**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Forthe quarterly period ended June 30, 2006**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Forthe transition period from         to**

**CommissionFile Number: 333-127343**

----

**DYNCORP INTERNATIONAL LLC**(Exactname of registrant as specified in its charter)

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

 

**8445Freeport Parkway, Suite 400, Irving, Texas 75063(817) 224-1460**(Address, including zipcode, and telephone number, including area code,of registrant’s principal executive offices)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.   Yes o No 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 ExchangeAct. (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 Exchange Act).   Yes o No x

Theregistrant has one class of member units. As of August 5, 2006, DynCorpInternational Inc. held 100% of the member units.

 

----

**DYNCORPINTERNATIONAL LLC**

**TABLEOF CONTENTS**

|                                         | ** ** | ** **                                                                                                                     | ** ** | **Page** |
|-----------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I.  FINANCIAL INFORMATION** |       |                                                                                                                           |
| Item  1.                                |       | Financial  Statements                                                                                                          |       |     |
|                                    |       | Condensed  Consolidated Balance Sheets—June 30, 2006 (unaudited) and March 31,  2006                            |       | 1        |
|                                    |       | Condensed  Consolidated Statements of Income—Three Months Ended June 30, 2006 and July 1,  2005 (unaudited)     |       | 2        |
|                                    |       | Condensed  Consolidated Statements of Cash Flows—Three Months Ended June 30, 2006  and July 1, 2005 (unaudited) |       | 3        |
|                                    |       | Condensed  Consolidated Statements of Member’s Equity—Three Months Ended June 30,  2006 (unaudited)             |       | 4        |
|                                    |       | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                              |       | 5        |
| Item 2.                                 |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                    |       | 21       |
| Item 3.                                 |       | Quantitative and Qualitative Disclosures About Market  Risk                                                                    |       | 32       |
| Item 4.                                 |       | Controls and Procedures                                                                                                        |       | 32       |
| **PART II.  OTHER INFORMATION**    |       |                                                                                                                           |
| Item  1.                                |       | Legal  Proceedings                                                                                                             |       | 33       |
| Item  1A.                               |       | Risk Factors                                                                                                                   |       | 33       |
| Item 2.                                 |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                   |       | 33       |
| Item 3.                                 |       | Defaults Upon Senior Securities                                                                                                |       | 33       |
| Item 4.                                 |       | Submission of Matters to a Vote of Security Holders                                                                            |       | 33       |
| Item  5.                                |       | Other  Information                                                                                                             |       | 33       |
| Item 6.                                 |       | Exhibits                                                                                                                       |       | 34       |

 

----

**PART I—FINANCIALINFORMATION**

**ITEM 1.  FINANCIALSTATEMENTS**

**DYNCORP INTERNATIONAL LLCCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except per share data)**

| ** **                                                                                                                                         | ** ** | **June 30,  2006** | ** ** | **March 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                         | ** ** | **(unaudited)**         | ** ** | ** **               | ** ** |
| **Assets**                                                                                                                                         | ** ** |                    | ** ** | ** **               |       | ** ** | ** ** |
| Current assets:                                                                                                                                    |       |                    |       |                     |       |   |   |
| Cash and cash equivalents                                                                                                                          |       |                    | $          | 16,169                   |       |   | $ | 20,573 |   |
| Receivables, net of allowances for doubtful accounts  of $6,230 and $8,479 at June 30, 2006 and March 31, 2006,  respectively            |       |                    | 473,798    |                     |       | 440,195 |   |
| Prepaid expenses and other current assets                                                                                                          |       |                    | 41,931     |                     |       | 43,733 |   |
| Deferred tax asset                                                                                                                                 |       |                    | 1,044      |                     |       | 795 |   |
| Total current assets                                                                                                                               |       |                    | 532,942    |                     |       | 505,296 |   |
| Property and equipment at cost, less accumulated  depreciation of $1,964 and $1,296 at June 30, 2006 and March 31,  2006, respectively   |       |                    | 11,483     |                     |       | 8,769 |   |
| Other assets:                                                                                                                                      |       |                    |       |                     |       |   |   |
| Goodwill                                                                                                                                           |       |                    | 420,180    |                     |       | 420,180 |   |
| Tradename                                                                                                                                          |       |                    | 18,318     |                     |       | 18,318 |   |
| Customer-related intangibles, net of accumulated  amortization of $53,065 and $43,471 at June 30, 2006 and March 31,  2006, respectively |       |                    | 237,316    |                     |       | 246,910 |   |
| Other intangibles, net of accumulated amortization of  $4,588 and $3,671 at June 30, 2006 and March 31, 2006, respectively               |       |                    | 7,158      |                     |       | 7,453 |   |
| Deferred financing costs, net of accumulated  amortization of $3,853 and $3,261 at June 30, 2006 and March 31,  2006, respectively       |       |                    | 16,399     |                     |       | 17,469 |   |
| Deferred income taxes                                                                                                                              |       |                    | 14,728     |                     |       | 11,518 |   |
| Other assets                                                                                                                                       |       |                    | 1,921      |                     |       | 3,176 |   |
| Total other assets                                                                                                                                 |       |                    | 716,020    |                     |       | 725,024 |   |
| Total assets                                                                                                                                       |       |                    | $          | 1,260,445                |       |   | $ | 1,239,089 |   |
| **Liabilities  and Member’s Equity**                                                                                                          | ** ** |                    | ** ** | ** **               |       | ** ** | ** ** |
| Current  liabilities:                                                                                                                              |       |                    |       |                     |       |   |   |
| Current portion of long-term debt                                                                                                                  |       |                    | $          | 3,450                    |       |   | $ | 2,588 |   |
| Current portion of other long-term liabilities                                                                                                     |       |                    | 301        |                     |       | — |   |
| Accounts payable and accrued expenses                                                                                                              |       |                    | 150,487    |                     |       | 143,668 |   |
| Accrued payroll and employee costs                                                                                                                 |       |                    | 73,892     |                     |       | 65,586 |   |
| Other accrued liabilities                                                                                                                          |       |                    | 45,117     |                     |       | 33,845 |   |
| Income taxes payable                                                                                                                               |       |                    | 6,694      |                     |       | 8,280 |   |
| Total current liabilities                                                                                                                          |       |                    | 279,941    |                     |       | 253,967 |   |
| Long-term debt—less current portion                                                                                                           |       |                    | 629,270    |                     |       | 658,963 |   |
| Other long-term liabilities                                                                                                                        |       |                    | 2,638      |                     |       | — |   |
| Commitments and  contingencies                                                                                                                     |       |                    |       |                     |       |   |   |
| Member’s  equity:                                                                                                                             |       |                    |       |                     |       |   |   |
| Member’s units, 100 outstanding                                                                                                               |       |                    | 314,442    |                     |       | 298,914 |   |
| Retained earnings                                                                                                                                  |       |                    | 34,489     |                     |       | 27,463 |   |
| Accumulated other comprehensive loss                                                                                                               |       |                    | (335       | )                        |       | (218 | ) |
| Total member’s equity                                                                                                                         |       |                    | 348,596    |                     |       | 326,159 |   |
| Total liabilities  and member’s equity                                                                                                        |       |                    | $          | 1,260,445                |       |   | $ | 1,239,089 |   |

 

See notes to condensed consolidated financial statements.

1

----

**DYNCORP INTERNATIONAL LLCCONDENSED CONSOLIDATED STATEMENTS OF INCOMEFOR THE THREE MONTHS ENDED JUNE 30, 2006 AND JULY 1, 2005(In thousands, except per share data)**

| ** **                                                                   | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **June 30,  2006**        | ** ** | **July 1,  2005** | ** ** |
| ** **                                                                   | ** ** | **(unaudited)**                | ** ** |
| ** **                                                                   | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Revenues                                                                     |       | $                              | 537,684    |   | $ | 425,055 |   |
| Costs of services (excluding depreciation and  amortization disclosed below) |       | 470,334                        |       | 378,590 |   |
| Selling, general  and administrative                                         |       | 27,405                         |       | 19,159 |   |
| Depreciation and  amortization                                               |       | 11,137                         |       | 10,685 |   |
| Operating income                                                             |       | 28,808                         |       | 16,621 |   |
| Other expense  (income):                                                     |       |                           |       |   |   |
| Interest expense                                                             |       | 14,814                         |       | 13,837 |   |
| Loss on debt extinguishment                                                  |       | 3,484                          |       | — |   |
| (Income) loss on joint venture                                               |       | (446                           | )          | 68 |   |
| Interest income                                                              |       | (150                           | )          | — |   |
| Income before  income taxes                                                  |       | 11,106                         |       | 2,716 |   |
| Provision for  income taxes                                                  |       | 4,080                          |       | 639 |   |
| Net income                                                                   |       | $                              | 7,026      |   | $ | 2,077 |   |

 

See notes to condensed consolidated financial statements.

2

----

**DYNCORP INTERNATIONAL LLCCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED JUNE 30, 2006 AND JULY 1, 2005(In thousands)**

| ** **                                                                         | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **June 30,  2006**                            | ** ** | **July 1,  2005** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                                    | ** ** |
| **Cash flows from operating activities:**                                          | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                                  | 7,026      |   | $ | 2,077 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                               |       |   |   |
| Depreciation and amortization                                                      |       | 11,400                                             |       | 10,894 |   |
| Premium paid on redemption of senior subordinated  notes                           |       | 2,657                                              |       | — |   |
| Deferred financing cost amortization                                               |       | 1,579                                              |       | 714 |   |
| Recovery of losses on accounts receivable                                          |       | (2,250                                             | )          | — |   |
| Income from equity joint ventures                                                  |       | (446                                               | )          | (20 | ) |
| Deferred taxes                                                                     |       | (3,459                                             | )          | (109 | ) |
| Compensation expense related to Class B equity  participation                 |       | 695                                                |       | — |   |
| Changes in current  assets and liabilities:                                        |       |                                               |       |   |   |
| Accounts receivable                                                                |       | (31,353                                            | )          | 46,088 |   |
| Prepaid expenses and other current assets                                          |       | 1,802                                              |       | 356 |   |
| Accounts payable and accruals                                                      |       | 23,612                                             |       | (8,182 | ) |
| Income taxes payable                                                               |       | (1,590                                             | )          | 555 |   |
| Net cash provided by operating activities                                          |       | 9,673                                              |       | 52,373 |   |
| **Cash  flows from investing activities:**                                         | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Purchase of property and equipment                                                 |       | (2,557                                             | )          | (446 | ) |
| Payment for computer software upgrade                                              |       | (622                                               | )          | — |   |
| Other assets                                                                       |       | (354                                               | )          | (466 | ) |
| Net cash used in investing activities                                              |       | (3,533                                             | )          | (912 | ) |
| **Cash  flows from financing activities:**                                         | ** ** | ** **                                         | ** ** | ** ** | ** ** |
| Net transfers from parent company                                                  |       | 17,907                                             |       | — |   |
| Payments on acquisition debt                                                       |       | (28,831                                            | )          | (863 | ) |
| Borrowings related to prepaid insurance, net                                       |       | 3,537                                              |       | — |   |
| Payments on deferred financing costs                                               |       | (500                                               | )          | — |   |
| Premium paid on redemption of senior subordinated  notes                           |       | (2,657                                             | )          | — |   |
| Payments on credit facility                                                        |       | —                                             |       | (35,000 | ) |
| Purchase of interest rate cap                                                      |       | —                                             |       | (483 | ) |
| Net cash used in financing activities                                              |       | (10,544                                            | )          | (36,346 | ) |
| Net (decrease)  increase in cash and cash equivalents                              |       | (4,404                                             | )          | 15,115 |   |
| Cash and cash  equivalents, beginning of period                                    |       | 20,573                                             |       | 13,474 |   |
| Cash and cash  equivalents, end of period                                          |       | $                                                  | 16,169     |   | $ | 28,589 |   |

 

See notes to condensed consolidated financial statements.

3

----

**DYNCORP INTERNATIONAL LLCCONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S EQUITYFOR THE THREE MONTHS ENDED JUNE 30, 2006(In thousands)**

| ** **                                                         | ** ** | **Member’s  Units**   | ** **    | **Retained  Earnings** | ** **    | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total**   | ** ** |
|--------------------------------------------------------------------|------------|----------------------------|---------------|------------------------|---------------|---------------------------------------------|------------|-------------|------------|
| Balance at  March 31, 2006                                    |       | $   298,914 |          | $                      |  27,463  |                                        |       | $ (218 | )          |   | $ |  326,159 |   |
| Comprehensive income:                                              |       |                       |          |                   |          |                                        |       |        |       |   |   |
| Net income                                                         |       | —                     |          | 7,026                  |          |                                        | —     |        |       | 7,026 |   |
| Interest rate cap                                                  |       | —                     |          | —                 |          |                                        | (2         | )           |       | (2 | ) |
| Currency translation adjustment                                    |       | —                     |          | —                 |          |                                        | (115       | )           |       | (115 | ) |
| Comprehensive  income                                              |       | —                     |          | 7,026                  |          |                                        | (117       | )           |       | 6,909 |   |
| Contribution from parent                                           |       | 14,833                     |          | —                 |          |                                        | —     |        |       | 14,833 |   |
| Compensation expense related to Class B equity interests |       | 695                        |          | —                 |          |                                        | —     |        |       | 695 |   |
| Balance at June 30,  2006 (unaudited)                         |       | $                          |  314,442 |                   | $ 34,489 |                                        |       | $ (335 | )          |   | $ |  348,596 |   |
|                                                                    |            |                            |               |                        |               |                                             |            |             |            |  |  |  |  |  |

`

See notes to condensed consolidated financial statements.

4

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands, except per share data)**

**Note 1—Description of Business and Organization,**Basis of Presentation and Principles ofConsolidation

*Descriptionof Business and Organization*

DynCorp International LLCand its subsidiaries (the “Company”), provide defense and technical servicesand government outsourced solutions primarily to U.S. government agenciesthroughout the United States and internationally. Key offerings includeaviation services, such as maintenance and related support, as well as basemaintenance/operations and personal and physical security services. Primarycustomers include the U.S. Departments of Defense and State, but also includeother government agencies, foreign governments and commercial customers.

On February 11, 2005,Computer Sciences Corporation and DynCorp, the Company’s former parent, soldthe Company to DynCorp International Inc. (the “Successor Parent”), an entitycontrolled by The Veritas Capital Fund II, L.P. and its affiliates (“VeritasCapital”). The primary reason for the acquisition of the Company by theSuccessor Parent (the “2005 Acquisition”) and the most significant factorcontributing to the goodwill value is the Company’s ability to leverage itsinfrastructure and management expertise in addressing the government outsourcingtrend. Prior to the 2005 Acquisition, the entities to be sold were reorganizedunder DynCorp International LLC by transfers of net assets and other whollyowned legal entities by companies under common control. The reorganization wasrecorded at historical cost and accounted for on an “as if pooled” basis. Accordingly,the accompanying consolidated financial statements give retroactive effect tosuch transactions as of the beginning of the first period presented. Allsignificant intercompany balances and transactions were eliminated.

On May 9, 2006, theSuccessor Parent consummated an equity offering of 25,000 shares of its Class Acommon stock, par value $0.01 per share, at a price of $15.00 per share(the “Equity Offering”), less the underwriters’ discount of 6% per share. OnMay 4, 2006, the Successor Parent’s Class A common stock listed onthe New York Stock Exchange under the symbol “DCP.”  The gross proceeds from the Equity Offeringof $375,000, together with cash on hand, were used: (i) to redeem all of theSuccessor Parent’s outstanding preferred stock, of which $222,823 in statedamount, including accrued and unpaid dividends thereon, was outstanding as of May 9,2006; (ii) to pay a special Class B distribution in the amount of$100,000, representing a return of capital of $95,861 to DIV Holding LLC, theholder of the Successor Parent’s common stock; (iii) to redeem $27,968 of theCompany’s senior subordinated notes on June 8, 2006; (iv) to payprepayment penalties of $8,374, $5,717 of which represented prepaymentpenalties on the Successor Parent’s preferred stock and $2,657 of whichrepresented prepayment penalties on the Company’s senior subordinated notes;and (v) to pay transaction expenses of approximately $35,000, including anunderwriters’ commission of $22,500, a fee of $5,000 to Veritas Capital and$7,500 of miscellaneous fees and expenses related to the Equity Offering.

*Basisof Presentation*

The condensed consolidatedfinancial statements include the accounts of the Company and its domestic andforeign subsidiaries. These condensed consolidated financial statements havebeen prepared by the Company, without audit, pursuant to U.S. generallyaccepted accounting principles (“GAAP”) for interim financial information andwith the instructions to Form 10-Q and Article 10 of RegulationS-X. Certain information and footnote disclosures normally included infinancial statements prepared in 

5

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

accordance with GAAP havebeen condensed or omitted pursuant to such rules and regulations. However,the Company believes that all disclosures are adequate to make the informationpresented not misleading. These condensed consolidated financial statementsshould be read in conjunction with the Company’s audited consolidated financialstatements and the related notes thereto included in the Company’s AnnualReport (File No. 333-127343) on Form 10-K, filed with theSecurities and Exchange Commission (the “SEC”) on June 29, 2006.

In the opinion ofmanagement, all adjustments necessary to fairly present the Company’s financialposition at June 30, 2006 and March 31, 2006, the results ofoperations for the three months ended June 30, 2006 and July 1, 2005,and cash flows for the three months ended June 30, 2006 and July 1,2005, have been included. The results of operations for the three months ended June 30,2006 are not necessarily indicative of the results to be expected for the fullfiscal year or for any future periods. The Company uses estimates andassumptions required for preparation of the financial statements. The estimatesare primarily based on historical experience and business knowledge and arerevised as circumstances change. However, actual results could differ from theestimates.

The Company reports itsresults on a 52/53 week fiscal year with the fiscal year ending on the Fridayclosest to March 31. The three months ended July 1, 2005 was a 13-weekperiod from April 2, 2005 to July 1, 2005. The three months ended June 30,2006 was a 13-week period from April 1, 2006 to June 30, 2006.

*Principlesof Consolidation*

All intercompanytransactions and balances have been eliminated in consolidation. The Companyhas no active majority-owned subsidiaries. Investments in which the Companyowns a 20% to 50% ownership interest are accounted for by the equity method. Theseinvestments are in business entities in which the Company does not havecontrol, but has the ability to exercise significant influence over operatingand financial policies. The Company has no investments in business entities ofless than 20%.

The following tablesets forth the Company’s ownership in joint ventures and companies that are notconsolidated into the Company’s financial statements as of June 30, 2006and are accounted for by the equity method. For all of the entities listed below,the Company has the right to elect half of the board of directors (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 | % |

 

*Recent AccountingPronouncements*

In July 2006, the Financial Accounting StandardsBoard (the “FASB”) issued FASB Interpretation No. 48, “*Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109*” (“FIN 48”). FIN 48 clarifies the accounting and reporting for income taxesrecognized in accordance with 

6

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

Statementof Financial Accounting Standards (“SFAS”) No. 109, “*Accountingfor Income Taxes*.”  Thisinterpretation prescribes a comprehensive model for the financial statementrecognition, measurement, presentation and disclosure of uncertain taxpositions taken or expected to be taken in income tax returns. The requirementsof FIN 48 are effective for fiscal periods beginning after December 15, 2006. TheCompany is currently evaluating the impact of FIN 48. 

On May 18, 2006, the State of Texas passed a billreplacing the current franchise tax with a new margin tax that will go intoeffect on January 1, 2008. The Company estimates that the new margin taxwill not have a significant impact on tax expense or deferred tax assets andliabilities.

In May 2005,the FASB issued SFAS No. 154, “*Accounting Changes andError Corrections*—*a replacement of APBOpinion No. 20 and FASB Statement No. 3*.”  SFAS No. 154 provides guidance on theaccounting for, and reporting of, accounting changes and error corrections. Itestablishes, unless impracticable, retrospective application as the requiredmethod for reporting a change in accounting principle in the absence ofexplicit transition requirements specific to the newly adopted accounting principle.SFAS No. 154 also provides guidance for determining whether retrospectiveapplication of a change in accounting principle is impracticable and forreporting such a change when retrospective application is impracticable. Theprovisions of SFAS No. 154 are effective for accounting changes andcorrections of errors made in fiscal periods beginning after December 15,2005. The adoption of SFAS No. 154 did not have any effect on the Company’sconsolidated financial statements.

**Note2—Receivables**

Receivables consistsof the following:

| ** **                   | ** ** | **June 30,  2006** | ** ** | **March 31,  2006** | ** ** |
|------------------------------|------------|-------------------------|------------|--------------------------|------------|
| Billed                       |       | $                       | 207,439    |                     | $          | 188,458 |   |
| Unbilled                     |       | 265,014                 |       | 248,994                  |       |
| Unbilled—related  party |       | —                  |       | 495                      |       |
| Other receivables            |       | 1,345                   |       | 2,248                    |       |
|                         |       | $                       | 473,798    |                     | $          | 440,195 |   |

 

Unbilledreceivables consists of costs and fees billable on contract completion or otherspecified events, the majority of which is expected to be billed and collectedwithin sixty days. Included in unbilled receivables are costs incurred onprojects for which the Company has been requested by the customer to begin workunder a new contract or extend work under an existing contract, and for whichformal contracts or contract modifications have not been executed at the end ofthe quarter. At June 30, 2006 and March 31, 2006, unbilled receivablesincluded $14,754 and $31,303, respectively, related to this type of unbilledreceivables balance. In addition, unbilled receivables includes amounts relatedto contract retentions that are billed when the Company has negotiated finalindirect rates with the U.S. government and, once billed, are subject to auditand approval by outside third parties. Consequently, the timing of collectionof retention balances of $7 and $10 as of June 30, 2006 and March 31,2006, respectively, is outside the Company’s control. Based on the Company’shistorical experience, the majority of the retention balance is expected to becollected beyond one year.

7

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

**Note3—Other Intangible Assets and Other Assets**

A summary ofamortizable intangible assets is as follows:

| ** **                          | ** ** | **June 30, 2006**                  | ** ** |
|-------------------------------------|------------|----------------------------------------------|------------|
| ** **                          | ** ** | **Weighted-  Average  Amortization  Period** | ** ** | **Gross  Carrying Value** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Customer-related  intangible assets |       |                                         | 8.5        |   |   |   | $ | 290,381 |   |   |   | $ | (53,065 | ) |   | $ | 237,316 |   |
| Deferred  financing cost            |       |                                         | 7.0        |   |   |   | 20,252 |   |   |   | (3,853 | ) |   | 16,399 |   |
| Other                               |       |                                         | 4.1        |   |   |   | 11,746 |   |   |   | (4,588 | ) |   | 7,158 |   |
|                                |       |                                         |       |   |   |   | $ | 322,379 |   |   |   | $ | (61,506 | ) |   | $ | 260,873 |   |

 

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

Amortizationexpense for customer-related and other intangibles was $9,959 and $11,119 forthe three months ended June 30, 2006 and July 1, 2005, respectively. Deferredfinancing cost is amortized through interest expense. Amortization related todeferred financing costs was $752 and $714 for the three months ended June 30,2006 and July 1, 2005, respectively. Estimated amortization related tointangible assets at June 30, 2006 for fiscal years 2007 through 2011 isas follows: $33,351, $42,518, $39,348, $39,066 and $35,378, respectively.

A summary of other assets is as follows:

| ** **               | ** ** | **June 30,** | ** ** | **March 31,** | ** ** |
|--------------------------|------------|-------------------|------------|--------------------|------------|
| ** **               | ** ** | **2006**          | ** ** | **2006**           | ** ** |
| Other assets:            |       |              |       |               |       |   |   |   |   |
| Investment in affiliates |       |              | $          | 1,594              |       |   |   | $ | 911 |   |   |
| Deferred offering costs  |       |              | —     |               |       |   | 1,940 |   |   |
| Other                    |       |              | 327        |               |       |   | 325 |   |   |
|                     |       |              | $          | 1,921              |       |   |   | $ | 3,176 |   |   |

**Note 4—Goodwill andTradename**

**The Company operates in twoprincipal operating segments, Field Technical Services (“FTS”) andInternational Technical Services (“ITS”).**

The tradename of $18,318is assigned to the reportable segments as follows: FTS—$1,040 and ITS—$17,278. Thetradename is not amortized for financial reporting purposes but is deductiblefor tax purposes.

8

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

The goodwill of $420,180is assigned to the reportable segments as follows: FTS—$100,314 and ITS—$319,866.The goodwill is not amortized for financial reporting purposes but isdeductible for tax purposes.

**Note5—Cash Flows**

Cash payments forinterest on indebtedness were $7,225 and $6,562 for the three months ended June 30,2006 and July 1, 2005, respectively. Net cash payments for income taxeswere $9,134 and $312 and for the three months ended June 30, 2006 and July 1,2005, respectively. The Company had non-cash investing activities of $191related to property and equipment purchases that were accrued at June 30,2006. In addition, the Company had non-cash leasehold improvements of $3,015related to one lease at June 30, 2006.

**Note6—Derivatives**

Derivative financialinstruments are recognized as either assets or liabilities in the balance sheetand carried at fair value. Gains or losses on derivatives designated as cashflow hedges are initially reported as a component of other comprehensive incomeand later classified into earnings in the period in which the hedged item alsoaffects earnings.

The Company enteredinto an interest rate cap effective May 4, 2005 and paid a premium of $483.The interest rate cap has the effect of placing a ceiling on the interestexpense the Company could incur on $172,500 of variable debt indexed to theLondon Interbank Offered Rate at 6.5% plus the applicable floating spread(2.25% at June 30, 2006) as defined by the Company’s senior secured creditfacility agreement. The interest rate cap has been designated by the Company asa cash flow hedge. As of June 30, 2006, the fair value of the interestrate cap was $77, which was recorded in the accompanying condensed consolidatedbalance sheet in other assets with the reduction in fair value, net of tax,recorded in equity as other comprehensive loss.

**Note7—Significant Changes in Indebtedness**

The table belowpresents significant changes in the amounts of senior subordinated notes andsimilar debt:

| ** **                      | ** ** | **9.5% Senior  Subordinated** | ** ** | **Senior Secured  Credit Facility** | ** ** | ** **   | ** ** |
|---------------------------------|------------|------------------------------------|------------|-----------------------------------------------|------------|--------------|------------|
| ** **                      | ** ** | ** Notes**                    | ** ** | **Term Loan**                            | ** ** | **Revolver** | ** ** | **Total** | ** ** |
| Balance at  March 31, 2006 |       |                               | $          | 320,000                                       |       |         |       | $ | 341,551 |   |   |   | $ | — |   |   | $ | 661,551 |   |
| Payments                        |       |                               | (27,968    | )                                             |       |         | (863       | ) |   |   | — |   |   | (28,831 | ) |
| Balance at June 30,  2006  |       |                               | $          | 292,032                                       |       |         |       | $ | 340,688 |   |   |   | $ | — |   |   | $ | 632,720 |   |

 

On June 9, 2006, in connection with the SuccessorParent’s Equity Offering, the Company redeemed $27,968 of the $320,000aggregate principal amount of the senior subordinated notes. The Company alsopaid $834 in accrued interest through the redemption date and a prepaymentpenalty of $2,657 related to the senior subordinated notes.

In connection withthe Successor Parent’s Equity Offering, the Company recognized an $827 lossrelated to the write-off of a portion of the previously capitalized loan costfor the senior subordinated notes.

9

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

On June 28,2006, the Company entered into a second amendment and waiver of the Company’ssenior secured credit facility, dated February 11, 2005, as amended onJanuary 9, 2006. The second amendment and waiver provided for a seniorsecured credit facility of $431,551, representing a $90,000 revolver and a$341,551 outstanding term loan. The Company did not have an outstanding balanceon the revolver on the date of the second amendment and waiver. The maturitydate of the amended senior secured credit facility remains unchanged. Thesecond amendment and waiver also does the following, among other things:(i) decreases the interest rate spread applicable to the term loan underthe Company’s senior secured credit facility; (ii) permits the Company torequest an increase in its revolving credit facility by an aggregate amount ofup to $30,000, provided that none of the existing lenders or any other lenderis committed to providing such increase; (iii) increases the amount ofcapital expenditures permitted under the Company’s senior secured creditfacility from $4,000 per fiscal year to $8,000 per fiscal year;(iv) increases the amount of capitalized leases permitted under theCompany’s senior secured credit facility; (v) allows for the payment of dividendsand the repurchase of the Company’s capital stock in the amount of $10,000,plus, if the leverage ratio (as defined in the senior secured credit facility)is below 3.25:1.00, 25% of excess cash flow (as defined in the senior securedcredit facility) for each fiscal year; and (vi) provides for the firstexcess cash flow payment, as defined by the senior secured credit facility, tocommence on the Company’s fiscal year that ends on March 30, 2007.

On June 30, 2006, theCompany had $10,232 in outstanding letters of credit.

**Note 8—Class BEquity Participation**

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 June 30, 2006, the aggregate individual grantswere 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 received an8% 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 the Class B interests are forfeited or repurchased.The Company retained an independent party to conduct a fair value analysis ofthe Class B interests granted to management and the Successor Parent’soutside directors. Based on this analysis, the fair value of the Class Binterests granted to certain members of management and the Successor Parent’soutside directors was determined to be $7,589. In accordance with SFAS No. 123(R) “*Share-Based Payment*,” the Company records compensationexpense based on the fair value and commensurate with its graded vestingschedules. For the three months ended June 30, 2006, the Company recognizednon-cash compensation expense of $695.

10

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

Assumingeach grant fully vests, the Company will recognize additional non-cashcompensation expense as follows:

| **FY 2007** | ** ** | **FY 2008** | ** ** | **FY 2009** | ** ** | **FY 2010** | ** ** | **FY 2011** |
|------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|
| $1,921           |       | $1,439           |       | $782             |       | $324             |       | $11              |

 

**Note 9—Commitments,Contingencies and Litigation**

*Commitments*

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 $22,117 and $1,774 for the three months ended June 30,2006 and July 1, 2005, respectively.

Minimumfixed rentals required for the next five years and thereafter under operatingleases in effect at March 31, 2006 are as follows:

| **Fiscal Year** | ** ** | ** ** | ** ** | **Real Estate** | ** ** | **Equipment** | ** ** |
|----------------------|------------|------------|------------|----------------------|------------|---------------|------------|
| 2007                 |       |       | $          | 2,851                |       |          |       | $ | 632 |   |   |
| 2008                 |       |       | 3,465      |                 |       |          | 751        |   |   |
| 2009                 |       |       | 2,432      |                 |       |          | 55         |   |   |
| 2010                 |       |       | 2,186      |                 |       |          | —     |   |   |
| 2011                 |       |       | 2,186      |                 |       |          | —     |   |   |
| Thereafter           |       |       | 12,023     |                 |       |          | —     |   |   |
|                 |       |       | $          | 25,143               |       |          |       | $ | 1,438 |   |   |

 

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,thereby minimizing credit risk. Furthermore, the Company continuously reviewsall accounts 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, the Company has denied, or believes the Company hasa basis to deny, liability. The Company has recorded its best estimate of theaggregate liability that will 

11

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

result from these mattersand believes that these matters are adequately reserved. While it is notpossible to predict with certainty the outcome of litigation, it is the opinionof the Company’s management, based in part upon opinions of counsel, insurancein force 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 U.S. government contracts or conducted forother reasons, could result in administrative, civil or criminal liabilities,including repayments, fines or penalties being imposed upon the Company, orcould lead to suspension or debarment from future U.S. government contracting. Inmanagement’s opinion, there are no outstanding issues of this nature at June 30,2006 that will have a material adverse effect on the Company’s consolidatedfinancial 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 wasfiled against the Company and several of its former affiliates in the U.S.District Court for the District of Columbia. The action alleges personalinjury, property damage and wrongful death as a consequence of the spraying ofnarcotic plant crops along the Colombian border adjacent to Ecuador. Thespraying operations are conducted under a Department of State contract incooperation with the Colombian government. The terms of the Department of Statecontract provide that the Department of State will indemnify the Companyagainst third-party liabilities arising out of the contract, subject toavailable funding. The Company is also entitled to indemnification by ComputerSciences Corporation in connection with this lawsuit, subject to certainlimitations. Additionally, any damage award would have to be apportioned betweenthe other defendants and the 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 the Company 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, thatresult could have a material adverse effect on the Company’s operating performance.

**Note 10—Guarantor/Non-GuarantorSupplemental Data**

As of June 30, 2006, the Company had outstanding$292,032 aggregate principal amount of senior subordinated notes. These seniorsubordinated notes are fully and unconditionally guaranteed, jointly andseverally, on a senior subordinated unsecured basis by the followingsubsidiaries of the Company: (i) DTS Aviation Services LLC; (ii) DynCorpAerospace Operations LLC; (iii) DynCorp International Services LLC; (iv) DynMarine Services LLC; (v) Worldwide Recruiting and Staffing Services LLC(formerly known as DynCorp International of Nigeria LLC); (vi) Dyn MarineServices of Virginia LLC; (vii) Services International LLC; and (viii) WorldwideHumanitarian Services LLC.

12

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

The followingsupplemental condensed consolidating financial statements present:

1.                 The Company’sfinancial position at June 30, 2006 and March 31, 2006, the resultsof operations for the three months ended June 30, 2006 and July 1,2005, and cash flows for the three months ended June 30, 2006 and July 1,2005.

2.                 DynCorpInternational LLC (the “Parent”), the combined Subsidiary Guarantors and thecombined Subsidiary Non-Guarantors account for their investments insubsidiaries using the equity method of accounting; therefore, the Parentcolumn reflects the equity income (loss) of its Subsidiary Guarantors and itsSubsidiary Non-Guarantors, both of which are also separately reflected in thestandalone Subsidiary Guarantors and Subsidiary Non-Guarantors columns. Additionally,the Subsidiary Guarantors column reflects the equity income (loss) of theParent’s Subsidiary Non-Guarantors, which are also separately reflected in thestandalone Subsidiary Non-Guarantors column.

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

13

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET INFORMATIONJUNE 30, 2006(Unaudited)**

| ** **                                     | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                     | ** ** | ** ** | ** ** |                       | ** ** | ** **                     |       |             | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                |       |       |       |                       |       | ** **                     |       |             |       |             |       |   |   |   |   |   |   | ** ** |   |
| Cash and cash equivalents                      |       | $          | 10,248     |                       |       | $                              | 3,262      | ** **       |       |             | $          | 2,659 |   |   |   | $ | — |   |   |   | $ | 16,169 | ** ** |   |
| Receivables, net                               |       | 442,057    |       |                       | 31,004     | ** **                     |       |             | 737        |             |       |   | — |   |   |   | 473,798 | ** ** |   |
| Prepaid expenses and other current assets      |       | 41,594     |       |                       | 1,375      | ** **                     |       |             | 6          |             |       |   | — |   |   |   | 42,975 | ** ** |   |
| Total current assets                           |       | 493,899    |       |                       | 35,641     | ** **                     |       |             | 3,402      |             |       |   | — |   |   |   | 532,942 | ** ** |   |
| Property and  equipment, net                   |       | 8,011      |       |                       | 3,154      | ** **                     |       |             | 318        |             |       |   | — |   |   |   | 11,483 | ** ** |   |
| Other assets:                                  |       |       |       |                       |       | ** **                     |       |             |       |             |       |   |   |   |   |   |   | ** ** |   |
| Goodwill                                       |       | 406,936    |       |                       | 13,244     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 420,180 | ** ** |   |
| Tradename                                      |       | 18,318     |       |                       | —     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 18,318 | ** ** |   |
| Customer-related intangibles, net              |       | 235,043    |       |                       | 2,273      | ** **                     |       |             | —     |             |       |   | — |   |   |   | 237,316 | ** ** |   |
| Other intangibles, net                         |       | 7,158      |       |                       | —     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 7,158 | ** ** |   |
| Investment in subsidiaries                     |       | 11,983     |       |                       | 295        | ** **                     |       |             | —     |             |       |   | (12,278 | ) |   |   | — | ** ** |   |
| Deferred financing costs, net                  |       | 16,399     |       |                       | —     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 16,399 | ** ** |   |
| Other assets                                   |       | 16,649     |       |                       | —     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 16,649 | ** ** |   |
| Intercompany receivables                       |       | —     |       |                       | —     | ** **                     |       |             | 30,569     |             |       |   | (30,569 | ) |   |   | — | ** ** |   |
| Total other assets                             |       | 712,486    |       |                       | 15,812     | ** **                     |       |             | 30,569     |             |       |   | (42,847 | ) |   |   | 716,020 | ** ** |   |
| Total assets                                   |       | $          | 1,214,396  |                       |       | $                              | 54,607     | ** **       |       |             | $          | 34,289 |   |   |   | $ | (42,847 | ) |   |   | $ | 1,260,445 | ** ** |   |
| **LIABILITIES  AND MEMBER’S EQUITY**      | ** ** | ** ** | ** ** |                       | ** ** | ** **                     |       |             | ** ** | ** **       |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                           |       |       |       |                       |       | ** **                     |       |             |       |             |       |   |   |   |   |   |   | ** ** |   |
| Current portion of long-term debt              |       | $          | 3,450      |                       |       | $                              | —     | ** **       |       |             | $          | — |   |   |   | $ | — |   |   |   | $ | 3,450 | ** ** |   |
| Current portion of other long-term liabilities |       | 301        |       |                       | —     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 301 | ** ** |   |
| Accounts payable and accrued expenses          |       | 141,658    |       |                       | 8,956      | ** **                     |       |             | (127       | )                |       |   | — |   |   |   | 150,487 | ** ** |   |
| Accrued payroll and employee  costs            |       | 41,161     |       |                       | 11,221     | ** **                     |       |             | 21,510     |             |       |   | — |   |   |   | 73,892 | ** ** |   |
| Other accrued expenses                         |       | 22,149     |       |                       | 9,950      | ** **                     |       |             | 13,018     |             |       |   | — |   |   |   | 45,117 | ** ** |   |
| Income taxes                                   |       | 7,049      |       |                       | —     | ** **                     |       |             | (355       | )                |       |   | — |   |   |   | 6,694 | ** ** |   |
| Total current liabilities                      |       | 215,768    |       |                       | 30,127     | ** **                     |       |             | 34,046     |             |       |   | — |   |   |   | 279,941 | ** ** |   |
| Long-term  debt—less current portion      |       | 629,270    |       |                       | —     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 629,270 | ** ** |   |
| Other long-term  liabilities                   |       | 2,638      |       |                       | —     | ** **                     |       |             | —     |             |       |   | — |   |   |   | 2,638 | ** ** |   |
| Intercompany  payables                         |       | 18,124     |       |                       | 12,445     | ** **                     |       |             | —     |             |       |   | (30,569 | ) |   |   | — | ** ** |   |
| Member’s equity                           |       | 348,596    |       |                       | 12,035     | ** **                     |       |             | 243        |             |       |   | (12,278 | ) |   |   | 348,596 | ** ** |   |
| Total liabilities and  member’s equity    |       | $          | 1,214,396  |                       |       | $                              | 54,607     | ** **       |       |             | $          | 34,289 |   |   |   | $ | (42,847 | ) |   |   | $ | 1,260,445 | ** ** |   |

 

14

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET INFORMATIONMARCH 31, 2006**

| ** **                                 | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **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 and  accrued expenses     |       | 143,595    |       |                       | 73         |                           |       |             | —     |             |       |   | — |   |   |   | 143,668 |   |   |
| Accrued payroll and  employee costs        |       | 26,632     |       |                       | 14,251     |                           |       |             | 24,703     |             |       |   | — |   |   |   | 65,586 |   |   |
| 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 |   |   |
|                                       |       |       |       |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |

 

 

15

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

 

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONFOR THE THREE MONTHS ENDED JUNE 30, 2006(Unaudited)**

| ** **                                                                   | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                     |       | $          | 472,181    |                       |       | $                              | 65,503     |             |       |             | $          | 65,897 |   |   |   | $ | (65,897 | ) |   |   | $ | 537,684 |   |   |
| Costs of services  (excluding depreciation and amortization disclosed below) |       | 409,819    |       |                       | 61,332     |                           |       |             | 65,080     |             |       |   | (65,897 | ) |   |   | 470,334 |   |   |
| Selling, general and  administrative                                         |       | 25,127     |       |                       | 1,759      |                           |       |             | 519        |             |       |   | — |   |   |   | 27,405 |   |   |
| Depreciation and  amortization                                               |       | 10,924     |       |                       | 44         |                           |       |             | 169        |             |       |   | — |   |   |   | 11,137 |   |   |
| Operating income                                                             |       | 26,311     |       |                       | 2,368      |                           |       |             | 129        |             |       |   | — |   |   |   | 28,808 |   |   |
| Interest expense                                                             |       | 14,826     |       |                       | (12        | )                              |       |             | —     |             |       |   | — |   |   |   | 14,814 |   |   |
| Loss on debt  extinguishment                                                 |       | 3,484      |       |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | 3,484 |   |   |
| Income on joint ventures                                                     |       | (446       | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (446 | ) |   |
| Other (income) expense                                                       |       | (151       | )          |                       | 1          |                           |       |             | —     |             |       |   | — |   |   |   | (150 | ) |   |
| Equity in income (loss)  of subsidiaries                                     |       | 2,331      |       |                       | 80         |                           |       |             | —     |             |       |   | (2,411 | ) |   |   | — |   |   |
| Income before income  taxes                                                  |       | 10,929     |       |                       | 2,459      |                           |       |             | 129        |             |       |   | (2,411 | ) |   |   | 11,106 |   |   |
| Provision for income  taxes                                                  |       | 3,903      |       |                       | 128        |                           |       |             | 49         |             |       |   | — |   |   |   | 4,080 |   |   |
| Net income                                                                   |       | $          | 7,026      |                       |       | $                              | 2,331      |             |       |             | $          | 80 |   |   |   | $ | (2,411 | ) |   |   | $ | 7,026 |   |   |

 

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONFOR THE THREE MONTHS ENDED JULY 1, 2005(Unaudited)**

| ** **                                                                   | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                     |       | $          | 373,427    |                       |       | $                              | 51,628     |             |       |             | $          | 48,157 |   |   |   | $ | (48,157 | ) |   |   | $ | 425,055 |   |   |
| Costs of services  (excluding depreciation and amortization disclosed below) |       | 329,630    |       |                       | 49,084     |                           |       |             | 48,033     |             |       |   | (48,157 | ) |   |   | 378,590 |   |   |
| Selling, general and  administrative                                         |       | 17,988     |       |                       | 1,170      |                           |       |             | 1          |             |       |   | — |   |   |   | 19,159 |   |   |
| Depreciation and amortization                                                |       | 10,560     |       |                       | 102        |                           |       |             | 23         |             |       |   | — |   |   |   | 10,685 |   |   |
| Operating income                                                             |       | 15,249     |       |                       | 1,272      |                           |       |             | 100        |             |       |   | — |   |   |   | 16,621 |   |   |
| Equity in income (loss)  of subsidiaries                                     |       | 1,360      |       |                       | 88         |                           |       |             | —     |             |       |   | (1,448 | ) |   |   | — |   |   |
| Interest expense                                                             |       | 13,837     |       |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | 13,837 |   |   |
| Loss on joint ventures                                                       |       | 68         |       |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | 68 |   |   |
| Income before income  taxes                                                  |       | 2,704      |       |                       | 1,360      |                           |       |             | 100        |             |       |   | (1,448 | ) |   |   | 2,716 |   |   |
| Provision for income  taxes                                                  |       | 627        |       |                       | —     |                           |       |             | 12         |             |       |   | — |   |   |   | 639 |   |   |
| Net income                                                                   |       | $          | 2,077      |                       |       | $                              | 1,360      |             |       |             | $          | 88 |   |   |   | $ | (1,448 | ) |   |   | $ | 2,077 |   |   |

 

16

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATIONFOR THE THREE MONTHS ENDED JUNE 30, 2006(Unaudited)**

| ** **                                            | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Net cash provided  by (used in) operating activities  |       | $          | (22,078    | )                          |       | $                              | 23,052     |             |       |             | $          | 8,699 |   |   |   | $ | — |   |   |   | $ | 9,673 |   |   |
| **Cash flows from investing  activities:**            | ** ** | ** ** | ** ** |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Purchases of property and equipment                   |       | (2,505     | )          |                       | (52        | )                              |       |             | —     |             |       |   | — |   |   |   | (2,557 | ) |   |
| Other assets                                          |       | (976       | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (976 | ) |   |
| Net cash used in investing activities                 |       | (3,481     | )          |                       | (52        | )                              |       |             | —     |             |       |   | — |   |   |   | (3,533 | ) |   |
| **Cash flows from financing  activities:**            | ** ** | ** ** | ** ** |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net transfers from (to) Parent                        |       | 56,690     |       |                       | (30,486    | )                              |       |             | (8,297     | )                |       |   | — |   |   |   | 17,907 |   |   |
| Payment on credit facility                            |       | (28,831    | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (28,831 | ) |   |
| Other financing activities                            |       | 380        |       |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | 380 |   |   |
| Net cash provided by (used in) financing activities   |       | 28,239     |       |                       | (30,486    | )                              |       |             | (8,297     | )                |       |   | — |   |   |   | (10,544 | ) |   |
| Net increase  (decrease) in cash and cash equivalents |       | 2,680      |       |                       | (7,486     | )                              |       |             | 402        |             |       |   | — |   |   |   | (4,404 | ) |   |
| Cash and cash  equivalents at beginning of period     |       | 7,568      |       |                       | 10,749     |                           |       |             | 2,256      |             |       |   | — |   |   |   | 20,573 |   |   |
| Cash and cash  equivalents at end of period           |       | $          | 10,248     |                       |       | $                              | 3,263      |             |       |             | $          | 2,658 |   |   |   | $ | — |   |   |   | $ | 16,169 |   |   |

 

17

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

**DYNCORP INTERNATIONAL LLC AND SUBSIDIARIESCONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATIONFOR THE THREE MONTHS ENDED JULY 1, 2005(Unaudited)**

| ** **                                           | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Subsidiary  Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------------------|------------|------------------|------------|------------------|------------|
| Net cash (used  in) provided by operating activities |       | $          | 70,748     |                       |       | $                              | (22,525    | )                |       |             | $          | 4,150 |   |   |   | $ | — |   |   |   | $ | 52,373 |   |   |
| **Cash  flows from investing activities:**           | ** ** | ** ** | ** ** |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Purchases of property and equipment                  |       | (387       | )          |                       | —     |                           |       |             | (59        | )                |       |   | — |   |   |   | (446 | ) |   |
| Other assets                                         |       | (466       | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (466 | ) |   |
| Net cash used in investing activities                |       | (853       | )          |                       | —     |                           |       |             | (59        | )                |       |   | — |   |   |   | (912 | ) |   |
| **Cash  flows from financing activities:**           | ** ** | ** ** | ** ** |                       |       |                           |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net transfers from (to) Parent                       |       | (19,520    | )          |                       | 23,318     |                           |       |             | (3,798     | )                |       |   | — |   |   |   | — |   |   |
| Payments on debt                                     |       | (35,863    | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (35,863 | ) |   |
| Purchase of interest rate cap                        |       | (483       | )          |                       | —     |                           |       |             | —     |             |       |   | — |   |   |   | (483 | ) |   |
| Net cash (used in) provided by financing activities  |       | (55,866    | )          |                       | 23,318     |                           |       |             | (3,798     | )                |       |   | — |   |   |   | (36,346 | ) |   |
| Net increase in  cash and cash equivalents           |       | 14,029     |       |                       | 793        |                           |       |             | 293        |             |       |   | — |   |   |   | 15,115 |   |   |
| Cash and cash  equivalents at beginning of period    |       | 10,531     |       |                       | 1,423      |                           |       |             | 1,520      |             |       |   | — |   |   |   | 13,474 |   |   |
| Cash and cash  equivalents at end of period          |       | $          | 24,560     |                       |       | $                              | 2,216      |             |       |             | $          | 1,813 |   |   |   | $ | — |   |   |   | $ | 28,589 |   |   |

 

**Note 11—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, Cost AccountingStandards and audits by various U.S. federal agencies.

18

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

The Company’s FTS operating segment provides long-termaviation services and engineering and logistics support, ranging from dailyfleet maintenance to extensive modification and overhauls on aircraft, weaponssystems and support equipment. FTS generates revenue under long-term contractsthat are typically three to ten years in duration. Based on revenues, ContractField Teams is the most significant program in the FTS operating segment. TheCompany and its predecessors have participated in this program for 54consecutive years. This program deploys highly mobile, quick-response fieldteams to customer locations worldwide to supplement the Company’s customers’workforce, including generally providing mission support to aircraft andweapons systems in addition to depot-level repair.

The Company’s ITS operating segment primarily providesoutsourced law enforcement training, drug eradication, global logistics, baseoperations and personal and physical security services to government andcommercial customers in foreign jurisdictions. The ITS operating segment haswitnessed strong growth as a result of the U.S. government’s trend towardoutsourcing critical related functions. In February 2004, as part of theDepartment of State’s outsourced law enforcement training in the Middle East,the Company was awarded a new Civilian Police contract, which expanded theexisting Civilian Police program in place since 1994. As of June 30, 2006,the Company had deployed civilian police officers from the United States to threecountries to train and offer logistics support to the local police and assistthem with infrastructure and reconstruction.

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.

Thetable below presents selected financial information for the respective periods,for the two reportable segments and for financial items that cannot beallocated to either operating segment:

| ** **                                      | ** ** | **Field**     | ** ** | **International** | ** ** | **DynCorp**          | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|---------------|------------|-------------------|------------|----------------------|------------|------------|------------|
| ** **                                      | ** ** | **Technical** | ** ** | **Technical**     | ** ** | **International**    | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Services**  | ** ** | **Services**      | ** ** | **Home Office** | ** ** | **Total**  | ** ** |
| For the Three Months  Ended June 30, 2006: |       |          |       |              |       |                 |       |       |       |   |   |   |   |
| Revenues                                        |       | $             | 182,741    |              |       | $                    | 354,943    |       |       |   | $ | — |   |   | $ | 537,684 |   |
| Earnings before interest and taxes              |       | 4,722         |       |              | 25,900     |                 |       |       | (1,218     | ) |   | 29,404 |   |
| Depreciation and amortization                   |       | 3,006         |       |              | 7,634      |                 |       |       | 760        |   |   | 11,400 |   |
| Assets                                          |       | 315,343       |       |              | 888,384    |                 |       |       | 56,718     |   |   | 1,260,445 |   |
| For the Three  Months Ended July 1, 2005:  |       |          |       |              |       |                 |       |       |       |   |   |   |   |
| Revenues                                        |       | $             | 169,452    |              |       | $                    | 255,603    |       |       |   | $ | — |   |   | $ | 425,055 |   |
| Earnings before interest and taxes              |       | 7,678         |       |              | 10,181     |                 |       |       | (1,306     | ) |   | 16,553 |   |
| Depreciation and  amortization                  |       | 2,922         |       |              | 7,563      |                 |       |       | 409        |   |   | 10,894 |   |

 

The Company evaluates segment performance basedprimarily on the non-GAAP measure of earnings before interest and taxes(“EBIT”), which includes the effects of corporate expense allocations.  EBIT is a non-GAAP measure that includesoperating income, interest income and income (loss) from joint ventures.  Items that the Company does not include inEBIT are financing costs, including interest and debt expense and income taxes,each of which the Company evaluates on a consolidated level.  The 

19

----

**DYNCORP INTERNATIONAL LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (In thousands, except per share data)**

Company’s management believes EBIT is a useful measurement of the Company’sperformance because it provides information that can be used to evaluate theeffectiveness of the Company’s business from an operational perspective,exclusive of the costs to finance those activities and exclusive of incometaxes, neither of which is directly relevant to the efficiency of thoseoperations. 

EBITshould not be considered an alternative to, or a more meaningful indicator of theCompany’s operating performance than, operating income or net income asdetermined in accordance with GAAP.  Inaddition, EBIT may not be comparable to a similarly titled measure of anothercompany.  A reconciliation of earnings before interest and taxes tonet income is as follows:

| ** **                          | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **June 30,**                                  | ** ** | **July 1,** | ** ** |
| ** **                          | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Earnings before  interest and taxes |       | $                                                  | 29,404     |   | $ | 16,553 |   |
| Interest expense                    |       | (14,814                                            | )          | (13,837 | ) |
| Loss on debt  extinguishment        |       | (3,484                                             | )          | — |   |
| Income taxes                        |       | (4,080                                             | )          | (639 | ) |
| Net income                          |       | $                                                  | 7,026      |   | $ | 2,077 |   |

 

 

* * * * *

20

----

**ITEM2.**             MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to the “Company,”“us” or “we” refer to DynCorp International LLC and its wholly ownedsubsidiaries. The following discussion and analysis of the Company’s financialcondition and results of operations should be read in conjunction with thefinancial statements and the notes thereto contained elsewhere in this report. Certaininformation contained in the discussion and analysis set forth below includes forward-lookingstatements that involve risks and uncertainties.

**Special NoteRegarding Forward-Looking Statements**

This Quarterly Report on Form 10-Qcontains various forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities 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,governmental and technological factors that could cause our business, strategyor actual results or events to differ materially, or otherwise, from those inthe forward-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 SEC. Accordingly,such forward-looking statements do not purport to be predictions of futureevents or circumstances and therefore there can be no assurance that anyforward-looking statement contained herein will prove to be accurate. TheCompany assumes no obligation to update the forward-looking statements.

**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.

**Backlog and NewOrders**

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 andpriced options under our contracts. We define contracted backlog as theestimated value of contract modifications received from customers that have notbeen recognized as revenue. Our backlog consists of funded and unfunded backlog.Funded backlog is based upon amounts actually appropriated by a customer 

21

----

for payment of goods andservices less actual revenue recorded as of the measurement date under thatappropriation. Unfunded backlog is the actual dollar value of unexercisedcontract options. Most of our U.S. government contracts allow the customer theoption to extend the period of performance of a contract for a period of one ormore years. These options may be exercised at the sole discretion of thecustomer. Historically, it has been our experience that the customer hasexercised contract options.

Firm funding for our contracts is usually made foronly one year at a time, with the remainder of the years under the contractexpressed as a series of one-year options. As is the case with the base periodof our U.S. government contracts, option periods are subject to theavailability of funding for contract performance. The U.S. government is legallyprohibited from ordering work under a contract in the absence of funding. Ourhistorical experience has been that the government generally has funded theoption periods of our contracts.

New orders represent new contracts, or additional workadded under the existing contracts, received during the periods presentedbelow.

Thefollowing table sets forth our contracted backlog and new orders (dollars inmillions) as of the dates indicated: 

| ** **       | ** ** | **July 1,  2005**                              | ** ** | **March 31,  2006**                     | ** ** | **June 30,  2006**                              | ** ** |
|------------------|------------|-----------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------|------------|
| Funded backlog   |       | $                                                   | 1,126      |                                         | $          | 1,024                                                |       | $ | 1,037 |   |
| Unfunded backlog |       | 1,449                                               |       | 1,617                                        |       | 1,645                                                |       |
| Total backlog    |       | $                                                   | 2,575      |                                         | $          | 2,641                                                |       | $ | 2,682 |   |
| ** **       | ** ** | **For the Three  Months  Ended July 1,  2005** | ** ** | **Fiscal Year  Ended  March 31,  2006** | ** ** | **For the Three  Months  Ended June 30,  2006** | ** ** |
| New orders       |       | $                                                   | 960        |                                         | $          | 2,568                                                |       | $ | 579 |   |

 

**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** | ** ** | **June 30,  2006** | ** ** |
|-------------------------------------|------------|-------------------------|------------|-------------------------|------------|--------------------------|------------|-------------------------|------------|
| Estimated remaining  contract value |       | $                       | 2,812      |                    | $          | 4,413                    |       |                    | $          | 5,727 |   |   |   | $ | 5,682 |   |   |
|                                     |            |                         |            |                         |            |                          |            |                         |            |  |  |  |  |  |  |  |  |

 

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 inactual revenues in any particular period or at all. These amounts could varydepending upon government budgets and appropriations.

22

----

**Results ofOperations**

Thefollowing table (dollars in thousands) sets forth, for the periods indicated,our historical results of operations: 

| ** **                                                                   | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                   | ** ** | **June 30,  2006**                            | ** ** | **% of   Revenue** | ** ** | **July 1,  2005** | ** ** | **% of   Revenue** | ** ** |
| Revenues                                                                     |       | $                                                  | 537,684    |   |   | 100.0 | % |   | $ | 425,055 |   |   | 100.0 | % |   |
| Costs of services  (excluding depreciation and amortization disclosed below) |       | 470,334                                            |       |   | 87.4 |   |   | 378,590 |   |   | 89.1 |   |   |
| Selling, general  and administrative expenses                                |       | 27,405                                             |       |   | 5.1 |   |   | 19,159 |   |   | 4.5 |   |   |
| Depreciation and  amortization                                               |       | 11,137                                             |       |   | 2.1 |   |   | 10,685 |   |   | 2.5 |   |   |
| Total costs and expenses                                                     |       | 508,876                                            |       |   | 94.6 |   |   | 408,434 |   |   | 96.1 |   |   |
| Interest expense                                                             |       | 14,814                                             |       |   | 2.8 |   |   | 13,837 |   |   | 3.3 |   |   |
| Loss on debt  extinguishment                                                 |       | 3,484                                              |       |   | 0.6 |   |   | — |   |   | — |   |   |
| (Income) loss from  joint ventures                                           |       | (446                                               | )          |   | (0.1 | ) |   | 68 |   |   | 0.0 |   |   |
| Interest income                                                              |       | (150                                               | )          |   | 0.0 |   |   | — |   |   | — |   |   |
| Income before taxes                                                          |       | 11,106                                             |       |   | 2.1 |   |   | 2,716 |   |   | 0.6 |   |   |
| Provision for  income taxes                                                  |       | 4,080                                              |       |   | 0.8 |   |   | 639 |   |   | 0.2 |   |   |
| Net income                                                                   |       | $                                                  | 7,026      |   |   | 1.3 | % |   | $ | 2,077 |   |   | 0.4 | % |   |

 

***Three Months Ended June 30, 2006 Compared ToThree Months Ended July 1, 2005***

*Consolidated*

*Revenues.*   Totalrevenues increased from $425.1 million for the three months ended July 1,2005 to $537.7 million for the three months ended June 30, 2006, anincrease of $112.6 million or 26.5%. For the three months ended June 30,2006 and July 1, 2005, approximately 42%, 35% and 23% and approximately28%, 41% and 31% of our revenues were derived from fixed-price,time-and-materials, and cost-reimbursement contracts, respectively.

Revenues from our ITS segment increased from$255.6 million for the three months ended July 1, 2005 to $355.0 millionfor the three months ended June 30, 2006, an increase of $99.4 millionor 38.9%. The International Narcotics and Law Enforcement Air-Wing (“Air-Wing”)program increased $39.2 million. The Department of State awarded ourcurrent contract under the Air-Wing program during May 2005. As part ofthe new contract, we successfully transitioned many of the activities underthis program from cost-reimbursement to fixed-price. Due to increased flighthour activity in Latin America, revenues under the Air-Wing program increasedfor the three months ended June 30, 2006, compared to the three months ended July 1,2005. Additional factors contributing to the increase in revenues included: (i) providinghelicopter support under the Air-Wing program for ground eradication efforts inAfghanistan; and (ii) transitioning from cost-reimbursement to fixed-price.Our Civilian Police program contributed $38.5 million to the increase inrevenues. The Civilian Police program benefited from the increased number ofinternational police liaison officers deployed in Iraq and Afghanistan duringthe three months ended June 30, 2006, compared to the three months ended July 1,2005. In addition, while supporting the Iraq effort, we benefited fromoperations and maintenance support efforts, as well as additional procurementactivities. The Logistic Support programs’ revenue increased by $17.0 million,compared to the three months ended July 1, 2005. The increase within theLogistics Support programs is primarily due to the added work under the AfricaPeacekeeping contract with the Department of State. These increases werepartially offset by a reduction in services under the Worldwide PersonalProtective Services program. We recently lost four task orders under which weprovided personal security services in 

23

----

Israel, Haiti, Afghanistanand central Iraq. These lost orders contributed to a decrease in revenues of$14.0 million for the three months ended June 30, 2006, compared to thethree months ended July 1, 2005.

Revenues from our FTS segment increased from$169.5 million for the three months ended July 1, 2005 to$182.7 million for the three months ended June 30, 2006, an increaseof $13.2 million or 7.8%. The FTS increase was primarily driven by an increasein the number of Global Air Traffic Management avionics modification under theLife Cycle Contractor Support program of $8.6 million and an increase inpersonnel and the level of effort under the Contract Field Team program of $8.4million. Partially offsetting this increase was the Army Prepositioned StocksAfloat program, which decreased by $5.2 million mainly because the U.S.government reduced its funding.

*Costsof services.**  *Costsof services are comprised of direct labor, direct material, subcontractorcosts, other direct costs and overhead. Other direct costs include travel, suppliesand other miscellaneous costs. Costs of services increased from$378.6 million for the three months ended July 1, 2005 to$470.3 million for the three months ended June 30, 2006, an increaseof $91.7 million or 24.2%. As a percentage of revenue, costs of servicesdropped from 89.1% in the three months ended July 1, 2005 to 87.4% for thethree months ended June 30, 2006. This reduction as a percentage ofrevenue was due to the following: (i) strong performance on fixed-price taskorders under the Civilian Police and the Air-Wing programs; and (ii) improvedcontract mix resulting from a larger proportion of higher-margin fixed-priceand time-and-materials contracts as opposed to lower-margin cost-reimbursementcontracts.

*Selling,general and administrative expenses.**  *Selling, general and administrativeexpenses primarily relate to functions such as management, legal, financialaccounting, contracts and administration, human resources, managementinformation systems, purchasing and business development. Selling, general andadministrative expenses for the three months ended July 1, 2005 were$19.2 million and increased to $27.4 million for the three monthsended June 30, 2006, an increase of $8.2 million or 42.7%. Inaddition, as a percentage of revenue, selling, general and administrativeexpenses increased from 4.5% for the three months ended July 1, 2005 to5.1% for the three months ended June 30, 2006. Factors contributing tohigher selling, general and administrative expenses for the three months ended June 30,2006 include: (i) an increase of $4.6 million in segment general andadministrative costs necessary to support the growth of our segments, primarilyITS; (ii) an increase of $3.1 million in corporate administrativecosts, primarily the result of developing these functions as an independentcompany; and (iii) an increase of $2.7 million in businessdevelopment costs. Offsetting the increase in selling, general andadministrative expenses is a benefit of $2.3 million related to the collectionof an accounts receivable previously written off as bad debt.

*Depreciationand amortization.**  *Depreciationand amortization increased from $10.7 million for the three months ended July 1,2005 to $11.1 million for the three months ended June 30, 2006, anincrease of $0.4 million or 3.7%. This increase was primarily due tohigher depreciation expense.

*Interestexpense.**  *Interestexpense increased from $13.8 million for the three months ended July 1,2005 to $14.8 million for the three months ended June 30, 2006. Theinterest expense incurred related to our senior secured credit facility, therevolving credit facility and our senior subordinated notes. This interestexpense includes interest costs applicable to the quarter as well asamortization of deferred financing fees. The increase in interest expense isdue to the increase in variable interest rates, compared to the three monthsended July 1, 2005, despite our lower outstanding average balance duringthe three months ended June 30, 2006. Our average interest rate on thesenior secured credit facility for the three months ended June 30, 2006was 7.7%, compared to 6.4% for the three months ended July 1, 2005.

*Losson debt extinguishment.**  *Inconjunction with our Successor Parent’s Equity Offering in May 2006, weincurred: (i) a premium of $2.7 million related to the redemption ofa portion of our senior subordinated notes; and (iii) the write-off of$0.8 million in deferred financing costs associated with the earlyretirement of a portion of our senior subordinated notes.

24

----

*Income tax expense.**  *We had income tax expense for thethree months ended June 30, 2006 of $4.1 million, which is anincrease of $3.5 million or 583.3% from income tax expense of$0.6 million for the three months ended July 1, 2005. The interestexpense incurred related to our senior secured credit facility and our seniorsubordinated notes. This interest expense includes interest costs applicable tothe quarter as well as amortization of deferred financing fees. The increase ininterest expense is due to the increase in interest rates during the threemonths ended June 30, 2006, compared to the three months ended July 1, 2005,despite our lower outstanding average balance during the three months endedJune 30, 2006.

***Results by Segment***

Weevaluate segment performance based primarily on the non-GAAP measure of EBIT,which includes the effects of corporate expense allocations.  EBIT is a non-GAAP measure that includesoperating income, other income and income (loss) from joint ventures.  Items that we do not include in EBIT arefinancing costs, including interest and debt expense and income taxes, each ofwhich we evaluate on a consolidated level. We believe EBIT is a useful measurement of our performance because itprovides information that can be used to evaluate the effectiveness of ourbusiness from an operational perspective, exclusive of the costs to financethose activities and exclusive of income taxes, neither of which is directlyrelevant to the efficiency of those operations. 

EBIT shouldnot be considred an alternative to, or a more meaningful indicator of ouroperating performance than, operating income or net income as determined inaccordance with GAAP.  In addition, ourEBIT may not be comparable to a similarly titled measure of another company. 

Thefollowing table (dollars in thousands) sets forth the revenues and earningsbefore interest and taxes for our ITS and FTS operating segments, both indollars and as a percentage of our consolidated revenues for segment revenueand as a percentage of segment specific revenue for segment earnings beforeinterest and taxes, for the three months ended June 30, 2006, compared tothe three months ended July 1, 2005.

| ** **                          | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **June 30, 2006**                        | ** ** | **July 1, 2005** | ** ** |
| Revenues                            |       |                                               |       |   |   |   |   |   |   |
| International Technical Services    |       | $                                                  | 354,943    |   | 66.0 | % | $ | 255,603 |   | 60.1 | % |
| Field Technical Services            |       | 182,741                                            |       | 34.0 |   | 169,452 |   | 39.9 |   |
| Other                               |       | —                                             |       | 0.0 |   | — |   | — |   |
| Consolidated                        |       | $                                                  | 537,684    |   | 100.0 | % | $ | 425,055 |   | 100.0 | % |
| Earnings before  interest and taxes |       |                                               |       |   |   |   |   |   |   |
| International Technical Services    |       | $                                                  | 25,900     |   | 7.3 | % | $ | 10,181 |   | 4.0 | % |
| Field Technical Services            |       | 4,722                                              |       | 2.6 | % | 7,678 |   | 4.5 | % |
| Other                               |       | (1,218                                             | )          | NA |   | (1,306 | ) | NA |   |
| Consolidated                        |       | $                                                  | 29,404     |   | 5.5 | % | $ | 16,553 |   | 3.9 | % |

 

*InternationalTechnical Services*

*Revenues.**  *Revenues from our ITS segmentincreased from $255.6 million for the three months ended July 1, 2005to $355.0 million for the three months ended June 30, 2006, anincrease of $99.4 million or 38.9%. Revenues from our Air-Wing program increased$39.2 million. The Department of State awarded our current contract underthe Air-Wing program during May 2005. As part of the new contract, wesuccessfully transitioned many of the activities under this program fromcost-reimbursement to fixed-price. Due to increased flight hour activity inLatin America, revenues under the Air-Wing program increased for the threemonths ended June 30, 2006, compared to the three months ended July 1,2005. 

25

----

Additional factorscontributing to the increase in revenues included: (i) providinghelicopter support under the Air-Wing program for ground eradication efforts inAfghanistan; and (ii) transitioning from cost-reimbursement tofixed-price. Our Civilian Police program contributed $38.5 million to theincrease in revenues. The Civilian Police program benefited from the increasednumber of international police liaison officers deployed in Iraq andAfghanistan during the three months ended June 30, 2006, compared to the threemonths ended July 1, 2005. In addition, while supporting the Iraq effort,we benefited from operations and maintenance support efforts, as well asadditional procurement activities. The Logistic Support programs’ revenueincreased by $17.0 million, compared to the three months ended July 1,2005. The increase within the Logistics Support programs is primarily due tothe added work under the Africa Peacekeeping contract with the Department ofState. These increases were partially offset by a reduction in services underthe Worldwide Personal Protective Services program. We recently lost four taskorders under which we provided personal security services in Israel, Haiti,Afghanistan and central Iraq. These lost orders contributed to a decrease inrevenues of $14.0 million for the three months ended June 30, 2006,compared to the three months ended July 1, 2005.

*Earnings before interestand taxes.*   Earnings before interest and taxesfor the three months ended June 30, 2006 were $25.9 million, anincrease of $15.7 million, or 153.9%, from $10.2 million for thethree months ended July 1, 2005. Earnings before interest and taxes as apercentage of revenue for the three months ended June 30, 2006 andJuly 1, 2005 was 7.3% and 4.0%, respectively. The increase as a percentageof revenue is due**to the following:(i) strong performance on fixed-price task orders under the CivilianPolice and Air-Wing programs; and (ii) improved contract mix resultingfrom a larger proportion of higher-margin fixed-price and time-and-materialscontracts as opposed to lower-margin cost-reimbursement contracts.

*Field TechnicalServices*

*Revenues.**  *Revenues from our FTS segmentincreased from $169.5 million for the three months ended July 1, 2005to $182.7 million for the three months ended June 30, 2006, anincrease of $13.2 million or 7.8%. The FTS increase was primarily drivenby an increase in the number of Global Air Traffic Management avionicsmodifications under the Life Cycle Contractor Support program of$8.6 million and an increase in personnel and the level of effort underthe Contract Field Team program of $8.4 million. Partially offsetting thisincrease was the Army Prepositioned Stocks Afloat program, which decreased by$5.2 million mainly because the U.S. government reduced its funding.

*Earnings before interestand taxes.**  *Earningsbefore interest and taxes for the three months ended June 30, 2006 were$4.7 million, a decrease of $3.0 million, or 39.0%, from$7.7 million for the three months ended July 1, 2005. Earnings beforeinterest and taxes as a percentage of revenue for the three months endedJune 30, 2006 was 2.6% compared to 4.5% for the three months endedJuly 1, 2005. The primary factors contributing to the decrease are:(i) incurred operating losses of $1.9 million from delivering services tothe U.S. Army under our Life Cycle Contractor Support program; and(ii) incurred operating losses of $2.4 million due to operationalissues in executing the cost structure outlined in the original proposal forour AH-1/UH-1 services.

**Liquidity andCapital Resources**

Thefollowing table sets forth cash flow data for the periods indicated therein(dollars in thousands):

| ** **                                  | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                  | ** ** | **June 30,  2006**                            | ** ** | **July 1,  2005** | ** ** |
| Net cash provided  by operating activities  |       | $                                                  | 9,673      |   | $ | 52,373 |   |
| Net cash  used in investing activities |       | (3,533                                             | )          | (912 | ) |
| Net cash used in  financing activities      |       | (10,544                                            | )          | (36,346 | ) |
|                                             |            |                                                    |            |  |  |  |  |

 

26

----

*Cash Flows*

**OperatingActivities.****  **Cash andcash equivalents as of June 30, 2006 were $16.2 million compared to$20.6 million as of March 31, 2006. Net cash provided by operatingactivities for the three months ended June 30, 2006 was $9.7 million,while net cash provided by operating activities for the three months endedJuly 1, 2005 was $52.4 million. Operating cash flow for the firstquarter of fiscal 2006 reflected unusually high cash collections, whichresulted in a $46.1 million source of cash. The first quarter of fiscal 2007experienced unfavorable timing of cash collections, which resulted in a use ofcash of $31.4 million and is expected to reverse during subsequent quarters.The days sales outstanding improved to 80.2 days for the three months endedJune 30, 2006, compared to 80.6 days for the three months endedJuly 1, 2005. Another factor impacting operating cash flow during thethree months ended June 30, 2006 included the payment of special cashbonuses of $3.125 million in the aggregate to our executive officers andcertain other members of management. These bonuses rewarded management fortheir efforts in connection with the successful consummation of our SuccessorParent’s Equity Offering.

**InvestingActivities.****  **Net cashused in investing activities was $3.5 million and $0.9 million forthe three months ended June 30, 2006 and July 1, 2005, respectively.For the three months ended June 30, 2006 and July 1, 2005, theprimary use of cash was to purchase property and equipment.

**FinancingActivities.****  **Net cashused in financing activities was $10.5 million and $36.3 million forthe three months ended June 30, 2006 and July 1, 2005, respectively.The cash used in financing activities during the three months endedJune 30, 2006 included: (i) net proceeds from Successor Parent of$17.9 million; (ii) partial redemption of senior subordinated notesof $28.8 million, including accrued interest; and (iii) otherfinancing activities of $0.4 million. The cash used in financingactivities during the three months ended July 1, 2005 was due to the$35.0 million repayment of borrowings under our revolving credit facility,the $0.9 million scheduled repayment of our bank note borrowings and the$0.5 million purchase of an interest rate cap that limits our exposure toupward movements in variable rate debt.

Based on our current levelof operations, we believe our cash flow from operations and our availableborrowings under our senior secured credit facility will be adequate to meetour liquidity needs for at least the next twelve months. We cannot be assured,however, that our business will generate sufficient cash flow from operations,or that future borrowings will be available to us under our senior securedcredit facility in an amount sufficient to enable us to repay our indebtedness,including the senior subordinated notes, or to fund our other liquidity needs.Servicing our indebtedness will require a significant amount of cash. Ourability to generate sufficient cash depends on numerous factors beyond ourcontrol, and we may be unable to generate sufficient cash flow to service ourdebt obligations, including making payments on the senior subordinated notes.

*Equity Offering*

On May 9, 2006, our SuccessorParent consummated an Equity Offering of 25,000,000 shares of itsClass A common stock, par value $0.01 per share, at a price of$15.00 per share. The gross proceeds from the Equity Offering of$375.0 million, together with cash on hand, were used: (i) to redeemall of our Successor Parent’s outstanding preferred stock, of which$222.8 million in stated amount, including accrued and unpaid dividendsthereon, was outstanding as of May 9, 2006; (ii) to pay a specialClass B distribution in the amount of $100.0 million, representing areturn of capital of $95.9 million to DIV Holding LLC, the holder of ourSuccessor Parent’s common stock; (iii) to redeem $28.0 million of oursenior subordinated notes on June 8, 2006; (iv) to pay prepaymentpenalties of $8.4 million, $5.7 million of which represented prepaymentpenalties on our Successor Parent’s preferred stock and $2.7 million ofwhich represented prepayment penalties on our senior subordinated notes; and(v) to pay transaction expenses of approximately $35.0 million,including an underwriters’ commission of $22.5 million, a fee of 

27

----

$5.0 millionto Veritas Capital and $7.5 million of miscellaneous fees and expenses relatedto the Equity Offering.

*Debt and OtherObligations*

As of June 30, 2006, we had $632.7 millionof indebtedness, including the senior subordinated notes and excluding interestaccrued thereon, of which $340.7 million was secured. On the same date, wehad approximately $79.8 million available under our senior secured creditfacility. This figure gives effect to $10.2 million in outstanding lettersof credit, which reduced our availability by that amount.

Our senior secured credit facility contains financialcovenants, including a minimum interest coverage ratio and a maximum total debtto EBITDA ratio, and places certain restrictions on our ability to make 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 to3.20:1.00 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 seniorsecured credit facility. Capital expenditures are expenditures that arerequired by GAAP to be included in the “purchase of property and equipment.”  Our senior secured credit facility is securedby substantially all of our assets and the assets of our domestic subsidiaries,by a pledge of all of the capital stock of our domestic subsidiaries and by 65%of the capital stock of our first tier foreign subsidiaries. The initialborrowings thereunder are subject to customary closing conditions.

On January 9, 2006, we entered into a firstamendment and waiver of our senior secured credit facility. The first amendmentand waiver increased the revolving commitment under our senior secured creditfacility by $15.0 million to $90.0 million, which includes an increase inthe sub-limit for letters of credit equal to the same amount. The firstamendment and waiver also permitted us to: (i) pay a transaction fee toVeritas Capital related to our Successor Parent’s Equity Offering of up to$10.0 million; (ii) pay a distribution to the holders of our SuccessorParent’s Class 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 Successor 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 Successor Parent’s Equity Offering to prepay loans underthe senior secured credit facility and/or permanently reduce the revolvingcommitments.

On June 28, 2006, theCompany entered into a second amendment and waiver of our senior securedfacility, dated February 11, 2005. The second amendment and waiverprovided for a senior secured credit facility of $431.6 million, representing a$90.0 million revolver and a $341.6 million outstanding term loan. The Companydid not have an outstanding balance on the revolver on the date of the secondamendment and waiver. The maturity date of the amended term loan remainsunchanged. The second amendment and waiver also does the following, among otherthings: (i) decreases the interest rate applicable to the term loan underour senior secured credit facility; (ii) permits us to request an increasein our 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 providing 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) increasesthe amount of capitalized leases permitted under our senior secured creditfacility; (v) allows for the payment of dividends and the repurchase ofour capital stock in the amount of $10.0 million 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 

28

----

(vi) providesfor the first excess cash flow payment, as defined by the senior secured creditfacility, to commence on our fiscal year that ends on March 30, 2007.

*Other Long-TermLiabilities*

Other long-termliabilities represents $3.0 million of tenant improvement concessionspertaining to the Company’s lease of one of its facilities. The lease will beamortized over the life of the lease as prescribed by SFAS No. 13, “*Accounting for Leases*,” and FASB Technical Bulletin 88-1,“*Issues Relating to Accounting for Leases*.”

*Off-Balance SheetArrangements*

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

**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 important to the portrayal of our financialcondition and results of operations and that require management’s mostdifficult, subjective and complex judgments. Typically, the circumstances thatmake these judgments complex and difficult have to do with making estimatesabout the effect of matters that are inherently uncertain. Our criticalaccounting estimates are as noted below.

*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.

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 measured 

29

----

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 atthe expected profit margin to be achieved on the overall contract. This methodcan result 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 that havea duration of less than six months is recognized on the completed contractmethod. Work in progress is classified as a component of inventory.

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 the historical trends of write-offs and recovery ofpreviously written-off accounts, the financial strength of the respective customerand projected economic and market conditions. The evaluation of these factorsinvolves subjective judgments, and changes in these factors may cause amisstatement of our accounts receivable, which could significantly impact ourconsolidated financial statements by incurring bad debt expense. Given that weprimarily serve the U.S. government, we believe the risk to be relatively lowthat a misstatement of accounts receivable would have a material impact on ourfinancial results.

30

----

*Determination ofGoodwill and Customer-Related Intangible Assets*

In accordance with 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 and liabilitiesacquired, including judgments to determine any acquired intangible assets suchas customer-related intangibles, internally developed technology and tradename,as well as assessments of the fair value of tangible assets such as propertyand equipment. Liabilities acquired include reserves for litigation and othercontingency reserves established prior to, or at the time of, acquisition andrequire judgment in ascertaining a reasonable value as well.

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 contractrenewals and sales, less a cost-of-capital charge, all of which was discountedto present 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 June 30, 2006, wehad goodwill of $420.2 million and identifiable intangible assets of$262.8 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. Wealso review goodwill annually, during our fourth quarter, in accordance withSFAS 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 acomponent of an operating segment. The goodwill impairment test is a two-stepprocess that requires management to make judgments in determining whatassumptions to use in the calculation. Management judgments include, but arenot limited to, estimates for future sales, operating income, depreciation andamortization, income tax payments, working capital changes and capitalexpenditures, as well as expected growth rates for cash flows and long-terminterest rates. The first step of the process consists of estimating the fairvalue of each of the reporting units based on a discounted cash flow model andcomparing those estimated fair values with the carrying values, which includesthe allocated goodwill. If a potential impairment is identified, the secondstep is to measure the impairment loss by comparing the implied fair value ofgoodwill with the carrying value of goodwill of the reporting unit. The impliedfair value of goodwill is the residual fair value derived by deducting the fairvalue of a reporting unit’s identifiable assets and liabilities from itsestimated fair value calculated in step one. The impairment charge, if any,would represent the excess of the carrying amount of the reporting unit’sgoodwill over the implied fair value of its goodwill. A decline in estimatedfair value of a reporting unit could result in an impairment charge togoodwill, which could have a material adverse effect on our business, financialcondition and results of operations. We completed our impairment analysis of goodwillas of February 24, 2006, noting no indications of impairment for any ofour reporting units. In addition, as of June 30, 2006, there have been noevents or circumstances that would indicate an impairment of other identifiableintangibles, such as customer-related intangibles.

31

----

*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 $15.8 million are realizable based on the “more likely thannot” 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.

**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been nomaterial changes in market risk from the information provided in Part II,Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in theCompany’s Annual Report on Form 10-K for the fiscal year ended March 31,2006, filed with the SEC on June 29, 2006.

**ITEM 4.**                CONTROLSAND PROCEDURES

***(a)***    Evaluationof Disclosure Controls and Procedures

Ourmanagement, with the participation of our Chief Executive Officer and our ChiefFinancial Officer, has evaluated our disclosure controls and procedures (assuch term is defined in Rules 13a-15(e) and 15d-15(e) ofthe Exchange Act). Based on that evaluation, our Chief Executive Officer andChief Financial Officer have concluded that, as of the end of the periodcovered by this report, our disclosure controls and procedures were effectiveto ensure that information required to be disclosed in reports that we file orsubmit under the Exchange Act are: (1) recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms;and (2) accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate to allowtimely decisions regarding required disclosure.

***(b)***     Changesin Internal Controls

There have been no changes in our internal controlsover financial reporting that have occurred during our fiscal quarter ended June 30,2006 that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

32

----

**PART II—OTHERINFORMATION**

**ITEM 1.  LEGALPROCEEDINGS**

There have been nomaterial changes in legal proceedings from those provided in Part I, Item3, “Legal Proceedings” in the Company’s Annual Report on Form 10-Kfor the fiscal year ended March 31, 2006, filed with the SEC on June 29,2006.

**ITEM 1A.  RISKFACTORS**

There have been nomaterial changes in risk factors from those described in Part I, Item 1A, “RiskFactors” in the Company’s Annual Report on Form 10-K for the fiscalyear ended March 31, 2006, filed with the SEC on June 29, 2006.

**ITEM 2.    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM 3.   DEFAULTSUPON SENIOR SECURITIES**

None.

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

None.

**ITEM 5.   OTHERINFORMATION**

None.

33

----

**ITEM 6.    EXHIBITS**

Thefollowing exhibits are filed as part of, or incorporated by reference into,this Quarterly Report on Form 10-Q.

| Exhibit  Number | ** ** | **Description** | ** ** | ** **                                                                                                                                                                                                                                                                                                              | ** ** |
|-----------------|------------|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|            | 3.1        |            |       | Certificate of Incorporation of DynCorp International  Inc.                                                                                                                                                                                                                                                             |       | (A) |   |
|            | 3.2        |            |       | Amended and Restated Certificate of Incorporation of  DynCorp International Inc.                                                                                                                                                                                                                                        |       | (B) |   |
|            | 3.3        |            |       | Certificate of Correction to the Amended and  Restated Certificate of Incorporation of DynCorp International Inc.                                                                                                                                                                                                       |       | (B) |   |
|            | 3.4        |            |       | Bylaws of DynCorp International Inc.                                                                                                                                                                                                                                                                                    |       | (C) |   |
|            | 3.5        |            |       | Amended and Restated Bylaws of DynCorp International  Inc.                                                                                                                                                                                                                                                              |       | (B) |   |
|            | 3.6        |            |       | Certificate of Formation of DIV Holding LLC                                                                                                                                                                                                                                                                             |       | (D) |   |
|            | 3.7        |            |       | Amended and Restated Limited Liability Company  Operating Agreement of DIV Holding LLC                                                                                                                                                                                                                                  |       | (D) |   |
|            | 3.8        |            |       | Amendment No. 1 to the Amended and Restated  Limited Liability Company Operating Agreement of DIV Holding LLC                                                                                                                                                                                                      |       | (A) |   |
|            | 3.9        |            |       | Amendment No. 2 to the Amended and Restated  Limited Liability Company Operating Agreement of DIV Holding LLC                                                                                                                                                                                                      |       | (E) |   |
|            | 3.10       |            |       | Amendment No. 3 to the Amended and Restated  Limited Liability Company Operating Agreement of DIV Holding LLC                                                                                                                                                                                                      |       | (B) |   |
|            | 3.11       |            |       | Amendment No. 4 to the Amended and Restated  Limited Liability Company Operating Agreement of DIV Holding LLC                                                                                                                                                                                                      |       | (F) |   |
|            | 4.1        |            |       | Certificate of Designation for Series B  participating preferred stock (included in Exhibit 4.3)                                                                                                                                                                                                              |       | (B) |   |
|            | 4.2        |            |       | Registration Rights Agreement, dated as of  May 3, 2006, by and among DynCorp International Inc. and DIV Holding LLC                                                                                                                                                                                               |       | (B) |   |
|            | 4.3        |            |       | Rights Agreement, dated as of May 3, 2006, by  and among DynCorp International Inc. and The Bank of New York                                                                                                                                                                                                       |       | (B) |   |
|            | 10.1       |            |       | 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 L.P., Bear Stearns Corporate Lending Inc., Bear, Stearns &  Co. Inc. and Bank of America, N.A. |       | (D) |   |
|            | 10.2       |            |       | 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.                                                                |       | (G) |   |
|            | 10.3       |            |       | 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.                                                                 |       | (B) |   |
|            | 10.4       |            |       | Employment Agreement effective as of April 12,  2006 between DynCorp International LLC and Stephen J. Cannon                                                                                                                                                                                                       |       | (H) |   |

 

34

----

 

| ExhibitNumber | ** ** | **Description** | ** ** | ** **                                                                                                           | ** ** |
|---------------|------------|-----------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
|          | 10.5       |            |       | Employment Agreement effective as of April 12,  2006 between DynCorp International LLC and Jay K. Gorman        |       | (H) |   |
|          | 10.6       |            |       | Employment Agreement effective as of April 12,  2006 between DynCorp International LLC and Michael J. Thorne    |       | (H) |   |
|          | 10.7       |            |       | Employment Agreement effective as of April 12,  2006 between DynCorp International LLC and Natale S. DiGesualdo |       | (H) |   |
|          | 10.8       |            |       | Employment Agreement effective as of April 12,  2006 between DynCorp International LLC and R. Y. Morrel         |       | (B) |   |
|          | 10.9       |            |       | Employment Agreement effective as of July 17,  2006 between DynCorp International LLC and Herbert J. Lanese     |       | (F) |   |
|          | 10.10      |            |       | The DynCorp International LLC Executive Incentive Plan                                                               |       | (I) |   |
|          | 10.11      |            |       | The DynCorp International LLC Management Incentive  Plan                                                             |       | (I) |   |
|          | 10.12      |            |       | The DynCorp International LLC Key Contributor Plan                                                                   |       | (I) |   |
|          | 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            |       |   |   |

----

*                    Filedherewith.

(A)       Previouslyfiled as an exhibit to DynCorp International Inc.’s Amendment No. 2 to Form S-1(Reg. No. 333-128637), filed with the SEC on November 30, 2005and incorporated herein by reference.

(B)        Previouslyfiled as an exhibit to DynCorp International Inc.’s Form 10-K, filedwith the SEC on June 29, 2006 and incorporated herein by reference.

(C)        Previouslyfiled as an exhibit to DynCorp International Inc.’s Amendment No. 1 to Form S-1(Reg. No. 333-128637), filed with the SEC on November 10, 2005and incorporated herein by reference.

(D)       Previouslyfiled as an exhibit to DynCorp International LLC’s Registration Statement on Form S-4/A(Reg. No. 333-127343), filed with the SEC on September 27, 2005and incorporated herein by reference.

(E)        Previouslyfiled as an exhibit to DynCorp International Inc.’s Amendment No. 3 to Form S-1 (Reg. No. 333-128637),filed with the SEC on March 27, 2006 and incorporated herein by reference.

(F)         Previouslyfiled as an exhibit to DynCorp International Inc.’s Form 8-K, filedwith the SEC on July 19, 2006 and incorporated herein by reference.

(G)      Previouslyfiled as an exhibit to DynCorp International LLC’s Form 8-K, filedwith the SEC on January 11, 2006 and incorporated herein by reference.

(H)      Previouslyfiled as an exhibit to DynCorp International LLC’s Form 8-K, filedwith the SEC on April 17, 2006 and incorporated herein by reference.

(I)            Previouslyfiled as an exhibit to DynCorp International LLC’s Form 8-K, filedwith the SEC on April 4, 2006 and incorporated herein by reference.

35

----

**SIGNATURES**

Pursuant to therequirements of Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

|            | **DYNCORP INTERNATIONAL LLC** |
|------------|-------------------------------|
| ** ** | Date: August 14, 2006    |
| ** ** | /s/ MICHAEL J. THORNE         |
| ** ** | Name:                         | Michael J. Thorne |
| ** ** | Title:                        | Senior Vice President, Chief Financial Officer and  Treasurer (principal financial and Duly Authorized Officer) |

 

36

----