SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

For The Fiscal Year Ended:                             Commission File Number: 
     December 31, 1996                                         000-23966
                            BDM International, Inc.
             (Exact name of registrant as specified in its charter)

                 DELAWARE                          EI 54-1561881
     (State or other jurisdiction of              (I.R.S. Employer
      incorporation or organization)            Identification No.)

      1501 BDM WAY, McLEAN, VIRGINIA                 22102-3204
 (Address of principal executive office)             (Zip Code)

                                  703-848-5000
              (Registrant's telephone number, including area code)

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

                                                 Name of each exchange
           Title of each class                   on which registered
 Common Stock, par value $.01 per share                Nasdaq

           Securities registered pursuant to section 12(g) of the Act:
                               
                                      NONE
                                (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes X No ____

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

         The  aggregate  market value of the  registrant's  voting stock held by
persons  considered by the registrant for this purpose to be  non-affiliates  of
the registrant on January 31, 1997, computed with reference to the closing price
of  the  Common  Stock  on  Nasdaq  as  reported  for  January  31,  1997,   was
$538,527,570.30.

         As of the close of business  February  28,  1997,  the  registrant  had
outstanding 14,494,751 shares of Common Stock, par value $.01 per share.

                       Documents Incorporated By Reference

     Certain  information called for by Part III of the Form 10-K will either be
filed with the Commission under Regulation 14A under the Securities Exchange Act
of 1934 or by amendment to this Form 10-K, in either case on or before April 30,
1997.

<PAGE>

                                     PART I
Item 1. Business.

         BDM  International,   Inc.  ("BDM")  is  a  multinational   information
technology  company that  operates in three  interrelated  markets:  Systems and
Software Integration,  Computer and Technical Services and Enterprise Management
and Operations.  The Company serves public and private sector clients, including
the Department of Defense ("DOD")  (approximately 36% of total revenue in 1996),
international  defense agencies  (approximately  27%), civil government agencies
(approximately 20%) and commercial clients (approximately 17%).

         The Company was formed in 1959 by Drs.  Joseph V. Braddock,  Bernard J.
Dunn and Daniel F. McDonald as "Braddock, Dunn & McDonald,  Incorporated," which
was later reorganized as BDM  International,  Inc. (the "Predecessor  Company").
The  Predecessor  Company was a public  company from 1980 until 1988,  when Ford
Aerospace Corporation ("Ford Aerospace"), then a wholly owned subsidiary of Ford
Motor Company ("Ford"), acquired all of the outstanding stock of the Predecessor
Company.

         In October 1990,  on behalf of certain  investors,  The Carlyle  Group,
L.P.  ("Carlyle"),  a Washington,  D.C.-based  private merchant bank, formed BDM
Holdings,  Inc.  ("Holdings"),  a  Delaware  corporation,  and  a  wholly  owned
subsidiary   corporation   named  New  BDM,  Inc.  ("New  BDM")  which  acquired
substantially  all  of  the  assets  of  the  Predecessor   Company  (the  "1990
Acquisition").  Shortly after the 1990 Acquisition,  New BDM changed its name to
BDM International,  Inc. In December 1992, Holdings and BDM International,  Inc.
changed  their names to BDM  International,  Inc.  and BDM Federal,  Inc.  ("BDM
Federal"), respectively.

         In March 1992,  the Company  acquired the  outstanding  common stock of
Vinnell  Corporation  ("Vinnell"),  a company that  specializes in international
on-site  operations and maintenance and training  services largely in the Middle
East.  In January  1993,  the  Company  began  operating a new  subsidiary,  BDM
Technologies,  Inc.  ("BDM  Technologies"),   to  focus  on  applying  its  core
competencies  to serve  commercial  and  state  and  local  government  clients.
Effective  January  1, 1993,  a new  subsidiary,  BDM Europe BV ("BDM  Europe"),
acquired two European businesses,  FACE Industrial  Automation BV and Logisticon
BV, and merged them into a single entity called FACE, located in Eindhoven,  The
Netherlands.  FACE  provides  systems  integration  and  technical  services  to
industrial  clients,  primarily  in the  areas  of  automated  distribution  and
advanced manufacturing systems. In November 1993, BDM Europe acquired management
control     of,      through     a     45%      ownership      interest      in,
Industrieanlagen-Betriebsgesellschaft   mbH  ("IABG"),   located  in  Ottobrunn,
Germany.       The      interest      was      acquired      primarily      from
Industrieverwaltungsgesellschaft AG (IVG) under a privatization plan approved by
the relevant  ministries of the German  Government,  the principal owner of IVG.
IABG provides test and evaluation and information  services,  principally to the
German   Government.   In  February  1994,  the  Company   acquired   Geoscience
Consultants,  Ltd. ("GCL"), a company that provides environmental assessment and
engineering  services to  industrial  and  governmental  clients.  For financial
reporting  purposes,  GCL is included  under BDM Federal.  In February 1996, the
Company acquired three affiliated companies - CW Systems, Inc., IG Systems, Inc.
and Melco  Systems,  Inc. - which provide  information  technology  services and
systems support to commercial and public sector  clients.  In November 1996, the
Company acquired the operations of RGTI Systems Software, a company specializing
in warehouse  management  solutions.  In December 1996, the Company acquired the
assets of two related  companies,  Advanced  Systems  Design,  Inc. and Software
Engineering, Inc., which provide human services system design and development to
state and local  governments.  All three acquisitions are included for financial
reporting purposes under BDM Technologies.

         Effective  December  31,  1996,  the Company  reorganized  its business
operations into five strategic business units: Federal Systems,  State and Local
Systems,  Enterprise Management Services,  Integrated Supply Chain Solutions and
BDM Europe.  In addition,  BDM Technologies  development unit was established to
focus on promising new areas of business.

         Unless  the  context  otherwise  requires,  reference  herein  to  "the
Company" or "BDM" includes BDM International, Inc. and its subsidiaries.

         The  principal  office and  corporate  headquarters  of the  Company is
located at 1501 BDM Way, McLean,  Virginia 22102-3204,  and its telephone number
is (703) 848-5000.

Business Areas

         In 1996, the Company,  through its  subsidiaries,  engaged in contracts
and programs on behalf of public and private sectors.  A cross-section  follows,
showing major contract and program areas, by subsidiary.

         BDM Federal.  The following are examples of contracts and program areas
in which BDM Federal  performs  systems and software  integration,  computer and
technical  services and  enterprise  management  and  operations  services.  The
Company:

         -    Modernizes  the way  information  is managed by both  defense  and
              civil government agencies under the Defense Enterprise Integration
              Services ("DEIS") Program contract.  The work includes  developing
              an  overall   enterprise   architecture  to  integrate   disparate
              information systems,  known as legacy systems,  introducing modern
              information   technologies,    and   re-engineering    information
              management processes.  BDM was one of six prime contractors on the
              DEIS  contract,  and received the second  highest dollar volume of
              delivery order awards  (approximately  $200 million) among the six
              contractors since the program began in 1994. In July 1996, BDM was
              selected  to  participate  in  the  five-year  follow-on  DEIS  II
              contract. 1996 revenue was approximately $118.4 million.

         -    Provides  systems  and  software   integration   services  to  the
              Securities and Exchange Commission ("SEC") as the developer of the
              Electronic   Data   Gathering,   Analysis  and  Retrieval   System
              ("EDGAR").  This system  permits  publicly held  companies to file
              reports electronically with the SEC, thus replacing paper filings,
              and  provides  for  immediate  public  dissemination  of financial
              filing  and  reporting  data.  EDGAR is now  operational,  and all
              public companies have made the transition to filing via EDGAR. BDM
              has  submitted  a proposal  for the next  generation  of the EDGAR
              system, which is scheduled to be awarded in 1998. 1996 revenue was
              approximately $8.6 million.

         -    Consolidates  defense  logistics  computer  systems for the United
              States Air Force ("USAF") under the DMRD-924 Program.  The Company
              provides systems and software integration  services,  ranging from
              hardware acquisition to large-scale systems integration,  pursuant
              to a DOD directive  mandating  consolidation  of computer sites to
              enhance   performance   and  reduce   costs.   1996   revenue  was
              approximately $22.5 million.

         -    Provides  comprehensive  systems  integration  services to various
              state and local school  districts  in the areas of  financial  and
              administrative software applications,  instructional applications,
              system   architectures   and   network   designs,    teacher   and
              administrator training and management  consulting.  The Company is
              working  to   advance   the   productivity   and   efficiency   of
              administrative  systems  and  improve  student  performance.   The
              Company's  largest contract in this area ($27.5 million),  awarded
              in 1995,  combines  systems  integration  with  outsourcing of the
              school district's information services department. 1996 revenue in
              this area was approximately $13.5 million.

         -    Supports the  Department of Energy ("DOE") in development of plans
              and technologies and the  implementation  of strategies to advance
              its waste  management,  technology  development and  environmental
              restoration  programs.  The Company performs  information  systems
              support,  technical assessments and other services to help the DOE
              meet federally  mandated  responsibility  for waste management and
              site cleanup  under the Resource  Conservation  Recovery  Act, the
              Comprehensive Environmental Response,  Compensation, and Liability
              Act of 1980 and  other  laws and  regulations.  1996  revenue  was
              approximately $12.0 million.

         -    Provides  logistic  support  services to the Royal Saudi Air Force
              encompassing   information  technology  services,   logistics  and
              supply,    training,    engineering   and   systems   maintenance,
              administration  and other areas.  1996  revenue was  approximately
              $40.8 million.

         -    Provides  the  Ballistic   Missile   Defense   Organization   with
              comprehensive  engineering  and  technical  systems  assistance in
              areas such as systems  architecture and design,  system simulation
              and modeling,  command, control,  communications and intelligence,
              systems   testing  and  logistics   planning.   1996  revenue  was
              approximately $26.2 million.

         -    Manages  and  operates  elements of the Joint  Readiness  Training
              Center of the U.S.  Army  Training  and  Doctrine  Command,  where
              approximately  50,000  soldiers a year are  trained on  integrated
              battlefields with  near-real-time  performance  feedback.  Systems
              designed  and  operated  by  BDM  collect  data  through   lasers,
              electronics  and  videos to  provide  the U.S.  Army with the most
              comprehensive experience and data feedback short of actual combat.
              In October 1996, BDM was awarded a five-year follow-on contract to
              continue this work. 1996 revenue was approximately $16.1 million.

         -    Creates and  implements  systems and  processes  to improve  blood
              collections,  processing  and  distribution  for the  American Red
              Cross.  Tasks involve developing  standard  operating  procedures,
              installing  hardware and software,  and providing  training to Red
              Cross personnel. This is a joint activity with BDM Technologies.
              Aggregate 1996 revenue was approximately $13.4 million.

         BDM  Technologies.  The following are examples of contracts and program
areas in which BDM  Technologies  performs  systems  and  software  integration,
computer and technical  services and  enterprise  management  and operations for
commercial and state and local government clients. The Company:

         -    Designs and  integrates  state-wide  information  systems aimed at
              strengthening  welfare and human services  management and provides
              tested  solutions in such areas as child welfare and child support
              enforcement.   Major  programs  are  underway  in  Alabama,  Iowa,
              Missouri,  Montana and other states. In Montana,  the BDM-designed
              child support enforcement system was the nation's first to achieve
              the federal  certification  that all such  systems are required to
              have. 1996 revenue in this area was approximately $26.1 million.

         -    Automates warehouse distribution and control operations to improve
              distribution   process   efficiencies   for  major   national  and
              international  clients  including  Ford  Motor  Company  ("Ford"),
              Franklin  Mint,  Merck and Co.,  Inc.,  Ortho-McNeil,  Inc.,  Bell
              Canada,  Federal  Express,  Dot  Foods  and  Spalding.  Using  the
              Company's  proprietary  MARC(TM) system, BDM helps clients achieve
              increased  inventory  accuracy,  improved  response time and other
              benefits.  1996  revenue  in this  area  was  approximately  $12.7
              million.

         -    Performs  application  outsourcing,  maintenance  and  support and
              develops  critical  software  enhancements to various  information
              systems for Ford. BDM Technologies  has been directly  involved in
              the  development  and   implementation   of  Computer   Integrated
              Manufacturing  applications for Ford's  Electronics  Division.  In
              addition,  BDM  Technologies  has  also  designed,  developed  and
              implemented several key client/server applications for Ford.
              1996 revenue was approximately $4.6 million.

         -    Provides systems integration and manufacturing  execution services
              to support clients in the  semiconductor  manufacturing  industry.
              Representative   clients  include  Advanced  Micro  Devices,  Sony
              Semiconductors,  National Semiconductor, Hitachi Semiconductor and
              Zilog. 1996 revenue was approximately $6.3 million.

         BDM Europe.  The  following  are examples of program areas in which BDM
Europe provides systems and technology services,  primarily to German Government
and industrial clients. BDM Europe:

         -    Provides  information  technology and systems  support in software
              standardization,   development   and   integration  of  management
              information  systems for  government  and  commercial  clients and
              strengthening of command, control, communications and intelligence
              systems  for the German  Ministry  of  Defense.  1996  revenue was
              approximately $38.2 million.

         -    Performs environmental  assessments,  both to meet requirements at
              contaminated sites (site inventory, investigation,  assessment and
              remediation engineering) and to support environmental planning and
              the  development of improved  remediation  systems and techniques.
              1996 revenue was approximately $16.1 million.

         -    Analyzes,   tests,   evaluates  and  simulates   defense  systems,
              missions,  and  operations  for the German  Ministry  of  Defense.
              Typical  programs involve  engineering  assessments of new weapons
              systems and platforms,  support of Battlefield  Training  Centers,
              design and simulation of camouflage  measures and  development and
              implementation of computer-based  models for operational  analysis
              and training. 1996 revenue was approximately $66.1 million.

         -    Tests  commercial and military  aircraft  structures,  such as the
              Airbus  A330/340  airliners  and the Tornado  and new  Eurofighter
              aircraft; programs include testing of major assemblies, components
              and  structural  elements to identify  structural  weaknesses  and
              improve  safety and service life.  1996 revenue was  approximately
              $20.9 million.

         -    Performs  comprehensive  testing  of  satellites  and other  space
              structures,  space simulation,  thermal vacuum testing,  vibration
              and shock-testing  and project  monitoring for the German Ministry
              of Research and Technology, the European Space Agency, and private
              clients at the Space Test Center in Ottobrunn, Germany.
              1996 revenue was approximately $19.1 million.

         -    Tests vehicles and their components for various German  automobile
              manufacturers  and  suppliers  such as BMW,  Audi and  Volkswagen,
              including climatic testing, emissions testing and mechanical tests
              of   suspension   and   steering   elements.   1996   revenue  was
              approximately $4.3 million.

         -    Operates  the  Magnetic  Levitation  ("MagLev")  test  facility in
              Elmsland, Germany, including the performance of numerous technical
              investigations and demonstration runs. The successful operation of
              this facility contributed to the decision of the German Government
              to implement the first MagLev service route in Germany  connecting
              Hamburg and Berlin. 1996 revenue was approximately $12.3 million.

         Vinnell.  The following  are examples of contracts  under which Vinnell
performs training and complementary  capabilities in technical  services as well
as enterprise management and operations for its clients in the United States and
abroad. The Company:

         -    Provides   training,    logistical   support   and   comprehensive
              developmental,  advisory and operational  services under the Saudi
              Arabian National Guard ("SANG") Modernization  Program.  Beginning
              July 1, 1995, this work is performed by a joint venture,  of which
              Vinnell owns 51%.  Aggregate 1996 revenue was approximately  $67.0
              million.

         -    Performs   training,    logistical   support   and   comprehensive
              developmental,  advisory and  operational  services for FMC Arabia
              (an affiliate of FMC  Corporation) in connection with the fielding
              of the Bradley  Fighting  Vehicle  System for the Royal Saudi Land
              Forces.  This work is being  performed  through an  affiliate,  of
              which Vinnell owns 60%.  Aggregate 1996 revenue was  approximately
              $50.3 million.

         -    Manages and operates  seven Job Corps Centers in the United States
              for the  Department of Labor  ("DOL") under a program  designed to
              bring education and vocational  training to  disadvantaged  youth.
              Aggregate 1996 revenue was approximately $38.1 million.

         -    Manages and operates U.S. military  facilities in Turkey and three
              USAF facilities in Oman,  provides  personnel  support services in
              Egypt and operations and maintenance  services at a U.S. Army base
              in the  United  States  under  joint  ventures  with  Brown & Root
              Services  Corporation,  Airwork Ltd., SEACOR  Services,  Inc.  and
              Tecom Services, Inc.,  respectively.  Total 1996 revenue earned by
              these joint ventures was  approximately  $92.2  million.  As a 50%
              partner in these joint ventures,  Vinnell  reports  earnings using
              the equity method.  Aggregate  equity in earnings from these joint
              ventures was approximately $2.0 million in 1996.

Contracts

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

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

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

                                                      Years Ended
                                                      December 31,
                                          --------------------------------------
                 Type Of Contract             1996         1995        1994
                 ----------------             ----         ----        ----

  Cost-reimbursable....................         35%          39%          43%
  Fixed-price..........................         30           28           30
  Time-and-material....................         35           33           27
                                           -------      -------      -------
       Total                                   100%         100%         100%
                                           =======      =======      =======

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

<PAGE>

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

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

         The Company's costs and revenue under government  contracts are subject
to adjustment as a result of audits by the Defense Contract Audit Agency. Audits
of costs incurred have been completed on all years through 1988. Audits for 1989
through 1996 have not been completed.  However,  management does not believe the
results of these audits will have a material  effect on the Company's  financial
position or results of future operations.

         Backlog.  The Company's  backlog at December 31, 1996 was approximately
$2.3  billion  compared to  approximately  $1.7  billion at December  31,  1995.
Approximately  33% of the Company's  backlog at December 31, 1996 is expected to
be converted to revenue within the current fiscal year.


         The  Company's  backlog  amounts are  composed  of funded and  unfunded
components.  Funded backlog  consists of the dollar portion of contracts that is
currently  appropriated by the government  client or other clients and allocated
to the contract by the purchasing  government agency or otherwise authorized for
payment  by the client  upon  completion  of a  specified  portion of work.  The
Company's funded backlog was  approximately  $439 million and $667 million as of
December 31, 1996 and 1995, respectively.  Although unfunded backlog can include
up to the stated award value of the contract  including  renewals or  extensions
that have been priced but still remain at the  discretion of the client  whether
to fund, the Company,  to be  conservative,  often  recognizes only a portion of
stated award values on multi-year  contracts into its backlog  records.  Because
many of the Company's  contracts  are  multi-year  contracts,  total backlog may
include  revenue  expected to be  realized  several  years into the future.  The
unfunded  backlog may not be an indicator of future contract revenue or earnings
because there is no assurance that the unfunded portion of the Company's backlog
will be funded.  In  addition,  most of the  contracts  included  in backlog are
subject to termination for the convenience of the government client.

                          Backlog Summary By Component

                                                      As of December 31,
                                           ------------------------------------
                   Type Of Contract              1996      1995      1994
                   ----------------              ----      ----      ----
                                                    (dollars in millions)
 Funded.................................       $  439    $  667    $  535
 Unfunded...............................        1,811     1,021     1,003
                                                -----     -----     -----
       Total............................       $2,250    $1,688    $1,538
                                               ======    ======    ======

Marketing

         The Company's  marketing  activities  are conducted both by centralized
business  development  offices  within the strategic  business  units and by its
professional  managers  who have  technical  expertise  and  whose  efforts  are
supplemented by the Company's staff of engineers,  scientists and analysts.  The
business  development  offices are  responsible  for developing and  maintaining
detailed  account  plans and for creating and managing a major target list.  The
operating units support the business development offices in target qualification
and pursuit.  Proposals  are managed  jointly by the  operating  units and their
respective  business  development  office.  The Company  supports the  marketing
efforts of its personnel  through the direct  participation of senior management
and supervisory  employees.  These marketing  efforts are further supported by a
corporate  proposal  center,  organized  team reviews of proposals  and a formal
corporate  training program.  The Company believes that this marketing  approach
enables it to  anticipate  and serve the needs of its clients  and ensures  that
those who are  seeking to obtain  business  for the Company  have the  necessary
technical  expertise  and  resources  both to  develop  proposals  that  satisfy
clients'  requirements  and to  participate  in or supervise the  performance of
services that ultimately may be provided.

Competition

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

Proprietary Information

         The Company  believes  that its business is dependent on its  technical
and organizational  knowledge,  practices and procedures.  The Company claims a
proprietary  interest  in  certain  of its  work  products,  software  programs,
methodologies and know-how. Some of the proprietary information is protected by
confidentiality agreements and other means.

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

Employees And Employee Representation

         As of March 1, 1997, the Company had approximately  8,700 full-time and
part-time employees. Joint ventures, in which the Company is a partner, employed
approximately  3,000  additional  individuals as of this date. In addition,  the
Company  enters  into  agreements  with  a  large  number  of  consultants  on a
project-specific  basis who are  engaged by the  Company to perform  specialized
work on contracts or to provide  expertise in support of marketing  and contract
activities. With the exception of approximately 43 Vinnell employees, and except
as  discussed  in the next  paragraph,  no other  employees  of the  Company are
represented by a union and, to the knowledge of the Company, no union organizing
activities are in progress.

         As a corporation  organized under the laws of and operating in Germany,
IABG is subject  to the German  Co-determination  Law.  Under this law,  certain
German workers have a right to representation on supervisory boards of a company
and,  through  Workers'  Councils,  have a say in issues  relating to  corporate
operations,  particularly those having a direct impact on workers. Approximately
40% of IABG's  employees  are  covered  by the tariff  agreements  of the German
metalworkers  union,  IG Metall.  The tariff  negotiations  determine the annual
raises and weekly working hours for the people covered by this tariff agreement.
Negotiations have been completed to cover the period through December 31, 1998.

Financial Information About Foreign and Domestic Operations and Export Sales

         For information regarding revenue, operating profit or loss, and assets
attributable  to each of the  Company's  geographic  areas,  see  Note 16 to the
Consolidated Financial Statements in Item 8.

Item 2. Facilities.

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

         In  addition  to these  principal  offices,  as of March 1,  1997,  the
Company  maintained  offices or facilities in connection with the performance of
its  contracts  in over 50 other  locations.  A  portion  of these  premises  is
subleased  to others.  In addition  to the  Company's  offices  and  facilities,
Company  personnel are frequently  assigned to client  locations  throughout the
country and overseas.

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

Item 3. Legal Proceedings.

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

     In addition,  as disclosed in the Company's  Quarterly  Report on Form 10-Q
for the period ended  September  30, 1996,  the Company has been informed that a
civil "qui tam"  lawsuit has been filed  against the Company and has  received a
copy of the Complaint in that action.  The matter is currently under Court seal.
Under a qui tam suit,  often  referred to as a "whistle  blower" suit, a private
plaintiff  generally  alleges  that  false  claims  have  been  made to the U.S.
Government  and  receives a portion of the  recovery,  if any,  achieved  by the
Government.  The Government has an opportunity to investigate  the Complaint and
make a determination  whether to join the case. The private plaintiff can pursue
the action  against  the Company in the name of the U.S.  Government  at his own
expense if the  Government  declines  to join the case.  The  Complaint  alleges
violation  under  the  federal  False  Claims  Act in  connection  with  certain
mischarging  under overseas  government  contracts  administered by the U.S. Air
Force, related to certain housing rented in connection with overseas operations,
alleged improper hiring of and payments to certain  employees,  alleged improper
payments to a subcontractor, and alleged improper purchases and payments made in
support of client activities. Aggregate revenue from these contracts in calendar
year 1996 was approximately  $41 million.  In connection with this case, BDM has
received a subpoena for  information  in a civil  investigation  underway by the
Office of Inspector  General of the  Department of Defense and an Assistant U.S.
Attorney  for the  Eastern  District  of  Virginia  with  respect to the matters
alleged in the  Complaint.  BDM will  cooperate  fully with the  Government  and
expects to make extensive document production in response to the subpoena.

     The Company is engaged in providing  services and products under  contracts
with the U.S.  Government  and, to a lesser  degree,  under  foreign  government
contracts,  some of which  are  administered  by the U.S.  Government.  All such
contracts are subject to extensive  legal and regulatory  requirements,  and the
above  mentioned  investigation  apparently  focuses  on whether  the  Company's
overseas  operations in connection with the subject  contracts were conducted in
accordance with such requirements.  The lawsuit and related  investigation could
result   in   administrative,   civil   or   criminal   liabilities,   including
reimbursements,  fines or penalties  being imposed.  Under the provisions of the
False Claims Act, a civil penalty of between  $5,000 and $10,000 can be assessed
for each  claim,  plus three times the amount of any  damages  sustained  by the
Government.  The Complaint  seeks such relief but does not specify the amount of
damages.  In addition to damages, a finding of civil or criminal liability could
lead to  suspension  or  debarment  of the  contractor  if it is found to be not
currently  responsible,  which  would  make  some  or all  of  the  contractor's
operations  ineligible to be awarded U.S.  Government  contracts for a period of
time.  Such civil or criminal  liability or suspension or debarment could have a
material  adverse  effect  on  the  Company.  Management  is  unable  to  make a
meaningful  estimate of the amount or range of loss that could  result from this
litigation, however, management does not anticipate that the ultimate resolution
of this  litigation  will have a material  effect on the Company's  consolidated
financial position.

Item 4. Submission Of Matters To A Vote Of Security Holders.

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

Item 4a. Executive Officers Of The Registrant.

         The  executive  officers  of the  Company,  their  positions  with  the
Company,  and their  principal  occupations  during  the past five years are set
forth below.

        Name                   Age           Position(s) With Company
        ----                   ---           ------------------------
 Frank C. Carlucci...........  66     Chairman of the Board and Director
 William E. Conway, Jr.......  47     Vice Chairman and Director
 Philip A. Odeen.............  61     President, Chief Executive Officer 
                                        and Director
 C. Thomas Faulders, III.....  47     Executive  Vice  President,   Treasurer,
                                        and  Chief Financial Officer  
 William C. Hoover...........  47     Executive Vice President
 Helen M. Seltzer............  50     Corporate Vice President
 Dr. William E. Sweeney, Jr..  58     Chairman of the Board,  BDM Europe,
                                        General  Manager and Chairman of the 
                                        Management  Board,  IABG, and
                                        Director
 Roy V. Woodle...............  61     President and Chief Executive Officer, 
                                        Vinnell

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

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

         WILLIAM E.  CONWAY,  JR. has  served as Vice  Chairman  of the Board of
Directors of the Company  since  October  1990.  Mr.  Conway has been a Managing
Director of Carlyle since 1987.

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

         C.  THOMAS  FAULDERS,  III has  served  as  Executive  Vice  President,
Treasurer  and Chief  Financial  Officer of the Company since April 24, 1995. He
also  serves  as Acting  President  of the  Company's  Integrated  Supply  Chain
Solutions  unit.  Mr.  Faulders  served with Comsat  Corporation,  a provider of
international  communications  and  entertainment,  as Vice  President and Chief
Financial  Officer  from 1992 to 1995.  From 1985 to 1992,  he served in several
senior management positions with MCI Communications Corporation, a long distance
service provider.

         WILLIAM C. HOOVER joined the Company on June 3, 1996 as Executive  Vice
President of the Company.  He also serves as President of the Company's  Federal
Systems unit and as Acting  President of the State and Local Systems unit.  From
November 1994 to May 1996,  Mr.  Hoover served as President and Chief  Operating
Officer of PRC, Inc.,  which provides  systems  engineering  and integration and
software development, engineering and information services to federal government
customers.  From  September  1992 to October  1994,  he served as  President  of
PRC/Federal  Systems Group.  From April 1992 to September 1992, he was Executive
Vice President and General Manager of USI/Commercial Systems Group. From January
1992 to March 1992, he served as Senior Vice  President  and General  Manager of
PRC/Engineering Technology Group. Mr. Hoover initially joined PRC in 1980.

         HELEN M. SELTZER joined the Company as Senior Vice  President,  Product
Marketing,  on March 15,  1996.  She  currently  serves as  President of the BDM
Technologies  unit and as Corporate Vice  President of the Company.  Ms. Seltzer
served as Vice President,  Marketing/Sales Access Services at Bell Atlantic from
1993 to 1995.  From  1983 to 1993,  she  served  in  several  senior  management
positions at MCI Communications Corporation.

         DR.  WILLIAM E. SWEENEY,  JR. has served as an Executive Vice President
and a Director of the Company since October 1990 and as Chairman of the Board of
BDM Europe and General  Manager and  Chairman  of the  Management  Board of IABG
since 1993. Dr. Sweeney  joined the  Predecessor  Company in 1977 and has held a
number of senior management positions.

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


<PAGE>


                                     PART II

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

         The  Company's  Common Stock has been traded on the Nasdaq Stock Market
(Symbol: BDMI) since June 29, 1995. Before that date, the shares were not listed
on any national exchange or on the  over-the-counter  market. As of February 28,
1997, there were 3,496 shareholders of record of Common Stock.

         The  following  table sets  forth the high and low sales  prices of the
Common  Stock of the Company as reported by the Nasdaq  Stock Market for each of
the quarters indicated:

                                                     High            Low
                                                     ----            ---

           1995
           2nd Quarter (June 29-30)                 $21.50          $19.88
           3rd Quarter                              $28.50          $20.25
           4th Quarter                              $30.50          $23.75

           1996
           1st Quarter                              $41.13          $25.44
           2nd Quarter                              $49.00          $36.25
           3rd Quarter                              $61.50          $45.00
           4th Quarter                              $60.00          $44.25

           1997
           1st Quarter (through March 6, 1997)      $57.25          $41.25

Dividend Policy

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

Recent Sales of Unregistered Securities

     Since  January  1, 1994,  the  Company  has sold and  issued the  following
unregistered securities:

     1. Under the  Director  Stock  Purchase  Plan,  the Company sold to certain
directors a total of 24,674  shares of Common Stock at a purchase  price ranging
from $8.00 to $53.875 per share.

     2. The Compensation Committee has granted to selected members of management
Management  Incentive  Stock  Options to  purchase  a total of 34,442  shares of
Common Stock,  net of forfeitures,  at an exercise price equal to par value $.01
per share.

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



<PAGE>
                                    

Item 6. Selected Financial Data.

         The  consolidated  statement  of  operations  data set forth below with
respect to the calendar years ended December 31, 1996, 1995, 1994, 1993 and 1992
and the  consolidated  balance sheet data at December 31, 1996, 1995, 1994, 1993
and 1992  have been  derived  from,  and are  qualified  by  reference  to,  the
Company's consolidated financial statements and notes thereto audited by Coopers
& Lybrand L.L.P.,  independent accountants.  The selected consolidated financial
data set forth below should be read in conjunction with "Management's Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations"  and  the
consolidated financial statements and notes thereto in Items 7 and 8.
<TABLE>
<CAPTION>

                                                                Years Ended December 31,
                                             1996 (1)         1995        1994          1993 (4)     1992 (5)
                                             --------         ----        ----          --------     --------
                                                          (In thousands, except per share data)
<S>                                        <C>             <C>          <C>           <C>          <C>    

Statements of Operations:
Revenue                                    $1,001,559     $ 889,974     $ 774,249     $ 558,292    $ 424,389
Cost of sales                                 841,315       752,107       643,728       460,186      348,191
Selling, general and administrative            89,147        80,804        82,950        63,847       41,940
Depreciation, amortization and other           17,333        18,154        20,627        12,089       14,802
Purchased in-process R&D                       10,760            --            --            --           --
Provision for restructuring                     5,760            --            --            --           --
                                           ----------     ---------     ---------     ---------    ---------

Operating profit                               37,244        38,909        26,944        22,170       19,456

Interest (income) expense, net                 (1,656)        1,474         3,481         4,178        5,302
Equity in earnings of affiliates               (2,010)       (1,835)       (1,841)       (2,223)      (1,852)
Minority interest                               9,576         5,863         2,526         1,555           --
                                           ----------     ---------     ---------     ---------    ---------

Income before income taxes                     31,334        33,407        22,778        18,660       16,006
Provision for income taxes                     13,659        15,015         9,700         7,632        6,552
                                           ----------     ---------     ---------     ---------    ---------

Income before extraordinary gain
   and cumulative effect of
   accounting change                           17,675        18,392        13,078        11,028        9,454
Extraordinary gain, net of tax                     --            --            --           413           --
Cumulative effect of accounting change             --            --            --            --         (115)
                                           ----------     ---------     ---------     ---------    ---------
Net income                                 $   17,675     $  18,392     $  13,078     $  11,441    $   9,339
                                           ==========     =========     =========     =========    =========

Earnings Per Share:
Income before extraordinary gain
   and cumulative effect of
   accounting change                       $     1.21     $    1.56     $    1.20     $    0.92    $    0.81
Extraordinary gain                                 --            --            --          0.03           --
Cumulative effect of accounting change             --            --            --            --        (0.01)
                                           ----------     ---------     ---------     ---------    ---------

Net income                                 $     1.21     $    1.56     $    1.20     $    0.95    $    0.80
                                           ==========     =========     =========     =========    =========
</TABLE>
<TABLE>
<CAPTION>

                                                                   As of December 31,
                                             1996 (1)       1995 (2)     1994 (3)       1993 (4)     1992 (5)
                                             --------       --------     --------       --------     --------
                                                                     (In thousands)
<S>                                        <C>             <C>          <C>           <C>          <C>    

Balance Sheet Data:
Current assets                             $  321,176     $ 294,654     $ 270,079     $ 242,800    $ 135,775
Total assets                                  420,654       363,793       335,551       303,436      174,816
Current liabilities                           184,271       178,530       175,165       161,052       81,033
Long-term debt                                 22,813        25,900        82,750        48,480       38,423
Stockholders' equity                          167,255       115,469        41,105        62,909       54,932
</TABLE>

(1)     On February 20, 1996, the Company acquired three related  companies,  CW
        Systems,  Inc., IG Systems,  Inc.,  and Melco  Systems,  Inc., for $18.5
        million. The transaction was accounted for as a purchase and is included
        in the Company's  consolidated financial statements from the date of its
        acquisition.


<PAGE>


        On November 4, 1996,  the Company  acquired  the assets of RGTI  Systems
        Software  (RGTI) for  approximately  $18.4  million.  As a result of the
        acquisition,  BDM has recorded a $10.8  million  pre-tax  charge in 1996
        relating  to  the  write-off  of  purchased   in-process   research  and
        development.  The  acquisition  was  accounted  for as a purchase and is
        included in the Company's  consolidated  financial  statements  from the
        effective date of its acquisition.


        The increase in stockholders'  equity in 1996 includes the impact of net
        proceeds of $15.3 million from the Company's  public offering of 450,000
        million primary shares of Common Stock completed on March 27, 1996.


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


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


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


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


<PAGE>


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

OVERVIEW

         The  Company  achieved  a major  milestone  in 1996 with  revenue of $1
billion,  representing  13% growth  over 1995.  Net income of $17.7  million and
earnings per share of $1.21 reflect the impact of two one-time, pre-tax charges,
a $5.8 million  provision for  restructuring  and a $10.8  million  write-off of
in-process  research  and  development  as a result of the  acquisition  of RGTI
Systems Software (RGTI).  Excluding these charges, the Company's earnings growth
was  substantial.  Pro forma net income grew to $27.3 million,  representing 48%
growth over 1995,  and pro forma  earnings  per share  increased  to $1.87,  20%
growth over 1995.  These results  followed  strong growth in revenue (15%),  net
income (41%),  and earnings per share (30%) from 1994 to 1995. In addition,  the
Company  achieved record contract awards of $1.5 billion in 1996, an increase of
approximately  40% over 1995.  Contract  backlog  grew 33% to $2.3  billion  and
proposal  backlog grew 15% to $1.5 billion as of December 31, 1996,  compared to
year-end 1995.

         BDM's  continued  strong  core  growth  was masked by  fluctuations  in
hardware sales and exchange  rates.  Hardware sales declined to 9% of revenue in
1996,  compared to almost 12% in 1995. Services revenue increased by almost 17%.
Excluding  the impact of changes in foreign  currency  rates,  services  revenue
would have grown 18%.

         There  were a number of  important  events in 1996  that  position  the
Company for long-term expansion and growth.  Several acquisitions were completed
of information technology companies primarily serving commercial clients. During
the year, BDM also established systems and software alliances with several major
commercial  companies,  including Cap Gemini (Year 2000),  Baan  (implementation
services for Baan's Enterprise Resource Planning software), SAP America (sale of
BDM's security product,  CYBERSHIELD(TM)),  and Novell (implementation  services
for  Novell's  GroupWise  5). In  addition,  a new  alignment  of the  Company's
business  operations  was announced in the third quarter of 1996  establishing a
structure of Strategic  Business Units and Development Units to enhance the ways
that BDM develops, markets, and delivers its services.
This reorganization became effective January 1, 1997.

REVENUE
<TABLE>
<CAPTION>

                                                                Years Ended December 31,
                                         --------------------------------------------------------------------
                                                  1996                     1995                     1994
                                         --------------------------------------------------------------------
                                                           (in millions, except percentages)
<S>                                      <C>           <C>         <C>        <C>          <C>           <C>
Client Category
---------------
U.S. Department of Defense               $   362.2      36%        $ 331.6     37%         $ 244.6        32%
International Defense                        270.5      27%          222.8     25%           193.5        25%
Civil Government                             197.6      20%          199.8     23%           227.3        29%
Commercial                                   171.3      17%          135.8     15%           108.8        14%
                                          --------     ---         -------    ---          -------       ---
                                             
     Total                               $ 1,001.6     100%        $ 890.0    100%         $ 774.2       100%
                                         =========     ===         =======    ===          =======       ===
                                          

Services Provided
-----------------
Systems & Software Integration           $   356.6      36%        $ 273.5     31%         $ 197.0        26%
Computer & Technical Services                523.0      52%          505.0     57%           490.9        63%
Enterprise Management & Operations           122.0      12%          111.5     12%            86.3        11%
                                         ---------     ---         -------    ---          -------       ---
                                            
     Total                               $ 1,001.6     100%        $ 890.0    100%         $ 774.2       100%
                                         =========     ===         =======    ===          =======       ===
                                          

Subsidiary
----------
BDM Federal                              $   531.2      53%        $ 475.5     53%         $ 411.6        53%
BDM Technologies                              95.5      10%           57.5      7%            38.8         5%
BDM Europe                                   205.2      20%          215.8     24%           197.5        26%
Vinnell Corporation                          169.7      17%          141.2     16%           126.3        16%
                                         ---------     ---         -------    ---          -------       ---
                                             
     Total                               $ 1,001.6     100%        $ 890.0    100%         $ 774.2       100%
                                         =========    ====         ========   ===          =======       ===
</TABLE>
                                          
<PAGE>


         Revenue by Client Category

         U.S.  Department  of  Defense  (DOD):  Revenue  derived  from  the U.S.
         Department  of  Defense  (DOD)   increased  9%  in  1996.  The  primary
         contributor  to this  growth was the  Company's  systems  and  software
         integration  work for various  defense  activities.  In  addition,  BDM
         Federal experienced growth in defense test and evaluation and technical
         support for ballistic missile defense and other military programs. This
         growth was partially  offset by lower revenue from the sale of hardware
         in support  of several  contracts  with the DOD.  Revenue  from the DOD
         increased 36% from 1994 to 1995,  reflecting the first full year of the
         DEIS  program  and  higher  revenue  from the  procurement  of  defense
         equipment year over year.

         International  Defense:  Revenue from  international  defense  business
         increased 21% and 15% for 1996 and 1995,  due largely to higher revenue
         earned  on the  Company's  contracts  in Saudi  Arabia.  Exchange  rate
         fluctuations  impacted the growth of the Company's European  activities
         as a result of a stronger U.S. dollar in 1996.

         Civil   Government:   Revenue  from  civil  government   contracts  was
         essentially  flat from 1995 to 1996,  and decreased  from 1994 to 1995.
         There are  several  factors  driving  these  results.  The  Company has
         experienced  a  decline  in  revenue   generated   from   environmental
         restoration and waste management  programs for the Department of Energy
         as a result of budget  reductions.  There was also a decline in revenue
         generated  from  state  government  contracts  from 1995 to 1996.  This
         reflects  the impact of the new Federal  Welfare  Reform law enacted in
         1996,  as well as the  Federal  government's  decision  to delay by two
         years  the  deadline  by which  states  must have  federally  certified
         information  systems in place to manage and track their  child  support
         enforcement  programs.   In  addition,   the  Company  has  experienced
         implementation  difficulties on one of its state contracts. The Company
         is  currently  in  discussions  with the  client  and a  resolution  is
         expected in 1997.  Until a  resolution  is reached,  the Company is not
         recognizing  profit on the contract.  The reduction in civil government
         revenue also  reflects  lower  pass-through  contracts  from the German
         government  and the decline of the German mark versus the U.S.  dollar.
         Partially  offsetting  these  reductions was Vinnell's Job Corps Center
         business which experienced substantial growth in 1996.

         Commercial:  The increase of 26% and 25% in commercial revenue for 1996
         and 1995 reflects the growth of information technology work for various
         private sector clients,  including clients of companies acquired during
         the year.  This growth was also  fueled by  increases  in revenue  from
         semiconductor manufacturing integration, warehouse automation, business
         process   transformation,   and  other  services.   The   international
         commercial business was impacted by the aforementioned  fluctuations in
         the German mark to U.S. dollar  exchange rate.  Excluding the impact of
         the currency  fluctuations,  commercial revenue would have increased by
         30% in 1996.


         Revenue by Services Provided

                  Systems and Software Integration revenue increased 30% and 39%
         in 1996 and 1995,  compared to the previous  years.  This  increase was
         driven by growth in BDM Federal's system integration work primarily for
         various defense activities and in systems-related  services provided to
         a wide  variety of  commercial  clients.  The  increase in Computer and
         Technical  Services revenue of 4% and 3% for 1996 and 1995 was a result
         of growth in a number of contracts  including the expansion of work for
         the Royal Saudi Land Forces, the Saudi Arabian National Guard, test and
         evaluation  programs,  and  technical  support  for  ballistic  missile
         defense  and  other  military  programs.  Vinnell's  Job  Corps  Center
         management  contracts were a major driver of the increase in Enterprise
         Management and Operations revenue for both 1996 and 1995.


<PAGE>


         Revenue by Subsidiary

                  Revenue  at BDM  Federal  grew 12% and 16% for 1996 and  1995.
         This  increase  reflects  expanded  work for a wide  variety of federal
         agencies,  most notably involving  information  technology services for
         various defense activities,  and also increased services and support in
         defense  test and  evaluation,  ballistic  missile  defense,  and other
         military   programs.   This  was  partially  offset  by  lower  revenue
         associated  with  the  sale of  hardware  in  support  of  several  DOD
         contracts, and a decline in work for the U.S. Department of Energy. The
         66% revenue increase at BDM Technologies  reflected acquisitions during
         1996 and organic growth in commercial  information  technology  work in
         both 1996 and 1995.  Fluctuations  in the  exchange  rate of the German
         mark to the U.S.  dollar  masked the modest  increase  in BDM  Europe's
         local  currency  revenue for 1996.  This real growth in local  currency
         reflected  additional work performed for the German Ministry of Defense
         and a variety of German commercial clients. Vinnell's revenue increased
         20% and 12% in 1996 and 1995,  as a result of  higher  revenue  in most
         aspects of Vinnell's  business,  including its work for the Royal Saudi
         Land Forces, the Saudi Arabian National Guard, and additional Job Corps
         Center business.


RESULTS OF OPERATIONS


         The  following  table  sets forth  selected  financial  data.  The 1996
periods are  presented  using pro forma  amounts which exclude the impact of the
$5.8  million  pre-tax  restructuring  charge  and  the  $10.8  million  pre-tax
write-off for purchased in-process research and development:
<TABLE>
<CAPTION>

                                                                      Years Ended December 31,
                                                     -----------------------------------------------------
                                                           Pro           Pro
                                                          Forma         Forma
                                                          1996           1996        1995        1994
                                                     -----------------------------------------------------
                                                                         ($ in millions)

<S>                                                     <C>              <C>          <C>         <C>   
Revenue                                                 $1,001.6         100.0%       100.0%      100.0%

Cost of sales                                              841.3          84.0         84.5        83.1
Selling, general and administrative                         89.2           8.9          9.1        10.7
Depreciation, amortization and other                        17.3           1.7          2.0         2.7
                                                        --------         -----        -----       -----

Operating profit                                            53.8           5.4          4.4         3.5

Interest (income) expense, net                              (1.7)         (0.2)         0.2         0.4
Equity in earnings of affiliates                            (2.0)         (0.2)        (0.2)       (0.2)
Minority interest                                            9.6           1.0          0.6         0.3
                                                        --------         -----        -----       -----

Income before taxes                                         47.9           4.8          3.8         3.0

Provision for income taxes                                  20.6           2.1          1.7         1.3
                                                        --------         -----        -----       -----

Net income                                              $   27.3           2.7%         2.1%        1.7%
                                                        ========         =====        =====       =====
</TABLE>


Cost of Sales

         Cost  of  sales,  which  includes  salaries,  benefits,   subcontractor
expenses,  materials and overhead costs, decreased as a percentage of revenue in
1996 compared to 1995 largely due to a high level of hardware  pass-throughs  in
1995.  These  pass-throughs  represent the procurement of computer  hardware and
other equipment on behalf of clients,  and often earn lower margins than revenue
from services.  Sales  pertaining to such materials as a percent of revenue were
8.9% in 1996 and  11.6%  in 1995.  Cost of  sales  as a  percentage  of  revenue
increased  from 1994 to 1995,  also due  primarily to the high level of hardware
sales in 1995.
<PAGE>

Selling, General and Administrative

         Selling,  general and administrative (SG&A) expense, which includes the
Company's  research and  development  costs (R&D),  decreased as a percentage of
revenue in 1996  compared to the previous  year.  This  decrease was largely the
result of revenue growth that has outpaced the growth of SG&A expenses,  as well
as improved cost controls at several of the Company's subsidiaries.

         Excluding  the effect of a write-off of purchased  in-process  research
and  development  expenses  associated  with the Company's  acquisition of RGTI,
which is  presented on a separate  line,  SG&A  expense  increased  $8.3 million
compared to 1995.  This  increase  is due to  investments  made for  recruiting,
marketing,  and research and development.  These investments were focused on the
Company's Year 2000 efforts,  computer network security, state child support and
welfare systems,  and the enhancement of the MARC(TM)  warehouse  automation and
distribution  product.  The increase also includes the SG&A of several companies
acquired during 1996.

         Also  contributing  to the decline in SG&A expense as a  percentage  of
revenue from 1994 to 1995 was a single R&D project which was started in 1993 and
discontinued in 1994. SG&A included  approximately $5.3 million for this project
in 1994.  Excluding  this  nonrecurring  transaction,  SG&A as a  percentage  of
revenue was 10.2% in 1994.


Depreciation, Amortization and Other

         Depreciation,  amortization  and other  costs  decreased  slightly as a
percentage  of  revenue  in 1996 and 1995  compared  to the prior  years.  These
decreases  are  primarily  the  result of reduced  costs  year over year,  while
revenue increased.  The depreciation  component remained relatively flat in 1996
compared to the previous year,  reflecting the implementation of a new financial
and management  information system in the fourth quarter of 1996 at BDM Federal,
offset  by the  impact  of the  German  mark to  U.S.  dollar  exchange  rate on
depreciation  related  to fixed  assets in  Germany.  Depreciation  expense  was
relatively flat in 1995 compared to 1994.

         The Company  reported a net  decrease of  amortization  expense in 1996
compared to 1995 due to a $1.6 million write-off in 1995 of unamortized goodwill
for FACE. In addition,  certain intangible assets became fully amortized in 1996
which also reduced the expense compared to 1995. These reductions were partially
offset  by  an  increase  in  1996  of   approximately  $2  million  related  to
amortization  of  goodwill  and  other  intangible  assets  associated  with new
acquisitions completed during the year.


Interest (Income) Expense, Net

         The Company had net interest  income of $1.7 million in 1996,  compared
to net interest  expense of $1.5 million for 1995.  This  resulted from applying
$49.4  million  of net  proceeds  in July 1995  from the  initial  public  stock
offering, and $15.3 million of net proceeds from an additional stock offering in
March 1996, to reduce outstanding borrowings. Also contributing to the reduction
in  interest  expense  in 1996 was a  one-time  charge of $0.5  million  in 1995
related to the write-off of capitalized  financing  costs on the credit facility
which was replaced last year. The Company's  cash flow from  operations of $39.9
million for 1996 also  contributed  to higher  interest  income.  The decline of
interest  expense from 1994 to 1995 was also largely  driven by the reduction of
outstanding  borrowings  subsequent to the initial public stock offering in July
1995.

<PAGE>


Equity in Earnings of Affiliates

         Equity in earnings of  affiliates  represents  the  Company's  share of
earnings  from  Vinnell's  unconsolidated  joint  ventures.  These  amounts have
remained fairly stable compared to the prior years.


Minority Interest

         The minority  interest  share of earnings  increased as a percentage of
revenue  for 1996 and  1995,  compared  to the  previous  years.  This  increase
reflects  improved  profitability  of IABG and the expansion of Vinnell's  joint
ventures in the Middle East.  Vinnell's contract with the Saudi Arabian National
Guard was  performed  under a joint  venture  beginning  in July 1995,  in which
Vinnell is a 51% partner.  This contract was performed  solely by Vinnell in the
first half of 1995, and thus, reported no minority interest at that time.


Provision for Income Taxes

         The provision  for income taxes was  unusually  high as a percentage of
income  before  income  taxes in 1995,  compared  to 1996 and  1994.  This  high
effective income tax rate in 1995 resulted from the write-off of $1.6 million in
goodwill from the FACE  acquisition in the first quarter of last year, which was
not  deductible  for income tax purposes.  Partially  offsetting the decrease in
1996 was an increase in the Company's statutory tax rate from 41% in 1995 to 42%
in 1996,  reflecting  the impact of the Company's  international  expansion into
countries with higher income tax rates than the United States.


LIQUIDITY AND CAPITAL RESOURCES

         Cash  flow  continued  to  increase  in 1996  over the  previous  year,
providing  sufficient  liquidity to support the Company's  operational needs. In
addition, the Company has paid approximately $20 million related to acquisitions
completed during the year. The Company's  revolving credit agreement,  cash from
operations,  as well as the  proceeds  from a public  stock  offering,  provided
additional  resources to cover peak cash needs  during the year.  As of December
31,  1996,  the  Company  had $122.8  million  available  for  borrowing  on the
revolving credit agreement.

         Cash flow related to investing activities primarily consists of capital
expenditures,  which have increased due to the implementation of a new financial
and  management  information  system  (SAP)  at  BDM  Federal,  as  well  as the
investments  made for  several  acquisitions  completed  during the year.  Other
investing   activities  included  working  capital  infusions  to  and  earnings
distributions from Vinnell's unconsolidated joint ventures.

         Financing  activities  included the $15.3 million net proceeds from the
secondary  stock offering  completed in March and the reduction of the Company's
working capital facility by $16 million.  In addition,  the Company continued to
provide a benefit to its employees by enabling them to purchase shares of common
stock through stock option  exercises and an employee stock purchase plan.  Also
included in financing  activities is a dividend  payment of $2.0 million made by
the Company's German subsidiary, IABG, to its minority shareholders.


General

         Management  believes the Company has  sufficient  liquidity and working
capital resources necessary to conduct planned business operations, debt service
requirements,   planned  investments,   capital  expenditures,   and  to  ensure
compliance with restrictive bank covenants for the foreseeable future.


<PAGE>


OTHER MATTERS


Acquisitions

         As  discussed  in Note 3, the Company  completed  several  acquisitions
during 1996,  primarily of information  technology  companies serving commercial
clients. These acquisitions had an aggregate purchase price of $41.7 million and
generated goodwill of approximately $25 million.


Restructuring

     The Company announced a new alignment of its business operations during the
third quarter of 1996. This new organization consists of five strategic business
units -- Federal  Systems,  State and Local  Systems,  Integrated  Supply  Chain
Solutions,  BDM Europe and Enterprise Management Services. In addition,  the new
BDM Technologies will comprise  development units focused on promising IT areas,
including  Internet/Intranet  technology,  computer network security, Year 2000+
solutions and services, IT support services,  and others. A horizontally-focused
effort  directed by "Practice  Leaders" is also being  implemented to facilitate
cross-company  synergy in such areas as software process  improvement,  business
process  reengineering,  and Year 2000+  solutions and services.  These practice
leaders will be responsible for developing and implementing repeatable solutions
and  processes  across  the  Company,   using  common  tool  sets  and  standard
methodologies. This new alignment was effective January 1, 1997.

         The  new  organizational  alignment  resulted  in a  one-time,  pre-tax
restructuring charge of $5.8 million to third quarter earnings, which included a
write-down of $3.1 million of the net investment in the Company's  environmental
subsidiary, severance costs totaling $1.8 million for approximately 40 employees
across the Company,  and the accrual of  approximately  $0.9 million for certain
facility expenses. Anticipated future savings from these changes are expected to
be reinvested in human capital and research and development  programs to support
future growth.


Legal Matters

     As discussed in Note 17 to the financial  statements,  the Company has been
informed  that a civil "qui tam" lawsuit has been filed  against the Company and
has received a copy of the  Complaint  in that  action.  The matter is currently
under Court seal. The Complaint alleges violation under the federal False Claims
Act in connection with certain mischarging under overseas  government  contracts
administered  by the U.S.  Air  Force,  related  to  certain  housing  rented in
connection with overseas operations,  alleged improper hiring of and payments to
certain  employees,  alleged improper  payments to a subcontractor,  and alleged
improper purchases and payments made in support of client activities. Management
is  unable to make a  meaningful  estimate  of the  amount or range of loss that
could result from this litigation,  however,  managment does not anticipate that
the ultimate  resolution of this  litigation  will have a material effect on the
Company's consolidated financial position.


New Headquarters

         During  1996,  BDM  signed a letter  of  intent  to move its  corporate
headquarters to a new facility in Reston, Virginia. The Company expects the move
to take place when the lease on the current building expires in January 1999.
<PAGE>

Selected Quarterly Operating Results

         The following table sets forth certain unaudited consolidated statement
of operations data expressed in dollars and as a percentage of total revenue for
the eight most recent fiscal quarters. This data has been derived from unaudited
consolidated  financial  statements  of the  Company  that,  in the  opinion  of
management,  include  all  adjustments  necessary  for a  fair  presentation  in
accordance  with  generally  accepted  accounting  principles.  The 1996 results
include one-time, pre-tax charges of $5.8 million for restructuring in the third
quarter,  and $10.8 million for purchased in-process research and development in
the fourth quarter. The Company's results of operations for a particular quarter
are not  necessarily  indicative  of the  results of  operations  for any future
period. The Company's quarterly results have varied considerably in the past and
are likely to vary from quarter to quarter in the future.
<TABLE>
<CAPTION>

                                                                    Quarters Ended
                                    ------------------------------------------------------------------------------
                                                   1996                                     1995
                                    --------------------------------------   -------------------------------------
                                    Dec. 31, Sept. 30,  June 30,  Mar. 31,    Dec. 31, Sept. 30, June 30, Mar. 31,
                                                 (in millions, except percentages and per share data)
<S>                                 <C>       <C>       <C>       <C>         <C>       <C>       <C>       <C>
Statement of Operations Data:
    Revenue                         $277.8    $246.8    $251.9    $225.1      $269.1    $215.9    $213.1    $191.9
    Operating profit                   4.9       7.9      12.7      11.7        10.9       9.3       8.8       9.9
    Net income                         1.7       3.9       6.7       5.4         5.9       5.3       3.9       3.3
    Earnings per share               $0.11     $0.26     $0.45     $0.39       $0.44     $0.40     $0.38     $0.33
    Weighted average shares
         outstanding                  15.2      15.2      14.9      14.0        13.6      13.4      10.2      10.0

As a Percentage of Revenue:
    Revenue                          100.0%    100.0%    100.0%    100.0%      100.0%    100.0%    100.0%    100.0%
    Operating profit                   1.8       3.2       5.0       5.2         4.0       4.3       4.1       5.2
    Net income                         0.6       1.6       2.6       2.4         2.2       2.5       1.8       1.7
</TABLE>


Variability of Quarterly Results

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


Impact of Statement of Financial Accounting Standards 123 (SFAS 123)

         The  Financial   Accounting   Standards  Board  has  issued  SFAS  123,
"Accounting for Stock-Based Compensation." As permitted by SFAS 123, BDM adopted
the new  standard in 1996,  and chose to continue  the  current  accounting  for
stock-based compensation.  The Company has reported the pro forma net income and
earnings per share,  calculated using the new accounting rules, in the footnotes
to the financial statements, as well as other disclosures required by SFAS 123.


International Operations

         In connection with its international operations, the Company is subject
to  various  risks  inherent  in foreign  activities.  These  risks may  include
unstable  economic  and  political  conditions,  changes in trade  policies  and
regulations of countries  involved,  fluctuations in currency exchange rates and
requirements for letters of credit or bank guarantees.  Certain of the Company's
contracts  are foreign  military  sales,  which  mitigate such risks because the
contracts are governed by U.S. Government procurement  regulations.  Much of the
Company's  other  international  operations are in Western  European  countries,
mainly in Germany and The Netherlands,  which have experienced relatively stable
political  conditions  and  regulatory  environments.  The Company is exposed to
risks associated with fluctuations in exchange rates, including the German Mark,
the Saudi Riyal, the Kuwaiti Dinar, the Turkish Lira, and the Dutch Guilder. The
Company  limits its  exposure  to these  risks by  incurring  and paying for its
expenses in the same  currencies as those of its revenue.  In addition,  certain
contracts  performed overseas have provisions which provide for reimbursement of
losses  arising from currency  fluctuations.  It is the Company's  policy not to
enter into derivative financial instruments for speculative purposes.
There were no derivative  financial  instruments  outstanding as of December 31,
1996.


Effects Of Inflation

         The  impact  of   inflation   on  the   Company's   business  has  been
insignificant  to date,  and the Company  believes  that it will  continue to be
insignificant for the foreseeable future.


                                       ***

         The  foregoing  discussion  of various  factors  that may  impact  1997
performance  contains  certain  forward  looking  statements.  In addition,  the
Company or its  representatives  from time to time may make or have made certain
forward looking statements. Those forward looking statements made by the Company
or its  representatives  are  qualified  in their  entirety by  reference to the
discussion  in this  document,  other public  documents,  and the  discussion of
important  factors  that  could  cause the  Company's  actual  results to differ
materially   from  those   projected  or  discussed  in  those  forward  looking
statements.  It is intended that the foregoing constitute  meaningful cautionary
statements so as to obtain the  protections of the safe harbor  established  for
such statements by the Private Securities Litigation Reform Act of 1995.

                                       ###




<PAGE>


Item 8. Consolidated Financial Statements.



                          Index to Financial Statements


                                                                          Pages

BDM International, Inc.
 Report of Independent Accountants.......................................    23

 Consolidated Balance Sheets as of December 31, 1996 and 1995............    24

 Consolidated Statements of Operations for the years ended December 31, 1996,
      1995, and 1994.....................................................    25

 Consolidated Statements of Stockholders' Equity for the years ended 
      December 31, 1996, 1995, and 1994..................................    25

 Consolidated Statements of Cash Flow for the years ended December 31, 1996, 
      1995, and 1994.....................................................    27

 Notes to Consolidated Financial Statements..............................    28



















<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS



The Board of Directors and Stockholders
    BDM International, Inc.

         We have audited the  accompanying  consolidated  balance  sheets of BDM
International,  Inc. and Subsidiaries  (the Company) as of December 31, 1996 and
1995,  and the related  consolidated  statements  of  operations,  stockholders'
equity and cash flow for each of the three  years in the period  ended  December
31, 1996.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the consolidated  financial  position of BDM
International,  Inc. and  Subsidiaries as of December 31, 1996 and 1995, and the
consolidated  results  of their  operations  and their cash flow for each of the
three years in the period ended  December 31, 1996 in conformity  with generally
accepted accounting principles.



                                                       COOPERS & LYBRAND L.L.P.





Washington, D.C.
February 5,  1997,  except  for Notes 11 and 12,  
    for which the date is March 3, 1997












<PAGE>


                             BDM INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                     December 31,           December 31,
                                                                         1996                   1995
                                                                     ------------          -------------
         ASSETS
<S>                                                                  <C>                   <C>   
Current assets:
    Cash and cash equivalents                                        $     79,376          $      69,143
    Accounts receivable, net                                              234,105                219,354
    Prepaid expenses and other                                              7,695                  6,157
                                                                     ------------          -------------
         Total current assets                                             321,176                294,654

Property and equipment, net                                                48,519                 45,722
Intangible assets, net                                                     35,881                  9,615
Deposits and other                                                          9,586                  8,580
Equity in and advances to affiliates                                        5,492                  5,222
                                                                     ------------          -------------

         Total assets                                                $    420,654          $     363,793
                                                                     ============          =============

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued expenses                            $    164,399          $     168,253
    Debt currently payable                                                  3,487                    449
    Income taxes payable                                                    5,230                  3,465
    Deferred income taxes                                                  11,155                  6,363
                                                                     ------------          -------------
         Total current liabilities                                        184,271                178,530

Deferred income taxes                                                       2,544                  3,638
Long term debt                                                             22,813                 25,900
Severance and other                                                        13,911                 12,099
Minority interest                                                          29,860                 28,157
                                                                     ------------          -------------
         Total liabilities                                                253,399                248,324


Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares
    authorized, none issued                                                 --                     --
Common stock, $.01 par value; 50,000,000 shares
    authorized, 14,414,020 shares issued and outstanding
    at December 31, 1996; 12,962,342 shares issued and
    outstanding at December 31, 1995 (See Note 11)                            144                    130
Additional paid in capital                                                103,537                 68,535
Retained earnings                                                          64,465                 46,790
Deferred compensation                                                      (1,419)                  (395)
Cumulative translation adjustment                                             528                    409
                                                                     ------------          -------------
         Total stockholders' equity                                       167,255                115,469
                                                                     ------------          -------------

         Total liabilities and stockholders' equity                  $    420,654          $     363,793
                                                                     ============          =============

</TABLE>

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


<PAGE>


                             BDM INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For the years ended December 31, 1996, 1995 and 1994
                      (in thousands, except per share data)



<TABLE>
<CAPTION>

                                                                     1996          1995          1994
                                                                     ----          ----          ----

<S>                                                              <C>            <C>           <C>      
Revenue                                                          $ 1,001,559    $ 889,974     $ 774,249
                                                                 -----------    ---------     ---------

Cost of sales                                                        841,315      752,107       643,728
Selling, general and administrative                                   89,147       80,804        82,950
Depreciation, amortization and other                                  17,333       18,154        20,627
Purchased in process R&D                                              10,760           --            --
Provision for restructuring                                            5,760           --            --
                                                                 -----------    ---------     ---------

Operating profit                                                      37,244       38,909        26,944

Interest (income) expense, net                                        (1,656)       1,474         3,481
Equity in earnings of affiliates                                      (2,010)      (1,835)       (1,841)
Minority interest                                                      9,576        5,863         2,526
                                                                ------------    ----------    ---------

Income before income taxes                                            31,334       33,407        22,778

Provision for income taxes                                            13,659       15,015         9,700
                                                                ------------    ---------     ---------

Net income                                                       $    17,675    $  18,392     $  13,078
                                                                 ===========    =========     =========

Earnings per common share (See Note 11):

Net income per common share                                      $      1.21    $    1.56     $    1.20
                                                                 ===========    =========     =========

Weighted average common shares outstanding                            14,593       11,818        10,941
                                                                 ===========    =========     =========


</TABLE>











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



<PAGE>


                             BDM INTERNATIONAL, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 1996, 1995 and 1994
                                 (in thousands)
                                  (See Note 11)
<TABLE>
<CAPTION>
                                                                            Class B      Additional          
                                                          Common             Common       Paid in   Retained
                                                      Shares   Amount   Shares   Amount    Capital  Earnings 
                                                      ------   ------   ------   ------    -------  -------- 
<S>                                                   <C>     <C>          <C>  <C>      <C>         <C>      
Balance at January 1, 1994                            11,299  $   113      750  $     7  $ 48,849    $15,320  
     Issuance of common stock                            251        3       --       --     2,262         --         
     Deferred compensation                                --       --       --       --        --         --        
     Tax benefits applicable to stock option plans        --       --       --       --        11         --        
     Cancellation of deferred stock options               --       --       --       --       (29)        --        
     Purchase of treasury stock                           --       --       --       --        --         --        
     Cancellation of treasury stock                   (2,478)     (25)    (350)      (3)  (38,757)        --       
     Foreign currency translation adjustments             --       --       --       --        --         --        
     Income tax provision on translation adjustment       --       --       --       --        --         --      
     Net income                                           --       --       --       --        --     13,078        
                                                      ------   ------  -------  -------  --------     ------  
Balance at December 31, 1994                           9,072       91      400        4    12,336     28,398    
     Issuance of common stock                          3,581       36       --       --    56,880         --       
     Costs of stock issuance                              --       --       --       --      (774)         --       
     Deferred compensation                                (12)     --       --       --       501         --      
     Tax benefits applicable to stock option plans        --       --       --       --       688         --        
     Purchase of treasury stock                           --       --       --       --        --         --    
     Cancellation of treasury stock                      (79)      (1)      --       --    (1,096)         --       
     Foreign currency translation adjustments             --       --       --       --        --         --      
     Net income                                           --       --       --       --        --     18,392      
                                                      ------   ------  -------  -------  --------   --------  
Balance at December 31, 1995                          12,562      126      400        4    68,535     46,790        
     Issuance of common stock                          1,452       14       --       --    31,522         --     
     Conversion of Class B common stock to
       common stock                                      400        4     (400)      (4)       --         --      
     Costs of stock issuance                              --       --       --       --      (510)        --    
     Deferred compensation                                --       --       --       --     1,960         --   
     Tax benefits applicable to stock option plans        --       --       --       --     2,030         --       
     Foreign currency translation adjustments             --       --       --       --        --         --      
     Net income                                           --       --       --       --        --     17,675     
                                                      ------   ------  -------  -------  --------   --------  
Balance at December 31, 1996                          14,414   $  144       --  $    --  $103,537    $64,465  
                                                      ======   ======  =======  =======   =======    =======  
</TABLE>
<TABLE>
<CAPTION>
                                                                         Treasury       Cumulative
                                                           Deferred        Stock       Translation  Stockholders'
                                                         Compensation Shares    Amount  Adjustment     Equity
                                                         ------------ ------    ------  ----------     ------
<S>                                                       <C>          <C>     <C>      <C>        <C>      
Balance at January 1, 1994                                $   (805)    (100)   $ (800)  $  225     $  62,909
     Issuance of common stock                                   --       --        --       --         2,265
     Deferred compensation                                     497       --        --       --           497
     Tax benefits applicable to stock option plans              --       --        --       --            11
     Cancellation of deferred stock options                     29       --        --       --            --
     Purchase of treasury stock                                 --   (2,728)  (37,985)      --       (37,985)
     Cancellation of treasury stock                             --    2,828    38,785       --            --
     Foreign currency translation adjustments                   --       --        --      643           643
     Income tax provision on translation adjustment             --       --        --     (313)         (313)
     Net income                                                 --       --        --       --        13,078
                                                          --------   ------    ------  -------    ----------
Balance at December 31, 1994                                  (279)      --        --      555        41,105
     Issuance of common stock                                   --       --        --       --        56,916
     Costs of stock issuance                                    --       --        --       --          (774)
     Deferred compensation                                    (116)      --        --       --           385
     Tax benefits applicable to stock option plans              --       --        --       --           688
     Purchase of treasury stock                                 --      (79)   (1,097)      --        (1,097)
     Cancellation of treasury stock                             --       79      1097       --            --
     Foreign currency translation adjustments                   --       --        --     (146)         (146)
     Net income                                                 --       --        --       --        18,392
                                                          --------   ------    ------  -------    ----------
Balance at December 31, 1995                                  (395)      --        --      409       115,469
     Issuance of common stock                                   --       --        --       --        31,536
     Conversion of Class B common stock to
       common stock                                             --       --        --       --            --
     Costs of stock issuance                                    --       --        --       --          (510)
     Deferred compensation                                  (1,024)      --        --       --           936
     Tax benefits applicable to stock option plans              --       --        --       --         2,030
     Foreign currency translation adjustments                   --       --        --      119           119
     Net income                                                 --       --        --       --        17,675
                                                          --------   ------    ------  -------    ----------
Balance at December 31, 1996                              $ (1,419)      --    $   --  $   528      $167,255
                                                          ========   ======    ======  =======      ========
</TABLE>
                     The accompanying notes are an integral
                      part of these financial statements.
<PAGE>

                             BDM INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
              For the years ended December 31, 1996, 1995 and 1994
                                 (in thousands)

<TABLE>
<CAPTION>


                                                                   1996           1995         1994
                                                                   ----           ----         ----
<S>                                                            <C>             <C>          <C>  
Cash flow from operating activities:
     Cash received from clients                                $ 985,942       $ 889,900    $ 746,335
     Cash paid to suppliers and employees                       (939,161)       (846,920)    (725,312)
     Income taxes paid                                            (8,802)        (11,514)     (11,204)
     Interest received                                             3,112           2,689        1,142
     Interest paid                                                (1,234)         (3,641)      (5,087)
                                                               ---------       ---------    ---------
     Net cash provided by operating activities                    39,857          30,514        5,874
                                                               ---------       ---------    ---------

Cash flow from investing activities:
     Additions to property and equipment                         (18,406)        (17,754)      (9,620)
     Purchases of new businesses, net of cash acquired           (19,633)             --       (4,479)
     Reimbursement of acquisition costs                               --           1,535        1,362
     Contributions from minority owners                               --           7,097        2,482
     Distributions from unconsolidated affiliates                  3,551           2,850        2,775
     Investment in unconsolidated affiliates                      (2,388)         (1,589)      (1,936)
                                                               ---------       ---------    ---------
     Net cash used in investing activities                       (36,876)         (7,861)      (9,416)
                                                               ---------       ---------    ---------

Cash flow from financing activities:
     Net (repayments of) proceeds from borrowings                (16,461)        (53,169)      31,601
     Repayment of term debt                                       (1,969)         (3,700)          --
     Proceeds from issuance of common stock                       31,026          56,142        2,265
     Payment of dividend to minority shareholders                 (2,013)             --           --
     Acquisition of common stock                                      --          (1,097)     (37,985)
                                                               ---------       ---------    ---------
     Net cash provided by (used in) financing activities          10,583          (1,824)      (4,119)
                                                               ---------       ---------    ---------

Effect of exchange rate changes on cash and
     cash equivalents                                             (3,331)          3,000        4,100
                                                               ---------       ---------    ---------

Net increase (decrease) in cash and cash equivalents              10,233          23,829       (3,561)
                                                               ---------       ---------    ---------

Cash and cash equivalents, beginning of period                    69,143          45,314       48,875
                                                               ---------       ---------    ---------

Cash and cash equivalents, end of period                       $  79,376       $ 69,143     $  45,314
                                                               =========       ========     =========



</TABLE>


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



<PAGE>


                             BDM INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Organization

         BDM  International,  Inc.  ("BDM" or "the Company") was privately owned
from its inception in 1959 until 1980,  when it became a publicly owned company.
BDM was  purchased by and became a  wholly-owned  subsidiary  of Ford  Aerospace
Corporation  ("Ford  Aerospace")  in June  1988.  BDM  remained  a wholly  owned
subsidiary of Ford Aerospace until members of senior  management and an investor
group led by The Carlyle  Group,  L.P.  ("Carlyle"),  a  Washington,  D.C.-based
private merchant bank, acquired substantially all of the assets, liabilities and
business of BDM on October 23, 1990.  On June 28, 1995,  BDM  completed a public
offering of common stock in which 2.875  million  shares were sold at $18.50 per
share.  BDM's stock began  trading on the  National  Association  of  Securities
Dealers Automated Quotation System ("Nasdaq") on June 29, 1995.

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

2. Summary of Significant Accounting Policies

    Principles of Consolidation

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

    Revenue Recognition

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

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

    Foreign Currency Translation

         The results of operations from foreign  subsidiaries  are translated to
U.S.  dollars  using the average  exchange  rates during the period.  Assets and
liabilities are translated to U.S. dollars at the exchange rate in effect at the
balance  sheet  date.  The  resulting  cumulative  translation  adjustments  are
reflected in stockholders' equity.

<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


2. Summary of Significant Accounting Policies-(Continued)

    Consolidated Statements of Cash Flow

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

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

    Property and Equipment

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

    Goodwill and Intangible Assets

         Goodwill represents the excess of the cost of acquiring businesses over
the fair value of  identifiable  net tangible and  intangible  assets  acquired.
Goodwill is  amortized  on a  straight-line  basis over the period for which the
Company  estimates it will benefit directly from the  acquisition.  Although the
period of benefit  from  goodwill  can be  difficult  to  estimate,  the Company
considers  goodwill  to be  recoverable  as  long as the  acquisition  generates
positive  cash  flow  from  operations  after  implementation  of the  Company's
strategic plan or completion of reorganization  efforts, if any.  Recoverability
of goodwill  is  evaluated  quarterly  based on current  undiscounted  cash flow
projections  of  each  specific   acquired   business.   To  date,  the  maximum
amortization period for goodwill has been fifteen years, even though most of the
Company's  acquisitions  would project  positive cash flow from operations for a
much longer period.
Goodwill is amortized over periods ranging from seven to fifteen years.

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

    Research and Development Costs

         Research  and  development  costs  are  expensed  as  incurred  and are
included in selling,  general and administrative costs. Research and development
costs  amounted to $4.6 million,  $2.0  million,  and $7.1 million for the years
ended December 31, 1996, 1995, and 1994, respectively.  In addition, the Company
expensed  $10.8 million of costs related to the  acquisition of RGTI in 1996 for
research and development activities in process at the time of acquisition.





<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


2. Summary of Significant Accounting Policies-(Continued)

    Capitalized Software Development Costs

         Certain  costs of internally  developed  software are  capitalized  and
amortized  over  the  economic  useful  life of the  related  software  product.
Unamortized  capitalized  software  development  costs  were  approximately  $12
million at December 31, 1996.

    Income Taxes

         The Company  recognizes  deferred  tax assets and  liabilities  for the
expected  future  tax  consequences  of events  that have been  recorded  in the
financial  statements  or tax  returns.  Deferred  tax  assets  and  liabilities
represent  the tax  effects  of  differences  between  the  financial  statement
carrying  amounts and the tax basis carrying amounts of the Company's assets and
liabilities. These differences are calculated based upon the statutory tax rates
in effect in the years in which the  differences  are  expected to reverse.  The
effect of subsequent changes in tax rates on deferred tax balances is recognized
in the period in which a tax rate change is enacted.

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

    Earnings Per Common Share

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

    Financial Instruments

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

         The Company's cash management policy is to use available cash balances,
primarily from its domestic  subsidiaries,  to reduce the outstanding balance of
the revolving line of credit.  To mitigate  exposures to foreign  currency risks
associated  with  using the  available  cash of  foreign  subsidiaries  or joint
ventures,  only the portion of available cash balances  deemed not necessary for
short-term  operations of the foreign  subsidiary  are  considered  eligible for
inclusion in the  centralized  cash  management  activities of the Company.  The
majority  of the cash  balance  at  December  31,  1996,  belongs  to IABG  (the
Company's German  subsidiary).  At December 31, 1996,  approximately $52 million
was  invested  primarily in deposits  with  various  German banks of high credit
ratings,  with purchased  maturities of one month or less. These investments are
insured up to amounts  prescribed  by German law.  Although  there were no other
investments  as of  December  31,  1996,  significant  excess  cash  balances of
domestic subsidiaries not used to extinguish debt are routinely invested in high
quality  commercial  paper for periods ranging from overnight to one week. It is
the Company's policy to hold such investments to maturity.



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


2. Summary of Significant Accounting Policies-(Continued)

         In connection with its international operations, the Company is exposed
to risks associated with fluctuations in currency exchange rates,  including the
German Mark, the Saudi Riyal,  the Kuwaiti Dinar, the Turkish Lira and the Dutch
Guilder.  The Company limits its exposure to these risks by incurring and paying
for its expenses in the same  currencies  as those of its revenue.  In addition,
certain  contracts   performed   overseas  have  provisions  which  provide  for
reimbursement  of losses  arising from  currency  fluctuations.  The Company may
enter into  forward  exchange  contracts,  options and swaps as a hedge  against
certain foreign  currency  risks.  It is the Company's  policy not to enter into
derivative  financial  instruments  for  speculative  purposes.  There  were  no
derivative financial instruments outstanding as of December 31, 1996.

         The  Company  generally   provides   uncollateralized   credit  to  its
customers.  Advance  payments  are  obtained  from a large  portion  of  foreign
government  customers  pursuant to the  appropriation  practices  of the related
governments.   The  Company  continually  assesses  the  financial  strength  of
commercial  companies  for whom  significant  subcontracts  are  performed.  The
Company also enters into  letters of credit and  performance  guarantees  in the
ordinary  course of  business  as required  by certain  contracts  and  proposal
requirements.

    Reclassifications

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

    Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingencies as of the dates of the financial statements, and the
reported  amounts of revenue and expenses during the reporting  periods.  Actual
results could differ from management's estimates.


3. Acquisitions

         CW Systems,  Inc.,  IG  Systems,  Inc.,  and Melco  Systems,  Inc.:  On
February  20,  1996,  the Company  acquired  three  affiliated  companies  -- CW
Systems,  Inc., IG Systems,  Inc. and Melco Systems, Inc. for $18.5 million. The
acquired companies  specialize in providing  information  technology systems and
services to large commercial organizations in various industries,  as well as to
various state  agencies.  The  acquisition of these companies has been accounted
for as a purchase, and the results of their operations have been included in the
Company's  statement of operations  since the date of acquisition.  Of the total
purchase  price,  $8.8 million was paid out of existing  cash  balances and $9.7
million was financed  through  notes payable to the previous  owners.  Resulting
goodwill  totaled $16.8 million,  and is being  amortized  over 15 years.  Other
intangible  assets of $1.4 million  related to non-compete  agreements are being
amortized over two years.



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


3. Acquisitions-(Continued)

         RGTI: On November 4, 1996, the Company  acquired the operations of RGTI
Systems  Software  (RGTI),  a  company   specializing  in  warehouse  management
solutions.  The purchase price of $18.4 million included non-compete  agreements
totaling  $750,000 for a period of four years and retention  payments to certain
key  management  team  members  totaling  $1.6  million  to be  paid  in  annual
installments  through  December 1999. The remaining  purchase price consisted of
$9.4  million  cash  paid  at  settlement   and  $6.6  million  of  assumed  net
liabilities.  In addition,  the purchase  agreement provides an additional $6.35
million  purchase price  contingent  upon the  achievement of targeted  earnings
through the year 2000. This acquisition was accounted for as a purchase, and the
results of RGTI's  operations  have been included in the Company's  consolidated
statements  of  operations  since the  effective  date of the  transaction.  The
Company expensed $10.8 million relating to the write-off of purchased in-process
research and  development.  As of the effective  date of this  acquisition,  the
technological  feasibility  of  the  in-process  technology  had  not  yet  been
established  and the technology  was deemed to have no  alternative  future use.
Resulting  goodwill  totaled  approximately  $5.2 million and is being amortized
over seven years.

         ASD:  The Company also  acquired  the assets of two related  companies,
Advanced Systems Design, Inc. (ASD) and Software Engineering,  Inc. (SEI). These
companies  provide services in state and local government human services systems
design and development.  This  acquisition was accounted for as a purchase,  and
the results of ASD's operations have been included in the Company's consolidated
statements of operations  since November 1, 1996, which represents the date upon
which  effective  control of the  operations  of ASD and SEI was  assumed by the
Company.  The  Company  paid $4.8  million,  of which  $1.5  million  relates to
non-compete  agreements for three years. The remaining $3.3 million will be paid
out of BDM's cash balances subsequent to year end.
Goodwill  resulting  from  the  transaction  totaled  $3  million  and is  being
amortized over 10 years.

         GCL: On February 16, 1994, the Company acquired Geoscience Consultants,
Ltd. (GCL), an environmental  services consulting  business,  for an acquisition
price  of  approximately  $4.3  million.   The  acquisition  was  financed  with
borrowings from the Company's working capital facility.

Pro Forma Information (unaudited)

         The following  unaudited  pro forma  combined  condensed  statements of
operations set forth the  consolidated  results of operations of the Company for
the  years  ended  December  31,  1996  and  1995  as  if  the  above  mentioned
acquisitions  had  occurred  as of  January 1, 1995.  This  unaudited  pro forma
information does not purport to be indicative of the actual  financial  position
or the results that would actually have occurred if the combinations had been in
effect for the years ended December 31. The 1996 pro forma information  excludes
the write-off of certain  purchased  research and  development  of $10.8 million
pre-tax  ($0.43 net of tax per  common  share).  The 1995 pro forma  information
includes the write-off of certain  purchased  research and  development of $10.8
million pre-tax ($0.53 net of tax per common share), (dollars in thousands):

                                              1996              1995
                                          ------------       ----------
Revenue                                  $   1,025,821      $   951,183
                                          ============       ==========
Net income                               $      24,101      $    12,063
                                          ============       ==========
Net income per common share              $        1.65      $      1.02
                                          ============       ==========



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


4. Supplemental Cash Flow Information

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

                                                                       1996        1995          1994
                                                                     --------    --------      --------
<S>                                                                  <C>         <C>           <C>     
Net income                                                           $ 17,675    $ 18,392      $ 13,078
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation and amortization                                     16,737      17,761        16,466
     Loss on disposal of property                                         625         376            --
     Equity in earnings of affiliates                                  (2,010)     (1,835)       (1,841)
     Minority interest                                                  5,446       3,797         2,526
     Provision for contract losses                                      4,114       4,400         5,138
     Deferred compensation expense                                        936         349           497
     Purchased in-process R&D                                          10,760          --            --
     Provision for restructuring, non-cash items                        5,308          --            --
     Deferred income taxes                                              3,698        (684)        2,563
     Other                                                              2,416          89          (749)
Cash effect of changes in current assets and liabilities:
     Accounts receivable                                              (10,688)     (9,525)      (36,543)
     Prepaid expenses and other                                        (1,224)          1       (10,265)
     Accounts payable and accrued                                     (16,714)     (3,072)       13,204
     Income taxes payable                                               2,778         465         1,800
                                                                     --------    --------      --------

Net cash provided by operating activities                            $ 39,857    $ 30,514      $  5,874
                                                                     ========    ========      ========


</TABLE>



















<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


5. Accounts Receivable

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

                                                          1996           1995
                                                       ----------    ----------
U.S. Government contracts:
     Billed                                          $    115,384   $   134,847
     Unbilled:
         Retention                                         23,968        16,866
         Other                                              9,674         3,841
                                                       ----------    ----------
    Total                                                 149,026       155,554

Other contracts:
     Billed                                                72,311        52,570
     Unbilled:
         Retention                                          9,785         5,402
         Other                                             23,870        22,338
                                                       ----------     ---------
     Total                                                105,966        80,310

     Other                                                  5,036         4,220
     Allowance for possible contract losses and
         uncollectible amounts                            (25,923)      (20,730)
                                                       ----------     ---------

    Net accounts receivable                            $  234,105     $ 219,354
                                                       ==========     =========



         Unbilled retention balances are billable at contract completion or upon
attainment  of other  specified  contract  milestones.  Other  unbilled  amounts
consisted primarily of:  contractually  earned services not yet billable because
of stipulated  installment billing  provisions,  approximately $28.2 million and
$19.4 million at December 31, 1996 and 1995,  respectively;  revenue  recognized
pursuant  to  customer  authorizations  prior to the  execution  of  contractual
documentation  was not  material in 1996 and was $1.7  million at  December  31,
1995; and a specific  receivable related to a contract performed in Saudi Arabia
whereby the Company  will owe  severance  to  terminated  employees  at contract
completion, approximately $1.8 million and $1.9 million at December 31, 1996 and
1995, respectively.  This liability is included in accrued severance. Management
anticipates that substantially all unbilled receivables as of December 31, 1996,
exclusive of retention balances,  will be billed and collected in 1997. Based on
the  Company's  experience  with similar  contracts in recent  years,  retention
balances of approximately $6.6 million at December 31, 1996, are not expected to
be collected  within the coming year. It is common industry  practice to include
such amounts in working capital.









<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


6. Property and Equipment

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


                                                       1996              1995
                                                       ----              ----
Equipment and office furniture                     $    64,022       $   58,563
Leasehold improvements                                  10,059            9,559
                                                   -----------       ----------
                                                        74,081           68,122
Accumulated depreciation and amortization              (25,562)         (22,400)
                                                   -----------       ----------
Net property and equipment                         $    48,519       $   45,722
                                                   ===========       ==========


         Depreciation  expense  was  $13.0  million,  $13.4  million,  and $12.5
million for the years ended December 31, 1996, 1995, and 1994, respectively.


7. Intangible Assets

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

                                                      1996              1995
                                                      ----              ----
Goodwill                                          $    33,369      $    11,480
     Less:   Accumulated amortization                  (3,689)          (2,695)
                                                  -----------      -----------
                                                       29,680            8,785
                                                  -----------      -----------

Intangible Assets:
     Intangible pension asset (Note 13)                 2,605               --
     Covenants not to compete                           7,500            3,850
     Other                                                437            1,770
                                                  -----------      -----------
                                                       10,542            5,620
     Less:  Accumulated amortization                   (4,341)          (4,790)
                                                  -----------      -----------
                                                        6,201              830
                                                  -----------      -----------
Total                                             $    35,881      $     9,615
                                                  ===========      ===========



         During 1996, the Company  recorded  goodwill related to acquisitions of
approximately $25 million and non-compete agreements of $3.7 million.

         In connection with a restructuring during 1996, as described in Note 8,
the  Company  wrote off  unamortized  goodwill  of $2.4  million  related to its
environmental subsidiary,  GCL. This write-off, which was determined based on an
analysis of future cash flow expected  from that area of business  after changes
in strategic  direction  resulting from the Company's business  realignment,  is
included in the provision for  restructuring  in the  consolidated  statement of
operations.



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


7. Intangible Assets-(Continued)

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


8. Accounts Payable and Accrued Expenses

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

                                                      1996              1995
                                                      ----              ----
Accounts payable                                  $    63,578      $    63,567
Accrued expenses:
     Advance payments                                  27,782           31,876
     Accrued salaries/benefits                         45,547           39,967
     Accrued vacation                                  18,586           18,838
     Restructuring/severance                            7,093           10,245
     Environmental matters                              1,088            1,356
     Other                                                725            2,404
                                                  -----------      -----------
                                                  $   164,399      $   168,253
                                                  ===========      ===========

Restructuring/Severance Liability

         Prior to the Company's  acquisition of IABG, IABG found it necessary to
reduce its reliance on the German government for the majority of its revenue. In
addition to  redirecting  marketing  efforts in non-defense  areas,  IABG sought
means to reduce  operating  costs.  IABG therefore  determined  that it would be
necessary  to  reduce  its  workforce  through  involuntary   terminations.   As
prescribed  by German  law and  pursuant  to the  German  government's  plan for
privatization  of IABG, a severance plan was developed by IABG providing for the
estimated  number  of  involuntary  employee  reductions,   the  conditions  for
termination  and the method for  determining  the amount of severance due to the
terminating  employees.  IABG's  workforce  reductions  began  in 1994  and will
continue through 1997. In connection with the approval of the plan by the German
government and prior to the acquisition of IABG by the Company,  an estimate for
the severance  totaling  $34.2  million was accrued.  Benefits paid through 1996
totaling  $20.1  million  have  been  applied  against  the  original   accrual.
Management  believes the  remaining  liability  will be adequate to cover future
benefits  claimed  pursuant to the plan. The remaining  liability as of December
31, 1996 has been classified among current and long-term  liabilities  according
to IABG's plan for effecting the actual employee reductions.






<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


8. Accounts Payable and Accrued Expenses-(Continued)

         The Company announced a new alignment of its business operations in the
third quarter of 1996,  described in management's  discussion and analysis.  The
new business  alignment  resulted in a one-time  provision for  restructuring of
$5.8 million,  which  included a write-down of $3.1 million of certain assets of
GCL (see Note 7),  severance  costs totaling $1.8 million for  approximately  40
employees across several  subsidiaries,  and the accrual of  approximately  $0.9
million for certain facility expenses.  The write-down at GCL affected primarily
goodwill and fixed assets,  and was determined  based on analyses of future cash
flows expected from that area of business  after changes in strategic  direction
resulting from the business realignment.  During the fourth quarter of 1996, the
Company  made  payments of  approximately  $450,000  against  the  restructuring
reserve primarily related to severance costs, and had a remaining balance in the
reserve of approximately $1.8 million as of December 31, 1996.


9. Debt

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

                                                       1996              1995
                                                       ----              ----
Revolving line of credit                           $     9,800      $    25,830
Promissory notes from acquisitions                      12,793             --
Non-competition promissory notes                         3,650             --
Other                                                       57              519
                                                   -----------      -----------
                                                        26,300           26,349
Less:  current portion                                  (3,487)            (449)
                                                   -----------      ------------
Total long-term debt                               $    22,813      $    25,900
                                                   ===========      ===========


         During  1995,  the Company  entered into a revolving  credit  agreement
which provides an unsecured  multicurrency revolving credit line of $150 million
for a term of five years,  at an interest rate based on LIBOR plus margins.  The
agreement includes covenants which limit the amount of the Company's  borrowings
in relation to total  capitalization  and compared to earnings before  interest,
taxes,  depreciation and  amortization.  In addition,  dividends were prohibited
until after  September 1, 1996,  and are not to exceed 20% of the cumulative net
income  subsequent  to July 1,  1996.  Conditions  also  exist  which  limit the
investments which can be made in existing  subsidiaries and nonsubsidiaries.  As
of December 31, 1996,  the Company had $122.8  million  available  for borrowing
under  this  credit  agreement  and was in  compliance  with all  covenants.  In
connection with the replacement of the previous  facility,  the Company expensed
$0.5 million of capitalized financing costs during 1995.

         In connection  with the  acquisitions  described in Note 3, the Company
has promissory notes due to selling shareholders as follows:

         CW Systems,  Inc., IG Systems,  Inc.,  and Melco  Systems,  Inc.: As of
December 31, 1996, the Company has $8.2 million of promissory notes payable over
two years to the sellers of these companies, as well as promissory notes of $1.4
million associated with covenants not-to-compete for certain key employees.
In addition,  the Company paid $2.0 million  during 1996 to settle debt acquired
in this transaction.



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


9. Debt-(Continued)

         RGTI: In connection  with the  acquisition  of RGTI, the Company issued
promissory notes of $750,000 payable over four years,  associated with covenants
not-to-compete for certain key employees.  The remaining purchase price was paid
in cash to the sellers.

         ASD: The Company has $6.1 million of debt  outstanding  related to this
transaction  as of December  31,  1996.  This amount  includes  $3.3  million in
promissory  notes  to  the  sellers  for  sale  of  the  Company,  $1.5  million
representing  non-competition promissory notes payable over three years, and the
remaining $1.3 million for debt acquired in the transaction.

         All  acquisition  notes  described  above  bear  interest  payable on a
quarterly basis at prevailing market rates.

         Maturities of debt  outstanding at December 31, 1996,  were as follows:
1997--$3.5 million;  1998--$11.6  million;  1999--$0.7 million;  and 2000--$10.5
million.

         Total  interest  expense  incurred  in  1996,  1995,  and 1994 was $6.4
million, $4.4 million and $5.1 million,  respectively.  Excluding facility fees,
the weighted  average  interest rate  incurred for the years ended  December 31,
1996, 1995 and 1994, was 7.39%, 8.0% and 6.7%, respectively.


10. Income Taxes

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

                                          1996         1995            1994
                                          ----         ----            ----
Domestic                             $    17,763   $    25,890    $    12,335
Foreign                                   13,571         7,517         10,443
                                     -----------   -----------    -----------
     Income before income taxes      $    31,334   $    33,407    $    22,778
                                     ===========   ===========    ===========

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

                                          1996         1995            1994
                                          ----         ----            ----
Current provision:
     Federal                         $     4,656   $     9,530    $     3,193
     State                                   794         1,634            942
     Foreign                               4,511         4,535          3,000
                                     -----------   -----------    -----------
         Total current provision           9,961        15,699          7,135
                                     -----------   -----------    -----------

Deferred provision(benefit):
     Federal                               1,819        (3,745)         1,629
     State                                   312          (642)           223
     Foreign                               1,567         3,703            713
                                     -----------   -----------    -----------
         Total deferred 
            provision (benefit)            3,698          (684)         2,565
                                     -----------   -----------    -----------
         Total provision for 
            income taxes             $    13,659   $    15,015    $     9,700
                                     ===========   ===========    ===========


<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


10. Income Taxes-(Continued)

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

                                                1996       1995       1994
                                                ----       ----       ----
U.S. Federal statutory income tax rate          35.0%      35.0%      35.0%
State income taxes, net of federal income
     tax benefits                                6.0        6.0        6.0
Tax effect relating to non-deductible
     goodwill amortization                       1.7        2.7        1.6
Tax effect relating to rate differential
     of foreign operations                       0.9        1.2       --
                                                 ---        ---       --

Effective income tax rate                       43.6%      44.9%      42.6%
                                                =====      =====      =====

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

                                                         1996          1995
                                                         ----          ----
Financial reporting basis of net assets acquired     $     6,114    $   5,532
Other                                                        145          308
Revenue recognition                                       25,660       23,251
                                                     -----------    ---------
         Gross deferred tax liability                     31,919       29,091
                                                     -----------    ---------
Depreciation                                               1,360          735
Accrued expenses                                           5,159        9,215
Foreign operating loss carryforward                           --          669
Accruals in excess of deductible write-offs                7,878        5,981
Foreign tax credit carryforwards                           3,823        2,490
                                                     -----------    ---------
         Gross deferred tax asset                         18,220       19,090
                                                     -----------    ---------
         Net deferred liability                      $    13,699    $  10,001
                                                     ===========    =========


         As  of  December  31,   1996,   the  Company  had  foreign  tax  credit
carryforwards  (FTC's) of $3.8  million  which expire in various  years  through
2001. Utilization of the FTC's is subject to certain limitations,  including the
future amount of taxable  foreign source income,  the effective tax rate on such
income and the amount of future U.S. taxable income. Management believes that it
is more likely than not that  foreign tax credits  will be  realizable  based on
projections of future low-taxed foreign source income.







<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


11. Stockholders' Equity

    Description of Capital Stock

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

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

    Stock Split

         On February  21, 1997,  the  Company's  Board of  Directors  declared a
two-for-one  split of the  Company's  common  shares,  effected in the form of a
stock  dividend,  to shareholders of record as of the close of business on March
20, 1997.  Distribution  of the  additional  shares will take place on March 20,
1997. The consolidated  financial statements presented have not been restated to
reflect this stock split.  In  connection  with the stock split,  the  Company's
Board of Directors increased the number of shares of Common Stock authorized for
issuance to 100,000,000 shares. Had the consolidated  financial  statements been
restated to reflect  the stock  split,  the  weighted  average  number of shares
outstanding would have been approximately 29,186,000, 23,636,000, and 21,882,000
shares and earnings per common share would have been $0.61, $0.78, and $0.60 for
the years ended December 31, 1996, 1995, and 1994, respectively.

    Stock Offering

         On March 27, 1996, the Company completed an offering of common stock to
the  public in which  3,220,000  shares of Common  Stock were sold at $36.50 per
share. Of the total number of shares offered, 450,000 shares were primary shares
and the  remaining  2,770,000  shares  were  sold by  certain  of the  Company's
shareholders,  including  400,000  of Class B shares,  which were  converted  to
Common  Stock   immediately   prior  to  the  offering.   The  net  proceeds  of
approximately  $15.3  million  were used for general  corporate  purposes and to
finance acquisitions.

    Investor Stock Purchase Agreement

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


<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


11. Stockholders' Equity-(Continued)

    Common Stock Purchase

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

    Fair Value of Common Stock

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


12. Equity Participation Programs

    Employee Stock Purchase Plans

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

         Effective  July 1, 1995, the above plan was  discontinued  and replaced
with the 1995 Employee Stock  Purchase Plan (the 1995 Plan).  The 1995 Plan is a
qualified  non-compensatory employee stock purchase plan, and there were 750,000
shares of common  stock  reserved for  issuance  under this plan.  The 1995 Plan
allowed all  employees  of the  Company's  domestic  subsidiaries  to purchase a
limited amount of common stock at a discount  during the offering period of July
1, 1995 to June 30, 1996.  The  purchase  price of the  Company's  stock was the
lesser of $15.725,  which was 85% of the initial offer price of $18.50 per share
in the public  offering,  or 85% of the market  value at the end of each  month.
During  1996 and 1995,  participants  in the 1995  Plan  purchased  432,301  and
317,699 shares at $15.725 per share.

<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


12. Equity Participation Programs-(Continued)

         During 1996,  the 1995 Employee Stock Purchase Plan was replaced by the
1996  Employee  Stock  Purchase  Plan  (the  1996  Plan).  The  1996  Plan  is a
non-compensatory employee stock purchase plan which reserved 1,000,000 shares of
Common Stock for  issuance.  The 1996 Plan allows all employees of the Company's
domestic  subsidiaries  to  purchase up to 500,000  shares  annually in 1996 and
1997, at a discount  during the offering  period.  The purchase  price under the
1996 Plan is the lesser of 85% of the market value at each  purchase date or 85%
of the market  value as set at the  beginning  of each six month period from the
inception  of the 1996 Plan,  and the  purchase  is subject to a 90 day  holding
period.  During 1996,  participants  in this plan  purchased  133,481  shares at
prices ranging from $37.83 to $42.71.

    1990 Stock Option Plan

         In 1990, the Company established a Stock Option Plan (the 1990 Plan) to
provide   officers  and  key  employees  with  up  to  1,562,500   qualified  or
non-qualified  incentive stock options to purchase  shares of Common Stock.  The
1990 Plan provides  that  qualified  incentive  stock options (as defined in the
Internal  Revenue Code) have an exercise price equal to the fair market value of
the Common Stock on the date of the option grant.  Non-qualified incentive stock
options have exercise prices as determined by the Compensation  Committee of the
Board of  Directors.  The 1990 Plan  provides for  adjustments  in the number of
shares  related to stock  options and their  respective  exercise  prices in the
event of stock dividends or stock splits,  and for adjustments in the event that
the Company effects a recapitalization or other change in its capital structure.
Options granted  pursuant to the 1990 Plan vest over periods ranging from one to
five years.  As of December 31, 1996,  the Company had 683,483  shares of Common
Stock reserved for issuance upon exercise of this plan's  remaining  outstanding
options, and 19,456 shares of Common Stock reserved for future option grants.

    1994 Stock Option Plan

         In 1994, the Company's Board of Directors  reserved 1,000,000 shares of
Common  Stock and  established  the 1994 Stock  Option  Plan to succeed the 1990
Plan. The  continuation  1994 Plan has identical  provisions as the  predecessor
1990 Plan. At December 31, 1996,  the Company had 634,092 shares of Common Stock
reserved for issuance upon exercise of outstanding options and 338,826 shares of
Common Stock reserved for future option grants.

    1997 Stock Option Plan

         On  February  21,  1997,  the  Company's  Board of  Directors  reserved
1,250,000 shares of Common Stock and established the 1997 Stock Option Plan (the
1997 Plan) to succeed the 1994 Plan.  The  continuation  1997 Plan has identical
provisions as the 1990 and 1994 Plans,  except that it allows certain  employees
to convert their  incentive  stock options to  non-qualified  stock options upon
terminating employment with the Company. The 1997 Plan is subject to shareholder
approval.






<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


12. Equity Participation Programs-(Continued)

    Management Incentive Stock Purchase Program

         In  1991,  the  Company  established  the  Management  Incentive  Stock
Purchase Program (MIS Plan),  which provides for the granting of up to 1,111,111
nonqualified  options  to  purchase  shares of Common  Stock to  certain  senior
members of management.  The option exercise price is $.01 per share. Intended to
serve as incentive compensation for management, a portion of these option grants
vests  each  year  based  on  management's   ability  to  meet  defined  minimum
performance  criteria,  with the remainder vesting based on tenure.  Upon option
grant, the Company records deferred compensation equal to the difference between
the fair market value of the Company's Common Stock on the date of grant and the
option exercise price. Performance based options are revalued each quarter based
on the fair market value at the end of the quarter. The deferred compensation is
expensed over the vesting term of the underlying  options.  All options pursuant
to this plan have been granted.  As of December 31, 1996, the Company had 23,192
shares of Common Stock  reserved for issuance upon  exercise of the  outstanding
options.

         Stock option activity pursuant to these plans has been as follows:

                                    MIS Plan                Non-MIS Plans
                                        Exercise Price            Exercise Price
                               Shares    Per Share     Shares       Per Share
Balance,
     December 31, 1993         128,853   $   .01      940,515    $4.00-   $8.00
     Granted                        --        --      471,050     8.00-   14.00
     Exercised                (17,291)       .01      (99,678)    4.00-    8.00
     Forfeited                (20,208)       .01      (95,589)    4.00-   12.00
                            ----------              ----------
Balance,
     December 31, 1994          91,354       .01     1,216,298    4.00-   14.00
     Granted                    30,000       .01       392,950   14.00-   26.38
     Exercised                (96,354)       .01     (238,892)    4.00-   12.00
     Forfeited                      --       .01      (92,560)    5.25-   14.00
                            ----------              ----------
Balance,
     December 31, 1995          25,000       .01     1,277,796    4.00-   26.38
     Granted                     4,442       .01       522,108    0.01-   52.25
     Exercised                 (6,250)       .01     (433,303)    4.00-   17.25
     Forfeited                      --       .01      (49,026)    4.00-   38.75
                            ----------              ----------
Balance,
     December 31, 1996          23,192   $   .01    1,317,575    $4.00-  $52.25
                            ==========    ======    =========    ==============


         On March 3, 1997, the Company  granted options to purchase an aggregate
of 504,425  shares of Common  Stock to certain  employees  at an exercise  price
equal to the fair value of $44.25 per share at that date.  This grant is subject
to shareholder approval of the 1997 Plan.



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


12. Equity Participation Programs-(Continued)

    Directors' Stock Purchase Plan

         Members of the  Company's  Board of  Directors  are eligible to receive
their  compensation  in the form of Common  Stock in lieu of cash.  During 1996,
1995,  and  1994,  the  Company   issued  2,794,   7,369,   and  14,296  shares,
respectively,  of  Common  Stock for this  purpose.  During  1995 and 1994,  the
Company  purchased  6,298 and 13,750 shares,  respectively,  of its  outstanding
Common Stock for $14.00 per share for use by this plan. As of December 31, 1996,
the Company had 7,594  shares of Common Stock  reserved  for  issuance  upon the
exercise of the board members' option to receive compensation in this form.

     Pro Forma Information in Accordance with SFAS 123

         The  Company  applies APB  Opinion 25 and  related  interpretations  in
accounting for its equity participation programs.  Accordingly,  no compensation
cost has been  recognized for its incentive  stock option plans and its employee
stock  purchase  plans,  except  as  described  above  for  the  MIS  Plan.  The
compensation  cost that has been  charged  against  income  for the MIS plan was
approximately  $936,000,  $298,000,  and  $90,000  for  1996,  1995,  and  1994,
respectively.  Had compensation cost for the Company's stock-based  compensation
plans  been  determined  based on the fair  value at the grant  dates for awards
under those plans  consistent with the method of accounting  under SFAS 123, the
Company's  net income and  earnings per share would have been reduced to the pro
forma amounts indicated below:

                                                          1996           1995
                                                          ----           ----
Net Income                       As reported            $17,675        $18,392
                                 Pro forma              $11,033        $15,025

Net income per common share      As reported              $1.21          $1.56
                                 Pro forma                $0.76          $1.28


         The fair value of each option is estimated on the date of grant using a
type of Black-Scholes  option-pricing model with the following  weighted-average
assumptions  used for option grants during the years ended December 31, 1996 and
1995, respectively:  dividend yield of 0%, expected volatility of 40%, risk-free
interest  rate of 5.9%,  and  expected  terms of 4 years.  The fair value of the
employee  stock purchase plans was  determined  using the same  assumptions  for
dividend yield,  expected volatility,  and risk-free interest rate. The expected
term used for the employee stock purchase plans was 6 months.









<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


12. Equity Participation Programs-(Continued)

         A  summary  of the  status  of the  Company's  stock  option  plans  is
presented below:
<TABLE>
<CAPTION>

                                                       Year Ended                Year Ended
                                                    December 31, 1996         December 31, 1995
                                                    -----------------         -----------------
                                                              Weighted-                  Weighted-
                                                               Average                    Average
                                                              Exercise                   Exercise
                                                  Shares        Price       Shares         Price
                                                  ------        -----       ------         -----
<S>                                              <C>            <C>         <C>          <C>    
   Options outstanding, beginning of period      1,302,796      $10.90      1,307,652    $  7.78
   Options exercised                             (439,553)        8.98      (335,246)       5.14
   Options canceled                               (49,026)       22.53       (92,560)      11.62
   Options granted                                 526,550       37.54        422,950      17.34
                                                   -------                -----------
   Options outstanding, end of period            1,340,767       20.88      1,302,796      10.90
                                                 =========                  =========
   Options exercisable at end of period            511,233        9.68        629,177       7.52
                                                   =======                    =======
   Weighted average fair value of options
     granted during the period                                   16.16                      7.52
</TABLE>

         As of December 31, 1996,  the weighted  average  remaining  contractual
life of options outstanding was 7.6 years.


13. Retirement Plans

         The  Company  maintains  a  401(k)  plan  covering   substantially  all
full-time employees of the Company's domestic subsidiaries. Employees may direct
the  investment  of their  contributions  among  several  mutual  fund  options.
Employees  may  contribute  up to the  maximum  allowed by federal  regulations,
currently  15% of their  monthly  salary or a maximum  of  $9,500.  The  Company
contributes  an amount equal to 25% of the first 4% of the  employee's  salaries
contributed  to the plan by the employee.  The Company also maintains a separate
401(k)  plan that  mirrors  the BDM  401(k)  Plan  described  above  and  covers
employees of BDM-Oklahoma,  Inc., a BDM subsidiary. For the years ended December
31,  1996,  1995  and  1994,  the  Company's  contribution  to these  plans  was
approximately $1,031,000,  $907,000 and $842,000,  respectively.  At the time of
the  Company's  change in ownership in 1990,  employees  were allowed a one-time
option to  purchase  the  Company's  Common  Stock with  balances in their plan.
Effective July 1, 1995, the BDM Stock Fund became an active fund option in BDM's
401(k)  Savings Plan. A total of 285,367 and 303,661  common shares were held by
the participants of the plan as of December 31, 1996 and 1995, respectively.

         The Company also sponsors several other defined  contribution plans for
substantially  all of the  employees  of  IABG.  Participation  in the  plans is
voluntary; however, participants are required to make contributions to the plans
equal to 50% of the amount of the Company  contribution.  Company  contributions
are based on percentages of the employees'  monthly salary up to maximum monthly
benefits.  The plans are fully  funded and assets of the plans are  invested  in
insurance company  annuities.  The Company incurred  approximately $3.9 million,
$3.8 million and $3.5 million in plan  contribution  expense for the years ended
December 31, 1996, 1995 and 1994, respectively.



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


13. Retirement Plans-(Continued)

         The Company has a defined benefit  pension plan (the  Retirement  Plan)
and a supplemental  executive  retirement plan (SERP) providing  noncontributory
retirement benefits for eligible  employees.  Benefits are determined based upon
years of service and employee  compensation.  The Company's funding policy is to
contribute  annually,  at a minimum,  amounts  required by  applicable  laws and
regulations.  Retirement  Plan assets are invested in a portfolio of diversified
equity  securities  and  mutual  funds,  corporate  and  government  bonds,  and
short-term investments.  In addition, BDM Oklahoma has a defined benefit pension
plan which mirrors the Retirement Plan.

         The net  periodic  pension  expense  for these  defined  benefit  plans
included the following  components for the years ended December 31,  (dollars in
thousands):
<TABLE>
<CAPTION>

                                                      1996         1995          1994
                                                      ----         ----          ----
<S>                                              <C>             <C>          <C>      
Service cost                                     $     6,079     $   4,883    $   4,975
Interest cost on projected benefit obligation          5,968         5,153        5,752
Actual return on plan assets                         (8,103)      (11,978)        (526)
Net amortization and deferral                          2,258         7,681      (5,590)
                                                 -----------     ---------    ---------
Net periodic pension expense                     $     6,202     $   5,739    $   4,611
                                                 ===========     =========    =========

</TABLE>

         The funded  status of the  Company's  defined  benefit plans as well as
other  disclosures  required by Statement of Financial  Accounting  Standard No.
87--Accounting  for Employee  Benefit Plans (FAS 87) were as follows (dollars in
thousands):
<TABLE>
<CAPTION>

                                                     December 31, 1996                 December 31, 1995
                                                     -----------------                 -----------------
                                                  Retirement                       Retirement
                                                     Plans         SERP               Plans           SERP
                                                     -----         ----               -----           ----
<S>                                               <C>          <C>                <C>             <C>    
Actuarial present value of vested benefit
     obligation                                   $   82,329   $   1,375          $     64,635    $    1,804
                                                  ==========   =========          ============    ==========
Actuarial present value of accumulated
     benefit obligation                           $   85,706   $   1,718          $     68,216    $    1,804
                                                  ==========   =========          ============    ==========

Plan assets at fair value                         $   77,329   $      --          $     65,539    $       --
Actuarial present value of projected
     benefit obligation                              (94,047)     (1,752)              (74,626)       (1,896)
                                                  ----------   ---------              --------    ----------
Plan assets less than projected benefit
     obligation                                      (16,718)     (1,752)               (9,087)       (1,896)
Unrecognized prior service cost                        2,419          45                 2,761            54
Unrecognized net gain (loss)                           8,739        (124)                  783            84
Adjustment required to recognize minimum
     liability                                        (2,605)         --                    --           (46)
                                                  ----------   ---------          ------------    ----------
Accrued pension cost                              $   (8,165)   $ (1,831)         $     (5,543)   $   (1,804)
                                                  ==========   =========          ============    ==========

</TABLE>



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


13. Retirement Plans-(Continued)

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

                                             1996          1995        1994
                                             ----          ----        ----
Discount rate for projected benefits         7.75%        7.75%          8.5%
Average wage increases                        4.0%         4.0%          4.0%
Expected long-term return on plan assets      9.5%         9.5%         10.0%


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

         The  Company  also  maintains  another  defined  benefit  pension  plan
covering nine past and present members of the management board of IABG. Benefits
are  determined  based on the members'  years of service and  compensation.  The
Company had an accrued balance of $5.7 million and $5.9 million for this pension
obligation  as of December  31, 1996 and 1995,  respectively.  The  contribution
expense amounted to $674,000 in 1996 and $345,000 in 1995. No additional pension
disclosures  required  by FAS 87 have been  provided  since the  majority of the
members  covered by the plan have retired and the  liability  reflected in these
financial  statements  for this  plan  will not  increase  significantly  in the
future.

         The  Company  maintains  a  self-insurance  plan to cover  the costs of
certain  employee  health  benefits.  As of  December  31,  1996 and  1995,  the
estimated  balance  accrued for the cost of incurred but  unreported  claims was
approximately  $2 million.  The Company's annual liability for claims expense is
contractually  limited pursuant to an agreement with an insurance  company.  The
actual claims expense for 1996 did not exceed the contractual maximum.


14. Transactions With Related Parties

         The Chairman and Vice Chairman of the Company's  Board of Directors are
the  Chairman and a Managing  Director,  respectively,  of Carlyle.  The Company
retains  Carlyle to provide  certain  advisory  and  consulting  services for an
annual fee of $500,000  plus  expenses.  Total  amounts  incurred by the Company
related to these services for the years ended  December 31, 1996,  1995 and 1994
were approximately $503,000, $506,000 and $505,000, respectively.

         Prior to its  privatization  by the German  government in 1993, IVG was
majority owned by the German  government.  Contract revenue derived by IABG from
the German government and its ministries totaled $109.5 million, $120.4 million,
and $118.5 million,  respectively,  for the years ended December 31, 1996, 1995,
and 1994. The total amount receivable from the German government at December 31,
1996 and 1995 was $7.7 million and $10.5 million, respectively.



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


14. Transactions with Related Parties-(Continued)

         IABG  leases  most of its  facilities  from IVG (a 20%  owner of IABG).
Total rent expense incurred with IVG for the years ended December 31, 1996, 1995
and 1994 was $8.0  million,  $8.1 million and $7.3 million,  respectively.  IABG
earns a market rate of interest on a related  $6.5  million  lease  deposit with
IVG.  Interest  income  earned  during 1996 and 1995  amounted  to $223,000  and
$254,000, respectively.


15. Unconsolidated Affiliates

         The Company has ownership  interests ranging from 40% to 50% in certain
unconsolidated joint ventures.  The Company's investments in and advances to the
unconsolidated  joint  ventures,  as  well  as the  location  of  the  ventures'
operations, are summarized as follows (dollars in thousands):

                                Ownership at                  December 31,
                              December 31, 1996             1996        1995
                              -----------------             ----        ----
VBR, Turkey                          50%                  $ 1,216      $1,556
AWV, Sultanate of Oman               50%                    1,622       2,063
Seavin, Egypt                        50%                    1,067       1,153
TVS, U.S.                            40%                    1,381          --
Others                               45%                      206         450
                                                          -------     -------
                                                          $ 5,492     $ 5,222
                                                          =======     =======


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

                                             1996              1995
                                             ----              ----
Current assets                             $  18,352        $  14,951
Non-current assets                             1,511              966
Current liabilities                            8,020            6,169
Non-current liabilities                          702               56
Revenue                                       92,216           75,092
Gross profit                                   5,030            4,545
Net income                                     3,479            2,995



<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


16. Major Clients And Geographic Operations

    Major Clients

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

                                             1996         1995           1994
                                             ----         ----           ----
U.S. Government (including subcontract
     revenue from government primes)    $   481,886   $   449,504   $   376,980
International defense agencies              270,478       222,755       193,523
Other government agencies                    77,909        81,878        94,966
Commercial                                  171,286       135,837       108,780
                                        -----------   -----------   -----------
         Total                          $ 1,001,559   $   889,974   $   774,249
                                        ===========   ===========   ===========


         The Company had one contract that  generated  revenue of $118.4 million
in  1996,   representing   approximately  12%  of  total  revenue.  No  contract
individually represented more than 10% of total revenue in 1995 or 1994.

    Geographic Operations

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

                                    1996             1995              1994
                                    ----             ----              ----
Revenue:
     North America             $   618,746        $  547,660       $  438,474
     Europe                        207,006           216,738          201,418
     Middle East                   175,807           125,576          134,357
                               -----------        ----------       ----------
         Total                 $ 1,001,559        $  889,974       $  774,249
                               ===========        ==========       ==========

Operating profit:
     North America             $    13,057        $   29,867       $   16,559
     Europe                          5,726             1,838            2,064
     Middle East                    18,461             7,204            8,321
                               -----------        ----------       ----------
         Total                 $    37,244        $   38,909       $   26,944
                               ===========        ==========       ==========

Assets:
     North America             $   274,076        $  221,488       $  209,983
     Europe                        101,380           127,009          103,582
     Middle East                    45,198            15,296           21,986
                               -----------        ----------       ----------
         Total                 $   420,654        $  363,793       $  335,551
                               ===========        ==========       ==========


         The  operating  profit for North  America in 1996  include a  one-time,
pre-tax  restructuring  charge of $5.8 million and a write-off of $10.8  million
for purchased  in-process  research and  development.  Europe's results for 1995
include a one-time write off of $1.6 million for goodwill discussed in Note 7.


<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


17. Commitments And Contingencies

    Government Audits

         Payments  to  the  Company  on  United  States  or  foreign  government
contracts  are  subject to  adjustments  upon audit by various  agencies  of the
respective  governments.  Audits  currently in progress are in varying stages of
completion;  however, management does not expect the results of these audits, or
audits  related to any  operations  prior to  December  31,  1996,  subsequently
initiated,  to have a  material  effect  on the  Company's  financial  position,
results of operations, or liquidity.

    Litigation and Claims

         The Company has been  informed  that a civil "qui tam" lawsuit has been
filed  against  the  Company and has  received a copy of the  Complaint  in that
action.  The  matter is  currently  under  Court  seal.  The  Complaint  alleges
violation  under  the  Federal  False  Claims  Act in  connection  with  certain
mischarging under overseas  government  contracts  administered by the U. S. Air
Force, related to certain housing rented in connection with overseas operations,
alleged improper hiring of and payments to certain  employees,  alleged improper
payments to a subcontractor, and alleged improper purchases and payments made in
support of client activities. Aggregate revenue from these contracts in calendar
year 1996 was approximately  $41 million.  In connection with this case, BDM has
received a subpoena for  information  in a civil  investigation  underway by the
Office of Inspector  General of the Department of Defense and an Assistant U. S.
Attorney  for the  Eastern  District  of  Virginia  with  respect to the matters
alleged in the  Complaint.  BDM will  cooperate  fully with the  Government  and
expects to make extensive document production in response to the subpoena.

     The Company is engaged in providing  services and products under  contracts
with the U. S.  Government  and, to a lesser  degree,  under foreign  government
contracts,  some of which are  administered  by the U. S.  Government.  All such
contracts are subject to extensive  legal and regulatory  requirements,  and the
above  mentioned  investigation  apparently  focuses  on whether  the  Company's
overseas  operations in connection with the subject  contracts were conducted in
accordance with such requirements.  The lawsuit and related  investigation could
result   in   administrative,   civil   or   criminal   liabilities,   including
reimbursements,  fines or penalties  being imposed.  Under the provisions of the
False Claims Act, a civil penalty of between  $5,000 and $10,000 can be assessed
for each  claim,  plus three times the amount of any  damages  sustained  by the
Government.  The Complaint  seeks such relief but does not specify the amount of
damages.  In addition to damages, a finding of civil or criminal liability could
lead to  suspension  or  debarment  of the  contractor  if it is found to be not
currently  responsible,  which  would  make  some  or all  of  the  contractor's
operations  ineligible to be awarded U. S. Government  contracts for a period of
time.  Such civil or criminal  liability or suspension or debarment could have a
material  adverse  effect  on  the  Company.  Management  is  unable  to  make a
meaningful  estimate of the amount or range of loss that could  result from this
litigation,  however, mangement does not anticipate that the ultimate resolution
of this  litigation  will have a material  effect on the Company's  consolidated
financial position.





<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


17. Commitments And Contingencies-(Continued)

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

    Environmental Matters

         One of the Company's wholly-owned  subsidiaries was previously notified
by the United  States  Environmental  Protection  Agency (EPA) that it is one of
several  potentially  responsible  parties (PRPs) for  remediation in connection
with  asbestos  present at two sites.  The  subsidiary,  along with other  PRPs,
entered into a consent  decree with the EPA in 1992, by which the subsidiary and
the other PRPs are  obligated  to  reimburse  the EPA for costs  incurred in its
assessment and monitoring of approximately $1.6 million and to undertake work to
address the environmental exposure as defined in the consent decree. The Company
originally  accrued  $4.4  million  which  management  believed  to be the  best
estimate of the liability for this claim.  Amounts paid and charged against this
provision through 1996 totaled  approximately $3.4 million.  Management believes
that the remaining accrual for this contingency of $1.0 million is sufficient to
cover costs to be incurred related to the subsidiary's  performance  pursuant to
the consent decree.

         Another of the Company's  subsidiaries  was previously  notified by the
Massachusetts  Department  of  Environmental  Protection  that it is also one of
several PRPs in an environmental matter arising as a result of work performed on
a  contract  with the U.S.  Air Force.  The U.S.  Air Force has  reimbursed  the
company for all costs incurred to date in connection with this matter.  No costs
were incurred by the Company in 1996, 1995 or 1994 relative to this contingency.
No accrual has been  recorded as of December 31, 1996 as the risk of loss to the
Company is considered to be remote, and the remaining potential amounts involved
are considered to be immaterial.

    Lease Commitments

         The Company leases office space and equipment  under various  operating
lease agreements. Leases for principal office space typically have terms of five
to twenty years and carry optional renewal periods of five to twenty years. Most
leases  include  provisions  for periodic rent  escalations  based on changes in
various economic  indices.  Amounts  representing  aggregate rent expense on all
operating leases,  excluding  equipment rented for use on specific contracts and
reimbursed  pursuant to the terms of those  contracts,  totaled  $29.4  million,
$31.7 million,  and $35.4 million for the years ended  December 31, 1996,  1995,
and 1994, respectively.


<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


17. Commitments And Contingencies-(Continued)


    Future minimum payments on  non-cancelable  operating leases were as follows
on December 31, 1996 (dollars in thousands):

                           Wholly-owned
                           subsidiaries                        IABG
                           ------------                        ----
      Year ending      Office                         Office
     December 31,       Space      Equipment           Space       Equipment
     ------------       -----      ---------           -----       ---------
   1997               $  20,777    $     539          $ 6,649      $     985
   1998                  16,513          315            4,796            399
   1999                   6,087           79            4,539             26
   2000                   2,778           10            4,539             --
   2001                   1,598           --            4,539             --
      Thereafter          4,601           --           55,535             --
                      ---------    ---------          -------      ---------
           Total      $  52,354    $     943          $80,597      $   1,410
                      =========    =========          =======      =========

         The Company's share of the future minimum lease  commitments of IABG is
45%.  The  remaining  55%  of  the  commitment  is  the  responsibility  of  the
subsidiary's other owners.  During December of 1996, IABG signed an agreement in
which it plans to purchase a portion of the property leased from IVG during 1997
for  approximately  $7.8 million.  In addition,  a leasing company will purchase
from IVG property  used by IABG and lease that same  property to IABG.  This new
lease will have a term of 17 years,  with an option to purchase this property at
a formula price after 10 years or at the end of the lease.

         As of December 31, 1996,  IABG had cash collateral of $6.4 million held
by the  lessor  for its  facilities  which were  leased  under the former  lease
through  the year  2004.  Approximately  $3.7  million of this  deposit  will be
applied to the  purchase of  property by IABG  described  above.  The  remaining
amount  will  be  held by the  lessor  and  will  be  reduced  every 2 years  by
approximately  $282,000  starting  at the end of 1997 and  ending  in 2003.  The
remaining  amount of  approximately  $1.7  million will be held by the lessor as
long as the contract exists.  Cash on deposit is  interest-bearing  and interest
income will accrue at current market rates payable quarterly.

         On January 8, 1997,  the Company  signed an  agreement  to lease office
space for its corporate  headquarters  beginning February 1, 1999. The agreement
is for a period of 12 years, with BDM's option to renew for two terms of 5 years
each,  and base rent  starting at  approximately  $3.5 million in the first year
plus a pro rata share of operating expenses.  Escalation of the base rent ranges
from 2% to 3% per  year.  As  part  of  this  agreement,  BDM  will  receive  an
improvement  allowance  to be  determined  based on the  actual  amount of space
leased by the Company.


<PAGE>


                             BDM INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


17. Commitments And Contingencies-(Continued)

    Sublease Commitments

         Sublease  rental income earned was $2.2 million,  $2.5 million and $4.4
million during the years ended December 31, 1996,  1995 and 1994,  respectively.
Future  minimum  payments  on  non-cancelable  subleases  were as  follows as of
December 31, 1996 (dollars in thousands):

           Year ending
          December 31,
              1997                               $        1,960
              1998                                          551
              1999                                           48
              2000                                           --
              2001                                           --
              Thereafter                                     --
                                                 --------------
                  Total                          $        2,559
                                                 ==============


18. Selected Quarterly Data (Unaudited) (Dollars In Thousands, Except Per Share 
    Data):

                                                       1995
                                  First     Second(1)        Third       Fourth
Revenue                        $ 191,901   $ 213,064      $ 215,900    $ 269,109
Operating profit                   9,905       8,790          9,339       10,875
Net income                         3,334       3,870          5,291        5,897
Earnings per share                  0.33        0.38           0.40         0.44
Sale prices of Common stock:
         High                        n/a      21 1/2         28 1/2       30 1/2
         Low                         n/a      19 7/8         20 1/4       23 3/4


                                                       1996
                                  First        Second        Third       Fourth
Revenue                        $ 225,107   $ 251,854      $ 246,766    $ 277,832
Operating profit                  11,716      12,656          7,945        4,927
Net income                         5,407       6,655          3,900        1,713
Earnings per share                  0.39        0.45           0.26         0.11
Sale prices of Common stock
         High                     41 1/8          49         61 1/2           60
         Low                     25 7/16      36 1/4             45       44 1/4

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







<PAGE>


Item 9. Disagreements on Accounting and Financial Disclosure.

         None





<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

         Reference  is made to Item 4A of Part I hereof for certain  information
required by this Item 10. Additional information required by this item is hereby
incorporated  by reference from the Company's  definitive  proxy statement to be
filed with the Commission  under Section 14A of the  Securities  Exchange Act of
1934 on or before  April 30,  1997,  or shall be filed by amendment to this Form
10-K on or prior to such date.

Item 11. Executive Compensation.

         The  information  required  by this  item  is  hereby  incorporated  by
reference  from the Company's  definitive  proxy  statement to be filed with the
Commission under Section 14A of the Securities Exchange Act of 1934 on or before
April 30, 1997,  or shall be filed by amendment to this Form 10-K on or prior to
that date.

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

         The  information  required  by this  item  is  hereby  incorporated  by
reference  from the Company's  definitive  proxy  statement to be filed with the
Commission under Section 14A of the Securities Exchange Act of 1934 on or before
April 30, 1997 or shall be filed by  amendment  to this Form 10-K on or prior to
that date.

Item 13. Certain Relationships and Related Transactions.

         The  information  required  by this  item  is  hereby  incorporated  by
reference  from the Company's  definitive  proxy  statement to be filed with the
Commission under Section 14A of the Securities Exchange Act of 1934 on or before
April 30, 1997,  or shall be filed by amendment to this Form 10-K on or prior to
that date.


<PAGE>


                                     PART IV

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

       (a)1. Financial Statements:

           Report of Independent Accountants

           Consolidated Balance Sheets as of December 31, 1996 and 1995

           Consolidated Statements of Operations for the years ended 
               December 31, 1996, 1995 and 1994
           
           Consolidated Statements of Stockholders' Equity for the years 
               ended December 31, 1996, 1995 and 1994

           Consolidated Statements of Cash Flows for the years ended 
               December 31, 1996, 1995 and 1994

           Notes to Consolidated Financial Statements

       (a)2. Financial Statement Schedules:

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

       (a)3. Exhibits:
<TABLE>
<CAPTION>

   Exhibit
     No.                                Description
     ---                                -----------
<C>            <S>                                                     
3.1            Amended and Restated Certificate of Incorporation.+++
3.2            Amended and Restated By-Laws.
4.1            Specimen Common Stock certificate.++++++
4.2            Investor Stock Purchase Agreement,  dated October 23, 1990, among
               BDM Holdings,  Inc., The Carlyle Partners  Leveraged Capital Fund
               I, L.P.,  Equitable  Partnership  II, L.P.,  Equitable  Deal Flow
               Fund, L.P., and the Richard King Mellon Foundation.+
4.3            Amendment No. 1 to Investor Stock Purchase Agreement, dated May 31, 1995.+++++
10.1           Agreement, dated November 16, 1993, among the Federal Republic of Germany,
               Industrieanlagen-Betriebsgesellschaft mbH, BDM International, Inc., Industrieverwaltungsgesellschaft
               AG amd IABG
               Holding GmbH.++
10.2           Voting Rights Agreement, dated November 16, 1993, between Industrieverwaltungsgesellschaft AG and
               BDM Europe BV.+ +
10.3           1990 Stock Option Plan.+*
10.4           Form of Management Incentive Stock Purchase Agreement.+*
10.5           Form of Director Stock Purchase Plan Purchase Authorization.+++*
10.6           BDM International, Inc. 401(k) Savings Plan.+++++++*
10.7           The BDM Retirement Plan.+++++++*
10.8           The BDM International, Inc. Supplemental Executive Retirement Plan, effective December 26, 1984.+*
10.9           BDM International, Inc. Defined Contribution Supplemental Executive Retirement Plan, effective
               October 8, 1993.+++*
10.10          The BDM Corporation Cash and Stock Incentive Compensation Plan.+*
10.11          1994 Stock Option Plan.++++*

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


Exhibit
 No.                                  Description
 ---                                  -----------
<S>            <C>   

10.12          Revolving Credit Agreement, dated as of September 7, 1995, among BDM International, Inc., the
               Lenders party thereto, Corestates Bank, N.A. as Co-Agent and The First National Bank of Chicago as
               Agent.+++++++
11             Statement of Computation of Earnings Per Share.
21             Subsidiaries of BDM International, Inc.
23.1           Consent of Coopers & Lybrand
27             Financial Data Schedule.
</TABLE>

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

            *  Management contract or compensatory plan or arrangement.
            +  Incorporated herein by reference to Registration Statement on 
               Form S-1 (File No. 33-38405) of BDM Holdings, Inc. filed with the
               SEC on February 14, 1991.
           ++  Incorporated herein by reference to Amendment No. 1 to Current 
               Report on Form 8-K/A (File No.33-38405) of BDM International, 
               Inc. filed with the SEC on January 31, 1994.
          +++  Incorporated  herein by  reference  to the Annual  Report on Form
               10-K for the year ended  December  31, 1993 ( File No.  33-38405)
               filed with the SEC on March 31, 1994.
         ++++  Incorporated herein by reference to the Annual Report on 
               Form 10-K for the year ended December 31,
               1994 (File No. 000-23966) of BDM International, Inc. filed with 
               the SEC on March 30, 1995.
        +++++  Incorporated herein by reference to Amendment No. 3 to the 
               Registration Statement on Form S-1 (File No. 33-77096) of 
               BDM International, Inc. filed with the SEC on June 20, 1995.
       ++++++  Incorporated herein by reference to Amendment No. 4 to the 
               Registration Statement on Form S-1 (File No. 33-77096) of 
               BDM International, Inc. filed with the SEC on June 26, 1995.
      +++++++  Incorporated herein by reference to the Registration Statement  
               on Form S-3 (File No. 333-01513) of BDM International, Inc.     
               filed with the SEC on March 6, 1996.

          (b)  Reports on Form 8-K:
               No  reports  on Form 8-K were  filed by the  Company  during  the
               fourth quarter of 1996.


<PAGE>


                                   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 McLean, Virginia on
March 13, 1997.

                                        BDM INTERNATIONAL, INC.



                                        By  /s/ PHILIP A. ODEEN
                                        -----------------------
                                            Philip A. Odeen
                                            President

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

            Signature                      Title                   Date

      (i)   Principal executive officer:



          /s/ PHILIP A. ODEEN             President          March 13, 1997
          -------------------
            Philip A. Odeen                                

     (ii)   Principal financial officer:



       /s/ C. THOMAS FAULDERS, III     Executive Vice        March 13, 1997
       ---------------------------   President and Chief
        C. Thomas Faulders, III      Financial Officer         
                                                
                                                

    (iii)   Principal accounting officer:



        /s/ JUDITH N.HUNTZINGER         Corporate Vice       March 12, 1997
        -----------------------         President and 
         Judith N. Huntzinger             Controller      
                                                      
                                                      

     (iv)   Directors:



      /s/ JEANETTE GRASSELLI BROWN           Director        February 21, 1997

      ----------------------------
     Dr. Jeanette Grasselli Brown                                        

<PAGE>


            Signature                           Title              Date


     
      /s/ FRANK C. CARLUCCI                   Director       February 21, 1997
      ---------------------
        Frank C. Carlucci                                              



      /s/ WILLIAM E. CONWAY, JR.              Director       February 21, 1997
      --------------------------
         William E. Conway, Jr.                                         



        /s/ PHILLIP R. COX                    Director       February 21, 1997  
        ------------------
          Phillip R. Cox                                              



      /s/ NEIL GOLDSCHMIDT                    Director       March 5, 1997
      --------------------
         Neil Goldschmidt                                                 



       /s/ WALTHER LEISLER KIEP              Director        February 21, 1997
       ------------------------
         Walther Leisler Kiep                                             



        /s/ PHILIP A. ODEEN                  Director        March 13, 1997
        -------------------
           Philip A. Odeen                                                



         /s/ THOMAS G. RICKS                 Director        February 21, 1997  
         -------------------
              Thomas G. Ricks                                              



     /s/ WILLIAM E. SWEENEY, JR.             Director        February 21, 1997
     ---------------------------
     Dr. William E. Sweeney, Jr.                                    



       /s/ EARLE C. WILLIAMS                 Director        February 21, 1997
       ---------------------
         Earle C. Williams                                               



<PAGE>


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

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

<S>            <C>                                                     
3.1            Amended and Restated Certificate of Incorporation.+++
3.2            Amended and Restated By-Laws.
4.1            Specimen Common Stock certificate.++++++
4.2            Investor Stock Purchase Agreement, dated October 23, 1990, among BDM Holdings, Inc., The Carlyle
               Partners Leveraged Capital Fund I, L.P., Equitable Partnership, II, L.P., Equitable Deal Flow Fund,
               L.P., the Richard King Mellon Foundation.+
4.3            Amendment No. 1 to Investor Stock Purchase Agreement, dated May 31, 1995.+++++
10.1           Agreement, dated November 16, 1993, among the Federal Republic of Germany,
               Industrieanlagen-Betriebsgesellschaft mbH, BDM International, Inc., Industrieverwaltungsgesellschaft
               AG and IABG Holding GmbH.++
10.2           Voting Rights Agreement, dated November 16, 1993, between Industrieverwaltungsgesellschaft AG and
               BDM Europe BV.++
10.3           1990 Stock Option Plan.+*
10.4           Form of Management Incentive Stock Purchase Agreement.+*
10.5           Form of Director Stock Purchase Plan Purchase Authorization.+++*
10.6           BDM International, Inc. 401(k) Savings Plan.+++++++*
10.7           The BDM Retirement Plan.+++++++*
10.8           The BDM International, Inc. Supplemental Executive Retirement Plan, effective December 26, 1984.+*
10.9           BDM International, Inc. Defined Contribution Supplemental Executive Retirement Plan, effective
               October 8, 1993.+++*
10.10          The BDM Corporation Cash and Stock Incentive Compensation Plan.+*
10.11          1994 Stock Option Plan.++++*
10.12          Revolving Credit Agreement, dated as of September 7, 1995 among BDM International, Inc., the Lenders
               party thereto, CoreStates Bank, N.A., as Co-Agent and The First National Bank of Chicago as
               Agent.+++++++
11             Statement of Computation of Earnings Per Share.
21             Subsidiaries of BDM International, Inc.
23.1           Consent of Coopers & Lybrand.
27             Financial Data Schedule.
</TABLE>

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

            *  Management contract or compensatory plan or arrangement.
            +  Incorporated herein by reference to Registration Statement on 
               Form S-1 (File No. 33-38405) of BDM Holdings, Inc. filed with the
               SEC on February 14, 1991.
           ++  Incorporated herein by reference to Amendment No. 1 to Current 
               Report on Form 8-K/A (File No.33-38405) of BDM International, 
               Inc. filed with the SEC on January 31, 1994.
          +++  Incorporated  herein by  reference  to the Annual  Report on Form
               10-K for the year ended  December  31, 1993 ( File No.  33-38405)
               filed with the SEC on March 31, 1994.
         ++++  Incorporated herein by reference to the Annual Report on Form 
               10-K for the year ended December 31,1994 (File No. 000-23966) of 
               BDM International, Inc. filed with the SEC on March 30, 1995.
        +++++  Incorporated herein by reference to Amendment No. 3 to the 
               Registration Statement on Form S-1 (File No. 33-77096) of 
               BDM International, Inc. filed with the SEC on June 20, 1995.
       ++++++  Incorporated herein by reference to Amendment No. 4 to the 
               Registration Statement on Form S-1 (File No. 33-77096) of 
               BDM International, Inc. filed with the SEC on June 26, 1995.
      +++++++  Incorporated herein by reference to the Registration Statement on
               Form S-3 (File No. 333-01513) of BDM International, Inc. filed 
               with the SEC on March 6, 1996.


<PAGE>