You should read the following discussion and analysis in conjunction with our financial statements and the related notes included elsewhere in this Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Form 10-K.

ABOUT THIS MANAGEMENT'S DISCUSSION AND ANALYSIS

The discussion and analysis that follows is organized to:

• provide an overview of our business;

• describe selected key metrics evaluated by management;

• explain the year-over-year trends in our results of operations;

• describe our liquidity and capital resources; and

• explain our critical accounting policies, describe certain line items of our statements of operations, and define certain other terms we use in our discussion and analysis.

Readers who are not familiar with our company or the financial statements of federal government information technology services providers should closely review the "Description of Critical Accounting Policies," the "Description of Statement of Operations Items," and the "Definition of Certain Items Used in this Management's Discussion and Analysis" sections that appear at the end of this discussion and analysis. These sections provide background information that can help readers in understanding and analyzing our financial information.

OVERVIEW

We are a leading provider of technology and strategic consulting services and solutions to government organizations. We offer a broad range of technology and strategic consulting services spanning the information technology life cycle, including: strategic consulting; systems design, development, and integration; and outsourcing and managed services. Our business solutions include text and data mining; information assurance, cyber security and privacy protection; enterprise resource planning; business intelligence; contingency and disaster planning; enterprise architecture and portfolio management; identity management; information sharing and knowledge management; outsourcing, managed services, and infrastructure modernization; service-oriented architecture; training, modeling, and simulation; air traffic management; clinical research outsourcing, regulatory consulting and data management; and wireless integration services. These business solutions consist of repeatable tools, techniques, and methods that reflect the specific competencies we have gained from significant experience in these areas. We provide services in three target markets: national security, civil government, and global health. Our largest market, national security, includes the Department of Defense, the National Guard, the Department of Homeland Security, the intelligence agencies, and other government organizations with homeland security missions.

We derive the majority of our revenue from services provided to federal government clients. According to the Federal Information Technology Market Forecast, FY 2009-FY 2014 report published by INPUT, an independent federal government market research firm, the contracted portion of U.S. federal government spending on information technology is forecasted to grow at an annual rate of 3.5% from $76.2 billion in federal fiscal year 2009 to $90.3 billion in federal fiscal year 2014. We estimate that our addressable market, which also includes management consulting, engineering and other professional services for local, state, and federal

governments, is currently over $150 billion in size, annually. Our growth is driven in part by contract awards and how we build-out our contracts. Ideally, the level of quarterly business awards would exceed the revenue booked in the quarter to drive backlog growth.

We work with the federal government under three primary contract types:
cost-plus-fee, time-and-materials, and fixed-price contracts. Cost-plus-fee contracts are typically lower risk arrangements and thus yield lower profit margins than time-and-materials and fixed-price arrangements. Time-and-materials and fixed-price contracts typically generate higher profit margins reflecting their generally higher risk. Where customer requirements are clear, we prefer to enter into time-and-materials and fixed-price arrangements rather than cost-plus-fee arrangements. Typically under time-and-materials and fixed-price, as compared with cost-plus-contracts, the customer can save money and we can earn better margins, given the more specific delivery requirements of these structures.

Most of our revenue is generated based on services provided either by our employees or subcontractors. Thus, once we win new business, the key to delivering the revenue is through hiring new employees to meet customer requirements, retaining our employees, and ensuring that we deploy them on contracts. Therefore, we closely monitor hiring success, attrition trends, and direct labor utilization. Since we earn higher profits from the labor services that our employees provide compared with subcontracted efforts and other reimbursable items such as hardware and software purchases for customers, we seek to optimize our labor content on the contracts we win. We also develop, sell, and license proprietary software and hardware to customers. For example, our aviation business develops, manufactures and sells flight tracking and surveillance solutions. The amount of proprietary software and hardware that we sell may vary from period to period depending on specific contract and customer requirements.

Cost of services includes labor, or the salaries and wages of our employees, plus fringe benefits; the costs of subcontracted labor and outside consultants; third-party materials, such as hardware and software that we purchase for customer solutions; and other direct costs such as travel incurred to support contract efforts. Since we earn higher profits on our own labor services, we expect the ratio of cost of services to revenue to decline when our labor services mix increases relative to subcontracted labor or third-party material purchases. Conversely, as subcontracted labor or third-party material purchases for customers increase relative to our own labor services, we expect the ratio of cost of services to revenue to increase. As we continue to bid and win larger contracts, our own labor services component could decrease. This is because the larger contracts typically are broader in scope and require more diverse capabilities resulting in more subcontracted labor with the potential for more third-party hardware and software purchases. In addition, we can face hiring challenges in staffing larger contracts. While these factors could lead to a higher ratio of cost of services to revenue, the economics of these larger jobs are nonetheless generally favorable because they increase income, broaden our revenue base, and produce a favorable return on invested capital.

We perform marketing, business development, human resources, recruiting, finance and accounting, infrastructure and other core administrative services centrally. We believe a central services model allows us to reduce selling, general and administrative expenses as a percentage of revenue as revenue grows organically and for certain acquisitions, thereby contributing to the growth in operating income. As we continue to expand internationally, selling, general and administrative expenses may increase as a percentage of revenue due to additional travel, infrastructure and compliance costs. Additionally, as we increase our product offerings, we expect an increase in selling, general and administrative expenses as a percentage of revenue and a decline in cost of services as a percentage of revenue.

Depreciation and amortization expenses are affected by the level of our annual capital expenditures and the amount of identified intangible assets related to acquisitions. We do not presently foresee significant changes in our capital expenditure requirements, which have averaged approximately 1% of revenue over the last three fiscal years. As we continue to make selected strategic acquisitions, the amortization of identified intangible assets may increase as a percentage of our revenue.

Our operating income, or revenue minus cost of services, selling, general and administrative expenses, and depreciation and amortization, and thus our operating margin, or the ratio of operating income to revenue, is driven by the mix and execution on our contracts, how we manage our costs, and the amortization charges resulting from acquisitions.

Our cash position is driven primarily by the level of net income, working capital, capital expenditures, acquisition activities and share repurchases.

SELECTED KEY METRICS EVALUATED BY MANAGEMENT

We manage and assess the performance of our business by evaluating a variety of metrics. Selected key metrics are discussed below.

Revenue Growth

Our total revenue growth rate was 2.2% in fiscal year 2009. This growth was attributable to the acquisition of Era Systems Corporation (Era) in July 2008. Revenues of $11.9 million in fiscal year 2009 related to a wholly owned subsidiary, Constella Futures Holding, LLC (Futures), which was sold on September 2, 2008, were received in fiscal year 2009 and will not be recurring. We compute our fiscal 2009 organic growth rate of 0.7% as follows:

                                                             Year Ended June 30,
                                                   2009            2008            % Increase
Revenue, as reported                            $ 1,540,556     $ 1,506,933               2.2 %
Plus: Revenue of acquired companies for the
comparable prior year period                             -           84,738
Less: Revenue of divested companies for the
comparable prior year period                             -          (61,307 )

Organic Revenue                                 $ 1,540,556     $ 1,530,364               0.7 %

For the immediate future, we intend to direct our primary focus to our core business, delivering differentiated information technology and professional solutions to government agencies. While we will focus primarily on organic growth in the near term, part of our growth strategy includes selectively pursuing strategic acquisitions to complement and accelerate internal growth by adding new capabilities, customers, solutions and related intellectual property. From July 1, 2006 through June 30, 2009, we completed the following acquisitions:

Acquisition                      Strategic Value            Closing Date       Purchase Price
                                                                               (in millions)
RABA Technologies, LLC           Intelligence             October 26, 2006    $           95.3
Constella Group, LLC             Health Sciences and      August 9, 2007                 191.3
                                 Drug Development
Interface and Control            Product Development      July 2, 2008                     8.5
Systems, Inc.                    and Engineering
                                 Services
Era Systems Corporation          Advanced Surveillance    July 30, 2008                  125.5
                                 Technologies

Contract Backlog

Future growth is dependent upon the strength of our target markets, our ability
to identify opportunities, and our ability to successfully bid and win new
contracts. Our success can be measured in part based upon the growth of our
backlog. The following table summarizes our contract backlog at the end of the
year.



                                           Year Ended June 30,
                                      2009        2008        2007
                                              (in millions)
                    Backlog:
                    Funded          $   761.8   $   676.5   $   600.4
                    Unfunded          3,297.7     3,182.7     2,809.8

                    Total backlog   $ 4,059.5   $ 3,859.2   $ 3,410.2

Our total backlog of $4.1 billion as of June 30, 2009 represented a 5.2% increase over the June 30, 2008 backlog. Included in backlog at June 30, 2008 was $156 million of contract awards that were protested and ultimately lost by SRA. Excluding protested contracts, our year-over-year backlog growth was 10%. We no longer include protested awards in backlog until the protest is resolved. Our backlog includes orders under contracts that in some cases extend for several years, with the latest expiring during calendar year 2015. Congress often appropriates funds for our clients on a yearly basis, even though their contract with us may call for performance that is expected to take a number of years. As a result, contracts typically are only partially funded at any point during their term and all or some of the work to be performed under the contracts may remain unfunded unless and until Congress makes subsequent appropriations and the procuring agency allocates funding to the contract.

We currently expect to recognize revenue during fiscal 2010 from approximately 23% or $950 million of our total backlog as of June 30, 2009. Of this amount, approximately $570 million is included in funded backlog and $380 million is included in unfunded backlog under multi-year contracts. The amount of revenue that we expect to recognize from backlog is calculated by summing forecasted revenue for the remainder of the fiscal year for each project included in backlog. The primary risks that could affect our ability to recognize such revenue are program schedule changes and contract modifications. Additional risks include the unilateral right of the government to cancel multi-year contracts and related orders or to terminate existing contracts for convenience or default, and, in the case of unfunded backlog, the potential that full funding may not be available.

Contract mix

Contract profit margins are generally affected by the type of contract. We can typically earn higher profits on fixed-price and time-and-materials contracts than on cost-plus-fee contracts. Thus, an important part of growing our operating income is to increase the amount of services delivered under fixed-price and time-and-materials contracts. The following table summarizes our historical contract mix, measured as a percentage of total revenue, for the periods indicated.

                                           Year Ended June 30,
                                     2009          2008          2007
              Cost-plus-fee              35 %          41 %          43 %
              Time-and-materials         43            42            42
              Fixed-price                22            17            15

Headcount and Labor Utilization

Because most of our revenue derives from services delivered by our employees, our ability to hire new employees and deploy them is critical to our success. As of June 30, 2009, we had 6,977 employees. Direct labor

utilization was 76.3%, 79.2%, and 78.8% for the fiscal years ended June 30, 2009, 2008 and 2007, respectively. Direct labor utilization is not considered a key metric for Era's business. Excluding Era, our direct labor utilization was 76.9% in fiscal year 2009.

Operating Margin

Operating margin, or the ratio of operating income to revenue, is affected by the mix of our contracts, how we bid and execute our contracts, and how we manage our costs. Our operating margins were 6.5%, 7.9%, and 7.3% for the years ended June 30, 2009, 2008, and 2007, respectively. During fiscal year 2009, we incurred severance costs of approximately $5.7 million which are included in the selling, general, and administrative expenses and cost of services on our consolidated statements of operations. Our operating margin for fiscal year 2009 was significantly impacted by operating losses of $8.1 million in the global clinical development (GCD) business, which was one of the businesses we acquired as part of Constella Group, LLC on August 9, 2007. Operating margin excluding the impact of the revenue and operating loss related to the GCD business would have been 7.2%.

Days Sales Outstanding

Days sales outstanding is a measure of how efficiently we manage the billing and collection of our accounts receivable, our most significant working capital requirement. The average number of days sales outstanding in accounts receivable was 75 days at June 30, 2009 compared to 77 days at June 30, 2008.

RESULTS OF OPERATIONS

The following tables set forth our consolidated statements of operations, the percent change in the captions between years, and the captions expressed as a percentage of revenue, for the periods indicated.

                                                               Year Ended June 30,
                                   2009            % Change            2008            % Change           2007
                                                                  (in thousands)
Revenue                         $ 1,540,556             2.2 %       $ 1,506,933            18.8 %      $ 1,268,872
Operating costs and
expenses:
Cost of services                  1,123,868             0.2           1,121,913            17.5            954,656
Selling, general, and
administrative                      287,853            19.8             240,340            20.0            200,204
Depreciation and
amortization                         30,021            18.8              25,263            19.2             21,187
Gain on sale of Constella
Futures Holding, LLC                 (1,939 )           0.0                  -              0.0                 -
Acquired in-process
research and development                900             0.0                  -              0.0                 -

Total operating costs and
expenses                          1,440,703             3.8           1,387,516            18.0          1,176,047

Operating income                     99,853           (16.4 )           119,417            28.6             92,825
Interest expense                     (5,526 )          68.1              (3,288 )             *                (35 )
Interest income                       2,283           (46.4 )             4,261           (32.5 )            6,311
Gain on sale of Mantas,
Inc.                                     -                *                 892           (75.7 )            3,674

Income before income taxes           96,610           (20.3 )           121,282            18.0            102,775
Provision for income taxes           38,610           (19.6 )            48,018            22.0             39,345

Net income                      $    58,000           (20.8 )%      $    73,264            15.5 %      $    63,430


                                                           (as a percentage of revenue)
Revenue                               100.0 %                             100.0 %                            100.0 %
Operating costs and
expenses:
Cost of services                       73.0                                74.5                               75.2
Selling, general and
administrative                         18.7                                15.9                               15.8
Depreciation and
amortization                            1.9                                 1.7                                1.7
Gain on sale of Constella
Futures Holding, LLC                   (0.1 )                                -                                  -
Acquired in-process
research and development                0.1                                  -                                  -

Total operating costs and
expenses                               93.5                                92.1                               92.7

Operating income                        6.5                                 7.9                                7.3
Interest expense                       (0.4 )                              (0.3 )                              0.0
Interest income                         0.2                                 0.3                                0.5
Gain on sale of Mantas,
Inc.                                     -                                  0.1                                0.3

Income before income taxes              6.3                                 8.0                                8.1
Provision for income taxes              2.5                                 3.1                                3.1

Net income                              3.8 %                               4.9 %                              5.0 %

Note: Totals may not foot due to rounding

* Year-over-year rate of change greater than 100%

Operating results for fiscal 2009 were significantly impacted by operating losses of $8.1 million in the GCD business. Market demand in the GCD business has been challenged by economic conditions in fiscal 2009, and we have responded by taking steps to reduce its costs and improve direct labor utilization. Our operating income, net income and diluted earnings per share excluding the impact of the GCD business would have been $107.9 million, $62.9 million, and $1.09, respectively. Operating income as a percentage of revenue excluding the impact of the revenue and operating loss related to the GCD business would have been 7.2%.

Revenue

Our revenue increased 2.2% to $1.54 billion in fiscal 2009 from $1.51 billion in fiscal 2008. Our increase in revenue was primarily acquisitive and driven by our acquisition of Era in July 2008. Organic revenue growth was 0.7% for the year. In May 2008, we were informed that we were not successful in our recompete bid for the Advanced Information Technology Services contract with the National Guard, which accounted for approximately 6% of our revenue in fiscal 2008. The contract ended during the first quarter of fiscal 2009 and significantly impacted our organic revenue growth in fiscal 2009. Revenues of $11.9 million related to Constella Futures Holding, LLC (Futures), which was sold in September 2008, were recorded in fiscal 2009 and will not be recurring.

Our revenue increased 18.8% to $1.51 billion in fiscal 2008 from $1.27 billion in fiscal 2007. Our increase in revenue was primarily acquisitive and driven by our October 2006 acquisition of RABA and our August 2007 acquisition of Constella which together accounted for approximately $182 million of additional revenue during fiscal 2008. Organic revenue growth was 2.9% for the year.

Cost of Services

Cost of services was $1.12 billion in both fiscal 2009 and 2008. As a percentage of revenue, cost of services decreased to 73.0% in fiscal 2009, from 74.5% in fiscal 2008, due primarily to a continued increase in our labor service mix relative to third-party materials.

Cost of services increased 17.5% to $1.12 billion in fiscal 2008, from $954.7 million in fiscal 2007. This increase in cost of services was due primarily to the increased volume of services attributable to the acquired RABA and Constella contracts. As a percentage of revenue, cost of services decreased to 74.5% in fiscal 2008, from 75.2% in fiscal 2007, due primarily to an increase in our labor service mix relative to third-party materials.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 19.8% to $287.9 million in fiscal 2009, from $240.3 million in fiscal 2008. Foreign currency exchange gains were $ 1.3 million for fiscal 2009 including gains of $0.3 million in the fourth quarter of 2009 on forward contracts we utilized to offset currency exchange risk between the Euro and Czech Koruna. As a percentage of revenue, selling, general and administrative expenses increased to 18.7% in fiscal 2009 from 15.9% in fiscal 2008. This represents a 280 basis points increase which was attributable to several factors including:

1) increased marketing, sales, business development and recruiting costs, which accounted for approximately 90 basis points of the increase;

2) selling, general and administrative expenses for our GCD business were approximately $24.4 million in fiscal 2009. Difficult economic conditions and lower business demand in GCD's market caused direct labor utilization to decline, leading to lower revenue and higher selling, general and administrative expenses in fiscal 2009. Efforts to right-size the business entailed employee severance packages that further increased selling, general and administrative expenses. The compound effect of these factors led to selling, general and administrative expenses amounting to approximately 63% of GCD's revenue. This in turn increased our overall selling, general and administrative expenses as a percent of revenue by approximately 120 basis points; and

Selling, general and administrative expenses increased 20.0% to $240.3 million in fiscal 2008, from $200.2 million in fiscal 2007. The increase in selling, general and administrative expenses was due primarily to our acquisitions of RABA and Constella. As a percentage of revenue, selling, general and administrative expenses increased slightly to 15.9% in fiscal 2008 from 15.8% in fiscal 2007. This increase as a percentage of revenue was primarily attributable to investments in marketing and sales and increased travel, infrastructure and compliance costs associated with our international operations.

Depreciation and Amortization

Depreciation and amortization increased 18.8% to $30.0 million in fiscal 2009, from $25.3 million in fiscal 2008. This increase was due to the amortization of identified intangible assets related to our acquisition of Era and an impairment charge of $1.1 million related to the long-term assets of our GCD business. As a percentage of revenue, depreciation and amortization increased to 1.9% in fiscal 2009 from 1.7% in fiscal 2008.

Depreciation and amortization increased 19.2% to $25.3 million in fiscal 2008, from $21.2 million in fiscal 2007. This increase was due to the amortization of identified intangible assets related to our acquisitions of RABA and Constella. As a percentage of revenue, depreciation and amortization remained constant at 1.7% for both fiscal 2008 and 2007.

Interest Expense

Interest expense increased to $5.5 million in fiscal 2009, from $3.3 million in fiscal 2008. This increase was due to additional outstanding borrowings under our credit facility primarily for the acquisition of Era. Average borrowings outstanding during fiscal year 2009 were $161 million. We expect that interest expense in future years will be positively affected by lower average borrowings outstanding.

. . .