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

(Mark One)

[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
    Act Of 1934

For the fiscal year ended December 31, 1998 or

[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
    Act Of 1934

For the transition period from    to                 

Commission file number:  1-3879

                                     DynCorp
                (Exact name of registrant as specified in its charter)

               Delaware                                 36-2408747
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)
  2000 Edmund Halley Drive, Reston, Virginia                      20191-3436
   (Address of principal executive offices)                       (Zip Code)
Registrant's telephone number, including area code:  (703) 264-0330

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

  Title of each class               Name of each exchange on which registered
         None                                       None
Securities registered pursuant to Section 12(g) of the Act:

                                None


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

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

    State the aggregate  market value of the voting stock held by  nonaffiliates
of the  registrant.  The  registrant's  voting  stock  is not  publicly  traded;
therefore the aggregate market value of  approximately 2% of outstanding  voting
stock held by nonaffiliates is not available.

    Indicate  the  number  of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest practicable date. 10,053,118 shares of
common stock having a par value of $0.10 per share were outstanding February 25,
1999.

<PAGE>

                                TABLE OF CONTENTS
                                       1998
                                    FORM 10-K



Item                                                                     Page   


 Part I

 1. Business                                                              1-3
 2. Properties                                                            3
 3. Legal Proceedings                                                     3
 4. Submission of Matters to a Vote of Security Holders                   3
 
 Part II

 5. Market for the Registrant's Common Stock and Related 
      Stockholder Matters                                                 3-5
 6. Selected Financial Data                                               5-6
 7. Management's Discussion and Analysis of Financial
      Condition and Results of Operations                                 6-13
 8. Financial Statements and Supplementary Data
      Report of Independent Public Accountants                            14
      Financial Statements
        Consolidated Balance Sheets
          Assets                                                          15
          Liabilities and Stockholders' Equity                            16
          Consolidated Statements of Operations                           17
          Consolidated Statements of Permanent Stockholders' Equity       18
          Consolidated Statements of Cash Flows                           19
        Notes to Consolidated Financial Statements                        20-38
 9. Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosures                                38

 Part III

 10.Directors and Executive Officers of the Registrant                    39-41
 11.Executive Compensation                                                41-44
 12.Security Ownership of Certain Beneficial Owners and Management        44-45
 13.Certain Relationships and Related Transactions                        45-46

 Part IV

 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K      46-54

<PAGE>

                          PART I

ITEM 1. BUSINESS

General Information

    DynCorp (the  "Company")  provides  diversified  management,  technical  and
professional  services  primarily to U.S.  Government  customers  throughout the
United States and internationally.  Generally, these services are provided under
both   prime   contracts   and   subcontracts,   which   may   be   fixed-price,
time-and-material  or cost-type contracts depending on the work requirements and
other individual circumstances.

    The Company  provides  services to various  branches  of the  Department  of
Defense ("DoD") and to the Department of Energy ("DoE"), NASA, the Department of
State,  the  Department  of Justice  and  various  other  U.S.,  state and local
government agencies, commercial clients and foreign governments.  These services
encompass  a wide  range of  management,  technical  and  professional  services
covering the following areas:

       Information  and  Engineering  Technology  ("I&ET")  designs,   develops,
       supports  and  integrates   software  and  hardware  systems  to  provide
       customers with  comprehensive  solutions for  information  management and
       engineering needs. I&ET also provides software and hardware  maintenance,
       computer  center  operations,  data  processing  and  analysis,  database
       administration,  telecommunications  support and operations,  maintenance
       and  operation of  integrated  electronic  systems,  and  integration  of
       electronic  systems in local and wide area  networks.  In addition,  this
       business  area  provides  services in support of nuclear  safeguards  and
       security research and development. Revenues for 1998, 1997, and 1996 were
       $332.6 million, $276.4 million, and $265.2 million, respectively.

       Aerospace  Technology's  ("AT") services include technical and evaluation
       services  at test and  training  ranges;  the  design,  engineering,  and
       installation  of  aircraft  system   upgrades;   corrosive   repairs  and
       structural modifications that extend airframe life for the aging fleet of
       military aircraft; ground based logistics support and staff augmentation;
       engineering and technical services for high-technology  space and missile
       systems programs; and aircraft maintenance,  modification,  logistics and
       fleet management.  These services are provided to the U.S.  Government as
       well as the United  Nations and other  foreign  organizations  at various
       locations throughout the world depending on the customer's  requirements.
       Revenues for 1998,  1997, and 1996 were $490.2  million,  $449.0 million,
       and $383.3 million, respectively.

       Enterprise Management ("EM") provides full service,  "turn-key" solutions
       for the management,  operation and maintenance of federal facilities.  EM
       manages  large-scale  facilities,  using computerized work management and
       scheduled  maintenance systems to perform roads and grounds  maintenance,
       civil engineering and custodial services,  landfill  recycling,  disposal
       operations,  and vehicle and heavy equipment maintenance.  Other services
       of this business unit include testing and evaluation of military hardware
       systems at government  test ranges,  collection  and  processing of data,
       maintenance  of  targets,   ranges  and  laboratory  facilities,   health
       services,  operation  of military  and  commercial  ships,  developmental
       testing of complex weapons systems, security systems work, and technology
       transfer into commercial applications.  Revenues for 1998, 1997, and 1996
       were $410.9 million, $420.6 million, and $373.0 million, respectively.

Industry Segments

    For business  segment  reporting,  Information and  Engineering  Technology,
Aerospace  Technology  and  Enterprise  Management  each  constitute  reportable
business segments.

Backlog

    The Company's  backlog of business,  which includes  awards under both prime
contracts and  subcontracts,  as well as the estimated  value of option years on
government  contracts,  was $4.1  billion at  December  31,  1998,  compared  to
December 31, 1997 backlog of $3.6 billion,  a net increase of $0.5 billion.  The
increase  resulted from new contract wins in 1998 and growth in several existing
contracts.  The backlog at December  31, 1998  consisted of $1.8 billion for AT,
$1.7  billion for EM, and $0.6  billion for I&ET  compared to December  31, 1997
backlog of $1.4  billion for AT and $1.1  billion  for both EM and I&ET.  Of the
total backlog at December 31, 1998, $3.0 billion is expected to produce revenues
after 1999: AT and EM $1.3 billion, and I&ET $0.4 billion.

<PAGE>

    Contracts  with the U.S.  Government  are  generally  written for periods of
three to five years with some Federal  contracts  now being awarded with options
up to eight and ten years.  Because of appropriation  limitations in the federal
budget  process,  firm funding is usually made for only one year at a time, and,
in some cases,  for  periods of less than one year,  with the  remainder  of the
years  under  the  contract  expressed  as a series  of  one-year  options.  The
Company's  experience has been that the  Government  generally  exercises  these
options.  Amounts  included in backlog are based on the contract's total awarded
value and the  Company's  estimates  regarding the amount of the award that will
ultimately  result in the  recognition of revenue.  These estimates are based on
the Company's  experience with similar awards and similar  customers.  Estimates
are reviewed  periodically  and appropriate  adjustments are made to the amounts
included  in backlog  and  unexercised  contract  options.  Historically,  these
adjustments  have not been  significant.  In 1998,  72% of the  Company's  prime
contract  revenue  was  from  the  U.S.  Government,  40%  attributable  to  the
Department of Defense.

    During  1998,  the  Company  was awarded  significant  indefinite  delivery,
indefinite   quantity   ("IDIQ")   contracts   with  GSA  and  NASA  to  provide
comprehensive desktop computer,  server and intra-center  communication support.
These contracts were multiple  awards and have estimated  values in the billions
of dollars.  The  Company's  backlog at  December  31, 1998 does not include any
value for these  contracts  because the Company has not  received  any  contract
tasks and cannot reasonably estimate the future revenues from these contracts.

Competition

    The markets that the Company services are highly competitive. In each of its
business areas, the Company's  competition is quite  fragmented,  with no single
competitor  holding a  significant  market  position.  The  Company  experiences
vigorous competition from industrial firms, university laboratories,  non-profit
institutions,  and U.S. Government agencies.  Many of the Company's  competitors
are large,  diversified firms with substantially greater financial resources and
larger technical staffs than the Company has available. Government agencies also
compete  with and are  potential  competitors  of the Company  because  they can
utilize their internal resources to perform certain types of services that might
otherwise be performed by the Company.  A majority of the Company's  revenues is
derived from contracts with the U.S.  Government and its prime contractors,  and
such  contracts are awarded on the basis of  negotiations  or  competitive  bids
where price is a significant factor.

Foreign Operations

    Activities of the Company presently  include  providing  services in foreign
countries under  contracts with the U.S.  Government,  the United  Nations,  and
other foreign  customers.  None of these  foreign  operations is material to the
Company's financial position or results of operations.

    The risks  associated  with the  Company's  foreign  operations in regard to
foreign  currency  fluctuation and political and economic  conditions in foreign
countries have not been significant.

Incorporation

    The Company  was  incorporated  in  Delaware in 1946.  With more than 16,000
employees   worldwide,   the   Company  is  one  of  the   largest 
employee-owned companies in the United States.

Employees

    At December 31, 1998, the Company had 15,041  full-time and 1,237  part-time
employees.  Approximately  3,262  employees  were located  outside of the United
States. Of the Company's U.S. employees, 3,550 are covered by various collective
bargaining agreements with labor unions.

    At year-end,  the Company had approximately 338 vacant positions, a majority
of which were for Information  Technology ("IT") professionals.  The scarcity of
IT professionals  is a common  predicament  within the industry.  The Company is
actively  recruiting to fill these vacancies  utilizing  extensive  advertising,
participation in job fairs, sign-on bonuses, and other recruitment incentives.

<PAGE>

Forward Looking Statements

    This annual report on Form 10-K  contains  statements  which,  to the extent
that they are not recitations of historical  fact,  constitute  "forward-looking
statements" that are based on management's expectations,  estimates, projections
and assumptions.  Words such as "expects,"  "anticipates,"  "plans," "believes,"
"estimates,"  variations of such words and similar  expressions  are intended to
identify such  forward-looking  statements that include, but are not limited to,
projections  of future  performance,  assessment of contingent  liabilities  and
expectations   concerning  liquidity,   cash  flow  and  contract  awards.  Such
forward-looking  statements  are made pursuant to the safe harbor  provisions of
the Private  Securities  Litigation Reform Act of 1995. These statements are not
guarantees of future  performance  and involve  certain risks and  uncertainties
that are difficult to predict.  Therefore,  actual future results and trends may
differ materially from what is forecast in  forward-looking  statements due to a
variety of factors,  including  the Company's  successful  execution of internal
performance  plans;  the outcome of litigation in process;  labor  negotiations;
changing  priorities or reductions in the U.S.  Government  defense budget;  and
termination of government contracts due to unilateral government action.

ITEM 2. PROPERTIES

    The  Company is  primarily a  service-oriented  company  and,  as such,  the
ownership or leasing of real  property is an activity that is not material to an
understanding of the Company's operations.  The Company owns one office building
located in Alexandra,  Virginia  and, in addition,  leases  numerous  commercial
facilities  used  in  connection  with  the  various  services  rendered  to its
customers,  including its corporate headquarters, a 149,000 square foot facility
under a 12-year  lease.  None of the  properties  is unique.  In the  opinion of
management,  the facilities employed by the Company are adequate for the present
needs of the business.

    The Company  has signed a lease with the  developer  of a  to-be-constructed
building in Reston,  Virginia  for the 12-year  lease of 197,353  square feet of
space  for  consolidation  of  several  offices  near  the  Company's  corporate
headquarters. Occupancy is anticipated in December 1999. This space will replace
some existing space, the leases on which will expire at the end of 1999.

ITEM 3. LEGAL PROCEEDINGS

     This  item  is  incorporated   herein  by  reference  to  Note  21  to  the
Consolidated  Financial  Statements  included elsewhere in this Annual Report on
Form 10-K.

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

    There were no matters  submitted  to a vote of security  holders  during the
fourth quarter of 1998.

                                     PART II

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

    DynCorp's  common stock is not  publicly  traded.  However,  the Company has
 established  an  Internal  Market to provide  liquidity  for its  stockholders.
 Shares  available for trading in the Internal  Market are registered  under the
 Securities Act of 1933. The Internal Market generally  permits  stockholders to
 sell shares of common stock on four  predetermined  days each year,  subject to
 purchase demand.

    Sales of common stock on the Internal Market are made at established  prices
 for the common stock determined  pursuant to the formula and valuation  process
 described below (the "Formula  Price") to active employees and directors of the
 Company,  subject to state securities  regulations,  and to the trustees of the
 Savings and  Retirement  Plan ("SARP") and the Employee  Stock  Ownership  Plan
 ("ESOP"),  as well as the  administrator  of the Employee  Stock  Purchase Plan
 ("ESPP"),  who may purchase shares of common stock for their respective  trusts
 and plans.

<PAGE>

    If the aggregate  purchase orders exceed the number of shares  available for
 sale,  the Company may, but is not obligated to, sell  authorized  but unissued
 shares  of  common  stock  on  the  Internal  Market.  Further,  the  following
 prospective purchasers will have priority, in the order listed:

    - the administrator of the ESPP;
    - the trustee of the SARP;
    - eligible employees and directors, on a pro rata basis; and
    - the trustees of the ESOP.

    If the aggregate number of shares offered for sale on the Internal Market is
 greater than the aggregate  number of shares sought to be purchased,  offers by
 stockholders  to sell 500 shares or less, or up to the first 500 shares if more
 than 500 shares are offered,  will be accepted first.  If,  however,  there are
 insufficient  purchase orders to support the primary  allocation of 500 shares,
 then the purchase  orders will be allocated  equally  among all of the proposed
 sellers up to the first 500 shares offered for sale by each seller. Thereafter,
 a similar  procedure  will be applied to the next 10,000 shares offered by each
 remaining  seller,  and offers to sell in excess of 10,500  shares will then be
 accepted on a pro-rata basis. As an alternative to this procedure,  the Company
 may, but is not required to,  purchase  excess  shares  offered for sale in the
 Internal Market. All sellers on the Internal Market (other than the Company and
 its  retirement  plans)  will  pay a  commission  equal to one  percent  of the
 proceeds from such sales. Purchasers on the Internal Market pay no commission.

    The  market  price  of the  common  stock  is  established  pursuant  to the
 valuation  process  described below,  which uses the formula set forth below to
 determine  the Formula  Price at which the Common  Stock trades in the Internal
 Market.  The  Formula  Price is reviewed on a  quarterly  basis,  generally  in
 conjunction with Internal Market trade dates.

    The  Formula  Price per share of common  stock is the product of seven times
 the operating  cash flow ("CF"),  where  operating  cash flow is represented by
 earnings before interest,  taxes,  depreciation and amortization of the Company
 for the four fiscal  quarters  immediately  preceding the date on which a price
 revision is made,  multiplied by a market factor  ("Market  Factor" denoted MF)
 plus the non-operating  assets at disposition value (net of disposition  costs)
 ("NOA"),  minus the sum of interest  bearing debt  adjusted to market and other
 outstanding securities senior to common stock ("IBD"), the whole divided by the
 number  of  shares of  common  stock  outstanding  at the date on which a price
 revision is made, on a fully diluted basis assuming exercise of all outstanding
 options and shares deferred under a former  restricted stock plan ("ESO").  The
 Market Factor is a numeric factor which  reflects  existing  securities  market
 conditions  relevant to the  valuation of such stock.  The Formula Price of the
 common stock, expressed as an equation, is as follows:

                                     [(CFx7)MF+NOA-IBD]
                  Formula Price =    ------------------
                                            ESO

    The Board of  Directors  believes  that the  valuation  process  and Formula
 result in a fair price for the common  stock  within a broad range of financial
 criteria.  Other than quarterly review and possible  modification of the Market
 Factor,  the Board of Directors  will not change the Formula  unless (i) in the
 good faith  exercise of its fiduciary  duties and after  consultation  with its
 professional  advisors,  the Board of Directors  determines that the formula no
 longer  results in a stock price  which  reasonably  reflects  the value of the
 Company on a per share basis,  or (ii) a change in the Formula or the method of
 valuing the common stock is required under applicable law.

    The  following  table sets forth the Formula  Price for the common stock and
 the Market  Factor by quarter since the adoption of the Formula by the Board of
 Directors in August 1995.

<TABLE>
<CAPTION>

 Quarter Ended                  Formula Price ($)       Market Factor
 -------------                  ----------------        -------------
<S>                                 <C>                      <C>
 December 31, 1995                   14.50                    2.14
 March 28, 1996                      14.50                    2.14
 June 27, 1996                       15.00                    1.36
 September 26, 1996                  16.75                    1.15
 December 31, 1996                   19.00                    1.15
 March 27, 1997                      20.00                    1.27
 June 26, 1997                       20.00                    1.27
 September 25, 1997                  20.00                    1.27
 December 31, 1997                   20.00                    1.23
 April 2, 1998                       21.00                    1.29
 July 2, 1998                        22.50                    1.33
 October 1, 1998                     23.25                    1.30
 December 31, 1998                   20.00                    1.16

</TABLE>

    Prior to August 1995,  the market value of the common stock was  established
 periodically  by the Board of  Directors  for purposes of  repurchases  under a
 former stockholders agreement. Based on the Board's review of valuations set by
 the ESOP Trust, the price per share by quarter was as follows:

<PAGE>

                March 30, 1995                                $14.90
                June 29, 1995                                 $14.90
                September 28, 1995                            $14.90

    There were  approximately  665 record  holders  of DynCorp  common  stock at
December 31, 1998. The DynCorp Employee Stock Ownership Plan Trust owns stock on
behalf of approximately  31,600 current and former employees of the Company.  In
addition,  the Company's Savings and Retirement Plan holds 554,192 shares.  Cash
dividends have not been paid on the common stock since 1988.

ITEM 6. SELECTED FINANCIAL DATA

    The following  table presents  summary  selected  historical  financial data
derived from the audited  Consolidated  Financial  Statements of the Company for
each of the five years presented. During these periods, the Company paid no cash
dividends  on its Common  Stock.  The  following  information  should be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" and the audited Consolidated Financial Statements and
related notes  thereto,  included  elsewhere in this Annual Report on Form 10-K.
(Dollars in thousands, except per share data.)

<TABLE>
<CAPTION>

                                                                   Years Ended December 31,  
                                                    1998 (a)     1997(b)     1996(c)        1995(d)   1994(e)(f)
                                                  -----------  ----------  ----------       -------   ----------
<S>                                               <C>          <C>         <C>             <C>          <C>  
Statement of Operations Data:
Revenues                                          $1,233,707   $1,145,937  $1,021,453      $908,725     $818,683
Cost of services                                  $1,173,151   $1,096,246  $  970,163      $871,317     $783,121
Corporate general and administrative              $   18,630   $   17,785  $   18,241      $ 18,705     $ 16,887
Interest expense                                  $   14,144   $   12,432  $   10,220      $ 14,856     $ 14,903
Earnings from continuing operations
  before extraordinary item and certain
  other expenses (g)                              $   15,585   $   15,579  $   12,774      $ 12,974     $  1,966
Earnings (loss) from continuing operations
  before extraordinary item (h)                   $   15,055   $    7,422  $   11,949      $  5,274     $   (352)
Net earnings (loss)                               $   15,055   $    7,422  $   14,629      $  2,368     $(12,831)
Common stockholders' share of earnings (loss)     $   15,055   $    7,422  $   12,345      $    453     $(14,437)
EBITDA (i)                                        $   45,226   $   29,274  $   34,948      $ 17,841     $ 25,933
Earnings (loss) per share from continuing
  operations before extraordinary
  item for common stockholders
    Basic                                         $    1.47    $     0.83$         1.14 $      0.40    $   (0.29)
    Diluted                                       $    1.43    $     0.70$         0.82 $      0.29    $   (0.29)
Common stockholders' share of earnings (loss)
    Basic                                         $    1.47    $     0.83$         1.46 $      0.05    $   (2.12)
    Diluted                                       $    1.43    $     0.70$         1.05 $      0.04    $   (2.12)
Balance Sheet Data:
Total assets                                      $  379,238   $  390,122 $   368,752      $375,490     $396,000
Long-term debt excluding current maturities       $  152,121   $  152,239 $   103,555      $104,112     $230,444
Redeemable common stock                           $  183,861   $  154,840 $   139,322      $135,894     $130,828

<FN>

(a)  1998 includes  reversal of $670 reserve for asbestos  litigation (see notes
     14 and  21(a)),  $1,177  accrual for  subcontractor  suit (see notes 14 and
     21(a)),  reversal of $2,500  reserve for contract  compliance  issues,  and
     $2,159 expense for the replacement of core systems.
(b)  1997 includes  $7,800 accrual of costs related to asbestos  litigation (see
     Notes 14 and 21(a)),  $2,488 reversal of income tax valuation allowance and
     $2,055  reversal  of  accrued  interest  related  to IRS  examinations  and
     potential disallowance of deductions (see Note 15).
(c)  1996  includes  $3,299  accrual  for  supplemental  pension  and other fees
     payable to retiring  officers and a member of the Board of  Directors  (see
     Note 14),  $1,286  write-off of cost in excess of net assets acquired of an
     unconsolidated  subsidiary  (see  Note  14),  $1,250  credit  for a revised
     estimate of the ESOP Put Premium  (see Notes 7 and 14) and $4,067  reversal
     of income tax valuation allowance (see Note 15).
(d)  1995 includes  $7,707  reversal of income tax valuation  allowance,  $4,362
     accrued for losses and reserves related to the Company's Mexican operation,
     $2,400 accrual of legal fees related to the defense of a lawsuit filed by a
     subcontractor  of a former  electrical  contracting  subsidiary  and $5,300
     accrued for uninsured  costs related to claims against a former  subsidiary
     for alleged use of asbestos containing products.
(e) Restated for the discontinuance of the Commercial Aviation business.
(f)  1994 includes $3,250 write-off of investment in unconsolidated  subsidiary,
     $2,665 accrual of legal fees related to the defense of a lawsuit filed by a
     subcontractor of a former electrical contracting subsidiary,  $1,830 credit
     for reversal of legal costs associated with an acquired business and $4,069
     reversal of income tax reserves.
(g) Certain other expenses include costs and expenses associated with divested
     businesses of $530 in 1998, $8,157 in 1997, $825 in 1996, $7,700 in 1995,
     and $2,318 in 1994 (see Note 14).
(h) The extraordinary loss in 1995 of $2,886 resulted from the early extinguish-
     ment of debt.
(i)  EBITDA (earnings from continuing  operations before  extraordinary item and
     before interest, taxes, depreciation and amortization), while not a measure
     under generally  accepted  accounting  principles  ("GAAP"),  is a standard
     measure  of  financial  performance  in  industry.  EBITDA  should  not  be
     considered  in  isolation  or as an  alternative  to net  earnings  (loss),
     earnings  (loss)  from  continuing  operations,  cash flows from  operating
     activities, or any other measure of performance under GAAP. EBITDA has been
     adjusted for the  amortization  of deferred  debt expense and debt issuance
     discount  which are  included in  "interest  expense"  in the  Consolidated
     Statements of Operations and included in "depreciation and amortization" in
     the  Consolidated  Statements of Cash Flows.  Amortization of deferred debt
     expense was $721 in 1998, $706 in 1997, $829 in 1996, and $743 in 1995.
     Amortization of debt issuance discount was $36 in 1998 and $26 in 1997.

</FN>
</TABLE>

<PAGE>

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

General

    The  following  discussion  and  analysis  provides  information  management
believes  is  relevant  to  an  assessment  and  understanding  of  DynCorp  and
subsidiaries' (collectively, the Company) consolidated results of operations and
financial  condition for the three years ended December 31, 1998. The discussion
should be read in conjunction with the Company's audited consolidated  financial
statements and accompanying notes.

Overview

    The Company provides  diversified  management,  technical,  and professional
services primarily to U.S. Government customers throughout the United States and
internationally.  The  Company's  customers  include  various  branches  of  the
Department of Defense and the  Department  of Energy,  NASA,  the  Department of
State,  the  Department  of Justice,  and various other U.S.,  state,  and local
government agencies, commercial clients and foreign governments.

Revenue and Operating Profit

    In 1998, revenue increased by $87.8 million,  or 7.7%, from 1997 compared to
a $124.5 million, or 12.2% increase in 1997 revenue over 1996. Operating profit,
defined  as  the  excess  of  revenues  over  operating   expenses  and  certain
nonoperating expenses, increased by $9.1 million, or 18.7% from 1997 compared to
a $2.6  million,  or 5.1%  decrease  in 1997  operating  profit  from 1996.  The
operating  profit was $57.7 million,  $48.6 million,  and $51.2 million in 1998,
1997, and 1996, respectively.

    Aerospace Technology ("AT") revenues were $490.2 million in 1998 compared to
$449.0 million in 1997, an increase of $41.2 million or 9.2%.  Operating  profit
increased by $2.3 million to $19.1 million, or 13.7% from $16.8 million in 1997.
The  increase in both  revenues and  operating  profit was  attributable  to new
contract wins and growth in several existing contracts. The AT business unit was
awarded a new contract with the United  Nations to provide  support  services in
Angola,  new  Department of State  contracts  providing  protective  services in
Kosovo,  Bosnia,  and Haiti,  and a contract  with Kuwait  providing  repair and
maintenance  on jets. A new  contract,  which became  operational  in the fourth
quarter,  providing  technical  and support  services for the United  States Air
Force also contributed to AT's growth.  Increased services on existing contracts
and the development and installation of a new information  system at Fort Rucker
also  contributed to the twelve months revenue  increase.  Partially  offsetting
these  increases  in  revenues  were  reduced  business  volumes  in the  System
Engineering  and  Technical  Services  Area.  This  reduction  was the result of
several contract completions and the lack of new contract wins for this area.

    The AT business unit increased  backlog by 28.6% to $1.8 billion at December
31,  1998 over  1997,  primarily  due to the  aforementioned  contract  wins and
winning a contract  recompetition at Fort Rucker Army base.  Management believes
the growth  experienced in the AT business area in 1998 will continue into 1999.
However,  the nature of the procurement  process and the volume of the Company's
business, which is subject to recompetition annually, can have a dramatic impact
on revenues and operating  profit.  Additionally,  the U.S.  Government  has the
right to  terminate  contracts  for  convenience  or may  reduce  the  volume of
services provided.

    Aerospace  Technology  revenues increased 17.0% to $449.0 million in 1997 as
compared to $383.3  million in 1996.  Operating  profit  increased by 24.9% from
$13.5 million in 1996 to $16.8 million in 1997.  Increased level of effort on
State Department contracts in support of the government's drug eradication 
program and the Haitian  peacekeeping  initiative,  which were awarded late in 
1996 but were fully  operational in 1997,  contributed  significantly  to the 
increase in both revenues and operating  profit.  Additionally,  numerous 
smaller contract awards further added to AT's increased  revenues and improved 
operating margin.  Other existing  contracts,  one with the Air Force to provide
maintenance  and repair work on DoD weapons  systems and  equipment at various 
locations  worldwide and another  with the Army to  maintain  a fleet of  
rotary-wing  aircraft,  further augmented AT's revenues.

    Enterprise  Management  ("EM") revenues were $410.9 million in 1998 compared
to $420.6 million in 1997, a decrease of $9.7 million or 2.3%. Operating profit,
however, increased by $2.5 million, or 12.8% to $22.8 million from $20.3 million
in 1997. The slight decrease in revenue  resulted from reduced level of services
on  several  contracts  due to funding  cutbacks  as well as the  completion  of
several  contracts.  Partially  offsetting  the lost business were new contracts
with the Department of Justice  (Immigration and  Naturalization  Service),  the
addition of the  operations of two more ships in the marine  services  area, and
the  acquisition of FMAS  Corporation,  a medical  outcome  measurement and data
abstraction services company.

    The increase in EM's operating profit resulted from increased margins on the
new business noted above. EM also received an award fee on one of its contracts,
which was greater than previously  accrued,  and enjoyed good  performance  from
most on-going contracts.

    In July 1998, EM was informed that its customer at the Rocky Flats  location
would not exercise the  remaining  two one-year  options on its  contract.  This
event did not have a  significant  financial  impact on 1998.  This contract was
expected to generate  revenues of $35.0 to $50.0  million per year and operating
profit  of $2.0 to $3.0  million  for the  next  two  years.  The  award  of two
significant  logistic  support  contracts  from the  U.S.  Postal  Service  will
partially offset the lost business in those future years.

    EM reported increased revenues of $420.6 million in 1997 as compared to 
$373.0 million in 1996, up 12.8%.  Operating profit increased $2.6 million or 
14.7 % to $20.3  million  from  $17.7  million  in  1996.  A large  Department
of  Energy subcontract to provide facility and infrastructure support at the 
DoE's Hanford, Washington  site,  as  well  as  other  new  business  and 
contract  wins,  all contributed  significantly  to EM's revenues and operating
profit  increases in 1997.

    The EM business unit increased  backlog by 54.5% to $1.7 billion at December
31, 1998 over 1997,  primarily due to the aforementioned  contract wins, and the
acquisition  by  EM  of  FMAS.  Management  expects  revenues  for  1999  to  be
approximately the same as 1998 revenues.  However, the nature of the procurement
process  and  the  volume  of  the  Company's  business,  which  is  subject  to
recompetition  annually,  can have a dramatic  impact on revenues and  operating
profit.  Additionally,  the U.S. Government has the right to terminate contracts
for convenience or may reduce the volume of services provided.

    Information  and  Engineering  Technology's  ("I&ET")  revenues  were $332.6
million  in 1998,  a 20.3%  increase  over  1997  revenues  of  $276.4  million.
Operating  profit  increased $4.2 million,  or 36.5% to $15.7 million from $11.5
million  in  1996.   The  increases  in  revenues  and  operating   profit  were
attributable to new indefinite  delivery/indefinite  quantity  ("IDIQ") contract
tasks and sole source  contracts for the  Department  of Defense,  Environmental
Protection Agency, and the Health Care Finance Administration.  Increased volume
on a subcontract to the U. S. Postal Service,  new state contract business,  and
increased  tasking  and level of  effort  on  several  existing  contracts  also
contributed to I&ET's revenue and operating profit increases.

    I&ET's  1997  revenues  of $276.4  million  were a 4.2%  increase  over 1996
revenues of $265.2 million;  however,  operating profit declined $8.5 million to
$11.5 million from $20.0 million in 1996.  Increases in revenue  attributable to
numerous IDIQ contract awards, the acquisition of Data Management  Design,  Inc.
("DMDI") in June of 1996 and other new business  ventures were partially  offset
by the phase-out of a large  contract with the U.S.  Postal  Service.  Operating
profit was adversely  impacted by a number of factors including contract losses,
start-up  costs,  and  software  development  costs  incurred  in support of new
businesses,  poor performance attributable to the DMDI business as well as other
contracts  acquired late in 1996 and fee  disputes.  Further  eroding  operating
profit was the write-off of software, which the Company acquired late in 1996 in
order  to bid a  contract  that was not  subsequently  awarded  to the  Company.
Additionally,  many  of  the  new  IDIQ  contracts  awarded  required  increased
administrative  oversight  and sales effort and yield lower profit  margins than
sole source  direct  contract  awards which have  historically  constituted  the
majority of the Company's business.

    Management  believes I&ET's  revenues will continue  showing growth in 1999.
However, there are no assurances,  because the contract base comprises many IDIQ
contracts which require continuous marketing.  Additionally, the U.S. Government
has the right to terminate contracts (including orders under IDIQ contracts) for
convenience.

Corporate General and Administrative

    Corporate  general and  administrative  expenses  increased  in 1998 by $0.8
million,  or 4.5% over 1997,  to $18.6  million as compared to $17.8 million and
$18.2  million  in  1997,  and  1996,   respectively.   Corporate   general  and
administrative  expense as a  percentage  of revenue  was 1.5% in 1998,  1.6% in
1997,  and 1.8% in 1995.  The higher expense in 1998 was primarily the result of
the  Company's  design  and  development  of new  financial  and human  resource
software  packages,  as  discussed  below under Year 2000.  The  expenses,  $2.2
million for the  resystemization  effort,  and increases in other  expenses were
offset by the $2.5  million  reversal of reserves  for old  contract  compliance
issues, which were settled in the Company's favor during 1998. The comprehensive
resystemization  effort  is  projected  to add  approximately  $4.2  million  to
corporate  general  and  administrative  expense in 1999.  The  reduction,  as a
percentage  of revenue,  in  corporate  general and  administrative  expense was
primarily the result of increased  revenues that did not require any incremental
increases to general and administrative expenses.

Interest Expense and Interest Income

    Interest  expense was $14.1  million in 1998, up from $12.4 million in 1997.
The increase is due to the greater level of outstanding  indebtedness throughout
1998. The average level of outstanding  indebtedness was $163.0 million in 1998,
as compared to $150.9 million in 1997.  Levels of indebtedness  increased due to
the FMAS  acquisition,  payments  to settle the  Fuller-Austin  bankruptcy,  and
growth  requirements (see working capital and cash flow discussion).  Offsetting
the  increase  in  interest  expense   attributable  to  the  greater  level  of
outstanding  indebtedness  was a refund of $0.7 million of interest  assessed in
prior years by the Internal  Revenue  Service on the  Company's  Federal  income
taxes.

    Interest  expense in 1997 was $12.4 million,  up from $10.2 million in 1996.
The Company issued $100.0 million of 9 1/2% Senior Notes in March 1997 and $50.0
million  of  7.486%  Contract  Receivable  Collateralized  Notes in April  1997,
utilizing the proceeds to retire the maturing  $100.0  million of 8.54% Contract
Receivable  Collateralized  Notes and to  repurchase  certain  of the  Company's
common  stock  and  warrants.   Offsetting  the  increase  in  interest  expense
attributable  to the newly  issued  debt was the  reversal  of $2.1  million  of
interest related to the Internal Revenue Service's examination and the potential
disallowance of certain deductions.

    Interest  income was $1.6 million,  $2.0 million,  and $1.8 million in 1998,
1997, and 1996, respectively. The fluctuations are primarily attributable to the
balance  of cash and  short-term  investments  throughout  any given  year.  The
twelve-month  average  balance  of cash and  short-term  investments  was  $10.9
million in 1998, $25.0 million in 1997, and $20.0 million in 1996,  resulting in
higher interest yields in 1997 and 1996 than in 1998.

Other Expense

    Other expense  decreased in 1998 by $7.6 million or 74.0% to $2.7 million in
1998 compared to $10.3 million and $5.5 million in 1997 and 1996,  respectively.
The lower expense in 1998 mostly resulted from a nonrecurring charge in 1997 for
a $7.8 million  increase in reserves for asbestos  litigation  resulting  from a
subsidiary's  agreement  in principle to settle  globally  approximately  11,000
pending  asbestos  personal  injury claims and unknown future claims pursuant to
Section 524(g) of the U.S.  Bankruptcy Code and a related contingent  settlement
agreement  between the Company and the subsidiary for the release of the Company
from  any  subsidiary  asbestos  liability  (see  Notes  14  and  21(a)  to  the
Consolidated  Financial  Statements and the discussion of "Liquidity and Capital
Resources" which follows).  In 1996, other expense included  nonrecurring  costs
related to the  retirement of several of the  Company's  officers as well as the
write-off of cost in excess of assets associated with a minority investment (see
Note 14 to the Consolidated Financial Statements).

Income Taxes

    The  provision for income taxes is based on reported  earnings,  adjusted to
reflect the impact of temporary differences between the book value of assets and
liabilities  recognized  for  financial  reporting  purposes  and  such  amounts
recognized for tax purposes. In 1998 the Company reversed foreign taxes provided
in prior  years  due to their  expected  utilization  as  foreign  tax  credits.
Additionally,  $2.5  million and $4.1  million of tax  valuation  reserves  were
reversed  in  1997  and  1996,  respectively.   Based  on  current  projections,
management estimates tax payments, net of tax refunds, of $13.0 million in 1999.

    No valuation  allowance for deferred federal tax assets was deemed necessary
at  December  31,  1998.  The Company has  provided a  valuation  allowance  for
deferred  state tax  assets of $4.7  million  at  December  31,  1998 due to the
uncertainty  of  achieving  future  earnings  in either the time frame or in the
particular state jurisdiction needed to realize the tax benefit.

Working Capital and Cash Flows

    Working  capital,  defined as current assets less current  liabilities,  was
$90.7  million at December  31, 1998  compared to $90.4  million at December 31,
1997, an increase of $0.3  million.  This increase is primarily the result of an
increase in accounts receivable, attributable to increased revenues as discussed
above,  and  slow  collections  on  several  contracts  due to  start-up  of new
contracts.  The ratio of current  assets to current  liabilities at December 31,
1998 was 1.48  compared  to 1.58 at  December  31,  1997.  The  slight  decrease
resulted  from  higher  levels of  short-term  borrowing  at  December  31, 1998
compared  to December  31,  1997.  The  increase  in  accounts  receivable,  the
acquisition of FMAS, and the Fuller-Austin  bankruptcy settlement contributed to
the need for the higher levels of short-term borrowing.

    Cash used by operations was $7.8 million in 1998 as compared to $9.9 million
provided by operations in 1997, an increase in cash used of $17.7  million.  The
increase  resulted  mostly  from  the   aforementioned   increases  in  accounts
receivable. Also contributing to the increase in cash used by operations was the
settlement of the Fuller-Austin  bankruptcy,  which used $8.5 million.  In 1997,
cash  provided by  operations  increased  by $5.1 million from $4.8 million cash
provided by operations in 1996. The increase was  attributable to the absence in
1997 of tax  payments  related  to the gain on the 1995  sale of the  Commercial
Aviation business offset by a decrease in net earnings in 1997 compared to 1996.

    Investing  activities  used funds of $20.1 million in 1998,  principally for
the  acquisition  of FMAS,  the  purchase of  property  and  equipment,  and the
purchase of new software for  internal  use as part of the  Company's  Year 2000
plan.  The Company has  capitalized  $5.7  million of internal  use software and
anticipates  capitalizing  another  $4.9  million  over the next year.  In 1997,
investing activities used funds of $8.3 million, attributable to the purchase of
property  and  equipment,  funding of the  Company's  47% interest in a minority
owned company, and a loan to the same company. In 1996, cash of $2.7 million was
provided,  with  additional  proceeds from the sale of the  Commercial  Aviation
business, as well as the release of cash on deposit as collateral for letters of
credit partially offset by acquisitions and capital expenditures.

    Financing  activities  provided  funds of $7.4 million in 1998. The proceeds
from the draw on the Class B Notes were used to fund working  capital needs.  In
1997, financing activities utilized funds of $3.0 million. The proceeds from the
issuance  of  the 9  1/2%  Senior  Notes  and  the  7.486%  Contract  Receivable
Collateralized  Notes were used to retire the maturing 8.54% Contract Receivable
Collateralized  Notes,  to make a loan to the ESOP to fund the  purchase  of the
Class C Preferred  Stock,  to fund the  Company's  purchase of common  stock and
warrants from certain investors, and to pay transaction fees associated with the
placement  of the  Senior  Notes and  amendments  to the terms of the  Company's
revolving line of credit.  In 1996, $11.8 million of cash was used for financing
activities,  principally  the purchase of treasury  shares,  but also payment on
indebtedness and fees associated with securing a line of credit.

Liquidity and Capital Resources

    The  Company's   primary  source  of  cash  and  cash  equivalents  is  from
operations.  The  Company's  principal  customer  is the U.S.  Government.  This
provides  for a  dependable  flow  of  cash  from  the  collection  of  accounts
receivable. Additionally, many of the contracts with the U.S. Government provide
for progress  billings based on costs incurred.  These progress  billings reduce
the amount of cash that would  otherwise be required  during the  performance of
these contracts.

    At the close of 1996, the Company's debt totaled $104.2  million.  The 8.54%
Contract  Receivable  Collateralized  Notes,  Series 1992-1,  constituted $100.0
million  of this  total and were  scheduled  to  mature in May 1997.  Due to the
maturity  of these  notes,  the  Company  embarked  on a  comprehensive  plan to
refinance the maturing debt and to recapitalize the Company.

    On January 23, 1997,  the Company  entered into an agreement  with Capricorn
Investors,  L.P.  ("Capricorn") in which Capricorn agreed to waive its rights to
nominate  directors of the Company and also waived  certain voting rights of the
Company's then outstanding Class C Preferred Stock. In return for these waivers,
the Company  paid a fee and  authorized  Capricorn to  distribute a  substantial
portion of the shares of common stock and  warrants  and all of the  outstanding
shares of Class C Preferred  Stock to its  investors.  On February 5, 1997,  the
Employee Stock  Ownership Trust purchased from certain of these investors all of
the Company's Class C Preferred Stock. The ESOP subsequently converted the Class
C Preferred Stock into common shares and common share warrants and exercised the
related warrants.  Concurrently with the ESOP's purchase, the Company acquired a
sizable number of its  outstanding  common shares and common stock warrants from
other  Capricorn  investors.  The purchase  price of these  securities was $56.4
million ($19.55 per common share or warrant),  of which half, $28.2 million, was
paid in cash  ($9.3  million  and  $18.9  million,  was paid by the ESOP and the
Company,  respectively)  and short-term notes were issued for the balance (notes
issued  by the ESOP  and the  Company  were  $9.3  million  and  $18.9  million,
respectively).

    The Company  engaged in the  aforementioned  equity  repurchases in order to
eliminate the potential effect of certain  preferential  voting rights given the
Class C Preferred Stock in the Company's certificate of incorporation; to reduce
the  outstanding  and fully diluted equity of the Company;  to provide  treasury
shares for future issuance to employees under the Company's various compensation
and benefit  plans  without the need for issuance of new shares;  and to provide
additional  shares for the ESOP,  which can only acquire shares by purchase from
the  Company or other  stockholders.  The ESOP's  purpose  for  engaging  in the
aforementioned   transaction  was  to  acquire  shares  for  the  allocation  to
participants'  accounts in 1997 and 1998. In addition to converting a portion of
the  Company's  total   capitalization   from  equity   capitalization  to  debt
capitalization,  the  transactions  reduced the Company's  fully diluted equity,
thus improving the Company's diluted earnings per share.

    On March 17, 1997, the Company closed on the issuance of $100.0 million of 9
1/2%  Senior  Subordinated  Notes  due  2007  (see  Note 5 to  the  Consolidated
Financial Statements).  On April 18, 1997, the Company's wholly owned subsidiary
Dyn  Funding   Corporation  ("DFC")  entered  into  agreements  with  Prudential
Insurance  Company of America and  Columbine  Life  Insurance  Company,  Inc. to
purchase  from DFC up to $140.0  million of Contract  Receivable  Collateralized
Notes, Series 1997-1. A five-year $50.0 million Class A Fixed Rate Note, bearing
interest  at 7.486% was issued at closing and a $90.0  million  Class B Variable
Rate Note was also issued (see Note 5 to the Consolidated Financial Statements).
The proceeds from these  transactions  were used to retire the maturing Contract
Receivable  Collateralized Notes, to pay the Company's short-term notes and make
a loan to the  ESOP to  enable  it to pay the  short-term  notes  (plus  accrued
interest) issued to certain Capricorn  investors and to pay various  transaction
fees.

    At December 31, 1998, the Company's debt totaled $160.3 million  compared to
$152.7 million at December 31, 1997. The increase resulted from higher levels of
short-term  borrowing  contributed by the FMAS  acquisition,  the  Fuller-Austin
bankruptcy, and increases in accounts receivable, as previously noted.

    At December 31, 1998,  $87.9 million of accounts  receivable were restricted
as  collateral  for the 7.486 % Contract  Receivable  Collateralized  Notes (the
"Notes"). At December 31, 1998, $1.5 million of cash was restricted as 
collateral for the  Notes  and has  been  included  in  Other  Assets  on the 
accompanying Consolidated Balance Sheet.

    The Company had a $15.0  million line of credit that it utilized  throughout
1998,  never exceeding $8.9 million in borrowings at any given point in time. At
December 31, 1998, there was $0.9 million  borrowings under this line of credit.
The facility does provide credit support for letters of credit,  and at December
31, 1998, the amount  available for borrowing was reduced by $6.1 million due to
the collateralization of outstanding letters of credit.

    The Company also has available up to $90.0 million of Floating Rate Contract
Receivable  Collateralized  Notes, Series 1997-1,  Class B (the "Class B Notes")
under the April 1997 indenture. At December 31, 1998, the Company had sufficient
unused  receivable  collateral to draw down  approximately  $68.0  million.  The
notes,  when drawn, bear interest at the LIBOR rate plus 70 basis points and two
business  days are  required to access the funds.  At December  31,  1998,  $7.0
million was outstanding on the Class B Notes.

    The Company  has  embarked on a  comprehensive  resystemization  effort (see
"Year 2000") and had expenditures in 1998 of $7.9 million, of which $5.7 million
was  capitalized  and $2.2  million  was  expensed.  The  Company is  projecting
expenditures  in 1999 of $10.8 million.  The  resystemization  will  necessitate
replacing most of the Company's desktop workstations over the next two years, at
a cost of approximately $4.0 million annually through 2000.

    The Board of Directors has issued an enabling  resolution  that provides for
the repurchase of up to 500,000 shares of the Company's  common stock at a price
not to exceed the current  market  price,  subject to all  applicable  financial
covenants.  Management  continuously reviews alternative uses of excess cash and
debt  capacity in terms of  acquisitions,  dividends,  repurchase  of shares and
other financial matters.

    The Company anticipates contributing  approximately $13.0 million in cash to
the Employee Stock  Ownership Plan ("ESOP") in 1999. The amount of the Company's
annual  contribution  to the ESOP is determined by and within the  discretion of
the Board of Directors and may be in the form of cash,  common  stock,  or other
qualifying  securities.  In  accordance  with  ERISA  requirements  and the ESOP
documents,  in  the  event  that  an  employee  participating  in  the  ESOP  is
terminated,  retires,  dies, or becomes  disabled while employed by the Company,
the ESOP Trust or the Company is obligated to repurchase  shares of common stock
distributed to such former  employee under the ESOP ("ESOP  Participant  Puts"),
until such time as the common stock becomes "readily tradable stock," as defined
in  the  ESOP  plan  document.   (See  Note  7  to  the  Consolidated  Financial
Statements.)

    To the  extent  the ESOP  Participant  Puts,  debt  service,  administrative
expenses, and interest exceed the Company's 1999 contribution,  the Company will
fund the ESOP Participant Puts by former  employees.  The Company projects these
payments to be $1.0 to $2.0 million in 1999.

    In  conjunction  with the  acquisition of Technology  Applications,  Inc. in
November 1993, the Company issued put options on 125,714 shares of common stock.
On January 12, 1999, the holder exercised the put option on those 125,714 shares
at a price of $24.25 per share.  The  Company's  repurchase of this common stock
used cash of $3.0 million.

    On December 10, 1998, pursuant to the terms of a Global Settlement Agreement
among  the  Company,  its  wholly- owned  inactive   subsidiary,   Fuller-Austin
Insulation Company ("Fuller-Austin"),  a committee representing various asbestos
claimants,  and the legal  representative of unknown future asbestos  claimants,
the Company transferred and conveyed all of its interests in Fuller-Austin to an
unrelated  independent  bankruptcy  settlement  trust  ("Trust")  established in
accordance  with  Section  524(g)  of the U.S.  Bankruptcy  Code.  The Trust was
established  pursuant to a  Confirmation  Order entered  jointly on November 13,
1998  by the  United  States  District  and  Bankruptcy  Courts  in  Wilmington,
Delaware.  The  Trust  is  part  of a Plan of  Reorganization  of  Fuller-Austin
approved  in the  Confirmation  Order for the  resolution  of present and future
asbestos   personal   injury  and  other  claims   against   Fuller-Austin.   In
consideration of the transfer and certain other payments by DynCorp to the Trust
aggregating approximately $8.5 million (a portion of which was recorded in prior
years including $7.8 million  reserved by the Company in 1997 in anticipation of
the Global Settlement), both the Trust and Fuller-Austin have given DynCorp full
indemnification  with respect to all present and future  asbestos claims arising
from the operations of Fuller-Austin.  The Confirmation  Order also channels all
present and future asbestos claims related to Fuller-Austin's  operations to the
Trust. (See Note 21(a) to the Consolidated  Financial Statements for the history
of the  Fuller-Austin  asbestos  claims and other  circumstances  related to the
Global Settlement and Fuller-Austin bankruptcy filing.)

Year 2000

    The "Year  2000" issue  ("Y2K")  concerns  the  inability  of some  computer
software  and hardware to  accommodate  "00" in the two digit data field used to
identify  the year.  The  principal  Y2K risk to the Company  would come from an
extended  failure of one or more of its core systems  (financial,  payroll,  and
human resources).  The Company's core systems have operated,  for the last eight
years, on commercial off-the-shelf software in a distributed PC environment.

    A Year  2000  analysis  of the  Company's  core  systems  software  has been
completed.  Key software  packages were found to be  non-compliant,  prompting a
replacement of these packages with a new software package. The implementation is
underway with a projected  completion date of December 1999. The  implementation
phase of the project is on  schedule  at the end of the fourth  quarter of 1998.
Total  expenditures for this  resystemization  as of December 31, 1998 have been
$7.9 million. The Company anticipates additional expenditures in excess of $10.8
million in 1999.

    In the event the replacement of core systems cannot be completed  before the
end of the fourth quarter of 1999, a contingency  plan calling for  installation
of an updated  compliant  version of the Company's  current  financial  software
package and  remediation  of the Company's  current  human  resource and payroll
software  package is in place which will ensure that the Company's  core systems
will continue to operate.

    The   core   systems   assessment    included   contact   with   third-party
telecommunications,  employee benefits,  insurance, and other providers. Letters
have been  obtained  from these  providers,  who  generally  state that they are
working on the Y2K problem.  Follow-up contacts are planned in 1999 to ascertain
progress by these providers.

    A Year 2000 Program  Management  Plan has been developed and put in place to
address other Y2K compliance issues. A multifunctional  task group is overseeing
assessment and remediation or replacement  efforts in the areas of core systems,
network  and  office  automation,  and  field  information  and  non-information
systems. The assessment and  remediation/replacement  phases are well under way,
and no major problems have yet been identified that would materially  affect the
Company's  ability  to  perform  on  any  of its  significant  contracts.  These
assessments  include  third-party  service providers and other vendors on whom a
given contract might depend.

    One area of possible  vulnerability  that is being  addressed is the payment
capability of the various  government  payment offices  receiving and processing
invoices from a given contract site. While the readiness of government financial
systems  is  considered  "mission  critical"  by the  government,  the  specific
readiness of many  government  payment  offices is not known.  Efforts have been
started by the Company to assess this issue. A letter  received in late December
from the Defense Finance and Accounting  Service office in Arlington,  Virginia,
stated that 77% of the payment  offices are Y2K compliant,  with 100% compliance
expected by March 31, 1999.

    Another    assessment    being    pursued   by   contract    sites   is   on
government-furnished  equipment  (GFE).  If GFE is critical to  performance on a
contract and is not  compliant,  a failure  could affect  contract  performance.
While this may not be material to the Company as a whole,  individual  contracts
are ensuring that non-compliant GFE is assessed and remediation responsibilities
are delineated.

    An employee  awareness program was initiated in mid-1998 that is intended to
inform employees and managers of the potential for Y2K problems.  In addition to
creating  general  awareness,  this program is intended to address  "home grown"
office  automation  systems and stand alone PC's. None of these types of systems
is considered mission critical to the Company as a whole.

    Infrastructure  items that may have Y2K compliance  problems such as desktop
workstations, network components, and servers, are being systematically repaired
or  replaced  as part of the normal  infrastructure  replacement  strategy.  The
annual expenditures for these components are not significantly above levels that
can be expected in the normal course of business.  Depreciation and amortization
expenses for the  resystemization  and for these  infrastructure  components are
allowable costs under government contracts.

    The  Company  held a Y2K  symposium  during  the third  quarter  of 1998 for
employees that are involved in contract negotiations and implementations as well
as employees  who  purchase  technology  products  for the Company.  Recommended
clauses for  contracts  and  purchases  have been  adopted and are being used to
protect the Company from inappropriate litigation.

    In  summary,  the  primary  Y2K  vulnerability  for the  Company is possible
failure of core systems.  The  resystemization  effort is a top priority  within
DynCorp,  with dedicated  teams and incentive  plans for keeping these employees
throughout the project.  Contingency plans are in place in the event of a delay.
Millennium Coordinators are overseeing the Y2K effort at each business unit, and
a  multi-functional  team of executives,  headed by the Y2K Program Director and
chaired  by the  Corporate  Chief  Information  Officer  acts as a Y2K  steering
committee.   This  team  includes   representation  from  Internal  Audit,  Risk
Management, the Law Department, Finance, and Resystemization.  While assessments
are still  underway at the  contract  level,  progress is being made to complete
assessments and impact analyses in the first half of 1999.

Environmental Matters

    Neither  the  Company  nor  any of its  subsidiaries  has  been  named  as a
Potentially  Responsible  Party (as defined in the  Comprehensive  Environmental
Response, Compensation, and Liability Act) at any site. The Company has incurred
costs for the installation and operation of a soil and water remediation  system
and for the clean up of  environmental  conditions  at certain  other sites (see
Note 21(b) to the Consolidated Financial  Statements).  The Company's liability,
in the aggregate,  with respect to these matters is not deemed to be material to
the Company's results of operations or financial condition.

Market Risk

    The Company's only use of derivative financial  instruments is to manage its
exposures to  fluctuations  in interest rates and foreign  exchange  rates.  The
Company  does not hold or issue  derivative  financial  instruments  for trading
purposes.  At  December  31,  1998,  the  amounts of such  derivative  financial
instruments,  as well as the  amounts  of gains and losses  recorded  during the
year, were not material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Information  with  respect  to  this  item  is  contained  in the  Company's
Consolidated  Financial  Statements and Financial  Statement  Schedules included
elsewhere in this Annual Report on Form 10-K.

<PAGE>

                 Report of Independent Public Accountants

To DynCorp:

We have  audited  the  accompanying  consolidated  balance  sheets of DynCorp (a
Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated  statements of operations,  permanent  stockholders' equity
and cash flows for each of the three  years in the  period  ended  December  31,
1998.  These  financial  statements and the schedules  referred to below are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards  require that we plan and perform an 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 financial position of DynCorp and subsidiaries as of
December 31, 1998 and 1997,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  1998,  in
conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial statements taken as a whole.  Schedules I and II, listed in Item 14 of
the Form 10-K,  are presented for purposes of complying  with the Securities and
Exchange  Commission's  rules and are not a required part of the basic financial
statements.  These  schedules  have been  subjected to the  auditing  procedures
applied in our audits of the basic financial statements and, in our opinion, are
fairly  stated in all  material  respects  in  relation  to the basic  financial
statements taken as a whole.

Washington, D.C.,
February 26, 1999                                /s/  Arthur Andersen LLP

                                                      ARTHUR ANDERSEN LLP

<PAGE>

<TABLE>
<CAPTION>

                                                       DynCorp and Subsidiaries
                                                      Consolidated Balance Sheets
                                                            (In thousands)

                                                                                     December 31,     
                                                                                  1998         1997 
                                                                                  ----         ---- 
<S>                                                                         <C>             <C>   
Assets
------
Current Assets:
   Cash and cash equivalents                                                 $  4,088        $ 24,602
   Accounts receivable and contracts in process, net                          258,216         202,758
   Inventories of purchased products and supplies,
     at lower of cost (first-in, first-out) or market                             769           1,090
   Prepaid income taxes                                                         4,204           6,702
   Other current assets                                                        11,025          11,969
                                                                             --------        --------
      Total Current Assets                                                    278,302         247,121


Property and Equipment, at cost:
   Land                                                                           621           1,621
   Buildings and leasehold improvements                                        11,845          11,659
   Machinery and equipment                                                     33,616          28,752
                                                                             --------        --------
                                                                               46,082          42,032
   Accumulated depreciation and amortization                                  (27,538)        (22,412)
                                                                             --------        --------
      Net Property and Equipment                                               18,544          19,620
                                                                             --------        --------

Intangible Assets, net of accumulated amortization                             57,847          47,049

Other Assets                                                                   24,545          76,332
                                                                             --------        --------

Total Assets                                                                 $379,238        $390,122
                                                                             ========        ========



See accompanying notes to the consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                       DynCorp and Subsidiaries
                                                      Consolidated Balance Sheets
                                                 (In thousands, except share amounts)

                                                                                     December 31,     
                                                                                  1998         1997
                                                                                  ----         ----  
<S>                                                                        <C>             <C>   
Liabilities and Stockholders' Equity                                   
------------------------------------                                          
Current Liabilities:
   Notes payable and current portion of long-term debt                      $   8,145       $     450
   Accounts payable                                                            66,885          46,109
   Deferred revenue and customer advances                                       2,542           2,947
   Accrued income taxes                                                         1,934           1,619
   Accrued expenses                                                           108,117         105,627
                                                                              -------         -------
      Total Current Liabilities                                               187,623         156,752

Long-term Debt                                                                152,121         152,239

Deferred Income Taxes                                                          12,498          14,060

Other Liabilities and Deferred Credits                                         15,146          69,845

Contingencies and Litigation                                                        -               -

Temporary Equity:
 Redeemable common stock at redemption value
  ESOP shares, 7,082,422 and 6,887,119 shares issued
    and outstanding in 1998 and 1997, respectively,
    subject to restrictions                                                   180,812         151,823
  Other, 125,714 shares issued and outstanding in 1998 and 1997                 3,049           3,017

Permanent Stockholders' Equity:
  Common stock,  par value ten cents per share,  authorized  20,000,000  shares;
    issued 4,976,423 shares in 1998
    and 4,784,770 shares in 1997                                                  498             478
 Common stock warrants                                                              -           1,259
 Paid-in Surplus                                                              127,206         125,412
 Reclassification to temporary equity for redemption value                   (183,140)       (154,138)
 Deficit                                                                      (78,782)        (93,837)
 Common stock held in treasury, at cost; 2,005,728 shares
   in 1998 and 1,677,511 shares and 170,716 warrants in 1997                  (35,640)        (28,703)
 Unearned ESOP shares                                                          (2,153)         (8,085)
                                                                             --------        --------
Total Liabilities and Stockholders' Equity                                   $379,238        $390,122
                                                                             ========        ========



See accompanying notes to the consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                       DynCorp and Subsidiaries
                                                 Consolidated Statements of Operations
                                                    For the Years Ended December 31
                                               (In thousands, except per share amounts)

                                                                                    1998           1997           1996  
                                                                                    ----           ----           ----    
<S>                                                                              <C>            <C>            <C>  
Revenues                                                                          $1,233,707     $1,145,937     $1,021,453
                                                                                  ----------     ----------     ----------

Costs and expenses:
  Cost of services                                                                 1,173,151      1,096,246        970,163
  Corporate general and administrative                                                18,630         17,785         18,241
  Interest expense                                                                    14,144         12,432         10,220
  Interest income                                                                     (1,600)        (2,018)        (1,752)
  Other expense                                                                        2,687         10,349          5,474
                                                                                  ----------     ----------     ----------
    Total costs and expenses                                                       1,207,012      1,134,794      1,002,346
                                                                                  ----------     ----------     ----------

Earnings from continuing operations before income taxes and
 minority interest                                                                   26,695         11,143         19,107
  Provision for income taxes                                                          9,559          2,282          5,893
                                                                                  ----------     ----------     ----------

Earnings from continuing operations before minority interest                          17,136          8,861         13,214
  Minority interest                                                                    2,081          1,439          1,265
                                                                                  ----------     ----------     ----------

Earnings from continuing operations                                                   15,055          7,422         11,949
  Gain on sale of discontinued operations, net of income taxes                             -              -          2,680
                                                                                  ----------     ----------     ----------

Net earnings                                                                      $   15,055     $    7,422     $   14,629
                                                                                  ==========     ==========     ==========

  Preferred Stock Class C dividends not declared or recorded                               -              -         (2,284)
                                                                                  ----------     ----------     ----------

Common stockholders' share of earnings                                            $   15,055     $   7,422      $   12,345
                                                                                  ==========     =========      ==========

Earnings per common share:

  Basic Earnings Per Share:
    Continuing operations                                                         $     1.47     $    0.83      $     1.41
    Discontinued operations                                                                -             -            0.32
    Class C Preferred dividends                                                            -             -           (0.27)
                                                                                  ----------     ---------      ----------
    Common stockholders' share of earnings                                        $     1.47     $    0.83      $     1.46
                                                                                  ==========     =========      ==========

  Diluted Earnings Per Share:
    Continuing operations                                                         $     1.43     $    0.70      $     1.02
    Discontinued operations                                                                -             -            0.23
    Class C Preferred dividends                                                            -             -           (0.20)
                                                                                  ----------     ---------      ---------- 
    Common stockholders' share of earnings                                        $     1.43     $    0.70      $     1.05
                                                                                  ==========     =========      ==========

Weighted average number of shares
  outstanding for basic earnings per share                                            10,242         8,985           8,462

Weighted average number of shares
  outstanding for diluted earnings per share                                          10,514        10,638          11,736


See accompanying notes to the consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                       DynCorp and Subsidiaries
                                       Consolidated Statements of Permanent Stockholders' Equity
                                                   For the Years Ended December 31,
                                                            (In thousands)

                                                                                       Adjustment for
                                                                  Common               Redemption                           Unearned
                                             Preferred  Commom    Stock     Paid-in    Value Greater              Treasury  ESOP 
                                             Stock      Stock     Warrants  Surplus    than Par Value  Deficit    Stock     Shares
                                             --------- ------    --------  --------   --------------  -------    --------  --------
<S>                                         <C>       <C>       <C>        <C>        <C>           <C>        <C>        <C> 
Balance, December 31, 1998                   $3,000    $159      $11,305    $148,089   $(135,110)    $(115,888) $(21,084)  $ (503)
Stock issued under Restricted Stock Plan          -      11            -         (40)          -             -        75        - 
Treasury stock purchased                          -       -            -           -           -             -    (4,226)       -
Warrants and stock options exercised              -       7         (166)        185           -             -         -        -
Recalssification from Temporary Equity            -     166            -           -      32,972             -         -        -
Shares purchsesed on Employee Stock Ownership             
  Plan on Internal Market                         -     (13)           -           -      (1,874)            -         -        -
Payment received by Employee Stock Ownership              
  Plan note                                       -       -            -           -           -             -         -      503
Reclassificatiion to Redeemable Common Stock      -       2            -           -     (34,682)            -         -        -
Net Earnings                                      -       -            -           -           -        14,629         -        -
                                             ------    ----      -------    --------   ---------     ---------  --------   ------
Balance, December 31, 1996                    3,000     332       11,139     148,234    (138,694)     (101,259)  (25,235)       -
Stock issued underRestricted Stock Plan           -      13            -        (802)          -             -         -        -
Treasury stock issued                             -       -            -           -           -             -       233        -
Treasury stock purchased                          -       -            -           -           -             -      (907)       -
Warrants & stock options exercised                -     111       (2,683)      2,981           -             -         -        -
Class C Preferred Stock converted & warrants
 exercised                                   (3,000)     95       (2,007)      5,119           -             -         -        -
Common stock purchased and warrants exercise      -       -       (5,190)    (30,120)          -             -    (2,794)       -
Loans to Employee Stock Ownership Plan            -       -            -           -           -             -         -  (13,274)
Payments recieved on Employee Stock Ownership
  Plan note                                       -       -            -           -           -             -         -    5,189
Net earnings                                      -       -            -           -           -         7,422         -        -
Reclassification to Redeemable Common Stock       -     (73)           -           -     (15,444)            -         -        -
                                             ------    -----     -------    --------   ---------     ---------  --------  -------
Balance, December 31, 1997                        -     478        1,259     125,412    (154,138)      (93,837)  (28,703)  (8,085)
Employee compensation plans (option exercises,
  restricted stock plan, incentive bonus)         -       4            -         891           -             -      (960)       -
Treasury stock purchased                          -       -            -           -           -             -    (6,386)       -
Warrants & stock options exercised                -      35       (1,259)        903           -             -       409        -
Payment received on Employee Stock Ownership
  Plan note                                       -       -            -           -           -             -         -    5,932
Reclassification to Redeemable Common Stock       -     (19)           -           -     (29,002)            -         -        -
Net earnings                                      -       -            -           -           -        15,055         -        -
                                             ------    -----     -------    --------   ---------     ---------  --------  -------
Balance, December 31, 1998                        -    $498            -    $127,206   $(183,140)     $(78,782) $(35,640) $(2,153)
                                             ======    =====     =======    ========   =========     =========  ========  =======
</TABLE>



See accompanying notes to the consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

                                                       DynCorp and Subsidiaries
                                                  Consolidated Statements of Cash Flows
                                                   For the Years Ended December 31,
                                                             (In thousands)

                                                                                              1998          1997              1996 
                                                                                              ----          ----              ----
<S>                                                                                      <C>           <C>               <C>  
Cash Flows from Operating Activities:
  Net earnings                                                                            $  15,055      $  7,422         $  14,629
  Adjustments to reconcile net earnings
   to net cash provided by operating activities:
    Depreciation and amortization                                                             8,825         9,888             9,467
    Payment of income taxes on gain on sale of the
      Commercial Aviation business                                                                -             -           (13,990)
    Gain on sale of discontinued operations                                                       -             -            (2,680)
    Deferred income taxes                                                                     1,463         4,165             1,478
    Proceeds from insurance settlement for asbestos claims                                    1,462         1,488                 -
    Change in reserve for divested business - Fuller-Austin                                 (10,797)        7,800                 -
    Changes in reserves for divested business  - Other                                       (1,698)          357               825
    Other                                                                                       (63)         (882)             (848)
    Change in assets and liabilities, net of acquisitions and dispositions:
      Increase in accounts receivable and contracts
        in process                                                                          (52,416)      (15,311)           (6,864)
      Decrease (increase) in inventories                                                        321           (60)              353
      Increase in other current assets                                                       (1,284)       (1,245)           (1,867)
      Increase (decrease) in current liabilities except notes payable
        and current portion of long-term debt                                                31,380        (3,685)            4,345
                                                                                           --------      --------          --------
            Cash (used) provided by operating activities                                     (7,752)        9,937             4,848
                                                                                           --------      --------          --------
Cash Flows from Investing Activities:
  Sale of property and equipment                                                              1,293           318             1,093
  Proceeds received from notes receivable                                                         -             4                 3
  Purchase of property and equipment                                                         (4,797)       (5,110)           (5,310)
  Cost of software for new core systems                                                      (5,598)            -                 -
  Deferred income taxes from "safe harbor" leases                                              (257)         (309)             (316)
  Increase in investment in unconsolidated subsidiaries                                        (302)       (2,038)             (169)
  Increase in notes receivable to equity investee                                                 -          (867)                -
  Assets and liabilities of acquired businesses
   (excluding cash acquired)                                                                (10,239)            -            (2,801)
  Proceeds from sale of discontinued operations                                                   -             -             3,050
  Decrease in cash on deposit for letters of credit                                               -             -             6,244
  Other                                                                                        (231)         (255)             (113)
                                                                                           --------      --------          --------
       Cash (used) provided by investing activities                                         (20,131)       (8,257)            1,681
                                                                                           --------      --------          --------
Cash Flows from Financing Activities:
  Treasury stock purchased                                                                  (6,194)         (923)            (9,712)
  Payment on indebtedness                                                                  (20,371)       (1,708)            (1,264)
  Retirement of Contract Receivable Collateralized Notes 1992-1                                  -       (98,500)                 -
  Proceeds from Contract Receivable Collateralized Notes 1997-1                             28,113        50,000                  -
  Proceeds from issuance of Senior Notes                                                         -        99,484                  -
  Common stock and warrants purchased from investors                                             -       (37,819)                 -
  Payments on ESOP loans                                                                     5,933         5,189                503
  Loans to Employee Stock Ownership Plan                                                         -       (13,274)                 -
  Deferred financing expenses                                                                    -        (5,080)            (1,310)
  Other                                                                                       (112)         (324)               (20)
                                                                                           -------       -------           --------
        Cash provided (used) by financing activities                                         7,369        (2,955)           (11,803)
                                                                                           -------       -------           --------
Net Decrease in Cash and Cash Equivalents                                                  (20,514)       (1,275)            (5,274)
Cash and Cash Equivalents at Beginning of the Year                                          24,602        25,877             31,151
                                                                                           -------      --------          --------
Cash and Cash Equivalents at End of the Year                                               $ 4,088      $ 24,602          $  25,877
                                                                                           =======      ========          =========

See accompanying notes to the consolidated financial statements.

</TABLE>

<PAGE>


DynCorp and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
(Dollars in thousands, except per share amounts or where otherwise noted)

(1)   Summary of Significant Accounting Policies

Organization  -- The Company  provides  diversified  management,  technical  and
professional  services to primarily  U.S.  Government  customers  throughout the
United States and internationally.

Principles  of  Consolidation  --  All  majority-owned  subsidiaries  have  been
included in the financial statements and all significant  intercompany  accounts
and  transactions  have been  eliminated.  Outside  investors'  interest  in the
majority-owned  subsidiaries  is  reflected  as  minority  interest.  Investment
ownerships  of 50% or  less  are  accounted  for  using  the  equity  method  of
accounting.

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

Contract  Accounting  --  Contracts in process are stated at the lower of actual
cost incurred plus accrued profits or net estimated realizable value of incurred
costs,  reduced by  progress  billings.  The Company  records  income from major
fixed-price contracts, extending over more than one accounting period, using the
percentage-of-completion method. During performance of such contracts, estimated
final contract prices and costs are periodically reviewed and revisions are made
as required. The effects of these revisions are included in the periods in which
the revisions are made. On cost-plus-fee contracts, revenue is recognized to the
extent of costs  incurred  plus a  proportionate  amount of fee  earned,  and on
time-and-material  contracts,  revenue is  recognized  to the extent of billable
rates times hours delivered plus material and other reimbursable costs incurred.
Losses on contracts are recognized when they become known. Disputes arise in the
normal  course of the  Company's  business  on  projects  where the  Company  is
contesting  with  customers  for  collection  of funds because of events such as
delays, changes in contract specifications and questions of cost allowability or
collectibility. Such disputes, whether claims or unapproved change orders in the
process  of  negotiation,  are  recorded  at the lesser of their  estimated  net
realizable  value or actual costs incurred and only when realization is probable
and can be reliably  estimated.  Claims against the Company are recognized where
loss is considered probable and reasonably determinable in amount.

Accounts  Receivable -- It is the Company's  policy to provide  reserves for the
collectibility of accounts  receivable when it is determined that it is probable
that the  Company  will not  collect  all  amounts due and the amount of reserve
requirement can be reasonably estimated.

Property  and  Equipment  --  The  Company  computes   depreciation   using  the
straight-line method. The estimated useful lives used in computing  depreciation
are buildings,  15-33 years; machinery and equipment,  3-20 years; and leasehold
improvements,  the  lesser  of the  useful  life  or  the  term  of  the  lease.
Depreciation expense was $4,781 for 1998, $4,881 for 1997 and $4,310 for 1996.

Cost of property  and  equipment  sold or retired  and the  related  accumulated
depreciation  or  amortization  is  removed  from  the  accounts  in the year of
disposal,  and any gains or losses are reflected in the consolidated  statements
of operations.  Expenditures  for maintenance and repairs are charged to expense
as incurred, and major additions and improvements are capitalized.

Intangible Assets -- At December 31, 1998,  intangible assets consist of $43,946
of unamortized goodwill, $6,864 of value assigned to a patent pending, $5,897 of
capitalized  software,  and  $1,140 of value  assigned  to  contracts.  In 1997,
intangible  assets  consist  of  $45,140  of  unamortized   goodwill,   $299  of
capitalized  software,  and $1,610 of value  assigned to contracts.  Goodwill is
being  amortized on a  straight-line  basis over periods from ten to forty years
($41,925  forty years,  $141 thirty  years,  $1,751  fifteen  years and $129 ten
years).  Amortization  expense was $1,575,  $1,560 (see Note 14) and $2,814 (see
Note 14 (c))  in  1998,  1997  and  1996,  respectively.  Amounts  allocated  to
contracts are being  amortized over the lives of the contracts for periods up to
ten years.  Amortization of amounts  allocated to contracts was $847 in 1998 and
$617 in 1997 and 1996.  Cumulative  amortization of $19,734 and $31,976 has been
recorded through December 31, 1998, of goodwill and value assigned to contracts,
respectively.

Long-Lived  Assets,  identifiable  intangibles,  and  goodwill  are reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable. In performing the review for
impairment,  the Company estimates the future cash flows expected to result from
the use of the asset. If impaired, the Company would write down the asset to its
fair market value.  If the asset is held for sale, the Company  reviews its fair
value less cost to sell.

Derivative  Financial  Instruments -- The Company has a policy to use derivative
financial  instruments to manage its exposures to fluctuations in interest rates
and foreign  exchange  rates as  warranted.  The Company  does not hold or issue
derivative  financial  instruments  for  trading  purposes.  There  were no such
financial instruments held during 1998.

New  Accounting  Pronouncements  -- In March 1998,  the  American  Institute  of
Certified Public Accountants  ("AICPA") issued Statement of Position No. ("SOP")
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal Use", which will be effective for fiscal years beginning after December
15, 1998. The Statement of Position requires the capitalization of certain costs
incurred in connection  with  developing or obtaining  software for internal use
after the date of adoption.  During 1998,  the Company  adopted SOP No. 98-1 and
has capitalized $5.7 million of internal use software,  primarily related to the
design and development of financial and human resource software packages.

AICPA SOP No. 98-5, "Reporting on the Costs of Start-up Activities",  was issued
in April 1998 and is effective  for fiscal years  beginning  after  December 15,
1998.  The statement  provides  guidance on the financial  reporting of start-up
costs and  organization  costs and requires  costs of start-up  activities to be
expensed as incurred.  The Company  believes that the adoption of this statement
will not have a material impact on the Company's financial statements.

Statement of Financial  Accounting  Standards  ("SFAS") No. 133  "Accounting for
Derivative  Instruments  and Hedging  Activities"  was issued in June 1998.  The
Statement   establishes   accounting  and  reporting  standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for  hedging  activities.  The  Company is required to adopt the
provisions  of the  standard  during the first  quarter of 2000.  Because of the
Company's  minimal  use of  derivatives,  the  Company  does not expect that the
adoption  of the new  standard  will have a  material  impact on the  results of
operations or financial condition.

Consolidated  Statements  of Cash  Flows -- For  purposes  of these  statements,
short-term  investments,  which  consist of government  treasury  bills and time
deposits  with  a  maturity  of  ninety  days  or  less,  are  considered   cash
equivalents. At December 31, 1998, checks not yet presented for payment of $23.0
million in excess of cash  balances  were  included in  accounts  payable on the
accompanying  balance sheet. The Company had sufficient funds available to cover
these  outstanding  checks  when  they  were  presented  for  payment.  Cash and
short-term  investments at December 31, 1998 and 1997,  excludes $1.5 million of
restricted cash which is classified as Other Assets.

Investing and financing activities include the following:

<TABLE>
<CAPTION>
                                                                        1998            1997            1996
                                                                        ----            ----            ----
<S>                                                               <C>             <C>             <C> 
Acquisitions of businesses:
  Assets acquired                                                  $  11,185       $       -       $   4,998
  Liabilities assumed                                                   (946)              -          (1,498)
  Cash acquired                                                            -               -            (699)
                                                                   ---------       ---------       ---------
  Net cash                                                         $  10,239       $       -       $   2,801
                                                                     -------     -----------         -------
Capitalized equipment leases and
 notes secured by property and equipment                           $       -       $     626       $       -

</TABLE>

The Company acquired FMAS Corporation in 1998 and Data Management Design, Inc.
in 1996.



Comprehensive  Income -  Effective  January 1, 1998,  the  Company  adopted  the
provisions of SFAS No. 130, "Reporting Comprehensive Income," which requires the
presentation  and  disclosure of  comprehensive  income.  Net income is the only
component of the Company's comprehensive income for the years ended December 31,
1998, 1997, and 1996.

Classification  -- Consistent  with industry  practice,  assets and  liabilities
relating to long-term  contracts and programs are classified as current although
a portion  of these  amounts is not  expected  to be  realized  within one year.
Certain prior year  information has been  reclassified to conform to the current
year presentation.

(2)   Discontinued Operations

    During  1995,  the  Company  sold  all of its  subsidiaries  engaged  in the
commercial  aircraft  maintenance  and ground  handling  activities,  i.e.,  the
Commercial  Aviation  business.  At December  31,  1995,  certain  contingencies
existed  regarding  the final sales  prices of both the  maintenance  and ground
handling  businesses.  Additionally,  the Company  retained  certain  contingent
liabilities,  which included general warranties and  representations and certain
specific issues regarding environmental, insurance and tax matters. During 1996,
the Company recorded a gain of $2,680 net of income taxes of $768 related to the
resolution  of some of these  outstanding  issues as well as the  adjustment  of
estimated reserves recorded at disposition.

    The sale of the subsidiaries  resulted in a partial  termination of the ESOP
and termination of all active participants of the subsidiaries.  These employees
were entitled to put their ESOP shares  (approximately  493,000  shares)  sooner
than had been  previously  anticipated.  These shares have been  included in the
estimated annual  repurchase  commitment  reported in Note 7, Redeemable  Common
Stock.

(3)   Fair Value of Financial Instruments

    The following  methods and assumptions  were used to estimate the fair value
of each class of financial  instruments  for which it is practicable to estimate
the value:

    Accounts  Receivable,  Prepaid  Income Taxes,  Accounts  Payable and Accrued
Income Taxes - The carrying amount  approximates the fair value due to the short
maturity of these instruments.

    Long-term debt and other  liabilities and deferred  credits - The fair value
of the Company's 7.486% Contract Receivable  Collateralized Notes and the Senior
Notes, based on the current rate as if the issue date were December 31, 1998 and
1997, is $154.4 and $153.4 million, respectively, as compared to a book value of
$149.5 million in 1998 and 1997.  For the remaining  long-term debt (see Note 5)
and other liabilities and deferred credits, the carrying amount approximates the
fair value.

(4)   Accounts Receivable and Contracts in Process

    The  components  of accounts  receivable  and  contracts  in process were as
follows at December 31:

<TABLE>
<CAPTION>

                                                                                         1998                 1997    
                                                                                     -----------          ------------
<S>                                                                                   <C>                 <C>  
    U.S. Government:
      Billed and billable                                                              $158,190            $119,538
      Recoverable costs and accrued profit on progress
        completed but not billed                                                         23,374              25,462
      Retainage due upon completion of contracts                                          2,641               2,034
                                                                                       --------            --------
                                                                                        184,205             147,034
                                                                                       --------            --------

    Other  Customers   (primarily   subcontracts  from  
     U.S.   Government  prime contractors and contracts with state, 
     local and quasi-government agencies):
      Billed and billable (less allowance for doubtful accounts
       of $1,126 in 1998 and $476 in 1997)                                               54,520              37,104
      Recoverable costs and accrued profit on progress completed
        but not billed                                                                   19,491              18,620
                                                                                       --------            --------
                                                                                         74,011              55,724
                                                                                       --------            --------
                                                                                       $258,216            $202,758
                                                                                       ========            ========
</TABLE>

    Billed and billable  include  amounts earned and  contractually  billable at
year-end but which were not billed  because  customer  invoices had not yet been
prepared  at  year-end.  Recoverable  costs and  accrued  profit  not  billed is
composed  primarily  of  amounts  recognized  as  revenues,  but  which  are not
contractually  billable  at the balance  sheet  dates.  It is expected  that all
amounts at  December  31,  1998 will be  collected  within  one year  except for
approximately $8,530.

(5)   Long-term Debt

    At December 31, 1998 and 1997, long-term debt consisted of:

<TABLE>
<CAPTION>
                                                                                     1998             1997    
                                                                                -------------     ------------
<S>                                                                               <C>             <C>         
    91/2% Senior Notes                                                             $  99,546       $  99,510
    7.486% Contract Receivable Collateralized Notes, Series 1997-1, Class A           50,000          50,000
    Floating Rate Contract Receivable Collateralized Notes, Series
       1997-1, Class B                                                                 7,000               -
    8% Mortgage payable                                                                2,729           3,100
    Notes payable                                                                        991              79
                                                                                     -------       ---------
                                                                                     160,266         152,689
    Less current portion                                                               8,145             450
                                                                                     -------       ---------
                                                                                   $ 152,121       $ 152,239
                                                                                   =========       =========

Debt maturities as of December 31, 1998, were as follows:

          1999                                                                     $   8,145
          2000                                                                           166
          2001                                                                           180
          2002                                                                        50,195
          2003                                                                         2,034
          Thereafter                                                                  99,546
                                                                                   ---------
                                                                                   $ 160,266
                                                                                   =========

</TABLE>

    On March 17, 1997, the Company closed on the issuance of $100.0 million of 9
1/2% Senior  Subordinated  Notes ("Senior  Notes") with a scheduled  maturity in
2007. Interest is payable semi-annually,  in arrears, on March 1 and September 1
of each  year.  The Senior  Notes are  redeemable,  in whole or in part,  at the
option of the  Company,  on or after March 1, 2002 at a  redemption  price which
ranges from 104.75% in 2000 to 100.00% in 2005 and thereafter.  In addition,  at
any time  prior to  March 1,  2000,  the  Company  may  redeem  up to 35% of the
aggregate  principal  amount  of the  Senior  Notes  (at a  redemption  price of
109.50%) with proceeds  generated from a public offering of equity,  provided at
least  65%  of  the  original  aggregate  amount  of the  Senior  Notes  remains
outstanding.  The Senior Notes are general unsecured  obligations of the Company
and will be  subordinated  in right of payment to all existing and future senior
debt of the Company.

    On April 18,  1997,  the  Company's  wholly  owned  subsidiary,  Dyn Funding
Corporation  ("DFC"),  completed a private placement  of $50.0 million of 7.486%
Fixed Rate Contract Receivable Collateralized Notes, Series 1997-1, Class A (the
"Class A Notes").  The Class A Notes are  collateralized by the right to receive
proceeds from certain U.S. Government  contracts and certain eligible commercial
accounts receivable of the Company and its subsidiaries.  Credit support for the
Class A Notes is provided  by  overcollateralization  in the form of  additional
receivables.  The  Company  retains an  interest  in the  excess  balance of the
receivables  through its ownership of the common stock of DFC. Interest payments
are made monthly.  Principal payments are scheduled to begin March 31, 2002 (the
"Amortization Date"). The period between April 18, 1997 and February 28, 2002 is
referred to as the "Non-Amortization Period".

    On an ongoing basis,  cash receipts from the  collection of the  receivables
are used to make interest  payments on the Class A Notes, pay a servicing fee to
the Company,  and purchase additional  receivables from the Company.  During the
Non-Amortization  Period,  cash in excess of the  amount  required  to  purchase
additional  receivables  and meet payments on the Class A Notes is to be paid to
the  Company  subject to certain  collateral  coverage  tests.  The  receivables
pledged as  security  for the Class A Notes are valued at a discount  from their
stated value for purposes of determining proper credit support.  DFC is required
to maintain  receivables,  at their discounted  values,  plus cash on deposit at
least equal to the outstanding balance of the Class A Notes.

    The Class A Notes may be redeemed in whole,  but not in part,  at the option
of DFC at a price equal to the principal,  plus accrued interest, plus a premium
(as defined).  The indenture also provides for special redemption of the Class A
Notes in the event the  collateral  value ratio is less than 1.00 and  mandatory
redemption  in the event  the  collateral  value  ratio is less than 0.95 on two
consecutive  determination dates and the Company has not substituted receivables
or  deposited  cash to bring  the  collateral  value  ratio  to 1.00.  Mandatory
redemption is also required in the event three special  redemptions are required
within any twelve month period or the aggregate  stated value of all  ineligible
receivables  which have been  ineligible  for more than 30 days exceed 7% of the
aggregate collateral balance and the collateral value ratio is less than 1.00.

    Also issued at closing were $90 million of Floating Rate Contract Receivable
Collateralized  Notes, Series 1997-1, Class B (the "Class B Notes"). The Class B
Notes,  when drawn,  will be subject to the same terms as the Class A Notes.  At
December 31, 1998, $7.0 million was outstanding on the Class B Notes.

    The proceeds from the issuance of the Senior Notes,  net of a discount,  and
from the  issuance of the Class A Notes were used to retire the  maturing  8.54%
Contract Receivable  Collateralized  Notes, Series 1992-1, to fund the Company's
purchase of common stock and  warrants,  to make a loan to the ESOP to enable it
to repay notes issued for the purchase of the Company's  Class C Preferred Stock
and to pay various transaction fees (see Note 12).

    At December 31,  1998,  $87,852 of accounts  receivable  are  restricted  as
collateral for the Class A Notes. Additionally,  $1.5 million of cash (3% of the
balance  of the  Class A Notes) is  restricted  and has been  included  in Other
Assets in the balance sheet.

    Upon the  closing of the  Senior  Notes and the Class A Notes,  the  Company
reduced its revolving credit facility with Citicorp North America, Inc. from $50
million to $15 million.  The  facility  provides  funds for working  capital and
capital expenditure requirements and also provides for letters of credit for the
Company and its subsidiaries.  The agreement contains customary  restrictions on
the  ability  of the  Company  to  undertake  certain  activities,  such  as the
incurrance of additional  debt, the payment of dividends on or the repurchase of
the Company's common stock, the merger of the Company into another company,  the
sale of substantially all the Company's assets, and the acquisition of the stock
or  substantially  all  the  assets  of  another  company.  The  agreement  also
stipulates that the Company must maintain certain  financial  ratios,  including
specified ratios of earnings to fixed charges and debt to earnings.  The Company
utilized this credit facility  throughout  1998, never exceeding $8.9 million in
borrowings  at any given period in time.  At December 31, 1998,  there were $0.9
million  of  borrowings  under  this line of  credit;  in  addition,  the amount
available was reduced by $6.1 million due to outstanding letters of credit.

    The  Company   acquired  the  Alexandria,   VA  headquarters  of  Technology
Applications,  Inc.  ("TAI") on  November  12,  1993,  in  conjunction  with the
acquisition  of TAI. A mortgage of $3,344  bearing  interest at 8% per annum was
assumed. Payments are made monthly and the mortgage matures in April 2003.

    Deferred  debt  issuance  costs are  being  amortized  using  the  effective
interest  rate method over the term of the related  debt.  At December 31, 1998,
unamortized  deferred debt issuance costs were $4,924 and amortization for 1998,
1997 and 1996 was $721, $706, and $829, respectively. Amortization of debt issue
discount was $36 in 1998 and $26 in 1997.

    Cash paid for  interest was $13,454 for 1998,  $13,076 for 1997,  and $9,485
for 1996.

(6)   Accrued Expenses

    At December 31, 1998 and 1997, accrued expenses consisted of the following:

<TABLE>
<CAPTION>

                                                                                        1998           1997
                                                                                        ----           ----
<S>                                                                                <C>            <C>  
    Salaries and wages                                                              $ 49,566       $ 42,804
    Insurance                                                                         21,419         19,878
    Interest                                                                           1,993          3,103
    Payroll and miscellaneous taxes                                                   10,836         10,650
    Accrued contingent liabilities and operating reserves
      (see Note 21)                                                                   17,999         24,017
    Other                                                                              6,304          5,175
                                                                                   ---------       --------
                                                                                    $108,117       $105,627
                                                                                    ========       ========
</TABLE>

(7)   Redeemable Common Stock

    Common stock which is redeemable has been  reflected as Temporary  Equity at
the redeemable value at each balance sheet date and consists of the following:

<TABLE>
<CAPTION>

                                                    Balance at                                       Balance at
                                     Redeemable    December 31,                       Redeemable     December 31,
                           Shares      Value           1998               Shares         Value           1997    
                         ----------  ----------    ------------         ----------    ----------     ------------
<S>                      <C>            <C>          <C>                <C>              <C>           <C>    
ESOP Shares               3,382,340      $27.75       $  93,860          3,520,037        $24.00        $  84,481
                          3,700,083      $23.50          86,952          3,367,082        $20.00           67,342 
                          ---------                   ---------           --------                      ---------
                          7,082,422                   $ 180,812          6,887,119                      $ 151,823
                          =========                   =========          =========                      =========

Other Shares                125,714      $24.25       $   3,049            125,714        $24.00        $   3,017
                          =========                   =========          =========                      =========

</TABLE>

ESOP Shares

    In accordance  with ERISA  regulations and the Employee Stock Ownership Plan
(the "Plan")  documents,  the ESOP Trust or the Company is obligated to purchase
vested  common  stock  shares from ESOP  participants  (see Note 12) at the fair
value (as  determined  by an  independent  appraiser)  as long as the  Company's
common stock is not publicly traded.  The shares initially bought by the ESOP in
1988 were bought at a "control  price,"  reflecting the higher price that buyers
typically pay when they buy an entire  company (as the ESOP and other  investors
did in the 1988 LBO). A special  provision in the ESOP's 1988 agreement  permits
participants  to receive a "control  price" when they sell these  shares back to
the Company  under the ESOP's "put option"  provisions.  This  "control  price",
determined  by the  appraiser on February  24, 1999,  was $27.75 per share as of
December 31, 1998.  The additional  shares  received by the ESOP in 1994 through
1997 were at a "minority interest price", reflecting the lower price that buyers
typically pay when they are buying only a small piece of a company. Participants
do not have the right to sell these shares at the "control price".  The minority
interest price determined by the independent appraiser on February 24, 1999, was
$23.50 per share as of December  31,  1998.  Participants  receive  their vested
shares upon retirement, becoming disabled, or death over a period of one to five
years and for other  reasons of  termination  over a period of one to ten years,
all as set forth in the Plan  documents.  In the event the fair value of a share
is less than  $27.00,  the Company was  committed to pay,  through  December 31,
1996, up to an aggregate of $16 million, the difference  ("Premium") between the
fair value and $27.00 per share.  The Company  estimated a total Premium of $8.5
million and recorded the Premium as Other Expense in the Consolidated Statements
of Operations  in 1989 through 1994 (see Note 14). As of December 31, 1996,  the
Company had  expended  $6,976 of the  Premium.  In 1996,  the  Company  reversed
$1,250,  revising its estimated ESOP Premium. The remaining liability represents
the Company's  obligation to honor the Premium  commitment to ESOP  participants
who were grandfathered due to minor administrative  changes in the plan in 1995.
From October 1990 through May 1996,  the Company had  purchased  633,453  shares
from participants.  In June 1996, the ESOP Trust began purchasing  participants'
shares  at  fair  value,   utilizing  the  cash  available  from  the  Company's
contributions (see Note 12), while the Company continues to pay the premium,  if
any.  Based on the fair values of $27.75 and $23.50 per share as of December 31,
1998, the estimated  aggregate annual  commitment to repurchase  shares from the
ESOP  participants  upon death,  disability,  retirement  and  termination is as
follows:  $7,194 in 1999,  $9,414 in 2000,  $12,653  in 2001,  $15,258  in 2002,
$22,427 in 2003 and $142,107 thereafter.  Under the Subscription  Agreement with
the ESOP dated  September 9, 1988, the Company is permitted to defer put options
if, under Delaware law, the capital of the Company would be impaired as a result
of such repurchase.

Other Shares

    In  conjunction  with the  acquisition of TAI in November 1993, the 
Company issued put options on 125,714 shares of common stock. The holder  
could,  at any time  commencing  on December  31, 1998 and ending on December
31, 2000,  sell these shares to the Company at a price per share equal to the
greater of $17.50;  or, if the stock is publicly traded, the market value at
a specified date; or, if the Company's stock is not publicly traded, the ESOP
control price at the time of exercise.

    On January 12, 1999, the holder  exercised the put option on these 125,714
shares of common stock at the applicable price of $24.25 per share.


Management Investors Shares

    Common stock held by management  investors includes those shares acquired by
management  investors  pursuant to the merger in 1988, shares earned through the
Restricted  Stock Plan (see Note 10) and shares  issued  through the  Management
Employees  Stock Purchase Plan (the "Stock Purchase  Plan").  The Stock Purchase
Plan  allowed  employees in  management,  supervisory  or senior  administrative
positions to purchase  shares of the Company's  common stock along with warrants
at current fair value.  The Board of Directors was responsible for  establishing
the fair value for purposes of the Stockholders Agreement and the Stock Purchase
Plan. The Stock Purchase Plan was  discontinued in 1994.  Treasury stock,  which
the Company  acquired from  terminated  employees who had  previously  purchased
shares from the  Company,  was issued to  employees  purchasing  stock under the
Stock Purchase Plan. Under the DynCorp  Stockholders  Agreement adopted in March
1994 and which  expires  in March  1999,  the  Company  was  committed,  upon an
employee's  termination of employment,  to purchase  common stock shares held by
employees pursuant to the merger, through the Stock Purchase Plan or through the
Restricted Stock Plan. In May 1995, the Board of Directors,  with the consent of
the Class C Preferred  stockholder,  approved the  establishment  of an Internal
Market as a  replacement  for the  resale  procedures  included  in the  DynCorp
Stockholders  Agreement.  In May 1996, the  Securities  and Exchange  Commission
approved the  registration  of shares for trading on the Internal  Market,  thus
releasing  the Company from its  obligation  to  repurchase  any  management  or
restricted  stock  shares.   Therefore,  the  management  investor  shares  were
reclassified from Temporary Equity (at the redemption value) to Permanent Equity
(at par value) in 1996.

Following are the changes in  Redeemable  Common Stock for the three years ended
December 31, 1998:

<TABLE>
<CAPTION>

                                                                                     Redeemable Common Stock          
                                                                                     -----------------------   

                                                                                            Management
                                                                     Other          ESOP     Investors         Total
                                                                     -----          ----    ----------         -----  
<S>                                                                 <C>         <C>            <C>         <C>          
Balance, December 31, 1995                                           $2,275      $100,481       $33,138     $135,894
  Reclassification to permanent equity                                                          (33,138)     (33,138)
  Treasury stock purchased                                                           (290)                      (290)
  Shares purchased on Internal Market                                               1,887                      1,887
  Adjustment of shares to fair value                                    704        34,265                     34,969
                                                                     ------      --------   -----------     --------
Balance, December 31, 1996                                            2,979       136,343             -      139,322
  Shares purchased on Internal Market                                                 205                        205
  Shares purchased by ESOP not
     collateralized by notes                                                      13,371                      13,371
Adjustment of shares to fair value                                      38         1,904                       1,942
                                                                    ------      --------    -----------     --------
Balance, December 31, 1997                                           3,017       151,823              -      154,840
   Shares purchased by ESOP                                                        1,482                       1,482
   Shares released from collateral                                                 5,798                       5,798
   ESOP diversification (a)                                                       (4,074)                     (4,074)
   Adjustment of shares to fair market value                            32        25,783                      25,815
                                                                    ------      --------    -----------     --------
Balance, December 31, 1998                                          $3,049      $180,812    $         -     $183,861
                                                                    ======      ========   ===========      ========
<FN>
(a)  Under diversification rules, as defined by the Plan, ESOP participants have
     the option of  receiving  a  distribution  of up to 25% of their  aggregate
     accounts,   in  order  to  convert  Company  stock  into  another  type  of
     investment.  The option extends over a five-year period beginning after the
     participant  has reached age 55 and has ten years of  participation  in the
     ESOP. At the sixth year,  the  distribution  right  increases to 50% of the
     participant's account.
</FN>
</TABLE>

(8)   Preferred Stock, Class C

    Dividends on the Class C Preferred  Stock  accrued at an annual rate of 18%,
compounded quarterly.  At December 31, 1996, cumulative dividends of $11,147 had
not been recorded or paid. In February 1997, the ESOP purchased all of the Class
C Preferred Stock, which was immediately converted into Common Stock.

(9)   Common Stock

    At December 31, 1998,  Common Stock  includes those shares issued to outside
investors,  officers,  and current and former employees and any ESOP shares that
have been purchased by the Company and are being held as treasury stock.

(10)   Common Stock Warrants and Restricted Stock

    The  Company  initially  issued  warrants  on  September  9, 1988 to certain
stockholders  to purchase a maximum of  5,891,987  shares of common stock of the
Company. The warrants were recorded at their fair value of $2.43 per warrant and
warrants issued to a lender were recorded at $3.28 per warrant. Each warrant was
exercisable to obtain one share of common stock. The stockholder  could exercise
the warrant and pay in cash the exercise  price of $0.25 for one share of common
stock or sell back to the Company a sufficient number of the exercised shares to
equal the value of the warrants to be exercised.  During 1998,  347,367 warrants
were exercised or canceled.  There were no warrants  outstanding at December 31,
1998.

    The Company had a Restricted  Stock Plan (the "Plan") under which management
and key employees could be awarded shares of common stock based on the Company's
performance. The Company initially reserved 1,023,037 shares of common stock for
issuance under the Plan.  Under the Plan,  Restricted Stock Units ("Units") were
granted to participants who were selected by the  Compensation  Committee of the
Board of Directors.  Each Unit entitled the participant  upon achievement of the
performance  goals (all as defined) to receive one share of the Company's common
stock.  Units  could not be  converted  into  shares of common  stock  until the
participant's interest in the Units had vested. Vesting occurred upon completion
of the specified periods as set forth in the Plan.

(11)   Acquisitions

    On  February 2, 1998,  the Company  acquired a majority of the net assets of
FMAS Corporation  ("FMAS"),  a medical outcome  measurement and data abstraction
services company headquartered in Rockville, MD, for $10.2 million in cash. FMAS
is a leading provider of proprietary outcome performance  measurement systems to
DoD treatment  facilities as well as other public and  governmental  facilities.
The acquisition has been accounted for as a purchase,  and $7.1 million of value
assigned to a pending patent, $0.4 million of goodwill, and $ 0.4 million of 
value assigned to contracts  has been  recorded  based on  allocation  of the
purchase price. These amounts will be amortized over 17 years, 15 years, and the
life of the contracts, respectively.

(12)   Employee Stock Ownership Plan

    In September 1988, the Company  established an Employee Stock Ownership Plan
("ESOP"). The Company borrowed $100 million and loaned the proceeds, on the same
terms as the Company's  borrowings,  to the ESOP to purchase 4,123,711 shares of
common stock of the Company. The ESOP acquired 2,797,812 additional shares, from
1993 through 1996 either  through  contributions  of stock from the Company,  or
contributions of cash from the Company with which the ESOP then purchased shares
either  from the  Company,  on the  Internal  Market,  or  directly  from  other
stockholders.

    At the beginning of 1997, the ESOP had considerable cash on hand.  Utilizing
this cash and loans from the Company,  the ESOP  purchased  all of the Company's
Class C Preferred Stock. The ESOP  subsequently  converted the Class C Preferred
Stock and  exercised  the related  warrants,  at which time the  Company  issued
949,642  shares of common stock to the ESOP.  The purchase price for the Class C
Preferred  Stock was $18,566  ($19.55 per share,  after exercise of warrants) of
which half was paid in cash ($8,277 on hand and $1,006  loaned from the Company)
and notes were issued for the balance.  The notes, plus $89 of accrued interest,
were paid in full by April 2, 1997,  with the  proceeds of another loan from the
Company.  The unpaid  balance on these notes from the ESOP,  $707,  representing
34,829 shares,  is reflected as a reduction of stockholders'  equity at December
31, 1998.

    Utilizing the Company's 1997  contribution as well as subsequent  loans, the
ESOP made the required  principal  and interest  payments on the  aforementioned
notes, paid administrative  fees,  purchased 230,320 shares of stock either from
retired or  terminated  participants  or on the  Internal  Market and  purchased
150,434  shares of stock from retired  officers of the Company in a  transaction
that allowed the ESOP to acquire shares at a below market price. At December 31,
1998, the unpaid balance on these subsequent loans, $1,446, representing  64,480
shares, is also reflected as a reduction in stockholders' equity.

    The ESOP covers a majority of the employees of the Company.  Participants in
the ESOP  become  fully  vested  after four years of service.  Of the  8,251,919
shares  acquired by the ESOP,  8,152,610 have been either issued or allocated to
participants  as of  December  31,  1998.  The Company  recognizes  compensation
expense each year based on the cash  contribution  for the year. In 1998,  1997,
and 1996, cash  contributions  to the ESOP were $12,600,  $11,200,  and $13,670,
respectively.  These  amounts  were  charged to Cost of Services  and  Corporate
General and Administrative Expenses.

(13)   Savings Plan

    The Company has a Savings and  Retirement  Plan which is intended to qualify
under  section  401(k) of the Internal  Revenue Code.  The plan allows  eligible
employees to  contribute  from 1% to 15% of their income on a pretax  basis.  In
1996, the Company began matching 100% of the first 1% of employee  contributions
and  25% of  the  next  4% of  employee  contributions,  provided  the  employee
contribution  was invested in the Company's Stock Fund.  Matching  contributions
are invested in additional shares of the Company's common stock. The Company has
expensed  approximately  $1,624,  $1,224,  and $711 in  1998,  1997,  and  1996,
respectively, related to these matching contributions.

(14)   Other Expenses

<TABLE>
<CAPTION>

                                                                       Years Ended December 31,
                                                                   1998         1997         1996
                                                                   ----         ----         ----
<S>                                                             <C>          <C>          <C>      
    Amortization of costs in excess
      of net assets acquired (see Note 1)                        $1,575       $1,560       $1,528
    Provision for non-recovery of receivables                       900          629          120
    ESOP Repurchase Premium (see Note 7)                              -            -       (1,250)
    Write-off of investment in
      unconsolidated subsidiary (c)                                   -            -        1,286
    Legal and other expense accruals
      associated with business discontinued in 1995                   -          177            -
    Costs associated with businesses discontinued
      in 1988 and prior years
         o Asbestos liability issues (a)                           (670)       7,800            -
         o Subcontractor suit (b)                                 1,177            -          750
         o Environmental costs (see Note 21(b))                      23          180           75
    Termination costs (d)                                             -            -        3,299
    Miscellaneous                                                  (318)           3         (334)
                                                                  ------     -------       ------
         Total Other                                              $2,687     $10,349       $5,474
                                                                  ======     =======       ======
<FN>

(a)      In connection with the global settlement that transferred  ownership of
         the   Fuller-Austin   Insulation   Company   ("Fuller-Austin")   to   a
         post-Fuller-Austin  bankruptcy  settlement  trust (the "Trust") for the
         benefit of present and future asbestos  claimants (see Note 21(a)), the
         Company reserved an additional $7.8 million in 1997 for the transfer of
         certain  property and insurance rights to the Trust, and the payment to
         the  Trust  of  certain   cash   consideration.   In  1998,  a  portion
         representing excess over future needs was reversed.
(b)      Reserves for the estimated costs (primarily legal defense) to resolve a
         lawsuit  filed by a  subcontractor  of a former  subsidiary  (see  Note
         21(b)).
(c)      In 1994,  the Company  paid $3 million for a 25%  interest in Composite
         Technology, Inc. ("CTI"). The volume of CTI's business has declined and
         in 1996 the  Company  determined  the  goodwill  associated  with  this
         investment had been impaired, and, accordingly, the unamortized balance
         at December 31, 1996, was written off.
(d)      During 1996,  several  senior  executives  and a member of the Board of
         Directors announced their intentions to either retire or step down from
         their positions with the Company.  In conjunction with this action, the
         Company  accrued  $3.3  million,   representing  commitments  to  these
         individuals  for  supplemental   pension  benefits,   consulting  fees,
         payments  due under a covenant  not to  compete,  remuneration  for the
         waiver of certain preferred stock and Board of Directors voting rights,
         as well as accrued life insurance premiums payable.

</FN>
</TABLE>

(15)   Income Taxes

    As prescribed by SFAS No. 109,  "Accounting  for Income Taxes",  the Company
utilizes the asset and liability  method of accounting  for income taxes.  Under
this method,  deferred  income taxes are recognized for the tax  consequences of
temporary  differences  by applying  enacted  statutory tax rates  applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of  existing  assets and  liabilities.  Valuation  allowances  are
provided if required.
    Earnings (loss) from continuing  operations before income taxes and minority
interest were derived from the following:

<TABLE>
<CAPTION>

                                                             Years Ended December 31,

                                                         1998                1997                1996  
                                                         ----                ----                ----
<S>                                                 <C>                 <C>                 <C>  
         Domestic operations                         $ 26,909            $ 11,422            $ 19,102
         Foreign operations                              (214)               (279)                  5
                                                     --------            --------            --------
                                                     $ 26,695            $ 11,143            $ 19,107
                                                     ========            ========            ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                         1998                1997                1996
                                                         ----                ----                ----
<S>                                                  <C>               <C>                    <C>     
         Current:
           Federal                                    $ 7,616            $ (1,926)             $4,286
           Foreign                                         22                  43                 (81)
           State                                          458                   -                 210
                                                      -------            --------              ------
                                                        8,096              (1,883)              4,415
                                                      -------            --------              ------

         Deferred:
           Federal                                      2,933               6,653               3,939
           Foreign                                     (1,470)                  -               1,100
           State                                          298                 499                (436)
                                                     --------            --------              ------
                                                        1,761               7,152               4,603
                                                     --------            --------              ------

         Valuation Allowance:
           Federal                                          -              (2,488)             (4,067)
           State                                         (298)               (499)                942
                                                      --------            -------              ------
                                                         (298)             (2,987)             (3,125)
                                                      --------            -------              ------

                Total                                 $ 9,559             $ 2,282              $5,893
                                                      =======             =======              ======

</TABLE>


    The components of deferred taxes are as follows:


                                              Dec. 31,    Dec. 31,
                                                1998       1997
                                                ----       ----
Deferred tax liabilities:
  Employee benefits                          $ (2,223)   $ (2,220)
  Contracts revenue recognition               (13,280)    (15,385)
  Intangible amortization                        (249)       (549)
  Depreciation and other amortization            (493)       (199)
  Other, net                                     (132)       (234)
                                             ---------   ---------
    Total deferred tax liabilities            (16,377)    (18,587)
                                              --------    --------
Deferred tax assets:
  Deferred compensation                         1,251       1,733
  Operating reserves and other accruals        10,763      13,954
  Increase due to federal rate change             335         335
  Benefit of state tax on temporary
    differences and state net operating
    loss carryforwards                          4,736       5,034
                                               ------     -------
     Total deferred tax assets                 17,085      21,056
                                               ------      ------
 Total temporary differences
    before valuation allowances                   708       2,469
  Valuation allowances:
    State                                      (4,736)     (5,034)
                                               -------     -------
      Total temporary differences
      affecting tax provision                  (4,028)     (2,565)           
                                               -------     -------          
  "Safe harbor" leases                         (5,113)     (5,370)
                                               -------   ---------
Net deferred tax liability                    $(9,141)   $ (7,935)
                                              ========   =========

    No Federal valuation  allowance was required for the Company's  deferred tax
assets at December 31, 1998,  and 1997.  State  valuation  allowances  represent
reserves for income tax benefits,  which are not  recognized  due to uncertainty
regarding  future  earnings  in the  applicable  states.  The net  deferred  tax
liability  includes  current  deferred  tax  assets of $3,357  and  $6,125 as of
December 31, 1998 and 1997,  respectively,  which are included in Other  Current
Assets on the consolidated balance sheets.

    The Company's U.S. Federal income tax returns have been cleared with the IRS
through 1993.

    Cash paid for income taxes was $7,338 for 1998, $2,676 for 1997, and $20,680
for 1996 ($14.0 million of which related to the gain on the sale of the
Commercial Aviation business).

The tax  provision  differs from the amounts  obtained by applying the statutory
U.S.  Federal income tax rate to the earnings from  continuing  operations.  The
differences are reconciled as follows:



                                                  Years Ended December 31,
                                             1998           1997          1996  
                                            ----           ----          ----   
Expected Federal income tax provision      $9,343       $3,900      $  6,688
Valuation allowance                             -       (2,488)       (4,067)
State and local income taxes, net of
  Federal income tax benefit                  297            -           465
Nondeductible amortization of intangibles
  and other costs                             724          726         1,165
Foreign income tax                         (1,448)          43         1,016
Foreign and fuel tax credits                  (27)         (31)          (16)
Other, net                                    670          132           642
                                           ------       ------        ------
       Tax provision                       $9,559       $2,282        $5,893
                                           ======       ======        ======



    The Company has state net operating loss  carryforwards  available to offset
future  taxable  income.  Following  are the  net  operating  losses  by year of
expiration:



                              Year of                     State Net
                          Expiration                    Operating Losses
                                 1998                           $   484
                                 1999                               987
                                 2000                             1,328
                                 2001                               943
                                 2002                             2,099
                         Through 2012                            57,048
                                                                -------
                                                                $62,889
                                                                =======

(16)   Pension Plans

    Union  employees  who  are not  participants  in the  ESOP  are  covered  by
multiemployer  pension  plans  under  which  the  Company  pays  fixed  amounts,
generally  per hours  worked,  according to the  provisions of the various labor
contracts.  In 1998, 1997, and 1996, the Company expensed  $3,538,  $3,451,  and
$2,837,  respectively,  for these plans.  Under the Employee  Retirement  Income
Security Act of 1974 as amended by the Multiemployer Pension Plan Amendments Act
of 1980,  an  employer  is  liable  upon  withdrawal  from or  termination  of a
multiemployer  plan for its  proportionate  share of the plan's  unfunded vested
benefits liability.  Based on information  provided by the administrators of the
majority of these multiemployer plans, the Company does not believe there is any
significant amount of unfunded vested liability under these plans.

(17)   Earnings Per Common Share

    The Company has adopted  SFAS No. 128,  "Earnings  per Share",  which became
effective for financial  statements  for periods ended after  December 15, 1997.
The statement  establishes  new standards for computing and presenting  earnings
per share ("EPS") and requires restatement of prior periods.

    Basic EPS is computed by dividing  earnings,  after  deducting the effect of
unpaid  dividends on the Class C Preferred Stock, by the weighted average number
of common shares  outstanding and  contingently  issuable  shares.  The weighted
average number of common shares  outstanding  includes issued shares less shares
held in treasury and any unallocated  ESOP shares.  Shares earned and vested but
unissued under the Restricted Stock Plan are contingently  issuable shares whose
condition for issuance have been satisfied and as such have been included in the
calculation  of  basic  EPS.  Diluted  EPS  is  computed  similarly  except  the
denominator  is  increased  to  include  the  weighted  average  number of stock
warrants and options outstanding, assuming the treasury stock method.

The following is a reconciliation  of shares for basic EPS to shares for diluted
EPS as of December 31:

<TABLE>
<CAPTION>
                                                                                      1998            1997              1996
                                                                                      ----            ----              ----
<S>                                                  <C>             <C>               <C>      
Weighted average shares outstanding for basic EPS     10,242           8,985             8,462
   Effect of dilutive securities:
      Warrants                                           131           1,524             3,240
      Stock options                                      141             129                34
                                                      ------          ------            ------
Weighted average shares outstanding for diluted EPS   10,514          10,638            11,736
                                                                                    ======          ======            ======
</TABLE>

(18)   Incentive Compensation Plans

   The Company has several formal incentive  compensation plans that provide for
incentive payments to officers and key employees. Incentive payments under these
plans are based  upon  operational  performance,  individual  performance,  or a
combination thereof, as defined in the plans.  Incentive compensation expense of
$7,511 for 1998,  $6,510 for 1997,  and $6,367 for 1996 has been charged to Cost
of Services and Corporate General and Administrative Expenses.

(19)   Stock Option Plan

    The Company adopted an incentive stock option plan in 1995,  whereby options
could be granted to officers  and other key  employees  to purchase a maximum of
1,250,000  common  shares  at an option  price  not less than the most  recently
determined  fair market value as of the grant date.  The grants are  exercisable
only when vested and vest  proportionately over a period of seven or five years,
depending on the date of the grant. Options that are not exercised within ten or
seven  years  from the date of the  grant,  depending  on the date of the grant,
shall expire.  The fair value of each option grant is equal to the Formula Price
at the date of grant.

Stock option activity was as follows:

<TABLE>
<CAPTION>

                                                                1998                  1997              1996
----------------------------------------------- -------------------------------------------------------------
<S>                                                       <C>                     <C>                <C>  
Outstanding January 1                                        878,000               789,900            318,000
Granted                                                      389,500               145,000            488,000
Exercised                                                    (16,900)               (9,000)              (600)
Canceled or terminated                                       (12,000)              (47,900)           (15,500)
-------------------------------------------------------------------------------------------------------------
Outstanding December 31                                    1,238,600               878,000            789,900
Exercisable                                                  365,360               199,600             64,900
Average price
  Outstanding, beginning of
    Year                                                      $17.05                $16.55             $14.90
  Granted                                                      22.13                 19.48              17.57
  Exercised                                                    14.90                 14.90              14.90
  Canceled or terminated                                       16.17                 16.61              14.90
  Outstanding, end of year                                     18.69                 17.05              16.55
Weighted average grant date fair
 value of options                                                                                       14.87
-------------------------------------------------------------------------------------------------------------

The following table summarizes  information  about stock options  outstanding at
December 31, 1998:


</TABLE>
<TABLE>
<CAPTION>

                                                                                            Weighted-Average
Range of                                        Number         Weighted-Average                    Remaining
Prices                                     Outstanding           Exercise Price             Contractual Life
-------------------------------------------------------------------------------------------------------------
<S><C>      <C>                               <C>                       <C>    
    $14.50 - 19.00                             781,100                   $16.86                         4.16
     20.00 - 23.25                             457,500                    21.81                         6.32
-------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>


The following table summarizes  information  about stock options  exercisable at
December 31, 1998:
<TABLE>
<CAPTION>


Range of                                                          Number                    Weighted-Average
Prices                                                       Exercisable                      Exercise Price
-------------------------------------------------------------------------------------------------------------
<S><C>      <C>                                                 <C>                                  <C> 
    $14.50 - 19.00                                               350,560                              $16.47
     20.00 - 23.25                                                14,800                               20.00
-------------------------------------------------------------------------------------------------------------

</TABLE>

Pursuant to SFAB No. 123, "Accounting for Stock-Based Compensation", the Company
has elected to account for its employee  stock option plan under APB Opinion No.
25 "Accounting for Stock Issued to Employees." Accordingly, no compensation cost
has been  recognized  for this  plan.  Had  compensation  cost for the plan been
determined  based on the fair value at the grant date  consistent  with SFAB No.
123,  common  stockholders'  share of net  earnings and earnings per share would
have been as follows:

<TABLE>
<CAPTION>

Years Ended December 31                                         1998                  1997              1996
-------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                    <C>              <C>   
Common stockholders' share of
     net earnings
     As reported                                             $15,055                $7,422           $12,345
     Pro forma                                                14,900                 7,145            12,091
Basic earnings per share
     As reported                                                1.47                  0.83              1.46
     Pro forma                                                  1.45                  0.80              1.43
Diluted earnings per share
     As reported                                                1.43                  0.70              1.05
     Pro forma                                                  1.42                  0.67              1.03

</TABLE>

The  minimum  value  is  estimated  on the date of grant  assuming  a five  year
expected life of the options,  a volatility  factor of zero, a dividend yield of
zero, and a risk-free interest rate of 4.6%, 5.7%, and 6.2%, for 1998, 1997, and
1996, respectively.

(20)   Leases

    Future minimum lease  payments  required  under  operating  leases that have
remaining  noncancellable lease terms in excess of one year at December 31, 1998
are summarized below:

<TABLE>
<CAPTION>

                   Years Ending December 31,
                   -------------------------
<S><C>                                            <C>
    1999                                           $ 13,400
    2000                                              7,871
    2001                                              6,689
    2002                                              6,523
    2003                                              6,496
    Thereafter                                       42,038
                                                   --------
    Total minimum lease payments                   $ 83,017
                                                   ========

</TABLE>

    Net rent expense for leases of $31,138 for 1998, $21,577 for 1997, and 
$21,797 for 1996 has been charged to Cost of Services and Corporate General and
Administrative Expense.

(21)   Contingencies and Litigation

    The Company and its  subsidiaries  and  affiliates  are  involved in various
claims and lawsuits, including contract disputes and claims based on allegations
of negligence and other tortuous conduct. The Company is also potentially liable
for certain personal  injury,  tax,  environmental,  and contract dispute issues
related to the prior  operations of divested  businesses.  In addition,  certain
subsidiary companies are potentially liable for environmental,  personal injury,
and contract and dispute claims. In most cases, the Company and its subsidiaries
have denied,  or believe they have a basis to deny liability,  and in some cases
have  offsetting  claims  against the  plaintiffs,  third  parties or  insurance
carriers.  The total amount of damages  currently  claimed by the  plaintiffs in
these  cases  is  estimated  to  be  approximately   $78.1  million   (including
compensatory  punitive  damages and  penalties).  The Company  believes that the
amount that will actually be recovered in these cases will be substantially less
than the amount  claimed.  After taking into account  available  insurance,  the
Company  believes  it is  adequately  reserved  with  respect  to the  potential
liability for such claims.  The estimates set forth above do not reflect  claims
that may have  been  incurred  but have not yet  been  filed.  The  Company  has
recorded  such  damages  and  penalties  that  are  considered  to  be  probable
recoveries against the Company or its subsidiaries.

 (a)   Asbestos Claims

     An acquired and inactive subsidiary,  Fuller-Austin, which discontinued its
business  activities in 1986, has been named as one of many  defendants in civil
lawsuits  which have been  filed in certain  state  courts  (principally  Texas)
beginning in 1986 against manufacturers, distributors and installers of products
allegedly  containing  asbestos.   Fuller-Austin  was  a  non-manufacturer  that
installed  and  occasionally   distributed   industrial   insulation   products.
Fuller-Austin had discontinued the use of asbestos-containing  products prior to
being  acquired  by the  Company in 1974.  These  claims are not part of a class
action.

    At December 31, 1997,  Fuller-Austin had recorded an estimated liability for
future  indemnity  payments and defense  costs  related to  currently  unsettled
claims and minimum  estimated  future  claims of $50.2  million  (recorded  on a
consolidated  basis by the Company in Other  Liabilities and Deferred  Credits).
Fuller-Austin  recorded in Other Assets $50.2 million,  representing  the amount
that it  expected  to recover  from its  insurance  carriers  for the payment of
currently unsettled and estimated and future claims.

     Effective   September   4,   1998,    Fuller-Austin    Insulation   Company
("Fuller-Austin"),  a former subsidiary of the Registrant (the "Company"), filed
a Plan of  Reorganization  (the "Plan")  under  Chapter 11 of the United  States
Bankruptcy  Code (the  "Code") in the  United  States  Bankruptcy  Court for the
District of Delaware. Fuller-Austin,  which had been acquired by a subsidiary of
the Company in 1974, discontinued its business activities in 1986. Thereafter it
was named as one of many defendants in civil lawsuits that were filed in certain
state  courts  (principally  Texas)  against  manufacturers,  distributors,  and
installers of products  containing  asbestos.  The claimants  generally  alleged
injuries caused by inhalation of asbestos fibers.

    The filing of the Plan  followed a year of  negotiations  among a  committee
representing asbestos claimants (the "Committee"), a legal representative of the
unknown future claimants (the "Legal  Representative"),  Fuller-Austin,  and the
Company. As a consequence of these negotiations,  the Plan was developed as part
of a  pre-packaged  filing by  Fuller-Austin  under Section  524(g) of the Code.
Section 524(g) is designed to deal  specifically  with the resolution  under the
Code of obligations of debtors that have asbestos liability.

    In   furtherance   of  the  Plan  and  the   proposed   global   settlement,
representatives of Fuller-Austin, the Company as Fuller-Austin's parent and sole
stockholder,  the Committee,  and the Legal Representative  previously reached a
separate  agreement  in  principle  (the  "Release  Agreement"),  contingent  on
approval of the Plan by the Bankruptcy  Court,  under which the Company would be
released  from  any and all  present  and  future  liability  for  Fuller-Austin
asbestos liability, in consideration of the transfer of certain Company property
(including all the outstanding  stock of  Fuller-Austin)  and certain  insurance
rights to the  Fuller-Austin  settlement  trust, and the payment to the trust of
certain  cash  consideration.  The total  amount  reserved  for this  purpose at
December 31, 1997 was $14.0 million, in anticipation of the settlement under the
Release Agreement.

    Effective  December 10, 1998,  pursuant to the terms of a Confirmation Order
entered  jointly  on  November  13,  1998  by the  United  States  District  and
Bankruptcy  Courts  in  Wilmington,  Delaware,  and  the  terms  of the  Release
Agreement,  the  Company  transferred  and  conveyed  all  of its  interests  in
Fuller-Austin  (including all of  Fuller-Austin's  liabilities)  to a trust (the
"Trust") established by the Confirmation Order in accordance with Section 524(g)
of the Code.  The Trust is part of the Plan approved in the  Confirmation  Order
for the  resolution  of present and future  asbestos  personal  injury and other
claims against  Fuller-Austin.  As part of the  Confirmation  Order,  the Courts
issued an injunction channeling all future asbestos claims against Fuller-Austin
or the Company to the Trust.  The Trust has also  undertaken  to  indemnify  the
Company  against  any and all future  asbestos  and other  liability  related to
Fuller-Austin or the past ownership of Fuller-Austin by the Company.

    Effective  December 11, 1998,  this  liability and this asset were reversed,
based on the  de-consolidation  of Fuller-Austin in accordance with the Plan and
Confirmation  Order.  The  decreases in the balance  sheet  resulting  from this
de-consolidation of Fuller-Austin is as follows:

<TABLE>
<CAPTION>

<S>                                                                   <C>
Cash and cash equivalents                                              $ 8,476
Property and equipment                                                 $ 1,248
Other assets                                                           $44,462
Accrued liabilities                                                    $ 8,464
Other liabilities and deferred credits                                 $45,722

</TABLE>

    Under the terms of the Release  Agreement,  the Trust will  continue to have
access on an exclusive basis to certain Company insurance aggregating as much as
$251,500  and  issued  during  the  periods  1974  through  1986,   under  which
Fuller-Austin is an additional insured.

 (b)   General Litigation

    The Company has  retained  certain  liability  in  connection  with its 1989
divestiture of its major electrical  contracting  business,  Dynalectric Company
("Dynalectric").  The Company and Dynalectric were sued in 1988 in Bergen County
Superior   Court,   New  Jersey,   by  a  former   Dynalectric   joint   venture
partner/subcontractor  (subcontractor).  The  subcontractor has alleged that its
subcontract to furnish certain  software and services in connection with a major
municipal traffic signalization project was improperly terminated by Dynalectric
and that Dynalectric  fraudulently diverted funds due, misappropriated its trade
secrets and proprietary information,  fraudulently induced it to enter the joint
venture,  and conspired with other defendants to commit acts in violation of the
New Jersey Racketeering  Influenced and Corrupt  Organization Act. The aggregate
dollar   amount  of  these  claims  has  not  been   formally   recited  in  the
subcontractor's  complaint.  Dynalectric  has also filed  certain  counterclaims
against the former subcontractor.  The Company and Dynalectric believe that they
have valid  defenses,  and/or that any  liability  would be offset by recoveries
under the  counterclaims.  The Company and  Dynalectric  were found by a Special
Master to have committed  certain  discovery  abuses,  but no monetary amount of
sanctions has yet been assessed.  The Company and Dynalectric  expect to file an
appeal with  respect to this  finding.  In late 1997,  the state  court  granted
Dynalectric's  Motion to Compel  Arbitration  that  originally had been filed in
1988. The arbitration proceeding commenced in July 1998 and concluded October 1,
1998. The ruling of the arbitrator is expected during the 1st half of, 1999. The
Company believes that it has established  adequate reserves for the contemplated
defense  costs  and  for  the  cost  of  obtaining  enforcement  of  arbitration
provisions contained in the contract.

    In November,  1994, the Company acquired an information  technology business
which was  involved  in  various  disputes  with  federal  and  state  agencies,
including two contract  default  actions and a qui tam suit by a former employee
alleging improper billing of a federal  government agency customer.  The Company
has contractual rights to indemnification  from the former owner of the acquired
subsidiary  with  respect to the defense of all such claims and  litigation,  as
well as all  liability for damages when and if proven.  In October 1995,  one of
the  federal  agencies  asserted a claim  against  the  subsidiary  and gave the
Company notice that it intended to withhold  payments against the contract under
which the claim  arose.  To date,  the agency has  withheld  approximately  $3.0
million  due  the  Company  under  one  of  the  aforementioned  disputes.  This
subsidiary has submitted a demand for indemnification to the former owner of the
subsidiary,   which  has  been  denied.  The  subsidiary  recently  received  an
arbitration award confirming that it is entitled to indemnification.

    As  to  environmental   issues,   neither  the  Company,   nor  any  of  its
subsidiaries,  is named a  Potentially  Responsible  Party  (as  defined  in the
Comprehensive  Environmental Response,  Compensation and Liability Act (CERCLA))
at any  site.  The  Company,  however,  did  undertake,  as  part  of  the  1988
divestiture of a petrochemical  engineering subsidiary, an obligation to install
and  operate  a soil and  water  remediation  system  at a  subsidiary  research
facility  site in New Jersey and also is required to pay the costs of  continued
operation of the remediation system. In addition,  the Company,  pursuant to the
1995 sale of its Commercial  Aviation Business,  is responsible for the costs of
clean-up of environmental conditions at certain designated sites. Such costs may
include the removal and subsequent  replacement of contaminated soil,  concrete,
and underground  storage tanks, that existed prior to the sale of the Commercial
Aviation Business.

    The Company is a party to other  civil and  contractual  lawsuits  that have
arisen in the normal course of business for which potential liability, including
costs of defense,  constitutes  the  remainder  of the $78.1  million  discussed
above. The estimated probable liability for these issues is approximately  $10.0
million and is substantially covered by insurance. All of the insured claims are
within policy  limits and have been  tendered to and accepted by the  applicable
carriers.  The  Company has  recorded an  offsetting  asset  (Other  Assets) and
liability (Other  Liabilities and Deferred Credits) of $10.0 million at December
31, 1998 for these items.

    The Company has recorded its best estimate of the aggregate  liability  that
will  result  from these  matters.  While it is not  possible  to  predict  with
certainty the outcome of litigation and other matters discussed above, it is the
opinion of the  Company's  management,  based in part upon  opinions of counsel,
insurance in force, and the facts currently known, that liabilities in excess of
those  recorded,  if any,  arising from such  matters  would not have a material
adverse effect on the results of operations,  consolidated financial position or
liquidity of the Company over the  long-term.  However,  it is possible that the
timing of the  resolution  of  individual  issues could result in a  significant
impact  on the  operating  results  and/or  liquidity  for  one or  more  future
reporting periods.

    The major  portion  of the  Company's  business  involves  contracting  with
departments and agencies of, and prime contractors to, the U.S. Government,  and
such contracts are subject to possible  termination  for the  convenience of the
government  and to audit and possible  adjustment to give effect to  unallowable
costs under cost-type  contracts or to other regulatory  requirements  affecting
both cost-type and fixed-price  contracts.  Payments received by the Company for
allowable  direct and indirect  costs are subject to  adjustment  and  repayment
after audit by  government  auditors if the  payments  exceed  allowable  costs.
Audits have been completed on the Company's incurred contract costs through 1995
with the exception of two contracts.  Reports on several  completed  audits have
not been issued pending  resolution of minor items.  The Company has included an
allowance for excess  billings and contract  losses in its financial  statements
that  it  believes  is  adequate  based  on its  interpretation  of  contracting
regulations and past experience.  There can be no assurance,  however, that this
allowance will be adequate.  The Company is aware of various costs questioned by
the government,  but cannot  determine the outcome of the audit findings at this
time. In addition,  the Company is occasionally the subject of investigations by
various   investigative   organizations,   resulting  from  employee  and  other
allegations regarding business practices.  In management's opinion, there are no
outstanding issues of this nature at December 31, 1998 that will have a material
adverse  effect on the Company's  consolidated  financial  position,  results of
operations or liquidity.

(22)   Business Segments

    The Company  has three  reportable  segments,  Information  and  Engineering
Technology  (I&ET),  Aerospace  Technology (AT) and Enterprise  Management (EM).
These three  reportable  segments  are  strategic  business  units that  provide
distinctly different services to a variety of customers. I&ET designs, develops,
supports  and  integrates   software  and  systems  to  provide  customers  with
comprehensive  solutions for information  management and  engineering  needs. AT
provides  services ranging from aviation  maintenance to multifaceted  aerospace
sciences,  technology  and  avionics  engineering.  EM  offers  a full  range of
technical  services  from  facilities   management  to  security  systems,  ship
operations,  the  development  of work  management and  maintenance  systems and
engineering and logistics services.

    The Company evaluates  performance based primarily on operating profit,  but
also  evaluates  return on net assets  and days'  sales  outstanding.  Operating
profit  is  the  excess  of  revenues  over   operating   expenses  and  certain
nonoperating expenses.

    The  Company  derived  95% of its  revenues in 1998 and 97% in 1997 and 1996
from  contracts  and  subcontracts  with the U.S.  Government.  Prime  contracts
comprised  72% of  revenue in 1998 and 1997 and 79% of revenue in 1996. Prime
contracts with the Department of Defense ("DoD")  represented 40%, 45%, and 50%
of revenue in 1998, 1997, and 1996, respectively. In 1998, the Company's second
largest customer was the Department of Energy, comprising 17% of revenue. No 
other customer accounted for more than 10% of revenues in any year.

    Revenue,  operating profit,  identifiable assets, capital expenditures,  and
depreciation and amortization by segment are presented below:

<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                     1998             1997            1996  
                                                                     ----             ----            ----   
<S>                                                          <C>              <C>                <C>  
    Revenue
       I&ET                                                    $  332,550       $  276,384      $  265,219
       AT                                                         490,240          448,963         383,252
       EM                                                         410,917          420,590         372,982
                                                               ----------       ----------      ----------
                                                               $1,233,707       $1,145,937      $1,021,453
                                                               ==========       ==========      ==========
    Operating Profit
       I&ET                                                    $   15,729       $   11,496      $   19,994
       AT                                                          19,106           16,804          13,451
       EM                                                          22,828           20,289          17,728
                                                               ----------       ----------      ----------
                                                                   57,663           48,589          51,173
                                                               ----------       ----------      ----------
       Corporate general and administrative                        18,630           17,785          18,241
       Interest expense                                            14,144           12,432          10,220
      Interest income                                              (1,600)          (2,018)         (1,752)
       Goodwill amortization (a)                                    1,575            1,560           2,814
       Costs associated with divested businesses                      530            8,157             825
       Minority interest included in operating profit              (2,081)          (1,439)         (1,265)
       Termination costs (Note 14)                                      -                -           3,299
       Acquisition costs                                            1,336            2,203           1,241
       ESOP put premium                                                 -                -          (1,250)
       Other miscellaneous                                         (1,566)          (1,234)           (307)
                                                               -----------      -----------     ----------
       Earnings from continuing operations
          before income taxes and  minority interest           $   26,695       $   11,143      $   19,107
                                                               ==========       ==========      ==========
<FN>
(a) 1996 includes write off of the unamortized goodwill balance of an investment
that was impaired.
</FN>
</TABLE>

<TABLE>
<CAPTION>
                                                                         As of December 31,
                                                                     1998             1997            1996   
                                                                     ----             ----            ----
<S>                                                           <C>               <C>              <C>  
    Identifiable Assets
       I&ET                                                    $  145,371       $  118,016       $ 105,363
       AT                                                          95,810           75,239          76,681
       EM                                                          93,427           70,026          64,637
       Other (a)                                                        -           51,575          55,093
       Corporate                                                   44,630           75,266          66,978
                                                               ----------       ----------        --------
                                                               $  379,238       $  390,122        $368,752
                                                               ==========       ==========        ========
<FN>
         (a)  1997  and  1996  include  assets  related  to  probable  insurance
         indemnification  recoveries pertaining to a former subsidiary (see Note
         21(a)).
</FN>


</TABLE>
<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                     1998             1997            1996   
                                                                     ----             ----            ----
<S>                                                             <C>              <C>             <C> 
    Capital Expenditures
       I&ET                                                      $  1,443         $  1,976        $  3,606
       AT                                                             889              885             823
       EM                                                             862              740             384
       Corporate                                                    1,603            1,509             497
                                                                 --------         --------        --------
                                                                 $  4,797         $  5,110        $  5,310
                                                                 ========         ========        ========

    Depreciation and Amortization
       I&ET                                                      $  3,756         $  5,651       $   3,775
       AT                                                           1,199            1,349           2,337
       EM                                                           1,981            1,432           1,525
       Corporate                                                    1,889            1,456           1,830
                                                                 --------         --------         -------
                                                                 $  8,825         $  9,888         $ 9,467
                                                                 ========         ========         =======
</TABLE>

The  equity in net  income  of  investees  accounted  for by the  equity  method
included  in  operating  profit and the amount of  investment  in equity  method
investees included in identifiable assets for each segment is presented below:

<TABLE>
<CAPTION>

                                                                         As of December 31,
                                                                     1998             1997            1996   
                                                                     ----             ----            ----
<S>                                                            <C>             <C>             <C>  
    Equity Investees Earnings
       AT                                                        $    208       $      92       $       17
       EM                                                           1,355           1,038              659
                                                                 --------       ---------       ----------
                                                                 $  1,563       $   1,130       $      676
                                                                 ========       =========       ==========

                                                                           At December 31,
                                                                     1998             1997            1996   
                                                                   ---------        ---------       ---------
    Investment in Equity Investees
       AT                                                       $  1,696        $   1,568       $   1,566
       EM                                                          2,440            2,266             230
                                                                ---------        --------       ----------
                                                                $  4,136         $  3,834       $   1,796
                                                                ========         ========       =========

</TABLE>

(23)   Quarterly Financial Data (Unaudited)

      A summary of quarterly financial data for 1998 and 1997 is as follows:

<TABLE>
<CAPTION>

                                                         1998 Quarters                                       1997 Quarters        
                                     --------------------------------------------------------------------------------------------

                                    First     Second      Third    Fourth(a)      First     Second      Third(b) Fourth(c)
<S>                              <C>        <C>        <C>        <C>          <C>        <C>        <C>        <C>     
Revenues                          $297,873   $303,602   $316,358   $315,874     $271,137   $288,695   $283,832   $302,273
Gross profit                        13,937     15,675     16,297     14,647       11,343     12,321     13,981     12,045
Earnings (loss) from continuing
 operations before income taxes, 
 minority interest and
 extraordinary item                  4,859     5,853      7,196      8,787         4,005      3,680      6,097     (2,639)
Minority interest                      420       528        485        648           408        203        387        441
Net earnings (loss)                  2,663     3,195      4,026      5,171         2,311      2,035      4,087     (1,011)
Earnings (loss) per common share:
  Basic earnings (loss) per share   $ 0.27    $ 0.31     $ 0.39     $ 0.50       $  0.27    $  0.23    $  0.46    $ (0.11)
  Diluted earnings (loss) per share $ 0.25    $ 0.30     $ 0.38     $ 0.50       $  0.21    $  0.20    $  0.39    $ (0.11)

<FN>

(a)      1998 Fourth Quarter includes:
-        $2,500 reversal of reserve for contract compliance issues

(b) 1997 Third Quarter includes:
   - $2,488 reversal of income tax valuation allowance (see Note 15)

(c) 1997 Fourth Quarter includes:
   - $7,800 of costs related to asbestos litigation (see Notes 14 and 21(a))
   - $2,055 reversal of accrued interest related to IRS examinations and 
     potential disallowance of deductions
<FN>
</TABLE>

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

     None


                                                               PART III

Item 10.  Directors and Executive Officers of the Registrant

The directors and executive officers of the Company are:

Name                    Age   Position
Dan R. Bannister        68  Director and Chairman of the Board
T. Eugene Blanchard     68  Director
Russell E. Dougherty    78  Director
Paul G. Kaminski        56  Director
Paul V. Lombardi        57  Director, President and Chief Executive Officer*
Dudley C. Mecum II      64  Director
David L. Reichardt      56  Director, Senior Vice President and General Counsel*
Herbert S. Winokur, Jr. 55  Director and Chairman of the Executive Committee
Robert B. Alleger, Jr.  53  Vice President, Technical Services*
John J. Fitzgerald      45  Vice President and Controller*
Patrick C. FitzPatrick  59  Senior Vice President and Chief Financial Officer*
Paul T. Graham          32  Vice President and Treasurer
H. Montgomery Hougen    63  Vice President and Secretary and Deputy General
                            Counsel
Roxane P. Kerr          50  Senior Vice President, Human Resources and 
                            Administration *
Marshall S. Mandell     56  Senior Vice President, Business Development *
Carl H. McNair, Jr.     65  Vice President, Enterprise Management *
Ruth Morrel             44  Vice President, Law and Compliance
Henry H. Philcox        57  Vice President and Chief Information Officer
Robert G. Wilson        57  Vice President and General Auditor

* Officers designated by an asterisk are deemed to be "officers" for purposes of
  Rule  16a-1(f), as promulgated in Release No. 34-28869.

                                    DIRECTORS

Dan R. Bannister                                            Director since 1985

     Mr. Bannister,  age 68, is Chairman of the Board. He served as President of
the Company from 1984 until 1997 and as Chief Executive  Officer from 1985 until
1997. In 1997, he was elected Chairman of the Board; he is an active employee of
the  Company.  He is a  director  of ITC  Training  Corporation.  His  term as a
director expires in 2001.

T. Eugene Blanchard                                         Director since 1988

     Mr. Blanchard,  age 68, served as Senior Vice President and Chief Financial
Officer from 1979 to 1997, when he retired as an employee of the Company.  He is
the Chairman of the Company's  Employee Stock Ownership Plan Committee.  He is a
director  of Landmark  Systems  Corporation.  His term as a director  expires in
2000.

Russell E. Dougherty                                        Director since 1989

     General  Dougherty,  age 78, is a retired  attorney,  formerly with the law
firm of McGuire,  Woods, Battle & Boothe. He is a retired General, United States
Air Force, who served as Commander-in-Chief,  Strategic Air Command and Chief of
Staff,  Allied  Command,  Europe.  From 1980 to 1986,  he  served  as  Executive
Director of the Air Force  Association and Publisher of Air Force  Magazine.  He
was formerly a member of the Defense Science Board; trustee of the Institute for
Defense  Analysis;  and trustee of The  Aerospace  Corp.  His term as a director
expires in 1999.

Paul G.  Kaminski                                           Director since 1997

     Mr.  Kaminski,  age 56, also served as a director of the Company  from 1988
until 1994. He is President and Chief Executive  Officer of  Technovation,  Inc.
(consulting and investment  banking).  He served in the United States Department
of Defense as Under  Secretary of Defense for  Acquisition  and Technology  from
1994 to  1997.  He was  Chairman  and  Chief  Executive  Officer  of  Technology
Strategies & Alliances (strategic partnership  consulting) from 1993 to 1994. He
is a director of General Dynamics Corporation. His term as a director expires in
2001. Paul V. Lombardi  Director since 1994 Mr. Lombardi,  age 57, has served as
President and Chief  Executive  Officer since 1997. He served as Chief Operating
Officer from 1995 to 1997;  as Executive  Vice  President  from 1994 to 1997; as
Vice President 1992 to 1994; as President of Federal Sector 1994 to 1995; and as
President  of  Government  Services  Group  1992 to  1994.  He was  Senior  Vice
President and Group General Manager,  Planning Research Corporation from 1990 to
1992.  He is a director of Avid  Medical  Systems,  Inc.  His term as a director
expires in 2000.

Dudley C. Mecum II                                          Director since 1988

     Mr.  Mecum,  age 64, is a Managing  Director of  Capricorn  Holdings LLC (a
private  investment  company).  He was a  partner,  G.  L.  Ohrstrom  & Co.(an
investment  firm)  from  1989 to 1997.  He served as Group  Vice  President  and
Director, Combustion Engineering, Inc. from 1985 to 1988, and previously as Vice
Chairman,  Peat,  Marwick & Mitchell.  He is a director of Citigroup,  Travelers
Property and Casualty Inc.,  Lyondell,  Inc.,  Vicorp  Restaurants  Inc., Metris
Companies  Inc., CCC  Information  Services  Group,  Inc., and Suburban  Propane
Partners LLP. His term as a director expires in 2000.

David L.  Reichardt                                        Director  since 1988

     Mr.  Reichardt,  age 56, has served as Senior  Vice  President  and General
Counsel  of the  Company  since  1986.  He served as  President  of  Dynalectric
Company,  a former  subsidiary  of the  Company,  from  1984 to 1986 and as Vice
President  and  General  Counsel  of  DynCorp  from 1977 to 1984.  His term as a
director expires in 2001.

Herbert S. Winokur, Jr.                                     Director since 1988

     Mr. Winokur,  age 55, served as Chairman of the Board from 1988 to 1997. He
is Chairman and Chief Executive Officer of Capricorn  Holdings,  Inc. (a private
investment  company).  He was  formerly  Senior  Executive  Vice  President  and
Director, Penn Central Corporation.  He is a director of ENRON Corporation;  NAC
Re  Corporation;  Mrs.  Fields  Holdings,  Inc.;  The WMF  Group  Ltd.;  and CCC
Information Services Group, Inc. His term as a director expires in 2001.

                         OTHER EXECUTIVE OFFICERS

In addition to those executive  officers named above, who are included among the
directors, the Company's executive officers include:

Robert B. Alleger, Jr., age 53, Vice President,  Technical Services,  has served
in that capacity since 1996. He served as President of the Aerospace  Technology
strategic business unit from 1996 through 1998 and as President of the Technical
Services  sector since January 1, 1999. He was Vice  President,  Systems Support
Services,  Lockheed Martin Services,  Inc. from 1992 to 1996 and Vice President,
Business Development, GE Government Services, General Electric Company from 1989
to 1992.

John J.  Fitzgerald,  age 45, Vice President and Controller,  has served in that
capacity since 1997. He was Vice President and  Controller,  PRC, Inc. from 1992
to 1997; Chief Financial  Officer and Treasurer of American Safety Razor Company
from 1990 to 1992;  Vice  President and  Controller of American Bank  Stationery
Company  from  1988 to 1990;  and  Chief  Financial  Officer  and  Treasurer  of
Physician's Pharmaceutical Services, Inc. from 1986 to 1988.

Patrick C.  FitzPatrick,  age 59,  Senior  Vice  President  and Chief  Financial
Officer,  has served in that capacity since 1997.  He also served as 
Treasurer  from March to November,  1997.  He was Chief Financial  Officer,
American Mobile  Satellite  Corporation  from 1996 to 1997; Senior Vice 
President and Chief Financial Officer of PRC Inc. from 1992 to 1996; and  
President  and Chief  Operating  Officer of Oxford Real  Estate  Management
Services from 1990 to 1992.

Paul T.  Graham,  age 32,  Vice  President  and  Treasurer,  has  served in that
capacity  since 1997.  He was Finance  Manager of the Company from 1992 to 1994,
Assistant  Treasurer  from 1994 to 1997,  and  Director of Finance  from 1995 to
1997.

H.  Montgomery  Hougen,  age 63, Vice President and Secretary and Deputy General
Counsel,  has served as a Vice President  since 1994 and as Corporate  Secretary
and Deputy General Counsel since 1984.


Roxane  P.  Kerr,   age  50,  Senior  Vice   President,   Human   Resources  and
Administration, has served in that capacity since March, 1998. She was Director,
Human Resources, North America,  LucasVerity Plc from 1993 to 1998 and a private
human resources consultant from 1992 to 1993.

Marshall S. Mandell, age 56, Senior Vice President,  Business  Development,  has
served in that  capacity  since  November  1998.  He  served as Vice  President,
Business Development from 1994 until 1998. He also served as Acting President of
the Information and Engineering  Technology strategic business unit from 1997 to
1998. He served as Vice President, Business Development,  Applied Sciences Group
from 1992 to 1994. He was Senior Vice President,  Eastern  Computers,  Inc. from
1991 to 1992 and President, Systems Engineering Group, Ogden/Evaluation Research
Corporation from 1984 to 1991.

Carl H. McNair, Jr., age 65, Vice  President has served in that  capacity  since
1994 and served as President of the  Enterprise  Management  strategic  business
unit from 1994 until January 1, 1999. He served as President,  Support  Services
Division from 1990 to 1994. He is a director of Air Methods Corporation.

Ruth Morrel,  age 44, Vice  President,  Law and  Compliance,  has served in that
capacity since 1994. She served as Group General Counsel from 1984 to 1994.

Henry H. Philcox,  age 57, Vice  President and Chief  Information  Officer,  has
served in that  capacity  since 1995.  He was Chief  Information  Officer of the
Internal Revenue Service from 1990 to 1995.

Robert G. Wilson, age 57, Vice President and General Auditor, has served in that
capacity since 1985.

                           STOCKHOLDERS AGREEMENT

         Under the terms of the New  Stockholders  Agreement (the  "Stockholders
Agreement"), which was adopted by substantially all management  stockholders and
expires on March 10, 1999, the management stockholders and outside investors who
control approximately 32% of the voting stock on a fully diluted basis agreed to
the  following  procedure  for election of directors.  Capricorn  Investors,  LP
("Capricorn"),  an entity under the control of Mr. Winokur,  on behalf of itself
and the other  outside  investors,  was  entitled to nominate  four of the total
number of directors; Company management was entitled to nominate four directors;
and the two groups would agree on a ninth director,  for whom all of the parties
have agreed to vote. All of the current  directors and the nominees listed above
were initially selected by this process.  Effective January 23, 1997,  Capricorn
waived  its  right to  nominate  directors,  but not its  obligation  to vote in
accordance with the Shareholders Agreement,  and Capricorn is no longer a holder
of the Company's stock.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         The Company believes that all required  persons filed all required
reports under Section 16 of the Securities  Exchange Act in a timely manner.

Item 11.  Executive Compensation

         The  following  table  sets  forth  information  regarding  annual  and
long-term  compensation for the chief executive  officer and the other four most
highly compensated executive officers of the Company. The table does not include
information for any fiscal year during which a named  executive  officer did not
hold such a position with the Company.


<TABLE>
<CAPTION>




                                                      SUMMARY COMPENSATION TABLE

---------------------------------------------------------------------------------------------------------------------
                                                                                     Long Term
                                                                                   Compensation
                                                  Annual compensation                 Awards

---------------------------------------------------------------------------------------------------------------------
                                                                      Other         Securities
                                                                      annual        underlying         All other
Name and principal position              Salary ($)     Bonus      compen-sation options/SARs (#)     compensation
             (a)                 Year       (c)        ($) (1)         ($)              (f)             ($) (2)
                                  (b)                    (d)           (e)                                (i)
---------------------------------------------------------------------------------------------------------------------


<PAGE>

<S>                             <C>        <C>          <C>               <C>             <C>               <C>         
Paul V. Lombardi                 1998       342,104                                                           14,168
   President & Chief             1997       332,789       160,000           177                 --             8,148
   Executive Officer             1996       279,614       148,000            --             90,000            11,126
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
Dan R. Bannister                 1998       233,025                                                          259,927
   Chairman of the Board         1997       275,481        25,000           174                 --            14,215
   (formerly President &         1996       326,105       235,000            --            100,000            17,397
   Chief Executive Officer)
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
David L. Reichardt               1998       248,947                                                           16,591
    Senior Vice President &      1997       245,082        90,000           244                 --            11,578
   General Counsel               1996       219,464        99,000            --             75,000             9,564
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
Patrick C. FitzPatrick           1998       248,947                                                           10,781
    Senior Vice President &      1997       241,933        90,000            --            100,000            10,900
   Chief Financial Officer       1996            --            --            --                 --                --
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------
Marshall S. Mandell              1998       212,724                                                           10,739
    Senior Vice President,       1997       204,248        73,300           364                 --             9,996
   Business Development          1996       179,246        80,000            --             30,000             9,182
------------------------------- -------- ----------- ------------- ------------- ------------------ -----------------

</TABLE>

     (1) Column (d) reflects  bonuses earned and expensed  during year,  whether
         paid during or after such year. 1998 bonuses,  to be paid in 1999, have
         not been  calculated as of the date of this filing.  Since 1996, 20% of
         executive  bonuses have been paid in shares of Common Stock,  valued at
         then-current market value.
     (2) Column (i) includes special  one-time  payments in the aggregate amount
         of  $249,536  to Mr.  Bannister.  Column (i) also  includes  respective
         individual's  pro  rata  share  of the  Company's  contribution  to the
         Employee   Stock   Ownership   Plan   ("ESOP")   and   Company-matching
         contributions  to the  Savings and  Retirement  Plan  ("SARP")  and the
         imputed  income for  Company-paid  premiums for life  insurance.  These
         amounts are:
<TABLE>
<CAPTION>

----------------------- ------------------------------- ----------------------------- --------------------------------
                            ESOP contributions ($)         SARP contributions ($)         Imputed Income ($) (1)
                            ----------------------         ----------------------         ------------------    
Name                      1998(2)      1997       1996      1998       1997     1996       1998       1997       1996
----------------------- ---------- --------- ---------- --------- ---------- -------- ---------- ---------- ----------
<S>                        <C>       <C>        <C>       <C>        <C>      <C>        <C>       <C>        <C>              
Mr. Lombardi                4,320     4,197      5,075     3,000      2,850      900      6,848      1,101      5,151
----------------------- ---------- --------- ---------- --------- ---------- -------- ---------- ---------- ----------
Mr. Bannister                  --        --      5,075     2,709      3,800    1,250      7,682     10,415     11,072
----------------------- ---------- --------- ---------- --------- ---------- -------- ---------- ---------- ----------
Mr. Reichardt               4,320     4,197      5,075     3,125      1,269      913      9,146      6,112      3,575
----------------------- ---------- --------- ---------- --------- ---------- -------- ---------- ---------- ----------
Mr. FitzPatrick             4,320     4,197         --     2,338      1,267       --      4,122      5,437         --
----------------------- ---------- --------- ---------- --------- ---------- -------- ---------- ---------- ----------
Mr. Mandell                 4,320     4,197      5,075     2,143      2,361    1,306      4,277      3,438      2,801
----------------------- ---------- --------- ---------- --------- ---------- -------- ---------- ---------- ----------
</TABLE>

     (1) Includes   imputed   income  for  premiums  paid  by  the  Company  for
         supplemental  executive  retirement  plan life  insurance and term life
         insurance,  the  amount  of which is  computed  according  to  Internal
         Revenue Service tables.
(2)      Individual allocation of 1998 ESOP contribution has been estimated.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

------------------------ --------------------------------------------------------------------- ------------------------
                                                                                                Potential realizable
                                                                                                  value at assumed
                                                                                                annual rates of stock
                                                                                               price appreciation for
                                                  Individual Grants                                  option term
------------------------ --------------------------------------------------------------------- ------------------------
                             Number of       Percent of total
                            securities        options/ SARs
                            underlying          granted to       Exercise or
                           options/SARs        employees in       base price     Expiration
         Name               granted (#)        fiscal year        ($/Share)         date         5% ($)      10% ($)
          (a)                   (b)                (c)               (d)             (e)          (f)          (g)
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
<S>                      <C>               <C>                 <C>             <C>            <C>         <C>            
Mr. Lombardi                     0                 n/a               n/a             n/a          n/a          n/a
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
Mr. Bannister                    0                 n/a               n/a             n/a          n/a          n/a
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
Mr. Reichardt                    0                 n/a               n/a             n/a          n/a          n/a
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
Mr. FitzPatrick                  0                 n/a               n/a             n/a          n/a          n/a
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------
Mr. Mandell                   40,000               7.8              20.00          3/16/08      377,400      956,100
------------------------ ------------------ ------------------- --------------- -------------- ----------- ------------

</TABLE>
<TABLE>
<CAPTION>
                                         AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
                                                     AND FY-END OPTION/SAR VALUES



<PAGE>


----------------------- ----------------- --------------- ------------------------------ -----------------------------
                                                             Number of securities
                                                             underlying unexercised          Value of unexercised
                                                             options/SARs at fiscal       in-the-money options/ SARs
                                                                  year-end (#)              at fiscal year-end ($)
                        Shares acquired
                         on exercise(#)       Value               Exercisable/                   Exercisable/
         Name                 (b)          realized ($)           Unexercisable                 Unexercisable
         (a)                                   (c)                     (d)                           (e)
----------------------- ----------------- --------------- ------------------------------ -----------------------------
<S>                     <C>               <C>             <C>            <C>             <C>            <C>          
Mr. Lombardi                   --               --                64,000         66,000         222,400       206,600
----------------------- ----------------- --------------- --------------- -------------- --------------- -------------
Mr. Bannister                  --               --                75,000         90,000         288,900       292,600
----------------------- ----------------- --------------- --------------- -------------- --------------- -------------
Mr. Reichardt                  --               --                45,000         55,000         151,500       163,500
----------------------- ----------------- --------------- --------------- -------------- --------------- -------------
Mr. FitzPatrick                --               --                20,000         80,000          10,000        40,000
----------------------- ----------------- --------------- --------------- -------------- --------------- -------------
Mr. Mandell                    --               --                17,500         65,000          63,250        75,500
----------------------- ----------------- --------------- --------------- -------------- --------------- -------------
</TABLE>

                       SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

         The Company has  established a Supplemental  Executive  Retirement Plan
for certain  senior  executives,  including  the five  individuals  named above,
whereby the  individuals  (or their  beneficiaries)  receive  payments having an
aggregate amount equal to 150% of the sum of their final annual salary rate plus
their final target annual bonus,  paid over the ten-year period  following their
normal retirement,  disability retirement, and, in some cases, early retirement.
Upon their death following such retirement,  the individuals' beneficiaries also
receive an  additional  aggregate  lump-sum  payment  equal to  one-half  of the
foregoing  amount.  In the  event  of  their  death  prior  to  retirement,  the
individuals'  beneficiaries  receive,  in lieu  of the  foregoing  payments,  an
aggregate lump-sum payment equal to 100% of the sum of their final annual salary
rate plus their  final  target  annual  bonus.  The  Company  funds some of such
payments through split-dollar life insurance policies.

                       CHANGE-IN-CONTROL AGREEMENTS

         The Company has entered into change-in-control  agreements with Messrs.
Lombardi, Reichardt, FitzPatrick, and Mandell (the "Severance Agreements"). Each
Severance  Agreement  provides  that  certain  benefits,  including  a  lump-sum
payment,  will be triggered if the executive is terminated following a change in
control of the Company,  unless termination occurs under those circumstances set
forth in the  Severance  Agreements.  A change  in  control  would  occur if the
Company were to be substantially acquired by a new owner or if a majority of the
Board of Directors were replaced.  The Severance  Agreements currently expire on
December 31, 1999 but are subject to annual automatic  renewal unless terminated
by the Board of  Directors.  The amount of such  lump-sum  payment would be 2.99
times  the  sum of the  executive's  annual  salary  and the  average  incentive
compensation  for the three  prior  years.  Other  benefits  include  payment of
incentive compensation not yet paid for the prior year and a pro rata portion of
incentive  compensation  awards for the current year.  Each Severance  Agreement
also provides a reduction if the proposed payments exceed the amount the Company
is entitled to deduct on its federal income tax return. The Severance Agreements
also provide that the Company will  reimburse the  individual for legal fees and
expenses incurred by the executive as a result of termination.

                       COMPENSATION OF DIRECTORS

         Non-employee directors of the Company receive an annual retainer fee of
$16,500 as  directors  and $2,750 for each  committee  on which they serve.  The
Company also pays non-employee  directors a meeting fee of $1,000 for attendance
at each Board meeting and $500 for attendance at committee  meetings.  Directors
are reimbursed for expenses  incurred in connection  with attendance at meetings
and other Company functions.

         In 1998,  5,000 stock  options,  having an exercise  price equal to the
then-current  fair  market  value,  were  awarded to each of Messrs.  Blanchard,
Dougherty,  Kaminski,  and Mecum,  pursuant to the  Company's  1995 Stock Option
Plan.

                       DIRECTORS AND OFFICERS LIABILITY INSURANCE

         The Company has purchased and paid the premium for insurance in respect
of claims  against its directors and officers and in respect of losses for which
the Company may be required or permitted by law to indemnify  such directors and
officers. The directors insured are the directors named herein and all directors
of the  Company's  subsidiaries.  The  officers  insured  are all  officers  and
assistant  officers of the Company and its subsidiaries.  There is no allocation
or segregation  of the premium as regards  specific  subsidiaries  or individual
directors and officers.

           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         None of the members of the Compensation Committee are current or former
employees  of or have a business  or other  relationship  with the  Company.  No
executive   officer  of  the  Company  serves  on  the  board  of  directors  or
compensation  committee of any entity (other than  subsidiaries  of the Company)
whose  directors  or  executive  officers  served on the Board of  Directors  or
Compensation Committee of the Company.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         As of February 26, 1999,  the Company had  10,068,576  shares of Common
Stock  outstanding,  which constituted all the outstanding  voting securities of
the Company.  If all shares  issuable  upon  exercise of all vested and unvested
options  and shares  issuable as a result of  expiration  of  deferrals  under a
former  Restricted  Stock  Plan  were  to  be  issued,  the  outstanding  voting
securities  following such events (the "fully diluted  shares") would consist of
11,575,330  shares  of  Common  Stock.  The  following  tables  show  beneficial
ownership of outstanding voting shares as a percentage of currently  outstanding
stock and beneficial  ownership of issued and issuable shares as a percentage of
common stock on a fully diluted basis assuming all such exercises and issuances.

                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The  following  table  presents  information  as of February  26, 1999,
concerning the only beneficial  owner of five percent or more of the outstanding
shares of the Company's common stock.



<PAGE>
<TABLE>
<CAPTION>

       ------------------------------------------------------- ------------------------- -----------------
                        Name and address of                       Amount & nature of        Percent of
                          beneficial owner                            ownership               shares
       -------------------------------------------------------                           -----------------
       ------------------------------------------------------- ------------------------- -----------------
<S>                                                            <C>                       <C>            
       DynCorp Employee Stock Ownership Plan Trust                    7,181,467               71.3%
       c/o DynCorp                                                    Direct (1)
       2000 Edmund Halley Dr.
       Reston, VA  20191-3436
       ------------------------------------------------------- ------------------------- -----------------
</TABLE>

(1) The Trust holds these shares for the  accounts of  approximately  31,600  
    participants.  The  Trustees  vote the shares in accordance with 
    instructions received from participants.

                           SECURITY OWNERSHIP OF MANAGEMENT

         The  following  table  presents  information  as of February  26, 1999,
concerning the beneficial  ownership of the Company's  common stock by directors
and named executive  officers and all directors and officers as a group.  Shares
include those held on behalf of the individuals in the ESOP and SARP.

<TABLE>
<CAPTION>

--------------------------------------- -------------------------------------------------------------- -------------
                          Amount & nature of ownership
--------------------------------------- --------------------------------------------------------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
Name and title of beneficial owner        Outstanding     Obtainable within      Total                  Percent of
                                            shares           60 days (1)                                shares (2)
--------------------------------------- ---------------- -------------------- ------------- ----------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
<S>                                    <C>              <C>                   <C>          <C>         <C>            
D. R. Bannister                                 259,605              164,711       424,316  Direct        }3.7%
Chairman of the Board & Director                  9,702                              9,702  Indirect
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
T. E. Blanchard(3)                               50,384               46,800        97,184  Direct          *
Director                                         12,631                             12,631  Indirect
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
R. E. Dougherty                                   4,000                    0         4,000  Direct          *
Director
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
P. C. FitzPatrick                                 1,372               30,000        31,372  Direct          *
Senior Vice President & Chief                     3,623                              3,623  Indirect
Financial Officer
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
P. G. Kaminski                                        0                1,000         1,000  Direct          *
Director
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
P. V. Lombardi                                   23,525               78,000       101,525  Direct          *
President, Chief Executive Officer &              7,004                              7,004  Indirect
Director
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
M. S. Mandell                                     4,667               25,500        30,167  Direct          *
Vice President, Business Development              2,728                              2,728  Indirect
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
D. C. Mecum II                                    2,825                    0         2,825  Direct          *
Director
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- ------------------- -------------- ---------- -------------
D. L. Reichardt                                  37,657              60,000         97,657  Direct          *
Senior Vice President, General                    7,423                              7,423  Indirect
Counsel & Director
--------------------------------------- ---------------- ------------------- -------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
H. S. Winokur, Jr.                               35,639                    0        35,639  Direct        }3.8%
Director                                        409,773                            409,773  Indirect
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
All directors and officers as a group           476,697              467,811       944,508  Direct        }12.5%
                                                503,257                            503,257  Indirect
--------------------------------------- ---------------- -------------------- ------------- ---------- -------------
</TABLE>

     (1) Column  reflects  shares  issuable upon exercise of vested  options and
         expiration of deferral periods under former Restricted Stock Plan.
     (2) Percentages  include  aggregate direct and indirect shares. An asterisk
         indicates  that  beneficial  ownership  is less than one percent of the
         class.
     (3) Mr. Blanchard disclaims  beneficial ownership of 40,000 shares owned by
         his spouse.

Item 13.  Certain Relationships and Related Information

         Mr.  Blanchard  serves as Trustee and  Chairman  of the  Administrative
Committee  for the  Company's  Employee  Stock  Ownership  Plan.  Following  his
retirement as Chief Financial Officer in February,  1997, until December,  1997,
he  also  provided  occasional   consulting  services  relating  to  his  former
employment.  He is  compensated  at an  hourly  fee rate and is  reimbursed  for
expenses.
Total fees paid in 1998 were $55,650.

         General  Dougherty was, until the end of 1998, an attorney with the law
firm of McGuire,  Woods,  Battle & Boothe,  which firm has been  retained by the
Company from time to time to provide various legal services.

                                     PART IV

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

(a) The following documents are filed as part of this Form 10-K:

1.  All financial statements.

2.  Financial statement Schedules.

 Schedule I - Condensed Financial Information of Registrant
    DynCorp (Parent Company)
        Balance Sheets
           Assets
           Liabilities and Stockholders' Equity
        Statements of Operations
        Statements of Cash Flows
        Notes to Condensed Financial Statements

 Schedule II - Valuation and  Qualifying  Accounts for the Years Ended  December
   31, 1998, 1997 and 1996.

 All other  financial  schedules not listed have been omitted since the required
information is included in the  Consolidated  Financial  Statements or the notes
thereto, or is not applicable or required.

3.  Exhibits

Exhibit  Description
3.1      Certificate of Incorporation, as currently in effect, consisting of 
           Amended and Restated Certification of Incorporation (incorporated by 
           reference to Registrant's Form 10-K/A for 1995, File No. 1-3879)
3.2      Registrant's By-laws as amended to date (incorporated by reference to 
           Registrant's Form S-1, File No. 1-3879)
4.1      Indenture and supplement, dated April 18, 1997 between Dyn Funding 
           Corporation (a wholly-owned subsidiary of the Registrant) and Bankers
           Trust Company relating to Contract Receivable Collateralized Notes
           (incorporated by reference to Registrant's Post-Effective Amendment 
           No. 1 on Form S-2 to Form S-1, File No. 33-59279)
4.2      Registration Rights Agreement, dated as of March 17, 1997, among the
           Registrant, and BT Securities Corporation and Citicorp Securities,
           Inc.(incorporated by reference to Registrant's Form S-4,File
           No. 333-25355)
4.3      Indenture, dated March 17, 1997, between the Registrant and United 
           States Trust Company of New York relating to the 9 1/2% Senior Sub-
           ordinated Notes due 2007 (incorporated by reference to Registrant's
           Form S-4, File No. 333-25355)
4.4      Specimen Common Stock Certificate (incorporated by reference to 
           Registrant's Form 10-K for 1988, File No. 1-3879)
4.5      Statement Respecting Warrants and Lapse of Certain Restrictions 
           (incorporated by reference to Registrant's Form 10-K for 1988,
           File No. 1-3879)
4.6      Article Fourth of the Amended and Restated Certificate of Incorporation
           (incorporated by reference to Registrant's Form 10-K for 1992, File
           No. 1-3879)
4.7      Second Amended and Restated Credit Agreement by and among Citicorp 
           North America, Inc., certain Lenders, and the Registrant dated May
           15, 1997 (incorporated by reference to Registrant's Form S-4, File 
           No. 333-25355)
4.8      Stockholders Agreement (incorporated by reference to Registrant's Form
           S-1, File No. 33-59279) 
10.1     Deferred Compensation Plan (incorporated by reference to 
           Registrant's Form 10-K for 1987, File No. 1-3879)
10.2     Management Incentive Plan (incorporated by reference to registrant 
           Form 10-K for 1997)
10.3     Executive Incentive Plan (incorporated by reference to registrant
           Form 10-K for 1997)
10.4     Severance Agreements (incorporated by reference to Exhibits (c)(4)
           through (c)(12) to Schedule 14D-9 filed by Registrant January 25, 
           1988)
10.5     Amendment to Severance Agreement of Paul V. Lombardi, Vice President, 
           Government Services Group and currently President & Chief Executive 
           Officer (incorporated by reference to Registrant's Form 10-K for
           1993, File No. 1-3879)
10.6     Amendment to Severance Agreement of Patrick C. FitzPatrick, Senior Vice
           President and Chief Financial Officer (incorporated  by reference to
           Registrant's  Form 10-K for 1996, File No. 1-3879)
10.7     Amendment  to Severance  Agreement  of David L.  Reichardt, Senior Vice
           President and General Counsel (incorporated by reference to 
           Registrant's Form 10-K for 1996, File No. 1-3879)
10.8     Restricted Stock Plan (incorporated by reference to Registrant's Form 
           10-K/A for 1995, File No. 1-3879)
10.9     1995 Stock Option Plan, as amended (incorporated by reference to 
         Registrant's Form 10-K for 1997)
21       Subsidiaries of the Registrant (filed herewith)
23       Consent of Independent Public Accountants (filed herewith)

(b)  Reports on Form 8-K

December 24, 1998























                                   SIGNATURES

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

                                        DYNCORP

March 10, 1999                           By:                                
                                              /s/ Paul V. Lombardi
                                              P. V. Lombardi
                                              President and Chief
                                              Executive Officer


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



P. V. Lombardi             President and Director                 March 10, 1999
/s/ P.V. Lombardi        (Chief Executive Officer)


P. C. FitzPatrick          Senior Vice President -                March 10, 1999
/s/ P.C. FitzPatrick       Chief Financial Officer


D. L. Reichardt            Senior Vice President -                March 10, 1999
/s/ D.L. Reichard          General Counsel and Director


J.J. Fitzgerald            Vice President and Controller          March 10, 1999
/s/ J. J. Fitzgerald       (Chief Accounting Officer)

D. R. Bannister            Director                               March 10, 1999
/s/ D.R. Bannister

T. E. Blanchard            Director                               March 10, 1999
/s/ T.E. Blanchard

H. S. Winokur, Jr.         Director                               March 10, 1999
/s/ H.S. Winokur, Jr.

D. C. Mecum II             Director                               March 10, 1999
/s/ D.C. MecumII

R. E. Dougherty            Director                               March 10, 1999
/s/ R.E. Dougherty

P. G. Kaminski             Director                               March 10, 1999
/s/ P.G. Kaminski



<PAGE>

<TABLE>
<CAPTION>


    DynCorp (Parent Company)
    Schedule I - Condensed Financial Information of Registrant
    Balance Sheets
    (Dollars in thousands)




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

    Current Assets:
    Cash and cash equivalents                                                           $  1,844         $ 18,591
    Accounts receivable and contracts in process,
      net of allowance for doubtful accounts                                              79,089           40,694
    Inventories of purchased products and supplies                                           547              548
    Other current assets                                                                  12,188           10,005
                                                                                        --------         --------
        Total current assets                                                              93,668           69,838

    Investment in and advances to subsidiaries and affiliates                             62,800           80,869

    Property and Equipment, net of accumulated depreciation
       and amortization                                                                    7,706            7,780

    Intangible Assets, net of accumulated amortization                                    29,628           30,775

    Other Assets                                                                          13,679            8,982
                                                                                     -----------       ----------

           Total Assets                                                                 $207,481         $198,244
                                                                                        ========         ========
</TABLE>


    The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries
are an integral part of these statements.

    See accompanying "Notes to Condensed Financial Statements".




















<TABLE>
<CAPTION>

    DynCorp (Parent Company)
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
(Dollars in thousands)


                                                                                                 December 31,   
                                                                                             1998             1997 
                                                                                             ----             ----
<S>                                                                                     <C>              <C>       
Liabilities and Stockholders' Equity

Current Liabilities:
    Accounts payable                                                                     $23,424          $17,078
    Advances on contracts in process                                                         753              661
    Accrued liabilities                                                                   63,163           71,304
                                                                                        --------         --------
        Total current liabilities                                                         87,340           89,043

Long-Term Debt                                                                            99,545           99,510

Other Liabilities and Deferred Credits                                                     8,746           12,465

Temporary Equity:
    Redeemable Common Stock, at Redemption Value -
        ESOP                                                                             180,812          151,823
        Other                                                                              3,049            3,017

Permanent Stockholders' Equity:
    Common Stock                                                                             498              478
    Common Stock Warrants                                                                      -            1,259
    Paid-in Surplus                                                                      127,206          125,412
    Adjustment for redemption value greater than par value                              (183,140)        (154,138)
    Deficit                                                                              (78,782)         (93,837)
    Common Stock Held in Treasury                                                        (35,640)         (28,703)
    Unearned ESOP Shares                                                                  (2,153)          (8,085)
                                                                                        ----------      ------------

        Total Liabilities and Stockholders' Equity                                       $207,481         $198,244
                                                                                         ========         ========
</TABLE>

The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries are
an integral part of these statements.

See accompanying "Notes to Condensed Financial Statements."


<PAGE>

<TABLE>
<CAPTION>

DynCorp (Parent Company)
Schedule I - Condensed Financial Information of Registrant
Statements of Operations
(Dollars in thousands)

                                                                           For the Years Ended December 31,
                                                                          1998            1997             1996
                                                                          ----            ----             ---- 

<S>                                                                   <C>             <C>             <C>    
Revenues                                                               $632,690        $594,379        $588,978
                                                                       --------        --------        --------

Costs and Expenses:
    Cost of services                                                    605,302         570,324         565,582
    Corporate selling and administrative                                  9,363           9,808          11,323
    Interest expense                                                      8,991           6,382           1,089
    Interest income                                                     (12,087)         (2,375)         (1,162)
    Other expense                                                        17,261          27,773          18,373
                                                                       --------        --------        --------
                                                                        628,830         611,912         595,205

Loss from continuing operations before
  income taxes, and equity in net income of
  subsidiaries                                                           (3,860)        (17,533)         (6,227)
    Benefit for income taxes                                               (599)         (7,709)         (3,994)
                                                                      ---------        --------        --------

Earnings (loss) from continuing operations before
  equity in net income of subsidiaries                                    4,459          (9,824)         (2,233)
    Equity in net income of subsidiaries                                 10,596          17,246          14,182
                                                                       --------        --------       ---------

Earnings from continuing operations                                      15,055           7,422          11,949
  Earnings  from discontinued operations, net of
    income taxes                                                              -               -           2,680
                                                                     ---------         ---------       ---------  

Net earnings                                                         $   15,055        $  7,422        $ 14,629
                                                                     ==========        ========        ========

    Preferred Class C dividends not declared or recorded                      -               -         (2,284)
                                                                     ----------       ---------       --------- 

Common stockholders' share of earnings                               $   15,055       $   7,422       $  12,345
                                                                     ==========       =========       =========
</TABLE>

The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries are
an integral part of these statements.

See accompanying "Notes to Condensed Financial Statements."


<PAGE>


<TABLE>
<CAPTION>

DynCorp (Parent Company)
Schedule I - Condensed Financial Information of Registrant
Statements of Cash Flows
(Dollars in thousands)
                                                                                               For the Years Ended December 31,
                                                                                             1998           1997              1996
<S>                                                                                     <C>              <C>             <C> 
Cash Flows from Operating Activities:
    Net earnings                                                                         $  15,055        $  7,422        $ 14,629
    Adjustments to reconcile net earnings from operations
     to net cash (used) provided by operating activities:
       Depreciation and amortization                                                         3,727           3,530           3,600
       Payment of income taxes on gain on sale of
         discontinued operations                                                                 -               -         (13,990)
       Loss from discontinued operations                                                         -               -          (2,680)
       Deferred income taxes                                                                 1,463           1,785             787
       Change in reserves of businesses divested in 1988                                    (1,698)          8,157             825
       Other                                                                                 1,374            (323)           (327)
       Change in assets and liabilities, net of acquisitions and dispositions:
          (Increase) decrease in accounts receivable and
            contracts in process                                                           (38,395)        (16,892)          4,367
          Decrease (increase) in inventories                                                     2             363             255
          Increase in other current assets                                                  (1,883)         (1,808)         (1,523)
          Decrease in current liabilities except notes
            payable and current portion of long-term debt                                   (6,396)         (7,909)         (9,652)
                                                                                          --------        --------        --------
    Cash (used) provided by continuing operations                                          (26,751)         (5,675)         (3,709)
    Cash used by discontinued operations                                                         -               -               -
                                                                                      ------------       ---------   -------------
        Cash (used) provided by operating activities                                       (26,751)         (5,675)         (3,709)
                                                                                         ---------        --------        ---------
Cash Flows from Investing Activities:
    Sale of property and equipment                                                             327             249             859
    Purchase of property and equipment, net of capitalized leases                           (2,082)         (3,464)         (1,452)
    Cost of software for new core system                                                    (5,598)              -               -
    Assets and liabilities of acquired businesses                                                -               -          (1,707)
    Proceeds from sale of discontinued operations                                                -               -           3,050
    Investing activities of discontinued operations                                              -               -               -
    Increase in investments in affiliates                                                   18,068            (867)              -
    Decrease (increase) in cash on deposit for letters of credit                                 -               -           6,244
    Other                                                                                   (1,670)           (276)           (232)
                                                                                       -----------     -----------        --------
         Cash (used) provided from investing activities                                      9,045          (4,358)          6,762
                                                                                       -----------      -----------       --------
Cash Flows from Financing Activities:
    Treasury stock purchased                                                                (6,194)           (923)         (9,712)
    Payment on indebtedness                                                                      -            (722)           (842)
    Proceeds from issuance of Senior Notes                                                       -          99,484               -
    Common stock and warrants purchased from investors                                           -         (37,819)              -
    Redemption of Junior Subordinated Debentures                                                 -               -               -
    Stock released to Employee Stock Ownership Plan                                          7,378           5,189             503
    Loans to Employee Stock Ownership Plan                                                       -         (13,274)              -
    Deferred financing expenses                                                                (73)         (4,120)         (1,310)
    Other financing transactions                                                              (152)           (209)            (20)
    Change in intercompany balances, net                                                         -         (41,743)            737
                                                                                      ------------        ---------    -----------
         Cash provided (used) from financing activities                                        959           5,863         (10,644)
                                                                                        ----------       ---------        --------
    Net (Decrease) Increase in Cash and Short-term Investments                             (16,747)         (4,170)         (7,591)
    Cash and Short-term Investments at Beginning of the Year                                18,591          22,761          30,352
                                                                                         ---------       ---------       ---------
    Cash and Short-term Investments at End of the Year                                   $   1,844        $ 18,591        $ 22,761
                                                                                         =========        ========        ========
</TABLE>

The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries are
an integral  part of these  statements.  See  accompanying  "Notes to  Condensed
Financial Statements."


<PAGE>


DynCorp (Parent Company)
Schedule I - Notes to Condensed Financial Statements
December 31, 1998
(Dollars in thousands except where otherwise noted)


1.  Basis of Presentation

    Pursuant  to the  rules  and  regulations  of the  Securities  and  Exchange
Commission,  the Condensed Financial Statements of the Registrant do not include
all of the  information  and notes normally  included with financial  statements
prepared in accordance with generally  accepted  accounting  principles.  It is,
therefore,  suggested  that  these  Condensed  Financial  Statements  be read in
conjunction  with the  Consolidated  Financial  Statements  and  Notes  included
elsewhere in this Annual Report on Form 10-K.

2.  Long-term Debt

    At December 31, 1998 and 1997, long-term debt consisted of:

                                                    1998                   1997 
                                                   -----                  ------
    9 1/2% Senior Notes, due 2007                $99,546                $99,510

3.  Accounts Receivable

    The Company's wholly-owned subsidiary,  Dyn Funding Corporation ("DFC"), was
established  in January,  1992 to facilitate  the issuance of $100.0  million of
8.54% Contract Receivable Collateralized Notes and to purchase eligible accounts
receivable from the Company and its subsidiaries. In April 1997, DFC completed a
private  placement  of $50.0  million of 7.486% Fixed Rate  Contract  Receivable
Collateralized Notes (the "Notes").  Utilizing the proceeds from the issuance of
the  Notes and a portion  of the  proceeds  from the 9 1/2%  Senior  Notes,  the
Company retired the maturing 8.54% Contract Receivable  Collateralized Notes. On
an ongoing basis, the cash received by DFC from collection of the receivables is
used to make interest  payments on the Notes, pay a servicing fee to the Company
and purchase additional receivables from the Company (see Note 5 to Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K).

    The Company  receives 97% of the face value of the accounts  receivable sold
to DFC. The Company  records the 3% discount from the face value of the accounts
receivable  as an expense  at the time of sale.  In 1997 and 1996,  the  Company
recorded as expense $16.7 million and $17.2 million which is reflected in "Other
Expense" in the  accompanying  "Statements of Operations" (in the  "Consolidated
Statements of Operations" of DynCorp and Subsidiaries  this expense is offset by
the gain recognized by DFC).


<PAGE>


DynCorp and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)


<TABLE>
<CAPTION>
                                           Balance at  Charged to  Write-off of               Balance
                                            Beginning    Costs and   Uncollectible            at End of
              Description                   of Period   Expenses    Accounts       Other        Period 
<S>                                          <C>         <C>          <C>         <C>   
Year Ended December 31, 1998
  Allowance for doubtful accounts               $ 476      $  900       $(234)     $   (16)      $1,126

Year Ended December 31, 1997
  Allowance for doubtful accounts               $ 229      $  629       $(382)   $       -      $   476

Year Ended December 31, 1996
  Allowance for doubtful accounts             $     9      $  120     $     -       $  100 (1)   $  229


</TABLE>

(1) Balance recorded at acquisition of Data Management Design, Inc.