##### 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 January 2, 2009
 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 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 January 2, 2009 and December 28, 2007
    
    
    3Unaudited Condensed Consolidated Statements of IncomeNine Months Ended January 2, 2009 and December 28, 2007
    
    
    4Unaudited Condensed Consolidated Balance SheetsJanuary 2, 2009 and March 28, 2008
    
    
    5Unaudited Condensed Consolidated Statements of Cash FlowsNine Months Ended January 2, 2009 and December 28, 2007
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    46Item 4. Controls and Procedures
    
    
    47PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    47Item 1A. Risk Factors
    
    
    47Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 3. Defaults Upon Senior Securities
    
    
    48Item 4. Submission of Matters to a Vote of Security Holders
    
    
    48Item 5. Other Information
    
    
    48Item 6. Exhibits
    
    
    48Exhibit 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 Three Months EndedJanuary 2, 2009
    
    
    December 28, 2007Revenue
    
    $
    792,327
    
    
    $
    523,071Cost of services
    
    
    (704,210
    )
    
    
    (452,341
    )Selling, general and administrative expenses
    
    
    (26,505
    )
    
    
    (28,995
    )Depreciation and amortization expense
    
    
    (10,029
    )
    
    
    (10,910
    )Operating income
    
    
    51,583
    
    
    
    30,825Interest expense
    
    
    (15,322
    )
    
    
    (14,052
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    Earnings from affiliates
    
    
    1,319
    
    
    
    1,253Interest income
    
    
    730
    
    
    
    522Other income, net
    
    
    (856
    )
    
    
    380Income before income taxes
    
    
    37,454
    
    
    
    18,928Provision for income taxes
    
    
    (11,639
    )
    
    
    (6,968
    )Income before minority interest
    
    
    25,815
    
    
    
    11,960Minority interest
    
    
    (6,062
    )
    
    
    Net income
    
    $
    19,753
    
    
    $
    11,960
   3




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DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Amounts in thousands)
 For the Nine Months EndedJanuary 2, 2009
    
    
    December 28, 2007Revenue
    
    $
    2,288,272
    
    
    $
    1,566,853Cost of services
    
    
    (2,039,118
    )
    
    
    (1,358,062
    )Selling, general and administrative expenses
    
    
    (80,350
    )
    
    
    (79,916
    )Depreciation and amortization expense
    
    
    (30,594
    )
    
    
    (31,901
    )Operating income
    
    
    138,210
    
    
    
    96,974Interest expense
    
    
    (44,442
    )
    
    
    (42,247
    )Loss on early extinguishment of debt
    
    
    (4,443
    )
    
    
    Earnings from affiliates
    
    
    3,959
    
    
    
    3,320Interest income
    
    
    1,751
    
    
    
    2,202Other income, net
    
    
    809
    
    
    
    (162
    )Income before income taxes
    
    
    95,844
    
    
    
    60,087Provision for income taxes
    
    
    (30,086
    )
    
    
    (21,916
    )Income before minority interest
    
    
    65,758
    
    
    
    38,171Minority interest
    
    
    (15,154
    )
    
    
    Net income
    
    $
    50,604
    
    
    $
    38,171
   4




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DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands)
 As ofJanuary 2, 2009
    
    
    March 28, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    150,580
    
    
    $
    85,379Restricted cash
    
    
    18,039
    
    
    
    11,308Accounts receivable, net of allowances of $8 and $268, respectively
    
    
    634,924
    
    
    
    513,312Prepaid expenses and other current assets
    
    
    125,756
    
    
    
    109,027Deferred income taxes
    
    
    
    
    
    
    17,341Total current assets
    
    
    929,299
    
    
    
    736,367Property and equipment, net
    
    
    18,022
    
    
    
    15,442Goodwill
    
    
    420,180
    
    
    
    420,180Tradename
    
    
    18,318
    
    
    
    18,318Other intangibles, net
    
    
    151,151
    
    
    
    176,146Deferred income taxes
    
    
    5,773
    
    
    
    18,168Other assets, net
    
    
    31,506
    
    
    
    18,088Total assets
    
    $
    1,574,249
    
    
    $
    1,402,709LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    3,096Accounts payable
    
    
    209,116
    
    
    
    148,787Accrued payroll and employee costs
    
    
    111,579
    
    
    
    85,186Deferred income taxes
    
    
    1,927
    
    
    
    Other accrued liabilities
    
    
    121,582
    
    
    
    129,240Income taxes payable
    
    
    5,347
    
    
    
    8,245Total current liabilities
    
    
    449,551
    
    
    
    374,554Long-term debt, less current portion
    
    
    615,903
    
    
    
    590,066Other long-term liabilities
    
    
    12,121
    
    
    
    13,804Commitments and contingenciesMinority interest
    
    
    11,848
    
    
    
    Members equity:Members units, 100 outstanding
    
    
    330,275
    
    
    
    321,414Retained earnings
    
    
    160,389
    
    
    
    109,785Accumulated other comprehensive loss
    
    
    (5,838
    )
    
    
    (6,914
    )Total members equity
    
    
    484,826
    
    
    
    424,285Total liabilities and members equity
    
    $
    1,574,249
    
    
    $
    1,402,709
   5




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DYNCORP INTERNATIONAL LLC
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Amounts in thousands)
 For the Nine Months EndedJanuary 2, 2009
    
    
    December 28, 2007Cash flows from operating activitiesNet income
    
    $
    50,604
    
    
    $
    38,171Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    31,388
    
    
    
    32,924Amortization of deferred loan costs
    
    
    2,696
    
    
    
    2,261(Recovery) for losses on accounts receivable
    
    
    (283
    )
    
    
    (1,127
    )Earnings from affiliates
    
    
    (3,959
    )
    
    
    (3,320
    )Dividends from affiliates
    
    
    2,439
    
    
    
    2,652Deferred income taxes
    
    
    32,193
    
    
    
    313Equity-based compensation
    
    
    2,385
    
    
    
    3,360Minority interest
    
    
    15,154
    
    
    
    Loss on early extinguishment of debt
    
    
    4,443
    
    
    
    Other
    
    
    (772
    )
    
    
    (138
    )Changes in assets and liabilities:Restricted cash (see Note 1)
    
    
    8,429
    
    
    
    10,133Accounts receivable
    
    
    (121,329
    )
    
    
    (120,018
    )Prepaid expenses and other current assets
    
    
    (20,711
    )
    
    
    (22,546
    )Accounts payable and accrued liabilities
    
    
    68,957
    
    
    
    11,832Income taxes payable
    
    
    (1,439
    )
    
    
    (3,753
    )Net cash provided by (used in) operating activities
    
    
    70,195
    
    
    
    (49,256
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (3,407
    )
    
    
    (2,822
    )Purchase of computer software
    
    
    (1,634
    )
    
    
    (996
    )Change in cash restricted as collateral on letters of credit (see Note 1)
    
    
    (15,160
    )
    
    
    Contributions to affiliates
    
    
    (2,231
    )
    
    
    (3,366
    )Other investing activities
    
    
    362
    
    
    
    (57
    )Net cash (used in) investing activities
    
    
    (22,070
    )
    
    
    (7,241
    )Cash flows from financing activitiesBorrowings under debt agreements (see Note 5)
    
    
    323,751
    
    
    
    13,500Repayments on debt agreements (see Note 5)
    
    
    (301,129
    )
    
    
    (37,058
    )Net borrowings (payments) under other financing arrangements
    
    
    4,299
    
    
    
    (8,957
    )Payments of deferred financing cost
    
    
    (9,834
    )
    
    
    Other net financing activities
    
    
    (11
    )
    
    
    138Net cash provided by (used in) financing activities
    
    
    17,076
    
    
    
    (32,377
    )Net increase in cash and cash equivalents
    
    
    65,201
    
    
    
    (88,874
    )Cash and cash equivalents, beginning of period
    
    
    85,379
    
    
    
    102,455Cash and cash equivalents, end of period
    
    $
    150,580
    
    
    $
    13,581Income taxes paid (net of refunds)
    
    $
    18,622
    
    
    $
    21,949Interest paid
    
    $
    34,354
    
    
    $
    33,231Non-cash sale of DIFZ including related financing (see Note 8)
    
    $
    8,296
    
    
    $
    
   6




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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
    %TSDI Pty Ltd.
    
    
    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 FZ-LLC
    
    
    50.0
    %
 Minority Interest
  Restricted Cash
   8




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##### Table of Contents



As of
    
    
    Cash provided(Amounts in thousands)
    
    January 2, 2009
    
    
    March 28, 2008
    
    
    by/(used in)Type of restricted cashContract related
    
    $
    2,879
    
    
    $
    11,308
    
    
    $
    8,429Required as collateral
    
    
    15,160
    
    
    
    
    
    
    
    (15,160
    )Total
    
    $
    18,039
    
    
    $
    11,308
    
    
    $
    (6,731
    )
 Accounting Policies
  Accounting Developments
 Pronouncements Implemented
   Pronouncements Not Yet Implemented
   9




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Note 2Composition of Certain Financial Statement Captions
  Prepaid expense and other current assets 
 January 2,
    
    
    March 28,(Amounts in thousands)
    
    2009
    
    
    2008Prepaid expenses
    
    $
    40,160
    
    
    $
    43,205Inventories
    
    
    9,927
    
    
    
    8,463Work-in-process inventories
    
    
    38,570
    
    
    
    45,245Minority interest
    
    
    
    
    
    
    3,306Income taxes receivable
    
    
    19,203
    
    
    
    Joint venture receivables
    
    
    8,878
    
    
    
    2,076Other current assets
    
    
    9,018
    
    
    
    6,732$
    125,756
    
    
    $
    109,027
  10




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Accrued payroll and employee costs 
 January 2,
    
    
    March 28,(Amounts in thousands)
    
    2009
    
    
    2008Wages, compensation and other benefits
    
    $
    82,621
    
    
    $
    57,940Accrued vacation
    
    
    26,037
    
    
    
    24,760Accrued contributions to employee benefit plans
    
    
    2,921
    
    
    
    2,486$
    111,579
    
    
    $
    85,186
 Other accrued liabilities 
 January 2,
    
    
    March 28,(Amounts in thousands)
    
    2009
    
    
    2008Deferred revenue
    
    $
    31,308
    
    
    $
    53,083Accrued insurance
    
    
    24,539
    
    
    
    36,260Accrued interest
    
    
    15,888
    
    
    
    9,885Contract losses and customer liabilities
    
    
    12,793
    
    
    
    134Legal matters
    
    
    18,478
    
    
    
    19,851Short-term swap liability
    
    
    5,787
    
    
    
    5,783Other notes payable
    
    
    4,674
    
    
    
    374Other
    
    
    8,115
    
    
    
    3,870$
    121,582
    
    
    $
    129,240
  Note 3Goodwill and Other Intangible Assets
 Goodwill
     11




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(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 January 2, 2009
    
    $
    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 No. 142. Intangible Assets
  January 2, 2009WeightedAverageUseful Life
    
    
    Gross
    
    
    Accumulated(Amounts in thousands, except years)
    
    (Years)
    
    
    Carrying Value
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Customer-related intangible assets
    
    
    8.5
    
    
    $
    290,716
    
    
    $
    (146,492
    )
    
    $
    144,224Other
    
    
    5.2
    
    
    
    14,978
    
    
    
    (8,051
    )
    
    
    6,927$
    305,694
    
    
    $
    (154,543
    )
    
    $
    151,151Indefinite-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
   12




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Amortization(Amounts in thousands)
    
    ExpenseThree month period ended April 3, 2009
    
    $
    9,506Estimate for fiscal year 2010
    
    
    37,550Estimate for fiscal year 2011
    
    
    33,240Estimate for fiscal year 2012
    
    
    22,654Estimate for fiscal year 2013
    
    
    19,123Thereafter
    
    
    29,078Total
    
    $
    151,151
 Note
4Accounts Receivable
  January 2,
    
    
    March 28,(Amounts in thousands)
    
    2009
    
    
    2008Billed
    
    $
    265,132
    
    
    $
    193,337Unbilled
    
    
    369,792
    
    
    
    319,975Total
    
    $
    634,924
    
    
    $
    513,312
  Note 5Long-Term Debt
  January 2,
    
    
    March 28,(Amounts in thousands)
    
    2009
    
    
    2008Term loans
    
    $
    200,000
    
    
    $
    301,1309.5% Senior subordinated notes(1)
    
    
    415,903
    
    
    
    292,032615,903
    
    
    
    593,162Less current portion of long-term debt
    
    
    
    
    
    
    (3,096
    )Total long-term debt
    
    $
    615,903
    
    
    $
    590,066
 (1)
    
    Senior subordinated notes are net of a $1.1 million unamortized discount as of January 2,
2009. There was no unamortized discount as of March 28, 2008.  (Amounts in thousands)Three months ending April 3, 2009
    
    $
    2010
    
    
    16,8752011
    
    
    50,6252012
    
    
    55,5002013
    
    
    494,032Thereafter
    
    
    Total long-term debt (including current portion)(1)
    
    $
    617,032
 (1)
    
    Future maturities of long-term debt include $1.1 million unamortized discount as of January
2, 2009, which is presented net in the financial statements.  13




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Senior Secured Credit Facility
        9.5% Senior Subordinated Notes
   14




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Note 6Commitments and Contingencies
 Commitments
  Contingencies
 General Legal Matters
  Pending Litigation and Claims
   15




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U.S. Government Investigations
   16




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U.S. Government Audits
    Contract Matters
   17




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Note 7 Income Taxes
  Three Months EndedJanuary 2,
    
    
    December 28,(Amounts in thousands)
    
    2009
    
    
    2007Current portion:Federal
    
    $
    (27,825
    )
    
    $
    1,752State
    
    
    (1,397
    )
    
    
    222Foreign
    
    
    1,046
    
    
    
    973Total current portion of tax provision
    
    
    (28,176
    )
    
    
    2,947Deferred portion:Federal
    
    
    38,586
    
    
    
    3,872State
    
    
    1,290
    
    
    
    149Foreign
    
    
    (61
    )
    
    
    Total deferred portion of tax provision
    
    
    39,815
    
    
    
    4,021Total income tax provision
    
    $
    11,639
    
    
    $
    6,968
 Nine Months EndedJanuary 2,
    
    
    December 28,(Amounts in thousands)
    
    2009
    
    
    2007Current portion:Federal
    
    $
    (7,217
    )
    
    $
    16,896State
    
    
    253
    
    
    
    1,124Foreign
    
    
    4,857
    
    
    
    3,045Total current portion of tax provision
    
    
    (2,107
    )
    
    
    21,065Deferred portion:Federal
    
    
    31,218
    
    
    
    819State
    
    
    1,044
    
    
    
    (33
    )Foreign
    
    
    (69
    )
    
    
    65Total deferred portion of tax provision
    
    
    32,193
    
    
    
    851Total income tax provision
    
    $
    30,086
    
    
    $
    21,916
  January 2,
    
    
    March 28,(Amounts in thousands)
    
    2009
    
    
    2008Current deferred tax assets (liabilities)
    
    $
    (1,927
    )
    
    $
    17,341Non-current deferred tax assets (liabilities)
    
    
    5,773
    
    
    
    18,168Deferred tax assets, net
    
    $
    3,846
    
    
    $
    35,509
     18




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Note
8Members Equity
 Members Equity
 AccumulatedOther
    
    
    TotalMembers
    
    
    
    
    
    
    Comprehensive
    
    
    Members(Amounts in thousands)
    
    Units
    
    
    Retained Earnings
    
    
    (Loss) Income
    
    
    EquityBalance at March 28, 2008
    
    $
    321,414
    
    
    $
    109,785
    
    
    $
    (6,914
    )
    
    $
    424,285Comprehensive income:Net income
    
    
    
    
    
    
    50,604
    
    
    
    
    
    
    
    50,604Interest rate swap, net
of tax $1.0 million
    
    
    
    
    
    
    
    
    
    
    1,710
    
    
    
    1,710Currency translation
adjustment, net of tax
$0.4 million
    
    
    
    
    
    
    
    
    
    
    (634
    )
    
    
    (634
    )Comprehensive income
    
    
    
    
    
    
    50,604
    
    
    
    1,076
    
    
    
    51,680Equity-based compensation
    
    
    575
    
    
    
    
    
    
    
    
    
    
    
    575Tax benefit/(liability)
associated with
equity-based compensation
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (10
    )Sale of non-controlling
interest of DIFZ
    
    
    8,190
    
    
    
    
    
    
    
    
    
    
    
    8,190DIFZ financing, net of tax
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    106Balance at January 2, 2009
    
    $
    330,275
    
    
    $
    160,389
    
    
    $
    (5,838
    )
    
    $
    484,826
   19




---



##### Table of Contents



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
    %
    
    $
    11,585Third Quarter Fiscal Year 2009 Grants
    
    
    0.00
    %
    
    
    Third Quarter Fiscal Year 2009 Forfeitures
    
    
    (0.01
    %)
    
    
    (73
    )Balance January 2, 2009
    
    
    5.23
    %
    
    $
    11,512March 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
    %
    
    
    5,234Third Quarter Fiscal Year 2009 Vesting
    
    
    0.34
    %
    
    
    1,282January 2, 2009 Vested
    
    
    3.33
    %
    
    $
    6,516March 28, 2008 Nonvested
    
    
    3.42
    %
    
    $
    8,607January 2, 2009 Nonvested
    
    
    1.90
    %
    
    $
    4,996
  20




---



##### Table of Contents



Three month period ended April 3, 2009
    
    $
    369Fiscal year ended April 2, 2010
    
    
    1,139Fiscal year ended April 1, 2011 and thereafter
    
    
    566Total
    
    $
    2,074
 Restricted Stock Units
       WeightedOutstanding
    
    
    AverageRestricted
    
    
    Grant DateStock Units
    
    
    Fair ValueOutstanding, March 28, 2008
    
    
    159,600
    
    
    $
    21.49Units granted
    
    
    309,225
    
    
    
    15.54Units cancelled
    
    
    (32,350
    )
    
    
    20.25Units vested and settled
    
    
    (52,250
    )
    
    
    21.19Outstanding, January 2, 2009(1)
    
    
    384,225
    
    
    $
    16.85
 (1)
    
    Total outstanding includes 1,000 RSUs vested and unsettled as of January 2, 2009.  21




---



##### Table of Contents



Three month period ended April 3, 2009
    
    $
    614Fiscal year ended April 2, 2010
    
    
    2,180Fiscal year ended April 1, 2011 and thereafter
    
    
    1,718Total
    
    $
    4,512
 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 (2.5% at January 2, 2009).  Note 11Consolidating Financial Statements of Subsidiary Guarantors
       22




---



##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Three Months Ended January 2, 2009
 Subsidiary
    
    
    Subsidiary(Amounts
in thousands)
    
    LLC
    
    

Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    540,113
    
    
    $
    252,214
    
    
    $
    101,253
    
    
    $
    (101,253
    )
    
    $
    792,327Cost of services
    
    
    (472,080
    )
    
    
    (233,157
    )
    
    
    (100,226
    )
    
    
    101,253
    
    
    
    (704,210
    )Selling, general and administrative expenses
    
    
    (19,434
    )
    
    
    (7,000
    )
    
    
    (71
    )
    
    
    
    
    
    
    (26,505
    )Depreciation and amortization expense
    
    
    (10,015
    )
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (10,029
    )Operating income
    
    
    38,584
    
    
    
    12,057
    
    
    
    942
    
    
    
    
    
    
    
    51,583Interest expense
    
    
    (15,322
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,322
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings from affiliates
    
    
    1,319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,319Equity in income of subsidiaries, net of tax
    
    
    3,951
    
    
    
    (51
    )
    
    
    
    
    
    
    (3,900
    )
    
    
    Interest income
    
    
    726
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    730Other, net
    
    
    (500
    )
    
    
    (267
    )
    
    
    (89
    )
    
    
    
    
    
    
    (856
    )Income before income taxes
    
    
    28,758
    
    
    
    11,739
    
    
    
    857
    
    
    
    (3,900
    )
    
    
    37,454Provision for income taxes
    
    
    (9,005
    )
    
    
    (2,229
    )
    
    
    (405
    )
    
    
    
    
    
    
    (11,639
    )Minority interest
    
    
    
    
    
    
    (4,694
    )
    
    
    (1,368
    )
    
    
    
    
    
    
    (6,062
    )Net income
    
    $
    19,753
    
    
    $
    4,816
    
    
    $
    (916
    )
    
    $
    (3,900
    )
    
    $
    19,753
 DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Three Months Ended December 28, 2007
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    LLC
    
    

Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    468,086
    
    
    $
    54,985
    
    
    $
    79,000
    
    
    $
    (79,000
    )
    
    $
    523,071Cost of services
    
    
    (402,324
    )
    
    
    (52,040
    )
    
    
    (76,977
    )
    
    
    79,000
    
    
    
    (452,341
    )Selling, general and administrative expenses
    
    
    (25,873
    )
    
    
    (2,486
    )
    
    
    (636
    )
    
    
    
    
    
    
    (28,995
    )Depreciation and amortization expense
    
    
    (10,857
    )
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    (10,910
    )Operating income
    
    
    29,032
    
    
    
    459
    
    
    
    1,334
    
    
    
    
    
    
    
    30,825Interest expense
    
    
    (14,052
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,052
    )Earnings from affiliates
    
    
    1,253
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,253Equity in income of subsidiaries, net of tax
    
    
    1,466
    
    
    
    125
    
    
    
    
    
    
    
    (1,591
    )
    
    
    Interest income
    
    
    489
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    522Other, net
    
    
    380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380Income before income taxes
    
    
    18,568
    
    
    
    617
    
    
    
    1,334
    
    
    
    (1,591
    )
    
    
    18,928Provision for income taxes
    
    
    (6,608
    )
    
    
    (296
    )
    
    
    (64
    )
    
    
    
    
    
    
    (6,968
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    11,960
    
    
    $
    321
    
    
    $
    1,270
    
    
    $
    (1,591
    )
    
    $
    11,960
  23




---



##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Nine Months Ended January 2, 2009
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    LLC
    
    

Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    1,603,886
    
    
    $
    684,386
    
    
    $
    296,721
    
    
    $
    (296,721
    )
    
    $
    2,288,272Cost of services
    
    
    (1,417,739
    )
    
    
    (630,607
    )
    
    
    (287,493
    )
    
    
    296,721
    
    
    
    (2,039,118
    )Selling, general and administrative expenses
    
    
    (60,614
    )
    
    
    (19,249
    )
    
    
    (487
    )
    
    
    
    
    
    
    (80,350
    )Depreciation and amortization expense
    
    
    (30,529
    )
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (30,594
    )Operating income
    
    
    95,004
    
    
    
    34,530
    
    
    
    8,676
    
    
    
    
    
    
    
    138,210Interest expense
    
    
    (44,442
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,442
    )Loss on extinguishment of debt
    
    
    (4,443
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,443
    )Earnings from affiliates
    
    
    3,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,959Equity in income of subsidiaries, net of tax
    
    
    21,951
    
    
    
    (201
    )
    
    
    
    
    
    
    (21,750
    )
    
    
    Interest income
    
    
    1,729
    
    
    
    6
    
    
    
    16
    
    
    
    
    
    
    
    1,751Other, net
    
    
    904
    
    
    
    (111
    )
    
    
    16
    
    
    
    
    
    
    
    809Income before income taxes
    
    
    74,662
    
    
    
    34,224
    
    
    
    8,708
    
    
    
    (21,750
    )
    
    
    95,844Provision for income taxes
    
    
    (24,058
    )
    
    
    (3,339
    )
    
    
    (2,689
    )
    
    
    
    
    
    
    (30,086
    )Minority interest
    
    
    
    
    
    
    (13,156
    )
    
    
    (1,998
    )
    
    
    
    
    
    
    (15,154
    )Net income
    
    $
    50,604
    
    
    $
    17,729
    
    
    $
    4,021
    
    
    $
    (21,750
    )
    
    $
    50,604
 DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statements of Operations Information
For the Nine Months Ended December 28, 2007
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    LLC
    
    

Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenue
    
    $
    1,375,276
    
    
    $
    191,577
    
    
    $
    243,694
    
    
    $
    (243,694
    )
    
    $
    1,566,853Cost of services
    
    
    (1,185,687
    )
    
    
    (178,103
    )
    
    
    (237,966
    )
    
    
    243,694
    
    
    
    (1,358,062
    )Selling, general and administrative expenses
    
    
    (70,416
    )
    
    
    (7,949
    )
    
    
    (1,551
    )
    
    
    
    
    
    
    (79,916
    )Depreciation and amortization expense
    
    
    (31,603
    )
    
    
    
    
    
    
    (298
    )
    
    
    
    
    
    
    (31,901
    )Operating income
    
    
    87,570
    
    
    
    5,525
    
    
    
    3,879
    
    
    
    
    
    
    
    96,974Interest expense
    
    
    (42,247
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,247
    )Earnings from affiliates
    
    
    3,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,320Equity in income of subsidiaries, net of tax
    
    
    7,628
    
    
    
    136
    
    
    
    
    
    
    
    (7,764
    )
    
    
    Interest income
    
    
    2,149
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    2,202Other, net
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )Income before income taxes
    
    
    58,258
    
    
    
    5,714
    
    
    
    3,879
    
    
    
    (7,764
    )
    
    
    60,087Provision for income taxes
    
    
    (20,087
    )
    
    
    (1,587
    )
    
    
    (242
    )
    
    
    
    
    
    
    (21,916
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    38,171
    
    
    $
    4,127
    
    
    $
    3,637
    
    
    $
    (7,764
    )
    
    $
    38,171
  24




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Balance Sheet Information
January 2, 2009
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    LLC
    
    

Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    140,549
    
    
    $
    5,205
    
    
    $
    4,826
    
    
    $
    
    
    
    $
    150,580Restricted cash
    
    
    18,039
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,039Accounts receivable, net
    
    
    447,494
    
    
    
    185,098
    
    
    
    2,332
    
    
    
    
    
    
    
    634,924Prepaid expenses and other current assets
    
    
    116,973
    
    
    
    8,087
    
    
    
    696
    
    
    
    
    
    
    
    125,756Total current assets
    
    
    723,055
    
    
    
    198,390
    
    
    
    7,854
    
    
    
    
    
    
    
    929,299Property and equipment, net
    
    
    14,199
    
    
    
    3,555
    
    
    
    268
    
    
    
    
    
    
    
    18,022Goodwill
    
    
    398,559
    
    
    
    21,621
    
    
    
    
    
    
    
    
    
    
    
    420,180Tradename
    
    
    18,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,318Other intangibles, net
    
    
    137,265
    
    
    
    13,886
    
    
    
    
    
    
    
    
    
    
    
    151,151Investment in subsidiaries
    
    
    56,299
    
    
    
    3,877
    
    
    
    
    
    
    
    (60,176
    )
    
    
    Other assets, net
    
    
    37,067
    
    
    
    212
    
    
    
    
    
    
    
    
    
    
    
    37,279Intercompany receivables
    
    
    23,665
    
    
    
    
    
    
    
    75,114
    
    
    
    (98,779
    )
    
    
    Total assets
    
    $
    1,408,427
    
    
    $
    241,541
    
    
    $
    83,236
    
    
    $
    (158,955
    )
    
    $
    1,574,249LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable
    
    
    111,036
    
    
    
    96,794
    
    
    
    1,286
    
    
    
    
    
    
    
    209,116Accrued payroll and employee costs
    
    
    56,945
    
    
    
    27,201
    
    
    
    27,433
    
    
    
    
    
    
    
    111,579Deferred income taxes
    
    
    1,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,927Other accrued liabilities
    
    
    71,181
    
    
    
    10,737
    
    
    
    39,664
    
    
    
    
    
    
    
    121,582Income taxes payable
    
    
    4,326
    
    
    
    
    
    
    
    1,021
    
    
    
    
    
    
    
    5,347Total current liabilities
    
    
    245,415
    
    
    
    134,732
    
    
    
    69,404
    
    
    
    
    
    
    
    449,551Long-term debt, less current portion
    
    
    615,903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615,903Other long-term liabilities
    
    
    12,060
    
    
    
    53
    
    
    
    8
    
    
    
    
    
    
    
    12,121Intercompany payables
    
    
    38,375
    
    
    
    60,404
    
    
    
    
    
    
    
    (98,779
    )
    
    
    Minority interest
    
    
    11,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,848Members equity
    
    
    484,826
    
    
    
    46,352
    
    
    
    13,824
    
    
    
    (60,176
    )
    
    
    484,826Total liabilities and members equity
    
    $
    1,408,427
    
    
    $
    241,541
    
    
    $
    83,236
    
    
    $
    (158,955
    )
    
    $
    1,574,249
  25




---



##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Balance Sheet Information
March 28, 2008
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    LLC
    
    

Guarantors
    
    
    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
  26




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Cash Flow Information
For the Nine Months Ended January 2, 2009
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    LLC
    
    

Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    92,578
    
    
    $
    (41,000
    )
    
    $
    18,617
    
    
    $
    
    
    
    $
    70,195Cash flows from investing activities:Purchase of property and equipment
    
    
    (3,407
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,407
    )Other investing cash flows
    
    
    (18,663
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,663
    )Net cash used in investing activities
    
    
    (22,070
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,070
    )Cash flows from financing activities:Net transfers from (to) Parent
    
    
    (26,519
    )
    
    
    42,370
    
    
    
    (15,851
    )
    
    
    
    
    
    
    Borrowing under revolving line of credit
    
    
    323,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323,751Payments on credit facilities
    
    
    (301,129
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (301,129
    )Other financing activities
    
    
    (5,546
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,546
    )Net cash used in financing activities
    
    
    (9,443
    )
    
    
    42,370
    
    
    
    (15,851
    )
    
    
    
    
    
    
    17,076Net decrease in cash and cash equivalents
    
    
    61,065
    
    
    
    1,370
    
    
    
    2,766
    
    
    
    
    
    
    
    65,201Cash and cash equivalents, beginning of period
    
    
    79,484
    
    
    
    3,835
    
    
    
    2,060
    
    
    
    
    
    
    
    85,379Cash and cash equivalents, end of period
    
    $
    140,549
    
    
    $
    5,205
    
    
    $
    4,826
    
    
    $
    
    
    
    $
    150,580
  27




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##### Table of Contents



DynCorp International LLC and Subsidiaries
 Unaudited Condensed Consolidating Statement of Cash Flow Information
For the Nine Months Ended December 28, 2007
 Subsidiary
    
    
    Subsidiary(Amounts in thousands)
    
    LLC
    
    

Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    (26,056
    )
    
    $
    (9,970
    )
    
    $
    (13,230
    )
    
    $
    
    
    
    $
    (49,256
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,822
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,822
    )Other investing cash flows
    
    
    (4,419
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,419
    )Net cash used in investing activities
    
    
    (7,241
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,241
    )Cash flows from financing activities:Net transfers from (to) Parent
    
    
    (21,081
    )
    
    
    7,273
    
    
    
    13,808
    
    
    
    
    
    
    
    Borrowing under revolving line of credit
    
    
    13,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500Payments on credit facility
    
    
    (37,058
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,058
    )Other financing activities
    
    
    (8,819
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,819
    )Net cash used in financing activities
    
    
    (53,458
    )
    
    
    7,273
    
    
    
    13,808
    
    
    
    
    
    
    
    (32,377
    )Net decrease in cash and cash equivalents
    
    
    (86,755
    )
    
    
    (2,697
    )
    
    
    578
    
    
    
    
    
    
    
    (88,874
    )Cash and cash equivalents, beginning of period
    
    
    95,458
    
    
    
    5,212
    
    
    
    1,785
    
    
    
    
    
    
    
    102,455Cash and cash equivalents, end of period
    
    $
    8,703
    
    
    $
    2,515
    
    
    $
    2,363
    
    
    $
    
    
    
    $
    13,581
 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.
   28




---



##### Table of Contents



Fair Value Measurements at Reporting Date Using
 Book value offinancial
    
    
    Quoted Prices inassets/(liabilities)
    
    
    Active Markets
    
    
    Significant Other
    
    
    Significantas of January 2,
    
    
    for Identical
    
    
    Observable Inputs
    
    
    Unobservable(Amounts in thousands)
    
    2009
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)AssetsCash equivalents(1)
    
    $
    168,619
    
    
    $
    168,619
    
    
    $
    
    
    
    $
    Total assets measured at fair value
    
    $
    168,619
    
    
    $
    168,619
    
    
    $
    
    
    
    $
    LiabilitiesInterest rate derivatives
    
    $
    8,727
    
    
    $
    
    
    
    $
    8,727
    
    
    $
    Total liabilities measured at fair
value
    
    $
    8,727
    
    
    $
    
    
    
    $
    8,727
    
    
    $
    
 (1)
    
    Includes cash and cash equivalents and restricted cash. Note 13Joint Ventures and Related Parties
    Note 14Segment Information
   International Security Services, or ISS
  29




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##### Table of Contents



Logistics and Construction Management, or LCM
 Maintenance and Technical Support Services, or MTSS
  Three Months Ended(Amounts in thousands)
    
    January 2, 2009
    
    
    December 28, 2007RevenueInternational Security Services
    
    $
    465,757
    
    
    $
    265,722Logistics and Construction Management
    
    
    90,423
    
    
    
    73,064Maintenance and Technical Support Services
    
    
    237,842
    
    
    
    184,285Other/elimination
    
    
    (1,695
    )
    
    
    Total revenue
    
    $
    792,327
    
    
    $
    523,071Operating IncomeInternational Security Services
    
    $
    33,167
    
    
    $
    20,576Logistics and Construction Management
    
    
    536
    
    
    
    5,016Maintenance and Technical Support Services
    
    
    17,880
    
    
    
    5,233Total operating income
    
    $
    51,583
    
    
    $
    30,825Depreciation and amortizationInternational Security Services
    
    $
    6,671
    
    
    $
    7,153Logistics and Construction Management
    
    
    675
    
    
    
    804Maintenance and Technical Support Services
    
    
    2,683
    
    
    
    2,953Total depreciation and amortization
    
    $
    10,029
    
    
    $
    10,910
 Nine Months Ended(Amounts in thousands)
    
    January 2, 2009
    
    
    December 28, 2007RevenueInternational Security Services
    
    $
    1,343,467
    
    
    $
    825,134Logistics and Construction Management
    
    
    269,351
    
    
    
    183,815Maintenance and Technical Support Services
    
    
    679,449
    
    
    
    557,904Other/elimination
    
    
    (3,995
    )
    
    
    Total revenue
    
    $
    2,288,272
    
    
    $
    1,566,853Operating IncomeInternational Security Services
    
    $
    108,545
    
    
    $
    78,069Logistics and Construction Management
    
    
    (16,451
    )
    
    
    4,674Maintenance and Technical Support Services
    
    
    46,116
    
    
    
    14,231Total operating income
    
    $
    138,210
    
    
    $
    96,974Depreciation and amortizationInternational Security Services
    
    $
    20,297
    
    
    $
    21,198Logistics and Construction Management
    
    
    2,144
    
    
    
    2,102Maintenance and Technical Support Services
    
    
    8,153
    
    
    
    8,601Total depreciation and amortization
    
    $
    30,594
    
    
    $
    31,901
 As of(Amounts in thousands)
    
    January 2, 2009
    
    
    March 28, 2008AssetsInternational Security Services
    
    $
    795,198
    
    
    $
    725,775Logistics and Construction Management
    
    
    204,975
    
    
    
    199,088Maintenance and Technical Support Services
    
    
    342,431
    
    
    
    336,721Corporate/other(1)
    
    
    231,645
    
    
    
    141,125Total assets
    
    $
    1,574,249
    
    
    $
    1,402,709
 (1)
    
    Assets primarily include cash, deferred income taxes, and deferred debt issuance cost.  30




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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
  31




---



##### Table of Contents



Logistics and Construction Management
  Contingency and Logistics Operations
 Operations Maintenance and Construction Management
 Maintenance and Technical Support Services
  Contract Logistics Support
 Field Service Operations
 Aviation and Maintenance Services
 CURRENT OPERATING CONDITIONS AND OUTLOOK
 External Factors
   32




---



##### 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, training 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 revenue under
these contracts by competing for task orders with the other contract awardees.
   Current Economic Conditions
     33




---



##### 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.
  34




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedJanuary 2, 2009
    
    
    December 28, 2007
    
    
    January 2, 2009
    
    
    December 28, 2007Fixed Price
    
    
    23.6
    %
    
    
    41.2
    %
    
    
    27.6
    %
    
    
    40.4
    %Time-and-Materials
    
    
    23.1
    %
    
    
    32.8
    %
    
    
    24.4
    %
    
    
    34.5
    %Cost-Reimbursement
    
    
    53.3
    %
    
    
    26.0
    %
    
    
    48.0
    %
    
    
    25.1
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 BACKLOG
     January 2,
    
    
    March 28,(in millions)
    
    2009
    
    
    2008Funded Backlog
    
    $
    1,485
    
    
    $
    1,164Unfunded Backlog
    
    
    5,067
    
    
    
    4,797Total Backlog
    
    $
    6,552
    
    
    $
    5,961
  ESTIMATED REMAINING CONTRACT VALUE
  RESULTS OF OPERATIONS
   35




---



##### Table of Contents



Consolidated
  Three Months Ended(Amounts in thousands)
    
    January 2, 2009
    
    
    December 28, 2007Revenue
    
    $
    792,327
    
    
    
    100.0
    %
    
    $
    523,071
    
    
    
    100.0
    %Cost of services
    
    
    (704,210
    )
    
    
    (88.9
    %)
    
    
    (452,341
    )
    
    
    (86.5
    %)Selling, general and administrative expenses
    
    
    (26,505
    )
    
    
    (3.3
    %)
    
    
    (28,995
    )
    
    
    (5.5
    %)Depreciation and amortization expense
    
    
    (10,029
    )
    
    
    (1.3
    %)
    
    
    (10,910
    )
    
    
    (2.1
    %)Operating income
    
    
    51,583
    
    
    
    6.5
    %
    
    
    30,825
    
    
    
    5.9
    %Interest expense
    
    
    (15,322
    )
    
    
    (1.9
    %)
    
    
    (14,052
    )
    
    
    (2.7
    %)Loss on early extinguishment of debt
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Earnings from affiliates
    
    
    1,319
    
    
    
    0.2
    %
    
    
    1,253
    
    
    
    0.2
    %Interest income
    
    
    730
    
    
    
    0.1
    %
    
    
    522
    
    
    
    0.1
    %Other income, net
    
    
    (856
    )
    
    
    (0.1
    %)
    
    
    380
    
    
    
    0.1
    %Income before taxes
    
    
    37,454
    
    
    
    4.7
    %
    
    
    18,928
    
    
    
    3.6
    %Provision for income tax (as a percentage
of income before tax)
    
    
    (11,639
    )
    
    
    (31.1
    %)
    
    
    (6,968
    )
    
    
    (36.8
    %)Income before minority interest
    
    
    25,815
    
    
    
    3.3
    %
    
    
    11,960
    
    
    
    2.3
    %Minority interest
    
    
    (6,062
    )
    
    
    (0.8
    %)
    
    
    
    
    
    
    0.0
    %Net income
    
    $
    19,753
    
    
    
    2.5
    %
    
    $
    11,960
    
    
    
    2.3
    %
 Nine Months Ended(Amounts in thousands)
    
    January 2, 2009
    
    
    December 28, 2007Revenue
    
    $
    2,288,272
    
    
    
    100.0
    %
    
    $
    1,566,853
    
    
    
    100.0
    %Cost of services
    
    
    (2,039,118
    )
    
    
    (89.1
    %)
    
    
    (1,358,062
    )
    
    
    (86.7
    %)Selling, general and administrative expenses
    
    
    (80,350
    )
    
    
    (3.5
    %)
    
    
    (79,916
    )
    
    
    (5.1
    %)Depreciation and amortization expense
    
    
    (30,594
    )
    
    
    (1.3
    %)
    
    
    (31,901
    )
    
    
    (2.0
    %)Operating income
    
    
    138,210
    
    
    
    6.0
    %
    
    
    96,974
    
    
    
    6.2
    %Interest expense
    
    
    (44,442
    )
    
    
    (1.9
    %)
    
    
    (42,247
    )
    
    
    (2.7
    %)Loss on early extinguishment of debt
    
    
    (4,443
    )
    
    
    (0.2
    %)
    
    
    
    
    
    
    0.0
    %Earnings from affiliates
    
    
    3,959
    
    
    
    0.2
    %
    
    
    3,320
    
    
    
    0.2
    %Interest income
    
    
    1,751
    
    
    
    0.1
    %
    
    
    2,202
    
    
    
    0.1
    %Other income, net
    
    
    809
    
    
    
    0.0
    %
    
    
    (162
    )
    
    
    0.0
    %Income before taxes
    
    
    95,844
    
    
    
    4.2
    %
    
    
    60,087
    
    
    
    3.8
    %Provision for income tax (as a percentage
of income before tax)
    
    
    (30,086
    )
    
    
    (31.4
    %)
    
    
    (21,916
    )
    
    
    (36.5
    %)Income before minority interest
    
    
    65,758
    
    
    
    2.9
    %
    
    
    38,171
    
    
    
    2.4
    %Minority interest
    
    
    (15,154
    )
    
    
    (0.7
    %)
    
    
    
    
    
    
    0.0
    %Net income
    
    $
    50,604
    
    
    
    2.2
    %
    
    $
    38,171
    
    
    
    2.4
    %
  36




---



##### Table of Contents



Revenue 
 Cost of services 
 Selling, general and administrative expenses (SG&A) 
 Interest expense 
 Income tax expense
 Impact of our Afghanistan Construction Contracts
    37




---



##### Table of Contents



Results by Segment
  Three Months Ended January 2, 2009 Compared to Three Months Ended December 28, 2007
 Three Months Ended(Amounts in thousands)
    
    January 2, 2009
    
    
    December 28, 2007RevenueInternational Security Services
    
    $
    465,757
    
    
    
    58.8
    %
    
    $
    265,722
    
    
    
    50.8
    %Logistics and Construction Management
    
    
    90,423
    
    
    
    11.4
    %
    
    
    73,064
    
    
    
    14.0
    %Maintenance and Technical Support Services
    
    
    237,842
    
    
    
    30.0
    %
    
    
    184,285
    
    
    
    35.2
    %Other/elimination
    
    
    (1,695
    )
    
    
    -0.2
    %
    
    
    
    
    
    
    0.0
    %Consolidated
    
    $
    792,327
    
    
    
    100.0
    %
    
    $
    523,071
    
    
    
    100.0
    %Operating Income & MarginInternational Security Services
    
    $
    33,167
    
    
    
    7.1
    %
    
    $
    20,576
    
    
    
    7.7
    %Logistics and Construction Management
    
    
    536
    
    
    
    0.6
    %
    
    
    5,016
    
    
    
    6.9
    %Maintenance and Technical Support Services
    
    
    17,880
    
    
    
    7.5
    %
    
    
    5,233
    
    
    
    2.8
    %Consolidated
    
    $
    51,583
    
    
    
    6.5
    %
    
    $
    30,825
    
    
    
    5.9
    %
 International Security Services
 Revenue 
   38




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Operating Income 
     Logistics and Construction Management
 Revenue 
    39




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##### Table of Contents



Operating Income 
   Maintenance and Technical Support Services
 Revenue 
    Operating Income 
     40




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##### Table of Contents



Nine Months Ended January 2, 2009 Compared to Nine Months Ended December 28, 2007
 Nine Months Ended(Amounts in thousands)
    
    January 2, 2009
    
    
    December 28, 2007RevenueInternational Security Services
    
    $
    1,343,467
    
    
    
    58.7
    %
    
    $
    825,134
    
    
    
    52.7
    %Logistics and Construction Management
    
    
    269,351
    
    
    
    11.8
    %
    
    
    183,815
    
    
    
    11.7
    %Maintenance and Technical Support Services
    
    
    679,449
    
    
    
    29.7
    %
    
    
    557,904
    
    
    
    35.6
    %Other/elimination
    
    
    (3,995
    )
    
    
    -0.2
    %
    
    
    
    
    
    
    0.0
    %Consolidated
    
    $
    2,288,272
    
    
    
    100.0
    %
    
    $
    1,566,853
    
    
    
    100.0
    %Operating Income & MarginInternational Security Services
    
    $
    108,545
    
    
    
    8.0
    %
    
    $
    78,069
    
    
    
    9.5
    %Logistics and Construction Management
    
    
    (16,451
    )
    
    
    (6.1
    )%
    
    
    4,674
    
    
    
    2.5
    %Maintenance and Technical Support Services
    
    
    46,116
    
    
    
    6.8
    %
    
    
    14,231
    
    
    
    2.6
    %Consolidated
    
    $
    138,210
    
    
    
    6.0
    %
    
    $
    96,974
    
    
    
    6.2
    %
 International Security Services
 Revenue 
    Operating Income 
    41




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Logistics and Construction Management
 Revenue 
   Operating Income 
    42




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##### Table of Contents



Maintenance and Technical Support Services
 Revenue 
    Operating Income 
    LIQUIDITY AND CAPITAL RESOURCES
   Cash Flow Analysis
  Nine Months Ended(Amounts in thousands)
    
    January 2, 2009
    
    
    December 28, 2007Net Cash provided by (used in) operating activities
    
    $
    70,195
    
    
    $
    (49,256
    )Net Cash (used in) investing activities
    
    
    (22,070
    )
    
    
    (7,241
    )Net Cash provided by (used in) financing activities
    
    
    17,076
    
    
    
    (32,377
    )
  43




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Financing
    Debt Covenants and Other Matters
    44




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OFF BALANCE SHEET ARRANGEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    ACCOUNTING DEVELOPMENTS
  DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
   45




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   Expected Maturity as ofFiscal Year2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    TotalFixed rate
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    417,032
    
    
    $
    
    
    
    $
    417,032Variable rate
    
    
    
    
    
    
    16,875
    
    
    
    50,625
    
    
    
    55,500
    
    
    
    77,000
    
    
    
    
    
    
    
    200,000Total debt
    
    
    
    
    
    
    16,875
    
    
    
    50,625
    
    
    
    55,500
    
    
    
    494,032
    
    
    
    
    
    
    
    617,032
  Accounting for Derivative Instruments and Hedging Activities
 Foreign Currency Exchange Rate Risk
   46




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##### Table of Contents



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.
    47




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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
    
    Description10.1*
    
    Employment Agreement effective as of December 29, 2008, between
DynCorp International LLC and Tony Smeraglinolo.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. 
 SIGNATURES
  DYNCORP INTERNATIONAL LLC
Date: February 10, 2009/s/ MICHAEL J. THORNEName:
    Michael J. ThorneTitle:
    Senior Vice President and Chief Financial Officer  48