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


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


For the quarterly period ended October 1, 1998  Commission file number 1-3879 








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


                 Delaware                                   36-2408747
       (State or other jurisdiction of                     (IRS Employer
        incorporation or organization)                     Identification No.)


       2000 Edmund Halley Drive, Reston, VA               20191-3436         
      (Address of principal executive offices)            (Zip Code)

                  (703) 264-0330                                 
      (Registrant's telephone number, including area code)




(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 for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

           Class                            Outstanding as of October 1, 1998

Common Stock, $0.10 Par Value                              10,386,306

<PAGE>


                            DYNCORP AND SUBSIDIARIES
                                    FORM 10-Q
                      FOR THE QUARTER ENDED OCTOBER 1, 1998

                                      INDEX




                                                                          Page


PART I.  FINANCIAL INFORMATION 

 Item 1.  Financial Statements

  Consolidated Condensed Balance Sheets at
   October 1, 1998 and December 31, 1997                                  3-4

  Consolidated Condensed Statements of Operations for
   Three and Nine Months Ended October 1, 1998 and September 25, 1997     5

  Consolidated Condensed Statements of Cash Flows for
   Nine Months Ended October 1, 1998 and September 25, 1997               6

  Consolidated Statement of Permanent Stockholders' Equity                7

  Notes to Consolidated Condensed Financial Statements                    8-16

 Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                     17-21

PART II.  OTHER INFORMATION

 Item 1.  Legal Proceedings                                              21

 Item 6.  Exhibits and Reports on Form 8-K                               21

  Signatures                                                             22





<PAGE>



                             PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                DYNCORP AND SUBSIDIARIES
                         CONSOLIDATED CONDENSED BALANCE SHEETS
                         OCTOBER 1, 1998 AND DECEMBER 31, 1997
                                     (In thousands)




                                                        October 1, 
                                                           1998     December 31,
                                                        Unaudited        1997
                                                        ---------   ------------
<S>                                                     <C>           <C> 
Assets
Current Assets:
 Cash and cash equivalents                               $  6,393       $ 24,602
 Accounts receivable and contracts in process (Note 2)    239,256        202,758
 Inventories of purchased products and supplies,
   at lower of cost (first-in, first-out) or market           675          1,090
 Other current assets                                      12,581         11,133
                                                         --------       --------
     Total current assets                                 258,905        239,583

Property and Equipment (net of accumulated 
  depreciation and amortization of $27,715 in 
  1998 and $22,412 in 1997)                                19,703         19,620

Goodwill and Contracts Acquired (net of accumulated
  amortization of $47,006 in 1998 and $45,205 in 
  1997) (Note 7)                                           45,707         46,750

Other Assets (Notes 2 and 9)                               80,980         76,631
                                                         --------       --------

Total Assets                                             $405,295       $382,584
                                                         ========       ========




See accompanying notes to consolidated condensed financial statements.
</TABLE>



<PAGE>

<TABLE>
<CAPTION>
                                DYNCORP AND SUBSIDIARIES
                         CONSOLIDATED CONDENSED BALANCE SHEETS
                         OCTOBER 1, 1998 AND DECEMBER 31, 1997
                          (In thousands, except share amounts)


                                                        October 1,
                                                           1998     December 31,
                                                         Unaudited      1997   
                                                        ----------  ------------
<S>                                                    <C>           <C> 
Liabilities and Stockholders' Equity
Current Liabilities:
 Notes payable and current portion of long-term debt    $    440       $    450
 Accounts payable                                         57,401         46,109
 Deferred revenue and customer advances                    1,664          2,947
 Accrued liabilities                                     112,005        105,833
                                                        --------       --------
     Total current liabilities                           171,510        155,339

Long-Term Debt  (Note 2)                                 152,138        152,239

Other Liabilities and Deferred Credits  (Note 9)          72,569         77,780

Contingencies and Litigation  (Note 9)                         -              -

Temporary Equity: (Note 3)
 Redeemable Common Stock -
   ESOP Shares, 7,076,080 and 6,887,119
     shares issued and outstanding in 1998 and 1997,
     respectively, subject to restrictions                156,482       151,823
   Other, 125,714 shares issued and outstanding in
     1998 and 1997                                          3,049         3,017

Permanent Stockholders' Equity: (Note 4)
 Common Stock, par value ten cents per share, authorized
   20,000,000 shares; issued 4,957,043 shares in 1998
   and 4,784,770 shares in 1997                               496           478
 Common Stock Warrants                                          -         1,259
 Paid-in Surplus                                          127,626       125,412
 Reclassification to temporary equity for redemption
 value greater than par value                            (158,811)     (154,138)
 Deficit                                                  (83,952)     ( 93,837)
 Common Stock Held in Treasury, at cost; 1,778,493
  shares and 0 warrants at October 1, 1998 and
  1,677,511 shares and 170,716 warrants at
  December 31, 1997                                       (31,045)      (28,703)
 Unearned ESOP Shares                                      (4,767)       (8,085)
                                                         ---------     ---------
Total Liabilities and Stockholders' Equity               $405,295      $382,584
                                                         =========     =========




See accompanying notes to consolidated condensed financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                            DYNCORP AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

                                    UNAUDITED


                                      Three Months Ended    Nine Months Ended
                                      ------------------    -----------------
                                      October  September    October  September 
                                         1,       25,          1,       25,
                                        1998     1997         1998     1997
                                      -------  ---------    -------  ---------
<S>                                  <C>       <C>         <C>       <C>
Revenues                              $316,358  $283,832    $917,833  $843,665

Costs and Expenses:
   Costs of services                   300,061   269,851     871,924   806,018
   Corporate general and
     administrative                      5,015     4,062      15,076    12,855
   Interest income                        (291)     (463)       (968)   (1,460)
   Interest expense                      3,676     3,730      11,325    10,621
   Other                                   701       555       2,569     1,850
                                      --------  --------    --------   -------
    Total costs and expenses           309,162   277,735     899,926   829,884

Earnings before income taxes 
   and minority interest                 7,196     6,097      17,907    13,781
 Provision for income taxes (Note 5)     2,685     1,623       6,590     4,351
                                      --------  --------     -------    ------- 

Earnings before minority interest        4,511     4,474      11,317     9,430
 Minority interest                         485       387       1,432       997
                                      --------  --------     -------   -------

Net earnings                           $ 4,026   $ 4,087     $ 9,885   $ 8,433
                                       =======   =======     =======   =======

Weighted average number of 
 shares outstanding for basic 
 earnings per share (Note 6)            10,436    8,928       10,224     8,792

Weighted average number of 
 shares outstanding for 
 diluted earnings per share (Note 6)    10,579   10,458       10,541    10,694

Basic earnings per share                $ 0.39   $ 0.46       $ 0.97    $ 0.96

Diluted earnings per share              $ 0.38   $ 0.39       $ 0.94    $ 0.79




See accompanying notes to consolidated condensed financial statements.


</TABLE>

<PAGE>







<TABLE>
<CAPTION>

                            DYNCORP AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                   UNAUDITED 
                                                              Nine Months Ended
                                                              -----------------
                                                             October   September
                                                                1,         25,
                                                               1998       1997
                                                             -------   ---------
<S>                                                         <C>       <C>
Cash Flows from Operating Activities:
Net earnings                                                  $ 9,885   $ 8,433
Adjustments to reconcile net earnings from operations  
   to net cash provided (used):
 Depreciation and amortization                                  6,517     7,254
 Increase in reserves for divested businesses                   1,000       325
 Proceeds from insurance settlement for asbestos claims         1,463     1,488
 Other                                                             94      (744)
Changes in current assets and liabilities, net of 
   acquisitions:
 Increase in current assets except cash and cash equivalents  (34,221)   (5,327)
 Increase (decrease) in current liabilities excluding 
   notes payable and current portion of long term debt         13,422      (195)
                                                              -------    -------
    Cash (used) provided by operating activities              ( 1,840)   11,234

Cash Flows from Investing Activities:
Sale of property and equipment                                    187        57
Purchase of property and equipment                             (3,583)   (4,462)
Assets and liabilities of acquired business                   (10,241)        -
Increases in investment in unconsolidated affiliates             (971)   (3,351)
Increase in notes receivable                                        -      (168)
Other                                                          (3,519)     (210)
                                                              --------   -------
    Cash used by investing activities                         (18,127)   (8,134)

Cash Flows from Financing Activities:
Treasury stock purchased                                       (1,287)     (284)
Payment on indebtedness                                       (43,347)     (664)
Retirement of Contract Receivable Collateralized Notes 
   1992-1                                                           -   (98,500)
Proceeds from Contract Receivable Collateralized Notes 
   1997-1                                                      43,210    50,000
Proceeds from issuance of Senior Notes                              -    99,484
Payment received on Employee Stock Ownership Plan note          3,318     2,595
Loan to Employee Stock Ownership Plan (Note 4)                      -   (11,879)
Deferred financing expenses                                         -    (5,080)
Common stock and warrants purchased from investors                  -   (37,819)
Other                                                            (136)     (501)
                                                               -------  --------
    Cash provided (used) from financing activities              1,758    (2,648)

Net (Decrease) Increase in Cash and Cash Equivalents          (18,209)      452
Cash and Cash Equivalents at Beginning of the Period           24,602    25,877
                                                              -------   -------
Cash and Cash Equivalents at End of the Period                $ 6,393   $26,329
                                                              =======   =======

Supplemental Cash Flow Information:
Cash paid for income taxes                                    $ 7,060   $ 2,534
                                                              =======   =======
Cash paid for interest                                        $10,796   $11,449
                                                              =======   =======

See accompanying notes to consolidated condensed financial statements.


</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                            DYNCORP AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF PERMANENT STOCKHOLDERS' EQUITY
                                 (In thousands)

                                    UNAUDITED



                                                                           Adjustment 
                                                       Common              for Redemption                          Unearned
                                         Common         Stock     Paid-in  Value Greater               Treasury        ESOP
                                          Stock      Warrants     Surplus  than Par Value    Deficit      Stock      Shares 
<S>                                     <C>         <C>         <C>         <C>           <C>        <C>         <C>      
Balance, December 31, 1997               $   478     $  1,259    $125,412    $(154,138)    $(93,837)  $(28,703)   $(8,085)

 Employee compensation    
  plans (option exercises, restricted
  stock plan, incentive bonus)                 2                      904                                 (863)
 Treasury stock purchased                                                                               (1,479)
 Stock warrants exercised                     34       (1,259)      1,310
 Payment received on Employee Stock  
  Ownership Plan note                                                                                               3,318
 Reclassification to Redeemable
  Common Stock                               (18)                               (4,673)
 Net earnings                                                                                 9,885                       

Balance, October 1, 1998                  $  496     $      -    $127,626    $(158,811)    $(83,952)  $(31,045)   $(4,767)
                                          ======     ==========  ========    ==========    =========  =========   ========


</TABLE>



<PAGE>


                            DYNCORP AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 OCTOBER 1, 1998

                                    UNAUDITED

Note 1.  Basis of Presentation

      The unaudited  consolidated condensed financial statements included herein
      have been prepared by the Company pursuant to the rules and regulations of
      the Securities and Exchange  Commission.  Certain information and footnote
      disclosures   normally  included  in  financial   statements  prepared  in
      accordance  with  generally  accepted  accounting   principles  have  been
      condensed or omitted pursuant to such rules and regulations,  although the
      Company believes that the disclosures are adequate to make the information
      presented not misleading. It is recommended that these condensed financial
      statements be read in  conjunction  with the financial  statements and the
      notes thereto included in the Company's latest annual report on Form 10-K.
      In the  opinion  of the  Company,  the  unaudited  consolidated  condensed
      financial  statements included herein reflect all adjustments  (consisting
      of normal recurring adjustments) necessary to present fairly the financial
      position,  the results of  operations  and the cash flows for such interim
      periods.  The  results of  operations  for such  interim  periods  are not
      necessarily  indicative  of the  results  for the full  year.  Certain  de
      minimus  amounts  presented  for prior periods have been  reclassified  to
      conform to the 1998 presentation.

Note 2.  Accounts Receivable and Contracts in Process

      At October 1, 1998, $71.0 million of accounts receivable are restricted as
      collateral for the Contract Receivable Collateralized Notes, Series 1997-1
      Class  A and B.  Additionally,  $1.5  million  of cash  is  restricted  as
      collateral  for the Notes  and has been  included  in Other  Assets on the
      balance sheet at October 1, 1998 and December 31, 1997.

      Accounts  receivable  are net of an  allowance  for  doubtful accounts  of
      $1.2  million at October 1, 1998 and $0.5  million at December 31, 1997.

Note 3.  Redeemable Common Stock

      Common stock which is redeemable has been reflected as Temporary Equity at
      each balance sheet date and consists of the following:
<TABLE>
<CAPTION>
                                   Balance at                       Balance at
                      Redeemable   October 1,           Redeemable  December 31,
               Shares   Value        1998       Shares    Value        1997 
               ------ ----------  -----------   ------  ----------  ------------
<S>         <C>        <C>     <C>             <C>        <C>     <C>
ESOP Shares  3,520,037  $24.25  $ 85,360,897    3,520,037  $24.00  $ 84,480,888
             3,556,043  $20.00    71,120,860    3,367,082  $20.00    67,341,640
             ---------          ------------    ---------          ------------
             7,076,080          $156,481,757    6,887,119          $151,822,528
             =========          ============    =========          ============

Other Shares   125,714  $24.25  $  3,048,565      125,714  $24.00  $  3,017,136
             =========          ============    =========          ============
</TABLE>
      In accordance with the Employee Retirement Income Security Act regulations
      and the Employee Stock Ownership Plan ("ESOP")  documents,  the ESOP Trust
      or the Company is  obligated to purchase  distributed  common stock shares
      from ESOP  participants on retirement or termination at fair value as long
      as the Company's common stock is not publicly traded.  However,  under the
      Subscription  Agreement with the ESOP dated September 9, 1988, the Company
      is permitted to defer put options if, under  Delaware  law, the capital of
      the  Company  would  be  impaired  as a  result  of  such  repurchase.  In
      conjunction with the acquisition of Technology Applications, Inc. in 1993,
      the Company  issued put options on 125,714  shares of its common  stock to
      the former owner.  The holder may, at any time  commencing on December 31,
      1998 and ending on December 31, 2000,  sell these shares to the Company at
      a price per share  equal to the  greater of $17.50 or, (a) if the stock is
      publicly  traded,  the  market  value at a  specified  date or, (b) if the
      Company's  stock is not  publicly  traded,  the fair  value at the time of
      exercise.

Note 4.  Employee Stock Ownership Plan

      The Company made loans to the Employee Stock  Ownership  Trust during 1997
      to purchase  shares and warrants as well as to pay off expiring  loans. At
      October  1,  1998,  the  unpaid  balance  on  these  loans,  $4.8  million
      representing  226,891 shares, is reflected as a reduction in stockholders'
      equity.

Note 5.  Income Taxes

      The provision for income taxes in 1998 and 1997 is based upon an estimated
      annual effective tax rate, including the impact of differences between the
      book value of assets and  liabilities  recognized for financial  reporting
      purposes and the basis recognized for tax purposes.

Note 6.  Earnings Per Share

      The Company has adopted SFAS No. 128  "Earnings  Per Share,"  which became
      effective for financial  statements  for periods ending after December 15,
      1997. The statement establishes new standards for computing and presenting
      earnings per share  ("EPS") and  requires  restatement  of prior  periods.
      Specifically, the statement replaces the presentation of primary and fully
      diluted EPS with a  presentation  of basic and diluted EPS and  requires a
      dual presentation on the face of the income statement and a reconciliation
      of basic EPS to diluted EPS.

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

<TABLE>
<CAPTION>
The reconciliation of basic EPS to diluted EPS is as follows:
(In thousands, except per share amounts)

                                                    Three Months Ended                Nine Months Ended
                                                    ------------------                -----------------      
                                                October 1,     September 25,     October 1,     September 25,
                                                   1998             1997            1998           1997
<S>                                              <C>             <C>              <C>             <C>      
Basic Earnings Per Share
------------------------
Net income                                        $ 4,026         $ 4,087          $ 9,885         $ 8,433
                                                  =======         =======          =======         =======
Weighted average shares outstanding                10,436           8,928           10,224           8,792
Basic earnings per share for net income             $0.39           $0.46            $0.97           $0.96
                                                    =====         =======            =====           =====

Diluted Earnings Per Share
--------------------------
Net income                                        $ 4,026         $ 4,087          $ 9,885         $ 8,433
                                                  =======         =======          =======         =======
Weighted average shares outstanding                10,436           8,928           10,224           8,792
   Effect of dilutive securities:
      Warrants                                          1           1,403              170           1,772
      Stock options                                   142             127              147             130
                                                   ------          ------           ------          ------     
Shares for diluted earnings per share              10,579          10,458           10,541          10,694
Diluted earnings per share for net income           $0.38           $0.39            $0.94           $0.79
                                                   ======          ======            =====          ======
</TABLE>

<PAGE>


Note 7.  Acquisitions

      On February 2, 1998, the Company  acquired a majority of the net assets of
      FMAS  Corporation   ("FMAS"),  a  medical  outcome  measurement  and  data
      abstraction  services company  headquartered  in Rockville,  MD, for $10.2
      million  in  cash.  FMAS is a  leading  provider  of  proprietary  outcome
      performance  measurement  systems to DoD  treatment  facilities as well as
      other  public  and  governmental  facilities.  The  acquisition  has  been
      accounted  for as a purchase and $0.9  million of goodwill,  which will be
      amortized  over  15  years,  has  been  recorded  based  on a  preliminary
      allocation of the purchase price.

Note 8.  Recently Issued Accounting Pronouncements

      Statement of Financial  Accounting  Standards  ("SFAS") No. 130 "Reporting
      Comprehensive  Income" was issued in June 1997,  and became  effective for
      fiscal years beginning after December 15, 1997. The statement  establishes
      standards for the reporting  and display of  comprehensive  income and its
      components  in a full set of  general-purpose  financial  statements.  The
      Company has reviewed the requirements of SFAS No. 130 and at present,  the
      Company  has  not  had  any   transactions   that  would  be  included  in
      comprehensive income.

      In February 1998, the Financial Accounting Standards Board issued SFAS No.
      132  "Employers'  Disclosures  about  Pensions  and Other Post  Retirement
      Benefits,"  which  became  effective  for  fiscal  years  beginning  after
      December  15,  1997.  The  statement  standardizes  employers'  disclosure
      requirements for pensions and other post retirement benefits.  Because the
      Company does not have  significant post retirement  benefits,  adoption of
      the standard is not expected to materially change the Company's  financial
      reporting.

      In March 1998,  the American  Institute of  Certified  Public  Accountants
      ("AICPA") issued  Statement of Position No. ("SOP") 98-1,  "Accounting for
      the Costs of Computer  Software  Developed or Obtained for Internal  Use,"
      which will be effective  for fiscal  years  beginning  after  December 15,
      1998.  The Statement of Position  requires the  capitalization  of certain
      costs  incurred in connection  with  developing or obtaining  software for
      internal use after the date of adoption.  During 1998, the Company adopted
      SOP No. 98-1 and has  capitalized  $3.4 million of internal use  software,
      primarily  related to the design and  development  of financial  and human
      resource software packages.

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

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

Note 9.  Contingencies and Litigation

     The Company and its  subsidiaries  and  affiliates  are involved in various
     claims and  lawsuits,  including  contract  disputes  and  claims  based on
     allegations of negligence and other tortuous  conduct.  The Company is also
     potentially  liable for certain personal  injury,  tax,  environmental  and
     contract  dispute  issues  related  to the  prior  operations  of  divested
     businesses.  In addition,  certain  subsidiary  companies  are  potentially
     liable for environmental,  personal injury and contract and dispute claims.
     In most cases,  the Company and its  subsidiaries  have denied,  or believe
     they have a basis to deny,  liability,  and in some cases  have  offsetting
     claims against the  plaintiffs,  third parties or insurance  carriers.  The
     total amount of damages  currently claimed by the plaintiffs in these cases
     is estimated to be  approximately  $128.8 million  (including  compensatory
     punitive damages and penalties).  The Company believes that the amount that
     will actually be recovered in these cases will be  substantially  less than
     the amount  claimed.  After taking into account  available  insurance,  the
     Company  believes it is  adequately  reserved with respect to the potential
     liability  for such claims.  The  estimates  set forth above do not reflect
     claims that may have been incurred but have not yet been filed. The Company
     has recorded such damages and penalties  that are considered to be probable
     recoveries against the Company or its subsidiaries.

     (a)   Asbestos Claims

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

     The  claimants   generally  allege  injuries  to  their  health  caused  by
     inhalation of asbestos fibers.  Many of the claimants seek punitive damages
     as well as compensatory  damages.  The amount of damages sought is impacted
     by a multitude  of  factors.  These  include  the type and  severity of the
     disease sustained by the claimant (i.e.,  mesothelioma,  lung cancer, other
     types of cancer,  asbestosis  or pleural  changes);  the  occupation of the
     claimant;  the duration of the claimant's  exposure to  asbestos-containing
     products;  the  number  and  financial  resources  of the  defendants;  the
     jurisdiction in which the claim is filed;  the presence or absence of other
     possible  causes  of the  claimant's  illness;  the  availability  of legal
     defenses,  such as the  statute of  limitations;  and whether the claim was
     made on an individual basis or as part of a group claim.

     Claim Exposure (number of plaintiffs, claims and per claim amounts not in 
     thousands)

     As of  September  30, 1998,  19,019  plaintiffs  have filed claims  against
     Fuller-Austin  and various other  defendants.  Of these claims,  2,366 have
     been  dismissed  and 5,082  have been  resolved  without  an  admission  of
     liability at an average cost of $3,213 per claim,  excluding  legal defense
     costs.

     The  following  is  a  summary  of  the  number  of  claims  filed  against
     Fuller-Austin:
<TABLE>
<CAPTION>
                                                 Years    
                                 -------------------------------------
                                 1994
                                 & Prior  1995    1996    1997    1998    Total
                                 ------- -----   -----   -----   -----   ------
<S>                            <C>     <C)     <C>     <C>     <C>     <C>    
     Claims Filed                4,057   4,527   4,122   3,807   2,506   19,019
     Claims Dismissed             (113)    (51) (1,116)   (931)   (155)  (2,366)
     Claims Resolved            (1,619)   (189) (1,825)   (460)   (989)  (5,082)
     Claims Under Appeal                   (13)                             (13)
                                                                         -------
     Claims Outstanding,
     as of September 30, 1998                                            11,558
                                                                         =======
</TABLE>
     In connection with these claims, Fuller-Austin's primary insurance carriers
     have  incurred  with a reservation  of rights  approximately  $29.7 million
     (including  $13.4 million of legal defense  costs) to defend and settle the
     claims and, in addition,  jury verdict  judgments have been entered against
     Fuller-Austin in the aggregate amount of $6.5 million, partially reduced by
     appeal during 1997 by $2.0 million,  which have not been paid and which are
     under appeal by Fuller-Austin.

     Fuller-Austin  has  experienced  a decline in the number of claims taken to
     trial.  During the 24-month period ending September 30, 1998, no cases were
     tried by plaintiffs  although  approximately 1,327 cases were set for trial
     during  this  period.   Plaintiffs  have  instead  elected  to  enter  into
     settlements with Fuller-Austin for amounts ranging from $250 to $14,500 for
     an  average  during  the  period of  $2,699  per  claim.  In  addition,  in
     connection  with these  settlements,  a significant  number of claims filed
     against  Fuller-Austin  were dismissed with no payment by  Fuller-Austin or
     its  insurers.  Fuller-Austin  and its carriers  will  continue to evaluate
     settlement  proposals,  but will be  prepared  to try cases that  cannot be
     settled in a manner consistent with recent settlement trends.

     During the first  quarter of 1998,  Fuller-Austin  agreed in  principle  to
     settle with  approximately 660 non-Texas  claimants who were threatening to
     amend pending lawsuits to add Fuller-Austin as a defendant.  The settlement
     aggregates  approximately $4.0 million which is included in the estimate of
     future  claims  set  forth  below.   Fuller-Austin   considers  the  entire
     settlement to be covered by insurance.

     The number of claims filed  against  Fuller-Austin  has become  significant
     only since  1992,  and  therefore,  Fuller-Austin  has a  relatively  brief
     history  (compared to  manufacturers  and suppliers) of claims volume and a
     limited data file upon which to estimate the number or costs of claims that
     may be received in the future. Also, effective September 1, 1995, the State
     of Texas (where most of these  claims have been filed)  enacted tort reform
     legislation  which  Fuller-Austin  believes  has  curtailed  the  number of
     unsubstantiated asbestos claims filed against the subsidiary in Texas.

     Fuller-Austin's  defense counsel has analyzed the 11,558 claims outstanding
     as of September 30, 1998. Based on this analysis and consultation  with its
     other  professional   advisors,   Fuller-Austin  has  estimated  its  cost,
     including  legal  defense  costs,  to be $8.1  million for claims filed and
     still  unsettled and $37.6 million as its minimum  estimate of future costs
     of claims and settlements, including legal defense costs. No upper limit of
     exposure can presently be reasonably estimated by the Company in accordance
     with  prevailing  accounting  requirements.  The Company  cautions that its
     estimate  is subject to  significant  uncertainties,  including  the future
     effect of tort reform  legislation  enacted in Texas and other states,  the
     success of Fuller-Austin's  litigation strategy, the size of jury verdicts,
     success of appeals in process, the number and financial resources of future
     plaintiffs,  and the actions of other defendants.  Therefore,  actual claim
     experience  may vary  significantly  from  such  estimates,  especially  if
     certain Texas appeals are decided  unfavorably to Fuller-Austin  and/or the
     level of claims filed in other states increases.  Fuller-Austin recorded an
     estimated liability for future indemnity payments and defense costs related
     to currently  unsettled claims and minimum estimated future claims of $45.7
     million  and $50.2  million  at  October  1, 1998 and  December  31,  1997,
     respectively (recorded as long-term liability).

     Insurance Coverage

     Defense  has been  tendered  to and  accepted  by  Fuller-Austin's  primary
     insurance  carriers,  and by certain  of the  Company's  primary  insurance
     carriers  that issued  policies  under which  Fuller-Austin  is named as an
     additional  insured;  however,  only one such primary carrier has partially
     accepted defense without a reservation of rights. The Company believes that
     Fuller-Austin  has at least $2.2 million in  unexhausted  primary  coverage
     (net of deductibles and  self-insured  retentions,  but including  disputed
     coverage)  under its  liability  insurance  policies to cover the unsettled
     claims,  verdicts  and future  unasserted  claims and  defense  costs.  The
     primary carriers also have unlimited liability for defense costs (presently
     running at an average annual rate of approximately $1.3 million) until such
     time as the primary  limits under these  policies are  exhausted.  When the
     primary  limits  are  exhausted,  liability  for both  indemnity  and legal
     defense will be tendered to the excess coverage carriers, all of which have
     been  notified of the  pendency  of the  asbestos  claims.  The Company and
     Fuller-Austin  have  approximately  $390.0 million of additional excess and
     umbrella  insurance that is generally  responsive to asbestos  claims after
     taking into  consideration  certain  pending carrier  settlements  that are
     discussed  below.  This  amount  excludes  approximately  $92.0  million of
     coverage  issued  by  insolvent   carriers.   After  the  $2.2  million  of
     unexhausted primary coverage, the Company has first tier excess coverage of
     $39.0  million  excluding  a $40.0  million  first tier  excess  segment of
     insolvent  coverage  for policy  years 1979  through  1984 (the  "Insolvent
     Segment").  All of the Company's and  Fuller-Austin's  liability  insurance
     policies cover indemnity  payments and defense fees and expenses subject to
     applicable policy terms and conditions.

     Coverage Litigation

     The Company and  Fuller-Austin  have  instituted  litigation in Los Angeles
     Superior  Court,  California,  against their  primary and excess  insurance
     carriers  to obtain  declaratory  judgments  from the court  regarding  the
     obligations of the various carriers to defend and pay asbestos claims.  The
     issues in this litigation include the aggregate  liability of the carriers,
     the  triggering  and  drop-down of excess  coverage to cover the  Insolvent
     Segment  and  allocation  of  losses  among  multiple  carriers   including
     insolvent  carriers and various other issues related to the  interpretation
     of the policy contracts.  All of the carrier  defendants have filed general
     denial answers.

     Although  there can be no assurances as to the outcome of this  litigation,
     management  believes that it is probable that Fuller-Austin will prevail in
     obtaining  judicial  rulings  confirming the  availability of a substantial
     portion of the coverage.  Based on a review of the  independent  ratings of
     these carriers,  the Company and  Fuller-Austin  believe that a substantial
     portion of this  coverage will continue to be available to meet the claims.
     Fuller-Austin  recorded in Other Assets $44.5  million and $50.2 million at
     October 1, 1998 and December 31, 1997 respectively, representing the amount
     that it expects to recover from its  insurance  carriers for the payment of
     currently unsettled and estimated future claims.

     The Company cautions, however, that even though the existence and aggregate
     dollar  amounts  of  insurance  are  not  generally  being  disputed,  such
     insurance coverage is subject to interpretation by the court and the timing
     of the availability of insurance payments could, depending upon the outcome
     of the litigation and/or carrier settlement negotiations, delay the receipt
     of  insurance   company  payments  and  require   Fuller-Austin  to  assume
     responsibility for making interim payment of asbestos defense and indemnity
     costs at a time when it may not have adequate cash funds.

     While the Company  believes  that  Fuller-Austin  has  recorded  sufficient
     liability  to  satisfy  Fuller-Austin's  reasonably  anticipated  costs  of
     present and future asbestos claimants' suits, it is not possible to predict
     the  amount  or  timing  of  future   suits  or  the  future   solvency  of
     Fuller-Austin's insurers. In the event that currently unresolved and future
     claims  exceed the  recorded  liability of $45.7  million,  the Company and
     Fuller-Austin  believe that the  judicially  determined  and/or  negotiated
     amounts of excess and umbrella insurance coverage that will be available to
     cover additional claims will be significant;  however,  it is impossible to
     predict  whether  or not  such  amounts  will  be  adequate  to  cover  all
     additional claims without further contribution by Fuller-Austin.

     Possible Global Settlement/Bankruptcy Filing

     Effective  September 4, 1998,  Fuller-Austin filed a Plan of Reorganization
     under  Chapter 11 of the United  States  Bankruptcy  Code  ("Plan")  in the
     United States  Bankruptcy  Court for the District of Delaware,  case number
     98-2038.  The  filing of the Plan  followed  almost a year of  negotiations
     among a committee  representing  asbestos  claimants (the  "Committee"),  a
     legal   representative   of  the  unknown  future   claimants  (the  "Legal
     Representative"), Fuller-Austin, and the Company. As a consequence of these
     negotiations,  the Plan was developed as part of a  pre-packaged  filing by
     Fuller-Austin under Section 524(g) of the Bankruptcy Code ("Code"). Section
     524(g) is designed to deal  specifically with the resolution under the Code
     of obligations of debtors that have asbestos liability.  The Company is not
     a party to the filing or the Plan.

     In   furtherance   of  the  Plan  and  the  proposed   global   settlement,
     representatives  of  Fuller-Austin,  its parent and sole  stockholder,  the
     Company, the Committee,  and the Legal Representative  previously reached a
     separate  agreement  in  principle  ("Release  Agreement"),  contingent  on
     approval of the Plan by the Bankruptcy Court, under which the Company would
     be released from any and all present and future liability for Fuller-Austin
     asbestos  liability in  consideration  of the  transfer of certain  Company
     property (including the stock of Fuller-Austin) and insurance rights to the
     Fuller-Austin  bankruptcy  trust,  and the  payment to the trust of certain
     cash  consideration.  The total amount  reserved for this purpose was $14.0
     million  at  December  31,  1997.  During  the first  nine  months of 1998,
     approximately $3.5 million was used for legal and other related costs.

     Pending  resolution of the Fuller-Austin  bankruptcy filing, all litigation
     against it  (including  all  asbestos  claims)  has been stayed and may not
     proceed.  Upon approval of the Plan, all such claims will be channeled into
     a post-bankruptcy trust, independent of the Company, and Fuller-Austin will
     no longer be owned by the Company.  The trust will also be obligated  under
     the Release  Agreement to indemnify the Company  against present and future
     asbestos claims.

     On October 15,  1998,  a hearing on the Plan was held at which time certain
     excess insurance  carriers of  Fuller-Austin  ("Excess  Carriers")  entered
     appearances and asserted various  objections to the entry of a Confirmation
     Order.  Effective November 10, 1998, the court denied the objections of the
     Excess Carriers. The court is currently considering the Fuller-Austin Plan.
     A decision is expected during the fourth quarter.

     Pending  the  outcome  of  the  Fuller-Austin  petition,  there  can  be no
     assurance that  Fuller-Austin  will be able to proceed to closing under the
     Plan.  Should  Fuller-Austin  determine  that it is  unable to  proceed  to
     closing  of the  global  settlement,  it may  seek  alternative  relief  by
     amending its bankruptcy  filing so that it might proceed  without regard to
     the   settlement   or  the   pre-packaged   plan.   In  such   event,   the
     Fuller-Austin/DynCorp  Settlement Agreement would be null and void, and the
     obligations  of  the  Company  with  respect  to   Fuller-Austin   asbestos
     liability,  if any,  would be subject to  determination  by the  bankruptcy
     court.

     (b) General Litigation

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

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

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

     The Company is a party to other civil and  contractual  lawsuits which have
     arisen in the normal  course of  business  for which  potential  liability,
     including costs of defense,  constitute the remainder of the $128.8 million
     discussed  above.  The  estimated  probable  liability  for these issues is
     approximately $10.0 million and is substantially covered by insurance.  All
     of the insured  claims are within  policy  limits and have been tendered to
     and  accepted by the  applicable  carriers.  The  Company  has  recorded an
     offsetting  asset (Other  Assets) and  liability  (long-term  liability) of
     $10.0 million at October 1, 1998 and December 31, 1997 for these items.

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

     The major  portion of the  Company's  business  involves  contracting  with
     departments and agencies of, and prime contractors to, the U.S. Government,
     and such contracts are subject to possible  termination for the convenience
     of the  government  and to audit and possible  adjustment to give effect to
     unallowable  costs  under  cost-type   contracts  or  to  other  regulatory
     requirements affecting both cost-type and fixed-price  contracts.  Payments
     received by the Company for allowable direct and indirect costs are subject
     to  adjustment  and  repayment  after audit by  government  auditors if the
     payments  exceed  allowable  costs.  Audits  have  been  completed  on  the
     Company's  incurred  contract  costs  through 1986 and are  continuing  for
     subsequent  periods.  The Company  has  included  an  allowance  for excess
     billings and contract  losses in its financial  statements that it believes
     is adequate based on its interpretation of contracting regulations and past
     experience. There can be no assurance, however, that this allowance will be
     adequate.  The  Company  is  aware  of  various  costs  questioned  by  the
     government,  but cannot determine the outcome of the audit findings at this
     time.   In   addition,   the  Company  is   occasionally   the  subject  of
     investigations  by  various  investigative  organizations,  resulting  from
     employee  and  other   allegations   regarding   business   practices.   In
     management's  opinion,  there are no  outstanding  issues of this nature at
     September  30,  1998  that  will  have a  material  adverse  effect  on the
     Company's  consolidated  financial  position,   results  of  operations  or
     liquidity.

Note 10.  Supplemental Balance Sheet Information

     At October 1, 1998, checks not yet presented for payment of $7.6 million in
     excess  of  cash  balances  were  included  in  accounts   payable  on  the
     accompanying  balance sheet.  The Company had sufficient funds available to
     cover these outstanding checks when they were presented for payment.


Note 11.  Business Segments

     The Company has three  reportable  segments:  Information  and Engineering
     Technology  (I&ET),  Aerospace  Technology  (AT) and Enterprise  Management
     (EM).

     Revenues, operating profit and identifiable assets by segment are presented
     below:

<TABLE>
<CAPTION>
                                Three Months Ended         Nine Months Ended
                                ------------------         -----------------
                            October 1,  September 25,   October 1, September 25,
                               1998         1997           1998         1997
                            ---------   -------------   ---------- -------------
<S>                       <C>         <C>             <C>          <C>  
Revenues
 I&ET                       $ 88,785    $ 64,161        $240,808     $195,749
 AT                          119,607     111,506         356,020      329,541
 EM                          107,966     108,165         321,005      318,375
                            --------    --------        --------     --------
                            $316,358    $283,832        $917,833     $843,665
                            ========    ========        ========     ========

Operating Profit (a)
 I&ET                         $4,367      $2,791        $ 12,456       $9,603
 AT                            4,684       5,059          13,660       13,019
 EM                            6,727       5,885          17,359       14,838
                            --------    --------        --------     -------- 
                              15,778      13,735          43,475       37,460

Corporate general and 
  administrative               5,015       4,062          15,076       12,855
Interest expense, (net)        3,385       3,267          10,357        9,161
Goodwill amortization            243         389           1,182        1,172
Minority interest included in 
  operating profit              (485)       (387)         (1,432)        (997)
Amortization of intangibles of 
  acquired companies             645         548           1,001        1,762
Other miscellaneous             (221)       (241)           (616)        (274)
                            --------     --------        --------     --------
Earnings from continuing
  operations before income 
  taxes and minority 
  interest                    $7,196       $6,097       $ 17,907      $ 13,781
                              ======       ======       ========      ======== 

</TABLE>

<TABLE>
<CAPTION>
                                October 1,                      December 31,
                                   1998                             1997
Identifiable Assets
<S>                             <C>                              <C>
 I&ET                            $132,320                         $118,016
 AT                                75,986                           75,239
 EM                               101,174                           70,026
 Other (b)                         45,825                           51,575
 Corporate                         49,990                           67,728
                                 --------                         --------
                                 $405,295                         $382,584
                                 ========                         ========

</TABLE>


(a)  Defined as  revenue  less  direct and  indirect  costs of  services  of the
       operating   segments.  
(b)  Includes  assets  related  to  probable   insurance indemnification 
       recoveries pertaining to a former subsidiary
       (See Note 9).

<PAGE>


                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

General

The following  discussion  and analysis  provides  information  that  management
believes is relevant to an  assessment  and  understanding  of the  consolidated
results of operations  and financial  condition of DynCorp and its  subsidiaries
(collectively, the "Company"). The discussion should be read in conjunction with
the interim condensed  consolidated  financial  statements and notes thereto and
the Company's annual report on Form 10-K for the year ended December 31, 1997.

Results of Operations 

The Company provides diversified management, technical and professional services
to  primarily  U.S.  Government  customers  throughout  the  United  States  and
internationally.  The  Company's  customers  include  various  branches  of  the
Department of Defense and the  Department  of Energy,  NASA,  the  Department of
State,  the  Department  of Justice  and  various  other  U.S.,  state and local
government agencies,  commercial clients and foreign governments.  The following
discusses  the  Company's  results of  operations  for the three and nine months
ended October 1, 1998 and the comparable periods for 1997.

Revenues

Revenues for the third  quarter and nine months of 1998 were $316.4  million and
$917.8 million,  respectively,  as compared to $283.8 million and $843.7 million
for the  comparable  periods in 1997,  an  increase  of $32.6  million and $74.1
million, respectively.  Information and Engineering Technology (I&ET), Aerospace
Technology  (AT) and  Enterprise  Management  (EM)  reported  revenues  of $88.8
million, $119.6 million and $108.0 million,  respectively, for the third quarter
of 1998 as compared to $64.1 million,  $111.5 million and $108.2 million for the
same quarter in 1997.  Revenues for the nine months of 1998 for I&ET,  AT and EM
were  $240.8  million,  $356.0  million  and $321.0  million,  respectively,  an
increase of $45.1 million,  $26.5 million and $2.6 million,  respectively,  over
the same  period in 1997.  Increases  in I&ET's  third  quarter  and nine months
revenues  were  attributable  to  new  Indefinite  Delivery/Indefinite  Quantity
contract  awards  and sole  source  contracts  for the  Department  of  Defense,
Environmental  Protection  Agency and the Health  Care  Finance  Administration.
Increased  tasking  and level of  effort  on  several  existing  contracts  also
contributed  to I&ET's third  quarter and nine months  revenue  increases.  AT's
third quarter  revenue  increases  resulted from new contracts for technical and
support services for the Air Force. The nine months revenue  increases  resulted
primarily from three new contract wins in Kuwait,  Angola,  and Qatar as well as
the contract wins with the Air Force.  Increased  services on existing contracts
and the installation of a new information system at Fort Rucker also contributed
to the nine months revenue  increases.  Partially  reducing these increases were
reduced  business   volumes  on  several  existing   contracts  and  a  contract
completion.  Revenues  increased  slightly  for EM for the nine  months of 1998.
Increases  in  revenues  due  to  new  contracts  with   Department  of  Justice
(Immigration and  Naturalization  Service),  the addition of the operations of a
seventh  ship  in  the  marine  services  area,  and  the  acquisition  of  FMAS
Corporation,  a  medical  outcome  measurement  and  data  abstraction  services
company,  were offset by reduced  level of services on several  contracts due to
funding  cutbacks  as well as  completion  of several  contracts.  For the third
quarter 1998,  decreases in revenues  were  attributable  to the  aforementioned
completion  of several  contracts,  coupled  with the  reduction in the level of
effort on existing contracts.

In July 1998,  EM was  informed  that its  customer at the Rocky Flats  location
would not exercise the  remaining  two one-year  options on its  contract.  This
event will not have a significant  financial  impact on 1998.  This contract was
expected  to  generate  revenues  of $35  million  to $50  million  per year and
operating  profit of $2.0  million to $3.0  million for the next two years.  The
award of two significant logistic support contracts from the U.S. Postal Service
will partially offset the lost business in those future years.

Cost of Services

Cost of  Services  for the third  quarter  and nine months of 1998 was 94.8% and
95.0% of revenue as  compared to 95.1% and 95.5% for the  comparable  periods in
1997.  This  resulted in gross margins of $16.3 million for the third quarter of
1998 as  compared  to $14.0  million  for the  third  quarter  of 1997 and $45.9
million and $37.6  million  for the nine months of 1998 and 1997,  respectively.
Contract wins and increased level of effort on existing contracts contributed to
the  improvement  in gross  margin  and  offset any  decreases  attributable  to
contract  losses.  Additionally,  the Company  charged  $0.5  million to Cost of
Services in the nine months of 1997, representing a partial write-off of certain
purchased software as the result of net realization concerns and $0.4 million of
residual  losses  recorded  in  conjunction  with the  closure of the  Company's
operations in Mexico.

Corporate General and Administrative

Corporate  general and  administrative  for the third quarter and nine months of
1998 were $5.0  million  and $15.1  million,  respectively,  as compared to $4.1
million and $13.0 million for the comparable periods in 1997, an increase of $.9
million and $2.1 million,  respectively.  The increase in third quarter and nine
months corporate general and administrative  expense primarily resulted from the
Company's design and development of a new financial and human resource  software
packages as described below under Year 2000.

Interest Expense

Interest  expense was $3.7 million in the third quarter of 1998,  unchanged from
the comparable period in 1997. For the nine months of 1998, interest expense was
$11.3 million,  up $0.7 million compared to $10.6 million for the nine months of
1997, primarily due to higher average debt balance in 1998.

Income Taxes

The  provision  for  income  taxes in 1998 and 1997 is based  upon an  estimated
annual effective tax rate,  including the impact of differences between the book
value of assets and liabilities  recognized for financial reporting purposes and
the basis recognized for tax purposes.  The provision for income taxes increased
by $1.1 million and $2.2 million for the three and nine months ended  October 1,
1998 from the  comparable  periods in 1997 as a result of the  increase  in 1998
pre-tax  income and an  increase  in the  effective  income  tax rate.  The 1997
effective  income  tax rate was  lower  than  1998  due to  valuation  allowance
reversal in 1997.  The  Company's  effective tax rate  approximated  40% for the
three and nine months ended October 1, 1998.

Backlog

The  Company's  backlog of  business,  which  includes  awards  under both prime
contracts and  subcontracts  as well as the  estimated  value of option years on
government  contracts,  was $4.4  billion at October  1, 1998  compared  to $3.6
billion at December  31,  1997,  a net  increase of $.8  billion.  The  increase
resulted from new and follow-on business in the nine months of 1998. The backlog
at October 1, 1998  consisted  of $2.0 billion for AT, $1.4 billion for EM, $1.0
billion for I&ET.

Working Capital and Cash Flow

Working capital,  defined as current assets less current liabilities,  was $87.4
million at October 1, 1998  compared to $84.2  million at December 31, 1997,  an
increase of $3.2  million.  This increase is primarily the result of an increase
in accounts  receivable,  attributable to increased revenues and start-up of new
contracts  such as  Department  of  Justice  contract  for the  Immigration  and
Naturalization Service.

Cash used by operations was $1.8 million in the nine months of 1998, as compared
to $11.2  million cash  provided in the nine months of 1997, an increase in cash
used of $13.0  million.  The increase  resulted  mostly from the  aforementioned
increases  in accounts  receivable.  Excluding  the effect of changes in current
assets and liabilities,  operating  activities  produced a positive cash flow of
$18.0 million in 1998 as compared to $16.4 million in 1997. The increase in cash
flow attributable to increased earnings from continuing operations was partially
offset  by  a  decrease  in  non-cash   charges,   primarily   depreciation  and
amortization.

Investing  activities  used  funds of $18.1  million  in the nine  months  ended
October 1, 1998,  principally  for the  acquisition  of FMAS,  the  purchase  of
property  and  equipment,  and the  purchase of new software for internal use as
part of the Company's Year 2000 plan. The Company has  capitalized  $3.4 million
of internal use software and anticipates  capitalizing another $8.6 million over
the next year. During the nine months of 1997, cash used by investing activities
was $8.1 million,  principally for the purchase of property and equipment and to
fund the Company's 47% interest in an equity investee.

Financing  activities provided funds of $1.8 million in the nine months of 1998.
During the nine months of 1998,  the Company  borrowed  $43.0 million and repaid
$43.0 million of the Contract  Receivable  Collateralized  Class B Variable Rate
Notes  to  finance  working  capital  needs.  During  the nine  months  of 1997,
financing  activities used funds of $2.6 million. The proceeds from the issuance
of the 9.5% Senior Notes and the Contract Receivable Collateralized Notes Series
1997-1 were used to retire the Contract Receivable  Collateralized  Notes Series
1992-1,  to a make a loan to the  Employee  Stock  Ownership  Plan  to fund  the
purchase  of the Class C  Preferred  Stock,  to fund the  Company's  purchase of
common stock and warrants from investors and to pay transaction  fees associated
with the placement of the Senior Notes.

In the fourth quarter 1998, the Company  anticipates a global  settlement of the
Fuller-Austin  Asbestos  lawsuits under which the Company would be released from
any and all present and future liability for Fuller-Austin asbestos liability in
consideration  of the transfer of certain Company  property and insurance rights
to the Fuller Austin  bankruptcy trust, and payment to the trust of certain cash
considerations.  This settlement is expected to use cash of  approximately  $8.5
million to $10.5 million in the last three months of 1998.

Earnings before Interest, Taxes, Depreciation, and Amortization

Earnings before Interest,  Taxes,  Depreciation,  and Amortization ("EBITDA") as
defined by management, consists of net earnings before income tax provision, net
interest expense, and depreciation and amortization. EBITDA represents a measure
of the  Company's  ability to  generate  cash flows and does not  represent  net
income or cash flows from  operating,  investing  and  financing  activities  as
defined by generally accepted accounting  principles  ("GAAP").  EBITDA is not a
measure of  performance or financial  condition  under GAAP, but is presented to
provide additional information about the Company to the reader. EBITDA should be
considered in addition to, but not as a substitute  for, or superior to, measure
of  financial  performance  reported in  accordance  with GAAP.  EBITDA has been
adjusted for the  amortization  of deferred debt expense and debt issue discount
which are  included in  "interest  expense" in the  Consolidated  Statements  of
Operations and included in "amortization  and  depreciation" in the Consolidated
Statements of Cash Flows. Readers are cautioned that the Company's definition of
EBITDA may not  necessarily be comparable to similarly  titled  captions used by
other  companies  due  to  the  potential   inconsistencies  in  the  method  of
calculation.  The following presentation represents the Company's computation of
EBITDA (in thousands):
<TABLE>
<CAPTION>
                                           Three Months Ended  Nine Months Ended
                                           ------------------  -----------------
                                           October  September  October September
                                              1,        25,       1,       25,
                                             1998      1997      1998     1997
                                           -------  ---------  ------- ---------
<S>                                       <C>       <C>       <C>      <C> 
Net earnings                                $4,026    $4,087    $9,885   $8,433
 Depreciation and amortization               2,375     2,211     6,517    7,254
 Interest expense, net                       3,385     3,267    10,357    9,161
 Income taxes                                2,685     1,623     6,590    4,351
 Amortization of deferred debt  expense       (170)     (169)     (538)    (529)
 Debt issue discount                            (9)       (8)      (26)     (18)
                                           -------   -------   -------  -------
EBITDA                                     $12,292   $11,011   $32,785  $28,652

</TABLE>
<PAGE>

Year 2000

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

A Year 2000 analysis of the Company's core systems  software has been completed.
Key software packages were found to be non-compliant, prompting a replacement of
these packages with a new enterprise  resource planning  software  package.  The
implementation  is underway with a projected  completion date of September 1999.
The  implementation  phase of the project is on schedule at the end of the third
quarter of 1998. Total  expenditures for this  resystemization  as of October 1,
1998 have been $4.3 million. The Company anticipates additional  expenditures of
more than $14 million in 1998 and 1999, of which $9 million will be capitalized.

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

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

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

One area of  possible  vulnerability  that is  being  addressed  is the  payment
capability of the various  government  payment offices  receiving and processing
invoices from a given contract site. While the readiness of government financial
systems  is  considered  "mission  critical"  by the  government,  the  specific
readiness of many  government  payment  offices is not known.  Efforts have been
started by the Company to assess this issue.

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

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

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

<PAGE>

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

In summary, the primary Y2K vulnerability for the Company is possible failure of
core systems.  The resystemization  effort is a top priority within DynCorp with
dedicated teams and incentive  plans for keeping these employees  throughout the
project.  Contingency  plans  are in place in the  event of a delay.  Millennium
Coordinators  are  overseeing  the Y2K  effort  at  each  business  unit,  and a
multi-functional  team headed by the Corporate Chief Information Officer acts as
a  Y2K  steering  committee  with   representation  from  Internal  Audit,  Risk
Management, the Law Department, Finance, and Resystemization.  While assessments
are still  underway at the  contract  level,  progress is being made to complete
assessments and impact analyses during the fourth quarter of 1998.

Forward Looking Statements   

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

PART II - OTHER INFORMATION

ITEM 1.  Legal Proceedings 

This item is  incorporated  herein by  reference  to Note 9 to the  Consolidated
Condensed  Financial  Statements  included elsewhere in this quarterly Report on
Form 10-Q.


ITEM 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

         None filed

(b)  Reports on Form 8-K

   None filed




<PAGE>



                                   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




Date:  November 13, 1998                            /s/ Patrick C. FitzPatrick
                                                     --------------------------
                                                         P.C. FitzPatrick
                                                        Senior Vice President
                                                     and Chief Financial Officer



Date:  November 13, 1998                               /s/ John J. Fitzgerald
                                                       ----------------------
                                                           J.J. Fitzgerald
                                                   Vice President and Controller