolio to optimize its customers' investments in information technology.
Companies today are struggling to cope with increasingly complex computing
environments that feature an abundance of networked computer equipment from a
multitude of manufacturers. This equipment is often used to perform the
companies' mission-critical operations, and can severely impact their businesses
when a failure occurs. The Company believes that it can leverage its
infrastructure and breadth of services to help customers reduce the cost of
supporting their computer equipment while increasing their systems'
availability.

     The Company's marketing strategy is focused on services in three different
market segments: large customers, who have complex computing environments,
including data centers and tens of thousands of end-users; medium-sized
customers that primarily maintain midrange and desktop computing systems; and
strategic alliance customers, including a broad range of OEMs, software
publishers, systems integrators, outsourcers and distributors/resellers, who are
seeking complementary services to support their end-users.

     The Company's integrated portfolio of services is designed to appeal to
each of these customer segments by helping to increase computer system
availability, enhance end-user productivity and reduce the cost of running and
managing information technology systems. The Company has tailored service
portfolios to meet the unique needs of a number of computer environments,
including desktop computing, data center computing, midrange computing and
logistics. In addition, in July 1999, the Company introduced its new web-base
support capability, DecisionOne's ADVISE, which will initially provide users
with online hardware maintenance request capability and real time status
reporting on outstanding requests. Ultimately,
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DecisionOne's ADVISE will give customers a single point of contact for all its
desktop life cycle support services.

     Integrated Services for the Distributed Computing Desktop Environment: One
To 1.  The Company's One To 1 offering for the workgroup environment is an
integrated package of life cycle services designed to reduce the total cost of
ownership and increase system availability and end-user productivity. The
Company believes that One To 1's strength lies in its ability to provide
customers with a single-source solution for effectively supporting large,
complex desktop environments. By utilizing all of the services in One To 1,
customers leverage the Company's national and international infrastructure and
its ability to compile valuable service data to provide support at the desktop
level. By purchasing all of these services from one supplier, One To 1 customers
can provide greater support to their end-users and organization while still
reducing the total cost of owning desktop assets. One To 1 includes:

     Hardware Services:  The Company provides warranty upgrades and
post-warranty maintenance support to thousands of different desktop hardware
devices from hundreds of different manufacturers. Services are provided at the
customer's location through one of the largest service infrastructures in the
industry, or through the Company's network of depot repair centers.

     Network Services:  NetworkOne services help customers manage the total life
cycle of their complex network environments, from designing systems to
maintaining network hardware on wide area and local area networks. The Company
utilizes its network systems management engine, ControlOne, located at the
Company's headquarters facility, to monitor, assess and fix network problems.
ControlOne features state-of-the-art network management tools and is manned by a
staff of highly experienced network engineers and technicians. The Company also
maintains a backup network management facility in Dallas, Texas.

     TCO Consulting Services:  ExpertOne services provide access to desktop
support experts who can analyze a desktop environment, recommend solutions,
manage their implementation and audit the results.

     Help Desk Services:  CallOne services provide telephone technical support
on more than 100 shrink-wrapped desktop software packages and a wide range of
operating systems. The Company's Customer Support Centers ("CSCs") handle more
than 370,000 calls per month for various types of customers including corporate
help desk, Internet Service Providers and OEMs. CallOne services are available
on a 24 hour a day, 7 day a week basis.

     Asset Management Services:  The Company can inventory information
technology asset data, such as personal computer location and number of software
licenses, and provide information that leads to better asset management
practices.

     Project Management Services:  Through Project Management Services, the
Company provides customized service programs to help system professionals manage
all their information technology resources. For example, Technology Deployment
Services can help companies roll out or retire desktop assets as part of a
technology migration program.

     Services for the Mainframe Environment: MainOne.  The Company has an
extensive history in providing services to the data center. As part of its
effort to standardize its offerings and in response to the changing life cycle
needs of the data center marketplace, the Company developed a complete suite of
support services for the data center called MainOne. MainOne services extend
beyond critical hardware support to services that meet the strategic needs of
data center management, including planning, consulting and management support.

     The Company offers a single source for maintaining the many brands and
types of mission-critical equipment found in the data center through a full
suite of services that includes: remedial and preventative maintenance on the
mainframe and associated peripheral devices; equipment moves, additions and
changes, including data center relocations; migration assistance for customers
changing processors and/or software operating systems; assistance to customers
in managing and consolidating vendor relationships; environmental, financial and
disaster recovery services; and consulting expertise to help customers reduce
data center costs, improve equipment performance and increase processor
capacity.

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     Services for the Midrange Environment: MidrangeOne.  The Company's
MidrangeOne services are designed to meet the support requirements of complex
midrange computing environments. For many customers, midrange devices play the
same mission-critical role as mainframe computers, as well as support their
distributed computing environments.

     The Company offers an integrated suite of services, MidrangeOne, that
addresses all the elements of today's more complex midrange environment,
including: remedial and preventative maintenance on midrange equipment (such as
IBM, Digital Equipment Corporation, Sun Microsystems, Inc., Sequent Computer
Corporation, Hewlett-Packard and Memorex Telex Corporation), as well as on a
full range of peripheral devices from hundreds of different manufacturers;
problem resolution and migration support for midrange operating systems;
services to support remote systems operations and backups; partnerships with
industry leaders for specialized services such as disaster recovery,
environmental auditing and equipment financing; and advice from midrange experts
to assist with increasing system capacity, improving performance and lowering
cost of ownership.

     Logistics Services: LogisticsOne.  The Company's LogisticsOne services
provide information technology companies such as OEMs, value added resellers and
other third-party maintainers with cost-effective alternatives to internal parts
repair and inventory pipeline management. The Company provides three distinct
services under LogisticsOne:

     Hardware Services:  The Company repairs and refurbishes computer parts and
assemblies at its network of 15 depot repair centers across the United States.
In addition to supporting its own business, these services are provided
primarily for OEMs, distributors and other third-party maintenance companies.

     Systems Configuration Management Services:  The Company assists customers
with technology transitions, such as handling the current disposition of
equipment or configuring machines for new technology roll-outs. The Company has
years of experience installing and servicing a multivendor, multi-platform
technology base.

     Inventory Life Cycle Management Services:  These services, in support of
OEMs, support both in-production or end-of-life parts and provide materials
management support for the entire life cycle of products. These services help
companies acquire inventory and maintain optimal stocking levels, allowing them
to redirect funds normally spent on overstocking or replenishing inventory.

     Support Partner Programs.  Customers increasingly demand turnkey services
from vendors who can meet the total life cycle requirements of their systems.
The Company is a services-only company, meaning it does not provide those
aspects of the systems' life cycle that are not service- and support-related. To
meet the needs of its customers, the Company maintains strategic alliances with
companies who have expertise in key areas of the industry. Together with these
support partners, the Company can offer customers the total life cycle of
support, including such areas as equipment financing and leasing, disaster
recovery services, environmental analysis, wiring and cabling, system design and
equipment procurement.

     Sales and Marketing.  The Company sells its services through a sales force
of approximately 100 sales professionals aligned under several sales
organizations:

          Commercial Sales sells hardware repair, commercial help desk, network
     and project services (equipment installations, moves, additions and changes
     or IMAC) to large and multinational commercial customers.

          Alliance Sales sells repair, professional services and deployment
     services to OEMs, distributors and resellers.

          Logistics Sales sells parts repair and logistics support services to
     OEMs, resellers, third-party service providers and select commercial
     accounts.

          End-User Support Sales sells help desk services to internet service
     providers, software publishers, OEMs, systems integrators and outsourcers.

                                        6
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     International Business Partners.  In order to provide international service
to its multinational customers, the Company supplements its broad North American
infrastructure with strategic alliances in selected international markets. The
Company maintains relationships with International Computers Limited ("ICL") and
Fujitsu Australia Limited ("FAL"). The Company licenses certain of its
proprietary multivendor support tools to FAL and to ICL Systems Service, which
is ICL's multivendor services group in Western Europe. As a result, the Company
is able to offer to its multinational customers service in Western Europe, Asia
and Australia.

     ICL is a leading information technology company that has approximately
23,000 employees operating in about 80 countries around the world. In Western
Europe, ICL Systems Service companies provide multivendor services in 17
countries with approximately 250 service locations and about 6,000 employees.
Several of the Company's major customers, including SABRE Group, Inc. and DuPont
Company, benefit from the agreement between the Company and ICL, whereby ICL
agrees to provide services at the European locations of the Company's
multinational customers. Through ICL, the Company utilizes the service branches
of both ICL and ICL's parent company, Fujitsu Ltd., to provide worldwide
multivendor support throughout Asia, the Pacific Rim, the Middle East and
Africa.

     FAL, an affiliate of Fujitsu Ltd., provides multivendor services in
Australia and New Zealand from more than 20 locations with 600 employees. In
addition to providing technical support to FAL, the Company has supplied various
management and sales support personnel to FAL. FAL also provides services to
certain of the Company's multinational customers, including Sun Microsystems,
Inc.

SERVICE INFRASTRUCTURE

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

     The Company maintains three CSCs in Malvern, Pennsylvania; Minneapolis,
Minnesota; and Tulsa, Oklahoma. Customers can reach the CSCs by calling a toll
free telephone number. The CSCs currently are staffed with over 600 CSRs.

     Parts Logistics.  To meet the service needs of its customers, the Company
stocks more than 2.5 million units of spare parts representing more than 150,000
different parts for more than 25,000 types of equipment. The Company maintains
more than 2,200 parts stocking locations to provide its technicians with rapid
access to needed parts to support customer requirements, including locations at
airports and overnight express hub locations to meet the needs of
mission-critical support.

     In order to meet customer computer repair requirements, the Company
maintains a tiered approach to management of its spare parts. Parts or
assemblies with low failure rates are stocked in either the Company's central
distribution center located in Malvern, Pennsylvania or in its critical parts
center in Wilmington, Ohio. The Company also maintains six regional distribution
centers in Atlanta, Georgia; Newark, New Jersey; Los Angeles, California; San
Francisco, California; Chicago, Illinois; and Dallas, Texas. A major
distribution center is also operated in Wilmington, Ohio to enable quick
distribution of critical parts throughout the United States via Airborne's hub
center. In order to service customers whose response time requirements are two
to four hours, higher usage parts are maintained at the Company's branch offices
or local attended stocking locations. Customer site parts storage is arranged
when customer response time requirements are two hours or less.

     The Company's Field Inventory System ("FIS") is a real-time system which
tracks the spare parts assigned to its field workforce. It is located at
distribution centers, field offices or customer sites. Parts information
processed through FIS is integrated with the Company's other key systems,
including DDG and International Support Information System ("ISIS").

                                        7
<PAGE>   10

     For a discussion of the Company's recent accounting change with respect to
spare parts, see "Restructuring -- Significant Recent Events."

     Parts Repair.  The Company repairs and refurbishes computer parts and
assemblies at depot repair centers across the United States. Repair facilities
are located in the following areas: Phoenix, Arizona; Los Angeles and San
Francisco, California; Chicago, Illinois; Boston, Massachusetts; Nashua, New
Hampshire; Columbus, Ohio; Philadelphia, Pennsylvania; and Dallas, Texas; with a
major distribution center at an Airborne transportation hub in Wilmington, Ohio.
These centers are either certified to ISO-9002 quality processes and standards
or are in the process of obtaining certification.

     In addition to supporting the Company's business, parts repair is provided
to OEMs, distributors and other third-party maintenance companies. Repair
capabilities include systems logic boards, hard drive assemblies, LCD panels,
monitors, peripherals, power supplies and related equipment. Continued
investment in repair technology enhances the Company's ability to service
today's latest technology, such as flat-panel displays on laptop computers, and
to perform component-level repair on complex multi-level circuit boards and
subassemblies.

     Effective July 1, 1999, the Company changed its method of accounting for
spare parts. See "Accounting Change-Spare Parts" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

     Field Service.  The Company delivers support through one of the most
extensive field service infrastructures in the industry. Approximately 2,100
field service technicians deliver service to approximately 36,000 customers at
over 145,000 customer sites. These field technicians are based out of more than
150 service offices located across the United States and Canada. Depending on
customer requirements, some Company personnel are based at customer sites.

     Technical Support.  The Company is a Microsoft Certified Support Center,
providing help desk support for a full range of Microsoft business software
applications and operating systems. It is also designated as an Authorized
Support Center by Lotus Development Corporation. Technical support is delivered
through the CSCs and ranges from basic end-user software support to second level
professional support. Technical support is provided with respect to software
such as Microsoft Office Suite and operating systems such as Novell Netware,
Windows NT, Windows 95/98, Sun Solaris, and Linux. Groupware Products such as
Lotus Notes and Internet browsers, such as the Netscape Navigator and Microsoft
Explorer, are also fully supported.

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

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

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

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

                                        8
<PAGE>   11

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

     DecisionOne(R), ISIS, Service Edge, MAXwatch(R), One to 1, NetworkOne,
ExpertOne, CallOne, AssetOne, MainOne, MidrangeOne and LogisticsOne are service
marks or trademarks owned by the Company. All other brand names, service marks
or trademarks appearing herein are the property of their respective owners.

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

     The Company's training facilities include 12 classrooms, 18,000 square feet
of hands-on lab space, a curriculum of over 80 courses and computer-based
training consisting of 800 titles and 4,000 hours of self-paced instructions.
The Company has five training centers and labs located in Frazer, Pennsylvania;
Malvern, Pennsylvania; Minneapolis, Minnesota; Tulsa, Oklahoma; and Phoenix,
Arizona. Six months following course work, the Company surveys the CSEs to gauge
the effectiveness and applicability of its training curriculum.

CUSTOMERS

     The Company services over 36,000 customers at over 145,000 sites across the
United States and Canada. The Company sells services primarily to three types of
customers: large businesses that have complex computing support needs and
typically maintain data center, distributed computing and desktop environments;
medium-sized businesses that rely primarily on distributed systems for their
computing needs; and OEMs and software developers that contract with the Company
for warranty services, logistics support services or help desk support. The
majority of the Company's revenues are attributable to large businesses with
complex computing support needs.

COMPETITION

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

     The Company considers its principal competitors to include IBM, Compaq,
Unisys Corporation, GetronicsWang and the multivendor service divisions of
certain other OEMs, other national independent service organizations providing
service that are not affiliated with OEMs such as Inacom Corporation, CompuCom
Systems, Inc., Sykes Enterprises, Inc. and various regional service providers.

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

EMPLOYEES

     As of June 30, 1999, the Company had approximately 5,050 full-time and 60
part-time employees. None of the Company's employees are currently covered by
collective bargaining agreements. Management considers employee relations to be
good.

                                        9
<PAGE>   12

                                  RISK FACTORS

FAILURE TO COMPLETE INDEBTEDNESS RESTRUCTURING

     As previously described, the proposed Indebtedness Restructuring is subject
to formal approvals by both the bank lending group and the Bankruptcy Court
prior to consummation. The Company believes that obtaining the approval of the
bank lending group and the holders of the 14% Notes, before filing the
Indebtedness Restructuring Plan (the "Plan") with the Bankruptcy Court would
minimize disputes concerning the Indebtedness Restructuring and would,
therefore, substantially reduce the time and costs of the bankruptcy case and
afford the best opportunity to complete the Indebtedness Restructuring. There
can be no assurance, however, that these approvals will be obtained, or that the
Plan will be approved in the form submitted. Further, if the Plan is not
approved, the Company will be forced to evaluate its available options, which
include, but are not limited to, filing for protection under the Bankruptcy Code
without a pre-approved plan of reorganization. Such a filing could result in
liquidation, rather than a reorganization of the Company, and any such
reorganization, even if undertaken, may not be accomplished on terms as
favorable to the Company's creditors as the terms of the Indebtedness
Restructuring.

     Additionally, it is possible that perceived difficulties from the Company's
involvement in a bankruptcy case could adversely affect the relationships of the
Company with its suppliers, customers and employees, and could have other
adverse effects of the Company's business, particularly in the event of a
bankruptcy other than pursuant to a pre-approved plan of reorganization.
Management believes, however, that using a prepackaged plan of reorganization in
connection with the Company's bankruptcy case will reduce the adverse effect of
a bankruptcy filing on the Company's business because such a prepackaged case is
likely to be completed more quickly than an ordinary bankruptcy case, disputes
with and among creditor and equity holder groups will be minimized, and the
Company will have the opportunity to take certain preparatory measures in
advance of the filing.

     Upon filing of the approved Plan, the Company intends to seek promptly the
authorization of the Bankruptcy Court to continue to pay in full, in the
ordinary course of business, the general unsecured pre-petition claims of each
trade creditor and customer of the Company. Additionally, the Company intends to
seek the Bankruptcy Court's authorization to pay all accrued pre-petition
salaries, wages and commissions and applicable taxes thereon, as well as medical
and other benefits and other payroll-related liabilities, on an uninterrupted
basis. While the Company expects that these authorizations will likely be
granted by the Bankruptcy Court, there can be no assurance that these
authorizations will be obtained.

     Even if the Company obtains the approval of the Plan from the bank lending
group and the holders of the 14% Notes, there can be no assurance that the
Bankruptcy Court will approve and confirm the Plan. Under the Bankruptcy Code,
any party in interest, including the United States Trustee, any creditor or any
equity holder, has the right to be heard by the Bankruptcy Court on any issue in
the prepackaged proceeding. It is possible that such a party could challenge,
among other things, the terms of the Plan, the adequacy of the Company's
disclosure in its Disclosure Statement filed in connection with the bankruptcy
filing or the adequacy of the time period allotted under the solicitation of
acceptance of the Plan for considering whether to accept or reject the Plan.
Further, even if such a challenge were not to occur, the Bankruptcy Court could
decline to approve the Plan if it found that a statutory condition for
confirmation had not been met. There can be no assurance that any such
challenges and/or failures to meet statutory conditions would be resolved by the
Company, that modifications of the Plan would not be required for its
confirmation, or that such modifications would not require resolicitation for
approvals from one or more classes of impaired claims or equity interests. Such
events, were these to occur, could result in either non-confirmation of the Plan
or a significant delay in Plan confirmation by the Bankruptcy Court, both of
which could have a material adverse impact on the Company and its operations.

LOSS OF CONTRACT-BASED REVENUE

     As is customary in the computer services industry, the Company experiences
reductions in its contract-based revenue, which accounted for approximately 90%
of the Company's revenues during fiscal year 1999, as customers may eliminate
certain equipment or services from coverage under the contracts, typically upon
30 days' notice, or either cancel or elect not to renew their contracts upon 30,
60 or 90 days' notice. The
                                       10
<PAGE>   13

Company believes that the principal reasons for the loss of contract-based
revenue are the replacement of the equipment being serviced with new equipment
covered under a manufacturer's warranty, the discontinuance of the use of
equipment being serviced for a customer due to obsolescence or a customer's
determination (based on cost, quality and scope of services) to utilize a
competitor's services or to move technical support services in house. There can
be no assurance that the Company will be able to offset the reduction of
contract-based revenue and maintain revenue growth through acquisitions and new
contracts in the future. Any failure to enter into new contracts, add additional
services and equipment to existing contracts or consummate acquisitions could
have a material adverse effect on the Company's profitability. See
"Business -- Current Operating Plan" and "Management's Discussion and Analysis
of Financial Conditions and Results of Operations."

DEPENDENCE ON COMPUTER INDUSTRY TRENDS

     The Company's future success is dependent upon (i) the continuation of a
number of trends in the computer industry, including the migration by
information technology end-users to multivendor and multisystem computing
environments, the overall increase in the sophistication and interdependency of
computing technology, and a focus by information technology managers on cost
efficient management, and (ii) its ability to diversify its services to meet the
needs of clients with respect to these trends. The Company believes that these
trends have resulted in a movement by both end-users and original equipment
manufacturers (each, an "OEM") towards outsourcing and an increased demand for
support service providers that have the ability to provide a broad range of
multivendor support services. There can be no assurance that these trends will
continue in the future, see "Indebtedness Restructuring," or that the Company
will be able to diversify its available services to take advantage of such
trends. See "Failure of Diversification Strategy."

RAPID TECHNOLOGICAL CHANGE

     Rapid technological change and compressed product life cycles are prevalent
in the computer industry, which may lead to the development of improved or lower
cost technologies, higher quality hardware with significantly reduced failure
rates and maintenance needs, or customer decisions to replace rather than
continue to repair and maintain aging hardware, which could result in a reduced
need for the Company's services in the future. Moreover, such rapid
technological changes could adversely affect the Company's ability to predict
equipment failure rates and, therefore, to establish prices that provide
adequate profitability. Similarly, new computer systems could be built based
upon proprietary, as opposed to open, systems that cannot be serviced by the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

VARIABILITY OF PER INCIDENT REVENUES

     Per incident revenues, which consist primarily of revenues from services
performed for customers on an as requested basis (e.g., projects, help desk
services, parts repair, installations and moves, installation and de-
installation of computer equipment), are subject to monthly variation due to the
nature of per incident revenue transactions. Per incident revenues were
approximately $190 million during fiscal year 1999. It is difficult for the
Company's management to estimate the impact or amount of future per incident
revenues because per incident revenues are dependent on customer demand, which
fluctuates based upon various factors such as competition, the demand for "Year
2000" compliance assistance and customers' use of internal employees. In
addition, since a significant amount of per incident revenues are mostly
generated from the Company's customers with monthly maintenance contracts, a
decrease in the number of such contracts has resulted in a decrease in per
incident revenues. The Company may not be able to generate significant amounts
of per incident revenue in the future.

DEPENDENCE ON KEY PERSONNEL

     The Company's continued success, including the successful implementation of
the Restructuring, depends, to a large extent, upon the efforts and abilities of
key managerial employees, particularly the Company's executive officers.
Competition for qualified management personnel in the industry is intense. The
                                       11
<PAGE>   14

loss of the services of certain of these key employees or the failure to retain
other qualified employees could have a material adverse effect on the Company's
business. There can be no assurance that the Company will be able to retain
qualified management personnel during or after the Indebtedness Restructuring
period, and recently, the Company has experienced the loss of several key
personnel. See "Business -- Indebtedness Restructuring" and "Directors and
Executive Officers."

FAILURE OF DIVERSIFICATION STRATEGY

     Certain changes in the industry have made it necessary for the Company to
build its business beyond traditional hardware repair services in order to
remain competitive. Among other factors, the shift from mainframe to client
server environments, lower hardware prices, higher product reliability, longer
warranty periods, more rapid innovation, and standardization and convergence of
hardware and software have led to a number of new trends in the industry,
including (i) the convergence of replacement cost and repair cost, (ii) a
decline in hardware repair business opportunities, and (iii) a market shift from
servers, to desktop computers and networks. As a result, the Company expects to
continue to seek to diversify its services, particularly in emerging markets
such as the desktop environment, and to consolidate its presence in existing
markets by targeting specific customer groups. However, risks associated with
pursuing a diversification strategy of this nature include, without limitation,
the risk that the strategy chosen to be implemented is flawed or that such
strategy fails to be successfully implemented because, among other reasons, the
Company lacks financial resources or qualified personnel. As a result, the
Company may not implement the diversification strategy successfully. In
addition, there can be no assurance that the diversification strategy developed
by the Company will generate sufficient revenues to offset the continuing
decline in the Company's hardware repair revenues.

INABILITY TO FUND FUTURE GROWTH

     The Company may not be able to maintain and increase its revenue base and
to respond to shifts in customer demand and changes in industry trends if it is
not able to generate sufficient cash flow or obtain sufficient capital for the
purpose of, among other things, financing acquisitions, satisfying customer
contractual requirements and financing infrastructure growth, including a
significant investment in inventory. There can be no assurance that the Company
will be able to generate sufficient cash flow or that financing will be
available on acceptable terms (or permitted to be incurred under the terms of
the New Credit Agreement or any other future indebtedness) to fund the Company's
future growth.

COMPETITION AND THE COMPETITIVE ADVANTAGE OF OEMS

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

     In many instances, OEM service organizations have greater resources than
the Company, and, because of their access to the OEM's engineering data, may be
able to respond more quickly to servicing equipment that incorporates new or
emerging technologies. Moreover, some OEMs, especially in the mainframe
environment, do not make available to end-users or independent service
organizations the technical information, repairable parts, diagnostics,
information that relates to engineering changes and other support items required
to service their products, and design and sell their products in a manner so as
to make it virtually impossible for a third party to perform maintenance
services without potentially infringing upon certain proprietary rights of the
OEM. In addition, OEMs are sometimes able to develop proprietary remote
diagnostic or monitoring systems which the Company may not be able to offer.
Therefore, OEM service organizations sometimes have a cost and timing advantage
over the Company because the Company must first develop or acquire from another
                                       12
<PAGE>   15

party the required support items before the Company can provide services for
that equipment. An OEM's cost advantage, the unavailability of required support
items or various proprietary rights of the OEM may preclude the Company from
servicing certain products. Furthermore, OEMs usually provide warranty coverage
for new equipment for specified periods, during which it is not economically
feasible for the Company to compete for the provision of maintenance services.
To the extent that OEMs choose, for marketing reasons or otherwise, to expand
their warranty periods or terms, the Company's business may be adversely
affected.

TERMINATION OF THE IBM CONSENT DECREE

     In June 1994, International Business Machines Corporation ("IBM") filed in
the United States District Court for the Southern District of New York a motion
to terminate a 1956 consent decree (the "IBM Consent Decree") that, among other
things, requires IBM to provide spare parts, documentation and other support
items for IBM electronic data processing systems to third parties on reasonable
terms and places other restrictions on IBM's conduct. On January 18, 1996, the
court entered an order approving a modification of the IBM Consent Decree that,
among other things, terminated the IBM Consent Decree except insofar as it
applies to the System 360/370/390 (mainframes) and AS/400 (midrange) families of
IBM products. In July 1996, IBM and the U.S. Department of Justice reached an
agreement in tentative settlement of the remainder of IBM's motion and jointly
moved to terminate, on a phased basis, the remaining provisions of the IBM
Consent Decree. On May 1, 1997, the court granted the joint motion. On February
5, 1998, the United States Court of Appeals for the Second Circuit affirmed the
decision of the District Court. Consequently, certain of the remaining
provisions of the IBM Consent Decree (primarily relating to sales and marketing
restrictions on IBM) terminated either immediately upon, or within six months
of, entry of the court order; all of the other remaining provisions (including
those requiring IBM to provide parts and other support items to third parties)
terminate on July 2, 2000 with respect to AS/400 systems and on July 2, 2001
with respect to System 360/370/390 mainframes.

     The impact, if any, upon the Company of the termination of such sales and
marketing restrictions is impossible to predict because such impact depends upon
what changes, if any, IBM will make in its sales and marketing policies and
practices. As a result of the termination of the IBM Consent Decree, the
Company's ability to service midrange and mainframe products may be adversely
affected. Furthermore, as the Company's business is highly dependent upon its
ability to service a wide variety of equipment in a multivendor environment, the
inability to compete effectively for the service of IBM mainframes and midrange
products could cause the loss of a substantial portion of the Company's customer
base to IBM or an IBM affiliate, which would have a material adverse effect on
the Company's business.

SINGLE SUPPLIERS FOR INVENTORY

     Spare parts purchases are made from OEMs and other vendors. The Company
from time to time will have only a single supplier for a particular part which,
in some cases, may be the OEM for such spare part. Should a supplier be
unwilling or unable to supply any part or component in a timely manner, the
Company's business could be adversely affected. In addition, the Company is
dependent upon IBM for obtaining certain parts that are critical to the
maintenance of certain IBM mainframe and midrange systems that IBM is currently
required to make available to third parties pursuant to the IBM Consent Decree.
There can be no assurance that IBM will continue to make parts available for
AS/400 Systems after July 2, 2000 and for System 360/370/390 mainframes after
July 2, 2001. Even if such parts or components are available, a shortage of
supply could result in an increase in procurement costs which, if not passed on
to the customer, may adversely affect the Company's profitability.

DIFFICULTIES IN MANAGING INVENTORY

     In order to service its customers, the Company is required to maintain a
high level of spare parts for extended periods of time. Any decrease in the
demand for the Company's maintenance services could result in a substantial
portion of the Company's spare parts becoming excess, obsolete or otherwise
unusable. In addition, rapid changes in technology could render significant
portions of the Company's spare parts obsolete, thereby giving rise to
write-offs and a reduction in profitability. The inability of the Company to
manage its
                                       13
<PAGE>   16

spare parts or the need to write them off in the future could have a material
adverse effect on the Company's business, financial results and results of
operations.

     Effective July 1, 1999, the Company changed its accounting policy for spare
parts. See "Accounting Change -- Spare Parts" included in Item 7 herein.

FAILURE TO PRICE FIXED FEE CONTRACTS ACCURATELY

     Under many of the Company's contracts, the customer pays a fixed fee for
customized bundled services that are priced by the Company based on its best
estimates of various factors, including estimated future equipment failure
rates, cost of spare parts and labor expenses. There can be no assurance that
the Company will be able to estimate these factors with sufficient accuracy in
order to price these fixed fee contracts on terms favorable to the Company. The
failure of the Company to price its fixed fee contracts accurately could have a
material adverse effect on the Company's profitability.

CONTINUING LEVERAGE AND ABILITY TO SERVICE DEBT

     Although the proposed Indebtedness Restructuring will significantly reduce
the Company's debt service obligations, the Company will remain highly leveraged
after consummation of the Plan. As of June 30, 1999, the principal amount of the
Company's indebtedness was approximately $786.8 million. After giving effect to
the Indebtedness Restructuring on a pro forma basis as of such date, the
principal amount of the Company's indebtedness would have been approximately
$253.0 million. Following completion of the Indebtedness Restructuring, the
Company will continue to be subject to significant principal and interest
payment obligations with respect to the New Credit Agreement. The Company's
ongoing high leverage and significant debt service obligations will continue to
pose a substantial risk to the holders of the Company's debt and equity
following the Indebtedness Restructuring.

     Although the New Credit Agreement will revise the Existing Credit
Agreement's financial and operating covenants in light of the Indebtedness
Restructuring, the Company will continue to be subject to a number of
significant restrictive financial and operating covenants. The covenants
expected to be contained in the New Credit Agreement may impose more restrictive
limitations upon the Company's operations than the covenants of the Existing
Credit Agreement. Accordingly, the discretion of the Company's management will
continue to be significantly limited by such covenants following consummation of
the Indebtedness Restructuring.

     Management believes that, following completion of the Indebtedness
Restructuring, the Company's operating cash flow, together with borrowings under
the New Credit Agreement, will be sufficient to meet its anticipated future
operating expenses, capital expenditures, and debt service obligations. However,
the Company's ability to meet its debt service obligations and to comply with
the financial and operating covenant restrictions contained in the New Credit
Agreement, will depend on a number of factors, including its future operating
performance and its ability to achieve the Operating Plan and its fiscal year
2000 Business Plan, which will be affected by general economic, financial,
competitive, legislative, regulatory, business and other factors beyond its
control. While management believes that the Company's financial projections are
reasonable, there can be no assurance that such projections will prove to be
correct, or that the Company will be able to meet its ongoing debt service
obligations. If the Company's future operating cash flows are less than
currently anticipated, it may be forced, in order to meet its debt service
obligations, to reduce or delay acquisitions, purchases of spare parts or
capital expenditures, or to sell assets or reduce operating expenses, including,
but not limited to, investment spending such as selling and marketing expenses,
expenditures on management information systems, expenditures on new products and
personnel-related expenses. If the Company is unable to meet its debt service
obligations, it could attempt to restructure or refinance its indebtedness or to
seek additional equity capital. There can be no assurance that the Company will
be able to effect any of the foregoing on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

     After consummation of the proposed Indebtedness Restructuring, the Company
will not have in place any sources of liquidity other than the New Credit
Agreement and cash from operations. Any increase in the Company's debt service
requirements or any reduction in amounts available for borrowings under the New
                                       14
<PAGE>   17

Credit Agreement could significantly affect the Company's ability to fund
working capital and capital expenditures following the Indebtedness
Restructuring.

CONTROL BY DLJ

     Approximately 87.4% of the outstanding shares of the Company's common stock
are currently held by the DLJMB Group. As a result of its stock ownership and
the Investors' Agreement (which includes members of management to the extent
their shares are acquired through the Company's Direct Investment Program), the
DLJMB Group controls the Company and has the power to elect a majority of the
Company's directors, appoint new management and approve any action requiring the
approval of the holders of the Company's common stock, including adoption of
certain amendments to the Company's certificate of incorporation and approving
mergers or sales of all or substantially all of the Company's assets. The
directors elected by the DLJMB Group have the authority to effect decisions
affecting the capital structure of the Company, including the issuance of
additional capital stock, the implementation of stock repurchase programs and
the declaration of dividends. Following the Merger, there has been a limited
market for the Company's common stock because of the significant ownership of
the DLJMB Group. As a result, stockholders may experience difficulty selling
shares or obtaining prices that reflect the value thereof. If consummated, the
proposed Restructuring would result in a significant change in control of the
Company's common stock. See "Business -- Indebtedness Restructuring."

ITEM 2.  PROPERTIES

     Item 2 is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. ("Holdings") and DecisionOne Corporation.

FACILITIES

     The Company leases certain office and warehouse facilities under operating
leases and subleases that expire at various dates through November 30, 2009. The
Company's executive offices are located at the Frazer, Pennsylvania facility
listed below. The principal facilities currently leased or subleased by the
Company are as follows:

<TABLE>
<CAPTION>
                                                           SQUARE         LEASE
                                                           FOOTAGE      EXPIRATION
                                                           -------    --------------
<S>                                                        <C>        <C>
Frazer, Pennsylvania (Office)............................  109,800     December 2005
Malvern, Pennsylvania (Depot/Call Center)................  200,000     February 2006
Richfield, Minnesota (Call Center).......................   83,360          May 2006
Hayward, California (Depot)..............................   91,112    September 2002
Northborough, Massachusetts (Depot)......................   52,778         July 2001
Wilmington, Ohio (Warehouse).............................  102,400      January 2001
Grove City, Ohio (Depot).................................  116,573         July 2002
Phoenix, Arizona (Depot).................................   60,000        April 2001
Devon, Pennsylvania (Office/Warehouse)...................   50,400     December 2005
College Station, Texas (Call Center).....................   50,096     November 2009
Tulsa, Oklahoma (Office/Call Center).....................   36,530      October 2004
</TABLE>

     The Company's management believes that its current facilities will be
adequate to meet its operational requirements for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

     Item 3 is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. ("Holdings") and DecisionOne Corporation
(collectively, the "Company").

                                       15
<PAGE>   18

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

     The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect of four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund Sites: (i) PAS Irwin Dump
Site, Oswego, New York (and six satellite sites, including the Fulton Terminals
Site, Fulton, New York); (ii) North Penn Area 6 Site, Lansdale, Pennsylvania;
(iii) Revere Chemical Site, Nockamixon, Pennsylvania; and (iv) Malvern TCE site,
Malvern, Pennsylvania. In addition, the Company received a notice several years
ago that it may be a potentially responsible party with respect to the Boarhead
Farms Site, Bridgeton, Pennsylvania, at a site related to the Revere Chemical
site, but has not received any additional communication with respect to that
site. Under applicable law, all parties responsible for disposal of hazardous
substances at those sites are jointly and severally liable for clean up costs.
The Company initially estimated that its share of the costs of the clean up of
one of the sites was approximately $500,000, of which $372,000 remained unpaid
and accrued for in the accompanying consolidated balance sheet as of June 30,
1999. Complete information as to the scope of required clean up at these sites
is not yet available and, therefore, management's evaluation may be affected as
further information becomes available. However, in light of information
currently available to management, including information regarding assessments
of the sites to date and the nature of involvement of the Company's predecessor
at the sites, it is management's opinion that the Company's potential additional
liability, if any, for the cost of clean up of these sites will not be material
to the consolidated financial position, results of operations or liquidity of
the Company. See Note 18 to the Company's Consolidated Financial Statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE OF THE COMMON STOCK

     The Common Stock of DecisionOne Holdings Corp. is traded in the
over-the-counter market, in the "pink sheets" published by the National
Quotation Bureau and is listed on the OTC Bulletin Board under the symbol
"DOCI". The common stock shares previously traded on the Nasdaq National Market
System from April 6, 1996 through July 14, 1999. As of September 10, 1999, there
were approximately 600 stockholders of record. The following table shows, for
the periods indicated, the high and low sale prices of a share of the Company
Common Stock as reported by the Nasdaq National Market System through July 14,
1999, the date of delisting of the Common Stock, and by the National Quotation
Bureau thereafter.

<TABLE>
<CAPTION>
                                                              HIGH    LOW
                                                              ----    ---
<S>                                                           <C>     <C>
1997
First Quarter...............................................   19     14 3/4
Second Quarter..............................................   22 3/4 14 3/4
Third Quarter...............................................   30     22 3/8
Fourth Quarter..............................................   34 3/8 24 1/2
1998
First Quarter...............................................   27 3/8 17 1/2
Second Quarter..............................................   23 1/2 17 1/2
Third Quarter...............................................   20 1/8  8 1/2
Fourth Quarter..............................................   10      4 3/4
</TABLE>

                                       16
<PAGE>   19

<TABLE>
<CAPTION>
                                                              HIGH    LOW
                                                              ----    ---
<S>                                                           <C>     <C>
1999
First Quarter...............................................    6 3/32  1 3/8
Second Quarter..............................................    3 9/16  1 1/4
Third Quarter*..............................................    2 7/16   15/32
</TABLE>

---------------
* Through September 10, 1999.

     Since its initial public offering in 1996, the Company has not paid any
cash dividends on its Common Stock and it does not have any present intention to
commence payment of any cash dividends. The Company's debt agreements and other
agreements to which it is a party contain certain covenants restricting the
payment of dividends on, or repurchases of, Company Common Stock.

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected consolidated financial data sets forth, for the
periods and the dates indicated, selected consolidated financial data of the
Company, derived from the historical consolidated financial statements of the
Company. The consolidated financial data of the Company for the years ended June
30, 1999, 1998 and 1997 and as of June 30, 1999 and 1998 are derived from the
Company's audited consolidated financial statements included elsewhere herein.
The information set forth below is qualified by reference to and should be read
in conjunction with the Company's and DecisionOne Corporation and Subsidiaries'
Consolidated Financial Statements and Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".

<TABLE>
<CAPTION>
                                                             YEARS ENDED JUNE 30,
                                            ------------------------------------------------------
THE COMPANY                                   1999        1998        1997       1996       1995
-----------                                 ---------   ---------   --------   --------   --------
                                            (IN THOUSANDS, EXCEPT PRO FORMA LOSS PER COMMON SHARE)
<S>                                         <C>         <C>         <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:(1)(4)
Revenues..................................  $ 725,943   $ 805,717   $785,950   $540,191   $163,020
Income (loss) before discontinued
  operations and extraordinary item.......   (105,600)   (183,130)    31,084     20,789     41,415
Net Income (loss)(2)......................   (105,600)   (183,130)    31,084     18,862     42,528
Earnings (loss) per share.................      (8.40)     (13.05)      1.03       0.75       1.86
Pro forma net loss (unaudited)(3).........               (124,266)      (183)
Pro forma loss per common share
  (unaudited)(3)..........................                  (9.91)     (0.01)
BALANCE SHEET DATA:(1)(4)
Consumable parts..........................  $  15,859   $  23,097   $ 29,052   $ 29,770   $  3,455
Repairable parts..........................    134,924     142,446    205,366    154,970     27,360
Total assets..............................    455,887     541,987    623,105    514,510    135,553
Debt......................................    786,840     744,323    237,509    190,903     25,571
Redeemable preferred stock................         --          --         --         --      6,811
Total shareholders' equity (deficiency)...   (467,156)   (361,606)   214,888    180,793     14,677
</TABLE>

---------------
(1) The Selected Financial Data presented includes the results of operations and
    balance sheet data of the Company, including the following acquisitions:
    Servcom from September 1, 1994, BABSS from October 20, 1995 and certain
    assets of the U.S. computer service business of Memorex Telex from November
    15, 1996.

(2) The years ended June 30, 1998 and 1995 includes a $15.8 million and $23.1
    million, respectively net benefit arising from the recognition of future tax
    benefits of tax loss carryforwards and temporary timing differences. See
    Note 11 to the Company's Consolidated Financial Statements for additional
    information.

(3) Pro forma net loss and loss per common share information for the fiscal
    years ended June 30, 1998 and 1997 is presented to reflect the Merger and
    related transactions as if these had occurred on July 1, 1996.

                                       17
<PAGE>   20

    Historical per share data is not presented as this would not be meaningful.
    See Note 4 to the Company's Consolidated Financial Statements for additional
    information.

(4) Certain reclassifications have been made to prior years' data in order to
    conform to the 1999 presentation.

<TABLE>
<CAPTION>
                                                             YEARS ENDED JUNE 30,
                                            ------------------------------------------------------
DECISIONONE CORPORATION                       1999        1998        1997       1996       1995
-----------------------                     ---------   ---------   --------   --------   --------
                                                                (IN THOUSANDS)
<S>                                         <C>         <C>         <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:(1)(4)
Revenues..................................  $ 725,943   $ 805,717   $785,950   $540,191   $163,020
Income (loss) before discontinued
  operations and extraordinary item.......   (162,918)   (171,641)    31,084     20,789     41,415
Net Income (loss)(2)......................   (162,918)   (171,641)    31,084     18,862     42,528
Pro forma net income (loss)
  (unaudited)(3)..........................               (111,357)     5,726
BALANCE SHEET DATA:(1)(4)
Consumable parts..........................  $  15,859   $  23,097   $ 29,052   $ 29,770   $  3,455
Repairable parts..........................    134,924     142,446    205,366    154,970     27,360
Total assets..............................    451,711     606,439    623,105    514,510    135,553
Debt......................................    683,344     652,077    237,509    190,903     25,571
Redeemable preferred stock................         --          --         --         --      6,811
Total shareholder's equity (deficiency)...   (367,336)   (204,468)   214,888    180,793     14,677
</TABLE>

---------------
(1) The Selected Financial Data presented includes the results of operations and
    balance sheet data of DecisionOne Corporation, including the following
    acquisitions: Servcom from September 1, 1994, BABSS from October 20, 1995
    and certain assets of the U.S. computer service business of Memorex Telex
    from November 15, 1996.

(2) The years ended June 30, 1998 and 1995 includes a $14.8 million and $23.1
    million, respectively net benefit arising from the recognition of future tax
    benefits of tax loss carryforwards and temporary timing differences. See
    Note 11 to DecisionOne Corporation's Consolidated Financial Statements for
    additional information.

(3) Pro forma net income (loss) for the fiscal years ended June 30, 1998 and
    1997 is presented to reflect the Merger and related transactions as if these
    had occurred on July 1, 1996. See Note 4 to DecisionOne Corporation's
    Consolidated Financial Statements for additional information.

(4) Certain reclassifications have been made to prior years' data in order to
    conform to the 1999 presentation.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, DecisionOne Corporation and Subsidiaries'
Consolidated Financial Statements and the respective Notes thereto, as included
in Item 8 herein. Item 7 and 7A are presented with respect to both registrants
submitting this filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
(As used in this Item 7, the term "Company" refers to DecisionOne Holdings Corp.
and its wholly-owned subsidiaries, including DecisionOne Corporation and the
term "Holdings" refers to DecisionOne Holdings Corp.)

     This discussion contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" in Item 1.

COMPANY HISTORY

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

                                       18
<PAGE>   21

     Since the beginning of fiscal 1993, the Company established a major
presence in the computer maintenance and technology support services industry
through the acquisition and integration of assets and contracts of 40
complementary businesses. Significant acquisitions included IDEA Servcom, Inc.
("Servcom"), certain assets and liabilities of which were acquired in August
1994 for cash consideration of approximately $29.5 million and BABSS, which was
acquired in October 1995 for cash consideration of approximately $250.0 million.
In addition, certain assets of the U.S. computer service business of Memorex
Telex were acquired in November 1996 for cash consideration of approximately
$24.4 million after certain purchase price adjustments. These acquisitions were
accounted for as purchase transactions.

     The Company's primary source of revenues is contracted services for
multivendor computer maintenance and technology support services, including
hardware support, end-user and software support, network support and other
support services. Approximately 91% of the Company's revenues are derived from
maintenance contracts covering a broad spectrum of computer services. These
contracts typically have a stipulated monthly fee over a fixed initial term
(typically one year) and continue thereafter unless canceled by either party.
Such contracts generally provide that customers may eliminate certain equipment
and services from the contract upon notice to the Company. In addition, the
Company enters into per-incident arrangements with its customers. Per incident
contracts can cover a range of bundled services for computer maintenance or
support services or for a specific service, such as network support or equipment
relocation services. Another form of per incident service revenues includes time
and material billings for services as needed, principally maintenance and
repair, provided by the Company. Furthermore, the Company derives additional
revenues from the repair of hardware and components at the Company's logistics
services and depot repair facilities.

     Pricing of the Company's services is based on various factors including
equipment failure rates, cost of repairable parts and labor expenses. The
Company customizes its contracts to the individual customer based generally on
the nature of the customer's requirements, the term of the contract and the
services that are provided.

     The Company experiences reductions in revenue when customers replace
equipment being serviced with new equipment covered under a manufacturer's
warranty, discontinue the use of equipment being serviced due to obsolescence,
choose to use a competitor's services or move technical support services
in-house. The Company must more than offset this revenue "reduction" to grow its
revenues and seeks revenue growth from two principal sources: internally
generated sales from its direct and indirect sales force and the acquisition of
contracts and assets of other service providers. The acquisition of contracts
and assets has generally provided the Company with an opportunity to realize
economies of scale because the Company generally does not increase its costs
related to facilities, personnel and consumable and repairable parts in the same
proportion as increases in acquired revenues. Any failure to consummate
acquisitions, enter into new contracts or add additional services and equipment
to existing contracts, or any increase in erosion could have a material adverse
effect on the Company's profitability. The Company has not completed any
acquisitions since the first quarter of fiscal 1999 and it expects to be unable
to finance acquisitions pending the restructuring of its indebtedness, see
"Overview."

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

MERGER AND RECAPITALIZATION

     On August 7, 1997, the Company consummated the Merger with Quaker Holding
Co. ("Quaker"), an affiliate of DLJMB. The Merger, which has been recorded as a
recapitalization as of the consummation date for accounting purposes, occurred
pursuant to an Agreement and Plan of Merger among the Company and Quaker dated
May 4, 1997, as amended (the "Merger Agreement").

     In accordance with the terms of the Merger Agreement, which was approved by
the Company's shareholders on August 7, 1997, Quaker merged with and into the
Company, and the holders of approximately 94.7% of shares of DecisionOne
Holdings Corp. common stock outstanding immediately prior to the Merger received
$23 per share in cash in exchange for these shares. Holders of approximately
5.3% of shares of
                                       19
<PAGE>   22

DecisionOne Holdings Corp. common stock outstanding immediately prior to the
Merger retained such shares in the merged Company, as determined based upon
shareholder elections and stock proration factors specified in the Merger
Agreement. The aggregate value of the Merger was approximately $940 million,
including refinancing of DecisionOne Corporation's then existing revolving
credit facility (see Note 4 and Note 10 to the Company's Consolidated Financial
Statements).

     The Company incurred various expenses, aggregating approximately $69.0
million, in connection with consummating the Merger. These costs consisted
primarily of compensation costs, underwriting discounts and commissions,
professional and advisory fees and other expenses. This one-time charge was
reflected during the first quarter of fiscal 1998. In addition to these
expenses, the Company also incurred $22.3 million of capitalized debt issuance
costs associated with the Merger financing. These costs are being charged to
interest expense over the terms of the related debt instruments (see "Liquidity
and Capital Resources").

RESULTS OF OPERATIONS

     The following discussion of results of operations is presented for the
fiscal years ended June 30, 1999, 1998 and 1997. The results of operations of
the Company include the operations of Memorex Telex from November 15, 1996.

     The following tables set forth, for the periods indicated, certain
operating data expressed in dollar amounts and as a percentage of revenues:

<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED JUNE 30,
                                                  -----------------------------------
                                                    1999         1998         1997
                                                  ---------    ---------    ---------
                                                        (DOLLARS IN THOUSANDS)
<S>                                               <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................  $ 725,943    $ 805,717    $ 785,950
Cost of Revenues................................    575,063      613,806      584,755
                                                  ---------    ---------    ---------
Gross Profit....................................    150,880      191,911      201,195
Selling, general and administrative expenses....    120,625      142,462      105,675
Amortization of intangibles.....................     26,969       27,169       23,470
Merger expenses.................................         --       69,046           --
Loss on asset sales and disposals...............      1,491       87,458           --
Employee severance and unutilized lease
  losses........................................      4,500           --        4,300
                                                  ---------    ---------    ---------
Total operating expenses........................    153,585      326,135      133,445
                                                  ---------    ---------    ---------
  Operating income (loss).......................     (2,705)    (134,224)      67,750
Interest expense, net of interest income........     77,535       64,683       14,698
Provision (benefit) for income taxes............     25,360      (15,777)      21,968
                                                  ---------    ---------    ---------
  Net income (loss).............................  $(105,600)   $(183,130)   $  31,084
                                                  =========    =========    =========
OTHER DATA:
EBITDA(1).......................................  $ 128,951    $ 166,834    $ 168,639
  Less: Amortization of repairable parts........     85,391       81,597       63,870
                                                  ---------    ---------    ---------
Adjusted EBITDA(1)..............................  $  43,560    $  85,237    $ 104,769
                                                  =========    =========    =========
Net cash provided by operating activities.......  $  71,900    $  13,337    $  88,974
Net cash (used in) investing activities.........    (78,816)     (98,629)    (129,244)
Net cash provided by financing activities.......     31,750       80,830       42,926
</TABLE>

---------------
(1) "EBITDA" represents income (loss) from continuing operations before interest
    expense, interest income, income taxes (benefit), depreciation, amortization
    of intangibles, amortization of repairable parts, amortization of discounts
    and capitalized expenditures related to indebtedness, merger expenses
    (approximately $69.0 million for the year ended June 30, 1998), loss on
    asset sales and disposals

                                       20
<PAGE>   23

    (approximately $1.5 million and $87.5 million for the years ended June 30,
    1999 and 1998 respectively), a special charge to the provision for
    uncollectible receivables (approximately $12.3 million for the year ended
    June 30, 1998), and incremental charges related to the Company's ongoing
    service delivery re-engineering program (approximately $7.7 million during
    the fiscal year ended June 30, 1998). "Adjusted EBITDA" represents EBITDA
    reduced by the amortization of repairable parts. Adjusted EBITDA is
    presented because it is relevant to certain covenants contained in debt
    agreements entered by the Company in connection with the merger, and because
    the Company believes that Adjusted EBITDA is a more-consistent indicator of
    the Company's ability to meet its debt service, capital expenditure and
    working capital requirements.

<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED JUNE 30,
                                                              --------------------------
                                                               1999      1998      1997
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................................  100.0%    100.0%    100.0%
Cost of Revenues............................................   79.2%     76.2%     74.4%
                                                              -----     -----     -----
Gross Profit................................................   20.8%     23.8%     25.6%
Selling, general and administrative expenses................   16.6%     17.7%     13.4%
Amortization of intangibles.................................    3.7%      3.4%      3.0%
Merger expenses.............................................     --       8.6%       --
Loss on asset sales and disposals...........................    0.2%     10.9%
Employee severance and unutilized lease losses..............    0.6%      0.0%      0.5%
Total operating expenses....................................   21.2%     40.5%     17.0%
  Operating income (loss)...................................   (0.4)%   (16.7)%     8.6%
Interest expense, net of interest income....................   10.7%      8.0%      1.9%
Provision (benefit) for income taxes........................    3.5%     (2.0)%     2.8%
                                                              -----     -----     -----
  Net income (loss).........................................  (14.5)%   (22.7)%     4.0%
                                                              =====     =====     =====
</TABLE>

OVERVIEW

     The Company has continued to experience declining trends in revenues,
earnings and EBITDA for the three and twelve-month periods ended June 30, 1999
compared to the corresponding periods ended June 30, 1998. The declining trends
principally result from lower sales of new service contracts, erosion of
contract base, and minimal acquisition growth.

     On January 28, 1999, the Company initiated a corporate operating plan
("Operating Plan") intended to restore revenue growth and improve financial
performance. The Operating Plan included the following key components:
(i) focusing all aspects of the Company's operations -- from sales through
service delivery -- on providing information technology support services to
three customer groups: large corporate customers (also known as "enterprise
accounts"), medium sized accounts (also known as the "middle market"), and
alliance customers (including OEMs, software publishers, systems integrators,
distributors and resellers, etc.); (ii) a cost-reduction program designed to
reduce the Company's cost structure by $40 million annually upon full
implementation, including a reduction in force of more than 500 employees; and
(iii) financial structure changes, including DLJMB's additional $7.3 million
investment in the form of senior unsecured notes in DecisionOne Corporation, and
the Company's agreement with its lenders to waive financial covenants in the
Company's credit agreement through July 29, 1999 (see "Liquidity and Capital
Resources" for additional details).

     The Company is on schedule to achieve its $40 million annual cost reduction
target. Notwithstanding the Operating Plan, the Company currently believes it is
likely that its revenues will decline further in the next fiscal quarter
compared to the fourth quarter ended June 30, 1999 and to the comparable prior
year quarter ended September 30, 1998.

                                       21
<PAGE>   24

     On August 2, 1999, the Company announced an agreement in principle with the
bank lending group and the holders of the 14% Notes on the restructuring of its
indebtedness (the "Indebtedness Restructuring"). Under the terms of the final
agreement, the bank lending group would exchange approximately $523 million in
existing indebtedness for approximately 94.6 percent of the reorganized
Company's equity and $250 million in new senior secured bank debt (the "New
Credit Agreement"). The agreement further provides that the holders of the 14%
Notes would exchange their notes for (a) warrants equal to approximately 4.2
percent of the reorganized Company's fully diluted equity, at an exercise price
based on an enterprise value of $350 million and (b) warrants equal to
approximately 2.0 percent of the reorganized Company's equity, at an exercise
price based on an equity valuation of $280 million. The holders of the 9 3/4%
Notes would exchange their notes for (a) approximately 5.0 percent of the
reorganized Company's equity; (b) warrants equal to approximately 2.8 percent of
the reorganized Company's fully diluted equity, at an exercise price based on an
enterprise value of $350 million; (c) warrants equal to approximately 5.0
percent of the reorganized Company's equity, at an exercise price based on an
equity valuation of $200 million; and (d) warrants equal to approximately 3.0
percent of the reorganized Company's equity, at an exercise price based on an
equity valuation of $280 million. In addition, the holders of the 11 1/2% Notes
and the holders of unsecured claims of Holdings would receive a total of
approximately 0.4 percent of the reorganized Company's equity.

     The Company did not make the $7.3 million interest payment on its 9 3/4%
Notes, which was due on August 2, 1999 nor the interest payment due to the
holders of the 14% Notes. The Waiver, pursuant to which the bank lending group
agreed to waive certain financial covenants under its Existing Credit Facility,
expired on July 29, 1999. The holders of the 9 3/4% Notes, the holders of the
14% Notes and the bank lending group have the right to declare the respective
outstanding loan amounts immediately due and payable and seek to exercise
remedies, including, in the case of the Existing Credit Facility, foreclosure on
the collateral securing such amounts. While management does not believe such
holders or the bank lending group will take such action, the Company has
reflected all such loan amounts as current liabilities as of June 30, 1999 (see
"Liquidity and Capital Resources").

     The Company reported net income (loss) of $(105.6) million, $(183.1)
million, and $31.1 million in fiscal 1999, 1998 and 1997, respectively.
Operating income (loss) for the respective periods was $(2.7) million, $(134.2)
million, and $67.8 million. Operating loss for the fiscal period ended June 30,
1999 includes a non-recurring loss on asset sales and disposals of $1.5 million,
and $5.7 million for incremental re-engineering and Operating Plan related
consulting fees. Operating loss for the fiscal period ended June 30, 1998
includes merger expenses totaling $69.0 million, a non-recurring loss on asset
sales and disposals of $87.5 million, a special charge to the provision for
uncollectible receivables of $12.3 million and $7.7 million for incremental
charges related to the Company's ongoing service delivery re-engineering
program. Operating income for the fiscal period ended June 30, 1999 and 1997
included special charges for employee severance of $4.5 and $4.3 million
respectively. Excluding the respective charges in the 1999, 1998 and 1997
periods, operating income was $9.0 million for fiscal 1999 compared to $42.3
million for fiscal 1998 and $72.1 million for fiscal 1997.

     A more detailed discussion of items affecting the comparison of operating
results is provided below.

  Fiscal 1999 Compared to Fiscal 1998

     Revenues:  Revenues decreased by $79.8 million, or 9.9%, to $725.9 million
for the fiscal year ended June 30, 1999 from $805.7 million for the fiscal year
ended June 30, 1998. This decrease was principally due to a decline in
maintenance contract-based revenues as a result of equipment cancellations
exceeding sales of new contracts.

     The Operating Plan is intended, in part, to restore revenue growth by
increasing the Company's focus on selected customers within its enterprise,
middle market, and alliance groups. While the Company expects these actions to
result in revenue growth from current levels, the timing of such revenue growth,
if any, is uncertain. The Company currently believes it is likely that its
revenues will further decline in the next fiscal

                                       22
<PAGE>   25

quarter compared to the fourth quarter ended June 30, 1999 and to the comparable
quarter ended September 30, 1998.

     Cost of Revenue:  Cost of revenues decreased by $38.7 million, or 6.3%, to
$575.1 million for the fiscal year ended June 30, 1999 from $613.8 million for
the fiscal year ended June 30, 1998. The Company's re-engineering initiatives
and variable cost reductions related to the revenue declines have resulted in
lower costs of approximately $34.5 million for the twelve month period ended
June 30, 1999. The Company has reduced its workforce and streamlined operations
by consolidating from seven to four service regions. The lower costs are not
proportionate to the revenue reductions due to the fixed nature of much of the
Company's cost structure and since certain variable cost reduction actions
typically trail revenue declines.

     Selling, General and Administrative Expenses:  Selling, general and
administrative expenses decreased by $21.9 million, or 15.4%, to $120.6 million
for the fiscal year ended June 30, 1999 from $142.5 million for the fiscal year
ended June 30, 1998. This decrease was principally due to (1) a non-recurring
special charge to the provision for uncollectible receivables of $12.3 million
as result of changes in management's estimates and (2) incremental non-recurring
consulting fees of approximately $7.7 million incurred in connection with the
Company's re-engineering efforts, both of which were incurred during the fiscal
year ended June 30, 1998. The remaining decrease was attributable principally to
decreased sales commission costs due to lower sales levels during fiscal 1999.

     Amortization of Intangibles:  Amortization of intangible assets declined by
$.2 million, or .7%, from $27.2 million for the fiscal year ended June 30, 1998
to $27.0 million for the fiscal year ended June 30, 1999. This decline resulted
from completed amortization of certain intangibles offset by minimal acquisition
growth during fiscal 1999.

     Loss on Asset Sales and Disposals:  In connection with the Company's fiscal
1999 cost reduction program, the company sold all of its owned facilities, a
multipurpose facility located in Tulsa, Oklahoma and a logistics service
facility located in the suburbs of Milwaukee, Wisconsin, at a net loss of $1.5
million.

     During its annual fourth quarter fiscal 1998 physical inventory, management
determined that over 1.2 million of its computer parts were obsolete. These
parts were retired and subsequently sold to salvage dealers for nominal scrap
value. The parts obsolescence was principally due to the convergence of
significant changes in the Company's business operations and the computer
service industry, which the Company expects will continue. The significant
changes include: (1) accelerated technology migration trends as customers modify
their computing environments to remediate year 2000 ("Y2K") problems, (2)
increasing shifts in demand from data center and midrange systems to desktop
computing environments, and (3) declining life cycles of the products under
current and anticipated service contracts due to increasingly rapid changes in
technology. The abnormal nature of this retirement and subsequent sale required
immediate loss recognition of $75 million.

     As a result of the abnormal retirement of computer parts and related life
cycle studies, the Company revised the useful lives of repairable parts and
increased the obsolescence provision for consumable parts prospectively.
Effective July 1, 1998 the Company amortized its existing composite group of
repairable parts and future repairable parts purchases over an estimated average
remaining life of three years.

     In connection with the aforementioned acquisition of BABSS, the Company
acquired contractual profit participation rights pursuant to an existing
agreement between BABSS and ICL Sorbus Limited (ICL). On June 29, 1998, the
Company sold all of its contractual profit participation rights back to ICL at a
loss of approximately $12.5 million. Operating income reflects $0.0 million,
$0.5 million, and $1.7 million, in 1999, 1998, and 1997, respectively for
amounts earned pursuant to these rights.

     Provision for Parent Company Receivables:  The charge of $72.5 million for
parent company receivables for the fiscal year ended June 30, 1999 represents a
provision for amounts deemed by management to be uncollectible (see Note 17 to
the DecisionOne Corporation consolidated financial statements).

     Interest Expense:  DecisionOne Holdings Corp. interest expense, net of
interest income, increased by $12.8 million from $64.7 million for the fiscal
year ended June 30, 1998 to $77.5 million for the fiscal year

                                       23
<PAGE>   26

ended June 30, 1999. DecisionOne Corporation interest expense, net of interest
income, increased by $10.4 million from $52.2 million for the fiscal year ended
June 30, 1998 to $62.6 million for the fiscal year ended June 30, 1999. The
respective increases are primarily attributable to the Company's increased debt
levels as a result of the Merger and additional borrowings during fiscal 1999
(see "Liquidity and Capital Resources"). The interest expense, net of interest
income is higher for DecisionOne Holdings Corp. than DecisionOne Corporation as
a result of interest expense on $85 million of 11 1/2% Senior Discount
Debentures issued by Holdings in connection with the Merger and interest income
on the $59.1 and $10.8 million parent company loans receivable held by
DecisionOne Corporation.

     Income Taxes:  The Company's income tax expense for the fiscal year ended
June 30, 1999 reflects an increase in the valuation allowance by $25.4 million
to reduce previously recognized gross deferred tax assets to the level where
management believes that it is more likely than not that the tax benefit will be
realized. Newly-arising net deferred tax assets during fiscal 1999 have been
offset by a corresponding increase in the valuation allowance. The Company's
income tax benefit of $15.8 million for the fiscal year ended June 30, 1998 was
significantly reduced by a valuation allowance to the level where management
believed that it was more likely than not that the tax benefit would be
realized.

     The Company expects that its tax expense (benefit) in future periods will
reflect effective tax rates which vary significantly from enacted statutory tax
rates principally as a result of additional unrecognized tax benefits on
newly-arising net deferred tax assets. Future effective tax rates may also be
subject to volatility as a result of valuation allowance changes which arise
from differences between management's projections of future taxable income,
newly-arising net deferred tax assets and reversals of net deferred tax assets
and corresponding actual results.

  Fiscal 1998 Compared to Fiscal 1997

     Revenues:  Revenues increased by $19.7 million, or 2.5%, to $805.7 million
for the fiscal year ended June 30, 1998 from $786.0 million for the fiscal year
ended June 30, 1997. This increase is attributable primarily to the inclusion of
revenues for service contracts acquired from Memorex Telex on November 15, 1996
for an additional 4.5 months during fiscal 1998. Excluding the Memorex Telex
related increase, revenues declined during the fiscal year ended June 30, 1998
principally due to lower monthly maintenance contract-based revenues as a result
of equipment cancellations exceeding sales of new contracts.

     Cost of Revenue:  Cost of revenues increased by $29.0 million, or 5.0%, to
$613.8 million for the fiscal year ended June 30, 1998 from $584.8 million for
the fiscal year ended June 30, 1997. This increase is due principally to a $17.7
million increase in the amortization of repairable parts from $63.9 million for
the year ended June 30, 1997 to $81.6 million for the year ended June 30, 1998.
The parts amortization increase resulted primarily from higher average levels of
repairable parts on hand in fiscal 1998 in comparison to fiscal 1997 and the use
of shorter lives for personal computer parts purchased in fiscal 1998. The
inclusion of the costs of servicing contracts acquired from Memorex Telex on
November 15, 1996 for an additional 4.5 months during fiscal 1998 compared to
fiscal 1997 also contributed to the increase in cost of revenues.

     Selling, General and Administrative Expenses:  Selling, general and
administrative expenses increased by $36.8 million, or 34.8%, to $142.5 million
for the fiscal year ended June 30, 1998 from $105.7 million for the fiscal year
ended June 30, 1997. This increase is primarily attributable to (1) a special
charge to the provision for uncollectible receivables of $12.3 million as a
result of changes in management's estimates regarding the collectibility of
accounts receivable, (2) incremental consulting fees of approximately $7.7
million incurred in connection with the Company's re-engineering efforts, (3)
the inclusion of an additional 4.5 months of costs related to the acquisition of
Memorex Telex service contracts, (4) the development of new information systems
for the Company's central dispatch and service contract administration processes
and (5) increases in sales employment costs.

     Amortization of Intangibles:  Amortization of intangible assets increased
by $3.7 million, or 15.7%, from $23.5 million for the fiscal year ended June 30,
1997 to $27.2 million for the fiscal year ended June 30, 1998. This increase was
attributable principally to the amortization of intangibles resulting from the
Memorex Telex acquisition and the acquisition of service contracts of several
other complementary businesses.
                                       24
<PAGE>   27

     Loss on Asset Sales and Disposals:  During its annual fourth quarter fiscal
1998 physical inventory, management determined that over 1.2 million of its
computer parts were obsolete. These parts were retired and subsequently sold to
salvage dealers for nominal scrap value. The parts obsolescence was principally
due to the convergence of significant changes in the Company's business
operations and the computer service industry. The significant changes include:
(1) accelerated technology migration trends as customers modify their computing
environments to remediate year 2000 ("Y2K") problems, (2) increasing shifts in
demand from data center and midrange systems to desktop computing environments,
and (3) declining life cycles of the products under current and anticipated
service contracts due to increasingly rapid changes in technology. The abnormal
nature of this retirement and subsequent sale required immediate loss
recognition of $75 million.

     As a result of the abnormal retirement of computer parts and related life
cycle studies, the Company revised the useful lives of repairable parts and
increased the obsolescence provision for consumable parts prospectively.
Effective July 1, 1998 the Company amortized its existing composite group of
repairable parts and future repairable parts purchases over an estimated average
remaining life of three years.

     In connection with the aforementioned acquisition of BABSS, the Company
acquired contractual profit participation rights pursuant to an existing
agreement between BABSS and ICL Sorbus Limited (ICL). On June 29, 1998, the
Company sold all of its contractual profit participation rights back to ICL at a
pretax loss of approximately $12.5 million. Operating income reflects $0.0
million, $0.5 million, and $1.7 million in 1999, 1998, and 1997, respectively
for amounts earned pursuant to these rights.

     Interest Expense:  DecisionOne Holdings Corp. interest expense, net of
interest income, increased by $50.0 million from $14.7 million for the fiscal
year ended June 30, 1997 to $64.7 million for the fiscal year ended June 30,
1998. DecisionOne Corporation interest expense, net of interest income,
increased by $37.5 million from $14.7 million for the fiscal year ended June 30,
1997 to $52.2 million for the fiscal year ended June 30, 1998. The respective
increases are primarily attributable to the Company's increased debt levels as a
result of the Merger (see "Liquidity and Capital Resources"). The interest
expense, net of interest income is higher for DecisionOne Holdings Corp. than
DecisionOne Corporation as a result of interest expense on $85 million of
11 1/2% Senior Discount Debentures issued by Holdings in connection with the
Merger and interest income on a $59.1 million parent company loan receivable
held by DecisionOne Corporation.

     Income Taxes:  The Company's income tax provision for the fiscal year ended
June 30, 1998 reflects an estimated effective income tax benefit of
approximately 8%, while the effective income tax expense for the fiscal year
ended June 30, 1997 was approximately 41%. The change in the Company's
anticipated effective income tax rate was due primarily to the recording of a
valuation allowance for financial reporting purposes to reduce the tax benefit
recognized on operating loss carryforwards generated during fiscal 1998.

ACCOUNTING CHANGE -- SPARE PARTS

     Effective July 1, 1999, the Company changed its method of accounting for
repairable parts from the amortization method to the usage method. Under the
amortization method, the Company amortized the cost of repairable parts over an
estimated average useful life and recorded the costs of refurbishing repairable
parts as a component of cost of revenues as incurred. Under the usage method,
the Company will record in cost of revenues the cost of new and refurbished
parts when used to service customers. Additionally, under the usage method,
management will perform periodic assessments to determine the existence of
excess or obsolete parts and will record any necessary provisions to reduce such
parts to net realizable value, consistent with past practice. Management
believes that this change in method for repairable parts more accurately
reflects periodic results of operations based on parts used to service
customers. The effect of this change will be recorded as a cumulative effect
charge of approximately $74.4 million, during the fiscal quarter ending
September 30, 1999. The Company does not expect to record any tax benefit
resulting from this charge. See Notes 3 and 11 to the Company's consolidated
financial statements for the year ended June 30, 1999. The pro forma effect of
this change in accounting principle on prior years' operations is not presented
because such effects are not reasonably determinable.

                                       25
<PAGE>   28

LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS AND OTHER TAX CREDITS

     As of June 30, 1999, the Company had tax loss carryforwards of
approximately $152.1 million, $151.2 million and $10.1 million for Federal,
state and foreign income tax purposes, respectively, which are scheduled to
expire between 2000 and 2019. The Company also had minimum Federal tax credits
of approximately $2.8 million as of June 30, 1999, with no applicable expiration
period. These carryforwards and credits may be utilized, as applicable, to
reduce future taxable income.

     As a result of the Merger with Quaker on August 7, 1997 an "ownership
change" occurred pursuant to Section 382 of the Internal Revenue Code.
Accordingly, for U.S. Federal income tax purposes, net operating loss and tax
credit carryforwards of approximately $27.9 million arising prior to the
ownership change are limited during any future period to the Section 382
"limitation amount" of approximately $9.0 million per annum. The tax benefit
recognized for these carryforwards has been reduced by a valuation allowance
(see Note 11 to the Company's Consolidated Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

     The Company incurred substantial indebtedness in connection with the Merger
on August 7, 1997. Holdings received net proceeds of $85 million from the
issuance of 11 1/2% Senior Discount Debentures due 2008 (the "11 1/2% Notes").
DecisionOne Corporation issued $150 million of 9 3/4% Senior Subordinated Notes
due 2007 (the "9 3/4% Notes"). DecisionOne Corporation also entered into a new
syndicated credit facility (the "Existing Credit Facility") providing for term
loans of $470 million and revolving loans of up to $105 million. The proceeds of
the 11 1/2% Notes (which were issued with attached warrants), 9 3/4% Notes, the
initial borrowings under the Existing Credit Facility and the purchase of
approximately $225 million of Holdings common stock by the DLJMB Group were used
to finance the payments of cash to cash-electing shareholders, to pay the
holders of stock options and stock warrants canceled or converted, as
applicable, in connection with the Merger, to repay DecisionOne Corporation's
then existing revolving credit facility and to pay expenses incurred in
connection with the Merger. See Note 4 and Note 10 to the Company's and
DecisionOne Corporation's Consolidated Financial Statements for additional
information.

     As of June 30, 1999, the Company had outstanding debt of approximately
$786.8 million, as compared to approximately $744.3 million as of June 30, 1998.
(See Note 10 to the Company's Consolidated Financial Statements.)

     During the three months ended March 31, 1998, the Company sought and
obtained amendments to the Existing Credit Facility to revise certain financial
performance measurements. The amended Existing Credit Facility contains various
terms and covenants which, among other things, place certain restrictions on the
Company's ability to pay dividends and incur additional indebtedness, and which
require the Company to meet certain minimum financial performance measurements,
including Adjusted EBITDA targets which increase over time. As of December 31,
1998, the Company obtained a waiver of certain financial covenants in the
amended Existing Credit Facility until January 28, 1999 and on January 27, 1999,
the Company entered into a Waiver of Financial Covenants (the "Waiver") pursuant
to which the Company's lenders under the Existing Credit Facility (the "bank
lending group") agreed to waive financial covenants in the amended Existing
Credit Facility through July 29, 1999. The Waiver covered the quarters ending
December 31, 1998, March 31, 1999 and June 30, 1999. Without the Waiver, the
Company would not have been in compliance with certain financial covenants under
the amend Existing Credit Facility. The Waiver required the Company, among other
things, to meet certain additional financial covenants as of March 31, 1999,
limited the additional borrowings available to the Company under its revolver to
$10 million, and generally, required that interest payments on loans must be
made monthly. In connection with the Waiver, the Company incurred waiver fees of
approximately $4.3 million, which are being amortized as interest expense
through July 1999. The Company met the required March 31, 1999 financial
covenants contained in the Waiver.

     On January 27, 1999, Holdings' principal shareholder, DLJMB and certain of
its affiliates, purchased $7.3 million of unsecured 14% Senior Notes (the "14%
Notes") due 2006 in DecisionOne Corporation. The proceeds of the 14% Notes were
used for general corporate purposes.

                                       26
<PAGE>   29

     On July 29, 1999, the Waiver expired. As a result, since July 29, 1999, the
Company has been in default of certain financial covenants under the Existing
Credit Facility. In addition, on August 2, 1999, the Company failed to make the
interest payments due on both the 9 3/4% Notes and the 14% Notes. Given the
existing events of default under the Existing Credit Facility, the bank lending
group had previously delivered to the Company a notice prohibiting such
payments. As a result of the Company's failure to comply with such financial
covenants and to make such interest payments, events of default have occurred
under the Existing Credit Facility and under the indentures for the 9 3/4% Notes
and the 14% Notes. Accordingly, the bank lending group, the holders of the
9 3/4% Notes, the holders of the 11 1/2 Notes, and the 14% Notes could declare
the amounts outstanding under these debt instruments immediately due and payable
and seek to exercise remedies, including, in the case of the Existing Credit
Facility, foreclosure on the collateral securing such amounts.

     On August 2, 1999, the Company announced an agreement in principle with the
bank lending group and the holders of the 14% Notes on the restructuring of its
indebtedness (the "Indebtedness Restructuring"). Under the terms of the final
agreement, the bank lending group would exchange approximately $523 million in
existing indebtedness for approximately 94.6 percent of the reorganized
Company's equity and $250 million in new senior secured bank debt (the "New
Credit Agreement"). The agreement further provides that the holders of the 14%
Notes would exchange their notes for (a) warrants equal to approximately 4.2
percent of the reorganized Company's fully diluted equity, at an exercise price
based on an enterprise value of $350 million and (b) warrants equal to
approximately 2.0 percent of the reorganized Company's equity, at an exercise
price based on an equity valuation of $280 million. The holders of the 9 3/4%
Notes would exchange their notes for (a) approximately 5.0 percent of the
reorganized Company's equity; (b) warrants equal to approximately 2.8 percent of
the reorganized Company's fully diluted equity, at an exercise price based on an
enterprise value of $350 million; (c) warrants equal to approximately 5.0
percent of the reorganized Company's equity, at an exercise price based on an
equity valuation of $200 million; and (d) warrants equal to approximately 3.0
percent of the reorganized Company's equity, at an exercise price based on an
equity valuation of $280 million. In addition, the holders of the 11 1/2% Notes
and the holders of unsecured claims of Holdings would receive a total of
approximately 0.4 percent of the reorganized Company's equity.

     The proposed Indebtedness Restructuring will be implemented pursuant to a
prepackaged bankruptcy subject to the approval of a United States Bankruptcy
Court (the "Bankruptcy Court") pursuant to Chapter 11 of Title 11 of the United
States Code, as amended (the "Bankruptcy Code") and the approval of the bank
lending group and the holders of the 14% Notes. Management does not anticipate
any adverse impact on customers, vendors or employees as a result of the
Indebtedness Restructuring, since the Indebtedness Restructuring will address
only the de-leveraging of the Company's balance sheet through the reduction of
its indebtedness. However, there can be no assurance that the Indebtedness
Restructuring will be approved by the Bankruptcy Court, nor that any adverse
impact to the Company, its customers, creditors or employees will be avoided.
See Note 2 to the Company's Consolidated Financial Statements as of and for the
fiscal year ended June 30, 1999 for additional information.

     The interest rate applicable to outstanding borrowings under the amended
Existing Credit Facility as of June 30, 1999, varies, at the Company's option,
based upon LIBOR (plus applicable margins not to exceed 3.0%, as amended) or the
Prime Rate (plus applicable margin not to exceed 1.75%). As of June 30, 1999,
the weighted average interest rate applicable to loans under the Existing Credit
Facility was 8.0%.

     Financial Condition:  Cash flow from operating activities for the fiscal
year ended June 30, 1999 was approximately $71.9 million. These funds, together
with borrowings under the Existing Credit Facility, provided the required
capital to fund repairable part purchases and capital expenditures of
approximately $92.8 million as well as remaining payments on prior period
acquisitions of contracts and assets of complementary businesses for
approximately $2.8 million.

     In fiscal years 1998 and 1997, the Company generated net cash flow from
operating activities of $13.3 million and $89.0 million, respectively. Cash flow
from operating activities for fiscal year 1998 has been reduced by $69.0 million
for non-recurring Merger expenses, which were funded through the proceeds of the

                                       27
<PAGE>   30

Merger financing. Cash required to fund the purchase of repairable parts and for
capital expenditures totaled $88.5 million and $97.0 million, during fiscal
years 1998 and 1997, respectively. Cash required to fund the acquisition of
contracts and assets of complimentary businesses were approximately $10.2
million and $32.3 million during fiscal years 1998 and 1997, respectively.

     The most significant of the Company's acquisitions during the fiscal year
ended June 30, 1997 was the Memorex Telex acquisition on November 15, 1996. The
adjusted purchase price was $52.7 million, comprised of the Company's assumption
of $28.3 million of liabilities under acquired customer maintenance contracts,
and $24.4 million in cash, excluding transactions and closing costs, after
taking into account certain purchase price adjustments.

     The Company's fiscal year ended 1999 EBITDA -- as defined in footnote (1)
above -- was $129.0 million, as compared to EBITDA of $166.8 million for the
fiscal year ended June 30, 1998 and EBITDA of $168.6 million for the fiscal year
ended June 30, 1997. Adjusted EBITDA was $43.6 million, $85.2 million, and
$104.8 million in fiscal 1999, 1998, and 1997, respectively.

     The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect of four waste disposal sites that have been identified by the U.S.
Environmental Protection Agency as Superfund sites. In addition, the Company
received a notice several years ago that it may be a potentially responsible
party in respect of a fifth site, but has not received any other communication
in respect of that site. The Company originally estimated that its share of the
costs of the cleanup of one of the sites was approximately $500,000, of which
$372,000 remained unpaid and accrued in the accompanying consolidated balance
sheet as of June 30, 1999. Complete information as to the scope of required
cleanup at these sites is not yet available and, therefore, management's
evaluation may be affected as further information becomes available. However, in
light of information currently available to management, including information
regarding assessments of the sites to date and the nature of involvement of the
Company's predecessor at the sites, it is management's opinion that the
Company's potential additional liability, if any, for the cost of cleanup of
these sites will not be material to the consolidated financial position, results
of operations or liquidity of the Company. See Note 18 to the Company's
Consolidated Financial Statements.

EFFECT OF INFLATION; SEASONALITY

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

     The operations of the Company are generally not subject to seasonal
fluctuations.

YEAR 2000 COMPLIANCE

     This Year 2000 disclosure is being designated as a Year 2000 Readiness
Disclosure under the Year 2000 Information and Readiness Disclosure Act of 1998,
Public Law 105-271.

     As is the case with most other businesses, the Company has evaluated and
continues to address the Year 2000 readiness of both its information technology
systems and its non-information technology systems (collectively referred to as
"Systems"). Such Year 2000 readiness efforts are designed to identify, address
and resolve issues that may be created by computer programs written to use two
digits rather than four to define the applicable year. Any of the Company's
computer programs having time-sensitive software may otherwise recognize a date
using "00" as the year 1900 rather than the year 2000. If this situation occurs,
the potential exists for System failure or miscalculations by computer programs,
which could cause disruption of operations.

     The Company has completed an assessment of both its information technology
systems and its non-information technology systems. The Company has four
mission-critical mainframe information technology systems all of which have been
remediated and placed into service, the most recent mission-critical mainframe
system having been placed in service in September, 1999. Additionally, the
Company is in the process of

                                       28
<PAGE>   31

implementing Year 2000-Ready releases from its software vendor for the Company's
packaged financial and human resources/payroll systems. The Company has
installed, tested and placed these packaged software upgrades into service. The
Company has also identified approximately seventy (70) non-mission critical
information technology systems which the Company is in the process of
remediating by using in-house personnel or by seeking certifications and/or
upgrades from its vendors. Subsequently, the Company expects most of these
non-mission critical systems to be compliance tested by in-house personnel on an
on-going basis through the balance of the year. The Company has commenced
remediation of its non-information technology systems and expects to have such
remediation complete during the balance of the year.

     The Company has ongoing communications with all of its significant business
partners via Vendor Readiness Surveys to determine their plans to comply with
Year 2000. All responses are evaluated as received to determine if additional
action is required to determine the compliance of the business partner. The
Company engaged a consulting firm to assess the Company's processes in place to
achieve Year 2000 readiness, and also has in place a Year 2000 Steering
Committee which meets regularly and periodically reports the progress of Year
2000 readiness to the Company's executive management and the Board of Directors.

     The Company's approach to addressing Year 2000 readiness is to minimize the
possibility of any Year 2000-related interruptions or miscalculations.
Worst-case Year 2000 scenarios include the interruption of certain aspects of
the Company's business as a result of information technology systems failure or
the failure of the Company's business partners. Any such failure could have an
impact on future results; consequently, the Company is in the process of
formulating contingency plans.

     The Company's approach to contingency planning is to employ a combination
of existing disaster recovery plans and to develop additional plans as needed.
Because the Company has elected to remediate its mission critical legacy systems
as opposed to replacing them, during a worst-case scenario, the Company would
invoke the disaster recovery plan the Company has developed under its standard
operating procedures. The Company performed an initial test of the disaster
recovery plan at an off-site facility in March, 1999. While certain issues arose
during the test relating to disaster recovery, the Company was able to set the
operating system date to February 29, 2000. In addition, the Company's highest
priority legacy system, the Service Delivery System (DDG), has always had a
back-up system residing on a different platform. This back-up system has always
stored four-digit year dates and is used when the primary system is taken off
line for maintenance. This back-up system is in the process of being tested for
Year 2000 readiness. To gain a greater degree of confidence that all other
mainframe applications will function properly, the Company conducted an
integrated system test, once remediation work was completed. The Company is
planning to conduct this test at an off-site facility specially developed for
Year 2000 testing.

     Additionally, one of the most critical facets of the Company's contingency
planning involves ensuring adequate staffing to meet potentially-significant
service call volume increases. To prepare for this possibility, the Company has
placed substantial restrictions on authorized leave time for essential
call-center, operational, and information technology personnel during the
critical initial three weeks of January, 2000.

     The Company believes that additional contingency plans may need to be
developed relating to its suppliers. In June, 1998, the Company began the
process of surveying its vendors, suppliers, and key business associates to
determine their level of Year 2000 readiness. Responses to these inquiries
continue to be received, reviewed and assessed. The Company continues to
identify which of its vendors, suppliers, and business associates are
mission-critical and to develop alternate means as necessary. The Company plans
to identify mission-critical vendors and to establish related contingency
planning through the balance of the year. In the meantime, the Company continues
to monitor the need for additional contingency planning.

     As of June 30, 1999 the Company incurred costs of approximately $5.0
million and expects to incur approximately $3.0 million thereafter to remediate
or upgrade all of the Company's Systems. The $3.0 million represents
approximately 10% of the Company's information technology budget. No significant
information technology projects have been deferred due to the Company's Year
2000 efforts. The future remediation and upgrade costs to be incurred are based
on management's best estimates which were derived using assumptions of future
events including the continued availability of resources and the reliability of
third party modification
                                       29
<PAGE>   32

plans. There can be no assurance that these estimates will be achieved and
actual results may be materially different. Specific factors that might cause
such material differences include, but are not limited to, the availability and
cost of personnel with appropriate skills and the ability to locate and correct
all non-compliant Systems.

     The Company is aware of the potential for claims against it and other
companies for damages for products and services that may not be Year 2000
compliant. Although the Company believes it is taking adequate measures to
address Year 2000 issues, the Company is uncertain how it may be affected by
litigation given the evolving nature of such litigation. The Company believes,
however, that it does not have material exposure to liability for such claims.

     While the Company does not believe that the Year 2000 matters presented in
this discussion will have a material impact on its business, financial
condition, or results of operations, it is uncertain whether or to what extent
the Company may be affected by such matters, given the forward-looking nature of
the Year 2000 issues.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company uses its revolving credit facility, term loans, senior discount
debentures, and senior subordinated notes to finance a significant portion of
its operations. These on-balance sheet financial instruments, to the extent they
provide for variable rates of interest, expose the Company to interest rate risk
resulting from changes in LIBOR or the prime rate. The Company uses off-balance
sheet interest rate swap and collar agreements to partially hedge interest rate
exposure associated with on-balance sheet financial instruments. All of the
Company's derivative financial instrument transactions are entered into for
non-trading purposes. The terms and characteristics are matched with the
underlying on-balance instruments, subject to the terms of the Existing Credit
Facility.

     To the extent that the Company's financial instruments expose the Company
to interest rate risk and market risk, they are presented in the table below.
The table presents principal cash flows and related interest rates by year of
maturity for the Company's Existing Credit Facility, term loans, senior discount
debentures, and senior subordinated notes in effect at June 30, 1999 and, in the
case of the senior discount notes, exclude the potential exercise of the
redemption feature. For interest rate swaps and collars, the table presents
notional amounts and the related reference interest rates by year of maturity.
Fair values included herein have been determined based on (1) quoted market
prices for the term loans, senior discount debentures, and senior subordinated
notes; (2) the carrying value for the revolving credit facility as interest
rates are reset periodically; and (3) estimates obtained from dealers to settle
interest rate swap and collar agreements. Note 10 to the consolidated financial
statements contain descriptions of the Company's Existing Credit Facility, term
loans, senior discount debentures, senior subordinated notes and interest rate
risk management agreements and should be read in conjunction with the table
below (amounts in thousands).

<TABLE>
<CAPTION>
                                              FISCAL YEAR OF MATURITY
                           -------------------------------------------------------------    TOTAL DUE    FAIR VALUE AT
INTEREST RATE SENSITIVITY   2000      2001      2002      2003       2004     THEREAFTER   AT MATURITY   JUNE 30, 1999
-------------------------  -------   -------   -------   -------   --------   ----------   -----------   -------------
                                              (DOLLARS IN THOUSANDS)
<S>                        <C>       <C>       <C>       <C>       <C>        <C>          <C>           <C>
DEBT:
Fixed Rate..............        --        --        --        --         --    $305,700     $305,700       $  8,192
Average Interest Rate...        --        --        --        --         --       10.7%           --             --
Variable Rate...........   $19,325   $36,875   $49,062   $73,438   $126,874    $217,514     $523,088       $235,390
Average Interest Rate...      8.0%      8.0%      8.0%      8.0%       8.0%        8.0%           --             --
INTEREST RATE INSTRUMENTS:
Variable to Fixed
  Swaps.................   $75,000        --        --        --         --          --     $ 75,000       $   (115)
Average Pay Rate........      5.9%        --        --        --         --          --           --             --
Average Receive Rate....      5.7%        --        --        --         --          --           --             --
COLLARS:................   $25,000   $75,000        --        --         --          --     $100,000       $   (237)
Average Cap Rate........      5.8%      6.7%        --        --         --          --           --             --
Average Floor Rate......      5.7%      5.7%        --        --         --          --           --             --
</TABLE>

                                       30
<PAGE>   33

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Attached hereto and a part of this report are financial statements and
supplementary data for DecisionOne Holdings Corp. and DecisionOne Corporation
listed in Item 14.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10.  EXECUTIVE OFFICERS AND DIRECTORS OF REGISTRANT

     DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The following table sets forth certain information concerning the directors
and executive officers of the Company as of June 30, 1999. Officers are
appointed until the next annual meeting of stockholders and until their
successors are duly appointed.

<TABLE>
<CAPTION>
NAME                             AGE                             POSITION
----                             ---                             --------
<S>                              <C>    <C>
Karl R. Wyss...................  58     Chairman and Chief Executive Officer and Director
Thomas J. Fitzpatrick*.........   41    Executive Vice President, Chief Operating Officer and Chief
                                          Financial Officer
Thomas M. Farrell..............  48     Senior Vice President of End User and Software Support
                                        Services
Joseph S. Giordano*............  44     Senior Vice President of Sales and Marketing
Charles N. Heller..............  61     Senior Vice President of Logistics
Thomas M. Molchan..............  44     Senior Vice President, General Counsel and Corporate
                                        Secretary
Kirk Scott*....................  36     Senior Vice President, Technology Services and Chief
                                        Technology Officer
Dwight T. Wilson...............  43     Senior Vice President -- Human Resources
Peter T. Grauer................  54     Director
Lawrence M.v.D. Schloss........  45     Director
Kirk B. Wortman................  37     Director
</TABLE>

     Karl R. Wyss was named Chairman and Chief Executive Officer of the Company
in February 1999. Since 1993, Mr. Wyss has served as Managing Director and
Senior Operating Partner for DLJ Merchant Banking Partners. Prior to joining
DLJ, Mr. Wyss served as Chairman and Chief Executive Officer of Lear Siegler,
Inc. from 1989 to 1993.

     Thomas J. Fitzpatrick was named the Chief Operating Officer, Executive Vice
President and Chief Financial Officer in February 1999. Mr. Fitzpatrick served
as the Executive Vice President and Chief Financial Officer of the Company from
April 1998 to February 1999 and was Vice President and Chief Financial Officer
of the Company from August 1996 through April 1998. Prior to August 1996, Mr.
Fitzpatrick was Vice President of Network Finance at Bell Atlantic Network
Services, Inc. Mr. Fitzpatrick served more than eight years at Bell Atlantic
Business Systems Services, Inc. ("BABSS"), including over four years as Vice
President and Chief Financial Officer. On September 7, 1999, Mr. Fitzpatrick
left the Company. On that date, Thomas J. Fogarty was named Senior Vice
President and Chief Financial Officer.

     Thomas M. Farrell was named Senior Vice President of End User and Software
Support Services of the Company in February 1999. From May 1997 to February
1999, Mr. Farrell served as Vice President of End User and Software Support
Services. Prior to being employed by the Company, Mr. Farrell served as Vice
President of Sykes Enterprises (1995-1997) and Chief Operating Officer of Quick
Start Technologies (1993-1995).

                                       31
<PAGE>   34

     Joseph S. Giordano was named Senior Vice President of Sales and Marketing
in February 1999. Mr. Giordano served as the Senior Vice President -- Field
Operations of the Company since October 1995. From October 1993 to October 1995,
Mr. Giordano was Vice President Sales and Service Delivery of BABSS. From
January 1991 to October 1993, he was an Area General Manager of BABSS.

     Charles N. Heller has served as Senior Vice President of Logistics for the
Company since January 1996. Mr. Heller served as Vice President and General
Manager of BABSS from 1983 to December 1995.

     Thomas M. Molchan has been General Counsel and Corporate Secretary of the
Company since October 1995 and was named a Senior Vice President in April 1998.
From December 1986 to October 1995, he was Vice President and General Counsel of
BABSS.

     Kirk Scott was named Senior Vice President, Technical Services and Chief
Technology Officer for the Company in February 1999. Mr. Scott served as Vice
President of Network Support Services from November 1996 to February 1999. From
March 1996 to November 1996 Mr. Scott served as Director of Technology
Development for the Company. Prior to being employed by the Company, Mr. Scott
was employed by Genicom/Harris Adacom as the Director of Technology and
Development from December 1991 to March 1996. On September 30, 1999, Mr. Scott
left the Company.

     Dwight T. Wilson was named Senior Vice President -- Human Resources of the
Company in February 1999. From October 1995 to February 1999, Mr. Wilson served
as Vice President -- Human Resources of the Company. From April 1994 to October
1995, Mr. Wilson was Vice President -- Human Resources of BABSS. From October
1990 to March 1994, Mr. Wilson was Director, Human Resources Policies and
Planning of BABSS.

     Peter T. Grauer has been a Director of the Company since August 1997 and a
Managing Director of DLJ Merchant Banking II, Inc. since September 1992. From
April 1989 to September 1992, he was Co-Chairman of Grauer & Wheat, Inc., an
investment firm specializing in leveraged buyouts. Prior to April 1989, Mr.
Grauer was a Senior Vice President of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Grauer is a director of Total Renal Care Holdings, Inc. and
Thermadyne Holdings Corp.

     Lawrence M.v.D. Schloss has been a Director of the Company since August
1997 and the Managing Partner of DLJ Merchant Banking II, Inc. since November
1995. Prior to November 1995, he was the Chief Operating Officer and Managing
Director of DLJ Merchant Banking, Inc. Mr. Schloss currently serves as Chairman
of the Board of McCulloch Corporation and as a director of Thermadyne Holdings
Corp.

     Kirk B. Wortman has been a Director of the Company since August 1997 and a
Principal of DLJ Merchant Banking II, Inc. since February 1997. For the five
years prior to joining DLJ Merchant Banking II, Inc. he worked in the Leveraged
Finance Group within DLJ's Investment Banking Group, most recently as a Senior
Vice President.

     * No longer an executive officer of the Company as of October, 1999.

ITEM 11.  EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth for the years ended June 30, 1999, 1998 and
1997 certain compensation paid by the Company to its current and former Chief
Executive Officers and the four other most highly paid executive officers of the
Company whose cash compensation exceeded $100,000 for the year ended June 30,
1999.

                                       32
<PAGE>   35

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                LONG TERM
                                                                               COMPENSATION
                                             ANNUAL COMPENSATION             ----------------
                                    -------------------------------------       SECURITIES
                                                                 OTHER          UNDERLYING           ALL OTHER
NAME AND PRINCIPAL POSITION  YEAR   SALARY ($)    BONUS ($)    ANNUAL ($)    OPTIONS/SARS (#)   COMPENSATION ($)(1)
---------------------------  ----   ----------    ---------    ----------    ----------------   -------------------
<S>                          <C>    <C>           <C>          <C>           <C>                <C>
Karl R. Wyss.............    1999    175,385(2)    200,000(2)        --               --                   --
Chairman and Chief           1998         --            --           --               --                   --
  Executive Officer          1997         --            --           --               --                   --
Stephen J. Felice(3).....    1999    243,879(4)         --           --          173,000              300,944
  Former President and       1998    271,000       250,000           --          173,000                   --
  Chief Executive            1997    225,000       300,000           --            9,000                   --
  Officer
Thomas J. Fitzpatrick(5)...  1999    250,000       261,250(6)        --          100,000                1,985
  Executive Vice             1998    200,800        75,000           --          100,000                   --
  President, Chief           1997    168,077(7)    155,000(7)   224,908(8)       100,000                   --
  Operating Officer and
  Chief Financial Officer
Thomas M. Molchan........    1999    205,000        93,250(9)        --           50,000                2,011
  Senior Vice President      1998    159,900        40,000           --           50,000                   --
  and General Counsel        1997    139,300        95,000           --           10,000                   --
Joseph S. Giordano(10)...    1999    180,731        95,800(11)       --           30,000                2,138
  Senior Vice President,     1998    170,000        40,000           --           30,000                   --
  Sales and Marketing        1997    140,000        84,150           --           21,000                   --
Thomas Farrell...........    1999    165,000        80,050(12)       --           25,000                1,137
  Senior Vice President,     1998    165,000        45,000           --           25,000                   --
  End User Support           1997     18,404(13)        --      104,880(14)           --                   --
  Services
</TABLE>

---------------
 (1) Includes company contributions to DecisionOne's defined contribution plan
     in 1999 of: Mr. Wyss $0, Mr. Felice $944, Mr. Fitzpatrick $1,985, Mr.
     Molchan $2,011, Mr. Giordano $2,138, and Mr. Farrell $1,137. In addition,
     Mr. Felice was paid $300,000 in severance pursuant to the agreement between
     the Company and him, dated February 17, 1999.

 (2) Mr. Wyss joined the Company and was named Chief Executive Officer on
     February 18, 1999. The salary and bonus shown reflect the amount earned
     after such date through June 30, 1999.

 (3) Mr. Felice's employment terminated on February 18, 1999.

 (4) In addition to base salary, $4,264 was paid for unused vacation.

 (5) Mr. Fitzpatrick's employment terminated subsequent to the end of the fiscal
     year.

 (6) Mr. Fitzpatrick received a bonus of $73,750 for performance during fiscal
     1999 and a bonus of $187,500 pursuant to his participation in the Executive
     Retention Plan.

 (7) Mr. Fitzpatrick joined the Company and was named an executive officer on
     August 12, 1996. The salary and bonus reflect the amount earned after such
     date through June 30, 1997. Of the bonus amount, $30,000 was a one-time
     signing bonus.

 (8) Of this amount, $223,908 was for relocation assistance. The other $1,000
     was for tax preparation assistance.

 (9) Mr. Molchan received a bonus of $42,000 for performance during fiscal 1999
     and a bonus of $51,250 pursuant to his participation in the Executive
     Retention Plan.

(10) Mr. Giordano's employment terminated subsequent to the end of the fiscal
     year.

(11) Mr. Giordano received a bonus of $45,800 for performance during fiscal 1999
     and a bonus of $50,000 pursuant to his participation in the Executive
     Retention Plan.

(12) Mr. Farrell received a bonus of $38,800 for performance during fiscal 1999
     and a bonus of $41,250 pursuant to his participation in the Executive
     Retention Plan.

(13) Mr. Farrell joined the Company on May 12, 1997. The salary reflects the
     amount earned after such date through June 30, 1997.

                                       33
<PAGE>   36

(14) This amount was for relocation assistance.

     The following table summarizes stock options granted during fiscal 1999 to
the persons named in the Summary Compensation Table.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                   INDIVIDUAL GRANTS                        POTENTIAL REALIZABLE
                               ---------------------------------------------------------      VALUE AT ASSUMED
                                 NUMBER OF       PERCENT OF                                 ANNUAL RATES OF STOCK
                                 SECURITIES     TOTAL OPTIONS                              PRICE APPRECIATION FOR
                                 UNDERLYING      GRANTED TO     EXERCISE OR                  OPTION TERM ($)(2)
                                  OPTIONS       EMPLOYEES IN    BASE PRICE    EXPIRATION   -----------------------
NAME                           GRANTED (#)(1)    FISCAL 1999      ($/SH)         DATE         5%           10%
----                           --------------   -------------   -----------   ----------   ---------   -----------
<S>                            <C>              <C>             <C>           <C>          <C>         <C>
Karl R. Wyss.................          --             --              --            --           --            --
Stephen J. Felice............     173,000           9.9%          6.1041       8/06/07      553,951     1,350,797
Thomas J. Fitzpatrick........      87,000           5.0%          6.1041       8/06/07      278,577       679,302
                                   13,000           0.7%          6.1041       4/26/08       45,969       114,403
Thomas M. Molchan............      30,000           1.7%          6.1041       8/06/07       96,061       234,242
                                   20,000           1.1%          6.1041       4/26/08       70,721       176,005
Joseph S. Giordano...........      30,000           1.7%          6.1041       8/06/07       96,061       234,242
Thomas Farrell...............      25,000           1.4%          6.1041       8/06/07       80,051       195,202
</TABLE>

---------------
(1) All stock option grants since August 7, 1997 were cancelled and new grants
    were issued on December 14, 1998 with an exercise price at the then current
    market price. The number of shares, vesting schedules and expiration dates
    were retained from the cancelled grants. The shares underlying these grants
    are subject to the terms of the Investors' Agreement. Half of the shares
    underlying each grant vests in four equal annual installments commencing on
    the first anniversary date of the original grant. The other half of the
    shares underlying each grant vests on the seventh anniversary of the
    original grant, but vesting may accelerate over the first four anniversaries
    of the original grant if certain financial goals are met. The shares
    underlying unvested options are cancelled upon termination of the optionee's
    service with the Company.

(2) Potential Realizable Values are calculated by applying an assumed annual
    compounded annual rate of return to the per share price of the Company's
    common share on the date of grant from the date of the grant until the end
    of the term of the option. These amounts are reported net of the option
    exercise price, but before any taxes associated with exercise or subsequent
    sale of the underlying stock. The 5% and 10% assumed rates are mandated by
    rules of the Securities and Exchange Commission. The actual value to be
    realized by the option holder may be greater or less than the values
    estimated in this table.

     The following table summarizes option exercises during fiscal 1999 and the
value at June 30, 1999 of vested and unvested options for each person named in
the Summary Compensation Table. Year-end values are based upon a price of $2.00
per share, which was the closing market price of a share of Common Stock on June
30, 1999, the last trading day of the fiscal year.

                                       34
<PAGE>   37

  AGGREGATED OPTION/SAR EXERCISES IN LAST YEAR AND YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                NUMBER OF SHARES
                                                             UNDERLYING UNEXERCISED       VALUE OF UNEXERCISED IN-
                                                            OPTIONS AT JUNE 30, 1999        THE-MONEY OPTIONS AT
                              SHARES                                 (#)(1)                   JUNE 30, 1999 ($)
                             ACQUIRED          VALUE       ---------------------------   ---------------------------
NAME                      ON EXERCISE (#)   REALIZED ($)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                      ---------------   ------------   -----------   -------------   -----------   -------------
<S>                       <C>               <C>            <C>           <C>             <C>           <C>
Karl R. Wyss............        --              --               --              --          --             --
Stephen J. Felice.......        --              --           46,084         151,375          --             --
Thomas J. Fitzpatrick...        --              --           31,101          87,500          --             --
Thomas M. Molchan.......        --              --           18,316          43,750          --             --
Joseph S. Giordano......        --              --           15,816          26,250          --             --
Thomas Farrell..........        --              --            3,125          21,875          --             --
</TABLE>

---------------
(1) All shares issued upon exercise of options and all shares underlying
    unexercised options are subject to the terms of the Investors' Agreement.

     The following table summarizes the "repriced" stock option grants to
executive officers through June 30, 1999.

                         TEN-YEAR OPTION/SAR REPRICINGS

<TABLE>
<CAPTION>
                                            NUMBER OF       MARKET                                  LENGTH OF
                                           SECURITIES      PRICE OF       EXERCISE                   ORIGINAL
                                           UNDERLYING      STOCK AT       PRICE AT                 OPTION TERM
                                            OPTIONS/       TIME OF        TIME OF                   REMAINING
                                           REPRICED OR   REPRICING OR   REPRICING OR      NEW       AT DATE OF
                                             AMENDED      AMENDMENT      AMENDMENT     EXERCISE    REPRICING OR
NAME                              DATE         (#)          ($)(1)          ($)        PRICE ($)    AMENDMENT
----                            --------   -----------   ------------   ------------   ---------   ------------
<S>                             <C>        <C>           <C>            <C>            <C>         <C>
Stephen J. Felice*............  12/14/98     173,000        6.1041        20.6084       6.1041      104 Months
Former President and Chief
Executive Officer
James S. Burkhardt*...........  12/14/98     100,000        6.1041        20.6084       6.1041      113 Months
  Former Senior Vice
  President, Sales and
  Marketing
Thomas Farrell................  12/14/98      25,000        6.1041        20.6084       6.1041      104 Months
  Senior Vice President, End
  User Support Services
Thomas J. Fitzpatrick*........  12/14/98      87,000        6.1041        20.6084       6.1041      104 Months
  Executive Vice President,     12/14/98      13,000        6.1041        20.6084       6.1041      112 Months
  Chief Operating Officer and
  Chief Financial Officer
Joseph S. Giordano*...........  12/14/98      30,000        6.1041        20.6084       6.1041      104 Months
  Senior Vice President, Sales
  and Marketing
Charles N. Heller.............  12/14/98      15,000        6.1041        20.6084       6.1041      104 Months
  Senior Vice President,
  Logistics
Thomas M. Molchan.............  12/14/98      30,000        6.1041        20.6084       6.1041      104 Months
  Senior Vice President and     12/14/98      20,000        6.1041        20.6084       6.1041      112 Months
  General Counsel
Kirk Scott*...................  12/14/98      20,000        6.1041        20.6084       6.1041      104 Months
  Senior Vice President and
  Chief Technology Officer
Dwight T. Wilson..............  12/14/98      25,000        6.1041        20.6084       6.1041      104 Months
  Senior Vice President, Human
  Resources
</TABLE>

---------------
 *  No longer an executive officer as of November, 1999.

                                       35
<PAGE>   38

(1) The Market Price of Stock is the fair market value of a share of common
    stock as defined in the 1997 Management Incentive Plan -- the average
    reported closing price of a share for the three trading days immediately
    preceding the date of a stock option grant.

(2) The new exercise price was set higher than the market price because the
    intent of the Compensation Committee of the Board of Directors at the time
    was to set the exercise price for all stock option grants at the same
    exercise price as the original stock option grants.

     Stock Option "Repricing". On December 14, 1998, the Compensation Committee
cancelled all outstanding stock option grants and replaced them with new grants,
equal in the number of securities underlying each grant, at the then current
fair market value of a share of common stock, $6.1041. The new grants retained
the same vesting schedules and expiration dates as the cancelled grants. The
Committee chose this action in light of the decline in the trading price of
common stock over the previous several months. It recognized that key employees
were not motivated by stock option grants that were well out-of-the-money. In a
very competitive information technology employment market, the Committee acted
to support the Company in retaining key employees.

                                          COMPENSATION COMMITTEE OF THE BOARD OF
                                          DIRECTORS

                                          PETER T. GRAUER, CHAIRMAN
                                          LAWRENCE M.V.D. SCHLOSS
                                          KIRK B. WORTMAN

EMPLOYMENT, SEVERANCE AND RETENTION AGREEMENTS

     Mr. Felice entered into an employment agreement with DecisionOne Holdings
Corp. and DecisionOne Corporation (the "Companies") as of August 7, 1997,
pursuant to which he served as the President and Chief Operating Officer of the
Companies. In connection with the termination of his employment in February
1999, the Companies and Mr. Felice entered into an agreement pursuant to which
Mr. Felice received a severance payment of $300,000. As provided in his
employment agreement, Mr. Felice is subject to a perpetual confidentiality
covenant, a one-year non-competition covenant and a two-year non-solicitation
covenant.

     Messrs. Farrell, Giordano, Heller, Molchan and Wilson have severance
arrangements with DecisionOne Corporation which provide for a severance payment
of one times base annual salary and a continuation of certain benefits for up to
one year in the event of termination without cause, or if their work location is
moved by more than 50 miles from its present location and the employee chooses
not to accept relocation. Recipients of severance benefits are required to sign
a release of claims against the Company and to agree to a one-year
non-solicitation covenant.

     In March 1999, DecisionOne Corporation established an Executive Retention
Bonus Plan (the "Retention Plan") in order to retain the services of key
executives during the implementation of the Company's Operating Plan. Pursuant
to the Retention Plan, Messrs. Fitzpatrick, Farrell, Giordano, Heller, Molchan,
Scott and Wilson and certain other officers received in August 1999 a retention
bonus ranging from three to nine months' base salary.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information as of November 12, 1999
(except as otherwise noted) regarding the ownership of Common Stock (i) by each
person known by the Company to be the beneficial owner of more than five percent
of the Company's outstanding Common Stock, (ii) by each director of the Company,
(iii) by each executive officer of the Company named in the Summary Compensation
Table

                                       36
<PAGE>   39

included elsewhere in this proxy statement and (iv) by all current executive
officers and directors of the Company as a group.

<TABLE>
<CAPTION>
                                                               NUMBER OF
                                                                 SHARES       PERCENTAGE
                                                              BENEFICIALLY        OF
BENEFICIAL OWNER                                                OWNED(1)       CLASS(1)
----------------                                              ------------    ----------
<S>                                                           <C>             <C>
DLJ Merchant Banking Partners II, L.P. group(2)(3)..........   11,075,165        88.2%
The Apollo group(3)(4)......................................      810,117         6.4
The Bain Capital group(3)(5)................................      810,117         6.4
The THL group(3)(6).........................................      810,117         6.4
Stephen J. Felice...........................................           --          --
Thomas J. Fitzpatrick.......................................           --          --
Joseph S. Giordano..........................................           --          --
Thomas M. Molchan(3)(7).....................................       36,917           *
Thomas Farrell(3)(8)........................................       24,630           *
Karl R. Wyss(9).............................................           --          --
Peter T. Grauer(9)..........................................           --          --
Lawrence M.v.D. Schloss(9)..................................           --          --
Kirk B. Wortman(9)..........................................           --          --
All current executive officers and directors as a group (11
  persons)(3)...............................................      133,479         1.1
</TABLE>

---------------
 *  Less than one percent.

(1) Applicable percentage of ownership is based on 12,551,819 shares of Common
    Stock outstanding as of November 12, 1999. In accordance with the rules of
    the Securities and Exchange Commission, options to purchase shares of Common
    Stock that are exercisable as of November 12, 1999 or exercisable within 60
    days thereafter are deemed to be outstanding and beneficially owned by the
    person holding such options for purpose of computing such person's
    percentage ownership, but are not treated as outstanding for the purpose of
    computing the percentage ownership of any other person. The persons listed
    in the table have sole voting or investment power with respect to the shares
    listed opposite their name unless noted otherwise.

(2) 7,520,009 shares (approximately 59.9% of the outstanding Common Stock) are
    held directly by DLJMB and the following investors related to DLJMB
    (collectively, "DLJ Entities"): DLJ Offshore Partners, II, C.V.
    ("Offshore"), a Netherlands Antilles limited partnership; DLJ Diversified
    Partners, L.P. ("Diversified"), a Delaware limited partnership; DLJMB
    Funding II, Inc. ("Funding"), a Delaware corporation; DLJ Merchant Banking
    Partners II-A, L.P. ("DLJMBPIIA"), a Delaware limited partnership; DLJ
    Diversified Partners-A L.P. ("Diversified A"), a Delaware limited
    partnership; DLJ Millennium Partners, L.P. ("Millennium"), a Delaware
    limited partnership; DLJ Millennium Partners-A, L.P. ("Millennium A"), a
    Delaware limited partnership; DLJ EAB Partners, L.P. ("EAB"), a Delaware
    limited partnership; UK Investment Plan 1997 Partners ("UK Partners"), a
    Delaware partnership; and DLJ First ESC LLC, a Delaware limited liability
    company ("DLJ First"). See "Certain Relationships and Related Transactions."
    The address of each of DLJMB, Diversified, Funding, DLJMBPIIA, Diversified
    A, Millenium, Millenium A, DLJ First and EAB is 277 Park Avenue, New York,
    New York 10172. The address of Offshore is John B. Gorsiraweg 14,
    Willemstad, Curacao, Netherlands, Antilles, The address of UK Partners is
    2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California
    90067.

(3) Because of the restrictions on transfer, voting requirements and other
    provisions of the Investors' Agreement (See "Certain Relationships and
    Related Transactions"), the DLJ Entities are also deemed to beneficially own
    (a) the 3,398,970 shares held by the following institutional investors
    (collectively, "Institutional Investors") which are parties to the
    Investors' Agreement: Apollo Advisors II, L.P. and related entities
    ("Apollo"), Bain Capital, Inc. and related entities ("Bain Capital"), Thomas
    H. Lee

                                       37
<PAGE>   40

    Company and related entities ("THL"), certain investment funds associated
    with DLJ Capital Corp. ("Sprout") and Ontario Teacher's Pension Plan Board
    ("Teachers"); (b) the 133,479 shares held by the executive officers named in
    the Summary Compensation Table as further detailed in Notes (7) and (8)
    below; and (c) 22,707 shares subject to the Investors' Agreement held by
    other members of management of the Company (together with the executive
    officers referred to above, the "Management Shareholders"). Therefore, the
    share amounts set forth opposite the names of the other entities and
    individuals in the table are also included in the ownership of the DLJ
    Entities shown in the table.

    Details concerning the share ownership of Apollo, Bain Capital and THL are
    set forth in Notes (4)-(6) below. Sprout holds 475,504 shares (approximately
    3.8% of the outstanding Common Stock) and Teachers holds 493,115 shares
    (approximately 3.9% of the outstanding Common Stock). Sprout's shares are
    held by DLJ Capital Corp. ("DLJCC"), a Delaware corporation, Sprout Growth
    II, L.P., a Delaware limited partnership, The Sprout CEO Fund, L.P., a
    Delaware limited partnership and one additional entity managed by the Sprout
    Group, the venture capital affiliate of DLJ. DLJCC is a wholly owned
    subsidiary of DLJ. Sprout Growth II, L.P. has two general partners: DLJCC is
    the managing general partner and DLJ Growth Associates II, L.P. is the
    general partner. DLJ Growth Associates II, L.P. is a Delaware limited
    partnership, whose general partners are a group of individual employees of
    DLJCC and DLJ Growth Associates (II), Inc., a Delaware corporation which is
    a wholly owned subsidiary of DLJCC. DLJCC is the managing general partner of
    The Sprout CEO Fund. The address of Sprout is 277 Park Avenue, New York, New
    York 10172.

    Teachers is an independent corporation established in 1990 to administer the
    benefits and manage the investments of the pension plan for over 200,000
    Ontario teachers. The address of Teachers is 5650 Yonge Street, 5th Floor,
    North York, Ontario M2M 4H5.

(4) Apollo's shares are held by Apollo Investment Fund III, L.P., a Delaware
    limited partnership ("AIF III"), Apollo Overseas Partners III, L.P., a
    Delaware limited partnership ("Overseas Partners"), and Apollo (U.K.)
    Partners III, L.P., a limited partnership organized under the laws of
    England ("Apollo UK Partners") (collectively, "Apollo Entities"). Each of
    the Apollo Entities is principally engaged in the business of investment
    securities.

    Apollo Advisors II, L.P., a Delaware limited partnership ("Advisors"), is
    the general partner of AIF III and the managing general partner of Overseas
    Partners and Apollo UK Partners. Advisors is principally engaged in the
    business of providing advice regarding investments by, and serving as the
    general partner of, the Apollo Entities. The address of Apollo is 1301
    Avenue of the Americas, 38th Floor, New York, New York 10019.

(5) Bain Capital's shares are held by Bain Capital Fund V, L.P., Bain Capital
    Fund, V-B, L.P., BCIP Associates, and BCIP Trust Associates, L.P. Bain
    Capital Investors V, Inc. is the general partner of Bain Capital Partners V,
    L.P. ("BCP V"), a Delaware limited partnership. BCP V is the general partner
    of Bain Capital Fund V, L.P. and Bain Capital Fund V-B, L.P. (the "Bain Fund
    Vs"), both of which are Delaware limited partnerships. The Bain Fund Vs'
    primary business activity is to make investments in private equity
    securities and other interests in business organizations, domestic and
    foreign.

    BCIP Associates, a general partnership, and BCIP Trust Associates, L.P., a
    limited partnership (together the "BCIPs"), are both organized under the
    laws of the state of Delaware. The BCIPs' primary business activity is to
    make investments in private equity securities and other interests in
    domestic and foreign business organizations. The address of Bain Capital is
    Two Copley Place, Boston, Massachusetts 02116.

(6) THL's shares are held by Thomas H. Lee Equity Fund III, L.P., a Delaware
    limited partnership ("Fund III"), Thomas H. Lee Foreign Fund III, L.P., a
    Delaware limited partnership ("Foreign Fund"), THL Co-Investors III-A, LLC,
    a Massachusetts limited liability company ("Co-Investors A"), the THL Co-
    Investors III-B, LLC, a Massachusetts limited liability company
    ("Co-Investors B"). The general partners of each of Fund III and Foreign
    Fund is THL Equity Advisors III Limited Partnership, a Massachusetts limited
    partnership ("Equity Advisors"). The general partner of Equity Advisors is
    THL Equity Trust III, a Massachusetts business trust, the beneficial owners
    of which are affiliates of

                                       38
<PAGE>   41

    Thomas H. Lee Company. The manager of each of Co-Investors A and
    Co-Investors B. is Thomas H. Lee. The address of THL is 75 State Street,
    26th Floor, Boston, Massachusetts 02109.

(7) Consists of 4,851 shares, 20,000 shares subject to the Investors' Agreement
    issuable upon exercise of options exercisable as of November 12, 1999 or
    within 60 days thereafter ("Option Shares") and 12,066 shares subject to the
    Investors' Agreement issuable upon exercise of fully-vested options (the
    "Rollover Options") resulting from the conversion by certain Management
    Shareholders of options outstanding at the time of the Recapitalization.

(8) Consists of 12,130 shares and 12,500 Option Shares.

(9) Messrs. Wyss, Schloss, Grauer and Wortman are officers of DLJ Merchant
    Banking II, Inc., an affiliate of DLJMB. DLJ Merchant Banking II, Inc. is
    the general partner of DLJ Merchant Banking II, L.P. Share data shown for
    such individuals excludes shares shown as held by the DLJ Entities, as to
    which such individuals disclaim beneficial ownership.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Investors' Agreement restricts transfers of the shares of Common Stock
by the Management Shareholders, permits the Management Shareholders to
participate in certain sales of shares of Common Stock by the DLJ Entities,
requires the Management Shareholders to sell shares of Common Stock in certain
circumstances should the DLJ Entities choose to sell any such shares owned by
the DLJ Entities, permits the Management Shareholders and the Institutional
Investors to purchase equity securities proposed to be issued by the Company on
a preemptive basis in the event the DLJ Entities choose to acquire any such
equity securities, and provides for certain registration rights. The Investors'
Agreement also provides that the DLJ Entities have the right to appoint a
majority of the members of the Board of Directors of the Company.

     On January 1, 1999, the Company entered into an agreement with The
Equitable Life Assurance Society of the United States ("Equitable"), which is an
affiliate of Donaldson, Lufkin and Jenrette, Inc. and the DLJ Entities. Under
the agreement, the Company performed installation of computer hardware and
software at Equitable's Harmon Meadow location. All services under the agreement
have been completed. The Company believes that the services were rendered at
such prices and upon such terms and conditions as would apply in an arm's-length
transaction between unrelated parties.

     In addition, DLJ Capital Funding, Inc., an affiliate of the DLJ Entities,
received customary fees and reimbursement of expenses in connection with the
arrangement and syndication of the new credit facility entered into by a
subsidiary of the Company in connection with the Recapitalization and as a
lender thereunder. DLJSC, an affiliate of the DLJ Entities, received customary
fees in connection with the underwriting of the Senior Subordinated Notes and
the Debentures issued by the Company in connection with the Recapitalization.
DLJSC received a merger advisory fee of $5.0 million from the Company upon
consummation of the Recapitalization.

     The Company has entered into an agreement with DLJSC pursuant to which
DLJSC will act as the Company's exclusive financial advisor for an annual fee of
$500,000. In addition, the Company agrees to engage DLJSC in connection with any
financial transaction (as defined in the agreement) on usual and customary terms
for such engagements. The agreement continues until the earlier of (i) August 6,
2002 or (ii) such time as the DLJ Entities shall own less than 20% of the
outstanding Common Stock.

     In connection with the Recapitalization, the Company extended non-recourse
loans (the "Loans") to the following executive officers, in the amounts shown,
to fund, in whole or in part, their purchase of shares of Common Stock: Stephen
J. Felice -- $249,979.89; Thomas J. Fitzpatrick -- $116,664.15; Joseph S.
Giordano -- $99,971.35; Thomas M. Molchan -- $99,971.35; and Thomas
Farrell -- $124,989.95. Each of the Loans matures on August 7, 2001, with
interest at the rate of 6.39% per annum and principal due and payable at
maturity. The Loans are secured by a pledge of the shares of Common Stock
purchased with the

                                       39
<PAGE>   42

Loans and any shares of Common Stock obtained through the borrower's exercise of
Rollover Options or options issued under the Plan. The Loans to Messrs. Felice,
Fitzpatrick and Giordano were cancelled upon termination of their employment
with the Company, and those employees forfeited their right, title and interest
in the shares of Common Stock and all options which were pledged as security for
the Loans. For Messrs. Molchan and Farrell, the loan amounts shown above
represent the amount outstanding as of November 12, 1999 and the largest
aggregate amount of indebtedness outstanding at any time since July 1, 1999.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

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

        (2) Financial Statement Schedules
            Schedule I -- Condensed Financial Information of Registrant
                          (DecisionOne Holdings Corp. only)

            Schedule II -- Valuation and Qualifying Accounts

        (3) Exhibits

                           DECISIONONE HOLDINGS CORP.

<TABLE>
<CAPTION>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
<S>            <C>
2.1            Agreement and Plan of Merger, dated May 4, 1997 between the
               Company and Quaker Holding Co.(5) (appears as Annex A)
2.2            Amendment No. 1 to the Agreement and Plan of Merger, dated
               as of July 15, 1997.(5) (appears as Annex A-1)
3.1            Amended and Restated Certificate of Incorporation (Exhibit
               3.1).(1)
3.2            Amended and Restated Bylaws (Exhibit 3.2).(1)
4.1            Specimen of DecisionOne Corporation's 9 3/4% Senior
               Subordinated Notes due 2007 (included in Exhibit 4.2).(6)
4.2            9 3/4% Senior Subordinated Note Indenture dated as of August
               7, 1997 between DecisionOne Corporation and State Street
               Bank and Trust Company as Trustee.(6)
4.3            Specimen of the Company's 11 1/2% Senior Discount Debenture
               due 2008 (included in Exhibit 4.4).(6)
4.4            11 1/2% Senior Discount Debenture Indenture dated as of
               August 7, 1997 by and between Quaker Holding Co. and State
               Street Bank and Trust as Trustee.(6)
4.5            Form of Warrant (included in Exhibit 4.6).(6)
4.6            Warrant Agreement dated as of August 7, 1997 between Quaker
               Holding Co. and State Street Bank and Trust as Warrant
               Agent.(6)
4.7            Debenture Agreement dated as of August 7, 1997 between the
               Company and State Street Bank and Trust as Trustee (included
               in Exhibit 4.4).(6)
4.8            Warrant Assumption dated as of August 7, 1997 between the
               Company and State Street Bank and Trust as Warrant Agent
               (included in Exhibit 4.6).(6)
4.9            Specimen of DecisionOne Corporation's 14% Senior Notes due
               2006 (included in Exhibit 4.10).(10)
4.10           14% Senior Notes Indenture dated as of January 27, 1999
               between DecisionOne Corporation and State Street Bank and
               Trust Company as Trustee.(10)
10.1*          Management Incentive Plan.(6)
10.2*          Direct Investment Program.(6)
10.3           Investors' Agreement dated August 7, 1997.(6)
</TABLE>

                                       40
<PAGE>   43

<TABLE>
<CAPTION>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
<S>            <C>
10.4           U.S. $575,000,000 Credit Agreement ("Credit Agreement")
               dated as of August 7, 1997 by and among DecisionOne
               Corporation, various financial institutions, DLJ Capital
               Funding Inc. (as Syndication Agent), Nations Bank of Texas,
               N.A. (as Administrative Agent) and BankBoston, N.A. (as
               Documentation Agent).(6)
10.5           Amendment No. 2, dated January 12, 1998 to the Credit
               Agreement.(8)
10.6           Amendment No. 3, dated March 18, 1998 to the Credit
               Agreement.(9)
10.7*          Employment Agreement with Kenneth Draeger (Exhibit 10.7).(1)
10.8*          Employment Letter with Stephen J. Felice (Exhibit 10.8).(1)
10.9*          Employment Letter with James J. Greenwell (Exhibit
               10.10).(1)
10.10          Amended and Restated Registration Rights Agreement (Exhibit
               10.11).(1)
10.11          First Amendment to Amended and Restated Registration Rights
               Agreement (Exhibit 10.12).(1)
10.12*         Employment Letter with Joseph S. Giordano (Exhibit
               10.17).(2)
10.13*         Employment Letter with Thomas J. Fitzpatrick (Exhibit
               10.22).(3)
10.14*         Employment Letter with Thomas M. Molchan.(4)
10.15*         Employment Letter with Dwight T. Wilson.(4)
10.16          Intercompany Note made by the Company in favor of
               DecisionOne Corporation dated as of August 7, 1997.(6)
10.17*         Form of Purchase Agreement dated as of August 7, 1997.(6)
10.18*         Form of Option Agreement dated as of August 7, 1997.(6)
10.19*         Employment Letter for James S. Burkhardt.(12)
10.20          Waiver of Financial Covenants.(10)
10.21*         Agreement with Stephen J. Felice dated February 17,
               1999.(11)
12             Computation of Ratios of Earnings to Fixed Charges.(5)
21+            Subsidiaries of the Registrant.
23+            Consent of Deloitte & Touche LLP.
24+            Power of Attorney.
27+            Financial Data Schedule.
</TABLE>

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

  +  Filed herewith.

  *  Compensation plans and arrangements for executives and others.

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

 (3) Filed as an Exhibit to the Annual Report on Form 10-K filed with the
     Securities and Exchange Commission on September 30, 1996.

 (4) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
     Securities and Exchange Commission on May 15, 1997.

 (5) Filed as an Exhibit to Registration Statement No. 333-28265 on Form S-4
     filed with the Securities and Exchange Commission on June 2, 1997.

 (6) Filed as an Exhibit to the Annual Report on Form 10-K for DecisionOne
     Corporation filed with the Securities and Exchange Commission on September
     29, 1997.

 (7) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
     Securities and Exchange Commission on November 14, 1997.

 (8) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
     Securities and Exchange Commission on February 12, 1998.

                                       41
<PAGE>   44

 (9) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
     Securities and Exchange Commission on May 15, 1998.

(10) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
     Securities and Exchange Commission on February 16, 1999.

(11) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
     Securities and Exchange Commission on May 17, 1999.

(12) Filed as an Exhibit to the Annual Report on Form 10-K for DecisionOne
     Corporation filed with the Securities and Exchange Commission on September
     28, 1998.

                            DECISIONONE CORPORATION

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    3.1       Amended and Restated Certificate of Incorporation of the
              Company, as amended.(1)
    3.2       Amended and Restated Bylaws of the Company.(1)
    4.1       Specimen of the Company's 9 3/4% Senior Subordinated Notes
              due 2007 (included in Exhibit 4.2).(6)
    4.2       9 3/4% Senior Subordinated Note Indenture dated as of August
              7, 1997 between the Company and State Street Bank and Trust
              as Trustee.(6)
    4.3       Specimen of the Company's 14% Senior Notes due 2006
              (included in Exhibit 4.4).(7)
    4.4       14% Senior Notes Indenture dated as of January 27, 1999
              between the Company and State Street Bank and Trust as
              Trustee.(7)
   10.1*      Employment Agreement with Kenneth Draeger.(2)
   10.2*      Employment Letter with Stephen J. Felice.(2)
   10.3       Lease for Frazer, Pennsylvania executive offices (East).(2)
   10.4       Lease for Frazer, Pennsylvania executive offices (West).(2)
   10.5       Lease for Malvern, Pennsylvania depot and call center.(2)
   10.6+      Lease for Hayward, California depot.(3)
   10.7       Lease for Northborough, Massachusetts depot.(3)
   10.8       Form of Tax Sharing Agreement.(1)
   10.9       U.S. $575,000,000 Credit Agreement dated as of August 7,
              1997 by and among the Company, various finance institutions,
              DLJ Capital Funding Inc. (as Syndication Agent), NationsBank
              of Texas, N.A. (as Administrative Agent) and BankBoston,
              N.A. (as Documentation Agent).(6)
   10.10      Intercompany Note made by the DecisionOne Holdings Corp. in
              favor of the Company dated as of August 7, 1997.(6)
   10.11*     Agreement with Stephen J. Felice dated February 17, 1999.(8)
   10.12      Waiver of Financial Covenants.(7)
   10.13*+    Executive Retention Plan.
   10.14+     Lease for Devon, PA office and warehouse.
   10.15+     Lease for College Station, TX call center.
   10.16+     Lease for Wilmington, OH warehouse.
   10.17      Lease for Richfield, Minnesota call center.(10)
   10.18      Lease for Grove City, Ohio depot.(9)
   10.19      Lease for Phoenix, Arizona depot.(9)
   10.20*+    Executive Severance Plan.
   12.1       Statement Regarding Computation of Ratios.(1)
</TABLE>

                                       42
<PAGE>   45

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
  21+         Subsidiaries of the Registrant.
  23+         Consent of Deloitte & Touche LLP.
  24+         Power of Attorney.
  27+         Financial Data Schedule.
</TABLE>

---------------
 (1) Filed as an Exhibit to Registration Statement No. 333-28411 on Form S-1
     filed with the Securities and Exchange Commission on June 3, 1997.

  +  Filed herewith.

  *  Compensation plans and arrangements for executives and others.

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

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

 (4) Filed as an Exhibit to the Annual Report on Form 10-K filed by DecisionOne
     Holdings Corp. with the Securities and Exchange Commission on September 30,
     1996.

 (5) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed by
     DecisionOne Holdings Corp. with the Securities and Exchange Commission on
     May 15, 1997.

 (6) Filed as an Exhibit to the Annual Report on Form 10-K filed by DecisionOne
     Holdings Corp. with the Securities and Exchange Commission on September 29,
     1997.

 (7) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed by
     DecisionOne Holdings Corp. with the Securities and Exchange Commission on
     February 1, 1999.

 (8) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed by
     DecisionOne Holdings Corp. with the Securities and Exchange Commission on
     May 17, 1999.

 (9) Filed as an Exhibit to the Annual Report on Form 10-K for DecisionOne
     Holdings Corp. with the Securities and Exchange Commission on September 28,
     1998.

(10) Filed as an Exhibit to the Quarterly Report on Form 10-Q for DecisionOne
     Holdings Corp. with the Securities and Exchange Commission on February 12,
     1998.

     (b) Current Reports on Form 8-K filed during the quarter ended June 30,
1999:

     None.

                                       43
<PAGE>   46

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Frazer, Pennsylvania
on November   , 1999.

                                          DECISIONONE HOLDINGS CORP.

                                          By: /s/     KARL R. WYSS
                                            ------------------------------------
                                                        Karl R. Wyss
                                            Chairman and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the indicated persons. Each person whose
signature appears below in so signing also makes, constitutes and appoints Karl
Wyss and Thomas J. Fogarty, and each of them acting for him and in his name,
place and stead in any and all capacities, to execute and cause to be filed with
the Securities and Exchange Commission any and all amendments to this report,
and in each case to file the same, with all exhibits thereto and other documents
in connection therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                           <C>
                  /s/ KARL R. WYSS                     Chairman and Chief Executive  December 6, 1999
-----------------------------------------------------    Officer (Principal
                    Karl R. Wyss                         Executive Officer)

                /s/ THOMAS J. FOGARTY                  Senior Vice President and     December 6, 1999
-----------------------------------------------------    Chief Financial Officer
                  Thomas J. Fogarty                      (Principal Financial and
                                                         Accounting Officer)

                 /s/ PETER T. GRAUER                   Director                      December 6, 1999
-----------------------------------------------------
                   Peter T. Grauer

             /s/ LAWRENCE M.V.D. SCHLOSS               Director                      December 6, 1999
-----------------------------------------------------
               Lawrence M.v.D. Schloss

                 /s/ KIRK B. WORTMAN                   Director                      December 6, 1999
-----------------------------------------------------
                   Kirk B. Wortman
</TABLE>

                                       44
<PAGE>   47

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Frazer, Pennsylvania
on November   , 1999.

                                          DECISIONONE CORPORATION

                                          By: /s/     KARL R. WYSS
                                            ------------------------------------
                                                        Karl R. Wyss
                                            Chairman and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the indicated persons. Each person whose
signature appears below in so signing also makes, constitutes and appoints Karl
Wyss and Thomas J. Fogarty, and each of them acting for him and in his name,
place and stead in any and all capacities, to execute and cause to be filed with
the Securities and Exchange Commission any and all amendments to this report,
and in each case to file the same, with all exhibits thereto and other documents
in connection therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                           <C>
                  /s/ KARL R. WYSS                     Chairman and Chief Executive  December 6, 1999
-----------------------------------------------------    Officer (Principal
                    Karl R. Wyss                         Executive Officer)

                /s/ THOMAS J. FOGARTY                  Senior Vice President and     December 6, 1999
-----------------------------------------------------    Chief Financial Officer
                  Thomas J. Fogarty                      (Principal Financial and
                                                         Accounting Officer)

                 /s/ PETER T. GRAUER                   Director                      December 6, 1999
-----------------------------------------------------
                   Peter T. Grauer

                 /s/ KIRK B. WORTMAN                   Director                      December 6, 1999
-----------------------------------------------------
                   Kirk B. Wortman
</TABLE>

                                       45
<PAGE>   48

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
CONSOLIDATED FINANCIAL STATEMENTS OF DECISIONONE HOLDINGS
  CORP.:
Independent Auditors' Report................................   F-2
  Consolidated Balance Sheets as of June 30, 1999 and
     1998...................................................   F-3
  Consolidated Statements of Operations and Comprehensive
     Income (Loss) for the Years Ended June 30, 1999, 1998
     and 1997...............................................   F-4
  Consolidated Statements of Shareholders' Deficiency for
     the Years Ended June 30, 1999, 1998 and 1997...........   F-5
  Consolidated Statements of Cash Flows for the Years Ended
     June 30, 1999, 1998 and 1997...........................   F-6
  Notes to Consolidated Financial Statements................   F-7
CONSOLIDATED FINANCIAL STATEMENTS OF DECISIONONE
  CORPORATION:
  Independent Auditors' Report..............................  F-29
  Consolidated Balance Sheets as of June 30, 1999 and
     1998...................................................  F-30
  Consolidated Statements of Operations and Comprehensive
     Income (Loss) for the Years Ended June 30, 1999, 1998
     and 1997...............................................  F-31
  Consolidated Statements of Shareholder's Deficiency for
     the Years Ended June 30, 1999, 1998 and 1997...........  F-32
  Consolidated Statements of Cash Flows for the Years Ended
     June 30, 1999, 1998 and 1997...........................  F-33
  Notes to Consolidated Financial Statements................  F-34
FINANCIAL STATEMENT SCHEDULES:
  Schedule I -- Condensed Financial Information of
     Registrant (DecisionOne Holdings Corp. only)...........   S-1
  Schedule II -- Valuation and Qualifying Accounts..........   S-7
</TABLE>

                                       F-1
<PAGE>   49

                          INDEPENDENT AUDITORS' REPORT

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

     We have audited the accompanying consolidated balance sheets of DecisionOne
Holdings Corp. and subsidiaries (the "Company") as of June 30, 1999 and 1998,
and the related consolidated statements of operations and comprehensive income
(loss), shareholders' deficiency and cash flows for each of the three years in
the period ended June 30, 1999. Our audits also included the related financial
statement schedules listed in the Index at Item 14. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.

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

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Holdings Corp. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company's recent losses from
operations, significant shareholders' deficiency, default under terms of its
credit agreement, and the related Indebtedness Restructuring and planned
Bankruptcy court filings raise substantial doubt about its ability to operate as
a going concern. Management's plans concerning these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
September 1, 1999

                                       F-2
<PAGE>   50

                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 1999 AND 1998
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                1999        1998
                                                              ---------   ---------
<S>                                                           <C>         <C>
                                      ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $  31,249   $   6,415
  Restricted cash...........................................      3,410
  Accounts receivable, net of allowances of $18,066 and
     $22,572................................................     93,134     114,082
  Consumable parts, net of allowances of $8,906 and
     $9,271.................................................     15,859      23,097
  Prepaid expenses and other assets.........................     21,738      28,106
                                                              ---------   ---------
          Total current assets..............................    165,390     171,700
REPAIRABLE PARTS, Net of accumulated amortization of
  $141,842 and $135,277.....................................    134,924     142,446
PROPERTY AND EQUIPMENT......................................     25,028      29,095
INTANGIBLES.................................................    128,509     154,029
DEFERRED TAX ASSET..........................................                 25,360
OTHER ASSETS................................................      2,036      19,357
                                                              ---------   ---------
          TOTAL ASSETS......................................  $ 455,887   $ 541,987
                                                              =========   =========

                     LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
  Current portion of debt...................................  $ 778,866   $  13,311
  Notes payable -- related party............................      7,300
  Accounts payable and accrued expenses.....................     92,635     101,851
  Deferred revenues.........................................     28,876      40,758
  Other liabilities.........................................      8,540      10,925
                                                              ---------   ---------
          Total current liabilities.........................    916,217     166,845
DEBT........................................................        674     731,012
OTHER LIABILITIES...........................................      6,152       5,736
SHAREHOLDERS' DEFICIENCY:
  Preferred stock, $.01 par value; authorized 15,000,000;
     none outstanding.......................................         --          --
  Common stock, $.01 par value; authorized 30,000,000;
     issued and outstanding 12,564,485 shares in 1999 and
     12,584,219 shares in 1998..............................        126         126
  Additional paid-in capital................................    242,181     242,181
  Accumulated deficiency....................................   (706,795)   (601,195)
  Accumulated other comprehensive income (loss).............     (2,668)     (2,718)
                                                              ---------   ---------
          Total shareholders' deficiency....................   (467,156)   (361,606)
                                                              ---------   ---------
          TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY....  $ 455,887   $ 541,987
                                                              =========   =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-3
<PAGE>   51

                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               1999        1998        1997
                                                             ---------   ---------   --------
<S>                                                          <C>         <C>         <C>
REVENUES...................................................  $ 725,943   $ 805,717   $785,950
COST OF REVENUES...........................................    575,063     613,806    584,755
                                                             ---------   ---------   --------
GROSS PROFIT...............................................    150,880     191,911    201,195
OPERATING EXPENSES:
  Selling, general and administrative expenses.............    125,125     142,462    109,975
  Amortization of intangibles..............................     26,969      27,169     23,470
  Merger expenses..........................................                 69,046
  Loss on asset sales and disposals........................      1,491      87,458
                                                             ---------   ---------   --------
OPERATING INCOME (LOSS)....................................     (2,705)   (134,224)    67,750
INTEREST EXPENSE, Net of interest income of $622 in 1999,
  $1,417 in 1998, and $197 in 1997.........................     77,535      64,683     14,698
                                                             ---------   ---------   --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
  TAXES (BENEFIT)..........................................    (80,240)   (198,907)    53,052
PROVISION (BENEFIT) FOR INCOME TAXES.......................     25,360     (15,777)    21,968
                                                             ---------   ---------   --------
NET INCOME (LOSS)..........................................  $(105,600)  $(183,130)  $ 31,084
                                                             =========   =========   ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
  FOREIGN CURRENCY TRANSLATION ADJUSTMENTS.................        (85)       (912)       (38)
  PENSION LIABILITY ADJUSTMENT.............................        135        (517)       (25)
                                                             ---------   ---------   --------
COMPREHENSIVE INCOME (LOSS)................................  $(105,550)  $(184,559)  $ 31,021
                                                             =========   =========   ========
BASIC EARNINGS (LOSS) PER COMMON SHARE.....................  $   (8.40)  $  (13.05)  $   1.03
                                                             =========   =========   ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.......     12,577      14,033     30,110
                                                             =========   =========   ========
PRO FORMA INFORMATION (UNAUDITED) -- See Note 4:
  Pro forma net loss.......................................              $(124,266)  $   (183)
                                                                         =========   ========
  Pro forma net loss per share.............................              $   (9.91)  $   (.01)
                                                                         =========   ========
  Pro forma weighted average number of common shares
     outstanding...........................................                 12,545     14,200
                                                                         =========   ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>   52

                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997
            (IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)

<TABLE>
<CAPTION>
                                                                                   ACCUMULATED
                                                                        OTHER COMPREHENSIVE INCOME (LOSS)
                                                                      --------------------------------------
                                      COMMON STOCK                                    FOREIGN                    TOTAL
                                  --------------------   ADDITIONAL                  CURRENCY      PENSION       SHARE-
                                   NUMBER OF              PAID-IN     ACCUMULATED   TRANSLATION   LIABILITY     HOLDERS'
                                    SHARES      AMOUNT    CAPITAL       DEFICIT     ADJUSTMENT    ADJUSTMENT   DEFICIENCY
                                  -----------   ------   ----------   -----------   -----------   ----------   ----------
<S>                               <C>           <C>      <C>          <C>           <C>           <C>          <C>
BALANCE, JUNE 30, 1996..........   27,340,288    $273    $ 255,262     $ (73,516)      $ 622       $(1,848)    $ 180,793
Net income......................                                          31,084                                  31,084
  Adjustment to pension
    liability...................                                                                       (25)          (25)
  Tax benefit -- disqualifying
    stock disposition...........                             2,635                                                 2,635
  Foreign currency translation
    adjustment..................                                                         (38)                        (38)
  Exercise of stock options.....      477,544       5          434                                                   439
                                  -----------    ----    ---------     ---------       -----       -------     ---------
BALANCE, JUNE 30, 1997..........   27,817,832     278      258,331       (42,432)        584        (1,873)      214,888
  Net loss......................                                        (183,130)                               (183,130)
  Adjustment to pension
    liability...................                                                                      (517)         (517)
  Foreign currency translation
    adjustment..................                                                        (912)                       (912)
  Repurchase of common stock in
    connection with
    recapitalization............  (26,506,705)   (265)    (244,639)     (375,633)                               (620,537)
  Issuance of common stock in
    connection with
    recapitalization............   11,108,354     111      226,472                                               226,583
  Purchase and retirement of
    common stock................      (23,026)                 (85)                                                  (85)
  Issuance of warrants..........                             1,880                                                 1,880
  Exercise of stock options.....      187,764       2          222                                                   224
                                  -----------    ----    ---------     ---------       -----       -------     ---------
BALANCE, JUNE 30, 1998..........   12,584,219     126      242,181      (601,195)       (328)       (2,390)     (361,606)
  Net loss......................                                        (105,600)                               (105,600)
  Adjustment to pension
    liability...................                                                                       135           135
  Foreign currency translation
    adjustment..................                                                         (85)                        (85)
  Common stock retired..........      (19,734)                                --                                      --
                                  -----------    ----    ---------     ---------       -----       -------     ---------
BALANCE, JUNE 30, 1999..........   12,564,485    $126    $ 242,181     $(706,795)      $(413)      $(2,255)    $(467,156)
                                  ===========    ====    =========     =========       =====       =======     =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-5
<PAGE>   53

                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                1999         1998         1997
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
OPERATING ACTIVITIES:
Net income (loss)...........................................  $(105,600)   $(183,130)   $  31,084
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
    Loss on asset sales and disposals.......................      1,491       87,458
    Depreciation............................................     13,842       15,729       13,549
    Amortization of repairable parts........................     85,391       81,597       63,870
    Amortization of intangibles.............................     26,969       27,169       23,470
    Provision for uncollectible receivables.................      4,266       15,515        7,849
    Provision for consumable parts obsolescence.............      4,188        1,852        2,554
    Provision for deferred taxes............................     25,360
  Changes in operating assets and liabilities, net of
    effects from companies acquired, which provided (used)
    cash:
      Accounts receivable...................................     16,682         (802)     (38,365)
      Consumable parts......................................      3,057       (1,889)      (6,038)
      Accounts payable and accrued expenses.................     (9,588)       4,581        3,885
      Deferred revenues.....................................    (12,714)     (20,311)     (25,427)
      Net changes in other assets and liabilities...........     18,556      (14,432)      12,543
                                                              ---------    ---------    ---------
      Net cash provided by operating activities.............     71,900       13,337       88,974
                                                              ---------    ---------    ---------
INVESTING ACTIVITIES:
  Capital expenditures......................................    (16,402)     (10,222)     (10,540)
  Repairable spare parts purchases, net.....................    (76,415)     (78,239)     (86,446)
  Acquisitions of companies and contracts...................     (2,793)     (10,168)     (32,258)
  Proceeds from asset sales.................................     16,794           --           --
                                                              ---------    ---------    ---------
      Net cash used in investing activities.................    (78,816)     (98,629)    (129,244)
                                                              ---------    ---------    ---------
FINANCING ACTIVITIES:
  Proceeds from issuance of common stock in connection with
    recapitalization........................................                 226,583          439
  Redemption of common stock in connection with
    recapitalization........................................                (609,654)
  Redemption of common stock warrants in connection with
    recapitalization........................................                 (12,149)
  Issuance of warrants......................................                   1,880
  Net proceeds from borrowings..............................     32,292      476,918       43,625
  Principal payments under capital leases...................       (457)        (480)      (1,075)
  Other.....................................................        (85)      (2,268)         (63)
                                                              ---------    ---------    ---------
      Net cash provided by financing activities.............     31,750       80,830       42,926
                                                              ---------    ---------    ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS..........................................     24,834       (4,462)       2,656
CASH AND CASH EQUIVALENTS, BEGINNING
  OF YEAR...................................................      6,415       10,877        8,221
                                                              ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......................  $  31,249    $   6,415    $  10,877
                                                              =========    =========    =========
SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
  Net cash paid (received) during the year for:
    Interest................................................  $  64,091    $  41,644    $  15,640
    Income taxes............................................     (9,365)       4,031        8,381
  Noncash investing/financing activities:
    Issuance of seller notes in connection with
      acquisitions..........................................                                2,224
    Issuance of seller notes in exchange for repairable
      parts.................................................                                1,855
    Repairable parts received in lieu of cash for accounts
      receivable............................................                                1,124
    Repairable parts received in exchange for the assumption
      of liabilities........................................                   2,100
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-6
<PAGE>   54

                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997

1.  NATURE OF BUSINESS

     DecisionOne Holdings Corp. and its wholly-owned subsidiaries (the
"Company") are providers of multivendor computer maintenance and technology
support services. The Company offers its customers a single-source, independent
(i.e., not affiliated with an original equipment manufacturer, or "OEM")
solution for computer maintenance and technology support requirements, including
hardware maintenance services, software support, end-user/help desk services,
network support and other technology support services. These services are
provided by the Company across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, personal
computers ("PCs") and related peripherals. In addition, the Company provides
outsourcing services for OEMs, software publishers, system integrators and other
independent service organizations. The Company delivers its services through an
extensive field service organization of approximately 3,500 service
professionals in over 150 service locations throughout North America and through
strategic alliances in selected international markets.

     DecisionOne Corporation is the principal operating subsidiary of the
Company. The Company's wholly owned, direct international subsidiaries are not
significant to the Company's consolidated financial statements. The Company
operates as one business segment (See Note 3).

2.  INDEBTEDNESS RESTRUCTURING

     The Company has continued to experience declining trends in revenues, and
earnings throughout fiscal 1999. The declining trends principally result from
lower sales of new service contracts, erosion of contract base, and minimal
growth from acquisitions.

     As previously announced, on January 28, 1999, the Company initiated a
corporate operating plan ("Operating Plan") intended to restore revenue growth
and improve financial performance. The Operating Plan included the following key
components: (i) focusing on all aspects of the Company's operations -- from
sales through service delivery -- on providing information technology support
services to three customer groups: large corporate customers (also known as
"enterprise accounts"), medium sized accounts (also known as "middle market"),
and alliance customers (including OEMs, software publishers, systems
integrators, distributors and resellers, etc.); (ii) a cost-reduction program
designed to reduce the Company's cost structure by $40 million annually upon
full implementation, including a reduction in force of more than 500 employees;
and (iii) financial structure changes, including an additional $7.3 million
investment in the form of 14% Senior Unsecured Notes due 2006 (the "14% Notes")
in DecisionOne Corporation by an affiliate of DLJ Merchant Banking Partners II,
L.P. ("DLJMB"), and the Company's agreement with its lenders to waive certain
financial covenants in the Company's credit agreement through July 29, 1999 (the
"Waiver").

     On July 14, 1999, the reorganized Company's common stock was delisted from
the NASDAQ national market System. Since that date, the Company's common stock
has been quoted on the OTC Bulletin Board.

     On August 2, 1999, the Company announced an agreement in principle with the
bank lending group and the holders of the 14% Notes on the restructuring of its
indebtedness (the "Indebtedness Restructuring"). Under the terms of the final
agreement, the bank lending group would exchange approximately $523 million in
existing indebtedness for approximately 94.6 percent of the reorganized
Company's equity and $250 million in new senior secured bank debt (the "New
Credit Agreement"). The agreement further provides that the holders of the 14%
Notes would exchange their notes for (a) warrants equal to approximately 4.2
percent of the reorganized Company's fully diluted equity, at an exercise price
based on an enterprise value of $350 million and (b) warrants equal to
approximately 2.0 percent of the reorganized Company's equity, at an exercise
price based on an equity valuation of $280 million. The holders of the 9 3/4%
Senior Subordinated Notes due 2007 (the "9 3/4% Notes") would exchange their
notes for (a) approximately 5.0 percent of the reorganized Company's equity; (b)
warrants equal to approximately 2.8 percent of the reorganized Company's

                                       F-7
<PAGE>   55
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fully diluted equity, at an exercise price based on an enterprise value of $350
million; (c) warrants equal to approximately 5.0 percent of the reorganized
Company's equity, at an exercise price based on an equity valuation of $200
million; and (d) warrants equal to approximately 3.0 percent of the reorganized
Company's equity, at an exercise price based on an equity valuation of $280
million. In addition, the holders of the 11 1/2% Senior Discount Debentures due
2008 (the "11 1/2% Notes") and the holders of unsecured claims of Holdings would
receive a total of approximately 0.4 percent of the reorganized Company's
equity.

     The Company did not make the $7.3 million interest payment on its 9 3/4%
Notes, which was due on August 2, 1999 nor the interest payment due to the
holders of the 14% Notes. The Waiver, pursuant to which the bank lending group
agreed to waive certain financial covenants under its Existing Credit Facility,
expired on July 29, 1999. The holders of the 9 3/4% Notes, the holders of the
11 1/2% Notes, the holders of the 14% Notes and the bank lending group have the
right to declare the respective outstanding loan amounts immediately due and
payable and seek to exercise remedies, including, in the case of the Existing
Credit Facility, foreclosure on the collateral securing such amounts. As such,
the Company has reflected all such loan amounts as current liabilities as of
June 30, 1999 (See Note 10).

     The Company's proposed Indebtedness Restructuring will be subject to the
approval of a United States Bankruptcy Court (the "Bankruptcy Court") pursuant
to Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").

     The Indebtedness Restructuring will be accomplished through a plan of
reorganization (the "Plan") in a prepackaged case under Chapter 11 of the
Bankruptcy Code. The Plan along with a related disclosure statement will be
delivered to the bank lending group and the holders of the 14% Notes in
connection with the Company's pre-petition solicitation of acceptances of the
proposed Plan. If, by the end of the solicitation period, the requisite
acceptances have been received from the bank lending group and the holders of
the 14% Notes, the Company intends to file a petition under Chapter 11 and to
use the acceptances received pursuant to the solicitation to seek confirmation
of the Plan. With respect to all the other creditors and equity holders of the
Company that are impaired under the Plan, the Company intends to seek
confirmation of the Plan under the "cram down" provisions of the Bankruptcy
Code. The Plan will only be confirmed if the Bankruptcy Court determines that
all the requirements of the Bankruptcy Code have been met, including, without
limitation, that the Plan is (i) accepted by all impaired classes of claims and
equity interests or, if rejected by an impaired class, that the Plan does not
"discriminate unfairly" and is "fair and equitable" as to such class, (ii)
feasible and (iii) in the "best interests" of creditors and equity holders
impaired under the Plan.

     The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The Company's
recent losses from operations, significant shareholders' deficiency, default
under the terms of its credit agreement, and the related Indebtedness
Restructuring and planned Bankruptcy Court filings raise substantial doubt about
the Company's ability to operate as a going concern. The appropriateness of
using the going concern basis is dependent upon, among other things, (i) the
Company's ability to reverse its declining revenue trends; (ii) the Company's
ability to generate sufficient cash from operations and/or obtain additional
financing to meets its obligations prior to confirmation of a plan of
reorganization; (iii) confirmation of the Company's plan of reorganization under
the Bankruptcy Code, and (iv) the Company's ability to achieve profitable
operations and generate sufficient cash from operations and/or obtain additional
financing after such confirmation.

3.  SIGNIFICANT ACCOUNTING POLICIES

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

                                       F-8
<PAGE>   56
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Pro Forma Information (Unaudited) -- The pro forma information included in
the accompanying statement of operations and in Note 4 has been prepared to
reflect the Company's recapitalization and merger with Quaker Holding Co.
("Quaker") and related transactions as if these had occurred on July 1, 1996.

     Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase. Cash equivalents, consisting primarily of repurchase agreements with
banks, are stated at cost, which approximates fair market value.

     Restricted Cash -- Restricted cash at June 30, 1999 represents amounts
deposited into a trust as security for letters of credit issued by the Company
for certain employee obligations of the Company (see Note 10).

     Consumable Parts and Repairable Parts -- In order to provide maintenance
and repair services to its customers, the Company is required to maintain
significant levels of computer parts. These parts are classified as consumable
parts or as repairable parts.

     Consumable parts, which are expended during the repair process, are stated
principally at weighted average cost, less an allowance for obsolescence and
shrinkage. Consumable parts are reflected in the cost of revenues during the
period utilized.

     Repairable (rotable) parts, which can be refurbished and reused, are stated
at original weighted average cost less accumulated amortization. Monthly
amortization of repairable parts is reflected in cost of revenues. The costs of
refurbishing parts are also included in the cost of revenues as incurred.
Amortization of repairable costs is based principally on the composite group
method, using straight-line whole life and remaining life composite rates.
Repairable parts generally have an economic life that corresponds to the
estimated normal life cycle of the related products.

     As consumable and repairable parts are retired, the weighted average gross
amounts at which such parts have been carried are removed from the respective
asset accounts, and charged to the accumulated allowance or accumulated
amortization accounts as applicable. Periodic revisions to amortization and
allowance estimates are required, based upon the evaluation of several factors,
including changes in estimated product life cycles, usage levels, and technology
changes. Changes in these estimates are reflected on a prospective basis unless
such changes result from an abnormal retirement (including sales, disposals and
shrinkage) which requires immediate loss recognition. In addition, impairment is
recognized when the net carrying value of the parts exceeds the estimated
current and anticipated undiscounted net cash flows. Measurement of the amount
of impairment if any is calculated based upon the difference between carrying
value and fair value.

     The Company had amortized the majority of its composite group of repairable
parts over an estimated average useful life of five years based principally on
historic product life cycle studies. As a result of the abnormal retirement of
computer parts (see Note 5) and related life studies, the Company revised the
useful lives of repairable parts and increased the obsolescence provision for
consumable parts prospectively. Effective July 1, 1998 the Company began
amortizing its existing composite group of repairable parts and future
repairable part purchases over an estimated average remaining life of three
years.

     Accounting Change - Repairable Parts -- Effective July 1, 1999, the Company
changed its method of accounting for repairable parts from the amortization
method to the usage method. Under the amortization method, the Company amortized
the cost of repairable parts over an estimated average useful life and recorded
the costs of refurbishing repairable parts as a component of cost of revenues as
incurred. Under the usage method, the Company will record in cost of revenues
the cost of new and refurbished parts when used to service customers.
Additionally, under the usage method, management will perform periodic
assessments to determine the existence of excess or obsolete parts and will
record any necessary provisions to reduce such parts to net realizable value,
consistent with past practice. Management believes that this change in method
for repairable parts more accurately reflects periodic results of operations
based on parts used to service customers. The effect of this change will be
recorded as a cumulative effect charge of approximately $74.4

                                       F-9
<PAGE>   57
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

million, during the fiscal quarter ending September 30, 1999. The Company does
not expect to record any tax benefit resulting from this charge. See Note 11 to
the Company's consolidated financial statements for the year ended June 30,
1999. The pro forma effect of this change in accounting principle on prior
years' operations is not presented because such effects are not reasonably
determinable.

     Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided for principally using the straight-line composite group
method over the estimated useful lives of the depreciable asset group.
Capitalized equipment leases and leasehold improvements are amortized over the
shorter of the related lease terms or asset lives. Maintenance and repairs are
charged to expense as incurred. Upon retirement or disposition of property and
equipment, the cost and related accumulated depreciation are removed from the
respective asset accounts, and charged to accumulated depreciation and
amortization accounts as applicable.

     Business and Contract Acquisitions -- Business and contract acquisitions
have been accounted for as purchase transactions, with the purchase price of
each acquisition allocated to the assets acquired and liabilities assumed based
upon their respective estimated fair values at the dates of acquisition.
Consistent with the Company's parts retirement accounting methods, the gross
value of parts acquired is generally stated at weighted average cost. Fair value
adjustments, if any, are reflected as adjustments to the respective accumulated
amortization or allowance accounts. The excess of the purchase price over
identified net assets acquired is amortized, on a straight-line basis, over the
expected period of future benefit (see Notes 6 and 8).

     Typical contract acquisitions are comprised primarily of customer
maintenance and support contracts of complementary entities, along with the
accompanying consumable and repairable parts required to support these contracts
and other identifiable intangibles, such as noncompete agreements. Liabilities
assumed in business and contract acquisitions consist primarily of prepaid
amounts related to multi-period customer maintenance and support contracts.
These liabilities are recorded as deferred revenues at acquisition dates and are
recognized as revenues when earned in accordance with the terms of the
respective contracts.

     Intangible Assets -- Intangible assets are comprised of excess purchase
price over the fair value of net assets acquired, acquired customer lists and
other intangible assets, including the fair value of contractual profit
participation rights and amounts assigned to noncompete agreements.

     Intangible assets, which arise principally from acquisitions, are generally
amortized on a straight-line basis over their respective estimated useful lives
(see Note 8). The Company evaluates the carrying value of intangible assets
whenever events or changes in circumstances indicate that these carrying values
may not be recoverable within the amortization period. Impairment is recognized
when the net carrying value of the intangible asset exceeds the estimated future
undiscounted net cash flows. Measurement of the amount of impairment, if any, is
calculated based upon the difference between carrying value and fair value.

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

     Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed. Revenues derived from other technology
support services are recognized as the service is performed or ratably over the
term of the contract.

     Income Taxes -- The Company recognizes deferred tax assets and liabilities
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities and expected benefits of utilizing
net operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the consolidated financial
statements in the period of enactment.

                                      F-10
<PAGE>   58
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Foreign Currency Translation -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of accumulated
other comprehensive income (loss). Gains and losses resulting from foreign
currency transactions are included in operations, except for intercompany
foreign currency transactions which are of a long-term nature and are
accumulated as a separate component other comprehensive income (loss).

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

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

     Cash and Cash Equivalents, Accounts Receivable, and Accounts Payable -- The
carrying amount of these items are a reasonable estimate of their fair value.

     Debt -- As more fully described in Note 10, the fair values of debt such as
the Existing Credit Facility, the senior discount debentures, the senior
unsecured notes and the senior subordinated notes and the fair values of
interest rate swaps and collars are based primarily on quoted market prices.

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

     Stock-Based Compensation -- The Company follows the provisions of SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does
not require, companies to record compensation cost for stock-based compensation
plans at fair value. The Company has elected to continue to account for
stock-based compensation in accordance with Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, as permitted by SFAS 123. Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock (see Note 13).

     Derivative Financial Instruments -- Derivative financial instruments, which
constitute interest rate swap and collar agreements (see Note 10), are
periodically used by the Company in the management of its variable interest rate
exposure. Amounts to be paid or received under interest rate swap and collar
agreements are recognized as interest expense or interest income during the
period in which these accrue. Gains or losses realized, if any, on the early
termination of interest rate swap or collar contracts are deferred, to be
recognized upon the termination of the related asset or liability or expiration
of the original term of the swap or collar contract, whichever is earlier. The
Company does not hold any derivative financial instruments for trading purposes.

     Earnings (Loss) Per Common Share -- In February 1997, the Financial
Accounting Standards Board (FASB) issued SFAS No. 128, Earnings Per Share, which
the Company adopted during fiscal 1998. SFAS No. 128, which supersedes APB No.
15, Earnings Per Share, requires a dual presentation of basic and diluted
earnings per share as well as disclosures including a reconciliation of the
computation of basic earnings per share to diluted earnings per share. Basic
earnings per share excludes the dilutive impact of common stock equivalents and
is computed by dividing net income (loss) by the weighted average number of
shares of common stock outstanding for the period. Diluted earnings per share
includes the effect of potential dilution from the exercise of outstanding
common stock equivalents into common stock, using the treasury stock

                                      F-11
<PAGE>   59
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

method at the average market price of the Company's common stock for the period.
In accordance with SFAS No. 128, diluted earnings per share is not presented
because the effect of the potential exercise of outstanding common stock
equivalents is antidilutive as a result of the losses incurred for the fiscal
year ended June 30, 1999 and 1998. The total weighted average common stock
equivalents that would have been used to determine diluted earnings per share as
of June 30,1999 and 1998 were as follows: common stock options of approximately
1,341,000 in 1999 and 1,568,000 in 1998 and common stock warrants of 313,047 in
1999 and 1998.

     Comprehensive Income (Loss) -- In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income -- The Company adopted this pronouncement in
fiscal 1999. Components of comprehensive income for the Company include net
income (loss), pension liability adjustment and foreign currency translation.

     Business segmentation -- In June, 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires segments to be determined based on how management measures
performance and makes decisions about allocating resources. Except for
geographic information set forth below, the adoption of SFAS No. 131 has not
resulted in any changes to presentation of financial data in fiscal 1999, as the
Company operates as one business segment. Summary geographic financial
information for the Company for the fiscal years ended June 30, 1999, 1998 and
1997 as is as follows:

<TABLE>
<CAPTION>
                                                 UNITED STATES    CANADA     TOTAL COMPANY
                                                 -------------    -------    -------------
<S>                                              <C>              <C>        <C>
1999
Total revenues.................................    $696,797       $29,146      $725,943
  Total assets.................................    $442,569       $13,318      $455,887
1998
  Total revenues...............................    $772,683       $33,034      $805,717
  Total assets.................................    $523,604       $18,383      $541,987
1997
  Total revenues...............................    $755,254       $30,696      $785,950
  Total assets.................................    $605,764       $17,341      $623,105
</TABLE>

     Recent Accounting Pronouncements -- In February 1998, the FASB issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This statement, which revises certain disclosure requirements for the
Company's retirement plan assets and obligations, is effective for fiscal
periods beginning after December 15, 1997. Restatement of prior years'
information is required, where available. As this statement only requires a
change in methods of disclosure and not in accounting methods, it did not have
any impact on the Company's consolidated financial position and results of
operations. The Company adopted SFAS No. 132 in fiscal 1999, as required.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those assets or liabilities at fair value. This statement
is effective for fiscal years beginning after June 15, 1999, although early
adoption is encouraged. In June, 1999, the FASB issued SFAS No. 137, which
defers the effective date of SFAS No. 133 until June 15, 2000. The Company is
evaluating the effect that the adoption of SFAS No. 133 will have on its
consolidated financial position or results of operations.

     Reclassifications -- Certain reclassifications have been made to prior year
data in order to conform with the 1999 presentation.

                                      F-12
<PAGE>   60
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  MERGER, RECAPITALIZATION AND PRO FORMA INFORMATION

     On August 7, 1997, the Company consummated a merger with Quaker Holding Co.
("Quaker"), an affiliate of DLJ Merchant Banking Partners II, L.P. ("DLJMB").
The merger, which was recorded as a recapitalization for accounting purposes as
of the consummation date, occurred pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") between the Company and Quaker dated May 4, 1997.

     In accordance with the terms of the Merger Agreement, which was formally
approved by the Company's shareholders on August 7, 1997, Quaker merged with and
into the Company, and the holders of approximately 94.7% of shares of Company
common stock outstanding immediately prior to the merger received $23 per share
in cash in exchange for each of these shares. Holders of approximately 5.3% of
shares of Company common stock outstanding immediately prior to the merger
retained such shares in the merged Company, as determined based upon shareholder
elections and stock proration factors specified in the Merger Agreement.
Immediately following the merger, continuing shareholders owned approximately
11.9% of shares of outstanding Company common stock. The aggregate value of the
merger transaction was approximately $940 million, including refinancing of the
Company's then existing revolving credit facility (see Note 10).

     In connection with the merger, the Company raised $85 million through the
public issuance of senior discount debentures, in addition to publicly issued
senior subordinated notes for approximately $150 million. The Company also
entered into a new syndicated credit facility providing for term loans of $470
million and revolving loans of up to $105 million. The proceeds of the senior
discount notes, senior subordinated notes, the initial borrowings under the new
credit facility and the purchase of approximately $225 million of Company common
stock by Quaker have been used to finance the payments of cash to cash-electing
shareholders, to pay the holders of stock options and stock warrants canceled or
converted, as applicable, in connection with the merger, to repay the Company's
then existing revolving credit facility and to pay expenses incurred in
connection with the merger.

     As a result of the merger, the Company incurred various expenses,
aggregating approximately $69.0 million (approximately $63.5 million after
related tax benefit) in connection with consummating the transaction. These
costs consisted primarily of compensation costs, underwriting discounts and
commissions, professional and advisory fees and other expenses. The Company
reported this one-time charge during the first quarter of fiscal 1998. In
addition to these expenses, the Company also incurred approximately $22.3
million of capitalized debt issuance costs associated with the merger financing.
These costs will be charged to expense over the terms of the related debt
instruments.

     The following summarized unaudited pro forma information for the years
ended June 30, 1998 and 1997 assumes that the merger had occurred on July 1,
1996. The pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations which actually
would have resulted had the merger occurred as of July 1, 1996 or which may
result in the future.

<TABLE>
<CAPTION>
                                                                    UNAUDITED
                                                              (IN THOUSANDS, EXCEPT
                                                               PER SHARE AMOUNTS)
                                                               YEAR ENDED JUNE 30,
                                                              ---------------------
                                                                1998         1997
                                                              ---------    --------
<S>                                                           <C>          <C>
PRO FORMA LOSS STATEMENT INFORMATION:
Revenues....................................................  $ 805,717    $785,950
Operating income (loss).....................................    (65,178)     67,750
Loss from continuing operations before income tax provision
  (benefit).................................................   (134,971)       (312)
Net loss....................................................   (124,266)       (183)
Loss per common share.......................................  $   (9.91)   $  (0.01)
  Weighted average common shares outstanding................     12,545      14,200
</TABLE>

                                      F-13
<PAGE>   61
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The 1998 pro forma net loss reflects (1) a net increase in interest expense
of approximately $5.1 million attributable to additional financing incurred in
connection with the merger, net of the repayment of the Company's existing
revolving credit facility; (2) the elimination of the non-recurring merger
expenses of approximately $69.0 million and (3) the elimination of the tax
benefit related to these adjustments of approximately $5.1 million, including
the effect of valuation allowances against certain deferred tax assets (see Note
11). Pro forma weighted average common shares outstanding includes 12,499,978
shares outstanding immediately subsequent to the merger on August 7, 1997 in
addition to shares subsequently issued and outstanding.

     The 1997 pro forma net loss reflects a net increase in interest expense of
approximately $53.4 million ($31.3 million after related pro forma tax effect),
attributable to additional financing incurred in connection with the merger, net
of repayment of the Company's existing revolving credit facility. Pro forma
weighted average common and common equivalent shares outstanding include
12,499,978 shares outstanding immediately subsequent to the merger on August 7,
1997 and dilutive common stock warrants and stock options (convertible into
281,960 and 1,418,530 shares of common stock, respectively) issued in connection
with or immediately subsequent to the merger.

5.  LOSS ON ASSET SALES AND DISPOSALS

     In connection with the company's fiscal 1999 cost reduction program, the
Company sold all of its owned facilities, consisting of a multi-purpose facility
located in Tulsa, Oklahoma, and a Logistics service facility located in a suburb
of Milwaukee, Wisconsin, at a total net loss of approximately $1.5 million.

     Management determined that over 1.2 million of its computer parts were
obsolete during its annual fourth quarter physical inventory in fiscal 1998.
These parts were retired and subsequently sold to salvage dealers for nominal
scrap value. The parts obsolescence was principally due to the convergence of
significant changes in the Company's business operations and the computer
service industry. The significant changes include: (1) accelerated technology
migration trends as customers modify their computing environments to remediate
year 2000 ("Y2K") problems, (2) increasing shifts in demand from data center and
midrange systems to desktop computing environments, and (3) declining life
cycles of the products under current and anticipated service contracts due to
increasingly rapid changes in technology. The abnormal nature of this retirement
and subsequent sale required immediate loss recognition of $75 million in the
fourth quarter of fiscal 1998.

     In connection with the acquisition of BABSS, the Company acquired
contractual profit participation rights pursuant to an existing agreement
between BABSS and ICL Sorbus, Ltd. (ICL) (See Note 6). On June 29, 1998, the
Company sold its contractual profit participation rights back to ICL at a pretax
loss of approximately $12.5 million.

                                      F-14
<PAGE>   62
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  BUSINESS AND CONTRACT ACQUISITIONS

     During the years ended June 30, 1999, 1998 and 1997, the Company acquired
certain net assets of other service companies as follows (in thousands):

<TABLE>
<CAPTION>
                                                       CONSIDERATION                                        EXCESS PURCHASE
                                      -----------------------------------------------                       PRICE OVER FAIR
                        NUMBER OF               LIABILITIES            TOTAL PURCHASE                     VALUE OF NET ASSETS
YEARS ENDED            ACQUISITIONS    CASH       ASSUMED     NOTES        PRICE        OTHER TANGIBLES        ACQUIRED
-----------            ------------   -------   -----------   ------   --------------   ---------------   -------------------
<S>                    <C>            <C>       <C>           <C>      <C>              <C>               <C>
Non-significant
business or
maintenance contract
acquisitions:
  June 30, 1997......       9         $32,258     $45,829     $2,201      $80,288           $32,239             $48,049
  June 30, 1998......       4          10,168       6,317     $4,538       21,023             4,600              16,423
  June 30, 1999......       1           2,793       1,204         --        3,997               139               3,858
</TABLE>

     Included in non-significant maintenance contract acquisitions is the
acquisition of substantially all of the contracts and related assets, including
spare parts of the U.S. computer service business of Memorex Telex Corporation
and certain of its affiliates (collectively, "Memorex Telex"). Memorex Telex had
filed a petition in bankruptcy in the United States Bankruptcy Court (the
"Court") in the District of Delaware on October 15, 1996; the Court approved the
sale to the Company on November 1, 1996. The adjusted purchase price was $52.7
million, comprised of the assumption of certain liabilities under contracts of
the service business, which were valued at $28.3 million, and base cash
consideration of approximately $24.4 million, after certain purchase price
adjustments, excluding transaction and closing costs. Pro forma information has
not been presented with respect to those acquisitions, as the Company does not
consider these acquisitions to be significant. During the third quarter of
fiscal 1997, the Company recorded an adjustment increasing the deferred revenues
assumed in the Memorex Telex acquisition by approximately $2,300,000, to revise
the estimated fair value of certain contract liabilities of the business assumed
by the Company.

7.  PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Land and buildings..........................................  $     --    $  6,312
Equipment...................................................    10,292      15,335
Computer hardware and software..............................    41,480      32,459
Furniture and fixtures......................................     7,088       9,628
Leasehold improvements......................................     7,034       5,190
                                                              --------    --------
                                                                65,894      68,924
Accumulated depreciation and amortization...................   (40,866)    (39,829)
                                                              --------    --------
                                                              $ 25,028    $ 29,095
                                                              ========    ========
</TABLE>

     The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (20-40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).

     Depreciation and amortization expense was approximately $13,842,000,
$15,729,000, and $13,549,000 for the fiscal years ended 1999, 1998 and 1997,
respectively. As more fully described in Note 5, the Company sold both of its
owned facilities during fiscal 1999.

                                      F-15
<PAGE>   63
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8.  INTANGIBLES

     Intangibles consisted of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Excess purchase price over fair value of net assets
  acquired..................................................  $138,307    $137,241
Customer lists..............................................    60,370      60,370
Noncompete agreements.......................................     4,331       9,231
Other intangibles...........................................     9,881       8,014
                                                              --------    --------
                                                               212,889     214,856
Accumulated amortization....................................   (84,380)    (60,827)
                                                              --------    --------
                                                              $128,509    $154,029
                                                              ========    ========
</TABLE>

     The periods (in years) used in determining the amortization rates of
intangible assets are: excess purchase price over fair value of net assets
acquired (4-20); customer lists (3-8); non-compete agreements (3-5) and other
(1-6).

     Amortization expense relating to intangibles was approximately $26,968,000,
$27,169,000, and $23,470,000 for the fiscal years ended 1999, 1998 and 1997,
respectively.

9.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consisted of the following:

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                              -------------------
                                                               1999        1998
                                                              -------    --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Accounts payable............................................  $39,102    $ 56,040
Compensation and benefits...................................   21,175      20,928
Interest....................................................    7,098      11,485
Unused leases...............................................      531         175
Pension accrual.............................................    1,145       1,515
Accrued professional fees...................................      880         568
Non-income taxes and other..................................   22,704      11,140
                                                              -------    --------
                                                              $92,635    $101,851
                                                              =======    ========
</TABLE>

                                      F-16
<PAGE>   64
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10.  DEBT

     Debt consists of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Existing Credit Facility:
  Revolving credit loans....................................  $ 65,700    $ 30,700
  Term loans................................................   457,388     467,938
Senior discount debentures, 11 1/2%, due 2008...............   103,496      92,246
Senior subordinated notes, 9 3/4%, due 2007.................   150,000     150,000
Senior unsecured notes, 14%, due 2006.......................     7,300          --
Seller noninterest-bearing notes payable....................     2,664       2,179
Seller note payable -- purchase of spare parts..............        --         508
Capitalized lease obligations, payable in varying
  installments..............................................       292         752
                                                              --------    --------
                                                               786,840     744,323
Less current portion........................................   786,166      13,311
                                                              --------    --------
                                                              $    674    $731,012
                                                              ========    ========
</TABLE>

     In connection with the Company's merger with Quaker (see Note 4), the
revolving credit loans outstanding immediately prior to the merger were repaid
in full, including all interest due thereon. This refinancing was accomplished,
in part, through the issuance of certain new debt instruments, consisting of the
Existing Credit Facility, senior discount notes, and senior subordinated notes
which, in the aggregate, provided financing of approximately $810 million,
subject to certain conditions.

     As more fully described in Note 2, during fiscal 1999 the Company sought
and obtained a waiver (the "Waiver") of certain financial covenants contained in
its new 1997 Credit Facility (the "Existing Credit Facility"). In connection
with the Waiver, The Company incurred waiver fees of approximately $4.3 million,
which are being amortized as interest expense through July, 1999. This Waiver
expired on July 29, 1999, and the Company is currently, therefore, in technical
default under the terms of the Existing Credit Facility. As a result of this
default, all amounts outstanding under the Existing Credit Facility could become
immediately due and payable, and have been classified as current liabilities in
the accompanying consolidated balance sheet as of June 30, 1999. Additionally,
as a result of this default, any additional borrowings under the Existing Credit
Facility are subject to the approval of the holders of the Existing Credit
Facility.

     As more fully described in Note 2, on August 2, 1999, the Company announced
an agreement in principle with the bank lending group and the holders of the 14%
Notes on the restructuring of its indebtedness (the "Indebtedness
Restructuring"). Although Company management expects the Indebtedness
Restructuring to be consummated, such consummation is subject to various
approvals outside of the Company's control. Currently, the Company does not have
in place any alternate sources of liquidity if the Indebtedness Restructuring,
or another similar debt restructuring agreement, is not consummated.

     The Company had average borrowings of approximately $770,177,000 during
1999 at an average interest rate of approximately 9.0%. Maximum borrowings
during 1999 were approximately $788,000,000. The Company had average borrowings
of $699,873,000 and $221,069,000 during 1998 and 1997, respectively, at an
average interest rate of 9.0% and 6.4%, respectively. Maximum borrowings during
1998 and 1997 were $751,016,000 and $243,350,000, respectively.

     The Company's Canadian subsidiary has available a $5.0 million (Canadian)
revolving line of credit agreement with a local financial institution. At June
30, 1999 and 1998, no amounts were outstanding under

                                      F-17
<PAGE>   65
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the agreement. At June 30, 1997, approximately $471,000 (in U.S. dollars) was
outstanding under this agreement.

     Annual maturities on long-term debt outstanding at June 30, 1999, are as
follows (in thousands): 2000, $786,166; 2001, $612, and 2002, $62.

     The Company has approximately $10,325,000 of letters of credit outstanding
as of June 30, 1999. The Company bears the credit risk on this amount to the
extent that it does not comply with the provisions of certain agreements. The
letters of credit, net of amounts deposited in trust as restricted cash (see
Note 3) reduce the amount available under the Company's revolving loans under
its Existing Credit Facility.

EXISTING CREDIT FACILITY

     The Existing Credit Facility provides for term loans of $470,000,000 (term
loan A -- $195,000,000 and term loan B -- $275,000,000) and revolving loans of
up to $105,000,000. Term loan A expires in August 2003 with uneven quarterly
principal payments commencing in September 1998. Term loan B expires in August
2005 with uneven quarterly principal payments commencing in December 1997. The
revolving loans expire in August 2003. The Company pays a quarterly commitment
fee on the unused amount of the revolving loans. The Company incurred debt
issuance costs of approximately $14,375,000 in connection with the Existing
Credit Facility. These costs have been deferred and are being amortized to
interest expense over the term of the facility.

     The interest rate applicable to the Existing Credit Facility varies, at the
Company's option, based upon LIBOR plus applicable margins (2.75% for term loan
A and the revolving loans and 3.0% for term loan B) or based upon Prime Rate
plus applicable margins (1.5% for term loan A and the revolving loans and 1.75%
for term loan B). The applicable weighted average interest rates at June 30,
1999 were 8.47%, 8.71% and 8.96% for term loan A, term loan B, and the revolving
loans, respectively.

     The Existing Credit Facility contains various terms and covenants which,
among other things, place certain restrictions on the Company's ability to pay
dividends and incur additional indebtedness, and which require the Company to
meet certain minimum financial performance measurements. These measurements
include (1) Adjusted EBITDA, (2) Leverage Ratio, (3) Interest Coverage Ratio,
and (4) Fixed Charge Ratio. Additionally, the Company has pledged the assets of
substantially all of its subsidiaries as collateral security for the Existing
Credit Facility. During the third quarter of fiscal 1998, the Company sought and
obtained amendments to the Existing Credit Facility. The amendments revised
certain financial performance measurements and increased the borrowing rate by
0.25%. The Company incurred fees of approximately $1,400,000 in connection with
the amendments. These costs have been deferred and are being amortized to
interest expense over the remaining term of the related debt instruments. The
estimated fair value of the Existing Credit Facility was approximately $235.4
million and is based on quoted market prices as of June 30, 1999.

SENIOR DISCOUNT DEBENTURES (11 1/2% NOTES)

     The Company received net proceeds of $85,003,520 from the sale of
$148,400,000 principal amount at maturity of its 11 1/2% senior discount
debentures due 2008. The debentures accrete at a rate of 11 1/2% per annum,
compounded semi-annually, to an aggregate principal amount at maturity of
$148,400,000 by August 1, 2002. Commencing on February 1, 2003, cash interest on
the debentures will be payable, semi-annually in arrears on each February 1 and
August 1. The Company incurred debt issuance costs of $3,400,141 in connection
with the senior discount debentures. These costs have been deferred and are
being amortized to interest expense over the life of the debentures.

     Each unit ($1,000 principal amount) was issued with a warrant which allows
the holder, subject to certain conditions, to purchase 1.9 shares of common
stock, for a total of 281,960 shares, at an exercise price
                                      F-18
<PAGE>   66
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of $23.00 per share, subject to adjustment under certain circumstances. The
warrants expire on August 1, 2007. The senior discount debentures are
subordinate to the Existing Credit Facility, the senior subordinated notes and
the senior unsecured notes.

     The estimated fair value of the senior discount debentures and the attached
warrants as of June 30, 1999 was approximately $1.1 million and is based on
quoted market prices for that publicly traded debt.

SENIOR SUBORDINATED NOTES (9 3/4% NOTES)

     The 9 3/4% senior subordinated notes mature on August 1, 2007. Interest on
the notes is payable semi-annually on February 1 and August 1 of each year,
commencing on February 1, 1998. The Company incurred debt issuance costs of
$4,500,000 in connection with the senior subordinated notes. These costs have
been deferred and are being amortized to interest expense over the life of the
notes. The senior subordinated notes are subordinate to the Existing Credit
Facility and the senior unsecured notes.

     The estimated fair value of the senior subordinated notes as of June 30,
1999 was approximately $6.7 million and is based on quoted market prices.

SENIOR UNSECURED NOTES (14% NOTES)

     On January 27, 1999, the Company's principal shareholder, DLJMB and certain
of its affiliates, purchased $7,300,000 of unsecured 14% senior notes due 2006
in DecisionOne Corporation. The proceeds of the 14% senior notes were used for
general corporate purposes. The senior unsecured notes are subordinate only to
the Existing Credit Facility.

     The estimated fair value of the senior unsecured notes as of June 30, 1999,
was approximately $0.3 million based on indicative quoted market rates.

SELLER NOTES PAYABLE

     In connection with certain acquisitions (see Note 6), the Company issued
noninterest-bearing notes, the principal of which is primarily due upon
settlement of contingent portions of the acquisition purchase price within a
specified period subsequent to closing, generally not exceeding one year from
the acquisition date. Contingencies typically pertain to actual amounts of
monthly maintenance contract revenues acquired and prepaid contract liabilities
assumed in comparison to amounts estimated in acquisition agreements. The
Company imputes interest, based upon market rates, for long-term,
non-interest-bearing obligations.

     During 1997, the Company issued a secured note payable to the seller for
the purchase of repairable parts in the original amount of $1,854,000. The note
accrued interest at an interest rate of approximately 8%, and required quarterly
payments of principal and interest of approximately $273,000 through December
1998.

REVOLVING CREDIT LOANS -- 1997 AND PRIOR

     The Company had a revolving credit facility of $300,000,000, which was
repaid in connection with the Company's merger in August, 1997 (see Note 4).

INTEREST RATE RISK MANAGEMENT

     The use of interest rate risk management instruments, such as Swaps and
Collars, is required under the terms of the Existing Credit Facility. The
Company manages interest costs using a mix of fixed and variable rate debt.
Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest rate amounts calculated by
reference to an agreed-upon notional principal amount.

                                      F-19
<PAGE>   67
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Collars limit the Company's exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of rates.

     The following table summarizes the terms of the Company's existing Swaps
and Collars as of June 30, 1999:

<TABLE>
<CAPTION>
                       NOTIONAL AMOUNT    MATURITIES    AVERAGE INTEREST RATE    ESTIMATED FAIR VALUE
                       ---------------    ----------    ---------------------    --------------------
<S>                    <C>                <C>           <C>                      <C>
Variable to Fixed
  Swaps..............   $ 75,000,000        2000             5.9%                     $(115,000)
Collars..............   $100,000,000      2000 - 2001     5.7% - 6.7%                 $(237,000)
</TABLE>

     The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. While
Swaps and Collars represent an integral part of the Company's interest rate risk
management, their incremental effect on interest expense for the year ended June
30, 1999 was not significant.

11.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                            YEARS ENDED JUNE 30,
                                                       ------------------------------
                                                        1999        1998       1997
                                                        ----        ----       ----
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>         <C>
Current:
Federal..............................................  $    --    $ (8,209)   $10,909
  State..............................................       --         100      3,616
  Foreign............................................       --        (372)     1,080
Deferred:
  Federal............................................   21,483      (6,991)     6,460
  State..............................................    3,877        (917)        16
  Foreign............................................       --         612       (113)
                                                       -------    --------    -------
Provision (benefit) for income taxes.................  $25,360    $(15,777)   $21,968
                                                       =======    ========    =======
</TABLE>

                                      F-20
<PAGE>   68
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The tax effects of temporary differences consisted of the following:

<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                                              -----------------------
                                                                1999           1998
                                                              ---------      --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>            <C>
Gross deferred tax assets:
Accounts receivable.........................................  $   6,139      $  7,869
  Inventory.................................................      4,038         2,819
  Accrued expenses..........................................      5,798         6,348
  Unused leases.............................................       (133)         (277)
  Fixed assets..............................................      1,964         1,714
  Intangibles...............................................     21,781        17,049
  Debt issuance costs.......................................      8,155         3,743
  Other.....................................................      2,447         1,298
  Operating loss carryforwards..............................     62,763        53,554
  Tax credit carryforwards..................................      2,969         2,969
                                                              ---------      --------
Gross deferred tax assets...................................    115,921        97,086
Valuation allowance.........................................   (115,921)      (57,833)
                                                              ---------      --------
Gross deferred tax assets less valuation allowance..........         --        39,253
Gross deferred tax liabilities -- repairable spare parts....         --       (13,893)
                                                              ---------      --------
Net deferred tax asset......................................  $      --      $ 25,360
                                                              =========      ========
</TABLE>

     Net operating loss and minimum tax credit carry forwards available at June
30, 1999 expire in the following years:

<TABLE>
<CAPTION>
                                                                            YEAR OF
                                                             AMOUNT        EXPIRATION
                                                         --------------    ----------
                                                         (IN THOUSANDS)
<S>                                                      <C>               <C>
Federal operating losses...............................     $152,085       2006 - 2019
State operating losses.................................      151,178       2000 - 2019
Foreign operating losses...............................       10,148       2000 - 2006
Investment tax credit..................................          134          2004
Minimum tax credit.....................................        2,835       INDEFINITE
</TABLE>

     A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 35% for 1999, 1998 and 1997
to income before income taxes, and the actual provision (benefit) for income
taxes follows:

<TABLE>
<CAPTION>
                                                              1999     1998     1997
                                                              -----    -----    ----
<S>                                                           <C>      <C>      <C>
Federal income tax provision at statutory tax rate..........  (35.0)%  (35.0)%  35.0%
State income taxes, net of federal income tax provision.....   (5.1)    (3.9)    5.0
Foreign income taxes........................................    1.2     (0.4)    0.4
Change in valuation allowance...............................   72.4     29.1
Other.......................................................   (1.9)     2.3     1.0
                                                              -----    -----    ----
Actual income tax provision (benefit) effective tax rate....   31.6%    (7.9)%  41.4%
                                                              =====    =====    ====
</TABLE>

     As a result of the Company's merger with Quaker on August 7, 1997 (see Note
4), an "ownership change" occurred pursuant to Section 382 of the Internal
Revenue Code. Accordingly, for Federal income tax purposes, net operating loss
and tax credit carryforwards of approximately $27.9 million arising prior to the
                                      F-21
<PAGE>   69
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ownership change are limited during any future period to the Section 382
"limitation amount" of approximately $9.0 million per annum. The federal, state
and foreign net operating loss carryforwards expire in varying amounts between
2000 and 2019.

     The Company recorded an increase in the valuation allowance of $58,088,000
during the year ended June 30, 1999 from $57,833,000 as of June 30, 1998 to
$115,921,000 as of June 30, 1999. The valuation allowance reduces the gross
deferred tax assets to the level where management believes that it is more
likely than not that the tax benefit will be realized. The ultimate realization
of deferred tax benefits is dependant upon the generation of future taxable
income during the periods in which the temporary differences become deductible.

12.  OTHER LIABILITIES

     Other (noncurrent) liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                              ------------------
                                                               1999        1998
                                                              ------      ------
                                                                (IN THOUSANDS)
<S>                                                           <C>         <C>
Accrued severance...........................................  $3,847      $2,973
Other noncurrent liabilities................................   2,305       2,763
                                                              ------      ------
                                                              $6,152      $5,736
                                                              ======      ======
</TABLE>

     Accrued severance reflects the actuarial determined liability for the
separation of employees who are entitled to severance benefits under
pre-existing separation pay plans.

     Other noncurrent liabilities include deferred operating lease liabilities
related to scheduled rent increases, recorded in accordance with the provisions
of SFAS No. 13, Accounting for Leases. Also included in other noncurrent
liabilities are provisions relating to unutilized lease losses.

13.  STOCK-BASED COMPENSATION PLANS

     In connection with the Company's merger with Quaker on August 7, 1997 (see
Note 4), all vested and unvested options then outstanding under the Stock Option
and Restricted Stock Purchase Plan were cancelled, and the holders of these
options received the right to receive cash payments equal to the excess, if any,
of $23.00 over the exercise price of each option. Certain option holders elected
to convert 255,828 options under the Stock Option and Restricted Stock Purchase
Plan into options to purchase common stock of the merged Company, in lieu of
cash payments. The converted options were fully vested.

MANAGEMENT INCENTIVE PLAN

     The 1997 Management Incentive Plan (Incentive Plan), a stock option plan,
was created concurrently with the Quaker Merger. Under the Incentive Plan,
officers, directors and key employees may be granted options to purchase the
Company's common stock at an exercise price determined by the Compensation
Committee at the time of the grant. On August 7, 1997, the Company granted
1,179,000 options and granted an additional 725,828 options during the remainder
of fiscal 1998. In July 1998, the Company increased the aggregate number of
shares of Company Common Stock reserved for issuance to the Management Incentive
Plan by 250,000 shares. The aggregate number of shares of Company common stock
permitted for issuance pursuant to the Incentive Plan was 1,948,280 as of June
30, 1999. Options generally vest and become exercisable either in installments
of 25% per year on each of the first through fourth anniversaries of the grant
date or as defined corporate performance goals are met. All options become fully
vested in seven years. Options generally expire upon the earlier of termination
of employment (with a defined period to exercise vested options) or ten years
from date of grant.

                                      F-22
<PAGE>   70
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the Incentive Plan activity for the years ended June 30, 1999
and 1998 is as follows:

<TABLE>
<CAPTION>
                                           1999                             1998
                              ------------------------------    -----------------------------
                                            WEIGHTED AVERAGE                 WEIGHTED AVERAGE
                              SHARES         EXERCISE PRICE      SHARES       EXERCISE PRICE
                              ------        ----------------    ---------    ----------------
<S>                           <C>           <C>                 <C>          <C>
Balance, beginning of
  year......................   1,584,774         $19.86                 0         $ 0.00
Options granted.............   1,748,625           6.92         1,904,828          19.09
  Options exercised.........          --             --          (107,264)          0.96
  Options cancelled.........  (2,236,603)         16.70          (212,790)         22.58
                              ----------                        ---------
Balance, end of year........   1,096,796         $ 4.85         1,584,774         $19.86
                              ==========                        =========
</TABLE>

     The following tables summarize information about options outstanding at
June 30, 1999:

<TABLE>
<CAPTION>
                                     OUTSTANDING OPTIONS
                    ------------------------------------------------------
     RANGE OF                          WEIGHTED AVERAGE   WEIGHTED AVERAGE
  EXERCISE PRICES   NUMBER OF SHARES   CONTRACTUAL LIFE    EXERCISE PRICE
  ---------------   ----------------   ----------------   ----------------
  <S>               <C>                <C>                <C>
       $1.96             332,000             9.8               $ 1.96
   $6.10 - $7.17         685,288             8.4               $ 6.14
  $12.54 - $15.01         74,508             8.1               $14.26
      $26.75               5,000             8.1               $26.75
                       ---------
            Total      1,096,796             8.8               $ 5.52
                       =========
</TABLE>

<TABLE>
<CAPTION>
                          EXERCISABLE OPTIONS
                  ------------------------------------
   RANGE OF                           WEIGHTED AVERAGE
EXERCISE PRICE    NUMBER OF OPTIONS    EXERCISE PRICE
---------------   -----------------   ----------------
<S>               <C>                 <C>
 $6.10 - $7.17          95,662             $ 6.38
$12.54 - $15.01         74,508             $14.26
    $26.75               5,000             $26.75
                       -------
     Total             175,170             $10.31
                       =======
</TABLE>

     On December 14, 1998, the Company repriced 1,225,625 stock option grants,
with an exercise price of $6.10, the then-quoted market price. Of these repriced
stock option grants, 577,625 were cancelled subsequently during fiscal 1999.

     All stock option grants to date have been issued with an exercise price
equal to or in excess of the market price of the underlying stock at the date of
the grant. As a result, and in accordance with APB Opinion 25, no compensation
expense is recognized in the Company's financial statements. Had compensation
expense for the Incentive Plan been determined based on the fair value at the
grant dates under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share for fiscal 1999 and
pro forma net loss and pro forma loss per share (see Note 4) would have been
increased to the following adjusted amounts (dollars in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                                1999         1998
                                                              ---------    ---------
<S>                                                           <C>          <C>
Net loss -- as reported.....................................  $(105,600)   $(183,130)
Net loss -- as adjusted.....................................  $(105,975)   $(185,607)
Basic loss per share -- as reported.........................  $   (8.40)   $  (13.05)
Basic loss per share -- as adjusted.........................  $   (8.43)   $  (13.23)
</TABLE>

     The weighted average fair value of options granted during fiscal 1999 and
1998 is estimated as $3.09 and $10.88, respectively, on the date of the grant
using the Black-Scholes option pricing model with the following

                                      F-23
<PAGE>   71
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assumptions: volatility of 57.0% and 46.0%, respectively, risk-free interest
rate of 5.81% and 5.52%, respectively, dividend yield of 0.0% and an expected
life of 5 years for both fiscal years.

STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN

     Under the plan, the Company, at the discretion of the Board of Directors,
issued restricted stock, incentive stock options and non-qualified options for
shares of the Company's common stock. Vesting of the restricted stock and stock
options was at the discretion of the Board of Directors and generally occurred
at a rate of 25% per year. No such options were granted at prices less then 100%
of the fair value of common shares at the date of issuance. Options were to
expire through February 2007.

     Presented below is the activity in the Plan for the years ended June 30,
1998 and 1997:

<TABLE>
<CAPTION>
                                                          OPTIONS        PRICE RANGE
                                                         ----------    ---------------
<S>                                                      <C>           <C>
Balance, June 30, 1996.................................   2,611,470      $.50 - $27.50
Options exercised......................................    (477,544)     $.50 -  $8.00
  Options granted......................................   1,254,000    $14.00 - $22.13
  Options cancelled....................................    (532,579)    $1.25 - $27.50
                                                         ----------
Balance, June 30, 1997.................................   2,855,347      $.50 - $26.75
  Options exercised....................................     (80,500)    $0.50 -  $6.00
  Options cancelled....................................  (2,774,847)    $0.45 - $26.75
                                                         ----------
Balance, June 30, 1998.................................           0              $0.00
                                                         ==========
</TABLE>

     The fair value of the options granted were estimated using the
Black-Scholes option pricing model. The fair values of the options granted
during 1997 was $9.61. The assumptions used to determine the fair value were as
follows: risk-free interest rate of 6.58 %; expected volatility of 27.1% in 1997
and 27.0%; and an expected life of 10 years.

     Had compensation expense for the Plan been determined based on the fair
value at the grant dates under the provisions of SFAS No. 123, the pre-tax pro
forma compensation expense in 1997 would have been approximately $4.4 million.

14.  LEASE COMMITMENTS

     The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other equipment
under operating lease agreements expiring on various dates through 2009. The
future minimum lease payments for operating leases having initial or remaining
noncancelable terms in excess of one year for the five years succeeding June 30,
1999 and thereafter are as follows (in thousands):

<TABLE>
<S>                                                  <C>
2000...............................................  $20,092
2001...............................................   17,194
2002...............................................   12,188
2003...............................................    9,749
2004...............................................    7,661
Thereafter.........................................    7,623
                                                     -------
                                                     $74,507
                                                     =======
</TABLE>

     Rental expense amounted to approximately $23,405,000, $19,379,000, and
$17,367,000, for the fiscal years ended 1999, 1998 and 1997, respectively.

                                      F-24
<PAGE>   72
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15.  SHAREHOLDERS' DEFICIENCY

     In connection with the merger (see Note 4), certain executive management
employees were given the option to acquire common stock shares at current market
prices. The Company provided non-recourse interest bearing loans to those key
executives who elected to acquire common stock. Total loans outstanding at June
30, 1999 and 1998 were $995,000 and $1,329,000, respectively. The Company has
recorded the employee loans receivable as a reduction to shareholders'
deficiency.

     On August 7, 1997, the Company amended its Certificate of Incorporation to
decrease the number of authorized shares of common stock to 30,000,000 shares,
and to increase the number of authorized shares of preferred stock to 15,000,000
shares.

16.  RETIREMENT PLANS

     The Company maintains a 401(k) plan for its employees. Under this plan,
eligible employees may contribute amounts through payroll deductions
supplemented by employer contributions for investment in various investments
specified in the plan. The Company's contribution to this plan for fiscal 1999,
1998, and 1997 were $1,070,000, $1,013,000 and $0, respectively. A similar plan
exists for former employees of an acquired company for which eligibility and
additional contributions were frozen in September 1988.

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

     Periodic (income) cost, and related financial information with respect to
the defined benefit pension plan is as follows:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              ------    -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year.....................  $9,156    $ 7,290
Service cost................................................      --         --
Interest cost...............................................     610        611
Plan amendments.............................................      --         --
Actuarial (gain) loss.......................................      70      1,613
Benefits paid...............................................    (929)      (358)
                                                              ------    -------
Benefit obligation at end of year...........................  $8,907    $ 9,156
                                                              ======    =======
CHANGE IN PLAN ASSETS:
Fair Value of plan assets at beginning of year..............  $7,858    $ 6,128
Actual return on plan assets................................     747      1,506
Employer contributions......................................     284        582
Benefits paid...............................................    (928)      (358)
                                                              ------    -------
Fair Value of plan assets at end of year....................  $7,961    $ 7,858
                                                              ======    =======
RECONCILIATION OF FUNDED STATUS:
Funded status...............................................  $ (947)   $(1,298)
Unrecognized transition asset...............................     405        438
Unrecognized prior service cost.............................      --         --
Unrecognized (gain) loss....................................   2,255      2,390
                                                              ------    -------
Net amount recognized.......................................  $1,713    $ 1,530
                                                              ======    =======
</TABLE>

                                      F-25
<PAGE>   73
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              ------    -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
AMOUNTS RECOGNIZED ON THE CONSOLIDATED BALANCE SHEETS
CONSIST OF:
Intangible asset............................................  $  405    $   438
Accrued benefit liability...................................    (947)    (1,298)
Accumulated other comprehensive income......................   2,255      2,390
                                                              ------    -------
Accrued benefit cost........................................  $1,713    $ 1,530
                                                              ======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                             1999     1998     1997
                                                             -----    -----    -----
<S>                                                          <C>      <C>      <C>
PERIOD (INCOME) COST:
Service Cost...............................................     --       --       --
Interest Cost..............................................  $ 610    $ 611    $ 521
Expected return on plan assets.............................   (631)    (525)    (409)
Amortization of transition asset...........................     33       33       33
Amortization of prior service costs........................
Amortization of (gain) loss................................     88      115      (23)
                                                             -----    -----    -----
Total Net periodic benefit (income) cost...................  $ 100    $ 234    $ 122
                                                             =====    =====    =====
</TABLE>

     The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.25% for 1999, 7.0% for 1998, and 7.5% for
1997. The expected long-term rate of return on assets was 8.5% for 1999, 1998
and 1997. The mortality table used for 1999 and 1998 was the 1983 Group Annuity
Mortality Table for Males and Females and the mortality table used for 1997 was
the UP-1984 Unisex Mortality Table.

17.  EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS

     During the second quarter of fiscal 1997, in connection with the Memorex
Telex acquisition (see Note 6), the Company recorded a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $0.9 million pre-tax
charge for unutilized lease/contract losses ("exit costs"), primarily associated
with duplicate facilities to be closed. The $3.4 million charge, recorded in
accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits,
reflects the actuarially determined benefit costs for the separation of
employees who are entitled to benefits under pre-existing separation pay plans.
These costs are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the year ended June 30,
1997.

     During the year ended June 30, 1999, the Company recorded charges of $4.5
million, included in selling, general and administrative expenses, for estimated
future severance costs in accordance with SFAS No. 112, which reflects the
actuarially determined benefit costs for the separation of employees who are
entitled to benefits under pre-existing separation pay plans, including
employees separated under the Operating Plan (see Note 2).

     See Note 12 for further information regarding accrued severance and
unutilized lease losses.

18.  COMMITMENTS AND CONTINGENT LIABILITIES

     The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect to four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund sites. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party with respect to a fifth, related site, but has not received
any other communication with respect to that site. Under applicable law, all
parties responsible for disposal of hazardous substances at those sites are
jointly and severally liable for clean-up costs.

                                      F-26
<PAGE>   74
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company initially estimated that its share of the costs of the clean-up of
one of these sites was approximately $500,000, of which $372,000 and $460,000
remained unpaid and accrued in the accompanying consolidated balance sheets as
of June 30, 1999 and 1998, respectively. Complete information as to the scope of
required clean-up at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's potential additional liability, if any, for the cost
of clean-up of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company.

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

     During the fourth quarter of fiscal 1997, the Company received $2.0 million
in full settlement of a claim against its former insurance carrier, related to
unreimbursed losses. This settlement was reflected as a reduction of selling,
general and administrative costs in the accompanying statement of operations.

19.  RELATED PARTY TRANSACTIONS

     During the years ended June 30, 1999 and 1998, respectively, the Company
incurred costs of approximately $528,000 and $500,000 for financial advisory
services to the DLJ Group. Of these amounts, approximately $528,000 and $0
remained unpaid at June 30, 1999 and 1998, respectively.

     As more fully described in Note 10, on January 27, 1999, the DLJ Group
purchased $7,300,000 of unsecured 14% senior notes due 2006 by DecisionOne
Corporation. Interest expense of approximately $430,000 remained unpaid at June
30, 1999, with respect to these obligations.

20.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following is a summary of the unaudited quarterly financial information
for the fiscal years ended 1999 and 1998:

<TABLE>
<CAPTION>
                                                           QUARTER ENDED
                                         -------------------------------------------------
                                         SEPT. 30,    DEC. 31,    MARCH 31,    JUNE 30(1),
                                         ---------    --------    ---------    -----------
                                         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                      <C>          <C>         <C>          <C>
1999
Revenues...............................  $196,044     $185,017    $176,005      $ 168,877
Gross profit...........................    47,565       34,235      32,534         36,546
Net loss...............................   (10,992)     (25,649)    (24,481)       (44,478)
Basic loss per share...................  $  (0.87)    $  (2.04)   $  (1.95)     $   (3.54)
</TABLE>

                                      F-27
<PAGE>   75
                  DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                            QUARTER ENDED
                                        -----------------------------------------------------
                                        SEPT. 30(2),    DEC. 31,    MARCH 31,    JUNE 30(3),
                                        ------------    --------    ---------    ------------
                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                     <C>             <C>         <C>          <C>
1998
Revenues..............................    $202,264      $200,075    $200,910      $ 202,468
Gross profit..........................      44,819        46,769      47,747         52,576
Net loss..............................     (57,627)      (10,718)    (10,994)      (103,791)
Basic net income (loss) per share.....       (3.07)        (0.86)      (0.87)         (8.25)
Pro forma net income (loss)...........       1,237       (10,718)    (10,994)      (103,791)
Pro forma earnings (loss) per share...        0.09         (0.86)      (0.87)         (8.25)
</TABLE>

---------------
(1) Net loss for the fourth quarter of 1999 includes a charge of $25.4 million
    to reduce deferred tax assets to the level where management believes it is
    more likely than not that such tax benefits will be realized (See Note 11).

(2) Net loss for the first quarter of 1998 includes $69.0 million of pre-tax
    merger expenses (See Note 4).

(3) Net loss for the fourth quarter of 1998 includes $87.5 million of pre-tax
    loss on asset sales and disposals and a $12.3 million pre-tax special charge
    to the provision for uncollectible receivables (See Note 5).

                                      F-28
<PAGE>   76

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholder of DecisionOne Corporation:

     We have audited the accompanying consolidated balance sheets of DecisionOne
Corporation (a wholly-owned subsidiary of DecisionOne Holdings Corp.) and
subsidiaries (the "Company") as of June 30, 1999 and 1998, and the related
consolidated statements of operations, shareholder's deficiency and cash flows
for each of the three years in the period ended June 30, 1999. Our audits also
included the related financial statement schedule listed in the Index at Item
14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

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

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Corporation and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company's recent losses from
operations, significant shareholders' deficiency, default under terms of its
credit agreement, and the related Indebtedness Restructuring and planned
Bankruptcy court filings raise substantial doubt about its ability to operate as
a going concern. Management's plans concerning these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

DELOITTE & TOUCHE LLP

Philadelphia, Pennsylvania
September 1, 1999

                                      F-29
<PAGE>   77

                    DECISIONONE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 1999 AND 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                1999         1998
                                                              ---------    ---------
<S>                                                           <C>          <C>
                                       ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $  30,061    $   5,205
  Restricted cash...........................................      3,410
  Accounts receivable, net of allowances of $18,066 and
     $22,572................................................     93,134      114,082
  Consumable parts, net of allowances of $8,906 and
     $9,271.................................................     15,859       23,097
  Prepaid expenses and other assets.........................     18,750       27,797
                                                              ---------    ---------
          Total current assets..............................    161,214      170,181
REPAIRABLE PARTS, Net of accumulated amortization of
  $141,842 and $135,277.....................................    134,924      142,446
PROPERTY AND EQUIPMENT......................................     25,028       29,095
INTANGIBLES.................................................    128,509      154,029
PARENT COMPANY RECEIVABLES, net of allowances of $72,546 and
  $0........................................................                  69,867
DEFERRED TAX ASSET..........................................                  24,370
OTHER ASSETS................................................      2,036       16,451
                                                              ---------    ---------
          TOTAL ASSETS......................................  $ 451,711    $ 606,439
                                                              =========    =========

                      LIABILITIES AND SHAREHOLDER'S DEFICIENCY
CURRENT LIABILITIES:
  Current portion of debt...................................  $ 675,370    $  13,311
  Notes payable -- related party............................      7,300
  Accounts payable and accrued expenses.....................     92,135      101,351
  Deferred revenues.........................................     28,876       40,758
  Other liabilities.........................................      8,540       10,925
                                                              ---------    ---------
          Total current liabilities.........................    812,221      166,345
DEBT........................................................        674      638,766
OTHER LIABILITIES...........................................      6,152        5,796
SHAREHOLDER'S DEFICIENCY:
  Common stock, no par value; one share authorized, issued
     and outstanding in 1999 and 1998.......................         --           --
  Additional paid-in capital................................     12,323       12,323
  Accumulated deficit.......................................   (376,991)    (214,073)
  Accumulated other comprehensive income (loss).............     (2,668)      (2,718)
                                                              ---------    ---------
          Total shareholder's deficiency....................   (367,336)    (204,468)
                                                              ---------    ---------
          TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIENCY....  $ 451,711    $ 606,439
                                                              =========    =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-30
<PAGE>   78

                    DECISIONONE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             1999         1998         1997
                                                           ---------    ---------    --------
<S>                                                        <C>          <C>          <C>
REVENUES.................................................  $ 725,943    $ 805,717    $785,950
COST OF REVENUES.........................................    575,063      613,806     584,755
                                                           ---------    ---------    --------
GROSS PROFIT.............................................    150,880      191,911     201,195
OPERATING EXPENSES:
  Selling, general and administrative expenses...........    125,125      142,462     109,975
  Amortization of intangibles............................     26,969       27,169      23,470
  Merger expenses........................................         --       69,046          --
  Loss on asset sales and disposals......................      1,491       87,458          --
  Provision for parent company receivables...............     72,546           --          --
                                                           ---------    ---------    --------
OPERATING INCOME (LOSS)..................................    (75,251)    (134,224)     67,750
INTEREST EXPENSE, Net of interest income of $4,903 in
  1999, $5,442 in 1998 and $197 in 1997, of which $4,323,
  $5,236 and $0 represent related party interest income
  for 1999, 1998 and 1997, respectively..................     62,644       52,204      14,698
                                                           ---------    ---------    --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
  TAXES (BENEFIT)........................................   (137,895)    (186,428)     53,052
PROVISION (BENEFIT) FOR INCOME TAXES.....................     25,023      (14,787)     21,968
                                                           ---------    ---------    --------
NET INCOME (LOSS)........................................  $(162,918)   $(171,641)   $ 31,084
                                                           =========    =========    ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
  FOREIGN CURRENCY TRANSLATION ADJUSTMENTS...............        (85)        (912)        (38)
  PENSION LIABILITY ADJUSTMENT...........................        135         (517)        (25)
                                                           ---------    ---------    --------
COMPREHENSIVE LOSS.......................................  $(162,868)   $(173,070)   $ 31,021
                                                           =========    =========    ========
PRO FORMA INFORMATION (UNAUDITED) -- See Note 4:
  Pro forma net income (loss)............................               $(111,357)   $  5,726
                                                                        =========    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-31
<PAGE>   79

                    DECISIONONE CORPORATION AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIENCY
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997
            (IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)

<TABLE>
<CAPTION>
                                                                    ACCUMULATED OTHER
                                                                   COMPREHENSIVE INCOME
                                                                          (LOSS)
                                                                 ------------------------
                                                                   FOREIGN                    TOTAL
                                      ADDITIONAL                  CURRENCY      PENSION       SHARE-
                                       PAID-IN     ACCUMULATED   TRANSLATION   LIABILITY     HOLDER'S
                                       CAPITAL       DEFICIT     ADJUSTMENT    ADJUSTMENT   DEFICIENCY
                                      ----------   -----------   -----------   ----------   ----------
<S>                                   <C>          <C>           <C>           <C>          <C>
BALANCE, JUNE 30, 1996..............  $ 255,535     $ (73,516)      $ 622       $(1,848)    $ 180,793
Net income..........................                   31,084                                  31,084
  Adjustment to pension liability...                                                (25)          (25)
  Foreign currency translation
     adjustment.....................                                  (38)                        (38)
  Tax benefit -- disqualifying stock
     disposition....................      2,635                                                 2,635
  Contributed capital...............        439                                                   439
                                      ---------     ---------       -----       -------     ---------
BALANCE, JUNE 30, 1997..............    258,609       (42,432)        584        (1,873)      214,888
  Net loss..........................                 (171,641)                               (171,641)
  Adjustment to pension liability...                                               (517)         (517)
  Foreign currency translation
     adjustment.....................                                 (912)                       (912)
  Dividends declared................   (244,000)                                             (244,000)
  Contributed capital...............        349                                                   349
  Reversal of tax
     benefit -- disqualifying stock
     disposition....................     (2,635)                                               (2,635)
                                      ---------     ---------       -----       -------     ---------
BALANCE, JUNE 30, 1998..............     12,323      (214,073)       (328)       (2,390)     (204,468)
  Net loss..........................                 (162,918)                               (162,918)
  Adjustment to pension liability...                                                135           135
  Foreign currency translation
     adjustment.....................                                  (85)                        (85)
                                      ---------     ---------       -----       -------     ---------
BALANCE, JUNE 30, 1999..............  $  12,323     $(376,991)      $(413)      $(2,255)    $(367,336)
                                      =========     =========       =====       =======     =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-32
<PAGE>   80

                    DECISIONONE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              1999        1998        1997
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
OPERATING ACTIVITIES:
  Net income (loss).......................................  $(162,918)  $(171,641)  $  31,084
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
  Loss on asset sales and disposals.......................      1,491      87,458
     Depreciation.........................................     13,842      15,729      13,549
     Amortization of repairable parts.....................     85,391      81,597      63,870
     Amortization of intangibles..........................     26,968      27,169      23,470
     Provision for uncollectible receivables..............     76,812      15,515       7,849
     Provision for consumable parts obsolescence..........      4,188       1,852       2,554
     Provision for deferred taxes.........................     25,023
     Changes in operating assets and liabilities, net of
       effects from companies acquired, which provided
       (used) cash:
       Accounts receivable................................     16,682        (802)    (38,365)
       Consumable parts...................................      3,057      (1,889)     (6,038)
       Accounts payable and accrued expenses..............     (9,588)      4,081       3,885
       Deferred revenues..................................    (12,714)    (20,311)    (25,427)
       Cumulative effect of accounting change
       Net changes in other assets and liabilities........      3,688     (26,631)     12,543
                                                            ---------   ---------   ---------
       Net cash provided by operating activities..........     71,922      12,127      88,974
                                                            ---------   ---------   ---------
INVESTING ACTIVITIES:
  Capital expenditures....................................    (16,402)    (10,222)    (10,540)
  Repairable spare parts purchases, net...................    (76,415)    (78,239)    (86,446)
  Acquisitions of companies and contracts.................     (2,793)    (10,168)    (32,258)
  Proceeds from sales of assets...........................     16,794          --          --
                                                            ---------   ---------   ---------
       Net cash used in investing activities..............    (78,816)    (98,629)   (129,244)
                                                            ---------   ---------   ---------
FINANCING ACTIVITIES:
  Capital contributions...................................                    349         439
  Payment of dividends to Parent..........................               (244,000)
  Loan made to Parent.....................................                (69,617)
  Net proceeds from borrowings............................     32,292     397,195      43,625
  Principal payments under capital leases.................       (457)       (480)     (1,075)
  Other...................................................        (85)     (2,617)        (63)
                                                            ---------   ---------   ---------
       Net cash provided by financing activities..........     31,750      80,830      42,926
                                                            ---------   ---------   ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......     24,856      (5,672)      2,656
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..............      5,205      10,877       8,221
                                                            ---------   ---------   ---------
CASH AND CASH EQUIVALENTS, END OF YEAR....................  $  30,061   $   5,205   $  10,877
                                                            =========   =========   =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Net cash paid (received) during the year for:
     Interest.............................................  $  64,091   $  38,472   $  15,640
     Income taxes.........................................  $  (8,712)      4,031       8,381
  Noncash investing/financing activities:
     Issuance of seller notes in connection with
       acquisitions.......................................                              2,224
     Issuance of seller notes in exchange for repairable
       parts..............................................                              1,855
     Repairable parts received in lieu of cash for
       accounts receivable................................                              1,124
     Repairable parts received in exchange for the
       assumption of liabilities..........................                  2,100
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-33
<PAGE>   81

                    DECISIONONE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED JUNE 30, 1999, 1998 AND 1997

1.  NATURE OF BUSINESS

     DecisionOne Corporation (a wholly-owned subsidiary of DecisionOne Holdings
Corp., herein called "Holdings") and its wholly-owned subsidiaries (the
"Company") are providers of multivendor computer maintenance and technology
support services. The Company offers its customers a single-source, independent
(i.e., not affiliated with an original equipment manufacturer, or "OEM")
solution for computer maintenance and technology support requirements, including
hardware maintenance services, software support, end-user/help desk services,
network support and other technology support services. These services are
provided by the Company across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, personal
computers ("PCs") and related peripherals. In addition, the Company provides
outsourcing services for OEMs, software publishers, system integrators and other
independent service organizations. The Company delivers its services through an
extensive field service organization of approximately 3,500 service
professionals in over 150 service locations throughout North America and through
strategic alliances in selected international markets.

     On May 29, 1997, Holdings completed a restructuring of the legal
organization of its subsidiaries (the "Corporate Reorganization"). The Corporate
Reorganization involved Holdings' contribution to DecisionOne Corporation of
ownership interests in its subsidiaries, all of which were under Holdings'
control (the "Contributed Subsidiaries"). The Corporate Reorganization has been
accounted for in a manner similar to a pooling of interests. Accordingly, the
Company's consolidated financial statements include the accounts of the
Contributed Subsidiaries for the year ended June 30, 1997.

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

2.  INDEBTEDNESS RESTRUCTURING

     The Company has continued to experience declining trends in revenues, and
earnings throughout fiscal 1999. The declining trends principally result from
lower sales of new service contracts, erosion of contract base, and minimal
growth from acquisitions.

     As previously announced, on January 28, 1999, the Company initiated a
corporate operating plan ("Operating Plan") intended to restore revenue growth
and improve financial performance. The Operating Plan included the following key
components: (i) focusing on all aspects of the Company's operations -- from
sales through service delivery -- on providing information technology support
services to three customer groups: large corporate customers (also known as
"enterprise accounts"), medium sized accounts (also known as "middle market"),
and alliance customers (including OEMs, software publishers, systems
integrators, distributors and resellers, etc.); (ii) a cost-reduction program
designed to reduce the Company's cost structure by $40 million annually upon
full implementation, including a reduction in force of more than 500 employees;
and (iii) financial structure changes, including an additional $7.3 million
investment in the form of 14% Senior Unsecured Notes due 2006 (the "14% Notes")
in DecisionOne Corporation by an affiliate of DLJ Merchant Banking Partners II,
L.P. ("DLJMB"), and the Company's agreement with its lenders to waive certain
financial covenants in the Company's credit agreement through July 29, 1999 (the
"Waiver").

     On July 14, 1999, Holdings' common stock was delisted from the NASDAQ
national market System. Since that date, the Holdings' common stock has been
quoted on the OTC Bulletin Board.

     On August 2, 1999, the Company announced an agreement in principle with the
bank lending group and the holders of the 14% Notes on the restructuring of its
indebtedness (the "Indebtedness Restructuring"). Under the terms of the final
agreement, the bank lending group would exchange approximately $523 million in
existing indebtedness for approximately 94.6 percent of the reorganized
Company's equity and $250 million in new senior secured bank debt (the "New
Credit Agreement"). The agreement further provides that the
                                      F-34
<PAGE>   82
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

holders of the 14% Notes would exchange their notes for (a) warrants equal to
approximately 4.2 percent of the reorganized Company's fully diluted equity, at
an exercise price based on an enterprise value of $350 million and (b) warrants
equal to approximately 2.0 percent of the reorganized Company's equity, at an
exercise price based on an equity valuation of $280 million. The holders of the
9 3/4% Senior Subordinated Notes due 2007 (the "9 3/4% Notes") would exchange
their notes for (a) approximately 5.0 percent of the reorganized Company's
equity; (b) warrants equal to approximately 2.8 percent of the reorganized
Company's fully diluted equity, at an exercise price based on an enterprise
value of $350 million; (c) warrants equal to approximately 5.0 percent of the
reorganized Company's equity, at an exercise price based on an equity valuation
of $200 million; and (d) warrants equal to approximately 3.0 percent of the
reorganized Company's equity, at an exercise price based on an equity valuation
of $280 million. In addition, the holders of the 11 1/2% Senior Discount
Debentures due 2008 (the "11 1/2% Notes") and the holders of unsecured claims of
Holdings would receive a total of approximately 0.4 percent of the reorganized
Company's equity.

     The Company did not make the $7.3 million interest payment on its 9 3/4%
Notes, which was due on August 2, 1999 nor the interest payment due to the
holders of the 14% Notes. The Waiver, pursuant to which the bank lending group
agreed to waive certain financial covenants under its Existing Credit Facility,
expired on July 29, 1999. The holders of the 9 3/4% Notes, the holders of the
11 1/2% Notes, the holders of the 14% Notes and the bank lending group have the
right to declare the respective outstanding loan amounts immediately due and
payable and seek to exercise remedies, including, in the case of the Existing
Credit Facility, foreclosure on the collateral securing such amounts. As such,
the Company has reflected all such loan amounts as current liabilities as of
June 30, 1999 (See Note 10).

     The Company's and Holdings' proposed Indebtedness Restructuring will be
subject to the approval of a United States Bankruptcy Court (the "Bankruptcy
Court") pursuant to Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code").

     The Indebtedness Restructuring will be accomplished through a plan of
reorganization (the "Plan") in a prepackaged case under Chapter 11 of the
Bankruptcy Code. The Plan along with a related disclosure statement will be
delivered to the bank lending group and the holders of the 14% Notes in
connection with the Company's pre-petition solicitation of acceptances of the
proposed Plan. If, by the end of the solicitation period, the requisite
acceptances have been received from the bank lending group and the holders of
the 14% Notes, the Company intends to file a petition under Chapter 11 and to
use the acceptances received pursuant to the solicitation to seek confirmation
of the Plan. With respect to all the other creditors and equity holders of the
Company that are impaired under the Plan, the Company intends to seek
confirmation of the Plan under the "cram down" provisions of the Bankruptcy
Code. The Plan will only be confirmed if the Bankruptcy Court determines that
all the requirements of the Bankruptcy Code have been met, including, without
limitation, that the Plan is (i) accepted by all impaired classes of claims and
equity interests or, if rejected by an impaired class, that the Plan does not
"discriminate unfairly" and is "fair and equitable" as to such class, (ii)
feasible and (iii) in the "best interests" of creditors and equity holders
impaired under the Plan.

     The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The Company's
recent losses from operations, significant shareholders' deficiency, default
under the terms of its credit agreement, and the related Indebtedness
Restructuring and planned Bankruptcy Court filings raise substantial doubt about
the Company's ability to operate as a going concern. The appropriateness of
using the going concern basis is dependent upon, among other things, (i) the
Company's ability to reverse its declining revenue trends; (ii) the Company's
ability to generate sufficient cash from operations and/or obtain additional
financing to meets its obligations prior to confirmation of a plan of
reorganization; (iii) confirmation of the Company's plan of reorganization under
the Bankruptcy Code, and

                                      F-35
<PAGE>   83
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(iv) the Company's ability to achieve profitable operations and generate
sufficient cash from operations and/or obtain additional financing after such
confirmation.

3.  SIGNIFICANT ACCOUNTING POLICIES

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

     Pro Forma Information (Unaudited) -- The pro forma information included in
the accompanying statement of operations and in Note 4 has been prepared to
reflect the Company's and Holding's recapitalization and merger with Quaker
Holding Co. ("Quaker") and related transactions as if these had occurred on July
1, 1996.

     Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase. Cash equivalents, consisting primarily of repurchase agreements with
banks, are stated at cost, which approximates fair market value.

     Restricted Cash -- Restricted cash at June 30, 1999 represents amounts
deposited into a trust as security for letters of credit issued by the Company
for certain employee obligations of the Company (see Note 10).

     Consumable Parts and Repairable Parts -- In order to provide maintenance
and repair services to its customers, the Company is required to maintain
significant levels of computer parts. These parts are classified as consumable
parts or as repairable parts.

     Consumable parts, which are expended during the repair process, are stated
principally at weighted average cost, less an allowance for obsolescence and
shrinkage. Consumable parts are reflected in the cost of revenues during the
period utilized.

     Repairable (rotable) parts, which can be refurbished and reused, are stated
at original weighted average cost less accumulated amortization. Monthly
amortization of repairable parts is reflected in cost of revenues. The costs of
refurbishing parts are also included in the cost of revenues as incurred.
Amortization of repairable costs is based principally on the composite group
method, using straight-line whole life and remaining life composite rates.
Repairable parts generally have an economic life that corresponds to the
estimated normal life cycle of the related products.

     As consumable and repairable parts are retired, the weighted average gross
amounts at which such parts have been carried are removed from the respective
asset accounts, and charged to the accumulated allowance or accumulated
amortization accounts as applicable. Periodic revisions to amortization and
allowance estimates are required, based upon the evaluation of several factors,
including changes in estimated product life cycles, usage levels, and technology
changes. Changes in these estimates are reflected on a prospective basis unless
such changes result from an abnormal retirement (including sales, disposals and
shrinkage) which requires immediate loss recognition. In addition, impairment is
recognized when the net carrying value of the parts exceeds the estimated
current and anticipated undiscounted net cash flows. Measurement of the amount
of impairment if any is calculated based upon the difference between carrying
value and fair value.

     The Company had amortized the majority of its composite group of repairable
parts over an estimated average useful life of five years based principally on
historic product life cycle studies. As a result of the abnormal retirement of
computer parts (See Note 5) and related life studies the Company revised the
useful lives of repairable parts and increased the obsolescence provision for
consumable parts prospectively. Effective July 1, 1998, the Company began
amortizing its existing composite group of repairable parts and future
repairable part purchases over an estimated average remaining life of three
years.

                                      F-36
<PAGE>   84
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Accounting Change - Repairable Parts -- Effective July 1, 1999, the Company
changed its method of accounting for repairable parts from the amortization
method to the usage method. Under the amortization method, the Company amortized
the cost of repairable parts over an estimated average useful life and recorded
the costs of refurbishing repairable parts as a component of cost of revenues as
incurred. Under the usage method, the Company will record in cost of revenues
the cost of new and refurbished parts when used to service customers.
Additionally, under the usage method, management will perform periodic
assessments to determine the existence of excess or obsolete parts and will
record any necessary provisions to reduce such parts to net realizable value,
consistent with past practice. Management believes that this change in method
for repairable parts more accurately reflects periodic results of operations
based on parts used to service customers. The effect of this change will be
recorded as a cumulative effect charge of approximately $74.4 million, during
the fiscal quarter ending September 30, 1999. The Company does not expect to
record any tax benefit resulting from this charge. See Note 11 to the Company's
consolidated financial statements for the year ended June 30, 1999. The pro
forma effect of this change in accounting principle on prior years' operations
is not presented because such effects are not reasonably determinable.

     Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided for principally using the straight-line composite group
method over the estimated useful lives of the depreciable asset group.
Capitalized equipment leases and leasehold improvements are amortized over the
shorter of the related lease terms or asset lives. Maintenance and repairs are
charged to expense as incurred. Upon retirement or disposition of property and
equipment, the cost and related accumulated depreciation are removed from the
respective asset accounts, and charged to accumulated depreciation and
amortization accounts as applicable.

     Business and Contract Acquisitions -- Business and contract acquisitions
have been accounted for as purchase transactions, with the purchase price of
each acquisition allocated to the assets acquired and liabilities assumed based
upon their respective estimated fair values at the dates of acquisition.
Consistent with the Company's parts retirement accounting methods, the gross
value of parts acquired is generally stated at weighted average cost. Fair value
adjustments, if any, are reflected as adjustments to the respective accumulated
amortization or allowance accounts. The excess of the purchase price over
identified net assets acquired is amortized, on a straight-line basis, over the
expected period of future benefit (see Notes 6 and 8).

     Typical contract acquisitions are comprised primarily of customer
maintenance and support contracts of complementary entities, along with the
accompanying consumable and repairable parts required to support these contracts
and other identifiable intangibles, such as noncompete agreements. Liabilities
assumed in business and contract acquisitions consist primarily of prepaid
amounts related to multi-period customer maintenance and support contracts.
These liabilities are recorded as deferred revenues at acquisition dates and are
recognized as revenues when earned in accordance with the terms of the
respective contracts.

     Intangible Assets -- Intangible assets are comprised of excess purchase
price over the fair value of net assets acquired, acquired customer lists and
other intangible assets, including the fair value of contractual profit
participation rights and amounts assigned to noncompete agreements.

     Intangible assets, which arise principally from acquisitions, are generally
amortized on a straight-line basis over their respective estimated useful lives
(see Note 8). The Company evaluates the carrying value of intangible assets
whenever events or changes in circumstances indicate that these carrying values
may not be recoverable within the amortization period. Impairment is recognized
when the net carrying value of the intangible asset exceeds the estimated future
undiscounted future net cash flows. Measurement of the amount of impairment, if
any, is calculated based upon the difference between carrying value and fair
value.

     Revenue -- The Company enters into maintenance contracts whereby it
services various manufacturers' equipment. Revenues from these contracts are
recognized ratably over the terms of such contracts. Prepaid

                                      F-37
<PAGE>   85
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

revenues from multi-period contracts are recorded as deferred revenues and are
recognized ratably over the term of the contracts.

     Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed. Revenues derived from other technology
support services are recognized as the service is performed or ratably over the
term of the contract.

     Income Taxes -- The Company recognizes deferred tax assets and liabilities
for temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities and expected benefits of utilizing
net operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the consolidated financial
statements in the period of enactment.

     Holdings and its wholly owned subsidiaries file a consolidated tax return.
The Company participates in a tax sharing agreement with the consolidated group
whereby consolidated income tax expense or benefit is allocated to the Company
as if the Company was filing separate tax returns.

     Foreign Currency Translation -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity (deficit). Gains and losses resulting from foreign currency transactions
are included in operations, except for intercompany foreign currency
transactions which are of a long-term nature and are accumulated as a separate
component of shareholders' equity (deficit).

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

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

     Cash and Cash Equivalents, Accounts Receivable, and Accounts Payable -- The
carrying amount of these items are a reasonable estimate of their fair value.

     Debt -- As more fully described in Note 10, fair values of debt such as the
Existing Credit Facility, the senior discount debentures, the senior unsecured
notes and the senior subordinated notes and the fair values of interest rate
swaps and collars are based on quoted market prices.

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

     Derivative Financial Instruments -- Derivative financial instruments, which
constitute interest rate swap and collar agreements (see Note 10), are
periodically used by the Company in the management of its variable interest rate
exposure. Amounts to be paid or received under interest rate swap and collar
agreements are recognized as interest expense or interest income during the
period in which these accrue. Gains or losses realized, if any, on the early
termination of interest rate swap or collar contracts are deferred, to be
recognized upon the termination of the related asset or liability or expiration
of the original term of the swap or collar contract, whichever is earlier. The
Company does not hold any derivative financial instruments for trading purposes.

     Comprehensive Income (Loss) -- In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income -- The Company adopted this pronouncement in
fiscal 1999. Components of comprehensive income for the Company include net
income (loss), pension liability adjustment and foreign currency translation.
                                      F-38
<PAGE>   86
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Business segmentation -- In June, 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires segments to be determined based on how management measures
performance and makes decisions about allocating resources. Except for
geographic information set forth below, the adoption of SFAS No. 131 has not
resulted in any changes to presentation of financial data in fiscal 1999, as the
Company operates as one business segment. Summary geographic financial
information for the Company for the fiscal years ended June 30, 1999, 1998 and
1997 as is as follows:

<TABLE>
<CAPTION>
                                                 UNITED STATES    CANADA     TOTAL COMPANY
                                                 -------------    -------    -------------
<S>                                              <C>              <C>        <C>
1999
Total revenues.................................    $696,797       $29,146      $725,943
  Total assets.................................     442,569        13,318       455,887
1998
  Total revenues...............................     772,683        33,034       805,717
  Total assets.................................     523,604        18,383       541,987
1997
  Total revenues...............................     755,254        30,696       785,950
  Total assets.................................     605,764        17,341       623,105
</TABLE>

     In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement, which revises
certain disclosure requirements for the Company's retirement plan assets and
obligations, is effective for fiscal periods beginning after December 15, 1997.
Restatement of prior years' information is required, where available. As this
statement only requires a change in methods of disclosure and not in accounting
methods, it did not have any impact on the Company's consolidated financial
position and results of operations. The Company adopted SFAS No. 132 in fiscal
1999, as required.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133".) This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those statements at fair value. This statement is effective
for fiscal years beginning after June 15, 1999, although early adoption is
encouraged. In June, 1999, the FASB issued SFAS No. 137, which defers the
effective date of SFAS No. 133 until June 15, 2000. The Company is evaluating
the effect that the adoption of SFAS No. 133 will have on its consolidated
financial position or results of operations.

     Reclassifications -- Certain reclassifications have been made to prior year
data in order to conform with the 1999 presentation.

4.  MERGER, RECAPITALIZATION AND PRO FORMA INFORMATION

     On August 7, 1997, the Company and Holdings consummated a merger with
Quaker Holding Co. ("Quaker"), an affiliate of DLJ Merchant Banking Partners II,
L.P. ("DLJMB"). The merger was recorded as a recapitalization for accounting
purposes as of the consummation date, occurred pursuant to an Agreement and Plan
of Merger (the "Merger Agreement") by and among the Company, Holdings and Quaker
dated May 4, 1997.

     In accordance with the terms of the Merger Agreement, which was formally
approved by the Company's shareholders on August 7, 1997, Quaker merged with and
into Holdings, and the holders of approximately 94.7% of shares of Holdings
common stock outstanding immediately prior to the merger received $23 per share
in cash in exchange for each of these shares. Holders of approximately 5.3% of
shares of Holdings

                                      F-39
<PAGE>   87
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

common stock outstanding immediately prior to the merger retained such shares in
the merged Holdings, as determined based upon shareholder elections and stock
proration factors specified in the Merger Agreement. Immediately following the
merger, continuing shareholders owned approximately 11.9% of shares of
outstanding Holdings common stock. The aggregate value of the merger transaction
was approximately $940 million, including refinancing of the Company's then
existing revolving credit facility (see Note 10).

     In connection with the merger, Holdings raised $85 million through the
public issuance of senior discount debentures, and the Company issued publicly
held senior subordinated notes for approximately $150 million. The Company also
entered into a new syndicated credit facility providing for term loans of $470
million and revolving loans of up to $105 million. The proceeds of the senior
discount notes, senior subordinated notes and the initial borrowings under the
new credit facility along with a loan of approximately $59.1 million and a $10.8
million subordinated promissory note, each due 2010, from the Company to
Holdings and the purchase of approximately $225 million of Holdings common stock
by Quaker have been used to finance the payments of cash to cash-electing
Holdings shareholders, to pay the holders of Holdings stock options and stock
warrants canceled or converted, as applicable, in connection with the merger, to
repay the Company's then existing revolving credit facility and to pay expenses
incurred in connection with the merger.

     As a result of the merger, the Company and Holdings incurred various
expenses, aggregating approximately $69.0 million on a pretax basis
(approximately $63.5 million after related tax benefit) in connection with
consummating the transaction. These costs consisted primarily of compensation
costs, underwriting discounts and commissions, professional and advisory fees
and other expenses. The Company reported this one-time charge during the first
quarter of fiscal 1998. In addition to these expenses, the Company and Holdings
also incurred approximately $22.3 million of capitalized debt issuance costs
associated with the merger financing. These costs will be charged to expense
over the terms of the related debt instruments.

     The following summarized unaudited pro forma information for the years
ended June 30, 1998 and 1997 assumes that the merger had occurred on July 1,
1996. The pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations which actually
would have resulted had the merger occurred as of July 1, 1996 or which may
result in the future.

<TABLE>
<CAPTION>
                                                                  (UNAUDITED)
                                                                 (IN THOUSANDS)
                                                              YEAR ENDED JUNE 30,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
PRO FORMA LOSS STATEMENT INFORMATION:
Revenues....................................................  $805,717    $785,950
Operating income (loss).....................................   (65,178)     67,750
Income (loss) from continuing operations before income
  taxes.....................................................  (120,972)      9,772
Net income (loss)...........................................  (111,357)      5,726
</TABLE>

     The 1998 pro forma net loss reflects (1) a net increase in interest expense
of approximately $3.6 million attributable to additional financing incurred in
connection with the merger, net of the repayment of the Company's existing
revolving credit facility, (2) the elimination of the non-recurring merger
expenses of approximately $69.0 million and (3) the elimination of the net tax
benefit related to these adjustments of approximately $5.2 million, including
the effect of valuation allowances against certain deferred tax assets (see Note
11).

     The 1997 pro forma net income reflects a net increase in interest expense
of approximately $43.3 million ($25.4 million after related pro forma tax
effect), attributable to additional financing incurred in connection with the
merger, net of repayment of the Company's existing revolving credit facility.

                                      F-40
<PAGE>   88
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  LOSS ON ASSET SALES AND DISPOSALS

     In connection with the company's fiscal 1999 cost reduction program, the
Company sold all of its owned facilities, consisting of a multi-purpose facility
located in Tulsa, Oklahoma, and a Logistics service facility located in a suburb
of Milwaukee, Wisconsin, at a total net loss of approximately $1.5 million.

     Management determined that over 1.2 million of its computer parts were
obsolete during its annual fourth quarter physical inventory in fiscal 1998.
These parts were retired and subsequently sold to salvage dealers for nominal
scrap value. The parts obsolescence was principally due to the convergence of
significant changes in the Company's business operations and the computer
service industry, which the Company expects will continue. The significant
changes include: (1) accelerated technology migration trends as customers modify
their computing environments to remediate year 2000 ("Y2K") problems, (2)
increasing shifts in demand from data center and midrange systems to desktop
computing environments, and (3) declining life cycles of the products under
current and anticipated service contracts due to increasingly rapid changes in
technology. The abnormal nature of this retirement and subsequent sale required
immediate loss recognition of $75 million in the fourth quarter of fiscal 1998.

     In connection with the acquisition of BABSS, the Company acquired
contractual profit participation rights pursuant to an existing agreement
between BABSS and ICL Sorbus, Ltd. (ICL) (See Note 6). On June 29, 1998, the
Company sold its contractual profit participation rights back to ICL at a pretax
loss of approximately $12.5 million.

6.  BUSINESS AND CONTRACT ACQUISITIONS

     During the years ended June 30, 1999, 1998 and 1997, the Company acquired
certain net assets of other service companies as follows (in thousands):

<TABLE>
<CAPTION>
                                                       CONSIDERATION                                        EXCESS PURCHASE
                                      -----------------------------------------------                       PRICE OVER FAIR
                        NUMBER OF               LIABILITIES            TOTAL PURCHASE                     VALUE OF NET ASSETS
YEARS ENDED            ACQUISITIONS    CASH       ASSUMED     NOTES        PRICE        OTHER TANGIBLES        ACQUIRED
-----------            ------------   -------   -----------   ------   --------------   ---------------   -------------------
<S>                    <C>            <C>       <C>           <C>      <C>              <C>               <C>
Non-significant
business or
maintenance contract
acquisitions:
  June 30, 1997......       9         $32,258     $45,829     $2,201      $80,288           $32,239             $48,049
  June 30, 1998......       4          10,168       6,317      4,538       21,023             4,600              16,423
  June 30, 1999......       1           2,793       1,204         --        3,997               139               3,858
</TABLE>

     Included in nonsignificant maintenance contract acquisitions is the
acquisition of substantially all of the contracts and related assets, including
spare parts of the U.S. computer service business of Memorex Telex Corporation
and certain of its affiliates (collectively, "Memorex Telex"). Memorex Telex had
filed a petition in bankruptcy in the United States Bankruptcy Court (the
"Court") in the District of Delaware on October 15, 1996; the Court approved the
sale to the Company on November 1, 1996. The adjusted purchase price was $52.7
million, comprised of the assumption of certain liabilities under contracts of
the service business, which were valued at $28.3 million, and base cash
consideration of approximately $24.4 million, after certain purchase price
adjustments, excluding transaction and closing costs. During the third quarter
of fiscal 1997, the Company recorded an adjustment increasing the deferred
revenues assumed in the Memorex Telex acquisition by approximately $2,300,000,
to revise the estimated fair value of certain contract liabilities of the
business assumed by the Company.

                                      F-41
<PAGE>   89
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7.  PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Land and buildings..........................................  $     --    $  6,312
Equipment...................................................    10,292      15,335
Computer hardware and software..............................    41,480      32,459
Furniture and fixtures......................................     7,088       9,628
Leasehold improvements......................................     7,034       5,190
                                                              --------    --------
                                                                65,894      68,924
Accumulated depreciation and amortization...................   (40,866)    (39,829)
                                                              --------    --------
                                                              $ 25,028    $ 29,095
                                                              ========    ========
</TABLE>

     The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (20-40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).

     Depreciation and amortization expense was approximately $13,842,000 ,
$15,729,000, and $13,549,000 for the fiscal years ended 1999, 1998 and 1997,
respectively. As more fully described in Note 5, the Company sold both of its
owned facilities during fiscal 1999.

8.  INTANGIBLES

     Intangibles consisted of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Excess purchase price over fair value of net assets
  acquired..................................................  $138,307    $137,241
Customer lists..............................................    60,370      60,370
Noncompete agreements.......................................     4,331       9,231
Other intangibles...........................................     9,881       8,014
                                                              --------    --------
                                                               212,889     214,856
Accumulated amortization....................................   (84,380)    (60,827)
                                                              --------    --------
                                                              $128,509    $154,029
                                                              ========    ========
</TABLE>

     The periods (in years) used in determining the amortization rates of
intangible assets are: excess purchase price over fair value of net assets
acquired (4-20); customer lists (3-8); noncompete agreements (3-5) and other
(1-6).

     Amortization expense relating to intangibles was approximately $26,968,000,
$27,169,00, and $23,470,000, for the fiscal years ended 1999, 1998 and 1997,
respectively.

                                      F-42
<PAGE>   90
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consisted of the following:

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                              -------------------
                                                               1999        1998
                                                              -------    --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Accounts payable............................................  $39,102    $ 56,040
Compensation and benefits...................................   21,175      20,928
Interest....................................................    7,098      11,485
Unused leases...............................................      531         175
Pension accrual.............................................    1,145       1,515
Accrued professional fees...................................      880         568
Non-income taxes and other..................................   22,204      10,640
                                                              -------    --------
                                                              $92,135    $101,351
                                                              =======    ========
</TABLE>

10.  DEBT

     Debt consists of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Existing Credit Facility:
Revolving credit loans......................................  $ 65,700    $ 30,700
  Term loans................................................   457,388     467,938
Senior subordinated notes, 9 3/4%, due 2007.................   150,000     150,000
Senior unsecured notes, 14%, due 2006.......................     7,300          --
Seller noninterest-bearing notes payable....................     2,664       2,179
Seller note payable -- purchase of spare parts..............        --         508
Capitalized lease obligations, payable in varying
  installments..............................................       292         752
                                                              --------    --------
                                                               683,344     652,077
Less current portion........................................   682,670      13,311
                                                              --------    --------
                                                              $    674    $638,766
                                                              ========    ========
</TABLE>

     In connection with the Company's merger with Quaker (see Note 4), the
revolving credit loans outstanding immediately prior to the merger were repaid
in full, including all interest due thereon. This refinancing was accomplished,
in part, through the issuance of certain new debt instruments, consisting of a
Existing Credit Facility, senior discount notes, and senior subordinated notes
which, in the aggregate, provide financing of approximately $810 million,
subject to certain conditions.

     As more fully described in Note 2, during fiscal 1999 the Company sought
and obtained a waiver (the "Waiver") of certain financial covenants contained in
its new 1997 Credit Facility (the "Existing Credit Facility"). In connection
with the Waiver, The Company incurred waiver fees of approximately $4.3 million,
which are being amortized as interest expense through July, 1999. This Waiver
expired on July 29, 1999, and the Company is currently, therefore, in technical
default under the terms of the Existing Credit Facility. As a result of this
default, all amounts outstanding under the Existing Credit Facility could become
immediately due and payable, and have been classified as current liabilities in
the accompanying consolidated balance sheet

                                      F-43
<PAGE>   91
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

as of June 30, 1999. Additionally, as a result of this default, any additional
borrowings under the Existing Credit Facility are subject to the approval of the
holders of the Existing Credit Facility.

     As more fully described in Note 2, on August 2, 1999, the Company announced
an agreement in principle with the bank lending group and the holders of the 14%
Notes on the restructuring of its indebtedness (the "Indebtedness
Restructuring"). Although Company management expects the Indebtedness
Restructuring to be consummated, such consummation is subject to various
approvals outside of the Company's control. Currently, the Company does not have
in place any alternate sources of liquidity if the Indebtedness Restructuring,
or another similar debt restructuring agreement, is not consummated.

     The Company had average borrowings of approximately $675,417,000 during
1999 at an average interest rate of 8.3%. Maximum borrowings during 1999 were
approximately $690,055,000. The Company had average borrowings of $609,629,000
and $221,069,000 during 1998 and 1997, respectively, at an average interest rate
of 8.2% and 6.4%, respectively. Maximum borrowings during 1998 and 1997 were
$659,732,000 and $243,350,000, respectively.

     The Company's Canadian subsidiary has available a $5.0 million (Canadian)
revolving line of credit agreement with a local financial institution. At June
30, 1999 and 1998, no amounts were outstanding under this agreement. At June 30,
1997, approximately $471,000 (in U.S. dollars) was outstanding under this
agreement.

     Annual maturities on long-term debt outstanding at June 30, 1999, are as
follows (in thousands): 2000, $682,670; 2001, $612 and; 2002, $62.

     The Company has approximately $10,325,000 of letters of credit outstanding
as of June 30, 1999. The Company bears the credit risk on this amount to the
extent that it does not comply with the provisions of certain agreements. The
letters of credit, net of amounts deposited in trust as restricted cash (see
Note 3), reduce the amount available under the Company's revolving loans under
its Existing Credit Facility.

EXISTING CREDIT FACILITY

     The Existing Credit Facility provides for term loans of $470,000,000 (term
loan A -- $195,000,000 and term loan B -- $275,000,000) and revolving loans of
up to $105,000,000. Term loan A expires in August 2003 with uneven quarterly
principal payments commencing in September 1998. Term loan B expires in August
2005 with uneven quarterly principal payments commencing in December 1997. The
revolving loans expire in August 2003. The Company pays a quarterly commitment
fee on the unused amount of the revolving loans. The Company incurred debt
issuance costs of approximately $14,375,000 in connection with the Existing
Credit Facility. These costs have been deferred and are being amortized to
interest expense over the term of the facility.

     The interest rate applicable to the Existing Credit Facility varies, at the
Company's option, based upon LIBOR plus applicable margins (2.75% for term loan
A and the revolving loans and 3.0% for term loan B) or based upon Prime Rate
plus applicable margins (1.5% for term loan A and the revolving loans and 1.75%
for term loan B). The applicable weighted average interest rates at June 30,
1999 were 8.47%, 8.71% and 8.96% for term loan A, term loan B, and the revolving
loans, respectively.

     The Existing Credit Facility contains various terms and covenants which,
among other things, place certain restrictions on the Company's ability to pay
dividends and incur additional indebtedness, and which require the Company to
meet certain minimum financial performance measurements. These measurements
include (1) Adjusted EBITA, (2) Leverage Ratio, (3) Interest Coverage Ratio, and
(4) Fixed Charge Ratio. Additionally, Holdings has pledged the assets of
substantially all of its subsidiaries as collateral security for the Existing
Credit Facility. During the third quarter of fiscal 1998, the Company sought and
obtained amendments to the Existing Credit Facility. The amendments revised
certain financial performance measure-

                                      F-44
<PAGE>   92
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ments and increased the borrowing rate by 0.25%. The Company incurred fees of
approximately $1,400,000 in connection with the amendments. These costs have
been deferred and are being amortized to interest expense over the remaining
term of the related debt instruments. The Company is in compliance with its
covenants under the amended Existing Credit Facility as of June 30, 1999.

     The estimated fair value of the Existing Credit Facility was approximately
$235.4 million and is based on quoted market prices, as of June 30, 1999.

SENIOR SUBORDINATED NOTES (9 3/4% NOTES)

     The 9 3/4% senior subordinated notes mature on August 1, 2007. Interest on
the notes is payable semi-annually on February 1 and August 1 of each year,
commencing on February 1, 1998. The Company incurred debt issuance costs of
$4,500,000 in connection with the senior subordinated notes. These issuance
costs have been deferred and are being amortized over the life of the notes.

     The estimated fair value of the senior subordinated notes as of June 30,
1999 was approximately $6.7 million and is based on quoted market prices. The
senior subordinated notes are subordinate to the Existing Credit Facility and
the senior unsecured notes.

SENIOR UNSECURED NOTES (14% NOTES)

     On January 27, 1999, the Company's principal shareholder, DLJMB and certain
of its affiliates, purchased $7,300,000 of unsecured 14% senior notes due 2006
in DecisionOne Corporation. The proceeds of the 14% senior notes were used for
general corporate purposes. The senior unsecured notes are subordinate only to
the Existing Credit Facility.

     The estimated fair value of the senior unsecured notes as of June 30, 1999,
was approximately $0.3 million based on indicative quoted market rates.

SELLER NOTES PAYABLE

     In connection with certain acquisitions (see Note 6), the Company issued
noninterest-bearing notes, the principal of which is primarily due upon
settlement of contingent portions of the acquisition purchase price within a
specified period subsequent to closing, generally not exceeding one year from
the acquisition date. Contingencies typically pertain to actual amounts of
monthly maintenance contract revenues acquired and prepaid contract liabilities
assumed in comparison to amounts estimated in acquisition agreements. The
Company imputes interest, based upon market rates, for long-term,
non-interest-bearing obligations.

     During 1997, the Company issued a secured note payable to the seller for
the purchase of repairable parts in the original amount of $1,854,000. The note
accrues interest at an interest rate of approximately 8%, and requires quarterly
payments of principal and interest of approximately $273,000 until maturity in
December 1998.

REVOLVING CREDIT LOANS -- 1997 AND PRIOR

     The Company had a revolving credit facility of $300,000,000, which was
repaid in connection with the Company's merger in August, 1997 (see Note 4).

INTEREST RATE RISK MANAGEMENT

     The use of interest rate risk management instruments, such as Swaps and
Collars, is required under the terms of the Existing Credit Facility. The
Company manages interest costs using a mix of fixed and variable rate debt.
Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest rate amounts calculated by
reference to an agreed-upon notional principal amount.

                                      F-45
<PAGE>   93
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Collars limit the Company's exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of rates.

     The following table summarizes the terms of the Company's existing Swaps
and Collars as of June 30, 1999:

<TABLE>
<CAPTION>
                       NOTIONAL AMOUNT    MATURITIES     AVERAGE INTEREST RATE    ESTIMATED FAIR VALUE
                       ---------------    -----------    ---------------------    --------------------
<S>                    <C>                <C>            <C>                      <C>
Variable to Fixed
  Swaps..............   $ 75,000,000             2000                5.9%              $(115,000)
Collars..............   $100,000,000      2000 - 2001         5.7% - 6.7%              $(237,000)
</TABLE>

     The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. While
Swaps and Collars represent an integral part of the Company's interest rate risk
management, their incremental effect on interest expense for the year ended June
30, 1999 was not significant.

11.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                            YEARS ENDED JUNE 30,
                                                       ------------------------------
                                                        1999        1998       1997
                                                       -------    --------    -------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>         <C>
Current:
Federal..............................................  $   653    $ (8,209)   $10,909
  State..............................................                  100      3,616
  Foreign............................................                 (372)     1,080
Deferred:
  Federal............................................   21,240      (6,315)     6,460
  State..............................................    3,130        (603)        16
  Foreign............................................                  612       (113)
                                                       -------    --------    -------
Provision (benefit) for income taxes.................  $25,023    $(14,787)   $21,968
                                                       =======    ========    =======
</TABLE>

     The tax effects of temporary differences consisted of the following:

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              ---------------------
                                                                1999         1998
                                                              ---------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>          <C>
Gross deferred tax assets:
Accounts receivable.........................................  $   6,139    $  7,869
  Inventory.................................................      4,038       2,819
  Accrued expenses..........................................     34,971       6,348
  Unused leases.............................................       (133)       (277)
  Fixed assets..............................................      1,964       1,714
  Intangibles...............................................     21,781      17,049
  Other.....................................................      2,447       1,298
  Operating loss carryforwards..............................     59,929      52,278
  Tax credit carryforwards..................................      2,969       2,969
                                                              ---------    --------
</TABLE>

                                      F-46
<PAGE>   94
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              ---------------------
                                                                1999         1998
                                                              ---------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>          <C>
Gross deferred tax assets...................................    134,105      92,067
Valuation allowance.........................................   (134,105)    (53,804)
                                                              ---------    --------
Gross deferred tax assets less valuation allowance..........  $      --    $ 38,263
  Gross deferred tax liabilities -- repairable spare
     parts..................................................                (13,893)
                                                              ---------    --------
Net deferred tax asset......................................  $      --    $ 24,370
                                                              =========    ========
</TABLE>

     Net operating loss and minimum tax credit carryforwards available at June
30, 1999 expire in the following years:

<TABLE>
<CAPTION>
                                                                         YEAR OF
                                                             AMOUNT     EXPIRATION
                                                            --------    ----------
                                                                (IN THOUSANDS)
<S>                                                         <C>         <C>
Federal operating losses..................................  $145,036    2006 - 2019
State operating losses....................................   147,728    2000 - 2019
Foreign operating losses..................................    10,148    2000 - 2006
Investment tax credit.....................................       134       2004
Minimum tax credit........................................     2,835    INDEFINITE
</TABLE>

     A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 35% for 1999, 1998 and 1997
to income before income taxes, and the actual provision (benefit) for income
taxes follows:

<TABLE>
<CAPTION>
                                                              1999     1998     1997
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Federal income tax provision at statutory tax rate..........  (35.0)%  (35.0)%   35.0%
State income taxes, net of federal income tax provision.....   (5.2)    (3.8)     5.0
Foreign income taxes........................................    0.7     (0.4)     0.4
Change in valuation allowance...............................   58.2     30.0
Other.......................................................   (0.6)     2.4      1.0
                                                              -----    -----    -----
Actual income tax provision (benefit) effective tax rate....   18.1%    (6.8)%   41.4%
                                                              =====    =====    =====
</TABLE>

     As a result of the Company's merger with Quaker on August 7, 1997 (see Note
4), an "ownership change" occurred pursuant to Section 382 of the Internal
Revenue Code. Accordingly, for Federal income tax purposes, net operating loss
and tax credit carryforwards of approximately $27.6 million arising prior to the
ownership change are limited during any future period to the Section 382
"limitation amount" of approximately $9.0 million per annum. The federal, state
and foreign net operating loss carryforwards expire in varying amounts between
1999 and 2019.

     The Company recorded an increase in the valuation allowance of $80,301,000
during the year ended June 30, 1999, from $53,804,000 as of June 30, 1998 to
$134,105,000 as of June 30, 1999. The valuation allowance reduces the gross
deferred tax assets to the level where management believes that it is more
likely than not that the tax benefit will be realized. The ultimate realization
of deferred tax benefits is dependant upon the generation of future taxable
income during the periods in which the temporary differences become deductible.

                                      F-47
<PAGE>   95
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12.  OTHER LIABILITIES

     Other (noncurrent) liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                  JUNE 30,
                                                              ----------------
                                                               1999      1998
                                                              ------    ------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Accrued severance...........................................  $3,847    $2,973
Other noncurrent liabilities................................   2,305     2,823
                                                              ------    ------
                                                              $6,152    $5,796
                                                              ======    ======
</TABLE>

     Accrued severance reflects the actuarial determined liability for the
separation of employees who are entitled to severance benefits under
pre-existing separation pay plans.

     Other noncurrent liabilities include deferred operating lease liabilities
related to scheduled rent increases, recorded in accordance with the provisions
of SFAS No. 13, Accounting for Leases. Also included in other noncurrent
liabilities are provisions relating to unutilized lease losses.

13.  LEASE COMMITMENTS

     The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other equipment
under operating lease agreements expiring on various dates through 2009. The
future minimum lease payments for operating leases having initial or remaining
noncancelable terms in excess of one year for the five years succeeding June 30,
1999 and thereafter are as follows (in thousands):

<TABLE>
<S>                                                  <C>
2000...............................................  $20,092
2001...............................................   17,194
2002...............................................   12,188
2003...............................................    9,749
2004...............................................    7,661
Thereafter.........................................    7,623
                                                     -------
                                                     $74,507
                                                     =======
</TABLE>

     Rental expense amounted to approximately $23,405,000, $19,379,000, and
$17,367,000, for the fiscal years ended 1999, 1998 and 1997, respectively.

14.  RETIREMENT PLANS

     The Company maintains a 401(k) plan for its employees. Under this plan,
eligible employees may contribute amounts through payroll deductions
supplemented by employer contributions for investment in various investments
specified in the plan. The Company's contribution to this plan for fiscal 1999,
1998, and 1997 were $1,070,000, $1,013,000 and $0, respectively. A similar plan
exists for former employees of an acquired company for which eligibility and
additional contributions were frozen in September 1988.

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

                                      F-48
<PAGE>   96
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Periodic (income) cost, and related financial information with respect to
the defined benefit pension plan is as follows:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              ------    -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year.....................  $9,156    $ 7,290
Service cost................................................      --         --
Interest cost...............................................     610        611
Plan amendments.............................................      --         --
Actuarial (gain) loss.......................................      70      1,613
Benefits paid...............................................    (929)      (358)
                                                              ------    -------
Benefit obligation at end of year...........................  $8,907    $ 9,156
                                                              ======    =======
CHANGE IN PLAN ASSETS:
Fair Value of plan assets at beginning of year..............  $7,858    $ 6,128
Actual return on plan assets................................     747      1,506
Employer contributions......................................     284        582
Benefits paid...............................................    (928)      (358)
                                                              ------    -------
Fair Value of plan assets at end of year....................  $7,961    $ 7,858
                                                              ======    =======
RECONCILIATION OF FUNDED STATUS:
Funded status...............................................  $ (947)   $(1,298)
Unrecognized transition asset...............................     405        438
Unrecognized prior service cost.............................      --         --
Unrecognized (gain) loss....................................   2,255      2,390
                                                              ------    -------
Net amount recognized.......................................  $1,713    $ 1,530
                                                              ======    =======
AMOUNTS RECOGNIZED ON THE CONSOLIDATED BALANCE SHEETS
  CONSIST OF:
Intangible asset............................................  $  405    $   438
Accrued benefit liability...................................    (947)    (1,298)
Accumulated other comprehensive income......................   2,255      2,390
                                                              ------    -------
Accrued benefit cost........................................  $1,713    $ 1,530
                                                              ======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                             1999     1998     1997
                                                             -----    -----    -----
<S>                                                          <C>      <C>      <C>
PERIOD (INCOME) COST:
Service Cost...............................................     --       --       --
Interest Cost..............................................  $ 610    $ 611    $ 521
Expected return on plan assets.............................   (631)    (525)    (409)
Amortization of transition asset...........................     33       33       33
Amortization of prior service costs........................
Amortization of (gain) loss................................     88      115      (23)
                                                             -----    -----    -----
Total Net periodic benefit (income) cost...................  $ 100    $ 234    $ 122
                                                             =====    =====    =====
</TABLE>

     The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.25% for 1999, 7.0% for 1998, and 7.5% for
1997. The expected long-term rate of return on assets was 8.5%

                                      F-49
<PAGE>   97
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for 1999, 1998 and 1997. The mortality table used for 1999 and 1998 was the 1983
Group Annuity Mortality Table for Males and Females and the mortality table used
for 1997 was the UP-1984 Unisex Mortality Table.

15.  EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS

     During the second quarter of fiscal 1997, in connection with the Memorex
Telex acquisition (see Note 5), the Company recorded a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $0.9 million pre-tax
charge for unutilized lease/contract losses ("exit costs"), primarily associated
with duplicate facilities to be closed. The $3.4 million charge, recorded in
accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits,
reflects the actuarially determined benefit costs for the separation of
employees who are entitled to benefits under pre-existing separation pay plans.
These costs are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the year ended June 30,
1997.

     During the year ended June 30, 1999, the Company recorded charges of $4.5
million, included in selling, general and administrative expenses, for estimated
future severance costs in accordance with SFAS No. 112, which reflects the
actuarially determined benefit costs for the separation of employees who are
entitled to benefits under pre-existing separation pay plans, including
employees separated under the Operating Plan (see Note 2).

     See Note 12 for further information regarding accrued severance and
unutilized lease losses.

16.  COMMITMENTS AND CONTINGENT LIABILITIES

     The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect to four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund sites. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party with respect to a fifth, related site, but has not received
any other communication with respect to that site. Under applicable law, all
parties responsible for disposal of hazardous substances at those sites are
jointly and severally liable for clean-up costs. The Company initially estimated
that its share of the costs of the clean-up of one of these sites was
approximately $500,000, of which $372,000 and $460,000 remained unpaid and
accrued in the accompanying consolidated balance sheets as of June 30, 1999 and
1998. Complete information as to the scope of required clean-up at these sites
is not yet available and, therefore, management's evaluation may be affected as
further information becomes available. However, in light of information
currently available to management, including information regarding assessments
of the sites to date and the nature of involvement of the Company's predecessor
at the sites, it is management's opinion that the Company's potential additional
liability, if any, for the cost of clean-up of these sites will not be material
to the consolidated financial position, results of operations or liquidity of
the Company.

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

     During the fourth quarter of fiscal 1997, the Company received $2.0 million
in full settlement of a claim against its former insurance carrier, related to
unreimbursed losses. This settlement was reflected as a reduction of selling,
general and administrative costs in the accompanying statement of operations.

17.  RELATED PARTY TRANSACTIONS

     In connection with the Quaker Merger (See Note 4), DecisionOne Corporation
made a loan to DecisionOne Holdings Corp. for $59,100,000 and a $10,800,000
subordinated promissory note, each due 2010,
                                      F-50
<PAGE>   98
                    DECISIONONE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

which were used to finance the merger. The subordinated promissory notes accrue
interest at an annual interest rate of 8 1/4%. Interest and principal are both
due upon maturity in August 2010. Interest income recorded by DecisionOne
Corporation was approximately $4,323,000 and $5,236,000 in fiscal 1999 and 1998,
respectively.

     As more-fully described in Note 2, the Company's proposed plan for
Indebtedness Restructuring will result in a reorganization of the Company and
Holdings, and raises substantial doubt as to the ultimate collectibility of the
aforementioned subordinated promissory notes between Holdings and the Company.
Accordingly, these amounts have been fully reserved in the Company's financial
statements as of June 30, 1999, resulting in a charge of $72.5 million for the
year ended June 30, 1999. These transactions and related fiscal 1999 charge have
no impact on the consolidated financial statements of Decision One Holdings
Corp. and Subsidiaries, as these are eliminated in consolidation.

     During the years ended June 30, 1999 and 1998, respectively, the Company
incurred costs of approximately $528,000 and $500,000 for financial advisory
services to the DLJ Group. Of these amounts, approximately $528,000 and $0
remained unpaid at June 30, 1999 and 1998, respectively.

     As more fully described in Note 10, on January 27, 1999, DLJMB purchased
$7,300,000 of unsecured 14% senior notes due 2006 by DecisionOne Corporation.
Interest expense of approximately $430,000 remained unpaid at June 30, 1999,
with respect to these obligations.

18.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following is a summary of the unaudited quarterly financial information
for the fiscal years ended 1999 and 1998:

<TABLE>
<CAPTION>
                                                           QUARTER ENDED
                                         -------------------------------------------------
                                         SEPT. 30,    DEC. 31,    MARCH 31,    JUNE 30(1),
                                         ---------    --------    ---------    -----------
                                                      (DOLLARS IN THOUSANDS)
<S>                                      <C>          <C>         <C>          <C>
1999
Revenues...............................  $196,044     $185,017    $176,005      $ 168,877
Gross profit...........................    47,565       34,235      32,534         36,546
Net loss...............................    (6,997)     (21,622)    (20,352)      (113,947)
</TABLE>

<TABLE>
<CAPTION>
                                                           QUARTER ENDED
                                        ----------------------------------------------------
                                        SEPT. 30(1),    DEC. 31,    MARCH 31,    JUNE 30(2),
                                        ------------    --------    ---------    -----------
                                                       (DOLLARS IN THOUSANDS)
<S>                                     <C>             <C>         <C>          <C>
1998
Revenues..............................    $202,264      $200,075    $200,910      $202,468
Gross profit..........................      44,819        46,769      47,747        52,576
Net loss..............................     (57,117)       (6,625)     (8,033)      (99,866)
Proforma net loss.....................        (824)       (6,625)     (8,033)      (95,875)
</TABLE>

---------------
(1) Net loss for the fourth quarter of 1999 includes a charge of $25.0 million
    to reduce deferred tax assets to the level where management believes it is
    more likely than not that such tax benefits will be realized (see Note 11).
    Additionally, the Company has recorded a charge of $72.5 million to reflect
    a provision for amounts deemed by management to be uncollectable at June 30,
    1999 (see Note 17).

(2) Net loss for the first quarter of 1998 includes $69.0 million of pre-tax
    merger expenses (See Note 4).

(3) Net loss for the fourth quarter of 1998 includes $87.5 million of pre-tax
    loss on asset sales and disposals and a $12.3 million pre-tax special charge
    to the provision for uncollectible receivables (See Note 5).

                                      F-51
<PAGE>   99

                                                                      SCHEDULE I

                           DECISIONONE HOLDINGS CORP.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                             (PARENT COMPANY ONLY)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                              JUNE 30,     JUNE 30,
                                                                1999         1998
                                                              ---------    ---------
<S>                                                           <C>          <C>
ASSETS
Current assets..............................................  $   1,188    $   1,519
  Other assets..............................................      2,988        3,896
                                                              ---------    ---------
          Total assets......................................  $   4,176    $   5,415
                                                              =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
  Investment in deficiency of subsidiaries..................  $ 294,790    $ 204,468
  Senior discount debentures................................    103,496       92,246
  Intercompany loan and payables............................     73,987       69,867
  Other liabilities.........................................        500          440
  Preferred stock, no par value; authorized 15,000,000; none
     outstanding............................................         --           --
  Common stock, $.01 par value; authorized 30,000,000;
     12,564,485 issued and outstanding shares in 1999 and
     12,584,219 shares in 1998..............................        126          126
  Additional paid-in capital................................    242,181      242,181
  Accumulated deficiency....................................   (708,236)    (601,195)
  Accumulated other comprehensive income (loss).............     (2,668)      (2,718)
                                                              ---------    ---------
          Total shareholders' equity (deficiency)...........   (468,597)    (361,606)
                                                              ---------    ---------
          Total liabilities and shareholders' equity
            (deficiency)....................................  $   4,176    $   5,415
                                                              =========    =========
</TABLE>

                 See notes to condensed financial information.
                                       S-1
<PAGE>   100

                                                                      SCHEDULE I

                           DECISIONONE HOLDINGS CORP.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF OPERATIONS
                             (PARENT COMPANY ONLY)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED JUNE 30,
                                                            ---------------------------------
                                                              1999         1998        1997
                                                            ---------    ---------    -------
<S>                                                         <C>          <C>          <C>
Equity in net income (loss) of subsidiaries...............  $ (90,372)   $(171,641)   $31,084
Interest expense, net of interest income of $42 in 1999
and $1,210 in 1998........................................     16,332       12,479         --
                                                            ---------    ---------    -------
Income (loss) before provision (benefit) for income
  taxes...................................................   (106,704)    (184,120)    31,084
Provision (benefit) for income taxes......................        337         (990)        --
                                                            ---------    ---------    -------
Net income (loss).........................................  $(107,041)   $(183,130)   $31,084
                                                            =========    =========    =======
</TABLE>

                 See notes to condensed financial information.
                                       S-2
<PAGE>   101

                                                                      SCHEDULE I

                           DECISIONONE HOLDINGS CORP.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
                             (PARENT COMPANY ONLY)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED JUNE 30,
                                                           ----------------------------------
                                                             1999         1998         1997
                                                           ---------    ---------    --------
<S>                                                        <C>          <C>          <C>
Operating Activities:
Net income (loss)........................................  $(107,041)   $(171,641)   $ 31,084
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities....................    107,019      172,851     (31,084)
                                                           ---------    ---------    --------
       Net cash provided by (used in) operating
          activities.....................................        (22)       1,210          --
                                                           ---------    ---------    --------
Investing Activities -- contribution to capital of
  subsidiaries...........................................         --           --        (439)
                                                           ---------    ---------    --------
Financing Activities:
  Proceeds from issuance of common stock.................         --      226,583          --
  Proceeds from issuance of senior discount debentures...         --       79,723          --
  Proceeds from related party loan.......................         --       69,617          --
  Issuance of common stock and warrants..................         --        1,880         439
  Cash paid to redeem common stock.......................         --     (621,803)         --
  Dividends received from subsidiary.....................         --      244,000          --
  Issuance of preferred stock............................         --           --          --
  Preferred stock dividends..............................         --           --          --
                                                           ---------    ---------    --------
       Net cash provided by financing activities.........         --           --         439
                                                           ---------    ---------    --------
  Net change in cash.....................................        (22)       1,210          --
  Cash, beginning of year................................      1,210           --          --
                                                           ---------    ---------    --------
  Cash, end of year......................................  $   1,188    $   1,210    $     --
                                                           =========    =========    ========
</TABLE>

                                       S-3
<PAGE>   102

                                                                      SCHEDULE 1

                           DECISIONONE HOLDINGS CORP.

             NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             (PARENT COMPANY ONLY)

1.  BASIS OF PRESENTATION

     The accompanying condensed financial statements include the accounts of
DecisionOne Holdings Corp. (the "Parent") and on an equity basis its
subsidiaries and should be read in conjunction with the consolidated financial
statements of DecisionOne Holdings Corp. and Subsidiaries (the "Company") and
the notes thereto.

2.  INDEBTEDNESS RESTRUCTURING

     The Company has continued to experience declining trends in revenues, and
earnings throughout fiscal 1999. The declining trends principally result from
lower sales of new service contracts, erosion of contract base and minimal
growth from acquisitions.

     As previously announced, on January 28, 1999, the Company initiated a
corporate operating plan ("Operating Plan") intended to restore revenue growth
and improve financial performance. The Restructuring Plan included the following
key components: (i) focusing on all aspects of the Company's operations -- from
sales through service delivery -- on providing information technology support
services to three customer groups: large corporate customers (also known as
"enterprise accounts"), medium sized accounts (also known as "middle market"),
and alliance customers (including OEMs, software publishers, systems
integrators, distributors and resellers, etc.); (ii) a cost-reduction program
designed to reduce the Company's cost structure by $40 million annually upon
full implementation, including a reduction in force of more than 500 employees;
and (iii) financial structure changes, including an additional $7.3 million
investment in the form of 14% Senior Unsecured Notes due 2006 (the "14% Notes")
in DecisionOne Corporation by an affiliate of DLJ Merchant Banking Partners II,
L.P. ("DLJMB"). DLJMB, and the Company's agreement with its lenders to waive
certain financial covenants in the Company's credit agreement through July 29,
1999 (the "Waiver").

     On July 14, 1999, the Company's common stock was delisted from the NASDAQ
national market System. Since that date, the Company's common stock has been
quoted on the OTC Bulletin Board.

     On August 2, 1999, the Company announced an agreement in principle with the
bank lending group and the holders of the 14% Notes on the restructuring of its
indebtedness (the "Indebtedness Restructuring"). Under the terms of the final
agreement, the bank lending group would exchange approximately $523 million in
existing indebtedness for approximately 94.6 percent of the reorganized
Company's equity and $250 million in new senior secured bank debt (the "New
Credit Agreement"). The agreement further provides that the holders of the 14%
Notes would exchange their notes for (a) warrants equal to approximately 4.2
percent of the reorganized Company's fully diluted equity, at an exercise price
based on an enterprise value of $350 million and (b) warrants equal to
approximately 2.0 percent of the reorganized Company's equity, at an exercise
price based on an equity valuation of $280 million. The holders of the 9 3/4%
Senior Subordinated Notes due 2007 (the "9 3/4% Notes") would exchange their
notes for (a) approximately 5.0 percent of the reorganized Company's equity; (b)
warrants equal to approximately 2.8 percent of the reorganized Company's fully
diluted equity, at an exercise price based on an enterprise value of $350
million; (c) warrants equal to approximately 5.0 percent of the reorganized
Company's equity, at an exercise price based on an equity valuation of $200
million; and (d) warrants equal to approximately 3.0 percent of the reorganized
Company's equity, at an exercise price based on an equity valuation of $280
million. In addition, the holders of the 11 1/2% Senior Discount Debentures due
2008 (the "11 1/2% Notes") and the holder of unsecured claims of Holdings would
receive a total of approximately 0.4 percent of the reorganized Company's
equity.

                                       S-4
<PAGE>   103

     The Company did not make the $7.3 million interest payment on its 9 3/4%
Notes, which was due on August 2, 1999 nor the interest payment due to the
holders of the 14% Notes. The Waiver, pursuant to which the bank lending group
agreed to waive certain financial covenants under its Existing Credit Facility
expired on July 29, 1999. The holders of the 9 3/4% Notes, the holders of the
11 1/2% Notes, the holders of the 14% Notes and the bank lending group have the
right to declare the respective outstanding loan amounts immediately due and
payable and seek to exercise remedies, including, in the case of the Existing
Credit Facility, foreclosure on the collateral securing such amounts. As such,
the Company has reflected all such loan amounts as current liabilities as of
June 30, 1999. See note 10 to the Company's consolidated financial statements
for further information.

     The Company's proposed Indebtedness Restructuring will be subject to the
approval of a United States Bankruptcy Court (the "Bankruptcy Court") pursuant
to Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").

     The Indebtedness Restructuring will be accomplished through a plan of
reorganization (the "Plan") in a prepackaged case under Chapter 11 of the
Bankruptcy Code. The Plan along with a related disclosure statement will be
delivered to the bank lending group and the holders of the 14% Notes in
connection with the Company's prepetition solicitation of acceptances of the
proposed Plan. If, by the end of the solicitation period, the requisite
acceptances have been received from the bank lending group and the holders of
the 14% Notes, the Company intends to file a petition under Chapter 11 and to
use the acceptances received pursuant to the solicitation to seek confirmation
of the Plan. With respect to all the other creditors and equity holders of the
Company that are impaired under the Plan, the Company intends to seek
confirmation of the Plan under the "cram down" provisions of the Bankruptcy
Code. The Plan will only be confirmed if the Bankruptcy Court determines that
all the requirements of the Bankruptcy Code have been met, including, without
limitation, that the Plan is (i) accepted by all impaired classes of claims and
equity interests or, if rejected by an impaired class, that the Plan does not
"discriminate unfairly" and is "fair and equitable" as to such class, (ii)
feasible and (iii) in the "best interests" of creditors and equity holders
impaired under the Plan.

     The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The Company's
recent losses from operations, significant shareholders' deficiency, default
under the terms of its credit agreement, and the related Indebtedness
Restructuring and planned Bankruptcy Court filings raise substantial doubt about
the Company's ability to operate as a going concern. The appropriateness of
using the going concern basis is dependent upon, among other things, (i) the
Company's ability to reverse its declining revenue trends; (ii) the Company's
ability to generate sufficient cash from operations and/or obtain additional
financing to meets its obligations prior to confirmation of a plan of
reorganization; (iii) confirmation of the Company's plan of reorganization under
the Bankruptcy Code, and (iv) the Company's ability to achieve profitable
operations and generate sufficient cash from operations and/or obtain additional
financing after such confirmation.

3.  SENIOR DISCOUNT DEBENTURES

     The Parent received net proceeds of $85,003,520 from the sale of
$148,400,000 principal amount at maturity of its 11 1/2% senior discount
debentures due 2008. The debentures accrete at a rate of 11 1/2% per annum,
compounded semi-annually, to an aggregate principal amount at maturity of
$148,400,000 by August 1, 2002. Commencing on February 1, 2003, cash interest on
the debentures will be payable, semi-annually in arrears on each February 1 and
August 1. The Parent incurred debt issuance costs of $3,400,141 in connection
with the senior discount debentures. These costs have been deferred and are
being amortized to interest expense over the life of the debentures. See Note 4
to the Company's consolidated financial statements for further information.

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<PAGE>   104

4.  RELATED PARTY TRANSACTIONS

     In connection with the Quaker Merger (See Note 4 to the Company's
consolidated financial statements), DecisionOne Corporation made a loan to
DecisionOne Holdings Corp. for $59,100,000 and a $10,800,000 subordinated
promissory note, each due 2010, which were used to finance the merger. The
subordinated promissory notes accrue interest at an annual interest rate of
8 1/4%. Interest and principal are both due upon maturity in August 2010.
Interest expense recorded by DecisionOne Holdings Corp. was approximately
$5,764,000 and $5,236,000 in fiscal 1999 and 1998, respectively.

5.  INCOME TAXES

     The Parent and its wholly owned subsidiaries file a consolidated tax
return. The Parent participates in a tax sharing agreement with the consolidated
group whereby consolidated income tax expense or benefit is allocated to the
Parent as if the Parent was filing separate tax returns.

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