UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
(Mark One)
   
(Mark One)þ 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 3, 2009
or
For the fiscal year ended March 28, 2008
or
o
 
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-32869
DYNCORP INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
   
Delaware
 01-0824791
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
incorporation or organization)Identification No.)
3190 Fairview Park Drive, Suite 700, Falls Church, Virginia 22042
(571) 722-0210

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
   
Title of Each Class
 
Name of Exchange on Which Registered
Class A common stock, par value $0.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
     
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes o      No þ
     
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o      No þ
     
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o      No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. o
     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer oAccelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)		Smaller reporting company o
(Do not check if a smaller reporting company)
     
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o      No þ
     
As of September 28, 2007,October 3, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, 57,000,000 shares of Class A common stock were outstanding and the aggregate market value of the common stock held by non-affiliates of the registrant on that date was approximately $532$403 million (based upon the closing price on the New York Stock Exchange on September 28, 2007October 3, 2008 of $23.11$16.11 per share). Aggregate market value is estimated solely for the purposes of this report.
     
As of June 6, 2008,1, 2009, the registrant had 57,000,00056,251,900 shares of its Class A common stock outstanding.
Documents Incorporated by Reference
     
Portions of the registrant’s Definitive Proxy Statement to be filed subsequent to the date hereof with the Commission pursuant to Regulation 14A in connection with the registrant’s 20082009 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.April 3, 2009.
 

 

DYNCORP INTERNATIONAL INC.
TABLE OF CONTENTS
DYNCORP INTERNATIONAL INC.
TABLE OF CONTENTS
     
    Page
 Forward-Looking Statements3
    Forward-Looking Statements1
 
PART I.
 
Item 1.
 Business��23
Item 1A.
 Risk Factors 12
Item 1B.
 Unresolved Staff Comments 2322
Item 2.
 Properties 2322
Item 3.
 Legal Proceedings 2322
Item 4.
 Submission of Matters to a Vote of Security Holders 22
23 
 
PART II.
 
Item 5.
 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 2423
Item 6.
 Selected Financial Data 2725
Item 7.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 2927
Item 7A.
 Quantitative and Qualitative DisclosureDisclosures About Market Risk 4644
Item 8.
 Financial Statements and Supplementary Data 4846
Item 9.
 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 8583
Item 9A.
 Controls and Procedures 8583
Item 9B.
 Other Information 85
87 
 
PART III.
 
Item 10.
 Directors, Executive Officers and Corporate Governance 8785
Item 11.
 Executive Compensation 8785
Item 12.
 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 8785
Item 13.
 Certain Relationships and Related Transactions, and Director Independence 8785
Item 14.
 Principal AccountingAccountant Fees and Services 85
87 
 
PART IV.
 
Item 15.
 Exhibits and Financial Statement Schedules 8886
 2007 Omnibus Incentive PlanEX-10.26
 Statement re: Computation of RatiosEX-10.27
 SubsidiariesEX-12.1
 Certification of CEO Pursuant to Section 302EX-21.1
 Certification of CFO Pursuant to Section 302EX-31.1
 Certification of CEO Pursuant to Section 906EX-31.2
 Certification of CFO Pursuant to Section 906EX-32.1
EX-32.2

2

Forward-Looking Statements
          
This Annual Report onForm 10-K contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements, written, oral or otherwise made, represent the Company’sour expectation or belief concerning future events. Forward-looking statements involve risks and uncertainties. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The Company cautionsStatements regarding the amounts of our backlog, estimated remaining contract values and estimated total contract values are other examples of forward-looking statements. We caution that these statements are further qualified by important economic, competitive, governmental and technological factors that could cause our business, strategy or actual results or events to differ materially, or otherwise, from those in the forward-looking statements, including, without limitation, our substantial level of indebtedness; policy and/or spending changes inimplemented by the demand for services that the Company provides;new Presidential administration; termination of key United States (“U.S.”) government contracts; changes in the demand for services that we provide; pursuit of new commercial business and foreign government opportunities; activities of competitors; bid protests; changes in significant operating expenses; changes in availability of or cost of capital; general political, economic and business conditions in the U.S.; acts of war or terrorist activities; variations in performance of financial markets; estimatesthe inherent difficulties of estimating future contract values, as reported in our backlog;revenue; anticipated revenue from indefinite delivery, indefinite quantity (“IDIQ”) contracts; expected percentages of future revenue represented by fixed- pricefixed-price andtime-and-materials contracts; and statements covering our business strategy, those described in “Risk“Item 1A Risk Factors” and other risks detailed from time to time in the Company’s reports filed with the Securities and Exchange Commission (the “SEC”). Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances; therefore, there can be no assurance that any forward-looking statement contained herein will prove to be accurate. The Company assumesWe assume no obligation to update the forward-looking statements.


1

PART I
ITEM 1.BUSINESS.
          
ITEM 1.BUSINESS.
Unless the context otherwise indicates, references herein to “we,” “our,” “the Company,” “us” or “DynCorp International” refer to DynCorp International Inc. and itsour consolidated subsidiaries. We refer to our subsidiary, DynCorp International LLC and itsour subsidiaries, as our “operating company.” All references in this Annual Report toWe report results on a 52/53-week fiscal years made in connectionyear with our financial statements or operating results refer to the fiscal year endedending on the Friday closest to March 31st31 of such year. For example, “fiscal 2008” refers to ourOur fiscal year ended March 28, 2008.
2009 included 53 weeks while fiscal year 2008, and 2007 each included 52 weeks.
Overview
          
DynCorp International Inc., through its subsidiaries, provides defenseWe are a leading provider of specialized, mission-critical professional and technicalsupport services outsourced by the U.S. military, non-military U.S. governmental agencies and government outsourced solutions primarily to U.S. government departments and agencies.foreign governments. Our specific global expertise is in law enforcement training and support, security services, base and logistics operations, logistical and construction support,management, aviation services and operations, and linguist services. OurWe also provide logistics support for all our services. Through our predecessor companies, we have provided essential services to numerous U.S. government departments and agencies since 1951, and we are the surviving company of various mergers and acquisitions executed by our predecessor companies, which are further discussed inCompany History and Certain Relationshipsbelow.1951. We are incorporated in the state of Delaware.
          
Our customers include the U.S. Department of Defense (“DoD”), the U.S. Department of State (“DoS”), foreign governments, commercial customers and certain other U.S. federal, state and local government departments and agencies. Revenue from the U.S. government accounted for approximately 95%96%, 97%95%, and 97% of total revenue in fiscal years 2009, 2008, 2007, and 2006,2007, respectively.
          
During fiscal years 2006 through 2008, we conducted our operations through two businessreportable segments: Government Services (“GS”) and Maintenance and Technical Support Services (“MTSS”). In AprilOn March 29, 2008, we announced that operations will be conducted through three business segments:divided our GS operating segment into two new segments, International Security Services (“ISS”), and Logistics and Construction Management (“LCM”), to enable us to better capitalize on business development opportunities and MTSS. Seeenhance our ongoing service. Our ISS operating segment consists of our Law Enforcement and Security strategic business unit, our Specialty Aviation and Counter-Drug Operations strategic business unit and Global Linguist Solutions (“GLS”), our joint venture for the Intelligence and Security Command (“INSCOM”) contract described below. Our LCM operating segment consists of our Contingency and Logistics Operations strategic business unit and our Operations Maintenance and Construction Management strategic business unit and includes any work awarded under the Logistics Civil Augmentation Program (“LOGCAP IV”). Our third segment is MTSS, which consists of its original components and DynMarine services, which previously reported under the former GS segment.
          On April 6, 2009, we announced a further reorganization of our business structure to better align with strategic markets and to streamline our infrastructure. Under the new alignment, our three reportable segments were realigned into three new segments, two of which, Global Stabilization and Development Solutions (“GSDS”) and Global Platform Support Solutions (“GPSS”), are wholly-

3

owned, and a third segment, GLS, which is a 51% owned joint venture. The new structure became effective April 4, 2009, the start of our 2010 fiscal year, and is more fully described in Note 1617 to our consolidated financial statements for a more detailed discussion.statements.
          
In addition to the information presented below, Note 13 to our consolidated financial statements contains additional information about our businessoperating segments and geographic areas in which we have conducted business for fiscal years 2009, 2008, 2007 and 2006.
Government Services
GS, with revenue2007. We have restated the corresponding items of approximately $1.4 billion, $1.4 billion and $1.3 billionsegment information for fiscal years 2008 and 2007 and 2006, respectively,to conform to our fiscal year 2009 segment presentation.
International Security Services
          ISS provides outsourced technical services primarily to government agencies and commercial customers worldwide. GSISS consists of the following operatingstrategic business units:
          
Law Enforcement and Security —Security.This operatingstrategic business unit provides international policing and police training, judicial support, immigration support and base operations. In addition, it provides security and personal protection for diplomats and designs, installs and operates security systems security software, smart cards and biometrics for use by government agencies.
Specialty Aviation and Counter-drug Operations.This strategic business unit provides services including drug eradication and host nation pilot and crew training.
Global Linguist Solutions.This joint venture between DynCorp International and McNeil Technologies, in which we have a 51% ownership interest, provides rapid recruitment, deployment and on-site management of interpreters and translators in-theatre for a wide range of foreign languages.
Key ISS Contracts
Intelligence and Security Command.In December 2006, GLS was awarded the INSCOM contract by the U.S. Army for the management of linguist and translation services in support of the military mission known as Operation Iraqi Freedom, or “OIF.” After a series of protests, on March 13, 2008, the U.S. Army authorized GLS to resume performance on a contract for management of translation and interpretation services in support of OIF after a February 2008 protest of the contract award was withdrawn. This five year contract has a maximum value of $4.6 billion and a current awarded value of $3.5 billion. Under the contract, GLS provides rapid recruitment, deployment, and on-site management of interpreters and translators in-theater for a wide range of foreign languages in support of the U.S. Army, unified commands, attached forces, combined forces, and joint elements executing the OIF mission, and other U.S. government agencies supporting the OIF mission.
Civilian Police.The Civilian Police contract was awarded to us by the DoS in February 2004. Our Civilian Police contract has an estimated total contract value of $3.8 billion over the five and one-half year term of this program through August 2009. Through the Civilian Police program, we have deployed civilian police officers from the United States to 12 countries to train and offer logistics support to the local police and assist them with infrastructure reconstruction. Our first significant deployment of civilian police personnel began in the Balkans in 1996, where we helped train local police and provided support during the conflict. We remained in the region through 2004. In addition, we have been awarded multiple task orders under the Civilian Police program, including assignments in Iraq and Afghanistan.
International Narcotics Eradication and Law Enforcement.In May 2005, the DoS awarded us a contract in support of the International Narcotics and Law Enforcement Air-Wing, or “INL,” program to aid in the eradication of illegal drug operations. We are the sole awardee of this contract, which has an estimated contract value of $1.3 billion for the first four years of the nine-year term. The contract expires in October 2014. This program has been ongoing since 1991, in cooperation with multiple Latin American countries. A similar program in Afghanistan began in 2006.
California Department of Forestry.We have been helping to fight fires in California since December 2001. We maintain approximately 55 aircraft, providing nearly all types and levels of maintenance: scheduled, annual, emergency repairs, and even structural depot level repair. McClelland Field in Sacramento is home base for approximately 80 DynCorp International mechanics, data entry staff, and quality control inspectors. In addition, we have approximately 55 pilots who operate these aircraft.
          The following table sets forth certain information for our principal ISS contracts, including estimated total contract values of the current contracts as of April 3, 2009:

4

Estimated
CurrentTotal
Initial/CurrentContract EndContract
ContractPrincipal CustomerAward DateDateValue(1)
INSCOM/GLSU.S. ArmyMar 2008Apr 2013$3.8 billion(2)(3)
Civilian Police ProgramDoSFeb 1994/Feb 2004Aug 2009$3.8 billion(3)
INLDoSJan 1991/May 2005Oct 2014$1.3 billion(3)
California Department of ForestryState of CaliforniaJan 2002/Jul 2008Dec 2014$138 million
(1)Estimated total contract value has the meaning indicated in “— Estimated Total Contract Value”.
(2)Awarded to GLS, a joint venture of DynCorp International (which owns a 51% majority interest) and McNeil Technologies (which owns the remaining interest).
(3)This contract is an IDIQ contract. For more information about IDIQ contracts see “— Contract Types”. Also, for a discussion of how we define estimated remaining contract value for IDIQ contracts, see “— Estimated Remaining Contract Value”.
Logistics & Construction Management
          LCM provides technical support services to government agencies and commercial customers.customers worldwide. LCM consists of the following strategic business units:
          
Contingency and Logistics Operations —Operations.This operatingstrategic business unit provides peace-keeping support, humanitarian relief, de-mining, worldwide contingency planning and other rapid response services. In addition, it offers inventory procurement and tracking services, equipment maintenance, property control, data entry and mobile repair services.
          
Operations Maintenance and Construction Management —Management.This operatingstrategic business unit provides facility and equipment maintenance and control and custodial and administrative services. In addition, it provides civil, electrical, infrastructure, environmental and mechanical engineering and construction management services.
Key LCM Contracts
Specialty Aviation and Counter-drug Operations —Logistics Civil Augmentation Program.This operating unit provides services including drug eradication and host nation pilot and crew training.


2

Global Linguist Solutions — This new joint venture between DynCorp International and McNeil Technologies, provides rapid recruitment, deployment andon-site managementOn April 17, 2008, we were selected as one of interpreters and translators in-theatre forthree prime contractors to provide logistics support under the LOGCAP IV contract. LOGCAP IV is the Army component of the DoD’s initiative to award contracts to U.S. companies with a widebroad range of foreign languages. Further information regarding this joint venture is discussed in Item 7 of this Annual Report.
Key GS Contracts
Intelligencelogistics capabilities to support U.S. and Security Command
In December 2006, Global Linguist Solutions LLC (“GLS”), a joint venture of DynCorp Internationalallied forces during combat, peacekeeping, humanitarian and McNeil Technologies in which we have a 51% ownership interest, was awarded the Intelligence and Security Command (“INSCOM”) contract by the U.S. Army for the management of linguist and translation services in support of the military mission known as Operation Iraqi Freedom (“OIF”). This five yeartraining operations. The contract has a maximumterm of up to ten years, a ceiling value of $4.6$50 billion and an annual ceiling value to us and our subcontractors of approximately $5 billion, depending on the number of individual task orders that are awarded under the contract. The LOGCAP IV objective is to use civilian contractors to perform selected services in a current awarded valuetheater of $3.5 billion.
Under the contract, GLS will provide rapid recruitment, deployment, andon-site management of interpreters and translators in-theater for a wide range of foreign languages. This effort will support theoperations to augment U.S. Army unified commands, attached forces, combined forces and joint elements executing the OIF mission, andrelease military units for other missions or to fill U.S. government agencies supporting the OIF mission. The foreign language interpretation and translation services provided by GLS under this contract will allow OIF forces to communicate with the local populace, gather information for force protection and interact with other foreign military units. We believe that, pursuant to this contract, GLS will employ up to 7,500 locally-hired translators and up to 1,500 U.S. citizens with security clearances who are fluent in the languages spoken in Iraq.Army resource shortfalls.
          
Civilian Police
Historically, our Civilian Police contract has been the most significant contract in terms of revenue of our GS operating segment. The Civilian Police contract was awarded to us by the DoS in February 2004. Our Civilian Police contract has an estimated total contract value of $2.98 billion over the five-year term of this program, through February 2009. Through the Civilian Police program, we have deployed civilian police officers from the U.S. to 12 countries to train and offer logistics support to the local police and assist them with infrastructure reconstruction. Our first significant deployment of civilian police personnel began in the Balkans in 1996, where our predecessor companies helped train local police and provided support during the height of the conflict. We remained in the region through 2004. In addition, we have been awarded multiple task orders under the Civilian Police program, including assignments in Iraq and Afghanistan.
International Narcotics Eradication and Law Enforcement
In May 2005, the DoS awarded us a contract in support of the International Narcotics and Law Enforcement Air-Wing (“INL”) program to aid in the eradication of illegal drug operations. We are the sole awardee of this contract, which has an estimated contract value of $1.03 billion for the first three years of the nine-year term. The contract expires in October 2014. This program has been ongoing since 1991 in cooperation with multiple Latin American countries. A similar program in Afghanistan began in 2006.
War Reserve MaterielMateriel.
Through our War Reserve Materiel program, we provide management of the U.S. Air Force Southwest Asia War Reserve Materiel Pre-positioning program, which includes operations in Oman, Bahrain, Qatar, Kuwait and two locations in the U.S., Albany,United States (Albany, Georgia and Shaw Air Force base, South Carolina.Carolina). We store, maintain and deploy assets such as tents, generators, vehicles, kitchens and medical supplies to deployed forces in the global war on terror. During Operation Enduring Freedom and OIF, we sent teams into the field to assist in the setup of tent cities prior to the arrival of the deployed forces. The War Reserve Materiel program continues to partner with the U.S. Central Command Air Force in the development of new and innovative approaches to asset management.


3

Africa PeacekeepingPeacekeeping.
We have taken onassumed increasing responsibilities in Africa through our Africa peacekeepingPeacekeeping contract operations, supporting the DoS in Ethiopia, Liberia, Nigeria, Senegal, Somalia, and Sudan. Our experience in logistics and contingency operations is a valuable asset to many efforts such as peacekeeping, humanitarian aid, and national reconstruction. We arrange transportation, manage construction and provide security and equipment training. We also provide advisors and serve as a liaison with the DoS.
          
California Department of Forestry
We have been helping to fight fires in California since December 2001. We maintain 55 aircraft, providing nearly all types and levels of maintenance — scheduled, annual, emergency repairs, and even structural depot level repair. McClelland Field in Sacramento is home base for 77 DynCorp International mechanics, data entry staff, and quality control inspectors. In addition, we have 50 pilots who operate these aircraft.
The following table sets forth certain information for our principal GSLCM contracts, including estimated total contract values of the current contracts as of March 28, 2008:April 3, 2009:

5

         
        Estimated
      Current
 Total
    Initial/Current
 Contract End
 Contract
Contract(1)
Contract		 
Principal Customer
 Award Date Date Value(2)Value(1)
INSCOM/GLSLOGCAP IV U.S. Army MarApr 2008 Apr 20132018 $3.550 billion(2)(3)
Civilian Police ProgramDoSFeb 1994/Feb 2004Feb 2009$2.98 billion(4)
INLDoSJan 1991/May 2005Oct 2014$1.03 billion(4)(5)
War Reserve Materiel II U.S. Air Force May 2000Oct 2008 Sep 20082016 $619382 million
Africa Peacekeeping DoS May 2003 Oct 2008Dec 2009 $241340 million
California Department of ForestryState of CaliforniaJan 2002/July 2008Dec 2014$133 million(2)
 
(1)The table does not include LOGCAP IV as this agreement was not signed until April 2008. See “Recent Developments” for further discussion.Estimated total contract value has the meaning indicated in “— Estimated Total Contract Value”.
 
(2)Estimated Total Contract Value represents amounts expected to be realized from the current award date to the current contract end date (i.e., revenue recognized to date plus estimated remaining contract value), except as described in footnote 5 to this table.
(3)Awarded to GLS, a joint venture of DynCorp International (51% majority interest) and McNeil Technologies.
(4)This contract is an IDIQ contract. For more information about IDIQ contracts see “Contract Types.”“— Contract Types”. Also, for a discussion of how we define estimated remaining contract value for indefinite delivery, indefinite quantityIDIQ contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —“— Estimated Remaining Contract Value.”Value”.
 
(5)(3)We areThe $50 billion dollar value is a ceiling value and not necessarily representative of the sole awardeeamount of this contract, which has an estimated contract value of $1.03 billion forwork we will be awarded under the first three years of this nine-year contract through October 2014. In January 2007, we were awarded the fourth year of this ten year award term contract.
Maintenance & Technical Support Services
          
MTSS with revenue of approximately $734.8 million, $703.4 million and $685.6 million for fiscal years 2008, 2007 and 2006, respectively, offers the following services:
          
Aviation Services and Operations —Operations.Our aviation services and operations include aircraft fleet maintenance, depot augmentation, aftermarket logistics support, aircrew services and training, ground equipment maintenance and modifications, quality control, Federal Aviation Administration (“FAA”) certification, facilities and operations support, aircraft scheduling and flight planning and the provisioning of pilots, test


4

pilots and flight crews. Services are provided from both the main base locations and forward operating locations.
          
Aviation Engineering —Engineering.Our aviation engineering technicians manufacture and install aircraft modification programs for a broad range of weapons systems and aircraft engines. In addition, we provide services such as engineering design, kit manufacturing and installation, field installations, configuration management, avionics upgrades, cockpit and fuselage redesign and technical data, drawings and manual revisions.
          
Aviation Ground Equipment Support —Support.Our aviation ground equipment support services include ground equipment support, maintenance and overhaul, modifications and upgrades, corrosion control, engine rebuilding, hydraulic and load testing and serviceability inspections. We provide these services worldwide and offer both short- and long-duration field teams. As of March 28, 2008,April 3, 2009, we employed over 850 mechanics, technicians and support personnel who perform depot level overhaul of ground support equipment for U.S. Navy and U.S. Coast Guard programs and provide depot level ground support equipment at approximately 20 worldwide locations.
          
GroundGround Vehicle Maintenance —. Our ground vehicle maintenance services include vehicle maintenance, overhaul and corrosion control and scheduling and work flow management. We perform maintenance and overhaul on wheeled and tracked vehicles for the U.S. Army and U.S. Marine Corps, in support of their pre-positioning programs and for the United Arab Emirates (“UAE”) military, working in conjunction with a UAE government agency. We also provide overall program management, logistics support, tear down and inspection of equipment cycled off of pre-positioned ships.
          
In addition to looking at our MTSS business by service offering, much of our internal management is performed viewing our business by Strategic Business Area (“SBA”). The nature of our MTSS business is dynamic, and our service offerings typically cross all of our SBA’s. From a management perspective, an SBA does not represent a distinct business within MTSS but is rather an accumulation of contracts and services into a management group for accountability and reporting. For the year ended March 28, 2008,April 3, 2009, our SBA’s were as follows:
          
Contract Logistics Support — Provides worldwide support of U.S. Army, Air Force and Navy fixed wing assets. Aircraft are deployed throughout the U.S., Europe, Asia, South America and the Middle East. Contract Logistics Support (“CLS”) provides flight line through depot level maintenance consisting of scheduled and unscheduled events. Specific functions include repair, overhaul and procurement of components, procurement of consumable materials and transportation of materials to and from the operating sites. In addition, the team is responsible for obsolescence engineering, quality control, inventory management, avionics upgrades and recovery of downed aircraft.
          
Field Service Operations —Operations.Provides worldwide maintenance, modification, repair, and logistics support on aircraft, weapons systems, and related support equipment to the DoD and other U.S. government agencies. Contract Field Teams is the most significant program in our Field Service Operations (“FSO”) SBA. Our Company and its predecessors have provided this service for over 55 57

6

consecutive years. This program deploys highly mobile, quick-response field teams to customer locations to supplement a customer’s workforce. FSO employs over 3,800 personnel worldwide.
          
Aviation & Maintenance Services —Services.Provides aircraft fleet maintenance and modification services, ground vehicle maintenance and modification services, marine services, pilot and maintenance training, logistics support, air traffic control services, base and depot operations, program management and engineering services. These services are offered on a domestic and international basis. With programs in seven international locations, as well as the U.S., Aviation and Maintenance Services employs over 2,400 personnel worldwide.


5

Key MTSS Contracts
Contract Field Teams
          
Contract Field Teams (“CFT”) is the most significant program in our MTSS segment. Our Company and its predecessorsWe have provided this service for over 5557 consecutive years. This program deploys highly mobile, quick-response field teams to customer locations to supplement a customer’s workforce. The services we provide under the Contract Field Teams program generally include mission support to aircraft and weapons systems and depot-level repair. The principal customer for our Contract Field Teams program is the DoD. Our Contract Field Teams contract is up for re-competition in October 2008. This contract has a $2.78$10.1 billion estimated total contract value for multiple awardees over an 11 yeara seven-year term through September 2008.
2015.
Life Cycle Contractor Support
          
This MTSS program consists of contracts with the U.S. Army and the U.S. Navy. Under the Life Cycle Contractor Support-Army contracts, the Company provideswe provide aircraft maintenance and logistics for 165 C-12/RC-12 and 27 UC-35 aircraft, as well as services for a major avionics suite upgrade of 39 aircraft for Global Air Traffic Management compliance. Under our Life Cycle Contractor Support-Navy contracts, our Company and its predecessorswe provide aircraft maintenance and logistics for the U.S. Navy’s 6 UC-35 aircraft. We entered into the Life Cycle Contractor Support-Army and Life Cycle Contractor Support-Navy contracts in August 2000 and the Global Air Traffic Management portion of our Army contract in March 2003. The Life Cycle Contractor Support-Army and Life Cycle Contractor Support-Navy contracts are up for re-competition in January 2010. These contracts have estimated total contract values of $997.0$1,150 million and $33.0$65 million for Life Cycle Contractor Support-Army and Life Cycle Contractor Support-Navy, respectively.
Andrews Air Force Base
          
Under the Andrews Air Force Base contract, the Company performswe perform aircraft maintenance and base supply functions, including full back shop support, organizational level maintenance, fleet fuel services and supply, launch and recovery and FAA repair services. Our principal customer under this contract is the U.S. Air Force. We entered into this contract in January 2001, and it is up for re-competition in December 2011. This contract has a $358$371 million estimated total contract value.
Columbus Air Force Base
          
We provide aircraft and equipment maintenance functions for T-37, T-38, T-1 and T-6 training aircraft in support of the Columbus AFB Specialized Undergraduate Pilot Training Program in Columbus, Mississippi. Our customer under this program is the U.S. Air Force — Air Education and Training Command and specifically the 14th Flying Training Wing. This contract provides for a firm fixed pricefixed-price incentive fee with an incentive award fee. The total awarded value was $245 million. The current estimatedEstimated total contract value stands at $286is $291 million. The performance period started October 2005 and runs through September 2012. We have just completed a transition from the oldT-37 primary trainer to the new T-6 turbo prop. Additionally, this 14th Flying Training Wing has one additional squadron of T-38s dedicated to fighter lead in training.
lead-in-training.
Army Prepositions Stocks Afloat
          
We perform organizational and intermediate level maintenance and support services on U.S. Army equipment at Army Field Support Battalion Afloat, also known as AFSB-A, located in Charleston, South Carolina and aboard ships. The customer is the Army Sustainment Command; Army Field Support — Afloat. The contract terms provide for a cost plus/fixed feecost-plus/fixed-fee and includesinclude an award fee. The contract has an estimated total contract value of $246$269 million. The recompetere-compete process for this contract has commenced, as it expires in fiscal 2009. Although the on-shipboard work declined in fiscal 2008, the contract has increased in workload because of rework of Army left behind equipment and other reset work.year 2010. There are approximately 450 DynCorp Internationalof our employees on this contract.
C-21 Contractor Logistics Support
          Under the C-21A CLS Program, we perform organizational, intermediate and depot level maintenance, together with supply


67

chain management for approximately 56 C-21A (Lear 35A) aircraft operated by the U.S. Air Force at seven main operating bases and one deployed location.
UAE General Maintenance Corporation
          
In December 2007, the UAE Ministry of Defense selected us to provide maintenance, training, supply chain management, and facilities management for its fleet of 17,000 military and commercial ground vehicles. This is a seven-year contract with an estimated total contract value of $164 million, with an option to renew for an additional five years. The contract is under the authority of the UAE Land Forces’ General Maintenance Corporation (“GMC”).Corporation.
          
C21 Contractor Logistics Support
Under the C-21A CLS Program, we perform organizational, intermediate and depot level maintenance, together with supply chain management for 56 C-21A (Lear 35A) aircraft operated by the U.S. Air Force at seven main operating bases and one deployed location.
The following table sets forth certain information for our principal MTSS contracts, including estimated total contract values of the current contracts as of March 28, 2008:April 3, 2009:
         
        Estimated
      Current
 Total
    Initial/Current
 Contract End
 Contract
Contract
 
Principal Customer
 Award Date Date Value
(1)
Contract Field Teams DoD Oct 1951/Oct 1997Jul 2008 Sept 20082015 $2.782.6 billion(1)(2)(3)
Life Cycle Contractor Support U.S. Army and U.S. Navy Aug 2000 Jan 2010 $1.031.2 billion
Andrews Air Force Base U.S. Air Force Jan 2001 DecMar 2011 $358371 million
Columbus Air Force Base U.S. Air Force Oct 1998/Jul 2005 Sep 2012 $286291 million
Army Prepositions Stocks Afloat U.S. Army Feb 1999 Sep 2008Jul 2009 $246269 million
UAE GeneralUnited Arab Emirates
Maintenance Corp. Armed ForcesDec 2006Dec 2013$164 million
C-21 Contractor Logistics Support U.S. Air Force Sept 2006 Sept 2011 $212 million
154 millionUAE General Maintenance Corps UAE Armed ForcesDec 2006Mar 2014$164 million
 
(1)Estimated total contract value has the meaning indicated in “— Estimated Total Contract Value”.
(2)This contract is an IDIQ contract. For more information about IDIQ contracts see “Contract“— Contract Types.” Also, for a discussion of how we define estimated remaining contract value for IDIQ contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —“— Estimated Remaining Contract Value.”Value”.
 
(2)(3)Estimated Total Contract ValueThe $2.6 billion dollar value represents amounts expected to be realizedthe estimate from the current award date toawarded contract and not necessarily representative of the current contract end date (i.e. revenue recognized to date plus estimated remaining contract value).amount of work we will actually be awarded under the contract.
Contract Types
          
Our contracts typically have a term of three to ten years consisting of a base period of one year with multiple one-year options. Our contracts typically are awarded for an estimated dollar value based on the forecast of the work to be performed under the contract over its maximum life. In addition, we have historically received additional revenue through increases in program scope beyond that of the original contract. These contract modifications typically consist of “over and above” requests derived from changing customer requirements and are reviewed by the Companyus for appropriate revenue recognition. The U.S. government is not obligated to exercise options under a contract after the base period. At the time of completion of the contract term of a government contract, the contract is re-competed to the extent that the service is still required.
          
Contracts between our operating company andOur contracts with the U.S. government or the government’s prime contractor (to the extent that we are a subcontractor) generally contain standard, unilateral provisions under which the customer may terminate for convenience or for default. U.S. government contracts generally also contain provisions that allow the U.S. government to unilaterally suspend us from obtaining new contracts pending resolution of alleged violations of procurement laws or regulations, reduce the value of existing contracts, issue modifications to a contract and control and potentially prohibit the export of our services and associated materials.


7

Our business generally is performed under fixed-price,time-and-materials or cost-reimbursement contracts. Each of these is described below.
 • 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 the CompanyOur fixed-price contracts include firm fixed-price, fixed-price with economic adjustment, and fixed-price incentive.
 
 • Time-and-Materials Type Contracts:  Atime-and-materialsTime-and-materials type contract providescontracts provide 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

8

based upon various objective and subjective criteria, such as aircraft mission capability rates and meeting cost targets.
          
Any of these three types of contracts discussed above may be executed under an IDIQ contract, which are often awarded to multiple contractors. An IDIQ contract does not represent a firm order for services. Our Civilian Police and Contract Field Teams programs are two examples of IDIQ contracts. In fiscal years 2009, 2008, and 2007, 73%, 70%, and 2006, 52%, 57% and 59%72% of our revenue, respectively, were attributable to IDIQ contracts. When a customer wishes to order services under an IDIQ contract, the customer issues a task order request for proposal to the contractor awardees. The contract awardees then submit proposals to the customer and task orders are typically awarded under a best-value approach. However, many IDIQ contracts permit the customer to direct work to a particular contractor. In some instances, the contractor may identify specific projects and propose to perform the service for a customer within the scope of the IDIQ contract, although the customer is not obligated to order the services.
          
Our historical contract mix by type for the last three fiscal years, as a percentage of revenue, is indicated in the table below.
                     
 Fiscal Year  Fiscal Year
Contract Type
 2008 2007 2006  2009 2008 2007
Fixed-Price  37%  41%  33%  27%  37%  41%
Time-and-Materials  33%  36%  38%  24%  33%  36%
Cost-Reimbursement ��30%  23%  29%  49%  30%  23%
              
Totals  100%  100%  100%  100%  100%  100%
              
          
We believe the INSCOM contract, discussed above, and the Logistics Civil Augmentation Program (“LOGCAP IV”) contract, which was awarded in April 2008 and is discussed further in Managements’ Discussion and Analysis of Financial Condition and Results of Operations “Recent Developments” below, could have a significant impact on our revenue in future periods. As theThe INSCOM contract is a cost-reimbursement type contract, and as we believeexpect that the majority of the task orders issued under the LOGCAP IV contract will be cost-reimbursement type task orders, weorders. We therefore anticipate that cost-reimbursement type contracts will represent a greater percentage of our revenue in the foreseeable future. With this shift to cost-reimbursement type contracts, our consolidated operating margin percentage could be lower, as cost-reimbursement type contracts typically carry lower margins than other contract types, but also carry lower risk of loss.
          
Under many of our contracts, we rely on subcontractors to perform all or a portion of the services we are obligated to provide to our customers. We often enter into subcontract arrangements in order to meet government requirements that certain categories of services be awarded to small businesses. We use subcontractors primarily for specialized, technical labor and certain functions such as construction and catering. For fiscal 2008, 2007 and 2006, we paid our subcontractors approximately $219.1 million, $227.0 million and $229.0 million, respectively.
Competition
          
We compete with various entities across geographic and business lines based on a number of factors, including services offered, experience, price, geographic reach and mobility. Most activities in which we engage are highly


8

competitive and require that we have highly skilled and experienced technical personnel to compete. Some of our competitors havepossess greater financial and other resources than we do or are better positioned than we are to compete for certain contract opportunities. Our competitors include Civilian Police International, Science Applications International Corporation, ITT Corporation, KBR, Inc., IAP Worldwide Services, Inc., Blackwater,Xe Inc., Triple Canopy Inc., Fluor Corporation, Lockheed Martin Corporation, United Technologies Corporation, L-3 Holdings, Aerospace Industrial Development Corporation, Al Salam Aircraft Company Ltd. and Serco Group Plc. We believe that the primary competitive factors for our services include reputation, technical skills, past contract performance, experience in the industry, cost competitiveness and customer relationships.
Backlog
          
We track backlog in order to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised, priced contract options and the unfunded portion of exercised contract options. Most of our U.S. government contracts allow the customer the option to extend the period of performance of a contract for a period of one or more years. These priced options may or may not be exercised at the sole discretion of the customer. Historically, it has been our experience that the customer has typically exercised contract options.
          
Firm funding for our contracts is usually made for one year at a time, with the remainder of the contract period consisting of a series of one-year options. As is the case with the base period of our U.S. government contracts, option periods are subject to the availability of funding for contract performance. The U.S. government is legally prohibited from ordering work under a contract in the absence of funding. Our historical experience has been that the government has typically funded the option periods of our contracts.

9

          
The following table sets forth our approximate backlog as of the dates indicated (in(dollars in millions):
             
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
 
GS:            
Funded Backlog $608  $883  $627 
Unfunded Backlog  4,091   3,848   743 
             
Total GS Backlog $4,699  $4,731  $1,370 
             
MTSS:            
Funded Backlog $556  $519  $397 
Unfunded Backlog  706   882   874 
             
Total MTSS Backlog $1,262  $1,401  $1,271 
             
Total Consolidated:            
Funded Backlog $1,164  $1,402  $1,024 
Unfunded Backlog  4,797   4,730   1,617 
             
Total Consolidated Backlog $5,961  $6,132  $2,641 
             
Note that amounts related to LOGCAP IV are not included in the above table as the contract was not awarded until after the end of our fiscal year. As LOGCAP IV is an IDIQ contract, we do not anticipate it will have a significant impact on our backlog. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) for further details concerning the impact of IDIQ contracts on backlog.
             
  April 3,  March 28,  March 30, 
  2009  2008  2007 
ISS:            
Funded backlog $683  $464  $727 
Unfunded backlog  3,678   4,030   3,758 
          
Total ISS backlog $4,361  $4,494  $4,485 
          
             
LCM:            
Funded backlog $184  $140  $149 
Unfunded backlog  578   59   91 
          
Total LCM backlog $762  $199  $240 
          
             
MTSS:            
Funded backlog $563  $560  $526 
Unfunded backlog  612   708   881 
          
Total MTSS backlog $1,175  $1,268  $1,407 
          
             
CONSOLIDATED:            
Funded backlog $1,431  $1,164  $1,402 
Unfunded backlog  4,867   4,797   4,730 
          
Total consolidated backlog $6,298  $5,961  $6,132 
          
Estimated Remaining Contract Value
          
Our estimated remaining contract value represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s


9

estimate of revenue that will be recognized from the end of current task orders until the end of the IDIQ contract term and is based on our experience and performance under our existing contracts and management judgments and estimates with respect to future task or delivery order awards. Although we believe our estimates are reasonable, there can be no assurance that our existing contracts will result in actual revenue in any particular period or at all. Our estimated remaining contract value could vary or even change significantly depending upon various factors including government policies, government budgets and appropriations, the accuracy of our estimates of work to be performed under time and material contracts and whether we successfully compete with any multiple bidders in IDIQ contracts.
          The following table sets forth our estimated remaining contract value as of the dates indicated (in(dollars in millions):
             
  April 3,  March 28,  March 30, 
  2009  2008  2007 
ISS estimated remaining contract value $5,302  $5,976  $7,249 
LCM estimated remaining contract value  786   241   335 
MTSS estimated remaining contract value  2,327   1,268   1,407 
          
Total Estimated Remaining Contract Value(1)
 $8,415  $7,485  $8,991 
          
             
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
 
GS Estimated Remaining Contract Value $6,204  $7,591  $3,861 
MTSS Estimated Remaining Contract Value  1,281   1,400   1,866 
             
Total Estimated Remaining Contract Value $7,485  $8,991  $5,727 
             
 
See Item 7 for further details concerning contract value.
(1)See “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further details concerning contract value.
Regulatory MattersEstimated Total Contract Value
          The estimated total contract value represents amounts expected to be realized from the current award date to the current contract end date (i.e., revenue recognized to date plus backlog). For the reasons stated above and under the “Item 1.A. Risk Factors,” the estimated contract value or ceiling value specified under a government contract or task order is not necessarily indicative of the revenue that we will realize under that contract.
Regulatory Matters
Contracts with the U.S. government are subject to certain regulatory requirements. Under U.S. government regulations, certain costs, including certain financing costs, portions of research and development costs, lobbying expenses, certain types of legal

10

expenses and certain marketing expenses related to the preparation of bids and proposals, are not allowed for pricing purposes and calculation of contract reimbursement rates under cost-reimbursement contracts. The U.S. government also regulates the methods by which allowable costs may be allocated under U.S. government contracts.
          
Our government contracts are subject to audits at various points in the contracting process. Pre-award audits are performed at the time a proposal is submitted to the U.S. government for cost-reimbursement contracts. The purpose of a pre-award audit is to determine the basis of the bid and provide the information required for the U.S. government to negotiate the contract effectively. In addition, the U.S. government may perform a pre-award audit to determine our capability to perform under a contract. During the performance of a contract, the U.S. government may have the right to examine our costs incurred in the contract, including any labor charges, material purchases and overhead charges. Upon a contract’s completion, the U.S. government performs an incurred cost audit of all aspects of contract performance for cost-reimbursement contracts to ensure that we have performed the contract in a manner consistent with our proposal. The government also may perform a post-award audit for proposals that are subject to the Truth in Negotiations Act, which are proposals in excess of $600,000,$650,000, to determine if the cost proposed and negotiated was accurate, current and complete as of the time of negotiations.
          
The Defense Contract Audit Agency (“DCAA”) performs these audits on behalf of the U.S. government. The DCAA also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our labor, billing, accounting, purchasing, property, estimating, compensation and management information systems. The DCAA has the right to perform audits on our incurred costs on all contracts on a yearly basis. We have DCAA auditors on siteon-site to monitor our billing and back officeback-office operations. An adverse finding under a DCAA audit could result in the disallowance of our costs under a U.S. government contract, termination of U.S. government contracts, forfeiture of profits, suspension of payments, fines and suspension and prohibition from doing business with the U.S. government. In the event that an audit by the DCAA recommends disallowance of our costs under a contract, we have the right to appeal the findings of the audit under applicable dispute resolution provisions. Approval of submitted yearly contract incurred costs can take from one to three years from the date of submission of the contract costs. All of our contract incurred costs for U.S. government contracts completed through fiscal year 20032004 have been audited by the DCAA and approved by the Defense Contract Management Agency. The audits for such costs during subsequent periods are continuing. See “Risk“Item 1.A. Risk Factors — A negative audit or other actions by the U.S. government could adversely affect our operating performance”.


10

At any given time, many of our contracts are under review by the DCAA and other government agencies. We cannot predict the outcome of such ongoing audits and what, if any, impact such audits may have on our future operating performance.
          Over the last several months, U.S. Government contractors, including our Company, have seen a trend of increased scrutiny by the DCAA and other U.S. Government agencies. If any of our internal control systems or policies are found non-compliant or inadequate, payments may be suspended under our contracts or we may be subjected to increased government scrutiny and approval that could delay or adversely affect our ability to invoice and receive timely payment on our contracts, perform contracts or compete for contracts with the U.S. Government. These adverse outcomes could also occur if the DCAA cannot timely complete periodic reviews of our control systems which could then render the status of these systems as “not reviewed”.
Sales and Marketing
          
We market our services to U.S. and foreign governments, including their military branches. We also market our services to commercial entities in the U.S. and abroad. We position our sales and marketing personnel to cover key accounts such as the DoSDepartment of State and the United NationsDepartment of Defense, as well as market segments which hold the most promise for aggressive growth. We continue to see growth opportunities in the Middle East, Africa and in Central and South America. In the Middle East, we are positioned to pursue opportunities in the UAE, Oman, Qatar, Bahrain, Saudi Arabia, Iraq and Afghanistan. We also see promise for increased work opportunities in Pakistan and India. In Africa, we see significant opportunity in supporting peacekeeping forces in the Sudan, Somalia, Chad, and the Central Africa Region. As the U.S. Africa Command takes hold, we anticipate increased growth for our services across the African Trans-Sahara region. We are pursuing infrastructure development opportunities in Africa as well as in Central and South America.
          
We participate in national and international tradeshows, particularly as they apply to aviation services, logistics, humanitarian services, contingency support, and law enforcement and security.
defense. We are forming strategic partnerships with large systems and platform based companiesalso an active member in several organizations related to augment their capabilities inservices contracting, such as the areas of logistics and construction management.Professional Services Council.
          We are leveraging our experience and capability in providing value added and complementary services to companies that require support in remote and hazardous regions of the globe.
          
Our sales and marketing personnel are positioned globally to establish a local presence in select market segments that hold the most promise for aggressive growth, whether it is government, commercialglobal platform support services or infrastructureglobal stability and development solutions. These activities support our objective to be the leading global government services provider in support of U.S. national security and support.
foreign policy objectives.
Intellectual Property
          
We hold an exclusive, perpetual, irrevocable, worldwide, royalty-free and fully paid license to use the “Dyn International” and “DynCorp International” names in connection with aviation services, security services, technical services and marine services. We do not own any trademarks or patents and do not believe our business is dependent on trademarks or patents.
Environmental Matters
          
Our operations include the use, generation and disposal of petroleum products and other hazardous materials. We are subject

11

to various U.S. federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and the maintenance of a safe workplace. We believe we have been and are in substantial compliance with environmental laws and regulations, and we have no liabilities under environmental requirements that would have a material adverse effect on our business, results of operations or financial condition. We have not incurred, nor do we expect to incur, material costs relating to environmental compliance.
Employees
          
As of June 6, 2008,April 3, 2009, we had approximately 16,80022,500 employees in approximately 3033 countries, of which approximately 2,4002,550 are represented by labor unions.
Company History and Certain Relationships
Our predecessor companies have provided essential services to numerous U.S. government departments and agencies since 1951. We operated as a separate subsidiary of DynCorp from December 2000 to March 2003 and Computer Sciences Corporation from March 2003 until February 2005. On February 11, 2005, Computer Sciences Corporation and DynCorp, the Company’s former parent, sold DynCorp International LLC to DynCorp


11

International Inc., a newly formed entity controlled by Veritas Capital Management II, L.L.C. and its affiliates, The Veritas Capital Fund II, L.P. and Veritas Capital II A, LLC (together “Veritas Capital”). The Company has no operations independent of DynCorp International LLC.
Availability of Forms Filed With the U.S. Security and Exchange Commission
          
Our shareholders may obtain, free of charge, copies of the following documents (and any amendments thereto) as filed with, or furnished to, the SECU.S. Securities and Exchange Commission (“SEC”) as soon as reasonably practical after such material is filed with or furnished to the SEC:
 • annual reports onForm 10-K;
 
 • quarterly reports onForm 10-Q;
 
 • current reports onForm 8-K;
 
 • statement of changes in beneficial ownership of securities for insiders;
 
 • proxy statements; and
 
 • any amendments thereto.
          
A copy of these filings may be obtained by going to our Internet website at www.dyn-intl.com and selecting “Investor Relations” and selecting “Financial Information.” Copies may also be obtained by providing a written request for such copies or additional information regarding our operating or financial performance to Cindy Roberts,Green, Director of Investor Relations, DynCorp International, 13601 North Freeway, Fort Worth, Texas 76177. Except as otherwise stated in these reports, the information contained on our website or available by hyperlink from our website is not incorporated into this Annual Report or other documents we file with, or furnish to, the SEC.
Certifications
          
As required by New York Stock Exchange (“NYSE”) Corporate Governance Standards Section 303A.12(a), on May 22,in 2008, our Chief Executive Officer submitted to the NYSE a certification that he was not aware of any violation by the Companyus of NYSE corporate governance listing standards. Additionally, we filed with this Annual Report, the Principal Executive Officer and Principal Financial Officer certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
ITEM 1A.RISK FACTORS.
ITEM 1A.RISK FACTORS.
          
You should carefully consider the risks described below, together with all of the other information contained in thisForm 10-K. Any of the following risks could materially and adversely affect our financial condition or results of operations.
We rely on sales to U.S. government entities. A loss of contracts, a failure to obtain new contracts or a reduction of sales under existing contracts with the U.S. government could adversely affect our operating performance and our ability to generate cash flow to fund our operations.
          
We derive substantially all of our revenue from contracts and subcontracts with the U.S. government and its agencies, primarily the DoD and the DoS. The remainder of our revenue is derived from commercial contracts and contracts with foreign governments. We expect that U.S. government contracts, particularly with the DoD and the DoS, will continue to be our primary source of revenue for the foreseeable future. The continuation and renewal of our existing government contracts and new government contracts are, among other things, contingent upon the availability of adequate funding for various U.S. government agencies,

12

including the DoD and the DoS. Changes in U.S. government spending could directly affect our operating performance and lead to an unexpected loss of revenue. The loss or significant reduction in government funding of a large program in which we participate could also result in a material decrease to our future sales, earnings and cash flows. U.S. government contracts are also conditioned upon the continuing approval by Congress of the amount of necessary spending. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract periods of


12

performance may extend over many years. Consequently, at the beginning of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. Among the factors that could impact U.S. government spending and reduce our federal government contracting business include:
 •policy and/or spending changes implemented by the outcome of the U.S. November 2008 election;Obama administration;
 
 • a significant decline in, or reapportioning of, spending by the U.S. government, in general, or by the DoD or the DoS, in particular;
 
 • changes, delays or cancellations of U.S. government programs, requirements or policies;
 
 • the adoption of new laws or regulations that affect companies that provide services to the U.S. government;
 
 • U.S. government shutdowns or other delays in the government appropriations process;
 
 • curtailment of the U.S. government’s outsourcing of services to private contractors;
 
 • changes in the political climate, including with regard to the funding or operation of the services we provide; and
 
 • general economic conditions, including a slowdown in the economy or unstable economic conditions in the United States or in the countries in which we operate.
          
These or other factors could cause U.S. government agencies to reduce their purchases under our contracts, to exercise their right to terminate our contracts in whole or in part, to issue temporary stop-work orders, or decline to exercise options to renew our contracts. The loss or significant curtailment of our material government contracts, or our failure to renew existing contracts or enter into new contracts could adversely affect our operating performance and lead to an unexpected loss of revenue.
Our U.S. government contracts may be terminated by the U.S. government at any time prior to their completion and contain other unfavorable provisions, which could lead to an unexpected loss of revenue and a reduction in backlog.
     
Under the terms of our contracts, the U.S. government may unilaterally:
 • terminate or modify existing contracts;
 
 • reduce the value of existing contracts through partial termination;
 
 • delay the payment of our invoices by government payment offices;
 
 • audit our contract-related costs and fees; and
 
 • suspend us from receiving new contracts, pending the resolution of alleged violations of procurement laws or regulations.
          
The U.S. government can terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform under the terms of the applicable contract. A termination arising out of our default could expose us to liability and adversely affect our operating performance and lead to an unexpected loss of revenue.
          
Our U.S. government contracts typically have an initial term of one year with multiple option periods, exercisable at the discretion of the government at previously negotiated prices. The government is not obligated to exercise any option under a contract. Furthermore, the government is typically required to compete all programs and, therefore, may not automatically renew a contract. In addition, at the time of completion of any of our government contracts, the contract is frequently required to be re-competed if the government still requires the services covered by the contract.

13

          
If the U.S. government terminatesand/or materially modifies any of our contracts or if option periods are not exercised, our failure to replace revenue generated from such contracts would result in lower revenue and would


13

likely adversely affect our earnings, which would have a material adverse effect on our financial condition and results of operations.
Our U.S. government contracts are subject to competitive bidding, both upon initial issuance andre-competition. If we are unable to successfully compete in the bidding process or if we fail to win recompetitions,re-competitions, it could adversely affect our operating performance and lead to an unexpected loss of revenue.
          
Substantially all of our U.S. government contracts are awarded through a competitive bidding process upon initial award and renewal, and we expect that this will continue to be the case. There is often is significant competition and pricing pressure as a result of this process. The competitive bidding process presents a number of risks, including the following:
 • we may expend substantial funds and time to prepare bids and proposals for contracts that may ultimately be awarded to one of our competitors;
 
 • we may be unable to accurately estimate accurately the resources and costs that will be required to perform any contract we are awarded, which could result in substantial cost overruns; and
 
 • we may encounter expense and delay if our competitors protest or challenge awards of contracts to us, and any such protest or challenge could result in a requirement to resubmit bids on modified specifications or in the termination, reduction or modification of the awarded contract. Additionally, the protest of contracts awarded to us may result in the delay of program performance and the generation of revenuesrevenue while the protest is pending.
          
The government contracts for which we compete typically have multiple option periods, and if we fail to win a contract or a task order, we generally will be unable to compete again for that contract for several years. If we fail to win new contracts or to receive renewal contracts upon re-competition, it may result in additional costs and expenses and possible loss of revenue, and we will not have an opportunity to compete for these contract opportunities again until such contracts expire.
          
Because of the nature of our business, it is not unusual for us to lose contracts to competitors or to gain contracts once held by competitors during recompete periods. Additionally, some contracts simply end as projects are completed or funding is terminated. We have included our most significant contracts by reportable segment in our contract tables in Item 1 Business,“Item 1. Business” above. RecompeteContract end dates are included within the tables to better inform investors regarding the potential impact for our most significant contracts for this risk.
Current or worsening economic conditions could impact our business.
          Over the last year, there has been a significant deterioration in the U.S. and global economy. In addition, liquidity has contracted significantly and borrowing rates have increased. We believe that our industry and customer base are less likely to be affected by many of the factors affecting business and consumer spending generally. Accordingly, we believe that we continue to be well positioned in the current economic environment as a result of historic demand factors affecting our industry, the nature of our contracts and our sources of liquidity. However, we cannot assure you that the economic environment or other factors will not adversely impact our business, financial condition or results of operations in the future. In particular, if the Federal government, due to budgetary considerations, accelerates the expected reduction in combat troops from Iraq, fails to implement expected troop increases in Afghanistan, otherwise reduces the DoD Operations and Maintenance budget or reduces funding for DoS initiatives in which we participate, our business, financial condition and results of operations could be adversely affected.
          Furthermore, although we believe that our current sources of liquidity will enable us to continue to perform under our existing contracts and further grow our business, we cannot assure you that will be the case. A longer term credit crisis could adversely affect our ability to obtain additional liquidity or refinance existing indebtedness on acceptable terms or at all, which could adversely affect our business, financial condition and results of operations.
Our operations involve considerable risks and hazards. An accident or incident involving our employees or third parties could harm our reputation, affect our ability to compete for business, and if not adequately insured or indemnified, against, could adversely affect our results of operations and financial condition.
          
We are exposed to liabilities arising out ofthat arise from the services we provide. Such liabilities may relate to an accident or incident involving our employees or third parties, particularly where we are deployedon-site at active military installations or in locations experiencing political or civil unrest, or they may relate to an accident or incident involving aircraft or other equipment we have

14

serviced or used in the course of our business. Any of these types of accidents or incidents could involve significant potential claims of injured employees and other third parties and claims relating to loss of or damage to government or third-party property.
          
We currently operate in countries such as Iraq, where our defensive use of force does not currently subject us or our employees to host country laws or liabilities. However, legislative initiatives are pending which, if adopted, could significantly alter our exposure and our employees’ exposure to such laws and liabilities. Such legislation could increase our costs of operations and make it more difficult to recruit employees willing to serve in such places.
We maintain insurance policies that mitigate risk and potential liabilities related to our operations. This insurance is maintained in amounts that we believe is reasonable. Our insurance coverage may not be adequate to cover those claims or liabilities, and we may be forced to bear substantial costs from an accident or incident.


14

Substantial claims in excess of our related insurance coverage could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
          
Furthermore, any accident or incident for which we are liable, even if fully insured, may result in negative publicity which could adversely affect our reputation among our customers, including our government customers, and the public, which could result in us losing existing and future contracts or make it more difficult for us to compete effectively for future contracts. This could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
Political destabilization or insurgency in the regions in which we operate may have a material adverse effect on our operating performance.
          
Certain regions in which we operate are highly unstable. Insurgent activities in the areas in which we operate may cause further destabilization in these regions. There can be no assurance that the regions in which we operate will continue to be stable enough to allow us to operate profitably or at all. For the fiscal years ended March 28,2009, 2008 March 30,and 2007, and March 31, 2006, revenue generated from our operations in the Middle East contributed 64%, 52%, 46% and 48%46% of our revenue, respectively. Insurgents in Iraq and Afghanistan have targeted installations where we have personnel and such insurgents have contributed to instability in these countries. This could impair our ability to attract and deploy personnel to perform services in either or both locations. In addition, we have been required to increase compensation to our personnel as an incentive to deploy them to these regions. To date, we have been able to recover this added cost under the contracts, but there is no guarantee that future increases, if required, will be able to be passed ontotransferred to our customers through our contracts. To the extent that we are unable to pass throughtransfer such increased compensation costs to our customers, our operating margins would be adversely impacted, which could adversely affect our operating performance. In addition, increased insurgent activities or destabilization, including civil unrest or a civil war in Iraq or Afghanistan, may lead to a determination by the U.S. government to halt our operations in a particular location, country or region and to perform the services using military personnel. Furthermore, in extreme circumstances, the U.S. government may decide to terminate all U.S. government activities, including our operations under U.S. government contracts in a particular location, country or region and to withdraw all military personnel. The recent change of U.S. presidential administrations in January 2009 may lead to policy changes with respect to U.S. government activities in Iraq.Iraq or Afghanistan. Congressional pressure to reduce, if not eliminate, the number of U.S. troops in Iraq or Afghanistan, may also lead to U.S. government procurement actions that reduce or terminate the services and support we provide in that theater of conflict. Any of the foregoing could adversely affect our operating performance and may result in additional costs and expenses and loss of revenue.
We are exposed to risks associated with operating internationally.
          
A large portion of our business is conducted internationally. Consequently, we are subject to a variety of risks that are specific to international operations, including the following:
 • export regulations that could erode profit margins or restrictedrestrict exports;
 
 • compliance with the U.S. Foreign Corrupt Practices Act;
 
 • the burden and cost of compliance with foreign laws, treaties and technical standards and changes in those regulations;
 
 • contract award and funding delays;
 
 • potential restrictions on transfers of funds;
 
 • foreign currency fluctuations;
 
 • import and export duties and value added taxes;
 
 • transportation delays and interruptions;
 
 • uncertainties arising from foreign local business practices and cultural considerations;


15

 • requirements by foreign governments that we makelocally invest a minimum level of local investments as part of our contracts with them, which investments may not yield any return; and
 
 • potential military conflicts, civil strife and political risks.
          
While we have and will continue to adopt measures to reduce the potential impact of losses resulting from the risks of our foreign business, we cannot ensure that such measures will be adequate.
Our IDIQ contracts are not firm orders for services, and we may never receive revenue from these contracts, which could adversely affect our operating performance.
          
Many of our government contracts are IDIQ contracts, which are often awarded to multiple contractors. The award of an IDIQ contract does not represent a firm order for services. Generally, under an IDIQ contract, the government is not obligated to order a minimum of services or supplies from its contractor, irrespective of the total estimated contract value. Furthermore, under an IDIQ contract, the customer develops requirements for task orders that are competitively bid against all of the contract awardees, usually under a best-value approach. However, many contracts also permit the government customer to direct work to a specific contractor. Our Civilian Police, Contract Field Team and LOGCAP IV programs are three of our contracts performed under IDIQ contracts. We may not win new task orders under these contracts for various reasons, such as failing to rapidly deploy personnel or high prices, which would have an adverse effect on our operating performance and may result in additional expenses and loss of revenue. There can be no assurance that our existing IDIQ contracts will result in actual revenue during any particular period or at all. In fiscal years ended March 28,2009, 2008 March 30,and 2007, 73%, 70% and March 31, 2006, 52%, 57% and 59%72% of our revenue, respectively, was attributable to IDIQ contracts.
Our cost of performing undertime-and-materials and fixed-price contracts may exceed our revenue which would result in a recorded loss on the contracts.
          
Our government contract services have three distinct pricing structures: cost-reimbursement,time-and-materials and fixed-price. With cost-reimbursement contracts, so long as actual costs incurred are within the contract funding and allowable under the terms of the contract, we are entitled to reimbursement of the costs plus a stipulated fixed feefixed-fee and, in some cases, an incentive-based award fee. We assume additional financial risk ontime-and-materials and fixed-price contracts, however because we assume the risk of performing those contracts at the stipulated prices or negotiated hourly/daily rates. If we do not accurately estimate ultimate costs and control costs during performance of the work, we could lose money on a particular contract or have lower than anticipated margins. Also, we assume the risk of damage or loss to government property, and we are responsible for third- partythird-party claims under fixed-price contracts. The failure to meet contractually defined performance standards may result in a loss of a particular contract or lower-than-anticipated margins. This could adversely affect our operating performance and may result in additional costs and expenses and possible loss of revenue.
A negative audit or other actions by the U.S. government could adversely affect our operating performance.
          
At any given time, many of our contracts are under review by the DCAA and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. Such DCAA audits may include contracts under which we have performed services in Iraq and Afghanistan under especially demanding circumstances.
          The DCAA also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our labor, billing, accounting, purchasing, property, estimating, billing, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed. In addition, government contract payments received by us for allowable direct and indirect costs are subject to adjustment after audit by government auditors and repayment to the government if the payments exceed allowable costs as defined in the government contracts.
          
Audits have been completed on our incurred contract costs through fiscal year 2005 and the Defense Contract Management Agency has approved these costs through fiscal year 2003.2004. Audits and approvals are continuing for subsequent periods. We cannot predict the outcome of such audits and what, if any, impact such audits may have on our future operating performance. For further discussion, see “Legal“Item 3. Legal Proceedings” below.


16

We are subject to investigation by the U.S. government, which could result in our inability to receive government contracts and could adversely affect our future operating performance.
          
As a U.S. government contractor, we must comply with laws and regulations relating to U.S. government contracts that do not apply to a commercial company. From time to time, we are investigated by government agencies with respect to our compliance

16

with these laws and regulations. If we are found to be in violation of the law, we may be subject to civil or criminal penalties or administrative sanctions, including contract termination, the assessment of penalties and suspension or prohibition from doing business with U.S. government agencies. For example, many of the contracts we perform in the U.S. are subject to the Service Contract Act, which requires hourly employees to be paid certain specified wages and benefits. If the U.S. Department of Labor determines that we violated the Service Contract Act or its implementing regulations, we could be suspended from being awarded new government contracts or renewals of existing contracts for a period of time, which could adversely affect our future operating performance. We are subject to a greater risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities than companies with solely commercial customers. In addition, if an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government.
          
Furthermore, our reputation could suffer serious harm if allegations of impropriety were made against us. If we were suspended or prohibited from contracting with the U.S. government, or any significant U.S. government agency, if our reputation or relationship with U.S. government agencies was impaired or if the U.S. government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, it could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
          
U.S. government contractors like us that provide support services in theaters of conflict such as Iraq have come under increasing scrutiny by agency inspector generals, government auditors and congressional committees. Investigations pursued by any or all of these groups may result in adverse publicity for us and consequent reputational harm, regardless of the underlying merit of the allegations being investigated. As a matter of general policy, we have cooperated and expect to continue to cooperate with government inquiries of this nature.
The expiration of our collective bargaining agreements could result in increased operating costs or work disruptions, which could potentially affect our operating performance.
          
As of June 6, 2008,April 3, 2009, we had approximately 16,80022,500 employees located in approximately 3033 countries around the world, approximately 6,900 of whom are located inside the U.S.world. Of these employees, approximately 2,4002,550 are represented by labor unions. As of June 6, 2008,April 3, 2009, we had approximately 7475 collective bargaining agreements with these unions. TheseThe length of these agreements will expire between July 2007 and March 2011.varies, with the longest expiring in September 2012. There can be no assurance that we will not experience labor disruptions associated with the expiration or renegotiation of collective bargaining agreements or otherwise. We could experience a significant disruption of operations and increased operating costs as a result of higher wages or benefits paid to union members, which could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
Proceedings against us in domestic and foreign courts could result in legal costs and adverse monetary judgments, adversely affect our operating performance and cause harm to our reputation.
          
We are involved in various claims and lawsuits from time to time. For example, we are a defendant in two consolidated lawsuits seeking unspecified damages brought by citizens and certain provinces of Ecuador. The basis for the actions, both pending in U.S. District Court for the District of Columbia, arises from our performance of a U.S. Department of State contract for the eradication of narcotic plant crops in Colombia. The lawsuits allege personal injury, property damage and wrongful death as a consequence of the spraying of narcotic crops along the Colombian border adjacent to Ecuador. In the event that a court decides against us in these lawsuits, and we are unable to obtain indemnification from the government, or from Computer Sciences Corporation in one of the cases, or contributions from the other defendants, we may incur substantial costs, which could have a material adverse effect on our results. An adverse ruling in these cases could also could adversely affect our reputation and have a material adverse effect on our ability to win future government contracts.


17

Other litigation in which we are involved includes wrongful termination and other adverse employment actions, breach of contract, personal injury and property damage actions filed by third parties. Actions involving third-party liability claims generally are covered by insurance; however, in the event our insurance coverage is inadequate to cover such claims, we will be forced to bear the costs arising from a judgment. We do not have insurance coverage for adverse employment and breach of contract actions, and we bear all costs associated with such litigation and claims.
We are subject to certain U.S. laws and regulations, which are the subject of rigorous enforcement by the U.S. government; and our noncompliance with such laws and regulations could adversely affect our future operating performance.
          
We may be subject to qui tam litigation brought by private individuals on behalf of the government under the Federal Civil False Claims Act, which could include claims for treble damages. Government contract violations could result in the imposition of

17

civil and criminal penalties or sanctions, contract termination, forfeiture of profit,and/or suspension of payment, any of which could make us lose our status as an eligible government contractor. We could also suffer serious harm to our reputation. Any interruption or termination of our government contractor status could significantly reduce our future revenues and profits.
          
To the extent that we export products, technical data and services outside the United States, we are subject to U.S. laws and regulations governing international trade and exports, including but not limited to, the International Traffic in Arms Regulations, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury. A failureFailure to comply with these laws and regulations could result in civiland/or criminal sanctions, including the imposition of fines upon us as well as the denial of export privileges and debarment from participation in U.S. government contracts.
          
We do business in certain parts of the world that have experienced, or may be susceptible to, governmental corruption. Our corporate policy requires strict compliance with the U.S. Foreign Corrupt Practices Act and with local laws prohibiting payments to government officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. Improper actions by our employees or agents could subject us to civil or criminal penalties, including substantial monetary fines, as well as disgorgement, and could damage our reputation and, therefore, our ability to do business.
Competition in our industry could limit our ability to attract and retain customers or employees, which could result in a loss of revenue and/or a reduction in margins, which could adversely affect our operating performance.
          
We compete with various entities across geographic and business lines. Competitors of our GSISS and LCM operating segmentsegments are various solution providers that compete in any one of the service areas provided by the GSthose business units. Competitors of our MTSS operating segment are typically large defense services contractors that offer services associated with maintenance, training and other activities. We compete on a number of factors, including our broad range of services, geographic reach, mobility and response time. Foreign competitors may obtain an advantage over us in competing for U.S. government contracts and attracting employees to the extent we are required by U.S. laws and regulations to remit to the U.S. government statutory payroll withholding amounts for U.S. nationals working on U.S. government contracts while employed by our majority-owned foreign subsidiaries, since foreign competitors may not be similarly obligated by their governments.
          
Some of our competitors have greater financial and other resources or are otherwise better positioned than us to compete for contract opportunities. For example, original equipment manufacturers that also provide aftermarket support services have a distinct advantage in obtaining service contracts for aircraft that they have manufactured, as they frequently have better access to replacement and service parts, as well as an existing technical understanding of the platform they have manufactured. In addition, we are at a disadvantage when bidding for contracts put up for re-competition for which we are not the incumbent provider, because incumbent providers are frequently able to capitalize on customer relationships, technical knowledge and pricing experience gained from their prior service.


18

In addition to the competition we face in bidding for contracts and task orders, we must also compete to attract the skilled and experienced personnel integral to our continued operations. We hire from a limited pool of potential employees, as military and law enforcement experience, specialized technical skill sets and security clearances are prerequisites for many positions. Our failure to compete effectively for employees, or excessive attrition among our skilled personnel, could reduce our ability to satisfy our customers’ needs and increase the costs and time required to perform our contractual obligations. This could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
Loss of our skilled personnel, including members of senior management, may have an adverse effect on our operations and/or our operating performance.
          
Our continued success depends in large part on our ability to recruit and retain the skilled personnel necessary to serve our customers effectively, including personnel with extensive military and law enforcement training and backgrounds. The proper execution of our contract objectives depends upon the availability of quality resources, especially qualified personnel. Given the nature of our business, we have substantial need for personnel who are willing to work overseas, frequently in locations experiencing political or civil unrest, for extended periods of time and often on short notice. We may not be able to meet the need for qualified personnel as such need arises.
          
In addition, we must comply with provisions in U.S. government contracts that require employment of persons with specified work experience and security clearances. An inability to maintain employees with the required security clearances could have a material adverse effect on our ability to win new business and satisfy our existing contractual obligations, and could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.

18

          
The loss of services of any of the members of our senior management could adversely affect our business until a suitable replacement can be found. There may be a limited number of personnel with the requisite skills to serve in these positions, and we may be unable to locate or employ such qualified personnel on acceptable terms.
If our subcontractors or joint venture partners fail to perform their contractual obligations, then our performance as the prime contractor and our ability to obtain future business could be materially and adversely impacted.
          
Many of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to our customers. These subcontractors generally perform niche or specialty services for which they have more direct experience, such as construction, catering services or specialized technical services, or they have local knowledge of the region in which we will be performing and the ability to communicate with local nationals and assist in making arrangements for commencement of performance. Often, we enter into subcontract arrangements in order to meet government requirements to award certain categories of services to small businesses. A failure by one or more of our subcontractors to satisfactorily provide on a timely basis theagreed-upon supplies or perform theagreed-upon services may materially and adversely impact our ability to perform our obligations as the prime contractor. Such subcontractor performance deficiencies could result in a customer terminating our contract for default. A default termination could expose us to liability and adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
          
We often enter into joint ventures so that we can jointly bid and perform on a particular project. The success of these and other joint ventures depends, in large part, on the satisfactory performance of the contractual obligations by our joint venture partners. If our partners do not meet their obligations, the joint ventures may be unable to adequately perform and deliver itstheir contracted services. Under these circumstances, we may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture, which could also affect our reputation in the industries we serve.


19

Environmental laws and regulations may subject us to significant costs and liabilities that could adversely affect our operating performance.
          
We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. In the U.S., these laws and regulations include those governing the management and disposal of hazardous substances and wastes and the maintenance of a safe workplace, primarily associated with our aviation services activities, including painting aircraft and handling substances that may qualify as hazardous waste, such as used batteries and petroleum products. In addition to U.S. federal laws and regulations, states and other countries where we do business have numerous environmental, legal and regulatory requirements by which we must abide. We could incur substantial costs, includingclean-up costs, as a result of violations of, or liabilities under, environmental laws. This could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
Our substantial outstandinglevel of indebtedness may make it difficult for us to satisfy our debt obligations and the restrictive covenantsmay adversely affect our ability to obtain financing for working capital, capitalize on business opportunities or respond to adverse changes in the agreements governing our indebtedness limit our operating and financial flexibility.industry.
          
We are requiredAs of April 3, 2009, we had $599.9 million of total indebtedness and $171.5 million of additional borrowing capacity under our senior secured credit facility (which gives effect to make mandatory payments and, under certain circumstances, mandatory prepayments on our$28.5 million of outstanding indebtedness. See Note 7 to our consolidated financial statements for additional information. This may require us to dedicate a substantial portionletters of our cash flows from operations to paymentscredit). Based on our indebtedness thereby reducingand other obligations as of April 3, 2009, we estimate our remaining contractual commitments, including interest associated with our indebtedness and other obligations, will be $859.5 million in the availabilityaggregate for the remaining period from April 3, 2009 through the end of fiscal year 2013. Such indebtedness could have material consequences for our business, operations and liquidity position, including the following:
•it may be more difficult for us to satisfy our debt obligations;
•our ability to obtain additional financing for working capital, debt service requirements, general corporate or other purposes may be impaired;
•we must use a substantial portion of our cash flow to pay interest and principal on our indebtedness, which will reduce the funds available for other purposes;
•we are more vulnerable to economic downturns and adverse industry conditions;
•our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in our industry as compared to our competitors may be compromised due to the high level of indebtedness; and

19

our ability to refinance indebtedness may be limited.
The indenture governing our senior subordinated notes and our senior secured credit facility contain various covenants limiting the discretion of our cash flows to fund working capital, capital expenditures,management in operating our business.
          Our indenture governing our senior subordinated notes (the “Notes”) and other general corporate purposes and could limit our flexibility in planning for, or reacting to, changes in our business and industry.
Thethe agreements governing our senior secured credit facilities impose certain operating and financial restrictions on us andfacility contain various restrictive covenants that limit our management’s discretion in operating our businesses.business. These agreementsinstruments limit our ability to engage in, among other things, to:the following activities, except as permitted by those instruments:
 • incur additional indebtedness or guarantee obligations;
 
 •make capital expenditures;
 • prepayrepay indebtedness prior to stated maturities;
 
 •make interest payments on the Notes and other indebtedness that is subordinate to our indebtedness under the senior secured credit facility;
• pay dividends or make certain other restricted payments;
 
 • make investments or acquisitions;
 
 • create liens or other encumbrances;
• transfer or sell certain assets; and
 
 •transfer or sell certain assets or merge or consolidate with another entity.
          
In addition, our senior secured credit facilities contain covenants requiringfacility also requires us to delivermaintain certain financial ratios and limits our ability to make capital expenditures. These financial ratios include a minimum interest coverage ratio and a leverage ratio. The interest coverage ratio is the ratio of consolidated EBITDA (as defined in our senior secured credit facility) to cash interest expense for the preceding four quarters. The leverage ratio is a ratio of our debt to our lenders leverageconsolidated EBITDA for the preceding four quarters. The senior secured credit facility also restricts the maximum amount of our capital expenditures during each year of the term of the senior secured credit facility. Subject to certain exceptions, our capital expenditures may not exceed, in any fiscal year, the greater of $15 million or 5% of our consolidated EBITDA for the preceding fiscal year during the term of our senior secured credit facility. Capital expenditures are expenditures that are required by generally accepted accounting principles to be classified as capital expenditures in a statement of cash flows.
          If we fail to comply with the restrictions in the indenture or our senior secured credit facility or any other subsequent financing agreements, a default may allow the creditors under the relevant instruments, in certain circumstances, to accelerate the related debt and to exercise their remedies thereunder, which will typically include the right to declare the principal amount of such debt, together with accrued and unpaid interest coverage financial computations and other related amounts immediately due and payable, to exercise any remedies such creditors may have to foreclose on any of our audited annualassets that are subject to liens securing such debt and unaudited quarterly financial statements.to terminate any commitments they had made to supply us with further funds. Moreover, any of our other debt that has a cross-default or cross-acceleration provision that would be triggered by such default or acceleration would also be subject to acceleration upon the occurrence of such default or acceleration.
          Our ability to comply with these covenants may be affected by events beyond our control, and an adverse development affecting our business could require us to seek waivers or amendments of covenants, alternative or additional sources of financing or reductions in expenditures. We cannot assure you that such waivers, amendments or alternative or additional financings could be obtained, or if obtained, would be on terms acceptable to us, which mayus. In addition, the holders of Notes have a material adverse effect on our financial condition, results of operations and cash flows.
no control over any waivers or amendments with respect to any debt outstanding other than the debt outstanding under the indenture.
Our substantial level of indebtedness may make it difficult for us to satisfy our debt obligations and may adversely affect our ability to obtain financing for working capital, capitalize on business opportunities or respond to adverse changes in our industry.
As of March 28, 2008, we had $593.2 million of total indebtedness and $96.7 million of additional borrowing capacity under our senior secured credit facility (which gives effect to the $23.3 million of outstanding letters of credit). Based on our indebtedness and other obligations as of March 28, 2008, we estimate our remaining contractual commitments including interest associated with our indebtedness and other obligations will be


20

$822.7 million in the aggregate for the remaining period between March 28, 2008 through the end of fiscal 2013. Such indebtedness could have material consequences for our business, operations and liquidity position, including the following:
• it may be more difficult for us to satisfy our debt obligations;
• our ability to obtain additional financing for working capital, debt service requirements, general corporate or other purposes may be impaired;
• we must use a substantial portion of our cash flow to pay interest and principal on our indebtedness which will reduce the funds available for other purposes;
• we are more vulnerable to economic downturns and adverse industry conditions;
• our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in our industry as compared to our competitors may be compromised due to the high level of indebtedness; and
• our ability to refinance indebtedness may be limited.
Servicing our indebtedness requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations, which could adversely affect our financial condition.
          
Our ability to make payments on and to refinance our indebtedness depends on our ability to generate cash. This, to a certain extent, is subject to general economic, political, financial, competitive, legislative, regulatory and other factors that are beyond our control.

20

          
We cannot assure you, however, that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior secured credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior secured credit facility, on commercially reasonable terms or at all. In addition, the terms of existing or future debt agreements, including our senior secured credit facility and the indenture governing our senior subordinated notes,Notes may restrict us from carrying out any of these alternatives. If we are unable to generate sufficient cash flow or refinance our debt on favorable terms, it could significantly, adversely affect our financial condition.
Despite our current indebtedness level, we andour company, including our subsidiaries, may incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.
          
As of March 28, 2008,April 3, 2009, we had up to $96.7$171.5 million of additional availability under our senior secured credit facility (which gives effect to $23.3$28.5 million of outstanding letters of credit). The terms of the senior secured credit facility and our senior subordinated notesthe Notes do not fully prohibit us or our subsidiaries from incurring additional indebtedness. It is not possible to quantify the specific dollar amount of indebtedness we may incur because our senior secured credit facility does not provide for a specific dollar amount of indebtedness we may incur. Our senior secured credit facility and our senior subordinated notesthe Notes allow us to incur only certain indebtedness that is expressly enumerated in our senior secured credit facility and the indenture governing our senior subordinated notes. The indebtedness permitted under our senior secured credit facility includes indebtedness that is customary for similar credit facilities. Specific examples of indebtedness permitted under our senior secured credit facility are described further under notes to the consolidated financial statements and include certain intercompany indebtedness, indebtedness under the senior secured credit facility, the senior subordinated notes, certain refinancing indebtedness and certain indebtedness with respect to capital leases in an amount that may not exceed $25.0 million. We believe that the comparable restrictions in the indenture governing our senior subordinated notes have restrictions that are generally no more restrictive in any material respect than the senior secured credit facility.Notes. If either we or our subsidiaries were to incur additional indebtedness, the related risks that we now face could increase.


21

We are subject to the Internal Control Evaluation and Attestation Requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
          
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting and our audited financial statements as of the end of each fiscal year. Furthermore, our independent registered public accounting firm (the “Independent Registered Public Accounting Firm”) is required to report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of the end of each fiscal year. We have successfully completed our assessment and obtained our Independent Registered Public Accounting Firm’s attestation as to the effectiveness of our internal control over financial reporting as of March 28, 2008. In future years, if we fail to timely complete this assessment, or if our Independent Registered Public Accounting Firm cannot timely attest to the effectiveness of our internal control over financial reporting, we could be subject to regulatory sanctions and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.
We are controlled by Veritas Capital, whose interests may not be aligned with yours.
          
As of June 1, 2009, Veritas Capital owns 80.5%owned a majority of the outstanding membership interest in our controlling stockholder, DIV Holding LLC (“DIV”). Veritas Capital indirectly controls approximately 56.1%56.5% of our Class A common stock. So long as Veritas Capital continues to beneficially own a significant amount of the outstanding shares of our Class A common stock, it will continue to be able to strongly influence or effectively control our decisions, including the election of our directors, determine our corporate and management policies and determine, without the consent of our other shareholders,stockholders, the outcome of any corporate transaction or other matter submitted to our shareholdersstockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. Two of our thirteen directors are employees of Veritas Capital, as described under “Directors and Executive Officers of the Registrant — Management.”Capital. Veritas Capital has sufficient voting power to amend our organizational documents. The interests of Veritas Capital may not coincide with the interests of other holders of our Class A common stock. Additionally, Veritas Capital is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Veritas Capital may also pursue, for its own benefit,account, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In addition, our Bylaws provide that so long as Veritas Capital beneficially owns a majority of our outstanding Class A common stock, the advance notice procedures applicable to stockholder proposals will not apply to Veritas Capital. Amendment of the provisions described in our Amended and Restated Certificate of Incorporation generally will require an affirmative vote of our directors, as well as the affirmative vote of at least a majority of our then outstanding voting stock, if Veritas Capital beneficially owns a majority of our outstanding Class A common stock, or the affirmative vote of at least 80% of our then outstanding voting stock, if Veritas Capital beneficially owns less than a majority of our then outstanding Class A common stock. Amendments to any other provisions of our Amended and Restated Certificate of Incorporation generally will require the affirmative vote of a majority of our outstanding voting stock. In addition, because we are a controlled company within the meaning of the NYSE rules, we will beare exempt from the NYSE requirements that our board be composed of a majority of independent directors, and that our compensation and corporate governance committees be composed entirely of independent directors.

21

          
DIV Holding LLC is a party to a registration rights agreement, which grants it rights to require us to effect the registration of its shares of common stock. In addition, if we propose to register any of our common stock under the Securities Act whether for our own account or otherwise, DIV Holding LLC is entitled to include its shares of common stock in that registration.


22

Even if Veritas Capital no longer controls us in the future, certain provisions of our charter documents and agreements, as well as Delaware law, could discourage, delay or prevent a merger or acquisition at a premium price.
          
Our Amended and Restated Certificate of Incorporation and Bylaws contain provisions that:
 • permit us to issue, without any further vote or action by our shareholders, 50 million shares of preferred stock in one or more series and, with respect to each series, to fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of such series, and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series;
 
 • provide for a classified board of directors serving staggered three-year terms; and
 
 • limit our shareholders’ ability to call special meetings.
          
In addition, we have a rights plan that grants shareholders the right to purchase from us additional shares at preferential prices in the event of a hostile attempt to acquire control of us.
          
All of the foregoing provisions may impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing shareholders.
ITEM 1B.UNRESOLVED STAFF COMMENTS.
ITEM 1B.UNRESOLVED STAFF COMMENTS.
          
None.
ITEM 2.PROPERTIES.
ITEM 2.PROPERTIES.
          
The Company has its headquartersWe are headquartered in Falls Church, Virginia with major administrative offices in Dallas-FortFort Worth, Texas. As of March 28, 2008,April 3, 2009, we leased 204 commercial facilities in 23 countries used in connection with the various services rendered to our customers. Lease expirations range from month-to-month to ten years. Upon expiration of our leases, we do not anticipate any difficulty in obtaining renewals or alternative space. Many of theour current leases are non-cancelable. We do not own any real property.
          
The following locations represent our major facilities as of March 28, 2008.April 3, 2009.
         
Location
 
Description
 Business Segment Size (sq ft) 
Fort Worth, TX Executive Officesoffices — Financefinance and Administrationadministration Corporate  129,500194,335
Salalah Port, OmanWarehouse and storage — WRM contractLCM125,000 
Falls Church, VA Executive Officesoffices — Headquartersheadquarters Corporate  103,400
Irving, TXExecutive Offices — Finance and AdministrationCorporate65,800113,366 
Kabul, Afghanistan Offices and Residenceresidence GSISS & LCM  47,000
McClellan, CAWarehouse — California Fire ProgramISS18,800
Dubai, UAEExecutive offices — finance and administrationCorporate12,344 
Juba, Sudan Offices and Residenceresidence — supports APK contract GSLCM  26,70022,915 
Dubai, UAEHerndon, VA Executive Offices — Finance and AdministrationGLS recruiting center CorporateISS  15,70011,400 
Jerusalem, IsraelSan Diego, CA Offices and Residence— GLS recruiting center GSISS  5,1009,400 
          
We believe that substantially all of our property and equipment is in good condition, subject to normal wear and tearuse and that our facilities have sufficient capacity to meet the current and projected needs of our business.
ITEM 3.LEGAL PROCEEDINGS.
ITEM 3.LEGAL PROCEEDINGS.
          
Information required with respect to this item is set forth in Note 8 to the consolidated financial statements, in Item 8“Item 8. Financial Statements and Supplementary Data” of Part II of thisForm 10-K and is incorporated herein by reference.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
          
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 28, 2008.April 3, 2009.


2322

PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
          
Our Class A common stock has beenis traded on the NYSE under the symbol “DCP” since May 4, 2006.. The table below sets forth the high and low sales prices of our common stock for the periods indicated:
         
Fiscal Year 2009 High Low
Fiscal quarter ended:        
April 3, 2009 $16.26  $10.61 
January 2, 2009 $16.07  $9.95 
October 3, 2008 $18.75  $14.05 
July 4, 2008 $18.28  $14.00 
                
Fiscal 2008
 High Low 
Three months ended:        
Fiscal Year 2008 High Low
Fiscal quarter ended: 
March 28, 2008 $27.58  $15.02  $27.58 $15.02 
December 28, 2007 $27.27  $20.00  $27.27 $20.00 
September 28, 2007 $23.78  $18.43  $23.78 $18.43 
June 29, 2007 $23.74  $14.78  $23.74 $14.78 
          
         
Fiscal 2007
 High  Low 
 
Three months ended:        
March 30, 2007  17.78   14.50 
December 29, 2006  16.83   9.41 
September 29, 2006  13.05   8.87 
May 4, 2006 through June 30, 2006 $15.35  $10.22 
At June 6, 2008,1, 2009, the closing price of our common stock was $17.04$14.87 per share, there were 57,000,00056,251,900 shares of our common stock outstanding and there were approximately 5264 holders of record of our common stock.
Dividends
          
Immediately prior to our equity offering in May 2006, we declared an initial special Class B distribution of $100.0 million, payable upon the consummation of the offering and an additional special Class B distribution payable upon the exercise of the underwriters’ over-allotment option, representing 50% of the aggregate net proceeds that we would have received from the sale of up to 3,750,000 additional shares of our Class A common stock. The initial special Class B distribution was made on May 9, 2006. However, since the underwriters failed to exercise their over-allotment option, the additional special Class B distribution was not paid. Our Class B common stock automatically converted on a one-for-one basis into Class A common stock upon the expiration of the underwriters’ over-allotment option on June 2, 2006.
We are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon cash dividends, distributions and other transfers from our subsidiaries to make dividend payments on our Class A common stock. However, we have never paid, and do not intend to pay in the foreseeable future, cash dividends on our Class A common stock in the foreseeable future.stock. The amounts available to us to pay cash dividends are restricted by our subsidiaries’ debt agreements. The declaration and payment of dividends also are subject to the discretion of our board of directors and depend on various factors, including our net income, financial conditions,condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.
Issuer Repurchases of Equity Securities
          Our board of directors has authorized us to repurchase up to $25.0 million per fiscal year of our outstanding common stock and/or senior subordinated notes during fiscal years 2009 and 2010. The securities may be repurchased from time to time in the open market or through privately negotiated transactions at our discretion, subject to market conditions, and in accordance with applicable federal and state securities laws and regulations. Shares of common stock repurchased under this plan will be held as treasury shares. A total of 693,200 shares were repurchased as of April 3, 2009.
          The following table presents information with respect to those purchases of our common stock made during fiscal year 2009:
                 
  Total  Average  Total Number of Shares    
  Number of  Price  Purchased Pursuant to  Approx. Dollar Value of 
  Shares  Paid Per  Publically Announced  Shares that May Yet Be 
Period Repurchased  Share  Plans  Purchased Under the Plan(2) 
Feb. 27, 2009 — Apr. 3, 2009(1)
  693,200  $12.49   693,200  $25,000,000 
             
Total  693,200  $12.49   693,200  $25,000,000 
             
(1)The period between February 27, 2009 and April 3, 2009 represents the twelfth fiscal month of fiscal year 2009.
(2)The current approval by our board of directors in fiscal year 2009 allows for $25 million in repurchases for a combination of common stock and/or senior subordinated notes during fiscal year 2009 and another $25 million for such repurchases in fiscal year 2010. Unused amounts in fiscal year 2009 are not available for use in fiscal year 2010. During fiscal year 2009, we purchased 693,200 shares and $15.4 million of senior subordinated notes, including applicable fees, which utilized $24.0 million of our availability under the fiscal year 2009 portion of the authorization. A combination of $25 million of shares and/or senior subordinated notes is available for repurchase under this authorization during fiscal year 2010. The current authorization effectively ends at the end of fiscal year 2010.


2423

Equity Compensation Plan Information
          
The following table provides information as of March 28, 2008April 3, 2009 with respect to Class A shares of our common stock that may be issued under the DynCorp International 2007 Omnibus Incentive Plan (“OIP”) approved by our stockholders on August 8, 2007. See further information regarding our equity stock plans in Note 11 to our consolidated financial statements.
             
          Number of Securities
  Number of Securities     Remaining Available
  to be Issued Weighted-Average for Future Issuance
  Upon Exercise of Exercise Price of Under Equity
  Outstanding Options, Outstanding Options, Compensation
Plan Category Warrants and Rights Warrants and Rights Plan(1)
             
Equity compensation plans approved by security holders  345,895   N/A(2)  1,904,105 
Equity compensation plans not approved by security holders None  N/A  None
Total  345,895   N/A(2)  1,904,105 
             
  Number of Securities
     Number of Securities
 
  to be Issued
  Weighted-Average
  Remaining Available
 
  Upon Exercise of
  Exercise Price of
  for Future Issuance
 
  Outstanding Options,
  Outstanding Options,
  Under Equity
 
Plan Category
 Warrants and Rights  Warrants and Rights  Compensation Plans 
 
Equity compensation plans approved by security holders  159,600   N/A(1)  2,090,400 
Equity compensation plans not approved by security holders  None   N/A   None 
Total  159,600   N/A(1)  2,090,400 
 
(1)Excluding securities to be issued upon exercise of outstanding options, warrants and rights.
(2)Currently, we have only issued restricted stock units (“RSUs”) within our OIP, which do not have an exercise price. The weighted-average grant price of our RSUs issued is $21.49.$17.59.


25

Stock Performance Graph
          
The chart below compares the cumulative total shareholder return on our common shares from our initial public offering on May 4, 2006 to the end of the 20082009 fiscal year with the cumulative total return on the Russell 1000 Growth Index and our peer group(1)group, as indicated below the table, for the same period. The comparison assumes the investment of $100.00 on May 4, 2006, and reinvestment of all dividends. The shareholder return is not necessarily indicative of future performance.
 
(1)Our peer group is composed of the following U.S. Federal Government Service Providersservice providers with whom we compete and/or have common business characteristics: AECOM Technology Corp. (ACM), CACI International Inc. (CAI), ITT Corporation (ITT), KBR Inc. (KBR), L-3 Communications Holdings Inc. (LLL), ManTech International Corp. (MANT)., SAIC Inc. (SAI), SI International Inc. (SINT) and SRA International Inc. (SRX), and Stanley, Inc. (SXE).


2624

ITEM 6.SELECTED FINANCIAL DATA.
ITEM 6.SELECTED FINANCIAL DATA.
          
On March 7, 2003,Prior to February 11, 2005, DynCorp and its subsidiaries, including our operating company;company, were acquiredowned by Computer Sciences Corporation. We refer to this period ended on February 11, 2005 as the “immediate predecessor period”. The selected historical consolidated financial data as of and for the fiscal year ended April 2, 2004 and for the period from April 3, 2004 through February 11, 2005 the period of Computer Science Corporation’s ownership, are derived from our consolidated financial statements, referred to as the “immediate predecessor period.”statements.
          
On February 11, 2005, our operating company was sold by Computer Sciences Corporation to an entity controlled by Veritas Capital. We refer to the period beginning on February 12, 2005 as the “successor period”. The selected historical consolidated financial data as of and for the period from February 12, 2005 through April 1, 2005 and as of and for the fiscal years ended March 31, 2006, March 30, 2007, and March 28, 2008 and April 3, 2009 are derived from our consolidated financial statements, referred to as the “successor period.”statements.
          
We report the results of our operations using a52-53 week basis. In linecongruence with this reporting schedule, each quarter of the fiscal year will contain 13 weeks, except for the infrequent fiscal years with 53 weeks, in which case one quarter will contain 14 weeks. The fiscal year ended April 2, 2004 was a 53-week year. The fiscal years ended March 31, 2006, March 30, 2007, and March 28, 2008 were 52- week52-week years. The fiscal year ended April 3, 2009 was a 53-week year.
          
This information should be read in conjunction with “Management’s“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included elsewhere in this Annual Report.
                          
  Successor   Immediate Predecessor 
           49 Days
   April 3, 2004
  Year
 
  Fiscal Year Ended  Ended
   to
  Ended
 
  March 28,
  March 30,
  March 31,
  April 1,
   Feb 11,
  April 2,
 
  2008  2007  2006  2005   2005  2004 
  (Dollars in thousands) 
Results of operations:
                         
Revenue $2,139,761  $2,082,274  $1,966,993  $266,604   $1,654,305  $1,214,289 
Cost of services  (1,859,666)  (1,817,707)  (1,722,089)  (245,406)   (1,496,109)  (1,106,571)
Selling, general and administrative expenses  (117,919)  (107,681)  (97,520)  (8,408)   (57,755)  (48,350)
Depreciation and amortization  (42,173)  (43,401)  (46,147)  (5,605)   (5,922)  (8,148)
Operating income  120,003   113,485   101,237   7,185    94,519   51,220 
Interest expense  (55,374)  (58,412)  (56,686)  (8,054)   —   — 
Interest on mandatory redeemable shares  —   (3,002)  (21,142)  (2,182)   —   — 
Loss on early extinguishment of debt and preferred stock  —   (9,201)  —   —    —   — 
Earnings from affiliates  4,758   2,913   —   —    —   — 
Interest income  3,062   1,789   461   7    170   64 
Other Income  199   —   —   —    —   — 
Provision for income taxes  (27,999)  (20,549)  (16,627)  (60)   (34,956)  (19,924)
Minority interest  3,306   —   —   —    —   — 
Net income (loss)  47,955   27,023   7,243   (3,104)   59,733   31,360 
Basic and diluted income (loss) per share $0.84  $0.49  $0.23   N/A    N/A   N/A 
Cash flows provided (used) by operating activities  42,361   86,836   55,111   (31,240)   (2,092)  (6,756)
Cash flows used by investing activities  (11,306)  (7,595)  (6,231)  (869,394)   (10,707)  (2,292)
Cash flows (used) provided by financing activities  (48,131)  2,641   (41,781)  906,072    14,325   11,017 


2725

                                                
 Successor   Immediate Predecessor  Successor  Predecessor
       49 Days
   April 3, 2004
 Year
  Fiscal Year Ended 49 Days  April 3, 2004
 Fiscal Year Ended Ended
   to
 Ended
  Ended  to
 March 28,
 March 30,
 March 31,
 April 1,
   Feb 11,
 April 2,
  April 3, March 28, March 30, March 31, April 1,  Feb 11,
 2008 2007 2006 2005   2005 2004  2009 2008 2007 2006 2005  2005
 (Dollars in thousands)  (Dollars in thousands)
Results of operations:
   
Revenue $3,101,093 $2,139,761 $2,082,274 $1,966,993 $266,604   $1,654,305 
Cost of services  (2,768,962)  (1,859,666)  (1,817,707)  (1,722,089)  (245,406)   (1,496,109)
Selling, general and administrative expenses  (103,583)  (117,919)  (107,681)  (97,520)  (8,408)   (57,755)
Depreciation and amortization  (40,557)  (42,173)  (43,401)  (46,147)  (5,605)   (5,922)
Operating income 187,991 120,003 113,485 101,237 7,185   94,519 
Interest expense  (58,782)  (55,374)  (58,412)  (56,686)  (8,054)  — 
Interest on mandatory redeemable shares — —  (3,002)  (21,142)  (2,182)  — 
Loss on early extinguishment of debt, net  (4,131) —  (3,484) — —   — 
Loss on extinguishment of preferred stock — —  (5,717) — —   — 
Earnings from affiliates 5,223 4,758 2,913 — —   — 
Interest income 2,195 3,062 1,789 461 7   170 
Other income, net 145 199 — — —   — 
Provision for income taxes  (41,995)  (27,999)  (20,549)  (16,627)  (60)   (34,956)
Minority interest  (20,876) 3,306 — — —   — 
Net income (loss) 69,770 47,955 27,023 7,243  (3,104)  59,733 
Basic and diluted income per share 1.22 0.84 0.49 0.23 N/A   N/A 
Cash flows provided (used) by operating activities 140,871 42,361 86,836 55,111  (31,240)   (2,092)
Cash flows used by investing activities  (9,148)  (11,306)  (7,595)  (6,231)  (869,394)   (10,707)
Cash flows (used) provided by financing activities  (16,880)  (48,131) 2,641  (41,781) 906,072   14,325 
Balance sheet data (end of period):
                            
Cash and cash equivalents $85,379  $102,455  $20,573  $13,474    N/A  $6,510  200,222 85,379 102,455 20,573 13,474   N/A 
Working capital(1)  361,813   282,929   251,329   200,367    N/A   104,335 
Working capital(1)
 439,997 361,813 282,929 251,329 200,367   N/A 
Total assets  1,402,709   1,362,901   1,239,089   1,148,193    N/A   579,829  1,539,214 1,402,709 1,362,901 1,239,089 1,148,193   N/A 
Total debt (including Series A Preferred Stock)  593,162   630,994   881,372   826,990    N/A   N/A  599,912 593,162 630,994 881,372 826,990   N/A 
Shareholders’ equity  424,285   379,674   106,338   96,918    N/A   396,573  497,521 424,285 379,674 106,338 96,918   N/A 
Other financial data:
                            
EBITDA(2) $174,820  $163,438  $148,718  $12,896   $101,326  $60,072 
Backlog(3) $5,961,000  $6,132,011  $2,641,000  $2,040,000    N/A  $2,164,000 
Purchases of PP&E and Software $7,738  $9,317  $6,180  $244   $8,473  $2,047 
EBITDA(2)
 217,557 174,820 163,438 148,718 12,896   101,326 
Backlog(3)
 6,297,903 5,961,000 6,132,011 2,641,000 2,040,000   N/A 
Purchases of PP&E and software 7,280 7,738 9,317 6,180 244   8,473 
 
(1)Working capital is defined as current assets, net of current liabilities.
 
(2)The Company definesWe define EBITDA as GAAP net income adjusted for interest, taxes, depreciation and amortization, loss on extinguishment of debt, and a portion of other expense related to interest expense, and income taxes. The Company’s management usesrate swap losses. We use EBITDA as a supplemental measure in the evaluation of the Company’sour business and believesbelieve that EBITDA provides a meaningful measure of its operational performance on a consolidated basis, because it eliminates the effects of period to period changes in taxes, costs associated with capital investments and interest expense and is consistent with one of the measures used by the Companywe use to evaluate management’s performance for incentive compensation. EBITDA is not a financial measure calculated in accordance with GAAP. Accordingly, it should not be considered in isolation or as a substitute for net income or other financial measures prepared in accordance with GAAP. When evaluating EBITDA, investors should consider, among other factors, (i) increasing or decreasing trends in EBITDA, (ii) whether EBITDA has remained at positive levels historically, and (iii) how EBITDA compares to the Company’sour debt outstanding. The non-GAAP measure of EBITDA does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of the Company’sour cost structure resulting from debt incurred to expand operations. EBITDA also excludes tax, depreciation and amortization expenses. Because these are material and recurring items, any measure, including EBITDA, that excludes them has a material

26

limitation. To mitigate these limitations, the Company haswe have policies and procedures in place to identify expenses that qualify as interest, taxes, loss on debt extinguishments, a portion of other expense related to interest rate swap losses, and depreciation and amortization and to approve and segregate these expenses from other expenses to ensure that the Company’s EBITDA is consistently reflected from period to period. However, the calculation of EBITDA excludes some items that affect net income and may vary among companies. Therefore, our EBITDA presented by the Company may not be comparable to similarly titled measures of other companies. EBITDA does not give effect to the cash the Companywe must use to service itsour debt or pay income taxes and thus does not reflect the funds generated from operations or actually available for capital investments.investments
 
(3)Backlog data is as of the end of the applicable period. See Item 1“Item 1. Business” for further details concerning backlog.

28

          
The following table presents a reconciliation of net income (loss) to EBITDA for the periods included below.
                          
  Successor   Predecessor 
  Fiscal Year Ended  49 Days   April 3, 2004 
                  Ended   to 
  April 3,  March 28,  March 30,  March 31,  April 1,   Feb 11, 
  2009  2008  2007  2006  2005   2005 
  (Dollars in thousands)
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA:
                         
Net income (loss) $69,770  $47,955  $27,023  $7,243  $(3,104)  $59,733 
Income taxes  41,995   27,999   20,549   16,627   60    34,956 
Interest expense, loss on early extinguishment of debt & preferred stock, and interest rate swap losses recorded in other income/expense(1)(2)
  64,158   55,374   70,615   77,828   10,236    — 
Depreciation and amortization  41,634   43,492   45,251   47,020   5,704    6,637 
                    
EBITDA
 $217,557  $174,820  $163,438  $148,718  $12,896   $101,326 
                    
                          
  Successor   Immediate Predecessor 
           49 Days
   April 3, 2004
  Year
 
  Fiscal Year Ended  Ended
   to
  Ended
 
  March 28,
  March 30,
  March 31,
  April 1,
   Feb 11,
  April 2,
 
  2008  2007  2006  2005   2005  2004 
  (Dollars in thousands) 
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA:
                         
Net income (loss) $47,955  $27,023  $7,243  $(3,104)  $59,733  $31,360 
Income taxes  27,999   20,549   16,627   60    34,956   19,924 
Interest expense and loss on early extinguishment of debt and preferred stock(1)  55,374   70,615   77,828   10,236    —   — 
Depreciation and amortization  43,492   45,251   47,020   5,704    6,637   8,788 
                          
EBITDA
 $174,820  $163,438  $148,718  $12,896   $101,326  $60,072 
                          
 
(1)Fiscal year ended2009 includes the costs associated with replacing our senior secured credit facility, as defined and further discussed in “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations”, including the write-off of deferred financing fees. Also included is the premium on the redemption of a portion of the senior subordinated notes and write-off of deferred financing costs associated with the early retirement of a portion of the senior subordinated notes. These premiums and write-off represent additional costs of financing. In addition, we added back amounts associated with hedge accounting recorded in other income/expense, as further discussed in Note 10.
(2)Fiscal year 2007 includes the premium associated with the redemption of all of the previously outstanding preferred stock, premium on the redemption of a portion of the senior subordinated notes and write-off of deferred financing costs associated with the early retirement of a portion of the senior subordinated notes. These premiums and the write-off represent additional costs of financing and management of the Company’sour capital structure.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
          
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements, and the notes thereto, and other data contained elsewhere in this Annual Report. Please see “Risk“Item 1A. Risk Factors” and “Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions associated with these statements. Unless otherwise noted, all amounts discussed herein are consolidated. All references in this Annual Report to fiscal years of the U.S. government pertain to the fiscal year which ends on September 30th of each year.
Company Overview
          
We are a leading provider of specialized mission-critical professional and support services outsourced technical services to civilianby the U.S. military, non-military U.S. governmental agencies and military government agencies.foreign governments. Our specific global expertise is in law enforcement training and support, security services, base and logistics operations, construction management, aviation services and operations, and aviation services, construction and operations, which we provide through two business segments, GS and MTSS.linguist services. We also provide logistics support for of all our services. Our current customers include the DoS, the U.S. Army, Air Force, Navy and Marine Corps (collectively, the DoD); commercial customers and foreign governments. As of March 28, 2008,April 3, 2009, we had approximately 15,30022,500 employees, including employees from our consolidated subsidiaries, in more than 3033 countries, approximately 4756 active contracts ranging in duration from three to ten years and approximately 100122 active task orders. DynCorp International and its predecessorsWe have provided essential services to numerous U.S. government departments and agencies since 1951.

27

          During fiscal years 2006 through 2008, we conducted our operations through two reportable segments: GS and MTSS. On March 29, 2008, we divided our GS operating segment into two new segments, ISS and LCM, to enable us to better capitalize on business development opportunities and enhance our ongoing service. Our ISS operating segment consists of our Law Enforcement and Security strategic business unit, our Specialty Aviation and Counter-Drug Operations strategic business unit and GLS, our joint venture for the INSCOM contract. Our LCM operating segment consists of our Contingency and Logistics Operations strategic business unit and our Operations Maintenance and Construction Management strategic business unit and includes any work awarded under the LOGCAP IV. Our third segment is MTSS, which did not significantly change.
          On April 6, 2009, we announced a further reorganization of our business structure to better align with strategic markets and streamline our infrastructure. Under the new alignment, our three reportable segments were realigned into three new segments, two of which, GSDS and GPSS, are wholly-owned, and a third segment GLS, which is a 51% owned joint venture. The new structure became effective April 4, 2009, the start of our 2010 fiscal year, and is more fully described in Note 17 to our consolidated financial statements.
          In addition to the information presented below, Note 13 to our consolidated financial statements contains additional information about our operating segments and geographic areas in which we have conducted business for fiscal years 2009, 2008, and 2007. We have restated the corresponding items of segment information for fiscal years 2008 and 2007 to conform to our fiscal year 2009 segment presentation.
Current Operating Environment and Outlook
External Factors
          
Over most of the last two decades, the U.S. government has been increasingincreased its reliance on the private sector for a wide range of professional and support services. This increased use of outsourcing by the U.S. government has been driven by a variety of factors:factors including: lean-government initiatives launched in the 1990s,1990s; surges in demand during times of national crisis,crisis; the increased complexity of missions conducted by the shift inU.S. military and the strategic planningDoS; increased focus of the U.S. military to focus on the war-fighter effortswar-fighting efforts; and the loss of skills within the government caused by workforce reductions and retirements. These factors lead us
          In the current environment of economic uncertainty and market turmoil, developing and implementing spending, tax, and other initiatives to believe thatstimulate the U.S. government’s growing mission and continued human capital challenges have combined to create a new market dynamic, one thatfaltering economy is less directly reflective of overall


29

government budgets and more reflective ofat the ongoing shift of service delivery from the federal workforce to core competent, efficient private sector providers.
The outcomeforefront of the U.S. November 2008 election could have an effectGovernment’s activities. While we expect to see continued support for defense initiatives under the Obama Administration, we expect that initiatives to address economic stimulus will compete with other national priorities, such as DoD and DoS initiatives. While these dynamics will place pressure on defense spending, we believe that, within the future DoDdefense budget, weapon system acquisitions will be the most likely initial target for budget reductions, and operations and maintenance budgets will remain robust, driven by (i) the courseneed to reset equipment coming out of government spending on outsourcing. The DoD expects it will preside over a 2008 budget that could soon reach a record $670.0 billion depending onIraq, (ii) the outcomelogistics and support chain associated with repositioning of recent war supplemental legislation. The DoD’s fiscal 2009 regular request is $515.4 billion, nearly a 74% increase since 2001,forces and there is a $70.0 billion placeholder ‘allowance’ for war costs, although the Pentagon admits that the allowance would only provide enough money for war costs until January 2009 or so. When all 2009 supplementals are approved, the 2009 DoD budget could top $700.0 billion.eventual draw down in Iraq and (iii) deployments into Afghanistan.
          
Although the ultimate size of future defense budgets remains uncertain, current indications are that overall defense spending will continue to increase over the next few years, albeit at lower rates of growth relative to those of the last decade. We believe the following industry trends will further increaseresult in continued strong demand and enable us to more successfully compete for outsourced services in our target markets:markets for the types of outsourced services we provide:
 •A shift in the strategic planningThe continued transformation of the U.S. military forces, leading to increases inincreased outsourcing of non-combat functions;
• An increased level and frequency of overseas deployment and peace-keeping operations for the DoS, DoD and United Nations;
• Growth in the U.S. military budget in operations and maintenance spending accounts,
• An increased maintenance, overhaul and upgrade needs to support aging military platforms;
• Increased reliance on private contractors to performfunctions, including life-cycle asset management functions ranging from organizational to depot level maintenance;
 
 •An increased level and frequency of overseas deployment and peace-keeping operations for the DoS and DoD;
• Increased opportunitiesmaintenance, overhaul and upgrade needs to support aging military platforms;
•Increased outsourcing by foreign governments in providing a wide spectrum of maintenance, supply support, facilities management and construction management-related services; and
 
 • A shift by the U.S. Government from single award to more multiple award IDIQ contracts.contracts, which may offer us an opportunity to increase revenue under these contracts by competing for task orders with the other contract awardees.
Recent Developments
          
Global Linguist Solutions LLC
In March 2008, GLS, a joint venture between DynCorp International and McNeil Technologies, was allowed, after protests and appeals dating back to December 2006, to resume performance on the INSCOM contract byBoth the U.S. Armyand Iraqi governments have recently communicated the goal and intent for U.S. troop reductions from Iraq. The exact timing of the managementinitial withdrawal and amount of linguisttime to fully withdraw U.S. troops is uncertain. However, many industry observers believe that the withdrawal will commence between 2010 and 2011. On the other hand, President Obama has indicated his

28

support for expanded troop levels in Afghanistan. As a result, we expect our level of business involving Iraq to be relatively stable over the next few years, with demand remaining strong for logistics, equipment reset, training and mentoring of Iraqi forces and government agencies and translation services into support security and peacekeeping activities. In Afghanistan, we believe we are well positioned to capitalize on increased U.S. government focus through many of our service offerings, including police training and mentoring, aircraft logistics and operations, infrastructure development, mine resistant and ambush protected or “MRAP” services, poppy eradication and logistics services under LOGCAP IV.
Current Economic Conditions
          We believe that our industry and customer base are less likely to be affected by many of the military mission knownfactors generally affecting business and consumer spending. Accordingly, we believe that we continue to be well positioned in the current economic environment as OIF.a result of historic demand factors affecting our industry, the nature of our contracts and our sources of liquidity. However, we cannot be certain that the economic environment or other factors will not adversely impact our business, financial condition or results of operations in the future.
          Furthermore, we believe that our current sources of liquidity will enable us to continue to perform under our existing contracts and further grow our business. However, a longer term credit crisis could adversely affect our ability to obtain additional liquidity or refinance existing indebtedness on acceptable terms or at all, which could adversely affect our business, financial condition and results of operations.
This five year contract, with          See “Item 1A. Risk Factors — Current or worsening economic conditions could adversely impact our business”, for a maximum value of $4.6 billion and a current awarded value of $3.5 billion, was originally awarded in December 2006. The U.S. Army terminated the first award for convenience after the Government Accountability Office sustained a protest filed by the incumbent. INSCOM subsequently requested and reviewed revised proposals and again awarded the contract to GLS. The incumbent protested this second award and the U.S. Army decided to take corrective action, resulting in dismissaldiscussion of the second protest. Consequently, the U.S. Army implemented a corrective action plan which resulted in a decision to support its December 2006 award to GLS.
Under the contract, GLS will provide rapid recruitment, deployment, andon-site management of interpreters and translators in-theater for a wide range of foreign languages. This effort will support the U.S. Army, its unified commands, attached forces, combined forces, and joint elements executing the OIF mission, and other U.S. Government agencies supporting the OIF mission. The foreign language interpretation and translation services provided by GLS under this contract will allow OIF forces to communicaterisks associated with the local populace, gather information for force protection, and interact with other foreign military units. GLS is expected to employ up to 7,500 locally-hired translators and up to 1,500 U.S. citizens with security clearances who are fluent in the languages spoken in Iraq.
current economic condition.
Internal Factors
          Our internal focus for success centers around five key principles:
•Relentless Performance — Through a relentless mindset 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.
•Clear 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 current customers and competing for new 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.
          We apply these key principles continuously as we assess our operational and administrative performance.
Fiscal Year 2009 Developments
Logistics Civil Augmentation Program
          
In April 2008, after extended protest and review, the U.S. Army Sustainment Command selected DynCorp International,us, along with KBR Inc. and FlourFluor Corporation, as the providers of logistics support to the U.S. Army


30

under the LOGCAP IV contract. The LOGCAP IV contract has a ceiling value of $50 billion with a term of up to 10ten years and an annual ceiling value to DynCorp Internationalus of $5 billion in revenue per year. Task orders will be competed on with the other two awardees and will vary depending from year to year, depending on U.S. Army funding and strategic objectives. Under this contract, our Companywe will support U.S. forces worldwide with immediate focus on those deployed in the Middle East.
LOGCAP IV is We started performance on two task orders based in Kuwait in the U.S. Army componentfourth quarter of the DoD’s efforts to award contracts to U.S. companies for a broad range of logistics to support services to U.S. and allied forces during combat, peacekeeping, humanitarian, and training operations. These services include facilities, supplies, maintenance, and transportation. The LOGCAP objective is to use civilian contractors to perform selected services in a theater of operations to augment U.S. Army forces and release military units for other missions or to fill U.S. Army resource shortfalls. See further discussion regarding segment changes in our Note 16 to our consolidated financial statementsfiscal year 2009.

29

Change of CEO
          
On May 13, 2008, we filed aForm 8-K announcing the appointment of William L. Ballhaus as President and Chief Executive Officer, effective May 19, 2008. He succeedssucceeded Herb J. Lanese, who will retirewas terminated without cause from his duties as chief executive officer,Chief Executive Officer, but continuecontinues to serve on the Company’sour board of directors.
WWNS LitigationDIFZ Sale
          
On May 14,July 31, 2008, we sold 50% of our ownership interest in our previously wholly owned subsidiary, DynCorp International FZ-LLC (“DIFZ”), for approximately $8.2 million. We financed the transaction by accepting three promissory notes provided by the purchaser. As a juryresult, the financed portion of the sale was accounted for as a capital transaction reflected in additional paid in capital (“APIC”). The notes are to be repaid through the U.S. District Court for the Eastern Districtpurchaser’s portion of Virginia found against the Company in a case involving discrimination, interference with employment contracts, the implied duty of good faith and fair dealing,DIFZ quarterly dividends and a dispute concerning unpaid invoices brought$0.5 million down payment. We have recognized a gain of $0.5 million on the sale from receipt of the cash payment in fiscal year 2009. As of April 3, 2009, the sales price was adjusted to $9.7 million, based on the results of a revaluation required by the sales agreement, contingent on approval by the DIFZ board of directors. The adjustment to the purchase price was reflected as an increase to the promissory notes. DIFZ remains a former subcontractor, Worldwide Network Services (“WWNS”)consolidated subsidiary in our financial statements, as it was determined that we remain the primary beneficiary. See further discussion in Note 1.
Afghan Construction
          The results of our operations for fiscal year 2009 exceeded expectations across our core business areas with the exception of our Afghanistan construction contracts within our LCM segment, which encountered cost overruns due to significant challenges, including the deteriorating security situation in Afghanistan. Management has determined that several of our firm fixed price Afghanistan construction contracts will operate at a loss or at margins approaching zero over their contract terms.
          We do not expect to bid any similar firm fixed price contracts without revised terms and conditions. See “— Consolidated Results of Operations” for further information regarding the financial impact of our construction business on two State Department contracts. See Note 8 to our consolidated financial statements for further information.
results.
Consolidated Results of Operations
Fiscal Year Ended March 28, 2008April 3, 2009 Compared to Fiscal Year Ended March 30, 200728, 2008
Consolidated Results of Operations
          
The following table sets forth, for the periods indicated, our consolidated results of operations, both in dollars and as a percentage of revenue:
                                
 Fiscal Year Ended  Fiscal Year Ended 
 March 28, 2008 March 30, 2007  April 3, 2009 March 28, 2008 
 (Dollars in thousands)  (Dollars in thousands) 
 
Revenue $2,139,761   100.0% $2,082,274   100.0% $3,101,093  100.0% $2,139,761  100.0%
 
Cost of services  (1,859,666)  (86.9)%  (1,817,707)  (87.3)%  (2,768,962)  (89.3)%  (1,859,666)  (86.9)%
Selling, general and administrative expenses  (117,919)  (5.5)%  (107,681)  (5.2)%  (103,583)  (3.3)%  (117,919)  (5.5)%
Depreciation and amortization expense  (42,173)  (2.0)%  (43,401)  (2.1)%  (40,557)  (1.3)%  (42,173)  (2.0)%
                  
Operating income  120,003   5.6%  113,485   5.4% 187,991  6.1% 120,003  5.6%
 
Interest expense  (55,374)  (2.6)%  (58,412)  (2.8)%  (58,782)  (1.9)%  (55,374)  (2.6)%
Interest on mandatory redeemable shares  —   0.0%  (3,002)  (0.1)%
Loss on early extinguishment of debt and preferred stock  —   0.0%  (9,201)  (0.4)%
Loss on early extinguishment of debt, net  (4,131)  (0.1)% —  0.0%
Earnings from affiliates  4,758   0.2%  2,913   0.1% 5,223  0.2% 4,758  0.2%
Interest income  3,062   0.1%  1,789   0.1% 2,195  0.1% 3,062  0.1%
Other income, net  199   0.0%  —   0.0% 145  0.0% 199  0.0%
                  
Income before taxes  72,648   3.4%  47,572   2.3% 132,641  4.3% 72,648  3.4%
Provision for income taxes  (27,999)  (1.3)%  (20,549)  (1.0)%  (41,995)  (1.4)%  (27,999)  (1.3)%
                  
Income before minority interest  44,649   2.1%  27,023   1.3% 90,646  2.9% 44,649  2.1%
                  
Minority interest  3,306   0.2%  —   0.0%  (20,876)  (0.7)% 3,306  0.2%
                  
Net income $47,955   2.2% $27,023   1.3% $69,770  2.2% $47,955  2.2%
                  


30

Revenue —Revenue for fiscal year 2009 increased $961.3 million, or 45%, as compared to fiscal year 2008, reflecting increased revenue in all operating segments. The increase, as more fully described in the results by segment, is principally due to growth from new contracts, in particular, the INSCOM contract.
Cost of services —Cost of services is comprised of direct labor, direct material, subcontractor costs, other direct costs and overhead. Other direct costs include travel, supplies and other miscellaneous costs. Cost of services for fiscal year 2009 increased $909.3 million as compared to fiscal year 2008, primarily the result of the ramp-up of the INSCOM contract. As a percentage of revenue, cost of services increased to 89.3% of revenue in fiscal year 2009 from 86.9% of revenue in fiscal year 2008. This was primarily a result of a change in contract mix as we earned more revenue from cost reimbursement type contracts than from firm fixed priced type contracts, with the INSCOM contract and changes in portions of the CIVPOL contract driving this shift. In addition to our change in contract mix, cost overruns by our Afghanistan construction contracts, as further described below, also contributed to higher cost of services as a percentage of revenue in fiscal year 2009 compared to fiscal year 2008.
Selling, general and administrative expenses (“SG&A”) —SG&A primarily relates to functions such as management, legal, finance, accounting, contracts and administration, human resources, management information systems, purchasing and business development. SG&A for fiscal year 2009 decreased $14.3 million, or 12.2%, compared to fiscal year 2008. SG&A decreased primarily as a result of lean infrastructure initiatives, primarily through personnel reductions and process efficiency implementations, focused on controlling SG&A costs, offset by approximately $5.0 million in severance costs, including severance costs from the involuntary termination of our former CEO. Fiscal year 2009 SG&A compared to fiscal year 2008 was also positively impacted by non-recurring bid and proposal costs associated with the INSCOM contract which were incurred in fiscal year 2008.
Interest expense —Interest expense for fiscal year 2009 increased by $3.4 million, or 6.2%, as compared to fiscal year 2008. The increase in interest expense is primarily due to a higher average outstanding debt balance and higher average interest rates as a result of our fiscal year 2009 debt financing as further discussed in “— Liquidity & Capital Resources.” In addition to the change in interest expense, deferred financing fees associated with our prior debt were also written-off as further discussed in Note 7. The impact of this write-off is separately disclosed as Loss on early extinguishment of debt in our consolidated statements of income.
Income tax expense —Our effective tax rate of 31.7% for fiscal year 2009 decreased from 38.5% for fiscal year 2008. Our effective tax rate was impacted by the tax treatment of our GLS and DIFZ joint ventures which are consolidated for financial reporting purposes but are not consolidated for tax purposes as they are taxed as partnerships under the Internal Revenue Code.
Minority Interest —Minority interest reflects the impact of our joint venture partners’ interest in our consolidated joint ventures, GLS and DIFZ. For fiscal year 2009, minority interest for GLS and DIFZ was $18.5 million and $2.4 million, respectively. In fiscal year 2008, minority interest for GLS was additive to our net income as GLS was operating at a net loss. There was no minority interest related to DIFZ, as it was a wholly owned subsidiary during fiscal year 2008.
Impact of our Afghanistan Construction Contracts
          For fiscal year 2009, revenue from our Afghanistan construction contracts was $71.2 million, as compared to $18.0 million for fiscal year 2008. The remaining revenue through completion of these contracts is expected to be approximately $98.9 million.
          As discussed in “— Current Operating Environment and Outlook — Fiscal Year 2009 Developments” above, our Afghanistan construction business encountered operational difficulties during fiscal year 2009, which resulted in higher non-reimbursable delivery costs and contractual milestone delays. As a result, a contract loss reserve and associated provision, specific to a large firm fixed price construction contract in Afghanistan, was estimated and recorded during the second quarter of fiscal year 2009, which totaled $18.4 million. Based on our assessment of the status of this project and considering the current security environment in Afghanistan, additional contract losses totaling $19.9 million were recorded in the third and fourth quarters of fiscal year 2009. Utilization of the contract loss reserve through April 3, 2009 was $28.5 million.
          The recording of the additional third quarter loss also triggered an interim assessment of goodwill for potential impairment, as further discussed in Note 3 to our financial statements. As a result of this assessment, we concluded that no goodwill impairment had occurred.
          Additionally, revisions were made to the estimated margins on all other firm fixed priced Afghanistan construction contracts within the Operations Maintenance and Construction Management (“OMCM”) strategic business unit. These firm fixed price Afghanistan construction contracts are expected to operate with margins at or approaching zero over their remaining contract terms.

31

          The contract loss provision and revisions to estimated margins are based on the best information currently available. Although we believe that these amounts have been estimated appropriately, there can be no assurance that future events will not require us to revise these estimates.
Revenue:Results by Segment
          The following table sets forth the revenue and operating income for the ISS, LCM and MTSS operating segments, for fiscal year 2009, as compared to fiscal year 2008 (dollar amounts in thousands).
International Security Services
             
  Fiscal Year Ended  Fiscal Year Ended    
  April 3, 2009  March 28, 2008  Change 
Revenue $1,823,141  $1,097,083  $726,058 
Operating income $151,888  $89,588  $62,300 
Revenue —Revenue for fiscal year 2009 increased $726.1 million, or 66.2%, as compared to fiscal year 2008. The increase primarily resulted from the following:
Law Enforcement and Security: Revenue increased $45.7 million, or 6.7%, primarily due to increases in our security services in Iraq, Palestine, Liberia and Haiti, offset by a decline in security services in Afghanistan. Revenue from our civilian police services in Iraq increased $31.0 million primarily due to higher personnel levels. As a result of new contracts started in early fiscal year 2009, we provided civilian police and security services in Palestine, Liberia and Haiti, which contributed $24.8 million, $4.4 million and $3.6 million, respectively, in increased revenue for the fiscal year. These increases were offset by a decline in Afghanistan of $31.1 million, which was a result of fewer supplies and equipment sales to the customer during fiscal year 2009, as compared to fiscal year 2008, combined with a shift from a fixed price contract structure in fiscal year 2008 to a cost reimbursable contract structure in fiscal year 2009. While we expect revenue from our continuing security services to remain relatively stable in the near term, we anticipate fiscal year 2010 revenue to benefit from our new mentoring and training program to Iraq’s Ministry of Defense and Ministry of Interior, which contributed $6.1 million of revenue in fiscal year 2009.
Specialty Aviation and Counter-drug Operations: Revenue decreased $25.1 million, or 6.2%, primarily due to a decline in our International Narcotics Law Enforcement programs resulting from scope reductions, offset by new contracts associated with security and drug eradication training in Afghanistan.
Global Linguist Solutions: Revenue was $709.1 million for the INSCOM contract through our GLS joint venture, which began in the fourth quarter of fiscal year 2008. Revenue also benefited from the recognition of the INSCOM contract award fee of $30.4 million for fiscal year 2009. The award fee is based on achieving specific contract performance criteria, such as operational fill rates. Based on our contract performance history to date, we anticipate the ability to accrue award fees through the remaining life of the INSCOM contract.
Operating Income —Operating income for fiscal year 2009 increased $62.3 million, or 69.5%, as compared to fiscal year 2008. Operating income benefited from a reduction in SG&A expense of $15.4 million due primarily to proposal costs in fiscal year 2008 associated with INSCOM, specific contract litigation expenses in fiscal year 2008 associated with the Worldwide Network Services (“WWNS”) litigation as further described in Note 8 to our consolidated financial statements and from our lean infrastructure initiatives focused on controlling SG&A costs. Specific to our SBUs, the increase primarily resulted from the following:
Law Enforcement and Security: Operating income decreased $14.2 million, or 12.7%, due to declining margins, primarily in our Civilian Police services. This margin decline resulted from a shift in portions of our task orders for these services from fixed price in the prior fiscal year to cost reimbursable in the current fiscal year. These declines were partially offset by the successful resolution of approximately $10 million of prior period billing matters, which positively impacted operating income.
Specialty Aviation and Counter-drug Operations: Operating income increased $14.2 million, or 58.9%, primarily due to higher margins on several new security and drug eradication training contracts in Afghanistan, offset by lower revenue for the fiscal year.
Global Linguist Solutions: Operating income increased by $46.9 million to $40.8 million for fiscal year 2009 as GLS commenced operations at the end of fiscal year 2008. Fiscal year 2009 operating income benefited from the accrual of the INSCOM contract award fee, which represents the award earned or accrued based on achieving specific contract performance criteria, such as

32

operational fill rates. Operating income earned by GLS benefits net income only by our 51% ownership portion, as 49% of earnings from the joint venture are reflected in minority interest as a reduction to net income.
Logistics and Construction Management
             
  Fiscal Year Ended  Fiscal Year Ended    
  April 3, 2009  March 28, 2008  Change 
Revenue $352,196  $285,317  $66,879 
Operating (loss)/income $(33,406) $10,854  $(44,260)
Revenue —Revenue for fiscal year 2009 increased $66.9 million, or 23.4%, as compared to fiscal year 2008. The increase primarily resulted from the following:
Contingency and Logistics Operations:Revenue increased by $44.1 million, or 33.6%, primarily due to the expansion of services in the Philippines, which contributed $24.2 million of the revenue increase. Revenue also benefited from our support services, where we provided temporary housing in response to the severe flooding in Iowa during the summer of 2008 and increased mediation and humanitarian services provided in Sudan. Additionally, LOGCAP IV contributed $4.7 million of revenue as work began in March 2009 on awarded task orders. These increases were partially offset by a decline in our Africa Peacekeeping program, primarily a result of reductions in current work levels within this program. We anticipate fiscal year 2010 revenue to benefit significantly from task orders under the LOGCAP IV contract with our other programs remaining steady or experiencing declines due to non-recurring work completed during fiscal year 2009.
Operations Maintenance and Construction Management: Revenue increased $22.9 million, or 14.9%, primarily due to continued progress on our Afghanistan construction projects. This was partially offset by the completion of the Forward Operating Locations contract and contract termination for a construction project in Nigeria. As discussed above in “— Consolidated Results of Operations — Impact of our Afghanistan Construction Contracts,” due to significant challenges on several Afghanistan construction contracts, resulting partly from the deteriorating security situation in that country, we do not expect to bid on any similar firm fixed-price contracts without revised terms and conditions. This is expected to impact future revenue in OMCM by limiting the construction opportunities available to us.
Operating Income —Operating income for fiscal year 2009 decreased $44.3 million to an operating loss of $33.4 million as compared to operating income of $10.9 million in fiscal year 2008. Although operating income benefited by approximately $1.3 million from our lean infrastructure initiatives focused on controlling SG&A costs in the current year, we encountered SBU specific decreases in operating income, primarily as a result of the following:
Contingency and Logistics Operations: Operating income decreased by $2.3 million, or 23.3% for fiscal year 2009, as compared to fiscal year 2008. The decrease was primarily driven by a decline in our Africa Peacekeeping program, as a result of reductions in current work levels within this program. Operating income was also negatively impacted by costs related to the ramp-up of our new LOGCAP IV contract, which was awarded in early fiscal year 2009. In fiscal year 2009, LOGCAP IV did not contribute significantly to revenue but incurred costs associated with contract set-up and other overhead costs. In the fourth quarter, we were awarded two LOGCAP IV task orders based in Kuwait worth $98 million which we expect will positively impact operating income in future periods over the life of the task orders.
Operations Maintenance and Construction Management: Operating income decreased by $43.3 million for fiscal year 2009, as compared to fiscal year 2008. This was primarily due to costs associated with the construction in Afghanistan, which generated $2.6 million of positive operating income in fiscal year 2008; but, lost $40.5 million in fiscal year 2009. This is further discussed above in “Consolidated Results of Operations — Impact of our Afghanistan Construction Contracts”. We anticipate operating OMCM at near breakeven for the foreseeable future.
Maintenance and Technical Support Services
             
  Fiscal Year Ended  Fiscal Year Ended    
  April 3, 2009  March 28, 2008  Change 
Revenue $930,983  $757,361  $173,622 
Operating income $69,509  $19,561  $49,948 
Revenue —Revenue for fiscal year 2009 increased $173.6 million, or 22.9%, as compared to fiscal year 2008. The increase primarily resulted from the following:

33

Contract Logistics Support: Revenue increased $56.4 million, or 27.5%, primarily due to higher deliveries of support equipment associated with our C-21 and LCCS programs. This increase is primarily due to supplemental increases in U.S. government spending for aircraft upgrades to support the global war on terror. Within these programs, we expect pressure on fiscal year 2010 revenue as we anticipate less business from supplemental initiatives.
Field Service Operations: Revenue increased $42.8 million, or 13%, primarily due to a new contract for logistics services at Fort Campbell, which started in May 2008, and increased revenue from higher personnel levels in our CFT program. We expect increased competition on our CFT program over the next fiscal year as the number of contractors has increased from four to seven in this service space. While this could put downward pressure on revenue in fiscal year 2010, we do not believe this will limit our long term opportunities under the CFT program.
Aviation and Maintenance Services: Revenue increased $74.4 million, or 33.5%, primarily due to increased work associated with MRAP vehicles and increased revenue associated with our General Maintenance Corps contract, offset by a decline in our marine services and a decrease in threat management systems work. We expect higher revenue in the fiscal year 2010, primarily driven by growth in our MRAP program through anticipated work in Afghanistan, partially offset by MRAP declines in Iraq.
Operating Income —Operating income for fiscal year 2009 increased $49.9 million, to $69.5 million, as compared to $19.6 million for fiscal year 2008. Operating income benefited from our lean infrastructure initiatives focused on controlling SG&A costs, offset by severance associated with the retiring of our MTSS divisional President. The overall year over year cost reduction attributable to MTSS was approximately $6.9 million. Specific to our SBAs, the increase primarily resulted from the following:
Contract Logistics Support: Operating income for fiscal year 2009 increased by $10.4 million, to $11.5 million, as compared to fiscal year 2008. The increase was primarily due to improved project management in several key programs. Specifically, we experienced improved profitability on our LCCS program due to stringent cost controls implemented during the year and a more favorable product mix which resulted in improved margins. We expect to sustain the operating income improvements achieved in fiscal year 2009 into the next fiscal year.
Field Service Operations: Operating income increased $3.6 million, or 18.4%, for fiscal year 2009, as compared to fiscal year 2008, driven primarily by increased revenue. We expect near term pressure on our margins in fiscal year 2010 as a result of more competition on new awards from additional IDIQ contractors.
Aviation and Maintenance Services: Operating income increased $29.0 million, to $47.0 million for fiscal year 2009, as compared to $17.9 million for fiscal year 2008, primarily due to increased revenue and improved mix of contracts with better margins, such as MRAP. We expect operating income to benefit by continued growth in our MRAP program in fiscal year 2010.
Fiscal Year Ended March 28, 2008 to Fiscal Year Ended March 30, 2007
Consolidated Results of Operations
          The following table sets forth, for the periods indicated, our consolidated results of operations, both in dollars and as a percentage of revenue:

34

                 
  Fiscal Year Ended 
  March 28, 2008  March 30, 2007 
  (Dollars in thousands) 
Revenue $2,139,761   100.0% $2,082,274   100.0%
Cost of services  (1,859,666)  (86.9)%  (1,817,707)  (87.3)%
Selling, general and administrative expenses  (117,919)  (5.5)%  (107,681)  (5.2)%
Depreciation and amortization expense  (42,173)  (2.0)%  (43,401)  (2.1)%
             
Operating income  120,003   5.6%  113,485   5.4%
Interest expense  (55,374)  (2.6)%  (58,412)  (2.8)%
Loss on mandatory redeemable shares  —   0.0%  (3,002)  (0.1)%
Loss on early extinguishment of debt and preferred stock  —   0.0%  (9,201)  (0.4)%
Earnings from affiliates  4,758   0.2%  2,913   0.1%
Interest income  3,062   0.1%  1,789   0.1%
Other income, net  199   0.0%  —   0.0%
             
Income before taxes  72,648   3.4%  47,572   2.3%
Provision for income taxes  (27,999)  (1.3)%  (20,549)  (1.0)%
             
Income before minority interest  44,649   2.1%  27,023   1.3%
             
Minority interest  3,306   0.2%  —   0.0%
             
Net income $47,955   2.2% $27,023   1.3%
             
Revenue —Revenue for the fiscal year ended March 28, 2008 increased $57.5 million or 2.8% as compared with the fiscal year ended March 30, 2007, reflecting increased revenue in bothall reporting segments. See “Results of Operations“— Results by Reportable Segment” below for more analysis of our revenue growth by reportable segment.
          
Cost of services:Cost of services is comprised of direct labor, direct materials, subcontractor costs, other direct costs and overhead. Other direct costs include travel, supplies, and miscellaneous costs. —Cost of services for fiscal year 2008 increased $42.0 million or 2.3% primarily due to growth in operations. As a percentage of revenue, costs of services decreased to 86.9% for fiscal year ended March 28, 2008 from 87.3% for fiscal year ended March 30, 2007. The key factors contributing to the decrease in cost of services as a percentage of revenue were continued strong performance of fixed-price task orders combined with contract modifications for construction efforts completed in earlier periods within the GSLCM operating segment.
          
Selling, general and administrative expenses (“SG&A”):—SG&A for the fiscal year ended March 28, 2008 increased $10.2 million or 9.5% as compared with the fiscal year ended March 30, 2007. Factors contributing to the increased SG&A included: (i) litigation costs associated primarily with the WWNS litigation, which is further described in Note 8 to our consolidated financial statements, (ii) costs incurred in fiscal year 2008 related to our Sarbanes-Oxley compliance preparation, (iii) consulting costs related to proposal activity for potential new contracts; and (iv) general SG&A costs necessary to support the current and anticipated growth of the Company’sour business. Offsetting these increases were (i) non-recurring severance costs incurred in fiscal year 2007 for certain former executives, and (ii) bonus compensation incurred in fiscal year 2007 associated with the Company’s Equity Offering.our initial public offering.
          
Depreciation and amortization expense:expense —Depreciation and amortization for the fiscal year ended March 28, 2008 decreased $1.2 million, or 2.8% as compared to the fiscal year ended March 30, 2007, primarily due to the effects of acquired software becoming fully amortized during the fiscal year.
          
Interest expense:expense —Interest expense for the fiscal year ended March 28, 2008 decreased $3.0 million, or 5.2% as compared with the fiscal year ended March 30, 2007. The decrease was primarily due to lower average debt outstanding in the fiscal year ended March 28, 2008, as compared with the fiscal year ended March 30, 2007. The interest expense incurred relates to our then existing senior secured credit facility, the senior subordinated notes and amortization of deferred financing fees.
          
Interest income:income —Interest income for the fiscal year ended March 28, 2008 increased $1.3 million, or 71.2% as compared with the fiscal year ended March 30, 2007 due to higher average balance of our cash sweep accounts.
          
Provision for income taxes:taxes —Provision for income taxes for the fiscal year ended March 28, 2008 increased $7.5 million or 36.3% as compared to the fiscal year ended March 30, 2007 due to an increase in taxable income offset by a reduction in the effective tax rate to 38.5% from 43.2% for the fiscal years ended March 28, 2008 and March 30, 2007 respectively.
Results of Operations by Reportable Segment
          
The following table setstables set forth the revenue and operating income for the GSISS, LCM and MTSS operating segment,segments, for the fiscal year ended March 28, 2008, as compared to the fiscal year ended March 30, 2007 (in(dollar amounts in thousands).
Government Services
             
  Fiscal Year Ended 
  March 28,
  March 30,
    
  2008  2007(1)  Inc/(Dec) 
 
Revenue $1,404,985  $1,378,889  $26,096 
Operating income $95,946  $99,463  $(3,517)
(1)During our fiscal 2008 first quarter, certain contracts were reclassified between our two segments. For comparability, we have recasted our fiscal 2007 and 2006 revenue and operating income related to these contracts within our MD&A discussion and within Note 13 to our consolidated financial statements. The recasting had no impact on our consolidated results of operations, financial position or cash flows.


3235

International Security Services
             
  Fiscal Year Ended  Fiscal Year Ended    
  March 28, 2008  March 30, 2007  Change 
Revenue $1,097,083  $1,086,481  $10,602 
Operating income $89,588  $89,130  $458 
Revenue —Revenue for the fiscal year ended March 28, 2008 increased $26.1$10.6 million, or 1.9%1.0%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following fluctuations within our SBUs as viewed by segment management:
          Law Enforcement and Security:Revenue decreased $49.3 million primarily due to a decline in revenue from our operations in Iraq of $84.4 million offset by an increase in Afghanistan of $35.0 million. An additional $0.6 million increase was attributable mainly to non-recurring work in other Middle Eastern nations. In Iraq, we experienced a $66.1 million decrease in our CIVPOL services due to the transition of our operations from leased facilities to customer furnished facilities. As we had operated these leased locations and earned revenue through task orders, this planned transition from these facilities negatively affected our CIVPOL revenue. Despite the decline from the relocation, our core CIVPOL personnel levels remained consistent in Iraq and were not a driver of the decrease. The remaining decrease in revenue from our operations in Iraq was driven primarily by declines in non-recurring work associated with our personal protection services of $18.3 million. The increase in revenue from our operations in Afghanistan was due largely to increased personnel levels as well as additional services associated with the Afghan Poppy Eradication Program.
• Law Enforcement and Security:  Revenue decreased $49.3 million primarily due to a decline in revenue from our operations in Iraq of $84.4 million offset by an increase in Afghanistan of $35.0 million. An additional $0.6 million increase was attributable mainly to non-recurring work in other Middle Eastern nations. In Iraq we experienced a $66.1 million decrease in our CIVPOL services due to the transition of our operations from leased facilities to customer furnished facilities. As we had operated these leased locations and earned revenue through task orders, this planned transition from these facilities negatively affected our CIVPOL revenue. Despite the decline from the relocation, our core CIVPOL personnel levels remained consistent in Iraq and were not a driver of the decrease. The remaining decrease in revenue from our operations in Iraq was driven primarily by declines in non-recurring work associated with our personal protection services of $18.3 million. We are continuing to pursue new opportunities in the Iraq theatre for these services in fiscal 2009. The increase in revenue from our operations in Afghanistan was due largely to increased personnel levels as well as additional services associated with the Afghan Poppy Eradication Program. While Iraq and Afghanistan have been the primary regions of growth for our various Law Enforcement and Security services, we are expecting growth from new regions such as Palestine, Haiti, Lebanon and Mexico in fiscal 2009.
• Contingency and Logistics Operations:  Revenue decreased by $10.1 million primarily due to non-recurring revenue associated with Hurricane Katrina in fiscal 2007. We expect growth to resume in our Contingency and Logistics Operations services with the addition of LOGCAP IV awarded in April 2008.
• Operations Maintenance and Construction Management:  Revenue increased $25.5 million due to theramp-up in various construction projects in regions including Africa and Afghanistan. Our strategic focus has been on our construction services where we are executing a strategy that includes capitalizing on our construction expertise and our global resources in these areas. Because of our focus on this aspect of the business, growth in construction has outpaced our other services within this SBU, such as equipment positioning and military logistics. Continued growth is expected in our construction services through new opportunities andramp-up of early stage projects in process at the end of fiscal 2008 while growth in our other services is anticipated to be flat in the upcoming year.
• Specialty Aviation and Counter-drug Operations:  Revenue increased $56.5 million primarily due to a $45.1 million increase in drug eradication services and $11.4 million of increase in other services. Our drug eradication services continue to grow through increases in our scope of services for these projects. We experienced significant growth in Afghanistan where our services have played a key role in reducing narcotics in that country. We are expecting a continued shift in our services out of regions such as Central and South America and into the Middle East. Growth in other services includes counter narcotics technologies and forestry support services. These services are typically non-recurring and are not a significant aspect of our future growth strategy.
• Global Linguist Solutions:  Revenue was $3.6 million for the new INSCOM contract through our GLS joint venture which began in our fiscal fourth quarter. We are anticipating significant revenue growth in fiscal 2009 as a result of services provided under the INSCOM contract.
          Specialty Aviation and Counter-drug Operations:Revenue increased $56.5 million primarily due to a $45.1 million increase in drug eradication services and $11.4 million of increase in other services. Our drug eradication services continue to grow through increases in our scope of services for these projects. We experienced significant growth in Afghanistan where our services have played a key role in reducing narcotics in that country.
Global Linguist Solutions:Revenue was $3.6 million for the new INSCOM contract through our GLS joint venture, which began in our fiscal fourth quarter.
Operating income —Operating income for fiscal year 2008 was consistent with fiscal year 2007. The following sets forth the operating income for the ISS segment for fiscal year 2008 as compared to fiscal year 2007.
Law Enforcement and Security:Operating income increased $31.0 million as a result of improved contract performance and elimination of non-recurring write-offs from contract losses that occurred in the prior year. Our improved contract performance was primarily a result of effective cost management strategies executed in fiscal year 2008, which allowed us to improve operating income despite a decline in revenue for our services within this SBU.
Specialty Aviation and Counter-drug Operations:Operating income decreased $4.7 million due to charges related to non-fee bearing, unscheduled maintenance of aircraft during the fiscal year. While the nature of this incremental work had a positive and significant impact on revenue, its structure as a “cost reimbursable only” contract did not provide a benefit to operating income.
Global Linguist Solutions:Start-up costs associated with this contract contributed to a decrease in our operating income of $6.7 million through the fiscal year ended March 28, 2008.
General SG&A Factors:We incurred a decrease of $19.1 million in operating income related to SG&A expenses in the current fiscal year. The fluctuation was due primarily to additional expenses from proposal costs associated with INSCOM, specific contract litigation expenses associated with the WWNS litigation, further described in Note 8 to our consolidated financial statements, and increases in necessary support functions associated with our current and anticipated growth. These cost increases were offset by one-time costs incurred in the prior year related to severance expenses for certain former executives and bonus compensation associated with our initial public offering.
Logistics & Construction Management
             
  Fiscal Year Ended  Fiscal Year Ended    
  March 28, 2008  March 30, 2007  Change 
Revenue $285,317  $266,050  $19,267 
Operating income $10,854  $13,227  $(2,373)
Revenue —Revenue for fiscal year 2008 increased $19.3 million, or 7.2%, as compared to fiscal year 2007. The increase primarily resulted from the following fluctuations within our SBUs as viewed by segment management:

36

Contingency and Logistics Operations:Revenue decreased by $10.1 million primarily due to non-recurring revenue associated with Hurricane Katrina in fiscal year 2007.
Operations Maintenance and Construction Management:Revenue increased $25.5 million due to the ramp-up in various construction projects in Afghanistan. Our strategic focus has been on our construction services where we are executing a strategy that includes capitalizing on our construction expertise and our global resources in these areas. Because of our focus on this aspect of the business, growth in construction has outpaced our other services within this SBU, such as equipment positioning and military logistics.
Operating income —Operating income for the fiscal year ended March 28, 2008 decreased $3.5$2.4 million or 3.5%17.9%, as compared to the fiscal year ended March 30, 2007. The decrease primarily resulted from the following:
          Contingency and Logistics Operations:Operating income decreased by $6.0 million primarily due to the decline in revenue for non-recurring projects as discussed above.
• Law Enforcement and Security:  Operating income increased $31.0 million as a result of improved contract performance and elimination of non-recurring write-offs from contract losses that occurred in the prior year. Our improved contract performance was primarily a result of effective cost management strategies executed in fiscal 2008 which allowed us to improve operating income despite a decline in revenue for our services within this SBU.
• Contingency and Logistics Operations:  Operating income decreased by $6.0 million primarily due to the decline in revenue for non-recurring projects as discussed above.


33

          Operations Maintenance and Construction Management:Continued growth through the ramp-up of new construction projects helped increase our operating income by $2.4 million.
• Operations Maintenance and Construction Management:  Continued growth through theramp-up of new construction projects helped increase our operating income by $2.4 million.
• Specialty Aviation and Counter-drug Operations:  Operating income decreased $4.7 million due to charges related to non-fee bearing, unscheduled maintenance of aircraft during the fiscal year. While the nature of this incremental work had a positive and significant impact on revenue, its structure as a “cost reimbursable only” contract did not provide a benefit to operating income.
• Global Linguist Solutions:  Start-up costs associated with this contract contributed to a decrease in our operating income of $6.7 million through the fiscal year ended March 28, 2008.
• General SG&A Factors:  We incurred a decrease of $19.5 million in operating income related to SG&A expenses in the current fiscal year. The fluctuation was due primarily to additional expenses from proposal costs associated with INSCOM and LOGCAP IV, specific contract litigation expenses associated with the WWNS litigation, further described in Item 3 — Legal Proceedings, and increases in necessary support functions associated with our current and anticipated growth. These cost increases were offset by one-time costs incurred in the prior year related to severance expenses for certain former executives and bonus compensation associated with the Company’s initial public offering.
          General SG&A Factors:We incurred an increase of $1.2 million in operating income. The improvement in SG&A expense was primarily a result of one-time costs incurred in the prior year related to severance expenses for certain former executives and bonus compensation associated with our initial public offering offset by additional expenses from proposal costs associated with LOGCAP IV.
Maintenance & Technical Support Services
The following table sets forth the revenue and operating income for the MTSS operating segment, for the fiscal year ended March 28, 2008 as compared to the fiscal year ended March 30, 2007 (in thousands).
             
  Fiscal Year Ended  Fiscal Year Ended    
  March 28, 2008  March 30, 2007  Change 
Revenue $757,361  $729,743  $27,618 
Operating income $19,561  $11,128  $8,433 
          
             
  Fiscal Year Ended 
  March 28,
  March 30,
    
  2008  2007(1)  Increase 
 
Revenue $734,776  $703,385  $31,391 
Operating income $24,057  $14,022  $10,035 
(1)During our fiscal 2008 first quarter, certain contracts were reclassified between our two segments. For comparability, we have recasted our fiscal 2007 and 2006 revenue and operating income related to these contracts within our MD&A discussion and within Note 13 to our consolidated financial statements. The recasting had no impact on our consolidated results of operations, financial position or cash flows.
Revenue —Revenue for the fiscal year ended March 28, 2008 increased $31.4$27.6 million, or 4.5%3.8%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following fluctuations within our SBAs as viewed by segment management:
          Contract Logistics Support:Revenue increased $31.9 million due to escalating support requirements associated with our LCCS programs, which include various services such as overhauls, support personnel and equipment supply, primarily for deployments in Iraq and Afghanistan. The increase was driven by shorter time periods between field overhauls on engines and propellers, which are two of our key services. A trend of higher overhauls was noted during the year due to a combination of factors including longer equipment deployments, higher flight volumes and the harsh desert conditions in those regions.
• Contract Logistics Support:  Revenue increased $31.9 million due to escalating support requirements associated with our Life Cycle Contractor Support (“LCCS”) programs which include various services such as overhauls, support personnel and equipment supply, primarily for deployments in Iraq and Afghanistan. The increase was driven by shorter time periods between field overhauls on engines and propellers which are two of our key services. A trend of higher overhauls was noted during the year due to a combination of factors including longer equipment deployments, higher flight volumes and the harsh desert conditions in those regions.
• Field Service Operations:  Revenue decreased $31.9 million due to a temporary decline in personnel and level of services provided resulting from longer deployment cycles of equipment in Iraq and Afghanistan. While the longer deployment cycles have benefited our Contract Logistics Support SBA, it has created a temporary decline in our FSO as planes and equipment are not rotated out of the theatre as frequently for complete resetting overhauls. We anticipate revenue increasing as equipment cycles return to normal in the upcoming fiscal year.
• Aviation & Maintenance Services:  Revenue increased $31.4 million primarily due to increased work associated with mine resistant vehicles and new threat management systems offset by normal occurrence of completed projects. While much of the increased revenue from our work on threat management systems is non-recurring, we do anticipate continued revenue growth in the near term from mine resistant vehicles.


34

          Field Service Operations:Revenue decreased $31.9 million due to a temporary decline in personnel and level of services provided resulting from longer deployment cycles of equipment in Iraq and Afghanistan. While the longer deployment cycles have benefited our Contract Logistics Support SBA, it has created a temporary decline in our FSO as planes and equipment are not rotated out of the theatre as frequently for complete resetting overhauls.
Aviation & Maintenance Services:Revenue increased $27.6 million primarily due to increased work associated with mine resistant vehicles and new threat management systems offset by normal occurrence of completed projects.
Operating income —Operating income for the fiscal year ended March 28, 2008 increased $10.0$8.4 million or 71.6%75.8%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following:
          Contract Logistics Support:Operating income increased $12.7 million due to better margins realized on higher revenue associated with our LCCS programs primarily supporting deployments in Iraq and Afghanistan, in addition to non-recurring losses from fiscal year 2007 associated with our Commercial Support Services program.
• Contract Logistics Support:  Operating income increased $12.7 million due to better margins realized on higher revenue associated with our LCCS programs primarily supporting deployments in Iraq and Afghanistan in addition to non-recurring losses from fiscal 2007 associated with our Commercial Support Services (“CSS”) program.
• Field Service Operations:  Operating income decreased $6.5 million due to lower revenue offset by lower operating costs. The lower revenue created an undesirable cost structure due to the nature of our services within this SBA. As we anticipate revenue returning to normal levels going forward our operating income is expected to also improve.
• Aviation & Maintenance Services:  Operating income increased $0.9 million which was a net decrease in margin from 9.9% in fiscal 2007 to 8.9% in fiscal 2008. The net decline in margin percentage for this SBA was due to several high margin non-recurring projects in fiscal 2007 in addition to no margin “cost reimbursement only” projects for aircraft maintenance which increased revenue but ultimately reduced operating margin percentages.
• General SG&A Factors:  We incurred an increase of $2.9
Field Service Operations:Operating income decreased $6.5 million due to lower revenue offset by lower operating costs. The decrease in revenue created an undesirable cost structure due to the nature of our services within this SBA.

37

Aviation & Maintenance Services:Operating income increased $0.1 million, which was a result of higher revenue offset by a decrease in margin from several high margin non-recurring projects in fiscal year 2007, in addition to no margin “cost reimbursement only” projects for aircraft maintenance in fiscal year 2008, which increased revenue but ultimately reduced operating margin percentages.
General SG&A Factors:We incurred an increase of $2.1 million in operating income related to SG&A expenses in the current fiscal year. The fluctuation was primarily due to one time costs incurred in the prior year related to severance expenses for certain former executives and bonus compensation associated with our initial public offering.
Fiscal Year Ended March 30, 2007 Compared to Fiscal Year Ended March 31, 2006
The following table sets forth, for the periods indicated, our consolidated results of operations, both in dollars and as a percentage of revenue:
                 
  Fiscal Year Ended 
  March 30, 2007  March 31, 2006 
  (Dollars in thousands) 
 
Revenue $2,082,274   100.0% $1,966,993   100.0%
Cost of services  (1,817,707)  (87.3)%  (1,722,089)  (87.5)%
Selling, general and administrative expenses  (107,681)  (5.2)%  (97,520)  (5.0)%
Depreciation and amortization expense  (43,401)  (2.1)%  (46,147)  (2.4)%
                 
Operating income  113,485   5.4%  101,237   5.1%
Interest expense  (58,412)  (2.8)%  (56,686)  (2.9)%
Interest on mandatory redeemable shares  (3,002)  (0.1)%  (21,142)  (1.1)%
Loss on early extinguishment of debt and preferred stock  (9,201)  (0.4)%  —   0.0%
Earnings from affiliates  2,913   0.1%  —   0.0%
Interest income  1,789   0.1%  461   0.0%
                 
Income before taxes  47,572   2.3%  23,870   1.1%
Provision for income taxes  (20,549)  (1.0)%  (16,627)  (0.8)%
                 
Net income $27,023   1.3% $7,243   0.3%
                 
Consolidated
Revenue —Revenue in the fiscal year ended March 30, 2007 increased by $115.3 million, or 5.9%, as compared with the fiscal year ended March 31, 2006. 82% of the increase is attributable to the GS segment, with the remaining 18% attributable to the MTSS segment. The increase, as more fully described in the results by segment, is primarily a result of additional services provided by the GS segment under the African Peacekeeping and Air-Wing drug eradication contracts. In addition, a higher number of international police liaison officers were deployed in the


35

Middle East under the Civilian Police program and increased aviation maintenance services were provided by the MTSS segment.
Costs of services —Costs of services are comprised of direct labor, direct material, subcontractor costs, other direct costs and overhead. Other direct costs include travel, supplies and other miscellaneous costs. Costs of services in the fiscal year ended March 30, 2007 increased by $95.6 million, or 5.6%, compared with the fiscal year ended March 31, 2006. As a percentage of revenue, costs of services decreased to 87.3% for fiscal year ended March 30, 2007 from 87.5% for fiscal year ended March 31, 2006. The factors contributing to the decrease in cost of services as a percentage of revenue were (i) continued strong performance of fixed-price task orders under the Civilian Police and Air-Wing programs; (ii) improved contract mix resulting from a larger proportion of higher-margin fixed-price andtime-and-materials contracts; (iii) contract modifications for construction efforts in Afghanistan completed in earlier periods; and (iv) wage pass-through claims within the MTSS segment. These factors were offset by: (i) operating costs in excess of contract funding to complete a base camp in Iraq in the second quarter of fiscal 2007; and (ii) the suspension of a security contract with a customer in Saudi Arabia.
Selling, general and administrative expenses —SG&A primarily relates to functions such as management, legal, financial accounting, contracts and administration, human resources, management information systems, purchasing and business development. SG&A is impacted by growth in our underlying business, various initiatives to improve organizational capability, compliance and systems improvements. SG&A in the fiscal year ended March 30, 2007 increased $10.2 million, or 10.4%, compared with the fiscal year ended March 31, 2006. In addition, as a percentage of revenue, SG&A increased slightly to 5.2% for the fiscal year ended March 30, 2007 from 5.0% for the fiscal year ended March 31, 2006. Factors contributing to the increase for the fiscal year ended March 30, 2007 include an increase in business development costs and an increase in corporate administrative costs, primarily the result of developing these functions as an independent company. In addition, fiscal 2007 SG&A includes $6.5 million related to severance expenses for certain former executives and bonus compensation associated with the Company’s Equity Offering. Offsetting these increases was a $7.0 million reduction in bad debt expense compared to fiscal 2006.our initial public offering.
Depreciation and amortization —Depreciation and amortization in the fiscal year ended March 30, 2007 decreased $2.7 million, or 6%, as compared with the fiscal year ended March 31, 2006.
Interest expense —Interest expense in the fiscal year ended March 30, 2007 increased by $1.7 million, or 3.0%, as compared with the fiscal year ended March 31, 2006. The interest expense incurred relates to our senior secured credit facility (the “Senior Secured Credit Facility”) revolving credit facility, senior subordinated notes and amortization of deferred financing fees. The increase is due to the higher interest expense related to the Senior Secured Credit Facility from increasing variable interest rates during the fiscal year ended March 30, 2007. Partially offsetting the higher variable rate interest expense was lower interest incurred on the senior subordinated notes, which have a fixed interest rate of 9.5%, due to the partial redemption in connection with the Equity Offering.
Interest on mandatory redeemable shares —Interest on the mandatory redeemable shares, or preferred stock, was $3.0 million for the fiscal year ended March 30, 2007, compared to $21.1 million for the fiscal year ended March 31, 2006. All of our outstanding preferred stock was redeemed in connection with our Equity Offering in May 2006, resulting in a shorter time outstanding, compared to the fiscal year ended March 31, 2006.
Loss on debt extinguishment and preferred stock —In conjunction with our Equity Offering in May 2006, we incurred: (i) a premium of $5.7 million associated with the redemption of all of our outstanding preferred stock; (ii) a premium of $2.7 million related to the redemption of a portion of our senior subordinated notes; and (iii) the write-off of $0.8 million in deferred financing costs associated with the early retirement of a portion of our senior subordinated notes.
Tax expense and tax rate— We had an effective tax rate of 43.2% for the fiscal year ended March 30, 2007. In connection with our Equity Offering, we redeemed, at a premium, all of our mandatory redeemable shares, or preferred stock, outstanding. This premium was considered not deductible for tax purposes. In addition, we incurred interest expense on our mandatory redeemable shares that is not deductible. Our effective tax rate before consideration of these items and the interest on mandatory redeemable shares was 36.5%.


36

Results by Reportable Operating SegmentLIQUIDITY AND CAPITAL RESOURCES
          
Government Services
The following table sets forth the revenue and operating income for the GS operating segment, for the fiscal year ended March 30, 2007 as compared to the fiscal year ended March 31, 2006 (in thousands).
             
  Fiscal Year Ended 
  March 30,
  March 31,
    
  2007(1)  2006(1)  Increase 
 
Revenue $1,378,889  $1,281,383  $97,506 
Operating income $99,463  $94,957  $4,506 
(1)During our fiscal 2008 first quarter, certain contracts were reclassified between our two segments. For comparability, we have recasted our fiscal 2007 and 2006 revenue and operating income related to these contracts within our MD&A discussion and within Note 13 to our consolidated financial statements. The recasting had no impact on our consolidated results of operations, financial position or cash flows.
Revenue
Revenue for the fiscal year ended March 30, 2007 increased $97.5 million, or 7.6%, as compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
• increased aviation support services of drug eradication activities under the Air-Wing program in South America and Afghanistan — $85.8 million;
• higher net number of international police liaison officers deployed in the Middle East under the Civilian Police program — $16.0 million;
• additional contingency and logistics services provided to the Africa Peacekeeping contract — $43.4 million; and
• new construction, maintenance and contingency contracts — $47.0 million.
• additional contracts recasted into GS from MTSS — $2.5 million.
partially offset by:
• conclusion of five task orders under the World Wide Personal Protective Services program — $73.8 million;
• the suspension of a security contract with a customer located in the Middle East — $11.8 million; and
• non-recurring contingency and logistics services provided to FEMA after hurricane Katrina — $11.6 million.
Operating income
Operating income for the fiscal year ended March 30, 2007 increased $4.5 million, or 4.7%, as compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
• improved profitability on fixed-price task orders under the Air-Wing program due to strong performance and favorable contract changes — $11.4 million;
• increased logistic support services under the Africa Peacekeeping program with the DoS — $3.7 million;
• a contract modification for construction activities in Afghanistan completed in earlier periods — $7.6 million; and
• a reduction in bad debt expense — $7.0 million.
• impact of additional contracts recasted into GS from MTSS — $0.6 million.


37

partially offset by:
• the suspension of a security contract with a customer located in the Middle East — $7.8 million;
• lower contribution from the Worldwide Personal Protection Services programs, including the completion of task orders in Israel, Haiti, Afghanistan and central Iraq, unrealized investment in personnel training and cost in excess of contract funding to complete the construction of a base camp in Iraq for the DoS — $14.5 million;
• non-recurring contingency and logistics services provided to FEMA after hurricane Katrina — $2.8 million; and
• lower contribution from the Forward Operating Locations programs, primarily due to a lower number of vehicles purchased by the customer — $0.7 million.
Maintenance & Technical Support Services
The following table sets forth the revenue and operating income for the MTSS operating segment, for the fiscal year ended March 30, 2007 as compared to the fiscal year ended March 31, 2006 (in thousands).
             
  Fiscal Year Ended 
  March 30,
  March 31,
    
  2007(1)  2006(1)  Increase 
 
Revenue $703,385  $686,610  $17,775 
Operating income $14,022  $6,280  $7,742 
(1)During our fiscal 2008 first quarter, certain contracts were reclassified between our two segments. For comparability, we have recasted our fiscal 2007 and 2006 revenue and operating income related to these contracts within our MD&A discussion and within Note 13 to our consolidated financial statements. The recasting had no impact on our consolidated results of operations, financial position or cash flows.
Revenue
Revenue for the fiscal year ended March 30, 2007 increased $17.8 million, or 2.6%, compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
• an increase in personnel and services provided under the Contract Field Teams program — $19.7 million;
• increased domestic aviation services provided to the U.S. Air Force through a subcontract agreement under the C-21 Contractor Logistics Support program — $25.7 million;
• revenue recorded in connection with wage pass-through claims — $10.4 million; and
• new business and net growth in existing contracts — $24.5 million.
partially offset by:
• reduced U.S. government funding for the Army Pre-Positioned Stocks Afloat program — $20.7 million;
• the completion of the Fort Hood contract and Bell Helicopter contracts under the Domestic Aviation program — $31.4 million;
• decrease in services provided on the V-22 helicopter under the Contract Field Teams contract — $2.3 million; and
• cyclic nature of time between overhauls on engines and propellers performed under the LCCS program — $5.4 million.
• additional contracts recasted to GS from MTSS — $2.5 million.


38

Operating income
Operating income for the fiscal year ended March 30, 2007 increased $7.7 million, or 123.3%, compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
• wage pass-through claims — $10.4 million;
• various new business and net growth in existing contracts — $5.5 million;
• increased domestic aviation services provided to the U.S. Air Force through a subcontract agreement under the C-21 Contractor Logistics Support program — $0.4 million; and
• improved profitability on the Contract Field Teams program, which benefited from maintenance and repair activities performed on military equipment returning from Iraq and Afghanistan — $1.3 million.
partially offset by:
• operating losses from services provided to the U.S. Army under the LCCS program and CSS program — $8.0 million; and
• completion of the Fort Hood contract in July 2006 — $1.1 million.
• impact of additional contracts recasted to GS from MTSS — $0.6 million.
Liquidity and Capital Resources
Cash generated by operations and borrowings available under our senior secured credit facility are our primary sources of short-term liquidity. Based on our current level of operations, we believe our cash flow from operations and our available borrowings under our senior secured credit facility will be adequate to meet our liquidity needs for at least the next twelve months.
          Our ability to generate sufficient cash depends on numerous factors beyond our control. We cannot be assured that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facility in an amount sufficient to enable us to repay our indebtedness or to fund our other liquidity needs. We expect that our improved cash collection efforts achieved in fiscal year 2009, evidenced by our reduced days sales outstanding, are sustainable in fiscal year 2010 and will help facilitate sufficient cash flow from operations to fund our expected growth. In addition, we expect cash contributions from our LOGCAP IV collaborative partners to contribute funding for operations. However, to support growth related to potential contract awards and task ordersorder awards that could occur in the next twelve months,fiscal year and servicing our current indebtedness, we may require additional financing beyond that currently provided from operations and by our senior secured credit facility. We are currently evaluating our available financing options, which generally are on terms acceptable to the Company, although potentially at higher than current costs due to market conditions. We believe these options will provide us with the financial flexibility to support our expected growth and related working capital requirements. However, thereThere can be no assurance that sufficient debt financing will continue to be available in the future or that it will be available on terms acceptable to the Company.us. Failure to obtain sufficient capital could materially affect the Company’s operations in the short term and hinder our future expansion strategies.
          We are required, under certain circumstances as defined in our senior secured credit facility, to use a percentage of cash generated from operations to reduce the outstanding principal of our term loan. Based on the fiscal year 2009 financial performance and ending balances, we expect this repayment to be $30.5 million, which is anticipated to be paid in July 2009. The amount of the actual repayment can be reduced at the option of our lenders.
Consolidated Cash FlowsFlow Analysis
          
The following table sets forth cash flow data for the periods indicated therein:
             
  Fiscal Year Ended
  April 3, March 28, March 30,
(Dollars in thousands) 2009 2008 2007
Net cash provided by operating activities $140,871  $42,361  $86,836 
Net cash used by investing activities  (9,148)  (11,306)  (7,595)
Net cash (used by) provided by financing activities  (16,880)  (48,131)  2,641 
             
  Fiscal Year Ended 
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
  (Dollars in thousands) 
 
Net Cash provided by operating activities $42,361  $86,836  $55,111 
Net Cash used by investing activities  (11,306)  (7,595)  (6,231)
Net Cash provided by (used by) financing activities  (48,131)  2,641   (41,781)
Fiscal Year 2009 Compared to Fiscal Year 2008
          Cash provided by operating activities for fiscal year 2009 was $140.9 million as compared to $42.4 million cash provided by operations for fiscal year 2008. Our increase in operating cash flow for the 2009 fiscal year was primarily the result of higher cash generated from operations, partially offset by a reduction in cash from an increase in our net working capital. Cash generated from operations benefited from the combination of our continued revenue growth from new contracts and improved operating efficiency. The change in net working capital was primarily due to an increase in accounts receivable. Net of revenue growth, our accounts receivable actually improved due to billing and collection efficiencies implemented during fiscal year 2009. As a result of these efforts, days sales outstanding, a key metric utilized by management to monitor collection efforts on accounts receivable, decreased from 73 days as of March 28, 2008 to 60 days as of April 3, 2009.
          Cash used in investing activities was $9.1 million for fiscal year 2009, as compared to $11.3 million for fiscal year 2008. This use of cash from investing activities was primarily a result of the combination of fewer PP&E and software purchases during fiscal year 2009, as compared to such purchases in fiscal year 2008.

38

          Cash used in financing activities was $16.9 million for fiscal year 2009, as compared to $48.1 million for fiscal year 2008. The cash used in financing activities during the fiscal year 2009 was primarily a result of the $8.2 million net effect of extinguishing debt and issuing new debt discussed below as well as in Note 7 of our consolidated financial statements. Cash used of $48.1 million in financing activities for fiscal year 2008 was due primarily to repayments of principal on debt.
Fiscal Year 2008 Compared to Fiscal Year 2007
Operating cash flow a key source of the Company’s liquidity, was $42.4 million for fiscal year 2008, a decrease of $44.5 million, or 51.2%, as compared to the fiscal year 2007. The decrease in operating cash flow compared to fiscal year 2007 was primarily attributable to changes in working capital, particularly in accounts receivable and prepaid expenses and other current assets of $92.1 million offset by a net release of restricted cash in the currentfiscal year 2008, as compared to a net use of cash in fiscal year 2007, which had a net impact of $29.1 million. The $20.9 million increase in net income also helped offset the decreases from working capital. The changes in working capital were due to the timing of collections along with business growth from new customers net of GLS expenditures in the fourth quarter.fiscal year.
          
Operating cash flow was $86.8 million for fiscal 2007, an increase of $31.7 million, or 58%, as compared to the fiscal year 2006. The increase in operating cash flow is primarily attributable to earnings growth of $19.8 million


39

and cash flows provided by working capital of $12.3 million, particularly, accounts payable and accrued liability activities related to the timing of payroll processing, interest payments and customer advances. The timing for payroll processing, interest payments and customer advances can vary from quarter to quarter. Partially offsetting the increased operating cash flow was the payment of special cash bonuses subsequent to the Equity Offering of $3.1 million in the aggregate to our executive officers and certain other members of management. These bonuses rewarded management for their efforts in connection with the successful consummation of our Equity Offering.
Net cash used in investing activities was $11.3 million in fiscal year 2008 compared to $7.6 million in fiscal year 2007. The increase in cash used by investing activities was primarily due to a permanent investment in an unconsolidated equity investee.
          
Cash flows related to investing consisted primarily of cash used for capital expenditures. Net cash used by investing activities was $7.6 million in fiscal 2007 compared to $6.2 million for the fiscal 2006. Capital spending related to the purchase of property and equipment increased $4.7 million in 2007 from 2006 levels to $7.0 million, primarily due to purchase of vehicles, equipment and for certain leasehold improvements. Capital expenditures are made primarily due to contractual requirements. We customarily lease our vehicles and equipment and intend to continue our practice of leasing our vehicles and equipment in the future. Our Senior Secured Credit Facility limits our annual capital expenditures related to the purchase of property and equipment to $8.0 million. We do not expect this limitation to have a material effect on our business.
Cash flows used in financing activities were $48.1 million for fiscal year 2008, compared to cash flows provided by financing activities of $2.6 million in fiscal year 2007. The cash used by financing activities was primarily related to the repayment of borrowings under our term loans of $37.8 million and net repayments made under other financing arrangements of $11.0 million.
Cash flows provided by financing activities were $2.6 million for the fiscal 2007, compared to cash flows used of $41.8 million for the fiscal year 2006. Financing activities during the fiscal year 2007 included: (i) gross proceeds received from our Equity Offering of $375.0 million; (ii) payment of Equity Offering costs of approximately $30.0 million; (iii) partial redemption of senior subordinated notes of $28.8 million, including accrued interest; (iv) redemption of all outstanding preferred stock and related accrued and unpaid interest of $216.1 million; and (v) payment of special Class B distribution of $100.0 million. The cash used in financing activities during the fiscal year 2006 was due to the $35.0 million repayment of borrowings under our revolving credit facility, the $3.4 million scheduled repayment of our bank note borrowings, the $1.9 million payment of offering expenses and the $0.5 million purchase of an interest rate cap that limits our exposure to upward movements in variable rate debt.
Based on our current level of operations, we believe our cash flow from operations and our available borrowings under our Senior Secured Credit Facility will be adequate to meet our liquidity needs for at least the next twelve months. However, servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we cannot be assured that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Senior Secured Credit Facility in an amount sufficient to enable us to repay our indebtedness, including the senior subordinated notes, or to fund our other liquidity needs.
Financing
          
Long-term debt consisted of:
         
  April 3,  March 28, 
  2009  2008 
  (Dollars in thousands) 
Term loans $200,000  $301,130 
9.5% Senior subordinated notes  399,912   292,032 
       
Subtotal  599,912   593,162 
Less current portion of long-term debt  (30,540)  (3,096)
       
Total long-term debt $569,372  $590,066 
       
         
  March 28,
  March 30,
 
  2008  2007 
  (Dollars in thousands) 
 
Term loans $301,130  $338,962 
9.5% Senior subordinated notes  292,032   292,032 
         
   593,162   630,994 
Less current portion of long-term debt  (3,096)  (37,850)
         
Total long-term debt $590,066  $593,144 
         


40

Our Senior Secured Credit Facility is comprised          On July 28, 2008 we entered into a senior secured credit facility consisting of a senior secured term loansloan (“Term Loans”Loan”) of up to $345.0$200.0 million, and a senior secured revolving credit facility (“Revolving Facility”) of up to $120.0$200.0 million. The Term Loans are due in quarterly payments of $0.7 million through April 1, 2010, and $73.4 million thereafter, with final payment due February 11, 2011. Borrowings under the Senior Secured Credit Facility are secured by substantially all the assets of the Company and the capital stock of its subsidiaries. The Senior Secured Credit Facility also provides for a commitment guarantee of a maximum of $60.0 million, as amended, for letters of credit. The Senior Secured Credit Facility requires letter of credit fees up to 2.5%, payable quarterly in arrears on the amount available for drawing under all letters of credit. The fee was 2.0% at March 28, 2008.
Borrowings under our Term LoansLoan bear interest at a rate per annum equal to the London Interbank Offered Rate (“LIBOR”), plus an applicable margin determined by reference to the leverage ratio, as set forth in the debt agreement.credit agreement (the “Applicable Margin”), or the base rate plus the Applicable Margin at our election. The applicable marginApplicable Margin for LIBOR as of April 3, 2009 was 2.5%, resulting in a 3.7% interest rate on our Term Loan.
          On March 6, 2009, we amended our senior secured credit facility. This amendment reduced certain excess cash flow repayment requirements as defined under our existing secured credit agreement dated as of July 28, 2008, was 2.0%.and expanded the current ability to repurchase our common stock to include the right to redeem a portion of the 9.5% senior subordinated notes due 2013 issued by our operating company and DIV Capital Corporation. We expect to make a $30.5 million principal payment in July 2009 as required by our senior secured credit facility. This repayment will impact the remaining Term Loan principal payment schedule. The revised Term Loan principal installments are due quarterly starting with September 2010 for $7.0 million, $15.0 million in quarterly installments from December 2010 through June 2011, $13.5 million in quarterly payments from September 2011 through June 2012, and a final principal payment of $63.5 million on the August 2012, the Term Loan expiration date. Borrowings under the senior secured credit facility are secured by substantially all of our assets and the capital stock of our subsidiaries. A portion of the Revolving Facility is available for letters of credit and swingline loans.
          
Borrowings under the Revolving Facility bear interest at a rate per annum equal to the Alternate Base Rate (“ABR”)base rate plus an applicable margin determined by reference toApplicable Margin or LIBOR plus the leverage ratio, as set forth in the debt agreement. The applicable margin for ABR asApplicable Margin. As of April 3, 2009 and March 28, 2008, was 1.0%. As of March 28, 2008 and March 30, 2007, we had no outstanding borrowings under ourthe Revolving Facility.
          
Principal payments on ourOur available borrowing capacity under the Revolving Facility totaled $171.5 million at April 3, 2009, which gives effect to $28.5 million of outstanding letters of credit facilitiesunder the letter of credit sub facility. With respect to each letter of credit, a quarterly

39

commission in an amount equal to the face amount of such letter of credit multiplied by the Applicable Margin and senior subordinated notes based on outstanding borrowingsa nominal fronting fee are required to be paid. The combined rate as of March 28, 2008 are expected to be approximately $3.1 million in fiscalApril 3, 2009 $3.1 million in fiscal 2010, $294.9 million in fiscal 2011, none in fiscal 2012, and $292.0 million in the fiscal years thereafter.was 2.6%.
          
We entered into interest rate swap agreements to hedge our exposure to cash flows related to our senior secured credit facility. These agreements are more fully described in Note 10 to our consolidated financial statements.statements and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk — Interest Rate Risk.”
          In July 2008, we completed a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended, of $125.0 million in aggregate principal amount of additional 9.5% senior subordinated notes, which were issued under the same indenture as the senior subordinated notes issued in February 2005. Net proceeds from the additional offering of senior subordinated notes were used to refinance our then existing senior secured credit facility, to pay related fees and expenses and for general corporate purposes. The additional senior subordinated notes mature on February 15, 2013. The additional senior subordinated notes were issued at approximately a 1.0% discount totaling $1.2 million. Deferred financing fees associated with this offering totaled $4.7 million. Our registration statement with respect to these notes was declared effective on January 13, 2009. We launched an exchange offer for the notes that ended on February 11, 2009.
          We can redeem the senior subordinated notes, in whole or in part, at defined redemption prices, plus accrued interest to the redemption date. The senior subordinated notes may require us to repurchase the senior subordinated notes at defined prices in the event of certain specified triggering events, including but not limited to certain asset sales, change-of-control events, and debt covenant violations. In March 2009, under a board authorized program, we redeemed approximately $16.1 million face value of our senior subordinated notes in the open market for $15.4 million, including applicable transaction fees. As of April 3, 2009, $14.4 million of this transaction was cash settled, with the remaining settlement occurring in fiscal year 2010. We recorded a $0.3 million gain on this extinguishment after deduction of associated deferred financing fees and discounts.
Contractual Commitments
          
The following table represents our contractual commitments associated with our debt and other obligations as of March 28, 2008:April 3, 2009:
                             
  Fiscal Year       
  2010  2011  2012  2013  2014  Thereafter  Total 
  (Dollars in thousands) 
Contractual obligations:                            
Term Loan(1)
 $30,540  $36,960  $55,500  $77,000  $—  $—  $200,000 
Senior subordinated notes  —   —   —   399,912   —   —   399,912 
Operating leases(2)
  22,392   9,406   9,284   8,886   6,554   19,901   76,423 
Interest on indebtedness(3)
  44,257   45,603   42,847   41,342   —   —   174,049 
Management fee(4)
  300   300   300   300   300   300   1,800 
Interest rate swap(5)
  6,152   1,139   —   —   —   —   7,291 
                      
Total contractual obligations $103,641  $93,408  $107,931  $527,440  $6,854  $20,201  $859,475 
                      
 
                             
  Fiscal       
  2009  2010  2011  2012  2013  Thereafter  Total 
  (Dollars in thousands) 
 
Contractual Obligations:                            
Senior Secured Credit Facility Term Loan(1) $3,096  $3,096  $294,938  $—  $—  $—  $301,130 
Senior Subordinated Notes  —   —   —   —   292,032   —   292,032 
Operating Leases(2)  22,366   8,755   7,851   7,787   7,490   20,941   75,190 
Interest on Indebtedness(3)  41,598   41,454   34,563   27,743   24,200   —   169,558 
Contractual Indemnity(4)  —   4,267   —   —   —   —   4,267 
Management Fee(5)  300   300   300   300   300   300   1,800 
                             
Total Contractual Obligations $67,360  $57,872  $337,652  $35,830  $324,022  $21,241  $843,977 
                             
(1)Includes effect of mandatory payment of term loan with excess cash flow. See Note 7 to our consolidated financial statements.
 
(2)For additional information about our operating leases, see Note 8 to our consolidated financial statements.
 
(3)Represents interest expense calculated using interest rates of: (i) 4.625%3.7% on the term loan; andloan, (ii) 9.5% on the senior subordinated notes.notes and (iii) 0.5% interest applied to unutilized revolver borrowing capacity. The term loan interest is variable and resets each quarter based on changes in three-month LIBOR and the spread. The senior subordinated debt 9.5% rate as well as the 0.5% rate applied to the unutilized borrowing capacity is fixed.
 
(4)Contracted statutory severance obligation for employees due at end of a specific U.S. federal government contract. Payment will be deferred if the contract is extended beyond the current term.
(5)For additional information on the management fee, see Note 15 to our consolidated financial statements.
(5)This is based on the present value of the estimated settlement payments as of April 3, 2009. The actual amounts could differ based on the variability of three-month LIBOR.
Backlog
For a detailed discussion on backlog, see “Item 1. Business — Backlog.”
Estimated Remaining Contract Value
For a detailed discussion on estimated remaining contract value, see “Item 1. Business — Estimated Remaining Contract Value.”


4140

BacklogEstimated Total Contract Value
We track backlog in order to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated byFor a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contract options. Most of our U.S. government contracts allow the customer the option to extend the period of performance of a contract for a period of one or more years. These priced options may or may not be exercised at the sole discretion of the customer. Historically, it has been our experience that the customer has typically exercised contract options.
Firm funding for our contracts is usually made for one year at a time, with the remainder of the contract period consisting of a series of one-year options. As is the case with the base period of our U.S. government contracts, option periods are subject to the availability of funding for contract performance. The U.S. government is legally prohibited from ordering work under a contract in the absence of funding. Our historical experience has been that the government has typically funded the option periods of our contracts.
The following table sets forth our approximate backlog as of the dates indicated:
             
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
  (Dollars in millions) 
 
GS:            
Funded Backlog $608  $883  $627 
Unfunded Backlog  4,091   3,848   743 
             
Total GS Backlog $4,699  $4,731  $1,370 
             
MTSS:            
Funded Backlog $556  $519  $397 
Unfunded Backlog  706   882   874 
             
Total MTSS Backlog $1,262  $1,401  $1,271 
             
Total Consolidated:            
Funded Backlog $1,164  $1,402  $1,024 
Unfunded Backlog  4,797   4,730   1,617 
             
Total Consolidated Backlog $5,961  $6,132  $2,641 
             
As of March 28, 2008 and March 30, 2007, the backlog related to GLS was $3.5 billion and $3.3 billion, respectively. We do anticipate our new LOGCAP IV contract will impact backlog in the future as thedetailed discussion on estimated total maximum award available to our Company per fiscal year is approximately $5 billion. Although the LOGCAP IV contract is an IDIQ arrangement which typically does not impact backlog as significantly as other contract types, the potential size of the contract is such that its impact could be significant. As the award was not finalized until after March 28, 2008, there is no impact from LOGCAP IV in the above table.
Estimated Remaining Contract Value
Our estimated remaining contract value, represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from the end of current task orders until the end of the IDIQ contract term and is based on our experience and performance under our existing contracts and management judgments and estimates with respect to future task or delivery order awards. Although we believe our estimates are reasonable, there can be no assurance that our existing contracts will result in actual revenue in any particular period or at all. Our estimated remaining contract value could vary or even change significantly


42

depending upon government policies, government budgets and appropriations. The following table sets forth our estimated remaining contract value as of the dates indicated:
             
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
  (Dollars in millions) 
 
GS Estimated Remaining Contract Value $6,204  $7,591  $3,861 
MTSS Estimated Remaining Contract Value  1,281   1,400   1,866 
             
Total Estimated Remaining Contract Value $7,485  $8,991  $5,727 
             
see “Item 1. Business — Estimated Total Contract Value.”
Off-Balance Sheet Arrangements
          
The Company’sIn accordance with the definition under SEC rules, the following qualify as off-balance sheet arrangements relatearrangements:
•Any obligation under certain guarantee contracts;
•A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
•Any obligation under certain derivative instruments; and
•Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.
          As of April 3, 2009, we were not directly liable for the debt of any unconsolidated entity, and we did not have any retained or contingent interest in assets as defined above. We recognize all derivatives as either assets or liabilities at fair value in our consolidated balance sheets. Refer to lettersNote 8 and Note 10 of credit and operating lease obligations, which are excluded from the balance sheet in accordance with GAAP. The Company’s letters of credit and lease obligations are described in Notes 7 and 8, respectively, in the notes to our consolidated financial statements. In addition, the future operating lease expense is reflected in the “Contractual Commitments”, above.
statements for additional disclosure.
Effects of Inflation
          
We have generally been able to anticipate increases in costs when pricing our contracts. Bids for longer-term fixed-price andtime-and-materials type contracts typically include sufficient labor and other cost escalations in amounts expected to cover cost increases over the period of performance. Consequently, because costs and revenue include an inflationary increase commensurate with the general economy in which we operate, net income as a percentage of revenue has not been significantlymaterially impacted by inflation.
Critical Accounting Policies and Estimates
          
The process of preparing financial statements in conformity with GAAP requires the use of estimates and assumptions to determine reported amounts of certain assets, liabilities, revenue and expenses and the disclosure of related contingent assets and liabilities. These estimates and assumptions are based upon information available at the time of the estimates or assumptions, including our historical experience, where relevant. These significant estimates and assumptions are reviewed quarterly by management with oversight by the Disclosure Control Committee, (the “Disclosure Control Committee”), an internal committee comprised of members of senior management. The Disclosure Control Committee presents its views to the Audit Committeemanagement with detailed knowledge of our boardbusiness. We ask this committee to review our compliance with accounting and disclosure requirements, to evaluate the fairness of directors.our financial and non-financial disclosures, and to report their findings to us. This evaluation process includes a thorough review of key estimates and assumptions used in preparing our financial statements. Because of the uncertainty of factors surrounding the estimates, assumptions and judgments used in the preparation of our financial statements, actual results may differ from the estimates, and the difference may be material.
          
Our critical accounting policies and estimates are those policies and estimates that are both most important to our financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following representrepresents our critical accounting policies. For a summary of all of our significant accounting policies, see Note 1 to our consolidated financial statements included in this Annual Report. Management and our external auditors have discussed our critical accounting policies and estimates with the Audit Committee of our board of directors.
     
Revenue Recognition
          
The Company isWe are predominantly a services provider and only includesinclude products or systems when necessary for the execution of the service arrangement and as such, systems, equipment or materials are not generally separable from services. Revenue is recognized when persuasive evidence of an arrangement exists, services or products have been provided to the client, the sales price is fixed or determinable, and collectability is reasonably assured. Each arrangement is unique and revenue recognition is evaluated on a contract by contract basis. Our contracts typically fall into four categories with the first representing the vast majority of our revenue. The other contract typescategories are federal government contracts, construction type contracts, or software contracts or multiple arrangement typeand other contracts. The Company appliesWe apply the appropriate guidance consistently to similar contracts.


4341

The Company expenses          We expense pre-contract costs as incurred for an anticipated contract until the contract is awarded. Throughout the life of the contract, indirect costs, including general and administrative costs, are expensed as incurred and are based on DCAA approved indirect rates.incurred. Management regularly reviews project profitability and underlying estimates. Revisions to the estimates are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management.
          
Major factors the Company considerswe consider in determining total estimated revenue and cost include the basic contract price, contract options, change orders (modifications of the original contract), back charges and claims, and contract provisions for penalties, award fees and performance incentives. All of these factors and other special contract provisions are evaluated throughout the life of the Company’sour contracts when estimating total contract revenue under the percentage-of-completion or proportional methods of accounting.
          
Federal Government Contracts—For all non-construction and non-software U.S. federal government contracts or contract elements, the Company applieswe apply the guidance in the AICPAAmerican Institute of Certified Public Accountants Audit and Accounting and Auditing Guide,Federal Government Contractors, or(“AAG-FGC”). The Company applies “AAG-FGC.” We apply the combination and segmentation guidance in the AAG-FGC in analyzing the deliverables contained in the applicable contract to determine appropriate profit centers. Revenue is recognized by profit center using the percentage-of-completion method or completecompleted contract method. The completed contract method is sometimes used when reliable estimates cannot be supported for percentage-of-completion method recognition or for short duration projects when the results of operations would not vary materially from those resulting from use of the percentage-of-completion method. Until complete, project costs are maintained in work in progress, a component of inventory.
          
Projects under the Company’sour U.S. federal government contracts typically have different pricing mechanisms that influence how revenue is earned and recognized. These pricing mechanisms are classified as cost plus fixed-fee, fixed-price, cost plus award fee,time-and-materials (including Unit-Price/unit-price/level-of-effort contracts), or IDIQ. The. Any of these contract types can be executed under an IDIQ contract, which does not represent a firm order for services. As a result, the exact timing and quantity of delivery and pricing mechanism for IDIQ profit centers are not known at the time of contract award, but they can contain any type of pricing mechanism.
          
Revenue on projects with a fixed-price or fixed-fee, including award fees, is generally recognized ratably over the contract period measured by either output or input methods appropriate to the services or products provided. For example, “output measures” can include period of service, such as for aircraft fleet maintenance; and units delivered or produced, such as aircraft for which modification has been completed. “Input measures” can include a cost-to-cost method, such as for procurement-related services.
          
Revenue on time and materials projects is recognized at contractual billing rates for applicable units of measure (e.g. labor hours incurred, units delivered).
          
The completed contract method is sometimes used when reliable estimates cannot be supported for percentage-of-completion method recognition or for short duration projects when the results of operations would not vary materially from those resulting from use of the percentage-of-completion method. Until complete, project costs are maintained in work in progress, a component of inventory.
Construction Contracts or Contract Elements—For all construction contracts or contract elements, revenue is recognized by profit center using the percentage-of-completion method.
          
Software Contracts or Contract Elements—It is the Company’sour policy to review any arrangement containing software or software deliverables using applicable GAAP guidance for software revenue recognition to ensure accurate accounting of these arrangements as discussed further in Note 1 to our consolidated financial statements. The Company hasstatements for fiscal year 2009. We never soldsell software on a separate, standalone basis. As a result, software arrangements are typically accounted for as one unit of accounting and are recognized over the service period, including the period of post-contract customer support.
          
Other Contracts or Contract Elements—The Company’s Our contracts with non-federal government customers are predominantly multiple-element. Multiple-element arrangements involve multiple obligations in various combinations to perform services, deliver equipment or materials, grant licenses or other rights, or take certain actions. The Company evaluatesWe evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting and arrangement consideration is allocated among the separate units of accounting based on their relative fair values. Fair values are established by evaluating vendor specific objective evidence (“VSOE”) or third-party evidence if available. Due to the customized nature of the Company’sour arrangements, VSOE and third-party evidence is generally not available resulting in applicable arrangements being accounted for as one unit of accounting.


44

Deferred Taxes, Tax Valuation Allowances and Tax Reserves
          
Our income tax expense, deferred tax assets and liabilities and reserves for uncertain tax positions reflect management’s best assessmentestimate of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.

42

          
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.
          
We recognize valuationValuation allowances are recognized to reduce the carrying value of deferred tax assets to amounts that we expect are more likely than not to be realized. Our valuationValuation allowances applicable to our company primarily relate to the deferred tax assets established for certain tax credit carryforwards and net operating loss carryforwards for U.S. andnon-U.S. subsidiaries, and we evaluatesubsidiaries. In evaluating the realizability of our deferred tax assets, by assessingwe assess the need for any related valuation allowance and by adjustingallowances or adjust the amount of theseany allowances, if necessary. We assess such factors as our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets in determining the need for or sufficiency of oura valuation allowances.allowance. Failure to achieve forecasted taxable income in the applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in our effective tax rate on future earnings. Implementation of different tax structures in certain jurisdictions could if successful, result in future reductions ofalso impact the need for certain valuation allowances.
          
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in potential assessments. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for open tax years for uncertain tax positions that may be subject to challenge by various tax authorities. The consolidated tax provision and related accruals include the impact of such reasonably estimable losses and related interest and penalties as deemed appropriate.
          
On March 31, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” an Interpretation of Statement of Financial Accounting Standards No. 109 (“FIN No. 48”), which addresses the determination of whether tax benefits claimed, or expected to be claimed, on a tax return should be recorded in the financial statements. Under FIN No. 48, we may recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information.
          
The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
          
We believe we have adequately provided for any reasonably foreseeable outcome related to these matters, and our future results may include favorable or unfavorable adjustments to our estimated tax liabilities. To the extent that the expected tax outcome of these matters changes, such changes in estimate will impact the income tax provision in the period in which such determination is made.
Equity-Based Compensation Expense
          
The Company hasWe have adopted the provisions of and accounted for equity-based compensation in accordance with FASB No. 123 (revised 2004),“Share-Based Payment”Payment (“(“SFAS No. 123R”). Under the fair value recognition provisions, equity-based compensation expense is measured using the grant date fair value for equity awards or is


45

revalued each accounting period for liability awards. See Note 11 of our audited consolidated financial statements for further information regarding the SFAS No. 123(R) disclosures.
          
We currently have two types of share-based payment awards, restricted stock units (“RSUs”)RSUs and Class B membership interests in DIV Holding LLC (the “Class B membership interests”). Our RSUs are classified as liability awards under GAAP and are thus revalued based on our closing stock price at the end of each accounting period. The Class B membership interests are considered equity awards under GAAP and wereGAAP. Class B membership interests are valued at the grant date using a discounted cash flow technique to arrive at a fair value of the Black-Scholes model.Class B membership interests. Our fair value analysis includes the following variables: our stock price, outstanding common shares, DIV Holding LLC ownership percentage, remaining preference to Class A holders, and a discount for lack of marketability. The discount for lack of marketability for each grant was estimated on the date of grant using the Black-Scholes-Merton put-call parity relationship computation.
          
The determination of the fair value of the Class B membership interests is affected by our stock price as well as assumptions including volatility, the risk-free interest rate and expected dividends. We base the risk-free interest rate that we use in the pricing model on a forward curve of risk freerisk-free interest rates based on constant maturity rates provided by the U.S. Treasury. We have not paid,

43

and do not anticipate paying, any cash dividends in the foreseeable future and therefore used an expected dividend yield of zero in the pricing model.
          
We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data and probable future events to estimate forfeitures and record stock-based compensation expense only for those awards that are expected to vest. Our share-based payment awards typically vest ratably, based on vesting terms which typically range from one to three years, over the requisite service periods, which differsdiffer from our recognition of compensation expense that is recognized on an accelerateda straight line basis over the awards’ requisite service periods.
period for each separately vesting portion of the award.
Impairment of Goodwill
          In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, we evaluate goodwill for impairment annually during the fourth quarter and in any interim period in which circumstances arise that indicate our goodwill may be impaired. Indicators of impairment include, but are not limited to, the loss of significant business; operating performance indicators, sizable decreases in federal government appropriations or funding for our contracts; or other considerable adverse changes in industry or market conditions.
          We estimate a portion of the fair value of our reporting units under the income approach by utilizing a discounted cash flow model based on several factors including balance sheet carrying values, historical results, our most recent forecasts, and other relevant quantitative and qualitative information. We discount the related cash flow forecasts using the weighted-average cost of capital method at the date of evaluation. We also use the market approach to estimate the remaining portion of our reporting unit valuation. This technique utilizes comparative market multiples in the valuation estimate. While the income approach has the advantage of utilizing more company specific information, the market approach has the advantage of capturing market based transaction pricing.
          Preparation of forecasts and the selection of the discount rate involve significant judgments that we base primarily on existing firm orders, expected future orders, and general market conditions. Also, the weighting assigned to the income approach results and market approach results also impacts the reporting unit valuation. Significant changes in these forecasts, the discount rate selected, or the weighting of the income and market approach could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period. The combined estimated fair value of all of our reporting units from the weighted total of the market approach and income approach often results in a premium over our market capitalization, commonly referred to as a control premium.
Recent Accounting Pronouncements
          
The information regarding recent accounting pronouncements is included in Note 1 to our consolidated financial statements included in Item 8 of this annual report,Annual Report, which is incorporated herein by reference.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
          
The inherent risk inWe are subject to market risk sensitive instruments and positions primarily relatesrelating to potential losses arising from adverse changes in interest rates and foreign currency exchange rates. For a further discussion of market risks we may encounter, see “Risk Factors.”
“Item 1A. Risk Factors”.
Interest Rate Risk
          
We have interest rate risk relating to changes in interest rates on our variable rate debt. Our policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments. Our 9.5% senior subordinated notes represent our fixed rate debt, which totaled $399.9 million, including unamortized discount, as of April 3, 2009. Our Term Loan and Revolving Facility represent our variable rate debt. As of April 3, 2009, the balance of our Term Loan was $200 million and we had no borrowings under our Revolving Facility. Borrowings under the Senior Secured Credit Facilityour variable rate debt bear interest, based on our option, at a rate per annum equal to at our option, either (1) the Prime Rate or (2) LIBOR, plus an applicable margin determined by reference to the leverage ratio, as set forth inApplicable Margin or the debt agreement. The applicable margins forbase rate plus the Prime Rate and LIBOR as of March 28, 2008 were 1% and 2%, respectively. As of March 28, 2008, we had $593.2 million of indebtedness, including the senior subordinated notes and excluding accrued interest thereon, of which $301.1 million was secured. On the same date, we had approximately $96.7 million available under our Senior Secured Credit Facility (which gives effect to $23.3 million of outstanding letters of credit).Applicable Margin. Each quarter point change in interest rates on our outstanding variable rate debt as of April 3, 2009, results in approximately $0.8$0.5 million change in annual interest expense on the term loan.expense.
          
The table below provides information about our fixed rateOur Term Loan and variable rate long-term debt agreements, asRevolving facility are structured through a syndicate of March 28, 2008.
                                 
  Expected Maturity as of March 28, 2008
  Average
 
  Fiscal Year  Interest
 
  2009  2010  2011  2012  2013  Thereafter  Total  Rate 
  (Dollars in thousands) 
 
Fixed Rate  —   —   —   —   292,032   —   292,032   9.50 
Variable Rate  3,096   3,096   294,938   —   —   —   301,130   4.625 
                                 
Total debt  3,096   3,096   294,938   —   292,032   —   593,162     
                                 


46

The fair value of our term loan borrowings under the Senior Secured Credit Facility is approximately $281.6 millionbanks and is based on quoted market values. The fair value ofare not actively traded. Our 9.5% senior subordinated notes isare publicly traded and had a quoted aggregate market value of approximately $305.2$390.9 million based on their quotedan actual market value. The above table does not give effect to $23.3 million of outstanding letters of credit as of March 28, 2008.trade price on April 3, 2009.
          
During fiscal year 2008, in order to mitigate interest rate risk related to the term loans, the Companyour Term Loan, we entered into three interest rate swap agreements with notional amounts totaling $275 million. TheThese interest rate swaps effectively fixed the interest rate, at 6.96%, including applicable margin of (2% at March 28, 2008),

44

Applicable Margin, on the first $275 million of our debt indexed to LIBOR. The notional principal of $75 million is protectedthat was covered through September 2008 expired and the remaining $200 million is protected through May 2010. The Company concluded that the interest rate swaps qualify as cash flow hedges under the provisions of SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities.”
Foreign Currency Exchange Rate Risk
          
We are exposed to changes in foreign currency rates. At present, we do not utilize any derivative instruments to manage risk associated with foreign currency exchange rate fluctuations. The functional currency of certain foreign operations is the local currency. Accordingly, these foreign entities translate assets and liabilities from their local currencies to U.S. dollars using year-end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as accumulated other comprehensive (loss) income. Management has determined that ourOur foreign currency transactions are not material.material as of April 3, 2009.


4745

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
     
  Page
Report of Independent Registered Public Accounting Firm
  4947
 
Consolidated Statements of Income for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007
48
Consolidated Balance Sheets as of April 3, 2009 and March 31, 200628, 2008
49
Consolidated Statements of Cash Flows for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007
  50 
Consolidated Balance Sheets asStatements of Shareholders’ Equity for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007
  51 
Consolidated Statements of Cash Flows for the fiscal years ended March 28, 2008, March 30, 2007 and March 31, 2006
  52
Consolidated Statements of Shareholders’ Equity for the fiscal years ended March 28, 2008, March 30, 2007 and March 31, 2006
53 
Notes to Consolidated Financial Statements
  5452 
Financial Statement Schedules:    
Schedule I — Condensed Financial Information of Registrant
  8078 
Schedule II — Valuation and Qualifying Accounts for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006
  8482 


4846

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of DynCorp International Inc.

Falls Church, Virginia
          
We have audited the accompanying consolidated balance sheets of DynCorp International Inc. and subsidiaries (the “Company”) as of April 3, 2009 and March 28, 2008, and March 30, 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for the fiscal years ended April 3, 2009, March 28, 2008, and March 30, 2007, and March 31, 2006.2007. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
          
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
          
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 3, 2009 and March 28, 2008, and March 30, 2007, and the results of their operations and their cash flows for the fiscal years ended April 3, 2009, March 28, 2008, and March 30, 2007, and March 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as whole, present fairly in all material respects the information set forth therein.
          
As discussed in Note 4, effective March 31, 2007 the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.”
          
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 28, 2008,April 3, 2009, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 10, 200811, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/Deloitte & Touche LLP

Fort Worth, Texas

June 10, 200811, 2009


4947

DYNCORP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
             
  Fiscal Year Ended 
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
  (Dollars in thousands, except per share data) 
 
Revenue $2,139,761  $2,082,274  $1,966,993 
Cost of services  (1,859,666)  (1,817,707)  (1,722,089)
Selling, general and administrative expenses  (117,919)  (107,681)  (97,520)
Depreciation and amortization expense  (42,173)  (43,401)  (46,147)
             
Operating income  120,003   113,485   101,237 
Interest expense  (55,374)  (58,412)  (56,686)
Interest expense on mandatory redeemable shares  —   (3,002)  (21,142)
Loss on early extinguishment of debt and preferred stock  —   (9,201)  — 
Earnings from affiliates  4,758   2,913   — 
Interest income  3,062   1,789   461 
Other income, net  199   —   — 
             
Income before income taxes  72,648   47,572   23,870 
Provision for income taxes  (27,999)  (20,549)  (16,627)
             
Income before minority interest  44,649   27,023   7,243 
             
Minority interest  3,306   —   — 
             
Net income $47,955  $27,023  $7,243 
             
Basic and diluted earnings per share $0.84  $0.49  $0.23 
             
             
  Fiscal Year Ended 
  April 3,  March 28,  March 30, 
  2009  2008  2007 
  (Dollars in thousands, except per share data) 
Revenue $3,101,093  $2,139,761  $2,082,274 
Cost of services  (2,768,962)  (1,859,666)  (1,817,707)
Selling, general and administrative expenses  (103,583)  (117,919)  (107,681)
Depreciation and amortization expense  (40,557)  (42,173)  (43,401)
          
Operating income  187,991   120,003   113,485 
Interest expense  (58,782)  (55,374)  (58,412)
Loss on early extinguishment of debt, net  (4,131)  —   (3,484)
Interest expense on mandatory redeemable shares  —   —   (3,002)
Loss on extinguishment of preferred stock  —   —   (5,717)
Earnings from affiliates  5,223   4,758   2,913 
Interest income  2,195   3,062   1,789 
Other income, net  145   199   — 
          
Income before income taxes  132,641   72,648   47,572 
Provision for income taxes  (41,995)  (27,999)  (20,549)
          
Income before minority interest  90,646   44,649   27,023 
          
Minority interest  (20,876)  3,306   — 
          
Net income $69,770  $47,955  $27,023 
          
Basic and diluted earnings per share $1.22  $0.84  $0.49 
          
See notes to consolidated financial statements.


5048

DYNCORP INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
         
  March 28,
  March 30,
 
  2008  2007 
  (Amounts in thousands,
 
  except share data) 
 
ASSETS
Current assets:        
Cash and cash equivalents $85,379  $102,455 
Restricted cash  11,308   20,224 
Accounts receivable, net of allowances of $268 and $3,428  513,312   461,950 
Prepaid expenses and other current assets  109,027   69,487 
Deferred income taxes  17,341   12,864 
         
Total current assets  736,367   666,980 
Property and equipment, net  15,442   12,646 
Goodwill  420,180   420,180 
Tradename  18,318   18,318 
Other intangibles, net  176,146   214,364 
Deferred income taxes  18,168   13,459 
Other assets, net  18,088   16,954 
         
Total assets $1,402,709  $1,362,901 
         
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:        
Current portion of long-term debt $3,096  $37,850 
Accounts payable  148,787   127,282 
Accrued payroll and employee costs  85,186   88,929 
Other accrued liabilities  129,240   116,308 
Income taxes payable  8,245   13,682 
         
Total current liabilities  374,554   384,051 
Long-term debt, less current portion  590,066   593,144 
Other long-term liabilities  13,804   6,032 
         
Commitments and contingencies        
         
Shareholders’ equity:        
Common stock, $0.01 par value — 232,000,000 shares authorized; 57,000,000 shares issued and outstanding $570  $570 
Additional paid-in capital  357,026   352,245 
Retained earnings  73,603   27,023 
Accumulated other comprehensive loss  (6,914)  (164)
         
Total shareholders’ equity  424,285   379,674 
         
Total liabilities and shareholders’ equity $1,402,709  $1,362,901 
         
         
  As of 
  April 3,  March 28, 
  2009  2008 
  (Amounts in thousands, 
  except share data) 
ASSETS
        
Current assets:        
Cash and cash equivalents $200,222  $85,379 
Restricted cash  5,935   11,308 
Accounts receivable, net of allowances of $68 and $268  564,432   513,312 
Prepaid expenses and other current assets  124,214   109,027 
Deferred income taxes  —   17,341 
       
Total current assets  894,803   736,367 
Property and equipment, net  18,338   15,442 
Goodwill  420,180   420,180 
Tradename  18,318   18,318 
Other intangibles, net  142,719   176,146 
Deferred income taxes  12,788   18,168 
Other assets, net  32,068   18,088 
       
Total assets $1,539,214  $1,402,709 
       
LIABILITIES AND SHAREHOLDERS’ EQUITY
        
Current liabilities:        
Current portion of long-term debt $30,540  $3,096 
Accounts payable  160,419   148,787 
Accrued payroll and employee costs  137,993   85,186 
Deferred income taxes  8,278   — 
Other accrued liabilities  111,590   129,240 
Income taxes payable  5,986   8,245 
       
Total current liabilities  454,806   374,554 
Long-term debt, less current portion  569,372   590,066 
Other long-term liabilities  6,779   13,804 
Commitments and contingencies        
Minority interest  10,736   — 
Shareholders’ equity:        
Common stock, $0.01 par value — 232,000,000 shares authorized; 57,000,000 shares issued and 56,306,800 and 57,000,000 shares outstanding, respectively  570   570 
Additional paid-in capital  366,620   357,026 
Retained earnings  143,373   73,603 
Treasury stock, 693,200 shares  (8,618)  — 
Accumulated other comprehensive loss  (4,424)  (6,914)
       
Total shareholders’ equity  497,521   424,285 
       
Total liabilities and shareholders’ equity $1,539,214  $1,402,709 
       
See notes to consolidated financial statements.


5149

DYNCORP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
             
  Fiscal Year Ended 
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
  (Dollars in thousands) 
 
Cash flows from operating activities
            
Net income $47,955  $27,023  $7,243 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization  43,492   45,251   47,020 
Loss on early extinguishment of debt  —   2,657   — 
Loss on early extinguishment of preferred stock  —   5,717   — 
Excess tax benefits from equity-based compensation  (686)  (495)  — 
Non-cash interest expense on redeemable preferred stock dividends  —   —   21,142 
Amortization of deferred loan costs  3,015   3,744   2,878 
(Recovery) provision for losses on accounts receivable  (923)  (2,500)  4,204 
Earnings from affiliates  (4,758)  (2,913)  (214)
Deferred income taxes  (1,017)  (14,010)  (9,407)
Equity-based compensation  4,599   2,353   2,417 
Minority interest  (3,306)  —   — 
Changes in assets and liabilities:            
Restricted cash  8,916   (20,224)  — 
Accounts receivable  (49,675)  (19,255)  (21,885)
Prepaid expenses and other current assets  (36,123)  (25,165)  (17,485)
Accounts payable and accrued liabilities  31,679   82,427   10,828 
Redeemable preferred stock dividend  —   (3,695)  — 
Income taxes payable  (3,458)  5,921   8,370 
Distributions from affiliates  2,651   —   — 
             
Net cash provided by operating activities  42,361   86,836   55,111 
             
Cash flows from investing activities
            
Purchase of property and equipment  (6,081)  (7,037)  (2,271)
Purchase of computer software  (1,657)  (2,280)  (3,909)
Other assets  (3,568)  1,722   (51)
             
Net cash used by investing activities  (11,306)  (7,595)  (6,231)
             
Cash flows from financing activities
            
Net proceeds from initial public offering  —   346,483   — 
Redemption of preferred stock  —   (216,126)  — 
Payment of special Class B distribution  —   (100,000)  — 
Payments on long-term debt  (37,832)  (30,556)  (3,449)
Premium paid on redemption of senior subordinated notes  —   (2,657)  — 
Premium paid on redemption of preferred stock  —   (5,717)  — 
Payment of deferred financing costs  —   (640)  — 
Borrowings under other financing arrangements  7,423   18,770   — 
Payments under other financing arrangements  (18,408)  (7,411)  — 
Excess tax benefits from equity-based compensation  686   495   — 
Payments under revolving credit facilities  —   —   (35,000)
Payment of initial public offering costs  —   —   (1,940)
Payment of debt issuance costs  —   —   (909)
Purchase of interest rate cap  —   —   (483)
             
Net cash provided by (used by) financing activities  (48,131)  2,641   (41,781)
             
Net (decrease) increase in cash and cash equivalents  (17,076)  81,882   7,099 
Cash and cash equivalents, beginning of year  102,455   20,573   13,474 
             
Cash and cash equivalents, end of year $85,379  $102,455  $20,573 
             
Income taxes paid (net of refunds) $36,740  $26,183  $19,025 
Interest paid $53,065  $55,486  $57,464 
Non-cash investing activities $—  $—  $1,194 
             
  Fiscal Year Ended 
  April 3,  March 28,  March 30, 
  2009  2008  2007 
  (Dollars in thousands) 
Cash flows from operating activities
            
Net income $69,770  $47,955  $27,023 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization  41,634   43,492   45,251 
Loss on early extinguishment of debt, net  4,131   —   2,657 
Loss on early extinguishment of preferred stock  —   —   5,717 
Excess tax benefits from equity-based compensation  (184)  (686)  (495)
Amortization of deferred loan costs  3,694   3,015   3,744 
Recovery for losses on accounts receivable  (185)  (923)  (2,500)
Earnings from affiliates  (5,223)  (4,758)  (2,913)
Deferred income taxes  34,273   (1,017)  (14,010)
Equity-based compensation  1,883   4,599   2,353 
Minority interest  20,876   (3,306)  — 
Other  (291)  —   — 
Changes in assets and liabilities:            
Restricted cash  5,373   8,916   (20,224)
Accounts receivable  (50,896)  (49,675)  (19,255)
Prepaid expenses and other current assets  (18,934)  (36,123)  (25,165)
Accounts payable and accrued liabilities  36,441   31,679   82,427 
Redeemable preferred stock dividend  —   —   (3,695)
Income taxes payable  (3,930)  (3,458)  5,921 
Distributions from affiliates  2,439   2,651   — 
          
Net cash provided by operating activities  140,871   42,361   86,836 
          
Cash flows from investing activities
            
Purchase of property and equipment  (4,684)  (6,081)  (7,037)
Purchase of computer software  (2,596)  (1,657)  (2,280)
Proceeds from sale of property and equipment  365   —   — 
Contributions to equity method investees  (2,233)  (3,366)  (363)
Other assets  —   (202)  2,085 
          
Net cash used by investing activities  (9,148)  (11,306)  (7,595)
          
Cash flows from financing activities
            
Net proceeds from initial public offering  —   —   346,483 
Redemption of preferred stock  —   —   (216,126)
Payment of special Class B distribution  —   —   (100,000)
Purchases of treasury stock  (8,618)  —   — 
Borrowings under debt agreements  323,751   —   — 
Payments on debt agreements  (315,538)  (37,832)  (30,556)
Premium paid on redemption of senior subordinated notes  —   —   (2,657)
Premium paid on redemption of preferred stock  —   —   (5,717)
Payment of deferred financing costs  (10,790)  —   (640)
Borrowings under other financing arrangements  26,254   7,423   18,770 
Payments under other financing arrangements  (26,628)  (18,408)  (7,411)
Excess tax benefits from equity-based compensation  184   686   495 
Receipt of proceeds on note receivable from DIFZ sale  500   —   — 
Payments of minority interest dividends  (5,995)  —   — 
          
Net cash (used in) provided by financing activities  (16,880)  (48,131)  2,641 
          
Net increase (decrease) in cash and cash equivalents  114,843   (17,076)  81,882 
Cash and cash equivalents, beginning of year  85,379   102,455   20,573 
          
Cash and cash equivalents, end of year $200,222  $85,379  $102,455 
          
Income taxes paid (net of refunds) $19,292  $36,740  $26,183 
Interest paid $58,782  $53,065  $55,486 
Non-cash sale of DIFZ, including related financing $9,545  $—  $— 
See notes to consolidated financial statements.


5250

DYNCORP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
                         
           Accumulated
    
           Other
    
     Additional
  (Accumulated Deficit)
  Comprehensive
  Total
 
  Common Stock  Paid-in  Retained Earnings  Income (Loss)  Shareholders’ 
  (Dollars and shares in thousands) 
 
Balance at April 1, 2005  32,000  $320  $99,680  $(3,104) $22  $96,918 
                         
Comprehensive income (loss):                        
Net income          —   7,243   —   7,243 
Interest rate cap          —   —   (260)  (260)
Currency translation adjustment          —   —   20   20 
                         
Comprehensive income (loss)          —   7,243   (240)  7,003 
                         
Equity-based compensation          2,417   —   —   2,417 
                         
Balance at March 31, 2006  32,000  $320  $102,097  $4,139  $(218) $106,338 
                         
Comprehensive income (loss):                        
Net income          —   27,023   —   27,023 
Interest rate cap          —   —   (16)  (16)
Currency translation adjustment          —   —   70   70 
                         
Comprehensive income (loss)          —   27,023   54   27,077 
                         
Initial public offering of common stock  25,000   250   343,161   —   —   343,411 
Dividend on Class B equity          (95,861)  (4,139)  —   (100,000)
Tax benefit associated with equity-based compensation          495   —   —   495 
Equity-based compensation          2,353   —   —   2,353 
                         
Balance at March 30, 2007  57,000  $570  $352,245  $27,023  $(164) $379,674 
                         
Comprehensive income (loss):                        
Net income          —   47,955       47,955 
Interest rate cap          —   —   276   276 
Interest rate swap          —   —   (7,174)  (7,174)
Currency translation adjustment          —   —   148   148 
                         
Comprehensive income (loss)          —   47,955   (6,750)  41,205 
                         
Adjustment for the adoption of FIN No. 48          —   (1,375)  —   (1,375)
Tax benefit associated with equity-based compensation          686   —   —   686 
Equity-based compensation          4,095   —   —   4,095 
                         
Balance at March 28, 2008  57,000  $570  $357,026  $73,603  $(6,914) $424,285 
                         
                             
                      Accumulated    
                      Other    
          Additional  Retained  Treasury  Comprehensive  Total 
  Common Stock  Paid-in  Earnings  Stock  Income (Loss)  Shareholders’ 
  (Dollars and shares in thousands) 
Balance at March 30, 2006  32,000  $320  $102,097  $4,139  $—  $(218) $106,338 
                      
Comprehensive income (loss):                            
Net income          —   27,023   —   —   27,023 
Interest rate cap, net of tax          —   —   —   (16)  (16)
Currency translation adjustment, net of tax          —   —   —   70   70 
                        
Comprehensive income (loss)          —   27,023   —   54   27,077 
                        
Initial public offering of common stock  25,000   250   343,161   —   —   —   343,411 
Dividend on Class B equity          (95,861)  (4,139)  —   —   (100,000)
Tax benefit associated with equity-based compensation          495   —   —   —   495 
Equity-based compensation          2,353   —   —   —   2,353 
                        
Balance at March 30, 2007  57,000  $570  $352,245  $27,023  $—  $(164) $379,674 
                      
Comprehensive income (loss):                            
Net income          —   47,955   —   —   47,955 
Interest rate cap, net of tax          —   —   —   276   276 
Interest rate swap, net of tax          —   —   —   (7,174)  (7,174)
Currency translation adjustment, net of tax          —   —   —   148   148 
                        
Comprehensive income (loss)          —   47,955   —   (6,750)  41,205 
                        
Adjustment for the adoption of FIN No. 48          —   (1,375)  —   —   (1,375)
Tax benefit associated with equity-based compensation          686   —   —   —   686 
Equity-based compensation          4,095   —   —   —   4,095 
                        
Balance at March 28, 2008  57,000  $570  $357,026  $73,603  $—  $(6,914) $424,285 
                      
Comprehensive income (loss):                            
Net income          —   69,770   —   —   69,770 
Interest rate swap, net of tax          —   —   —   3,212   3,212 
Currency translation adjustment, net of tax          —   —   —   (722)  (722)
                        
Comprehensive income (loss)          —   69,770   —   2,490   72,260 
                        
Sale of noncontrolling interest in DIFZ          9,220   —   —   —   9,220 
DIFZ financing, net of tax          325   —       —   325 
Treasury stock  (693)          —   (8,618)  —   (8,618)
Tax benefit associated with equity-based compensation          184   —   —   —   184 
Equity-based compensation          (135)  —   —   —   (135)
                        
Balance at April 3, 2009  56,307  $570  $366,620  $143,373  $(8,618) $(4,424) $497,521 
                      
See notes to consolidated financial statements.


5351

DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended April 3, 2009, March 28, 2008 and March 30, 2007
Note 1 — Significant Accounting Policies and March 31, 2006Accounting Developments
          
Note 1 —Significant Accounting Policies and Accounting Developments
Unless the context otherwise indicates, references herein to “we,” “our,” “us” or “DynCorp International” refer to DynCorp International Inc. and our consolidated subsidiaries. DynCorp International Inc., through its subsidiaries (together, the “Company”), provides defense and technical services and government outsourced solutions primarily to the United States (“U.S.”) government agencies throughout the U.S. and internationally. Key offerings include aviation services, such as maintenance and related support, as well as base maintenance/operations and personal and physical security services. Primary customers include the U.S. DepartmentsDepartment of Defense (“DoD”) and U.S. Department of State (“DoS”), but also include other government agencies, foreign governments and commercial customers.
Principles of Consolidation
          
The consolidated financial statements include theour accounts and those of the Company and itsour domestic and foreign subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Generally, investments in which the Company ownswe own a 20% to 50% ownership interest are accounted for by the equity method. These investments are in business entities in which the Company doeswe do not have control, but hashave the ability to exercise significant influence over operating and financial policies and isare not the primary beneficiary as defined in Financial Accounting Standards Board (the “FASB”(“FASB”) Interpretation No. 46R (Revised 2003),“Consolidation of Variable Interest Entities”(“FIN No. 46R”). The Company hasWe have no investmentsownership interests in business entities of less than 20%.
          
The following table sets forth the Company’sour ownership in joint ventures and companies that are not consolidated into the Company’sour financial statements as of March 28, 2008,April 3, 2009, and are accounted for by the equity method. For all of the entities listed below, the Company haswe have the right to elect half of the board of directors or other management body. Economic rights are indicated by the ownership percentages listed below.
     
DynEgypt LLC50.0%
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%
          
The Company hasWe have a 51% ownership interest in Global Linguist Solutions LLC (“GLS”), the right to elect half of the Boardboard of Directorsdirectors of such entity, and isare the primary beneficiary as defined in FIN No. 46R. Therefore, GLS is consolidated into the Company’sour financial statements for the year ended March 28, 2008.April 3, 2009.
          On July 31, 2008, we sold 50% of our ownership interest in our previously wholly-owned subsidiary, DynCorp International FZ-LLC (“DIFZ”), for approximately $8.2 million. DIFZ was previously a wholly-owned subsidiary and therefore consolidated into our financial statements. We have financed the transaction by accepting three promissory notes provided by the purchaser. As a result, the sale was accounted for as a capital transaction reflected in additional paid in capital (“APIC”) with the exception of $0.5 million cash received from the buyer, which was recognized as a gain. The sale price was contingent upon a revaluation based on actual DIFZ results through January 30, 2009. As of April 3, 2009, the sales price was adjusted to $9.7 million, based on the results of the revaluation, contingent on approval by the DIFZ board of directors. The adjustment to the purchase price was reflected as an increase to the promissory notes. Additionally, the interest component of the three promissory notes held by us will also increase APIC due to the structure of this transaction and will not impact our consolidated statements of income. The sale agreement governing the transaction provides indemnification to the buyer for potential losses arising out of certain tax related matters specific to DIFZ. As of the transaction date, it was determined that we were the primary beneficiary as defined in FIN No. 46R. Therefore, we continue to consolidate DIFZ’s results on our financial statements.
During          The following table sets forth our ownership in joint ventures that are consolidated into our financial statements as of April 3, 2009. For the fiscal year endedentities list below, we are the primary beneficiary as defined in FIN No. 46R.

52

GLS51.0%
DIFZ50.0%
Minority Interest
          We record the impact of our joint venture partners’ interests in consolidated joint ventures as minority interest. Minority interest is presented on the face of the income statement as an increase or reduction in arriving at net income. The presentation of minority interest on the balance sheet is located in a mezzanine account between liabilities and equity. As of March 28, 2008, the Company acquiredminority interest balance related to GLS was recorded as an asset within prepaid expenses and other current assets, due to cumulative losses incurred. As of April 3, 2009, all minority interest, including minority interest related to DIFZ, was recorded as mezzanine equity. Minority interest recorded on our consolidated balance sheet is increased by earnings of our consolidated joint ventures and reduced for dividends paid to our non-controlling interest partners. Minority interest related to DIFZ is also impacted by the remaining 50%portion ofDynCorp-Hiberna Ltd. from the joint venture partner for approximately $400,000, net of cash acquired and changed the name to DCH Limited. The assets, liabilities, and results of operations of the entity acquired were not material our non-controlling interest partner’s dividends which are applied to the Company’s consolidated financial position or results of operations, thus pro-forma information is not presented. In addition, during our fiscal 2008 third quarter, Global Nation Building LLC, a consolidated subsidiary, was dissolved due to inactivity. There was no material impact to our financial statements frompromissory notes in accordance with the termination of the entity.
sales agreement, as discussed above.
Revenue Recognition and Cost Estimation on Long-Term Contracts
          
General —Revenue is recognized when persuasive evidence of an arrangement exists, services or products have been provided to the client, the sales price is fixed or determinable, and collectability is reasonably assured.
          
The Company isWe are predominantly a servicesservice provider and only includesinclude products or systems when necessary for the execution of the service arrangement and as such, systems, equipment or materials are not generally separable from services. Each arrangement is unique and revenue recognition is evaluated on a contract by contract basis. The Company appliesWe apply the appropriate guidance consistently to similar contracts.


54

          
DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The evaluation of the separation and allocation of an arrangement fee to each deliverable within a multiple-deliverable arrangement is dependent upon the guidance applicable to the specific arrangement.
          
The Company expensesWe expense pre-contract costs as incurred for an anticipated contract until the contract is awarded. Throughout the life of the contract, indirect costs, including general and administrative costs, are expensed as incurred and are based on Defense Contract Audit Agency (“DCAA”) approved indirect rates.
incurred. When revenue recognition is deferred relative to the timing of cost incurred, costs that are direct and incremental to a specific transaction are deferred and charged to expense in proportion to the revenue recognized.
          
Management regularly reviews project profitability and underlying estimates. Revisions to the estimates are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management. When estimates of total costs to be incurred on a contract exceed estimates of total revenue to be earned, a provision for the entire loss on the contract is recorded to cost of salesservices in the period the loss is determined. Loss provisions are first offset against costs that are included in inventoried assets, with any remaining amount reflected in liabilities.
          
Major factors the Company considerswe consider in determining total estimated revenue and cost include the basic contract price, contract options, change orders (modifications of the original contract), back charges and claims, and contract provisions for penalties, award fees and performance incentives. All of these factors and other special contract provisions are evaluated throughout the life of the Company’sour contracts when estimating total contract revenue under the percentage-of-completion or proportional methods of accounting.
          
Federal Government Contracts —For all non-construction and non-software United StatesU.S. federal government contracts or contract elements, the Company applieswe apply the guidance in the AICPAAmerican Institute of Certified Public Accountants (“AICPA”) Audit and Accounting and Auditing Guide,Federal Government Contractors(“AAG-FGC”). The Company appliesWe apply the combination and segmentation guidance in the AAG-FGC in analyzing the deliverables contained in the applicable contract to determine appropriate profit centers. Revenue is recognized by profit center using the percentage-of-completion method or completed contract method.
          
Projects under the Company’sour U.S. federal government contracts typically have different pricing mechanisms that influence how revenue is earned and recognized. These pricing mechanisms are classified as cost plus fixed-fee, fixed-price, cost plus award fee,time-and-materials (including Unit-Price/unit-price/level-of-effort contracts), or Indefinite Delivery, Indefinite Quantity (“IDIQ”). The exact timing and quantity of delivery and pricing mechanism for IDIQ profit centers are not known at the time of contract award, but they can contain any type of pricing mechanism.
          
Revenue on projects with a fixed-price or fixed-fee, including award fees, is generally recognized ratably over the contract period measured by either output or input methods appropriate to the services or products provided. For example, “output measures”

53

can include period of service, such as for aircraft fleet maintenance; and units delivered or produced, such as aircraft for which modification has been completed. “Input measures” can include a cost-to-cost method, such as for procurement-related services.
          
Revenue on time and materials projects is recognized at contractual billing rates for applicable units of measure (e.g. labor hours incurred or units delivered).
          
The completed contract method is sometimes used when reliable estimates cannot be supported for percentage-of-completion method recognition or for short duration projects when the results of operations would not vary materially from those resulting from use of the percentage-of-completion method. Until complete, project costs are maintained in work in progress, a component of inventory.
          
Contract costs on U.S. federal government contracts, including indirect costs, are subject to audit and adjustment by negotiations between the Companyus and government representatives. Substantially all of the Company’sour indirect contract costs have been agreed upon through 2004. Contract revenue on U.S. federal government contracts have been recorded in amounts that are expected to be realized upon final settlement.


55

          
DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Award fees are recognized based on the guidance in the AAG-FGC. Award fees are excluded from estimated total contract revenue until a historical basis has been established for their receipt or the award criteria have been met including the completion of the award fee period at which time the award amount is included in the percentage-of-completion estimation.
          
Construction Contracts or Contract Elements —For all construction contracts or contract elements, the Company applieswe apply the combination and segmentation guidance found in Statement of Position (“SOP”)81-1,“Accounting for Performance of Construction-Type and Certain Production-Type Contracts”in analyzing the deliverables contained in the contract to determine appropriate profit centers. Revenue is recognized by profit center using the percentage-of-completion method.
          
Software Contracts or Contract Elements —It is the Company’sour policy to review any arrangement containing software or software deliverables against the criteria contained inSOP 97-2,“Software Revenue Recognition”, and related technical practice aids. In addition, Emerging Issues Task Force (“EITF”)03-5,“Applicability of AICPA Statement of Position97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software”is also applied to determine if any non-software deliverables are outside of the scope ofSOP 97-2 when the software is more than incidental to the products or services as a whole. Under the provisions ofSOP 97-2 software deliverables are separated and contract value is allocated based on Vendor Specific Objective Evidence (“VSOE”). The Company hasWe have never sold software on a separate, standalone basis. As a result, software arrangements are typically accounted for as one unit of accounting and are recognized over the service period, including the period of post-contract customer support. All software arrangements requiring significant production, modification, or customization of the software wereare accounted for underSOP 81-1.
          
Other Contracts or Contract Elements —The Company’sOur contracts withnon-U.S. federal government customers are predominantly multiple-element. Multiple-element arrangements involve multiple obligations in various combinations to perform services, deliver equipment or materials, grant licenses or other rights, or take certain actions. The Company evaluatesWe evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting per the provisions ofEITF 00-21,“Revenue Arrangements with Multiple Deliverables”and arrangement consideration is allocated among the separate units of accounting based on their relative fair values. Fair values are established by evaluating VSOE or third-party evidence if available. Due to the customized nature of the Company’sour arrangements, VSOE and third-party evidence is generally not available resulting in applicable arrangements being accounted for as one unit of accounting.
          
The Company appliesWe apply the guidance in U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104,“Revenue Recognition in Financial Statements”(“SAB No. 104”), and other transaction-specific accounting literature to deliverables related tonon-U.S. federal government services, equipment and materials. The timing of revenue recognition for a given unit of accounting will depend on the nature of the deliverable(s) and whether revenue recognition criteria have been met. The same pricing mechanisms found in U.S. federal government contracts are found in other contracts.
Cash and cash equivalents
          
For purposes of reporting cash and cash equivalents, the Company considerswe consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

54

Restricted cash
          
Restricted cash represents cash restricted by a certain contractcontracts in which advance payments are not available for use except to pay specified costs and vendors for work performed on the specific contract.


56

DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in restricted cash related to our contracts are included as operating cash flows in the consolidated statements of cash flows. From time to time we have invested cash restricted as collateral as required by our letters of credit. Changes in restricted cash for funds invested as collateral are included as investing activities in the consolidated statements of cash flows. As of April 3, 2009 and March 28, 2008, we had no cash restricted as collateral.
Use of Estimates
          
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management evaluates these estimates and assumptions on an ongoing basis, including but not limited to, those relating to allowances for doubtful accounts, fair value and impairment of intangible assets and goodwill, income taxes, profitability on contracts, anticipated contract modifications, contingencies and litigation. Actual results could differ from those estimates.
Allowance for Doubtful Accounts
          
The Company establishesWe establish an allowance for doubtful accounts against specific billed receivables based upon the latest information available to determine whether invoices are ultimately collectible. Such information includes the historical trends of write-offs and recovery of previously written-off accounts, the financial strength of the respective customer and projected economic and market conditions. The evaluation of these factors involves subjective judgments and changes in these factors may cause an increase to the Company’sour estimated allowance for doubtful accounts, which could significantly impact the Company’sour consolidated financial statements by incurring bad debt expense. Given that the Companywe primarily servesserve the U.S. government, management believes the risk to be relatively low that changes in itsour allowance for doubtful accounts would have a material impact on our financial results.
Property and Equipment
          
The cost of property and equipment, less applicable residual values, is depreciated using the straight-line method. Depreciation commences when the specific asset is complete, installed and ready for normal use. Depreciation related to equipment purchased for specific contracts is typically included within Costcost of Servicesservices, as this depreciation is directly attributable to project costs. The Company’sWe evaluate property and equipment for impairment quarterly by examining factors such as existence, functionality, obsolesce and physical condition. In the event that we experience impairment, we revise the useful life estimate and record the impairment as an addition to depreciation expense and accumulated depreciation. Our standard depreciation and amortization policies are as follows:
   
Computer and related equipment 3 to 5 years
Furniture and other equipment 2 to 10 years
Leasehold improvements Shorter of lease term or useful life
Impairment of Long-LivedLong Lived Assets including Amortized Intangibles
          
FairOur long lived assets are primarily made up of customer related intangibles. The initial values ofassigned to customer-related intangibles and internally developed technologywere the result of fair value calculations associated with business combinations. The values were determined based on estimates and judgments regarding expectations for the estimated future after-tax cash flows from those assets over their lives, including the probability of expected future contract renewals and sales, less a cost-of-capital charge, all of which was discounted to present value.
The Company evaluates We evaluate the carrying value of long-lived assets to be held and used, other than goodwill and intangible assets with indefinite lives, when events and circumstances indicate a potential impairment. The carrying value of long-lived assets includingour customer-related intangibles and internally developed technology,on a quarterly basis. The customer related intangible carrying value is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. In that case, a loss is recognized based on the amount by which the carrying value exceeds the fair value. Fair value is determined primarily using the estimated cash flows associated with the asset under review, discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal. Changes in estimates of future cash flows could result in a write-down of the asset in a future period.
During the fiscal year ended March 30, 2007, the Company recognized an impairment of approximately $0.6 million associated with a customer-related intangible due to the loss of a contract in Saudi Arabia. For the fiscal year ended March 28, 2008, management believes there have been no other events or circumstances that would indicate an impairment of long-lived assets.


57

DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Indefinite Lived Assets
          
Indefinite-lived assets, including goodwill and tradename, are not amortized but are subject to an annual impairment test. The first step of the impairment test, used to identify potential impairment, compares the fair value of each of the Company’sour reporting units with its carrying amount, including indefinite-lived assets. If the fair value of a reporting unit exceeds its carrying amount, the indefinite-lived assets of the reporting unit are not considered impaired, and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test shall be performed to measure the amount of the impairment loss, if any. The Company performsWe perform the annual test for impairment as of the end of February of each fiscal year. Based on the

55

results of these tests, no impairment losses were identified for the fiscal years ended April 3, 2009 and March 28, 2008 and March 30, 2007.
2008.
Income Taxes
          
The Company accountsWe account for income taxes using the asset and liability method in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes” (“SFAS No. 109”) and Financial Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” an Interpretation of FASB Statement No. 109 (“FIN No. 48”). Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities.
          
In July 2006, the Financial Accounting Standards Board (“FASB”)FASB issued FIN No. 48, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109. FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN No. 48 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The impact on our consolidated financial condition and results of operations of adopting FIN No. 48 in the first quarter of fiscal year 2008 is presented in Note 4.
Equity-Based Compensation Expense
          
The Company hasWe have adopted the provisions of, and accounted for equity-based compensation in accordance with FASB No. 123 (revised 2004),“Share-Based Payment”(“SFAS No. 123R”). Under the fair value recognition provisions, equity-based compensation expense is measured at the grant date based on the fair value of the award and is recognized ratablyon a straight line basis over the requisite service period for each separately vesting portion of the award, adjusted for forfeitures. Our RSUs have been determined to be liability awards; therefore, the fair value of the RSUs are re-measured at each financial reporting date as long as they remain liability awards. See Note 11 for further discussion on equity-based compensation.
Fair Values of Financial Instruments
          
FairWe estimate fair values of financial instruments are estimated by the Company using available market information and other valuation methods. Values are based on available market quotes or estimates using a discounted cash flow approach based on the interest rates currently available for similar instruments. The fair values of financial instruments for which estimated fair value amounts are not specifically presented are estimated to approximate the related recorded values. As discussedpresented in further detail below, the Company plans to adopt.in Note 16, we adopted SFAS No. 157 during our first quarter of fiscal year 2009. Although we do not anticipate that the adoption of SFAS No. 157 will materially impact the Company’s financial condition, results of operations, or cash flow, the Company will be required to provide additional disclosures as part of its financial statements.
          
SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
 • Level 1, defined as observable inputs, such as quoted prices in active markets;


58

DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 • 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.
Currency Translation
          
The assets and liabilities of the Company’sour subsidiaries, that are outside the United States (U.S.)U.S. and that have a functional currency that is not the U.S. dollar, are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates. Income and expense items, for these subsidiaries, are translated at the average exchange rates prevailing during the period. Gains and losses resulting from currency transactions and the remeasurement of the financial statements of U.S. functional currency foreign subsidiaries are recognized currently in income and those resulting from translation of financial statements are included in accumulated other comprehensive income.

56

ReportingOperating Segments
          
The Company’s operations are aligned intoOn April 1, 2008, we announced that we changed from reporting financial results on two divisions, each of which constitutes a reporting segment:segments, Government Services (“GS”) and Maintenance and Technical Support Services (“MTSS”), seeto reporting three segments, beginning with the first quarter of fiscal year 2009. This was accomplished by splitting GS into two distinct operating segments.
          The three segments are as follows:
International Security Services, or ISS segment, which consists of the Law Enforcement and Security, or LES, business unit, the Specialty Aviation and Counter Drug , or SACD, business unit, and Global Linguist Solutions, or GLS.
Logistics and Construction Management, or LCM segment, is comprised of the Contingency and Logistics Operations, or CLO, business unit and the Operations, Maintenance, and Construction Management, or OMCM, business unit. This segment is also responsible for winning and performing new work on our LOGCAP IV contract.
Maintenance and Technical Support Services, or MTSS segment, consists of its original components and DynMarine Services, which was previously reported under the GS segment.
          On April 6, 2009, we announced a further discussionreorganization of our business structure to better align with strategic markets and to streamline our infrastructure. Under the new alignment, our three reportable segments were realigned into three new segments, two of which, Global Stabilization and Development Solutions (“GSDS”) and Global Platform Support Solutions (“GPSS”), are wholly-owned, and a third segment, GLS, which is a 51% owned joint venture. The new structure became effective April 4, 2009, the start of our 2010 fiscal year, and is more fully described in Note 13.
17 to our consolidated financial statements.
Accounting Developments
Pronouncements Implemented in Fiscal Year 2009
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a single definition of fair value and a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements; however, it does not require any new fair value measurements. InAdditionally, in February 2008, the FASB issued FASB Staff PositionNo. 157-2, “Effective ��Effective Date of FASB Statement No. 157”, which providesprovided a one year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Except for the delay for nonfinancial assets and liabilities, SFAS 157 is effective for fiscal years beginning after December 15, 2007, and interim periods within such years. The Company will adopt the provisions of SFAS No. 157 as of March 29, 2008 as required with respect to its financial assets and liabilities only. We doapplies under other accounting pronouncements that require or permit fair value measurements; however, it does not expect therequire any new fair value measurements. The adoption of SFAS No. 157 todid not have a material impact on our consolidated financial condition and results of operations. However, this adoption is reflected through additional disclosure requirements as presented in Note 16.
          
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.”115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. It provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We do not expect theThe adoption of SFAS No. 159 did not impact our consolidated financial condition and results of operations as we did not elect to apply the fair value option to items that have previously been measured at historical cost.
          In December 2008, the FASB issued FSP FIN 46R-8, “Interests in Variable Interest Entities.” The FSP was issued by the FASB to expeditiously meet the need for enhanced information about transferred financial assets and an enterprise’s involvement with a variable interest entity (“VIE”). The FSP requires extensive additional disclosures by public entities with continuing involvement in transfers of financial assets to special-purpose entities and with VIEs, including sponsors that have a variable interest in a VIE. The FSP is effective for fiscal periods ending after December 15, 2008. The adoption of FSP FIN 46R-8 did not have a significant impact to our financial position, results of operations or cash flows. However, this statement was adopted through enhanced disclosures in Note 15.
          In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for financial

57

statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of SFAS No. 161 did not have a material impact on our consolidated financial condition and results of operations. However, this statement was adopted through enhanced disclosures in Note 10.
Pronouncements Not Yet Implemented
          
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which is an amendment of Accounting Research Bulletin No. 51. This statement covers several areas including (i) defining the way the noncontrolling interests should be presented in the financial statements and notes, (ii) clarifies that all transactions between a noncontrollingparent and subsidiary are to be accounted for as equity transactions if the parent retains its controlling financial interest in the subsidiary and (iii) requires that a parent recognize a gain or loss in net income when a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement changes the way the consolidated income statement is presented, thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest.deconsolidated. This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We are currently assessingexpect this statement to change our presentation of minority interest on our consolidated statements of income, consolidated balance sheets and consolidated statements of shareholders’ equity. We anticipate the impact on our April 3, 2009 shareholders’ equity upon implementation of this statement will be $10,736. We will adopt this statement in our first quarter of fiscal year 2010, and will apply prospectively, except for the statement.


59

DYNCORP INTERNATIONAL INC.
presentation and disclosure requirements, which are required to be applied retrospectively.
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.Combinations” (“SFAS No. 141(R)”). This statement replaces FASB Statement No. 141, “Business Combinations.” This statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently assessingThis will be impactful prospectively in the impactevent that we have any applicable events and transactions governed by SFAS No. 141(R).
          In December 2007, the FASB ratified EITF 07-1, “Accounting for Collaborative Arrangements”. EITF 07-1 provides guidance for determining if a collaborative arrangement exists and establishes procedures for reporting revenue and costs generated from transactions with third parties, as well as between the parties within the collaborative arrangement, and provides guidance for financial statement disclosures of collaborative arrangements. EITF 07-1 will become effective for us in the statement.first quarter of fiscal year 2010. The adoption of EITF 07-1 is not expected to have a material effect on our consolidated financial position or results of operations. However, we expect to comply with the additional disclosure requirements beginning with our first quarter fiscal year 2010 reporting.
          
In MarchApril 2008, the FASB issued StatementStaff Position No. 142-3, “Determination of Financial Accounting Standardsthe Useful Life of Intangible Assets” (“FSP No. 161, “Disclosures about Derivative Instruments142-3”). FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Hedging Activities”Other Intangible Assets” (“SFAS No. 161”142”). SFASFSP No. 161142-3 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years; however, early adoption is not permitted. We will adopt FSP 142-3 for any applicable events and transactions in fiscal year 2010.
          In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after NovemberDecember 15, 2008, with earlyand interim periods within those years. All prior period earnings per share data presented shall be adjusted retrospectively. Early application encouraged.of this FSP is prohibited. We are currently assessingevaluating the potential impact of this statement.adopting FSP EITF 03-6-1.
Note 2 — Earnings Per Share
          
Note 2 —Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents during each period.
          
At March 28, 2008, 159,600 ofApril 3, 2009, 67,490 restricted stock units were included in the diluted earnings per share calculation because they were dilutive. These restricted stock units may be dilutive and included or anti-dilutive and excluded in future earnings per share

58

calculations, as they are liabilitiesliability awards as defined by SFAS 123R.No. 123(R). The following table reconciles the numerators and denominators used in the computations of basic and diluted earnings per share:
             
  Fiscal Year Ended 
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
  (Amounts in thousands, except per share data) 
 
Numerator
            
Net income $47,955  $27,023  $7,243 
Denominator
            
Weighted average common shares — basic  57,000   54,734   32,000 
Weighted average common shares — diluted  57,004   54,734   32,000 
Basic earnings per share $0.84  $0.49  $0.23 
Diluted earnings per share $0.84  $0.49  $0.23 


60

             
  For the Twelve Months Ended 
  April 3,  March 28,  March 30, 
  2009  2008  2007 
  (Amounts in thousands, except per share data) 
Numerator
            
Net income $69,770  $47,955  $27,023 
Denominator
            
Weighted average common shares — basic  56,970   57,000   54,734 
Weighted average affect of dilutive securities            
Restricted Stock Units  67   4   — 
          
Weighted average common shares — diluted  57,037   57,004   54,734 
          
Basic earnings per share $1.22  $0.84  $0.49 
Diluted earnings per share $1.22  $0.84  $0.49 
DYNCORP INTERNATIONAL INC.
Note 3 — Goodwill and other Intangible Assets
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)We conduct our annual goodwill impairment test as of the end of our February accounting period each fiscal year. This analysis requires us to generate an estimate of each reporting unit’s fair value. In estimating fair value, we use income and market based approaches, which involve a discounted cash flow analysis and a valuation analysis on a 50%/50% relative weighting. The estimates and assumptions used in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. These analyses also require management to make assumptions and estimates and review relevant industry and market data.
          During the second quarter of fiscal year 2009, indicators of potential impairment, specifically the operational results of the Afghanistan construction business, caused us to conduct an interim impairment test specific to our OMCM reporting unit. During the third quarter of fiscal year 2009, we determined that a second interim impairment analysis of OMCM, as of January 2, 2009, would be prudent due to the continued challenges in the Afghanistan construction business. In both instances, the result of the impairment test did not indicate impairment had occurred at that time.
Note 3 —Goodwill and other Intangible Assets
          During the fourth quarter of fiscal year 2009, we conducted our annual goodwill impairment test for all reporting units, except the GLS reporting unit, which was excluded since it had no associated goodwill carrying value. The result of the impairment test did not indicate impairment had occurred. We also conducted an assessment to compare our market capitalization to the calculated fair value of all of our reporting units. In total, the valuation of all of our reporting units, including GLS, was greater than our market capitalization. We concluded this excess premium did not materially impact our goodwill impairment conclusion based on various quantitative and qualitative factors.
The changes in the carrying amount of goodwill for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006 are as follows:
                 
  ISS  LCM  MTSS  Total 
  (Dollars in thousands) 
Balance — March 30, 2007 $319,866  $—  $100,314  $420,180 
Transfer between operating segments(1)
  20,163   —   (20,163)  — 
             
Balance — March 28, 2008(2)
 $340,029   —  $80,151  $420,180 
Additions or adjustments(3)
  (39,935)  39,935   —   — 
             
Balance as of April 3, 2009 $300,094  $39,935  $80,151  $420,180 
             
             
  GS  MTSS  Total 
  (Dollars in thousands) 
 
Balance — March 31, 2006 $319,866  $100,314  $420,180 
Transfer between reporting segments(1)  20,163   (20,163)  — 
             
Balance — March 30, 2007 $340,029  $80,151  $420,180 
Additions or adjustments  —   —   — 
             
Balance as of March 28, 2008 $340,029  $80,151  $420,180 
             
 
(1)Transfer between reportingoperating segments is the result of a reorganization of the Company’sour reporting structure within itsour segments and a related independent fair value analysis of the reporting units within the Company’s reportingour operating segments, in the manner required by SFAS No. 142.
(2)Balance as of March 28, 2008 represents the goodwill balance of the GS operating segment. ISS and LCM did not exist as operating segments at that time. See Note 1 for further discussion regarding our change in operating segments.
(3)The GS operating segment was broken into two operating segments on March 29, 2008, the beginning of fiscal year 2009.

59

          
The following tables provide information about changes relating to intangible assets for the fiscal years ended April 3, 2009 and March 28, 2008 and March 30, 2007:2008:
                 
  April 3, 2009 
  Weighted          
  Average          
  Useful Life  Gross  Accumulated    
  (Years)  Carrying Value  Amortization  Net 
  (Amounts in thousands, except years) 
Finite-lived intangible assets:                
Customer-related intangible assets  8.5  $290,716  $(155,142) $135,574 
Other  5.5   15,351   (8,206)  7,145 
              
      $306,067  $(163,348) $142,719 
              
                 
Indefinite-lived intangible assets — Tradename     $18,318  $—  $18,318 
              
                 
  March 28, 2008 
  Weighted          
  Average          
  Useful Life  Gross  Accumulated    
  (Years)  Carrying Value  Amortization  Net 
  (Amounts in thousands, except years) 
Finite-lived intangible assets:                
Customer-related intangible assets  8.5  $290,716  $(119,997) $170,719 
Other  4.2   10,887   (5,460)  5,427 
              
      $301,603  $(125,457) $176,146 
              
                 
Indefinite-lived intangible assets — Tradename     $18,318  $—  $18,318 
              
          
                 
  March 28, 2008 
  Weighted
          
  Average
          
  Useful Life
  Gross
  Accumulated
    
  (Years)  Carrying Value  Amortization  Net 
  (Amounts in thousands, except years) 
 
Finite-lived intangible assets:                
Customer-related intangible assets  8.5  $290,716  $(119,997) $170,719 
Other  4.2   10,887   (5,460)  5,427 
                 
      $301,603  $(125,457) $176,146 
                 
Indefinite-lived intangible assets — Tradename     $18,318  $—  $18,318 
                 
                 
  March 30, 2007 
  Weighted
          
  Average
          
  Useful Life
  Gross
  Accumulated
    
  (Years)  Carrying Value  Amortization  Net 
  (Amounts in thousands, except years) 
 
Finite-lived intangible assets:                
Customer-related intangible assets  8.5  $290,381  $(82,233) $208,148 
Other  4.2   12,599   (6,383)  6,216 
                 
      $302,980  $(88,616) $214,364 
                 
Indefinite-lived intangible assets — Tradename     $18,318  $—  $18,318 
                 
Amortization expense for customer-related and other intangibles was $37.9 million, $40.2 million $41.9 million and $41.7$41.9 million for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007, and March 31, 2006, respectively.


61

DYNCORP INTERNATIONAL INC.
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following schedule outlines an estimate of future amortization based upon the finite-lived intangible assets owned at March 28, 2008:April 3, 2009:
     
  Amortization
  Expense
  (Dollars in thousands)
Estimate for fiscal year 2010 $37,579 
Estimate for fiscal year 2011  33,386 
Estimate for fiscal year 2012  22,809 
Estimate for fiscal year 2013  19,221 
Estimate for fiscal year 2014  8,099 
Thereafter  21,625 
Note 4 — Income Taxes
          
     
  Amortization
 
  Expense 
  (Dollars in thousands) 
 
Estimate for fiscal year 2009 $37,458 
Estimate for fiscal year 2010  37,141 
Estimate for fiscal year 2011  32,879 
Estimate for fiscal year 2012  22,310 
Estimate for fiscal year 2013  18,710 
Thereafter  27,648 
Note 4 —Income Taxes
The provision for income taxes consists of the following:
            
 Fiscal Year Ended             
 March 28,
 March 30,
 March 31,
  Fiscal Year Ended 
 2008 2007 2006  April 3, March 28, March 30, 
 (Dollars in thousands)  2009 2008 2007 
 (Dollars in thousands) 
Current portion:             
Federal $22,203  $28,295  $22,849  $1,127 $22,203 $28,295 
State  2,338   1,629   1,448  1,197 2,338 1,629 
Foreign  4,475   4,635   1,618  5,398 4,475 4,635 
              
  29,016   34,559   25,915  7,722 29,016 34,559 
              
 
Deferred portion:             
Federal  (1,026)  (12,635)  (8,797) 33,199  (1,026)  (12,635)
State  22   (348)  (338) 1,110 22  (348)
Foreign  (13)  (1,027)  (153)  (36)  (13)  (1,027)
              
  (1,017)  (14,010)  (9,288) 34,273  (1,017)  (14,010)
              
Provision for income taxes $27,999  $20,549  $16,627  $41,995 $27,999 $20,549 
              


6260

     
DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Temporary differences, which give rise to deferred tax assets and liabilities, were as follows:
                
 March 28,
 March 30,
  As of 
 2008 2007  April 3, March 28, 
 (Dollars in thousands)  2009 2008 
 (Dollars in thousands) 
Deferred tax assets related to:         
Worker’s compensation accrual $9,481  $7,169  $5,956 $9,481 
Accrued vacation  7,086   6,383  6,593 7,086 
Bad debt allowance  3,435   6,350 
Billed and unbilled reserves 2,683 3,435 
Completion bonus allowance  5,761   4,458  5,269 5,761 
Accrued severance  1,027   1,991  1,122 1,027 
Foreign tax credit carryforwards  —   1,725 
Accrued executive incentives  1,526   1,561  4,098 1,526 
Depreciable assets  885   1,222  540 885 
Warranty reserve  458   1,041  — 458 
Legal reserve  7,180   884  6,146 7,180 
Accrued health costs  750   768  726 750 
Leasehold improvements  448   352  799 448 
Interest rate swap  4,223   —  2,549 4,223 
FIN 48 deferred tax asset 5,955 1,354 
Contract loss reserve 4,243 134 
Other accrued liabilities and reserves  2,008   1,160  1,221 662 
          
Total deferred tax assets  44,268   35,064  47,900 44,410 
          
Deferred tax liabilities related to:         
Prepaid insurance  (1,096)  (5,122)  (8,878)  (1,096)
Customer intangibles  (7,196)  (3,157)  (11,659)  (7,196)
Deferred revenue  (467)  (462)  (21,579)  (609)
DIFZ sale  (1,274) — 
          
Total deferred tax liabilities  (8,759)  (8,741)  (43,390)  (8,901)
          
Deferred tax assets, net $35,509  $26,323  $4,510 $35,509 
          
          
Deferred tax assets and liabilities are reported as:
         
  March 28,
  March 30,
 
  2008  2007 
  (Dollars in thousands) 
 
Current deferred tax assets $17,341  $12,864 
Non-current deferred tax assets  18,168   13,459 
         
Deferred tax assets, net $35,509  $26,323 
         


63

DYNCORP INTERNATIONAL INC.
         
  April 3,  March 28, 
  2009  2008 
  (Dollars in thousands) 
Current deferred tax (liabilities)/assets $(8,278) $17,341 
Non-current deferred tax assets  12,788   18,168 
       
Deferred tax assets, net $4,510  $35,509 
       
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)In evaluating our deferred tax assets, we assess the need for any related valuation allowances or adjust the amount of any allowances, if necessary. We assess such factors as our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets in determining the need for or sufficiency of a valuation allowance. Based on this assessment, we concluded no valuation allowances were necessary as of April 3, 2009 and March 28, 2008.
          
A reconciliation of the statutory federal income tax rate to the Company’sour effective rate is provided below:
             
  Fiscal Year Ended 
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
 
Statutory rate  35.0%  35.0%  35.0%
State income tax, less effect of federal deduction  2.0%  1.2%  2.6%
Nondeductible preferred stock dividends  0.0%  6.7%  32.8%
Minority interest  1.5%  0.0%  0.0%
Other  0.0%  0.3%  0.8%
Valuation allowance  0.0%  0.0%  (1.5)%
             
Effective tax rate  38.5%  43.2%  69.7%
             
             
  Fiscal Year Ended 
  April 3,  March 28,  March 30, 
  2009  2008  2007 
Statutory rate  35.0%  35.0%  35.0%
State income tax, less effect of federal deduction  1.4%  2.0%  1.2%
Nondeductible preferred stock dividends  0.0%  0.0%  6.7%
Minority interest  (5.5%)  1.5%  0.0%
Other  0.8%  0.0%  0.3%
          
Effective tax rate  31.7%  38.5%  43.2%
          
Uncertain Tax Positions
          
The CompanyWe adopted the provisions of FIN No. 48 on March 31, 2007. As a result of the implementation of FIN No. 48, the Companywe recorded a $5.9 million increase in the liability for unrecognized tax benefits, which iswas offset by a net reduction of the deferred tax liability of $4.5 million, resulting in a decrease to the March 31, 2007, retained earnings balance of $1.4 million. The amount of unrecognized tax benefits at March 28, 2008April 3, 2009 was $2.7$6.1 million, of which $1.2$0.1 million would impact the Company’sour effective tax rate if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in(dollars in thousands):

61

        
Balance at March 31, 2007 $5,881  $5,881 
Additions for tax positions related to current year  1,619  1,619 
Additions for tax positions taken in prior years     — 
Reductions for tax positions of prior years  (4,786)  (4,786)
Settlements  —  — 
Lapse of statute of limitations  —  — 
      
Balance at March 28, 2008 $2,714  $2,714 
Additions for tax positions related to current year 4,023 
Additions for tax positions taken in prior years 2,025 
   
Reductions for tax positions of prior years 
Settlements  (2,675)
Lapse of statute of limitations — 
   
Balance at April 3, 2009 $6,087 
   
          
It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, the Company doeswe do not expect the change to have a significant impact on the results of operations or theour financial position of the Company.position.
          
The Company recognizesWe recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in income tax expense in our Consolidated StatementsStatement of Income, which is consistent with the recognition of these items in prior reporting periods. The Company hadWe have recorded a liability of approximately $0.5$0.2 million and $0.6 million for the payment of interest and penalties for the years ended March 30, 2007April 3, 2009 and March 28, 2008 respectively. For the year ended March 28, 2008, the CompanyApril 3, 2009, we recognized an increasea net decrease of approximately $0.1$0.5 million in interest and penalty expense.
          
The Company and its subsidiariesWe file income tax returns in U.S. federal and state jurisdictions and in various foreign jurisdictions and are currently under audit by the Internal Revenue Service for fiscal years 2005 through 2007. In addition, thejurisdictions. The statute of limitations is open for U.S. federal and state income tax examinations for the Company’sour fiscal year 2005 forward and, with few exceptions, foreign income tax examinations for the calendar year 2004 forward.


64

DYNCORP INTERNATIONAL INC.
Note 5 — Accounts Receivable
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 5 —Accounts Receivable
Accounts Receivable, net consisted of the following:
        
 March 28,
 March 30,
         
 2008 2007  April 3, March 28, 
 (Dollars in thousands)  2009 2008 
 (Dollars in thousands) 
Billed, net $193,337  $227,942  $220,501 $193,337 
Unbilled  319,975   232,543  343,931 319,975 
Other receivables  —   1,465 
          
Total $513,312  $461,950  $564,432 $513,312 
          
          
Unbilled receivables at April 3, 2009 and March 28, 2008 and March 30, 2007 include $52.8$30.7 million and $38.3$52.8 million, respectively, related to costs incurred on projects for which the Company haswe have been requested by the customer to begin work under a new contract or extend work under an existing contract, and for which formal contracts or contract modifications have not been executed at the end of the respective periods. This amount includes $5.3 million related to contract claims at both April 3, 2009 and March 28, 2008. The balance of unbilled receivables consists of costs and fees billable immediately, on contract completion or other specified events, the majority of which is expected to be billed and collected within one year. During the fiscal year, amounts formerly classified as other receivables were reclassified to prepaid expenses and other current assets.
Note 6 — 401(k) Savings Plans
          
Note 6 —401(k) Savings Plans
Effective March 1, 2006, the Companywe established the DynCorp International Savings Plan (the “Plan”). The Plan is a participant-directed, defined contribution, 401(k) plan for the benefit of employees meeting certain eligibility requirements. The Plan is intended to qualify under Section 401(a) of the U.S. Internal Revenue Code (the “Code”), and is subject to the provisions of the Employee Retirement Income Security Act of 1974. Under the Plan, participants may contribute from 1% to 50% of their earnings on a pre-tax basis, limited to certain annual maximums set by the Code. The current maximum contribution per employee is sixteen thousand five hundred dollars per calendar year. Company matching contributions are also made in an amount equal to 100% of the first 2% of employee contributions and 50% of the next 6%, and are invested in various funds at the discretion of the participant. The CompanyWe incurred savings plan expense of approximately $11.3 million, $10.7 million and $9.5 million and $8.3 million for the fiscal years ended March 28,2009, 2008 March 30,and 2007, and March 31, 2006, respectively.

62

Note 7 — Long-Term Debt
          
Note 7 —Long-Term Debt
Long-term debt consisted of the following:
         
  March 28,
  March 30,
 
  2008  2007 
  (Dollars in thousands) 
 
Term loans $301,130  $338,962 
9.5% Senior subordinated notes  292,032   292,032 
         
   593,162   630,994 
Less current portion of long-term debt  (3,096)  (37,850)
         
Total long-term debt $590,066  $593,144 
         


65

DYNCORP INTERNATIONAL INC.
         
  April 3,  March 28, 
  2009  2008 
  (Dollars in thousands) 
Term loans $200,000  $301,130 
9.5% Senior subordinated notes  399,912   292,032 
       
   599,912   593,162 
Less current portion of long-term debt  (30,540)  (3,096)
       
Total long-term debt $569,372  $590,066 
       
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Future maturities of long-term debt for each of the fiscal years subsequent to March 28, 2008April 3, 2009 were as follows:
     
  (Dollars in thousands) 
 
2009 $3,096 
2010  3,096 
2011  294,938 
2012  — 
2013  292,032 
Thereafter  — 
     
Total long-term debt (including current portion) $593,162 
     
     
  (Dollars in thousands) 
2010 $30,540 
2011  36,960 
2012  55,500 
2013  476,912 
2014  — 
Thereafter  — 
    
Total long-term debt (including current portion) $599,912 
    
Senior Secured Credit Facility
          
Our Senior Secured Credit Facility is comprised ofOn July 28, 2008 we entered into a senior secured term loans (“Term Loans”credit facility (the “Credit Facility”) consisting of up to $345.0a revolving credit facility of $200.0 million (including a letter of credit sub-facility of $125.0 million) (the “Revolving Facility”) and a senior secured revolvingterm loan facility of $200.0 million (the “Term Loan”). The maturity date of the Revolving Facility and the Term Loan is August 15, 2012. To the extent that the letter of credit facility (“sub-facility is utilized, it reduces the borrowing capacity on the Revolving Facility”) of upFacility. The Credit Facility is subject to $120.0 million. The Term Loans are due in quarterly payments of $0.7 million through April 1, 2010,various financial covenants, including a total leverage ratio, an interest coverage ratio, maximum capital expenditures and $73.4 million thereafter, with final payment due February 11, 2011.certain limitations based upon eligible accounts receivable. Borrowings under the Senior Secured Credit Facility are secured by substantially all theour assets of the Company and the capital stock of itsour subsidiaries. The Senior Secured
          On July 28, 2008, we borrowed $200.0 million under the Term Loan at the applicable three-month LIBOR (“London Interbank Offered Rate”) plus the applicable margin then in effect to refinance certain existing indebtedness and pay certain transaction costs related to the Credit Facility also providesand the offering of additional senior subordinated notes, as described below. The applicable margin for a commitment guaranteeLIBOR as of a maximumApril 3, 2009 was 2.5% per annum, resulting in an actual interest rate under the Term Loan of $60.0 million,3.7% per annum. This rate is partially hedged through our swap agreements, as amended, for letters of credit. The Senior Secureddisclosed in Note 10.
          On July 28, 2008, upon entering into the Credit Facility, requires letterour pre-existing senior secured credit facility was extinguished. Deferred financing fees totaling $4.4 million were expensed in the second quarter of fiscal year 2009. Deferred financing fees associated with the Credit Facility totaling $5.2 million were recorded in other assets on our consolidated balance sheet. The unamortized deferred financing fees associated with the new credit fees up to 2.5%, payable quarterly in arrears on the amount available for drawing under all letters of credit. The fee was 2.0%facility were $4.3 million at March 28, 2008.April 3, 2009.
          
Borrowings under our Term Loansthe Revolving Facility bear interest at a rate per annum equal to either the London Interbank OfferedAlternate Base Rate (“LIBOR”), plus an applicable margin determined by reference to the leverage ratio, as set forth in the debt agreement. The applicable margin forCredit Facility (“Applicable Margin”) or LIBOR asplus the Applicable Margin. As of April 3, 2009 and March 28, 2008, was 2.0%, yielding an effective rate under our Term Loans of 4.6%.
Borrowings under the Revolving Facility bear interest at a rate per annum equal to the Alternate Base Rate (“ABR”) plus an applicable margin determined by reference to the leverage ratio, as set forth in the debt agreement. The applicable margin for ABR as of March 28, 2008 was 1.0%. As of March 28, 2008 and March 30, 2007 we had no outstanding borrowings under ourthe Revolving Facility.
          Our available borrowing capacity under the Revolving Facility totaled $171.5 million at April 3, 2009, which gives effect to $28.5 million of outstanding letters of credit under the letter of credit sub-facility. With respect to each letter of credit, a quarterly commission in an amount equal to the face amount of such letter of credit multiplied by the Applicable Margin and a nominal fronting fee are required to be paid. The combined rate as of April 3, 2009 was 2.6%.
The Company is          On March 6, 2009 we entered into an amendment of our existing secured credit agreement dated as of July 28, 2008 with Wachovia Bank, National Association, as Administrative Agent. In addition to certain other changes, the amendment reduced certain excess cash flow repayment requirements as defined under the Credit Facility and expanded the current ability to repurchase our common stock to include the right to redeem a portion of the 9.5% senior subordinated notes due 2013. As further described in Note 9, our board of directors approved a plan in fiscal year 2009 that allows for $25 million in repurchases for a combination of common stock and/or senior subordinated notes per fiscal year during fiscal years 2009 and 2010.

63

          We are required, under certain circumstances as defined in the Senior Securedour Credit Facility, to use a percentage of excess cash generated from operations to reduce the outstanding principal of our Term Loan. Based on the term loansfiscal year 2009 financial performance and ending balances, we expect this required repayment to be $30.5 million, which is anticipated to be paid in July 2009. The amount of the following year. Under this provision, we usedactual repayment could be substantially less than expected at the option of our lenders. We have classified the expected $30.5 million excess cash flow from fiscal 2007 to make additional principal payments of approximately $34.7 million which was paid in the first quarter of fiscal 2008 and is reflectedpayment in current portion of long-term debt in our consolidated balance sheet as of March 30, 2007. The fiscal 2008 calculation does not result in a payment and therefore will not be a payment in the first quarter of fiscalApril 3, 2009.
          
During the fiscal year ended March 28, 2008, in order to mitigate interest rate risk related to term loans, the Company entered into interest rate hedge agreements with notional amounts totaling $275 million. The fair value of the interest rate swap agreements was a liability of $11.6 million at March 28, 2008. Unrealized net loss from the changes in fair value of the interest rate swap agreements of $7.2 million, net of tax, for the fiscal year ended March 28, 2008 is included in other comprehensive income (loss). There was no material impact on earnings due to hedge ineffectiveness for the fiscal year ended March 28, 2008.
At March 28, 2008, availability under the revolvingOur senior secured credit line for additional borrowings was approximately $96.7 million (which gives effect to approximately $23.3 million of outstanding letters of credit, which reduced the Company’s availability by that amount). The Senior Secured Credit Facility requires an unused line fee equal to 0.5% per annum, payable quarterly in arrears, of the unused portion of the revolving credit facility.


66

DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Senior Secured Credit Facilityfacility contains various financial covenants, including minimum levels of earnings before interest, taxes, depreciation and amortization (“EBITDA”), minimum interest and fixed charge coverageleverage ratios, and maximum capital expenditures and total leverage ratio.limits. Non-financial covenants restrict theour ability of the Company and its subsidiaries to dispose of assets; incur additional indebtedness, prepay other indebtedness or amend certain debt instruments; pay dividends; create liens on assets; enter into sale and leaseback transactions; make investments, loans or advances; issue certain equity instruments; make acquisitions; engage in mergers or consolidations or engage in certain transactions with affiliates; and otherwise restrict certain corporate activities. The Company wasWe were in compliance with itsthese various financial and non-financial covenants at March 28, 2008.April 3, 2009.
          
The fair value of our borrowings under our senior secured credit facility approximates 94% of the carrying amount of the Company’s borrowings under the Senior Secured Credit Facility approximates fair value based on the variable interest ratequoted values as of this debt.
April 3, 2009.
9.5% Senior Subordinated Notes
          
In February 2005, the Companywe completed an offering of $320.0 million in aggregate principal amount of itsour 9.5% senior subordinated notes due 2013. Proceeds from the original issuance of the senior subordinated notes, net of fees, were $310.0 million and were used to pay the consideration for, and fees and expenses relating to our 2005 formation as an independent company from Computer Science Corporation. Interest on the senior subordinated notes is due semi-annually. The senior subordinated notes are general unsecured obligations of the Company’s subsidiary,our operating company, DynCorp International LLC, and certain guarantor subsidiaries of DynCorp International LLC.LLC, and contain certain covenants and restrictions, which limit our operating company’s ability to pay us dividends.
          
PriorIn July 2008, we completed an offering in a private placement pursuant to February 15, 2009,Rule 144A under the Company may redeemSecurities Act of 1933, as amended, of $125.0 million in aggregate principal amount of additional 9.5% senior subordinated notes under the same indenture as the senior subordinated notes issued in whole or in part, at a price equal to 100%February 2005. Net proceeds from the additional offering of the principal amount of the senior subordinated notes plus a defined make-whole premium, plus accrued interestwere used to refinance the redemption date. Afterthen existing senior secured credit facility, to pay related fees and expenses and for general corporate purposes. The additional senior subordinated notes mature on February 15, 2013. The additional senior subordinated notes were issued at approximately a 1.0% discount totaling $1.2 million. The effective interest rate at April 3, 2009 was 9.56% stemming from the Companyimpact of the discount. Deferred financing fees associated with this offering totaled $4.7 million. Our registration statement with respect to these notes was declared effective on January 13, 2009. We launched an exchange offer for the notes that ended on February 11, 2009.
          We can redeem the senior subordinated notes, in whole or in part, at defined redemption prices, plus accrued interest to the redemption date. The holders of the senior subordinated notes may require the Companyus to repurchase the senior subordinated notes at defined prices in the event of certain specified triggering events, including but not limited to certain asset sales, or change-of-control events.
On June 9, 2006,events, and debt covenant violations. In March 2009, under a board authorized program, we redeemed approximately $16.1 million face value of our senior subordinated notes in connectionthe open market for $15.4 million, including applicable transaction fees. As of April 3, 2009, $14.4 million of this transaction was cash settled, with the Equity Offering, the Company redeemed approximately $28.0remaining settlement occurring in fiscal year 2010. We recorded a $0.3 million gain on this extinguishment after deduction of the $320.0 million aggregate principal amount of the senior subordinated notes. The Company also paid $0.8 million in accrued interest through the redemption dateassociated deferred financing fees and a prepayment penalty of $2.7 million and recognized a $0.8 million loss related to the write-off of a portion of the previously capitalized loan cost for the senior subordinated notes. See Note 9 for further discussion of this Equity Offering.discounts.
          
The fair value of the senior subordinated notes is based on their quoted market value. As of March 28, 2008,April 3, 2009, the quoted market value of the senior subordinated notes was 104%approximately 97.5% of stated value.
Note 8 —Note 8 — Commitments and ContingenciesCommitments and Contingencies
Commitments
          
The Company has non-cancelableWe have operating leases for the use of real estate and certain property and equipment.equipment, which are either non-cancelable, cancelable only by the payment of penalties or cancelable upon one month’s notice. All lease payments are based on the lapse of time but include, in some cases, payments for insurance, maintenance and property taxes. While someThere are no purchase options on operating leases haveat favorable terms, nonebut most leases have purchaseone or more renewal options. Certain leases on real estate property are subject to annual escalations for increases in base rents, utilities and property taxes. Lease rentalRental expense was $55.0 million, $54.9 million $50.3 million and $54.2$50.3 million for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007, and March 31, 2006, respectively.


67

DYNCORP INTERNATIONAL INC.
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Minimum fixed rentals required for the next five years and thereafter under operating leases in effect at March 28, 2008,April 3, 2009, are as follows (dollars in thousands):
                        
Fiscal Year
 Real Estate Equipment Services  Real Estate Equipment Services 
2009 $14,129  $3,614  $4,623 
2010  7,959   796   —  $16,207 $2,922 $3,263 
2011  7,436   415   —  8,758 648 — 
2012  7,448   339   —  8,738 546 — 
2013  7,328   162   —  8,590 296 — 
2014 6,512 42 — 
Thereafter  20,941   —   —  19,901 — — 
              
 $65,241  $5,326  $4,623  $68,706 $4,454 $3,263 
              
          
The Company hasWe have no significant long-term purchase agreements with service providers.

64

Contingencies
General Legal Matters
Litigation — The Company and its subsidiaries and affiliates          We are involved in various lawsuits and claims that have arisen in the normal course of business. In most cases, the Company haswe have denied, or believes it hasbelieve we have a basis to deny any liability. Related to these matters, the Company haswe have recorded a reserve of approximately $19.9 million.$17.0 million as of April 3, 2009. While it is not possible to predict with certainty the outcome of litigation and other matters discussed below, it is the opinion of the Company’s management,we believe that liabilities in excess of those recorded, if any, arising from such matters would not have a material adverse effect on theour results of operations, consolidated financial condition or liquidity of the Company over the long term.
Pending litigation and claims
On May 14, 2008, a jury in the Eastern District of Virginia found against the Companyus in a discrimination case brought by a former subcontractor, World WideWorldwide Network Services (“WWNS”), on two State Department contracts.DoS contracts, in which WWNS alleged racial discrimination, tortuous interference and certain other claims. The Company is currentlyjury awarded WWNS approximately $15.7 million in compensatory and punitive damages and awarded us approximately $200,000 on a counterclaim. In addition to the processjury award, the court awarded WWNS approximately $3.0 million in connection with certain contract claims. On September 22, 2008, WWNS was awarded approximately $1.8 million in attorneys’ fees. On February 2, 2009, we filed an appeal with respect to this matter. As of appealingApril 3, 2009, we believe we have adequate reserves recorded for this ruling and will continue to work with internal and external counsel in seeking an appropriate resolution.matter.
          
On April 24, 2007, March 14, 2007, December 29, 2006 and December 4, 2006, four lawsuits were served, seeking unspecified monetary damages against DynCorp International LLC and several of its former affiliates in the U.S. District Court for the Southern District of Florida, concerning the spraying of narcotic plant crops along the Colombian border adjacent to Ecuador. Three of the lawsuits, filed on behalf of the Providences of Esmeraldas, Sucumbíos, and Carchi in Ecuador, allege violations of Ecuadorian law, international law, and the statutesstatutory and common law of Florida,tort violations, including negligence, trespass, and nuisance. The fourth lawsuit, filed on behalf of citizens of the Ecuadorian provinces of Esmeraldas and Sucumbíos, alleges personal injury, various counts of negligence, trespass, battery, assault, intentional infliction of emotional distress, violations of the Alien Tort Claims Act, and various violations of international law. The four lawsuits were consolidated, and based on the Company’sour motion granted by the court, the case was subsequently transferred to the U.S. District Court for the District of Columbia. On March 26, 2008, a First Amended Consolidated Complaint was filed that identified 32663,266 individual plaintiffs. The amended complaint does not demand any specific monetary damages,damages; however, a court decision against the Companyus, although we believe to be remote, could have a material adverse effect on itsour results of operations and financial condition. The aerial spraying operations were and continue to be managed by the Companyus under a DoS contract in cooperation with the Colombian government. The DoS contract provides indemnification to the Companyus against third-party liabilities arising out of the contract, subject to available funding. The DoS has reimbursed us for all legal expenses to date.
          
On May 29, 2003, Gloria Longest, a former accounting manager for the Company, filed suit against DynCorp International LLC and a subsidiary of Computer Sciences Corporation under the False Claims Act and the Florida Whistleblower Statute, alleging that the defendants submitted false claims to the U.S. government under the International Narcotics & Law Enforcement Affairs contract with the DoS. The action, titled U.S. ex rel. Longest v. DynCorp and DynCorp International LLC, was filed in the U.S. District Court for the Middle District of Florida


68

DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
under seal. The case was unsealed in 2005, and the Company learned of its existence on August 15, 2005 when it was served with the complaint. After conducting an investigation of the allegations made by the plaintiff, the U.S. government did not join the action. The complaint does not demand any specific monetary damages; however, a court ruling against the Company in this lawsuit could have a material adverse effect on its operating performance. On May 30, 2008, the parties reached an agreement in principle to resolve the litigation, subject to negotiation of a settlement agreement and release containing mutually acceptable terms and conditions. The settlement also requires the approval of the U.S. Department of Justice. The Company’s contribution to the settlement is reflected in the Company’s financial statements for the fiscal year ended March 28, 2008 and is not considered by us to be material to our results of operations. On June 6, 2008, the Court entered an order staying the case for sixty days pending finalization of the written settlement agreement.
A lawsuit filed on September 11, 2001, and amended on March 24, 2008, seeking unspecified damages on behalf of twenty-six residents of the Sucumbíos Province in Ecuador, was brought against the Companyour operating company and several of its former affiliates in the U.S. District Court for the District of Columbia. The action alleges violations of the laws of nations and United States treaties, negligence, emotionemotional distress, nuisance, battery, trespass, strict liability, and medical monitoring arising from the spraying of herbicides near the Ecuador-Colombia border in connection with the performance of the DoS, International Narcotics and Law Enforcement contract for the eradication of narcotic plant crops in Colombia. The terms of the DoS contract provide that the DoS will indemnify DynCorp International LLCour operating company against third-party liabilities arising out of the contract, subject to available funding. The Company isDoS has reimbursed us for all legal expenses to date. We are also entitled to indemnification by Computer Sciences Corporation in connection with this lawsuit, subject to certain limitations. Additionally, any damage award would have to be apportioned between the other defendants and our operating company. We believe that the Companylikelihood of an unfavorable judgment in this matter is remote and that, even if that were to occur, the judgment is unlikely to result in a material adverse effect on our results of operations or financial condition as a result of the third party indemnification and apportionment of damages described above.
          Arising out of the litigation described in the preceding two paragraphs, we filed a separate lawsuit against our aviation insurance carriers seeking defense and coverage of the referenced claims. The carriers filed a lawsuit against us on February 5, 2009 seeking rescission of certain aviation insurance policies based on an alleged misrepresentation by us concerning the existence of certain of the lawsuits relating to the eradication of narcotic plant crops.
          On May 29, 2003, Gloria Longest, a former accounting manager for our operating company, filed suit against our operating company and a subsidiary of Computer Sciences Corporation under the False Claims Act and the Florida Whistleblower Statute, alleging that the defendants submitted false claims to the U.S. government under the International Narcotics & Law Enforcement contract with the DoS. The U.S. Department of Justice approved the terms of the confidential settlement between the parties and the

65

court entered an order of dismissal on September 26, 2008. The terms of the settlement did not have a material adverse effect on our results of operations or financial condition.
U.S. Government Investigations —
          We also are occasionally the subject of investigations by various agencies of the U.S. government. Such investigations, whether related to our U.S. government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting.
          
On January 30, 2007, the Special Inspector General for Iraq Reconstruction or SIGIR,(“SIGIR”) issued a report on one of our task orders concerning the Iraqi Police Training Program (the “Training Program”).Program. Among other items, the report raises questions about our work to establish a residential camp in Baghdad to house training personnel. Specifically, the SIGIR report recommends that the DoS seek reimbursement from us of $4.2 million paid by the DoS for work that the SIGIR maintains was not contractually authorized. In addition, the SIGIR report recommends that the DoS request the DCAADefense Contract Audit Agency (“DCAA”) to review two of our invoices totaling $19.1 million. On June 28, 2007, we received a letter from the DoS contracting officer requesting our repayment of approximately $4.0 million for work performed under this task order, which the letter claims was unauthorized. We responded to the DoS contracting officer in letters dated July 7, 2007 and September 4, 2007, explaining that the work for which we were paid by DoS was appropriately performed and denying DoS’ request for repayment of approximately $4.0 million. By letter dated April 30, 2008, the DoS contracting officer responded to our July 7, 2007 and September 4, 2007 correspondence by taking exception to the explanation set forth in our letters and reasserting the DoS’ request for a refund of approximately $4.0 million. On May 8, 2008, we replied to the DoS letter dated April 30, 2008 and provided additional support for our position.
          On September 17, 2008, the U.S. Department of State Office of Inspector General (“OIG”) served us with a records subpoena for the production of documents relating to our Civilian Police Program in Iraq. Among other items, the subpoena seeks documents relating to our business dealings with a former subcontractor, Corporate Bank. We are cooperating with the OIG’s investigation and, based on information currently known to management, do not believe this matter will have a material adverse effect on our operating performance.
U.S. Government Audits —
          Our contracts are regularly audited by the DCAA and other government agencies. At any given time, many of our contracts or systems are under review by the DCAA and other government agencies. We cannot predict the outcome of such ongoing audits and what, if any, impact such audits may have on our future operating performance.
          These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our labor, billing, accounting, purchasing, property, estimating, compensation and management information systems. An adverse finding under a DCAA audit could result in the disallowance of our costs under a U.S. government contract, termination of U.S. government contracts, forfeiture of profits, suspension of payments, fines and suspension and prohibition from doing business with the U.S. government. Any costs found to be improperly allocated to a specific contract will not be reimbursed. In addition, government contract payments received by us for allowable direct and indirect costs are subject to adjustment after audit by government auditors and repayment to the government if the payments exceed allowable costs as defined in the government contracts.


69

          
DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Defense Contract Management Agency (“DCMA”) formally notified the Companyus of non-compliance with Cost Accounting Standard 403, Allocation of Home Office Expenses to Segments, on April 11, 2007. The CompanyWe issued a response to the DCMA on April 26, 2007 with a proposed solution to resolve the area of non-compliance, which related to the allocation of corporate general and administrative costs between the Company’sour divisions. On August 13, 2007, the DCMA notified the Companyus that additional information would be necessary to justify the proposed solution. The CompanyWe issued a responseresponses on September 17, 2007 and April 28, 2008 and the matter is pending resolution. In management’s opinion and basedBased on facts currently known, we do not believe the abovematters described mattersin this and the preceding paragraph will not have a material adverse effect on the Company’s consolidated financial condition,our results of operations or liquidity.financial condition.
          We are currently under audit by the Internal Revenue Service (“IRS”) for employment taxes covering the calendar years 2005 through 2007. In the course of the audit process, the IRS has questioned our treatment of exempting from U.S. employment taxes all U.S. residents working abroad for a foreign subsidiary. While we believe our treatment with respect to employment taxes, for these employees, was appropriate, a negative outcome on this matter could result in a potential liability, including penalties, of approximately $113.8 million related to these calendar years.
Contract Matters
          During the first quarter of fiscal year 2009 we terminated for cause a contract to build the Akwa Ibom International Airport for the State of Akwa Ibom in Nigeria. Consequently, we terminated certain subcontracts and purchase orders the customer advised us it did not want to assume. Based on our experience with this particular Nigerian state government customer, we believe it likely the customer will challenge our termination of the contract for cause and initiate legal action against us. Our termination of certain

66

subcontracts not assumed by the customer, including our actions to recover against advance payment and performance guarantees established by the subcontractors for our benefit is being challenged in certain instances. Although we believe our right to terminate this contract and such subcontracts was justified and permissible under the terms of the contracts, and we intend to rigorously contest any claims brought against us arising out of such terminations, if courts were to conclude that we were not entitled to terminate one or more of the contracts and damages were assessed against us, such damages could have a material adverse effect on our results of operations or financial condition.
Credit Risk — The primary financial instruments that potentially
          We are subject the Company to concentrations of credit risk areprimarily by virtue of our accounts receivable. Departments and agencies of the U.S. federal government account for all but minor portions of the Company’sour customer base, minimizing credit risk. Furthermore, the Companywe continuously reviewsreview all accounts receivable and recordsrecorded provisions for doubtful accounts as needed.
for adequacy.
Risk Management Liabilities and Reserves — The Company is
          We are insured for domestic worker’s compensation liabilities and a significant portion of itsour employee medical costs. However, the Company bearswe bear risk for a portion of claims pursuant to the terms of the applicable insurance contracts. The Company accountsWe account for these programs based on actuarial estimates of the amount of loss inherent in that period’s claims, including losses for which claims have not been reported. These loss estimates rely on actuarial observations of ultimate loss experience for similar historical events. The Company limits itsWe limit our risk by purchasing stop-loss insurance policies for significant claims incurred for both domestic worker’s compensation liabilities and medical costs. The Company’sOur exposure under the stop-loss policies for domestic worker’s compensation and medical costs is limited based on fixed dollar amounts. For domestic worker’s compensation and employer’s liability under state and federal law, the fixed-dollar amount of stop-loss coverage is $1.0 million per occurrence.occurrence on most policies; but, $0.25 million on one California based policy. For medical costs, the fixed dollar amount of stop-loss coverage is from $0.25 million to $0.75 million for total costs per covered participant for the fiscal planper calendar year.
Note 9 —Note 9 — Shareholders’ EquityShareholders’ Equity
Initial public offering
          
On May 9, 2006, the Companywe consummated an initial public offering of 25 million shares of itsour Class A common stock, par value $0.01 per share, at a price of $15.00 per share (the “Equity Offering”). After underwriting commissions of $22.5 million, a fee of $5.0 million to Veritas Capital, and transaction costs of $2.5 million, our net proceeds to the Company were approximately $345.0 million. The CompanyWe used the net proceeds, together with cash on hand, to repay a portion of itsour outstanding debt (see Note 7) and complete the transactions described below.
          
In conjunction with the Equity Offering, the Company’sour shareholders approved an amendment and restatement of the Company’sour certificate of incorporation with the Secretary of State of the State of Delaware. The amended and restated certificate of incorporation authorized the Companyus to issue up to:
          
(1) 232 million shares of Class A common stock, par value $0.01 per share; and
          
(2) 50 million shares of preferred stock, par value $0.01 per share.
          
The new shares of preferred and common stock have rights identical to the preferred stock and the Class A common stock of theour Company outstanding immediately before filing the amendment. At March 28, 2008, the Company had no preferred stock outstanding and 57 million shares of Class A common stock outstanding.
          
Stock Split— On May 3, 2006, the Company’s boardour Board of directorsDirectors and shareholders approved a64-for-1 stock split for the 500,000 shares of the Company’sour Class B common stock outstanding as of May 3, 2006. After the stock split, effective May 3, 2006, each holder of record held 64 shares of common stock for every one share held immediately prior to the effective date.
          
Following the effective date of the stock split, the par value of the common stock remained at $0.01 per share. As a result, the Company haswe have increased common stock in the consolidated balance sheets and statement of


70

DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
shareholders’ equity included herein on a retroactive basis for all periods presented, with a corresponding decrease to additional paid-in capital. All share and per-share amounts and related disclosures were retroactively adjusted for all periods presented to reflect the64-for-1 stock split.
          
Special Cash Dividend —Prior to the closing of the Equity Offering, the board of directors declared a mandatory dividend, payable in cash and subject to the consummation of the Equity Offering, to the holders of record on May 3, 2006 of the then-outstandingthen-

67

outstanding shares of the Company’sour Class B common stock, in an aggregate amount of $100.0 million. The CompanyWe paid the mandatory dividend on May 9, 2006. As a result of the dividend, the Companywe fully reduced retained earnings by $4.1 million and reduced additional paid-in capital by $95.9 million for the remainder of the dividend. Upon the payment of the mandatory dividend to the holders of the Company’sour Class B common stock and the expiration of the underwriters’ over allotment option from the Equity Offering, each share of Class B common stock then issued and outstanding was automatically converted into one fully paid and non-assessable share of Class A common stock.
          
Preferred Stock— In conjunction with the Equity Offering, the Companywe redeemed all of itsour outstanding $0.01 par valueSeries A-1 andSeries A-2 preferred stock for $222.8 million, including accrued and unpaid dividends as of the date of redemption of May 9, 2006. In addition, the Companywe paid $5.7 million in prepayment penalties as a result of the early redemption. There was no interest expense on the redeemable shares during the fiscal yearyears ended April 3, 2009 or March 28, 20082008; however, for the fiscal years ended March 30, 2007 and March 31, 2006, interest expense on the redeemable shares totaled $3.0 million and $21.1 million respectively.
for the fiscal year ended March 30, 2007.
Common Stock and Senior Subordinated Note Repurchase
          
The BoardOur board of Directors has authorizeddirectors approved a plan in fiscal year 2009, which allows for $25.0 million in repurchases for a combination of common stock and/or senior subordinated notes per fiscal year during fiscal years 2009 and 2010. During fiscal year 2009, we purchased 693,200 shares for $8.6 million and $16.1 million face value of our senior subordinated notes in the Company to repurchase up to $10.0open market for $15.4 million, including applicable fees, which utilized $24.0 million of its outstanding common stock. Theour availability under the fiscal year 2009 portion of the plan. A combination of $25.0 million of shares mayand/or senior subordinated notes will be repurchased from time to time in open market conditions or through privately negotiated transactions at the Company’s discretion, subject to market conditions, and in accordance with applicable federal and state securities laws and regulations. Shares of stock repurchasedavailable for repurchase under this plan will be held as treasury shares. The share repurchase program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any timeduring fiscal year 2010. Current board approval ends at the Company’s discretion. The purchases will be funded from available working capital. No shares have been repurchased under this program through March 28, 2008.end of fiscal year 2010.
Note 10 — Interest Rate Derivatives
          
Note 10 —Interest Rate Derivatives
At March 28, 2008,As of April 3, 2009, we had two interest rate swaps which were purchased to hedge exposure on variable three-month LIBOR interest rate risk associated with our $200 million senior secured credit facility. These derivative agreements began in April 2007 and expire in May 2010. Our derivative instruments consisteddo not contain credit-risk-related contingent features. We had no other derivatives as of threeApril 3, 2009. These two interest rate swap agreements, designated as cash flow hedges, that effectively fixderivatives are presented in the interest rate on the applicable notional amounts of our variable rate debttable below as follows (dollars in thousands):
                 
      Fixed Variable  
  Notional Interest Interest Rate  
Date Entered Amount Rate Paid* Received Expiration Date
April 2007 $168,620   4.975% three-month LIBOR May 2010
April 2007 $31,380   4.975% three-month LIBOR May 2010
               
     Fixed
  Variable
   
  Notional
  Interest
  Interest Rate
   
Date Entered
 Amount  Rate Paid*  Received  Expiration Date
 
April 2007 $168,620   4.975%  3-month LIBOR  May 2010
April 2007 $31,380   4.975%  3-month LIBOR  May 2010
September 2007 $75,000   4.910%  3-month LIBOR  September 2008
 
*plus applicable margin (2%(2.5% at March 28, 2008)April 3, 2009)
          The $168.6 million interest rate swap derivative is accounted for as a cash flow hedge under SFAS No. 133. The $31.4 million swap derivative no longer qualifies for hedge accounting as of April 3, 2009, as a result of our expectation to settle the majority of the related debt amount earlier than expected, thus reducing the probability of our hedged forecasted quarterly variable interest payment transactions. This resulted in $0.8 million of hedge loss being recognized in our consolidated statement of income for fiscal year 2009 as it became probable that the associated forecasted transactions would not occur within the originally specified period of time defined within the hedge relationship.
Gains          During fiscal year 2009, we also had an interest rate swap derivative that began in September 2007 and lossesexpired in September 2008 to hedge exposure on variable three-month LIBOR interest rate risk associated with $75.0 million in term loan principal. Activity related to this expired derivative is included in the tabular disclosure below.
          In fiscal year 2009, we paid $5.8 million in net settlements and incurred $6.5 million of expenses, of which $5.3 million was recorded in Other Comprehensive Incometo interest expense and $1.2 million was recorded to other expenses/(income). Amounts are expected to be reclassified from accumulated other comprehensive (loss) income into earnings as net cash settlements occur, changes from quarterly derivative valuations are updated, new circumstances dictate the quarterly swap settlements occur. At March 28, 08, approximately $5.8Mdisqualification of the $11.6M Swap liability is considered a short term liability.
The fair value of the interest rate swap agreements was a liability of $11.6 million at March 28, 2008. Unrealized net loss from the changes in fair value of the interest rate swap agreements of $7.2 million, net of tax,hedge accounting and adjustments for cumulative ineffectiveness are recorded.


7168

          The fair values of our derivative instruments and the line items on the Consolidated Balance Sheet to which they were recorded as of April 3, 2009 and March 28, 2008 are summarized as follows (in thousands):
DYNCORP INTERNATIONAL INC.
             
      Fair Value at  Fair Value at March 
Derivatives designated as hedges under SFAS No. 133 Balance Sheet Location  April 3, 2009  28, 2008 
 
Interest Rate Swaps Other accrued liabilities $5,259  $5,783 
Interest Rate Swaps Other long-term liabilities  957   5,832 
           
  Total $6,216  $11,615 
           
             
      Fair Value at  Fair Value at March 
Derivatives not designated as hedges under SFAS No. 133 Balance Sheet Location  April 3, 2009  28, 2008 
Interest Rate Swaps Other accrued liabilities $893  $— 
Interest Rate Swaps Other long-term liabilities  182   — 
           
  Total $1,075  $— 
           
Total Derivatives
     $7,291  $11,615 
           
          The effects of our derivative instruments on other comprehensive income (OCI) as of April 3, 2009 and our Consolidated Statement of Income for the fiscal year ended April 3, 2009 are summarized as follows (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                     
      GAINS (LOSSES) RECLASSIFIED FROM  GAINS (LOSSES) RECOGNIZED 
      ACCUMULATED OCI INTO INCOME  IN INCOME ON DERIVATIVES 
  Gains (Losses)  (EFFECTIVE PORTION)  (INEFFECTIVE PORTION) 
Derivatives Designated as Recognized in OCI          Line Item in    
Cash Flow Hedging on Derivatives  Line Item in Statement      Statement    
Instruments under SFAS 133 (Effective Portion)  of Income  Amount  of Income  Amount 
Interest rate derivatives $(6,201) Interest expense $(5,628) Interest expense $370 
                
 
Total $(6,201)     $(5,628)     $370 
                
          
The effects of our derivative instruments on other comprehensive income (OCI) as of March 28, 2008 and our Consolidated Statement of Income the fiscal year ended March 28, 2008 isare summarized as follows (in thousands):
                     
      GAINS (LOSSES) RECLASSIFIED FROM  GAINS (LOSSES) RECOGNIZED 
      ACCUMULATED OCI INTO INCOME  IN INCOME ON DERIVATIVES 
  Gains (Losses)  (EFFECTIVE PORTION)  (INEFFECTIVE PORTION) 
Derivatives Designated as Recognized in OCI          Line Item in    
Cash Flow Hedging on Derivatives  Line Item in Statement      Statement    
Instruments under SFAS 133 (Effective Portion)  of Income  Amount  of Income  Amount 
Interest rate derivatives $(11,240) Interest expense $324  Interest expense $(375)
                
 
Total $(11,240)     $324      $(375)
                
          The effects of our derivative instruments not designated as hedging instruments under SFAS No. 133 on our Consolidated Statement of Income for the fiscal year ended April 3, 2009 are summarized as follows (in thousands). We did not have any derivative instruments not designated as hedging instruments under SFAS No. 133 for the fiscal year ended March 28, 2008.
         
Derivatives not Designated RECLASS FROM OCI DUE TO
HEDGE DE-DESIGNATION		 
as Hedging Instruments Line Item in Statement    
under SFAS 133 of Income  Amount 
Interest rate derivatives Other income (loss), net $(1,245)
       
Total     $(1,245)
        
          As of April 3, 2009, we estimate that approximately $5.3 million of losses associated with our two interest rate swaps included in accumulated other comprehensive income (loss). Net proceeds received onwill be reclassified into earnings in fiscal year 2010. See Note 16 for fair value disclosures associated with these hedges.

69

Note 11 — Equity-Based Compensation
          As of April 3, 2009, we have provided equity-based compensation through the interest rate swap agreements were not material to the financial statements asgrant of March 28, 2008 and have been included in our cash flows from operating activities. There was no material impact on earnings due to hedge ineffectiveness for the fiscal years ended March 28, 2008 and March 30, 2007.
Note 11 —Equity-Based Compensation
Class B Equity
The Company’s Class Binterests in DIV Holding LLC, the majority holder of our common stock and the grant of Restricted Stock Units (“RSUs”) under our 2007 Omnibus Incentive Plan (the “2007 Plan”). All of our equity-based compensation is accounted for under SFAS No. 123(R), “Share-Based Payment”. Under this method, the Companywe recorded equity-based compensation expense of $4.1$1.9 million, $2.4$4.6 million and $2.4 million for the fiscal years ended March 28,2009, 2008 March 30,and 2007, and March 31, 2006, respectively.
Class B Equity
During the fiscal years ended March 28,2009, 2008 March 30,and 2007, and March 31, 2006, certain members of management and outside directors were granted an ownership interest through a plan that granted Class B interests in DIV Holding LLC, the majority holder of the Company’sour stock. DIV Holding LLC conducts no operations and was established for the purpose of holding equity in theour Company. At April 3, 2009, March 28, 2008 and March 30, 2007, and March 31, 2006, the aggregate individual grants represented approximately 6.2%4.7%, 6.3%6.2% and 6.4%6.3% of the ownership in DIV Holding LLC, respectively. On a fully vested basis, these ownership percentages represent an approximate aggregate ownership in the Company of 3.5%3.7%.
          The Class B interests are subject to either four-year or five-year graded vesting schedules with anany unvested interest reverting to the holders of Class A interests in the event they are forfeited or repurchased. Class B interests are granted with no exercise price or expiration date. Pursuant to the terms of the operating agreement governing DIV Holding LLC, the holders of Class B interest are entitled to receive their respective ownership proportional interest of all distributions made by DIV Holding LLC provided the holders of the Class A interests have received an 8% per annum internal rate of return on their invested capital. Additionally, DIV Holding’s operating agreement limits Class B interests to 7.5% in the aggregate.
          
Pursuant to the terms of the operating agreement governing DIV Holding LLC, if the Company’sour shares are publicly traded on or after February 11, 2010, Class B interests may be redeemed at the end of any fiscal quarter for the Company’sour stock or cash at the discretion of Veritas Capital on thirty days written notice upon the later of June 30, 2010 or the date said Class B member is no longer subject to reduction. Class B members remain subject to reduction until the earlier of such Class B member’s fourth or fifth employment/directorship anniversary, depending upon the terms of such member’s employment agreement, date of termination, or change in control of the Company.our control.
          
The grant date fair value of the Class B interest at March 28, 2008granted through fiscal year 2009 was $13.2$18.3 million. The CompanyWe performed a fair value analysis of the Class B interests granted prior to the initial public offering. The Company used theoffering using discounted cash flow technique to arrive at a fair value of the interest of $7.6 million at March 31, 2006. The Company usesOur fair value analysis was based on a market value model that includes the following variables: the Company’sour stock price, outstanding common shares, DIV Holding LLC ownership percentage, remaining preference to Class A holders, and a discount for lack of marketability. The discount for lack of marketability for each grant was estimated on the date of grant using the Black-Scholes-Merton put-call parity relationship computation with the following weighted average assumptions for periods as indicated below:
             
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
 
Risk-free interest rate  4.10%  4.75%  4.00%
Expected volatility  47%  45%  40%
Expected lives (for Black-Scholes model input)  2.4 years   4.5 years   5.0 years 
Annual rate of quarterly dividends  0%  0%  0%


72

DYNCORP INTERNATIONAL INC.
             
  April 3, March 28, March 30,
  2009 2008 2007
Risk-free interest rate  4.30%  4.40%  4.75%
Expected volatility  43%  47%  45%
Expected lives (for Black-Scholes model input) 4.6 years 4.7 years 4.5 years
Annual rate of quarterly dividends  0%  0%  0%
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Since these Class B interests are redeemed through our currently outstanding stock of the Company held by DIV Holding LLC or cash, no potential dilutive effect exists in relation to these interests. DIV Holding LLC held 32 million31,992,600 shares of the Company’s 57 millionour 56,306,800 outstanding shares of stock at March 28, 2008.April 3, 2009. Class B activity for fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006 is summarized in the table below (dollars in thousands):

70

                
 % Interest in
 Grant Date
  % Interest in Grant Date 
 DIV Holding Fair Value 
Fiscal Year 2006 Grants  6.44% $7,641 
Fiscal Year 2006 Forfeitures  (0.04)%  (53)
      DIV Holding Fair Value 
Balance March 31, 2006
  6.40%  7,588   6.40% $7,588 
Fiscal Year 2007 Grants  3.26%  9,703   3.26% 9,703 
Fiscal Year 2007 Forfeitures  (3.32)%  (4,007)  (3.32)%  (4,007)
          
Balance March 30, 2007
  6.34% $13,284   6.34% $13,284 
Fiscal Year 2008 Grants  0.02%  109   0.02% 109 
Fiscal Year 2008 Forfeitures  (0.12)%  (145)  (0.12)%  (145)
          
Balance March 28, 2008
  6.24% $13,248   6.24% $13,248 
Fiscal Year 2009 Grants  0.20% $867 
Fiscal Year 2009 Forfeitures  (1.73)%  (4,446)
          
March 31, 2006 Vested
  1.17% $1,383 
Fiscal Year 2007 Vesting  0.88%  1,414 
Balance April 3, 2009
  4.71% $9,669 
     
      
March 30, 2007 Vested
  2.05% $2,797   2.05% $2,797 
Fiscal Year 2008 Vesting  0.77%  1,844   0.77% 1,844 
          
March 28, 2008 Vested
  2.82% $4,641   2.82% $4,641 
Fiscal Year 2009 Vesting  0.87% $2,309 
     
April 3, 2009 Vested
  3.69% $6,950 
     
      
March 31, 2006 Nonvested
  5.23% $6,205   5.23% $6,205 
March 30, 2007 Nonvested
  4.30% $10,486   4.30% $10,486 
March 28, 2008 Nonvested
  3.42% $8,607   3.42% $8,607 
April 3, 2009 Nonvested
  1.02% $2,719 
          
Assuming each grant of Class B equity outstanding as of March 28, 2008April 3, 2009 fully vests, the Companywe will recognize additional non-cash compensation expense as follows (in(dollars in thousands):
     
Fiscal year ended April 3, 2009 $2,421 
Fiscal year ended April 2, 2010  1,291 
Fiscal year ended April 1, 2011 and thereafter  672 
     
Total $4,384 
     
     
Fiscal year ended April 2, 2010 $650 
Fiscal year ended April 1, 2011  229 
Fiscal year ended March 31, 2012 and thereafter  61 
    
Total $940 
    
2007 Omnibus Equity Incentive Plan
          
In August 2007, the Company’sour shareholders approved the adoption of the Company’s 2007 Omnibus Equity Incentive Plan (“2007 Plan”).Plan. Under the 2007 Plan, there are 2,250,000 of the Company’sour authorized shares of Class A common stock reserved for issuance. The 2007 Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other share-based awards and provides that the Compensation Committee, which administers the 2007 Plan, may also make awards of performance shares, performance units or performance cash incentives subject to the satisfaction of specified performance criteria to be established by the Compensation Committee prior to the applicable grant date. Employees of the CompanyOur employees or itsour subsidiaries and non-employee members of the Board are eligible to be selected to participate in the 2007 Plan at the discretion of the Compensation Committee.
          
In December 2007, the Compensation Committee approved the grant of Restricted Stock Units (“RSUs”)RSUs to certain key employees (“2007 Participants”) of the Company.ours. The grants were made pursuant to the terms and conditions


73

DYNCORP INTERNATIONAL INC.
 of the 2007 Plan and are subject to award agreements between us and each 2007 Participant. 2007 Participants vest in RSUs over the corresponding service periods based on vesting terms, which are generally one to three years. The RSUs have assigned value equivalent to our common stock and may be settled in cash or shares of our common stock at the discretion of the Compensation Committee.
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During fiscal year 2009, we awarded service-based and performance-based RSUs to certain key employees (“2009 Participants”). The grants were made pursuant to the terms and conditions of the 2007 Plan and are subject to award agreements between the Company and each 2009 Participant. Participants
          During fiscal year 2009, 236,800 performance-based RSUs were granted to certain key employees. These performance-based awards are tied to our financial performance, specifically fiscal year 2011 EBITDA (earnings before interest, taxes, depreciation and amortization), and cliff vest inupon achievement of this target. Based on current estimates, the costs of these awards are being accrued with the expectation of a 100% achievement of the performance goal.
          In addition to employee grants, 19,195 service-based RSUs ratably overwere granted to Board members. These awards vest within one year of grant, but include a post-vesting restriction of six months after the correspondingapplicable directors’ Board service term, generally one to three years.ends. The RSUs have

71

assigned value equivalent to the Company’sour common stock and may be settled in cash or shares of the Company’sour common stock at the discretion of the Compensation Committee. The estimated fair valueCommittee of the Board.
          During fiscal year 2009, 100,000 RSUs was approximately $3.2 million, netwere awarded to our current Chief Executive Officer (“CEO”). Half of estimated forfeitures, basedthese awards were service-based and vest ratably over a three year period on the closing market priceanniversary of the Company’s stockCEO’s employment commencement date. The remaining 50,000 RSUs were performance-based, tied to specific performance goals for fiscal year 2009. In May 2009, it was determined that the performance measures had been achieved, resulting in the vesting of one-third of his performance-based awards. The remaining two thirds of his performance-based awards will vest over the next two years, with one third vesting each year on the grantanniversary of the CEO’s employment commencement date.
          
A summary of RSU activity during fiscal 2008year 2009 under the 2007 Plan is as follows:
         
     Weighted
 
  Outstanding
  Average
 
  Restricted
  Grant Date
 
  Stock Units  Fair Value 
 
Outstanding, March 30, 2007  —  $— 
Units granted  161,550   21.48 
Units cancelled  (1,950)  21.19 
Units vested  —   — 
         
Outstanding, March 28, 2008  159,600  $21.49 
         
      Weighted
  Outstanding Average
  Restricted Grant Date
  Stock Units Fair Value
Outstanding, March 28, 2008  159,600  $21.49 
Units granted  307,945  $15.53 
Units forfeited  (66,100) $19.04 
Units vested and settled  (55,550) $21.32 
         
Outstanding, April 3, 2009  345,895  $16.71 
         
          
In accordance with SFAS No. 123(R) and Companyour policy, the Company recognizeswe recognize compensation expense related to the RSUs on a graded vesting schedule over the requisite service period, net of estimated forfeitures.
The Compensation expense related to RSUs was approximately $2.0 million for the fiscal year ended April 3, 2009. Additionally, all RSUs have been determined to be liability awards; therefore, the fair value of the RSUs will be remeasuredare re-measured at each financial reporting date as long as they remain liability awards. The estimated fair value of the RSUs was approximately $2.3$5.8 million, net of estimated forfeitures, based on the closing market price of the Company’sour stock on March 28, 2008. Compensation expense related tothe grant date. The estimated fair value of all RSUs, net of forfeitures, was approximately $0.5$4.7 million forbased on the closing market price of our stock on April 3, 2009. During fiscal year ended March 28, 2008. No RSUs have2009, 55,550 RSU awards vested as of March 28, 2008.and settled for $0.8 million in cash.
          
Assuming the RSUs outstanding, net of estimated forfeiture, as of March 28, 2008April 3, 2009 fully vest, the Companywe will recognize the related compensation expense as follows based on the value of these liability awards as of March 28, 2008 (inApril 3, 2009 (dollars in thousands):
     
Fiscal year ended April 2, 2010 $1,684 
Fiscal year ended April 1, 2011  916 
Fiscal year ended March 31, 2012 and thereafter  372 
    
Total $2,972 
    
     
Fiscal year ended April 3, 2009 $1,313 
Fiscal year ended April 2, 2010  299 
Fiscal year ended April 1, 2011 and thereafter  222 
     
Total $1,834 
     
Note 12 — Composition of Certain Financial Statement Captions
          
Note 12 —Composition of Certain Financial Statement Captions
The following tables present financial information of certain consolidated balance sheet captions (dollars in thousands).
     
Prepaid expense and other current assets —Prepaid expense and other current assets were:
         
  March 28,
  March 30,
 
  2008  2007 
 
Prepaid expenses $43,205  $38,182 
Inventories  8,463   9,836 
Work-in-process  45,245   21,469 
Minority interest  3,306   — 
Other current assets  8,808   — 
         
  $109,027  $69,487 
         


74

DYNCORP INTERNATIONAL INC.
         
  April 3,  March 28, 
  2009  2008 
Prepaid expenses $61,570  $43,205 
Inventories  10,840   8,463 
Work-in-process  33,885   45,245 
Minority interest receivable  —   3,306 
Joint venture receivables  2,491   2,076 
Other current assets  15,428   6,732 
       
Total $124,214  $109,027 
       
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Prepaid expenses include prepaid insurance, prepaid vendor deposits, and prepaid rent, none of which individually exceed 5% of current assets. For the fiscal year ended March 28, 2008, the minority interest resulted in a net debit balance due to the net loss in GLS. McNeil Technologies, our 49% joint venture partner, hashad guaranteed to fund their portion of the losses; therefore, the minority interest in the GLS loss resulted in an increase to net income.

72

     
Property and equipment, net —Property and equipment, net were:
        
 March 28,
 March 30,
         
 2008 2007  April 3, March 28, 
 2009 2008 
Computers and other equipment $11,813  $7,960  $13,466 $11,813 
Leasehold improvements  4,649   4,437  7,435 4,649 
Office furniture and fixtures  5,272   3,331  6,066 5,272 
          
Gross property and equipment  21,734   15,728  26,967 21,734 
Less accumulated depreciation  (6,292)  (3,082)  (8,629)  (6,292)
          
Property and equipment, net $15,442  $12,646  $18,338 $15,442 
          
     
Other assets, net —Other assets, net were:
        
 March 28,
 March 30,
         
 2008 2007  April 3, March 28, 
 2009 2008 
Deferred financing costs, net $11,350  $14,365  $13,828 $11,350 
Deferred offering costs  24   126 
Investment in affiliates  6,287   2,195  8,982 6,287 
Palm promissory notes, long-term portion 6,631 — 
Other  427   268  2,627 451 
          
 $18,088  $16,954  $32,068 $18,088 
          
          
Deferred financing cost is amortized through interest expense. Amortization related to deferred financing costs was $3.7 million, $3.0 million $2.8 million and $2.9$2.8 million for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007, and March 31, 2006, respectively.
     
Accrued payroll and employee costs —Accrued payroll and employee costs were:
         
  March 28,
  March 30,
 
  2008  2007 
 
Wages, compensation and other benefits $57,940  $64,410 
Accrued vacation  24,760   22,290 
Accrued contributions to employee benefit plans  2,486   2,229 
         
  $85,186  $88,929 
         


75

DYNCORP INTERNATIONAL INC.
         
  April 3,  March 28, 
  2009  2008 
Wages, compensation and other benefits $108,879  $57,940 
Accrued vacation  26,329   24,760 
Accrued contributions to employee benefit plans  2,785   2,486 
       
  $137,993  $85,186 
       
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other accrued liabilities —Accrued liabilities were:
        
 March 28,
 March 30,
         
 2008 2007  April 3, March 28, 
 2009 2008 
Deferred revenue $53,083  $53,749  $30,739 $53,083 
Insurance expense  36,260   43,870  28,061 36,260 
Interest expense  9,885   10,398 
Interest expense and short-term swap liability 11,688 14,348 
Contract losses  134   1,297  11,730 134 
Legal matters  19,851   2,443  16,993 19,851 
Short-term swap liability  5,783   — 
Other  4,244   4,551  12,379 5,564 
          
 $129,240  $116,308  $111,590 $129,240 
          
          
Deferred revenue is primarily due to payments in excess of services provided forrevenue recognized. Contract losses relate to accrued losses recorded on certain contracts in addition to payments received for services that must be deferred for accounting purposes.Afghanistan construction contracts.
Note 13 — Segment and Geographic Information
          
Note 13 —Segment and Geographic Information
The Company’sOur operations are aligned into twothree divisions, each of which constitutes a reportingan operating segment: GSISS, LCM and MTSS. GS primarily provides outsourced technical services to government agencies, and commercial customers worldwide. MTSS primarily offers aviation services, including maintenance and modifications, training, aftermarket logistics support, avionics upgrades, field installations, and aircraft operations and training. Both reportingAll of our operating segments provide services domestically and in foreign countries under contracts with the U.S. government and some foreign customers. The segments also operate principally within a regulatory environment subject to governmental contracting and accounting requirements, including Federal Acquisition Regulations, Cost Accounting Standards and audits by various U.S. federal agencies.
          
Each reportingoperating segment provides different services and involves different strategies and risks. Each reportingoperating segment has a President, who reports directly to the Company’s Chief Executive Officer.our CEO. For decision-making purposes, the Company’s Chief Executive Officer and other members of senior executive management useour CEO uses financial information generated and reported at the reportingoperating segment level. The Company evaluatesWe evaluate segment performance and allocatesallocate resources based on factors such as each segment’s operating income, working capital requirements and backlog to name a few. The accounting policies of the reportingoperating segments are the same as those described in the summary of significant accounting policies.


76

          
DYNCORP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the consolidated financial statements (dollars in thousands).

73

             
  Fiscal Year Ended 
  April 3,  March 28,  March 30, 
  2009  2008  2007 
Revenue
            
International Security Services $1,823,141  $1,097,083  $1,086,481 
Logistics and Construction Management  352,196   285,317   266,050 
Maintenance and Technical Support Services  930,983   757,361   729,743 
Corporate/Elimination  (5,227)  —   — 
          
Total reportable segments $3,101,093  $2,139,761  $2,082,274 
          
Operating income (loss)
            
International Security Services $151,888  $89,588  $89,130 
Logistics and Construction Management  (33,406)  10,854   13,227 
Maintenance and Technical Support Services  69,509   19,561   11,128 
          
   187,991  $120,003  $113,485 
          
Depreciation and amortization
            
International Security Services $26,907  $27,017  $26,248 
Logistics and Construction Management  2,834   3,307   3,540 
Maintenance and Technical Support Services  10,816   11,849   13,613 
          
Total reportable segments(1)
 $40,557  $42,173  $43,401 
          
Assets
            
International Security Services $723,075  $725,775  $709,044 
Logistics and Construction Management  207,366   199,088   187,750 
Maintenance and Technical Support Services  323,776   336,721   308,533 
          
Total reportable segments  1,254,217   1,261,584   1,205,327 
Corporate activities(2)
  284,997   141,125   157,574 
          
  $1,539,214  $1,402,709  $1,362,901 
          
 
             
  Fiscal Year Ended(2) 
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
 
Revenue
            
Government Services $1,404,985  $1,378,889  $1,281,383 
Maintenance and Technical Support Services  734,776   703,385   685,610 
             
Total reportable segments $2,139,761  $2,082,274  $1,966,993 
             
Operating Income
            
Government Services $95,946  $99,463  $94,957 
Maintenance and Technical Support Services  24,057   14,022   6,280 
             
  $120,003  $113,485  $101,237 
             
Depreciation and amortization
            
Government Services $31,594  $32,290  $33,618 
Maintenance and Technical Support Services  11,898   12,961   13,402 
             
Total reportable segments $43,492  $45,251  $47,020 
             
Assets
            
Government Services $933,319  $940,582  $878,873 
Maintenance and Technical Support Services  342,362   287,706   315,796 
             
Total reportable segments  1,275,681   1,228,288   1,194,669 
Corporate activities(1)  127,028   134,613   44,420 
             
  $1,402,709  $1,362,901  $1,239,089 
             
(1)Excludes amounts included in cost of services of $1,077, $1,319 and $1,850 for fiscal years 2009, 2008 and 2007, respectively.
(2)Assets primarily include cash, deferred income taxes, and deferred debt issuance cost.
(2)During our fiscal 2008 first quarter, certain contracts were reclassified between our two segments. For comparability, we have recasted revenue and operating income related to these contracts.
          
Geographic Information — Revenue by geography is determined based on the location of services provided.
                         
  Fiscal Year Ended 
  April 3, 2009  March 28, 2008  March 30, 2007 
United States $764,034   25% $718,787   34% $668,875   32%
Middle East(1)
  1,971,411   64%  1,120,910   52%  955,811   46%
Other Americas  143,423   4%  194,767   9%  220,176   11%
Europe  65,975   2%  46,242   2%  59,780   3%
Asia-Pacific  84,018   3%  34,400   2%  65,817   3%
Other  72,232   2%  24,655   1%  111,815   5%
                   
Total $3,101,093   100% $2,139,761   100% $2,082,274   100%
                   
                         
  Fiscal Year Ended 
  March 28, 2008  March 30, 2007  March 31, 2006 
 
United States $718,787   34% $668,875   32% $703,117   36%
Middle East  1,120,910   52%  955,811   46%  952,496   48%
Other Americas  194,767   9%  220,176   11%  194,429   10%
Europe  46,242   2%  59,780   3%  41,410   2%
Other  59,055   3%  177,632   8%  75,541   4%
                         
Total $2,139,761   100% $2,082,274   100% $1,966,993   100%
                         
 
(1)The Middle East includes but is not limited to activities in Iraq, Afghanistan, Somalia, Oman, Qatar, United Arab Emirates, Kuwait, Palestine, Sudan, Pakistan, Jordan, Lebanon, Bahrain, Yemen, Saudi Arabia, Turkey and Egypt.
Revenue from the U.S. government accounted for approximately 95%96%, 97%95% and 97% of total revenue in fiscal years 2009, 2008 2007 and 2006,2007, respectively. At April 3, 2009, March 28, 2008 and March 30, 2007, and March 31, 2006 accounts receivable due from the U.S. government represented 98%, 98% and 97%over 95% of total accounts receivable, in each fiscal year respectively.


77

DYNCORP INTERNATIONAL INC.
          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Beginning April 1, 2008,4, 2009, we will convertconverted from two reportingthree operating segments (currently GSISS, LCM and MTSS) to three reportingnew operating segments: International Security Services (“ISS”), LogisticsGLS, GPSS, and Construction Management (“LCM”) and Maintenance and Technical Support Services (“MTSS”).GSDS. Please refer to Note 1617 for detailed information.
Note 14 — Quarterly Financial Data (Unaudited)
Note 14 —Quarterly Financial Data (Unaudited)
          
In theour opinion, of the Company, the following unaudited quarterly information includes all adjustments, consisting of normal recurring adjustments, necessary to fairly present the Company’sour consolidated results of operations for such periods (amounts in thousands, except per share data):

74

                
 Fiscal Year 2008                 
 First
 Second
 Third
 Fourth
  Fiscal Year 2009
 Quarter Quarter Quarter Quarter  Fourth Third Second First
 Quarter Quarter Quarter Quarter
Revenue $548,673  $495,109  $523,071  $572,908  $812,821 $792,327 $779,151 $716,794 
Operating Income $32,202  $33,947  $30,825  $23,029  $49,781 $51,583 $46,633 $39,994 
Net income $12,258  $13,953  $11,960  $9,784  $19,166 $19,753 $12,871 $17,980 
Earnings per share:                 
Basic and diluted $0.22  $0.24  $0.21  $0.17 
Basic $0.34 $0.35 $0.23 $0.32 
Diluted $0.34 $0.34 $0.23 $0.32 
Average common shares outstanding:                 
Basic  57,000   57,000   57,000   57,000  56,878 57,000 57,000 57,000 
Diluted  57,000   57,000   57,000   57,001  56,937 57,437 57,061 57,053 
                 
  Fiscal Year 2007 
  First
  Second
  Third
  Fourth
 
  Quarter  Quarter  Quarter  Quarter 
 
Revenue $537,684  $474,721  $517,539  $552,330 
Operating Income $28,808  $9,524  $32,254  $42,899 
Net income (loss) $(617) $(2,880) $11,594  $18,926 
Earnings (loss) per share:                
Basic and diluted $(0.01) $(0.05) $0.20  $0.33 
Average common shares outstanding:                
Basic and diluted  47,934   57,000   57,000   57,000 
                 
  Fiscal Year 2008
  Fourth Third Second First
  Quarter Quarter Quarter Quarter
Revenue $572,908  $523,071  $495,109  $548,673 
Operating Income $23,029  $30,825  $33,947  $32,202 
Net income $9,784  $11,960  $13,953  $12,258 
Earnings per share:                
Basic $0.17  $0.21  $0.24  $0.22 
Diluted $0.17  $0.21  $0.24  $0.22 
Average common shares outstanding:                
Basic  57,000   57,000   57,000   57,000 
Diluted  57,001   57,000   57,000   57,000 
Note 15 —Note 15 — Related Parties, Joint Ventures and Variable Interest EntitiesRelated Parties
Management Fee
          
The Company paysWe pay Veritas Capital an annual management fee of $0.3 million plus expenses to provide the Companyus with general business management, financial, strategic and consulting services. The CompanyWe recorded $0.5 million, $0.5 million and $0.7 million in these fees and $0.3 million in feesexpenses for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007, and March 31, 2006, respectively.
Joint Ventures
          Amounts due from our unconsolidated joint ventures totaled $2.5 million and $2.1 million as of April 3, 2009 and March 28, 2008, respectively. These receivables are a result of items purchased and services rendered by us on behalf of our unconsolidated joint ventures. We have assessed these receivables as having minimal collection risk based on our historic experience with these joint ventures and our inherent influence through our ownership interest. The change in these receivables from March 28, 2008 to April 3, 2009 resulted in a use of operating cash for the fiscal year ended April 3, 2009 of $0.4 million. The related revenue associated with our unconsolidated joint ventures totaled $18.1 million, $8.5 million for the fiscal year ended April 3, 2009 and March 28, 2008 respectively.
          As discussed in Note 1, we sold half of our previously wholly owned subsidiary, DIFZ, on July 31, 2008 to Palm Trading Investment Corp. (“Palm”). DIFZ provides leased contract employees, back office staff and outsourced payroll and human resource support services through its approximately 6,200 employees. Currently, all DIFZ revenue and costs are eliminated through our consolidation process.
          As a result of the DIFZ sale, we currently hold three promissory notes from Palm for the purchase price of $8.2 million, plus accrued interest. As discussed in Note 1, the sales price was adjusted to $9.7 million, based on the results of the revaluation, contingent on approval by the DIFZ board of directors. The Companyadjustment to the purchase price was reflected as an increase to the promissory notes. The notes are included in Prepaid expenses and other current assets and in Other assets on our consolidated balance sheet for the short and long term portions, respectively. As of April 3, 2009 the loan balance outstanding with Palm was $8.9 million, reflecting the adjustment to the purchase price, accrued interest and payments against the promissory notes.
Variable Interest Entities
          We own an interest in four VIEs: (i) 40% owned PaTH Joint Venture; (ii) 45% owned CRS Joint Venture; (iii) 44% owned Babcock DynCorp Limited (“Babcock”) Joint Venture; (iv) 51% owned GLS Joint Venture; and (iv) the 50% owned DIFZ Joint Venture. We do not encounter any significant risk through our involvement in our VIEs which is outside the normal course of our business.

75

          PaTH is a partner in the joint venture formed in May 2006 with two other partners for the purpose of procuring government contracts with the Federal Emergency Management Authority. CRS is a joint venture formed in March 2006 with two other partners for the purpose of procuring government contracts with the U.S. Navy. Babcock is a Joint Venture formed in January 2005 and currently provides services to the British Armed Forces. We do not provide any significant financial support and would not absorb the majority of expected losses or gains from PaTH, CRS or Babcock. We account for PaTH, CRS and Babcock as equity method investments based on our ownership percentage of the ventures. The equity method investee income/loss for PaTH and CRS is immaterial to our consolidated financial statements. We earned $4.3 million in equity method income from the Babcock joint venture in fiscal year 2009.
GLS is a joint venture formed in August 2006 with one partner, McNeil Technologies. The Company’sTechnologies, for the purpose of procuring government contracts with the U.S. Army. Our controlling shareholder is the majority owner of McNeil Technologies. The minority interestWe concluded that we were the primary beneficiary of the venture, primarily based on our ownership percentage. We account for GLS as a consolidated subsidiary in our consolidated financial statements. We incur significant costs on behalf of GLS related to thisthe normal operations of the venture. However, these costs typically support revenue billable to our customer. GLS assets and liabilities were $150.5 million and $129.6 million, respectively, as of April 3, 2009. Additionally, GLS revenue was $709.1 million in fiscal year 2009.
          DIFZ became a joint venture is disclosedin July 2008 as Palm purchased a 50% interest in DIFZ. DIFZ provides foreign staffing, human resources and payroll services. We concluded that we were the primary beneficiary since we would absorb the majority of expected losses or gains from the venture based on the faceterms of the consolidated statementsale agreement. We incur significant costs on behalf of income.DIFZ related to the normal operations of the venture. The balance sheet amount isvast majority of these costs are considered direct contract costs and thus billable on the various corresponding contracts supported by DIFZ services. DIFZ assets and liabilities were $38.0 million and $36.5 million, respectively, as of April 3, 2009. Additionally, DIFZ revenue was $261.7 million in fiscal year 2009.
Note 16—Fair Value of Financial Assets and Liabilities
          We adopted SFAS No. 157 in fiscal year 2009. Although the adoption of SFAS No. 157 did not materially impact our financial condition, results of operations, or cash flow, we are required to provide additional disclosures as part of our financial statements. SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
•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.
          As of April 3, 2009, we held certain assets and had incurred certain liabilities that are required to be measured at fair value on a recurring basis. These included in theprepaid expensescash equivalents (including restricted cash) and other current assetsline iteminterest rate derivatives. Cash equivalents consist of petty cash, cash in-bank and isshort-term, highly liquid, income-producing investments with original maturities of 90 days or less. Our interest rate derivatives, as further discloseddescribed in Note 12. As10, consist of March 28, 2008, GLS owes McNeil $2.5 million for amounts billedinterest rate swap contracts. The fair values of the interest rate swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, we have categorized these interest rate swap contracts as Level 2. We have consistently applied these valuation techniques in all periods presented.
          Our assets and liabilities measured at fair value on a recurring basis subject to GLS by McNeil for normal operating activity.
Amounts due from our other unconsolidated joint ventures totaled $2.1 million and $0.3 millionthe disclosure requirements of SFAS No. 157 at April 3, 2009, were as of March 28, 2008 and March 30, 2007 respectively.follows:


7876

                 
  Fair Value Measurements at Reporting Date Using    
  Book value of  Quoted prices  Significant  Significant 
  financial  in active  other  Unobservable 
  assets/(liabilities)  markets assets  observable  Inputs 
  as of April 3, 2009  (Level 1)  inputs (Level 2)  (Level 3) 
  (Dollars in thousands)        
Assets
                
Cash equivalents(1)
 $206,157  $206,157  $—  $— 
             
                 
Total assets measured at fair value $206,157  $206,157  $—  $— 
             
                 
Liabilities
                
Interest rate derivatives $7,291  $—  $7,291  $— 
             
                 
Total liabilities measured at fair value $7,291  $—  $7,291  $— 
             
DYNCORP INTERNATIONAL INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 16 —(1)Subsequent Events (Unaudited)Includes cash and cash equivalents and restricted cash
Note 17 — Subsequent Events
ReportingOperating Segment change
          
As announced on April 1, 2008,6, 2009, we will change from reporting financial results on twoour three segments — GS and MTSS —utilized in fiscal year 2009 to reporting under three new segments, beginning with our first fiscal 20092010 quarter. This will be accomplished by splitting GSUnder the new alignment, the three prior business segments of ISS, LCM and MTSS are realigned into two distinct reporting segments.
The three segments, two of which, Global Stabilization and Development Solutions, or GSDS and Global Platform Support Solutions, or GPSS, are as follows:
International Security Services (“ISS”)wholly-owned, and a third segment, which will consist of the Law Enforcement and Security (“LES”) business unit, the Specialty Aviation and Counter Drug (“SACD”) business unit, and Global Linguist Solutions, (“GLS”).
Logistics and Construction Management (“LCM”) segment, and it will be comprised of what are now the Contingency and Logistics Operations (“CLO”) business unit and the Operations, Maintenance, and Construction Management (“OMCM”) business unit. This segment will also be responsible for winning and performing new work on our LOGCAP IV contract
Maintenance and Technical Support Services (“MTSS”)segment, will add DynMarine Services,or GLS, which was previously reported under GS.
As supplementary information to better illustrate the impact of the segment change, the following table has been included. The below table illustrates the new reportable segments for revenue reconciled to the amounts reported in the consolidated financial statements.
             
  Fiscal Year Ended 
  March 28,
  March 30,
  March 31,
 
  2008  2007  2006 
  (Dollars in thousands) 
 
Revenue
            
International Security Services $1,097,083  $1,086,481  $1,039,650 
Logistics and Construction Management  285,317   266,050   218,711 
Maintenance and Technical Support Services  757,361   729,743   708,632 
             
Total reportable segments $2,139,761  $2,082,274  $1,966,993 
             
Other Events
In April 2008, after extended protest and review, the U.S. Army Sustainment Command selected DynCorp International, along with KBR Inc. and Flour Corporation as the providers of logistics support to the U.S. Army under the LOGCAP IV contract. The LOGCAP IV contract is potentially valued at $50 billion with a term of up to 10 years and a maximum potential annual value to DynCorp International of $5 billion in gross revenue per year. Under this contract, the Company will compete with two other providers in supporting U.S. forces worldwide with immediate focus on those deployed in the Middle East.
LOGCAP IV is the Army component of the Department of Defense’s efforts to award contracts with U.S. companies for a broad range of logistics and support to U.S. and allied forces during combat, peacekeeping, humanitarian, and training operations. These services include facilities, supplies, maintenance, and transportation. The LOGCAP objective is to use civilian contractors to perform selected services in a theater of operations to augment Army forces and release military units for other missions or to fill shortfalls.
On May 13, 2008, we filed aForm 8-K announcing the appointment of William L. Ballhaus as President and Chief Executive Officer, effective May 19, 2008. He succeeds Herb Lanese, who will retire from his chief executive duties but will continue to serve on the Company’s board of directors. The Company estimates the related severance and other termination costs, for Mr. Lanese will be approximately $4.3 million.
51% owned joint venture.
* * * * *


7977

Schedule I — Condensed Financial Information of Registrant
DynCorp International Inc.
Condensed Balance Sheet
         
  March 28,
  March 30,
 
  2008  2007 
  (Amounts in thousands,
 
  except share data) 
 
Assets
        
Investment in subsidiaries $424,285  $379,674 
         
Liabilities
 $—  $— 
Shareholders’ Equity
        
Common stock, $0.01 par value — 57,000,000 shares authorized, issued and outstanding at March 28, 2008 and March 30, 2007, respectively  570   570 
Additional paid-in capital  357,026   352,245 
Retained earnings  73,603   27,023 
Accumulated other comprehensive loss  (6,914)  (164)
         
Total shareholders’ equity  424,285   379,674 
         
Total liabilities and shareholders’ equity $424,285  $379,674 
         
         
  April 3,  March 28, 
  2009  2008 
  (Amounts in thousands, 
  except share data) 
Assets
        
Investment in subsidiaries $497,521  $424,285 
       
Liabilities
 $—  $— 
Shareholders’ Equity
        
Common stock, $0.01 par value — 57,000,000 shares authorized, issued and outstanding at April 3, 2009 and March 28, 2008, respectively  570   570 
Additional paid-in capital  366,620   357,026 
Retained earnings  143,373   73,603 
Treasury stock, 693,200 shares at April 3, 2009  (8,618)  — 
Accumulated other comprehensive loss  (4,424)  (6,914)
       
Total shareholders’ equity  497,521   424,285 
       
Total liabilities and shareholders’ equity $497,521  $424,285 
       
See notes to this schedule.


78

DynCorp International Inc.
Condensed Statement of Operations
         
  Fiscal Year Ended 
  April 3,  March 28, 
  2009  2008 
  (Dollars in thousands) 
Equity in income of subsidiaries, net of tax $69,770  $47,955 
       
Net income
 $69,770  $47,955 
       
See notes to this schedule.

79

DynCorp International Inc.
Condensed Statement of Cash Flows
         
  Fiscal Year Ended 
  April 3,  March 28, 
  2009  2008 
  (Dollars in thousands) 
Cash flows from operating activities:
        
Net income $69,770  $47,955 
Adjustments to reconcile net income to net cash from operating activities:        
Non-cash interest expense (redeemable preferred stock dividend)  —   — 
Equity in income of subsidiaries  (69,770)  (47,955)
       
Net cash from operating activities
  —   — 
       
Net cash from investing activities
  —   — 
       
Net cash from financing activities
  —   — 
       
Net change in cash and cash equivalents  —   — 
Cash and cash equivalents, beginning of period  —   — 
       
Cash and cash equivalents, end of period $—  $— 
       
Non-cash purchase of treasury stock by LLC $(8,618)  — 
See notes to this schedule.

80

DynCorp International Inc.
Condensed Statement of Operations
         
  Fiscal Year Ended 
  March 28,
  March 30,
 
  2008  2007 
  (Dollars in thousands) 
 
Equity in income of subsidiaries, net of tax $47,955  $30,025 
Interest on mandatory redeemable shares  —   3,002 
         
Net income
 $47,955  $27,023 
         
See notes to this schedule.


81

DynCorp International Inc.
Condensed Statement of Cash Flows
         
  Fiscal Year Ended 
  March 28,
  March 30,
 
  2008  2007 
  (Dollars in thousands) 
 
Cash flows from operating activities:
        
Net income $47,955  $27,023 
Adjustments to reconcile net income to net cash from operating activities:        
Non-cash interest expense (redeemable preferred stock dividend)  —   3,002 
Equity in income of subsidiaries  (47,955)  (30,025)
         
Net cash from operating activities
  —   — 
         
Net cash from investing activities
  —   — 
         
Net cash from financing activities
  —   — 
         
Net change in cash and cash equivalents  —   — 
Cash and cash equivalents, beginning of period  —   — 
         
Cash and cash equivalents, end of period $—  $— 
         
See notes to this schedule.


82

Schedule I — Condensed Financial Information of Registrant
DynCorp International Inc.
Notes to Schedule
Note 1. Basis of Presentation
          
Note 1.  Basis of Presentation
Pursuant to rules and regulations of the SEC, the unconsolidated condensed financial statements of DynCorp International Inc. (the “Company”) do not reflect all of the information and notes normally included with financial statements prepared in accordance with GAAP. Therefore, these financial statements should be read in conjunction with the Company’sour consolidated financial statements and related notes.
          
Accounting for subsidiaries —The Company hasWe have accounted for the income of itsour subsidiaries under the equity method in the unconsolidated condensed financial statements.
Note 2. Dividends Received from Consolidated Subsidiaries
Note 2.  Dividends Received from Consolidated Subsidiaries
          
The Company hasWe have received no dividends from itsour consolidated subsidiaries. DynCorp International LLC (“LLC”(our “operating company”), a consolidated subsidiary of the Company,ours, has covenants related to itsour long-term debt, including restrictions on dividend payments at April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006.2007. As of that date, LLC’sour operating company’s retained earnings and net assets were not free from such restrictions.
Note 3. Shareholders’ Equity
          Our Board of Directors has authorized us to repurchase up to $25.0 million per fiscal year of our outstanding common stock and/or our operating company’s senior subordinated notes during fiscal years 2009 and 2010. The shares may be repurchased from time to time in open market conditions or through privately negotiated transactions at our discretion, subject to market conditions, and in accordance with applicable federal and state securities laws and regulations. The share repurchase program does not obligate us to acquire any particular amount of common stock and may be modified or suspended at any time at the discretion of our Board of Directors. Shares of common stock repurchased under this plan will be held as treasury shares. A total of 693,200 shares were repurchased by LLC as of April 3, 2009. Treasury stock is included in our condensed balance sheet as a reduction of shareholders’ equity.
* * * * *


8381

Schedule II — Valuation and Qualifying Accounts
DynCorp International Inc.
For the Fiscal Years Ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006
                 
      Charged/(Credited) Deductions  
  Beginning to Costs and from End of
  of Period Expense Reserve(1) Period
  (Dollars in thousands)
Allowance for doubtful accounts:                
April 1, 2006 — March 30, 2007 $8,479   (2,500)  (2,551) $3,428 
March 31, 2007 — March 28, 2008 $3,428   (923)  (2,237) $268 
March 29, 2008 — April 3, 2009 $268   (185)  (15) $68 
                 
     Charged/(Credited)
  Deductions
    
  Beginning
  to Costs and
  from
  End of
 
  of Period  Expense  Reserve(1)  Period 
  (Dollars in thousands) 
 
Allowance for doubtful accounts:                
April 2, 2005 — March 31, 2006 $4,500   4,203   (224) $8,479 
April 1, 2006 — March 30, 2007 $8,479   (2,500)  (2,551) $3,428 
March 31, 2007 — March 28, 2008 $3,428   (931)  (2,229) $268 
 
(1)Deductions from reserve represent accounts written off, net of recoveries.
* * * * *


8482

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
          
None.
ITEM 9A.CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
          
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by the Companyus in reports that it fileswe file or submitssubmit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the chief executive officer (“CEO”) and chief financial officer (“CFO”), allowing timely decisions regarding required disclosure. As of the last fiscal quarter covered by this report, based on an evaluation carried out under the supervision and with the participation of the Company’sour management, including the CEO and CFO, of the effectiveness of the Company’sour disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15(d)-15(e) under the Exchange Act of 1934), the CEO and CFO have concluded that the Company’sour disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
          
Our management, under the supervision and with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Internal control over financial reporting includes policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors of the Company;directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’sour assets that could have a material effect on the financial statements.
          
Because of itsour inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.
          
Under the supervision and with the participation of our CEO and CFO, our management conducted an assessment of the effectiveness of our internal controls and procedures over financial reporting as of March 28, 2008,April 3, 2009, based on the criteria established inInternal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (“COSO”). Based on this assessment, our management has concluded that as of March 28, 2008,April 3, 2009, our internal controls and procedures over financial reporting were effective based on those criteria.
          
Deloitte & Touche LLP, the independent registered public accounting firm who audited the Company’sour consolidated financial statements included in this Annual Report, has issued an attestation report on the effectiveness of the Company’sour internal control over financial reporting, which is included below.
Changes in Internal Control Over Financial Reporting
          
There havehas been no changessignificant change in our internal controlscontrol over financial reporting that have occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


8583

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of DynCorp International Inc.

Falls Church, Virginia
          
We have audited the internal control over financial reporting of DynCorp International Inc. and subsidiaries (the “Company”) as of March 28, 2008,April 3, 2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
          
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
          
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
          
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
          
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 28, 2008,April 3, 2009, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
          
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended March 28, 2008,April 3, 2009, and our report dated June 10, 2008,11, 2009, expressed an unqualified opinion on such consolidated financial statements and financial statement schedules and included an explanatory paragraph regarding the adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 on March 31, 2007.

/s/Deloitte & Touche LLP

Fort Worth, Texas

June 10, 200811, 2009


8684

ITEM 9B.OTHER INFORMATION.
          None.
None.
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
          
The information required in this Item 10 is incorporated by reference to the Company’sour definitive Proxy Statement. Such Definitivedefinitive Proxy Statement will be filed with the SEC no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.April 3, 2009.
ITEM 11.EXECUTIVE COMPENSATION.
          
The information required in this Item 11 is incorporated by reference to the Company’sour definitive Proxy Statement. Such Definitivedefinitive Proxy Statement will be filed with the SEC no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.April 3, 2009.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
          
The information required in this Item 12 is incorporated by reference to the Company’sour definitive Proxy Statement. Such Definitivedefinitive Proxy Statement will be filed with the SEC no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.April 3, 2009.
ITEM 13.CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
          
The information required in this Item 13 is incorporated by reference to the Company’sour definitive Proxy Statement. Such Definitivedefinitive Proxy Statement will be filed with the SEC no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.April 3, 2009.
ITEM 14.PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES.
          
The information required in this Item 14 is incorporated by reference to the Company’sour definitive Proxy Statement. Such Definitivedefinitive Proxy Statement will be filed with the SEC no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.April 3, 2009.


8785

PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
     
(a) Financial statements:The following consolidated financial statements and schedules of DynCorp International Inc. are included in this report:
 • Report of Independent Registered Public Accounting Firm:
 
 • Consolidated Statements of OperationsIncome for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006.2007.
 
 • Consolidated Balance Sheets as of April 3, 2009 and March 28, 2008 and March 30, 2007:2008.
 
 • Consolidated Statement of Cash Flows for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006.2007.
 
 • Consolidated Statements of Stockholder’sStockholders’ Equity for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006.2007.
 
 • Notes to Consolidated Financial Statements.
     
(b) Financial Statement Schedules:
 • Schedule I — Condensed Financial Information of Registrant
 
 • Schedule II — Valuation and Qualifying Accounts for the fiscal years ended April 3, 2009, March 28, 2008 and March 30, 2007 and March 31, 2006.2007.
     
(c) Exhibits:The exhibits, which are filed with this Annual Report or which are incorporated herein by reference, are set forth in the Exhibit Index, which is incorporated herein by reference.


8886

SIGNATURES
          
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DYNCORP INTERNATIONAL INC.
/s/  William L. Ballhaus
Name: William L. Ballhaus
Title: President and Chief Executive Officer
DYNCORP INTERNATIONAL INC.
/s/ William L. Ballhaus  
Name:  William L. Ballhaus 
Title:  President and Chief Executive Officer 
Date: June 10, 200811, 2009
          
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities below on the dates indicated.
     
Signature
 
Title
 
Date
     
/s/ William L. Ballhaus

William L. Ballhaus		 President and Chief Executive Officer and Director (principal
(principal executive officer)		 June 10, 200811, 2009
     
/s/ Michael J. Thorne

Michael J. Thorne		 Senior Vice President, Chief Financial Officer (principal
(principal financial and principal
accounting officer)		 June 10, 200811, 2009
     
/s/ Robert B. McKeon

Robert B. McKeon		 Director June 10, 200811, 2009
     

/s/ Michael J. Bayer
Michael J. Bayer		 Director June 11, 2009
     
/s/ Mark H. Ronald

Mark H. Ronald		 Director June 10, 200811, 2009
     
/s/ General Richard E. Hawley

General Richard E. Hawley		 Director June 10, 200811, 2009
     
/s/ Herbert J. Lanese

Herbert J. Lanese		 Director June 10, 200811, 2009
     
/s/ General Barry R. McCaffrey

General Barry R. McCaffrey		 Director June 10, 200811, 2009
     
/s/ Ramzi M. Musallam

Ramzi M. Musallam		 Director June 10, 2008


89

Signature
Title
Date
11, 2009
     
/s/ Admiral Joseph W. Prueher

Admiral Joseph W. Prueher		 Director June 10, 200811, 2009
     
/s/ Charles S. Ream

Charles S. Ream		 Director June 10, 200811, 2009
     
/s/ General Peter J. Schoomaker

General Peter J. Schoomaker		 Director June 10, 200811, 2009
     
/s/ Admiral Leighton W. Smith, Jr.

Admiral Leighton W. Smith, Jr.		 Director June 10, 200811, 2009
     
/s/ William G. Tobin

William G. Tobin		 Director June 10, 200811, 2009


9087

EXHIBIT INDEX
       
Exhibit
    
Number
 
Description
  
 
 1.1 Purchase Agreement, dated as of December 12, 2004, by and among Computer Sciences Corporation, Predecessor DynCorp, Veritas and DI Acquisition (A)
 1.2 First Amendment to Purchase Agreement, dated as of February 11, 2005, by and between Computer Sciences Corporation, Predecessor DynCorp, Veritas and DI Acquisition (A)
 3.1 Certificate of Incorporation of DynCorp International Inc.  (B)
 3.2 Amended and Restated Certificate of Incorporation of DynCorp International Inc.  (C)
 3.3 Certificate of Correction to the Amended and Restated Certificate of Incorporation of DynCorp International Inc.  (C)
 3.4 Amended and Restated Bylaws of DynCorp International Inc.  (B)
 3.5 Certificate of Formation of DIV Holding LLC (A)
 3.6 Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC (A)
 3.7 Amendment No. 1 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC (B)
 3.8 Amendment No. 2 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC (D)
 3.9 Amendment No. 3 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC (C)
 3.10 Amendment No. 4 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC (E)
 3.11 Amendment No. 5 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC (F)
 3.12 Amendment No. 6 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC (G)
 4.1 Indenture dated February 11, 2005 by and among DynCorp International Inc., DIV Capital Corporation, the Guarantors and The Bank of New York, as Trustee (A)
 4.2 Supplemental Indenture dated May 6, 2005 among DynCorp International of Nigeria LLC, DynCorp International LLC, DIV Capital Corporation, the Guarantors and The Bank of New York, as Trustee (A)
 4.3 Guarantee (included in Exhibit 4.1) (A)
 4.4 Specimen of Common Stock Certificate (D)
 4.5 Certificate of Designation for Series B participating preferred stock (included in Exhibit 4.7)  
 4.6 Registration Rights Agreement, dated as of May 3, 2006, by and among DynCorp International Inc. and DIV Holding LLC (E)
 4.7 Rights Agreement, dated as of May 3, 2006, by and among DynCorp International Inc. and The Bank of New York (E)
 10.1 Securities Purchase Agreement, dated as of February 1, 2005 among DynCorp International LLC and DIV Capital Corporation, and Goldman, Sachs & Co. and Bear, Stearns & Co. Inc., as Initial Purchasers (A)
 10.2 Credit and Guaranty Agreement, dated as of February 11, 2005, by and among Finance, DI Acquisition and the other Guarantors party thereto, various Lenders party thereto, Goldman Sachs Credit Partners L.P., Bear Stearns Corporate Lending Inc., Bear, Stearns & Co. Inc. and Bank of America, N.A. (A)
 10.3 Pledge and Security Agreement, dated as of February 11, 2005, among VCDI, DI Acquisition Corp., DynCorp International LLC, DIV Capital Corporation, DTS Aviation Services LLC, DynCorp Aerospace Operations LLC, DynCorp International Services LLC, Dyn Marine Services LLC, Dyn Marine Services of Virginia LLC, Services International LLC, Worldwide Humanitarian Services LLC, Guarantors and Goldman Sachs Credit Partners L.P., Collateral Agent (A)
 10.4 Revolving Loan Note, issued by DynCorp International LLC under the SPA, dated February 1, 2005 (A)
 10.5 Form of Director Indemnification Agreement (B)
 10.6 First Amendment and Waiver, dated January 9, 2006, among DynCorp International LLC, DynCorp International Inc., and certain subsidiaries of the Company, the lenders party thereto, Goldman Sachs Credit Partners L.P. and Bank of America, N.A. (H)
 10.7+ Employment Agreement effective as of April 12, 2006 between DynCorp International LLC and Michael J. Thorne. (I)


91

       
Exhibit
    
Number
 
Description
  
 
 10.8+ Employment Agreement effective as of April 12, 2006 between DynCorp International LLC and Natale S. DiGesualdo. (I)
 10.9+ Employment Agreement effective as of May 19, 2008 between DynCorp International LLC and William L. Ballhaus. (M)
 10.10+ The DynCorp International LLC Executive Incentive Plan (K)
 10.11 Form of Officer Indemnification Agreement (B)
 10.12 Second Amendment and Waiver, dated June 28, 2006, among DynCorp International LLC, DynCorp International Inc., and certain subsidiaries of the Company, the lenders party thereto, Goldman Sachs Credit Partners L.P. and Bank of America, N.A. (C)
 10.13+ Employment Agreement effective as of July 17, 2006 between DynCorp International LLC and Herbert J. Lanese (E)
 10.14+ Employment Agreement effective as of April 6, 2006 between DynCorp International LLC and Robert B. Rosenkranz (L)
 10.15 Consulting Agreement effective as of September 1, 2006 between DynCorp International LLC and General Anthony C. Zinni (J)
 10.16+ Employment Agreement effective as of October 24, 2006, between DynCorp International LLC and Curtis L. Schehr. (N)
 10.17+ Employment Agreement effective as of July 16, 2007 between DynCorp International LLC and Anthony C. Zinni. (N)
 10.18* DynCorp International Inc. 2007 Omnibus Incentive Plan  
 12.1* Statement re: computation of ratios.  
 21.1* List of subsidiaries of DynCorp International Inc.  
 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  
 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  
 32.1* Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  
 32.2* Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  
     
*Exhibit  
NumberDescription
1.1Purchase Agreement, dated as of December 12, 2004, by and among Computer Sciences Corporation, Predecessor DynCorp, Veritas and DI Acquisition(A)
1.2First Amendment to Purchase Agreement, dated as of February 11, 2005, by and between Computer Sciences Corporation, Predecessor DynCorp, Veritas and DI Acquisition(A)
3.1Certificate of Incorporation of DynCorp International Inc.(B)
3.2Amended and Restated Certificate of Incorporation of DynCorp International Inc.(C)
3.3Certificate of Correction to the Amended and Restated Certificate of Incorporation of DynCorp International Inc.(C)
3.4Amended and Restated Bylaws of DynCorp International Inc.(B)
3.5Certificate of Formation of DIV Holding LLC(A)
3.6Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(A)
3.7Amendment No. 1 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(B)
3.8Amendment No. 2 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(D)
3.9Amendment No. 3 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(C)
3.10Amendment No. 4 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(E)
3.11Amendment No. 5 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(F)
3.12Amendment No. 6 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(G)
3.13Amendment No. 8 to the Amended and Restated Limited Liability Company Operating Agreement of DIV Holding LLC(P)
4.1Indenture dated February 11, 2005 by and among DynCorp International Inc., DIV Capital Corporation, the Guarantors and The Bank of New York, as Trustee(A)
4.2Supplemental Indenture dated May 6, 2005 among DynCorp International of Nigeria LLC, DynCorp International LLC, DIV Capital Corporation, the Guarantors and The Bank of New York, as Trustee(A)
4.3Guarantee (included in Exhibit 4.1)(A)
4.4Specimen of Common Stock Certificate(D)
4.5Certificate of Designation for Series B participating preferred stock (included in Exhibit 4.7)
4.6Registration Rights Agreement, dated as of May 3, 2006, by and among DynCorp International Inc. and DIV Holding LLC(E)
4.7Rights Agreement, dated as of May 3, 2006, by and among DynCorp International Inc. and The Bank of New York(E)
4.8Supplemental 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.(O)
10.1Securities Purchase Agreement, dated as of February 1, 2005 among DynCorp International LLC and DIV Capital Corporation, and Goldman, Sachs & Co. and Bear, Stearns & Co. Inc., as Initial Purchasers(A)
10.2Credit and Guaranty Agreement, dated as of February 11, 2005, by and among Finance, DI Acquisition and the other Guarantors party thereto, various Lenders party thereto, Goldman Sachs Credit Partners L.P., Bear Stearns Corporate Lending Inc., Bear, Stearns & Co. Inc. and Bank of America, N.A.(A)

88

Exhibit
NumberDescription
10.3Pledge and Security Agreement, dated as of February 11, 2005, among VCDI, DI Acquisition Corp., DynCorp International LLC, DIV Capital Corporation, DTS Aviation Services LLC, DynCorp Aerospace Operations LLC, DynCorp International Services LLC, Dyn Marine Services LLC, Dyn Marine Services of Virginia LLC, Services International LLC, Worldwide Humanitarian Services LLC, Guarantors and Goldman Sachs Credit Partners L.P., Collateral Agent(A)
10.4Revolving Loan Note, issued by DynCorp International LLC under the SPA, dated February 1, 2005(A)
10.5Form of Director Indemnification Agreement(B)
10.6First Amendment and Waiver, dated January 9, 2006, among DynCorp International LLC, DynCorp International Inc., and certain subsidiaries of the Company, the lenders party thereto, Goldman Sachs Credit Partners L.P. and Bank of America, N.A.(H)
10.7+Employment Agreement effective as of April 12, 2006 between DynCorp International LLC and Michael J. Thorne.(I)
10.8+Employment Agreement effective as of April 12, 2006 between DynCorp International LLC and Natale S. DiGesualdo.(I)
10.9+Employment Agreement effective as of May 19, 2008 between DynCorp International LLC and William L. Ballhaus.(M)
10.10+The DynCorp International LLC Executive Incentive Plan(K)
10.11Form of Officer Indemnification Agreement(B)
10.12Second Amendment and Waiver, dated June 28, 2006, among DynCorp International LLC, DynCorp International Inc., and certain subsidiaries of the Company, the lenders party thereto, Goldman Sachs Credit Partners L.P. and Bank of America, N.A.(C)
10.13+Employment Agreement effective as of July 17, 2006 between DynCorp International LLC and Herbert J. Lanese(E)
10.14+Employment Agreement effective as of April 6, 2006 between DynCorp International LLC and Robert B. Rosenkranz(L)
10.15Consulting Agreement effective as of September 1, 2006 between DynCorp International LLC and General Anthony C. Zinni(J)
10.16+Employment Agreement effective as of October 24, 2006, between DynCorp International LLC and Curtis L. Schehr.(N)
10.17+Employment Agreement effective as of July 16, 2007 between DynCorp International LLC and Anthony C. Zinni.(N)
10.18+DynCorp International Inc. 2007 Omnibus Incentive Plan(R)
10.19Credit Agreement, dated July 28, 2008 by and among DynCorp International Inc. and DynCorp International LLC, as borrower, the lenders referred to therein, and Wachovia Bank National Association.(S)
10.20Collateral Agreement dated as of July 28, 2008 by and among DynCorp International Inc. and DynCorp International LLC, as borrower, and certain of their respective subsidiaries as guarantors in favor of Wachovia Bank National Association, as administrative agent.(S)
10.21Holdings Guarantee Agreement dated as of July 28, 2008 by DynCorp International Inc, as guarantor, in favor of Wachovia Bank National Association, as administrative agent.(S)
10.22Subsidiary Guaranty Agreement dated as of July 28, 2008 by and among certain domestic subsidiaries of DynCorp International Inc, as subsidiary guarantors, in favor of Wachovia Bank National Association, as administrative agent.(S)
10.23Purchase Agreement, dated July 14, 2008, among DynCorp International LLC, DIV Capital Corporation, the guarantors named therein and Wachovia Capital Markets, LLC and Goldman & Sachs(T)
10.24+Employment Agreement effective as of December 29, 2008, between DynCorp International LLC and Tony Smeraglinolo.(Q)

89

Exhibit
NumberDescription
& Co., as representative of the several purchasers named therein.
10.25Amendment to Credit Agreement, dated March 6, 2009 by and among DynCorp International Inc. and DynCorp International LLC, as borrower, the lenders referred to therein, and Wachovia Bank National Association.(U)
10.26*+Employment Agreement effective as of April 6, 2009, between DynCorp International LLC and Steven T. Schorer.
10.27*+Amendment No.1 to Employment Agreement for Curtis Schehr, effective as of May 21, 2009.
12.1*Statement re: computation of ratios.
21.1*List of subsidiaries of DynCorp International Inc.
31.1*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith.
+ Management contracts or compensatory plans or arrangements.
(A)—Previously filed as an exhibit to Amendment No. 1 to DynCorp International LLC’s Registration Statement onForm S-4/A (Reg.No. 333-127343) filed with the SEC on September 27, 2005.
(B)—Previously filed as an exhibit to Amendment No. 2 toForm S-1 (Reg. No.333-128637) filed with the SEC on November 30, 2005.
(C)—Previously filed as an exhibit toForm 10-K filed with the SEC on June 29, 2006.
(D)—Previously filed as an exhibit to Amendment No. 3 toForm S-1 (Reg. No.333-128637) filed with the SEC on March 27, 2006.
(E)—Previously filed as an exhibit toForm 8-K filed with the SEC on July 19, 2006.
(F)—Previously filed as an exhibit toForm 8-K filed with the SEC on December 15, 2006.
(G)—Previously filed as an exhibit toForm 8-K filed with the SEC on February 27, 2007.
(H)—Previously filed as an exhibit to DynCorp International LLC’sForm 8-K filed with the SEC on January 11, 2006.
(I)—Previously filed as an exhibit to DynCorp International LLC’sForm 8-K filed with the SEC on April 17, 2006.
(J)—Previously filed as an exhibit toForm 8-K filed with the SEC on September 18, 2006.
(K)—Previously filed as an exhibit to DynCorp International LLC’sForm 8-K filed with the SEC on April 4, 2006.
(L)—Previously filed as an exhibit toForm 10-K filed with the SEC on June 20, 2007.
(M)—Previously filed as an exhibit toForm 8-K filed with the SEC on May 13, 2008.
(N)—FiledPreviously filed as an exhibit to DynCorp International LLC’sForm 10-K filed with the SEC on June 10, 2008.
(O)—Previously filed as an exhibit to Form 10-Q filed with the SEC on August 12, 2008.
(P)—Previously filed as an exhibit to Form 10-Q filed with the SEC on November 12, 2008.
(Q)—Previously filed as an exhibit to Form 10-Q filed with the SEC on February 10, 2009.
(R)—Previously filed as an exhibit to Form 10-K filed with the SEC on June 10, 2008.
(S)—Previously filed as an exhibit to Form 8-K filed with the SEC on August 1, 2008.
(T)—Previously filed as an exhibit to Form 8-K filed with the SEC on July 17, 2008
(U)—Previously filed as an exhibit to Form 8-K filed with the SEC on March 12, 2009.

9290