DynCorp International 10-Q/A 2006 Q3 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 30, 2005

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 333-127343

DynCorp International LLC

(Exact name of registrant as specified in its charter)

Delaware	52-2287126
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
8445 Freeport Parkway, Suite 400, Irving, Texas	75063
(Address of principal executive offices)	(ZIP Code)

(817) 302-1460

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Explanatory Note

This Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q for the period ended December 30, 2005, as originally filed by DynCorp International LLC (the “Company”) on February 21, 2006, solely for the purpose of revising the percentage of earnings before interest and taxes calculations as presented in the table and the descriptive paragraph for the respective segments as presented in our Segment information in Item 2 of Part 1 for the three and nine months ended December 30, 2005 and December 31, 2004, respectively. No dollar amounts were revised.

This Amendment continues to speak of the date of the original filing and we have not updated the disclosures contained in this Amendment to reflect any events that occurred at a date subsequent to the original filing. In addition, the Company has amended Item 6 of Part II to reflect the filing of updated signatures pursuant to the Securities and Exchange Act of 1934, as amended, and certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002.

DYNCORP INTERNATIONAL LLC

Table of Contents

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets—April 1, 2005 and December 30, 2005 (unaudited)	2
	Condensed Consolidated Statements of Income—Three and Nine Months Ended December 31, 2004 and December 30, 2005 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows—Nine Months Ended December 31, 2004 and December 30, 2005 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Submission of Matters to a Vote of Security Holders	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
	Signatures	36

PART I—FINANCIAL INFORMATION

Item 1. Financial Information

DYNCORP INTERNATIONAL LLC

Condensed Consolidated Balance Sheets

(in thousands)

	Successor
	Dec 30, 2005			Apr 1, 2005
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,803		$	13,474
Receivables, net of allowances for doubtful accounts of $5,257 and $4,500, respectively		390,969			422,514
Deferred tax asset		1,375			—
Prepaid expenses and other current assets		29,306			26,248
Total Current Assets		446,453			462,236
Property and equipment, net of accumulated depreciation of $2,322 and $227, respectively		9,737			10,657
Other assets:
Goodwill		418,745			344,545
Tradename		18,318			18,318
Customer related intangibles, net of accumulated amortization of $33,877 and $5,094, respectively		256,504			285,287
Other intangibles, net of accumulated amortization of $2,744 and $383, respectively		6,627			7,083
Deferred financing costs, net of accumulated amortization of $2,524 and $383, respectively		17,297			19,438
Deferred income taxes		7,750			—
Other assets		2,045			629
Total Other Assets		727,286			675,300
Total Assets	$	1,183,476		$	1,148,193
Liabilities and Member’s Equity
Current liabilities:
Current portion of long-term debt	$	2,588		$	37,588
Accounts payable		104,867			135,677
Accrued payroll and employee costs		55,351			56,187
Accrued expenses—related party		11,843			8,866
Other accrued expenses		34,330			23,491
Income taxes		4,727			60
Total Current Liabilities		213,706			261,869
Long-term debt—less current portion		659,825			662,412
Other long-term liabilities		—			4
Commitments and contingencies
Member’s equity:
Member’s units, 100 outstanding		297,495			224,808
Retained earnings (accumulated deficit)		12,766			(922	)
Accumulated other comprehensive (loss) income		(316	)		22
Total Member’s Equity		309,945			223,908
Total Liabilities and Member’s Equity	$	1,183,476		$	1,148,193

See notes to condensed consolidated financial statements.

2

DYNCORP INTERNATIONAL LLC

Condensed Consolidated Statements of Income

For the Three Months Ended December 30, 2005 and December 31, 2004

(in thousands)

	Successor			Immediate Predecessor
	For the Three Months Ended
	Dec 30, 2005			Dec 31, 2004
	(unaudited)			(unaudited)
Revenues	$	553,561		$	469,541
Costs of services		498,523			419,155
Selling, general and administrative		21,013			17,818
Depreciation and amortization		10,563			1,493
Operating income		23,462			31,075
Other expense (income):
Interest expense		14,595			—
Other income		(113	)		(70	)
Income before income taxes		8,980			31,145
Provision for income taxes		3,389			9,905
Net income	$	5,591		$	21,240

DYNCORP INTERNATIONAL LLC

Condensed Consolidated Statements of Income

For the Nine Months Ended December 30, 2005 and December 31, 2004

(in thousands)

	Successor			Immediate Predecessor
	For the Nine Months Ended
	Dec 30, 2005			Dec 31, 2004
	(unaudited)			(unaudited)
Revenues	$	1,418,245		$	1,400,054
Costs of services		1,262,255			1,263,414
Selling, general and administrative		59,874			46,452
Depreciation and amortization		32,763			5,095
Operating income		63,353			85,093
Other expense (income):
Interest expense		42,278			—
Other income		(166	)		(130	)
Income before income taxes		21,241			85,223
Provision for income taxes		7,553			30,779
Net income	$	13,688		$	54,444

See notes to condensed consolidated financial statements.

3

DYNCORP INTERNATIONAL LLC

Condensed Consolidated Statements of Cash Flows

(in thousands)

	Successor			Immediate Predecessor
	For the Nine Months Ended
	Dec 30, 2005			Dec 31, 2004
	(unaudited)
Operating activities
Net income	$	13,688		$	54,444
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		33,390			5,737
Deferred financing costs amortization		2,141			—
Compensation expense related to Class B equity participation		998			—
Provision for losses on accounts receivable		683			2,949
Income from equity joint ventures		81			—
Deferred taxes		(6,187	)		—
Changes in current assets and liabilities:
Accounts receivable		30,862			(105,136	)
Prepaid expenses and other assets		(3,058	)		(14,471	)
Accounts payable and accruals		(23,283	)		44,919
Income taxes payable		4,847			(1,589	)
Net cash provided by (used in) operating activities		54,162			(13,147	)
Investing activities
Purchase of property and equipment		(1,338	)		(8,324	)
Proceeds from sale of property, plant and equipment		11			—
Payments for computer software upgrade		(2,153	)		—
Other, net		(58	)		(77	)
Net cash used in investing activities		(3,538	)		(8,401	)
Financing activities
Net transfers from parent company		—			32,884
Payments on credit facility		(35,000	)		—
Purchase of interest rate cap		(483	)		—
Payment of long-term debt		(2,587	)		—
Payments for offering expenses		(1,225	)		—
Net cash (used in) provided by financing activities		(39,295	)		32,884
Net increase in cash and cash equivalents		11,329			11,336
Cash and cash equivalents, beginning of period		13,474			6,510
Cash and cash equivalents, end of period	$	24,803		$	17,846

See notes to condensed consolidated financial statements.

4

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements

(unaudited)

(Dollars in Thousands)

Note 1—Basis of Presentation and Principles of Consolidation

Description of Organization

DynCorp International LLC (the “Company”) was a wholly owned subsidiary of DynCorp, which was acquired by Computer Sciences Corporation (“CSC”) on March 7, 2003. On February 11, 2005, CSC and DynCorp sold the Company to a newly formed entity, DynCorp International Inc., (the “Successor Parent”) affiliated with The Veritas Capital Fund II, L.P. (“Veritas”). The formation of the reorganized DynCorp International LLC is the result of transfers of net assets and other wholly owned legal entities by entities under common control. The Company refers to the foregoing transaction as the “2005 Acquisition.”

The acquisition by CSC and the 2005 Acquisition were accounted for under the purchase method, and accordingly the purchase prices were allocated to the net assets acquired based on estimates of the fair values at the dates of the acquisitions and, for the 2005 Acquisition, is subject to future adjustments. (See Note 3 for further discussion.) Therefore, the periods presented in the accompanying financial statements reflect a new basis of accounting beginning March 8, 2003 and February 12, 2005. The financial statements from March 8, 2003 to February 11, 2005 are referred to as the “immediate predecessor” period statements and the statements from February 12, 2005 forward are referred to as the “successor” period statements.

The Company filed a registration statement on Form S-4 for our senior subordinated notes with the Securities and Exchange Commission (the “SEC”) on August 9, 2005. The registration statement was declared effective by the SEC on November 8, 2005. The Company launched an exchange offer with respect to $320,000 million of the original senior subordinated notes, which expired at 12:00 midnight EST, on December 7, 2005. The Company exchanged approximately 99.9% of the original senior subordinated notes.

Our Successor Parent, DynCorp International Inc., filed a second amendment to the registration statement on Form S-1 with the SEC on November 30, 2005, relating to an initial public offering of its common stock. There can be no assurance whether our parent will complete the offering at all or what the terms of the offering will be.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries. These condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that all disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the related notes thereto included in the Index to Financial Statements section of the Registration Statement (File No. 333-127343) on Form S-4, Amendment No. 3, filed with the SEC on November 4, 2005, originally filed with the SEC on August 9, 2005.

In the opinion of management, all adjustments necessary to fairly present the Company’s financial position at December 30, 2005, and April 1, 2005, the results of operations for the three and nine months ended December 30, 2005 and December 31, 2004, and cash flows for the nine months ended December 30, 2005 and December 31, 2004, have been included. The results of operations for the three and nine months ended December 30, 2005 are not necessarily indicative of the results to be expected for the full fiscal year or for any future periods.

The Company uses estimates and assumptions required for preparation of the financial statements. The estimates are primarily based on historical experience and business knowledge and are revised as circumstances change. However, actual results could differ from the estimates.

5

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

Principles of Consolidation

All intercompany transactions and balances have been eliminated in consolidation. All wholly owned subsidiaries have been included in the financial statements. The Company has no active majority-owned subsidiaries. Investments in which the Company owns a 20% to 50% ownership interest are accounted for by the equity method. These investments are in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies. The Company has no investments in business entities of less than 20%.

The following table sets forth the Company’s ownership in joint ventures and companies that are not consolidated into the Company’s financial statements as of December 30, 2005, and are accounted for by the equity method. For all of the entities listed below, the Company has the right to elect half of the board of directors or other management body. Economic rights are indicated by the ownership percentages listed below.

Dyn Al-Rushaid Services LLC	50.0	%
DynCorp-Hiberna Ltd.	50.0	%
DynEgypt LLC	50.0	%
DynPuertoRico Corporation	49.9	%
Babcock DynCorp Limited	40.0	%

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) revised Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock Based Compensation.” The revised SFAS 123 (SFAS 123(R)), “Share-Based Payment,” supersedes Accounting Principles Board No. 25 (APB No. 25), “Accounting for Stock Issued to Employees.” SFAS 123(R) requires companies to measure and recognize compensation expense for all stock-based payments at fair value. The effective date of SFAS 123(R) for nonpublic entities is as of the beginning of the first annual reporting period that begins after December 15, 2005. The effective date for a nonpublic entity that becomes a public entity after June 15, 2005 and does not file as a small business issuer is the first annual reporting period beginning after the entity becomes a public entity. Effective October 1, 2005, the Company adopted SFAS 123(R) using the modified prospective application transition method. SFAS 123(R) requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and restricted stock grants related to the company’s incentive plans, to be based on fair values. SFAS 123(R) supersedes the Company’s previous accounting for these plans under APB 25 for the periods beginning October 1, 2005. The adoption of SFAS 123(R) did not have a material impact on the Company’s consolidated financial statements. Financial statements for prior interim periods, fiscal years and predecessor periods do not reflect any restated amounts as a result of this adoption in accordance with the modified prospective application transition method under SFAS 123(R).

In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47) “Accounting for Conditional Retirement Obligations,” which clarifies the term “conditional asset retirement obligations,” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations.” FIN 47 clarifies that an entity is required to recognize a liability for a legal obligation to perform asset retirement activities when the retirement is conditional on a future event and if the liability’s fair value can be reasonably estimated. If the liability’s fair value cannot be reasonably estimated, then the entity must disclose a description of the obligation, the fact that a liability has not been recognized, and the reasons why the liability cannot be reasonably estimated. The requirements of FIN 47

6

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

are effective for fiscal periods ending after December 15, 2005. The Company is currently evaluating the impact of the adoption of FIN 47.

Note 2—Receivables

Receivables consist of the following:

	Successor
	Dec 30, 2005		Apr 1, 2005
Billed	$	185,272	$	169,229
Unbilled		200,883		243,362
Unbilled - related party		3,132		6,409
Other receivables		1,682		3,514
	$	390,969	$	422,514

Unbilled receivables at December 30, 2005 and April 1, 2005 include $31,017 and $54,484, respectively, related to costs incurred on projects for which the Company has been requested by the customer to begin work under a new contract or extend work under an existing contract, and for which formal contracts or contract modifications have not been executed. The Company records revenue, to the extent of costs, for these anticipated contract modifications. The balance of unbilled receivables consists of costs and fees billable on contract completion or other specified events, the majority of which is expected to be billed and collected within one year. Contract retentions are billed when the Company has negotiated final indirect rates with the U.S. Government and, once billed, are subject to audit and approval by outside third parties. Consequently, the timing of collection of retention balances is outside the Company’s control. Based on the Company’s historical experience, the majority of the retention balance is expected to be collected beyond one year.

Note 3—Other Assets

A summary of intangible assets subject to amortization as of December 30, 2005 and April 1, 2005, is as follows:

		Successor
		Dec 30, 2005					Apr 1, 2005
Service Provider	Weighted-Average Amortization Period	Gross Carrying Value		Accumulated Amortization			Gross Carrying Value		Accumulated Amortization
Customer-related intangible asset	8.5	$	290,381	$	(33,877	)	$	290,381	$	(5,094	)
Other	3.9		9,371		(2,744	)		7,466		(383	)
Deferred financing cost	7.1		19,821		(2,524	)		19,821		(383	)
		$	319,573	$	(39,145	)	$	317,668	$	(5,860	)

Amortization expense for customer-related and other intangibles was $31,144 for the nine months ended December 30, 2005. Deferred financing cost is amortized through interest expense. Amortization related to deferred financing costs was $2,141 for the nine months ended December 30, 2005. Estimated amortization related to intangible assets at December 30, 2005 for fiscal 2006 through 2010, is as follows: $42,905, $42,679, $40,729, $37,560 and $37,488, respectively.

7

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

A summary of intangible assets not subject to amortization as of December 30, 2005 and April 1, 2005, is as follows:

	Successor
Goodwill and Tradename	Field Technical Services			International Technical Services			Total
Balance as of April 1, 2005	$	83,254		$	279,609		$	362,863
Additions		18,944			60,448			79,392
Adjustments		(1,246	)		(3,946	)		(5,192	)
Balance as of December 30, 2005	$	100,952		$	336,111		$	437,063

The original purchase price was subject to an adjustment to the extent that the net working capital of the Company differs from the original agreed-upon level. As required under the purchase agreement related to the 2005 Acquisition, CSC delivered to the Company a draft calculation of the net working capital on April 6, 2005. The Company delivered to CSC a notice objecting to the draft calculation on May 5, 2005. The Company and CSC agreed upon the final calculation on October 27, 2005, which is referred to as the settlement date. The working capital settlement agreement resulted in an increase to the purchase price in an amount of $65,550 payable in shares of preferred stock of the Successor Parent. The preferred shares issued in connection with the working capital settlement agreement accumulate dividends from the date of acquisition, February 11, 2005. The Company has recorded the settlement amount, which includes both the preferred stock issued (i.e. $65,550) and the dividends accumulated through October 27, 2005 (i.e. $6,100), as an increase to goodwill and member’s equity at December 30, 2005. Related to the accumulated amount of $6,100, the Company recorded a deferred tax liability in the amount of $2,200 with a corresponding increase to goodwill.

In addition to the working capital settlement previously described, the Company agreed to assume additional liability related to worker’s compensation programs in effect prior to the acquisition date. The Company has recorded as an adjustment to the original purchase price by increasing worker’s compensation liability $5,449 and increasing goodwill in a like amount.

The goodwill recorded related to the 2005 Acquisition was based on preliminary purchase price allocations. The Company finalized the tax treatment on two items during the third quarter, which resulted in an increase of deferred tax asset and a reduction of goodwill in the amount of $5,192.

The current estimate of recognized goodwill of $418,745 is assigned to the reportable segments as follows: Field Technical Services—$99,912 and International Technical Services—$318,833. The goodwill is not amortized for financial reporting purposes but is amortized for tax purposes.

The tradename of $18,318 is assigned to the reportable segments as follows: Field Technical Services—$1,040, and International Technical Services—$17,278. The tradename is not amortized for financial reporting purposes but is amortized for tax purposes.

A summary of other assets is as follows:

	Dec 30, 2005		Apr 1, 2005
Deferred offering costs	$	1,225	$	—
Investment in joint ventures		492		629
Deposit		250		—
Interest rate cap		78		—
	$	2,045	$	629

8

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

Note 4—Cash Flows

Cash payments for interest on indebtedness were $35,918 and $0 for the nine months ended December 30, 2005 and December 31, 2004, respectively. Net cash payments for income taxes were $8,883 and $0 for the nine months ended December 30, 2005 and December 31, 2004, respectively. In addition, goodwill, member’s equity and deferred tax assets increased by $74,200, $71,689 and $2,938, respectively, related to the purchase price working capital settlement agreement.

Note 5—Derivatives and Other Comprehensive Income (Loss)

Derivative financial instruments are recognized as either assets or liabilities in the balance sheet and carried at fair value. Gains or losses on derivatives designated as cash flow hedges are initially reported as a component of other comprehensive income and later classified into earnings in the period in which the hedged item also affects earnings.

The Company has entered into an interest rate cap for a notional amount of $172,500 to limit, through May 4, 2008, its interest rate risk on $172,500 of variable rate debt. The Company entered into the interest rate cap effective May 4, 2005 and paid a premium of $483. The interest rate cap has been designated by the Company as a cash flow hedge. As of December 30, 2005, the fair value of the interest rate cap was $78, which was recorded in the accompanying condensed consolidated balance sheet in other assets with the reduction in fair value, net of tax, recorded in equity as other comprehensive loss. The interest rate cap has the effect of placing a ceiling on the interest expense the Company could incur on $172,500 of variable debt indexed to the London Interbank Offering Rate (“LIBOR”) at 6.5% plus the applicable floating spread (2.75% at December 30, 2005) as defined by the Credit Facility.

	Successor			Immediate Predecessor
	For the Nine Months Ended
	Dec 30, 2005			Dec 31, 2004
Net income	$	13,687		$	54,444
Interest rate cap adjustment		(256	)		—
Foreign currency translation adjustment		(82	)		(46	)
Comprehensive income	$	13,349		$	54,398

Accumulated other comprehensive income presented on the accompanying condensed consolidated balance sheets consists of accumulated foreign currency translation adjustments and accumulated fair value adjustments related to the Company’s interest rate cap.

Note 6—Significant Changes in Indebtedness

The table below presents significant changes in the amounts of bonds and similar debt:

			Senior Credit Facility
Successor	9.50% Senior subordinated notes		Term loan			Revolver			Total
Balance at Apr 1, 2005	$	320,000	$	345,000		$	35,000		$	700,000
Payments:		—		(2,587	)		(35,000	)		(37,587	)
Balance at Dec 30, 2005	$	320,000	$	342,413		$	—		$	662,413

9

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

On January 9, 2006, the Company entered into the first amendment and waiver of its senior secured credit facility. The first amendment and waiver increases the revolving commitment under its senior secured credit facility by $15,000, which includes an increase in the sub-limit for letters of credit equal to the same amount (See Note 11 for further discussion).

Note 7—Stock-Based Compensation and Class B Equity Participation

Stock-based compensation

CSC issued stock options to employees, including DynCorp International employees, prior to February 11, 2005. DynCorp International accounts for stock-based employee compensation under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. In accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” the following pro forma net income information for the immediate predecessor period is presented as if DynCorp International accounted for stock-based employee compensation using the fair value based method. Under the fair value method, the estimated fair value of stock incentive awards is charged against income on a straight-line basis over the vesting period.

	Immediate Predecessor			Immediate Predecessor
	For the Three Months Ended Dec 31, 2004			For the Nine Months Ended Dec 31, 2004
Net income, as reported	$	21,240		$	54,444
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(15	)		(46	)
Pro forma net income	$	21,225		$	54,398

Immediately prior to the acquisition of DynCorp by CSC on March 7, 2003, all outstanding and exercisable DynCorp stock options, whether or not vested, were cancelled and the holders became entitled to receive a cash payment equal to the excess, if any, of the merger consideration over the exercise price of the DynCorp stock option. Each outstanding share of DynCorp stock was converted into $15.00 cash and 1.394 shares of CSC stock. On February 12, 2005, all unvested CSC stock options were cancelled as a result of the 2005 Acquisition.

Class B Equity Participation

On November 22, 2005, certain members of management and the Successor Parent’s outside directors were granted a participating interest in the Successor Parent’s profits through a plan that granted them Class B interests in DIV Holding LLC. DIV Holding LLC conducts no operations and was established for the primary purpose of holding the equity of the Company’s Successor Parent. At this time, the aggregate individual grants are approximately 6.2% of the Class B interests of DIV Holding LLC. Pursuant to the terms of the operating agreement governing DIV Holding LLC, the holders of Class B interests are entitled to receive up to 7.5% of all distributions made by DIV Holding LLC after the holders of the Class A interests in DIV Holding LLC have received a return of their invested capital, provided that the holders of the Class A interests have received 8% per annum internal rate of return (compounded annually) on their invested capital. The Class B interests are subject to a five-year vesting schedule with any unvested interest reverting to the holders of Class A interests in the event they are forfeited or repurchased. The Company has retained an independent party to conduct a fair value analysis of the Class B interests granted to management and outside directors of the Company’s Successor

10

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

Parent. Based on this analysis, the fair value of the Class B interests granted to certain members of management and outside directors was determined to be $7,360. In the three months ended December 30, 2005, the Company recognized non-cash compensation expense of $998. Assuming each grant fully vests, the Company will recognize additional non-cash compensation expense as follows:

FY 2006	FY 2007	FY 2008	FY 2009	FY 2010
$1,430	$2,508	$1,378	$744	$302

Note 8—Commitments, Contingencies and Litigation

Commitments

The Company has operating leases for the use of certain property and equipment. Operating leases are noncancelable, cancelable only by the payment of penalties, or cancelable upon one month’s notice. All lease payments are based on the lapse of time but include, in some cases, payments for insurance, maintenance, and property taxes. There are no purchase options on operating leases at favorable terms, but most leases have one or more renewal options. Certain leases on real estate property are subject to annual escalations for increases in utilities and property taxes.

Minimum fixed rentals required for the five years and thereafter under operating leases in effect at April 1, 2005, are as follows:

Fiscal Year	Real Estate		Equipment
2006	$	10,257	$	1,987
2007		3,161		843
2008		2,763		751
2009		1,967		55
2010		1,837		—
Thereafter		11,941		—
	$	31,926	$	3,636

The Company has no significant long-term purchase agreements with service providers.

Contingencies

The primary financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable. Departments and agencies of the U.S. federal government account for all but minor portions of the Company’s customer base, minimizing credit risk. Furthermore, the Company continuously reviews all accounts receivable and records provisions for doubtful accounts as needed.

Litigation

The Company and its subsidiaries and affiliates are involved in various claims and lawsuits, including contract disputes and claims based on allegations of negligence and other tortious conduct. In most cases, the Company has denied or believes it has a basis to deny liability, and in some cases has offsetting claims against the plaintiffs, third parties, or insurance carriers. The Company has recorded such damages and penalties that are considered to be probable recoveries against the Company or its subsidiaries.

On September 11, 2001, a class action lawsuit seeking $100,000 on behalf of approximately 10,000 citizens of Ecuador was filed against the Company. The lawsuit alleges personal injury, property damage and wrongful

11

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

death as a consequence of the spraying of narcotic crops along the Colombian border adjacent to Ecuador. The terms of the contract with the client, the U.S. Department of State, provide that the Department of State will indemnify the Company against all third-party claims and liabilities arising out of the contract that are not otherwise covered by insurance, subject to certain specified funding ceilings. The Company is also entitled to indemnification by CSC in connection with this lawsuit, subject to certain limitations. In addition, the Company expects to be protected by the government contractor immunity defense.

Sometime in 2004 or early in 2005, an Iraqi company filed three separate actions against the Company for an aggregate amount of approximately $50,000 in rental fees and other payments allegedly owed by the Company in connection with its lease of three hotels in Baghdad. The Company has no relationship with the Iraqi company and is not in privity of contract with it. The Company leases the hotels from another company. In the event that the court decides against the Company in this lawsuit, it could have a material adverse affect on the Company’s operating performance, cash flows and operating condition.

On May 29, 2003, Gloria Longest, a former accounting manager for the Company, filed suit against the Company under the False Claims Act and the Florida Whistleblower Statute, alleging that the Company submitted false claims to the government on our International Narcotics & Law Enforcement Affairs contract with the Department of State. The action, titled “U.S. ex rel Longest v. DynCorp and DynCorp International LLC,” was filed in the U.S. District Court for the Middle District of Florida under seal. The complaint does not demand any specific monetary damages. The case was unsealed in 2005, and the Company learned of the existence of the action on August 15, 2005 when we were served with the complaint. The U.S. government has not joined the action. In the event that a court decides against the Company in this lawsuit, it could have a material adverse effect on the Company’s operating performance, cash flows and operating condition.

It is the opinion of Company management that ultimate liability, if any, with respect to these and any other disputes will not be material to the Company’s consolidated financial statements.

Note 9—Guarantor/Non-guarantor Supplemental Data

As of April 1, 2005, the Company had outstanding $320,000 aggregate principal amount of 9.5% senior subordinated notes due 2013. These senior subordinated notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated unsecured basis by the following subsidiaries of DynCorp International LLC: (i) DTS Aviation Services LLC; (ii) DynCorp Aerospace Operations LLC; (iii) DynCorp International Services LLC; (iv) Dyn Marine Services LLC; (v) DynCorp International of Nigeria LLC; (vi) Dyn Marine Services of Virginia LLC; (vii) Services International LLC; and (viii) Worldwide Humanitarian Services LLC.

The following supplemental condensed consolidating financial statements present:

1. The Company’s financial position at December 30, 2005, and April 1, 2005, the results of operations for the three and nine months ended December 30, 2005 and December 31, 2004, and cash flows for the nine months ended December 30, 2005 and December 31, 2004.

2. DynCorp International LLC (the “Parent” and “Co-Issuer”), the combined Subsidiary Guarantors and the combined Subsidiary Non-Guarantors account for their investments in subsidiaries using the equity method of accounting; therefore, the Parent column reflects the equity income (loss) of its Subsidiary Guarantors and Subsidiary Non-Guarantors, which are also separately reflected in the stand-alone Subsidiary Guarantors and Subsidiary Non-Guarantors column. Additionally, the Subsidiary Guarantors column reflects the equity income (loss) of its Subsidiary Non-Guarantors, which are also separately reflected in the stand-alone Subsidiary Non-Guarantors column.

3. Elimination entries necessary to consolidate the Parent and all of its Subsidiaries.

12

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

SUCCESSOR COMPANY

DECEMBER 30, 2005

(Unaudited)

	Parent Company		Guarantor subsidiaries		Non-guarantor subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	19,574	$	2,711	$	2,518		$	—		$	24,803
Receivables, net		365,178		27,477		(1,686	)		—			390,969
Prepaid expenses and other current assets		27,617		3,046		18			—			30,681
Total current assets		412,369		33,234		850			—			446,453
Property and equipment, net		6,004		3,243		490			—			9,737
Other assets:
Goodwill		397,124		21,621		—			—			418,745
Tradename		18,318		—		—			—			18,318
Customer related intangibles, net		242,933		13,571		—			—			256,504
Other intangibles, net		6,312		315		—			—			6,627
Investment in subsidiaries		9,577		197		(1	)		(9,773	)		—
Deferred financing costs, net		17,297		—		—			—			17,297
Deferred income taxes		7,750		—		—			—			7,750
Other assets		2,045		—		—			—			2,045
Intercompany receivables		23,284		—		16,402			(39,686	)		—
Total other assets		724,640		35,704		16,401			(49,459	)		727,286
Total assets	$	1,143,013	$	72,181	$	17,741		$	(49,459	)	$	1,183,476
LIABILITIES AND MEMBER’S EQUITY
Current liabilities:
Current portion of long-term debt	$	2,588	$	—	$	—		$	—		$	2,588
Accounts payable		102,306		2,277		284			—			104,867
Accrued payroll and employee costs		20,853		17,190		17,308			—			55,351
Accrued expenses—related party		11,843		—		—			—			11,843
Other accrued expenses		31,134		3,196		—			—			34,330
Income taxes		4,519		207		1			—			4,727
Total current liabilities		173,243		22,870		17,593			—			213,706
Long-term debt—less current portion		659,825		—		—			—			659,825
Intercompany payables		—		39,686		—			(39,686	)		—
Member’s equity		309,945		9,625		148			(9,773	)		309,945
Total liabilities and member’s equity	$	1,143,013	$	72,181	$	17,741		$	(49,459	)	$	1,183,476

13

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

SUCCESSOR COMPANY

APRIL 1, 2005

(Unaudited)

	Parent Company			Guarantor subsidiaries			Non-guarantor subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	10,531		$	1,423		$	1,520		$	—		$	13,474
Receivables, net		382,575			39,102			837			—			422,514
Prepaid expenses and other current assets		23,335			1,104			1,809			—			26,248
Total current assets		416,441			41,629			4,166			—			462,236
Property and equipment, net		6,951			3,210			496			—			10,657
Other assets:
Goodwill		326,973			17,572			—			—			344,545
Tradename		18,318			—			—			—			18,318
Customer related intangibles, net		270,737			14,550			—			—			285,287
Other intangibles, net		6,722			361			—			—			7,083
Investment in subsidiaries		(495	)		4			—			491			—
Deferred financing costs, net		19,438			—			—			—			19,438
Other assets		629			—			—			—			629
Intercompany receivables		50,343			—			8,467			(58,810	)		—
Total other assets		692,665			32,487			8,467			(58,319	)		675,300
Total assets	$	1,116,057		$	77,326		$	13,129		$	(58,319	)	$	1,148,193
LIABILITIES AND MEMBER’S EQUITY
Current liabilities:
Current portion of long-term debt	$	37,588		$	—		$	—		$	—		$	37,588
Accounts payable		135,238			439			—			—			135,677
Accrued payroll and employee costs		27,005			16,266			12,916			—			56,187
Other accrued expenses		30,010			2,094			253			—			32,357
Income taxes		(108	)		168			—			—			60
Total current liabilities		229,733			18,967			13,169			—			261,869
Long-term debt—less current portion		662,412			—			—			—			662,412
Other long-term liabilities		4			—			—			—			4
Intercompany payables		—			58,810			—			(58,810	)		—
Member’s equity		223,908			(451	)		(40	)		491			223,908
Total liabilities and member’s equity	$	1,116,057		$	77,326		$	13,129		$	(58,319	)	$	1,148,193

14

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

SUCCESSOR COMPANY OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 30, 2005

(Unaudited)

	Parent Company			Guarantor subsidiaries		Non-guarantor subsidiaries		Eliminations			Consolidated
Revenues	$	487,789		$	65,772	$	50,942	$	(50,942	)	$	553,561
Cost of services		436,676			61,974		50,815		(50,942	)		498,523
Selling, general and administrative		19,078			1,935		—		—			21,013
Depreciation and amortization		10,545			—		18		—			10,563
Operating income		21,490			1,863		109		—			23,462
Equity in income of subsidiaries		1,918			50		—		(1,968	)		—
Interest (expense) income		(14,491	)		9		—		—			(14,482	)
Income before income taxes		8,917			1,922		109		(1,968	)		8,980
Provision for income taxes		3,326			—		63		—			3,389
Net income	$	5,591		$	1,922	$	46	$	(1,968	)	$	5,591

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

IMMEDIATE PREDECESSOR COMPANY OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2004

(Unaudited)

	Parent Company		Guarantor Subsidiaries		Non-guarantor subsidiaries		Eliminations			Consolidated
Revenues	$	407,294	$	62,247	$	56,966	$	(56,966	)	$	469,541
Cost of services		361,898		57,380		56,843		(56,966	)		419,155
Selling, general and administrative		15,939		1,879		—		—			17,818
Depreciation and amortization		1,480		—		13		—			1,493
Operating income		27,977		2,988		110		—			31,075
Equity in income of subsidiaries		3,083		68		—		(3,151	)		—
Interest (expense) income		70		—		—		—			70
Income before income taxes		31,130		3,056		110		(3,151	)		31,145
Provision for income taxes		9,890		—		15		—			9,905
Net income	$	21,240	$	3,056	$	95	$	(3,151	)	$	21,240

15

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

SUCCESSOR COMPANY OPERATIONS

FOR THE NINE MONTHS ENDED DECEMBER 30, 2005

(Unaudited)

	Parent Company			Guarantor subsidiaries		Non-guarantor subsidiaries		Eliminations			Consolidated
Revenues	$	1,244,711		$	173,534	$	155,732	$	(155,732	)	$	1,418,245
Cost of services		1,100,059			162,554		155,374		(155,732	)		1,262,255
Selling, general and administrative		55,587			4,286		1		—			59,874
Depreciation and amortization		32,698			—		65		—			32,763
Operating income		56,367			6,694		292		—			63,353
Equity in income of subsidiaries		6,686			191		—		(6,877	)		—
Interest (expense) income		(42,124	)		12		—		—			(42,112	)
Income before income taxes		20,929			6,897		292		(6,877	)		21,241
Provision for income taxes		7,241			207		105		—			7,553
Net income	$	13,688		$	6,690	$	187	$	(6,877	)	$	13,688

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION

IMMEDIATE PREDECESSOR COMPANY OPERATIONS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2004

(Unaudited)

	Parent Company		Guarantor subsidiaries		Non-guarantor subsidiaries		Eliminations			Consolidated
Revenues	$	1,208,976	$	191,078	$	149,732	$	(149,732	)	$	1,400,054
Cost of services		1,086,148		177,654		149,344		(149,732	)		1,263,414
Selling, general and administrative		40,662		5,784		6		—			46,452
Depreciation and amortization		5,026		—		69		—			5,095
Operating income		77,140		7,640		313		—			85,093
Equity in income (loss) of subsidiaries		7,953		271		—		(8,224	)		—
Interest (expense) income		114		15		1		—			130
Income before income taxes		85,207		7,926		314		(8,224	)		85,223
Provision for income taxes		30,763		—		16		—			30,779
Net income	$	54,444	$	7,926	$	298	$	(8,224	)	$	54,444

16

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION

SUCCESSOR COMPANY OPERATIONS

FOR THE NINE MONTHS ENDED DECEMBER 30, 2005

(Unaudited)

	Parent			Guarantor subsidiaries			Non-guarantor subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	50,933		$	(5,762	)	$	8,991		$	—	$	54,162
Cash flows from investing activities
Acquisition of property and equipment		(940	)		(339	)		(59	)		—		(1,338	)
Other investing cash flows		(2,200	)		—			—			—		(2,200	)
Net cash used for investing		(3,140	)		(339	)		(59	)		—		(3,538	)
Cash flows from financing activities
Net transfers from (to) parent company		545			7,389			(7,934	)		—		—
Other financing activities		(39,295	)		—			—			—		(39,295	)
Net cash (used in) provided by financing activities		(38,750	)		7,389			(7,934	)		—		(39,295	)
Net increase in cash and cash equivalents		9,043			1,288			998			—		11,329
Cash and cash equivalents at beginning of period		10,531			1,423			1,520			—		13,474
Cash and cash equivalents at end of period	$	19,574		$	2,711		$	2,518		$	—	$	24,803

DYNCORP INTERNATIONAL LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION

IMMEDIATE PREDECESSOR COMPANY OPERATIONS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2004

(Unaudited)

	Parent			Guarantor subsidiaries			Non-guarantor subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(31,758	)	$	14,272		$	4,339		$	—	$	(13,147	)
Cash flows from investing activities
Acquisition of property and equipment		(4,840	)		(3,337	)		(147	)		—		(8,324	)
Other investing cash flows		(77	)		—			—			—		(77	)
Net cash used for investing		(4,917	)		(3,337	)		(147	)		—		(8,401	)
Cash flows from financing activities
Net transfers from (to) parent company		47,658			(10,716	)		(4,058	)		—		32,884
Net cash provided by (used in) financing activities		47,658			(10,716	)		(4,058	)		—		32,884
Net increase in cash and cash equivalents		10,983			219			134			—		11,336
Cash and cash equivalents at beginning of period		3,397			1,255			1,858			—		6,510
Cash and cash equivalents at end of period	$	14,380		$	1,474		$	1,992		$	—	$	17,846

17

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

Note 10—Segment Data

The Company’s business primarily involves providing specialized mission-critical outsourced technical services to civilian and military government agencies. The Company is organized into two major business areas, Field Technical Services (“FTS”) and International Technical Services (“ITS”). The Company provides services domestically and in foreign countries under contracts with the U.S. government and some foreign customers. The risks associated with the Company’s foreign operations relating to foreign currency fluctuation and political and economic conditions in foreign countries have not had a significant negative impact to the Company. The Company operates principally within a regulatory environment subject to governmental contracting and accounting requirements, including Federal Acquisition Regulations, Cost Accounting Standards, and audits by various U.S. federal agencies.

Our Field Technical Services operating division provides long-term aviation services and engineering and logistics support, ranging from daily fleet maintenance to extensive modification and overhauls on aircraft, weapons systems and support equipment. Field Technical Services generates revenue under long-term contracts that are typically three to ten years in duration. Contract Field Teams is the most significant program of our Field Technical Services operating division based on revenues. The Company and its predecessors have participated in this program for 54 consecutive years. This program deploys highly mobile, quick-response field teams to customer locations worldwide to supplement our customers’ workforce, including generally providing mission support to aircraft and weapons systems in addition to depot-level repair.

Our International Technical Services operating division primarily provides outsourced law enforcement training, drug eradication, global logistics, base operations and personal and physical security services to government and commercial customers in foreign jurisdictions. The International Technical Services division has witnessed strong growth as a result of the U.S. government’s trend toward outsourcing critical related functions. In February 2004, as part of the Department of State’s outsourced law enforcement training in the Middle East, the Company was awarded a new Civilian Police contract, which expanded the existing Civilian Police program in place since 1994. As of December 30, 2005, the Company has deployed civilian police officers from the United States to 12 countries to train and offer logistics support to the local police and assist them with infrastructure and reconstruction.

The DynCorp International Home Office component represents assets not included in a reporting segment and is primarily comprised of cash and cash equivalents, deferred tax assets and liabilities, internally developed software, fixed assets, unallocated general corporate costs, and depreciation and amortization related to the long-lived assets not included in a reporting segment.

The table below presents selected financial information for the three months ended December 30, 2005, and December 31, 2004, for the two reportable segments and items that cannot be allocated to either operating segment:

Successor	Field Technical Services		International Technical Services		DynCorp International Home Office			Total
For the Three Months Ended Dec 30, 2005
Revenues	$	179,592	$	373,969	$	—		$	553,561
Earnings before interest and taxes		3,830		20,339		(707	)		23,462
Depreciation and amortization		2,563		7,540		672			10,775
Immediate Predecessor
For the Three Months Ended Dec 31, 2004
Revenues	$	175,881	$	293,602	$	58		$	469,541
Earnings before interest and taxes		11,037		20,564		(526	)		31,075
Depreciation and amortization		511		1,172		17			1,700

18

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

The table below presents selected financial information for the nine months ended December 30, 2005, and December 31, 2004, for the two reportable segments and items that cannot be allocated to either operating segment:

Successor	Field Technical Services		International Technical Services		DynCorp International Home Office			Total
For the Nine Months Ended Dec 30, 2005
Revenues	$	521,963	$	896,282	$	—		$	1,418,245
Earnings before interest and taxes		19,001		48,690		(4,338	)		63,353
Depreciation and amortization		8,400		23,175		1,815			33,390
Immediate Predecessor
For the Nine Months Ended Dec 31, 2004
Revenues	$	513,197	$	886,758	$	99		$	1,400,054
Earnings before interest and taxes		32,981		52,756		(644	)		85,093
Depreciation and amortization		1,746		3,942		49			5,737

A reconciliation of earnings before interest and taxes to net income, for the three months ended December 30, 2005, and December 31, 2004, is as follows:

	Successor			Immediate Predecessor
	For the Three Months Ended Dec 30, 2005			For the Three Months Ended Dec 31, 2004
Earnings before interest and taxes	$	23,462		$	31,075
Interest income		113			70
Interest expense		(14,595	)		—
Income taxes		(3,389	)		(9,905	)
Net income	$	5,591		$	21,240

A reconciliation of earnings before interest and taxes to net income, for the nine months ended December 30, 2005, and December 31, 2004, is as follows:

	Successor			Immediate Predecessor
	For the Nine Months Ended Dec 30, 2005			For the Nine Months Ended Dec 31, 2004
Earnings before interest and taxes	$	63,353		$	85,093
Interest income		166			130
Interest expense		(42,278	)		—
Income taxes		(7,553	)		(30,779	)
Net income	$	13,688		$	54,444

The Company’s management believes that earnings before interest and taxes provides useful information in order to assess the Company’s performance and results of operations. The measure is utilized to determine executive compensation along with other measures.

19

DYNCORP INTERNATIONAL LLC

Notes to Condensed Consolidated Financial Statements—(Continued)

(unaudited)

(Dollars in Thousands)

Note 11—Subsequent Event

On January 9, 2006, the Company entered into the first amendment and waiver of its senior secured credit facility. The first amendment and waiver increases the revolving commitment under its senior secured credit facility by $15,000, which includes an increase in the sub-limit for letters of credit equal to the same amount. The first amendment and waiver also permits the Company to: (i) pay a transaction fee to Veritas Capital Management II, L.L.C. related to the Successor Parent’s initial public offering of up to $10,000; (ii) pay a dividend to the holders of the Successor Parent Class B common stock in an amount equal to the sum of (x) $100,000 plus (y) the proceeds, if any, of the underwriters over-allotment option, net of discount and estimated offering expenses; (iii) redeem all of the Successor Parent currently outstanding preferred stock, of which approximately $213,000 in stated amount including accrued and unpaid dividends thereon was outstanding as of December 30, 2005; and (iv) redeem up to $65,000 of the $320,000 aggregate principal amount of the Company’s senior subordinated notes. The first amendment and waiver waives the requirement in the senior secured credit facility that the Company use 50% of the net cash proceeds from the initial public offering to prepay loans under the senior secured credit facility and/or permanently reduce the revolving commitments.

* * * * *

20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this section to the “Company,” “us” or “we” refer to DynCorp International LLC and its wholly owned subsidiaries.

Company Background

We provide a broad range of mission-critical outsourced technical services to civilian and military government agencies and commercial customers. Our specific global expertise is in law enforcement training and support, security services, base operations, logistics support and aviation services and operations. We also provide logistics support for all of our services. We operated as a separate subsidiary of DynCorp from 2000 to 2003 and of Computer Sciences Corporation from 2003 until February 2005. However, DynCorp International and its predecessors have provided essential services to numerous U.S. government department and agencies since 1951. Our current customers include the Department of State; the Army, Air Force, Navy and Marine Corps (collectively, the Department of Defense); and commercial customers and foreign governments. As of December 30, 2005, we had over 13,600 employees in 32 countries and 45 active contracts ranging in duration from three to ten years and over 75 task orders.

Basis of Presentation

DynCorp International LLC was a wholly owned subsidiary of DynCorp, which was acquired by Computer Sciences Corporation on March 7, 2003 (the “Computer Sciences Corporation Acquisition”). On December 12, 2004, Veritas Capital and DynCorp International Inc. (formerly known as DI Acquisition Corp.), entered into a purchase agreement with Computer Sciences Corporation and DynCorp whereby DI Acquisition Corp. agreed to acquire DynCorp International LLC, a wholly owned subsidiary of DynCorp. DI Acquisition Corp. assigned its rights to acquire DynCorp International LLC to DI Finance LLC, or DI Finance, its wholly owned subsidiary. Immediately after the consummation of the Acquisition, DI Finance was merged with and into DynCorp International LLC. DynCorp International LLC survived the merger and is a wholly owned subsidiary of DynCorp International Inc. We refer to the foregoing transaction as the “2005 Acquisition.”

As a result of the 2005 Acquisition, our assets and liabilities have been adjusted to their preliminary estimated fair value as of the closing. The excess of the total purchase price over the value of our assets at the closing of the 2005 Acquisition has been allocated to goodwill and other intangible assets, some of which will be amortized, and will be subject to annual impairment review.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Management evaluates these estimates and assumptions on an ongoing basis, including those relating to revenue recognition and cost estimation on long-term contracts, determination of goodwill and customer-related intangible assets, goodwill impairment and accounting for contingencies and litigation. Our estimates and assumptions have been prepared on the basis of the most current available information. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from these estimates under different assumptions and conditions.

We have several critical accounting policies that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

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Typically, the circumstances that make these judgments complex and difficult have to do with making estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are as follows:

Revenue Recognition and Long-Term Contract Cost Estimates

We provide our services under cost-reimbursement, time-and-materials and fixed-price contracts. The form of contract, rather than the type of service offering, is the primary determinant of revenue recognition. Revenues are recognized when persuasive evidence of an arrangement exists, services or products have been provided to the client, the sales price is fixed or determinable, and collectibility is reasonably assured. For fiscal 2005 and the nine months ended December 30, 2005, 34%, 39%, 27% and 35%, 38% and 27% of our revenues were derived from cost-reimbursement, time-and-materials and fixed-price contracts, respectively.

Revenue on fixed-price contracts is generally recognized ratably over the contract period, measured by methods appropriate to the services or products provided. Such “output measures” include: period of service, such as for aircraft fleet maintenance; units delivered, such as vehicles; and units produced, such as aircraft for which modification has been completed.

Revenue on fixed-price construction or production-type contracts, when they occur, is recognized on the basis of the estimated percentage of completion. Progress towards completion is typically measured based on achievement of specified contract milestones, when available, or based on costs incurred as a proportion of estimated total costs. Profit in a given period is reported at the expected profit margin to be achieved on the overall contract. This method can result in the deferral of costs or profit on these contracts. Management regularly reviews project profitability and underlying estimates. Revisions to the estimates at completion are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management. Revenue on fixed-unit contracts that have a duration of less than six months is recognized on the completed contract method. Work in progress is classified as a component of inventory.

We provide for anticipated losses on contracts by a charge to income during the period in which the losses are first identified. Amounts billed but not yet recognized as revenue under certain types of contracts are deferred. Unbilled receivables are stated at estimated realizable value. Contract costs on U.S. government contracts, including indirect costs, are subject to audit and adjustment by negotiations between us and government representatives. Substantially all of our indirect contract costs have been agreed upon through 2004. Contract revenues on U.S. government contracts have been recorded in amounts that are expected to be realized upon final settlement.

Contract costs are expensed as incurred, except as described above and on certain other production-type fixed-price contracts, where costs are deferred until such time that associated revenue is recognized.

Our customer contracts may include the provision of more than one of our services. For revenue arrangements with multiple deliverables, revenue recognition includes the proper identification of separate units of accounting and the allocation of revenue across all elements based on relative fair values.

Many of our contracts are time-and-materials or fixed hourly/daily rate contracts. For these contracts, revenue is recognized each month based on actual hours/days charged to the program during that month multiplied by the fixed hourly/daily rate in the contract for the type of labor charged. Any material or other direct charges are recognized as revenue based on the actual direct cost plus Defense Contract Audit Agency-approved indirect rates.

Cost-reimbursement type contracts can be either Cost Plus Fixed Fee, or Cost Plus Award Fee. Revenue recognition for these two contract types is very similar. In both cases, revenue is based on actual direct cost plus Defense Contract Audit Agency-approved indirect rates. In the case of Cost Plus Fixed Fee, the fixed fee is

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recognized based on the ratio of the fixed fee for the contract to the total estimated cost of the contract. In the case of Cost Plus Award Fee contracts, the fee is made up of two components, base fee and award fee. Base fee is recognized in the same manner as the fee on Cost Plus Fixed Fee contracts. The award fee portion is recognized based on an average of the last two award fee periods or award experience for similar contracts for new contracts that lack specific experience.

Determination of Goodwill and Customer-Related Intangible Assets

The Computer Sciences Corporation Acquisition was accounted for under the purchase method and, accordingly, the purchase price was allocated to the net assets acquired based on estimates of the fair values at the acquisition date. In addition, Computer Sciences Corporation obtained an independent appraisal of the fair values for certain intangible assets. The value of intangible assets allocated to us was the sum of the independently appraised value of the customer contracts and related customer relationships for contracts being performed by us. In order to determine the appropriate value of goodwill to be allocated to us, an estimate was made of the relative fair value of DynCorp International to the remaining portion of DynCorp as of March 7, 2003.

The 2005 Acquisition was accounted for using the purchase method of accounting. This method requires estimates to determine the fair values of assets and liabilities acquired, including judgments to determine any acquired intangible assets such as customer-related intangibles, as well as assessments of the fair value of existing assets such as property and equipment. Liabilities acquired can include reserves for litigation and other contingency reserves established prior to or at the time of acquisition, and require judgment in ascertaining a reasonable value. A third-party valuation firm assisted management in the appraisal of certain assets and liabilities, but these determinations were based on significant estimates provided by us, such as forecasted revenues or profits on contract-related intangibles. Numerous factors were typically considered in the purchase accounting assessments, which were conducted by our professionals from legal, finance, human resources, information systems, program management and other disciplines. In addition, purchase price allocations are subject to refinement until all pertinent information is obtained. The purchase agreement established a procedure for determining a net working capital adjustment after the closing, with any dispute regarding such calculations to be resolved by an independent accounting firm. We negotiated the amount of the working capital adjustment with Computer Sciences Corporation and entered into a settlement agreement with Computer Sciences Corporation on October 27, 2005. Pursuant to the settlement agreement, Computer Sciences Corporation received an additional 65,550 shares of our Successor Parent’s preferred stock valued at $65.55 million. In addition, the preferred shares issued accumulated dividends from the date of acquisition, February 11, 2005. The Company has recorded the settlement amount, which includes both the preferred stock and the accumulated dividend through October 27, 2005, as an increase to Goodwill and member’s equity at December 30, 2005.

Accounting for Contingencies and Litigation

We are subject to various claims and contingencies associated with lawsuits, insurance, tax and other issues arising out of the normal course of business. The consolidated financial statements reflect the treatment of claims and contingencies based on our view of the expected outcome. We consult with legal counsel on issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business. If the likelihood of an adverse outcome is probable and the amount is estimable, we accrue a liability in accordance with SFAS No. 5, “Accounting for Contingencies.” Significant changes in the estimates or assumptions used in assessing the likelihood of an adverse outcome could have a material effect on our consolidated financial results.

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Results of Operations

The following is a more detailed discussion of our financial condition and results of operations for the periods presented.

Three Months Ended December 30, 2005, Compared To Three Months Ended December 31, 2004

The following table presents our historical operating results as a percentage of revenues for the periods indicated:

DYNCORP INTERNATIONAL LLC

Condensed Consolidated Statements of Income

(dollars in Thousands)

	Successor					Immediate Predecessor
	For the Three Months Ended
	Dec 30, 2005					Dec 31, 2004
Revenues	$	553,561		100.0	%	$	469,541		100.0	%
Costs of services		498,523		90.1	%		419,155		89.3	%
Selling, general and administrative		21,013		3.8	%		17,818		3.8	%
Depreciation and amortization		10,563		1.9	%		1,493		0.3	%
Operating income		23,462		4.2	%		31,075		6.6	%
Other expense (income):
Interest expense		14,595		2.6	%		—		0.0	%
Other income		(113	)	0.0	%		(70	)	0.0	%
Income before income taxes		8,980		1.6	%		31,145		6.6	%
Provision for income taxes		3,389		0.6	%		9,905		2.1	%
Net income	$	5,591		1.0	%	$	21,240		4.5	%

Revenues. Total revenue increased from $469.5 million in the three months ended December 31, 2004 to $553.6 million for the three months ended December 30, 2005, an increase of $84.1 million or 17.9%. Revenues from the Field Technical Service segment increased from $175.9 million for the three months ended December 31, 2004 to $179.6 million for the three months ended December 30, 2005, or an increase of 2.1%. This increase was the result of $6.5 million of additional revenue on the Attack Helicopter-1/Utility Helicopter-1 program due to the timing of deliveries, and $6.0 million revenue increase on the Life Cycle Contractor Support program due to additional Global Air Traffic Management deliveries and additional maintenance and overhaul requirements under the Army portion of the program. These increases were offset by a reduction of $1.5 million on the Contract Field Teams contract due to reduced workload requirements, which drives lower staffing and reduced overtime, $1.7 million on the V-22 program due to reduced testing support requirements, and $1.2 million on the Bell Helicopter program as this program phases out.

International Technical Services revenue increased from $293.6 million for the three months ended December 31, 2004 to $374.0 million for the three months ended December 30, 2005, which was an increase of $80.4 million or 27.4%. This increase was comprised of an additional $37.1 million of revenue under the International Narcotics and Law Enforcement Airwing program as a result of a new contract that went into effect on November 1, 2005 for operations, and added work to provide helicopter support for ground eradication efforts in Afghanistan, $31.2 million of added work under the Civilian Police program mainly in the Middle East, $13.9 million of new work providing hurricane relief efforts along the gulf coast, $7.3 million due to added work under our Africa Peacekeeping contract with the Department of State, and $8.6 million of additional construction work

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under the Worldwide Personal Protective Services program. These increases were offset by a reduction of $17.2 million from a series of contracts to provide security and logistics support to various U.S. Government construction efforts in the Middle East as a subcontractor. This type of subcontract effort was typically short term with delayed payments, and therefore we exited this line of business until it can be performed in a more stable environment with improved financial terms. Further offsetting the increases described above was a reduction in our DynMarine Services of Virginia LLC business of $8.6 million due to the discontinuance of our work under the Oceangraphics Ships contract.

Costs of services. Costs of services are comprised of direct labor, direct material, subcontractor costs, other direct costs and overhead. Other direct costs include travel, supplies and other miscellaneous costs. Cost of services increased from $419.2 million for the three months ended December 31, 2004 to $498.5 million for the three months ended December 30, 2005, or an increase of $79.3 million. The majority of this increase was directly related to the increase in revenues during these same periods. Cost of services as a percentage of revenue increased from 89.3% for the three months ended December 31, 2004 to 90.1% for the three months ended December 30, 2005.

Selling, general and administrative expenses.Selling, general and administrative expenses are primarily for functions such as management, legal, financial accounting, contracts and administration, human resources, management information systems, purchasing, and business development. Selling general and administrative expenses for the three months ended December 31, 2004, was $17.8 million and increased to $21.0 million for the three months ended December 30, 2005, or an increase of 18.0%. This increase was primarily related to selling expenses, non-cash compensation expense related to the issuance of equity-based compensation (see Note 7 in the accompanying notes to the condensed consolidated financial statements) and the added cost of security in the Middle East for selling, general and administrative personnel. As a percentage of revenue, selling, general and administrative expenses remained consistent for the three months ended December 30, 2005 as compared to the three months ended December 31, 2004 of 3.8%.

Depreciation and amortization.Depreciation and amortization increased from $1.5 million for the three months ended December 31, 2004 to $10.6 million for the three months ended December 30, 2005, or an increase of $9.1 million. This increase was primarily due to higher amortization expense. Amortization in the three months ended December 31, 2004 was based on the DynCorp International portion of the amortization related to the Computer Sciences Corporation purchase of DynCorp in March 2003. The amortization for the three months ended December 30, 2005 was based on the 2005 Acquisition which included a step up in basis for our customer related intangibles resulting in increased amortization expense.

Interest Expense.During the three months ended December 30, 2005, $14.6 million of interest expense was incurred related to our senior secured credit facility and our senior subordinated notes. This interest expense includes interest costs applicable to the three month period as well as amortization of deferred financing fees.

During the three months ended December 31, 2004, we did not incur any interest expense because it was incurred at the Computer Sciences Corporation corporate level and not pushed down to the operating entities.

Income tax expense.We had income tax expense for the three months ended December 30, 2005 of $3.4 million, which is a decrease of $6.5 million or 65.6%, from income tax expense of $9.9 million for the three months ended December 31, 2004. The primary reason for the decrease relates to the factors previously discussed resulting in lower earnings before taxes in the current year.

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Our Segments

The following table sets forth the revenues and earnings before interest and taxes for our International Technical Services and Field Technical Services operating divisions, both in dollars and as a percentage of our consolidated revenues for segment revenue and as a percentage of segment specific revenue for earnings before interest and taxes, for the three months ended December 30, 2005 as compared to the three months ended December 31, 2004.

	Successor					Immediate Predecessor
	For the Three Months Ended Dec 30, 2005					For the Three Months Ended Dec 31, 2004
Revenues
Field Technical Services	$	179,592		32.4	%	$	175,881		37.5	%
International Technical Services		373,969		67.6	%		293,602		62.5	%
Other		—		0.0	%		58		0.0	%
Consolidated	$	553,561		100.0	%	$	469,541		100.0	%
Earnings before Interest and Taxes
Field Technical Services	$	3,830		2.1	%	$	11,037		6.3	%
International Technical Services		20,339		5.4	%		20,564		7.0	%
Other		(707	)	N/A			(526	)	N/A
Consolidated	$	23,462		4.2	%	$	31,075		6.6	%

Field Technical Services

Revenues.Revenues from the Field Technical Service segment increased from $175.9 million for the three months ended December 31, 2004 to $179.6 million for the three months ended December 30, 2005, or an increase of 2.1%. This increase was the result of $6.5 million of additional revenue on the Attack Helicopter-1 / Utility Helicopter-1 program due to the timing of deliveries, and $6.0 million revenue increase on the Life Cycle Contractor Support program due to additional Global Air Traffic Management deliveries and additional maintenance and overhaul requirements under the Army portion of the program. These increases were offset by a reduction of $1.5 million on the Contract Field Teams contract due to reduced workload requirements which drives lower staffing and reduced overtime, $1.7 million on the V-22 program due to reduced testing support requirements, and $1.2 million on the Bell Helicopter program as this program phases out.

Earnings before interest and taxes.Earnings before interest and taxes for the three months ended December 30, 2005 were $3.8 million, a decrease of $7.2 million, or 65.5%, from $11.0 million for the three months ended December 31, 2004. Earnings before interest and taxes as a percentage of revenue for the three months ended December 30, 2005 was 2.1% compared to 6.3% for the three months ended December 31, 2004. The decrease in earnings before interest and taxes is primarily the result of increased amortization of customer intangibles due to the 2005 Acquisition.

International Technical Services

Revenues.Revenues for the three months ended December 30, 2005 were $374.0 million, an increase of $80.4 million, or 27.4%, from $293.6 million for the three months ended December 31, 2004. This increase was comprised of an additional $37.1 million of revenue under the International Narcotics and Law Enforcement Airwing program as a result of a new contract that went into effect on November 1, 2005 for operations, and added work to provide helicopter support for ground eradication efforts in Afghanistan, $31.2 million of added work under the Civilian Police program mainly in the Middle East, $13.9 million of new work providing hurricane relief efforts along the gulf coast, $7.3 million due to added work under our Africa Peacekeeping

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contract with the Department of State, and $8.6 million of additional construction work under the Worldwide Personal Protective Services program. These increases were offset by a reduction of $17.2 million from a series of contracts to provide security and logistics support to various U.S. Government construction efforts in the Middle East as a subcontractor. This type of subcontract effort was typically short term with delayed payments, and therefore we exited this line of business until it can be performed in a more stable environment with improved financial terms. Further offsetting the increases described above was a reduction in our DynMarine Services of Virginia LLC business of $8.6 million due to the discontinuance of our work under the Oceangraphics Ships contract.

Earnings before interest and taxes. Earnings before interest and taxes for the three months ended December 30, 2005 were $20.3 million, a decrease of $0.3 million, or 1.4%, from $20.6 million for the three months ended December 31, 2004. Earnings before interest and taxes as a percentage of revenue for the three months ended December 30, 2005 was 5.4% compared to 7.0% for the three months ended December 31, 2004. The decrease in earnings before interest and taxes is primarily the result of increased amortization of customer intangibles due to the 2005 Acquisition partially offset by higher margins due to the change in contract mix.

Nine Months Ended December 30, 2005, Compared To Nine Months Ended December 31, 2004

The following table presents our historical operating results as a percentage of revenues for the periods indicated:

DYNCORP INTERNATIONAL LLC

Condensed Consolidated Statements of Income

(dollars in Thousands)

	Successor					Immediate Predecessor
	For the Nine Months Ended
	Dec 30, 2005					Dec 31, 2004
Revenues	$	1,418,245		100.0	%	$	1,400,054		100.0	%
Costs of services		1,262,255		89.0	%		1,263,414		90.2	%
Selling, general and administrative		59,874		4.2	%		46,452		3.3	%
Depreciation and amortization		32,763		2.3	%		5,095		0.4	%
Operating income		63,353		4.5	%		85,093		6.1	%
Other expense (income):
Interest expense		42,278		3.0	%		—		0.0	%
Other income		(166	)	0.0	%		(130	)	0.0	%
Income before income taxes		21,241		1.5	%		85,223		6.1	%
Provision for income taxes		7,553		0.5	%		30,779		2.2	%
Net income	$	13,688		1.0	%	$	54,444		3.9	%

Revenues. Total revenue increased from $1,400.1 million in the nine months ended December 31, 2004 to $1,418.2 million for the nine months ended December 30, 2005, an increase of $18.1 million or 1.3%. Revenues from the Field Technical Service segment increased from $513.2 million for the nine months ended December 31, 2004 to $522.0 million for the nine months ended December 30, 2005, or an increase of 1.7%. Increased revenue in the Field Technical Service segment came from $17.6 million under the Life Cycle Contractor Support program due to additional Global Air Traffic Management deliveries and additional maintenance and overhaul requirements under the Army portion of the program, $12.7 million under the Attack Helicopter-1 / Utility Helicopter-1 program due to increased deliveries as this program is ramping up from the contract start in April 2004, and $9.4 million due to increased workload under the APS-3 program. These increases were partially offset by a $12.3 million reduction on the Al Salam program due to our withdrawal as a result of unfavorable contract terms offered by the customer, consequently, the customer decided to self perform the F-15 maintenance we had been providing, $11.6 million reduction under the Contract Field Team contract due to reduced workload requirements, which drives lower staffing and reduced overtime, and $4.7 million reduction under the Holloman contract due to the removal of the German F-4’s from the contract.

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International Technical Services revenue increased from $886.8 million for the nine months ended December 31, 2004 to $896.3 million for the nine months ended December 30, 2005, which was an increase of $9.5 million or 1.1%. Increases in this segment include $46.6 million of revenue under the International Narcotics and Law Enforcement Airwing program as a result of a new contract that went into effect on November 1, 2005 for operations, and added work to provide helicopter support for ground eradication efforts in Afghanistan, $16.8 million of new work providing hurricane relief efforts along the gulf coast, $19.1 million due to added work under our Africa Peacekeeping contract with the Department of State, and $36.2 million of additional construction work under the Worldwide Personal Protective Services program. These increases were partially offset by a reduction of $35.8 million under the Civilian Police program due to the timing of various construction efforts in the Middle East, and $54.6 million from a series of contracts to provide security and logistics support to various U.S. Government construction efforts in the Middle East as a subcontractor. This type of subcontract effort was typically short term with delayed payments, and therefore we decided to exit this line of business until it can be performed in a more stable environment with improved financial terms. Further offsetting the increases described above was a reduction in our DynMarine Services of Virginia LLC business of $28.0 million due to the discontinuance of our work under the Oceangraphics Ships contract.

Costs of services. Costs of services are comprised of direct labor, direct material, subcontractor costs, other direct costs and overhead. Other direct costs include travel, supplies and other miscellaneous costs. Cost of services decreased from $1,263.4 million for the nine months ended December 31, 2004 to $1,262.3 million for the nine months ended December 30, 2005, a decrease of $1.1 million or 0.1%. As a percentage of revenue, costs of services dropped from 90.2% in the nine months ended December 31, 2004 to 89.0% for the nine months ended December 30, 2005. This reduction as a percentage of revenue was due to improved program performance and the impact of shifting from cost type contracts to more time and material or fixed unit price contracts.

Selling, general and administrative expenses.Selling, general and administrative expenses are primarily for functions such as management, legal, financial accounting, contracts and administration, human resources, management information systems, purchasing, and business development. Selling general and administrative expenses for the nine months ended December 31, 2004 was $46.5 million and increased to $59.9 million for the nine months ended December 30, 2005, or an increase of 28.8%. This increase was primarily related to selling expenses, non-cash compensation expense related to the issuance of equity-based compensation (see Note 7 in the accompanying notes to the condensed consolidated financial statements) and the added cost of security in the Middle East for selling, general and administrative personnel. As a percentage of revenue, selling, general and administrative expenses increased from 3.3% for the nine months ended December 31, 2004 to 4.2% for the nine months ended December 30, 2005. Included in the nine months ended December 30, 2005 were one-time retention bonuses of $2.9 million related to the 2005 Acquisition. This amount was expected as part of the transaction expenses, but for accounting purposes the one-time retention bonuses were required to be expensed over the related service period following the close of the 2005 Acquisition. Adjusting for the one-time retention expenses, selling, general and administrative expenses as a percentage of revenue would have increased from 3.3% for the nine months ended December 31, 2004 to 4.0% for the nine months ended December 30, 2005.

Depreciation and amortization.Depreciation and amortization increased from $5.1 million for the nine months ended December 31, 2004 to $32.8 million for the nine months ended December 30, 2005, or an increase of $27.7 million. This increase was primarily due to higher amortization expense. Amortization in the nine months ended December 31, 2004 was based on the DynCorp International portion of the amortization related to the Computer Sciences Corporation purchase of DynCorp in March 2003. The amortization for the nine months ended December 30, 2005 was based on the 2005 Acquisition which included a step up in basis for our customer related intangibles resulting in increased amortization expense.

Interest Expense.During the nine months ended December 30, 2005, $42.3 million of interest expense was incurred related to our senior secured credit facility, the revolving credit facility, and our senior subordinated notes. This interest expense includes interest costs applicable to the nine month period as well as amortization of deferred financing fees.

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During the nine months ended December 31, 2004, we did not incur any interest expense because it was incurred at the Computer Sciences Corporation corporate level and not pushed down to the operating entities.

Income tax expense.We had income tax expense for the nine months ended December 30, 2005 of $7.6 million, which is a decrease of $23.2 million or 75.3% from income tax expense of $30.8 million for the nine months ended December 31, 2004. The primary reason for the decrease relates to the factors previously mentioned resulting in lower earnings before taxes in the current year. In addition to the decline in current year tax expense attributable to lower earnings before tax, the current year tax expense includes the reversal of $0.4 million for a deferred tax valuation allowance recorded in prior periods.

Our Segments

The following table sets forth the revenues and earnings before interest and taxes for our International Technical Services and Field Technical Services operating divisions, both in dollars and as a percentage of our consolidated revenues for segment revenue and as a percentage of segment specific revenue for earnings before interest and taxes, for the nine months ended December 30, 2005 as compared to the nine months ended December 31, 2004.

	Successor					Immediate Predecessor
(dollars in Thousands)	For the Nine Months Ended Dec 30, 2005					For the Nine Months Ended Dec 31, 2004
Revenues
Field Technical Services	$	521,963		36.8	%	$	513,197		36.7	%
International Technical Services		896,282		63.2	%		886,758		63.3	%
Other (1)		—		0.0	%		99		0.0	%
Consolidated	$	1,418,245		100.0	%	$	1,400,054		100.0	%
Earnings before Interest and Taxes
Field Technical Services	$	19,001		3.6	%	$	32,981		6.4	%
International Technical Services		48,690		5.4	%		52,756		5.9	%
Other		(4,338	)	N/A			(644	)	N/A
Consolidated	$	63,353		4.5	%	$	85,093		6.1	%

(1) Primarily consists of joint venture revenues not allocated to a specific segment.

Field Technical Services

Revenues.Revenues for the nine months ended December 30, 2005 were $522.0 million, an increase of $8.8 million, or 1.7%, from $513.2 million for the nine months ended December 31, 2004. Increased revenue in the Field Technical Service segment came from $17.6 million under the Life Cycle Contractor Support program due to additional Global Air Traffic Management deliveries and additional maintenance and overhaul requirements under the Army portion of the program, $12.7 million under the Attack Helicopter-1 / Utility Helicopter-1 program due to increased deliveries as this program is ramping up from the contract start in April 2004, and $9.4 million due to increased workload under the APS-3 program. These increases were partially offset by a $12.3 million reduction on the Al Salam program due to our withdrawal as a result of unfavorable contract terms offered by the customer, consequently, the customer decided to self perform the F-15 maintenance we had been providing, $11.6 million reduction under the Contract Field Team contract due to reduced workload requirements which drives lower staffing and reduced overtime, and $4.7 million reduction under the Holloman contract due to the removal of the German F-4’s from the contract.

Earnings before interest and taxes.Earnings before interest and taxes for the nine months ended December 30, 2005 were $19.0 million, a decrease of $13.9 million, or 42.3%, from $32.9 million for the nine

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months ended December 31, 2004. Earnings before interest and taxes as a percentage of revenue for the nine months ended December 30, 2005 was 3.6% compared to 6.4% for the nine months ended December 31, 2004. The decrease in earnings before interest and taxes is primarily due to the increased amortization of customer intangibles due to the 2005 Acquisition.

International Technical Services

Revenues.International Technical Services revenue increased from $886.8 million for the nine months ended December 31, 2004 to $896.3 million for the nine months ended December 30, 2005, which was an increase of $9.5 million or 1.1%. Increases in this segment include $46.6 million of revenue under the International Narcotics and Law Enforcement Airwing program as a result of a new contract that went into effect on November 1, 2005 for operations, and added work to provide helicopter support for ground eradication efforts in Afghanistan, $16.8 million of new work providing hurricane relief efforts along the gulf coast, $19.1 million due to added work under our Africa Peacekeeping contract with the Department of State, and $36.2 million of additional construction work under the Worldwide Personal Protective Services program. These increases were partially offset by a reduction of $35.8 million under the Civilian Police program due to the timing of various construction efforts in the Middle East, and $54.6 million from a series of contracts to provide security and logistics support to various U.S. Government construction efforts in the Middle East as a subcontractor. This type of subcontract effort was typically short term with delayed payments, and therefore we exited this line of business until it can be performed in a more stable environment with improved financial terms. Further offsetting the increases described above was a reduction in our DynMarine Services of Virginia LLC business of $28.0 million due to the discontinuance of our work under the Oceangraphics Ships contract.

Earnings before interest and taxes. Earnings before interest and taxes for the nine months ended December 30, 2005 were $48.7 million, a decrease of $4.1 million, or 7.8%, from $52.8 million for the nine months ended December 31, 2004. Earnings before interest and taxes as a percentage of revenue for the nine months ended December 30, 2005 was 5.4% compared to 5.9% for the nine months ended December 31, 2004. The decrease in earnings before interest and taxes is primarily the result of increased amortization of customer intangibles due to the 2005 Acquisition partially offset by higher margins due to the change in contract mix. In addition to the benefit provided by the shift in contract mix, the current year includes the recognition of an equitable adjustment related to our Civilian Police program. The equitable adjustment has resulted in earnings of $5.5 million during the current year and has improved the margin on earnings before interest and taxes 105 basis points for the nine months ended December 30, 2005.

Liquidity and Capital Resources

Historically, we financed our capital and working capital requirements through a combination of cash flows from operating activities and transfers from the predecessor parent companies. In connection with the 2005 Acquisition, we have a $75.0 million revolving credit facility available to fund working capital and other cash requirements not funded from ongoing operations. Leading up to the 2005 Acquisition, Computer Sciences Corporation accelerated collection of receivables where possible and delayed payments to vendors and subcontractors. As a result, we had to draw $20.0 million on the revolver shortly after the closing of the 2005 Acquisition, and as of April 1, 2005 the outstanding balance was $35.0 million. We repaid our revolver during the three months ended July 1, 2005. On January 9, 2006, we entered into the first amendment and waiver of our senior secured credit facility. The first amendment and waiver increases the revolving commitment under our senior secured credit facility by $15.0 million, which includes an increase in the sub-limit for letters of credit equal to the same amount.

Cash and cash equivalents at December 30, 2005 were $24.8 million versus April 1, 2005 when we had a balance of $13.5 million. The factors that caused the increase in cash and cash equivalents are described below. As of December 30, 2005, we had $662.4 million of indebtedness, including the senior subordinated notes and excluding interest accrued thereon, of which $342.4 million was secured. On the same date, we had approximately $67.2 million of availability under our senior secured credit facility (which gives effect to $7.8 million of outstanding letters of credit which reduced our availability by that amount). As of December 30, 2005, approximately $342.4 million, of our indebtedness would have ranked senior to, or pari passu with, the senior subordinated notes, excluding $7.8 million of outstanding letters of credit.

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Cash Flows

Net cash provided by operating activities for the nine months ended December 30, 2005 was $54.2 million, while net cash used in operating activities for the nine months ended December 31, 2004 was $(13.1) million. Cash provided by operating activities for the nine months ended December 30, 2005 consisted of $96.2 million of operating income before considering depreciation and amortization, less $35.9 million of cash paid for interest and normal short-term payment timing of trade receivables and payables.

Net cash used in investing activities for the nine months ended December 30, 2005 was $3.5 million compared to $8.4 million for the nine months ended December 31, 2004. This use of cash is due primarily to the purchase of property, equipment, and other assets.

Net cash (used in) provided by financing activities was $(39.3) million and $32.9 million for the nine months ended December 30, 2005 and December 31, 2004, respectively. The cash used in financing activities during the nine months ended December 30, 2005 is due to the repayment of borrowings under our revolving credit facility in the amount of $35.0 million, scheduled principal repayments of our term loan in the amount of $2.6 million, payments for offering expenses of $1.2 million and the purchase of an interest rate cap for $0.5 million, which limits our exposure to upward movements in variable rate debt.

We expect that cash generated from operating activities and availability under our senior secured credit facility will be our principal sources of liquidity. Based on our current level of operations, we believe our cash flow from operations and available borrowings under our senior secured credit facility, as amended, will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior secured credit facility, as amended, in an amount sufficient to enable us to repay our indebtedness, including the senior subordinated notes, or to fund our other liquidity needs. Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations, including making payments on the notes.

Debt and Other Obligations

Concurrently with the offering of our senior subordinated notes, we entered into our senior secured credit facility. Our senior secured credit facility provides us with a $345.0 million term loan, maturing in 2011, and up to $75.0 million in available revolving loan borrowings, maturing in 2010. As of December 30, 2005, we had $662.4 million of indebtedness including the senior subordinated notes and excluding interest accrued thereon, of which $342.4 million was secured. On the same date, we had approximately $67.2 million available under our senior secured credit facility (which gives effect to $7.8 million of outstanding letters of credit which reduced our availability by that amount). As of December 30, 2005, approximately $342.4 million of our indebtedness would have ranked senior to, or pari passu with, the senior subordinated notes, excluding $7.8 million of outstanding letters of credit. On January 9, 2006, the Company entered into a first amendment and waiver of our senior secured credit facility. The first amendment and waiver increases the revolving commitment under our senior secured credit facility by $15.0 million, which includes an increase in the sub-limit for letters of credit equal to the same amount.

Our senior secured credit facility contains financial covenants, including a minimum interest coverage ratio and a maximum total debt to EBITDA (as defined in our senior revolving credit facility) ratio, and places certain restrictions on our ability to make capital expenditures. These financial ratios include a minimum interest coverage ratio and a maximum leverage ratio. The interest coverage ratio is the ratio of EBITDA to cash interest expense for trailing quarters. The minimum interest coverage ratio increases from 2:1 to 3.2:1 during the term of the senior secured credit facility. The maximum leverage coverage ratio decreases from 6:1 to 3:1 during the term of the senior secured credit facility. The Senior Secured Credit Facility also restricts the maximum amount

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of our capital expenditures during each year of the senior credit facility. Capital expenditures are expenditures that are required by generally accepted accounting principles to be included in the “purchase of property and equipment.” Our senior secured credit facility is secured by substantially all of our assets and the assets of our domestic subsidiaries, and by a pledge of all of the capital stock of our domestic subsidiaries, and 65% of the capital stock of our first tier foreign subsidiaries. The initial borrowings thereunder are subject to customary closing conditions. At December 30, 2005, we were in compliance with our senior credit facility covenants.

Our capital expenditures are primarily related to contractual requirements. We spent an aggregate of approximately $1.3 million and $8.4 million for capital expenditures primarily relating to the purchase of vehicles, equipment and for certain leasehold improvements in the nine months ended December 30, 2005, and December 31, 2004, respectively. We customarily lease our vehicles and equipment. However, Computer Sciences Corporation, our former parent, elected to purchase certain equipment in fiscal 2005. We intend to continue our practice of leasing our vehicles and equipments in the future.

On January 9, 2006, the Company entered into a first amendment and waiver of our senior secured credit facility. The first amendment and waiver increases the revolving commitment under our senior secured credit facility by $15.0 million, which includes an increase in the sub-limit for letters of credit equal to the same amount. The first amendment and waiver also permits us to: (i) pay a transaction fee to Veritas Capital Management II, L.C.C. related to the Successor Parent’s initial public offering of up to $10.0 million; (ii) pay a dividend to the holders of the Successor Parent’s Class B common stock in an amount equal to the sum of (x) $100.0 million plus (y) the proceeds, if any, of the underwriters over-allotment option, net of discount and estimated offering expenses; (iii) redeem all of the Successor Parent’s currently outstanding preferred stock, of which approximately $213.0 million in stated amount including accrued and unpaid dividends thereon was outstanding as of December 30, 2005; and (iv) redeem up to $65.0 million of the $320.0 million aggregate principal amount of the senior subordinated notes. The first amendment and waiver waives the requirement in the senior secured credit facility that we use 50% of the net cash proceeds from the initial public offering to prepay loans under the senior secured credit facility and/or permanently reduce the revolving commitments.

Recent Events

We filed a registration statement on Form S-4 for our senior subordinated notes with the Securities and Exchange Commission (SEC) on August 9, 2005. The registration statement was declared effective by the SEC on November 8, 2005. We launched an exchange offer with respect to $320.0 million of the original senior subordinated notes, which expired at 12:00 midnight EST, on December 7, 2005. We exchanged approximately 99.9% of the original senior subordinated notes.

Our Successor Parent, DynCorp International Inc., filed a second amendment to the registration statement on Form S-1 with the SEC on November 30, 2005, relating to an initial public offering of its common stock. There can be no assurance whether our parent will complete the offering at all or what the terms of the offering will be.

Information Concerning Forward Looking Statements

Forward-Looking Statements

This quarterly report contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, written, oral or otherwise made, represent the Company’s expectation or belief concerning future events. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. The Company cautions that these statements are further qualified by important economic and competitive factors that could cause actual results to differ materially, or otherwise, from those in the forward-looking statements, including, without

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limitation, our contracts with the U.S. Government entities, the U.S. Department of Defense and Department of State budget in general and U.S. military activity in particular, competitive pressures and trends in our industry, legal proceedings and regulatory matters, other risks related to our senior subordinated notes, general economic conditions, and our development and other risks detailed from time to time in the Company’s reports filed with the SEC. Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and therefore there can be no assurance that any forward-looking statement contained herein will prove to be accurate. The Company assumes no obligation to update the forward-looking statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Information about market risks for the nine months ended December 30, 2005, does not differ materially from that discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Registration Statement (File No. 333-127343) on Form S-4, Amendment No. 3, filed with the SEC on November 4, 2005, originally filed with the SEC on August 9, 2005.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized and reported in a timely manner; and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

(Dollars in Thousands)

Item 1. Legal Proceedings

The Company and its subsidiaries and affiliates are involved in various claims and lawsuits, including contract disputes and claims based on allegations of negligence and other tortious conduct. In most cases, the Company has denied or believes it has a basis to deny liability, and in some cases has offsetting claims against the plaintiffs, third parties, or insurance carriers. The Company has recorded such damages and penalties that are considered to be probable recoveries against the Company or its subsidiaries.

On September 11, 2001, a class action lawsuit seeking $100,000 on behalf of approximately 10,000 citizens of Ecuador was filed against the Company. The lawsuit alleges personal injury, property damage and wrongful death as a consequence of the spraying of narcotic crops along the Colombian border adjacent to Ecuador. The terms of the contract with the client, the U.S. Department of State, provide that the Department of State will indemnify the Company against all third-party claims and liabilities arising out of the contract that are not otherwise covered by insurance, subject to certain specified funding ceilings. The Company is also entitled to indemnification by CSC in connection with this lawsuit, subject to certain limitations. In addition, the Company expects to be protected by the government contractor immunity defense.

Sometime in 2004 or early in 2005, an Iraqi company filed three separate actions against the Company for an aggregate amount of approximately $50,000 in rental fees and other payments allegedly owed by the Company in connection with its lease of three hotels in Baghdad. The Company has no relationship with the Iraqi company and is not in privity of contract with it. The Company leases the hotels from another company. In the event that the court decides against the Company in this lawsuit, it could have a material adverse affect on the Company’s operating performance, cash flows and operating condition.

On May 29, 2003, Gloria Longest, a former accounting manager for the Company, filed suit against the Company under the False Claims Act and the Florida Whistleblower Statute, alleging that the Company submitted false claims to the government on our International Narcotics & Law Enforcement Affairs contract with the Department of State. The action, titled “Gloria Longest, Relator, on behalf of U.S. Attorney and DOJ v. DynCorp and DynCorp International LLC,” was filed in the U.S. District Court for the Middle District of Florida under seal. The complaint does not demand any specific monetary damages. The case was unsealed in 2005, and the Company learned of the existence of the action on August 15, 2005 when we were served with the complaint. The U.S. government has not joined the action. In the event that a court decides against the Company in this lawsuit, it could have a material adverse effect on the Company’s operating performance, cash flows and operating condition.

We are involved in various other claims and lawsuits from time to time, including employment, breach of contract and third-party liability claims and litigation. We do not believe that the ultimate resolution of any of these other actions will have a material adverse effect on our consolidated financial position, results of operations, liquidity or capital resources. In addition, our contracts with the U.S. government are subject to various legal and regulatory requirements and, from time to time, agencies of the U.S. government may investigate the conduct of our operations in accordance with these requirements. U.S. government investigations of us, whether related to our federal government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this quarterly report on Form 10-Q.

Exhibit No.	Description
10.14*	First Amendment and Waiver, dated January 9, 2006, amount DynCorp International LLC, DynCorp International Inc., and certain subsidiaries of the Company, the lenders party thereto, Goldman Sachs Credit Partners L.P., and Bank of America, N.A.
31.1	Certification of Stephen J. Cannon Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Michael J. Thorne Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Stephen J. Cannon Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Michael J. Thorne Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the SEC on January 11, 2006.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DYNCORP INTERNATIONAL LLC
Date: February 23, 2006
	/s/    MICHAEL J. THORNE
Name:	Michael J. Thorne
Title:	Senior Vice President, Chief Financial Officer, and Treasurer (principal financial and accounting officer and Duly Authorized Officer)

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