FORWARD-LOOKING STATEMENTS

The matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will," and "would" or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position, or state other forward-looking information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to predict or control accurately. The factors listed or referred to in the section captioned "Risk Factors," as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties, and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Subsequent events and developments may cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

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 in addition to foreign and commercial clients, is currently over $150 billion in size, annually.

We work with our clients 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. To a lesser degree, 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; direct materials, such as hardware and software that we purchase for customer solutions; and other direct costs such as travel incurred to support contract efforts. Facility costs and stock compensation expense for employees performing work directly for our customers are also included in cost of services. 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 direct material purchases. Conversely, as subcontracted labor or direct material purchases 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 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, facilities management 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, our product offerings typically incur higher selling, general and administrative expenses as a percentage of revenue and lower cost of services as a percentage of revenue. Selling, general and administrative expenses include the salaries, wages, stock-based compensation, facility costs, plus associated fringe benefits of employees performing the services noted above in addition to transition labor due to delayed contract awards, and the impact of foreign currency fluctuations.

Depreciation and amortization includes depreciation of computers and other equipment, the amortization of software we use internally, the amortization of leasehold improvements, and the amortization of identified intangible assets. These 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. If we 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, depreciation and amortization, and other operating gains and losses, 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 year-over-year revenue growth rate was 6.4% for the three months ended September 30, 2009. Our revenue growth was organic and resulted from an increase in services provided to a broad base of customers.

We calculate organic growth by comparing our actual reported revenue in the current period, including revenue attributable to acquired companies, with adjusted revenue from the prior-year period. In arriving at prior-year revenue, we include the revenue of acquired companies and remove the revenue of divested companies for the prior-year periods comparable to the current-year periods for which the companies are included in our actual reported revenue. The resulting growth rate is intended to represent our organic, or non-acquisitive, growth year-over-year, including comparable period growth or decline attributable to acquired companies.

We compute our first quarter fiscal 2010 organic growth rate of 8.4% as follows:

                                                              Three months ended
                                                                 September 30,
                                                     2009          2008           % Increase
Revenue, as reported                               $ 417,499     $ 392,355               6.4 %
Plus: Revenue of acquired companies for the
comparable prior year period                              -          4,752
Less: Revenue of divested companies for the
comparable prior year period                              -        (11,940 )

Organic Revenue                                    $ 417,499     $ 385,167               8.4 %

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. 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.

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:



                                      September 30,    June 30,
                                          2009           2009
                                            (in millions)
                     Backlog:
                     Funded          $         832.2   $   761.8
                     Unfunded                3,706.2     3,297.7

                     Total Backlog   $       4,538.4   $ 4,059.5

Our total backlog of $4.5 billion as of September 30, 2009 represented an 11.8% increase over the June 30, 2009 backlog. 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.

Included in our total backlog as of September 30, 2009 is approximately $933 million of new contract awards made during the first quarter of fiscal 2010. A key measure of our business growth is the ratio of new contracts awarded in a quarter compared to the revenue recorded in the same period. In the first quarter of fiscal 2010, this book-to-bill ratio was 2.2 and was driven largely by the successful recompete award of our contract with the Federal Deposit Insurance Corporation (FDIC). Ideally, the level of quarterly business awards will continue to exceed the revenue booked in the quarter to drive backlog growth.

We currently expect to recognize revenue during the remaining three quarters of fiscal 2010 from approximately 18% or $810 million of our total backlog as of September 30, 2009. Of this amount, approximately $550 million is included in funded backlog and $260 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. We cannot guarantee that we will recognize any revenue from our 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.

We define backlog to include funded and unfunded orders for services under existing signed contracts, assuming the exercise of all options relating to those contracts, less the amount of revenue we have previously recognized under those contracts. Backlog includes all contract options that have been priced but not yet funded. Backlog also includes the contract value under single award indefinite delivery, indefinite quantity (ID/IQ) contracts against which we expect future task orders to be issued without competition. Backlog does not take contract ceiling value into consideration under multiple award contracts, nor does it include any estimate of future potential delivery orders that might be awarded under multiple award ID/IQ vehicles, government-wide acquisition contracts (GWACs), or General Services Administration (GSA) schedule contracts. We define funded backlog to be the portion of backlog for which funding currently is appropriated and obligated to us under a contract or other authorization for payment signed by an authorized purchasing authority. Backlog varies considerably from time to time as current contracts or delivery orders are executed and new contracts or delivery orders under existing contracts are won.

Contract Mix

When contracting with our clients, we enter into one of three basic types of contracts: cost-plus-fee, time-and-materials, and fixed-price.

• Cost-plus-fee contracts. Cost-plus-fee contracts provide for reimbursement of allowable costs and the payment of a fee, which is our profit. Cost-plus-fixed-fee contracts specify the contract fee in dollars. Cost-plus-award-fee contracts may provide for a base fee amount, plus an award fee that varies, within specified limits, based upon the client's assessment of our performance as compared to contractual targets for factors such as cost, quality, schedule, and performance.

• Time-and-materials contracts. Under a time-and-materials contract, we are paid a fixed hourly rate for each direct labor hour expended, and we are reimbursed for allowable material costs and out-of-pocket expenses. To the extent our actual direct labor and associated costs vary in relation to the fixed hourly billing rates provided in the contract, we will generate more or less profit, or could incur a loss.

• Fixed-price contracts. Under a fixed-price contract, we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less than the anticipated amount of profit or could incur a loss. Some fixed-price contracts have a performance-based component, pursuant to which we can earn incentive payments or incur financial penalties based on our performance.

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.

                                          Three months ended
                                             September 30,
                                         2009            2008
                   Cost-plus fee             36 %            37 %
                   Time-and-materials        40              41
                   Fixed-price               24              22

Operating Margin

Operating margin, or the ratio of operating income to revenue, is affected by the mix of our contracts and how we manage our costs. Our operating margins were 7.2% and 7.0% for the three months ended September 30, 2009 and 2008, respectively. The increase in operating margin is primarily due to general and administrative cost management efforts. This improvement was partially offset by the operating losses in our aviation business, severance costs of $0.9 million in our contract research organization (CRO) business, and an increase in lower margin direct material purchases made during the quarter. Refer to the "Results of Operations" section below for further detail.

Headcount and Labor Utilization

Because most of our revenue derives from services delivered by our employees, our ability to hire new employees and, retain and deploy them is critical to our success. We define direct labor utilization as the ratio of labor dollars recorded on customer engagements to total labor dollars. We include every working employee of the company in the computation. We exclude leave taken, such as vacation time or sick leave, so that we can understand how we are applying worked labor. As of September 30, 2009, we had 6,997 employees. Annualized voluntary attrition was 13.2% during the first quarter of fiscal 2010 compared to 18.0% in the same period of the prior year. Direct labor utilization was 77.3% and 77.1% for the three months ended September 30, 2009 and 2008, respectively.

Days Sales Outstanding

Days sales outstanding (DSO) is a measure of how efficiently we manage the billing and collection of our accounts receivable, our most significant working capital requirement. We calculate DSO by dividing accounts receivable at the end of each quarter, net of billings in excess of revenue, by revenue per day in the period. Revenue per day for a quarter is determined by dividing total revenue by 90 days. DSO was 76 days for the quarters ended September 30, 2009 and June 30, 2009. Prior to fiscal 2010 we calculated DSO using the average balance as opposed to the ending balance of accounts receivable. The change in calculation methodology increased DSO for the quarter ended June 30, 2009 from 75 days to 76 days.

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RESULTS OF OPERATIONS

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



                                                     Three months ended
                                                        September 30,
                                               2009                        2008                 % Change
                                                  (unaudited in thousands)
Revenue                                 $          417,499           $        392,355                6.4 %
Operating costs and expenses:
Cost of services                                   317,540                    295,465 (a)            7.5
Selling, general and
administrative                                      62,828                     63,565 (a)           (1.2 )
Depreciation and amortization                        7,144                      6,878                3.9
Gain on sale of Constella Futures
Holding, LLC                                            -                      (1,939 )               -
Acquired in-process research and
development                                             -                       1,100                 -

Total operating costs and expenses                 387,512                    365,069                6.1

Operating income                                    29,987                     27,286                9.9
Interest expense                                      (483 )                   (1,780 )            (72.9 )
Interest income                                        408                        772              (47.2 )

Income before income taxes                          29,912                     26,278               13.8
Provision for income taxes                          11,862                     10,864                9.2

Net income                              $           18,050           $         15,414               17.1 %


                                           (unaudited as a percentage of revenue)
Revenue                                              100.0 %                    100.0 %
Operating costs and expenses:
Cost of services                                      76.1                       75.3 (a)
Selling, general and
administrative                                        15.0                       16.2 (a)
Depreciation and amortization                          1.7                        1.8
Gain on sale of Constella Futures
Holding, LLC                                            -                        (0.5 )
Acquired in-process research and
development                                             -                         0.3

Total operating costs and expenses                    92.8                       93.0

Operating income                                       7.2                        7.0
Interest expense                                      (0.1 )                     (0.5 )
Interest income                                        0.1                        0.2

Income before income taxes                             7.2                        6.7
Provision for income taxes                             2.8                        2.8

Net income                                             4.3 %                      3.9 %

Note: Totals may not foot due to rounding.

(a) In the first quarter of fiscal 2010, we reclassified the portion of rent and facility costs, as well as stock-based compensation expense related to employees who perform work directly for our clients from the caption "selling, general and administrative expenses" to the caption "cost of services." All prior period balances have been reclassified to conform to the current period presentation. See Note 1 to the condensed consolidated financial statements in Part I for details of the reclassification.

THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2008

Revenue

For the three months ended September 30, 2009, revenue was $417.5 million, which was an increase of 6.4% from $392.4 million for the three months ended September 30, 2008. Approximately 8.4% of our revenue growth was organic and resulted from an increase in services provided to a broad base of customers.

Cost of Services

For the three months ended September 30, 2009, cost of services was $317.5 million, which was an increase of 7.5% from $295.5 million for the three months ended September 30, 2008. As a percentage of revenue, cost of services increased to 76.1% for the three months ended September 30, 2009, from 75.3% for the three months ended September 30, 2008. This increase was due primarily to an increase in lower margin direct material purchases. Additionally, cost of services in the first quarter of fiscal 2010 reflects a $0.7 million benefit for a research and development incentive from the French government.

Selling, General and Administrative Expenses

For the three months ended September 30, 2009, selling, general and administrative expenses decreased 1.2% to $62.8 million, from $63.6 million for the three months ended September 30, 2008. As a percentage of revenue, selling, general and administrative expenses decreased to 15.0% for the three months ended September 30, 2009, from 16.2% for the three months ended September 30, 2008. This 120 basis point decrease was attributable to cost management efforts and approximately $1.1 million of foreign currency gains.

Depreciation and Amortization

For the three months ended September 30, 2009, depreciation and amortization increased 3.9% to $7.1 million, from $6.9 million for the three months ended September 30, 2008. The greater expense in the first quarter of fiscal 2010 was due to the inclusion of a full quarter of expense related to the amortization of . . .