**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

| (Mark One)                                         |
|----------------------------------------------------|
| x                                                  | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
| **For the fiscal year ended March 31,  2006** |
| **or**                                             |
| **o**                                              | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from         to          **

**CommissionFile Number: 333-127343**

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**DYNCORP INTERNATIONAL LLC**

(Exact name of registrantas specified in its charter)

| **Delaware**                     |   | **52-2287126**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |
|                             |   |                 |

 

**8445 Freeport Parkway, Suite 400,Irving, Texas 75063(817) 302-1460**

(Address, including zip code, and telephone number, including area code,of registrant’s principal executive offices)

Securities registeredpursuant to Section 12(b) of the Act: **None**

Securities registeredpursuant to Section 12(g) of the Act: **None**

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Act. Yes o  No x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  Nox

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days.   Yes x  Noo

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§ 229.405 of thischapter) is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check One): 

| Large accelerated filer  o |   | Accelerated  filer  o |   | Non-accelerated  filer x |
|---------------------------------|--------|----------------------------|--------|-------------------------------|

 

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

The registrant has one class of member units. As of June 5,2006, DynCorp International Inc. held 100% of the member units.

**Documents Incorporated by Reference**

**None.**

 

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**DYNCORPINTERNATIONAL LLC**

**TABLE OF CONTENTS**

|                    | ** ** | ** **                                                                                                           | ** ** | **Page** |
|--------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I.**   |       |                                                                                                                 |       |     |
| Item 1.            |       | Business                                                                                                             |       | 1        |
| Item 1A.           |       | Risk Factors                                                                                                         |       | 12       |
| Item 1B.           |       | Unresolved Staff Comments                                                                                            |       | 23       |
| Item 2.            |       | Properties                                                                                                           |       | 23       |
| Item 3.            |       | Legal Proceedings                                                                                                    |       | 23       |
| Item 4.            |       | Submission of Matters to a Vote of Security Holders                                                                  |       | 24       |
|               |       |                                                                                                                 |       |     |
| **PART II.**  |       |                                                                                                                 |       |     |
| Item 5.            |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer   Purchases of Equity Securities |       | 25       |
| Item 6.            |       | Selected Financial Data                                                                                              |       | 25       |
| Item 7.            |       | Management’s Discussion and Analysis of Financial  Condition and Results of   Operations                        |       | 27       |
| Item 7A.           |       | Quantitative and Qualitative Disclosure About Market  Risk                                                           |       | 49       |
| Item 8.            |       | Financial Statements and Supplementary Data                                                                          |       | 51       |
| Item 9.            |       | Changes in and Disagreements With Accountants on  Accounting and Financial   Disclosure                              |       | 94       |
| Item 9A.           |       | Controls and Procedures                                                                                              |       | 94       |
| Item 9B.           |       | Other Information                                                                                                    |       | 94       |
| ** **         |       |                                                                                                                 |       |     |
| **PART III.** |       |                                                                                                                 |       |     |
| Item 10.           |       | Directors and Executive Officers of the Registrant                                                                   |       | 95       |
| Item 11.           |       | Executive Compensation                                                                                               |       | 102      |
| Item 12.           |       | Security Ownership of Certain Beneficial Owners and  Management and Related   Stockholder Matters                    |       | 105      |
| Item 13.           |       | Certain Relationships and Related Transactions                                                                       |       | 106      |
| Item 14.           |       | Principal Accounting Fees and Services                                                                               |       | 107      |
|               |       |                                                                                                                 |       |     |
| **PART IV.**  |       |                                                                                                                 |       |     |
| Item 15.           |       | Exhibits and Financial Statement Schedules                                                                           |       | 109      |

 

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**PART I**

**ITEM 1.     BUSINESS.**

**Our Company**

*In this AnnualReport, unless the context requires otherwise, references to “we,” “our,” “theCompany” or “us” refer to DynCorp International LLC and its wholly ownedsubsidiaries. All references in this Annual Report to fiscal years made inconnection with our financial statements or operating results refer to thefiscal year ended on the Friday closest to March 31*st of such year. For example, “fiscal 2004”refers to our fiscal year ended April 2, 2004.

We provide specialized mission-critical outsourcedtechnical services to civilian and military government agencies. Our specificglobal expertise is in law enforcement training and support, security services,base operations, and aviation services and operations. We also providelogistics support for all our services. Our predecessors have provided servicesto numerous U.S. government departments and agencies since 1951. We were aseparate subsidiary of Computer Sciences Corporation from March 2003 untilFebruary 2005. On February 11, 2005, Computer Sciences Corporationand DynCorp (a wholly owned subsidiary of Computer Sciences Corporation) sold ourCompany (a wholly owned subsidiary of DynCorp) to DynCorp International Inc., anewly formed entity controlled by The Veritas Capital Fund II, L.P. and itsaffiliates. We refer to The Veritas Capital Fund II, L.P. and its affiliates inthis Annual Report as “Veritas Capital.” DynCorp International Inc., our direct parent (the “Parent”), has nooperations independent of our Company, DynCorp International LLC.

On May 9, 2006, ourParent consummated an Equity Offering of 25,000,000 shares of its Class Acommon stock, par value $0.01 per share, at a price of $15.00 pershare (the “Equity Offering”). The gross proceeds from the Equity Offering of$375.0 million, together with cash on hand, were used: (i) to redeemall of our Parent’s outstanding preferred stock, of which $222.8 millionin stated amount, including accrued and unpaid dividends thereon, wasoutstanding as of May 9, 2006; (ii) to pay a special Class Bdistribution in the amount of $100.0 million to the holder of our Parent’scommon stock, DIV Holding LLC; (iii) to redeem $28.0 million of oursenior subordinated notes on June 8, 2006; (iv) to pay prepaymentpenalties of $8.4 million as of May 9, 2006, $5.7 million of whichrepresented prepayment penalties on our Parent’s preferred stock and$2.7 million of which represented prepayment penalties on our seniorsubordinated notes; and (v) to pay transaction expenses of approximately$35.0 million, including an underwriters’ commission of$22.5 million, a fee of $5.0 million to Veritas Capital ManagementII, L.L.C. and $7.5 million of miscellaneous fees and expenses related to theEquity Offering.

**Our Services**

We provide government technical services andoutsourced solutions to our customers. Our primary services are providedthrough our two core operating segments, International Technical Services andField Technical Services.

Our International Technical Services operating segmentoffers the following services:

·        *Law Enforcement Training.*Our services inthis area include international policing and police training, judicial support,immigration support and base operations.

·        *International Narcotics Eradication.*Ourservices include drug eradication and interdiction, host nation pilot and crewtraining.

·        *Contingency Services.*We providepeace-keeping support, humanitarian relief, de-mining, worldwide contingencyplanning, warehousing and heavy equipment inspections. We believe we have theability to provide these services on a rapid response basis.

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·        *Logistics Support Services.*We offerprocurement, parts tracking, inventory and equipment maintenance, propertycontrol, data entry and mobile repair services. We believe that we are able tosupport the deployment of personnel and equipment on short notice.

·        *Security Services.*Our services includesecurity for diplomats, personal protection, security system design,installation and operations and cultural training. Using a database ofapproximately 3,000 qualified individuals, as of March 31, 2006, we havethe ability to recruit and assemble large security contingents on short notice.

·        *Military Facility Operations.*We providefacility and equipment maintenance and control, civil, electrical,environmental and mechanical engineering, custodial and administrativeservices.

·        *Infrastructure Development.*Our servicesinclude infrastructure engineering and construction management.

·        *Marine Services.*Our services include shiplogistics, range ship maintenance, communications services and oil spillresponse fleet operations. We provide these services for both governmentagencies and commercial customers.

·        *Security Technology.*Our services includeinstallation, maintenance and upgrades of physical and software access controlpoints and servers and development of security software, smart cards andbiometrics for use by government agencies and commercial customers.

Our Field TechnicalServices operating segment offers the following services:

·        *Aviation Services and Operations.*Ouraviation services and operations include aircraft fleet maintenance, depotaugmentation, aftermarket logistics support, aircrew services and training,ground equipment maintenance and modifications, quality control, FederalAviation Administration certification, facilities and operations support,aircraft scheduling and flight planning and the provisioning of pilots, testpilots and flight crews. Services are provided from both main base locationsand forward operating locations.

·        *Aviation Engineering.*Our techniciansdesign, manufacture and install aircraft modification programs for a broadrange of weapons systems and, as of March 31, 2006, more than 70 enginetypes, updating entire fleets to mission-readiness status. We provide servicessuch as engineering design, kit manufacturing and installation, fieldinstallations, configuration management, avionics upgrades, cockpit andfuselage redesign and technical data, drawings and manual revisions.

·        *Aviation Ground Equipment Support.*Ourservices in this area include ground equipment support, maintenance andoverhaul, modifications and upgrades, corrosion control, engine rebuilding,hydraulic and load testing and serviceability inspections. We provide theseservices worldwide and offer both short- and long-duration field teams. As of March 31,2006, we employed over 850 mechanics, technicians and support personnel whoperform depot level overhaul of ground support equipment for U.S. Navy and U.S. CoastGuard programs and provide depot level ground support equipment support at 20worldwide locations.

·        *Ground Vehicle Maintenance.*Our ground vehicle maintenanceservices include vehicle maintenance, overhaul and corrosion control andscheduling and work flow management. We perform maintenance and overhaul onwheeled and tracked vehicles for the U.S. Army and U.S. Marine Corps, insupport of their pre-positioning programs. We also provide overall programmanagement, logistics support, tear down and inspection of equipment cycled offof prepositioned ships.

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**The 2005Acquisition**

On December 12, 2004,together with The Veritas Capital Fund II, L.P., our Parent entered into apurchase agreement with Computer Sciences Corporation and DynCorp whereby ourParent agreed to acquire us, then a wholly owned subsidiary of DynCorp andComputer Sciences Corporation (the “2005 Acquisition”). Our Parent assigned itsrights to acquire our Company to a subsidiary our Parent formed, DI Finance LLC.Immediately after the consummation of the 2005 Acquisition on February 11,2005, DI Finance LLC was merged with and into our Company. We survived themerger and are now a wholly owned subsidiary. Our Parent changed its name fromDI Acquisition Corp. to DynCorp International Inc. on February 11, 2005,the day it acquired our Company. In this section, Computer Sciences Corporationand DynCorp are referred to as the “sellers.”

**Closing Price andPurchase Price Adjustments**

The purchase price for the 2005 Acquisition was$937.0 million after giving effect to a net working capital adjustment infavor of Computer Sciences Corporation in the amount of $65.55 million and$6.1 million of accumulated dividends in connection with our Parent’spreferred stock issued for satisfaction of the working capital adjustment. Ofthe $937.0 million purchase price, $775.0 million was paid in cash,$140.6 million was paid to Computer Sciences Corporation in the form ofpreferred equity in our Parent, $6.1 million represented accumulateddividends on our Parent’s preferred stock issued in connection with the workingcapital adjustment and the remaining amounts were attributable to transactionexpenses.

In addition to thecredit of purchase price for preferred stock of our Parent by Computer SciencesCorporation and the additional preferred stock equity investment discussedabove, the 2005 Acquisition was funded by:

·       borrowingsunder our senior secured credit facility, consisting of a $345.0 million termloan, and a $90.0 million revolving credit facility, as amended, which wasdrawn down $20.0 million at closing;

·       thesenior subordinated notes of $320.0 million offered by our Company; and

·       acommon equity investment in our Parent of $86.0 million by Veritas Capital and$14.0 million by The Northwestern Mutual Life Insurance Company.

Seenotes to the consolidated financial statements elsewhere in this Annual Reportfor a discussion of the senior secured credit facility and the seniorsubordinated notes.

***PurchaseAgreement***

*General**.*   The purchaseagreement contained customary representations, warranties, covenants andindemnities by, and for the benefit of, our Parent, The Veritas Capital FundII, L.P. and the sellers.

*Indemnification**.*   Sellers’obligation, which is joint and several, to indemnify our Parent and The VeritasCapital Fund II, L.P. for breaches of representations and warranties generallysurvived until 180 days after the closing of the 2005 Acquisition, except forrepresentations and warranties relating to certain corporate representationsand broker representations, which will survive until the applicable statute oflimitations, and tax representations that did not survive closing except forthe representation relating to our Parent’s status as a disregarded entity,which will survive for three years following the closing of the 2005Acquisition. The sellers’ obligations to indemnify our Parent and itsaffiliates (including after the closing of the 2005 Acquisition) and our Parent’sobligation, subject to certain exceptions, to indemnify the sellers are subjectto a $5.0 million deductible, and each individual claim must be at least$50,000. The aggregate indemnification obligations are generally thresholdcapped at $50.0 million in the aggregate, subject to certain exceptions.

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The purchase agreement also provides that the sellerswill indemnify us without regard to any time limitation, but subject to theabove cap, for any losses incurred by our Parent or its affiliates inconnection with the Arias litigation, a class action lawsuit seeking$100.0 million filed on September 11, 2001. Upon closing of the 2005Acquisition, the sellers and our Parent entered into a joint defense agreementpursuant to which both parties will assume joint defense of the litigation. See“Legal Proceedings—Pending Litigation and Claims” for additional informationregarding the Arias litigation.

Under the purchase agreement, the sellers agreed toremit to our Parent any amounts actually received by sellers (less relatedfees) with respect to potential Texas sales tax refunds relating to anycontracts that have been assigned by the sellers to our Company or anysubsidiaries thereof.

*AdditionalCovenants.**  *Thepurchase agreement includes customary covenants by the sellers to maintaincertain proprietary information about the buyer and its affiliatesconfidential, by the sellers and certain of their affiliates not to competewith our Parent, us and our affiliates with respect to any of our  existing contracts for a period of two years,and both parties not to solicit for employment or hire certain of our employeesfor a period of three years after the closing of the 2005 Acquisition.

Under the purchase agreement,the sellers granted to us and our Parent an exclusive, perpetual, irrevocable,worldwide, royalty-free and fully paid-up license to use the “Dyn International”and “DynCorp International” names in connection with aviation services,security services, technical services and marine services.

**Contract Types**

Our contracts typically have a term of three to tenyears consisting of a base period of one year with multiple one-year options. Ourcontracts typically are awarded for an estimated dollar value based on theforecast of the work to be performed under the contract over its maximum life. Inaddition, we have historically received additional revenues through increasesin program scope beyond that of the original contract. These contractmodifications typically consist of “over and above” requests derived fromchanging customer requirements. The government is not obligated to exerciseoptions under a contract after the base period. At the time of completion ofthe contract term of a government contract, the contract is recompeted to theextent that the service is still required.

Contracts between us and the U.S. government or thegovernment’s prime contractor (to the extent that we are a subcontractor)generally contain standard provisions for termination at the convenience of thegovernment or the prime contractor or for default. Government contractsgenerally also contain provisions that allow the U.S. government tounilaterally suspend us from receiving new contracts pending resolution ofalleged violations of procurement laws or regulations, reduce the value ofexisting contracts, issue modifications to a contract and control andpotentially prohibit the export of our services and associated materials.

Many government contracts are indefinite delivery, indefinitequantity contracts, which are often awarded to multiple contractors. Anindefinite delivery, indefinite quantity contract does not represent a firmorder for services. Our Civilian Police and Contract Field Teams programs areexamples of indefinite delivery, indefinite quantity contracts. In fiscal 2005and 2006, 56.3% and 58.9% of our revenues, respectively, were attributable toindefinite delivery, indefinite quantity contracts. When a customer wishes toorder services under an indefinite delivery, indefinite quantity contract, thecustomer issues a task order. Requests for proposal are often submitted to allof the contract awardees, and task orders are typically awarded under abest-value approach. However, many indefinite delivery, indefinite quantitycontracts permit the customer to direct work to a particular contractor. Insome instances, the contractor may identify specific projects and propose toperform the service for a customer covered by the indefinite delivery,indefinite quantity contract, although the customer is not obligated to orderthe services. See 

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“Management’s Discussionand Analysis of Financial Condition and Results of Operations—Explanation ofReporting Periods and Basis of Presentation.”

Our businessgenerally is performed under fixed-price, time-and-materials orcost-reimbursement contracts. Each of these is described generally below.

·       *Fixed-Price Contracts.*In a fixed-pricecontract, the price is not subject to adjustment based on costs incurred, whichcan favorably or adversely impact our profitability depending upon ourexecution in performing the contracted service. Fixed-price contracts caninclude a firm fixed-price covering multiple service elements and/or a fixedprice covering individual service elements.

·       *Time-and-Materials Contracts.*In atime-and-materials contract, we operate under fixed per-hour or per-day laborrates and receive reimbursement for allowable direct and indirect costs. Time-and-materialscontracts generally have shorter billing and collection terms than othercontract types.

·       *Cost-Reimbursement Contracts.*We arereimbursed for allowable incurred costs, plus a fixed fee or an award fee. Inaddition, under some cost-reimbursement contracts, we may receive additionalaward fees or incentive fees based upon various objective and subjectivecriteria, such as aircraft mission capability rates and meeting cost targets.

We believe that our profitability will continue toimprove as we anticipate that our customers will continue to shift away fromcost-reimbursement to time-and-materials contracts and fixed-price contracts. Webase our belief on recent trends in our revenues, the nature of the contractson which we are bidding and the pricing structure in fixed-price andtime-and-materials contracts.

Our historicalcontract mix by type for the last three fiscal years, as a percentage ofrevenue, is indicated in the table below:

|                        | ** ** | **Fiscal Year** | ** ** |
|------------------------|------------|----------------------|------------|
| **Contract Type** | ** ** | ** **           | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| Fixed-Price            |       |                 | 24         | % |   |   | 27 | % |   |   | 34 | % |   |
| Time-and-Materials     |       |                 | 32         |   |   |   | 39 |   |   |   | 38 |   |   |
| Cost-Reimbursement     |       |                 | 44         |   |   |   | 34 |   |   |   | 28 |   |   |
|                   |       |                 | 100        | % |   |   | 100 | % |   |   | 100 | % |   |
|                        |            |                      |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Many of our contractsinvolve subcontracts with other companies, which we rely upon to perform all ora portion of the services we are required to provide to our customers. Often weenter into subcontract arrangements in order to meet government requirementsthat certain categories of services be awarded to small businesses. We usesubcontractors primarily for non-core functions such as construction andcatering. For fiscal 2004, 2005 and 2006, we paid our subcontractorsapproximately $95.4 million, $174.9 million and $229.0 million,respectively.

**Principal Customersand Contracts**

Our principal customers are U.S. government agencies,including the Department of Defense and Department of State. Over the lastdecade, we have expanded our customer base to include foreign governments andcommercial customers, such as EarthTech, Fluor, the Kuwaiti Air Force, Lucent,Parsons, the Royal Saudi Air Force and Washington Group International. Duringfiscal 2004, 2005 and 2006, we derived substantially all of our revenues fromcontracts and subcontracts with the U.S. government and its agencies,Department of Defense and Department of State and their respective agencies. Contractswith agencies of the Department of Defense represented approximately 63%, 49%and 44% of our revenues for fiscal 2004, 2005 and 2006, respectively, andcontracts with agencies of the Department of State represented approximately29%, 49% and 53%, respectively, of our revenues over the same period. Forfiscal 2006, we derived 3% of our revenue from contracts directly with foreign 

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governments or withcommercial customers. For fiscal 2005 and 2006, Contract Field Teams, CivilianPolice and International Narcotics and Law Enforcement contracts accounted for18.0%, 27.4% and 8.1% and 17.2%, 32.1% and 11.9% of our revenues, respectively.For a discussion of the risk of government contracts, see “Risk Factors—We relyon sales to U.S. government entities. A loss of contracts with the U.S.government, a failure to obtain new contracts or a reduction of sales underexisting contracts could adversely affect our operating performance and ourability to generate cash flow to fund our operations.”

For fiscal 2005 and 2006,approximately 5.9% and 1.9% of our revenues, respectively, were derived fromservices that we provided as a subcontractor.

***KeyInternational Technical Services Contracts***

*CivilianPolice.**  *Themost significant contract of our International Technical Services operatingsegment is our Civilian Police contract, awarded to us by the Department ofState in February 2004. Our Civilian Police contract has an estimatedvalue of $1.75 billion over the five-year term of this program, through February 2009.Through the Civilian Police program, we have deployed civilian police officersfrom the United States to 12 countries to train and offer logistics support tothe local police and assist them with infrastructure reconstruction. Our firstsignificant deployment of civilian police personnel began in the Balkans in1996, where our predecessors helped train local police and provided supportduring the height of the conflict. We remained in the region through 2004. Inaddition, we have been awarded multiple task orders under the Civilian Policeprogram, including assignments in Iraq, Afghanistan and Haiti.

*InternationalNarcotics Eradication and Law Enforcement.**  *In May of 2005, the Departmentof State awarded us a new contract in support of the International Narcoticsand Law Enforcement Air-Wing program to aid in the eradication of illegal drugoperations. We are the sole awardee of this contract, which has an estimatedvalue of $643 million for the first three years of this ten-year contractthrough May 2015. This program has been ongoing since 1991 in cooperationwith multiple Latin American countries, and we recently commenced a similarprogram in Afghanistan.

*WarReserve Material.**  *Through our War Reserve Material program, weprovide management of the U.S. Air Force Southwest Asia War ReserveMaterial Prepositioning program, which includes operations in Oman, Bahrain,Qatar, Kuwait and two locations in the United States, Albany, Georgia and ShawAir Force base, South Carolina. We store, maintain and deploy assets such astents, generators, vehicles, kitchens and medical supplies to deployed forcesin the Global War on Terror. During Operation Enduring Freedom and OperationIraqi Freedom, we sent teams into the field to assist in the setup of tentcities prior to the arrival of the deployed forces. The War Reserve Materialprogram continues to partner with the United States Central Command Air Forcein the development of new and innovative approaches to asset management.

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The following table sets forth certain information forour principal International Technical Services contracts, including therespective estimated values of the current contracts as of March 31, 2006:

| **Contract**                                 | ** ** | **Principal  Customer**       | ** ** | **Initial/Current  Award Date** | ** ** | **Recompete  Date** | ** ** | **Estimated  Contract  Value****(1)** |   |
|----------------------------------------------|------------|-------------------------------|------------|--------------------------------------|------------|---------------------|------------|---------------------------------------|--------|
| Civilian Police Program                      |       | Department of State |       | Feb. 1994/Feb. 2004        |       | February 2009  |       | $1.75 billion                    | (2)    |
| International Narcotics and Law  Enforcement |       | Department of State           |       | Jan. 1991/May 2005         |       | October 2015   |       | $643 million                     | (3)    |
| War Reserve Material                         |       | U.S. Air Force                |       | May 2000                        |       | December 2006  |       | $493 million                     |   |
| Forward Operating Locations                  |       | U.S. Air Force                |       | March 2002                      |       | December 2006  |       | $141 million                     |   |
| Qatar Security                               |       | U.S. Army                     |       | Aug. 1997/Feb. 2003        |       | September 2007 |       | $92 million                      |   |
| Sudan                                        |       | Department of State           |       | May 2001                        |       | Not Applicable      |       | $27 million                      | (2)    |
| Worldwide Personal Protective Services       |       | Department of State           |       | April 1998/June 2005       |       | June 2010      |       | $2 million                       | (4)(2) |

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(1)                For more information on estimated contractvalue, see “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Estimated Contract Value.”

(2)                These contracts are indefinite delivery,indefinite quantity contracts. For more information about indefinite delivery,indefinite quantity contracts, see “—Contract Types.”  Also, for a discussion of how we defineestimated remaining contract value for indefinite delivery, indefinite quantitycontracts, see “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Estimated Remaining Contract Value.”

(3)                Estimated contract value is for the firstthree years of this ten-year contract through May 2015.

(4)                Estimated contract value is for thepriced, program management portion of the contract only. Potential task ordersare not included in this estimated contract value.

***Key Field Technical Services Contracts***

*ContractField Teams.*   Contract Field Teams is the mostsignificant program in our Field Technical Services operating segment. OurCompany and its predecessors have provided this service for over54 consecutive years. This program deploys highly mobile, quick-responsefield teams to customer locations to supplement a customer’s workforce. Servicesunder a Contract Field Teams contract generally include providing missionsupport to aircraft and weapons systems in addition to depot-level repair. Theprincipal customer for our Contract Field Teams program is the Department ofDefense. Our Contract Field Teams contract is up for recompetition in September 2007.This contract has a $2.09 billion estimated value over a ten-year termthrough September 2007.

*LifeCycle Contractor Support.**  *This Field Technical Services program consists ofcontracts with both the U.S. Army and the U.S. Navy. Under the Life CycleContractor Support-Army contracts, our Company provides aircraft maintenanceand logistics for 165 C-12/RC-12 and 27 UC-35 aircraft, aswell as services for a major avionics suite upgrade of 39 aircraft forGlobal Air Traffic Management compliance. Under our Life Cycle ContractorSupport-Navy contracts, our Company and its predecessors provide aircraftmaintenance and logistics for the U.S. Navy’s 6 UC-35 aircraft. Weentered into the Life Cycle Contractor Support-Army and Life Cycle ContractorSupport-Navy contracts in August 2000 and the Global Air TrafficManagement portion of our Army contract in March 2003. The Life CycleContractor Support-Army and Life Cycle Contractor Support-Navy contracts are upfor recompetition in January 2010. These contracts have estimated valuesof $911 million and $33 million for Life Cycle ContractorSupport-Army and Life Cycle Contractor Support-Navy, respectively.

*AttackHelicopter-1/Utility Helicopter-1 (“AH-1/UH-1”).**  *The AH-1/UH-1 programprovides worldwide helicopter support to foreign governments that have acquiredAH-1 and UH-1 helicopters. Services include program management,sustaining engineering, training, maintenance and refurbishment, logistics andmaterial management. The U.S. Army is our principal customer for this program. Weentered into our AH-1/UH-1 contract in March 2004 and thecontract is up for recompetition in March 2014. This contract has a$406 million estimated value.

*AndrewsAir Force Base.**  *Underthe Andrews Air Force Base contract, our Company performs aircraft maintenanceand base supply functions, including full backshop support, organizationallevel 

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maintenance, fleet fuelservices and supply, launch and recovery and FAA repair services. Our principalcustomer under this contract is the U.S. Air Force. We entered into thiscontract in January 2001 and it is up for recompetition in December 2011.This contract has a $324 million estimated value.

The following table sets forth certain information forour principal Field Technical Services contracts, including the respectiveestimated values of the current contracts as of March 31, 2006:

| **Contract**                      | ** ** | ** **                                  | ** ** | **Principal Customer**    | ** ** | **Initial/Current  Award Date** | ** ** | **Recompete  Date**          | ** ** | **Estimated  Contract  Value**(1) | ** ** |
|-----------------------------------|------------|---------------------------------------------|------------|--------------------------------|------------|--------------------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| Contract Field Teams              |       | Department of Defense             |       | Oct. 1951/Oct. 1997  |       | September 2007                  |       | $2.09 billion           | (2)        |
| Life Cycle Contractor  Support    |       | U.S. Army and U.S. Navy |       | August 2000               |       | January 2010                    |       | $944 million            |       |
| AH-1/UH-1                         |       | U.S. Army/FMS                               |       | March 2004                |       | March 2014                      |       | $406 million            | (2)        |
| Andrews Air Force Base            |       | U.S. Air Force                              |       | January 2001              |       | December 2011                   |       | $324 million            |       |
| Columbus Air Force Base           |       | U.S. Air Force                              |       | Oct. 1998/July 2005  |       | September 2012                  |       | $245 million            |       |
| Army Prepositioned Stocks  Afloat |       | U.S. Army                                   |       | February 1999             |       | February 2009                   |       | $217 million            |       |
| Holloman Air Force Base           |       | U.S. Air Force                              |       | September 1999            |       | September 2006                  |       | $101 million            |       |
| Eglin Air Force Base              |       | U.S. Air Force                              |       | November 2002             |       | November 2010                   |       | $  77 million |       |
| F/A-18                            |       | Kuwaiti Air Force(3)                        |       | Sept. 1997/Dec. 2005 |       | December 2010                   |       | $  70 million |       |
| California Department of Forestry |       | State of California                         |       | January 2002              |       | June 2007                       |       | $  65 million |       |

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(1)                For more information on estimated contractvalue, see “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Estimated Contract Value.”

(2)                These contracts are indefinite delivery,indefinite quantity contracts. For more information about indefinite delivery,indefinite quantity contracts, see “—Contract Types.”  Also, for a discussion of how we defineestimated remaining contract value for indefinite delivery, indefinite quantitycontracts, see “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Estimated Remaining Contract Value.”

(3)                Reflects end users under the contractrather than the contract party.

**Backlog**

Backlog consists of orders and options under ourcontracts. We define backlog as the estimated value of contract modificationsreceived from customers that have not been recognized as revenue. Our backlog consistsof funded and unfunded backlog. Funded backlog is based upon amounts actuallyappropriated by a customer for payment of goods and services less actualrevenue recorded as of the measurement date under that appropriation. Unfundedbacklog is the actual dollar value of unexercised contract options. Anticipatedrevenues from indefinite delivery, indefinite quantity contracts are notincluded in unfunded backlog. Backlog is only a measure of funded contractvalues and unfunded contract options, less any revenue recognized to that point.Backlog does not take into account any expenses associated with contractualperformance and converting backlog into revenue would not reflect net incomeassociated with the contracts. Most of our U.S. government contracts allow thecustomer, in its sole discretion, the option to extend the period ofperformance of a contract for a period of one or more years. Historically, ithas been our experience that the customer has exercised contract options. See “RiskFactors—Our U.S. government contracts may be terminated by the U.S. governmentat any time prior to their completion and contain other unfavorable provisions,which could lead to unexpected loss of revenues and reduction in backlog.”

Our backlog is spread over a diverse mix ofactivities, services and platforms. In addition, contracts and task ordersawarded thereunder are with different agencies within the U.S. government.

The following table sets forth our approximatecontracted backlog (dollars in millions) as of the dates indicated:

|                  | ** ** | **April 2,  2004** | ** ** | **April 1,  2005** | ** ** | **March 31,  2006** | ** ** |
|------------------|------------|-------------------------|------------|-------------------------|------------|--------------------------|------------|
| Funded Backlog   |       | $                       | 991        |                    | $          | 1,140                    |       |   | $ | 1,024 |   |   |
| Unfunded Backlog |       | 1,173                   |       | 900                     |       |                     | 1,617      |   |   |
| Total Backlog    |       | $                       | 2,164      |                    | $          | 2,040                    |       |   | $ | 2,641 |   |   |

 

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**Regulatory Matters**

Contracts with the U.S. government are subject tocertain regulatory requirements. Under U.S. government regulations, certaincosts, including certain financing costs, portions of research and developmentcosts, lobbying expenses, certain types of legal expenses and certain marketingexpenses related to the preparation of bids and proposals, are not allowed forpricing purposes and calculation of contract reimbursement rates undercost-reimbursement contracts. The U.S. government also regulates the methods bywhich allowable costs may be allocated under U.S. government contracts.

Our government contracts are subject to audits atvarious points in the contracting process. Pre-award audits are performed atthe time a proposal is submitted to the U.S. government for cost-reimbursementcontracts. The purpose of a pre-award audit is to determine the basis of thebid and provide the information required for the U.S. government to negotiatethe contract effectively. In addition, the U.S. government may perform apre-award audit to determine our capability to perform under a contract. Duringthe performance of a contract, the U.S. government may have the right toexamine our costs incurred in the contract, including any labor charges,material purchases and overhead charges. Upon a contract’s completion, the U.S.government performs an incurred cost audit of all aspects of contractperformance for cost-reimbursement contracts to ensure that we have performedthe contract in a manner consistent with our proposal. The government also mayperform a post-award audit for proposals that are subject to the Truth inNegotiations Act, which are proposals in excess of $550,000, to determine ifthe cost proposed and negotiated was accurate, current and complete as of thetime of negotiations.

The Defense Contract Audit Agency performs theseaudits on behalf of the U.S. government. The Defense Contract Audit Agency alsoreviews the adequacy of, and our compliance with, our internal control systemsand policies, including our purchasing, property, estimating, compensation andmanagement information systems. The Defense Contract Audit Agency has the rightto perform audits on our incurred costs on all contracts on a yearly basis. Wehave Defense Contract Audit Agency auditors on site to monitor our billing andback office operations. An adverse finding under a Defense Contract AuditAgency audit could result in the disallowance of our costs under a U.S.government contract, termination of U.S. government contracts, forfeiture ofprofits, suspension of payments, fines and suspension and prohibition fromdoing business with the U.S. government. In the event that an audit by theDefense Contract Audit Agency results in disallowance of our costs under acontract, we have the right to appeal the findings of the audit underapplicable dispute resolution provisions. Approval of submitted yearly contractincurred costs can take from one to three years from the date of submission ofthe contract costs. All of our contract incurred costs for U.S. government contractscompleted through March 28, 2003 have been audited and approved by theDefense Contract Audit Agency, and audits are continuing on such costs forsubsequent periods. See “Risk Factors—A negative audit or other actions by theU.S. government could adversely affect our operating performance.”

At any given time, many ofour contracts are under review by the Defense Contract Audit Agency and othergovernment agencies. We cannot predict the outcome of such ongoing audits andwhat, if any, impact such audits may have on our future operating performance. Anaudit report we received in August 2005 issued by the Defense ContractAudit Agency on our Air-Wing Contract to the Department of State in June 2005reached the conclusion that we had incorrectly included certain cost elementsin base pay for purposes of calculating hazard and post-differential pay,resulting in overbilling of $1.8 million. To the extent this matter isdecided against us, we will need to refund the disputed amount, and ourrevenues will be adversely affected.

**Sales and Marketing**

As of March 31, 2006, we had marketing offices inthe following 8 countries: the United Kingdom, Germany, Australia, Afghanistan,Iraq, the United Arab Emirates, Kenya and Italy. We also market 

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through relationships withmilitary and government officials, joint ventures and international trade shows.Personnel profiles range from employees with marketing degrees to retiredsenior officers from the various U.S. and foreign military branches. Mostsenior personnel engaged in sales and marketing have long-term operationsexperience.

Our approach is toestablish marketing activities in the area or region that we believe presentsthe greatest opportunity to grow and develop our business. As of March 31,2006, we had an organization and presence in Dubai, UAE which we believe,together with our Company and its predecessors’ long-standing presence in theMiddle East well-positions us to pursue additional opportunities in that region.We also have an office in Canberra, Australia from which we pursueopportunities in Australia and the Asia-Pacific region, and we have offices inboth the United Kingdom and Germany to develop business with the U.K. Ministryof Defense, United States, national and NATO military commands as well as topromote commercial business opportunities. In addition, we have frontline salesand marketing personnel in the United States, Europe-Africa and Asia-Pacific. Ineach office, to assist us in the regions we serve, we employ personnel who arefluent in both English and the local language, and who are familiar with localculture. We also utilize focus groups to target our services to geographicmarkets and provide local training to our sales force. In addition, we marketthrough international trade shows and relationships with senior military andgovernment officials.

**Competition**

We compete with various entities across geographic andbusiness lines based on a number of factors, including services offered,experience, price, geographic reach and mobility. Some of our competitors havegreater financial and other resources than we do or are better positioned thanwe are to compete for certain contract opportunities. For example, originalequipment manufacturers who also provide aftermarket support services have anadvantage in obtaining service contracts for aircraft that they havemanufactured, as they frequently have better access to replacement and serviceparts as well as an existing technical understanding of the platform they havemanufactured. In addition, we are at a disadvantage when bidding for contractsput up for recompetition for which we are not the incumbent provider, becauseincumbent providers frequently are able to capitalize on customerrelationships, technical knowledge and pricing experience gained from theirprior service.

Competitors of our International Technical Servicesoperating segment include solutions providers who typically compete in one ofour International Technical Services business segments. Our three largestcompetitors for international law enforcement services are Civilian PoliceInternational, PAE Government Services, Inc. and Science ApplicationsInternational Corporation. Our three largest competitors for internationallogistics and base operations services are ITT Industries, Halliburton and IAPWorldwide Services, Inc. Our two largest competitors in the personnel andphysical security business are Blackwater and Triple Canopy.

Competitors of our FieldTechnical Services operating segment typically are large defense servicescontractors, who offer services associated with maintenance, training and otheractivities. The three largest domestic competitors of Field Technical Servicesare Lockheed Martin Corporation, Sikorsky United Technologies and L-3. Thethree largest international competitors of Field Technical Services areAerospace Industrial Development Corporation, Al Salam Aircraft Company Ltd.and Serco Group Plc.

**IntellectualProperty**

We hold an exclusive,perpetual, irrevocable, worldwide, royalty-free and fully paid up license touse the “Dyn International” and “DynCorp International” names in connectionwith aviation services, security services, technical services and marineservices. We do not own any trademarks or patents and do not believe ourbusiness is dependent on trademarks or patents.

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**EnvironmentalMatters**

Our operations include theuse, generation and disposal of petroleum products and other hazardousmaterials. We are subject to various U.S. federal, state, local and foreignlaws and regulations relating to the protection of the environment, includingthose governing the management and disposal of hazardous substances and wastes,the cleanup of contaminated sites and the maintenance of a safe workplace. Webelieve that we have been and are in substantial compliance with environmentallaws and regulations and that we have no liabilities under environmentalrequirements that would have a material adverse effect on our business, resultsof operations or financial condition. We have not incurred, nor do we expect toincur, material costs relating to environmental compliance.

**Employees**

As of March 31, 2006,we had over 14,400 employees in 33 countries, of which approximately 1,490 wererepresented by labor unions.

**FORWARD-LOOKINGSTATEMENTS**

This Annual Report on Form 10-K containsvarious forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended (the “Securities Act”), and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-lookingstatements, written, oral or otherwise made, represent the Company’sexpectation or belief concerning future events. Forward-looking statementsinvolve risks and uncertainties. Without limiting the foregoing, the words “believes,”“thinks,” “anticipates,” “plans,” “expects” and similar expressions areintended to identify forward-looking statements. The Company cautions thatthese statements are further qualified by important economic, competitive, governmentaland technological factors that could cause our business, strategy or actualresults or events to differ materially, or otherwise, from those in theforward-looking statements, including, without limitation, changes in thedemand for services that the Company provides; additional work awarded underthe Civilian Police and International Narcotics and Law Enforcement contracts;pursuit of new commercial business in the United States and abroad;  activities of competitors; changes insignificant operating expenses; changes in availability of capital; generaleconomic and business conditions in the United States; acts of war or terroristactivities; variations in performance of financial markets; estimates ofcontract values; anticipated revenues from indefinite delivery, indefinitequantity contracts; expected percentages of future revenues represented byfixed-price and time-and-materials contracts; and statements covering ourbusiness strategy, those described in “Risk Factors” and other risks detailedfrom time to time in the Company’s reports filed with the Securities andExchange Commission. Accordingly, such forward-looking statements do notpurport to be predictions of future events or circumstances and therefore therecan be no assurance that any forward-looking statement contained herein willprove to be accurate. The Company assumes no obligation to update theforward-looking statements.

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**ITEM 1A.    RISKFACTORS.**

*You shouldcarefully consider the risks described below, together with all of the otherinformation contained in this Form 10-K. The risks described beloware not the only ones we face. Additional risks and uncertainties not currentlyknown to us or that we currently deem to be immaterial may also materially andadversely affect our financial condition, results of operations or cash flow. Anyof the following risks could materially and adversely affect our financialcondition or results of operations.*

**W*e rely on sales to U.S. government entities. A loss of contracts withthe U.S. government, a failure to obtain new contracts or a reduction of salesunder existing contracts could adversely affect our operating performance andour ability to generate cash flow to fund our operations*.**

Forfiscal 2005 and 2006, the Contract Field Teams, Civilian Police andInternational Narcotics and Law Enforcement contracts accounted for 18.0%,27.4% and 8.1%, and 17.2%, 32.1% and 11.9% of our revenues, respectively. Theloss of any one of these contracts would significantly and adversely affect ourfuture revenues and earnings. We derived substantially all of our revenues fromcontracts and subcontracts with the U.S. government and its agencies, primarilythe Department of Defense and the Department of State. Contracts with agenciesof the Department of Defense represented 63%, 49% and 44% of our revenues forfiscal 2004, 2005 and 2006, respectively, and contracts with agencies of theDepartment of State represented 29%, 49% and 53% of our revenues over the samerespective periods. The remainder of our revenues represent commercialcontracts and direct contracts with foreign governments. We expect that U.S.government contracts, particularly with the Department of Defense and theDepartment of State, will continue to be our primary source of revenue for theforeseeable future. Continuation and renewal of our existing governmentcontracts and new government contracts are, among other things, contingent uponthe availability of adequate funding for various U.S. government agencies,including the Department of Defense and the Department of State. Changes inU.S. government spending could directly affect our operating performance andlead to an unexpected loss of revenue. Among the factors that could impact U.S.government spending and that would reduce our federal government contractingbusiness are:

·       asignificant decline in, or reapportioning of, spending by the U.S. government,in general, or by the Department of Defense or the Department of State, inparticular;

·       changes,delays or cancellations of U.S. government programs or requirements;

·       theadoption of new laws or regulations that affect companies that provide servicesto the U.S. government;

·       U.S.government shutdowns or other delays in the government appropriations process;

·       curtailmentof the U.S. government’s outsourcing of services to private contractors;

·       changesin the political climate, including with regard to the funding or operation ofthe services we provide; and

·       generaleconomic conditions.

These or otherfactors could cause U.S. government agencies to reduce their purchases underour contracts, to exercise their right to terminate our contracts in whole orin part, to issue temporary stop-work orders under, or decline to exerciseoptions to renew, our contracts. The loss or significant curtailment of ourmaterial government contracts, or our failure to renew or enter into newcontracts could adversely affect our operating performance and lead to anunexpected loss of revenue.

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***Our U.S.government contracts may be terminated by the U.S. government at any time priorto their completion and contain other unfavorable provisions, which could leadto unexpected loss of revenues and reduction in backlog.***

Under the terms of our contracts, the U.S. governmentmay unilaterally:

·       terminateor modify existing contracts;

·       reducethe value of existing contracts through partial termination;

·       delaythe payment of our invoices by government payment offices;

·       auditour contract-related costs and fees; and

·       suspendus from receiving new contracts pending resolution of alleged violations ofprocurement laws or regulations.

The U.S. government can terminate or modify any of itscontracts with us either for its convenience or if we default by failing toperform under the terms of the applicable contract. A termination arising outof our default could expose us to liability and adversely affect our operatingperformance and lead to an unexpected loss of revenue.

Our government contracts typically have an initialterm of one year with multiple option periods, exercisable at the discretion ofthe government at previously negotiated prices. The government is not obligatedto exercise any option under a contract. Furthermore, the government isrequired to compete all programs and, therefore, may not automatically renew acontract. In addition, at the time of completion of any of our governmentcontracts, the contract is required to be recompeted if the government stillrequires the services covered by the contract.

If the U.S. government terminates and/or materiallymodifies any of our contracts or if option periods are not exercised, ourfailure to replace revenue generated from such contracts would result in lowerrevenues and would likely adversely affect our earnings, which would have amaterial adverse effect on our financial condition and results of operations.

***Our U.S.government contracts are subject to competitive bidding, both upon initialissuance and recompetition. If we are unable to successfully compete in thebidding process or if we fail to receive renewal, it could adversely affect ouroperating performance and lead to an unexpected loss of revenue.***

Substantially allof our U.S. government contracts are awarded through a competitive biddingprocess, including upon renewal, and we expect that this will continue to bethe case. There often is significant competition and pricing pressure as aresult of this process. The competitive bidding process presents a number ofrisks, including the following:

·       wemust expend substantial funds and time to prepare bids and proposals forcontracts;

·       wemay be unable to estimate accurately the resources and costs that will berequired to fund any contract we win, which could result in substantial costoverruns; and

·       wemay encounter expense and delay if our competitors protest or challenge awardsof contracts to us, and any such protest or challenge could result in arequirement to resubmit bids on modified specifications or in termination,reduction or modification of the awarded contract.

The government contracts for which we competetypically have multiple option periods, and if we fail to win a contract or atask order, we generally will be unable to compete again for that contract forseveral years. For example, we recently lost four task orders for which wecompeted under our Worldwide Personal Protective Services program in Israel,Haiti, Afghanistan and Baghdad. If we fail to win new contracts or to receiverenewal contracts upon recompetition, it may result in additional costs andexpenses 

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and possible loss ofrevenue, and we will not have an opportunity to compete for these opportunitiesagain until the current task orders expire.

***Politicaldestabilization or insurgency in the regions in which we operate may have amaterial adverse effect on our operating performance.***

Certain regions in which we operate are highlyunstable. Insurgency activities in the areas in which we operate may causefurther destabilization in these regions. There can be no assurance that theregions in which we operate will continue to be stable enough to allow us tooperate profitably or at all. For fiscal 2005 and 2006, respectively, revenuesgenerated on a combined basis from our operations in Iraq and Afghanistancontributed 36.9% and 38.5% of our revenues. Insurgents in Iraq and Afghanistanhave targeted installations where we have personnel and have contributed toinstability in these countries. This could impair our ability to attract anddeploy personnel to perform services in either or both locations. In addition,we have been required to increase compensation to our personnel as an incentiveto deploy them to these regions. To date, we have been able to recover thisadded cost under the contracts, but there is no guarantee that futureincreases, if required, will be able to be passed onto our customers throughour contracts. To the extent that we are unable to pass through such increasedcompensation costs to our customers, our operating margins would be adverselyimpacted, which could adversely affect our operating performance. We also mayhave difficulty obtaining insurance to cover our liabilities in these regionsand for third-party general liability. We have been able to obtain insurance tocover our liabilities; however, this could change or premiums may becomeprohibitively expensive. In addition, increased insurgency activities ordestabilization, including civil unrest or a civil war in Iraq or Afghanistan,may lead to a determination by the U.S. government to halt our operations in aparticular location, country or region and to perform the services usingmilitary personnel. Furthermore, in extreme circumstances, the U.S. governmentmay decide to terminate all U.S. government activities including our operationsunder U.S. government contracts in a particular location, country or region andto withdraw all military personnel. This could adversely affect our operatingperformance and may result in additional costs and expenses and loss ofrevenue.

***Ourindefinite delivery, indefinite quantity contracts are not firm orders forservices, and we may never receive revenues from these contracts, which couldadversely affect our operating performance.***

Many of our government contracts are indefinitedelivery, indefinite quantity contracts, which are often awarded to multiplecontractors. Award of an indefinite delivery, indefinite quantity contract doesnot represent firm orders for services. Generally, under an indefinitedelivery, indefinite quantity contract, the government is not obligated toorder a minimum of services or supplies from its contractor, irrespective ofthe total estimated contract value. Furthermore, under an indefinite delivery,indefinite quantity contract, the customer develops requirements for taskorders that are competitively bid against all of the contract awardees, usuallyunder a best-value approach. However, many contracts also permit the governmentcustomer to direct work to a specific contractor. Our Civilian Police andContract Field Team programs are performed under indefinite delivery,indefinite quantity contracts. We may not win new task orders under thesecontracts for various reasons such as failing to rapidly deploy personnel orhigh prices, which would have an adverse effect on our operating performanceand may result in additional expenses and loss of revenue. In fiscal 2005 and2006, 56.3% and 58.9% of our revenues, respectively, were attributable toindefinite delivery, indefinite quantity contracts.

***Our costof performing under time-and-materials and fixed-price contracts may exceed ourrevenues which would result in a recorded loss on the contracts.***

Our government contract services have three distinctpricing structures: fixed-price levels of effort, time-and-materials andcost-reimbursement, representing approximately 27%, 39% and 34% of ourrevenues, respectively, for fiscal 2005, and approximately 34%, 38% and 28% ofour revenues, respectively, for fiscal 2006. With cost-reimbursement contracts,so long as actual costs incurred are within the contract 

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ceiling and allowableunder the terms of the contract, we are entitled to reimbursement of the costsplus a stipulated fixed fee and, in some cases, an incentive-based award fee. Weassume financial risk on time-and-materials and fixed-price contracts, becausewe assume the risk of performing those contracts at the stipulated prices ornegotiated hourly/daily rates. If we do not accurately estimate ultimate costsand control costs during performance of the work, we could lose money on aparticular contract or have lower than anticipated margins. Also, we assume therisk of damage or loss to government property and we are responsible forthird-party claims under fixed-price contracts. We believe that ourprofitability will continue to improve as we anticipate that our customers willcontinue to shift away from cost-reimbursement to time-and-materials contractsand fixed-price contracts. We base our belief on recent trends in our revenues,the nature of the contracts on which we are bidding and the pricing structurein fixed-price and time-and-materials contracts. As of March 31, 2006,seven of our 44 active contracts contained incentive-based pricing terms. Thesecontracts comprised 19.7% and 15.3% of our revenues, respectively, for fiscal2005 and 2006. The failure to meet contractually defined performance standardsmay result in a loss of a particular contract or lower-than-anticipated margins.This could adversely affect our operating performance and may result inadditional costs and expenses and possible loss of revenue.

***Anegative audit or other actions by the U.S. government could adversely affectour operating performance.***

At any given time, many of our contracts are underreview by the Defense Contract Audit Agency and other government agencies. Theseagencies review our contract performance, cost structure and compliance withapplicable laws, regulations and standards. The Defense Contract Audit Agencyalso reviews the adequacy of, and our compliance with, its internal controlsystems and policies, including our purchasing, property, estimating,compensation and management information systems. Any costs found to beimproperly allocated to a specific contract will not be reimbursed. Inaddition, government contract payments received by us for allowable direct andindirect costs are subject to adjustment after audit by government auditors andrepayment to the government if the payments exceed allowable costs as definedin the government contracts. For example, an audit report issued by the DefenseContract Audit Agency on our Air-Wing Contract to the Department of State in June 2005that we received in August 2005 reached the conclusion that we hadincorrectly included certain cost elements in base pay for purposes ofcalculating hazard and post-differential pay, resulting in overbilling of $1.8million. To the extent this matter is decided against us, we will need torefund the disputed amount and our revenues will be adversely affected.

Audits have been completed on our incurred contractcosts through March 28, 2003 and are continuing for subsequent periods. Wecannot predict the outcome of such audits and what, if any, impact such auditsmay have on our future operating performance.

***We aresubject to investigation by the U.S. government, which could result in ourinability to receive government contracts and could adversely affect our futureoperating performance.***

As a U.S. government contractor, we must comply withlaws and regulations relating to U.S. government contracts that do not apply toa commercial company. From time to time, we are investigated by governmentagencies with respect to our compliance with these laws and regulations. If weare found to be in violation of the law, we may be subject to civil or criminalpenalties or administrative sanctions, including contract termination, theassessment of penalties and suspension or debarment from doing business withU.S. government agencies. For example, many of the contracts we perform in theUnited States are subject to the Service Contract Act, which requires hourlyemployees to be paid certain specified wages and benefits. If the Department ofLabor determines that we violated the Service Contract Act or its implementingregulations, we could be suspended from winning new government contracts orrenewals of existing contracts for a period of time, which could adverselyaffect our future operating performance.

We are subject to an increased risk of investigations,criminal prosecution, civil fraud, whistleblower lawsuits and other legalactions and liabilities to which companies with solely commercial customers are

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not subject. In addition,if an audit uncovers improper or illegal activities, we may be subject to civiland criminal penalties and administrative sanctions, including termination ofcontracts, forfeiture of profits, suspension of payments, fines and suspensionor prohibition from doing business with the U.S. government. Furthermore, ourreputation could suffer serious harm if allegations of impropriety were madeagainst us. If we were suspended or prohibited from contracting with the U.S.government, or any significant U.S. government agency, if our reputation orrelationship with U.S. government agencies was impaired or if the U.S. governmentotherwise ceased doing business with us or significantly decreased the amountof business it does with us, it could adversely affect our operatingperformance and may result in additional expenses and possible loss of revenue.

***Anaccident or incident involving our employees or third parties could harm ourreputation and adversely affect our ability to compete for business and, as aresult, adversely affect our operating performance.***

We are exposed to liabilities arising out of theservices we provide. Such liabilities may relate to an accident or incidentinvolving our employees or third parties, particularly where we are deployedon-site at active military installations or in locations experiencing politicalor civil unrest, or they may relate to an accident or incident involvingaircraft or other equipment we have serviced or used in the course of ourbusiness. Any of these types of accidents or incidents could involvesignificant potential claims of injured employees and other third parties, andclaims relating to loss of or damage to government or third-party property. Theamount of our insurance coverage may not be adequate to cover those claims orliabilities and we may be forced to bear substantial costs from an accident orincident. Substantial claims in excess of our related insurance coverage couldadversely affect our operating performance and may result in additionalexpenses and possible loss of revenue. Moreover, any accident or incident forwhich we are liable, even if fully insured, may result in negative publicitywhich could adversely affect our reputation among our customers, including ourgovernment customers, and the public, which could result in us losing existingand future contracts or make it more difficult for us to compete effectively,which could adversely affect our operating performance and may result inadditional expenses and possible loss of revenue.

***Theexpiration of our collective bargaining agreements could result in increasedoperating costs or work disruptions, which could potentially affect ouroperating performance.***

As of March 31, 2006, we had over 14,400employees located in 33 countries around the world, approximately 7,400 of whomare located inside the United States. Of these employees, approximately 1,490are represented by labor unions. As of March 31, 2006, we hadapproximately 62 collective bargaining agreements. These agreements eitherexpired or will expire between March 2006 and December 2008. Althoughwe believe that our relationships with these unions and our employees aresatisfactory, there can be no assurance that we will not experience labordisruptions associated with the expiration or renegotiation of collectivebargaining agreements or otherwise. We could experience a significantdisruption of operations and increased operating costs as a result of higherwages or benefits paid to union members, which could adversely affect ouroperating performance and may result in additional expenses and possible lossof revenue.

Our employees in Bahrain working on the War ReserveMaterial contract are also represented by a labor union. We have been notifiedby our work force that they are dissatisfied with their compensation andbenefits and that they have voted to strike. We have a strike contingency planin place that should avoid disruption to our performance of the contract;however, if our plan does not work to our expectations, we would experience adisruption of operations which could adversely affect our operating performanceand may result in additional expenses and possible loss of revenue.

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***Proceedingsagainst us in domestic and foreign courts could result in legal costs andadversely affect our operating performance.***

At any given time, we are involved in various claimsand lawsuits arising in the ordinary course of business. Actions involvingthird-party liability claims generally are covered by insurance; however, inthe event our insurance coverage is inadequate to cover such claims, we will beforced to bear the costs arising from a judgment. We do not have insurancecoverage for adverse employment and breach of contract actions, and we bear allcosts associated with such litigation and claims.

As required by generally accepted accountingprinciples, we estimate material loss contingencies and establish reserves whenwe assess that liability is deemed probable and reasonably estimable based onthe facts and circumstances known to us at a particular point in time, asadjusted by subsequent developments in a particular matter. For a descriptionof our current material legal proceedings, see “Legal Proceedings.”

***Competitionin our industry could limit our ability to attract and retain customers oremployees, which could result in a loss of revenue and/or a reduction inmargins, which could adversely affect our operating performance.***

We compete with various entities across geographic andbusiness lines. Competitors of our Field Technical Services operating segmentare typically large defense services contractors, who offer services associatedwith maintenance, training and other activities. Competitors of ourInternational Technical Services operating segment are various solutionproviders who typically compete in any one of our key business segments. Wecompete on a number of factors, including our broad range of services,geographic reach, mobility and response time.

Some of our competitors have greater financial andother resources than we do or are better positioned than we are to compete forcontract opportunities. For example, original equipment manufacturers who alsoprovide aftermarket support services have a distinct advantage in obtainingservice contracts for aircraft that they have manufactured, as they frequentlyhave better access to replacement and service parts as well as an existingtechnical understanding of the platform they have manufactured. In addition, weare at a disadvantage when bidding for contracts put up for recompetition forwhich we are not the incumbent provider, because incumbent providers arefrequently able to capitalize on customer relationships, technical knowledgeand pricing experience gained from their prior service.

In addition to the competition we face in bidding forcontracts and task orders, we must also compete to attract the skilled andexperienced personnel integral to our continued operation. We hire from alimited pool of potential employees, with military and law enforcementexperience, specialized technical skill sets and security clearances asprerequisites for many positions. Our failure to compete effectively foremployees or excessive attrition among our skilled personnel could reduce ourability to satisfy our customers’ needs, and increase the costs and timerequired to perform our contractual obligations. This could adversely affectour operating performance and may result in additional expenses and possibleloss of revenue. For example, we recently lost four task orders for which wecompeted under our Worldwide Personal Protective Services program in Israel,Haiti, Afghanistan and Baghdad.

***Loss ofour skilled personnel, including members of senior management, may have anadverse effect on our operations and/or our operating performance until we findsuitable replacements.***

Our continued success depends in large part on ourability to recruit and retain the skilled personnel necessary to serve ourcustomers effectively, including personnel with extensive military and lawenforcement training and backgrounds. The proper execution of our contractobjectives depends upon the availability of quality resources, especiallyqualified personnel. Given the nature of our business, we have substantial needfor personnel who are willing to work overseas, frequently in locationsexperiencing political or civil unrest, for extended periods of time and oftenon short notice. We may not be able to meet the need for qualified personnel assuch need arises.

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In addition, we must comply with provisions in U.S.government contracts that require employment of persons with specified workexperience and security clearances. An inability to maintain employees with therequired security clearances could have a material adverse effect on ourability to win new business and satisfy our existing contractual obligations,and could adversely affect our operating performance and may result in additionalexpenses and possible loss of revenue.

The loss of services of any of the members of oursenior management could adversely affect our business until a suitablereplacement can be found. There may be a limited number of personnel with therequisite skills to serve in these positions, and we may be unable to locate oremploy such qualified personnel on acceptable terms.

***If oursubcontractors fail to perform their contractual obligations, our primecontract performance and our ability to obtain future business could bematerially and adversely impacted.***

Many of our contracts involve subcontracts with othercompanies upon which we rely to perform a portion of the services we mustprovide to our customers. In fiscal 2005 and 2006, we paid our subcontractors$174.9 million and $229.0 million, respectively. These subcontractorsgenerally perform niche or specialty services for which they have more directexperience, such as construction or catering services, or they have localknowledge of the region in which we will be performing and the ability tocommunicate with local nationals and assist in making arrangements forcommencement of performance. Often, we enter into subcontract arrangements inorder to meet government requirements to award certain categories of servicesto small businesses. A failure by one or more of our subcontractors tosatisfactorily provide on a timely basis the agreed-upon supplies or performthe agreed-upon services may materially and adversely impact our ability toperform our obligations as the prime contractor. Such subcontractor performancedeficiencies could result in a customer terminating our contract for default. Adefault termination could expose us to liability and adversely affect ouroperating performance and may result in additional expenses and possible lossof revenue.

***Environmentallaws and regulations may subject us to significant costs and liabilities thatcould adversely affect our operating performance.***

We are subject to numerous environmental, legal andregulatory requirements related to our operations worldwide. In the UnitedStates, these laws and regulations include those governing the management anddisposal of hazardous substances and wastes and the maintenance of a safeworkplace, primarily associated with our aviation services activities,including painting aircraft and handling substances that may qualify ashazardous waste, such as used batteries and petroleum products. In addition toU.S. federal laws and regulations, states and other countries where we do businesshave numerous environmental, legal and regulatory requirements by which we mustabide. We could incur substantial costs, including clean-up costs, as a resultof violations of, or liabilities under, environmental laws. This couldadversely affect our operating performance and may result in additionalexpenses and possible loss of revenue.

***Therequirements of complying with the Securities Exchange Act of 1934 and theSarbanes-Oxley Act of 2002 may strain our resources and distract management.***

We are subject to the Sarbanes-Oxley Act of 2002. Theserequirements may place a strain on our systems and resources. Section 404of the Sarbanes-Oxley Act will require that we maintain, and certify that wehave, effective disclosure controls and procedures and internal control overfinancial reporting. Pursuant to Section 404 of the Sarbanes-Oxley Act,our management will be required to deliver a report that assesses theeffectiveness of our internal control over financial reporting and anattestation report of our auditors on our management’s assessment of suchinternal control. In order to maintain and improve the effectiveness of ourdisclosure controls and procedures and internal control over financialreporting, significant resources and management oversight will be required todevote additional time and personnel 

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to legal, financial andaccounting activities to ensure our ongoing compliance with these reportingrequirements. We might not be able to complete the documentation and managementassessment required by Section 404 of the Sarbanes-Oxley Act before itbecomes applicable to us. In addition, the effort to prepare for theseobligations may divert management’s attention from other business concerns,which could adversely affect our operating performance. In addition, we mayneed to hire additional accounting and financial staff, which we may not beable to do in a timely fashion and which would result in additional expense anddistraction of our management’s time and resources.

***Oursubstantial level of indebtedness may make it difficult for us to satisfy ourdebt obligations and may adversely affect our ability to obtain financing forworking capital, capitalize on business opportunities or respond to adversechanges in our industry.***

As of March 31,2006, we had $661.6 million of total indebtedness and $82.5 million ofadditional borrowing capacity under our senior secured credit facility (whichgives effect to the $7.5 million of outstanding letters of credit). Based onour indebtedness and other obligations as of March 31, 2006, we estimatethat, for fiscal 2007, our remaining contractual commitments includinginterest associated with our indebtedness and other obligations (assuming thatour revolving credit facility will be undrawn at the close of fiscal 2007) willbe $216.0 million in the aggregate for the remaining period between April 1,2006 through the end of fiscal 2010. This estimate gives effect to the useof a portion of the proceeds of the Equity Offering to redeem approximately$28.0 million of the senior subordinated notes on June 8, 2006, which doesnot include accrued and unpaid interest on such notes as of that date of $0.8million. Even after the application of a portion of the proceeds of the EquityOffering to repay certain indebtedness, we still have substantial indebtedness.Such indebtedness could have important consequences for you, including thefollowing:

·       itmay be more difficult for us to satisfy our debt obligations;

·       ourability to obtain additional financing for working capital, debt servicerequirements, general corporate or other purposes may be impaired;

·       wemust use a substantial portion of our cash flow to pay interest and principalon our indebtedness which will reduce the funds available for other purposes;

·       weare more vulnerable to economic downturns and adverse industry conditions;

·       ourability to capitalize on business opportunities and to react to competitivepressures and adverse changes in our industry as compared to our competitorsmay be compromised due to the high level of indebtedness; and

·       ourability to refinance indebtedness may be limited.

***Oursenior secured credit facility and the indenture governing our seniorsubordinated notes contain various covenants limiting the discretion of ourmanagement in operating our business.***

Our indenture andsenior secured credit facility contain various restrictive covenants that limitour management’s discretion in operating our business. These instruments limitour ability to engage in, among other things, the following activities:

·       theincurrence of additional indebtedness or guarantee obligations;

·       therepayment of indebtedness prior to stated maturities;

·       thepayment of dividends or make certain other restricted payments;

·       makinginvestments or acquisitions;

·       thecreation of liens or other encumbrances; and

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·       theability to transfer or sell certain assets or merge or consolidate with anotherentity.

In addition, our senior secured credit facility alsorequires us to maintain certain financial ratios and limits our ability to makecapital expenditures. Capital expenditures, as defined in the senior securedcredit facility, are the purchases of property and equipment. These financialratios include a minimum interest coverage ratio and a leverage ratio. Theinterest coverage ratio is the ratio of earnings before interest, taxes, depreciationand amortization (“EBITDA”) (as defined in our senior secured credit facility)to cash interest expense for the preceding four quarters. The leverage ratio isa ratio of our debt to our EBITDA for the preceding four quarters. The minimuminterest coverage ratio increases from 2:1 to 3.2:1 during the term of thesenior secured credit facility. The maximum leverage ratio decreases from 6:1to 3:1 during the term of the senior secured credit facility. The seniorsecured credit facility also restricts the maximum amount of our capitalexpenditures during each year of the term of the senior secured credit facility.Our annual capital expenditures may not exceed $4.0 million during the term ofour senior secured credit facility. Capital expenditures are expenditures thatare required by generally accepted accounting principles to be included in thepurchase of property and equipment.

If we fail to comply with the restrictions in theindenture or our senior secured credit facility or any other subsequentfinancing agreements, a default may allow the creditors under the relevantinstruments, in certain circumstances, to accelerate the related debt and toexercise their remedies thereunder, which will typically include the right todeclare the principal amount of such debt, together with accrued and unpaidinterest and other related amounts immediately due and payable, to exercise anyremedies such creditors may have to foreclose on any of our assets that aresubject to liens securing such debt and to terminate any commitments they hadmade to supply us with further funds. Moreover, any of our other debt that hasa cross-default or cross-acceleration provision that would be triggered by suchdefault or acceleration would also be subject to acceleration upon theoccurrence of such default or acceleration.

Our ability to comply with these covenants may beaffected by events beyond our control, and an adverse development affecting ourbusiness could require us to seek waivers or amendments of covenants,alternative or additional sources of financing or reductions in expenditures. Wecannot assure you that such waivers, amendments or alternative or additionalfinancings could be obtained, or if obtained, would be on terms acceptable tous.

***Servicingour indebtedness requires a significant amount of cash. Our ability to generatesufficient cash depends on numerous factors beyond our control, and we may beunable to generate sufficient cash flow to service our debt obligations, whichcould adversely affect our financial condition.***

As of March 31, 2006, we had $661.6 million oftotal indebtedness and $82.5 million of additional borrowing capacity under oursenior secured credit facility (which gives effect to the $7.5 million ofoutstanding letters of credit). Based on our indebtedness and other obligationsas of March 31, 2006, we estimate that, for fiscal 2007, ourremaining contractual commitments including interest associated with ourindebtedness and other obligations (assuming that our revolving credit facilitywill be undrawn at the close of fiscal 2007) will be $216.0 million in theaggregate for the remaining period between April 1, 2006 through the endof fiscal 2010. This estimate gives effect to the use of a portion of theproceeds of the Equity Offering to redeem approximately $28.0 million of thesenior subordinated notes on June 8, 2006, which does not include accruedand unpaid interest on such notes as of that date of $0.8 million. Our abilityto make payments on and to refinance our indebtedness depends on our ability togenerate cash. This, to a certain extent, is subject to general economic,political, financial, competitive, legislative, regulatory and other factorsthat are beyond our control.

We cannot assure you, however, that our business willgenerate sufficient cash flow from operations, or that future borrowings willbe available to us under our senior secured facility in an amount sufficient toenable us to pay our indebtedness or to fund our other liquidity needs. We mayneed to refinance all or a portion of our indebtedness. We cannot assure youthat we will be able to refinance any of our 

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indebtedness, includingour senior secured credit facility, on commercially reasonable terms or at all.In addition, the terms of existing or future debt agreements, including oursenior secured credit facility and the indenture governing our seniorsubordinated notes, may restrict us from carrying out any of these alternatives.If we are unable to generate sufficient cash flow or refinance our debt onfavorable terms, it could significantly adversely affect our financialcondition.

***Despiteour current indebtedness level, we and our subsidiaries may still be able toincur substantially more debt, which could exacerbate the risks associated withour substantial leverage.***

As of March 31, 2006, we had up to$82.5 million of additional availability under our senior secured creditfacility (which gives effect to $7.5 million of outstanding letters ofcredit). The terms of the senior secured credit facility and our seniorsubordinated notes do not fully prohibit us or our subsidiaries from incurringadditional indebtedness. It is not possible to quantify the specific dollaramount of indebtedness we may incur because our senior secured credit facilitydoes not provide for a specific dollar amount of indebtedness we may incur. Oursenior secured credit facility and our senior subordinated notes allow us toincur only certain indebtedness that is expressly enumerated in our seniorsecured credit facility and the indenture governing our senior subordinatednotes. The indebtedness permitted under our senior secured credit facilityincludes indebtedness that is customary for similar credit facilities. Specificexamples of indebtedness permitted under our senior secured credit facility aredescribed further under notes to the consolidated financial statements andinclude certain intercompany indebtedness, indebtedness under the seniorsecured credit facility, the senior subordinated notes, certain refinancing indebtednessand certain indebtedness with respect to capital leases in an amount that maynot exceed $10.0 million. We believe that the comparable restrictions inthe indenture governing our senior subordinated notes have restrictions thatare generally no more restrictive in any material respect than the seniorsecured credit facility. If either we or our subsidiaries were to incuradditional indebtedness, the related risks that we now face could intensify.

***Ourability to make payments under the notes and to service our other debtmay depend on cash flow from our subsidiaries.***

Although we are anoperating company, our subsidiaries hold material assets. Consequently, wemay depend on distributions or other intercompany transfers from oursubsidiaries to make payments under the exchange notes and our other debt. Inaddition, distributions and intercompany transfers to us from our subsidiarieswill depend on:

·       theirearnings;

·       covenantscontained in our and their debt agreements, including the exchange notes andour senior secured credit facility;

·       covenantscontained in other agreements to which we or our subsidiaries are ormay become subject;

·       businessand tax considerations; and

·       applicablelaw, including laws regarding the payment of dividends and distributions andfraudulent transfer laws.

The operating results of our subsidiaries at any giventime may not be sufficient to make distributions or other payments to usor to ensure that any distributions and/or payments will be adequate to pay anyamounts due under the notes or our other indebtedness.

***We arecontrolled by affiliates of Veritas Capital, whose interests may not be alignedwith yours.***

We are a direct wholly owned subsidiary of DynCorpInternational Inc., our Parent, and an indirect subsidiary of DIV Holding LLC. DIVHolding LLC is our Parent’s controlling stockholder. Veritas Capital ManagementII, L.L.C. and its affiliates, The Veritas Capital Fund II, L.P. and VeritasCapital II A, LLC, 

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in turn, own 86% of theoutstanding membership interest in our Parent’s controlling stockholder, DIVHolding LLC. Veritas Capital indirectly controls approximately 56.1% of ourParent’s Class A common stock. So long as Veritas Capital continues to owna significant amount of the outstanding shares of our Parent’s Class Acommon stock, it will continue to be able to strongly influence or effectivelycontrol our decisions, including potential mergers or acquisitions, asset salesand other significant corporate transactions. As a result, Veritas Capital isable to control the election of our Parent’s directors, determine our and ourParent’s corporate and management policies and determine without the consent ofour Parent’s other stockholders, the outcome of any corporate transaction orother matter submitted to our Parent’s stockholders for approval, includingpotential mergers or acquisitions, asset sales and other significant corporatetransactions. Three of our Parent’s thirteen directors are either employees of,or advisors to, Veritas Capital, as described under “Directors and ExecutiveOfficers of the Registrant—Management.” Veritas Capital has sufficient voting power to amend our and our Parent’sorganizational documents. The interests of Veritas Capital may not coincidewith the interests of other holders of our Parent’s Class A common stock. Additionally,Veritas Capital is in the business of making investments in companies and may,from time to time, acquire and hold interests in businesses that competedirectly or indirectly with us. Veritas Capital may also pursue, for its ownaccount, acquisition opportunities that may be complementary to our business,and as a result, those acquisition opportunities may not be available to us. Inaddition, our Parent’s Bylaws provide that so long as Veritas Capitalbeneficially owns a majority of our Parent’s outstanding Class A commonstock, the foregoing advance notice procedures for stockholder proposals willnot apply to it. Amendment of the provisions described above in our Parent’sAmended and Restated Certificate of Incorporation generally will require anaffirmative vote of our Parent’s directors, as well as the affirmative vote ofat least a majority of our Parent’s then outstanding voting stock if VeritasCapital beneficially owns a majority of our Parent’s outstanding Class Acommon stock, or the affirmative vote of at least 80% of our Parent’s thenoutstanding voting stock if Veritas Capital beneficially owns less than amajority of our Parent’s then outstanding Class A common stock. Amendmentsto any other provisions of our Parent’s Amended and Restated Certificate ofIncorporation generally will require the affirmative vote of a majority of our Parent’soutstanding voting stock. In addition, because our Parent is a controlledcompany within the meaning of the New York Stock Exchange rules, our Parent’sboard is exempt from the New York Stock Exchange requirements that it becomposed of a majority of independent directors, and that its compensation andcorporate governance committees be composed entirely of independent directors.

DIV Holding LLC is a party to a registration rightsagreement, which grants it rights to require our Parent to effect theregistration of its shares of common stock. In addition, if our Parent proposesto register any of its common stock under the Securities Act of 1933, asamended, whether for its own account or otherwise, DIV Holding LLC is entitledto include its shares of common stock in that registration.

Prior to our Parent’s Equity Offering, our Parent  and our Parent’s  holder of Class A common stock agreedwith the underwriters to a “lock-up” period, meaning that our Parent’s principalstockholder may not, subject to certain other exceptions, sell any of itsshares of its Class A common stock without the prior written consent ofCredit Suisse Securities (USA) LLC and Goldman, Sachs & Co. untilapproximately 180 days after the effective date of the offering. CreditSuisse Securities (USA) LLC and Goldman, Sachs & Co., on behalf of theunderwriters, may, in their sole discretion, at any time or from time to timeand without notice, waive the terms and conditions of the lock-up agreement. Inaddition, our Parent’s principal stockholder will be subject to the Rule 144holding period requirement. When the lock-up agreements expire, 32.0 millionshares of our Parent’s Class A common stock will become eligible for sale,in some cases subject to the requirements of Rule 144. The market pricefor shares of our Parent’s Class A common stock may drop significantlywhen the restrictions on resale by our Parent’s existing stockholder lapses. Adecline in the price of shares of our Parent’s Class A common stock mightimpede our Parent’s ability to raise capital through the issuance of additionalshares of its Class A common stock or other equity securities.

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***We aredependent upon cash flows from our operating activities and availability underour senior secured credit facility as our principal source of liquidity.***

We are dependent upon thecash generated from operating activities and availability under our seniorsecured credit facility to be our principal sources of liquidity. Based on ourcurrent level of operations, we believe our cash flow from operations andavailable borrowings under our senior secured credit facility will be adequateto meet our liquidity needs for at least the next twelve months. We cannotassure you, however, that our business will generate sufficient cash flow fromoperations, or that future borrowings will be available to us under our seniorsecured credit facility in an amount sufficient to enable us to repay ourindebtedness, including the notes, or to fund our other liquidity needs.

**ITEM 1B.    UNRESOLVEDSTAFF COMMENTS.**

None.

**ITEM 2.    PROPERTIES.**

Our principal executive office is located in, and aportion of our operations are conducted from, leased premises located at 8445Freeport Parkway, Suite 400, Irving, Texas, 75254-8815. In addition,as of March 31, 2006, we leased 197 commercial facilities in 18 countriesused in connection with the various services rendered to our customers. Uponexpiration of our leases, we do not anticipate any difficulty in obtainingrenewals or alternative space. We do not own any real property. Leaseexpirations range from month-to-month to ten years. Many of the current leasesare non-cancelable.

We believe that substantially all of our property andequipment is in good condition, subject to normal wear and tear and that ourfacilities have sufficient capacity to meet the current and projected needs ofour business.

Thefollowing table lists our U.S. leased properties, including the inside squarefootage of those properties as of May 31, 2006. 

| City, State          | ** ** | ** **             | ** ** | **Size** | ** ** |
|---------------------------|------------|------------------------|------------|----------|------------|
| ** **                | ** ** | **(square feet)** | ** ** |
| Albany, Georgia           |       |                   | 280,000    |     |       |
| Fort Worth, Texas         |       |                   | 119,001    |     |       |
| Irving, Texas             |       |                   | 52,421     |     |       |
| Falls Church,  Virginia   |       |                   | 46,664     |     |       |
| McClellan,  California    |       |                   | 18,837     |     |       |
| Herndon, Virginia         |       |                   | 10,063     |     |       |
| Hampton, Virginia         |       |                   | 3,437      |     |       |
| Fredericksburg,  Virginia |       |                   | 2,600      |     |       |
| Huntsville,  Alabama      |       |                   | 1,200      |     |       |
| Killeen, Texas            |       |                   | 1,000      |     |       |

 

**ITEM3.    LEGAL PROCEEDINGS.**

**Pending Litigationand Claims**

On September 11,2001, a class action lawsuit seeking $100.0 million on behalf ofapproximately 10,000 citizens of Ecuador was filed against us and several of ourformer affiliates in the U.S. District Court for the District of Columbia. Theaction alleges personal injury, property damage and wrongful death as aconsequence of the spraying of narcotic plant crops along the Colombian borderadjacent to Ecuador. The spraying operations are conducted under a Departmentof State contract in cooperation with the Colombian government. The terms ofthe Department of State contract provide that the 

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Departmentof State will indemnify us against third-party liabilities arising out of thecontract, subject to available funding. We are also entitled to indemnificationby Computer Sciences Corporation in connection with this lawsuit, subject tocertain limitations. Additionally, any damage award would have to beapportioned between the other defendants and our Company.

On May 29, 2003, GloriaLongest, a former accounting manager for the Company, filed suit against theCompany under the False Claims Act and the Florida Whistleblower Statute,alleging that we submitted false claims to the government under theInternational Narcotics & Law Enforcement Affairs contract with theDepartment 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 case wasunsealed in 2005, and we learned of its existence on August 15, 2005 whenwe were served with the complaint. After conducting an investigation of theallegations made by the plaintiff, the U.S. government did not join the action.The complaint does not demand any specific monetary damages; however, in theevent that a court decides against us in this lawsuit, it could have a materialadverse effect on our operating performance.

**General Legal Matters**

The Company is involved invarious lawsuits and claims that have arisen in the normal course of business.In most cases, we have denied, or believe we have a basis to deny, liability.We have recorded, in the consolidated financial statements found elsewhere inthis Form 10-K, our best estimate of the aggregate liability thatwill result from these matters and believe that these matters are adequatelyreserved. While it is not possible to predict with certainty the outcome oflitigation and other matters discussed above, it is the opinion of theCompany’s management, based in part upon opinions of counsel, insurance inforce and the facts currently known, that liabilities in excess of thoserecorded, if any, arising from such matters would not have a material adverseeffect on the results of operations, consolidated financial condition orliquidity of the Company over the long term.

In addition, the Companyis occasionally the subject of investigations by various agencies of the U.S.government. Such investigations, whether related to our U.S. governmentcontracts or conducted for other reasons, could result in administrative, civilor criminal liabilities, including repayments, fines or penalties being imposedupon us, or could lead to suspension or debarment from future U.S. governmentcontracting. In management’s opinion, there are no outstanding issues of thisnature at March 31, 2006 that will have a material adverse effect on theCompany’s consolidated financial condition, results of operations or liquidity.

**ITEM 4.    SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

None.

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**PART II**

**ITEM 5.    MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES.**

There is no public trading market for our memberunits. We are a direct wholly owned subsidiary of our Parent, DynCorpInternational Inc., who owns all of our Company’s 100 member units outstanding.For more information about the ownership of DynCorp International LLC, see Item12, “Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.”

We did not sell, issue orrepurchase any equity securities in fiscal 2006, and we do not have an equitycompensation plan.

**ITEM 6.    SELECTEDFINANCIAL DATA.**

Set forth below are the five-year selected historicalconsolidated financial data. This information should be read in conjunctionwith “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” and the consolidated financial statements and related notesthereto included elsewhere in this Form 10-K. The selectedconsolidated financial information for fiscal 2002 has been derived from ourunaudited consolidated financial statements. In our opinion, these unauditedconsolidated financial statements have been prepared on the same basis as theaudited financial statements and include all adjustments, consisting only ofnormal and recurring adjustments, necessary for a fair presentation of theinformation included therein. The selected consolidated financial informationfor the period from March 30, 2002 through March 7, 2003 has beenderived from our consolidated financial statements, referred to as the “originalpredecessor period.”  The selectedhistorical consolidated financial data for the period from March 8, 2003through March 28, 2003, as of and for the fiscal year ended April 2,2004 and for the period from April 3, 2004 through February 11, 2005are derived from our consolidated financial statements, referred to as the “immediatepredecessor period.”  The selectedhistorical consolidated financial data as of April 1, 2005 and for theperiod from February 12, 2005 through April 1, 2005 and for thefiscal year ended March 31, 2006 are derived from our consolidatedfinancial statements, referred to as the “successor period.”

We use a 52/53-weekfiscal year ending on the closest Friday to March 31. The period from April 3,2004 to February 11, 2005 was a 45-week period. The fiscal yearended April 2, 2004 was a 53-week year. The period from March 30,2002 to March 7, 2003 included 49 weeks. During the original predecessorperiod, DynCorp used a calendar year. Accordingly, the financial statementscovered by that period were restated to 52/53-week fiscal year ends.

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| ** **                                           | ** ** | **Original Predecessor Period** | ** ** | ** **         | ** ** | **Immediate Predecessor Period** | ** ** | ** **                           | ** ** | **Successor Period** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|--------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|
| ** **                                           | ** ** | **Fiscal Year**                      | ** ** | **March 30,** | ** ** | ** **                                 | ** ** | **21 Days**                     | ** ** | **Fiscal Year**      | ** ** | **April 3,** | ** ** | ** ** | ** ** | **49 Days** | ** ** | **Fiscal Year** | ** ** |
| ** **                                           | ** ** | **Ended**                                 | ** ** | **2002  -–**  | ** ** | ** **                                 | ** ** | **Ended**                            | ** ** | **Ended**                 | ** ** | **2004  –** | ** ** | ** ** | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                           | ** ** | **March 29,**                        | ** ** | **March 7,**  | ** ** | ** **                                 | ** ** | **March 28,**                   | ** ** | **April 2,**         | ** ** | **Feb. 11,** | ** ** | ** ** | ** ** | **April 1,** | ** ** | **March 31,** | ** ** |
| ** **                                           | ** ** | **2002**                                  | ** ** | **2003**           | ** ** | ** **                                 | ** ** | **2003**                             | ** ** | **2004**                  | ** ** | **2005** | ** ** | ** ** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                           | ** ** | ** **                                | ** ** | ** **         | ** ** | ** **                                 | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **STATEMENT OF OPERATIONS DATA:**                    |       |                                      |       |               |       |                                       |       |                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Revenues                                             |       | $                                         | 755,326    |               | $          | 859,112                                    |       |                                 |       | $                         | 59,240     |   | $ | 1,214,289 |   | $ | 1,654,305 |   |   |   | $ | 266,604 |   | $ | 1,966,993 |   |
| Costs of Services                                    |       | 687,088                                   |       | 787,649            |       |                                       |       | 53,482                               |       | 1,106,571                 |       | 1,496,109 |   |   |   | 245,406 |   | 1,722,089 |   |
| Selling, General  and Administrative                 |       | 34,544                                    |       | 40,316             |       |                                       |       | 3,414                                |       | 48,350                    |       | 57,755 |   |   |   | 8,408 |   | 97,520 |   |
| Depreciation and  Amortization                       |       | 1,462                                     |       | 351                |       |                                       |       | 265                                  |       | 8,148                     |       | 5,922 |   |   |   | 5,605 |   | 46,147 |   |
| Operating Income                                     |       | 32,232                                    |       | 30,796             |       |                                       |       | 2,079                                |       | 51,220                    |       | 94,519 |   |   |   | 7,185 |   | 101,237 |   |
| Interest Expense                                     |       | 43                                        |       | —             |       |                                       |       | —                               |       | —                    |       | — |   |   |   | 8,054 |   | 56,686 |   |
| Interest Income                                      |       | (50                                       | )          | (43                | )          |                                       |       | (2                                   | )          | (64                       | )          | (170 | ) |   |   | (7 | ) | (461 | ) |
| Net Income (Loss)  Before Income Taxes               |       | 32,239                                    |       | 30,839             |       |                                       |       | 2,081                                |       | 51,284                    |       | 94,689 |   |   |   | (862 | ) | 45,012 |   |
| Provision for  Income Taxes                          |       | 11,525                                    |       | 11,973             |       |                                       |       | 852                                  |       | 19,924                    |       | 34,956 |   |   |   | 60 |   | 16,627 |   |
| Net Income (Loss)                                    |       | $                                         | 20,714     |               | $          | 18,866                                     |       |                                 |       | $                         | 1,229      |   | $ | 31,360 |   | $ | 59,733 |   |   |   | $ | (922 | ) | $ | 28,385 |   |
| **CASH FLOW DATA:**                                  |       |                                      |       |               |       |                                       |       |                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Net Cash (Used in)  Provided by Operating Activities |       |                                      |       | $                  | (10,331    | )                                          |       |                                 | $          | 12,542                    |       | $ | (6,756 | ) | $ | (2,092 | ) |   |   | $ | (31,240 | ) | $ | 55,111 |   |
| Net Cash Used in  Investing Activities               |       |                                      |       | (920               | )          |                                       |       | (360,961                             | )          | (2,292                    | )          | (10,707 | ) |   |   | (869,394 | ) | (6,231 | ) |
| Net Cash Provided  by (Used in) Financing Activities |       |                                      |       | 13,191             |       |                                       |       | 348,854                              |       | 11,017                    |       | 14,325 |   |   |   | 906,072 |   | (41,781 | ) |
| **OTHER FINANCIAL DATA:**                            |       |                                      |       |               |       |                                       |       |                                 |       |                      |       |   |   |   |   |   |   |   |   |
| EBITDA(1)(2)                                         |       | $                                         | 33,744     |               | $          | 31,781                                     |       |                                 |       | $                         | 2,382      |   | $ | 60,072 |   | $ | 101,326 |   |   |   | $ | 12,896 |   | $ | 148,718 |   |
| Capital  Expenditures                                |       | 1,181                                     |       | 1,011              |       |                                       |       | 11                                   |       | 2,047                     |       | 8,473 |   |   |   | 244 |   | 3,465 |   |
| **SELECTED OPERATING INFORMATION:**                  |       |                                      |       |               |       |                                       |       |                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Backlog(3)                                           |       | $                                         | 2,091      |               | NA         |                                       |       |                                 | $          | 2,028                     |       | $ | 2,164 |   | NA |   |   |   | $ | 2,040 |   | $ | 2,641 |   |
| **BALANCE SHEET DATA:****(4)**                       |       |                                      |       |               |       |                                       |       |                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Cash and Cash  Equivalents                           |       | $                                         | 2,166      |               | NA         |                                       |       |                                 | $          | 4,541                     |       | $ | 6,510 |   | NA |   |   |   | $ | 13,474 |   | $ | 20,573 |   |
| Working Capital(5)                                   |       | 38,861                                    |       | NA                 |       |                                       |       | 58,295                               |       | 104,335                   |       | NA |   |   |   | 200,367 |   | 251,329 |   |
| Total Assets                                         |       | 148,032                                   |       | NA                 |       |                                       |       | 481,097                              |       | 579,829                   |       | NA |   |   |   | 1,148,193 |   | 1,239,089 |   |
| Total Debt                                           |       | —                                    |       | NA                 |       |                                       |       | —                               |       | —                    |       | NA |   |   |   | 700,000 |   | 661,551 |   |
| Member’s Equity                                 |       | —                                    |       | NA                 |       |                                       |       | 354,198                              |       | 396,573                   |       | NA |   |   |   | 223,908 |   | 326,159 |   |

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(1)             EBITDA is a primary component of certaincovenants under our senior secured credit facility and is defined as net income(loss) before interest expense, income taxes, depreciation and amortization. EBITDAdoes not represent net income or cash flows from operations, as these terms aredefined under generally accepted accounting principles, or “GAAP,” and shouldnot be considered as an alternative to net income, operating income or anyother performance measures derived in accordance with GAAP. EBITDA as presentedin this Form 10-K is not necessarily comparable to similarly titledmeasures reported by other companies.

(2)             The following table presents areconciliation of income to EBITDA for the periods included below.

| ** **                                   | ** ** | **Original Predecessor Period** | ** ** | ** **         | ** ** | **Immediate Predecessor Period** | ** ** | ** **                           | ** ** | **Successor Period** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|--------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|
| ** **                                   | ** ** | **Fiscal Year**                      | ** ** | **March 30,** | ** ** | ** **                                 | ** ** | **21 Days**                     | ** ** | **Fiscal Year**      | ** ** | **April 3,** | ** ** | ** ** | ** ** | **49 Days** | ** ** | **Fiscal Year** | ** ** |
| ** **                                   | ** ** | **Ended**                                 | ** ** | **2002–**     | ** ** | ** **                                 | ** ** | **Ended**                            | ** ** | **Ended**                 | ** ** | **2004-** | ** ** | ** ** | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                   | ** ** | **March 29,**                        | ** ** | **March 7,**  | ** ** | ** **                                 | ** ** | **March 28,**                   | ** ** | **April 2,**         | ** ** | **Feb. 11,** | ** ** | ** ** | ** ** | **April 1,** | ** ** | **March 31,** | ** ** |
| ** **                                   | ** ** | **2002**                                  | ** ** | **2003**           | ** ** | ** **                                 | ** ** | **2003**                             | ** ** | **2004**                  | ** ** | **2005** | ** ** | ** ** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | ** **                                | ** ** | ** **         | ** ** | ** **                                 | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** |
| **RECONCILIATION OF NET  INCOME TO EBITDA:** |       |                                      |       |               |       |                                       |       |                                 |       |                      |       |   |   |   |   |   |   |   |   |
| Net Income (loss)                            |       | $                                         | 20,714     |               | $          | 18,866                                     |       |                                 |       | $                         | 1,229      |   | $ | 31,360 |   | $ | 59,733 |   |   |   | $ | (922 | ) | $ | 28,385 |   |
| Income Taxes                                 |       | 11,525                                    |       | 11,973             |       |                                       |       | 852                                  |       | 19,924                    |       | 34,956 |   |   |   | 60 |   | 16,627 |   |
| Interest Expense                             |       | 43                                        |       | —             |       |                                       |       | —                               |       | —                    |       | — |   |   |   | 8,054 |   | 56,686 |   |
| Depreciation and  Amortization               |       | 1,462                                     |       | 942                |       |                                       |       | 301                                  |       | 8,788                     |       | 6,637 |   |   |   | 5,704 |   | 47,020 |   |
| **EBITDA**                                   |       | $                                         | 33,744     |               | $          | 31,781                                     |       |                                 |       | $                         | 2,382      |   | $ | 60,072 |   | $ | 101,326 |   |   |   | $ | 12,896 |   | $ | 148,718 |   |

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(3)             Backlog data is as of the end of theapplicable period.

(4)             Balance sheet data is as of the end of theapplicable period.

(5)             Working capital is defined as currentassets, net of current liabilities.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

**Overview**

*Company Background*

We provide specializedmission-critical outsourced technical services to civilian and militarygovernment agencies. Our specific global expertise is in law enforcementtraining and support, security services, base operations and aviation servicesand operations. We also provide logistics support for all of our services. Ourpredecessors have provided services to numerous U.S. government departments andagencies since 1951. We operated as a separate subsidiary of Computer SciencesCorporation from March 2003 until February 2005. On February 11,2005, Computer Sciences Corporation and DynCorp sold our Company to DynCorpInternational Inc., a newly formed entity controlled by Veritas Capital.

*Equity Offering*

On May 9, 2006, ourParent consummated an Equity Offering of 25,000,000 shares of its Class Acommon stock, par value $0.01 per share, at a price of $15.00 pershare (the “Equity Offering”). The gross proceeds from the Equity Offering of$375.0 million, together with cash on hand, were used: (i) to redeemall of our Parent’s outstanding preferred stock, of which $222.8 millionin stated amount, including accrued and unpaid dividends thereon, wasoutstanding as of May 9, 2006; (ii) to pay a special Class Bdistribution in the amount of $100.0 million to the holder of our Parent’scommon stock, DIV Holding LLC; (iii) to redeem $28.0 million of oursenior subordinated notes on June 8, 2006; (iv) to pay prepaymentpenalties of $8.4 million as of May 9, 2006, $5.7 million of whichrepresented prepayment penalties on our Parent’s preferred stock and$2.7 million of which represented prepayment penalties on our seniorsubordinated notes; and (v) to pay transaction expenses of approximately$35.0 million, including an underwriters’ commission of$22.5 million, a fee of $5.0 million to Veritas Capital ManagementII, L.L.C. and $7.5 million of miscellaneous fees and expenses related to theEquity Offering.

**Presentation ofFinancial Results**

On December 12, 2004, The Veritas Capital FundII, L.P. and its subsidiary, DI Acquisition Corp. (later renamed DynCorpInternational Inc.), entered into a purchase agreement with Computer SciencesCorporation and DynCorp whereby DynCorp International Inc. agreed to acquireour Company, a wholly owned subsidiary of DynCorp. DynCorp International Inc.assigned its rights to acquire our Company to DI Finance LLC, its wholly ownedsubsidiary. Immediately after the consummation of the 2005 Acquisition on February 11,2005, DI Finance LLC was merged with and into our Company. We survived themerger and are now a wholly owned subsidiary of DynCorp International Inc. Accordingly,the discussion and analysis of historical operations during the period prior tothe 2005 Acquisition do not reflect the significant impact that thistransaction had on us. You should read the following discussion together withthe sections entitled “Selected Financial Data,” “Risk Factors” and the consolidatedfinancial statements included elsewhere in this Form 10-K. Withrespect to certain forward-looking statements contained in this Management’sDiscussion and Analysis of Financial Condition and Results of Operations, see “Business—Forward-LookingStatements.”

We are providing the following supplementalcomparative financial information on a pro forma and combined basis for theimmediate predecessor and successor for the full year of fiscal 2005. This proforma and combined financial information is presented on a consolidated basisas if the acquisition was effective at the beginning of fiscal 2005. Theusefulness of this information may be limited due to the aforementioned riskfactors. Unless otherwise indicated, references in this Item 7 to results forthe full year of fiscal 2005 reflect pro forma and combined results of theimmediate predecessor and successor.

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The following pro forma consolidated statement ofoperations for the fiscal year ended April 1, 2005, is derived from theapplication of pro forma adjustments to the historical statement of operationsof the immediate predecessor for the period from April 3, 2004 to February 11,2005 as if the 2005 Acquisition occurred on April 3, 2004. The statementof operations for the 49 days ended April 1, 2005 represents thehistorical results of the successor company. These pro forma results should beread in conjunction with the consolidated financial statements, related notesand other consolidated financial information included elsewhere in this Form 10-K.

The pro forma adjustmentsare described in the notes to the pro forma statement of operations and arebased on available information and assumptions that management believes arereasonable. The pro forma statement of operations is not necessarily indicativeof the future results of operations of the successor company or results ofoperations of the successor company that would have actually occurred had the2005 Acquisition been consummated as of April 3, 2004.

**Pro Forma FinancialInformation**

| ** **                                                                   | ** ** | **Immediate**                       | ** ** | ** **                           | ** ** | ** **      | ** ** | ** **                  | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------|------------|-----------------|------------|-----------------------------|------------|
| ** **                                                                   | ** ** | **Predecessor**                     | ** ** | ** **                           | ** ** | ** **      | ** ** | **Pro Forma**          | ** ** |
| ** **                                                                   | ** ** | **Period**                          | ** ** | **Successor**                        | ** ** | ** **      | ** ** | **Combined**                | ** ** |
| ** **                                                                   | ** ** | **Period from**                | ** ** | **49 Days**                     | ** ** | ** **      | ** ** | **Fiscal Year**        | ** ** |
| ** **                                                                   | ** ** | **April 3, 2004 to** | ** ** | **Ended**                            | ** ** | ** **      | ** ** | **Ended**                   | ** ** |
| ** **                                                                   | ** ** | **Feb. 11, 2005**         | ** ** | **April 1, 2005**          | ** ** | **Adjustments** | ** ** | **April 1, 2005** | ** ** |
| ** **                                                                   | ** ** | ** **                          | ** ** | **(dollars in thousands)** | ** ** | ** **      | ** ** |
| Revenues                                                                     |       |                                | $          | 1,654,305                            |       |            |       | $                           | 266,604    |   |   |   | $ | — |   |   |   | $ | 1,920,909 |   |   |
| Costs of Services  (excluding depreciation and amortization disclosed below) |       |                                | 1,496,109  |                                 |       |            | 245,406    |                        |       |   | — |   |   |   | 1,741,515 |   |   |
| Selling, General  and Administrative                                         |       |                                | 57,755     |                                 |       |            | 8,408      |                        |       |   | (775 | )(1) |   |   | 65,388 |   |   |
| Depreciation and  Amortization                                               |       |                                | 5,922      |                                 |       |            | 5,605      |                        |       |   | 34,009 | (2) |   |   | 45,536 |   |   |
| Total Costs and  Expenses                                                    |       |                                | 1,559,786  |                                 |       |            | 259,419    |                        |       |   | 33,234 |   |   |   | 1,852,439 |   |   |
| Operating Income                                                             |       |                                | 94,519     |                                 |       |            | 7,185      |                        |       |   | (33,234 | ) |   |   | 68,470 |   |   |
| Interest Income                                                              |       |                                | (170       | )                                    |       |            | (7         | )                           |       |   | — |   |   |   | (177 | ) |   |
| Interest Expense                                                             |       |                                | —     |                                 |       |            | 8,054      |                        |       |   | 47,414 | (3) |   |   | 55,468 |   |   |
| Income (loss)  before Income Taxes                                           |       |                                | 94,689     |                                 |       |            | (862       | )                           |       |   | (80,648 | ) |   |   | 13,179 |   |   |
| Provision for  Income Taxes                                                  |       |                                | 34,956     |                                 |       |            | 60         |                        |       |   | (30,153 | )(4) |   |   | 4,863 |   |   |
| Net Income (loss)                                                            |       |                                | $          | 59,733                               |       |            |       | $                           | (922       | ) |   |   | $ | (50,495 | ) |   |   | $ | 8,316 |   |   |
| **Segment information:**                                                     |       |                                |       |                                 |       |            |       |                        | ** ** |   |   |   |   |   |   |   |   |
| Revenues:                                                                    |       |                                |       |                                 |       |            |       |                        |       |   |   |   |   |   |   |   |   |
| International  Technical Services                                            |       |                                | $          | 1,059,713                            |       |            |       | $                           | 173,007    |   |   |   | $ | — |   |   |   | $ | 1,232,720 |   |   |
| Field Technical  Services                                                    |       |                                | 594,480    |                                 |       |            | 93,674     |                        |       |   | — |   |   |   | 688,154 |   |   |
| Other                                                                        |       |                                | 112        |                                 |       |            | (77        | )                           |       |   | — |   |   |   | 35 |   |   |
| Consolidated                                                                 |       |                                | $          | 1,654,305                            |       |            |       | $                           | 266,604    |   |   |   | $ | — |   |   |   | $ | 1,920,909 |   |   |
| Earnings before  Interest and Taxes:                                         |       |                                |       |                                 |       |            |       |                        |       |   |   |   |   |   |   |   |   |
| International  Technical Services                                            |       |                                | $          | 68,198                               |       |            |       | $                           | 3,447      |   |   |   | $ | (24,821 | ) |   |   | $ | 46,824 |   |   |
| Field Technical  Services                                                    |       |                                | 27,755     |                                 |       |            | 3,662      |                        |       |   | (8,106 | ) |   |   | 23,311 |   |   |
| Other                                                                        |       |                                | (1,434     | )                                    |       |            | 76         |                        |       |   | (307 | ) |   |   | (1,665 | ) |   |
| Consolidated                                                                 |       |                                | $          | 94,519                               |       |            |       | $                           | 7,185      |   |   |   | $ | (33,234 | ) |   |   | $ | 68,470 |   |   |
| **Cash flow data:**                                                          |       |                                |       |                                 |       |            |       |                        | ** ** |   |   |   |   |   |   |   |   |
| Net cash used in  operating activities                                       |       |                                | $          | (2,092                               | )          |            |       | $                           | (31,240    | ) |   |   | $ | — |   |   |   | $ | (33,332 | ) |   |
| Net cash used in  investing activities                                       |       |                                | (10,707    | )                                    |       |            | (869,394   | )                           |       |   | — |   |   |   | (880,101 | ) |   |
| Net cash provided by  financing activities                                   |       |                                | 14,325     |                                 |       |            | 906,072    |                        |       |   | — |   |   |   | 920,397 |   |   |

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(1)             The annual management fee is $300,000,$25,000 of which is reflected under selling, general and administrative for thesuccessor period and which is offset by management retention bonuses expensedduring the successor period of $1,050,000. See “Certain Relationships andRelated Transactions.”

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(2)             Reflects the change in intangibleamortization related to the adjustment to estimated fair value of intangibleassets and the change in estimated lives.

(3)             Represents the increase in interestexpense to reflect the new capital structure and the amortization of financingcosts over the terms of the corresponding debt. A summary follows (dollars inthousands):

|                                          | ** ** | **Year Ended**         | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **April 1, 2005** | ** ** |
| Interest on Term  Loan                   |       | $                           | 21,735     |   |
| Interest on Senior  Subordinated Notes   |       | 30,400                      |       |
| Senior  Administrative Agent Fee         |       | 100                         |       |
| Undrawn Facility  Fee                    |       | 375                         |       |
| Amortization of  Deferred Financing Fees |       | 2,858                       |       |
| Total Expense                            |       | $                           | 55,468     |   |

 

(4)             Based on an effective tax rate of 36.9%,which is the historical rate for the period April 3, 2004 to February 11,2005 and is the expected approximate effective tax rate for successoroperations.

**OperatingEnvironment and Impact of Our Business**

We are primarily a U.S. government contractorproviding a broad range of critical technical services to civilian and militarygovernment agencies and to a lesser extent, commercial customers. As a result,our operating performance for any time period is impacted primarily by trendsin U.S. government outsourcing, spending and the awarding of contracts andrelated payment terms and therefore trends they currently have in this marketcan have a significant effect on our business. The trends we monitor and theimpact we believe they have on our business are discussed below.

*IncreasedOutsourcing by U.S. and Foreign Governments.**  *We have seen and benefited from acontinued trend toward outsourcing of services by the U.S. government,particularly within the Department of Defense and the Department of State. Theseoutsourcing trends are seen both domestically and internationally and supportthe increased deployment of U.S. resources overseas. The increase in overseasdeployment has been in both frequency and magnitude, and across multiple U.S.government agencies. For example, our International Technical Services segmenthas witnessed strong growth as a result of the U.S. government’s trend towardoutsourcing critical functions. Outside of the U.S. government, we are seeingother countries, particularly the United Kingdom and Australia, follow the U.S.government trend to outsource services. We believe that this providesadditional markets for our existing services. Our International TechnicalServices operating segment primarily provides outsourced law enforcementtraining, drug eradication, global logistics, base operations and personalphysical security services to government and commercial customers in foreignjurisdictions. Since fiscal 2001, International Technical Services hasgrown revenues from $264.7 million to $1,264.6 million forfiscal 2006, or 64.3% of our total revenues. Although we expect tocontinue to see increases in government outsourcing for the foreseeable future,particularly in government technical support services and other non-combatrelated functions, the adoption of new laws or regulations that affect companiesthat provide services to the federal government or curtailment of the federalgovernment’s outsourcing of services to private contractors would significantlyalter this positive trend.

*IncreasedSpending by Our Customers.**  *The Department of Defense budget forfiscal 2007, excluding supplemental funding relating to operations in Iraqand Afghanistan, has been proposed to Congress at $439.3 billion,representing a 48% increase over fiscal 2001. Fiscal 2005 Departmentof Defense actual spending, excluding supplemental funding relating tooperations in Iraq and Afghanistan, was $400.1 billion. The U.S.government budget for international development and humanitarian andinternational security assistance coordinated by the Department of State hasgrown from approximately $15 billion in fiscal 2000 to a projected$25 billion in fiscal 2009 (a compound annual growth rate of 5.2%) fromfiscal 2000 to fiscal 2009. As a result of the U.S. military’spresence in the Middle East and abroad, we believe that this trend willcontinue for the foreseeable future and that we are well-positioned to benefitfrom this trend. Among the factors that could impact U.S. government spendingand that would reduce our 

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U.S. governmentcontracting business are: a significant decline in, or reapportioning of,spending by the U.S. government, in general, or by the Department ofDefense or the Department of State.

*Shiftto More Multiple Awards in Indefinite Delivery, Indefinite Quantity Contracts.**  *The trend in the service segment ofthe U.S. government has been to award more multiple award indefinitedelivery, indefinite quantity contracts. We expect these trends to continue. Strongcustomer relationships combined with strong past performance will increase theprobability of earning a customer’s business under multiple award indefinitedelivery, indefinite quantity contracts, as well as winning new procurements. Infiscal 2005 and 2006, 56.3% and 58.9% of our revenues were attributable toindefinite delivery, indefinite quantity contracts, respectively. Traditionalgovernment contracts typically have a base year award plus four to nine optionyears, limiting the competition to the 5-10 year contract cycle. Undermultiple award indefinite delivery, indefinite quantity contracts, the customerhas the ability to compete for the work more frequently among the contractholders, or even move the work on a sole source basis to one of the otherproviders. This trend toward multiple award indefinite delivery, indefinitequantity contracts could increase the volatility in our revenue.

*Shiftfrom Cost Type Contracts to Time-and-Materials or Fixed-Price Contracts.**  *Our government contract serviceshave three distinct pricing structures: fixed-price, time-and-materials andcost-reimbursement, representing approximately 27%, 39% and 34% of ourrevenues, respectively, for fiscal 2005, and approximately 34%, 38% and28% of our revenues, respectively, for fiscal 2006. We believe that ourprofitability will continue to improve as we anticipate that our customers willcontinue to shift away from cost-reimbursement to time-and-materials contractsand fixed-price contracts. We base our belief on recent trends in our revenues,the nature of the contracts on which we are bidding and the pricing structurein fixed-price and time-and-materials contracts. We assume financial risk ontime-and-materials and fixed-price contracts, because we assume the risk ofperforming those contracts at the stipulated prices or negotiated hourly rates.If we do not accurately estimate ultimate costs and control costs duringperformance of the work, we could lose money on a particular contract or havelower than anticipated margins. The movement from cost type contracts totime-and-materials or fixed-price contracts, while increasing our risks, allowsus the opportunity to earn higher margins.

*IncreasedMaintenance, Overhaul and Upgrades Needed to Support Aging Military Platforms.**  *Another trend we monitor todetermine our future strategies is the age and use of weapon systems. The highvisibility/high cost new weapons systems tend to be the target of budgetreductions, while the O&M budget continues to grow as a percentage of thetotal budget. The O&M portion of the Department of Defense budget, whichincludes the majority of the services we provide, is the largest and fastestgrowing segment of Department of Defense military spending. Also, as the purchaseof new weapons systems are delayed or cancelled, the current weapons systemscontinue to age and require increased maintenance. This aging, combined withthe increased use of the equipment, often in harsh environments, providesopportunities for the services we offer.

*Competition.**  *We believe that the favorableindustry trends that we anticipate may also attract additional competition bycertain existing and potential competitors. We compete with various entitiesacross geographic and business lines. Some of our competitors have greaterfinancial and other resources than we do or are better positioned than we areto compete for contract opportunities. In addition, we are at a disadvantagewhen bidding for contracts put up for recompetition for which we are not theincumbent provider, because incumbent providers are frequently able tocapitalize on customer relationships, technical knowledge and pricingexperience gained from their prior service.

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**Factors AffectingOur Results of Operations**

Our future results of operations will be affected bythe following factors, which may cause our results of operations to differ fromthose discussed under “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”

*DebtService.*   During the predecessor periods, workingcapital was provided by our predecessor parent at the time, and therefore therewas no debt and minimal interest expense on our financial statements. As of March 31,2006, we had $661.6 million of outstanding debt, which generates significantinterest expense. Approximately $216.0 million per year of our cash flowwill be required for interest and principal payments annually for fiscal 2007through 2010, giving effect to the application of the use of proceeds from ourParent’s Equity Offering. This will limit the amount of cash that is availablefor working capital requirements, or other uses.

*Stand-AloneOperating Costs.**  *Duringfiscal 2004, we paid Computer Sciences Corporation $12.7 million, andduring the period from April 3, 2004 through February 11, 2005, wepaid Computer Sciences Corporation $11.9 million for executive oversightand other services such as treasury, tax, insurance, legal, consolidationaccounting, public affairs and information technology. In addition, under thetransition services agreement, we incurred approximately $1.6 million ofexpenses during the fiscal year ended March 31, 2006. We have put in placepeople and/or other resources to provide the services previously provided bycorporate resources from Computer Sciences Corporation (March 29, 2003through February 11, 2005). On May 15, 2006, we terminated thetransition services agreement with Computer Sciences Corporation. All servicespreviously provided by Computer Sciences Corporation are now performed by ourown employees.

*PurchaseAccounting Adjustments.**  *The 2005 Acquisition was accounted for under thepurchase method and, accordingly, the purchase price of the2005 Acquisition was allocated to the net assets acquired based on thefair values at the date of the 2005 Acquisition. We engaged a third partyto provide an independent appraisal of the fair values of certain intangibleassets.

*2005Working Capital Adjustment.**  *The purchase price for the 2005 Acquisition was$937.0 million after giving effect to a $65.55 million net working capitaladjustment in favor of Computer Sciences Corporation and $6.1 million ofaccumulated dividends in connection with the our Parent’s preferred stockissued for satisfaction of the working capital adjustment. Of the$937.0 million purchase price, $775.0 million was paid in cash,$140.6 million was paid to Computer Sciences Corporation in the form ofpreferred equity in our Parent, $6.1 million in accumulated dividends onour Parent’s preferred stock was issued in connection with the working capitaladjustment and the remaining amounts were transaction expenses.

On May 9, 2006, ourParent redeemed all of its outstanding preferred stock, of which$222.8 million in stated amount included accrued and unpaid dividendsthereon as of May 9, 2006, with a portion of the proceeds from the EquityOffering.

**Explanation ofReporting Periods and Basis of Presentation**

On February 11, 2005, our Company was sold byComputer Sciences Corporation to an entity controlled by Veritas Capital. Thefinancial statements from March 29, 2003 to February 11, 2005, theperiod of Computer Sciences Corporation ownership, are referred to as the “immediatepredecessor period” statements. We refer to financial statements from and afterFebruary 12, 2005 as the “successor period” statements.

The historical financial statements and informationincluded herein include the consolidated accounts of DynCorp International LLCand its subsidiaries. This presentation is on the historical cost basis of 

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accounting with theapplication of purchase accounting related to the 2005 Acquisition in theapplicable period presented.

The Company’s financialstatements for fiscal 2004 are based on the historical assets,liabilities, sales and expenses of our Company, including the allocation to ourCompany of a portion of our corporate expenses and income taxes. Duringfiscal 2004 and the period from April 3, 2004 to February 11,2005, our Company’s predecessor parents allocated $12.7 million and$11.9 million, respectively, of expenses it incurred for providingexecutive oversight and corporate headquarter functions, consolidationaccounting, treasury, tax, legal, public affairs, human resources, informationtechnology and other services. Of the $12.7 million, $9.4 million and$3.3 million were allocated to selling, general and administrative andcosts of services, respectively. Of the $11.9 million, $9.8 millionand $2.1 million were allocated to selling, general and administrative andcosts of services, respectively. These allocations are considered to bereasonable reflections of the utilization of services provided to, or thebenefit received by, our Company. For a discussion of our transition servicesagreement, see “Certain Relationships and Related Transactions—TransitionServices Agreement.”  On May 15,2006, we terminated the transition services agreement with Computer SciencesCorporation. All services previously provided by Computer Sciences Corporationare now performed by our own employees.

**The 2005Acquisition**

On December 12, 2004,The Veritas Capital Fund II, L.P. and its subsidiary, DynCorp InternationalInc. (formerly known as DI Acquisition Corp.), entered into a purchaseagreement with Computer Sciences Corporation and DynCorp whereby DynCorpInternational Inc. agreed to acquire our Company, a wholly owned subsidiary ofDynCorp. DynCorp International Inc. assigned its rights to acquire our Companyto DI Finance LLC, its wholly owned subsidiary. Immediately after theconsummation of the 2005 Acquisition on February 11, 2005, DI Finance LLCwas merged with and into our Company. We survived the merger and are now awholly owned subsidiary of DynCorp International Inc.

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

Ba**cklog**

We track contracted backlog in order to assess ourcurrent business development effectiveness and to assist us in forecasting ourfuture business needs and financial performance. Backlog consists of orders andoptions under our contracts. We define contracted backlog as the estimatedvalue of contract modifications received from customers that have not beenrecognized as revenue. Our backlog consists of funded and unfunded backlog.Funded backlog is based upon amounts actually appropriated by a customer forpayment of goods and services less actual revenue recorded as of themeasurement date under that appropriation. Unfunded backlog is the actualdollar value of unexercised contract options. Most of our U.S. governmentcontracts allow the customer the option to extend the period of performance ofa contract for a period of one or more years. These options may be exercised atthe sole discretion of the customer. Historically, it has been our experiencethat the customer has exercised contract options.

Because ofappropriation limitations in the federal budget process, firm funding for ourcontracts is usually made for only one year at a time, with the remainder ofthe years under the contract expressed as a series of one-year options. As isthe case with the base period of our U.S. government contracts, option periodsare subject to the availability of funding for contract performance. The U.S.government is legally prohibited from ordering work under a contract in theabsence of funding. Our historical experience has been that the governmentgenerally has funded the option periods of our contracts.

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Thefollowing table sets forth our contracted backlog (dollars in millions) as ofthe dates indicated:

|                  | ** ** | **April 2,  2004** | ** ** | **April 1,  2005** | ** ** | **March 31,  2006** | ** ** |
|------------------|------------|-------------------------|------------|-------------------------|------------|--------------------------|------------|
| Funded Backlog   |       | $                       | 991        |                    | $          | 1,140                    |       |   | $ | 1,024 |   |   |
| Unfunded Backlog |       | 1,173                   |       | 900                     |       |                     | 1,617      |   |   |
| Total Backlog    |       | $                       | 2,164      |                    | $          | 2,040                    |       |   | $ | 2,641 |   |   |

 

For additional informationon backlog, see “Business—Backlog.”

**Estimated ContractValue**

Estimated contract value is calculated as the greaterof the bid price we submitted or expect to submit for the applicable contractor the sum of our actual revenues under the contract plus our estimatedrevenues from future performance under priced options in the contract. Forindefinite delivery, indefinite quantity contracts, the estimated contractvalue of such contracts is the greater of the sum of our actual revenues underthe contract plus our estimated revenue from future performance under fundedtask orders or the bid price we submitted that was accepted by the customer.

**Estimated RemainingContract Value**

Thefollowing table sets forth our estimated remaining contract value (dollars inmillions) as of the dates indicated: 

|                                     | ** ** | **April 2,  2004** | ** ** | **April 1,  2005** | ** ** | **March 31,  2006** | ** ** |
|-------------------------------------|------------|-------------------------|------------|-------------------------|------------|--------------------------|------------|
| Estimated  remaining contract value |       | $                       | 2,812      |                    | $          | 4,413                    |       |   | $ | 5,727 |   |   |
|                                     |            |                         |            |                         |            |                          |            |  |  |  |  |  |

 

Our estimated remainingcontract value represents the backlog plus management’s estimate of futurerevenues under indefinite delivery, indefinite quantity contracts that have notbeen funded, or award term periods that have not yet been earned. These futurerevenues would be our estimate of revenue that would occur from the end ofcurrently funded task orders until the end of the indefinite delivery,indefinite quantity contracts. Our estimated remaining contract value is basedon our experience under contracts and we believe our estimates are reasonable. However,there can be no assurance that our existing contracts will result in actualrevenues in any particular period or at all. These amounts could vary dependingupon government budgets and appropriations.

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**Results ofOperations**

The following tables setforth, for the periods indicated, our historical and pro forma combined resultsof operations, both in dollars and as a percentage of revenues: 

| ** **                                    | ** ** | **Immediate Predecessor  Period**                                 | ** ** | ** **                                                                                | ** ** | ** **                                                              | ** ** | **Successor Period** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                    | ** ** | **For the Fiscal  Year Ended  April 2, 2004** | ** ** | **Pro Forma Combined  Fiscal Year Ended  April 1, 2005**(1) | ** ** | **For the Fiscal  Year Ended  March 31, 2006** | ** ** |
| ** **                                    | ** ** | **(dollars in thousands)**                                   | ** ** |
| Revenues                                      |       |                                                                   | $          | 1,214,289                                                                                 |       |                                                                    |       | 100.0                     | %          |   |   | $ | 1,920,909 |   |   | 100.0 | % |   | $ | 1,966,993 |   |   | 100.0 | % |
| Costs of Services                             |       |                                                                   | 1,106,571  |                                                                                      |       |                                                                    | 91.1       |                      |       |   | 1,741,515 |   |   | 90.7 |   |   | 1,722,089 |   |   | 87.5 |   |
| Selling, General  and Administrative Expenses |       |                                                                   | 48,350     |                                                                                      |       |                                                                    | 4.0        |                      |       |   | 65,388 |   |   | 3.4 |   |   | 97,520 |   |   | 5.0 |   |
| Depreciation and  Amortization                |       |                                                                   | 8,148      |                                                                                      |       |                                                                    | 0.7        |                      |       |   | 45,536 |   |   | 2.4 |   |   | 46,147 |   |   | 2.4 |   |
| Total Costs and  Expenses                     |       |                                                                   | 1,163,069  |                                                                                      |       |                                                                    | 95.8       | %                         |       |   | 1,852,439 |   |   | 96.5 | % |   | 1,865,756 |   |   | 94.9 | % |
| Interest Income                               |       |                                                                   | (64        | )                                                                                         |       |                                                                    | 0.0        |                      |       |   | (177 | ) |   | 0.0 |   |   | (461 | ) |   | 0.0 |   |
| Interest Expense                              |       |                                                                   | —     |                                                                                      |       |                                                                    | —     |                      |       |   | 55,468 |   |   | 2.9 |   |   | 56,686 |   |   | 2.9 |   |
| Income Before  Taxes                          |       |                                                                   | 51,284     |                                                                                      |       |                                                                    | 4.2        |                      |       |   | 13,179 |   |   | 0.6 |   |   | 45,012 |   |   | 2.2 |   |
| Provision for  Income Taxes                   |       |                                                                   | 19,924     |                                                                                      |       |                                                                    | 1.6        |                      |       |   | 4,863 |   |   | 0.3 |   |   | 16,627 |   |   | 0.8 |   |
| Net Income                                    |       |                                                                   | $          | 31,360                                                                                    |       |                                                                    |       | 2.6                       | %          |   |   | $ | 8,316 |   |   | 0.3 | % |   | $ | 28,385 |   |   | 1.4 | % |

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(1)             This information was derived from, and should be readin conjunction with, the “Pro Forma Financial Information” and footnotesthereto included in Item 7 of this Form 10-K.

**Fiscal Year Ended March 31,2006 Compared to Fiscal Year Ended April 1, 2005 Pro Forma**

The following discussionprovides a comparison of the results of operations for the successor companyfor the fiscal year ended March 31, 2006 with the pro forma combinedresults of operations for the Company for the fiscal year ended April 1,2005. The discussion is provided for comparative purposes only, but the valueof such a comparison may be limited. The information in this section should beread in conjunction with the consolidated financial statements and the relatednotes contained elsewhere in this Form 10-K.

*Consolidated*

*Revenues.*   Totalrevenues increased from $1,920.9 million for the fiscal year ended April 1,2005 pro forma to $1,967.0 million for the fiscal year ended March 31,2006, an increase of $46.1 million or 2.4%.

Revenue from our International Technical Servicessegment increased from $1,232.7 million for the fiscal year ended April 1,2005 pro forma to $1,264.6 million for the fiscal year ended March 31,2006, an increase of $31.9 million or 2.6%. Increases in this segmentinclude $79.0 million of revenue under the International Narcotics and LawEnforcement Air-Wing program as a result of a new contract that went intoeffect on November 1, 2005 for operations, and added work to providehelicopter support for ground eradication efforts in Afghanistan,$27.1 million of new work providing hurricane relief efforts along theGulf Coast, $26.0 million due to added work under our Africa Peacekeepingcontract with the Department of State and $12.8 million of additionalconstruction work under the Worldwide Personal Protective Services program. Theseincreases were partially offset by a reduction of $16.6 million under theCivilian Police program due to the timing of various construction efforts inthe Middle East, and $67.5 million from a series of contracts to providesecurity and logistics support to various U.S. government construction 

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efforts in the Middle Eastas a subcontractor. This type of subcontract effort was typically short termwith delayed payments, and therefore we decided to exit this line of businessuntil it can be performed in a more stable environment with improved financialterms. Further offsetting the increases described above was a reduction in ourDyn Marine Services of Virginia LLC business of $32.0 million due tothe discontinuance of our work under the Oceangraphics Ships contract.

Revenues from our Field Technical Service segmentincreased from $688.2 million for the fiscal year ended April 1, 2005pro forma to $702.4 million for the fiscal year ended March 31, 2006,an increase of $14.2 million or 2.1%. The Field Technical Servicesincrease of $14.7 million was primarily driven by the Life CycleContractor Support program increase of $8.5 million due to the addition ofthe Global Air Traffic Management avionics modification to the contract, anincrease in the Army Pre-Positioned Stocks program of $7.8 million and theramp-up of the AH-1/UH-1 program, which increased$16.9 million since the initial contract award during the first quarter offiscal 2005. Partially offsetting this increase was the Contract Field Teamsprogram, which decreased by $10.2 million mainly as a result of reducedworkload for maintenance, repair and refurbishment of weapons systems, and theend of the Al Salam program, which reduced revenue by $12.4 million. Wewithdrew from the Al Salam program due to unfavorable contract terms offered bythe customer. Consequently, the customer decided to self perform themaintenance we had been providing. In addition, the Holloman contract decreasedby $5.1 million due to the removal of the German F-4s from thecontract.

*Costsof services.**  *Costsof services are comprised of direct labor, direct material, subcontractorcosts, other direct costs and overhead. Other direct costs include travel,supplies and other miscellaneous costs. Costs of services decreased from$1,741.5 million for the fiscal year ended April 1, 2005 pro forma to$1,722.1 million for the fiscal year ended March 31, 2006, or adecrease of $19.4 million or 1.1%. As a percentage of revenue, costs ofservices dropped from 90.7% in the fiscal year ended April 1, 2005 proforma to 87.5% for the fiscal year ended March 31, 2006. This reduction asa percentage of revenue was due to the following: (i) strong performanceon fixed-price construction projects and on fixed-price task orders under theCivilian Police program; and (ii) improved contract mix resulting from alarger proportion of higher-margin fixed-price and time-and-materials contractsas opposed to lower-margin cost-reimbursement contracts.

*Selling, general andadministrative expenses.**  *Selling, general and administrative expensesprimarily relate to functions such as management, legal, financial accounting,contracts and administration, human resources, management information systems,purchasing and business development. Selling, general and administrativeexpenses for the fiscal year ended April 1, 2005 pro forma were$65.4 million and increased to $97.5 million for the fiscal yearended March 31, 2006, an increase of 49.1%. In addition, as a percentageof revenue, selling, general and administrative expenses increased from 3.4%for the fiscal year ended April 1, 2005 pro forma to 5.0% for the fiscalyear ended March 31, 2006. This increase was primarily the result ofdeveloping our administrative functions as an independent company, whichcontributed approximately $15.0 million to the fiscal 2006 increase. Prior tothe 2005 Acquisition, these services were provided by our predecessor parent,Computer Sciences Corporation. In addition to the development of administrativefunctions, we incurred a higher business development cost of approximately$10.0 million during fiscal 2006. Business development expenses represented$32.0 million or 33% of total selling, general and administrative expense. Weexpect business development expenses to level out and increase at a much lowerrate, approximately 10%, in fiscal 2007. Other factors contributing to higherselling, general and administrative expenses in fiscal 2006 include:

·       Non-cashequity-based compensation expense was $2.4 million. During fiscal 2007, weexpect to incur $2.6 million related to this equity compensation program.

·       Legalexpense of approximately $1.6 million related to our current expected outcomeof legal contingencies.

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·       Certainincentive compensation payments related to retention bonuses associated withthe 2005 Acquisition and incentive payments related to our Parent’s EquityOffering were $2.7 million and $2.3 million, respectively. Pro forma fiscal2005 included approximately $1.1 million of retention bonus expense. 

*Depreciationand amortization.**  *Depreciationand amortization increased from $45.5 million for the fiscal year ended April 1,2005 pro forma to $46.1 million for the fiscal year ended March 31, 2006,or an increase of $0.6 million. This increase was primarily due to higherdepreciation expense. Amortization in the fiscal year ended April 1, 2005pro forma was based on an estimate of current year amortization. Theamortization for the fiscal year ended March 31, 2006 was based on the2005 Acquisition, which included a step-up in basis of our customer-relatedintangibles resulting in increased amortization. An independent valuation studywas done to allocate the purchase price between goodwill and intangibles.

*InterestExpense.**  *Interestexpense increased from $55.5 million for the fiscal year ended April 1,2005 pro forma to $56.7 million for the fiscal year ended March 31,2006. The interest expense incurred related to our senior secured creditfacility, the revolving credit facility and our senior subordinated notes. Thisinterest expense includes interest costs applicable to the fiscal year as wellas amortization of deferred financing fees. The increase was primarily due tothe increasing interest rates during fiscal 2006.

*Income tax expense.**  *We had income tax expense for thefiscal year ended March 31, 2006 of $16.6 million, which is anincrease of $11.7 million or 238.8% from income tax expense of$4.9 million for the fiscal year ended April 1, 2005 pro forma. Theincrease is consistent with the increase in net income before tax as theeffective tax rate for the fiscal year ended March 31, 2006 and the fiscalyear ended April 1, 2005 pro forma was 36.9%.

***Resultsby Segment***

The following table setsforth the revenues and earnings before interest and taxes for our InternationalTechnical Services and Field Technical Services operating segments, both indollars and as a percentage of our consolidated revenues for segment revenueand as a percentage of segment specific revenue for earnings before interestand taxes, for the fiscal year ended March 31, 2006 as compared to thefiscal year ended April 1, 2005 pro forma.

| ** **                          | ** ** | ** **                                                                     | ** ** | **Successor Period**                                               | ** ** |
|-------------------------------------|------------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **Pro Forma for  the Year Ended  April 1, 2005** | ** ** | **For the Fiscal  Year Ended  March 31, 2006** | ** ** |
| ** **                          | ** ** | **(dollars in thousands)**                                           | ** ** |
| Revenues                            |       |                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| International Technical  Services   |       |                                                                           | $          | 1,232,720                                                               |       |   |   | 64.2 | % |   | $ | 1,264,586 |   | 64.3 | % |
| Field Technical Services            |       |                                                                           | 688,154    |                                                                    |       |   | 35.8 |   |   | 702,407 |   | 35.7 |   |
| Other                               |       |                                                                           | 35         |                                                                    |       |   | 0.0 |   |   | — |   | — |   |
| Consolidated                        |       |                                                                           | $          | 1,920,909                                                               |       |   |   | 100.0 | % |   | $ | 1,966,993 |   |      100.0 | % |
| Earnings before Interest  and Taxes |       |                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| International Technical  Services   |       |                                                                           | $          | 46,824                                                                  |       |   |   | 3.8 | % |   | $ | 93,637 |   | 7.4 | % |
| Field Technical Services            |       |                                                                           | 23,311     |                                                                    |       |   | 3.4 | % |   | 10,017 |   | 1.4 | % |
| Other(1)                            |       |                                                                           | (1,665     | )                                                                       |       |   | NA |   |   | (2,417 | ) | NA |   |
| Consolidated                        |       |                                                                           | $          | 68,470                                                                  |       |   |   | 3.6 | % |   | $ | 101,237 |   | 5.1 | % |

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(1)    Amount represents amortization of Class B equity interestsfor fiscal year 2006.

*InternationalTechnical Services*

*Revenues.**  *Revenues for the fiscal year ended March 31,2006 were $1,264.6 million, an increase of $31.9 million, or 2.6%,from $1,232.7 million for the fiscal year ended April 1, 2005 proforma. The 

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revenue increase was dueto additional revenue under the International Narcotics and Law EnforcementAir-Wing program as a result of a new contract that went into effect on November 1,2005 for operation, added work to provide helicopter support for grounderadication efforts in Afghanistan, new work providing hurricane relief effortsalong the Gulf Coast, added work under our Africa Peacekeeping contract with theDepartment of State and additional construction work under the WorldwidePersonal Protective Services program. These increases were partially offset bya reduction of revenue under the Civilian Police program due to the timing ofvarious construction efforts in the Middle East, and from a series of contractsto provide security and logistics support to various U.S. governmentconstruction efforts in the Middle East as a subcontractor. This type ofsubcontract effort was typically short term with delayed payments, andtherefore we decided to exit this line of business until it can be performed ina more stable environment with improved financial terms. Further offsetting theincreases described above was a reduction in our Dyn Marine Services ofVirginia LLC business due to the discontinuance of our work under theOceangraphics Ships contract.

*Earnings before interestand taxes.*   Earnings before interest and taxesfor the fiscal year ended March 31, 2006 were $93.6 million, anincrease of $46.8 million, or 100.0%, from $46.8 million for thefiscal year ended April 1, 2005. Earnings before interest and taxes as apercentage of revenue for the fiscal year ended March 31, 2006 and April 1,2005 pro forma was 7.4% and 3.8%, respectively. The increase is due to thefollowing: (i) strong performance on fixed-price construction projects andon fixed-price task orders under the Civilian Police program; and (ii) improvedcontract mix resulting from a larger proportion of higher-margin fixed-priceand time-and-materials contracts as opposed to lower-margin. The CivilianPolice contract changed from cost-reimbursement to a combination of fixed-priceand time-and-materials in February 2004, and the International Narcoticsand Law Enforcement Air-Wing contract had a similar change effective November 2005.The current year also includes the recognition of an equitable adjustmentrelated to our Civilian Police program. The equitable adjustment has resultedin earnings of $5.5 million during the current year and has improved themargin on earnings before interest and taxes by 0.4% for the fiscal year ended March 31,2006.

*Field TechnicalServices*

*Revenues.**  *Revenues for the fiscal year ended March 31,2006 were $702.4 million, an increase of $14.2 million, or 2.0%, from$688.2 million for the fiscal year ended April 1, 2005 pro forma. Thisrevenue increase was primarily from the Global Air Traffic Management avionicsmodification under the Life Cycle Contractor Support program, increases on ArmyPrepositioned Stocks Afloat program workload and ramp-up of the AH-1/UH-1program. These increases were partially offset by reduced workload underContract Field Teams, and the withdrawal from the Al Salam contract due tounfavorable contract terms offered by the customer. Consequently, the customerdecided to self perform the F-15 maintenance we had been providing.

*Earnings before interestand taxes.**  *Earningsbefore interest and taxes for the fiscal year ended March 31, 2006 were$10.0 million, a decrease of $13.3 million, or 57.1%, from$23.3 million for the fiscal year ended April 1, 2005 pro forma. Earningsbefore interest and taxes as a percentage of revenue for the fiscal year endedMarch 31, 2006 was 1.4% compared to 3.4% for the fiscal year endedApril 1, 2005 pro forma. The primary factors contributing to the decreaseare as follows: (i) higher indirect allocations not recoverable under ourfixed-price and time-and-materials contracts of $9.5 million; (ii) incurredoperating losses of $3.2 million in delivering services to the U.S. Army underour Life Cycle Contractor Support program. We have experienced operationalissues in executing to the cost structure outlined in the original proposal. Asa result, we are in the process of seeking an equitable adjustment from ourcustomer for this program; and (iii) higher depreciation of $1.2 milliondue to our decision to exit a facility where we provided a portion of our AH-1/UH-1services in Puerto Rico. As a result of this decision, we accelerated theamortization of leasehold improvements related to the facility.

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**Fiscal Year Ended April 1,2005 Pro Forma Compared to the Fiscal Year Ended April 2, 2004**

The following discussionprovides a comparison of the pro forma results of operations for the successorcompany for the fiscal year ended April 1, 2005 with the historicalresults of the immediate predecessor company for the fiscal year ended April 2,2004. The discussion is provided for comparative purposes only, but the value ofsuch a comparison may be limited. The information in this section should beread in conjunction with the consolidated financial statements, summaryconsolidated historical and pro forma financial data, and the related notescontained elsewhere in this Form 10-K.

*Consolidated*

*Revenues.*   Revenuesfor the fiscal year ended April 1, 2005 pro forma were$1,920.9 million, an increase of $706.6 million, or 58.2%, from$1,214.3 million for the fiscal year ended April 2, 2004. The largestamount of this increase was $494.6 million under the Civilian Police program,which includes both the current Civilian Police contract that was awarded in February 2004as well as predecessors’ contracts for similar police training activity insupport of the Department of State. This increase was primarily due toadditional and expanded task orders in the Middle East to provide police andother law enforcement training. Other revenue increases occurred on theWorldwide Personal Protective Services contract of $72.9 million as aresult of additional work in the Middle East, and $72.8 million on theContract Field Teams program due to higher manning requirements. These highermanning requirements were primarily due to increased equipment maintenance dueto higher usage. These revenue increases were offset by decreases on Dyn Marineprograms of $15.7 million and the Al Salam contract of $13.5 million. Thedecrease in Dyn Marine revenue was a result of the loss of theOceangraphics Ship contract, and the decrease on the Al Salam contract was aresult of the customer not extending the contract and performing the workitself.

*Costsof services.*   Costs of services for the fiscalyear ended April 1, 2005 pro forma were $1,741.5 million, an increaseof approximately $634.9 million, or 57.4%, from approximately$1,106.6 million for fiscal year ended April 2, 2004. For the fiscalyear ended April 1, 2005, pro forma costs of services as a percentage ofrevenue decreased to 90.7% from 91.1% for the fiscal year ended April 2,2004. This decrease was due to increased overhead absorption resulting fromhigher revenues and a change in the contract mix. The contract mix in thefiscal year ended April 2, 2004 was 44% cost-reimbursement, with thebalance being either time-and-materials or fixed-price. The percentage of costreimbursement dropped to 34% for the entire fiscal year ended April 1,2005 pro forma, with a resulting increase in the time-and-materials orfixed-price portion.

*Selling,general and administrative.*   Selling, general andadministrative for the fiscal year ended April 1, 2005 pro forma were$65.4 million, an increase of $17.0 million, or 35.1%, from$48.4 million for the fiscal year ended April 2, 2004. For the fiscalyear ended April 1, 2005, pro forma selling, general and administrativeexpense as a percentage of revenue decreased to 3.4% from 4.0% for the fiscalyear ended April 2, 2004. This decrease was due to lower increases as apercentage of sales for business development spending as revenue growthaccelerated.

*Depreciationand amortization.*   Depreciation and amortizationexpense for the fiscal year ended April 1, 2005 pro forma was$45.5 million, an increase of $37.4 million, or 461.7%, from$8.1 million for fiscal year ended April 2, 2004. This increase wasprimarily due to the amortization of intangible assets. Intangible assetsvalued in connection with the 2005 Acquisition were significantly higher thanprevious values assigned in connection with the Computer Sciences Corporationacquisition. A third party assisted us in determining the amount foramortization of intangible assets.

*InterestExpense.**  *Interestexpense was $55.5 million for the fiscal year ended April 1, 2005 proforma. The pro forma interest expense is related to our senior secured creditfacility, the revolving credit facility 

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and our seniorsubordinated notes. For fiscal 2004, we did not incur any interest expensebecause it was recorded at the Computer Sciences Corporation corporate leveland not allocated to the operating entities.

*Income tax expense.*   Incometax expense for the fiscal year ended April 1, 2005 pro forma was$4.9 million, a decrease of $15.0 million from $19.9 million forthe fiscal year ended April 2, 2004. This decrease is primarily the resultof reduced income before tax as a result of the addition of interest expense,which was not pushed down to the operating units during the immediatepredecessor period, and the increase in amortization discussed above,as the effective tax rates for the fiscal years ended April 1, 2005and April 2, 2004 were 36.7% and 38.9%, respectively. The reduction in theoverall effective tax rate is a result of a greater percentage of the incomebefore tax being from outside the United States, so the overall state tax isreduced as a percentage of income before tax.

***Results by Segment***

Thefollowing table sets forth the revenues and earnings before interest and taxesfor our International Technical Services and Field Technical Services operatingsegments, both in dollars and as a percentage of our consolidated revenues forsegment revenue and as a percentage of segment specific revenue for earningsbefore interest and taxes, on a pro forma basis for the fiscal year ended April 1,2005 as compared with the fiscal year ended April 2, 2004:

| ** **                          | ** ** | **Immediate Predecessor Period**                             | ** ** | ** **                                                                     | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **For the Fiscal  Year Ended  April 2, 2004** | ** ** | **Pro Forma for  the Year Ended  April 1, 2005** | ** ** |
| ** **                          | ** ** | **(dollars in thousands)**                                   | ** ** |
| Revenues                            |       |                                                                   |       |                                                                           |       |   |   |   |   |   |   |   |   |
| International Technical Services    |       |                                                                   | $          | 631,672                                                                        |       |   |   | 52.0 | % |   | $ | 1,232,720 |   | 64.2 | % |
| Field Technical Services            |       |                                                                   | 582,476    |                                                                           |       |   | 48.0 |   |   | 688,154 |   | 35.8 |   |
| Other                               |       |                                                                   | 141        |                                                                           |       |   | 0.0 |   |   | 35 |   | 0.0 |   |
| Consolidated                        |       |                                                                   | $          | 1,214,289                                                                      |       |   |   | 100.0 | % |   | $ | 1,920,909 |   | 100.0 | % |
| Earnings before  Interest and Taxes |       |                                                                   |       |                                                                           |       |   |   |   |   |   |   |   |   |
| International Technical Services    |       |                                                                   | $          | 26,189                                                                         |       |   |   | 4.1 | % |   | $ | 46,824 |   | 3.8 | % |
| Field Technical Services            |       |                                                                   | 25,144     |                                                                           |       |   | 4.3 | % |   | 23,311 |   | 3.4 | % |
| Other                               |       |                                                                   | (113       | )                                                                              |       |   | NA |   |   | (1,665 | ) | NA |   |
| Consolidated                        |       |                                                                   | $          | 51,220                                                                         |       |   |   | 4.2 | % |   | $ | 68,470 |   | 3.6 | % |

 

*InternationalTechnical Services*

*Revenues.*   Revenuesfor the fiscal year ended April 1, 2005 pro forma were $1,232.7 million,an increase of $601.0 million, or 95.1%, from $631.7 million for thefiscal year ended April 2, 2004. This increase was primarily due to anincrease in revenues from our Civilian Police and Worldwide Personal ProtectiveServices programs. The revenue increase under our Civilian Police program wasdue to our entering into a new Civilian Police contract in February 2004,reflecting initial stages of law enforcement training in the Middle East. Therevenue increase under our Worldwide Personal Protective Services program wasdue to increased security contracts in Iraq. These increases were partiallyoffset by a decrease in our War Reserve Materials program revenues as activityunder this program has returned to historical levels after a short-termincrease due to recent wartime activity.

*Earnings before interestand taxes.*   Earnings before interest and taxesfor the fiscal year ended April 1, 2005 pro forma were $46.8 million,an increase of $20.6 million, or 78.6%, from $26.2 million for thefiscal year ended April 2, 2004. Earnings before interest and taxes as apercentage of revenue for the fiscal year ended April 1, 2005 pro formaand for the year ended April 2, 2004 was 3.8% and 4.1%, respectively. Theearnings before interest and taxes as a percentage of revenue did not change;however, the increased 

39

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amortizationresulting from the transaction was offset by an improvement in contract margindue to the change in the mix of contracts types with a greater percentage ofour programs performed under time-and-materials or fixed-price contracts versuslower margin cost-reimbursement contracts.

*Field TechnicalServices*

*Revenues.*   Revenuesfor the fiscal year ended April 1, 2005 pro forma were$688.2 million, an increase of $105.7 million, or 18.1%, from$582.5 million for the fiscal year ended April 2, 2004. This increasewas primarily due to increased revenues under our Contract Field Teams programand, to a lesser extent, our Army Prepositioned Stocks Afloat, or ArmyPre-Positioned Stocks Afloat, program. This was offset by a reduction inrevenue under the Al Salam contract, which was not extended.

*Earnings before interestand taxes.*   Earnings before interest and taxesfor the fiscal year ended April 1, 2005 pro forma were $23.3 million,a decrease of $1.8 million, or 7.2%, from $25.1 million for thefiscal year ended April 2, 2004. Earnings before interest and taxes as apercentage of revenue for the fiscal year ended April 1, 2005 pro formawas 3.4% compared to 4.3% for the fiscal year ended April 2, 2004. Thisreduction was due to the increased amortization resulting from the 2005Acquisition and offset by an improvement in contract performance on theContract Field Teams contract due to increased absorption of fixed costs.

**The PeriodApril 3, 2004 to February 11, 2005 and the Period February 12,2005 to April 1, 2005**

Other items impacting the immediate predecessor periodApril 3, 2004 to February 11, 2005 or the successor periodFebruary 12, 2005 to April 1, 2005 are presented below:

*Depreciationand Amortization.**  *Duringthe immediate predecessor period, the amortization of intangibles was based onappraised values of the customer contracts and related customer relationshipsthat were determined on a by-contract basis done at the time of the ComputerSciences Corporation purchase of DynCorp with the assistance of a third party.

*Interest Expense.**  *During the immediate predecessorperiod, interest expense was recorded at the Parent level and was not allocateddown to the operating units. As a result of the 2005 Acquisition, significantlong-term debt has been incurred.

**Liquidity andCapital Resources**

The following table sets forth cash flow data for theperiods indicated therein (dollars in thousands):

|                                                      | ** ** | **For the Fiscal  Year Ended  April 2, 2004** | ** ** | **Pro Forma Combined  Fiscal Year Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended  March 31, 2006** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Net Cash (Used  in) Provided by Operating Activities |       |                                                                   | $          | (6,756                                                                                 | )          |                                                  |       | $ | (33,332 | ) |   |   | $ | 55,111 |   |   |
| Net Cash  Used in Investing Activities          |       |                                                                   | (2,292     | )                                                                                      |       |                                                  | (880,101   | ) |   |   | (6,231 | ) |   |
| Net Cash Provided by  (Used in) Financing Activities |       |                                                                   | 11,017     |                                                                                   |       |                                                  | 920,397    |   |   |   | (41,781 | ) |   |

 

Historically, we financed our capital and workingcapital requirements through a combination of cash flows from operatingactivities and transfers from the predecessor parent companies. We did notincur interest-bearing debt during the year ended April 2, 2004. Inconnection with the 2005 Acquisition, we entered into a $75.0 millionrevolving credit facility available to fund working capital and other cashrequirements not funded from ongoing operations. Subsequently, in January 2006,this revolving credit facility was amended to $90.0 million. Leading up tothe 2005 Acquisition, Computer Sciences Corporation accelerated collection ofreceivables where possible and delayed payments to vendors and subcontractors. 

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As a result, we had todraw $20.0 million on the revolving credit facility shortly after theclosing of the 2005 Acquisition, and as of April 1, 2005 the outstandingbalance was $35.0 million. We repaid our revolving credit facility duringthe three months ended July 1, 2005.

Cash and cash equivalents as of March 31, 2006were $20.6 million compared to $13.5 million as of April 1, 2005. Concurrentlywith, and as a condition to, the offering of our senior subordinated notes, weentered into a senior secured credit facility. Our senior secured creditfacility provided us with a $345.0 million term loan, maturing in 2011,and up to $90.0 million in available revolving loan borrowings, maturing in2010. As of March 31, 2006, our revolving credit facility was undrawn andwe had $661.6 million of indebtedness, of which $341.6 million wassecured, including the senior subordinated notes and excluding interest accruedthereon. The foregoing does not take into account the partial redemption of oursenior subordinated notes with a portion of the proceeds that we received fromour Parent’s Equity Offering. On the same date, we had approximately$82.5 million available under our senior secured credit facility (whichgives effect to $7.5 million of outstanding letters of credit). For moreinformation regarding our senior secured credit facility, see notes to theconsolidated financial statements elsewhere in this Form 10-K.

During fiscal 2006, $56.7 million of interestexpense was incurred, which included both the interest costs applicable to thefiscal year, as well as amortization of the deferred financing fees resultingfrom the 2005 Acquisition. This interest expense includes the interest on thesenior secured credit facility, the revolving credit facility and the seniorsubordinated notes.

On May 9, 2006, our Parent consummated an EquityOffering of 25,000,000 shares of its Class A common stock, par value$0.01 per share, at a price of $15.00 per share. The gross proceedsfrom the Equity Offering of $375.0 million, together with cash on hand,were used: (i) to redeem all of our Parent’s outstanding preferred stock,of which $222.8 million in stated amount, including accrued and unpaiddividends thereon, was outstanding as of May 9, 2006; (ii) to pay aspecial Class B distribution in the amount of $100.0 million to theholder of our Parent’s common stock, DIV Holding LLC; (iii) to redeem$28.0 million of our senior subordinated notes on June 8, 2006; (iv) topay prepayment penalties of $8.4 million as of May 9, 2006, $5.7million of which represented prepayment penalties on our Parent’s preferredstock and $2.7 million of which represented prepayment penalties on oursenior subordinated notes; and (v) to pay transaction expenses ofapproximately $35.0 million, including an underwriters’ commission of$22.5 million, a fee of $5.0 million to Veritas Capital and $7.5million of miscellaneous fees and expenses related to the Equity Offering.

In addition, we used cashon hand to pay special cash bonuses subsequent to our Parent’s Equity Offeringof $3.125 million in the aggregate to our executive officers and certainother members of management. Of that amount, Messrs. Cannon, Gorman,Thorne and Rosenkranz and Ms. Morrel received $1,000,000, $750,000,$500,000, $100,000 and $100,000, respectively. These bonuses rewardedmanagement for their efforts in connection with the successful consummation ofour Parent’s Equity Offering.

**Cash Flows**

**Operating Activities.****  **Net cash provided by operating activities for thefiscal year ended March 31, 2006 was $55.1 million, while net cashrequired by operating activities for the fiscal year ended April 1, 2005pro forma was $(33.3) million. Cash provided by operating activities forthe fiscal year ended March 31, 2006, consisted of $147.4 million ofoperating income before considering depreciation and amortization, less $77.7 millionof cash paid for interest and normal short-term payment timing of tradereceivables and payables.

Net cash used in operatingactivities for the period April 1, 2005 pro forma was $33.3 million. Thiscash requirement during the seven week period was primarily the result of a$58.3 million increase in 

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accountsreceivable, partially offset by increases in accounts payable and accruals of$12.0 million, and prepaid expenses and other current assets of$9.9 million. The primary driver behind the increase in accountsreceivable was the timing of collections before and after the 2005 Acquisition.Net cash used in operating activities for the period April 3, 2004 to February 11,2005 was $2.1 million, while net cash used in operating activities for thefiscal year ended April 2, 2004 was $6.8 million. This decrease inoperating cash flows was due primarily to a significant increase in accountsreceivable more than offset by an increase in net income and accounts payableand accruals also related to growth in our revenues. The increase in accountsreceivable was related to overall growth in our revenue and an increase inunbilled receivables for revenue under our Civilian Police program, which wewere not able to bill until we received contract modification.

**Investing Activities.****  **Net cash used in investing activities was$2.3 million, $880.1 million and $6.2 million for the fiscalyear ended April 2, 2004, fiscal year ended April 1, 2005 pro formaand fiscal year ended March 31, 2006, respectively. For fiscal year ended April 2,2004 and March 31, 2006, the primary use of cash was to purchase propertyand equipment. For fiscal year ended April 1, 2005 pro forma, the primaryuse of cash was to purchase the Company.

**Financing Activities.****  **Net cash provided by financing activities was$920.4 million and $41.8 million for the fiscal year ended April 1,2005 pro forma and March 31, 2006, respectively. The cash used infinancing activities during the fiscal year ended March 31, 2006 is due tothe repayment of borrowings under our revolving credit facility in the amountof $35.0 million, scheduled repayment of our bank note borrowings in theamount of $3.5 million, payment for offering expenses of$1.9 million, payment of debt issuance cost of $0.9 million and thepurchase of an interest rate cap for $0.5 million, which limits ourexposure to upward movements in variable rate debt. The net cash provided forfiscal year ended April 1, 2005 pro forma is primarily from the 2005Acquisition. The net cash flow for fiscal 2004 is due to net transfers from ourpredecessor parent.

We expect that cashgenerated from operating activities and availability under our senior securedcredit facility will be our principal sources of liquidity. Based on ourcurrent level of operations, we believe our cash flow from operations andavailable borrowings under our senior secured credit facility will be adequateto meet our liquidity needs for at least the next twelve months. We cannotassure you, however, that our business will generate sufficient cash flow fromoperations, or that future borrowings will be available to us under our seniorsecured credit facility in an amount sufficient to enable us to repay ourindebtedness, including the notes, or to fund our other liquidity needs. Servicingour indebtedness will require a significant amount of cash. Our ability togenerate sufficient cash depends on numerous factors beyond our control, and wemay be unable to generate sufficient cash flow to service our debt obligations,including making payments on the notes.

**Debt and Other Obligations**

Concurrently with theoffering of our senior subordinated notes and subsequently amended on January 9,2006, we entered into a senior secured credit facility. Our senior securedcredit facility provided us with a $345.0 million term loan, maturing in2011, and up to $90.0 million in available revolving loan borrowings, asamended, maturing in 2010. As of March 31, 2006, our revolving creditfacility was undrawn, and, we had $661.6 million of indebtedness includingthe senior subordinated notes and excluding interest accrued thereon, of which$341.6 million was secured. The foregoing does not take into account thepartial redemption of our senior subordinated notes with a portion of theproceeds that we received from our Parent’s Equity Offering. On the same date,we had approximately $82.5 million available under our senior securedcredit facility (that gives effect to $7.5 million of outstanding lettersof credit which reduced our availability by that amount).

Our senior secured creditfacility contains financial covenants, including a minimum interest coverageratio and a maximum total debt to EBITDA ratio, and places certain restrictionson our ability to make 

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capitalexpenditures. These financial ratios include a minimum interest coverage ratioand a leverage ratio. The interest coverage ratio is the ratio of EBITDA (asdefined in our senior revolving credit facility) to cash interest expense fortrailing quarters. The minimum interest coverage ratio increases from 2:1 to3.2:1 during the term of the senior secured credit facility. The maximumleverage coverage ratio decreases from 6:1 to 3:1 during the term of the seniorsecured credit facility. The senior secured credit facility also restricts themaximum amount of our capital expenditures during each year of the seniorcredit facility. Capital expenditures are expenditures that are required bygenerally accepted accounting principles to be included in the “purchase ofproperty and equipment.”  Our seniorsecured credit facility is secured by substantially all of our assets and theassets of our domestic subsidiaries, and by a pledge of all of the capitalstock of our domestic subsidiaries and 65% of the capital stock of our firsttier foreign subsidiaries. The initial borrowings thereunder are subject tocustomary closing conditions. For more information regarding our senior securedcredit facility, see notes to the consolidated financial statements elsewherein this Form 10-K.

On June 28, 2006, theCompany and its Parent entered into a second amendment and waiver of our seniorsecured facility, dated February 11, 2005. The second amendment and waiverprovided for a new term loan in the amount of $431.6 million, which wasthe outstanding balance of the existing term loan under our senior securedcredit facility on the date of the second amendment and waiver. The maturitydate of the new term loan is unchanged from the maturity date of the existingterm loan. The proceeds from the new term loan were used to repay the existingterm loan. The second amendment and waiver also, among other things,(i) decreases the interest rate applicable to the term loan under oursenior secured credit facility; (ii) permits us to request an increase inour revolving credit facility by an aggregate amount of up to$30.0 million provided that none of the existing lenders or any otherlender is committed to provide such increase; (iii) increases the amountof capital expenditures permitted under our senior secured credit facility from$4.0 million per fiscal year to $8.0 million per fiscal year;(iv) increases the amount of capitalized leases permitted under our seniorsecured credit facility; (v) allows for the payment of dividends and therepurchase of our capital stock in the amount of $10.0 million plus, ifour leverage ratio (as defined in our senior secured credit facility) is below3.25:1.00, 25% of our excess cash flow (as defined in our senior secured creditfacility) for each fiscal year; and (vi) postpones the first prepayment ofthe senior secured credit facility based on our excess cash flow until 90 daysfollowing our fiscal year which ends on March 30, 2007.

On January 9, 2006,we entered into a first amendment and waiver of our senior secured creditfacility. The first amendment and waiver increased the revolving commitmentunder our senior secured credit facility by $15.0 million to $90.0million, which includes an increase in the sub-limit for letters of creditequal to the same amount. The first amendment and waiver also permitted us to: (i) paya transaction fee to Veritas Capital related to our Parent’s Equity Offering ofup to $10.0 million; (ii) pay a distribution to the holders of our Parent’sClass B common stock in an amount equal to the sum of (x) $100.0million plus (y) the proceeds, if any, of the underwriters’ over-allotmentoption, net of discount and estimated offering expenses; (iii) redeem allof our Parent’s then currently outstanding preferred stock; and (iv) redeemup to $65.0 million of the $320.0 million aggregate principal amount of thesenior subordinated notes. The first amendment and waiver waived therequirement in the senior secured credit facility that we use 50% of the netcash proceeds from our Parent’s Equity Offering to prepay loans under thesenior secured credit facility and/or permanently reduce the revolvingcommitments.

In February 2005, wecompleted an offering of $320.0 million of our 9.50% senior subordinated notesdue 2013.

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Our capital expenditures are primarily related tocontractual requirements. We spent an aggregate of approximately $3.5 millionand $8.7 million for capital expenditures primarily relating to the purchase ofvehicles, equipment and for certain leasehold improvements in fiscal 2006 and2005, respectively. We customarily lease our vehicles and equipment; however,our former parent elected to purchase certain equipment in fiscal 2005. As aresult, fiscal 2005 capital expenditures of $8.7 million were significantlyhigher than fiscal 2004 capital expenditures of $2.0 million due to this onetime vehicle and equipment purchases for the Andrews contract, and leaseholdimprovements requested for the AH-1/UH-1 contract. We intend tocontinue our practice of leasing our vehicles and equipment in the future. Oursenior secured credit facility limits our annual capital expenditures to$4.0 million. We do not expect this limitation to have a material effecton our business. In addition, the senior secured credit facility containsvarious customary affirmative and negative covenants (subject to customaryexceptions and certain existing obligations and liabilities), including, butnot limited to, restrictions on our ability and the ability of our subsidiariesto: (i) dispose of assets; (ii) incur additional indebtedness andguarantee obligations; (iii) repay other indebtedness; (iv) paycertain restricted payments and dividends; (v) create or prohibit thecreation of liens on assets; (vi) make investments, loans or advances;(vii) restrict distributions to us from our subsidiaries; (viii) makecertain acquisitions; (ix) engage in mergers or consolidations;(x) enter into sale and leaseback transactions; (xi) engage incertain transactions with subsidiaries that are not guarantors of the seniorsecured credit facility or with affiliates; or (xii) amend the terms ofthe notes and otherwise restrict corporate activities.

These covenantslimit our ability to, among other things:

·        incuradditional indebtedness or guarantee obligations;

·        repayindebtedness (including the senior subordinated notes) prior to statedmaturities;

·        paydividends or make certain other restricted payments;

·        makeinvestments or acquisitions;

·        createliens or other encumbrances; and

·        transferor sell certain assets or merge or consolidate with another entity.

**ContractualCommitments**

The following table represents our contractualcommitments associated with our debt and other obligations, giving effect tothe application of the use of proceeds of our Parent’s Equity Offering, as of March 31,2006:

| ** **                      | ** ** | **Fiscal  2007**                    | ** ** | **Fiscal  2008** | ** ** | **Fiscal  2009** | ** ** | **Fiscal  2010** | ** ** | **Fiscal  2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|---------------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|----------------|------------|-----------|------------|
| ** **                      | ** ** | **(dollars in millions)** | ** ** |
| Contractual Obligations:        |       |                                |       |             |       |             |       |             |       |             |       |           |       |      |       |   |   |
| Senior Secured Credit  Facility |       |                                |       |             |       |             |       |             |       |             |       |           |       |      |       |   |   |
| Term Loan(1)                    |       | $                                   | 2.6        |             | $          | 3.5              |       | $                | 4.3        |             | $          | 3.4            |       | $         | 327.8      |   |   | $ | — |   |   | $ | 341.6 |   |
| Revolving Credit Facility(2)    |       | —                              |       | —           |       | —           |       | —           |       | —           |       |           | —     |      |       | — |   |
| Senior  Subordinated Notes      |       | —                              |       | —           |       | —           |       | —           |       | —           |       |           | 320.0      |      |       | 320.0 |   |
| Operating Leases(3)             |       | 4.6                                 |       | 4.2              |       | 2.5              |       | 2.2              |       | 2.2              |       |           | 12.0       |      |       | 27.7 |   |
| Interest on Indebtedness(4)     |       | 54.6                                |       | 54.1             |       | 53.8             |       | 53.5             |       | 43.0             |       |           | 52.0       |      |       | 311.0 |   |
| Management Fee(5)               |       | 0.3                                 |       | 0.3              |       | 0.3              |       | 0.3              |       | 0.3              |       |           | 0.3        |      |       | 1.8 |   |
| Total Contractual  Obligations  |       | $                                   | 62.1       |             | $          | 62.1             |       | $                | 60.9       |             | $          | 59.4           |       | $         | 373.3      |   |   | $ | 384.3 |   |   | $ | 1,002.1 |   |

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(1)             Assumes that our senior secured revolvingcredit facility will be undrawn. Also does not include outstanding letters ofcredit which, as of March 31, 2006, were approximately $7.5 million.

(2)             Does not give effect to mandatory paymentof term loan, if any, with excess cash flow.

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(3)             For additional information about ouroperating leases, see Note 10 to our consolidated financial statementspresented elsewhere in this Form 10-K.

(4)             Represents interest expense calculatedusing interest rates of: (i) 7.8% on our $345.0 million term loan; and (ii) 9.5%on the senior subordinated notes.

(5)             For additional information on themanagement fee, see “Certain Relationships and Related Transactions.”

**Off-Balance-SheetArrangements**

As of March 31, 2006,other than the operating leases discussed above, we had no off-balance-sheetarrangements.

**Fiscal Periods**

We use a 52/53-weekfiscal year ending on the closest Friday to March 31. The period from April 3,2004 to February 11, 2005 is a 45-week period. The fiscal year endedApril 2, 2004 was a 53-week year.

**Effects ofInflation**

We have generally beenable to anticipate increases in costs when pricing our contracts. Bids forlonger-term fixed-price and time-and-materials type contracts typically includesufficient labor and other cost escalations in amounts expected to cover costincreases over the period of performance. Consequently, because costs andrevenues include an inflationary increase commensurate with the general economyin which we operate, net income as a percentage of revenues has not beensignificantly impacted by inflation.

**Critical AccountingPolicies**

Our discussion and analysis of our financial conditionand results of operations are based upon our consolidated financial statements,which are prepared in accordance with GAAP. The preparation of these financialstatements in accordance with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingencies at the date of the financial statements as well asthe reported amounts of revenues and expenses during the reporting period. Managementevaluates these estimates and assumptions on an ongoing basis, including thoserelating to revenue recognition and cost estimation on long-term contracts,allowance for doubtful accounts, determination of goodwill and customer-relatedintangible assets, goodwill impairment, accounting for contingencies andlitigation and accounting for income taxes. Our estimates and assumptions havebeen prepared on the basis of the most current available information. Theresults of these estimates form the basis for making judgments about thecarrying values of assets and liabilities that are not readily apparent fromother sources. Actual results could materially differ from these estimatesunder different assumptions and conditions.

We have several criticalaccounting policies that are both important to the portrayal of our financialcondition and results of operations and require management’s most difficult,subjective and complex judgments. Typically, the circumstances that make thesejudgments complex and difficult have to do with making estimates about theeffect of matters that are inherently uncertain. Our critical accountingestimates are as follows:

*Revenue Recognitionand Cost Estimation on Long-Term Contracts*

We provide our services under fixed-price,time-and-materials and cost-reimbursement contracts. The form of contract,rather than the type of service offering, is the primary determinant of revenuerecognition. Revenues are recognized when persuasive evidence of an arrangementexists, services or products have been provided to the client, the sales priceis fixed or determinable and collectibility is reasonably assured. For fiscal2005 and 2006, approximately 27%, 39%, 34% and approximately 34%, 38% 

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and 28% of our revenueswere derived from cost-reimbursement, time-and-materials and fixed-pricecontracts, respectively. For more information on our contract types, see “Business—ContractTypes.”

Revenue on fixed-price contracts is generallyrecognized ratably over the contract period, measured by either output or inputmethods appropriate to the services or products provided. For example, “outputmeasures” can include period of service, such as for aircraft fleetmaintenance; and units delivered or produced, such as aircraft for whichmodification has been completed. “Input measures” can include a cost-to-costmethod, such as for procurement-related services.

Revenue on fixed-price construction or production-typecontracts, when they occur, is recognized on the basis of the estimatedpercentage of completion. Progress towards completion is typically measuredbased on achievement of specified contract milestones, when available, or basedon costs incurred as a proportion of estimated total costs. Profit in a givenperiod is reported at the expected profit margin to be achieved on the overallcontract. This method can result in the deferral of costs or profit on thesecontracts. Management regularly reviews project profitability and underlyingestimates. Revisions to the estimates at completion are reflected in results ofoperations as a change in accounting estimate in the period in which the factsthat give rise to the revision become known by management. Revenue on fixed-pricecontracts that have a duration of less than six months is recognized on thecompleted contract method. Work in progress is classified as a component ofinventory.

We provide for anticipated losses on contracts by acharge to income during the period in which the losses are first identified. Amountsbilled but not yet recognized as revenue under certain types of contracts aredeferred. Unbilled receivables are stated at estimated realizable value. Contractcosts on U.S. government contracts, including indirect costs, are subject toaudit and adjustment by negotiations between us and government representatives.Substantially all of our indirect contract costs have been agreed upon through2004. Contract revenues on U.S. government contracts have been recorded inamounts that are expected to be realized upon final settlement.

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

Client contracts may include the provision of morethan one of our services. For revenue arrangements with multiple deliverables,revenue recognition includes the proper identification of separate units ofaccounting and the allocation of revenue across all elements based on relativefair values.

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

Cost-reimbursement typecontracts can be either Cost Plus Fixed Fee, or Cost Plus Award Fee. Revenuerecognition for these two contract types is very similar. In both cases,revenue is based on actual direct cost plus Defense Contract AuditAgency-approved indirect rates. In the case of Cost Plus Fixed Fee, the fixedfee is recognized based on the ratio of the fixed fee for the contract to thetotal estimated cost of the contract. In the case of Cost Plus Award Feecontracts, the fee is made up of two components, base fee and award fee. Basefee is recognized in the same manner as the fee on Cost Plus Fixed Feecontracts. The award fee portion is recognized based on an average of the lasttwo award fee periods or award experience for similar contracts for newcontracts that lack specific experience.

*Allowance forDoubtful Accounts*

We establish allowance fordoubtful accounts against specific billed receivables based upon the latestinformation available to determine whether invoices are ultimately collectible.Such information includes 

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thehistorical trends of write-offs and recovery of previously written-offaccounts, the financial strength of the respective customer and projectedeconomic and market conditions. The evaluation of these factors involvessubjective judgments and changes in these factors may cause a misstatement ofour accounts receivable, which could significantly impact our consolidatedfinancial statements by incurring bad debt expense. Given that we primarilyserve the U.S. government, we believe the risk to be relatively low that amisstatement of accounts receivable would have a material impact on ourfinancial results.

*Determination ofGoodwill and Customer-Related Intangible Assets*

In accordance withStatement of Financial Accounting Standards (“SFAS”) No. 141, “*Business Combinations*,”**the2005 Acquisition was accounted for using the purchase method of accounting. Thismethod requires estimates to determine the fair values of assets andliabilities acquired, including judgments to determine any acquired intangibleassets such as customer-related intangibles, internally developed technologyand tradename, as well as assessments of the fair value of tangible assets suchas property and equipment. Liabilities acquired included reserves forlitigation and other contingency reserves established prior to, or at the timeof, acquisition and require judgment in ascertaining a reasonable value aswell.

Third-party valuation firms assisted management in theappraisal of certain assets and liabilities, but even those determinations werebased on significant estimates provided by us. For example, the valueultimately assigned to customer-related intangibles and internally developedtechnology were determined by a third-party valuation firm as of the date ofacquisition, based on estimates and judgments provided by us regardingexpectations for the estimated future after-tax cash flows from those assetsover their lives, including the probability of expected future contract renewalsand sales, less a cost-of-capital charge, all of which was discounted topresent value. If actual future after-tax cash flows are significantly lowerthan our estimates, we may be required to record an impairment charge to writedown the identifiable intangible assets to their realizable values.

The value assigned to the2005 Acquisition goodwill equaled the amount of the purchase price in excess ofthe sum of the amounts assigned to the identifiable acquired assets, bothtangible and intangible, less liabilities assumed. At March 31, 2006, wehad goodwill of $420.2 million and identifiable intangible assets of$272.7 million.

*Goodwill andIntangible Impairment*

We review goodwill andintangible assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of these assets may not be recoverable, andalso review goodwill annually, during our fourth fiscal quarter, in accordancewith SFAS No. 142, “*Goodwill and OtherIntangible Assets*.”  SFAS No. 142requires that goodwill be tested, at a minimum, annually for each reportingunit using a two-step process. A reporting unit is an operating segment, asdefined in paragraph 10 of SFAS No. 131, “*DisclosuresAbout Segments of an Enterprise and Related Information,”* or a componentof an operating segment. The goodwill impairment test is a two-step processthat requires management to make judgments in determining what assumptions touse in the calculation. Management judgments include, but are not limited to,estimates for future sales, operating income, depreciation and amortization,income tax payments, working capital changes and capital expenditures, as wellas, expected growth rates for cash flows and long-term interest rates. Thefirst step of the process consists of estimating the fair value of each of thereporting units based on a discounted cash flow model and comparing thoseestimated fair values with the carrying values, which includes the allocatedgoodwill. If a potential impairment is identified, the second step is tomeasure the impairment loss by comparing the implied fair value of goodwillwith the carrying value of goodwill of the reporting unit. The implied fairvalue of goodwill is the residual fair value derived by deducting the fairvalue of a reporting unit’s identifiable assets 

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andliabilities from its estimated fair value calculated in step one. Theimpairment charge, if any, would represent the excess of the carrying amount ofthe reporting unit’s goodwill over the implied fair value of their goodwill. Adecline in estimated fair value of a reporting unit could result in animpairment charge to goodwill, which could have a material adverse effect onour business, financial condition and results of operations. We completed ourimpairment analysis of goodwill as of February 24, 2006, noting noindications of impairment for any of our reporting units. In addition, as of March 31,2006, there have been no events or circumstances that would indicate animpairment of other identifiable intangibles, such as customer-relatedintangibles.

*Accounting forContingencies and Litigation*

We are subject to variousclaims and contingencies associated with lawsuits, insurance, tax and otherissues arising out of the normal course of business. The consolidated financialstatements reflect the treatment of claims and contingencies based on our viewof the expected outcome. We consult with legal counsel on issues related tolitigation and seek input from other experts and advisors with respect tomatters in the ordinary course of business. If the likelihood of an adverseoutcome is probable and the amount is estimable, we accrue a liability inaccordance with SFAS No. 5, “*Accounting forContingencies*.”  Significantchanges in the estimates or assumptions used in assessing the likelihood of anadverse outcome could have a material effect on our consolidated financialresults.

*Accounting forIncome Taxes*

Realization of our deferred tax assets is primarilydependent on future U.S. taxable income. SFAS No. 109, “*Accounting for Income Taxes*,” provides for the recognitionof deferred tax assets if realization of such assets is more likely than not. Asa result of recent U.S. operating results together with the Company’s forecastsof future pretax operating results, we believe that net deferred tax assets inthe amount of $12.3 million are realizable based on the “more likely than not”standard required for recognition.

We are a U.S.-basedmultinational company subject to tax in multiple U.S. and foreign taxjurisdictions. The Company’s provision for income taxes is based on ajurisdictional mix of earnings, statutory rates and enacted tax rules. Significantjudgment is required in determining the Company’s provision for income taxesand in evaluating its tax positions on a worldwide basis. The Company believesits tax position is consistent with the tax laws in the jurisdictions in whichit conducts its business. It is possible that these positions may bechallenged, which may have a significant impact on the Company’s effective taxrate.

**AccountingPronouncements**

In December 2004, the Financial AccountingStandards Board (“FASB”) revised SFAS No. 123, “*Accounting for Stock-Based Compensation*.”  The revised SFAS No. 123 (“SFAS No. 123(R)”),“*Share-Based Payment*,” supersedesAccounting Principles Board No. 25 (“APB No. 25”), “*Accounting for Stock Issued to Employees*.”  SFAS No. 123(R) requires all companiesto measure and recognize compensation expense for all stock-based payments atfair value. Effective October 1, 2005, the Company adopted SFAS No. 123(R) usingthe modified prospective application transition method. SFAS No. 123(R) requiresthe measurement and recognition of compensation expense for all share-basedpayment awards made to employees and directors, including employee stock optionsand restricted stock grants related to the Company’s incentive plans, to bebased on fair values. SFAS No. 123(R) supersedes the Company’sprevious accounting for these plans under APB No. 25 for the periodsbeginning October 1, 2005. The adoption of SFAS No. 123(R) didnot have a material impact on the Company’s consolidated financial statements. Financialstatements for prior interim periods, fiscal years and predecessor periods donot reflect any restated amounts as a result of this adoption in accordancewith the modified prospective application transition method under SFAS No. 123(R).

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In March 2005, the FASB issued FASBInterpretation No. 47 (“FIN 47”), “*Accountingfor Conditional Retirement Obligations*,” which clarifies the term “conditionalasset retirement obligations,” as used in FASB Statement No. 143, “*Accounting for Asset Retirement Obligations*.”  FIN 47 clarifies that an entity is requiredto recognize a liability for a legal obligation to perform asset retirementactivities when the retirement is conditional on a future event and if theliability’s fair value can be reasonably estimated. If the liability’s fairvalue cannot be reasonably estimated, then the entity must disclose adescription of the obligation, the fact that a liability has not beenrecognized and the reasons why the liability cannot be reasonably estimated. Therequirements of FIN 47 are effective for fiscal periods ending after December 15,2005. The adoption of FIN 47 did not have any effect on the Company’sconsolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “*Accounting Changes and Error Corrections*,” which iseffective for voluntary changes in accounting principles made in fiscal yearsbeginning after December 15, 2005. SFAS No. 154 replaces APB Opinion No. 20(“APB 20”), “*Accounting Changes*” and SFAS No. 3,“*Reporting Accounting Changes in Interim FinancialStatements.*”  SFAS No. 154requires that voluntary changes in accounting principle be applied on aretrospective basis to prior period financial statements and eliminates theprovisions of APB 20 that cumulative effects of voluntary changes in accountingprinciples be recognized in net income in the period of change. The adoption ofSFAS No. 154 did not have any effect on the Company’s consolidatedfinancial statements.

In November 2005, theFASB issued FASB Staff Position No. FIN 45-3 (“FSP FIN 45-3”) “*Application of FASB Interpretation No. 45 toMinimum Revenue Guarantees Granted to a Business or Its Owners*,”which is effective for new minimum revenue guarantees issued or modified on orafter the beginning of the first fiscal quarter following the date FSP FIN 45-3was issued. FSP FIN 45-3 amends FASB Interpretation No. 45, “*Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others*”**toinclude guarantees granted to a business that the revenue of the business for aspecified period of time will be at least a specified minimum amount under itsrecognition, measurement and disclosure provisions. This interpretation iseffective for the Company beginning on January 1, 2006. The adoption ofFSP FIN 45-3 did not have any effect on the Company’s consolidatedfinancial statements.

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The inherent risk inmarket risk sensitive instruments and positions primarily relates to potentiallosses arising from adverse changes in interest rates and foreign currencyexchange rates. For further discussion of market risks we may encounter, see “RiskFactors.”

**Interest Rate Risk**

We have interest rate risk relating to changes ininterest rates on our variable rate debt. Our policy is to manage interest rateexposure through the use of a combination of fixed and floating rate debtinstruments. Our senior secured credit facility is a variable rate arrangement.The interest rate is based on a floating Eurodollar benchmark rate plus a fixedspread. As of March 31, 2006, we had $661.6 million of indebtedness,without giving effect to the application of the use of proceeds of our Parent’sEquity Offering, including the senior subordinated notes and excluding interestthereon, of which $341.6 million was secured. On the same date, we hadapproximately $82.5 million available under our senior secured creditfacility (which gives effect to $7.5 million of outstanding letters ofcredit). Each quarter point change in interest rates results in approximately$0.9 million change in annual interest expense on the term loan and, assuming theentire revolving loan was drawn, an approximately $0.2 million change inannual interest expense on the revolving loan. Subsequent to April 1,2005, we entered into an interest rate cap agreement that caps the maximuminterest rate for 50% of the term loan over the next three years.

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The table below provides information about our fixedrate and variable rate long-term debt agreements, without giving effect to theapplication of the use of proceeds of our Parent’s Equity Offering to redeem aportion of our senior subordinated notes, as of March 31, 2006.

| ** **    | ** ** | **Expected Maturity as of March 31, 2006  Fiscal Year** | ** ** | **Average  Interest** | ** ** |
|---------------|------------|--------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **    | ** ** | **2007**                                                                                   | ** ** | **2008**              | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Rate** | ** ** |
| ** **    | ** ** | **(dollars in millions)**                                                        | ** ** | ** **            | ** ** |
| Fixed rate    |       | $                                                                                          | —     |                  | $          | — |   | $ | — |   | $ | — |   | $ | — |   |   | $ | 320.0 |   |   | $ | 320.0 |   |   | 9.5 | % |   |
| Variable rate |       | 2.6                                                                                        |       | 3.5                   |       | 4.3 |   | 3.4 |   | 327.8 |   |   | — |   |   | 341.6 |   |   | 7.8 | % |   |
| Total debt    |       | $                                                                                          | 2.6        |                  | $          | 3.5 |   | $ | 4.3 |   | $ | 3.4 |   | $ | 327.8 |   |   | $ | 320.0 |   |   | $ | 661.6 |   |   |   |   |   |

 

The carrying amount of ourborrowings under the senior secured credit facility approximates fair valuebased on the variable interest rates of this debt. The carrying value of ourother long-term debt approximates fair value based on its recent issuance. Theabove table does not give effect to $7.5 million of outstanding letters ofcredit as of March 31, 2006.

**Foreign CurrencyExchange Rate Risk**

We are exposed to changes in foreign currency rates. Atpresent, we do not utilize any derivative instruments to manage risk associatedwith currency exchange rate fluctuations. We have determined local currenciesare the functional currencies of certain foreign operations. Accordingly, theseforeign entities translate assets and liabilities from their local currenciesto U.S. dollars using year-end exchange rates while income and expense accountsare translated at the average rates in effect during the year. The resultingtranslation adjustment is recorded as accumulated other comprehensive (loss)income (“OCI”). As of April 1, 2005 and March 31, 2006, the balanceof currency translation adjustment included in OCI was an unrealized gain of$22,000 and $42,000, respectively. Currency exchange rate fluctuations may alsoaffect our competitive position in international markets as a result of theirimpact on our profitability and the pricing offered to our non-U.S. customers.

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**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

|                                                                                                                                                                                                                                                                                                         | ** ** | **Page** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Report of  Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                |       | 52       |       |
| Consolidated Statements of Operations for the fiscal  year ended April 2, 2004, for the period from April 3, 2004 to  February 11, 2005 (Immediate Predecessor), for the 49 Days ended  April 1, 2005 and for the fiscal year ended March 31, 2006  (Successor)           |       | 53       |       |
| Consolidated Balance Sheets as of April 1, 2005  and March 31, 2006 (Successor)                                                                                                                                                                                                               |       | 54       |       |
| Consolidated Statements of Cash Flows for the fiscal  year ended April 2, 2004, for the period from April 3, 2004 to  February 11, 2005 (Immediate Predecessor), for the 49 Days ended  April 1, 2005 and for the fiscal year ended March 31, 2006  (Successor)           |       | 56       |       |
| Consolidated Statements of Member’s Equity for the  fiscal year ended April 2, 2004, for the period from April 3, 2004  to February 11, 2005 (Immediate Predecessor), for the 49 Days ended  April 1, 2005 and for the fiscal year ended March 31, 2006  (Successor) |       | 57       |       |
| Notes to  Consolidated Financial Statements                                                                                                                                                                                                                                                             |       | 58       |       |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Managers and Member of DynCorpInternational LLCIrving, Texas

We have audited the accompanying consolidated balancesheets of DynCorp International LLC and subsidiaries (the “Company”) as of April 1,2005  and March 31, 2006(Successor), and the related consolidated statements of operations, member’sequity, and cash flows for the fiscal year ended April 2, 2004, the periodfrom April 3, 2004 to February 11, 2005 (Immediate Predecessor), the49 days ended April 1, 2005 and the fiscal year ended March 31,2006 (Successor). These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements,DynCorp International LLC was a wholly owned subsidiary of DynCorp, which wasacquired by a newly formed entity, DynCorp International Inc., on February 11,2005. As a result, the periods presented in the accompanying financialstatements reflect a new basis of accounting beginning February 12, 2005.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of April 1, 2005 and March 31,2006, and the results of their operations and their cash flows for the fiscalyear ended April 2, 2004, the period from April 3, 2004 to February 11,2005 (Immediate Predecessor), the 49 days ended April 1, 2005 and thefiscal year ended March 31, 2006 (Successor), in conformity withaccounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLPFort Worth, TexasJune 28, 2006

 

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**DYNCORP INTERNATIONAL LLCCONSOLIDATED STATEMENTS OF OPERATIONS**(Dollars in thousands)

| ** **                                                                   | ** ** | **Immediate Predecessor**                             | ** ** | ** **                                                                 | ** ** | **Successor** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                                   | ** ** | **Fiscal Year  Ended   April 2, 2004** | ** ** | **Period From  April 3, 2004  to Feb. 11,  2005** | ** ** | ** **    | ** ** | **49 Days Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended  March 31, 2006** | ** ** |
| Revenues                                                                     |       | $                                                          | 1,214,289  |                                                                       | $          | 1,654,305     |       |   |   |   | $ | 266,604 |   |   |   | $ | 1,966,993 |   |   |
| Costs of services (excluding depreciation and  amortization disclosed below) |       | 1,106,571                                                  |       | 1,496,109                                                                  |       |          |       |   | 245,406 |   |   |   | 1,722,089 |   |   |
| Selling, general  and administrative                                         |       | 48,350                                                     |       | 57,755                                                                     |       |          |       |   | 8,408 |   |   |   | 97,520 |   |   |
| Depreciation and  amortization                                               |       | 8,148                                                      |       | 5,922                                                                      |       |          |       |   | 5,605 |   |   |   | 46,147 |   |   |
| Operating income                                                             |       | 51,220                                                     |       | 94,519                                                                     |       |          |       |   | 7,185 |   |   |   | 101,237 |   |   |
| Other expense  (income):                                                     |       |                                                       |       |                                                                       |       |          |       |   |   |   |   |   |   |   |   |
| Interest expense                                                             |       | —                                                     |       | —                                                                     |       |          |       |   | 8,054 |   |   |   | 56,686 |   |   |
| Interest Income                                                              |       | (64                                                        | )          | (170                                                                       | )          |          |       |   | (7 | ) |   |   | (461 | ) |   |
| Income (loss)  before income taxes                                           |       | 51,284                                                     |       | 94,689                                                                     |       |          |       |   | (862 | ) |   |   | 45,012 |   |   |
| Provision for  income taxes                                                  |       | 19,924                                                     |       | 34,956                                                                     |       |          |       |   | 60 |   |   |   | 16,627 |   |   |
| Net income (loss)                                                            |       | $                                                          | 31,360     |                                                                       | $          | 59,733        |       |   |   |   | $ | (922 | ) |   |   | $ | 28,385 |   |   |

 

 

See notes to consolidated financial statements.

 

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**DYNCORP INTERNATIONAL LLCCONSOLIDATED BALANCE SHEETSASSETS**(Dollars in thousands)

| ** **                                                                                                                                        | ** ** | **Successor**               | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                        | ** ** | **April 1, 2005** | ** ** | **March 31, 2006** | ** ** |
| Current assets:                                                                                                                                   |       |                        |       |   |   |
| Cash and cash equivalents                                                                                                                         |       | $13,474                     |       | $20,573 |   |
| Receivables, net of allowances for doubtful accounts  of $4,500 and $8,479  at April 1, 2005 and March 31, 2006, respectively           |       | 422,514                     |       | 440,195 |   |
| Prepaid expenses and other current assets                                                                                                         |       | 26,248                      |       | 43,733 |   |
| Deferred tax asset                                                                                                                                |       | —                      |       | 795 |   |
| Total current assets                                                                                                                              |       | 462,236                     |       | 505,296 |   |
| Property and equipment at cost, less accumulated  depreciation of $227 and $1,296 at April 1, 2005 and March 31,  2006, respectively    |       | 10,657                      |       | 8,769 |   |
| Other assets:                                                                                                                                     |       |                        |       |   |   |
| Goodwill                                                                                                                                          |       | 344,545                     |       | 420,180 |   |
| Tradename                                                                                                                                         |       | 18,318                      |       | 18,318 |   |
| Customer-related intangibles, net of accumulated  amortization of $5,094 and $43,471 at April 1, 2005 and March 31,  2006, respectively |       | 285,287                     |       | 246,910 |   |
| Other intangibles, net of accumulated amortization  of $383 and $3,672 at April 1, 2005 and March 31, 2006,  respectively               |       | 6,833                       |       | 7,453 |   |
| Deferred financing costs, net of accumulated  amortization of $383 and $3,261 at April 1, 2005 and March 31,  2006, respectively        |       | 19,438                      |       | 17,469 |   |
| Deferred income taxes                                                                                                                             |       | —                      |       | 11,518 |   |
| Other assets                                                                                                                                      |       | 879                         |       | 3,176 |   |
| Total other assets                                                                                                                                |       | 675,300                     |       | 725,024 |   |
| Total assets                                                                                                                                      |       | $1,148,193                  |       | $1,239,089 |   |

 

See notes to consolidated financial statements.

 

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**DYNCORP INTERNATIONAL LLCCONSOLIDATED BALANCE SHEETS (Continued)LIABILITIES AND MEMBER’S EQUITY(**Dollarsin thousands)

| ** **                                    | ** ** | **Successor**               | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **April 1, 2005** | ** ** | **March 31, 2006** | ** ** |
| Current liabilities:                          |       |                        |       |   |   |   |   |
| Current portion of long-term debt             |       | $                           | 37,588     |   |   | $ | 2,588 |   |   |
| Accounts payable                              |       | 135,677                     |       |   | 132,396 |   |   |
| Accrued payroll and employee costs            |       | 56,187                      |       |   | 65,586 |   |   |
| Accrued expenses - related party              |       | 8,866                       |       |   | 11,272 |   |   |
| Other accrued liabilities                     |       | 23,491                      |       |   | 33,845 |   |   |
| Income taxes                                  |       | 60                          |       |   | 8,280 |   |   |
| Total current liabilities                     |       | 261,869                     |       |   | 253,967 |   |   |
| Long-term debt - less current portion         |       | 662,412                     |       |   | 658,963 |   |   |
| Other long-term  liabilities                  |       | 4                           |       |   | — |   |   |
| Commitments and  contingencies                |       |                        |       |   |   |   |   |
| Member’s equity:                         |       |                        |       |   |   |   |   |
| Member’s units, 100 outstanding          |       | 224,808                     |       |   | 298,914 |   |   |
| (Accumulated deficit) retained earnings       |       | (922                        | )          |   | 27,463 |   |   |
| Accumulated other comprehensive income (loss) |       | 22                          |       |   | (218 | ) |   |
| Total member’s equity                    |       | 223,908                     |       |   | 326,159 |   |   |
| Total liabilities and  member’s equity   |       | $                           | 1,148,193  |   |   | $ | 1,239,089 |   |   |

 

See notes to consolidated financial statements.

 

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**DYNCORP INTERNATIONAL LLCCONSOLIDATED STATEMENTS OF CASH FLOWS**(Dollars in thousands)

| ** **                                                                                   | ** ** | **Immediate Predecessor**                       | ** ** | **Successor**                                                              | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **Fiscal Year  Ended  April 2, 2004** | ** ** | **Period From  April 3, 2004  to Feb. 11,  2005** | ** ** | ** ** | ** ** | **49 Days  Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended   March 31, 2006** | ** ** |   |
| **Cash flows from operating  activities:**                                                   | ** ** |                                                 | ** ** | ** **                                                                 |       | ** ** |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |
| Net income (loss)                                                                            |       |                                                 | $          | 31,360                                                                     |       |   | $ | 59,733 |   |   |   | $ | (922 | ) |   | $ | 28,385 |   |   |   |
| Adjustments to reconcile  net income to net cash (used in) provided by operating activities: |       |                                                 |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                |       |                                                 | 8,788      |                                                                       |       | 6,637 |   |   |   | 5,704 |   |   | 47,020 |   |   |   |
| Deferred financing cost amortization                                                         |       |                                                 | —     |                                                                       |       | — |   |   |   | 383 |   |   | 2,878 |   |   |   |
| Loss on disposition of assets                                                                |       |                                                 | 14         |                                                                       |       | 21 |   |   |   | — |   |   | — |   |   |   |
| Provision for losses on accounts receivable                                                  |       |                                                 | —     |                                                                       |       | 4,338 |   |   |   | — |   |   | 4,204 |   |   |   |
| Income from equity joint ventures                                                            |       |                                                 | (135       | )                                                                          |       | (65 | ) |   |   | (4 | ) |   | (214 | ) |   |   |
| Deferred taxes                                                                               |       |                                                 | 8,729      |                                                                       |       | 225 |   |   |   | — |   |   | (9,407 | ) |   |   |
| Compensation expense related to Class B equity  participation                           |       |                                                 | —     |                                                                       |       | — |   |   |   | — |   |   | 2,417 |   |   |   |
| Changes in current assets  and liabilities, net of effects from acquisitions:                |       |                                                 |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                          |       |                                                 | (85,190    | )                                                                          |       | (133,185 | ) |   |   | (58,344 | ) |   | (21,885 | ) |   |   |
| Prepaid expenses and other current assets                                                    |       |                                                 | (17,948    | )                                                                          |       | (20,672 | ) |   |   | 9,866 |   |   | (17,485 | ) |   |   |
| Accounts payable and accruals                                                                |       |                                                 | 47,736     |                                                                       |       | 80,658 |   |   |   | 12,017 |   |   | 10,828 |   |   |   |
| Income taxes payable                                                                         |       |                                                 | (110       | )                                                                          |       | 218 |   |   |   | 60 |   |   | 8,370 |   |   |   |
| Net cash (used in) provided by operating activities                                     |       |                                                 | (6,756     | )                                                                          |       | (2,092 | ) |   |   | (31,240 | ) |   | 55,111 |   |   |   |
| **Cash  flows from investing activities:**                                                   | ** ** |                                                 | ** ** | ** **                                                                 |       | ** ** |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |
| Net cash paid for businesses acquired                                                        |       |                                                 | —     |                                                                       |       | — |   |   |   | (865,053 | ) |   | — |   |   |   |
| Purchase of property and equipment                                                           |       |                                                 | (2,047     | )                                                                          |       | (8,473 | ) |   |   | (244 | ) |   | (2,271 | ) |   |   |
| Payment for computer software upgrade                                                        |       |                                                 | —     |                                                                       |       | — |   |   |   | — |   |   | (3,909 | ) |   |   |
| Other assets                                                                                 |       |                                                 | (245       | )                                                                          |       | (2,234 | ) |   |   | (4,097 | ) |   | (51 | ) |   |   |
| Net cash used in investing activities                                                        |       |                                                 | (2,292     | )                                                                          |       | (10,707 | ) |   |   | (869,394 | ) |   | (6,231 | ) |   |   |
| **Cash  flows from financing activities:**                                                   | ** ** |                                                 | ** ** | ** **                                                                 |       | ** ** |   |   |   | ** ** |   |   | ** ** | ** ** |   |   |
| Net transfers from Parent                                                                    |       |                                                 | 11,017     |                                                                       |       | 14,325 |   |   |   | — |   |   | — |   |   |   |
| Capital contributions                                                                        |       |                                                 | —     |                                                                       |       | — |   |   |   | 224,825 |   |   | — |   |   |   |
| Issuance of acquisition debt                                                                 |       |                                                 | —     |                                                                       |       | — |   |   |   | 665,000 |   |   | — |   |   |   |
| Payments for offering costs                                                                  |       |                                                 | —     |                                                                       |       | — |   |   |   | (18,753 | ) |   | (1,940 | ) |   |   |
| Net proceeds (payments) from credit line                                                     |       |                                                 | —     |                                                                       |       | — |   |   |   | 35,000 |   |   | (35,000 | ) |   |   |
| Payments on credit facility                                                                  |       |                                                 | —     |                                                                       |       | — |   |   |   | — |   |   | (3,449 | ) |   |   |
| Debt issuance costs                                                                          |       |                                                 | —     |                                                                       |       | — |   |   |   | — |   |   | (909 | ) |   |   |
| Purchase of interest rate cap                                                                |       |                                                 | —     |                                                                       |       | — |   |   |   | — |   |   | (483 | ) |   |   |
| Net cash provided by (used in) financing activities                                     |       |                                                 | 11,017     |                                                                       |       | 14,325 |   |   |   | 906,072 |   |   | (41,781 | ) |   |   |
| Net increase in cash and cash equivalents                                                    |       |                                                 | 1,969      |                                                                       |       | 1,526 |   |   |   | 5,438 |   |   | 7,099 |   |   |   |
| Cash and cash equivalents, beginning of period                                               |       |                                                 | 4,541      |                                                                       |       | 6,510 |   |   |   | 8,036 |   |   | 13,474 |   |   |   |
| Cash and cash  equivalents, end of period                                                    |       |                                                 | $          | 6,510                                                                      |       |   | $ | 8,036 |   |   |   | $ | 13,474 |   |   | $ | 20,573 |   |   |   |
|                                                                                              |            |                                                      |            |                                                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See notes to consolidated financial statements.

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**DYNCORP INTERNATIONAL LLCCONSOLIDATED STATEMENTS OF MEMBER’S EQUITY**(Dollars in thousands)

| ** **                                      | ** ** | **Parent’s Net  Investment** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|
| **Immediate Predecessor**                       | ** ** |                                   | ** ** | ** **                                                |       |      | ** ** | ** ** |   | ** ** | ** ** |
| Balance at  March 29, 2003                 |       |                                   | $          | 354,189                                                   | ** ** |      |       | $ | 9 |   |   | $ | 354,198 |   |
| Comprehensive  income:                          |       |                                   |       | ** **                                                |       |      |       |   |   |   |   |
| Net income                                      |       |                                   | 31,360     | ** **                                                |       |      | —     |   |   | 31,360 |   |
| Currency  translation adjustment                |       |                                   | —     | ** **                                                |       |      | (2         | ) |   | (2 | ) |
| Comprehensive  income                           |       |                                   |       | ** **                                                |       |      |       |   |   | 31,358 |   |
| Net transfers to  Computer Sciences Corporation |       |                                   | 11,017     | ** **                                                |       |      | —     |   |   | 11,017 |   |
| Balance at  April 2, 2004                  |       |                                   | 396,566    | ** **                                                |       |      | 7          |   |   | 396,573 |   |
| Comprehensive  income:                          |       |                                   |       | ** **                                                |       |      |       |   |   |   |   |
| Net income                                      |       |                                   | 59,733     | ** **                                                |       |      | —     |   |   | 59,733 |   |
| Currency  translation adjustment                |       |                                   | —     | ** **                                                |       |      | 60         |   |   | 60 |   |
| Comprehensive  income                           |       |                                   |       | ** **                                                |       |      | 67         |   |   | 59,793 |   |
| Net transfers to  Computer Sciences Corporation |       |                                   | 14,325     | ** **                                                |       |      |       |   |   | 14,325 |   |
| Balance at  February 11, 2005              |       |                                   | $          | 470,624                                                   | ** ** |      |       | $ | 67 |   |   | $ | 470,691 |   |

 

| ** **                                                     | ** ** | **Member’s  Units** | ** ** | **(Accumulated  Deficit)  Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------|------------|--------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|
| **Successor**                                                  | ** ** | ** **               | ** ** |                                           | ** ** | ** **                                                |       |      | ** ** | ** ** |   | ** ** | ** ** |
| Initial  Capitalization—February 12, 2005            |       | $                        | 224,808    |                                           |       | $                                                         | —     |      |       |   | $ | — |   |   | $ | 224,808 |   |
| Comprehensive  loss:                                           |       |                     |       |                                           |       |                                                      |       |      |       |   |   |   |   |
| Net loss                                                       |       |                     |       |                                           | (922       | )                                                         |       |      |       |   |   | (922 | ) |
| Currency translation adjustment                                |       |                     |       |                                           |       |                                                      |       |      | 22         |   |   | 22 |   |
| Comprehensive  loss                                            |       |                     |       |                                           |       |                                                      |       |      |       |   |   | (900 | ) |
| Balance at  April 1, 2005                                 |       | 224,808                  |       |                                           | (922       | )                                                         |       |      | 22         |   |   | 223,908 |   |
| Comprehensive  income:                                         |       |                     |       |                                           |       |                                                      |       |      |       |   |   |   |   |
| Net income                                                     |       |                     |       |                                           | 28,385     |                                                      |       |      |       |   |   | 28,385 |   |
| Interest rate cap                                              |       |                     |       |                                           |       |                                                      |       |      | (260       | ) |   | (260 | ) |
| Currency translation adjustment                                |       |                     |       |                                           |       |                                                      |       |      | 20         |   |   | 20 |   |
| Comprehensive  income                                          |       |                     |       |                                           | 28,385     |                                                      |       |      | (240       | ) |   | 28,145 |   |
| Working capital adjustment                                     |       | 71,689                   |       |                                           |       |                                                      |       |      |       |   |   | 71,689 |   |
| Compensation expense related to Class B equity  interests |       | 2,417                    |       |                                           |       |                                                      |       |      |       |   |   | 2,417 |   |
| Balance at  March 31, 2006                                |       | $                        | 298,914    |                                           |       | $                                                         | 27,463     |      |       |   | $ | (218 | ) |   | $ | 326,159 |   |

 

See notes to consolidated financial statements.

57

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands)**

**For the Year Ended April 2,2004, Period from April 3, 2004,49 Days Ended April 1, 2005 and Fiscal Year Ended March 31, 2006**

**Note 1—Summary ofSignificant Accounting Policies**

*Description ofBusiness and Organization*

DynCorp International LLC and subsidiaries, (the “Company”)provides defense and technical services and government outsourced solutionsprimarily to U.S. government agencies throughout the United States andinternationally. Key offerings include aviation services, such as maintenanceand related support, as well as base maintenance/operations and personal andphysical security services. Primary customers include the U.S. Departments ofDefense and State, but also include other government agencies, foreigngovernments and commercial customers.

On February 11, 2005, Computer SciencesCorporation and DynCorp, its former parent, sold the Company to DynCorpInternational Inc. (the “Successor Parent”), an entity controlled by TheVeritas Capital Fund II, L.P. and its affiliates (“Veritas”). The primaryreason for the acquisition and most significant factor contributing to thepreliminary goodwill value is the Company’s ability to leverage itsinfrastructure and management expertise in addressing the governmentoutsourcing trend. Prior to the February 11, 2005 acquisition, theentities to be sold were reorganized under DynCorp International LLC bytransfers of net assets and other wholly owned legal entities by companiesunder common control. The reorganization was recorded at historical cost andaccounted for on an “as if pooled” basis. Accordingly, the accompanyingconsolidated financial statements give retroactive effect to such transactionsas of the beginning of the first period presented. All significant intercompanybalances and transactions were eliminated.

The acquisition was accounted for under the purchasemethod, and accordingly, the purchase price was allocated to the net assetsacquired based on an estimate of the fair value at the date of the acquisition.(See Note 3 for further discussion.) Therefore, the period presented in the accompanying financial statementsreflects a new basis of accounting beginning February 12, 2005. Thefinancial statements from March 29, 2003 to February 11, 2005, arereferred to as the “immediate predecessor period” statements and the statementsfrom February 12, 2005 forward are referred to as the “successor period”statements.

The consolidated financial statements have beenprepared from the separate records maintained by segments comprising theCompany and may not necessarily be indicative of the conditions that would haveexisted, or the results of operations, if the Company had been operated as aseparate company prior to February 12, 2005.

The historical financial statements prior to February 12,2005, do not reflect the impact of many significant events and changes thathave occurred as a result of the separation from Computer Sciences Corporation,including, but not limited to, the establishment of a stand-alone capitalstructure; the issuance of the debt securities necessary to effect the sale(and the related incurrence of interest expense); and the creation ofindependent information technology, purchasing, banking, insurance and employeebenefits programs.

Historically, the Companyhas relied upon Computer Sciences Corporation to provide it with certainservices more fully described in Note 2. As a separate entity, the Companydeveloped and implemented the systems and infrastructure necessary to supportcurrent and future business. The Company and Computer 

58

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 1—Summaryof Significant Accounting Policies (Continued)**

SciencesCorporation have entered into a transition services agreement (see Note 2)whereby Computer Sciences Corporation provided some of these functions to theCompany for a specified period following the closing of the sale. Following theexpiration of the transition services agreement, the Company will be requiredto perform such functions internally or purchase them from unaffiliated vendorsor both. Management estimates that the stand-alone costs for all of the variousfunctions performed by Computer Sciences Corporation approximate the amountsallocated. It is possible that the Company may not be able to: (a) obtainservices from unaffiliated providers or (b) employ staff to handle thesefunctions internally at the same costs or other terms and conditions as thoseenjoyed as a subsidiary of Computer Sciences Corporation or pursuant to the transitionservices agreement.

*Principles of Consolidation*

The consolidated financial statements include theaccounts of the Company and its domestic and foreign subsidiaries. Allintercompany transactions and balances have been eliminated in consolidation. Allwholly owned subsidiaries have been included in the financial statements. TheCompany has no active majority-owned subsidiaries. Investments in which theCompany owns a 20% to 50% ownership interest are accounted for by the equitymethod. These investments are in business entities in which the Company doesnot have control, but has the ability to exercise significant influence overoperating and financial policies. The Company has no investments in businessentities of less than 20%.

Thefollowing table sets forth the Company’s ownership in joint ventures andcompanies that are not consolidated into the Company’s financial statements asof March 31, 2006, and are accounted for by the equity method. For all ofthe entities listed below, the Company has the right to elect half of the boardof directors or other management body. Economic rights are indicated by theownership 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 | % |

 

*Industry Segments*

The Company operates intwo principal operating segments, International Technical Services (“ITS”) andField Technical Services (“FTS”).

*Use of Estimates*

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the amounts reported in the financial statementsand accompanying notes. Management evaluates these estimates and assumptions onan ongoing basis, including those relating to allowances for doubtful accounts,fair value and impairment of intangible assets and goodwill, income taxes,profitability on 

59

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 1—Summaryof Significant Accounting Policies (Continued)**

contracts,anticipated contract modifications, contingencies and litigation. Actualresults could differ from those estimates.

*Parent NetInvestment*

Parent net investmentrepresents Computer Sciences Corporation’s net investments in our Company forthe immediate predecessor period. No intercompany interest income or expensewas allocated to, or included in, the accompanying financial statements.

*Revenue Recognition*

TheCompany provides its services under cost-reimbursement, time-and-materials andfixed-price contracts. The form of contract, rather than the type of serviceoffering, is the primary determinant of revenue recognition. Revenues arerecognized when persuasive evidence of an arrangement exists, services orproducts have been provided to the client, the sales price is fixed ordeterminable, and collectibility is reasonably assured. Revenues by contracttype for fiscal 2004 and 2006 and the combined period in fiscal 2005 were asfollows:

| ** **         | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|
| Cost-Reimbursement |       |     | 44         | %        |       |     | 34         | % |   |   | 28 | % |   |
| Time-and-Materials |       |     | 32         |     |       |     | 39         |   |   |   | 38 |   |   |
| Fixed-Price        |       |     | 24         |     |       |     | 27         |   |   |   | 34 |   |   |
| Total              |       |     | 100        | %        |       |     | 100        | % |   |   | 100 | % |   |

 

Revenue on fixed-price contracts is generallyrecognized ratably over the contract period, measured by either output or inputmethods appropriate to the services or products provided. For example, “outputmeasures” can include period of service, such as for aircraft fleetmaintenance; and units delivered or produced, such as aircraft for which modificationhas been completed. “Input measures” can include a cost-to-cost method, such asfor procurement-related services.

Revenue on fixed-price construction or production-typecontracts, when they occur, is recognized on the basis of the estimated percentage-of-completion.Progress toward completion is typically measured based on achievement ofspecified contract milestones, when available, or based on costs incurred as aproportion of estimated total costs. Profit in a given period is reported at theexpected profit margin to be achieved on the overall contract. This method canresult in the deferral of costs or profit on these contracts. Managementregularly reviews project profitability and underlying estimates. Revisions tothe estimates at completion are reflected in results of operations as a changein accounting estimate in the period in which the facts that give rise to therevision become known by management. Revenue on fixed- price contracts thathave a duration of less than six months is recognized on the completed contractmethod. Work in progress is classified as a component of inventory.

The Company provides for anticipated losses oncontracts by a charge to income during the period in which the losses are firstidentified. Amounts billed but not yet recognized as revenue under certaintypes of contracts are deferred. Unbilled receivables are stated at estimatedrealizable value. Contract costs on U.S. government contracts, includingindirect costs, are subject to audit and adjustment by negotiations 

60

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 1—Summaryof Significant Accounting Policies (Continued)**

between the Company andgovernment representatives. Substantially all of the Company’s indirectcontract costs have been agreed upon through 2004. Contract revenues on U.S.government contracts have been recorded in amounts that are expected to berealized upon final settlement.

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

Client contracts may include the provision of morethan one of the Company’s services. For revenue arrangements with multipledeliverables, revenue recognition includes the proper identification ofseparate units of accounting and the allocation of revenue across all elementsbased on relative fair values.

Many of the Company contracts are time-and-materialsor fixed hourly/daily rate contracts. For these contracts, revenue isrecognized each month based on actual hours/days charged to the program duringthat month multiplied by the fixed hourly/daily rate in the contract for thetype of labor charged. Any material or other direct charges are recognized asrevenue based on the actual direct cost plus Defense Contract AuditAgency-approved indirect rates.

Cost-reimbursement typecontracts can be either Cost Plus Fixed Fee, or Cost Plus Award Fee. Revenuerecognition for these two contract types is very similar. In both cases,revenue is based on actual direct cost plus Defense Contract AuditAgency-approved indirect rates. In the case of Cost Plus Fixed Fee, the fixedfee is recognized based on the ratio of the fixed fee for the contract to thetotal estimated cost of the contract. In the case of Cost Plus Award Feecontracts, the fee is made up of two components, base fee and award fee. Basefee is recognized in the same manner as the fee on Cost Plus Fixed Feecontracts. The award fee portion is recognized based on an average of the lasttwo award fee periods or award experience for similar contracts for newcontracts that lack specific experience.

*Allowance forDoubtful Accounts*

The Company establishes anallowance for doubtful accounts against specific billed receivables based uponthe latest information available to determine whether invoices are ultimatelycollectible. Such information includes the historical trends of write-offs andrecovery of previously written-off accounts, the financial strength of therespective customer and projected economic and market conditions. Theevaluation of these factors involves subjective judgments and changes in thesefactors may cause a misstatement of accounts receivable, which couldsignificantly impact our consolidated financial statements by incurring baddebt expense. Given that the Company primarily serves the U.S. government,management believes the risk to be relatively low that a misstatement ofaccounts receivable would have a material impact on the Company’s financialresults.

*Property andEquipment*

The Company’s depreciationand amortization policies are as follows:

| Property and equipment:        |   |                                                               |   |
|--------------------------------|--------|--------------------------------------------------------------------|--------|
| Computer and related equipment |   | 3 to  5 years                                                      |   |
| Furniture and other equipment  |   | 2 to  10 years                                                     |   |
| Leasehold  improvements        |   | Shorter of lease term or useful life |   |

 

61

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 1—Summaryof Significant Accounting Policies (Continued)**

The cost of property andequipment, less applicable residual values, is depreciated using the straight-linemethod. Depreciation commences when the specific asset is complete, installedand ready for normal use. As part of the purchase accounting, which resultedfrom the acquisition of the Company by the Successor Parent, all fixed assetswere adjusted to fair value on February 11, 2005, thus resettingaccumulated depreciation to $0 at the acquisition date. See Note 3 forfurther discussion of the acquisition.

*Indefinite LivedAssets*

Indefinite-lived assets,including goodwill, are not amortized but are subject to an annual impairmenttest. The first step of the impairment test, used to identify potentialimpairment, compares the fair value of each of the Company’s reporting unitswith its carrying amount, including indefinite-lived assets. If the fair valueof a reporting unit exceeds its carrying amount, indefinite-lived assets of thereporting unit are not considered impaired, and the second step of theimpairment test is unnecessary. If the carrying amount of a reporting unitexceeds its fair value, the second step of the impairment test shall beperformed to measure the amount of the impairment loss, if any. Effective April 1,2005 and February 24, 2006, the Company completed its annual impairmenttests. Based on the results of these tests, no impairment losses wereidentified.

*Impairment ofLong-Lived Assets*

The Company evaluates thecarrying value of long-lived assets to be held and used, other than goodwilland intangible assets with indefinite lives, when events and circumstancesindicate a potential impairment. The carrying value of a long-lived asset isconsidered impaired when the anticipated undiscounted cash flow from such assetis separately identifiable and is less than its carrying value. In that case, aloss is recognized based on the amount by which the carrying value exceeds thefair value of the long-lived asset. Fair value is determined primarily usingthe estimated cash flows associated with the asset under review, discounted ata rate commensurate with the risk involved. Losses on long-lived assets to bedisposed of are determined in a similar manner, except that fair values arereduced for the cost of disposal. Changes in estimates of future cash flowscould result in a write-down of the asset in a future period. As of March 31,2006, management believes there have been no events or circumstances that wouldindicate an impairment of long-lived assets.

*Income Taxes*

The Company’s operatingresults historically have been included in Computer Sciences Corporation’sconsolidated U.S. and state income tax returns and in tax returns of certainComputer Sciences Corporation foreign subsidiaries. Operating results from February 12,2005 forward will be included in such returns of the Company. The provision forincome taxes in the Company’s consolidated financial statements has beendetermined on a separate return basis. Deferred tax assets and liabilities arerecognized for expected tax consequences of temporary differences between thetax bases of assets and liabilities and their reported amounts.

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 1—Summaryof Significant Accounting Policies (Continued)**

*Fair Values ofFinancial Instruments*

Fair values of financialinstruments are estimated by the Company using available market information andother valuation methods. Values are based on available market quotes orestimates using a discounted cash flow approach based on the interest ratescurrently available for similar instruments. The fair values of financialinstruments for which estimated fair value amounts are not specificallypresented are estimated to approximate the related recorded value.

*Cash Flows*

For purposes of reporting cash and cash equivalents,the Company considers all investments purchased with an original maturity ofthree months or less to be cash equivalents.

Cashpayments (refunds) for taxes on income (loss) are noted in the table below. Amountsthrough February 11, 2005 are for foreign taxes on income (loss). Domesticpayments were processed and paid by Computer Sciences Corporation between March 29,2003 and February 11, 2005 and by DynCorp International LLC from February 12,2005 forward.

| ** **              | ** ** | **Immediate Predecessor**                   | ** ** | ** **                                                                 | ** ** | **Successor** | ** ** |
|-------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------|------------|
| ** **              | ** ** | **Fiscal Year  Ended  April 2,  2004** | ** ** | **Period From  April 3, 2004 to  Feb. 11,  2005** | ** ** | ** **    | ** ** | **49 Days  Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended  March 31,   2006** | ** ** |
| Taxes on income  (loss) |       |                                             | $          | 2,446                                                                      |       |          |       | $ | (10 | ) |   |   |   |   | $ | 2 |   |   |   | $ | 19,025 |   |   |
|                         |            |                                                  |            |                                                                            |            |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The Company paid interest of $322 and $57,464 duringthe 49 days ended April 1, 2005 and the fiscal year ended March 31,2006, respectively.

The Company had non-cashinvesting activities of $1,194 related to property and equipment purchases thatwere accrued at March 31, 2006. In addition, goodwill, member’s equity anddeferred tax assets increased by $75,635, $71,689 and $6,884, respectively,related to the purchase price working capital settlement agreement andadjustments.

*Recent AccountingPronouncements*

In December 2004, the Financial AccountingStandards Board (“FASB”) revised Statement of Financial Accounting Standards (“SFAS”)No. 123, “*Accounting for Stock-BasedCompensation*.”  The revisedSFAS No. 123 (“SFAS No. 123(R)”), “*Share-BasedPayment*,” supersedes Accounting Principles Board No. 25 (“APB No. 25”),“*Accounting for Stock Issued to Employees*.”  SFAS No. 123(R) requires allcompanies to measure and recognize compensation expense for all stock-basedpayments at fair value. Effective October 1, 2005, the Company adoptedSFAS No. 123(R) using the modified prospective application transitionmethod. SFAS No. 123(R) requires the measurement and recognition ofcompensation expense for all share-based payment awards made to employees anddirectors, including employee stock options and restricted stock grants relatedto the Company’s incentive plans, to be based on fair values. SFAS No. 123(R) supersedesthe Company’s previous accounting for these plans under APB No. 25 for theperiods beginning October 1, 2005. The adoption of SFAS No. 123(R) didnot have a material impact on the Company’s consolidated financial statements. Financialstatements for prior 

63

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 1—Summaryof Significant Accounting Policies (Continued)**

interim periods, fiscalyears and predecessor periods do not reflect any restated amounts as a resultof this adoption in accordance with the modified prospective applicationtransition method under SFAS No. 123(R).

In March 2005, the FASB issued FASBInterpretation No. 47 (“FIN 47”) “*Accountingfor Conditional Retirement Obligations*,” which clarifies the term “conditionalasset retirement obligations,” as used in FASB Statement No. 143, “*Accounting for Asset Retirement Obligations*.”  FIN 47 clarifies that an entity is requiredto recognize a liability for a legal obligation to perform asset retirementactivities when the retirement is conditional on a future event and if theliability’s fair value can be reasonably estimated. If the liability’s fairvalue cannot be reasonably estimated, then the entity must disclose adescription of the obligation, the fact that a liability has not beenrecognized and the reasons why the liability cannot be reasonably estimated. Therequirements of FIN 47 are effective for fiscal periods ending after December 15,2005. The adoption of FIN 47 did not have any effect on the Company’s consolidatedfinancial statements.

In May 2005, the FASBissued SFAS No. 154, “*Accounting Changes andError Corrections*,” which is effective for voluntary changes inaccounting principles made in fiscal years beginning after December 15,2005. SFAS No. 154 replaces APB Opinion No. 20 (“APB 20”), “*Accounting Changes*” and SFAS No. 3, “*Reporting Accounting Changes in Interim Financial Statements.*”  SFAS No. 154 requires that voluntarychanges in accounting principle be applied on a retrospective basis to priorperiod financial statements and eliminates the provisions of APB 20 thatcumulative effects of voluntary changes in accounting principles be recognizedin net income in the period of change. The adoption of SFAS No. 154did not have any effect on the Company’s consolidated financial statements.

**In November 2005, the FASBissued FASB Staff Position No. FIN 45-3 (“FSP FIN 45-3”) “*Application of FASB Interpretation No. 45 toMinimum Revenue Guarantees Granted to a Business or Its Owners*,”which is effective for new minimum revenue guarantees issued or modified on orafter the beginning of the first fiscal quarter following the date FSP FIN 45-3was issued. FSP FIN 45-3 amends FASB Interpretation No. 45, “*Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness of Others*”**toinclude guarantees granted to a business that the revenue of the business for aspecified period of time will be at least a specified minimum amount under itsrecognition, measurement and disclosure provisions. This interpretation iseffective for the Company beginning on January 1, 2006. The adoption ofFSP FIN 45-3 did not have any effect on the Company’s consolidatedfinancial statements.**

*Reclassifications*

Certain amounts fromprevious periods have been reclassified in the accompanying consolidatedfinancial statements to conform to the 2006 presentation. Thesereclassifications did not affect net income (loss).

**Note 2—TransactionsBetween Immediate Predecessor Parent and the Company**

During the period offiscal 2004 and the period from April 3, 2004 to February 11, 2005,the Company’s predecessor parent allocated $12,700 and $11,900, respectively,of expenses to the Company 

64

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 2—TransactionsBetween Immediate Predecessor Parents and the Company (Continued)**

incurredfor providing executive oversight and corporate headquarter functions,consolidation accounting, treasury, tax, legal, public affairs, humanresources, information technology and other services. The Company considers theallocations to be reasonable reflections of the utilization of servicesprovided to, or the benefit received by, the Company. Computer SciencesCorporation continued to perform certain of these functions under a transitionservices agreement, described below, until the Company assumed fullresponsibility for them as a separate company. Until then, the Company’s costsfor these functions will be included both as charges from Computer SciencesCorporation under the transition services agreement and as the Company’s owncosts to initiate and perform these functions.

*Transition ServicesAgreement*

The Company and Computer Sciences Corporation enteredinto a transition services agreement (the “Agreement”) at the closing of thesale of the Company on February 11, 2005. The Agreement sets forth theterms and conditions under which the Company and Computer Sciences Corporationprovide certain services to each other.

The Agreement commenced on the closing of the sale,and each party is obligated to provide specified services for terms rangingfrom six months to ten years following the closing, unless terminated earlierby either party.

Fees are generally payable on an hourly basis forservices performed by individuals or on a fixed monthly charge for the use ofsystems and related support.

Under the Agreement, the Company is obligated toprovide, upon Computer Sciences Corporation’s request, consultative servicesrelating to legacy employee benefit plans and related matters, and is requiredto continue to host electronic mail services for specified units of DynCorpthat remain as subsidiaries of Computer Sciences Corporation.

Under the Agreement,Computer Sciences Corporation agreed to provide the Company with the followingsignificant services:

·       infrastructure andapplication support for the Company’s financial and enterprise resourceplanning systems through May 2006;

·       payroll tax processingservices for a significant portion of the employees of the Company through May 2005;and

·       upon request of theCompany, consultative services in the areas of risk management.

Client Service Agreements—Computer SciencesCorporation and the Company have agreed to continuation and transition termsfor certain areas where the two entities support each other’s clients.

Intellectual Property Agreements—Computer SciencesCorporation has entered into various intellectual property agreements (“IPAgreements”) with the Company for certain Computer Sciences Corporation-ownedintellectual property, such as tradename and software license agreements. Thereis no fee for the granting of the identified licenses to the Company. The IPAgreements were recorded at fair value on February 11, 2005 (see Note 3). TheIP Agreements generally provide the Company with an exclusive, perpetual,irrevocable (but terminable) worldwide, royalty-free, fully paid license to usethe 

65

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 2—TransactionsBetween Immediate Predecessor Parents and the Company (Continued)**

intellectual properties. Theterm of the IP Agreements commenced on the date of the sale of the Company tothe Successor Parent and continues as long as the licensee continues to use anyof the intellectual property, unless sooner terminated. The IP Agreements maybe terminated if an acquisition of the Company takes place or the Company submitsin writing to Computer Sciences Corporation a request to terminate thecontract, and Computer Sciences Corporation may terminate if the Companycommits a material breach of these IP Agreements, as described in the IPAgreements.

Transactionsunder the above agreements were as follows for the 49 days ended April 1,2005 and the fiscal year ended March 31, 2006:

| **Service Provider**      | ** ** | ** ** | ** ** | **49 Days  Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended  March 31, 2006** | ** ** |
|--------------------------------|------------|------------|------------|--------------------------------------------------|------------|-------------------------------------------------------|------------|
| Computer Sciences  Corporation |       |       | $          | 355                                              |       |                                                  |       | $ | 1,613 |   |   |
| Company                        |       |       | $          | 3                                                |       |                                                  |       | $ | 59 |   |   |

 

*Management Fee*

The Company agreed to payVeritas minimum annual management fees of $300. The Company recorded $25 and$300 in fees during the 49 days ended April 1, 2005 and the fiscal year March 31,2006, respectively.

**Note 3—Acquisitions**

**February 11,2005 Transaction**

On February 11, 2005, the Successor Parentcompleted the acquisition of all of the outstanding equity securities of theCompany for a purchase price of $865,288, including $775,000 of cash, preferredstock of the Successor Parent valued at $75,000 and transaction expenses. Thecash payment and transaction expenses were financed through the issuance of the9.5% senior subordinated notes, borrowings under the Credit Facility (see Note9) and DynCorp International Inc.’s cash investment of $150,000.

The original purchase price was subject to anadjustment to the extent that the net working capital of the Company differedfrom the original agreed-upon level. As required under the purchase agreementrelated to the 2005 Acquisition, Computer Sciences Corporation delivered to theCompany a draft calculation of the net working capital on April 6, 2005. TheCompany delivered to Computer Sciences Corporation a notice objecting to thedraft calculation on May 5, 2005. The Company and Computer SciencesCorporation agreed upon the final calculation (the “working capital settlementagreement”) on October 27, 2005. The working capital settlement agreementresulted in an increase to the purchase price in an amount of $65,550 payablein shares of preferred stock of the Successor Parent. The preferred sharesissued in connection with the working capital settlement agreement accumulateddividends from the date of acquisition, February 11, 2005. The Company hasrecorded the settlement amount, which includes both the preferred stock issued(i.e., $65,550) and the accumulated dividends through October 27, 2005(i.e., $6,139), as an increase to goodwill and member’s equity at March 31,2006. Related to the accumulated amount of $6,139, the Company recorded adeferred tax liability in the amount of $2,201 with a corresponding increase togoodwill.

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 3—Acquisitions(Continued)**

In addition to the working capital settlementpreviously described, the Company agreed to assume additional liability toinsurance related items, such as workers’ compensation, in effect prior to theacquisition date. The Company has recorded an adjustment to the originalpurchase price by increasing workers’ compensation liability by $6,884 andincreasing goodwill in a like amount.

The goodwill recorded related to the 2005 Acquisitionwas based on preliminary purchase price allocations. The Company finalized thetax treatment on two items during the third quarter, which resulted in anincrease of deferred tax assets and a reduction of goodwill in the amount of$5,139.

The acquisition was accounted for under the purchasemethod, and accordingly, the purchase price of the acquisition was allocated tothe net assets acquired based on the fair values at the date of theacquisition.

A summary of the assets acquired and liabilitiesassumed in the acquisition is as follows:

| ** **                                 | ** ** | **Estimated  Fair Values** | ** ** |
|--------------------------------------------|------------|---------------------------------|------------|
| Accounts  receivable                       |       | $                               | 364,170    |   |
| Prepaid expenses  and other current assets |       | 36,008                          |       |
| Intangible assets                          |       | 312,068                         |       |
| Property and  equipment                    |       | 10,640                          |       |
| Other assets                               |       | 13,831                          |       |
| Accounts payable  and accrued expenses     |       | (217,662                        | )          |
| Other long-term  liabilities               |       | (2,258                          | )          |
| Goodwill                                   |       | 420,180                         |       |
| Purchase price                             |       | 936,977                         |       |
| Less cash received                         |       | (8,036                          | )          |
| Purchase price, net of  cash received      |       | $                               | 928,941    |   |

 

The intangible assets include customer relationshipsand internally developed technologies of $290,381 and $3,369, respectively. Thecustomer relationships were valued at the contract level and are amortizedratably over the estimated life used in determining contract specific value. Whenmeasuring across all contracts, customer relationships have a weighted-averageestimated useful life of approximately 8.5 years. The internally developedtechnologies have an estimated useful life of two years and are amortizedratably over the useful life. The tradename of $18,318 is assigned to thereportable segments as follows: Field Technical Services—$1,040 andInternational Technical Services—$17,278. The tradename is not amortized forfinancial reporting purposes but is deductible for tax purposes.

Goodwill of $420,180 is assigned to the reportablesegments as follows: Field Technical Services—$100,314 and InternationalTechnical Services—$319,866. The goodwill is not amortized for financialreporting purposes but is deductible for tax purposes.

The Company’s member’s equity at February 12,2005, reflects DynCorp International Inc.’s investment of $225,000 less relatedexpenses of $192. In connection with the acquisition, Veritas was paid a$12,100 transaction fee and reimbursed for $880 of expenses. The Company alsopaid $3,875 of employee retention bonuses, which were expensed over a six-monthperiod beginning February 12, 2005.

67

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 4—Goodwill andTradename**

**A summary of the changes in thecarrying amount of indefinite-lived assets by segment is as follows:**

| ** **                            | ** ** | **FTS**  | ** ** | **ITS**  | ** ** | **Total** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| **Immediate Predecessor**             |       |     |       |     |       |      |       |
| Balance as of  April 3, 2004     |       | $        | 120,115    |     | $          | 139,574   |       | $ | 259,689 |   |
| Adjustments                           |       | (120,115 | )          | (139,574 | )          | (259,689  | )          |
| Balance as of  February 11, 2005 |       | $        | —     |     | $          | —    |       | $ | — |   |
| **Successor**                         |       |     |       |     |       |      |       |
| Balance as of  February 12, 2005 |       | $        | 83,254     |     | $          | 279,609   |       | $ | 362,863 |   |
| Additions                             |       | —   |       | —   |       | —    |       |
| Balance as of  April 1, 2005     |       | 83,254   |       | 279,609  |       | 362,863   |       |
| Additions                             |       | 18,100   |       | 57,535   |       | 75,635    |       |
| Balance as of  March 31, 2006    |       | $        | 101,354    |     | $          | 337,144   |       | $ | 438,498 |   |

 

Adjustments are to removeprior goodwill upon the acquisitions of the Company by Computer SciencesCorporation and the Successor Parent on February 11, 2005. Indefinite-livedassets as of February 12, 2005 are the result of the Successor Parent’sacquisition of the Company as of February 11, 2005.

**Note 5—Other IntangibleAssets**

A summary of amortizable intangible assets is asfollows:

| ** **                          | ** ** | **April 1, 2005** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| **Immediate Predecessor**      | ** ** | ** **                  | ** ** | **Weighted-  Average  Amortization  Period** | ** ** | **Gross  Carrying Value** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Customer-related  intangible assets |       |                        | 8.5        |   |   |   | $ | 290,381 |   |   |   | $ | (5,094 | ) |   | $ | 285,287 |   |
| Other                               |       |                        | 2.0        |   |   |   | 7,216 |   |   |   | (383 | ) |   | 6,833 |   |
| Deferred  financing cost            |       |                        | 7.1        |   |   |   | 19,821 |   |   |   | (383 | ) |   | 19,438 |   |
|                                |       |                        |       |   |   |   | $ | 317,418 |   |   |   | $ | (5,860 | ) |   | $ | 311,558 |   |
|                                     |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                          | ** ** | **March 31, 2006** | ** ** |
|-------------------------------------|------------|------------------------------|------------|
| **Successor**                       | ** ** | ** **                   | ** ** | **Weighted-  Average  Amortization  Period** | ** ** | **Gross  Carrying Value** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Customer-related  intangible assets |       |                         | 8.5        |   |   |   | $ | 290,381 |   |   |   | $ | (43,471 | ) |   | $ | 246,910 |   |
| Other                               |       |                         | 4.1        |   |   |   | 11,124 |   |   |   | (3,671 | ) |   | 7,453 |   |
| Deferred  financing cost            |       |                         | 7.1        |   |   |   | 20,730 |   |   |   | (3,261 | ) |   | 17,469 |   |
|                                |       |                         |       |   |   |   | $ | 322,235 |   |   |   | $ | (50,403 | ) |   | $ | 271,832 |   |
|                                     |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Amortization expense for customer-related and otherintangibles was $7,915, $5,300, $5,477 and $41,665 for the fiscal year ended April 2,2004, the period from April 3, 2004 to February 11, 2005, the 49 

68

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note5—Other Intangible Assets (Continued)**

days ended April 1, 2005 and the fiscal yearended March 31, 2006, respectively. Deferred financing cost is amortizedthrough interest expense. Amortization related to deferred financing costs was$383 and $2,878 for the 49 days ended April 1, 2005 and the fiscal yearended March 31, 2006, respectively. Estimated amortization related tointangible assets at March 31, 2006 for fiscal years 2007 through 2011, isas follows: $44,359, $42,409, $39,239, $38,957 and $35,392, respectively.

**Note 6—Income Taxes**

The sources of income (loss) before taxes, classifiedas between domestic entities and those entities domiciled outside of the UnitedStates are as follows:

| ** **                          | ** ** | **Immediate Predecessor**                         | ** ** | ** **                                                                     | ** ** | **Successor** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                          | ** ** | **Fiscal Year  Ended   April 2,  2004** | ** ** | **Period From  April 3, 2004 to  Feb. 11, 2005** | ** ** | ** **    | ** ** | **49 Days  Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended  March 31,   2006** | ** ** |
| Domestic entities                   |       |                                                   | $          | 50,865                                                                         |       |          |       | $ | 94,334 |   |   |   |   |   | $ | (693 | ) |   |   | $ | 44,652 |   |   |
| Entities outside  the United States |       |                                                   | 419        |                                                                           |       |          | 355        |   |   |   |   |   | (169 | ) |   |   | 360 |   |   |
|                                |       |                                                   | $          | 51,284                                                                         |       |          |       | $ | 94,689 |   |   |   |   |   | $ | (862 | ) |   |   | $ | 45,012 |   |   |

 

Theprovision (benefit) for taxes on income (loss) classified between current anddeferred and between taxing jurisdictions consists of the following:

| ** **                                                             | ** ** | **Immediate Predecessor**                   | ** ** | ** **                                                                     | ** ** | **Successor** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                             | ** ** | **Fiscal Year  Ended  April 2,  2004** | ** ** | **Period From  April 3, 2004 to  Feb. 11, 2005** | ** ** | ** **    | ** ** | **49 Days  Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended  March 31,   2006** | ** ** |
| Current portion:                                                       |       |                                             |       |                                                                           |       |          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                                                                |       |                                             | $          | 9,446                                                                          |       |          |       | $ | 32,658 |   |   |   |   |   | $ | — |   |   |   | $ | 22,849 |   |   |
| State                                                                  |       |                                             | 1,540      |                                                                           |       |          | 1,627      |   |   |   |   |   | — |   |   |   | 1,448 |   |   |
| Foreign                                                                |       |                                             | 209        |                                                                           |       |          | 446        |   |   |   |   |   | 60 |   |   |   | 1,618 |   |   |
|                                                                   |       |                                             | 11,195     |                                                                           |       |          | 34,731     |   |   |   |   |   | 60 |   |   |   | 25,915 |   |   |
| Deferred portion:                                                      |       |                                             |       |                                                                           |       |          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                                                                |       |                                             | 7,505      |                                                                           |       |          | 214        |   |   |   |   |   | (349 | ) |   |   | (8,797 | ) |   |
| State                                                                  |       |                                             | 1,224      |                                                                           |       |          | 11         |   |   |   |   |   | (14 | ) |   |   | (338 | ) |   |
| Foreign                                                                |       |                                             | —     |                                                                           |       |          | —     |   |   |   |   |   | — |   |   |   | (153 | ) |   |
|                                                                   |       |                                             | 8,729      |                                                                           |       |          | 225        |   |   |   |   |   | (363 | ) |   |   | (9,288 | ) |   |
| Total provision  (benefit) for income taxes before valuation allowance |       |                                             | $          | 19,924                                                                         |       |          |       | $ | 34,956 |   |   |   |   |   | $ | (303 | ) |   |   | $ | 16,627 |   |   |
| Valuation  allowance                                                   |       |                                             | —     |                                                                           |       |          | —     |   |   |   |   |   | 363 |   |   |   | — |   |   |
|                                                                   |       |                                             | $          | 19,924                                                                         |       |          |       | $ | 34,956 |   |   |   |   |   | $ | 60 |   |   |   | $ | 16,627 |   |   |

 

69

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 6—Income Taxes(Continued)**

The major elementscontributing to the difference between the federal statutory tax rate and theeffective tax rate are as follows:

| ** **                                          | ** ** | **Immediate Predecessor**                   | ** ** | ** **                                                                     | ** ** | **Successor** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                          | ** ** | **Fiscal Year  Ended  April 2,  2004** | ** ** | **Period From  April 3, 2004 to  Feb. 11, 2005** | ** ** | ** **    | ** ** | **49 Days  Ended  April 1, 2005** | ** ** | **Fiscal Year  Ended  March 31,   2006** | ** ** |
| Statutory rate                                      |       |                                             | 35.0       | %                                                                              |       |          | 35.0       | % |   |   |   |   | (35.0 | )% |   |   | 35.0 | % |   |
| State income tax,  less effect of federal deduction |       |                                             | 3.5        |                                                                           |       |          | 1.7        |   |   |   |   |   | (1.7 | ) |   |   | 1.4 |   |   |
| Other                                               |       |                                             | .4         |                                                                           |       |          | .2         |   |   |   |   |   | 1.6 |   |   |   | 1.3 |   |   |
| Valuation  allowance                                |       |                                             | —     |                                                                           |       |          | —     |   |   |   |   |   | 42.1 |   |   |   | (0.8 | ) |   |
| Effective tax rate                                  |       |                                             | 38.9       | %                                                                              |       |          | 36.9       | % |   |   |   |   | 7.0 | % |   |   | 36.9 | % |   |

 

The Company’s blended state tax rate has been computedby using the same weighted apportionment factor as DynCorp, which is notexpected to be materially different from the Company’s expected state tax rateon a separate basis.

Thetax effects of significant temporary differences that comprise deferred taxbalances are as follows:

| ** **                         | ** ** | **Successor**                 | ** ** |
|------------------------------------|------------|-------------------------------|------------|
| ** **                         | ** ** | **April 1,   2005** | ** ** | **March 31,   2006** | ** ** |
| Deferred tax  (liabilities) assets |       |                          |       |   |   |   |   |   |   |
| Customer intangibles               |       |                          | $          | 184 |   |   |   | $ | (897 | ) |   |
| Contract accounting                |       |                          | (297       | ) |   |   | (1,801 | ) |   |
| Net operating loss carryforwards   |       |                          | 146        |   |   |   | — |   |   |
| Foreign tax credit carryforwards   |       |                          | 60         |   |   |   | — |   |   |
| Depreciable assets                 |       |                          | —     |   |   |   | 765 |   |   |
| Accrued health costs               |       |                          | —     |   |   |   | 853 |   |   |
| Workers’ compensation         |       |                          | —     |   |   |   | 3,351 |   |   |
| Accrued vacation                   |       |                          | —     |   |   |   | 5,853 |   |   |
| Bad debt                           |       |                          | —     |   |   |   | 3,096 |   |   |
| Prepaid insurance                  |       |                          | —     |   |   |   | (5,754 | ) |   |
| Accrued liability insurance        |       |                          | —     |   |   |   | 1,206 |   |   |
| Accrued executive incentives       |       |                          | —     |   |   |   | 1,729 |   |   |
| Contract loss reserve              |       |                          | —     |   |   |   | 1,030 |   |   |
| Completion bonus                   |       |                          | —     |   |   |   | 2,370 |   |   |
| Other                              |       |                          | 270        |   |   |   | 512 |   |   |
| Valuation allowance                |       |                          | (363       | ) |   |   | — |   |   |
| Total deferred taxes               |       |                          | $          | — |   |   |   | $ | 12,313 |   |   |

 

Deferred tax liabilitiesassociated with contract accounting, bad debts, prepaid expenses, completionbonus and accrued expenses are classified as current deferred taxes on thebalance sheet. The remaining deferred balances are non-current deferred taxeson the balance sheet.

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 7—Receivables**

Receivablesconsist of the following:

| ** **                   | ** ** | **Successor**           | ** ** |
|------------------------------|------------|-------------------------|------------|
| ** **                   | ** ** | **April 1,  2005** | ** ** | **March 31,  2006** | ** ** |
| Billed                       |       | $                       | 169,229    |   | $ | 188,458 |   |
| Unbilled                     |       | 243,362                 |       | 248,994 |   |
| Unbilled—related  party |       | 6,409                   |       | 495 |   |
| Other receivables            |       | 3,514                   |       | 2,248 |   |
|                         |       | $                       | 422,514    |   | $ | 440,195 |   |

 

Unbilled receivables at April 1,2005 and March 31, 2006 include $54,484 and $31,303, respectively, relatedto costs incurred on projects for which the Company has been requested by thecustomer to begin work under a new contract or extend work under an existingcontract, and for which formal contracts or contract modifications have notbeen executed at the end of the year. The Company records revenue, to theextent of costs, for these anticipated contract modifications. The balance ofunbilled receivables consists of costs and fees billable on contract completionor other specified events, the majority of which is expected to be billed andcollected within one year. Contract retentions are billed when the Company hasnegotiated final indirect rates with the U.S. government and, once billed, aresubject to audit and approval by outside third parties. Consequently, thetiming of collection of retention balances of $40 and $10 as of April 1,2005 and March 31, 2006, respectively, is outside the Company’s control. Basedon the Company’s historical experience, the majority of the retention balanceis expected to be collected beyond one year.

**Note 8—Savings Plans**

*DefinedContribution Savings Plans*

For the periods presented through February 11,2005, substantially all domestic Company employees and certain foreignemployees were able to participate in (a) one of two legacy definedcontribution savings plans sponsored by DynCorp, its former parent, until July 2,2004, and (b) after July 2, 2004, in a defined contribution savingsplan sponsored by Computer Sciences Corporation, into which the legacy plansmerged. The plans allowed employees to contribute a portion of their earningsin accordance with specified guidelines. For the plans sponsored by its formerparent at April 2, 2004, plan assets included 6,703,868 shares of ComputerSciences Corporation’s common stock, of which 3,073,632 shares were held forCompany participants. During the year ended April 2, 2004 and the periodfrom April 3, 2004 to February 11, 2005, the Company contributed$7,838, and $6,783, respectively.

In July 2004, the savings plans were merged intoComputer Sciences Corporation’s defined contribution plan, the Matched AssetPlan (“MAP”). After the plan merger, the match and employer contributionformulas in the MAP remained substantially unchanged from their form in the savingsplans.

Effective January 6,2005, the MAP was bifurcated into two mirror image plans, the Computer SciencesCorporation MAP plan and the DynCorp International LLC MAP plan. The Companyadopted an amendment to the DynCorp International LLC MAP plan that preventedany new Company or participant contributions going to the Computer SciencesCorporation stock fund, changed all new 

71

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note8—Savings Plans (Continued)**

Companycontributions to cash, made all Computer Sciences Corporation stock fundamounts diversifiable and offered the Computer Sciences Corporation stock fundas an investment alternative for two years. All other terms of the plan areunchanged. During the 49 days ended April 1, 2005 and fiscal year ended March 31,2006, the Company contributed $1,226 and $8,343, respectively, to the DynCorpInternational LLC MAP plan.

*Other Benefit Plans*

In 1997, DynCorpestablished the supplemental executive retirement plan, which offered certainexecutives additional retirement benefits in the form of a 10-yearcertain stream of payments based on a percentage of final-year annualcompensation. The plan also included pre- and post-retirement lump-sum deathbenefit provisions. For Company participants in the plan, the Company recordeda liability in the amount of $200 as of April 2, 2004, for theseretirement balances. At the date of the sale of the Company to Veritas Capital,participants were deemed to be terminated and the Company’s obligations underthe plan ceased. However, a successor plan will be established, giving creditfor prior service, the effect of which will be to establish a comparableliability. The Company has recorded a related liability of $222 at April 1,2005 and March 31, 2006.

**Note 9—Long-Term Debt**

Long-termdebt consists of the following:

| ** **                              | ** ** | **Successor**                 | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **April 1,   2005** | ** ** | **March 31,  2006** | ** ** |
| Senior Secured Credit  Facility:        |       |                          |       |   |   |
| Revolving credit  line                  |       | $                             | 35,000     |   | $ | — |   |
| Term loans                              |       | 345,000                       |       | 341,551 |   |
| Senior  subordinated notes              |       | 320,000                       |       | 320,000 |   |
|                                    |       | 700,000                       |       | 661,551 |   |
| Less current  portion of long-term debt |       | (37,588                       | )          | (2,588 | ) |
|                                    |       | $                             | 662,412    |   | $ | 658,963 |   |

 

**Senior Secured CreditFacility**—The Company enteredinto a senior secured credit facility (the “Senior Secured Credit Facility’’) onFebruary 11, 2005, which provides for a revolving credit line and termloans. Borrowings under the Senior Secured Credit Facility are secured bysubstantially all assets of the Company and the capital stock of the Company’ssubsidiaries.

The amended revolving credit line provides forborrowings of up to $90,000, less outstanding letters of credit. The Companymay elect to receive advances under the revolving credit line in the form ofeither Base Rate advances or Eurodollar advances, as defined by the SeniorSecured Credit Facility. The outstanding advances bear interest at theapplicable Base Rate plus the Applicable Margin (1.5% at March 31, 2006)or Eurodollar Rate plus the Applicable Margin (2.5% at March 31, 2006), asdefined by the Credit Facility agreement, and are due in 2010. At March 31,2006, availability under the revolving credit line for additional borrowingswas approximately $82,478 (which gives effect to $7,522 of 

72

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note9—Long-Term Debt (Continued)**

outstanding letters ofcredit, which reduced availability by that amount). The Senior Secured CreditFacility requires an unused line fee equal to 0.5% per annum, payable monthlyin arrears, of the unused portion of the revolving credit facility.

The Senior Secured Credit Facility also provides for acommitment guarantee of a maximum of $15,000 for letters of credit,subsequently amended to $30,000 in January 2006. The Senior Secured CreditFacility requires letter of credit fees equal to 2.5%, payable monthly inarrears on the amount available for drawing under all letters of credit. TheCompany has $7,522 outstanding letters of credit at March 31, 2006.

Term loans under the Senior Secured Credit Facilityinitially provided $345,000 to the Company and are due in quarterly payments of$863 through April 1, 2010, and $81,938 thereafter, with final payment dueFebruary 11, 2011. Interest is due quarterly at the Base Rate plus theApplicable Margin or the Eurodollar Rate plus the Applicable Margin (1.75% perannum and 2.75% per annum at March 31, 2006, respectively).

On January 9, 2006, the Company entered into thefirst amendment and waiver of its Senior Secured Credit Facility. The firstamendment and waiver increased the revolving commitment under its SeniorSecured Credit Facility by $15,000 to $90,000, which includes an increase inthe sub-limit for letters of credit equal to the same amount. The firstamendment and waiver also permits the Company to: (i) pay a transactionfee to Veritas Capital Management II, L.L.C. related to the Equity Offering ofup to $10,000; (ii) pay a distribution to the holders of the Class Bcommon stock in an amount equal to the sum of (x) $100,000 plus (y) theproceeds, if any, of the underwriters’ over-allotment option, net of discountand estimated offering expenses; (iii) redeem all of the currentlyoutstanding preferred stock; and (iv) redeem up to $65,000 of the $320,000aggregate principal amount of the Company’s senior subordinated notes. Thefirst amendment and waiver waives the requirement in the Senior Secured CreditFacility agreement that the Company use 50% of the net cash proceeds from theEquity Offering to prepay loans under the Senior Secured Credit Facility and/orpermanently reduce the revolving commitments.

On June 28, 2006, theCompany and its Successor Parent entered into a second amendment and waiver ofour Senior Secured Credit Facility, dated February 11, 2005. The secondamendment and waiver provided for a new term loan in the amount of $431,550,which was the outstanding balance of the existing term loan under our SeniorSecured Credit Facility on the date of the second amendment and waiver. Thematurity date of the new term loan is unchanged from the maturity date of theexisting term loan. The proceeds from the new term loan were used to repay theexisting term loan. The second amendment and waiver also, among other things,(i) decreases the interest rate applicable to the term loan under our Senior SecuredCredit Facility; (ii) permits us to request an increase in our revolving creditfacility by an aggregate amount of up to $30,000 provided that none of theexisting lenders or any other lender is committed to provide such increase;(iii) increases the amount of capital expenditures permitted under our seniorsecured credit facility from $4,000 per fiscal year to $8,000per fiscal year;(iv) increases the amount of capitalized leases permitted under our seniorsecured credit facility; (v) allows for the payment of dividends and therepurchase of our capital stock in the amount of $10,000 plus, if our leverageratio (as defined in our senior secured credit facility) is below 3.25:1.00,25% of our excess cash flow (as defined in our senior secured credit facility)for each fiscal year; and (vi) postpones the first prepayment of the senior 

73

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 9—Long-Term Debt (Continued)**

secured credit facilitybased on our excess cash flow until 90 days following our fiscal year whichends on March 30, 2007.

The Credit Facility requires defined prepayments ofborrowings based on excess cash flows and certain other events.

**9.5% Senior SubordinatedNotes**—The Company issuedsenior subordinated notes totaling $320,000 that are held by various financialinstitutions at March 31, 2006. Interest on the senior subordinated notesis due semi-annually at a fixed annual rate of 9.5%. The senior subordinatednotes are due on February 15, 2013, or upon a defined change in control orcertain offering and are general unsecured obligations of the Company andcertain guarantor subsidiaries.

Prior to February 15, 2009, the Company mayredeem the senior subordinated notes, in whole or in part, at a price equal to100% of the principal amount of the senior subordinated notes plus a definedmake-whole premium, plus accrued interest to the redemption date. After February 15,2009, the Company can redeem the senior subordinated notes, in whole or inpart, at defined redemption prices, plus accrued interest to the redemptiondate. The Company can also redeem up to 35% of the original aggregate principalamount of the senior subordinated notes at any time before February 15,2008, with the 

net cash proceeds ofcertain equity offerings at a price equal to 109.5% of the principal amount ofthe senior subordinated notes, plus accrued interest to the redemption date. Theholders of the senior subordinated notes may require the Company to repurchasethe senior subordinated notes at defined prices in the event of certain asset salesor change-of-control events.

The Senior Secured Credit Facility and the seniorsubordinated notes contain various financial covenants, including minimumlevels of EBITDA, minimum interest and fixed charge coverage ratios, andmaximum capital expenditures and total leverage ratio. Nonfinancial covenantsrestrict the ability of the Company and its subsidiaries to dispose of assets;incur additional indebtedness, prepay other indebtedness or amend certain debtinstruments; pay dividends; create liens on assets; enter into sale andleaseback transactions; make investments, loans or advances; issue certainequity instruments; make acquisitions; engage in mergers or consolidations orengage in certain transactions with affiliates; and otherwise restrict certaincorporate activities.

At March 31, 2006, the Company was not able topay any dividends based on the restrictions limiting the payment of dividendsby the Company and its subsidiaries under the Senior Secured Credit Facilityand the notes.

The Company was in compliance with its variousfinancial and nonfinancial covenants at March 31, 2006.

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 9—Long-Term Debt(Continued)**

Scheduled maturities oflong-term debt for each of the fiscal years subsequent to March 31, 2006,are as follows:

| 2007       |   | $       | 2,588   |   |
|------------|--------|---------|---------|--------|
| 2008       |   | 3,450   |    |
| 2009       |   | 4,313   |    |
| 2010       |   | 3,450   |    |
| 2011       |   | 327,750 |    |
| Thereafter |   | 320,000 |    |
|       |   | $       | 661,551 |   |

 

Thefair value of the Company’s debt instruments as of March 31, 2006 is asfollows:

| Senior Secured Credit  Facility |   |    |    |
|---------------------------------|--------|---------|---------|
| Revolving credit line           |   | $       | —  |   |
| Term loans                      |   | 341,551 |    |
| Senior  subordinated notes      |   | 331,600 |    |
|                            |   | $       | 673,151 |   |

 

The fair value of the term loan was equal to itscarrying value due to the fixed interest rate. The fair value of the senior subordinatednotes is based on their quoted market value.

On June 9, 2006, inconnection with the Parent’s Equity Offering, the Company redeemedapproximately $28,000 of the $320,000 aggregate principal amount of the seniorsubordinated notes. The Company also paid approximately $800 in accruedinterest through the redemption date and a prepayment penalty of approximately$2,719 related to the senior subordinated notes. See Note 18 for furtherdiscussion of this Equity Offering.

**Note 10—Commitments andContingencies**

The Company has operating leases for the use ofcertain property and equipment. Operating leases are noncancelable, cancelableonly by the payment of penalties or cancelable upon one month’s notice. Alllease payments are based on the lapse of time but include, in some cases,payments for insurance, maintenance and property taxes. There are no purchaseoptions on operating leases at favorable terms, but most leases have one ormore renewal options. Certain leases on real estate property are subject toannual escalations for increases in utilities and property taxes. Lease rentalexpense amounted to $19,588, $11,271, $1,748 and $54,175 for the year endedApril 2, 2004, the period from April 3, 2004 to February 11, 2005, the 49 daysended April 1, 2005 and March 31, 2006, respectively.

75

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 10—Commitmentsand Contingencies (Continued)**

Minimum fixedrentals required for the next five years and thereafter under operating leasesin effect at March 31, 2006, are as follows:

| **Fiscal Year** | ** ** | ** ** | ** ** | **Real Estate** | ** ** | **Equipment** | ** ** |
|----------------------|------------|------------|------------|----------------------|------------|---------------|------------|
| 2007                 |       |       | $          | 3,801                |       |          |       | $ | 843 |   |   |
| 2008                 |       |       | 3,465      |                 |       |          | 751        |   |   |
| 2009                 |       |       | 2,432      |                 |       |          | 55         |   |   |
| 2010                 |       |       | 2,186      |                 |       |          | —     |   |   |
| 2011                 |       |       | 2,186      |                 |       |          | —     |   |   |
| Thereafter           |       |       | 12,023     |                 |       |          | —     |   |   |
|                 |       |       | $          | 26,093               |       |          |       | $ | 1,649 |   |   |

 

The Company has nosignificant long-term purchase agreements with service providers.

*Contingencies*

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

*Litigation*

The Company and its subsidiaries and affiliates areinvolved in various lawsuits and claims that have arisen in the normal courseof business. In most cases, we have denied, or believe we have a basis to deny,liability. The Company has recorded its best estimate of the aggregateliability that will result from these matters and believe that these mattersare adequately reserved. While it is not possible to predict with certainty theoutcome of litigation and other matters discussed above, it is the opinion ofthe Company’s management, based in part upon opinions of counsel, insurance inforce and the facts currently known, that liabilities in excess of thoserecorded, if any, arising from such matters would not have a material adverseeffect on the results of operations, consolidated financial condition orliquidity of the Company over the long term.

In addition, the Company is occasionally the subjectof investigations by various agencies of the U.S. government. Suchinvestigations, whether related to its U.S. government contracts or conductedfor other reasons, could result in administrative, civil or criminalliabilities, including repayments, fines or penalties being imposed upon theCompany, or could lead to suspension or debarment from future U.S. governmentcontracting. In management’s opinion, there are no outstanding issues of thisnature at March 31, 2006, that will have a material adverse effect on theCompany’s consolidated financial condition, results of operations or liquidity.

On September 11, 2001, a class action lawsuitseeking $100,000 on behalf of approximately 10,000 citizens of Ecuador was filedagainst the Company and several of its former affiliates in the U.S. DistrictCourt for the District of Columbia. The action alleges personal injury,property damage and wrongful death as a consequence of the spraying of narcoticplant crops along the Colombian border adjacent to 

76

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 10—Commitmentsand Contingencies (Continued)**

Ecuador. The sprayingoperations are conducted under a Department of State contract in cooperationwith the Colombian government. The terms of the Department of State contractprovide that the Department of State will indemnify the Company againstthird-party liabilities arising out of the contract, subject to availablefunding. The Company is also entitled to indemnification by Computer SciencesCorporation in connection with this lawsuit, subject to certain limitations. Additionally,any damage award would have to be apportioned between the other defendants andthe Company.

On May 29, 2003,Gloria Longest, a former accounting manager for the Company, filed suit againstthe Company under the False Claims Act and the Florida Whistleblower Statute,alleging that it submitted false claims to the government under theInternational Narcotics and Law Enforcement Affairs contract with theDepartment 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 case wasunsealed in 2005, and the Company learned of its existence on August 15,2005 when it was served with the complaint. After conducting an investigationof the allegations made by the plaintiff, the U.S. government did not join theaction. The complaint does not demand any specific monetary damages; however,in the event that a court decides against the Company in this lawsuit, it couldhave a material adverse effect on its operating performance.

**Note 11—Derivatives**

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

The Company has enteredinto 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 Companyentered into the interest rate cap effective May 4, 2005 and paid a premiumof $483. The interest rate cap has been designated by the Company as a cashflow hedge. As of March 31, 2006, the fair value of the interest rate capwas $75, which was recorded in the accompanying condensed consolidated balancesheet in other assets with the reduction in fair value, net of tax, recorded inequity as other comprehensive loss. The interest rate cap has the effect ofplacing a ceiling on the interest expense the Company could incur on $172,500of variable debt indexed to the London Interbank Offering Rate at 6.5% plus theapplicable floating spread (2.75% at March 31, 2006) as defined by the SeniorSecured Credit Facility agreement.

77

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 12—Stock-BasedCompensation, Equity Incentive Plans and Class B Equity Participation**

At times, ComputerSciences Corporation issued stock options to employees, including Companyemployees. The Company accounted for stock-based employee compensation underthe recognition and measurement principles of APB Opinion No. 25 andrelated interpretations. In accordance with SFAS No. 123, as amended bySFAS No. 148, *Accounting forStock-Based Compensation—Transition and Disclosure*, the followingpro forma net income information for the immediate predecessor period ispresented as if the Company had accounted for stock-based employee compensationusing the fair-value-based method. Under the fair-value method, the estimatedfair value of stock incentive awards is charged against income on astraight-line basis over the vesting period.

| ** **                                                                                                                                    | ** ** | **Immediate Predecessor** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                    | ** ** | **Fiscal Year**           | ** ** | **Period From** | ** ** |
| ** **                                                                                                                                    | ** ** | **Ended**                      | ** ** | **April 3, 2004 to** | ** ** |
| ** **                                                                                                                                    | ** ** | **April 2, 2004**         | ** ** | **Feb. 11, 2005** | ** ** |
| Net income, as  reported                                                                                                                      |       |                           | $          | 31,360 |   |   |   | $ | 59,733 |   |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       |                           | (170       | ) |   |   | (53 | ) |   |
| Pro forma net income                                                                                                                          |       |                           | $          | 31,190 |   |   |   | $ | 59,680 |   |   |

 

No Computer Sciences Corporation stock options weregranted to Company employees prior to fiscal 2004.

The weighted-average fair value of stock awardsgranted during fiscal 2004 and the period from April 3, 2004 to February 11,2005, was $14.60 and $15.96, respectively. The fair value of each stock awardwas estimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted average assumptions: 

| ** **                                         | ** ** | **Immediate Predecessor** | ** **      |
|----------------------------------------------------|------------|--------------------------------|-----------------|
| ** **                                         | ** ** | **Fiscal Year**           | ** **      | **Period From** | ** ** |
| ** **                                         | ** ** | **Ended**                      | ** **      | **April 3, 2004 to** | ** ** |
| ** **                                         | ** ** | **April 2, 2004**         | ** **      | **Feb. 11, 2005** | ** ** |
| Risk-free  interest rate                           |       |                           | 2.32            | % |   |   | 3.58 | % |   |
| Expected  volatility                               |       |                           | 48              | % |   |   | 48 | % |   |
| Expected option  term (for volatility calculation) |       |                           | 6.55 years |   |   |   | 6.52 years |   |   |
| Expected lives  (for Black-Scholes model input)    |       |                           | 3.66 years      |   |   |   | 3.90 years |   |   |
| Annual rate of quarterly  dividends                |       |                           | 0               | % |   |   | 0 | % |   |

 

Immediately prior to the acquisition of DynCorp byComputer Sciences Corporation on March 7, 2003, all outstanding andexercisable DynCorp stock options, whether or not vested, were canceled and theholders 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 and1.394 shares of Computer Sciences Corporation stock.

The Company participated in Computer SciencesCorporation’s eight stock incentive plans, which authorized the issuance ofstock options, restricted stock and other stock-based incentives to employeesupon terms approved by the compensation committee of our Parent’s board ofdirectors.

78

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 12—Stock-Based Compensation, EquityIncentive Plans and Class B Equity Participation (Continued)**

Information concerning Computer Sciences Corporationstock options granted to employees of the Company is as follows:

| ** **                        | ** ** | **Fiscal Year Ended  April 2, 2004** | ** ** | **Period From April 3, 2004  to Feb. 11, 2005** | ** ** |
|-----------------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Weighted**                                             | ** ** | ** **                                                                         | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                        | ** ** | **Average**                                              | ** ** | ** **                                                                         | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                        | ** ** | **Number**                                               | ** ** | **Exercise**                                                                       | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| ** **                        | ** ** | **of Shares**                                       | ** ** | **Price**                                                                          | ** ** | **of Shares** | ** ** | **Price** | ** ** |
| Outstanding,  beginning of period |       |                                                     | —     |                                                                               |       |   | — |   |   |   | 45,000 |   |   |   | $ | 33.83 |   |   |
| Granted                           |       |                                                     | 45,000     |                                                                               |       |   | $ | 33.83 |   |   |   | 57,725 |   |   |   | 39.04 |   |   |
| Exercised                         |       |                                                     | —     |                                                                               |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Canceled                          |       |                                                     | —     |                                                                               |       |   | — |   |   |   | 81,225 |   |   |   | 37.27 |   |   |
| Outstanding, end of  period       |       |                                                     | 45,000     |                                                                               |       |   | $ | 33.83 |   |   |   | 21,500 |   |   |   | $ | 34.86 |   |   |

 

No Computer Sciences Corporation stock options weregranted to Company employees prior to fiscal 2004. At April 2, 2004 and February 12,2005, there were 3,000 and 21,500 stock options exercisable, respectively.

| ** **                                             | ** ** | **April 2, 2004**  | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|
| ** **                                             | ** ** | **Options Outstanding** | ** ** |
| ** **                                             | ** ** | ** **                   | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                                             | ** ** | ** **                   | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                                             | ** ** | ** **                   | ** ** | **Weighted** | ** ** | **Remaining** | ** ** |
| ** **                                             | ** ** | **Number**                   | ** ** | **Average** | ** ** | **Contractual** | ** ** |
| **Range of Option Exercise Price** | ** ** | ** **                   | ** ** | **Outstanding** | ** ** | **Exercise Price** | ** ** | **Life** | ** ** |
| $33.16                                                 |       |                         | 40,000     |   |   |   | $ | 33.16 |   |   |   | 9.08 |   |   |
| $39.19                                                 |       |                         | 5,000      |   |   |   | $ | 39.19 |   |   |   | 9.48 |   |   |
|                                                        |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

On February 12, 2005, all unvested ComputerSciences Corporation stock options were canceled as a result of the sale.

During fiscal year ended March 31, 2006, certainmembers of management and the Successor Parent’s outside directors were granteda participating interest in the profits through a plan that granted them Class Binterests in an affiliate, DIV Holding LLC. DIV Holding LLC conducts nooperations and was established for the primary purpose of holding the equity ofthe Successor Parent. At March 31, 2006, the aggregate individual grantsare approximately 6.4% of the Class B interests of DIV Holding LLC. Pursuantto the terms of the operating agreement governing DIV Holding LLC, the holdersof Class B interests are entitled to receive up to 7.5% of alldistributions made by DIV Holding LLC after the holders of the Class Ainterests in DIV Holding LLC have received a return of their invested capital,provided that the holders of the Class A interests have received8% per annum internal rate of return (compounded annually) on theirinvested capital. The Class B interests are subject to a five-year vestingschedule with any unvested interest reverting to the holders of Class Ainterests in the event they are forfeited or repurchased. The Company retainedan independent party to conduct a fair value analysis of the Class Binterests granted to management and the Successor Parent’s outside directors. Basedon this analysis, the fair value of the Class B interests granted tocertain members of management and the Successor Parent’s outside directors wasdetermined to be $7,589. In accordance with SFAS No. 123(R), the Companyrecords 

79

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 12—Stock-BasedCompensation, Equity Incentive Plans and Class B Equity Participation (Continued)**

compensation expense basedon the fair value and commensurate with their graded vesting schedules. For thefiscal year ended March 31, 2006, the Company recognized non-cashcompensation expense of $2,417.

Assuming each grantfully vests, the Company will recognize additional non-cash compensationexpense as follows:

| **FY 2007** |   | **FY 2008** |   | **FY 2009** |   | **FY 2010** |   | **FY 2011** |
|------------------|--------|------------------|--------|------------------|--------|------------------|--------|------------------|
| $2,616           |   | $1,439           |   | $782             |   | $324             |   | $11              |

 

**Note13—Composition of Certain Financial Statement Captions**

| ** **                                                                | ** ** | **April 1,** | ** ** | **March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                                | ** ** | **2005**          | ** ** | **2006**           | ** ** |
| Prepaid expenses and other current assets:                                |       |              |       |               |       |   |   |
| Prepaid expenses                                                          |       | $                 | 13,074     |               |       | $ | 24,000 |   |   |
| Inventories                                                               |       | 3,596             |       |               | 3,653      |   |   |
| Work-in-process                                                           |       | 9,320             |       |               | 16,080     |   |   |
| Note receivable                                                           |       | 258               |       |               | —     |   |   |
|                                                                      |       | $                 | 26,248     |               |       | $ | 43,733 |   |   |
| Property and equipment at cost:                                           |       |              |       |               |       |   |   |
| Computers and  other equipment                                            |       | $                 | 6,239      |               |       | $ | 5,695 |   |   |
| Buildings and  improvements                                               |       | 428               |       |               | 377        |   |   |
| Leasehold  improvements                                                   |       | 1,263             |       |               | 142        |   |   |
| Office furniture  and fixtures                                            |       | 2,954             |       |               | 3,851      |   |   |
|                                                                      |       | 10,884            |       |               | 10,065     |   |   |
| Less accumulated  depreciation and amortization                           |       | (227              | )          |               | (1,296     | ) |   |
|                                                                      |       | $                 | 10,657     |               |       | $ | 8,769 |   |   |
| Other assets:                                                             |       |              |       |               |       |   |   |
| Investment in  affiliates                                                 |       | $                 | 629        |               |       | $ | 911 |   |   |
| Deferred offering  costs                                                  |       | —            |       |               | 1,940      |   |   |
| Other                                                                     |       | 250               |       |               | 325        |   |   |
|                                                                      |       | $                 | 879        |               |       | $ | 3,176 |   |   |
| Other accrued liabilities:                                                |       |              |       |               |       |   |   |
| Insurance                                                                 |       | $                 | 11,902     |               |       | $ | 18,613 |   |   |
| Interest                                                                  |       | 7,349             |       |               | 3,692      |   |   |
| Billings in excess  of revenues on uncompleted contracts                  |       | 3,044             |       |               | 6,837      |   |   |
| Accrued contract losses                                                   |       | 602               |       |               | 2,835      |   |   |
| Other                                                                     |       | 594               |       |               | 1,868      |   |   |
|                                                                      |       | $                 | 23,491     |               |       | $ | 33,845 |   |   |
| Accrued payroll and employee costs:                                       |       |              |       |               |       |   |   |
| Salaries, bonuses  and amounts withheld from employees’ compensation |       | $                 | 37,615     |               |       | $ | 43,344 |   |   |
| Accrued vacation                                                          |       | 16,883            |       |               | 20,357     |   |   |
| Accrued  contributions to employee benefit plans                          |       | 1,689             |       |               | 1,885      |   |   |
|                                                                      |       | $                 | 56,187     |               |       | $ | 65,586 |   |   |

 

80

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note14—Valuation and Qualifying Accounts**

| ** **                                       | ** ** | **Balance at** | ** ** | **Additions**       | ** ** | ** **        | ** ** | **Balance at** | ** ** |
|--------------------------------------------------|------------|---------------------|------------|---------------------|------------|-------------------|------------|---------------------|------------|
| ** **                                       | ** ** | **Beginning**       | ** ** | **Charged to** | ** ** | ** **        | ** ** | **End of**     | ** ** |
| ** **                                       | ** ** | **of Period**  | ** ** | **Expense**         | ** ** | **Deductions**(1) | ** ** | **Period**          | ** ** |
| Allowance for doubtful  accounts:                |       |                |       |                |       |              |       |                |       |   |   |   |   |   |   |   |   |
| March 29, 2003 – April 2, 2004    |       |                | $          | 2,060               |       |              |       | —              |       |   |   | (872 | ) |   |   | $ | 1,188 |   |   |
| April 3, 2004 – February 11, 2005 |       |                | 1,188      |                |       |              | 4,338      |                |       |   | (1,026 | ) |   |   | 4,500 |   |   |
| February 12, 2005 – April 1, 2005 |       |                | 4,500      |                |       |              | —     |                |       |   | — |   |   |   | 4,500 |   |   |
| April 2,  2005 – March 31, 2006   |       |                | 4,500      |                |       |              | 4,203      |                |       |   | (224 | ) |   |   | 8,479 |   |   |
|                                                  |            |                     |            |                     |            |                   |            |                     |            |  |  |  |  |  |  |  |  |  |  |

----

(1)    Uncollectible accounts written off net of recoveries.

**Note 15—Segment andGeographic Information**

The Company’s business primarily involves providingworldwide maintenance support to U.S. military aircraft and various defensetechnical services. The Company is organized into two segments, FTS and ITS. FTSprimarily offers aviation services, including maintenance and modifications,training, aftermarket logistics support, avionics upgrades, fieldinstallations, and aircraft operations and training. ITS primarily offers basemaintenance/operations and personal and physical security services. The Companyprovides services domestically and in foreign countries under contracts withthe U.S. government and some foreign customers. The risks associated with theCompany’s foreign operations relating to foreign currency fluctuation andpolitical and economic conditions in foreign countries have not had asignificant negative impact on the Company. The Company operates principallywithin a regulatory environment subject to governmental contracting andaccounting requirements, including Federal Acquisition Regulations, CostAccounting Standards and audits by various U.S. federal agencies.

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

The reporting segments follow the same accountingpolicies outlined in Note 1. All inter-segment transactions and balances havebeen eliminated from the reporting segments’ presented results.

81

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 15—Segmentand Geographic Information (Continued)**

The table below presentsfinancial information for the respective periods, for the two reportablesegments and for financial items that cannot be allocated to either operatingsegment:

| ** **                                                | ** ** | ** **               | ** ** | **International** | ** ** | **DynCorp**          | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|--------------------------|------------|-------------------|------------|----------------------|------------|------------|------------|
| ** **                                                | ** ** | **Field Technical** | ** ** | **Technical**     | ** ** | **International**    | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **Services**             | ** ** | **Services**      | ** ** | **Home Office** | ** ** | **Total**  | ** ** |
| **Immediate  Predecessor**                                |       |                     |       |              |       |                 |       |       |       |   |   |   |   |   |   |
| Fiscal Year Ended  April 2, 2004                     |       |                     |       |              |       |                 |       |       |       |   |   |   |   |   |   |
| Revenues                                                  |       |                     | $          | 582,476           |       |                 |       | $          | 631,672    |   |   |   | $ | 141 |   |   | $ | 1,214,289 |   |
| Earnings before interest and taxes                        |       |                     | 25,144     |              |       |                 | 26,189     |       |       |   | (113 | ) |   | 51,220 |   |
| Depreciation and amortization                             |       |                     | 2,358      |              |       |                 | 6,382      |       |       |   | 48 |   |   | 8,788 |   |
| Assets                                                    |       |                     | 253,673    |              |       |                 | 326,158    |       |       |   | (2 | ) |   | 579,829 |   |
| Period From  April 3, 2004 to February 11, 2005 |       |                     |       |              |       |                 |       |       |       |   |   |   |   |   |   |
| Revenues                                                  |       |                     | $          | 594,480           |       |                 |       | $          | 1,059,713  |   |   |   | $ | 112 |   |   | $ | 1,654,305 |   |
| Earnings before interest and taxes                        |       |                     | 27,755     |              |       |                 | 68,198     |       |       |   | (1,434 | ) |   | 94,519 |   |
| Depreciation and amortization                             |       |                     | 3,878      |              |       |                 | 2,731      |       |       |   | 28 |   |   | 6,637 |   |
| Assets                                                    |       |                     | 257,747    |              |       |                 | 462,662    |       |       |   | 14,638 |   |   | 735,047 |   |
| **Successor**                                             |       |                     |       |              |       |                 |       |       |       |   |   |   |   |   |   |
| 49 Days Ended  April 1, 2005                         |       |                     |       |              |       |                 |       |       |       |   |   |   |   |   |   |
| Revenues                                                  |       |                     | $          | 93,674            |       |                 |       | $          | 173,007    |   |   |   | $ | (77 | ) |   | $ | 266,604 |   |
| Earnings before interest and taxes                        |       |                     | 3,662      |              |       |                 | 3,447      |       |       |   | 76 |   |   | 7,185 |   |
| Depreciation and amortization                             |       |                     | 1,397      |              |       |                 | 3,765      |       |       |   | 542 |   |   | 5,704 |   |
| Assets                                                    |       |                     | 310,303    |              |       |                 | 821,649    |       |       |   | 16,241 |   |   | 1,148,193 |   |
| Fiscal Year Ended  March 31, 2006                    |       |                     |       |              |       |                 |       |       |       |   |   |   |   |   |   |
| Revenues                                                  |       |                     | $          | 702,407           |       |                 |       | $          | 1,264,586  |   |   |   | $ | — |   |   | $ | 1,966,993 |   |
| Earnings before interest and taxes                        |       |                     | 10,017     |              |       |                 | 93,637     |       |       |   | (2,417 | ) |   | 101,237 |   |
| Depreciation and amortization                             |       |                     | 12,872     |              |       |                 | 32,437     |       |       |   | 1,711 |   |   | 47,020 |   |
| Assets                                                    |       |                     | 320,303    |              |       |                 | 874,366    |       |       |   | 44,420 |   |   | 1,239,089 |   |

 

Areconciliation of earnings before interest and taxes to net income (loss) is asfollows:

| ** **                            | ** ** | **Immediate Predecessor** | ** ** | ** **                  | ** ** | **Successor** | ** ** |
|---------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|---------------|------------|
| ** **                            | ** ** | **Fiscal Year**           | ** ** | **Period From**        | ** ** | ** **    | ** ** | **49 Days** | ** ** | **Fiscal Year** | ** ** |
| ** **                            | ** ** | **Ended**                      | ** ** | **April 3, 2004** | ** ** | ** **    | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                            | ** ** | **April 2,**              | ** ** | **to Feb. 11,**   | ** ** | ** **    | ** ** | **April 1,** | ** ** | **March 31,** | ** ** |
| ** **                            | ** ** | **2004**                       | ** ** | **2005**                    | ** ** | ** **    | ** ** | **2005** | ** ** | **2006** | ** ** |
| Earnings before  interest and   taxes |       |                           | $          | 51,220                      |       |          |       | $ | 94,519 |   |   |   |   | $ | 7,185 |   |   | $ | 101,237 |   |   |
| Interest income                       |       |                           | 64         |                        |       |          | 170        |   |   |   |   | 7 |   |   | 461 |   |   |
| Interest expense                      |       |                           | —     |                        |       |          | —     |   |   |   |   | (8,054 | ) |   | (56,686 | ) |   |
| Income taxes                          |       |                           | (19,924    | )                           |       |          | (34,956    | ) |   |   |   | (60 | ) |   | (16,627 | ) |   |
| Net income (loss)                     |       |                           | $          | 31,360                      |       |          |       | $ | 59,733 |   |   |   |   | $ | (922 | ) |   | $ | 28,385 |   |   |

 

82

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 15—Segment and Geographic Information(Continued)**

The Company’s managementbelieves that earnings before interest and taxes provides useful information inorder to assess the Company’s performance and results of operations. Themeasure is utilized to determine executive compensation, along with othermeasures.

Revenueby geography for the fiscal year ended April 2, 2004, the period fromApril 3, 2004 to February 11, 2005, the 49 days ended April 1,2005 and the fiscal year ended March 31, 2006, is as noted below. Revenueby geography is based on the location of the provision of service.

| ** **     | ** ** | **Immediate Predecessor**                         | ** ** | ** **                                                                       | ** ** | **Successor** | ** ** |
|----------------|------------|--------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|---------------|------------|
| ** **     | ** ** | **Fiscal Year  Ended  April 2,   2004** | ** ** | **Period From  April 3, 2004 to  Feb. 11,   2005** | ** ** | ** **    | ** ** | **49 Days  Ended  April 1,   2005** | ** ** | **Fiscal Year  Ended  March 31,   2006** | ** ** |
| United States  |       | $                                                      | 578,671    |                                                                             |       | $             | 557,700    |   |   |   |   | $ | 97,455 |   | $ | 703,117 |   |
| Middle East    |       | 338,868                                                |       |                                                                             | 816,084    |          |       |   |   | 130,312 |   | 952,496 |   |
| Other Americas |       | 146,892                                                |       |                                                                             | 132,920    |          |       |   |   | 20,023 |   | 194,429 |   |
| Europe         |       | 93,827                                                 |       |                                                                             | 88,449     |          |       |   |   | 8,192 |   | 41,410 |   |
| Other          |       | 56,031                                                 |       |                                                                             | 59,152     |          |       |   |   | 10,622 |   | 75,541 |   |
| Total          |       | $                                                      | 1,214,289  |                                                                             |       | $             | 1,654,305  |   |   |   |   | $ | 266,604 |   | $ | 1,966,993 |   |

 

The Company operates withinsignificant values of property and equipment.

The Company derives themajority of its revenues from departments and agencies of the U.S. government.U.S. federal government revenue accounted for 95.3%, 98.0% and 96.7% of theCompany’s revenues for the fiscal year 2004, the combined fiscal year 2005 andfor fiscal year 2006, respectively. At April 1, 2005 and March 31,2006, accounts receivable due from the U.S. federal government represented98.1% and 96.8% of total receivables, respectively.

**Note16—Quarterly Financial Data (Unaudited)**

Thefollowing summarizes the unaudited quarterly results of operations for thefiscal year ended April 1, 2005 and March 31, 2006:

| ** **        | ** ** | **Fiscal Year 2005** | ** ** |
|-------------------|------------|--------------------------------|------------|
| ** **        | ** ** | **Immediate Predecessor** | ** ** | ** ** | ** ** | **Successor** | ** ** |
| ** **        | ** ** | **First   Quarter**       | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter**(1) | ** ** | ** ** | ** ** | **Fourth  Quarter**(2) | ** ** |
| Revenues          |       | $                              | 406,894    |   | $ | 523,619 |   | $ | 469,541 |   |   | $ | 254,251 |   |   |   |   |   | $ | 266,604 |   |   |
| Operating income  |       | 22,450                         |       | 31,568 |   | 31,075 |   |   | 9,426 |   |   |   |   |   | 7,185 |   |   |
| Net income (loss) |       | 13,898                         |       | 19,306 |   | 21,240 |   |   | 5,289 |   |   |   |   |   | (922 | ) |   |
|                   |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)    Representsthe period from January 1, 2005 through February 11, 2005.

(2)    Represents the period from February 12,2005 through April 1, 2005.

| ** **        | ** ** | **Fiscal Year 2006 (Successor)** | ** ** |
|-------------------|------------|-------------------------------------------------|------------|
| ** **        | ** ** | **First   Quarter**                        | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
| Revenues          |       | $                                               | 425,005    |   | $ | 439,629 |   | $ | 553,561 |   | $ | 548,798 |   |
| Operating income  |       | 16,553                                          |       | 23,337 |   | 23,463 |   | 37,884 |   |
| Net (loss) income |       | 2,077                                           |       | 6,019 |   | 5,591 |   | 14,698 |   |
|                   |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |

 

83

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 17—ConsolidatingFinancial Statements of Subsidiary Guarantors**

As of March 31, 2006, 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 thefollowing subsidiaries of DynCorp International LLC: DTS Aviation Services LLC,DynCorp Aerospace Operations LLC, DynCorp International Services LLC, DynMarine Services LLC, DynCorp International of Nigeria LLC, Dyn Marine Servicesof Virginia LLC, Services International LLC and Worldwide Humanitarian ServicesLLC.

The followingsupplemental consolidating financial statements present:

1.                Consolidatingbalance sheets as of April 1, 2005 and March 31, 2006 (SuccessorCompany) and the related consolidating statements of operations,; cash flowsfor the fiscal year ended April 2, 2004, the period from April 3,2004 to February 11, 2005 (Immediate Predecessor Company operations) andthe 49 days ended April 1, 2005; and the fiscal year ended March 31,2006 (Successor Company operations).

2.                DynCorp InternationalLLC (the “Parent”), the combined Subsidiary Guarantors and the combinedSubsidiary Non-Guarantors account for their investments in subsidiaries usingthe equity method of accounting; therefore, the Parent column reflects theequity income (loss) of its Subsidiary Guarantors and SubsidiaryNon-Guarantors, which are also separately reflected in the stand-aloneSubsidiary Guarantors and Subsidiary Non-Guarantors column. Additionally, theSubsidiary Guarantors column reflects the equity income (loss) of itsSubsidiary Non-Guarantors, which are also separately reflected in thestand-alone Subsidiary Non-Guarantors column.

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

84

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 17—ConsolidatingFinancial Statements of Subsidiary Guarantors (Continued)**

**DYNCORPINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET INFORMATIONSUCCESSOR COMPANYAPRIL 1, 2005**

| ** **                                       | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **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                          |       | 6,472      |       |                       | 361        |                           |       |             | —     |             |       |   | — |   |   |   | 6,833 |   |   |
| Investment  in subsidiaries                      |       | (495       | )          |                       | 4          |                           |       |             | —     |             |       |   | 491 |   |   |   | — |   |   |
| Deferred  financing costs, net                   |       | 19,438     |       |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | 19,438 |   |   |
| Other  assets                                    |       | 879        |       |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | 879 |   |   |
| 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 |   |   |

 

85

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)**

**Note 17—ConsolidatingFinancial Statements of Subsidiary Guarantors (Continued)**

**DYNCORPINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET INFORMATIONSUCCESSOR COMPANYMARCH 31, 2006**

| ** **                                  | ** ** | **Parent** | ** ** | **Subsidiary  Guarantor** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------|------------|------------|------------|---------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                  |       |       |       |                      |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Current assets:                             |       |       |       |                      |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents .                 |       | $          | 7,567      |                      |       | $                              | 10,749     |             |       |             | $          | 2,257 |   |   |   | $ | — |   |   |   | $ | 20,573 |   |   |
| Receivables, net .                          |       | 417,727    |       |                      | 22,296     |                           |       |             | 172        |             |       |   | — |   |   |   | 440,195 |   |   |
| Prepaid expenses and other  current assets  |       | 43,547     |       |                      | 754        |                           |       |             | 227        |             |       |   | — |   |   |   | 44,528 |   |   |
| Total current assets .                      |       | 468,841    |       |                      | 33,799     |                           |       |             | 2,656      |             |       |   | — |   |   |   | 505,296 |   |   |
| Property and equipment, net .               |       | 5,016      |       |                      | 3,266      |                           |       |             | 487        |             |       |   | — |   |   |   | 8,769 |   |   |
| Other assets:                               |       |       |       |                      |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Goodwill                                    |       | 398,559    |       |                      | 21,621     |                           |       |             | —     |             |       |   | — |   |   |   | 420,180 |   |   |
| Tradename                                   |       | 18,318     |       |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | 18,318 |   |   |
| Customer-related  intangibles, net          |       | 233,339    |       |                      | 13,571     |                           |       |             | —     |             |       |   | — |   |   |   | 246,910 |   |   |
| Other intangibles, net .                    |       | 7,138      |       |                      | 315        |                           |       |             | —     |             |       |   | — |   |   |   | 7,453 |   |   |
| Investment in subsidiaries  .               |       | 9,653      |       |                      | 215        |                           |       |             | (1         | )                |       |   | (9,867 | ) |   |   | — |   |   |
| Deferred financing costs,  net .            |       | 17,469     |       |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | 17,469 |   |   |
| Other assets                                |       | 14,694     |       |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | 14,694 |   |   |
| Intercompany receivables                    |       | 20,659     |       |                      | —     |                           |       |             | 22,274     |             |       |   | (42,933 | ) |   |   | — |   |   |
| Total other assets .                        |       | 719,829    |       |                      | 35,722     |                           |       |             | 22,273     |             |       |   | (52,800 | ) |   |   | 725,024 |   |   |
| Total assets .                              |       | $          | 1,193,686  |                      |       | $                              | 72,787     |             |       |             | $          | 25,416 |   |   |   | $ | (52,800 | ) |   |   | $ | 1,239,089 |   |   |
| **LIABILITIES AND MEMBER’S EQUITY**    |       |       |       |                      |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Current liabilities:                        |       |       |       |                      |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Current portion of  long-term debt          |       | $          | 2,588      |                      |       | $                              | —     |             |       |             | $          | — |   |   |   | $ | — |   |   |   | $ | 2,588 |   |   |
| Accounts payable                            |       | 132,323    |       |                      | 73         |                           |       |             | —     |             |       |   | — |   |   |   | 132,396 |   |   |
| Accrued payroll and  employee costs .       |       | 26,632     |       |                      | 14,251     |                           |       |             | 24,703     |             |       |   | — |   |   |   | 65,586 |   |   |
| Accrued expenses—related  party   |       | 11,272     |       |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | 11,272 |   |   |
| Other accrued expenses                      |       | 27,548     |       |                      | 5,749      |                           |       |             | 548        |             |       |   | — |   |   |   | 33,845 |   |   |
| Income taxes                                |       | 8,201      |       |                      | 77         |                           |       |             | 2          |             |       |   | — |   |   |   | 8,280 |   |   |
| Total current liabilities                   |       | 208,564    |       |                      | 20,150     |                           |       |             | 25,253     |             |       |   | — |   |   |   | 253,967 |   |   |
| Long-term debt—less current portion    |       | 658,963    |       |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | 658,963 |   |   |
| Intercompany payables                       |       | —     |       |                      | 42,932     |                           |       |             | —     |             |       |   | (42,932 | ) |   |   | — |   |   |
| Member’s equity                        |       | 326,159    |       |                      | 9,705      |                           |       |             | 163        |             |       |   | (9,868 | ) |   |   | 326,159 |   |   |
| Total  liabilities and member’s equity |       | $          | 1,193,686  |                      |       | $                              | 72,787     |             |       |             | $          | 25,416 |   |   |   | $ | (52,800 | ) |   |   | $ | 1,239,089 |   |   |

 

86

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Dollars in thousands)**

**Note 17—ConsolidatingFinancial Statements of Subsidiary Guarantors (Continued)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONIMMEDIATE PREDECESSOR COMPANY OPERATIONSFOR THE FISCAL YEAR ENDED APRIL 2, 2004**

| ** **                                                                   | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                     |       | $          | 910,761    |                       |       | $                              | 303,528    |             |       |             | $          | 113,227 |   |   |   | $ | (113,227 | ) |   |   | $ | 1,214,289 |   |   |
| Costs  of services (excluding depreciation and amortization disclosed below) |       | 820,548    |       |                       | 286,474    |                           |       |             | 112,776    |             |       |   | (113,227 | ) |   |   | 1,106,571 |   |   |
| Selling,  general and administrative                                         |       | 39,573     |       |                       | 8,775      |                           |       |             | 2          |             |       |   | — |   |   |   | 48,350 |   |   |
| Depreciation  and amortization                                               |       | 7,458      |       |                       | 661        |                           |       |             | 29         |             |       |   | — |   |   |   | 8,148 |   |   |
| Operating  income                                                            |       | 43,182     |       |                       | 7,618      |                           |       |             | 420        |             |       |   | — |   |   |   | 51,220 |   |   |
| Interest  income                                                             |       | (52        | )          |                       | (12        | )                              |       |             | —     |             |       |   | — |   |   |   | (64 | ) |   |
| Equity  in income of subsidiaries                                            |       | 7,885      |       |                       | 266        |                           |       |             | —     |             |       |   | (8,151 | ) |   |   | — |   |   |
| Interest  expense                                                            |       | (5         | )          |                       | 5          |                           |       |             | —     |             |       |   | — |   |   |   | — |   |   |
| Income  before income taxes                                                  |       | 51,124     |       |                       | 7,891      |                           |       |             | 420        |             |       |   | (8,151 | ) |   |   | 51,284 |   |   |
| Provision  for income taxes                                                  |       | 19,764     |       |                       | 10         |                           |       |             | 150        |             |       |   | — |   |   |   | 19,924 |   |   |
| Net income                                                                   |       | $          | 31,360     |                       |       | $                              | 7,881      |             |       |             | $          | 270 |   |   |   | $ | (8,151 | ) |   |   | $ | 31,360 |   |   |

 

**DYNCORPINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONIMMEDIATE PREDECESSOR COMPANY OPERATIONSFOR THE PERIOD FROM APRIL 3, 2004 THROUGH FEBRUARY 11, 2005**

| ** **                                                                   | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                     |       | $          | 1,440,397  |                       |       | $                              | 213,908    |             |       |             | $          | 175,372 |   |   |   | $ | (175,372 | ) |   |   | $ | 1,654,305 |   |   |
| Costs  of services (excluding depreciation and amortization disclosed below) |       | 1,300,693  |       |                       | 195,825    |                           |       |             | 174,963    |             |       |   | (175,372 | ) |   |   | 1,496,109 |   |   |
| Selling,  general and administrative                                         |       | 49,659     |       |                       | 8,090      |                           |       |             | 6          |             |       |   | — |   |   |   | 57,755 |   |   |
| Depreciation  and amortization                                               |       | 5,174      |       |                       | 669        |                           |       |             | 79         |             |       |   | — |   |   |   | 5,922 |   |   |
| Operating  income                                                            |       | 84,871     |       |                       | 9,324      |                           |       |             | 324        |             |       |   | — |   |   |   | 94,519 |   |   |
| Interest  income                                                             |       | (169       | )          |                       | (1         | )                              |       |             | —     |             |       |   | — |   |   |   | (170 | ) |   |
| Equity  in income of subsidiaries                                            |       | 8,052      |       |                       | 286        |                           |       |             | —     |             |       |   | (8,338 | ) |   |   | — |   |   |
| Interest  expense                                                            |       | 17         |       |                       | (16        | )                              |       |             | (1         | )                |       |   | — |   |   |   | — |   |   |
| Income  before income taxes                                                  |       | 93,075     |       |                       | 9,627      |                           |       |             | 325        |             |       |   | (8,338 | ) |   |   | 94,689 |   |   |
| Provision  for income taxes                                                  |       | 33,342     |       |                       | 1,614      |                           |       |             | —     |             |       |   | — |   |   |   | 34,956 |   |   |
| Net income                                                                   |       | $          | 59,733     |                       |       | $                              | 8,013      |             |       |             | $          | 325 |   |   |   | $ | (8,338 | ) |   |   | $ | 59,733 |   |   |

 

87

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Dollars in thousands)**

**Note 17—ConsolidatingFinancial Statements of Subsidiary Guarantors (Continued)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONSUCCESSOR COMPANY OPERATIONSFOR THE PERIOD FROM FEBRUARY 12, 2005 THROUGH APRIL 1, 2005**

| ** **                                                                   | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                     |       | $          | 235,395    |                       |       | $                              | 31,209     |             |       |             | $          | 35,921 |   |   |   | $ | (35,921 | ) |   |   | $ | 266,604 |   |   |
| Costs of services (excluding depreciation and amortization disclosed  below) |       | 214,570    |       |                       | 30,809     |                           |       |             | 35,948     |             |       |   | (35,921 | ) |   |   | 245,406 |   |   |
| Selling, general and administrative                                          |       | 7,903      |       |                       | 505        |                           |       |             | —     |             |       |   | — |   |   |   | 8,408 |   |   |
| Depreciation and amortization                                                |       | 5,244      |       |                       | 351        |                           |       |             | 10         |             |       |   | — |   |   |   | 5,605 |   |   |
| Operating income                                                             |       | 7,678      |       |                       | (456       | )                              |       |             | (37        | )                |       |   | — |   |   |   | 7,185 |   |   |
| Interest income                                                              |       | (6         | )          |                       | (1         | )                              |       |             | —     |             |       |   | — |   |   |   | (7 | ) |   |
| Equity in income (loss) of subsidiaries                                 |       | (495       | )          |                       | 4          |                           |       |             | —     |             |       |   | 491 |   |   |   | — |   |   |
| Interest expense                                                             |       | 8,054      |       |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | 8,054 |   |   |
| Loss before income taxes                                                     |       | (865       | )          |                       | (451       | )                              |       |             | (37        | )                |       |   | 491 |   |   |   | (862 | ) |   |
| Provision for income taxes                                                   |       | 57         |       |                       | —     |                           |       |             | 3          |             |       |   | — |   |   |   | 60 |   |   |
| Net  loss                                                                    |       | $          | (922       | )                          |       | $                              | (451       | )                |       |             | $          | (40 | ) |   |   | $ | 491 |   |   |   | $ | (922 | ) |   |

 

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONFOR THE FISCAL YEAR ENDED MARCH 31, 2006**

| ** **                                                                   | ** ** | **Parent** | ** ** | **Subsidiary  Guarantor** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|---------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                     |       | $          | 1,731,796  |                      |       | $                              | 235,197    |             |       |             | $          | 205,428 |   |   |   | $ | (205,428 | ) |   |   | $ | 1,966,993 |   |   |
| Costs of services (excluding depreciation and amortization disclosed  below) |       | 1,500,303  |       |                      | 222,196    |                           |       |             | 205,018    |             |       |   | (205,428 | ) |   |   | 1,722,089 |   |   |
| Selling, general and administrative                                          |       | 91,522     |       |                      | 5,997      |                           |       |             | 1          |             |       |   | — |   |   |   | 97,520 |   |   |
| Depreciation and amortization                                                |       | 46,061     |       |                      | —     |                           |       |             | 86         |             |       |   | — |   |   |   | 46,147 |   |   |
| Operating income                                                             |       | 93,910     |       |                      | 7,004      |                           |       |             | 323        |             |       |   | — |   |   |   | 101,237 |   |   |
| Interest Income                                                              |       | (461       | )          |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | (461 | ) |   |
| Equity in income (loss) of subsidiaries                                      |       | 6,764      |       |                      | 210        |                           |       |             | —     |             |       |   | (6,974 | ) |   |   | — |   |   |
| Interest expense (income)                                                    |       | 56,703     |       |                      | (16        | )                              |       |             | (1         | )                |       |   | — |   |   |   | 56,686 |   |   |
| Income before income taxes                                                   |       | 44,432     |       |                      | 7,230      |                           |       |             | 324        |             |       |   | (6,974 | ) |   |   | 45,012 |   |   |
| Provision for income taxes                                                   |       | 16,047     |       |                      | 459        |                           |       |             | 121        |             |       |   | — |   |   |   | 16,627 |   |   |
| Net  income                                                                  |       | $          | 28,385     |                      |       | $                              | 6,771      |             |       |             | $          | 203 |   |   |   | $ | (6,974 | ) |   |   | $ | 28,385 |   |   |

 

88

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Dollars in thousands)**

**Note 17—ConsolidatingFinancial Statements of Subsidiary Guarantors (Continued)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATIONIMMEDIATE PREDECESSOR COMPANY OPERATIONSFOR THE FISCAL YEAR ENDED APRIL 2, 2004**

| ** **                                           | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Net cash (used in) provided  by operating activities |       | $          | (17,778    | )                          |       | $                              | 9,540      |             |       |             | $          | 1,482 |   |   |   | $ | — |   |   |   | $ | (6,756 | ) |   |
| **Cash flows from investing  activities:**           | ** ** | ** ** | ** ** |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Purchases of property  and equipment                 |       | (1,155     | )          |                       | (441       | )                              |       |             | (451       | )                |       |   | — |   |   |   | (2,047 | ) |   |
| Other assets                                         |       | (245       | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (245 | ) |   |
| Net cash used in  investing activities               |       | (1,400     | )          |                       | (441       | )                              |       |             | (451       | )                |       |   | — |   |   |   | (2,292 | ) |   |
| **Cash flows from financing  activities:**           | ** ** | ** ** | ** ** |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net transfers from (to) Parent                       |       | 19,643     |       |                       | (8,466     | )                              |       |             | (160       | )                |       |   | — |   |   |   | 11,017 |   |   |
| Net cash provided by  (used in) financing activities |       | 19,643     |       |                       | (8,466     | )                              |       |             | (160       | )                |       |   | — |   |   |   | 11,017 |   |   |
| Net increase in cash and  cash equivalents           |       | 465        |       |                       | 633        |                           |       |             | 871        |             |       |   | — |   |   |   | 1,969 |   |   |
| Cash and cash  equivalents at beginning of period    |       | 2,932      |       |                       | 622        |                           |       |             | 987        |             |       |   | — |   |   |   | 4,541 |   |   |
| Cash and cash equivalents at end of period           |       | $          | 3,397      |                       |       | $                              | 1,255      |             |       |             | $          | 1,858 |   |   |   | $ | — |   |   |   | $ | 6,510 |   |   |

 

89

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**DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Dollars in thousands)**

**Note 17—ConsolidatingFinancial Statements of Subsidiary Guarantors (Continued)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATIONIMMEDIATE PREDECESSOR COMPANY OPERATIONSFOR THE PERIOD FROM APRIL 3, 2004 THROUGH FEBRUARY 11, 2005**

| ** **                                           | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Net cash (used in) provided  by operating activities |       | $          | (11,814    | )                          |       | $                              | 3,825      |             |       |             | $          | 5,897 |   |   |   | $ | — |   |   |   | $ | (2,092 | ) |   |
| **Cash flows from investing activities:**            |       |       |       |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Purchases of property  and equipment                 |       | (4,714     | )          |                       | (3,612     | )                              |       |             | (147       | )                |       |   | — |   |   |   | (8,473 | ) |   |
| Other assets                                         |       | (2,234     | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (2,234 | ) |   |
| Net cash used in  investing activities               |       | (6,948     | )          |                       | (3,612     | )                              |       |             | (147       | )                |       |   | — |   |   |   | (10,707 | ) |   |
| **Cash flows from financing  activities:**           |       |       |       |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net transfers from (to) Parent                       |       | 19,985     |       |                       | (157       | )                              |       |             | (5,503     | )                |       |   | — |   |   |   | 14,325 |   |   |
| Net cash provided by  (used in) financing activities |       | 19,985     |       |                       | (157       | )                              |       |             | (5,503     | )                |       |   | — |   |   |   | 14,325 |   |   |
| Net increase in cash and  cash equivalents           |       | 1,223      |       |                       | 56         |                           |       |             | 247        |             |       |   | — |   |   |   | 1,526 |   |   |
| Cash and cash  equivalents at beginning of period    |       | 3,397      |       |                       | 1,255      |                           |       |             | 1,858      |             |       |   | — |   |   |   | 6,510 |   |   |
| Cash and cash equivalents at end of period           |       | $          | 4,620      |                       |       | $                              | 1,311      |             |       |             | $          | 2,105 |   |   |   | $ | — |   |   |   | $ | 8,036 |   |   |

 

 

90

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***DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)***

**Note17—Consolidating Financial Statements of Subsidiary Guarantors (Continued)**

**DYNCORPINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATIONSUCCESSOR COMPANY OPERATIONSFOR THE PERIOD FROM FEBRUARY 12, 2005 THROUGH APRIL 1, 2005**

| ** ** | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|

| Net cash (used  in) provided by operating activities  |   | $        | (16,372 | )      |   | $      | (15,847 | )      |   |   | $      | 979    |   |   |   | $      | —   |   |   |   | $ | (31,240 | )      |   |
|-------------------------------------------------------|--------|----------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------|--------|--------|--------|---|---------|--------|--------|
| **Cash flows from investing  activities:**            |   |     |    |   |   |   |    |   |   |   |   |   |   |   |   |   |     |   |   |
| Net cash paid for business acquired                   |   | (865,053 | )       |   | — |   |    |   | — |   |   |   | — |   |   |   | (865,053 | )      |   |
| Purchases of property and equipment                   |   | 53       |    |   | (297   | )      |    |   | — |   |   |   | — |   |   |   | (244     | )      |   |
| Other assets                                          |   | (4,097   | )       |   | — |   |    |   | — |   |   |   | — |   |   |   | (4,097   | )      |   |
| Net cash used in investing activities                 |   | (869,097 | )       |   | (297   | )      |    |   | — |   |   |   | — |   |   |   | (869,394 | )      |   |
| **Cash flows from financing  activities:**            |   |     |    |   |   |   |    |   |   |   |   |   |   |   |   |   |     |   |   |
| Net transfers (to) from Parent                        |   | (14,702  | )       |   | 16,256 |   |    |   | (1,554 | )      |   |   | — |   |   |   | —   |   |   |
| Stock issuance                                        |   | 10       |    |   | — |   |    |   | (10    | )      |   |   | — |   |   |   | —   |   |   |
| Proceeds from capital contributions                   |   | 224,825  |    |   | — |   |    |   | — |   |   |   | — |   |   |   | 224,825  |   |   |
| Issuance of acquisition debt                          |   | 665,000  |    |   | — |   |    |   | — |   |   |   | — |   |   |   | 665,000  |   |   |
| Payment for offering costs                            |   | (18,753  | )       |   | — |   |    |   | — |   |   |   | — |   |   |   | (18,753  | )      |   |
| Net proceeds from credit line                         |   | 35,000   |    |   | — |   |    |   | — |   |   |   | — |   |   |   | 35,000   |   |   |
| Net cash provided by (used in) financing activities   |   | 891,380  |    |   | 16,256 |   |    |   | (1,564 | )      |   |   | — |   |   |   | 906,072  |   |   |
| Net increase (decrease)  in cash and cash equivalents |   | 5,911    |    |   | 112    |   |    |   | (585   | )      |   |   | — |   |   |   | 5,438    |   |   |
| Cash and cash  equivalents at beginning of period     |   | 4,620    |    |   | 1,311  |   |    |   | 2,105  |   |   |   | — |   |   |   | 8,036    |   |   |
| Cash and cash  equivalents at end of period      |   | $        | 10,531  |   |   | $      | 1,423   |   |   |   | $      | 1,520  |   |   |   | $      | —   |   |   |   | $ | 13,474  |   |   |

 

91

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***DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)***

**Note17—Consolidating Financial Statements of Subsidiary Guarantors (Continued)**

**DYNCORPINTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION SUCCESSOR COMPANY OPERATIONSFOR THE FISCAL YEAR ENDED MARCH 31, 2006**

| ** **                                            | ** ** | **Parent** | ** ** | **Subsidiary  Guarantor** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|------------|------------|---------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Net cash provided by operating  activites             |       | $          | 18,189     |                      |       | $                              | 22,304     |             |       |             | $          | 14,618 |   |   |   | $ | — |   |   |   | $ | 55,111 |   |   |
| Cash flows from  investing activities:                |       |       |       |                      |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Purchases of property  and equipment                  |       | (1,711     | )          |                      | (483       | )                              |       |             | (77        | )                |       |   | — |   |   |   | (2,271 | ) |   |
| Other investing cash  flows                           |       | (3,960     | )          |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | (3,960 | ) |   |
| Net cash used in  investing activities                |       | (5,671     | )          |                      | (483       | )                              |       |             | (77        | )                |       |   | — |   |   |   | (6,231 | ) |   |
| Cash flows from  financing activities:                |       |       |       |                      |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net transfers from (to) Parent.                       |       | 26,299     |       |                      | (12,495    | )                              |       |             | (13,804    | )                |       |   | — |   |   |   | — |   |   |
| Payments on credit  facility                          |       | (35,000    | )          |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | (35,000 | ) |   |
| Other financing  activities                           |       | (6,781     | )          |                      | —     |                           |       |             | —     |             |       |   | — |   |   |   | (6,781 | ) |   |
| Net cash used in  financing activities                |       | (15,482    | )          |                      | (12,495    | )                              |       |             | (13,804    | )                |       |   | — |   |   |   | (41,781 | ) |   |
| Net (decrease) increase  in cash and cash equivalents |       | (2,964     | )          |                      | 9,326      |                           |       |             | 737        |             |       |   | — |   |   |   | 7,099 |   |   |
| Cash and cash  equivalents at beginning of period     |       | 10,531     |       |                      | 1,423      |                           |       |             | 1,520      |             |       |   | — |   |   |   | 13,474 |   |   |
| Cash and cash  equivalents at end of period           |       | $          | 7,567      |                      |       | $                              | 10,749     |             |       |             | $          | 2,257 |   |   |   | $ | — |   |   |   | $ | 20,573 |   |   |

 

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***DYNCORP INTERNATIONAL LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollars in thousands)***

**Note 18—Subsequent Event**

On May 9,2006, the Successor Parent consummated an equity offering of 25.0 millionshares of its Class A common stock, par value $0.01 per share, at a priceof $15.00 per share (the “Equity Offering”). The Successor Parent’s Class Acommon stock is listed on the New York Stock Exchange. The gross proceeds ofthe Equity Offering of $375,000, together with cash on hand, were used for thefollowing transactions:

(a)    theredemption of all of the Successor Parent’s outstanding preferred stock,including accrued and unpaid dividends, as of the date of redemption of May 9,2006 in the amount of $222,823;

(b)   the paymentof a special distribution to the holders of the Successor Parent’s Class Bstock in the amount of $100,000;

(c)    theredemption on June 8, 2006 of $28,000 of the $320,000 aggregate principalamount of our senior subordinated notes;

(d)   the paymentof certain prepayment penalties of $8,446, $5,717 of which represents theprepayment penalties on the Successor Parent’s preferred stock and $2,729 ofwhich represents prepayment penalties on the Company’s senior subordinatednotes; and

(e)    thepayment of transaction expenses of $35,000, including an underwriters’commission of $22,500, a fee of $5,000 paid to Veritas and $7,500 ofmiscellaneous fees and expenses related to the Equity Offering.

* * * * *

93

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**ITEM 9.     CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTINGAND FINANCIALDISCLOSURE.**

None.

**ITEM 9A.   CONTROLS AND PROCEDURES.**

**1.       DisclosureControls and Procedures**

The Company’s management,with the participation of its chief executive officer and chief financialofficer, evaluated the effectiveness of the Company’s disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act), as of March 31, 2006. Based on this evaluation, theCompany’s chief executive officer, and chief financial officer concluded that,as of March 31, 2006, the Company’s disclosure controls and procedureswere: (1) designed to ensure that material information relating to theCompany, including its consolidated subsidiaries, is made known to the Company’smanagement, including the Company’s chief executive officer and chief financialofficer, and by others within those entities, as appropriate to allow timelydecisions regarding required disclosure, particularly during the period in whichthis report was being prepared; and (2) effective, in that they providereasonable assurance that information required to be disclosed by the Companyin the reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms.

**2.       Changes inInternal Control Over Financial Reporting**

No change in the Company’sinternal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the fiscal quarterended March 31, 2006, that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

**ITEM 9B.  OTHER INFORMATION.**

On June 28, 2006, we entered into a secondamendment and waiver of our senior secured credit facility, dated February 11,2005.  The second amendment and waiverprovided for a new term loan in the amount of $431.6 million, which wasthe outstanding balance of the existing term loan under our senior securedcredit facility on the date of the second amendment and waiver.  The maturity date of the new term loan isunchanged from the maturity date of the existing term loan.  The proceeds from the new term loan were usedto repay the existing term loan.  Thesecond amendment and waiver also, among other things, (i) decreases theinterest rate applicable to the term loan under our senior secured creditfacility; (ii) permits us to request an increase in our revolving creditfacility by an aggregate amount of up to $30.0 million provided that noneof the existing lenders or any other lender is committed to provide suchincrease; (iii) increases the amount of capital expenditures permittedunder our senior secured credit facility from $4.0 million per fiscal yearto $8.0 million per fiscal year; (iv) increases the amount ofcapitalized leases permitted under our senior secured credit facility; (v) allowsfor the payment of dividends and the repurchase of our capital stock in theamount of $10.0 million plus, if our leverage ratio (as defined in oursenior secured credit facility) is below 3.25:1.00, 25% of our excess cash flow(as defined in our senior secured credit facility) for each fiscal year; and(vi) postpones the first prepayment of the senior secured credit facilitybased on our excess cash flow until 90 days following our fiscal yearwhich ends on March 30, 2007.  Acopy of this second amendment and waiver is attached to DynCorp InternationalInc.’s Form 10-K, as exhibit 10.16, filed with the SEC on June 29,2006.

94

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**PART III**

**ITEM 10.       DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT.**

***Management***

Thefollowing table sets forth certain information regarding the members of ourParent’s board of directors, as of June 1, 2006. Our Parent owns all ofthe membership interests in our Company, and the sole member of the board ofmanagers of our Company is Robert K. McKeon. In addition, the table sets forthinformation regarding our executive officers. Each of the individuals set forthbelow served in the respective positions as of June 1, 2006 and has servedin such capacity since the dates indicated below in their biographical data.

| **Name**                                               | ** ** | ** ** | ** ** | **Age**                                                                    | ** ** | **Position** |
|--------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------|------------|--------------|
| Robert B. McKeon                                       | ** ** | 51         |       | Sole member of our board  of managers, Chairman and Director of our Parent |
| Stephen J. Cannon                                      |       | 52         |       | President, Chief  Executive Officer and Director of our Parent             |
| Jay K. Gorman                                          |       | 48         |       | Executive Vice President  and Chief Operating Officer                      |
| Michael J. Thorne                                      |       | 49         |       | Senior Vice President,  Chief Financial Officer and Treasurer              |
| R. Y. Morrel                                           |       | 51         |       | Senior Vice President and  General Counsel                                 |
| Robert B. Rosenkranz                                   |       | 66         |       | President, International  Technical Services                               |
| Natale S. DiGesualdo                                   |       | 66         |       | President, Field  Technical Services                                       |
| Ambassador Marc Grossman                               |       | 54         |       | Director of our Parent                                                     |
| Thomas J. Campbell .                                   |       | 47         |       | Director of our Parent                                                     |
| General Richard E. Hawley  (USAF Ret.)                 |       | 64         |       | Director of our Parent                                                     |
| Herbert J. Lanese.                                     |       | 61         |       | Director of our Parent                                                     |
| General Barry R.  McCaffrey (USA Ret.)                 |       | 63         |       | Director of our Parent                                                     |
| Ramzi M. Musallam                                      |       | 37         |       | Director of our Parent                                                     |
| Admiral Joseph W. Prueher  (USN Ret.)                  |       | 63         |       | Director of our Parent                                                     |
| Charles S. Ream                                        |       | 62         |       | Director of our Parent                                                     |
| Admiral Leighton W.  Smith, Jr. (USN. Ret.)  |       | 66         |       | Director of our Parent                                                     |
| William G. Tobin                                       |       | 68         |       | Director of our Parent                                                     |
| General Anthony C. Zinni (USMC Ret.)                   |       | 62         |       | Director of our Parent                                                     |

 

We are a direct wholly owned subsidiary of our Parent.

***Robert B. McKeon*** has been the Chairman of ourParent’s board of directors and the sole manager of our board of managers sinceFebruary 11, 2005.  Mr. McKeonis a member of our Parent’s compensation committee, corporate governance andnominating committee and executive committee. Mr. McKeon is the Presidentof Veritas Capital, a New York-based private equity investment firm he foundedin 1992. Mr. McKeon is on the Board of Trustees of Fordham University, amember of the Board of Fellows of Trinity College, a member of the Council onForeign Relations and is a member of the boards of directors of several privatecompanies. Mr. McKeon holds a Bachelor’s degree from Fordham Universityand a Master’s degree in business administration from Harvard Business School.

***Stephen J. Cannon*** has served as our President andChief Executive Officer and the President and Chief Executive Officer of ourParent since March 24, 2005. Mr. Cannon has been a member of ourParent’s board of directors since February 11, 2005 and serves on ourParent’s corporate governance and nominating committee. Before assuming therole of President in 2001, Mr. Cannon served as Senior Vice President ofDynCorp Technical Services. He was responsible for operational and financialmanagement, business development and strategic planning. He has also heldmanagement positions for DynCorp’s Aerospace Operations Division, whichsubsequently became DynCorp Technical Services, Inc. Mr. Cannon isalso on the board of directors of Offshore Logistics, Inc. Mr. Cannonholds Bachelor’s and 

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***Master’s degrees from Virginia Polytechnic Institute andState University. As of March 31, 2006, Mr. Cannon has been employedby the Company and its predecessors for 24 years commencing February 1982.***

***Jay K. Gorman***has been our Executive Vice President and Chief Operating Officer sinceMarch 8, 2005. Before assuming his current position, Mr. Gormanserved as Vice President of International Operations and as Senior VicePresident of DynCorp Technical Services and prior to that as Vice President ofMiddle East/Africa Operations within DynCorp Technical Services. He wasresponsible for operational and financial management, business development andstrategic planning for operations in Saudi Arabia, Oman, Kuwait, Bahrain,Jordan and the UAE. He has held management positions for our Company’sAerospace Operations Division, which subsequently became DynCorp TechnicalServices. As of March 31, 2006, Mr. Gorman has been employed by theCompany and its predecessors for 12 years commencing January 1994.

***Michael J. Thorne*** has served as our Senior VicePresident, Chief Financial Officer (“CFO”) and Treasurer and the Senior VicePresident, CFO and Treasurer of our Parent since March 24, 2005. Beforeassuming this position, he was Vice President of Contracts and a director forjoint ventures in the U.K. (Dyn-Hibernia), Saudi Arabia (Dyn-Al Rushaid) andPuerto Rico (DynPuertoRico). Mr. Thorne’s other responsibilities haveincluded financial forecasts, forward pricing rates, incurred cost submissions,disclosure statements and program/contract pricing. He joined the Company in2001 after spending 22 years with Lockheed Martin in various key financialpositions. His background includes roles at both the manufacturing and the servicedivisions of Lockheed. In 1978, Mr. Thorne graduated from the Universityof Georgia with a BBA degree in Finance, and subsequently earned his MBA inFinance in 1979. As of March 31, 2006, Mr. Thorne has been employedby the Company and its predecessors for four years commencing July 2001.

***R. Y. Morrel*** has been our Senior Vice Presidentand General Counsel and the Senior Vice President and General Counsel of ourParent since September 12, 2005. From 1994 to February 2005, Ms. Morrelserved as a vice president of our former corporate parent, DynCorp. Prior toDynCorp’s acquisition by Computer Sciences Corporation in March 2003, Ms. Morrelwas responsible for all legal matters arising within DynCorp’s operations,including the conduct, strategy and oversight of all litigation, headingDynCorp’s overall compliance program and managing the law department. Ms. Morrelwas a vice president of DynCorp and assistant general counsel for ComputerSciences Corporation from March 2003 to February 2005. In addition toher law degree from Cleveland-Marshall College of Law, Ms. Morrel receivedan M.A. from Villanova University and a B.A. from Temple University. Ms. Morrelis licensed to practice before the United States Supreme Court, the UnitedStates Court of Federal Claims, and in Virginia, Maryland, Pennsylvania and theDistrict of Columbia. As of March 31, 2006, Ms. Morrel has beenemployed by the Company and its predecessors for 22 years.

***Robert B. Rosenkranz*** has served as our President ofInternational Technical Services since August 29, 2005. He is responsiblefor managing the International Technical Services segment, including lawenforcement services, counter-narcotics support, contingency and logisticsupport services, facility operations, infrastructure development and securityservices. He graduated from the U.S. Military Academy, holds a Masters degreefrom the University of Pennsylvania and retired from the U.S. Army as a majorgeneral. He served as Senior Vice President for range and logistics services ofthe Company’s predecessor from 1995 to 2001; as Vice President of businessdevelopment for MPRI/L-3 from 2001 to 2003; as General Manager of Beamhitfrom 2003 to 2004; and as a Vice President of business development for KEIPearson, Inc. from January to August 2005. Mr. Rosenkranzjoined the Company in his current capacity on August 29, 2005.

***Natale******S. DiGesualdo*********has been our President of FieldTechnical Services since March 8, 2005. He is responsible for managing anddirecting the operations and financial management for more than 5,000 

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***employees worldwide. Mr. DiGesualdo has more than 45years of experience applicable to aviation maintenance and maintenancemanagement, of which more than 40 years are with DynCorp International ContractField Teams operations. He has served in various positions, ranging fromAvionics Technician to Supervisor, rising to his current position as President,Field Technical Services. Mr. DiGesualdo attended Wichita StateUniversity, under the continuing education program, toward a Bachelor’s degreein Business Administration. As of March 31, 2006, Mr. DiGesualdo hasbeen employed by the Company and its predecessors for 43 years commencing September 1961.***

***Ambassador******Marc Grossman*********has been a member of our Parent’sboard of directors since March 16, 2006. Ambassador Grossman is a memberof our Parent’s corporate governance and nominating committee. He is ViceChairman of The Cohen Group, a strategic business consulting firm. In 2005,Ambassador Grossman retired after he completed 29 years of public service with theState Department as the Under Secretary of State for Political Affairs. AmbassadorGrossman was the Under Secretary of State for Political Affairs from 2001 to2005 and the Director General of the Foreign Service and Director of HumanResources from 2000 to 2001. Ambassador Grossman previously served as theAssistant Secretary of State for European Affairs from 1997 to 2000 and U.S.Ambassador to Turkey from 1994 to 1997. Ambassador Grossman holds a Bachelor’sdegree from the University of California, Santa Barbara and a MSc inInternational Relations from the London School of Economics and PoliticalScience.

***Thomas******J. Campbell*********has been a member of our Parent’sboard of directors since February 11, 2005. Mr. Campbell is a memberof our Parent’s executive committee. Mr. Campbell is a partner at VeritasCapital, which he has been associated with since 1992. He is also a member ofthe boards of directors of several private companies. Mr. Campbell holds aBachelor’s degree in Accounting and Finance from Lehigh University.

***General******Richard E. Hawley (USAF Ret.)*********has been a member of our Parent’sboard of directors since February 11, 2005. Since 1999, Gen. Hawley hasbeen an independent consultant to the U.S. government and various aerospacecompanies. Gen. Hawley retired in July 1999 after a 35-year careerin the U.S. Air Force where he served as Commander, Air Combat Command from1996 to 1999; as Commander, Allied Air Forces Central Europe; and as Commander,U.S. Air Forces Europe from 1995 to 1996. Gen. Hawley holds a Bachelor’s degreefrom the U.S. Air Force Academy and a Master’s degree in Economics fromGeorgetown University. He is a director of the Astronautics Corporation ofAmerica, McNeil Technologies, Inc., Enterprise Electronics Corporation,Continental Electronics Corporation and DFI International and a member of theBoard of Advisors of Christopher Newport University’s School of Business.

***Herbert******J. Lanese*********has been a member of our Parent’sboard of directors since March 16, 2006. Mr. Lanese is the Chairmanof our Parent’s compensation committee and a member of our Parent’s auditcommittee. Mr. Lanese has been an independent businessman and privateinvestor for the past five years. He is a former President of McDonnell DouglasAircraft. Mr. Lanese also held positions of Executive Vice President andCFO at McDonnell Douglas Corporation. Prior to joining McDonnell DouglasCorporation, he served as Corporate Vice President of Tenneco, Inc., wherehe was responsible for strategic planning, capital structure, accounting andinformation systems. Earlier, he held positions as Vice President and CFO ofTenneco Inc.’s Newport News Shipbuilding business and Vice President of Financeof Tenneco Chemicals. He began his career in Engineering and ProductionManagement at General Motors Corporation before becoming Director, U.S.Chemical Operations, at BF Goodrich Company. Mr. Lanese has been directorof Atlas Air Worldwide Holdings, Inc. since 2004. Mr. Lanese holds aBachelor’s degree and a Master’s degree in Business Administration from BowlingGreen State University.

***General******Barry R. McCaffrey (USA Ret.)*********has been a member of our Parent’sboard of directors since February 11, 2005. Gen. McCaffrey was Director,White House Office of National Drug Control Policy from February 1996 to January 2001,serving as a member of the President’s Cabinet and the National 

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***Security Council. During his service career, he servedoverseas for 13 years, including service as Commander-in-Chief, U.S. SouthernCommand from 1994 to 1996. Gen. McCaffrey holds a Bachelor’s degree in GeneralEngineering from the U.S. Military Academy and holds a Master’s degree in CivilGovernment from American University. Gen. McCaffrey is the president of aprivate consulting firm. He is also a member of the boards of several privatecompanies.***

***Ramzi******M. Musallam*********has been a member of our Parent’sboard of directors since February 11, 2005. Mr. Musallam is ourParent’s assistant secretary, a member of our Parent’s compensation committeeand a member of our Parent’s executive committee. Mr. Musallam is apartner at Veritas Capital, which he has been associated with since 1997. He isalso a member of the boards of directors of several private companies.Mr. Musallam holds a Bachelor’s degree from Colgate University with adouble major in Economics and Mathematics and a Master’s degree in BusinessAdministration from the University of Chicago Graduate School of Business.

***Admiral******Joseph W. Prueher (USN Ret.)*********has been a member of our Parent’sboard of directors since February 11, 2005. Admiral Prueher is theChairman of our Parent’s corporate governance and nominating committee. AdmiralPrueher served as U.S. Ambassador to the People’s Republic of China from November 1999to May 2001. His diplomatic post followed a 35-year career in theU.S. Navy, where he served as Commander-in-Chief, U.S. Pacific Command from January 1996to February 1999. From 1989 through 1995, Admiral Prueher served asCommandant of Midshipmen at the U.S. Naval Academy at Annapolis, Commander ofCarrier Battle Group ONE based in San Diego, Commander of the U.S.Mediterranean Sixth Fleet and of NATO Striking Forces and as Vice Chief ofNaval Operations in the Pentagon. Admiral Prueher holds a Bachelor’s degree inNaval Science from the U.S. Naval Academy and a Master’s degree inInternational Relations from George Washington University. He is a consultingprofessor at Stanford and Harvard universities and a trustee of The NatureConservancy of Virginia. He is a member of the board of directors of FluorCorporation, Merrill Lynch &Co, Inc., New York Life Insurance Company andEmerson Electric Co.

***Charles******S. Ream*********has been a member of our Parent’sboard of directors since March 16, 2006. Mr. Ream is the Chairman ofour Parent’s audit committee and a member of our Parent’s compensationcommittee. Mr. Ream retired as the Executive Vice President and CFO ofAnteon International Corporation, having served in that capacity from May 2003to June 2006. Mr. Ream also served as Senior Vice President and CFOof Newport News Shipbuilding Inc. from October 2000 to 2001. Previously,he served as Senior Vice President, Finance of Raytheon Systems Company andSenior Vice President and CFO at Hughes Aircraft Company. He was formerly apartner at Deloitte & Touche LLP. Mr. Ream holds a Master ofAccountancy degree from the University of Arizona and is a Certified PublicAccountant. He is a director of Stewart & Stevenson Services, Inc.

***Admiral******Leighton W. Smith, Jr. (USN. Ret.)*********has been a member of our Parent’sboard of directors since February 11, 2005. Admiral Smith is a member ofour Parent’s audit committee. Admiral Smith was appointed to four star rank in April 1994,became Commander-in-Chief, Allied Forces Southern Europe and concurrentlyassumed the command of the NATO-led Implementation Force in Bosnia in December 1995.Admiral Smith has served as a Senior Fellow at the Center for Naval Analysisand as a Senior Advisor to the Institute for Defense Analysis. He is a memberof the boards of directors of CAE USA Inc. and Billing Services Group. AdmiralSmith is a Presidential appointee to the U.S. Naval Academy Board of Visitors.

***William******G. Tobin*********has been a member of our Parent’sboard of directors since February 11, 2005. Mr. Tobin is a member ofour Parent’s compensation committee. Mr. Tobin has been a ManagingDirector and Chairman of the Defense & Aerospace practice ofKorn/Ferry International since September 1986. From 1961 to 1981, Mr. Tobinwas a professional military officer serving in a variety of command and staff 

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***positions worldwide. Mr. Tobin holds a Bachelor’sdegree in Engineering from the U.S. Military Academy and advanced degrees fromboth George Washington University and Long Island University.***

***General******Anthony C. Zinni (USMC Ret.)*********has been a member of our Parent’sboard of directors since February 11, 2005. Gen. Zinni retired from theU.S. Marine Corps after 39 years of service in September 2000. During hismilitary career, Gen. Zinni served as the Commanding General, the First MarineExpeditionary Force from 1994 to 1996, and as Commander-in-Chief, U.S. CentralCommand from 1997 to 2000. Gen. Zinni has participated in numerous humanitarianoperations and presidential diplomatic missions. In November 2001, Gen.Zinni was appointed senior adviser and U.S. envoy to the Middle East bySecretary of State Colin Powell. Gen. Zinni holds a Bachelor’s degree inEconomics from Villanova University and Master’s degrees in InternationalRelations from Central Michigan University and in Management and Supervisionfrom Salve Regina University.

***Board of Directors***

Our Parent has thirteendirectors, including Mr. Lanese and Mr. Ream who qualify as financialexperts under the rules and regulations of the SEC and New York StockExchange. Our Parent is a controlled company within the meaning of theNew York Stock Exchange rules, and because of this, until such time as itis no longer a controlled company, our Parent is exempt from the New YorkStock Exchange requirements that its board be composed of a majority of independentdirectors and that its compensation and corporate governance committees becomposed entirely of independent directors. Any director may be removed fromoffice by our Parent’s stockholder. Veritas Capital is the beneficial owner ofa majority of our Parent’s common stock and will be able to unilaterally removedirectors. Subject to the terms and conditions set forth in their employmentagreements, if applicable, our executive officers serve at the discretion ofour Parent’s board of directors.

***Director Independence***

Our Parent’s board has reviewed the independence ofeach of its members based on the criteria for independence set forth underapplicable securities laws, including the Exchange Act, applicable rules andregulations of the SEC and applicable rules and regulations of the NYSE. TheNYSE Listed Company Manual and corresponding listing standards provide that, inorder to be independent, our Parent’s board must determine that a director hasno material relationship with the Company other than as a director.

Our Parent’s board of directors is divided into threeclasses, as nearly equal in number as possible, with each director serving athree-year term and one class being elected at each year’s annual meeting ofstockholders. As of March 31, 2006, the following individuals aredirectors and will serve for the terms indicated:

*Class IDirectors (term expiring at the first annual meeting of stockholders heldfollowing the closing of our Parent’s initial public offering)*

Robert B. McKeonGeneral Barry R. McCaffreyAdmiral Joseph W. PrueherHerbert J. LaneseAdmiral Leighton W. Smith, Jr.

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*Class II Directors (term expiring at thesecond annual meeting of stockholders held following the closing of our Parent’sinitial public offering)*

Stephen J. CannonThomas J. CampbellGeneral Anthony C. ZinniCharles S. Ream

*Class III Directors (term expiring at thethird annual meeting of stockholders held following the closing of our Parent’sinitial public offering)*

General Richard E. HawleyRamzi M. MusallamWilliam G. TobinAmbassador Marc Grossman

Generals Hawley, McCaffrey and Zinni, Admirals Prueherand Smith and Mr. Tobin are also members of the Defense &Aerospace Advisory Council of Veritas Capital.

Each of the directors of our Parent and our directors,other than Robert B. McKeon, Stephen J. Cannon, Thomas J. Campbell and Ramzi M.Musallam, are independent.

***Board Committees.******  ***The standingcommittees of our Parent’s board of directors consist of an audit committee, acompensation committee, a nominating/corporate governance committee and anexecutive committee. The composition of our Parent’s board committees complywhen required, with the applicable rules of the New York Stock Exchangeand the provisions of the Sarbanes-Oxley Act of 2002.

***Audit Committee.******  ***Our Parent’saudit committee is comprised of three directors who satisfy the independencestandards promulgated under the requirements of the New York Stock Exchange andthe SEC. The audit committee consists of Charles S. Ream as Chairman, AdmiralLeighton W. Smith, Jr. and Herbert J. Lanese. Mr. Ream and Mr. Laneseare financial experts pursuant to the requirements of the New York StockExchange and the SEC. Our Parent’s board of directors has determined thatAdmiral Leighton W. Smith, Jr. meets the financial literacy requirementsof the New York Stock Exchange. The audit committee is responsible for, amongother things, making recommendations concerning the engagement of ourindependent public accountants, reviewing with the independent publicaccountants the plans and results of the audit engagement, approvingprofessional services provided by the independent registered accounting firm,reviewing the independence of the independent registered accounting firm,considering the range of audit and non-audit fees and reviewing the adequacy ofour internal accounting controls.

***CompensationCommittee.******  ***Our Parent’s compensation committee isprimarily concerned with administering programs and policies regarding thecompensation of executive officers and employee benefit plans. The committee isresponsible for determining compensation of our Parent’s executive officers andother employees and overseeing the administration of all employee benefit plansand programs. Our Parent’s compensation committee is comprised of Messrs. McKeon,Musallam, Lanese (Chairman), Ream and Tobin.

***CorporateGovernance and Nominating Committee.******  ***Our Parent’s corporategovernance and nominating committee is primarily concerned with selecting thedirector nominees for the next annual stockholder meeting and review of our Parent’scorporate governance policies. The committee is responsible for reviewingdirector compensation and benefits, overseeing the annual self-evaluations ofour Parent’s board of directors and making recommendations to the boardconcerning the structure and membership of the other board committees. Our Parent’scorporate governance and nominating committee is comprised of Messrs. McKeon,Cannon, Prueher (Chairman) and Grossman.

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***Executive Committee.******  ***Our Parent’s executivecommittee is responsible for reviewing major operating, contractual andexpenditure issues. Our executive committee is comprised of Messrs. McKeon,Campbell and Musallam.

***Compensation of Directors***

Our Parent’s nine outside directors, Generals Hawley,McCaffrey and Zinni, Admirals Prueher and Smith, Messrs. Grossman, Lanese,Ream and Tobin, are paid $35,000 annually, an additional fee of $2,000 for theattendance of each regular quarterly board meeting and an additional fee of$6,250 for each board meeting other than regular quarterly meetings. Inaddition, our Parent’s outside directors were granted Class B interests inDIV Holding LLC, see “Executive Compensation—Management Incentives Plans.”  Neither our Parent nor our Company maintainsa medical, dental or retirement benefits plan for these directors. Theremaining directors are employed either by us or by Veritas Capital and do notreceive any separate compensation from us for their services as directorsalthough they are reimbursed for expenses incurred in connection with attendingboard and committee meetings.

***Compensation Committee Interlocks and InsiderParticipation***

Other than Mr. StephenJ. Cannon, who is our Chief Executive Officer and serves on our Parent’s boardof directors, there are no compensation committee interlocks (i.e., noexecutive officer serves as a member of the board or the compensation committeeof another entity which has an executive officer serving on the board or on thecompensation committee of such entity).

***Code of Ethics***

Our Company and our Parent have adopted a code ofethics, referred to within our Company and our Parent as the Standards ofConduct, that applies to the principal executive officer, principal financialofficer, principal accounting officer or controller, and all other employees ofthe Company and directors of our Parent. We and our Parent have posted the codeof ethics on our website (*www.dyn-intl.com*),and it is available in print to any stockholder of our Parent upon request. OurCompany and our Parent will post any amendments to, or any waivers from, aprovision of the Standards of Conduct.

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**ITEM 11.       EXECUTIVECOMPENSATION.**

The following table summarizes compensation awarded orpaid during fiscal year 2006, 2005 and 2004 to our President and ChiefExecutive Officer and our four other most highly compensated executive officersas of March 31, 2006, the completion of our last fiscal year. Compensationamounts reflect compensation paid while the individuals listed below wereemployed while we were a subsidiary of Computer Sciences Corporation. Thecompensation amounts referred to below do not reflect participation in anyComputer Sciences Corporation stock-based incentive plan.

|                                                      | ** ** | **Annual Compensation** | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | **Other** | ** ** |
| ** **                                           | ** ** | **Fiscal**                   | ** ** | ** ** | ** ** | ** ** | ** ** | **Annual** | ** ** |
| Name and Principal Position           | ** ** | ** **                   | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus**(1) | ** ** | **Compensation**(2) | ** ** |
| Stephen J. Cannon                                    |       |                         | 2006       |   |   | $ | 563,029 |   | $ | 1,510,000 | (3) |   | $ | 14,400 |   |   |
| President and Chief Executive Officer                |       |                         | 2005       |   |   | 369,221 |   | 592,000 |   |   | 1,662 |   |   |
|                                                      |       |                         | 2004       |   |   | 359,401 |   | 334,496 |   |   | 7,983 |   |   |
| Jay K. Gorman.                                       |       |                         | 2006       |   |   | $ | 365,253 |   | $ | 976,950 | (3) |   | $ | 6,134 |   |   |
| Executive Vice President and Chief Operating Officer |       |                         | 2005       |   |   | 245,094 |   | 308,000 |   |   | 708 |   |   |
|                                                 |       |                         | 2004       |   |   | 218,603 |   | 159,296 |   |   | 7,938 |   |   |
| Michael J. Thorne                                    |       |                         | 2006       |   |   | $ | 285,590 |   | $ | 651,300 | (3) |   | $ | 12,000 |   |   |
| Senior Vice President and Chief  Financial Officer   |       |                         | 2005       |   |   | 186,737 |   | 190,000 |   |   | 1,385 |   |   |
|                                                      |       |                         | 2004       |   |   | 135,268 |   | 75,600 |   |   | — |   |   |
| Natale S. DiGesualdo                                 |       |                         | 2006       |   |   | $ | 253,449 |   | $ | 590,300 | (3) |   | $ | 4,324 |   |   |
| President, Field Technical Services                  |       |                         | 2005       |   |   | 190,430 |   | 153,400 |   |   | 447 |   |   |
|                                                 |       |                         | 2004       |   |   | 185,514 |   | 100,807 |   |   | 6,735 |   |   |
| R. Y. Morrel                                         |       |                         | 2006       |   |   | $ | 330,044 |   | $ | 183,000 |   |   | $ | 10,385 |   |   |
| Senior Vice President and General  Counsel           |       |                         | 2005       |   |   | 207,713 |   | 135,000 |   |   | 1,246 |   |   |
|                                                      |       |                         | 2004       |   |   | 192,769 |   | 75,000 |   |   | 6,060 |   |   |
|                                                      |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)    Executive incentive plan bonuses have beenincluded in the respective fiscal year when earned.

(2)    Includes payment of certain insurancepremiums during fiscal 2004 and car allowance.

(3)    Amount includes a special retention bonus in connection with the2005 Acquisition. See “—Special Retention Plan” described below.

***Employment Agreements***

*General*

We entered into employmentagreements with eight individuals, including Stephen J. Cannon, Jay K. Gorman,Michael J. Thorne, Natale S. DiGesualdo and R. Y. Morrel for an initial term offive years commencing on April 1, 2006 and ending at midnight on March 31,2011. Following the initial term, each employment agreement will automaticallyrenew for additional one-year periods each April 1, unless either we orthe executive delivers written notice of intent not to renew. Messrs. Cannon,Gorman, Thorne, DiGesualdo and Ms. Morrel will be paid an annual basesalary of $750,000, $475,000, $350,000, $253,000 and $330,000, respectively. Inaddition, each of Messrs. Cannon, Gorman, Thorne, DiGesualdo and Ms. Morrelwill be eligible to receive an annual bonus of 100%, 75%, 60%, 50% and 50%,respectively, of his or her base salary subject to achieving performance targets.

*Termination Provisions*

If any of Messrs. Cannon,Gorman, Thorne or DiGesualdo or Ms. Morrel is terminated without “cause”or terminates his or her employment for “good cause,” as those terms aredefined in the applicable employment agreement, in addition to receivingaccrued base salary and accrued and unused vacation 

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earnedthrough the date of termination and a prorated portion of his or her annualbonus based on our projected performance through the date of termination, afterexecuting an irrevocable waiver and release of claims, he or she will beentitled to:

(1)   a paymentequal to two times the sum of the executive’s base salary for the year oftermination, payable in two equal lump sum payments, the first on the firstpayroll date that is six months following the date of termination and thesecond on the first payroll date that is twelve months following the date oftermination;

(2)   exerciseany vested stock options to purchase stock in our Company or any equivalent orsimilar vested rights that appreciate or tend to appreciate as the value of ourCompany’s common stock appreciates for a period of ninety days; and

(3)   reimbursementfrom our Company for the same portion of his or her health insurance premiumthat our Company paid during the executive’s employment until the earlier of (i) thelast day that the executive is entitled to health care continuation coverageunder the Consolidated Omnibus Budget Reconciliation Act of 1985 and (ii) thedate on which the executive becomes covered under any other group health plan(as an employee or otherwise).

If any of Messrs. Cannon,Gorman, Thorne or DiGesualdo or Ms. Morrel is terminated for any otherreason, other than retirement, death or disability, neither the executive norhis or her estate will be entitled to any severance payments other than accruedsalary and accrued and unused vacation earned through the date of termination. Ifany of the executives retires, dies or becomes disabled, the executive or hisor her estate, in addition to receiving accrued base salary and accrued andunused vacation earned through the date of termination, after executing anirrevocable waiver and release of claims, will be entitled to: (i) receivea pro rata portion of the executive’s annual bonus based on our Company’sprojected performance through the date of termination; and (ii) exerciseany vested stock options to purchase stock in our Company or any equivalent orsimilar vested rights that appreciate or tend to appreciate as the value of ourCompany’s common stock appreciates for a period of ninety days.

*Non-Solicitation Provision*

Each of Messrs. Cannon,Gorman, Thorne and DiGesualdo and Ms. Morrel agrees not to employ orsolicit for employment any employee of the Company during the executive’semployment and for a period of one year following the executive’s terminationof employment for any reason.

***Special Cash Bonus***

Upon consummation of ourParent’s Equity Offering, we used cash on hand to pay special cash bonuses of$3.125 million in the aggregate to our executive officers and certain othermembers of management. Of that amount, Messrs. Cannon, Gorman, Thorne,Rosenkranz and Ms. Morrel received $1,000,000, $750,000, $500,000,$100,000 and $100,000, respectively. These bonuses were intended to rewardmanagement for their efforts in connection with the successful consummation ofour Parent’s Equity Offering. The bonuses were paid on May 12, 2006.

***Special Retention Plan***

In connection with the2005 Acquisition, we adopted the DynCorp International LLC Special RetentionPlan, under which fifteen key management employees became eligible to receivean incentive payment payable thirty days following the six-month anniversary ofthe consummation of the 2005 Acquisition transactions, provided they remainedcontinuously employed by our Company, any subsidiary, division or affiliatedunit divested by DynCorp in the 2005 Acquisition transactions until six monthsfollowing the closing of such transactions. Nine of the eligible employeesreceived fixed payments 

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aggregating$525,000. Amounts for the remaining six eligible employees were based on apercentage of the purchase price over $400 million. The total value of thepayment to these six employees was $3.375 million. The retention payments paidto Stephen J. Cannon, Jay K. Gorman, James Wickham, GeorgeFleischmann, Michael J. Thorne and Natale S. DiGesualdo on August 12,2005 were determined based on the formula discussed above and were $900,000,$675,000, $450,000, $450,000, $450,000 and $450,000, respectively.

***Management Incentive Plans***

***DIV Holding LLC Class BInterests.******  ***Stephen J. Cannon, our chief executiveofficer, and certain other members of management, including Natale S.DiGesualdo, Jay K. Gorman, Michael J. Thorne and R. Y. Morrel, and all of ourParent’s outside directors, which include Ambassador Marc Grossman, GeneralRichard E. Hawley, Herbert J. Lanese, General Barry R. McCaffrey, AdmiralJoseph W. Prueher, Charles S. Ream, Admiral Leighton W. Smith Jr., William G.Tobin and General Anthony C. Zinni, participate in our profits through a planthat granted them Class B interests in DIV Holding LLC. Pursuant to theterms of the operating agreement governing DIV Holding LLC, the holders of Class Binterests are entitled to receive up to 7.5% of all distributions made by DIVHolding LLC after the holders of the Class A interests in DIV Holding LLChave received a return of their invested capital (of which DIV Holding LLC hasgranted to date Class B interests representing the right to receive atotal of 6.4% of its distributions once the holders of the Class Ainterests have achieved the Class A Return (as defined below), providedthat the holders of the Class A interests have received an 8% per annuminternal rate of return (compounded annually) on their invested capital (the “Class AReturn”). The Class B interests are subject to a five-year vestingschedule with any unvested interests reverting to the holders of Class Ainterests in the event they are forfeited or repurchased.

***Incentive Compensation Plans.***   Wehave adopted an executive incentive plan in which certain officers and otherkey employees are selected to participate. The executive incentive planprovides for cash awards to be paid from a budgeted bonus pool for each planyear based on the achievement of financial and non-financial objectivesestablished at the beginning of the year. Award amounts are based on apercentage of base salary ranging from 20% to 100% multiplied by the ratio ofactual to targeted performance.

***Indemnification Agreements***

Our Parent’s Amended andRestated Certificate of Incorporation provides that none of our Parent’sdirectors shall be liable to our Parent or its stockholder for monetary damagesfor any breach of fiduciary duty as a director, except to the extent otherwise requiredby the Delaware General Corporation Law (the “DGCL”). The effect of thisprovision is to eliminate our Parent’s rights, and its stockholder’s rights, torecover monetary damages against a director for breach of a fiduciary duty ofcare as a director of our Parent. This provision does not limit or eliminateour Parent’s right, or the right of any stockholder, to seek non-monetaryrelief, such as an injunction or rescission in the event of a breach of adirector’s duty of care. In addition, our Parent’s Amended and RestatedCertificate of Incorporation provides that, if the DGCL is amended to authorizethe further elimination or limitation of the liability of a director orofficer, then the liability of the directors and officers shall be eliminated orlimited to the fullest extent permitted by the DGCL, as so amended. Theseprovisions do not alter the liability of directors or officers under federal orstate securities laws. Our Parent’s Amended and Restated Certificate ofIncorporation also includes provisions for the indemnification of our Parent’s directorsand our Parent’s and our executive officers to the fullest extent permitted by Section 145of the DGCL. Our Parent has entered into an indemnification agreement with eachof its directors and our Parent’s and our executive officers that requires ourParent, among other things, to indemnify them against certain liabilities thatmay arise by reason of his or her status or service as a director or officer(other than liabilities arising from willful 

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misconductof a culpable nature). Our Parent currently has, and intends to maintain,director and officer liability insurance.

**ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENTAND RELATED STOCKHOLDERMATTERS.**

We are a direct wholly owned subsidiary of our Parentand an indirect subsidiary of DIV Holding LLC, a Delaware limited liabilitycompany. DIV Holding owns 56.1% of the Class A common stock of our Parent.

The following table sets forth information with respectto the beneficial ownership of our Parent as of June 1, 2006 by:

·  each person who is known by us to beneficiallyown 5% or more of our Parent’s outstanding equity;

·  each member of our Parent’s board ofdirectors;

·  each of our Parent’s and our executiveofficers named in the table under “Directors and Executive Officers of theRegistrant—Management”; and

·  all members of our Parent’s board of directorsand our Parent’s and our executive officers as a group.

To ourknowledge, each of the holders of membership interests in DIV Holding LLClisted below has sole voting and investment power as to the membershipinterests owned unless otherwise noted.

| **Name and Address of Beneficial Owner**         | ** ** | ** ** | ** ** | **Number of  Shares of  Common  Stock**(1)(2) | ** ** | **Percent** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|-------------|------------|
| Veritas Capital Management II, L.L.C.                                     |       |       | 32,000,000 |                                                    |       |        | 56.1       | % |   |
| Robert B. McKeon(3)(4)                                                    |       |       | 32,000,000 |                                                    |       |        | 56.1       | % |   |
| Stephen J. Cannon(5)                                                      |       |       | —     |                                                    |       |        | —     |   |   |
| Jay K. Gorman(5)                                                          |       |       | —     |                                                    |       |        | —     |   |   |
| Michael J. Thorne(5)                                                      |       |       | 2,000      |                                                    |       |        | *          |   |   |
| R. Y. Morrel(5)(6)                                                        |       |       | 13,000     |                                                    |       |        | *          |   |   |
| Robert B. Rosenkranz(5)                                                   |       |       | 600        |                                                    |       |        | *          |   |   |
| Natale S. DiGesualdo(5)                                                   |       |       | 5,000      |                                                    |       |        | *          |   |   |
| Thomas J. Campbell                                                        |       |       | —     |                                                    |       |        | —     |   |   |
| Ambassador Marc Grossman                                                  |       |       | —     |                                                    |       |        | —     |   |   |
| General Richard E. Hawley (USAF Ret.)(5)                                  |       |       | 3,000      |                                                    |       |        | *          |   |   |
| Herbert J. Lanese                                                         |       |       | 10,000     |                                                    |       |        | *          |   |   |
| General Barry R. McCaffrey (USA Ret.)(5)                                  |       |       | —     |                                                    |       |        | —     |   |   |
| Ramzi M. Musallam                                                         |       |       | —     |                                                    |       |        | —     |   |   |
| Admiral Joseph W. Prueher (USN Ret.)(5)                                   |       |       | 3,000      |                                                    |       |        | *          |   |   |
| Charles S. Ream                                                           |       |       | 4,000      |                                                    |       |        | *          |   |   |
| Admiral Leighton W. Smith, Jr. (USN. Ret.)(5)                        |       |       | 1,000      |                                                    |       |        | *          |   |   |
| William G. Tobin(5)                                                       |       |       | 1,000      |                                                    |       |        | *          |   |   |
| General Anthony C. Zinni (USMC Ret.)(5)                                   |       |       | —     |                                                    |       |        | —     |   |   |
| All Named  Executive Officers and Directors as a Group (14 Persons)(4)(5) |       |       | 32,042,600 |                                                    |       |        | 56.2       | % |   |

----

*       Reflects less than 1% ownership interest.

(1)    Except as otherwise indicated, the addressfor each of the named security owners is 8445 Freeport Parkway, Suite 400,Irving, Texas 75063. The address for Messrs. McKeon, Campbell and Musallamis c/o Veritas Capital, and the address for Veritas Capital is 590 MadisonAvenue, New York, New York 10022.

(2)    32,000,000 issued and outstanding shares ofour Parent’s Class A common stock are held by DIV Holding LLC, a Delawarelimited liability company and an affiliate of Veritas Capital. Veritas CapitalManagement II, L.L.C.’s interest is held indirectly through DIV Holding LLC. TheVeritas Capital Fund II, L.P., a Delaware limited partnership of which VeritasCapital Management II, L.L.C. is the general partner and the manager of DIVHolding LLC. Veritas Capital owns 86% of the Class A membership interestsof DIV Holding LLC, and Carlisle Ventures Inc., through VCDI Holding LLC, owns14% of the Class A 

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membership interests. Accordingly, the shareholdings of Veritas CapitalManagement II, L.L.C. reflected in the table above reflect indirect beneficialownership in our Parent held through membership interests in DIV Holding LLC.

(3)    Robert B. McKeon, Chairman of our Parent’sboard of directors, is the managing member of Veritas Capital Management II,L.L.C., and as such may be deemed a beneficial owner of the shares ownedbeneficially by Veritas Capital Management II, L.L.C. or voted under thedirection of Veritas Capital Management II, L.L.C. Mr. McKeon disclaimsthis beneficial ownership, except to the extent of his pecuniary interest inThe Veritas Capital Fund II, L.P. and DIV Holding LLC.

(4)    Includes 100% of the Class A interestsheld by Veritas Capital and Carlisle Ventures, Inc. (an affiliate of TheNorthwestern Mutual Life Insurance Company), beneficial ownership of which maybe deemed to be shared by Mr. McKeon, as the managing member of VeritasCapital Management II, L.L.C. See footnote 3 above. Mr. McKeon disclaimsthis beneficial ownership except to the extent of his pecuniary interest in TheVeritas Capital Fund II, L.P. and DIV Holding LLC.

(5)    Messsrs. Cannon, Gorman, Thorne, Rosenkranz,DiGesualdo, Grossman, Hawley, Lanese, McCaffrey, Prueher, Ream, Smith Jr.,Tobin and Zinni and Ms. Morrel own indirect interests in our Parentthrough Class B interests in DIV Holding LLC. Stephen J. Cannon owns a2.0% Class B interest in DIV Holding LLC and each of Messrs. Gorman,Thorne, Rosenkranz, DiGesualdo, Grossman, Hawley, Lanese, McCaffrey, Prueher,Ream, Smith Jr., Tobin and Zinni and Ms. Morrel own less than a 1% Class Binterest in DIV Holding LLC. Pursuant to the terms of the operating agreementgoverning DIV Holding LLC, the holders of Class B interests are entitledto receive up to 7.5% of all distributions made by DIV Holding LLC after theholders of Class A interests in DIV Holding LLC have received a return oftheir invested capital, provided that the holders of Class A interestshave received an 8% per annum internal rate of return (compounded annually) ontheir invested capital. The Class B interests are subject to a five yearvesting schedule with any unvested interests reverting to the holders of Class Ainterests in the event they are forfeited or repurchased.

(6)    Ms. Morrel disclaims beneficial ownership of 6,500 sharesowned by her spouse.

**ITEM13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**

***Certain Fees Payable to Veritas Capital***

We pay Veritas Capital anannual management fee of $300,000 to provide us with general businessmanagement, financial, strategic and consulting services. The amount of themanagement fee is comparable to the fees we would have been charged by thirdparties performing similar services. We also paid to Veritas Capital a one-timetransaction fee of $12.0 million at the closing of the 2005 Acquisition, asconsideration for its assistance in connection with planning, structuring andconsummating the 2005 Acquisition. Upon consummation of our Parent’s EquityOffering, we paid a fee of $5.0 million to Veritas Capital.

***DIV Holding LLC***

***Special Class BDistribution***

Subsequent to fiscal year ended March 31, 2006,our Parent paid a special Class B distribution of $100.0 million. Basedon our accumulated net profits since inception through March 31, 2006, theentire distribution to the holders of our Parent’s Class B common stock isa return of capital.

Upon consummation of our Parent’s Equity Offering, DIVHolding LLC was the only holder of our Parent’s Class B common stock. Therefore,DIV Holding LLC was the only stockholder entitled to receive the payment of thespecial Class B distribution. DIV Holding LLC has Class A and Class Binterests. 100% of the Class A interests are held by Veritas Capital andCarlisle Ventures, Inc. (an affiliate of The Northwestern Mutual LifeInsurance Company). The Class B interests of DIV Holding are held by Messrs. StephenJ. Cannon, Gorman, Thorne, Charles C. Cannon, DiGesualdo and other employeesand outside directors of our Parent. DIV Holding LLC distributed the special Class Bdistribution proceeds; Veritas Capital received $86.0 million of the$100.0 million special Class B distribution; and Carlisle Ventures, Inc.received the balance of $14.0 million.

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Pursuant to the terms ofthe operating agreement governing DIV Holding LLC, the holders of Class Binterests are entitled to receive up to 7.5% of all distributions made by DIVHolding LLC after the holders of the Class A interests in DIV Holding LLChave received a return of their invested capital (of which DIV Holding LLC hasgranted to date Class B interests representing the right to receive atotal of 6.4% of its distributions once the holders of Class A interestshave achieved the Class A Return), provided that the holders of theClass A interests have received an 8% per annum internal rate of return(compounded annually) on their invested capital. The Class B interests aresubject to a five-year vesting schedule with any unvested interests revertingto the holders of Class A interests in the event they are forfeited orrepurchased.

***Registration Rights Agreement***

Our Parent entered into a registration rightsagreement with DIV Holding LLC, our Parent’s principal stockholder. Pursuant tothat agreement, DIV Holding LLC will be entitled to registration rights and itmay require our Parent to effect the registration of any shares of our Parent’sClass A common stock held by DIV Holding LLC on not more than fiveoccasions upon demand. Under the terms of this agreement, our Parent isrequired to pay all registration expenses in connection with any demandregistration. In addition, if our Parent proposes to register additional sharesof Class A common stock, DIV Holding LLC will be entitled to notice of theregistration and is entitled to include its shares of Class A common stockin that registration with all registration expenses paid by our Parent.

Notwithstanding the foregoing, DIV Holding LLC hasagreed that it will not exercise its registration rights until 180 daysfollowing the effective date of our Parent’s registration statement(May 3, 2006) without the prior consent of Credit Suisse Securities (USA)LLC.

***SpecialRetention Plan***

We adopted a specialretention plan that applies to certain members of our senior management thatentitles them to receive an incentive payment payable within thirty days afterthe six-month anniversary of the consummation of the 2005 Acquisition, providedthey remain continuously employed by us, any subsidiary, division or affiliatedunit divested by DynCorp in the 2005 Acquisition transactions until six monthsfollowing the closing of such transaction. Nine of the eligible employeesreceived aggregate payments equal to $525,000. Amounts for the remaining sixeligible employees were based on a percentage of the purchase price over $400million. The total value of these six employees was $3.375 million. Theretention payments paid to Messrs. Cannon, Gorman, Wickham, Fleischmann,Thorne and DiGesualdo on August 12, 2005 were determined based on aformula discussed above and the payments were $900,000, $675,000, $450,000,$450,000, $450,000 and $450,000, respectively.

**Other Relationships**

Mr. Jay K. Gorman’s brother, Rock Gorman, isemployed by us. In fiscal 2006, Rock Gorman received compensation of $121,134.

Mr. Natale S.DiGesualdo’s son, Steve DiGesualdo, is employed by us. In fiscal 2006, SteveDiGesualdo received compensation of $116,414.

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**ITEM 14.        PRINCIPALACCOUNTING FEES AND SERVICES.**

The following tablerepresents the aggregate fees billed for services rendered by Deloitte & ToucheLLP, our independent registered public accounting firm, for the fiscal yearsended April 1, 2005 and March 31, 2006 (dollars in thousands):

| ** **          | ** ** | **April 1,  2005** | ** ** | **March 31,  2006** | ** ** |
|---------------------|------------|-------------------------|------------|--------------------------|------------|
| Audit fees          |       | $                       | 719        |                     | $          | 1,950 |   |
| Audit-related  fees |       | —                  |       | —                   |       |
| Tax fees            |       | 50                      |       | 50                       |       |
| All other fees      |       | —                  |       | —                   |       |
| Total fees          |       | $                       | 769        |                     | $          | 2,000 |   |

 

**Audit Fees**

Audit fees consist of feesfor the audit of our financial statements, the review of the interim financialstatements included in our quarterly reports on Form 10-Q, andservices rendered in connection with our Form S-4 registrationstatement and our Parent’s Form S-1 registration statement.

**Audit-Related Fees**

We did not incuraudit-related fees with Deloitte & Touche LLP.

**Tax Fees**

Tax fees consist of feesfor tax compliance and tax advice services associated with the preparation ofinternational tax returns.

**All Other Fees**

We did not incur any feeswith Deloitte & Touche LLP other than those described above.

**Audit Committee’sPre-approval Policy and Procedures**

Our Parent’s audit committee has adopted policies andprocedures relating to the approval of all audit and non-audit services thatare to be performed by our independent registered public accounting firm. Thispolicy generally provides that we will not engage our independent registeredpublic accounting firm to render audit or non-audit services unless the serviceis specifically approved in advance by the audit committee or the engagement isentered into pursuant to one of the pre-approval procedures described below.

From time to time, the audit committee may pre-approvespecified types of services that are expected to be provided to us by ourindependent registered public accounting firm during the next 12 months. Anysuch pre-approval would be detailed as to the particular service or type ofservices to be provided and would be also generally subject to a maximum dollaramount.

De minimis non-audit services that were not recognizedat the time of the engagement to be non-audit services, may be approved by theaudit committee prior to the completion of the audit in accordance withapplicable SEC rules governing de minimis non-audit services.

The audit committee may delegate to one or more membersof the audit committee the authority to pre-approve audit or non-audit servicesto be provided by the independent accountants, provided that any suchpre-approval shall be reported to the full audit committee at its nextscheduled meeting.

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During fiscal year 2006,no services were provided to us by Deloitte & Touche LLP or any otheraccounting firm other than in accordance with the pre-approval policies andprocedures described above.

**PART IV**

**ITEM15.        EXHIBITS AND FINANCIALSTATEMENT SCHEDULES.**

(a)   *Financial statements:*  The following consolidated financialstatements and schedules of DynCorp International LLC are included in thisreport:

·   Report of Independent Registered PublicAccounting Firm Consolidated Statement of Operations — Fiscal year ended April 2,2004, for the period from April 3, 2004 to February 11, 2005(Immediate Predecessor), for the 49 Days ended April 1, 2005 and forthe fiscal year ended March 31, 2006 (Successor)

·   Consolidated Balance Sheets — April 1,2005 and March 31, 2006 (Successor)

·   Consolidated Statement of Cash Flows — Fiscalyear ended April 2, 2004, for the period from April 3, 2004 to February 11,2005 (Immediate Predecessor), for the 49 Days ended April 1, 2005 andfor the fiscal year ended March 31, 2006 (Successor)

·   Consolidated Statements of Member’s Equity —Fiscal year ended April 2, 2004, for the period from April 3, 2004 toFebruary 11, 2005 (Immediate Predecessor), for the 49 Days ended April 1,2005 and for the fiscal year ended March 31, 2006 (Successor)

·   Notes toConsolidated Financial Statements.

(b)   *Financial Statement Schedules:* None.

(c)   *Exhibits: *The exhibits, which are filed with this Annual Report orwhich are incorporated herein by reference, are set forth in the Exhibit Index,which is incorporated herein by reference.

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

|        | **DYNCORP INTERNATIONAL LLC.** |
|--------|--------------------------------|
|   | Date: June 29, 2006       |
|   | /S/ STEPHEN J. CANNON          |
|   | Name:                          | Stephen J. Cannon |
|   | Title:                         | Chief Executive Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities below on the datesindicated.

| **Signature**         | ** ** | **Title**                                                                                | ** ** | **Date**            |
|-----------------------|------------|------------------------------------------------------------------------------------------|------------|---------------------|
| /s/ STEPHEN J. CANNON |       | President and Chief Executive Officer and                                                |       | June 29,  2006 |
| Stephen J. Cannon     |       | Director (principal executive officer)                                                   |       |                |
| /s/ MICHAEL J. THORNE |       | Senior Vice President, Chief Financial                                              |       | June 29,  2006 |
| Michael J. Thorne     |       | Officer  and Treasurer  (principal financial and principal accounting officer) |       |                |
| /s/ ROBERT B. MCKEON  |       | Sole Manager                                                                             |       | June 29,  2006 |
| Robert B. McKeon      |       |                                                                                     |       |                |

*** ***

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*** ***

**EXHIBIT INDEX**

| Exhibit  Number | ** ** | ** ** | ** ** | **Description**                                                                                                                                                            | ** ** | ** ** | ** ** |
|-----------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| 1.1             |       |       |       | Purchase Agreement, dated as of December 12,  2004, by and among Computer Sciences Corporation, Predecessor DynCorp,  Veritas and DI Acquisition                      |       | (A)        |       |
| 1.2             |       |       |       | First Amendment to Purchase Agreement, dated as of  February 11, 2005, by and between Computer Sciences Corporation,  Predecessor DynCorp, Veritas and DI Acquisition |       | (A)        |       |
| 3.1             |       |       |       | Certificate of Formation of DynCorp International  LLC                                                                                                                     |       | (A)        |       |
| 3.2             |       |       |       | Amended and Restated Operating Agreement of DynCorp  International LLC                                                                                                     |       | (A)        |       |
| 3.3             |       |       |       | Certificate of Incorporation of DIV Capital  Corporation                                                                                                                   |       | (A)        |       |
| 3.4             |       |       |       | Bylaws of DIV Capital Corporation                                                                                                                                          |       | (A)        |       |
| 3.5             |       |       |       | Certificate of Formation of DI Finance Sub LLC                                                                                                                             |       | (A)        |       |
| 3.6             |       |       |       | Limited Liability Company Agreement of DI Finance  Sub LLC                                                                                                                 |       | (A)        |       |
| 3.7             |       |       |       | Certificate of Formation of VCDI Holding LLC                                                                                                                               |       | (A)        |       |
| 3.8             |       |       |       | Limited Liability Company Operating Agreement of  VCDI Holding LLC                                                                                                         |       | (A)        |       |
| 3.9             |       |       |       | Certificate of Formation of DIV Holding LLC                                                                                                                                |       | (A)        |       |
| 3.1             | 0          |       |       | Amended and Restated Limited Liability Company  Operating Agreement of DIV Holding LLC                                                                                     |       | (A)        |       |
| 3.1             | 1          |       |       | Certificate of Formation of DTS Aviation Services  LLC                                                                                                                     |       | (A)        |       |
| 3.1             | 2          |       |       | Limited Liability Company Operating Agreement of DTS  Aviation Services LLC                                                                                                |       | (A)        |       |
| 3.1             | 3          |       |       | Certificate of  Formation of DynCorp Aerospace Operations LLC                                                                                                              |       | (A)        |       |
| 3.1             | 4          |       |       | Limited Liability  Company Agreement of DynCorp Aerospace Operations LLC                                                                                                   |       | (A)        |       |
| 3.1             | 5          |       |       | Certificate of  Formation of DynCorp International of Nigeria LLC                                                                                                          |       | (A)        |       |
| 3.1             | 6          |       |       | Limited Liability  Company Agreement of DynCorp International of Nigeria LLC                                                                                               |       | (A)        |       |
| 3.1             | 7          |       |       | Articles of  Organization of DynCorp International Services LLC                                                                                                            |       | (A)        |       |
| 3.1             | 8          |       |       | Limited Liability  Company Agreement of DynCorp International Services LLC                                                                                                 |       | (A)        |       |
| 3.1             | 9          |       |       | Articles of  Organization—Conversion of Dyn Marine Services LLC                                                                                                       |       | (A)        |       |
| 3.2             | 0          |       |       | Limited Liability  Company Agreement of Dyn Marine Services LLC                                                                                                            |       | (A)        |       |
| 3.2             | 1          |       |       | Articles of  Organization Dyn Marine Services of Virginia LLC                                                                                                              |       | (A)        |       |

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| 3.2  | 2      |   |   | Limited Liability  Company Agreement of Dyn Marine Services of Virginia LLC                                                                                                                                                                                                                                                                                                                                                                                                   |   | (A) |   |
|------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----|--------|
| 3.2  | 3      |   |   | Certificate of  Formation of Services International Limited                                                                                                                                                                                                                                                                                                                                                                                                                   |   | (A) |   |
| 3.2  | 4      |   |   | Limited Liability  Company Agreement of Services International Limited                                                                                                                                                                                                                                                                                                                                                                                                        |   | (A) |   |
| 3.2  | 5      |   |   | Certificate of  Formation of Worldwide Humanitarian Services LLC                                                                                                                                                                                                                                                                                                                                                                                                              |   | (A) |   |
| 3.2  | 6      |   |   | Amended and  Restated Limited Liability Company Agreement of Worldwide Humanitarian  Services LLC                                                                                                                                                                                                                                                                                                                                                                             |   | (A) |   |
| 4.1  |   |   |   | Indenture dated  February 11, 2005 by and among DynCorp International LLC, DIV Capital  Corporation, the Guarantors and The Bank of New York, as Trustee                                                                                                                                                                                                                                                                                                                      |   | (A) |   |
| 4.2  |   |   |   | Supplemental  Indenture dated May 6, 2005 among DynCorp International of Nigeria LLC,  DynCorp International LLC, DIV Capital Corporation, the Guarantors and The  Bank of New York, as Trustee                                                                                                                                                                                                                                                                          |   | (A) |   |
| 4.3  |   |   |   | Form of  9.500% Senior Subordinated Notes due 2013 (included in Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                        |   | (A) |   |   |
| 4.4  |   |   |   | Exchange and  Registration Rights Agreement, dated February 11, 2005, among DynCorp  International LLC, DIV Capital Corporation, the Guarantors and the Initial  Purchasers                                                                                                                                                                                                                                                                                              |   | (A) |   |   |
| 10.1 |   |   |   | Securities  Purchase Agreement, dated as of February 1, 2005 among DynCorp  International LLC and DIV Capital Corporation, and Goldman, Sachs &  Co. and Bear, Stearns & Co. Inc., as Initial Purchasers                                                                                                                                                                                                                                               |   | (A) |   |   |
| 10.2 |   |   |   | Credit and  Guaranty Agreement, dated as of February 11, 2005, by and among Finance,  DI Acquisition and the other Guarantors party thereto, various Lenders party  thereto, Goldman Sachs Credit Partners LP., Bear Stearns Corporate Lending  Inc., Bear, Stearns & Co. Inc. and Bank of America, N.A.                                                                                                                                                        | .      | (A) |   |   |
| 10.3 |   |   |   | Pledge and  Security Agreement, dated as of February 11, 2005, among VCDI, DI  Acquisition Corp., DynCorp International LLC, DIV Capital Corporation, and  DTS Aviation Services LLC, DynCorp Aerospace Operations LLC, DynCorp  International Services LLC, Dyn Marine Services LLC, Dyn Marine Services of  Virginia LLC, Services International LLC, Worldwide Humanitarian Services  LLC, as Guarantors and Goldman Sachs Credit Partners L.P., as Collateral  Agent |   | (A) |   |   |
| 10.4 |   |   |   | Revolving Loan  Note, issued by DynCorp International LLC under the SPA dated  February 1, 2005                                                                                                                                                                                                                                                                                                                                                                          |   | (A) |   |   |
| 10.5 |   |   |   | Settlement and  Amendment Agreement, dated October 27, 2005, by and among Computer Sciences  Corporation, DynCorp, CSC Applied Technology, LLC, The Veritas Capital Fund  II, L.P., DynCorp International Inc. and DynCorp International LLC                                                                                                                                                                                                                             |   | (B) |   |   |
|      |        |        |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        |     |        |  |  |  |  |  |

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| 10.6 |   |   |   | First Amendment  and Waiver, dated January 9, 2006, among 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. |   | (C)    |   |
|------|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| 10.7 |   |   |   | Employment  Agreement effective as of April 12, 2006 between DynCorp International  LLC and Stephen J. Cannon.                                                                                                                                       |   | (D)    |   |
| 10.8 |   |   |   | Employment  Agreement effective as of April 12, 2006 between DynCorp International  LLC and Jay K. Gorman.                                                                                                                                           |   | (D)    |   |
| 10.9 |   |   |   | Employment  Agreement effective as of April 12, 2006 between DynCorp International  LLC and Michael J. Thorne.                                                                                                                                       |   | (D)    |   |
| 10.1 | 0      |   |   | Employment  Agreement effective as of April 12, 2006 between DynCorp International  LLC and Natale S. DeGesualdo.                                                                                                                                    |   | (D)    |   |
| 10.1 | 1      |   |   | Employment  Agreement effective as of April 12, 2006 between DynCorp International  LLC and R. Y. Morrel.                                                                                                                                            |   | (E)    |   |
| 10.1 | 2      |   |   | The DynCorp  International LLC Executive Incentive Plan                                                                                                                                                                                                   |   | (F)    |   |
| 10.1 | 3      |   |   | The DynCorp  International LLC Management Incentive Plan                                                                                                                                                                                                  |   | (F)    |   |
| 10.1 | 4      |   |   | The DynCorp  International LLC Key Contributor Plan                                                                                                                                                                                                       |   | (F)    |   |
| 10.1 | 5      |   |   | Second Amendment and Waiver, dated June 28,  2006, among 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.   |   | (E)    |   |
| 12.1 | *      |   |   | Statement Re:  computation of ratios.                                                                                                                                                                                                                     |   |   |   |
| 21.1 |   |   |   | List of  subsidiaries of DynCorp International LLC                                                                                                                                                                                                        |   | (A)    |   |
| 31.1 | *      |   |   | Certification of  Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                |   |   |   |
| 31.2 | *      |   |   | Certification of  Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                |   |   |   |
| 32.1 | *      |   |   | Certification of  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                |   |   |   |
| 32.2 | *      |   |   | Certification of  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                |   |   |   |
| 99.2 |   |   |   | Form of  Notice of Guaranteed Delivery for Outstanding 9.500% Senior Subordinated  Notes due 2013, Series A, in exchange for 9.500% Senior Subordinated  Notes due 2013, Series B                                                               |   | (A)    |   |

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*       Filed herewith.

(A)    Previouslyfiled as an exhibit to Amendment No. 1 to Form S-4 (File No. 333-127343)filed with the SEC on September 27, 2005.

(B)    Previously filed as an exhibit to Amendment No. 2to Form S-4 (File No. 333-127343) filed with the SEC on October 28,2005.

(C)    Previously filed as an exhibit to DynCorpInternational LLC’s Form 8-K filed with the SEC on January 11,2006.

(D)   Previously filed as an exhibit to DynCorpInternational LLC’s Form 8-K filed with the SEC on April 17,2006.

(E)    Previously filed as an exhibit to DynCorp InternationalInc.’s Form 10-K filed with the SEC on June 29, 2006.

(F)    Previously filed as an exhibit to DynCorpInternational LLC’s Form 8-K filed with the SEC on April 4,2006.

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