##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 3, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 333-127343
 
 DYNCORP INTERNATIONAL LLC
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    52-2287126
(I.R.S. Employer
Identification No.)
 3190 Fairview Park Drive, Suite 700, Falls Church, Virginia 22042
(571) 722-0210
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ




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##### 



DYNCORP INTERNATIONAL LLC
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)
    
    
    3Unaudited Condensed Consolidated Statements of IncomeThree Months
Ended October 3, 2008 and September 28, 2007
    
    
    3Unaudited Condensed Consolidated Statements of IncomeSix Months
Ended October 3, 2008 and September 28, 2007
    
    
    4Unaudited Condensed Consolidated Balance SheetsOctober 3, 2008
and March 28, 2008
    
    
    5Unaudited Condensed Consolidated Statements of Cash FlowsSix
Months Ended October 3, 2008 and September 28, 2007
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    45PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    45Item 1A. Risk Factors
    
    
    45Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3. Defaults Upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    46Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Amounts in thousands)
 For the Three Months EndedOctober 3, 2008
    
    
    September 28, 2007Revenue
    
    $
    779,151
    
    
    $
    495,109Cost of services
    
    
    (696,519
    )
    
    
    (425,633
    )Selling, general and administrative expenses
    
    
    (25,994
    )
    
    
    (24,928
    )Depreciation and amortization expense
    
    
    (10,005
    )
    
    
    (10,601
    )Operating income
    
    
    46,633
    
    
    
    33,947Interest expense
    
    
    (14,905
    )
    
    
    (13,705
    )Loss on early extinguishment of debt
    
    
    (4,443
    )
    
    
    Earnings from affiliates
    
    
    1,523
    
    
    
    1,176Interest income
    
    
    677
    
    
    
    430Other income, net
    
    
    960
    
    
    
    Income before income taxes
    
    
    30,445
    
    
    
    21,848Provision for income taxes
    
    
    (9,131
    )
    
    
    (7,895
    )Income before minority interest
    
    
    21,314
    
    
    
    13,953Minority interest
    
    
    (8,443
    )
    
    
    Net income
    
    $
    12,871
    
    
    $
    13,953
   3




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DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Amounts in thousands)
 For the Six Months EndedOctober 3, 2008
    
    
    September 28, 2007Revenue
    
    $
    1,495,945
    
    
    $
    1,043,782Cost of services
    
    
    (1,334,908
    )
    
    
    (905,721
    )Selling, general and administrative expenses
    
    
    (53,845
    )
    
    
    (51,463
    )Depreciation and amortization expense
    
    
    (20,565
    )
    
    
    (20,991
    )Operating income
    
    
    86,627
    
    
    
    65,607Interest expense
    
    
    (29,120
    )
    
    
    (28,195
    )Loss on early extinguishment of debt
    
    
    (4,443
    )
    
    
    Earnings from affiliates
    
    
    2,640
    
    
    
    2,067Interest income
    
    
    1,021
    
    
    
    1,680Other income, net
    
    
    1,665
    
    
    
    Income before income taxes
    
    
    58,390
    
    
    
    41,159Provision for income taxes
    
    
    (18,447
    )
    
    
    (14,948
    )Income before minority interest
    
    
    39,943
    
    
    
    26,211Minority interest
    
    
    (9,092
    )
    
    
    Net income
    
    $
    30,851
    
    
    $
    26,211
   4




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##### Table of Contents



DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands)
 As ofOctober 3, 2008
    
    
    March 28, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    132,779
    
    
    $
    85,379Restricted cash
    
    
    20,550
    
    
    
    11,308Accounts receivable, net of allowances of $592 and $268, respectively
    
    
    577,589
    
    
    
    513,312Prepaid expenses and other current assets
    
    
    132,720
    
    
    
    109,027Deferred income taxes
    
    
    28,254
    
    
    
    17,341Total current assets
    
    
    891,892
    
    
    
    736,367Property and equipment, net
    
    
    17,866
    
    
    
    15,442Goodwill
    
    
    420,180
    
    
    
    420,180Tradename
    
    
    18,318
    
    
    
    18,318Other intangibles, net
    
    
    160,226
    
    
    
    176,146Deferred income taxes
    
    
    11,367
    
    
    
    18,168Other assets, net
    
    
    28,868
    
    
    
    18,088Total assets
    
    $
    1,548,717
    
    
    $
    1,402,709LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    3,096Accounts payable
    
    
    158,436
    
    
    
    148,787Accrued payroll and employee costs
    
    
    135,305
    
    
    
    85,186Other accrued liabilities
    
    
    141,084
    
    
    
    129,240Income taxes payable
    
    
    11,443
    
    
    
    8,245Total current liabilities
    
    
    446,268
    
    
    
    374,554Long-term debt, less current portion
    
    
    615,835
    
    
    
    590,066Other long-term liabilities
    
    
    14,125
    
    
    
    13,804Commitments and contingenciesMinority interest
    
    
    5,786
    
    
    
    Members equity:Members units, 100 outstanding
    
    
    329,801
    
    
    
    321,414Retained earnings
    
    
    140,636
    
    
    
    109,785Accumulated other comprehensive loss
    
    
    (3,734
    )
    
    
    (6,914
    )Total members equity
    
    
    466,703
    
    
    
    424,285Total liabilities and members equity
    
    $
    1,548,717
    
    
    $
    1,402,709
   5




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DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands)
 For the Six Months EndedOctober 3, 2008
    
    
    September 28, 2007Cash flows from operating activitiesNet income
    
    $
    30,851
    
    
    $
    26,211Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    21,087
    
    
    
    21,632Amortization of deferred loan costs
    
    
    1,723
    
    
    
    1,507(Recovery) for losses on accounts receivable
    
    
    (173
    )
    
    
    (1,066
    )Earnings from affiliates
    
    
    (1,255
    )
    
    
    (511
    )Deferred income taxes
    
    
    (4,112
    )
    
    
    (1,957
    )Equity-based compensation
    
    
    1,225
    
    
    
    2,263Minority interest
    
    
    9,092
    
    
    
    Loss on early extinguishment of debt
    
    
    4,443
    
    
    
    Other
    
    
    (304
    )
    
    
    116Changes in assets and liabilities:Restricted cash (see Note 1)
    
    
    7,326
    
    
    
    2,597Accounts receivable
    
    
    (64,104
    )
    
    
    6,062Prepaid expenses and other current assets
    
    
    (26,070
    )
    
    
    (9,227
    )Accounts payable and accrued liabilities
    
    
    54,096
    
    
    
    7,671Income taxes payable
    
    
    4,128
    
    
    
    (5,388
    )Net cash provided by operating activities
    
    
    37,953
    
    
    
    49,910Cash flows from investing activitiesPurchase of property and equipment
    
    
    (2,303
    )
    
    
    (2,114
    )Purchase of computer software
    
    
    (1,212
    )
    
    
    (1,264
    )Change in cash restricted as collateral on letters of credit (see Note 1)
    
    
    (16,568
    )
    
    
    Other assets
    
    
    365
    
    
    
    158Net cash used in investing activities
    
    
    (19,718
    )
    
    
    (3,220
    )Cash flows from financing activitiesBorrowings under debt agreements (see Note 5)
    
    
    323,751
    
    
    
    Repayments on debt agreements (see Note 5)
    
    
    (301,129
    )
    
    
    (36,285
    )Net borrowings (payments) under other financing arrangements
    
    
    16,158
    
    
    
    (2,860
    )Payments of deferred financing cost
    
    
    (9,645
    )
    
    
    Other net financing activities
    
    
    30
    
    
    
    62Net cash provided by (used in) financing activities
    
    
    29,165
    
    
    
    (39,083
    )Net increase in cash and cash equivalents
    
    
    47,400
    
    
    
    7,607Cash and cash equivalents, beginning of period
    
    
    85,379
    
    
    
    102,455Cash and cash equivalents, end of period
    
    $
    132,779
    
    
    $
    110,062Income taxes paid (net of refunds)
    
    $
    18,965
    
    
    $
    21,297Interest paid
    
    $
    30,054
    
    
    $
    27,234Non-cash purchase of property, equipment and computer software
    
    $
    2,458
    
    
    
    Non-cash sale of DIFZ including related financing (see Note 8)
    
    $
    8,264
    
    
    $
    
   6




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##### Table of Contents



DYNCORP INTERNATIONAL LLC
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1Basis of Presentation and Accounting Policies
 Basis of Presentation
       Principles of Consolidation
 Consolidation of Variable Interest
Entities
  7




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DynEgypt LLC
    
    
    50.0
    %Dyn Puerto Rico Corporation
    
    
    49.9
    %Contingency Response Services LLC
    
    
    45.0
    %Babcock DynCorp Limited
    
    
    44.0
    %Partnership for Temporary Housing LLC
    
    
    40.0
    %DCP Contingency Services LLC
    
    
    40.0
    %
   Global Linguist Solutions LLC
    
    
    51.0
    %DynCorp International Free Zone LLC
    
    
    50.0
    %
 Minority Interest
  Restricted Cash
   8




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##### Table of Contents



As of
    
    
    Cash provided by/(Amounts in thousands)
    
    March 28, 2008
    
    
    October 3, 2008
    
    
    (used in)Type of restricted cashContract related
    
    $
    11,308
    
    
    $
    3,982
    
    
    $
    7,326Required as collateral
    
    
    
    
    
    
    16,568
    
    
    
    (16,568
    )Total
    
    $
    11,308
    
    
    $
    20,550
    
    
    $
    (9,242
    )
 Accounting Policies
  Accounting Developments
 Pronouncements Implemented
    9




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Pronouncements Not Yet Implemented
     Note 2Composition of Certain Financial Statement Captions
  Prepaid expense and other current assets 
 (Amounts in thousands)
    
    October 3, 2008
    
    
    March 28, 2008Prepaid expenses
    
    $
    63,657
    
    
    $
    43,205Inventories
    
    
    9,254
    
    
    
    8,463Work-in-process
    
    
    38,485
    
    
    
    45,245Minority interest
    
    
    
    
    
    
    3,306Joint venture receivables
    
    
    12,844
    
    
    
    2,076Other current assets
    
    
    8,480
    
    
    
    6,732$
    132,720
    
    
    $
    109,027
   10




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Accrued payroll and employee costs 
 (Amounts in thousands)
    
    October 3, 2008
    
    
    March 28, 2008Wages, compensation and other benefits
    
    $
    107,340
    
    
    $
    57,940Accrued vacation
    
    
    24,958
    
    
    
    24,760Accrued contributions to employee benefit plans
    
    
    3,007
    
    
    
    2,486$
    135,305
    
    
    $
    85,186
 Other accrued liabilities 
 (Amounts in thousands)
    
    October 3, 2008
    
    
    March 28, 2008Deferred revenue
    
    $
    36,459
    
    
    $
    53,083Accrued insurance
    
    
    30,220
    
    
    
    36,260Accrued interest
    
    
    5,964
    
    
    
    9,885Contract losses
    
    
    18,966
    
    
    
    134Legal matters
    
    
    20,491
    
    
    
    19,851Short-term swap liability
    
    
    2,382
    
    
    
    5,783Other notes payable
    
    
    16,533
    
    
    
    374Other
    
    
    10,069
    
    
    
    3,870$
    141,084
    
    
    $
    129,240
  Note 3Goodwill and Other Intangible Assets
  (Amounts in thousands)
    
    ISS(1)
    
    
    LCM
    
    
    MTSS
    
    
    TotalBalance as of March 28, 2008
    
    $
    340,029
    
    
    $
    
    
    
    $
    80,151
    
    
    $
    420,180Transfer between reporting segments(2)
    
    
    (39,935
    )
    
    
    39,935
    
    
    
    
    
    
    
    Balance as of October 3, 2008
    
    $
    300,094
    
    
    $
    39,935
    
    
    $
    80,151
    
    
    $
    420,180
 (1)
    
    Balance as of March 28, 2008 represents the goodwill balance of the
Government Services (GS) segment. International Security Services
(ISS) and Logistics and Construction Management (LCM) did not
exist as reportable segments at that date. On April 1, 2008, the
Company announced it would change from reporting financial results of
two segments, GS and Maintenance and Technical Support Services
(MTSS), to reporting three segments, beginning with the first fiscal
quarter of 2009. This was accomplished by splitting GS into two
distinct reporting segments, ISS and LCM.(2)
    
    Transfer between reporting segments as described further in Note 14,
is the result of a reorganization of the Companys reporting structure
within its segments and a contemporaneous independent fair value
analysis of the reporting units within the Companys reporting
segments, in the manner required by SFAS 142.  11




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October 3, 2008WeightedAverageUseful Life
    
    
    Gross
    
    
    Accumulated(Amounts in thousands, except years)
    
    (Years)
    
    
    Carrying Value
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Customer-related intangible assets
    
    
    8.5
    
    
    $
    290,716
    
    
    $
    (137,842
    )
    
    $
    152,874Other
    
    
    5.2
    
    
    
    14,557
    
    
    
    (7,205
    )
    
    
    7,352$
    305,273
    
    
    $
    (145,047
    )
    
    $
    160,226Indefinite-lived intangible
assets  Tradename
    
    
    
    
    
    $
    18,318
    
    
    $
    
    
    
    $
    18,318
 March 28, 2008WeightedAverageUseful Life
    
    
    Gross
    
    
    Accumulated(Amounts in thousands, except years)
    
    (Years)
    
    
    Carrying Value
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Customer-related intangible assets
    
    
    8.5
    
    
    $
    290,716
    
    
    $
    (119,997
    )
    
    $
    170,719Other
    
    
    4.2
    
    
    
    10,887
    
    
    
    (5,460
    )
    
    
    5,427$
    301,603
    
    
    $
    (125,457
    )
    
    $
    176,146Indefinite-lived intangible
assets  Tradename
    
    
    
    
    
    $
    18,318
    
    
    $
    
    
    
    $
    18,318
   Amortization(Amounts in thousands)
    
    ExpenseSix month period ended April 3, 2009
    
    $
    18,973Estimate for fiscal year 2010
    
    
    37,466Estimate for fiscal year 2011
    
    
    33,173Estimate for fiscal year 2012
    
    
    22,587Estimate for fiscal year 2013
    
    
    19,010Thereafter
    
    
    29,017
 Note 4Accounts Receivable
  (Amounts in thousands)
    
    October 3, 2008
    
    
    March 28, 2008Billed
    
    $
    214,816
    
    
    $
    193,337Unbilled
    
    
    362,773
    
    
    
    319,975Total
    
    $
    577,589
    
    
    $
    513,312
   12




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Note 5Long-Term Debt
  (Amounts in thousands)
    
    October 3, 2008
    
    
    March 28, 2008Term loans
    
    $
    200,000
    
    
    $
    301,1309.5% Senior subordinated notes(1)
    
    
    415,835
    
    
    
    292,032615,835
    
    
    
    593,162Less current portion of long-term debt
    
    
    
    
    
    
    (3,096
    )Total long-term debt
    
    $
    615,835
    
    
    $
    590,066
 (1)
    
    Senior subordinated notes are net of a $1.2 million unamortized discount as of October 3,
2008. There was no unamortized discount as of March 28, 2008.  (Amounts in thousands)Six months ending April 3, 2009
    
    $
    2010
    
    
    16,8752011
    
    
    50,6252012
    
    
    55,0002013
    
    
    493,335Thereafter
    
    
    Total long-term debt (including current portion)
    
    $
    615,835
 Senior Secured Credit Facility
      13




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9.5% Senior Subordinated Notes
     Note 6Commitments and Contingencies
 Commitments
   14




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Contingencies
 General Legal Matters
  Pending Litigation and Claims
     15




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##### Table of Contents



U.S. Government Investigations
    U.S. Government Audits
    16




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##### Table of Contents



Contract Matters
  Note 7Income Taxes
  Three Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007Current portion:Federal
    
    $
    11,024
    
    
    $
    9,256State
    
    
    842
    
    
    
    568Foreign
    
    
    1,271
    
    
    
    1,46413,137
    
    
    
    11,288Deferred portion:Federal
    
    
    (3,874
    )
    
    
    (3,236
    )State
    
    
    (130
    )
    
    
    (189
    )Foreign
    
    
    (2
    )
    
    
    32(4,006
    )
    
    
    (3,393
    )Provision for income taxes
    
    $
    9,131
    
    
    $
    7,895
 Six Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007Current portion:Federal
    
    $
    20,610
    
    
    $
    15,145State
    
    
    1,650
    
    
    
    902Foreign
    
    
    3,811
    
    
    
    2,07126,071
    
    
    
    18,118Deferred portion:Federal
    
    
    (7,370
    )
    
    
    (3,052
    )State
    
    
    (246
    )
    
    
    (182
    )Foreign
    
    
    (8
    )
    
    
    64(7,624
    )
    
    
    (3,170
    )Provision for income taxes
    
    $
    18,447
    
    
    $
    14,948
  (Amounts in thousands)
    
    October 3, 2008
    
    
    March 28, 2008Current deferred tax assets
    
    $
    28,254
    
    
    $
    17,341Non-current deferred tax assets
    
    
    11,367
    
    
    
    18,168Deferred tax assets, net
    
    $
    39,621
    
    
    $
    35,509
   17




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Note 8Members Equity
 Members Equity
 AccumulatedOther
    
    
    TotalMembers
    
    
    Retained
    
    
    Comprehensive
    
    
    Members(Amounts in thousands)
    
    Units
    
    
    Earnings
    
    
    (Loss) Income
    
    
    EquityBalance at March 28, 2008
    
    $
    321,414
    
    
    $
    109,785
    
    
    $
    (6,914
    )
    
    $
    424,285Comprehensive income:Net income
    
    
    
    
    
    
    30,851
    
    
    
    
    
    
    
    30,851Interest rate swap, net of
tax $2.1 million
    
    
    
    
    
    
    
    
    
    
    3,619
    
    
    
    3,619Currency translation
adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    (439
    )
    
    
    (439
    )Comprehensive income
    
    
    
    
    
    
    30,851
    
    
    
    3,180
    
    
    
    34,031Equity-based compensation
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    93Tax benefit associated
with equity-based
compensation
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    30Sale of non-controlling
interest of DIFZ
    
    
    8,190
    
    
    
    
    
    
    
    
    
    
    
    8,190DIFZ financing, net of tax
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    74Balance at October 3, 2008
    
    $
    329,801
    
    
    $
    140,636
    
    
    $
    (3,734
    )
    
    $
    466,703
   18




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Note 9Equity-Based Compensation
  Class B Interests
   % Interest in
    
    
    Grant Date(Dollar amounts in thousands)
    
    DIV Holding
    
    
    Fair ValueBalance March 28, 2008
    
    
    6.24
    %
    
    $
    13,248First Quarter Fiscal Year 2009 Grants
    
    
    0.20
    %
    
    
    867First Quarter Fiscal Year 2009 Forfeitures
    
    
    (1.20
    %)
    
    
    (2,530
    )Balance July 4, 2008
    
    
    5.24
    %
    
    $
    11,585Second Quarter Fiscal Year 2009 Grants
    
    
    0.00
    %
    
    
    Second Quarter Fiscal Year 2009 Forfeitures
    
    
    0.00
    %
    
    
    Balance October 3, 2008
    
    
    5.24
    %
    
    $
    11,585March 28, 2008 Vested
    
    
    2.82
    %
    
    $
    4,641First Quarter Fiscal Year 2009 Vesting
    
    
    0.12
    %
    
    
    520July 4, 2008 Vested
    
    
    2.94
    %
    
    
    5,161Second Quarter Fiscal Year 2009 Vesting
    
    
    0.05
    %
    
    
    73October 3, 2008 Vested
    
    
    2.99
    %
    
    $
    5,234March 28, 2008 Nonvested
    
    
    3.42
    %
    
    $
    8,607October 3, 2008 Nonvested
    
    
    2.25
    %
    
    $
    6,351
  Six month period ended April 3, 2009
    
    $
    910Fiscal year ended April 2, 2010
    
    
    1,102Fiscal year ended April 1, 2011 and thereafter
    
    
    616Total
    
    $
    2,628
 Restricted Stock Units
    19




---



##### Table of Contents



WeightedAverageOutstanding
    
    
    GrantRestricted
    
    
    DateStock Units
    
    
    Fair ValueOutstanding, March 28, 2008
    
    
    159,600
    
    
    $
    21.49Units granted
    
    
    309,225
    
    
    
    15.42Units cancelled
    
    
    (7,650
    )
    
    
    14.60Units vested
    
    
    
    
    
    
    Outstanding, October 3, 2008
    
    
    461,175
    
    
    $
    17.54
  Six month period ended April 3, 2009
    
    $
    1,477Fiscal year ended April 2, 2010
    
    
    2,175Fiscal year ended April 1, 2011 and thereafter
    
    
    1,739Total
    
    $
    5,391
 Note 10Interest Rate Derivatives
  Fixed
    
    
    VariableNotional
    
    
    Interest
    
    
    Interest RateDate Entered
    
    Amount
    
    
    Rate Paid(1)
    
    
    Received
    
    
    Expiration DateApril 2007
    
    $
    168,620
    
    
    
    4.975
    %
    
    3-month LIBOR
    
    
    May 2010April 2007
    
    $
    31,380
    
    
    
    4.975
    %
    
    3-month LIBOR
    
    
    May 2010
 
 (1)
    
    Plus applicable margin (2% at October 3, 2008).   20




---



##### Table of Contents



Note 11Consolidating Financial Statements of Subsidiary Guarantors
      DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Three Months Ended October 3, 2008
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    520,815
    
    
    $
    258,336
    
    
    $
    98,780
    
    
    $
    (98,780
    )
    
    $
    779,151Cost of services
    
    
    (471,107
    )
    
    
    (231,331
    )
    
    
    (92,861
    )
    
    
    98,780
    
    
    
    (696,519
    )Selling, general and administrative expenses
    
    
    (19,053
    )
    
    
    (6,750
    )
    
    
    (191
    )
    
    
    
    
    
    
    (25,994
    )Depreciation and amortization expense
    
    
    (9,989
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (10,005
    )Operating income
    
    
    20,666
    
    
    
    20,255
    
    
    
    5,712
    
    
    
    
    
    
    
    46,633Interest expense
    
    
    (14,905
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,905
    )Loss on extinguishment of debt
    
    
    (4,443
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,443
    )Earnings from affiliates
    
    
    1,523
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,523Equity in income of subsidiaries, net of tax
    
    
    15,311
    
    
    
    (44
    )
    
    
    
    
    
    
    (15,267
    )
    
    
    Interest income
    
    
    672
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    677Other, net
    
    
    804
    
    
    
    46
    
    
    
    110
    
    
    
    
    
    
    
    960Income before income taxes
    
    
    19,628
    
    
    
    20,257
    
    
    
    5,827
    
    
    
    (15,267
    )
    
    
    30,445Provision for income taxes
    
    
    (6,757
    )
    
    
    (912
    )
    
    
    (1,462
    )
    
    
    
    
    
    
    (9,131
    )Minority interest
    
    
    
    
    
    
    (7,813
    )
    
    
    (630
    )
    
    
    
    
    
    
    (8,443
    )Net income
    
    $
    12,871
    
    
    $
    11,532
    
    
    $
    3,735
    
    
    $
    (15,267
    )
    
    $
    12,871
  21




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Three Months Ended September 28, 2007
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    425,433
    
    
    $
    69,676
    
    
    $
    82,138
    
    
    $
    (82,138
    )
    
    $
    495,109Cost of services
    
    
    (363,696
    )
    
    
    (64,071
    )
    
    
    (80,004
    )
    
    
    82,138
    
    
    
    (425,633
    )Selling, general and administrative expenses
    
    
    (21,733
    )
    
    
    (2,703
    )
    
    
    (492
    )
    
    
    
    
    
    
    (24,928
    )Depreciation and amortization expense
    
    
    (10,381
    )
    
    
    
    
    
    
    (220
    )
    
    
    
    
    
    
    (10,601
    )Operating income
    
    
    29,623
    
    
    
    2,902
    
    
    
    1,422
    
    
    
    
    
    
    
    33,947Interest expense
    
    
    (13,705
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,705
    )Earnings from affiliates
    
    
    1,176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,176Equity in income of subsidiaries, net of tax
    
    
    2,963
    
    
    
    (101
    )
    
    
    
    
    
    
    (2,862
    )
    
    
    Interest income
    
    
    417
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    430Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    20,474
    
    
    
    2,814
    
    
    
    1,422
    
    
    
    (2,862
    )
    
    
    21,848Provision for income taxes
    
    
    (6,521
    )
    
    
    (1,284
    )
    
    
    (90
    )
    
    
    
    
    
    
    (7,895
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    13,953
    
    
    $
    1,530
    
    
    $
    1,332
    
    
    $
    (2,862
    )
    
    $
    13,953
 DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Six Months Ended October 3, 2008
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    1,063,773
    
    
    $
    432,172
    
    
    $
    195,468
    
    
    $
    (195,468
    )
    
    $
    1,495,945Cost of services
    
    
    (945,659
    )
    
    
    (397,450
    )
    
    
    (187,267
    )
    
    
    195,468
    
    
    
    (1,334,908
    )Selling, general and administrative expenses
    
    
    (41,180
    )
    
    
    (12,249
    )
    
    
    (416
    )
    
    
    
    
    
    
    (53,845
    )Depreciation and amortization expense
    
    
    (20,514
    )
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    (20,565
    )Operating income
    
    
    56,420
    
    
    
    22,473
    
    
    
    7,734
    
    
    
    
    
    
    
    86,627Interest expense
    
    
    (29,120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,120
    )Loss on extinguishment of debt
    
    
    (4,443
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,443
    )Earnings from affiliates
    
    
    2,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,640Equity in income of subsidiaries, net of tax
    
    
    18,000
    
    
    
    (150
    )
    
    
    
    
    
    
    (17,850
    )
    
    
    Interest income
    
    
    1,003
    
    
    
    5
    
    
    
    13
    
    
    
    
    
    
    
    1,021Other, net
    
    
    1,404
    
    
    
    156
    
    
    
    105
    
    
    
    
    
    
    
    1,665Income before income taxes
    
    
    45,904
    
    
    
    22,484
    
    
    
    7,852
    
    
    
    (17,850
    )
    
    
    58,390Provision for income taxes
    
    
    (15,053
    )
    
    
    (1,110
    )
    
    
    (2,284
    )
    
    
    
    
    
    
    (18,447
    )Minority interest
    
    
    
    
    
    
    (8,462
    )
    
    
    (630
    )
    
    
    
    
    
    
    (9,092
    )Net income
    
    $
    30,851
    
    
    $
    12,912
    
    
    $
    4,938
    
    
    $
    (17,850
    )
    
    $
    30,851
  22




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Six Months Ended September 28, 2007
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    907,190
    
    
    $
    136,592
    
    
    $
    164,694
    
    
    $
    (164,694
    )
    
    $
    1,043,782Cost of services
    
    
    (783,363
    )
    
    
    (126,063
    )
    
    
    (160,989
    )
    
    
    164,694
    
    
    
    (905,721
    )Selling, general and administrative expenses
    
    
    (45,085
    )
    
    
    (5,463
    )
    
    
    (915
    )
    
    
    
    
    
    
    (51,463
    )Depreciation and amortization expense
    
    
    (20,746
    )
    
    
    
    
    
    
    (245
    )
    
    
    
    
    
    
    (20,991
    )Operating income
    
    
    57,996
    
    
    
    5,066
    
    
    
    2,545
    
    
    
    
    
    
    
    65,607Interest expense
    
    
    (28,195
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,195
    )Earnings from affiliates
    
    
    2,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,067Equity in income of subsidiaries, net of tax
    
    
    6,162
    
    
    
    11
    
    
    
    
    
    
    
    (6,173
    )
    
    
    Interest income
    
    
    1,660
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    1,680Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    39,690
    
    
    
    5,097
    
    
    
    2,545
    
    
    
    (6,173
    )
    
    
    41,159Provision for income taxes
    
    
    (13,479
    )
    
    
    (1,291
    )
    
    
    (178
    )
    
    
    
    
    
    
    (14,948
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    26,211
    
    
    $
    3,806
    
    
    $
    2,367
    
    
    $
    (6,173
    )
    
    $
    26,211
  23




---



##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Balance Sheet Information
October 3, 2008
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    124,424
    
    
    $
    4,273
    
    
    $
    4,082
    
    
    $
    
    
    
    $
    132,779Restricted cash
    
    
    20,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,550Accounts receivable, net
    
    
    351,417
    
    
    
    180,689
    
    
    
    45,483
    
    
    
    
    
    
    
    577,589Prepaid expenses and other current assets
    
    
    151,425
    
    
    
    8,264
    
    
    
    1,285
    
    
    
    
    
    
    
    160,974Total current assets
    
    
    647,816
    
    
    
    193,226
    
    
    
    50,850
    
    
    
    
    
    
    
    891,892Property and equipment, net
    
    
    13,861
    
    
    
    3,721
    
    
    
    284
    
    
    
    
    
    
    
    17,866Goodwill
    
    
    398,559
    
    
    
    21,621
    
    
    
    
    
    
    
    
    
    
    
    420,180Tradename
    
    
    18,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,318Other intangibles, net
    
    
    146,341
    
    
    
    13,885
    
    
    
    
    
    
    
    
    
    
    
    160,226Investment in subsidiaries
    
    
    55,689
    
    
    
    588
    
    
    
    
    
    
    
    (56,277
    )
    
    
    Other assets, net
    
    
    40,137
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    40,235Intercompany receivables
    
    
    82,940
    
    
    
    
    
    
    
    24,161
    
    
    
    (107,101
    )
    
    
    Total assets
    
    $
    1,403,661
    
    
    $
    233,139
    
    
    $
    75,295
    
    
    $
    (163,378
    )
    
    $
    1,548,717LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable
    
    
    93,470
    
    
    
    64,272
    
    
    
    694
    
    
    
    
    
    
    
    158,436Accrued payroll and employee costs
    
    
    60,377
    
    
    
    50,855
    
    
    
    24,073
    
    
    
    
    
    
    
    135,305Other accrued liabilities
    
    
    101,008
    
    
    
    7,432
    
    
    
    32,644
    
    
    
    
    
    
    
    141,084Income taxes payable
    
    
    10,570
    
    
    
    
    
    
    
    873
    
    
    
    
    
    
    
    11,443Total current liabilities
    
    
    265,425
    
    
    
    122,559
    
    
    
    58,284
    
    
    
    
    
    
    
    446,268Long-term debt, less current portion
    
    
    615,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615,835Other long-term liabilities
    
    
    11,637
    
    
    
    2,441
    
    
    
    47
    
    
    
    
    
    
    
    14,125Intercompany payables
    
    
    38,275
    
    
    
    66,603
    
    
    
    2,223
    
    
    
    (107,101
    )
    
    
    Minority interest
    
    
    5,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,786Members equity
    
    
    466,703
    
    
    
    41,536
    
    
    
    14,741
    
    
    
    (56,277
    )
    
    
    466,703Total liabilities and members equity
    
    $
    1,403,661
    
    
    $
    233,139
    
    
    $
    75,295
    
    
    $
    (163,378
    )
    
    $
    1,548,717
  24




---



##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Balance Sheet Information
March 28, 2008
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    79,484
    
    
    $
    3,835
    
    
    $
    2,060
    
    
    $
    
    
    
    $
    85,379Restricted cash
    
    
    
    
    
    
    11,308
    
    
    
    
    
    
    
    
    
    
    
    11,308Accounts receivable, net
    
    
    481,810
    
    
    
    30,804
    
    
    
    698
    
    
    
    
    
    
    
    513,312Prepaid expenses and other current assets
    
    
    85,822
    
    
    
    40,503
    
    
    
    43
    
    
    
    
    
    
    
    126,368Total current assets
    
    
    647,116
    
    
    
    86,450
    
    
    
    2,801
    
    
    
    
    
    
    
    736,367Property and equipment, net
    
    
    11,087
    
    
    
    4,049
    
    
    
    306
    
    
    
    
    
    
    
    15,442Goodwill
    
    
    398,559
    
    
    
    21,621
    
    
    
    
    
    
    
    
    
    
    
    420,180Tradename
    
    
    18,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,318Other intangibles, net
    
    
    162,261
    
    
    
    13,885
    
    
    
    
    
    
    
    
    
    
    
    176,146Investment in subsidiaries
    
    
    39,880
    
    
    
    739
    
    
    
    
    
    
    
    (40,619
    )
    
    
    Other assets, net
    
    
    36,236
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    36,256Intercompany receivables
    
    
    
    
    
    
    
    
    
    
    59,466
    
    
    
    (59,466
    )
    
    
    Total assets
    
    $
    1,313,457
    
    
    $
    126,764
    
    
    $
    62,573
    
    
    $
    (100,085
    )
    
    $
    1,402,709LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,096
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,096Accounts payable
    
    
    132,146
    
    
    
    16,533
    
    
    
    108
    
    
    
    
    
    
    
    148,787Accrued payroll and employee costs
    
    
    43,102
    
    
    
    13,612
    
    
    
    28,472
    
    
    
    
    
    
    
    85,186Other accrued liabilities
    
    
    64,538
    
    
    
    40,028
    
    
    
    24,674
    
    
    
    
    
    
    
    129,240Income taxes payable
    
    
    5,485
    
    
    
    2,789
    
    
    
    (29
    )
    
    
    
    
    
    
    8,245Total current liabilities
    
    
    248,367
    
    
    
    72,962
    
    
    
    53,225
    
    
    
    
    
    
    
    374,554Long-term debt, less current portion
    
    
    590,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    590,066Other long-term liabilities
    
    
    9,510
    
    
    
    4,282
    
    
    
    12
    
    
    
    
    
    
    
    13,804Intercompany payables
    
    
    41,229
    
    
    
    18,034
    
    
    
    203
    
    
    
    (59,466
    )
    
    
    Members equity
    
    
    424,285
    
    
    
    31,486
    
    
    
    9,133
    
    
    
    (40,619
    )
    
    
    424,285Total liabilities and members equity
    
    $
    1,313,457
    
    
    $
    126,764
    
    
    $
    62,573
    
    
    $
    (100,085
    )
    
    $
    1,402,709
  25




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Cash Flow Information
For the Six Months Ended October 3, 2008
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    121,387
    
    
    $
    (48,131
    )
    
    $
    (35,303
    )
    
    $
    
    
    
    $
    37,953Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,303
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,303
    )Other investing cash flows
    
    
    (17,415
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,415
    )Net cash used in investing activities
    
    
    (19,718
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,718
    )Cash flows from financing activities:Net transfers from (to) Parent
    
    
    (85,894
    )
    
    
    48,569
    
    
    
    37,325
    
    
    
    
    
    
    
    Net
borrowings on credit facilities
    
    
    22,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,622Other financing activities
    
    
    6,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,543Net cash used in financing activities
    
    
    (56,729
    )
    
    
    48,569
    
    
    
    37,325
    
    
    
    
    
    
    
    29,165Net decrease in cash and cash equivalents
    
    
    44,940
    
    
    
    438
    
    
    
    2,022
    
    
    
    
    
    
    
    47,400Cash and cash equivalents, beginning of period
    
    
    79,484
    
    
    
    3,835
    
    
    
    2,060
    
    
    
    
    
    
    
    85,379Cash and cash equivalents, end of period
    
    $
    124,424
    
    
    $
    4,273
    
    
    $
    4,082
    
    
    $
    
    
    
    $
    132,779
 DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Cash Flow Information
For the Six Months Ended September 28, 2007
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    Parent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    63,319
    
    
    $
    (6,409
    )
    
    $
    (7,000
    )
    
    $
    
    
    
    $
    49,910Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,114
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,114
    )Other investing cash flows
    
    
    (1,106
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,106
    )Net cash used in investing activities
    
    
    (3,220
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,220
    )Cash flows from financing activities:Net transfers from (to) Parent
    
    
    (10,527
    )
    
    
    3,018
    
    
    
    7,509
    
    
    
    
    
    
    
    Payments on long term debt
    
    
    (36,285
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,285
    )Other financing activities
    
    
    (2,798
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,798
    )Net cash used in financing activities
    
    
    (49,610
    )
    
    
    3,018
    
    
    
    7,509
    
    
    
    
    
    
    
    (39,083
    )Net decrease in cash and cash equivalents
    
    
    10,489
    
    
    
    (3,391
    )
    
    
    509
    
    
    
    
    
    
    
    7,607Cash and cash equivalents, beginning of period
    
    
    95,458
    
    
    
    5,212
    
    
    
    1,785
    
    
    
    
    
    
    
    102,455Cash and cash equivalents, end of period
    
    $
    105,947
    
    
    $
    1,821
    
    
    $
    2,294
    
    
    $
    
    
    
    $
    110,062
  26




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##### Table of Contents



Note 12Fair Value of Financial Assets and Liabilities
   
    
    Level 1, defined as observable inputs such as quoted prices in active markets;
 
    
    Level 2, defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; and
 
    
    Level 3, defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
   Fair Value Measurements at Reporting Date Using
 Book value offinancial
    
    
    Quoted Prices inassets/(liabilities)
    
    
    Active Markets
    
    
    Significant Other
    
    
    Significantas of October 3,
    
    
    for Identical
    
    
    Observable Inputs
    
    
    Unobservable(Amounts in thousands)
    
    2008
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)AssetsCash equivalents(1)
    
    $
    153,329
    
    
    $
    153,329
    
    
    $
    
    
    
    $
    Total assets measured at fair value
    
    $
    153,329
    
    
    $
    153,329
    
    
    $
    
    
    
    $
    LiabilitiesInterest rate derivatives
    
    $
    5,729
    
    
    $
    
    
    
    $
    5,729
    
    
    $
    Total liabilities measured at fair
value
    
    $
    5,729
    
    
    $
    
    
    
    $
    5,729
    
    
    $
    
 (1)
    
    Includes cash and cash equivalents and restricted cash.  27




---



##### Table of Contents



Note 13Joint Ventures and Related Parties
    Note 14Segment Information
   International Security Services,
 Logistics and Construction Management,
 Maintenance and Technical Support Services,
  28




---



##### Table of Contents



Three Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007RevenueInternational Security Services
    
    $
    472,335
    
    
    $
    270,847Logistics and Construction Management
    
    
    85,466
    
    
    
    47,623Maintenance and Technical Support Services
    
    
    222,730
    
    
    
    176,794Other/elimination
    
    
    (1,380
    )
    
    
    (155
    )Total revenue
    
    $
    779,151
    
    
    $
    495,109Operating IncomeInternational Security Services
    
    $
    49,949
    
    
    $
    32,975Logistics and Construction Management
    
    
    (23,057
    )
    
    
    (2,728
    )Maintenance and Technical Support Services
    
    
    19,741
    
    
    
    3,700Total operating income
    
    $
    46,633
    
    
    $
    33,947Depreciation and amortizationInternational Security Services
    
    $
    6,448
    
    
    $
    7,061Logistics and Construction Management
    
    
    682
    
    
    
    652Maintenance and Technical Support Services
    
    
    2,875
    
    
    
    2,888Total depreciation and amortization
    
    $
    10,005
    
    
    $
    10,601
 Six Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007RevenueInternational Security Services
    
    $
    877,709
    
    
    $
    559,412Logistics and Construction Management
    
    
    178,928
    
    
    
    110,751Maintenance and Technical Support Services
    
    
    441,607
    
    
    
    373,619Other/elimination
    
    
    (2,299
    )
    
    
    Total revenue
    
    $
    1,495,945
    
    
    $
    1,043,782Operating IncomeInternational Security Services
    
    $
    75,378
    
    
    $
    57,134Logistics and Construction Management
    
    
    (16,987
    )
    
    
    (431
    )Maintenance and Technical Support Services
    
    
    28,236
    
    
    
    8,904Total operating income
    
    $
    86,627
    
    
    $
    65,607Depreciation and amortizationInternational Security Services
    
    $
    13,118
    
    
    $
    13,624Logistics and Construction Management
    
    
    1,461
    
    
    
    1,300Maintenance and Technical Support Services
    
    
    5,986
    
    
    
    6,067Total depreciation and amortization
    
    $
    20,565
    
    
    $
    20,991
 As of(Amounts in thousands)
    
    October 3, 2008
    
    
    March 28, 2008AssetsInternational Security Services
    
    $
    786,316
    
    
    $
    725,775Logistics and Construction Management
    
    
    208,515
    
    
    
    199,088Maintenance and Technical Support Services
    
    
    312,192
    
    
    
    336,721Corporate/other(1)
    
    
    241,694
    
    
    
    141,125Total assets
    
    $
    1,548,717
    
    
    $
    1,402,709
 (1)
    
    Assets primarily include cash, deferred income taxes, and deferred debt issuance cost.  29




---



##### Table of Contents



ITEM 2.

    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  COMPANY OVERVIEW
   International Security Services
  Law Enforcement and Security
 Specialty Aviation and Counter-drug Operations
 Global Linguist Solutions
  30




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##### Table of Contents



Logistics and Construction Management
  Contingency and Logistics Operations
 Operations Maintenance and Construction Management
 Maintenance & Technical Support Services
  Contract Logistics Support
 Field Service Operations
 Aviation & Maintenance Services
 CURRENT OPERATING CONDITIONS AND OUTLOOK
 External Factors
   31




---



##### Table of Contents




    
    The continued transformation of military forces, leading to increased outsourcing of
non-combat functions, including life-cycle asset management functions ranging from
organizational to depot level maintenance;
 
    
    An increase in the level and frequency of overseas deployments and peace-keeping
operations for the DoS, DoD and United Nations;
 
    
    Increased maintenance, overhaul and upgrade needs to support aging military platforms;
 
    
    Increased outsourcing by foreign militaries of maintenance, supply support, facilities
management and construction management-related services; and
 
    
    The shift from single award to more multiple award indefinite delivery, indefinite
quantity (IDIQ) contracts, which may offer us an opportunity to increase revenues under
these contracts by competing for task orders with the other contract awardees.
   Current Economic Conditions
     32




---



##### Table of Contents



Internal Factors
  
    
    Performance  Through a relentless mind set in meeting our commitments to our
customers every day and in operating with absolute integrity and in accordance with our
Code of Ethics and Business Conduct in all that we do.
 
    
    Lean Infrastructure  In order to further fuel our growth and invest in our people, we
must generate additional
investment capacity by ensuring that our infrastructure is as efficient as possible
without jeopardizing our ability to perform.
 
    
    Strategic Investment  We must have clarity in our strategic priorities, and we must
properly focus our investments in people, new program pursuits and efforts to penetrate
new segments of the market.
 
    
    New Business  Growing our business profitably starts with winning new business. This
involves having a winning attitude across our enterprise, particularly in satisfying our
customers and competing for business.
 
    
    People  We must be the employer of choice, with strong, trusted leadership, an
employee-focused environment and a culture of mutual respect in which our employees are
empowered and rewarded for serving our customers and ensuring their success.
  Current Events
   CONTRACT TYPES
  
    
    Fixed-Price Type Contracts:In a fixed-price contract, the price is not subject to
adjustment based on costs incurred, which can favorably or adversely impact our
profitability depending upon our execution in performing the contracted service. Fixed-price
types received by us include firm fixed-price, fixed-price with economic adjustment and
fixed-price incentive.
 
    
    Time-and-Materials Type Contracts:A time-and-materials type contract provides for
acquiring supplies or services on the basis of direct labor hours at fixed hourly/daily
rates plus materials at cost.
 
    
    Cost-Reimbursement Type Contracts:Cost-reimbursement type contracts provide for payment
of allowable incurred costs, to the extent prescribed in the contract, plus a fixed-fee,
award-fee or incentive-fee. Award-fees or incentive-fees are generally based upon various
objective and subjective criteria, such as aircraft mission capability rates and meeting
cost targets.
  Three Months Ended
    
    
    Six Months EndedOctober 3, 2008
    
    
    September 28, 2007
    
    
    October 3, 2008
    
    
    September 28, 2007Fixed Price
    
    
    28.3
    %
    
    
    39.7
    %
    
    
    29.8
    %
    
    
    40.0
    %Time-and-Materials
    
    
    24.3
    %
    
    
    35.6
    %
    
    
    25.1
    %
    
    
    35.4
    %Cost-Reimbursement
    
    
    47.4
    %
    
    
    24.7
    %
    
    
    45.1
    %
    
    
    24.6
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  33




---



##### Table of Contents



BACKLOG
     (in millions)
    
    October 3, 2008
    
    
    March 28, 2008Funded Backlog
    
    $
    1,330
    
    
    $
    1,164Unfunded Backlog
    
    
    5,161
    
    
    
    4,797Total Backlog
    
    $
    6,491
    
    
    $
    5,961
  ESTIMATED REMAINING CONTRACT VALUE
   34




---



##### Table of Contents



RESULTS OF OPERATIONS
  Consolidated
  Three Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007Revenue
    
    $
    779,151
    
    
    
    100.0
    %
    
    $
    495,109
    
    
    
    100.0
    %Cost of services
    
    
    (696,519
    )
    
    
    -89.4
    %
    
    
    (425,633
    )
    
    
    -86.0
    %Selling, general and administrative expenses
    
    
    (25,994
    )
    
    
    -3.3
    %
    
    
    (24,928
    )
    
    
    -5.0
    %Depreciation and amortization expense
    
    
    (10,005
    )
    
    
    -1.3
    %
    
    
    (10,601
    )
    
    
    -2.1
    %Operating income
    
    
    46,633
    
    
    
    6.0
    %
    
    
    33,947
    
    
    
    6.9
    %Interest expense
    
    
    (14,905
    )
    
    
    -1.9
    %
    
    
    (13,705
    )
    
    
    -2.8
    %Loss on early extinguishment of debt
    
    
    (4,443
    )
    
    
    -0.6
    %
    
    
    
    
    
    
    0.0
    %Earnings from affiliates
    
    
    1,523
    
    
    
    0.2
    %
    
    
    1,176
    
    
    
    0.2
    %Interest income
    
    
    677
    
    
    
    0.1
    %
    
    
    430
    
    
    
    0.1
    %Other income, net
    
    
    960
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.0
    %Income before taxes
    
    
    30,445
    
    
    
    3.9
    %
    
    
    21,848
    
    
    
    4.4
    %Provision for income taxes
    
    
    (9,131
    )
    
    
    -1.2
    %
    
    
    (7,895
    )
    
    
    -1.6
    %Income before minority interest
    
    
    21,314
    
    
    
    2.7
    %
    
    
    13,953
    
    
    
    2.8
    %Minority interest
    
    
    (8,443
    )
    
    
    -1.1
    %
    
    
    
    
    
    
    0.0
    %Net income
    
    $
    12,871
    
    
    
    1.7
    %
    
    $
    13,953
    
    
    
    2.8
    %
 Six Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007Revenue
    
    $
    1,495,945
    
    
    
    100.0
    %
    
    $
    1,043,782
    
    
    
    100.0
    %Cost of services
    
    
    (1,334,908
    )
    
    
    -89.2
    %
    
    
    (905,721
    )
    
    
    -86.8
    %Selling, general and administrative expenses
    
    
    (53,845
    )
    
    
    -3.6
    %
    
    
    (51,463
    )
    
    
    -4.9
    %Depreciation and amortization expense
    
    
    (20,565
    )
    
    
    -1.4
    %
    
    
    (20,991
    )
    
    
    -2.0
    %Operating income
    
    
    86,627
    
    
    
    5.8
    %
    
    
    65,607
    
    
    
    6.3
    %Interest expense
    
    
    (29,120
    )
    
    
    -1.9
    %
    
    
    (28,195
    )
    
    
    -2.7
    %Loss on early extinguishment of debt
    
    
    (4,443
    )
    
    
    -0.3
    %
    
    
    
    
    
    
    0.0
    %Earnings from affiliates
    
    
    2,640
    
    
    
    0.2
    %
    
    
    2,067
    
    
    
    0.2
    %Interest income
    
    
    1,021
    
    
    
    0.1
    %
    
    
    1,680
    
    
    
    0.2
    %Other income, net
    
    
    1,665
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.0
    %Income before taxes
    
    
    58,390
    
    
    
    3.9
    %
    
    
    41,159
    
    
    
    3.9
    %Provision for income taxes
    
    
    (18,447
    )
    
    
    -1.2
    %
    
    
    (14,948
    )
    
    
    -1.4
    %Income before minority interest
    
    
    39,943
    
    
    
    2.7
    %
    
    
    26,211
    
    
    
    2.5
    %Minority interest
    
    
    (9,092
    )
    
    
    -0.6
    %
    
    
    
    
    
    
    0.0
    %Net income
    
    $
    30,851
    
    
    
    2.1
    %
    
    $
    26,211
    
    
    
    2.5
    %
  35




---



##### Table of Contents



Revenues 
 Cost of services 
 Selling, general and administrative expenses (SG&A) 
 Depreciation and amortization 
 Interest expense 
 Income tax expense 
 Minority Interest 
 Impact of our Afghanistan Construction Contracts
   36




---



##### Table of Contents



Results by Segment
  Three Months Ended October 3, 2008 Compared to Three Months Ended September 28, 2007
 Three Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007RevenuesInternational Security Services
    
    $
    472,335
    
    
    
    60.6
    %
    
    $
    270,847
    
    
    
    54.7
    %Logistics and Construction Management
    
    
    85,466
    
    
    
    11.0
    %
    
    
    47,623
    
    
    
    9.6
    %Maintenance and Technical Support Services
    
    
    222,730
    
    
    
    28.6
    %
    
    
    176,794
    
    
    
    35.7
    %Other/elimination
    
    
    (1,380
    )
    
    
    -0.2
    %
    
    
    (155
    )
    
    
    0.0
    %Consolidated
    
    $
    779,151
    
    
    
    100.0
    %
    
    $
    495,109
    
    
    
    100.0
    %Operating Income & MarginInternational Security Services
    
    $
    49,949
    
    
    
    6.4
    %
    
    $
    32,975
    
    
    
    6.7
    %Logistics and Construction Management
    
    
    (23,057
    )
    
    
    -3.0
    %
    
    
    (2,728
    )
    
    
    -0.6
    %Maintenance and Technical Support Services
    
    
    19,741
    
    
    
    2.5
    %
    
    
    3,700
    
    
    
    0.7
    %Consolidated
    
    $
    46,633
    
    
    
    6.0
    %
    
    $
    33,947
    
    
    
    6.9
    %
 International Security Services
 Revenue 
    37




---



##### Table of Contents



Operating Income 
     Logistics and Construction Management
 Revenue 
    38




---



##### Table of Contents



Operating Income 
   Maintenance & Technical Support Services
 Revenue 
    Operating Income 
     39




---



##### Table of Contents



Six Months Ended October 3, 2008 Compared to Six Months Ended September 28, 2007
 Six Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007RevenuesInternational Security Services
    
    $
    877,709
    
    
    
    58.7
    %
    
    $
    559,412
    
    
    
    53.6
    %Logistics and Construction Management
    
    
    178,928
    
    
    
    12.0
    %
    
    
    110,751
    
    
    
    10.6
    %Maintenance and Technical Support Services
    
    
    441,607
    
    
    
    29.5
    %
    
    
    373,619
    
    
    
    35.8
    %Other/elimination
    
    
    (2,299
    )
    
    
    -0.2
    %
    
    
    
    
    
    
    0.0
    %Consolidated
    
    $
    1,495,945
    
    
    
    100.0
    %
    
    $
    1,043,782
    
    
    
    100.0
    %Operating Income & MarginInternational Security Services
    
    $
    75,378
    
    
    
    5.0
    %
    
    $
    57,134
    
    
    
    5.5
    %Logistics and Construction Management
    
    
    (16,987
    )
    
    
    -1.1
    %
    
    
    (431
    )
    
    
    -0.1
    %Maintenance and Technical Support Services
    
    
    28,236
    
    
    
    1.9
    %
    
    
    8,904
    
    
    
    0.9
    %Consolidated
    
    $
    86,627
    
    
    
    5.8
    %
    
    $
    65,607
    
    
    
    6.3
    %
 International Security Services
 Revenue 
    Operating Income 
    40




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##### Table of Contents



Logistics and Construction Management
 Revenue 
   Operating Income 
    41




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##### Table of Contents



Maintenance & Technical Support Services
 Revenue 
    Operating Income 
    LIQUIDITY AND CAPITAL RESOURCES
  Cash Flow Analysis
  Six Months Ended(Amounts in thousands)
    
    October 3, 2008
    
    
    September 28, 2007Net Cash provided by operating activities
    
    $
    37,953
    
    
    $
    49,910Net Cash used in investing activities
    
    
    (19,718
    )
    
    
    (3,220
    )Net Cash provided by (used in) financing activities
    
    
    29,165
    
    
    
    (39,083
    )
  42




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##### Table of Contents



Financing
    Debt Covenants and Other Matters
    43




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##### Table of Contents



OFF BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    ACCOUNTING DEVELOPMENTS
  DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
   44




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
  (b) Changes in Internal Controls
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL MATTERS
  
 ITEM 1A. RISK FACTORS
  Current or worsening economic conditions could impact our business.
    45




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 200232.2*
    
    Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 *
    
    Filed herewith. 
 SIGNATURES
  DYNCORP INTERNATIONAL LLC
Date: November 12, 2008/s/ MICHAEL J. THORNEName:
    Michael J. ThorneTitle:
    Senior Vice President and Chief Financial Officer  46