##### 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 July 4, 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
    
    52-2287126(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 3190 Fairview Park Drive, Suite 700, Falls Church, Virginia 22042
(571) 722-0210
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



DYNCORP INTERNATIONAL LLC
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Unaudited Condensed Consolidated Statements of IncomeFiscal Quarter Ended
July 4, 2008 and June 29, 2007
    
    
    3Unaudited Condensed Consolidated Balance SheetsJuly 4, 2008 and March 28, 2008
    
    
    4Unaudited Condensed Consolidated Statements of Cash FlowsFiscal Quarter Ended
July 4, 2008 and June 29, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Amounts in thousands)
 For the Fiscal Quarter EndedJuly 4, 2008
    
    
    June 29, 2007Revenue
    
    $
    716,794
    
    
    $
    548,673Cost of services
    
    
    (638,389
    )
    
    
    (480,089
    )Selling, general and administrative expenses
    
    
    (27,851
    )
    
    
    (26,536
    )Depreciation and amortization expense
    
    
    (10,560
    )
    
    
    (10,390
    )Operating income
    
    
    39,994
    
    
    
    31,658Interest expense
    
    
    (14,215
    )
    
    
    (14,489
    )Earnings from affiliates
    
    
    1,117
    
    
    
    891Interest income
    
    
    344
    
    
    
    1,250Other income, net
    
    
    705
    
    
    
    Income before income taxes
    
    
    27,945
    
    
    
    19,310Provision for income taxes
    
    
    (9,316
    )
    
    
    (7,052
    )Income before minority interest
    
    
    18,629
    
    
    
    12,258Minority interest
    
    
    (649
    )
    
    
    Net income
    
    $
    17,980
    
    
    $
    12,258
   3




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DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands)
 As ofJuly 4, 2008
    
    
    March 28, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    33,500
    
    
    $
    85,379Restricted cash
    
    
    6,072
    
    
    
    11,308Accounts receivable, net of allowances of $1,178 and $268, respectively
    
    
    652,265
    
    
    
    513,312Prepaid expenses and other current assets
    
    
    133,344
    
    
    
    109,027Deferred income taxes
    
    
    22,325
    
    
    
    17,341Total current assets
    
    
    847,506
    
    
    
    736,367Property and equipment, net
    
    
    17,571
    
    
    
    15,442Goodwill
    
    
    420,180
    
    
    
    420,180Tradename
    
    
    18,318
    
    
    
    18,318Other intangibles, net
    
    
    169,158
    
    
    
    176,146Deferred income taxes
    
    
    12,762
    
    
    
    18,168Other assets, net
    
    
    16,964
    
    
    
    18,088Total assets
    
    $
    1,502,459
    
    
    $
    1,402,709LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    3,096Accounts payable
    
    
    166,680
    
    
    
    148,787Accrued payroll and employee costs
    
    
    129,476
    
    
    
    85,186Other accrued liabilities
    
    
    144,861
    
    
    
    129,240Income taxes payable
    
    
    11,489
    
    
    
    8,245Total current liabilities
    
    
    452,506
    
    
    
    374,554Long-term debt, less current portion
    
    
    591,614
    
    
    
    590,066Other long-term liabilities
    
    
    12,993
    
    
    
    13,804Commitments and contingenciesMembers equity:Members units, 100 outstanding
    
    
    320,920
    
    
    
    321,414Retained earnings
    
    
    127,765
    
    
    
    109,785Accumulated other comprehensive loss
    
    
    (3,339
    )
    
    
    (6,914
    )Total members equity
    
    
    445,346
    
    
    
    424,285Total liabilities and members equity
    
    $
    1,502,459
    
    
    $
    1,402,709
   4




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DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 For the Fiscal Quarter EndedJuly 4, 2008
    
    
    June 29, 2007Cash flows from operating activitiesNet income
    
    $
    17,980
    
    
    $
    12,258Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    10,811
    
    
    
    10,569Amortization of deferred loan costs
    
    
    821
    
    
    
    753(Recovery) for losses on accounts receivable
    
    
    
    
    
    
    (955
    )Earnings from affiliates
    
    
    (1,117
    )
    
    
    (891
    )Deferred income taxes
    
    
    (1,609
    )
    
    
    1,012Equity-based compensation
    
    
    (803
    )
    
    
    1,205Minority interest
    
    
    649
    
    
    
    Other
    
    
    (256
    )
    
    
    Changes in assets and liabilities:Restricted cash
    
    
    5,236
    
    
    
    (3,591
    )Accounts receivable
    
    
    (138,958
    )
    
    
    (32,185
    )Prepaid expenses and other current assets
    
    
    (25,560
    )
    
    
    (3,584
    )Accounts payable and accrued liabilities
    
    
    56,382
    
    
    
    24,257Income taxes payable
    
    
    5,293
    
    
    
    (5,285
    )Net cash provided by (used in) operating activities
    
    
    (71,131
    )
    
    
    3,563Cash flows from investing activitiesPurchase of property and equipment
    
    
    (1,208
    )
    
    
    (520
    )Purchase of computer software
    
    
    (608
    )
    
    
    (753
    )Other assets
    
    
    365
    
    
    
    100Net cash used in investing activities
    
    
    (1,451
    )
    
    
    (1,173
    )Cash flows from financing activitiesPayments on long-term debt
    
    
    (1,548
    )
    
    
    (35,510
    )Borrowings (payments) under other financing arrangements
    
    
    22,319
    
    
    
    (543
    )Other financing activities
    
    
    (68
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    20,703
    
    
    
    (36,053
    )Net decrease in cash and cash equivalents
    
    
    (51,879
    )
    
    
    (33,663
    )Cash and cash equivalents, beginning of period
    
    
    85,379
    
    
    
    102,455Cash and cash equivalents, end of period
    
    $
    33,500
    
    
    $
    68,792Income taxes paid (net of refunds)
    
    $
    7,023
    
    
    $
    11,224Interest paid
    
    $
    10,866
    
    
    $
    6,603Non-cash investing activities
    
    $
    4,265
    
    
    $
    
   5




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DYNCORP INTERNATIONAL LLC
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1Basis of Presentation and Accounting Policies
 Basis of Presentation
       Minority Interest
   6




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Accounting Policies
  Accounting Developments
 Pronouncements Implemented
   Pronouncements Not Yet Implemented
     7




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Note 2Composition of Certain Financial Statement Captions
  Prepaid expense and other current assets 
 July 4,
    
    
    March 28,2008
    
    
    2008Prepaid expenses
    
    $
    70,868
    
    
    $
    43,205Inventories
    
    
    8,820
    
    
    
    8,463Work-in-process
    
    
    42,339
    
    
    
    45,245Minority interest
    
    
    2,657
    
    
    
    3,306Other current assets
    
    
    8,660
    
    
    
    8,808$
    133,344
    
    
    $
    109,027
  Accrued payroll and employee costs 
 July 4,
    
    
    March 28,2008
    
    
    2008Wages, compensation and other benefits
    
    $
    100,909
    
    
    $
    57,940Accrued vacation
    
    
    25,444
    
    
    
    24,760Accrued contributions to employee benefit plans
    
    
    3,123
    
    
    
    2,486$
    129,476
    
    
    $
    85,186
 Note 3Goodwill and Other Intangible Assets
  ISS
    
    
    LCM
    
    
    MTSS
    
    
    Total(Dollars in thousands)Balance as of March 28, 2008
    
    $
    340,029
    
    
    $
    
    
    
    $
    80,151
    
    
    $
    420,180Transfer between reporting segments(1)
    
    
    (39,935
    )
    
    
    39,935
    
    
    
    
    
    
    
    Balance as of July 4, 2008
    
    $
    300,094
    
    
    $
    39,935
    
    
    $
    80,151
    
    
    $
    420,180
 (1)
    
    Transfer between reporting segments is the result of a reorganization
of the Companys reporting structure within its segments and a related
independent fair value analysis of the reporting units within the
Companys reporting segments, in the manner required by SFAS 142.  8




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July 4, 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
    
    
    $
    (129,191
    )
    
    $
    161,525Other
    
    
    5.3
    
    
    
    13,953
    
    
    
    (6,320
    )
    
    
    7,633$
    304,669
    
    
    $
    (135,511
    )
    
    $
    169,158Indefinite-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
   AmortizationExpense(Dollars in thousands)Nine month period ended April 3, 2009
    
    $
    28,313Estimate for fiscal year 2010
    
    
    37,327Estimate for fiscal year 2011
    
    
    33,010Estimate for fiscal year 2012
    
    
    22,505Estimate for fiscal year 2013
    
    
    18,988Thereafter
    
    
    29,015
 Note 4 Accounts Receivable
  (Dollars in thousands)
    
    July 4, 2008
    
    
    March 28, 2008Billed
    
    $
    252,347
    
    
    $
    193,337Unbilled
    
    
    399,918
    
    
    
    319,975Total
    
    $
    652,265
    
    
    $
    513,312
   9




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Note 5Long-Term Debt
  (Dollars in thousands)
    
    July 4, 2008
    
    
    March 28, 2008Term loans
    
    $
    299,582
    
    
    $
    301,1309.5% Senior subordinated notes
    
    
    292,032
    
    
    
    292,032591,614
    
    
    
    593,162Less current portion of long-term debt
    
    
    
    
    
    
    (3,096
    )Total long-term debt
    
    $
    591,614
    
    
    $
    590,066
 Long-Term Debt
    Note 6Commitments and Contingencies
 Commitments
  Contingencies
 General Legal Matters
  Pending Litigation and Claims
   10




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U.S. Government Investigations
    11




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U.S. Government Audits
   Note 7 Income Taxes
  Fiscal Quarter EndedJuly 4,
    
    
    June 29,2008
    
    
    2007(Dollars in thousands)Current portion:Federal
    
    $
    9,589
    
    
    $
    5,889State
    
    
    807
    
    
    
    334Foreign
    
    
    2,539
    
    
    
    60712,935
    
    
    
    6,830Deferred portion:Federal
    
    
    (3,496
    )
    
    
    183State
    
    
    (117
    )
    
    
    7Foreign
    
    
    (6
    )
    
    
    32(3,619
    )
    
    
    222Provision for income taxes
    
    $
    9,316
    
    
    $
    7,052
  July 4,
    
    
    March 28,2008
    
    
    2008(Dollars in thousands)Current deferred tax assets
    
    $
    22,325
    
    
    $
    17,341Non-current deferred tax assets
    
    
    12,762
    
    
    
    18,168Deferred tax assets, net
    
    $
    35,087
    
    
    $
    35,509
   12




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Note 8 Members Equity
  AccumulatedOther
    
    
    TotalMembers
    
    
    Retained
    
    
    Comprehensive
    
    
    Members(dollars in thousands)
    
    Units
    
    
    Earnings
    
    
    (Loss) Income
    
    
    EquityBalance at March 28, 2008
    
    $
    321,414
    
    
    $
    109,785
    
    
    $
    (6,914
    )
    
    $
    424,285Comprehensive income:Net income
    
    
    
    
    
    
    17,980
    
    
    
    
    
    
    
    17,980Interest rate cap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swap
    
    
    
    
    
    
    
    
    
    
    3,583
    
    
    
    3,583Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )Comprehensive income
    
    
    
    
    
    
    17,980
    
    
    
    3,575
    
    
    
    21,555Tax benefit associated
with equity-based
compensation
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (13
    )Equity-based compensation
    
    
    (481
    )
    
    
    
    
    
    
    
    
    
    
    (481
    )Balance at July 4, 2008
    
    $
    320,920
    
    
    $
    127,765
    
    
    $
    (3,339
    )
    
    $
    445,346
  Note 9Equity-Based Compensation
   13




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Class B Equity
   % Interest in
    
    
    Grant DateDIV 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
    %
    
    $
    11,585March 28, 2008 Vested
    
    
    2.82
    %
    
    $
    4,641First Quarter Fiscal Year 2009 Vesting
    
    
    0.12
    %
    
    
    520July 4, 2008 Vested
    
    
    2.94
    %
    
    $
    5,161March 28, 2008 Nonvested
    
    
    3.42
    %
    
    $
    8,607July 4, 2008 Nonvested
    
    
    2.30
    %
    
    $
    6,424
  Nine month period ended April 3, 2009
    
    $
    1,484Fiscal year ended April 2, 2010
    
    
    1,102Fiscal year ended April 1, 2011 and thereafter
    
    
    616Total
    
    $
    3,202
 Restricted Stock Units
     WeightedAverageOutstanding
    
    
    GrantRestricted
    
    
    DateStock Units
    
    
    Fair ValueOutstanding, March 28, 2008
    
    
    159,600
    
    
    $
    21.49Units granted
    
    
    181,800
    
    
    
    15.23Units cancelled
    
    
    (3,000
    )
    
    
    21.19Units vested
    
    
    
    
    
    
    Outstanding, July 4, 2008
    
    
    338,400
    
    
    $
    18.13
  14




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Nine month period ended
April 3, 2009
    
    $
    1,387Fiscal year ended April 2, 2010
    
    
    1,270Fiscal year ended April 1, 2011 and thereafter
    
    
    1,182Total
    
    $
    3,839
 Note 10Interest Rate Derivatives
  Fixed
    
    
    VariableNotional
    
    
    Interest
    
    
    Interest RateDate Entered
    
    Amount
    
    
    Rate Paid*
    
    
    Received
    
    
    Expiration DateApril 2007
    
    $
    168,620
    
    
    
    4.975
    %
    
    3-month LIBOR
    
    May 2010April 2007
    
    $
    31,380
    
    
    
    4.975
    %
    
    3-month LIBOR
    
    May 2010September 2007
    
    $
    75,000
    
    
    
    4.910
    %
    
    3-month LIBOR
    
    September 2008
 
 *
    
    plus applicable margin (2% at July 4, 2008).  Note 11  Consolidating Financial Statements of Subsidiary Guarantors
       15




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DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Operations Information
For the Fiscal Quarter Ended July 4, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Dollars in thousands)Revenue
    
    $
    542,958
    
    
    $
    173,836
    
    
    $
    96,688
    
    
    $
    (96,688
    )
    
    $
    716,794Cost of services
    
    
    (474,553
    )
    
    
    (166,119
    )
    
    
    (94,405
    )
    
    
    96,688
    
    
    
    (638,389
    )Selling, general and administrative expenses
    
    
    (22,126
    )
    
    
    (5,499
    )
    
    
    (226
    )
    
    
    
    
    
    
    (27,851
    )Depreciation and amortization expense
    
    
    (10,525
    )
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    (10,560
    )Operating income
    
    
    35,754
    
    
    
    2,218
    
    
    
    2,022
    
    
    
    
    
    
    
    39,994Interest expense
    
    
    (14,215
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,215
    )Earnings from affiliates
    
    
    1,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,117Equity in income of subsidiaries
    
    
    4,016
    
    
    
    (106
    )
    
    
    
    
    
    
    (3,910
    )
    
    
    Interest income
    
    
    331
    
    
    
    6
    
    
    
    7
    
    
    
    
    
    
    
    344Other, net
    
    
    600
    
    
    
    110
    
    
    
    (5
    )
    
    
    
    
    
    
    705Income before income taxes
    
    
    27,603
    
    
    
    2,228
    
    
    
    2,024
    
    
    
    (3,910
    )
    
    
    27,945Provision for income taxes
    
    
    (8,974
    )
    
    
    
    
    
    
    (342
    )
    
    
    
    
    
    
    (9,316
    )Minority interest
    
    
    (649
    )
    
    
    (649
    )
    
    
    
    
    
    
    649
    
    
    
    (649
    )Net income
    
    $
    17,980
    
    
    $
    1,579
    
    
    $
    1,682
    
    
    $
    (3,261
    )
    
    $
    17,980
  16




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DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Operations Information
For the Fiscal Quarter Ended June 29, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Dollars in thousands)Revenue
    
    $
    481,756
    
    
    $
    66,917
    
    
    $
    82,556
    
    
    $
    (82,556
    )
    
    $
    548,673Cost of services
    
    
    (419,667
    )
    
    
    (61,992
    )
    
    
    (80,986
    )
    
    
    82,556
    
    
    
    (480,089
    )Selling, general and administrative expenses
    
    
    (23,353
    )
    
    
    (2,761
    )
    
    
    (422
    )
    
    
    
    
    
    
    (26,536
    )Depreciation and amortization expense
    
    
    (10,366
    )
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    (10,390
    )Operating income
    
    
    28,370
    
    
    
    2,164
    
    
    
    1,124
    
    
    
    
    
    
    
    31,658Interest expense
    
    
    (14,489
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,489
    )Net earnings from affiliates
    
    
    891
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    891Equity in income of subsidiaries
    
    
    3,311
    
    
    
    112
    
    
    
    
    
    
    
    (3,423
    )
    
    
    Interest income
    
    
    1,243
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    1,250Income before income taxes
    
    
    19,326
    
    
    
    2,283
    
    
    
    1,124
    
    
    
    (3,423
    )
    
    
    19,310Provision for income taxes
    
    
    (6,956
    )
    
    
    (7
    )
    
    
    (89
    )
    
    
    
    
    
    
    (7,052
    )Net income
    
    $
    12,370
    
    
    $
    2,276
    
    
    $
    1,035
    
    
    $
    (3,423
    )
    
    $
    12,258
  17




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Balance Sheet Information
July 4, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Dollars in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,023
    
    
    $
    3,012
    
    
    $
    5,465
    
    
    $
    
    
    
    $
    33,500Restricted cash
    
    
    
    
    
    
    6,072
    
    
    
    
    
    
    
    
    
    
    
    6,072Accounts receivable, net
    
    
    532,481
    
    
    
    117,832
    
    
    
    1,952
    
    
    
    
    
    
    
    652,265Prepaid expenses and other current assets
    
    
    143,939
    
    
    
    10,321
    
    
    
    1,409
    
    
    
    
    
    
    
    155,669Total current assets
    
    
    701,443
    
    
    
    137,237
    
    
    
    8,826
    
    
    
    
    
    
    
    847,506Property and equipment, net
    
    
    13,441
    
    
    
    3,881
    
    
    
    249
    
    
    
    
    
    
    
    17,571Goodwill
    
    
    398,559
    
    
    
    21,621
    
    
    
    
    
    
    
    
    
    
    
    420,180Tradename
    
    
    18,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,318Other intangibles, net
    
    
    155,272
    
    
    
    13,886
    
    
    
    
    
    
    
    
    
    
    
    169,158Investment in subsidiaries
    
    
    41,053
    
    
    
    633
    
    
    
    
    
    
    
    (41,686
    )
    
    
    Other assets, net
    
    
    29,677
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    29,726Intercompany receivables
    
    
    37,981
    
    
    
    
    
    
    
    68,512
    
    
    
    (106,493
    )
    
    
    Total assets
    
    $
    1,395,744
    
    
    $
    177,307
    
    
    $
    77,587
    
    
    $
    (148,179
    )
    
    $
    1,502,459LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable
    
    
    132,008
    
    
    
    33,990
    
    
    
    682
    
    
    
    
    
    
    
    166,680Accrued payroll and employee costs
    
    
    54,892
    
    
    
    35,879
    
    
    
    38,705
    
    
    
    
    
    
    
    129,476Other accrued liabilities
    
    
    114,122
    
    
    
    5,079
    
    
    
    25,660
    
    
    
    
    
    
    
    144,861Income taxes payable
    
    
    10,452
    
    
    
    
    
    
    
    1,037
    
    
    
    
    
    
    
    11,489Total current liabilities
    
    
    311,474
    
    
    
    74,948
    
    
    
    66,084
    
    
    
    
    
    
    
    452,506Long-term debt, less current portion
    
    
    591,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    591,614Other long-term liabilities
    
    
    8,990
    
    
    
    3,985
    
    
    
    18
    
    
    
    
    
    
    
    12,993Intercompany payables
    
    
    38,320
    
    
    
    68,173
    
    
    
    
    
    
    
    (106,493
    )
    
    
    Members equity
    
    
    445,346
    
    
    
    30,201
    
    
    
    11,485
    
    
    
    (41,686
    )
    
    
    445,346Total liabilities and members equity
    
    $
    1,395,744
    
    
    $
    177,307
    
    
    $
    77,587
    
    
    $
    (148,179
    )
    
    $
    1,502,459
  18




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Balance Sheet Information
March 28, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Dollars in thousands)ASSETSCurrent 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
  19




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Cash Flow Information
For the Fiscal Quarter Ended July 4, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Dollars in thousands)Net cash provided by operating activities
    
    $
    (32,823
    )
    
    $
    (50,962
    )
    
    $
    12,654
    
    
    $
    
    
    
    $
    (71,131
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,208
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,208
    )Other investing cash flows
    
    
    (243
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (243
    )Net cash used in investing activities
    
    
    (1,451
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,451
    )Cash flows from financing activities:Net transfers from (to) Parent
    
    
    (40,890
    )
    
    
    50,139
    
    
    
    (9,249
    )
    
    
    
    
    
    
    Payments on long term debt
    
    
    (1,548
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,548
    )Other financing activities
    
    
    22,251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,251Net cash used in financing activities
    
    
    (20,187
    )
    
    
    50,139
    
    
    
    (9,249
    )
    
    
    
    
    
    
    20,703Net decrease in cash and cash equivalents
    
    
    (54,461
    )
    
    
    (823
    )
    
    
    3,405
    
    
    
    
    
    
    
    (51,879
    )Cash and cash equivalents, beginning of period
    
    
    79,484
    
    
    
    3,835
    
    
    
    2,060
    
    
    
    
    
    
    
    85,379$
    25,023
    
    
    $
    3,012
    
    
    $
    5,465
    
    
    $
    
    
    
    $
    33,500
  20




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Cash Flow Information
For the Fiscal Quarter Ended June 29, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Guarantor
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Dollars in thousands)Net cash provided by operating activities
    
    $
    35,173
    
    
    $
    (13,891
    )
    
    $
    (17,719
    )
    
    $
    
    
    
    $
    3,563Cash flows from investing activities:Purchase of property and equipment
    
    
    (520
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (520
    )Other investing cash flows
    
    
    (653
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (653
    )Net cash used in investing activities
    
    
    (1,173
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,173
    )Cash flows from financing activities:Net transfers from (to) Parent
    
    
    (29,208
    )
    
    
    11,462
    
    
    
    17,746
    
    
    
    
    
    
    
    Payments on long term debt
    
    
    (35,510
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,510
    )Other financing activities
    
    
    (543
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (543
    )Net cash used in financing activities
    
    
    (65,261
    )
    
    
    (11,462
    )
    
    
    (17,746
    )
    
    
    
    
    
    
    (36,053
    )Net decrease in cash and cash equivalents
    
    
    (31,261
    )
    
    
    (2,429
    )
    
    
    27
    
    
    
    
    
    
    
    (33,663
    )Cash and cash equivalents, beginning of period
    
    
    95,458
    
    
    
    5,212
    
    
    
    1,785
    
    
    
    
    
    
    
    102,455$
    64,197
    
    
    $
    2,783
    
    
    $
    1,812
    
    
    $
    
    
    
    $
    68,792
 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.
   21




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##### Table of Contents



Fair Value Measurements at Reporting Date UsingBook value of
    
    
    Quoted Prices infinancial
    
    
    Active Markets
    
    
    Significant Other
    
    
    Significantassets/(liabilities)
    
    
    for Identical
    
    
    Observable Inputs
    
    
    Unobservable(amounts in thousands)
    
    as of July 4, 2008
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)AssetsCash equivalents
    
    $
    39,572
    
    
    $
    39,572
    
    
    $
    
    
    
    $
    Total assets measured at fair value
    
    $
    39,572
    
    
    $
    39,572
    
    
    $
    
    
    
    $
    LiabilitiesInterest rate derivatives
    
    $
    5,673
    
    
    $
    
    
    
    $
    5,673
    
    
    $
    Equity-based compensation (1)
    
    
    823,498
    
    
    
    823,498
    
    
    
    
    
    
    
    Total liabilities measured at fair value
    
    $
    829,171
    
    
    $
    823,498
    
    
    $
    5,673
    
    
    $
    
 (1)
    
    See description of RSUs accounted for as liability awards in Note 9. Note 13Unconsolidated Joint Ventures
  Note 14Segment Information
   International Security Services, or ISS
 Logistics and Construction Management, or LCM
 Maintenance and Technical Support Services, or MTSS
  22




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##### Table of Contents



Fiscal Quarter EndedJuly 4, 2008
    
    
    June 29, 2007RevenueInternational Security Services
    
    $
    405,374
    
    
    $
    288,720Logistics and Construction Management
    
    
    93,462
    
    
    
    63,128Maintenance and Technical Support Services
    
    
    217,958
    
    
    
    196,825Total revenue
    
    $
    716,794
    
    
    $
    548,673Operating IncomeInternational Security Services
    
    $
    25,961
    
    
    $
    21,067Logistics and Construction Management
    
    
    6,676
    
    
    
    4,416Maintenance and Technical Support Services
    
    
    7,357
    
    
    
    6,175Total operating income
    
    $
    39,994
    
    
    $
    31,658Depreciation and amortizationInternational Security Services

    
    $
    6,670
    
    
    $
    6,563Logistics and Construction Management
    
    
    779
    
    
    
    648Maintenance and Technical Support Services
    
    
    3,111
    
    
    
    3,179Total depreciation and amortization
    
    $
    10,560
    
    
    $
    10,390
 As ofJuly 4, 2008
    
    
    March 28, 2008AssetsInternational Security Services
    
    $
    849,513
    
    
    $
    725,775Logistics and Construction Management
    
    
    210,355
    
    
    
    199,088Maintenance and Technical Support Services
    
    
    326,643
    
    
    
    336,721Other/Elimination (1)
    
    
    115,948
    
    
    
    141,125Total assets
    
    $
    1,502,459
    
    
    $
    1,402,709
 (1)
    
    Assets primarily include cash, deferred income taxes, and deferred debt issuance cost. Note 15Subsequent Events
      23




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##### 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
 Logistics and Construction Management
  Contingency and Logistics Operations
 Operations Maintenance and Construction Management
 Maintenance & Technical Support Services
  Contract Logistics Support
  24




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##### Table of Contents



Field Service Operations
 Aviation & Maintenance Services
 CURRENT OPERATING CONDITIONS AND OUTLOOK
    
    
    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.
  25




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##### Table of Contents



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.
  Fiscal Quarter EndedJuly 4,
    
    
    June 29,2008
    
    
    2007Fixed Price
    
    
    31
    %
    
    
    40
    %Time-and-Materials
    
    
    26
    %
    
    
    35
    %Cost-Reimbursement
    
    
    43
    %
    
    
    25
    %100
    %
    
    
    100
    %
 BACKLOG
    (in millions)
    
    July 4, 2008
    
    
    March 28, 2008Funded Backlog
    
    $
    936
    
    
    $
    1,164Unfunded Backlog
    
    
    5,619
    
    
    
    4,797Total Backlog
    
    $
    6,555
    
    
    $
    5,961
   26




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##### Table of Contents



ESTIMATED REMAINING CONTRACT VALUE
  RESULTS OF OPERATIONS  Fiscal Quarter Ended July 4, 2008 and June 29, 2007
  Consolidated
  Fiscal Quarter Ended(Dollars in thousands)
    
    July 4, 2008
    
    
    June 29, 2007Revenue
    
    $
    716,794
    
    
    
    100.0
    %
    
    $
    548,673
    
    
    
    100.0
    %Cost of services
    
    
    (638,389
    )
    
    
    (89.1
    %)
    
    
    (480,089
    )
    
    
    (87.5
    %)Selling, general and administrative expenses
    
    
    (27,851
    )
    
    
    (3.9
    %)
    
    
    (26,536
    )
    
    
    (4.8
    %)Depreciation and amortization expense
    
    
    (10,560
    )
    
    
    (1.5
    %)
    
    
    (10,390
    )
    
    
    (1.9
    %)Operating income
    
    
    39,994
    
    
    
    5.6
    %
    
    
    31,658
    
    
    
    5.8
    %Interest expense
    
    
    (14,215
    )
    
    
    (2.0
    %)
    
    
    (14,489
    )
    
    
    (2.6
    %)Earnings from affiliates
    
    
    1,117
    
    
    
    0.2
    %
    
    
    891
    
    
    
    0.2
    %Interest income
    
    
    344
    
    
    
    0.0
    %
    
    
    1,250
    
    
    
    0.2
    %Other income, net
    
    
    705
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.0
    %Income before taxes
    
    
    27,945
    
    
    
    3.9
    %
    
    
    19,310
    
    
    
    3.5
    %Provision for income taxes
    
    
    (9,316
    )
    
    
    (1.3
    %)
    
    
    (7,052
    )
    
    
    (1.3
    %)Income before minority interest
    
    
    18,629
    
    
    
    2.6
    %
    
    
    12,258
    
    
    
    2.2
    %Minority interest
    
    
    (649
    )
    
    
    (0.1
    %)
    
    
    
    
    
    
    0.0
    %Net income
    
    $
    17,980
    
    
    
    2.5
    %
    
    $
    12,258
    
    
    
    2.2
    %
 Revenues 
 Cost of services 
 Selling, general and administrative expenses (SG&A) 
  27




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##### Table of Contents



Depreciation and amortization 
 Interest expense 
 Income tax expense 
 Results by Segment
  For the Fiscal Quarter Ended(Dollars in thousands)
    
    July 4, 2008
    
    
    June 29, 2007RevenuesInternational Security Services
    
    $
    405,374
    
    
    
    56.6
    %
    
    $
    288,720
    
    
    
    52.6
    %Logistics and Construction Management
    
    
    93,462
    
    
    
    13.0
    %
    
    
    63,128
    
    
    
    11.5
    %Maintenance and Technical Support Services
    
    
    217,958
    
    
    
    30.4
    %
    
    
    196,825
    
    
    
    35.9
    %Consolidated
    
    $
    716,794
    
    
    
    100.0
    %
    
    $
    548,673
    
    
    
    100.0
    %Operating IncomeInternational Security Services
    
    $
    25,961
    
    
    
    64.9
    %
    
    $
    21,067
    
    
    
    66.6
    %Logistics and Construction Management
    
    
    6,676
    
    
    
    16.7
    %
    
    
    4,416
    
    
    
    13.9
    %Maintenance and Technical Support Services
    
    
    7,357
    
    
    
    18.4
    %
    
    
    6,175
    
    
    
    19.5
    %Consolidated
    
    $
    39,994
    
    
    
    100.0
    %
    
    $
    31,658
    
    
    
    100.0
    %
 International Security Services
 Revenues 
   28




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##### Table of Contents



Operating Income 
     Logistics and Construction Management
 Revenues 
   Operating Incomes 
    29




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##### Table of Contents



Maintenance & Technical Support Services
 Revenues 
    Operating Income 
     LIQUIDITY AND CAPITAL RESOURCES
   30




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##### Table of Contents



Cash Flow Analysis
 Fiscal Quarter Ended(Dollars in thousands)
    
    July 4, 2008
    
    
    June 29, 2007Net Cash provided by (used in) operating activities
    
    $
    (71,131
    )
    
    $
    3,563Net Cash used in investing activities
    
    
    (1,451
    )
    
    
    (1,173
    )Net Cash provided by (used in) financing activities
    
    
    20,703
    
    
    
    (36,053
    )
    Financing
       31




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##### Table of Contents



Debt Covenants and Other Matters
  OFF BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    ACCOUNTING DEVELOPMENTS
   32




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##### Table of Contents



Disclosure Regarding Forward-Looking Information
  
 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
   33




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL MATTERS
  
 ITEM 1A. RISK FACTORS
  
 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
    
    Description10.1
    
    
    Supplemental Indenture, dated as of July 14, 2008, among DynCorp
International LLC, DIV Capital Corporation, the Guarantors named
therein and The Bank of New York Mellon.31.1
    *
    
    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.  34




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##### Table of Contents



SIGNATURES
  DYNCORP INTERNATIONAL LLC
Date: August 12, 2008/s/ MICHAEL J. THORNEName:
    Michael J. ThorneTitle:
    Senior Vice President and Chief Financial Officer  35




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Supplemental Indenture, dated as of July 14, 2008, among DynCorp
International LLC, DIV Capital Corporation, the Guarantors named
therein and The Bank of New York Mellon.31.1
    *
    
    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.  36