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The following is an excerpt from a 10-K SEC Filing, filed by ANTEON CORP on 3/30/2001.
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ANTEON CORP - 10-K - 20010330 - BUSINESS

ITEM 1. BUSINESS

GENERAL

Anteon International Corporation ("Anteon" or the "Company"), headquartered in Fairfax, Virginia, is a leading information technology and e-business solutions company providing support to the federal government, commercial, and international sectors for 25 years. Anteon Corporation was renamed Anteon International Corporation effective January 1, 2001. Anteon was founded in 1976 and is incorporated in the Commonwealth of Virginia and employs approximately 5,000 full-time employees in the United States, Puerto Rico, England, Germany, Italy, Canada and Australia.

The Company possesses a strong Department of Defense foundation with growing federal civilian agency, international, and commercial market presence. Currently, the U.S. Navy is Anteon's largest federal customer. The Company works with contracting agencies throughout the Navy, including the Naval Sea Systems Command, Naval Undersea Warfare Center, Naval Surface Warfare Center, Space and Naval Warfare Systems Command and Centers, and various other naval research and fleet support agencies. The U.S. Air Force and U.S. Army are also important defense customers. Among Anteon's significant federal civilian agency customer base, the General Services Administration ("GSA"), the Federal Emergency Management Agency ("FEMA"), United States Postal Service, and Department of Transportation are key among over 30 agencies served.

SERVICES AND PRODUCTS

The U.S. federal government is among the world's largest purchasers of information technology. Due to projected increases in federal government outsourcing, the volume of information technology services procured from contractors is expected to increase by approximately 5.9% annually to 2002. Anteon believes that the federal government will continue to turn to technology solutions to enhance productivity and reduce costs, given the emphasis on downsizing, as well as budget constraints for large new projects. The Company also believes that expenditures will focus on upgrading existing equipment and systems, including many that Anteon has designed and currently supports.

ANTEON STRATEGIC BUSINESS UNITS

Anteon offers a full spectrum of information technology, e-business, and engineering solutions. The Company is organized into strategic business units, which operate in a closely coordinated fashion in order to leverage the full breadth and depth of Anteon's extensive technical resources. These units are: Information Systems Group ("ISG"); Systems Engineering Group ("SEG," formerly known as Techmatics); Engineering and Information Technology Group ("E&ITG," formerly part of Analysis & Technology, Inc.); Sherikon ("SESG":
Science and

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Systems Engineering Group), a wholly owned subsidiary; Applied Technology Group ("ATG"); Systems Integration Group ("SIG," formerly part of Analysis & Technology, Inc.); Products and Application Services Group ("PAS"); Interactive Media Corporation ("IMC," formerly a subsidiary of Analysis & Technology, Inc.) a wholly owned subsidiary and Enterprise Ventures Group ("EVG"). A brief description of each strategic business unit follows.

INFORMATION SYSTEMS GROUP

The Information Systems Group provides system integration and a full spectrum of system life cycle information technology services. As a proven leader in developing complex applications, Anteon's teams of software engineers bring the latest database tools, application products and technologies, and web-based solutions to bear on customer needs. Anteon's communication services include the design, custom configuration and implementation of data, voice, and video communication networks. The division provides its services through multiple contract vehicles including GSA Federal Supply Schedule, GSA CAPZONE, GSA ANSWER and Department of Transportation ITOP.

Key ISG customers include the U.S. Army, U.S. Air Force, Defense Finance and Accounting Service, FEMA, Bureau of Indian Affairs and selected additional government and commercial organizations.

ISG developed the National Emergency Management Information System ("NEMIS") in support of the FEMA. NEMIS is an enterprise-wide Oracle-based client/server management information system that connects several thousand desktop and mobile terminals/handsets and provides FEMA with a fully mobile, nationwide response and disaster management system. The ISG continues to provide support and maintenance to the NEMIS system and we believe there may be significant opportunities to sell similar systems to individual states and foreign governments.

Anteon provides comprehensive logistics solutions that support, enhance, or replace existing federal agency operations. Anteon teams assist in reinventing supply chains, applying critical logistics support to products or systems, modernizing transportation networks, and supplementing deployment capabilities. Specific tasking includes work in supply and value chain management services, acquisition logistics, distribution and transportation logistics services, and deployment logistics services. A key example of the Group's logistics work is the U.S. Air Force Cargo Movement Operations System ("CMOS") project, which began as a systems development and integration contract and has evolved into an end-to-end support relationship. The Company has been supporting CMOS since 1989 when it started to develop this mission critical system for the U.S. Air Force to automate cargo movement operations. CMOS is one of the largest open systems within the Department of Defense, and the first standard Air Force client server application to be installed at air bases worldwide. The CMOS project involved full systems development, end-to-end support, integration of commercial off-the-shelf ("COTS") systems and custom developed software, configuration management, maintenance implementation, and training.

ISG also provides custom training and performance solutions across all major computer platforms and delivery systems, with many years of consulting, performance improvement and training services experience. ISG's computer programmers and consultants use web-based delivery

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systems and multimedia technology, including computer generated graphics, animation, full motion video and high fidelity audio to develop multimedia training solutions that achieve customer training objectives. The Group's multimedia technologies are platform and tool independent, allowing them to be easily integrated into any computer environment. An example of Anteon's work in this area is support for U.S. Army Life Cycle Software Engineering ("LCSE") Simulation Centers. Anteon provides software development and engineering services for constructive training devices at over 40 locations throughout the continental United States, Europe, and in Korea. Simulation Centers provide computer-driven simulations capable of training Army forces for a wide range of missions.

ISG also provides system life cycle engineering for command, control, computers, communications, intelligence, surveillance and reconnaissance ("C4ISR") systems. Clients include the U.S. Department of Defense, North Atlantic Treaty Organization ("NATO"), and the U.K. Ministry of Defence. An example of this work is the Linked Operations/Intelligence Centers Europe ("LOCE") for NATO, which provides a common data structure enabling the rapid distribution of tailored intelligence data to support coalition operations during peacetime, in crisis, or war. ISG supports the LOCE program by providing software and hardware maintenance, communications engineering, formal classroom and on-site training, and hardware/software configuration management.

ISG's Dayton Operation conducts materials science research and development efforts and covers the spectrum of basic research and exploratory and advanced development efforts for the Air Force's Research Laboratory including helping to design, build and operate the largest continuous wave gas laser in the United States, located at Wright Patterson Air Force Base.

SYSTEMS ENGINEERING GROUP

The Systems Engineering Group ("SEG") provides fleet support and system life cycle engineering primarily for the U.S. Navy surface community. Projects on which SEG is engaged include the Ballistic Missile Defense Program, the Cruise Missile Defense Program, the Ship Self Defense Program and the Navy Theater Air Defense program. SEG was also recently selected to provide systems engineering support for the next generation destroyer, the new attack submarine and the new aircraft carrier programs.

SEG also supports all aspects of the U.S. Navy's AEGIS Program, including ship design, construction and maintenance; AEGIS combat system engineering and testing; and the engineering and introduction of a Theater Ballistic Missile Defense capability in AEGIS.

An example of SEG's work is support for the Program Executive Office ("PEO") Surface Strike and the acquisition of the Navy's newest surface combatant, USS Zumwalt (DD-21). Anteon provides a broad range of professional and technical services including supporting ship design in a total ship computing environment, system life cycle engineering, and logistics planning support. The total ship computing environment utilizes advanced computer systems to reduce required manpower while maintaining safety and enhancing mission readiness aboard ship. Tasking also includes evaluation of commercial off-the-shelf software and hardware, test and evaluation of ship systems, and the development, acquisition and integration of DD-21 combat systems. Elements of the combat systems supported include multi-function and volume search radar, and advanced gun and undersea warfare systems. Anteon also provides PEO

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Surface Strike with business and financial management process development, and supports the Advanced Land Attack Missile and Integrated Power Systems program offices.

ENGINEERING & INFORMATION TECHNOLOGY GROUP

E&ITG strategically combines engineering, ship design, and combat systems expertise with acquisition and program management support services to further the Company's strategy of positioning itself as a provider of end-to-end services for technology-based solutions. The Group provides technical expertise in key undersea warfare areas such as hull-form design, acoustic signature modeling, structural mechanics, signal processing, machinery design, and development of tactical decision aids. E&ITG performs theoretical and applied research to reduce signatures and improve survivability in combatant ships and vehicles.

Key customers of E&ITG include the Naval Undersea Warfare Center ("NUWC"), the Naval Surface Warfare Center ("NSWC"), the Office of Naval Research ("ONR"), and the Naval Sea Systems Command ("NAVSEA").

E&ITG provides system life cycle services including (1) requirements definition; (2) systems engineering and integration; (3) testing and evaluation; and (4) system upgrades. For example, the Group provides system engineering support for the Virginia Class, the next generation of attack submarine. In addition, the Group is developing prototype communication software in support of the U.S. Navy's IT-21 initiative that will incorporate COTS technology to speed solutions to the fleet.

Another example of E&ITG's work is support for ONR's Power Electronic Building Block ("PEBB") Program, where the goal is to reduce new ship construction costs as well as maintenance costs by providing a smart multifunction device that interfaces between the ship's machinery, systems and power supply. To facilitate this, the Group's machinery research and development engineers are designing and developing a new class of programmable electronic power modules for shipboard power control and conversion. This includes providing engineering support from requirements definition to design, development, prototyping and device fabrication and installation.

E&ITG also specializes in developing tactical decision aids primarily for the U.S. Navy. The Group's capabilities include (1) software development,
(2) telecommunications/networking, (3) database systems, (4) COTS product integration, (5) training, (6) simulation and (7) modeling and data fusion. The Group helps customers improve the capability, responsiveness, and reliability of their systems through advanced network architectures and user friendly software platforms. The Company is providing COTS solutions to develop a high-technology graphical user interface ("GUI") for the Advanced Systems Technology Office of the NAVSEA. The Company was also selected by the Naval Research Laboratory to perform research and development on the Meteorology and Oceanography ("METOC") database, a system that reduces event-triggered human decision errors. The METOC system was selected by NATO as the standard for the Allied forces' environmental analysis systems.

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SHERIKON

Sherikon, Inc. is a wholly owned subsidiary of the Company, offering system engineering, information systems, telecommunications, health service information systems, and aerospace systems technical services. Anteon acquired all of the outstanding stock of Sherikon, Inc. on October 20, 2000, as previously reported. Subsidiary headquarters are in Chantilly, Va., with 14 Sherikon offices and numerous work sites located in 21 states, and Puerto Rico, Germany, and Italy.

Key customers include the Department of Defense, Department of Justice, Department of Transportation; General Services Administration; the states of California, Florida, Texas, Pennsylvania; and several municipalities.

An example of Sherikon's support is work for the U.S. Army Medical Material Development Activity ("USAMMDA"), where Sherikon is a subcontractor to Cambridge Consulting Corporation. Tasking includes preparation of briefings, technical assessments, and decision papers required by the DOD 5000 series of directives to manage the acquisition process. The types of products supported include medical devices, equipment and systems; drugs; vaccines; diagnostics; and therapeutics.

APPLIED TECHNOLOGY GROUP

The Applied Technology Group provides information technology, engineering and environmental services to a wide variety of customers predominately in the western U.S. through various customer specific and GSA contracts or Schedules. The Group's client base includes, among others, the U.S. Navy, Army Corps of Engineers, Air Force, the Environmental Protection Agency, the GSA, Bonneville Power Administration, and the Department of Interior.

An example of ATG's work is support for the Space and Naval Warfare Systems Command in San Diego ("SPAWAR"). Anteon provides systems engineering, system integration, fleet installation, configuration management, and foreign military sales ("FMS") services for the Advanced Tactical Data Link Systems ("ATDLS"). As part of the ATDLS environment, Anteon supports the Joint Tactical Information Distribution System ("JTIDS"), Link-16, 11, and 22 tactical data link programs, Submarine TADIL-J ("S-TADIL-J"), Link Missile Tactical Terminal ("LMT2"), Multi-TADIL, and Multifunctional Information Distribution System ("MIDS") projects. These data links provide the backbone and architecture for tying together various information and communication systems networks, thereby allowing the decision-maker a clear perspective of the situation. The networks are intended to bring together the collection and dissemination of information from platforms ranging from satellites to submarines, tanks to cruise missiles, and ground stations to advanced fighter jets and AEGIS cruisers.

Another example of the type of services provided by ATG is the engineering and information technology support provided to the U.S. Navy's Site Characterization and Analysis Penetrometer System ("SCAPS") since 1994. SCAPS is an innovative technology developed initially by the SPAWAR Systems Center in San Diego in partnership with the Naval Facility Command ("NavFac") and Anteon. Geologists use SCAPS to rapidly characterize subsurface conditions at sites for real-time data processing of on-site evaluations. The Company also

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performs environmental compliance audits, compliance management planning, pollution prevention surveys and monitoring, environmental exposure and prediction models, as well as develops computer-based interactive courseware for Occupational Safety and Health Administration ("OSHA") training.

SYSTEMS INTEGRATION GROUP

The Systems Integration Group ("SIG") provides full life cycle combat and ocean systems engineering, including requirements definition, system engineering, test and evaluation, fabrication/production, and in-service engineering.

Key customers include the Fleet Technical Support Center, Atlantic, Naval Sea Systems Command, Philadelphia, Supervisor of Ship Building ("SUPSHIP"), Portsmouth, Coastal Systems Station, Panama City Beach, and the Naval Research Laboratory.

For the Fleet Technical Support Center Atlantic, SIG provides technical support services on combat, hull, mechanical and electrical ("HM&E"), and undersea systems. The work includes equipment installations, inspections, testing, and modernization upgrades, as well as training, for equipment aboard both surface ships and submarines of the Atlantic Fleet. Many of the modernization upgrades are consistent with the Navy's COTS procurement philosophy.

Supporting the Naval Sea Systems Command, SIG is the Navy's leading provider of technical services for the state-of-the-art Smart Ship System. Smart Ship is an IT-based shipboard maintenance system, which replaces many of the manual maintenance programs with automated diagnostic tools. Smart Ship is a key strategy in the Navy's introduction of the new series 21st century surface combatants, including the DD-21 class destroyer. SIG also provides technical support and engineering services for ship maintenance and repair aboard active U.S. Navy ships for SUPSHIP, Portsmouth. The work includes shipboard system installation, modification, repair, testing, and removal. The subject systems include propulsion, ordnance, electronic, navigation, command and control, and electronic warfare systems. In the area of ocean engineering, including meteorological and oceanographic systems, SIG is a leading information technology and engineering contractor for the Naval Research Laboratory and the Coastal System Station. SIG is providing services that include cyclone-modeling, data acquisition and processing for weather satellites, upgrade and maintenance of diving and salvage systems, and the development of mine warfare systems for both identification and removal of mine-like objects.

SIG is well positioned to develop the application of Anteon's full spectrum of engineering services as the Navy evolves its full service contracting concept. Full service contracting is expected to establish new dynamics for the maintenance of U.S. Navy ships and their systems, with prime contractors responsible for building ships as well as assuring that each ship is ready for operational deployment throughout its life cycle.

This Group is also heavily involved in the Navy's SmartCard program. SIG provides program management support services for the Navy's SmartCard Program Office, as well as procurement, warehousing, and drawing and documentation development for various clients. The Group also supports smart podium design and battle group installations as well as life-cycle maintenance, including 24/7 help desks. SIG offers ship and shore networking (hardwire and

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wireless), biometrics and physical reader interfacing, authentication and encryption, and peripheral component compatibility assurance.

PRODUCTS AND APPLICATION SERVICES GROUP

The Product Applications and Services Group sells a wide variety of software products, maintenance, and other services and training to the federal government through Anteon's GSA Federal Supply Schedule contracts and reseller agreements. Products include offerings from Oracle, IBM/Lotus, Microsoft, and Siemens. The Company frequently builds new consulting engagements around the sale of these products to new customers. Some software products offered are the result of strategic partnerships and alliances the Company has developed to better serve its customers. Currently the Company's strategic alliances include, but are not limited to:

Oracle: Anteon's status as a Certified Solution Partner in the Oracle Partner Program allows the Company privileged access to Oracle's leading Internet-based development and deployment technologies.

IBM: Anteon is an IBM Member Business Partner, a program emphasizing complete business and e-business solutions. Anteon has also been designated a "Government Specialty for e-business" Partner by IBM. The Government Specialty for e-business distinction recognizes that Anteon possesses a strong portfolio of government applications compliant with IBM's government portal architecture and application framework for e-business.

Information Builders, Inc. ("IBI"): Anteon and IBI are partners focused on enabling e-government with user-focused, Web-based business intelligence. Sharing and expanding expertise, both companies work to enable customers to use more of the latest technologies, such as the Internet, intranets and mobile devices, while maximizing existing infrastructure investments in mainframe and legacy systems.

INTERACTIVE MEDIA CORPORATION

Interactive Media Corporation ("IMC"), provides custom training and performance solutions across all major computer platforms and delivery systems. IMC has established positions in telecommunications and financial services as well as in the rapidly growing web-based training market. IMC has many years of consulting, performance improvement and training services experience. Since 1990, IMC's personnel have developed thousands of hours of interactive media courseware. IMC's computer programmers and consultants use web-based delivery systems and multimedia technology, including computer generated graphics, animation, full motion video and high fidelity audio to develop training solutions that are both educational and expedient to the end user. The unit's multimedia technologies are platform and tool independent, allowing them to be easily integrated into any company's computer environment.

ENTERPRISE VENTURES GROUP

The Enterprise Ventures Group incubates new products and services to develop new markets for Anteon. Descriptions of current businesses within this group follow.

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Anteon-CITI, LLC, a joint venture, offers a suite of software products to federal, state, and local law enforcement agencies in the U.S., Canada and Mexico. Its flagship offering, Special Investigative Unit Support System ("SIUSS"), is an Oracle and Windows-based product providing an analytical system for criminal investigations by drawing together intelligence gathered during a criminal investigation and assisting in the identification of patterns of criminal activity. Companion products include Speedload, which overcomes the problem of multiple data entry, Graphics, which provides visual results of many of the SIUSS analytical reports, and Insight, which gives the investigator the ability to perform many functions of an intelligence analyst.

The Center for Information Technology Education ("CITE"), a business unit of Anteon Corporation, offers Oracle, Java and E-Commerce education programs which enable adult learners to transition to IT careers through evening and weekend classes. CITE has also established its first satellite center at Norfolk, Virginia and has partnered with three universities in the region in order to offer its students continuing education credits or graduate degree credits. CITE has also established Rockwell University, authorized by the State of Virginia to enroll students in a graduate masters degree program in E-Commerce.

Pocketmultimedia(TM), a business unit of Anteon Corporation, is a digital entertainment technology unit providing proprietary video compression technologies developed by the company. Pocketmultimedia's products provide solutions for creation and playback of streaming video and audio solutions for wireless and handheld applications. The unit was formed to focus on video and audio over Internet protocol networks, as well as playback of pre-recorded content on handheld PDA platforms.

DisplayCheck(TM), a business unit of Anteon Corporation, provides PC-based, automated optical inspection systems to conduct automated, cost effective, functional testing of microdisplays, including liquid crystal displays ("LCD") and light emitting diode ("LED") panels. The system provided by DisplayCheck(TM) includes hardware and software for image acquisition, device-under-test ("DUT") interface and image processing for defect identification in optical projection devices used in computers, projectors, and high definition televisions, among other commercial units.

CONTRACTS

GOVERNMENT BIDDING OVERVIEW

There are several different processes through which a Federal government agency will solicit bids. The following is a summary of the typical bidding process which government contractors such as the Company encounter. If a Federal government agency has a requirement, such as the upgrade of a management information system, the agency makes a brief announcement of its requirements in the COMMERCE BUSINESS DAILY or on a government electronic bulletin board to which contractors like the Company have access. Interested contractors then submit packages expressing their interest and highlighting their qualifications. The agency responds to those contractors it deems preliminarily qualified by providing them with a request for a proposal ("RFP") or similar solicitation. The RFP is an extensive document describing the desired services and terms and conditions that will form the final agency contract. The RFP includes a statement of

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the criteria according to which bids will be evaluated (usually focusing on price, past performance and quality of technical/management plan). Bidders then submit proposals in response to the RFP. The agency evaluates all the proposals and announces the winner. This process can take up to a year.

The competitive process for a multiple award contract procurement is similar to that described above, except that the government awards multiple contracts to a selected group of contractors, rather than a single contract. Federal agencies desiring to procure goods and services through a particular multi-agency contract such as GSA ANSWER, will request the servicing agency (for example, GSA) to initiate a limited competition among the selected awardees, resulting in the issuance of a task order to a single contractor. A task order calls for a specific set of services to be delivered by the contractor to a particular client agency. Competition for task orders among initial awardees can be intense and often focuses on price, because the initial awardees are already qualified to supply the service through the initial award of the government contract vehicle. However, the Company's experience has been that after winning a task order and effectively providing the requested services, it will typically receive successive task orders from the same agency for follow-on services. The Company's experience has also been that the key factors in bidding successfully for these Federal government contracts are technical capabilities, past performance, competitive prices and reputation.

TYPES OF CONTRACT VEHICLES

The Federal information technology procurement environment has changed dramatically in recent years. Federal government agencies traditionally procured information technology solutions through agency-specific contracts awarded to a single contractor or contractor team. Several statutory and regulatory changes have significantly altered Federal government procurement practices. The number of procurement "vehicles" available to Federal government customers to satisfy their requirements has increased dramatically in recent years. Federal government agencies are now more likely to use flexible contract vehicles that permit multiple sources to compete for specific orders. The Company believes these trends are likely to continue.

IDIQ ("Indefinite Delivery Indefinite Quantity") contracts are essentially umbrella contracts that set forth the basic terms and conditions under which the Federal government may order goods and services from one, and in some cases, more than one, contractor. Such contracts will also specify the labor and other costing rates that will apply to services that may be the subject of task orders under those contracts. IDIQ contracts may be awarded to a single contractor, or to multiple contractors. Multiple-award IDIQ contracts are increasingly being used for large-scale Federal government purchases of services and/or integrated systems that may include a significant service or maintenance component, along with the provision of computer hardware and software. The periods of performance for IDIQ contracts usually span a base year and a number of option years. IDIQ contracts do not obligate the Federal government to purchase goods or services at the maximum levels set forth in the contract.

Federal government agencies also frequently purchase information technology services and products through other contract vehicles such as GSA Federal Supply Schedules. GSA awards such indefinite quantity fixed price contracts to companies for stated periods of time through which individual agencies may place orders, receive shipments and make payments directly to contractors.

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In order for a company to provide services under a GSA Federal Supply Schedule contract, the company must be pre-qualified and selected by the GSA. In the information technology service sector the three ratings criteria employed by the GSA for pre-qualification are technical skills, price and a history of excellence in government contract administration. The Company currently has several GSA Federal Supply Schedule contracts.

The changed federal government procurement environment presents suppliers such as the Company with a number of challenges. For example, a substantial amount of marketing must be done after winning the initial contract in order to win subsequent delivery and task orders. The Company's experience has been that the changed environment for government contractors has on balance been highly favorable to suppliers such as the Company that have a wide range of technological capabilities, are very focused on cost control and have a high degree of sophistication and experience in government contracting. First, these more flexible forms of contract vehicles provide for very sizable revenue generation opportunities. Second, these vehicles permit the Company to market its services to a much wider range of customers than was possible under more traditional contracting vehicles. Third, the current environment tends to favor entities that have the size and technological breadth to offer a variety of services because the umbrellas provide for broader opportunities. Finally, the Company has found that this environment encourages building longer term and stable supplier/customer relationships because there are often a number of contract vehicles under which Federal agencies may be able to direct work to preferred contractors. This tends to lessen the risks to customer and supplier of going through recompetes in order to continue to transact business, and provides a reward for suppliers such as the Company that establish a reputation for quality and integrity.

CONTRACT PAYMENT TYPES

The contract vehicles described above employ various payment methodologies. Contracts are typically referred to as time and materials contracts, cost-plus contracts and fixed-price contracts. Each of these contract payment types is described below.

TIME AND MATERIALS CONTRACTS

Some of the Company's largest contracts are negotiated on the basis of time and materials. Under this type of contract, a contractor is paid a fixed hourly rate for direct labor hours expended. Labor costs, overhead and profit are included in the fixed hourly rate. Materials, subcontractors and other direct costs are reimbursed at actual costs-plus general and administrative expenses depending on the Strategic Business Unit's ("SBU") disclosed cost practices and, in some instances, an agreed-upon percentage of profit. A contractor makes critical pricing assumptions when proposing fixed labor rates for a time and materials contract and risks loss of profitability on time and materials contracts if its actual costs exceed assumed costs.

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COST-PLUS CONTRACTS

Cost-plus contracts provide for reimbursement of costs, to the extent that such costs are allowable, and the payment of a fixed "fee," which is essentially the profit negotiated between the contractor and the contracting agency. Cost-plus incentive fee and cost-plus award fee contracts provide for increases or decreases in the contract fee, within specified limits, based upon actual results as compared to contractual targets for factors such as cost, quality, schedule and performance. The fee is either fixed at the time of award (fixed-fee), earned at a fixed hourly rate as hours of service are provided (hourly-fee), or is awarded based on performance, at the sole discretion of the Government (award-fee). The majority of the Company's cost-reimbursement contracts are either cost-plus-fixed-fee or cost-plus-hourly-fee contracts. The contracts may either require completion of defined tasks or delivery of a specific number of hours of service. The current trend continues to be to contracts of the latter type. The total of the cost and the fee cannot exceed the ceiling set forth in the contract. If a contracted task has not been completed or the specific number of hours of service have not been delivered at the time the authorized cost is expended, the Company may be required to complete the work and will be reimbursed for the additional costs but will not receive an additional fee or the fee may be prorated proportionately to the number of hours actually provided. To date, the impact of such revisions has not been material.

FIXED PRICE CONTRACTS

Under fixed price contracts, a contractor agrees to perform specified work for a fixed-price and, accordingly, there is greater risk of performing on the contract.

The following table gives the approximate percentages of the Company's revenues realized from the three basic contract types during the periods indicated for its continuing operations:

                                FISCAL YEARS ENDED DECEMBER 31,
                                -------------------------------
CONTRACT TYPE                  1997     1998     1999     2000
-------------                  ----     ----     ----     ----
Cost-Reimbursement               23%      34%      37%      41%

Time-and-Materials               61%      47%      38%      31%

Fixed-Price                      16%      19%      25%      28%
                                 --       --       --       --
Total Company                   100 %    100 %    100 %    100%

FEDERAL GOVERNMENT RECEIVABLES

Almost all of the Company's accounts receivable are derived from Federal government agencies. An account receivable from a Federal government agency enjoys the overall credit worthiness of the Federal government, even though each such agency is a separate agency with its

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own budget. Pursuant to the Prompt Payment Act, payments from government agencies must be made within 30 days of final invoice or interest must be paid. However, changes in Federal government contracting policies could directly affect the Company's financial performance, and its continued performance under government agency contracts, or the award of additional contracts from these agencies could be materially adversely affected by spending reductions or budget cutbacks at these agencies. Also, Federal government prime contracts typically span one or more base years and one or more option years, often covering more than half of the contract's potential duration. Federal government agencies have the right not to exercise these option periods and to terminate their contracts on short notice, with or without cause. Further, the award of all Federal government contracts is generally subject to protest by disappointed competitors.

REGULATION

The passage of the Information Technology Management Reform Act ("ITMRA") in late 1996 resulted in major changes in Federal government procurement rules governing the acquisition of information technology goods and services. The ITMRA changed the government's process for procuring information technology by (1) placing increased attention on the cost-effectiveness of information technology, return on investment and performance and (2) allocating to individual agencies authority and accountability for information technology budgets. These trends are expected to result in increased interagency coordination and sharing of expense and fewer proprietary or single agency solution systems. We believe that suppliers such as the Company benefit from these trends. As a result of the ITMRA, multiple-award IDIQ government-wide contracts are the preferred vehicle for procuring information technology. Accordingly, contractors have a decreased need for large-scale investment in bid and proposal activities and an increased need to commit marketing resources to identify and capture tasks under existing contracts.

Federal government contracts are subject to the Federal Acquisition Regulations ("FAR") and other agency FAR supplements. Major contracts are also subject to the Truth in Negotiations Act ("TIN Act") and Cost Accounting Standards ("CAS"). Among other procurement regulations, the FAR contains the cost principles for setting contract prices while the TIN Act requires the Company to provide current, accurate and complete cost or pricing data in connection with the negotiation of a contract. CAS requires consistency of accounting practices over time and compliance with specific cost accounting criteria.

To the extent that a company fails to comply with procurement requirements, the Federal government may demand an adjustment in contract prices. Additionally, changes in cost accounting practices are subject to a required procedure for negotiation of the cost of the change. The Federal government is protected from paying increased costs resulting from a contractor's accounting changes.

The books and records of the Company are subject to audit by the Defense Contract Audit Agency ("DCAA"), which can result in adjustments to contract costs and fees as well as penalties and interest costs. The Government retains a portion of the fee earned by the Company until contract completion and audit by the DCAA. Audits of the Company by DCAA have been completed for all fiscal years through 1997 without material adjustments. In the opinion of management, the audits for fiscal years 1998, 1999 and 2000 will not result in adjustments

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having a material adverse effect on the Company's financial position or results of operations. However, no assurances can be given that future material adjustments will not be required.

BACKLOG

The Company's total backlog represents the aggregate contract revenue remaining to be earned by the Company at a given time over the life of its contracts. When more than one company is awarded contracts for a given work requirement, the Company includes in total backlog its estimate of the contract revenue it expects to earn over the remaining life of the contract. Funded backlog consists of the aggregate revenue remaining to be earned at a given time under (a) contracts for which funding has been contractually committed to the Company in writing by a procuring Government agency, and (b) contracts with non-Government customers. Unfunded backlog is the difference between total backlog and funded backlog.

The Company, like most of its competitors, possesses a substantial backlog of several hundred contracts that provide potential multi-year revenues. Most of the contracts are operational over a one to ten-year period. In the past, the Company has generally been successful in substantially expanding the scope and size of our principal contracts. The Company's estimated total contract backlog as of December 31, 2000 was $2.8 billion, with an additional $653 million of bids outstanding. As of December 31, 2000, $307.9 million of the estimated total contract backlog was funded.

CUSTOMERS

The Company is one of a select group of qualified suppliers of information technology services to the Federal government. Domestically, the Company services more than 60 agencies, bureaus and divisions of the U.S. Federal government, Cabinet-level agencies and all branches of the military services, which customers provide approximately 90% of the Company's aggregate revenues. State and local governments, international clients and the commercial sector provide the remaining 10%. In particular, the Company has an established track record of providing quality services to the U.S. Navy. The Company maintains contracts with approximately 30 different U.S. Navy organizations. These Navy organizations independently contract for our services and generated approximately 47% of the Company's 2000 revenues. The General Services Administration (GSA), the Environmental Protection Agency and FEMA constitute the largest civil government customers of Anteon and its subsidiaries.

Approximately 59% of the IMC subsidiary's revenues were generated from commercial customers. These customers include FORTUNE 500 companies primarily in telecommunications, financial services and information technology. IMC has developed training systems for companies such as MCI Worldcom, Ameritech, GTE, Royal Bank of Canada, National City Bank, SmithKline Beecham and Merck.

COMPETITION

The Federal information technology and engineering services industries are comprised of a large number of enterprises ranging from small, niche-oriented companies to multi-billion dollar corporations with a major presence throughout the Federal government. Because of the diverse requirements of Federal government clients and the highly competitive nature of large Federal contracting initiatives, corporations frequently form teams to pursue contract opportunities. Prime

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contractors leading large proposal efforts select team members on the basis of their relevant capabilities and experience particular to each opportunity. As a result of these circumstances, companies that are competitors for one opportunity may be team members for another opportunity. The Company frequently competes against the well-known firms in the industry as a prime contractor. Obtaining a position as either a prime contractor or subcontractor on large government-wide contracting vehicles is only the first step to ensuring a competitive position. Competition then takes place at the task order level, where knowledge of the client and its procurement requirements and environment are key to winning the business.

EMPLOYEES

The Company and its subsidiaries employ approximately 5,000 personnel. None of these employees are represented by collective bargaining agreements. Management believes its relationship with its employees is good.

EDGAR® is a federally registered trademark of the U.S. Securities and Exchange Commission. EDGAR®Online is not affiliated with or approved by the U.S. Securities and Exchange Commission.