UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended March | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Delaware | 01-0824791 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Title of Each Class | Name of Exchange on Which Registered | |||
Class A common stock, par value $0.01 per share | New York Stock Exchange |
Large accelerated filero | Accelerated filerþ | Non-accelerated filer o |
of $23.11 per share). Aggregate market value is estimated solely for the purposes of this report.ýþ The registrant's voting and non-voting common stock held by non-affiliates of the registrant at June 4, 2007, based on that date was approximately $532 million (based upon the $17.42 per share closing price for the registrant's common stock on the New York Stock Exchange on June 4,September 28, 2007 was approximately $435.5 million.4, 2007,6, 2008, the registrant had 57,000,000 shares of its Class A common stock outstanding.definitive proxy statementregistrant’s Definitive Proxy Statement to be delivered in connectionfiled subsequent to the date hereof with DynCorp International Inc.'s annual shareholders' meetingthe Commission pursuant to Regulation 14A to be filedin connection with the Securities and Exchange Commission on or about June 25, 2007,registrant’s 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
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.
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ITEM 1. | BUSINESS. |
28, 2008.
We conduct
In April 2008, we announced that operations will be conducted through three business segments: International Security Services (“ISS”), Logistics and Construction Management (“LCM”) and MTSS. See Note 16 to our consolidated financial statements for a more detailed discussion.
2006.
Law Enforcement and Security— – This operating unit provides international policing and police training, judicial support, immigration support and base operations. In addition, it provides security and personal protection for diplomats, designs, installs and operates security systems, and develops security software, smart cards and biometrics for use by government agencies and commercial customers.
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Afghanistan began in 2006. Thesegment is oursegment. 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 $2.45$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. of 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 $863 million$1.03 billion for the first three years of this ten-yearthe nine-year term. The contract throughexpires in October 2015.2014. This program has been ongoing since 1991 in cooperation with multiple Latin American countries, and we recently commenced support to acountries. A similar program in Afghanistan.MaterialMaterielMaterialMateriel program, we provide management of the U.S. Air Force Southwest Asia War Reserve MaterialMateriel Pre-positioning program, which includes operations in Oman, Bahrain, Qatar, Kuwait and two locations in the U.S., Albany, Georgia and Shaw Air Force base, South Carolina. We store, maintain and deploy assets such as tents, generators, vehicles, kitchens and medical supplies to deployed forces in the Global Warglobal war on Terror.terror. During Operation Enduring Freedom and Operation Iraqi Freedom,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 MaterialMateriel program continues to partner with the U.S. Central Command Air Force in the development of new and innovative approaches to asset management.
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Estimated | ||||||||||||||||
Current | Total | |||||||||||||||
Initial/Current | Contract End | Contract | ||||||||||||||
Contract(1) | Principal Customer | Award Date | Date | Value(2) | ||||||||||||
INSCOM/GLS | U.S. Army | Mar 2008 | Apr 2013 | $ | 3.5 billion | (3) | ||||||||||
Civilian Police Program | Feb | Feb 2009 | $ | 2.98 billion | (4) | |||||||||||
Jan | Oct | $ | 1.03 billion | (4)(5) | ||||||||||||
War Reserve | U.S. Air Force | May 2000 | $ | 619 million | ||||||||||||
May | $ | 241 million | ||||||||||||||
California Department of Forestry | State of California | Jan | Dec | $ | 133 million |
(1) | The table does not include LOGCAP IV as this agreement was not signed until April 2008. See “Recent Developments” for further discussion. | |
(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.” Also, for a discussion of how we define estimated remaining contract value for indefinite delivery, indefinite quantity contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Estimated Remaining Contract Value.” | |
(5) | We are the sole awardee of this contract, which has an estimated contract value of $1.03 billion for 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. |
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Estimated | |||||||||||||||||
Current | Total | ||||||||||||||||
Initial/Current | Contract End | Contract | |||||||||||||||
Contract | Principal Customer | Award Date | Date | Value | |||||||||||||
Contract Field Teams | Oct | $ | 2.78 billion | (1) | |||||||||||||
Life Cycle Contractor Support | U.S. Army and U.S. Navy | Aug 2000 | Jan 2010 | $ | 1.03 billion | ||||||||||||
Andrews Air Force Base | U.S. Air Force | Jan 2001 | Dec 2011 | $ | 358 million | ||||||||||||
Columbus Air Force Base | U.S. Air Force | Oct | Sep 2012 | $ | 286 million | ||||||||||||
Army Prepositions Stocks Afloat | U.S. Army | Feb 1999 | $ | 246 million | |||||||||||||
United Arab Emirates | |||||||||||||||||
Maintenance Corp. | Armed Forces | Dec 2006 | Dec 2013 | $ | 164 million | ||||||||||||
C-21 Contractor Logistics Support | U.S. Air Force | $ | |||||||||||||||
(1) | 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Estimated Remaining 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). |
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• | 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 Company include firm fixed-price, fixed-price with economic adjustment, and fixed-price incentive. | |
• | Time-and-Materials Type Contracts: Atime-and-materials type contract provides for acquiring supplies or services on the basis of direct labor hours at fixed hourly/daily rates plus materials at cost. | |
• | Cost-Reimbursement Type Contracts: Cost-reimbursement type contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus a fixed-fee, award-fee or incentive-fee. Award-fees or incentive-fees are generally based upon various objective and subjective criteria, such as aircraft mission capability rates and meeting cost targets. |
We believe that our profitability will continue to improve as our customers continue to shift away from cost-reimbursement to time-and-materials contracts and fixed-price contracts. We base our belief on recent trends in our revenues, the nature of the contracts on which we are bidding and the pricing mechanisms proposed in our fixed-price and time-and-materials contracts, which generally results in higher margins than those of cost-reimbursement type contracts.
| Fiscal Year | |||||
---|---|---|---|---|---|---|
Contract Type | 2007 | 2006 | 2005 | |||
Fixed-Price | 43% | 34% | 27% | |||
Time-and-Materials | 36% | 38% | 39% | |||
Cost-Reimbursement | 21% | 28% | 34% | |||
100% | 100% | 100% | ||||
Many Fiscal Year 2008 2007 2006 Fixed-Price 37 % 41 % 33 % Time-and-Materials 33 % 36 % 38 % Cost-Reimbursement �� 30 % 23 % 29 % Totals 100 % 100 % 100 %
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(Dollars in millions) | March 30, 2007 | March 31, 2006 | April 1, 2005 | ||||||
---|---|---|---|---|---|---|---|---|---|
Funded Backlog | $ | 1,402 | $ | 1,024 | $ | 1,140 | |||
Unfunded Backlog | 4,730 | 1,617 | 900 | ||||||
Total Backlog | $ | 6,132 | $ | 2,641 | $ | 2,040 | |||
In December 2006, the Company, through a joint venture named Global Linguist Solutions LLC ("GLS"), was awarded the Intelligence and Security Command ("INSCOM") contract by the U.S. Army for management of translation and interpretation services in support of Operation Iraqi Freedom. The five-year contract has a maximum value of approximately $4.6 billion. We have a 51% ownership interest in GLS and will consolidate the joint venture in our financial statements. As of March 30, 2007, the funded and unfunded backlog 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
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(Dollars in millions) | March 30, 2007 | March 31, 2006 | April 1, 2005 | ||||||
---|---|---|---|---|---|---|---|---|---|
Estimated remaining contract value | $ | 8,991 | $ | 5,727 | $ | 4,413 | |||
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
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Our approach ispersonnel to establish marketing activities incover key accounts such as the area or region that we believe presentsDoS and the greatest opportunityUnited Nations as well as market segments which hold the most promise for aggressive growth. We continue to grow and develop our business. We have an organization and presence in Dubai, UAE which we believe, together with our Company and its predecessors' long-standing presencesee growth opportunities in the Middle East, enables usAfrica and in Central and South America. In the Middle East, we are positioned to continually pursue opportunities in thatthe 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 have an officeare pursuing infrastructure development opportunities in Germany to develop business with the U.K. Ministry of Defense, United States,Africa as well as in Central and South America.
support.
We currently employ
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Equity Offering
On May 9, 2006, the Company consummated an equity offering of 25,000,000 shares of its Class A common stock, par value $0.01 per share, at a price of $15.00 per share (the "Equity Offering"), less the underwriters' discount of 6% per share. The gross proceeds from the Equity Offering of $375 million, together with cash on hand, were used: (i) to redeem all of the Company's outstanding preferred stock, of which $222.8 million in stated amount, including accrued and unpaid dividends thereon, was outstanding as of May 9, 2006; (ii) to pay a special Class B distribution in the amount of $100.0 million, representing a return of capital of $95.9 million to DIV Holding LLC, the holder of the Company's common stock; (iii) to redeem $28.0 million of the Company's senior subordinated notes on June 8, 2006; (iv) to pay prepayment penalties of $8.4 million, $5.7 million of which represented prepayment penalties on the Company's preferred stock and $2.7 million of which represented prepayment penalties on the Company's senior subordinated notes; and (v) to pay transaction expenses of approximately $30.0 million, including an underwriters' commission of $22.5 million, a fee of $5.0 million to Veritas Capital and approximately $2.5 million of miscellaneous fees and expenses related to the Equity Offering.
• | 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. |
This
ITEM 1A.ITEM 1A. RISK FACTORS.RISK FACTORS. with the U.S. government, 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.revenuesrevenue from contracts and subcontracts with the U.S. government and its agencies, primarily the DoD and the DoS. The remainder of our revenues representsrevenue 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. ContinuationThe 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, 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
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• | the outcome of the U.S. November 2008 election; | |
• | 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. |
• | 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. |
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• | 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 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 revenues while the protest is pending. |
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, above. Recompete dates are included within the tables to better inform investors regarding the potential impact for our most significant contracts for this risk.
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• | export regulations that could erode profit margins or restricted 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; |
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• | requirements by foreign governments that we make 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. |
revenuesrevenue which would result in a recorded loss on the contracts.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."Legal Proceedings"“Legal Proceedings” below.
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March 30, 2007,June 6, 2008, we had over 14,600approximately 16,800 employees located in 33approximately 30 countries around the world, approximately 7,0006,900 of whom are located inside the U.S. Of these employees, approximately 1,5002,400 are represented by labor unions. As of March 30, 2007,June 6, 2008, we had approximately 7074 collective bargaining agreements.agreements with these unions. These agreements will expire between July 2007 and March 2011. 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.performance.performance and cause harm to our reputation. At any given time, wearisingfrom 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 ordinary courseactions, both pending in U.S. District Court for the District of business.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 also could adversely affect our reputation and have a material adverse effect on our ability to win future government contracts.
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As required
government contractor status could significantly reduce our future revenues and profits.
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 foreign subsidiaries, since foreign competitors may not be similarly obligated by their governments.
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performance until we find suitable replacements.performance.contract performancecontractor and our ability to obtain future business could be materially and adversely impacted.
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Our substantial outstanding indebtedness and the restrictive covenants in the agreements governing our indebtedness limit our operating and financial flexibility.Our ability to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 is dependent upon our implementation of effective internal controls. We will be evaluating our internal controls over financial reporting in order to allow management to report on, and our independent auditors to attest to, our internal controls over financial reporting, as is required by Section 404 of the Sarbanes-Oxley Act of 2002 and rules and regulations of the SEC there under, which we refer to as Section 404. Section 404 requires a reporting company such as ours to, among other things, annually review, evaluate and report on its internal controls over financial reporting, and evaluate and disclose significant changes in its internal controls over financial reporting quarterly. Although we currently evaluate and disclose significant changes in our internal controls over financial reporting quarterly, we are required to review, evaluate and report on our internal controls over financial reporting beginning with our annual report for the fiscal year ending March 28, 2008. We have identified areas of our internal controls requiring improvement and plan to design enhanced processes and controls to address these and any other issues that might be identified through this review. As a result, we expect to incur additional expenses and utilization of management's time. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or its impact on our operations and may not be able to ensure that the process is effective or that the internal controls are or will be effective in a timely manner. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, there could be an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could adversely affect our financial results.87 to our consolidated financial statements for additional information. This may require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, and other general corporate purposes and could limit our flexibility in planning for, or reacting to, changes in our business and in the industry.banksenior secured credit facilities impose certain operating and financial restrictions on us and limit management'smanagement’s discretion in operating our businesses. These agreements limit our ability, among other things, to:•incur additional indebtedness or guarantee obligations;•make capital expenditures;•prepay indebtedness prior to stated maturities;•pay dividends or certain other restricted payments;•making investments or acquisitions;•create liens or other encumbrances•transfer or sell certain assets; and•merge or consolidate with another entity.• incur additional indebtedness or guarantee obligations; • make capital expenditures; • prepay indebtedness prior to stated maturities; • pay dividends or make certain other restricted payments; • make investments or acquisitions; • create liens or other encumbrances; • transfer or sell certain assets; and • merge or consolidate with another entity. banksenior secured credit facilities contain covenants requiring us to deliver to our lenders leverage and interest coverage financial computations and our audited annual and unaudited quarterly financial statements. 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 may have a material adverse effect on our financial condition, results of operations and cash flows.30, 2007,28, 2008, we had $630.9$593.2 million of total indebtedness and $81.9$96.7 million of additional borrowing capacity under our senior secured credit facility (which gives effect to the $21.1$23.3 million of outstanding letters of credit). Based on our indebtedness and other obligations as of March 30, 2007,28, 2008, we estimate our remaining contractual commitments including interest associated with our indebtedness and other obligations (assuming that our revolving credit facility will be undrawn at the close of fiscal 2008) will be $608.6
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• | 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. |
still be able to incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.30, 2007,28, 2008, we had up to $81.9$96.7 million of additional availability under our senior secured credit facility (which gives effect to $21.1$23.3 million of outstanding letters of credit). The terms of the senior secured credit facility and our senior subordinated 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 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. If either we or our subsidiaries were to incur additional indebtedness, the related risks that we now face could increase.
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March 28, 2008.•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.• 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. ITEM 1B. UNRESOLVED STAFF COMMENTS. ITEM 2. PROPERTIES. and a portion of our operations are conducted from, leased premises located at 3190 Fairview Park Drive, Suite 700, Falls Church, Virginia 22042. In addition, aswith major administrative offices in Dallas-Fort Worth, Texas. As of March 30, 2007,28, 2008, we leased 197204 commercial facilities in 1823 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 the current leases are non-cancelable. We do not own any real property. Lease expirations range from month-to-month to ten years. Manythe current leases are non-cancelable.Business Segment Size (sq ft) Fort Worth, TX Executive Offices — Finance and Administration Corporate 129,500 Falls Church, VA Executive Offices — Headquarters Corporate 103,400 Irving, TX Executive Offices — Finance and Administration Corporate 65,800 Kabul, Afghanistan Offices and Residence GS 47,000 Juba, Sudan Offices and Residence GS 26,700 Dubai, UAE Executive Offices — Finance and Administration Corporate 15,700 Jerusalem, Israel Offices and Residence GS 5,100 The following table lists our U.S. leased properties, including the inside square footage of those properties as of March 30, 2007.Pending Litigation and Claims 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 affiliatesInformation required with respect to this item is set forth in the U.S. District Court for the Southern District of Florida, concerning the spraying of narcotic plant crops along the Colombian border adjacentNote 8 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 statutes and common law of Florida, including negligence, trespass, and nuisance. The fourth lawsuit, filed on behalf of 1,663 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 DoS contract under which this work is performed provides indemnification to the Company against third-party liabilities arising out of the contract, subject to available funding. On May 29, 2003, Gloria Longest, a former accounting manager for the Company, filed suit against DynCorp International LLC under the False Claims Act and the Florida Whistleblower Statute, alleging that it submitted false claims to the government under the International Narcotics & Law Enforcement Affairs contract with the DoS. The action, titledU.S. ex rel. Longest v. DynCorp and DynCorp International LLC, was filed in the U.S. District Court for the Middle District of Florida under seal. The case 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 September 11, 2001, a class action lawsuit seeking $100.0 million on behalf of approximately 10,000 citizens of Ecuador was filed against DynCorp International LLC and several of its former affiliates in the U.S. District Court for the District of Columbia. The action alleges personal injury, property damage and wrongful death as a consequence of the spraying of narcotic plant crops along the Colombian border adjacent to Ecuador. The spraying operations were and continue to be conducted under a DoS contract in cooperation with the Colombian government. The terms of the DoS contract provide that the DoS will indemnify DynCorp International LLC against third-party liabilities arising out of the contract, subject to available funding. The Company is 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 the Company.General Legal Matters The Company and its subsidiaries and affiliates are involved in various lawsuits and claims that have arisen in the normal course of business. In most cases, we have denied, or believe we have a basis to deny, liability. We have recorded, in the consolidated financial statements, found elsewhere in Item 8 of Part II of thisForm 10-K our best estimate and is incorporated herein by reference.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. aggregate liability that will result from these matters and believe that these matters are adequately reserved. While it is not possible to predict with certainty the outcome of litigation and other matters discussed above, it is the opinion of the Company's management, based in part upon opinions of counsel, insurance in force and the facts currently known, that liabilities in excess of those recorded, if any, arising from such matters would not have a material adverse effect on the results of operations, consolidated financial condition or liquidity of the Company over the long term.fiscal year ended March 28, 2008.
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U.S. Government Investigations
The Company is occasionally the subject of investigations by various agencies of the U.S. government. Such investigations, whether related to its 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 the Company, or could lead to suspension or debarment from future U.S. government contracting.
On January 30, 2007, the Special Inspector General for Iraq Reconstruction ("SIGIR") issued a report on Company contract number S-LMAQM-04-C-0030, Task Order 0338, concerning the Iraqi Police Training Program. Among other items, the report raises questions about the Company's work under Task Order 0338 to establish a residential camp in Baghdad to house training personnel. Specifically, the SIGIR report recommends that the Director, Office of Acquisition Management, DoS, seek reimbursement from the Company of $4.2 million paid by the State Department for work that the SIGIR maintains was not contractually authorized. In addition, the SIGIR report recommends that the DoS request the DCAA to review two Company invoices totaling $19.1 million. In management's opinion and based on facts currently known, the above described matters raised in the SIGIR report will not have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity.
U.S. Government Audits – The Company's contracts are regularly audited by the DCAA and other government agencies. These agencies review the Company's contract performance, cost structure and compliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of, and the Company's compliance with, its internal control systems and policies, including its purchasing, property, estimating, 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 the Company 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. In management's opinion, there are no outstanding U.S. government audit issues of this nature as of March 30, 2007 that could have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity.
The Defense Contract Management Agency ("DCMA") formally notified the Company of non-compliance with Cost Accounting Standard ("CAS") 403, Allocation of Home Office Expenses to Segments, on April 11, 2007. The Company issued a response to the DCMA on April 26, 2007 with a proposed solution to resolve the non-compliance, which related to the allocation of corporate general and administrative costs between the Company's divisions. This issue is currently pending a DCMA response to the Company's April 26, 2007 letter. In management's opinion and based on facts currently known, the above described matters will not have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Market Information
Fiscal 2008 | High | Low | ||||||
Three months ended: | ||||||||
March 28, 2008 | $ | 27.58 | $ | 15.02 | ||||
December 28, 2007 | $ | 27.27 | $ | 20.00 | ||||
September 28, 2007 | $ | 23.78 | $ | 18.43 | ||||
June 29, 2007 | $ | 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 |
| 2007 | ||||||
---|---|---|---|---|---|---|---|
Period | |||||||
High | Low | ||||||
May 4, 2006 through June 30, 2006 | $ | 15.35 | $ | 10.22 | |||
Three months ended: | |||||||
September 29, 2006 | 13.05 | 8.87 | |||||
December 29, 2006 | 16.83 | 9.41 | |||||
March 30, 2007 | 17.78 | 14.50 |
stock.
We do not intend to pay cash dividends on our Class A common stock in the foreseeable future.
24
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
In October 2005, as payment for the working capital adjustment (see Note 2March 28, 2008 with respect to the consolidated financial statements) in the amount of $65.5 million, we issued 65,550Class A shares of our preferred stock to Computer Sciences Corporation. We redeemed all of our preferred stock using proceeds from the Equity Offering.
On May 9, 2006, the Company consummated an equity offering of 25,000,000 shares of its Class A common stock par value $0.01 per share, at a price of $15.00 per share (the "Equity Offering"), lessthat may be issued under the underwriters' discount of 6% per share. The gross proceeds from the Equity Offering of $375 million, together with cashDynCorp International 2007 Omnibus Incentive Plan (“OIP”) approved by our stockholders on hand, were used: (i)August 8, 2007. See further information regarding our equity stock plans in Note 11 to redeem all of the Company's outstanding preferred stock, of which $222.8 million in stated amount, including accrued and unpaid dividends thereon, was outstanding as of May 9, 2006; (ii) to pay a special Class B distribution in the amount of $100.0 million, representing a return of capital of $95.9 million to DIV Holding LLC, the holder of the Company's common stock; (iii) to redeem $28.0 million of the Company's senior subordinated notes on June 8, 2006; (iv) to pay prepayment penalties of $8.4 million, $5.7 million of which represented prepayment penalties on the Company's preferred stock and $2.7 million of which represented prepayment penalties on the Company's senior subordinated notes; and (v) to pay transaction expenses of approximately $30.0 million, including an underwriters' commission of $22.5 million, a fee of $5.0 million to Veritas Capital and approximately $2.5 million of miscellaneous fees and expenses related to the Equity Offering.our consolidated financial statements.
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) | 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. |
25
(1) | Our peer group is composed of the following Federal Government Service 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). |
26
ITEM 6. |
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial information for the period from March 30, 2002 through March 7, 2003 has been derived from our consolidated financial statements, referred to as the "original predecessor period."
The selected historical consolidated financial data for the period from March 8, 2003 through March 28, 2003, 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'sCorporation’s ownership, are derived from our consolidated financial statements, referred to as the "immediate“immediate predecessor period."
”
”
52- week years.
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 |
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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) | |||||||||||||||||||||||||
Balance sheet data (end of period): | |||||||||||||||||||||||||
Cash and cash equivalents | $ | 85,379 | $ | 102,455 | $ | 20,573 | $ | 13,474 | N/A | $ | 6,510 | ||||||||||||||
Working capital(1) | 361,813 | 282,929 | 251,329 | 200,367 | N/A | 104,335 | |||||||||||||||||||
Total assets | 1,402,709 | 1,362,901 | 1,239,089 | 1,148,193 | N/A | 579,829 | |||||||||||||||||||
Total debt (including Series A Preferred Stock) | 593,162 | 630,994 | 881,372 | 826,990 | N/A | N/A | |||||||||||||||||||
Shareholders’ equity | 424,285 | 379,674 | 106,338 | 96,918 | N/A | 396,573 | |||||||||||||||||||
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 |
| Successor | | | | | | Original Predecessor | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Immediate Predecessor | ||||||||||||||||||||||||
| Fiscal Year Ended | | |||||||||||||||||||||||
| | April 3, 2004 to Feb 11, 2005 | Fiscal Year Ended April 2, 2004 | | March 30, 2002 to March 7, 2003 | ||||||||||||||||||||
| 49 Days Ended April 1, 2005 | 21 Days Ended March 28, 2003 | |||||||||||||||||||||||
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | | | |||||||||||||||||||||
Results of operations: | |||||||||||||||||||||||||
Revenues | $ | 2,082,274 | $ | 1,966,993 | $ | 266,604 | $ | 1,654,305 | $ | 1,214,289 | $ | 59,240 | $ | 859,112 | |||||||||||
Cost of services | (1,817,707) | (1,722,089) | (245,406) | (1,496,109) | (1,106,571) | (53,482) | (787,649) | ||||||||||||||||||
Selling, general and administrative expenses | (107,681) | (97,520) | (8,408) | (57,755) | (48,350) | (3,414) | (40,316) | ||||||||||||||||||
Depreciation and amortization | (43,401) | (46,147) | (5,605) | (5,922) | (8,148) | (265) | (351) | ||||||||||||||||||
Operating income | 113,485 | 101,237 | 7,185 | 94,519 | 51,220 | 2,079 | 30,796 | ||||||||||||||||||
Interest expense | (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) | – | – | – | – | – | – | ||||||||||||||||||
Net earnings from affiliates | 2,913 | – | – | – | – | – | – | ||||||||||||||||||
Interest income | 1,789 | 461 | 7 | 170 | 64 | 2 | 43 | ||||||||||||||||||
Provision for income taxes | (20,549) | (16,627) | (60) | (34,956) | (19,924) | (852) | (11,973) | ||||||||||||||||||
Net income (loss) | 27,023 | 7,243 | (3,104) | 59,733 | 31,360 | 1,229 | 18,866 | ||||||||||||||||||
Cash flows provided (used) by operating activities | 86,836 | 55,111 | (31,240) | (2,092) | (6,756) | 12,542 | (10,331) | ||||||||||||||||||
Balance sheet data (end of period): | |||||||||||||||||||||||||
Cash and cash equivalents | $ | 102,455 | $ | 20,573 | $ | 13,474 | NA | $ | 6,510 | $ | 4,541 | NA | |||||||||||||
Working capital(1) | 282,929 | 251,329 | 200,367 | NA | 104,335 | 58,295 | NA | ||||||||||||||||||
Total assets | 1,362,901 | 1,239,089 | 1,148,193 | NA | 579,829 | 481,097 | NA | ||||||||||||||||||
Total debt (including current portion) | 630,994 | 881,372 | 826,990 | NA | – | – | NA | ||||||||||||||||||
Shareholders' equity | 379,674 | 106,338 | 96,918 | NA | 396,573 | 354,198 | NA | ||||||||||||||||||
Other financial data: | |||||||||||||||||||||||||
EBITDA(2) | $ | 163,438 | $ | 148,718 | $ | 12,896 | $ | 101,326 | $ | 60,072 | $ | 2,382 | $ | 31,781 | |||||||||||
Backlog(3) | $ | 6,132,011 | $ | 2,641,000 | $ | 2,040,000 | NA | $ | 2,164,000 | $ | 2,028,000 | NA | |||||||||||||
Capital expenditures | $ | 9,317 | $ | 6,180 | $ | 244 | $ | 8,473 | $ | 2,047 | $ | 11 | $ | 1,011 |
(1) | Working capital is defined as current assets, net of current liabilities. | |
(2) | The Company defines EBITDA as GAAP net income adjusted for depreciation and amortization, interest expense, and income taxes. The Company’s management uses EBITDA as a supplemental measure in the evaluation of the Company’s business and believes 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 Company 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’s 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’s cost structure resulting from debt incurred to expand operations. EBITDA also excludes depreciation and amortization expenses. Because these are material and recurring items, any measure that excludes them has a material limitation. To mitigate these limitations, the Company has policies and procedures in place to identify expenses that qualify as interest, taxes, 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. EBITDA excludes some items that affect net income and may vary among companies. 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 Company must use to service its debt or pay income taxes and thus does not reflect the funds generated from operations or actually available for capital investments. | |
(3) | Backlog data is as of the end of the applicable period. See Item 1 for further details concerning backlog. |
28
| Successor Period | | | | | | Original Predecessor | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Immediate Predecessor Period | ||||||||||||||||||||||||
| Fiscal Year Ended | | |||||||||||||||||||||||
| | April 3, 2004 to Feb 11, 2005 | Fiscal Year Ended April 2, 2004 | | March 30, 2002 to March 7, 2003 | ||||||||||||||||||||
| 49 Days Ended April 1, 2005 | 21 Days Ended March 28, 2003 | |||||||||||||||||||||||
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | | | |||||||||||||||||||||
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA: | |||||||||||||||||||||||||
Net income (loss) | $ | 27,023 | $ | 7,243 | $ | (3,104) | $ | 59,733 | $ | 31,360 | $ | 1,229 | $ | 18,866 | |||||||||||
Income taxes | 20,549 | 16,627 | 60 | 34,956 | 19,924 | 852 | 11,973 | ||||||||||||||||||
Interest expense and loss on early extinguishment of debt and preferred stock(1) | 70,615 | 77,828 | 10,236 | – | – | – | – | ||||||||||||||||||
Depreciation and amortization | 45,251 | 47,020 | 5,704 | 6,637 | 8,788 | 301 | 942 | ||||||||||||||||||
EBITDA | $ | 163,438 | $ | 148,718 | $ | 12,896 | $ | 101,326 | $ | 60,072 | $ | 2,382 | $ | 31,781 | |||||||||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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) 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 $ 174,820 $ 163,438 $ 148,718 $ 12,896 $ 101,326 $ 60,072
(1) | Fiscal year ended 2007 includes the premium associated with the redemption of all of the 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’s capital structure. |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
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.
Our business strategy is to further increase our revenues DynCorp International and earnings by expanding current business opportunities, capitalizing on industry trends, pursuing commercial and foreign government opportunities and expanding our domestic service offerings. We have a long-standing record of providing services in support of a broad array of highly complex platforms and systems that are vital to our customers' operations and, together with ourits predecessors have provided supportessential services to thenumerous U.S. government for 55 years. We believe that the longevitydepartments and depth of our customer relationships have positioned us as a contractor of choice for our customers, creating a unique advantage and opportunity to cross-sell our capabilities to capture additional contract opportunities. The U.S. government is increasing its reliance on outsourcing and has increased spending in our target markets.
agencies since 1951.
We are primarily a U.S. government contractor providing a broad range of critical technical services to civilian and military government agencies and to a lesser extent, commercial customers. As a result, our operating performance for any time period is impacted primarily by trends in U.S. government outsourcing, spending and the awarding of contracts and related payment terms which can have a significant effect on our business. The trends we monitor and the impact we believe they have on our business are discussed below.
Increased Outsourcing by U.S. and Foreign Governments –We have seen and benefited from a continued trend toward outsourcing of services by the U.S. government, particularly within the DoD and the DoS. These outsourcing trends are seen both domestically and internationally and support the increased deployment of U.S. resources overseas. The increase in overseas deployment has been in both frequency and magnitude, and across multiple U.S. government agencies. For example, our GS segment has witnessed strong growth as a result
Increased Spending by Our Customers –The DoD budget for fiscal 2008, excluding supplemental funding relating to operations in Iraq and Afghanistan, has been proposed to Congress at $481.4 billion, representing a 62% increase over fiscal 2001. The U.S. government budget for international development and humanitarian and international security assistance coordinated by the DoS has grown from approximately $15.0 billion in fiscal 2000 to a projected $25.0 billion in fiscal 2009 (a compound annual growth rate of 5.2%). As a result of the U.S. military's presence in the Middle East and abroad, we believe that this trend will continue for the foreseeable future and that we are well-positioned to benefit from this trend. Among the factors that could impact U.S. government spending and that would reduce our U.S. government contracting business are: a significant decline in, or reapportioning of, spending by the U.S. government, in general, or by the DoD or the DoS, specifically.
Shift to More Multiple Awards in IDIQ Contracts –The trend in the service segment oflast two decades, the U.S. government has been to award more multiple award IDIQ contracts. We expect these trends to continue. Strong customer relationships combined with strong past performance will increaseincreasing its reliance on the probabilityprivate sector for a wide range of obtaining a customer's business under multiple award IDIQ contracts, as well as winning new procurements. In fiscal 2007professional and 2006, 56.7% and 58.9% of our revenues were attributable to IDIQ contracts, respectively. Traditional government contracts typically have a base year award plus four to nine option years, limiting the competition to the 5-10 year contract cycle. Under multiple award IDIQ contracts, the customer has the ability to compete for the work more frequently among the contract holders, or even move the work on a sole source basis to one of the other providers.support services. This trend toward multiple award IDIQ contracts could increase the volatility in our revenue but also potentially allows us to compete more frequently for work not previously secured.
Shift from Cost-Reimbursement Contracts to Time-and-Materials or Fixed-Price Contracts –Our government contract services have three distinct pricing structures: fixed-price, time-and-materials and cost-reimbursement, representing approximately of 43%, 36% and 21% our revenues, respectively, for fiscal 2007, and approximately 34%, 38% and 28% of our revenues, respectively, for fiscal 2006. We believe that our profitability will continue to improve as we anticipate that our customers will continue to shift away from cost-reimbursement to time-and-materials contracts and fixed-price contracts. We base our belief on recent trends in our revenues, the nature of the contracts on which we are bidding and the favorable pricing structure that exists within fixed-price and time-and-materials contracts. We assume financial risk on time-and-materials and fixed-price contracts, because we assume the risk of performing those contracts at the stipulated prices or negotiated hourly 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. The movement from cost type contracts to time-and-materials or fixed-price contracts, while increasing our risks, allows us the opportunity to earn higher margins.
Increased Maintenance, Overhaul and Upgrades ("O&M") needed to Support Aging Military Platforms –Another trend we monitor to determine our future strategy is the age and use of weapon systems. The high-visibility/high-cost weapons systems tend to be the target of budget reductions, while the O&M budget continues to grow as a percentage of the total budget. The O&M portion of the DoD budget, which includes the majority of the services we provide, is the largest and fastest growing segment of DoD military spending. Also, as the purchase of new weapons systems is delayed or cancelled, the current weapons systems continue to age and require increased maintenance. This aging, combined with the increased use of outsourcing by the equipment, oftenU.S. government has been driven by a variety of factors: lean-government initiatives launched in harsh environments, provides opportunities for the services we offer.
Competition –We1990s, surges in demand during times of national crisis, the increased complexity of missions, the shift in the strategic planning of the U.S. military to focus on the war-fighter efforts and the loss of skills within the government caused by workforce reductions and retirements. These factors lead us to believe that the favorableU.S. government’s growing mission and continued human capital challenges have combined to create a new market dynamic, one that is less directly reflective of overall
29
• | A shift in the strategic planning of the U.S. military, leading to increases in 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 perform life-cycle asset management functions ranging from organizational to depot level maintenance; | |
• | Increased opportunities to support foreign governments in providing a wide spectrum of maintenance, supply support, facilities management and construction management-related services; and | |
• | A shift from single award to more multiple award IDIQ contracts. |
30
We have aligned and reportstrategic objectives. Under this contract, our business operations through two reporting segments: GS and MTSS.
GS Segment Activity
GS,Company will support U.S. forces worldwide with revenues of approximately $1.4 billion, $1.3 billion and $1.2 billion for fiscal years 2007, 2006 and 2005, respectively, provides outsourced technical services to government agencies, and commercial customers worldwide. GS consistsimmediate focus on those deployed in the Middle East.
Law Enforcement and Security –This operating unit provides international policing and police training, judicial support, immigration support and base operations. In addition, it provides security and personal protection for diplomats, designs, installs and operates security systems and develops security software, smart cards and biometrics for use by government agencies and commercial customers.
Contingency and Logistics Operations –This operating 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 –This operating 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.
Specialty Aviation and Counter-drug Operations –This operating unit provides services including drug eradication and host nation pilot and crew training.
MTSS Segment Activity
MTSS, with revenues of approximately $720.0 million, $700.0 million and $690.0 million for fiscal years 2007, 2006 and 2005, respectively, offers the following services:
Aviation Services and 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, FAA certification, facilities and operations support, aircraft scheduling and flight planning and the provisioning of pilots, test pilots and flight crews. Services are provided from both main base locations and forward operating locations.
Aviation Engineering –Our technicians manufacture and install aircraft modification programsDoD’s efforts to award contracts to U.S. companies for a broad range of weapons systemslogistics to support services to U.S. and aircraft engines. In addition, we provide services such as engineering design, kit manufacturingallied forces during combat, peacekeeping, humanitarian, and installation, field installations, configuration management, avionics upgrades, cockpit and fuselage redesign and technical data, drawings and manual revisions.
Aviation Ground Equipment Support –Ourtraining operations. These services include ground equipment support,facilities, supplies, maintenance, and overhaul, modificationstransportation. The LOGCAP objective is to use civilian contractors to perform selected services in a theater of operations to augment U.S. Army forces and upgrades, corrosion control, engine rebuilding, hydraulicrelease 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 statements
Ground 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 vehiclesDistrict Court for the U.S. ArmyEastern District of Virginia found against the Company in a case involving discrimination, interference with employment contracts, the implied duty of good faith and U.S. Marine Corps, in support of their pre-positioning programs. We also provide overall program management, logistics support, tear down and inspection of equipment cycled off of pre-positioned ships.
Explanation of Reporting Periods and Basis of Presentation
The 2005 Acquisition – On December 12, 2004, Veritas Capital and its subsidiary, DynCorp International (formerly known as DI Acquisition Corp.), entered into a purchase agreement with Computer Sciences Corporation and DynCorp whereby DynCorp International agreed to acquire our operating company, a wholly owned subsidiary of DynCorp (the "2005 Acquisition"). DynCorp International assigned its rights to acquire our operating company to DI Finance LLC, or DI Finance, its wholly owned subsidiary. Immediately after the consummation of the 2005 Acquisition on February 11, 2005, DI Finance was merged with and into our operating company. Our operating company survived the merger and is now a wholly owned subsidiary of DynCorp International.
The purchase price for the 2005 Acquisition was $937.0 million after giving effect to a net working capital adjustment in favor of Computer Sciences Corporation in the amount of $65.6 million and $6.1 million of accumulated dividends in connection with the preferred stock issued for satisfaction of the working capital adjustment. Of the $937.0 million purchase price, $775.0 million was paid in cash, $140.6 million was paid to Computer Sciences Corporation in the form of our preferred equity, $6.1 million represents accumulated dividends on the preferred stock issued in connection with the working capital adjustment and the remaining amounts were transaction expenses.
In addition to the issuance of preferred stock to Computer Sciences Corporation and the additional preferred stock equity investment as discussed above, the 2005 Acquisition was funded by:
Additional discussion of our senior credit facilities and subordinated notes is included informer subcontractor, Worldwide Network Services (“WWNS”) on two State Department contracts. See Note 8 to our consolidated financial statements.
As a result of the 2005 Acquisition, our assets and liabilities have been adjusted to their estimated fair value. The excess of the total purchase price over the fair value of our assets has been allocated to goodwill and other intangible assets.
Reporting period explanation – As discussed above, on February 11, 2005, our operating company was sold by Computer Sciences Corporation to an entity controlled by Veritas Capital. The financial statements from March 8, 2003 to February 11, 2005, the period of Computer Sciences Corporation ownership, are referred to as the "immediate predecessor period" statements. We refer to financial statements from and after February 12, 2005 as the "successor period" statements.
Pro forma financial information – We are providing the following supplemental comparative financial information on a pro forma and combined basis for the immediate predecessor and successor for the full fiscal year ended April 1, 2005 as if the acquisition was effective at the beginning of the fiscal year. The information is derived from the application of pro forma adjustments to the historical statement of operations of the immediate predecessor for the period from April 3, 2004 to February 11, 2005 as if the 2005 Acquisition occurred on April 3, 2004. The statement of operations for the 49 days ended April 1, 2005 represents the historical results of the successor company.
The pro forma adjustments are described in the notes to the pro forma statement of operations and are based on available information and assumptions that management believes are reasonable. The pro forma statement of operations is not necessarily indicative of the future results of operations of the successor company or results of operations of the successor company that would have actually occurred had the 2005 Acquisition been consummated as of April 3, 2004. Unless otherwise indicated, references in this section to results for the full year of fiscal 2005 reflect pro forma and combined results of the immediate predecessor and successor periods. These pro forma results should be read in conjunction with the consolidated financial statements, related notes and other consolidated financial information included elsewhere in this Form 10-K.
| Immediate Predecessor | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Successor | | Pro Forma Combined Fiscal Year Ended April 1, 2005 | |||||||||
(Dollars in thousands) | April 3, 2004 to February 11, 2005 | 49 Days Ended April 1, 2005 | Adjustments | |||||||||
Revenues | $ | 1,654,305 | $ | 266,604 | $ | – | $ | 1,920,909 | ||||
Cost of services | (1,496,109) | (245,406) | – | (1,741,515) | ||||||||
Selling, general and administrative expenses | (57,755) | (8,408) | 775 | (1) | (65,388) | |||||||
Depreciation and amortization expense | (5,922) | (5,605) | (34,009) | (2) | (45,536) | |||||||
Total costs and expenses | (1,559,786) | (259,419) | (33,234) | (1,852,439) | ||||||||
Operating income | 94,519 | 7,185 | (33,234) | 68,470 | ||||||||
Interest expense | – | (8,054) | (47,414) | (3) | (55,468) | |||||||
Interest on mandatory redeemable shares | – | (2,182) | (18,960) | (4) | (21,142) | |||||||
Interest income | 170 | 7 | – | 177 | ||||||||
Income (loss) before income taxes | 94,689 | (3,044) | (99,608) | (7,963) | ||||||||
Provision for income taxes | (34,956) | (60) | 30,153 | (5) | (4,863) | |||||||
Net income (loss) | $ | 59,733 | $ | (3,104) | $ | (69,455) | $ | (12,826) | ||||
Segment Information | ||||||||||||
Revenues: | ||||||||||||
Government Services | $ | 1,059,713 | $ | 173,007 | $ | – | $ | 1,232,720 | ||||
Maintenance and Technical Support Services | 594,480 | 93,674 | – | 688,154 | ||||||||
Other | 112 | (77) | – | 35 | ||||||||
Consolidated | $ | 1,654,305 | $ | 266,604 | $ | – | $ | 1,920,909 | ||||
Operating income: | ||||||||||||
Government Services | $ | 68,198 | $ | 3,447 | $ | (24,821) | $ | 46,824 | ||||
Maintenance and Technical Support Services | 27,755 | 3,662 | (8,106) | 23,311 | ||||||||
Other | (1,434) | 76 | (307) | (1,665) | ||||||||
Consolidated | $ | 94,519 | $ | 7,185 | $ | (33,234) | $ | 68,470 | ||||
Cash flow data: | ||||||||||||
Net cash used in operating activities | $ | (2,092) | $ | (31,240) | $ | – | $ | (33,332) | ||||
Net cash used in investing activities | (10,707) | (869,394) | – | (880,101) | ||||||||
Net cash provided by financing activities | 14,325 | 906,072 | – | 920,397 |
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 | )% | ||||||||
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 | )% | |||||||||
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 | % | ||||||||
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| Successor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | |||||||||
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | ||||||||
Revenues | $ | 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% | ||||||
Net 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% | ||||
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. |
32
• | 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. |
• | 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 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. |
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. |
• | 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
• | 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 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 | 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 | % | ||||||||
35
Offering.("SG&A") –—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'sCompany’s Equity Offering. Offsetting these increases was a $7.0 million reduction in bad debt expense compared to fiscal 2006.–—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 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 Seniorsenior secured credit facility (the “Senior Secured Credit Facility,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 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.–—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. –— 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 iswas considered a discreet itemnot deductible for tax purposes and is not deductible.purposes. In addition, we incurred interest expense on our mandatory redeemable shares that is not deductible. Our effective tax rate before consideration of the discreet itemthese items and the interest on mandatory redeemable shares was 36.5%.
36
revenuesrevenue and operating income for ourthe GS and MTSS operating segments, both in dollars and as a percentage of our consolidated revenues for segment, revenue and as a percentage of segment specific revenue for operating income, for the fiscal year ended March 30, 2007 as compared to the fiscal year ended March 31, 2006. Successor For the Fiscal Year Ended (Dollars in thousands) March 30, 2007 March 31, 2006 Revenues Government Services $ 1,359,556 65.3% $ 1,264,586 64.3% Maintenance & Technical Support Services 722,718 34.7% 702,407 35.7% Consolidated $ 2,082,274 100.0% $ 1,966,993 100.0% Operating Income Government Services 97,515 7.2% 93,637 7.4% Maintenance & Technical Support Services 18,323 2.5% 10,017 1.4% Other(1) (2,353) NA (2,417) NA Consolidated $ 113,485 5.5% $ 101,237 5.1% 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. (1)RevenueRepresents equity-based compensation expense.Government Services Revenues for the fiscal year ended March 30, 2007 increased $95.0$97.5 million, or 7.5%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.• 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. •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.• 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. $3.9$4.5 million, or 4.1%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•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.
• | 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. |
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. |
Revenues
Revenues
• | 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. |
• | 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
• | 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. |
Fiscal Year Ended March 31, 2006 Compared to Fiscal Year Ended April 1, 2005 Pro Forma
The following tables set forth, for the periods indicated, our historical and pro forma combined results of operations, both in dollars and as a percentage of revenues:
| Successor | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands) | Fiscal Year Ended March 31, 2006 | Pro Forma Combined Fiscal Year Ended April 1, 2005(1) | ||||||||
Revenues | $ | 1,966,993 | 100.0% | $ | 1,920,909 | 100.0% | ||||
Cost of services | (1,722,089) | (87.5%) | (1,741,515) | (90.7%) | ||||||
Selling, general and administrative expenses | (97,520) | (5.0%) | (65,388) | (3.4%) | ||||||
Depreciation and amortization expense | (46,147) | (2.4%) | (45,536) | (2.4%) | ||||||
Operating income | 101,237 | 5.1% | 68,470 | 3.5% | ||||||
Interest expense | (56,686) | (2.9%) | (55,468) | (2.9%) | ||||||
Interest on mandatory redeemable shares | (21,142) | (1.1%) | (21,142) | (1.1%) | ||||||
Interest income | 461 | 0.0% | 177 | 0.0% | ||||||
Income before taxes | 23,870 | 1.1% | (7,963) | (0.5%) | ||||||
Provision for income taxes | (16,627) | (0.8%) | (4,863) | (0.3%) | ||||||
Net income (loss) | $ | 7,243 | 0.3% | $ | (12,826) | (0.8%) | ||||
The following discussion provides a comparison of the results of operations for the successor company for the fiscal year ended March 31, 2006 with the pro forma combined results of operations for the Company for the fiscal year ended April 1, 2005. The discussion is provided for comparative purposes only, but the value of such a comparison may be limited. The information in this section should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Form 10-K.
Liquidity and Capital Resources future or that it will be available on terms acceptable to the Company. Failure to obtain sufficient capital could materially affect the Company’s operations in the short term and hinder expansion strategies.• 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. ConsolidatedRevenues – Total revenues for the fiscal year ended March 31, 2006 were $1,967.0 million, an increase of $46.1 million, or 2.4%, from $1,920.9 million for the fiscal year ended April 1, 2005 pro forma. For the twelve months ended March 31, 2006 and April 1, 2005, approximately 34%, 38% and 28% and approximately 27%, 39% and 34% of our revenues were derived from fixed-price, time-and-materials, and cost-reimbursement contracts, respectively. Revenues from our GS segment for the fiscal year ended March 31, 2006 were $1,264.6 million, an increase of $31.9 million, or 2.6%, from $1,232.7 million for the fiscal year ended April 1, 2005 pro forma. Increases in this segment include $79.0 million of revenue under the International Narcotics and Law Enforcement Air-Wing program as a result of a new contract that went into effect on November 1, 2005 for operations, and added work to provide helicopter support for ground eradication efforts in Afghanistan, $27.1 million of new work providing hurricane relief efforts along the Gulf Coast, $26.0 million due to added work under our Africa Peacekeeping contract with the DoS and $12.8 million of additional construction work under the Worldwide Personal Protective Services program. These increases were partially offset by a reduction of $16.6 million under the Civilian Police program due to the timing of various construction efforts in the Middle East, and $67.5 million from a series of contracts to provide security and logistics support to various U.S. government construction efforts in the Middle East as a subcontractor. This type of subcontract effort was typically short term with delayed payments, and therefore we decided to exit this line of business until it can be performed in a more stable environment with improved financial terms. Further offsetting the increases described above was a reduction in our DynMarine Services of Virginia LLC business of $32.0 million due to the discontinuance of our work under the Oceanographics Ships contract. Revenues from our MTSS segment for the fiscal year ended March 31, 2006 were $702.4 million, an increase of $14.2 million, or 2.1%, from $688.2 million for the fiscal year ended April 1, 2005 pro forma. The MTSS increase of $14.2 million was primarily driven by the Life Cycle Contractor Support program increase of $8.5 million due to the addition of the Global Air Traffic Management avionics modification to the contract, an increase in the Army Pre-Positioned Stocks program of $7.8 million and the ramp-up of the AH-1/UH-1 program, which increased $16.9 million since the initial contract award during the first quarter of fiscal 2005. Partially offsetting this increase was the Contract Field Teams program, which decreased by $10.2 million mainly as a result of reduced workload for maintenance, repair and refurbishment of weapons systems, and the end of the Al Salam program, which reduced revenue by $12.4 million. We withdrew from the Al Salam program due to unfavorable contract terms offered by the customer. Consequently, the customer decided to self perform the maintenance we had been providing. In addition, the Holloman contract decreased by $5.1 million due to the removal of the German F-4s from the contract.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 for the fiscal year ended March 31, 2006 were $1,722.1 million, a decrease of $19.4 million, or 1.1%, from $1,741.5 million for the fiscal year ended April 1, 2005 pro forma. As a percentage of revenue, costs of services in the fiscal year ended March 31, 2006 was 87.5%, a decrease from 90.7% in the fiscal year ended April 1, 2005 pro forma. This reduction as a percentage of revenue was due to the following: (i) strong performance on fixed-price construction projects and on fixed-price task orders under the Civilian Police program; and (ii) improved contract mix resulting from a larger proportion of higher-margin fixed-price and time-and-materials contracts as opposed to lower-margin cost reimbursable contracts.Selling, general and administrative expenses –Selling, general and administrative expenses primarily relate to functions such as management, legal, financial accounting, contracts and administration, human resources, management information systems, purchasing and business development. Selling, general and administrative expenses for the fiscal year ended March 31, 2006 were $97.5 million, an increase of $32.1 million, or 49.1%, from $65.4 million for the fiscal year ended April 1, 2005 pro forma. In addition, as a percentage of revenue, selling, general and administrative expenses were 5.0% for the fiscal year ended March 31, 2006, an increase from 3.4% for the fiscal year ended April 1, 2005 pro forma. This increase was primarily the result of developing our administrative functions as an independent company, which contributed approximately $15.0 million to the fiscal 2006 increase. Prior to the 2005 Acquisition, these services were provided by our predecessor parent, Computer Sciences Corporation. In addition to the development of administrative functions, we incurred a higher business development cost of approximately $10.0 million during fiscal 2006. Business development expenses represented $32.0 million or 33% of total selling, general and administrative expense. Other factors contributing to higher selling, general and administrative expenses in fiscal 2006 include:•Non-cash equity-based compensation expense was $2.4 million;•Legal expense of approximately $1.6 million related to our legal contingencies; and•Certain incentive compensation payments related to retention bonuses associated with the 2005 Acquisition and incentive payments related to our Equity Offering were $2.7 million and $2.3 million, respectively. Pro forma fiscal 2005 included approximately $1.1 million of retention bonus expense.Depreciation and amortization –Depreciation and amortization for the fiscal year ended March 31, 2006 was $46.1 million, an increase of $0.6 million from $45.5 million for the fiscal year ended April 1, 2005 pro forma. This increase was primarily due to higher depreciation expense. Amortization in the fiscal year ended April 1, 2005 pro forma was based on an estimate of current year amortization. The amortization for the fiscal year ended March 31, 2006 was based on the 2005 Acquisition, which included a step-up in basis of our customer-related intangibles resulting in increased amortization. An independent valuation study was done to allocate the purchase price between goodwill and intangibles.Interest Expense –Interest expense for the fiscal year ended March 31, 2006 was $56.7 million, an increase from $55.5 million for the fiscal year ended April 1, 2005 pro forma. The interest expense incurred related to our Senior Secured Credit Facility, the revolving credit facility and our senior subordinated notes. This interest expense includes interest costs applicable to the fiscal year as well as amortization of deferred financing fees. The increase was primarily due to the increasing interest rates during fiscal 2006.Interest on mandatory redeemable shares –Interest on the mandatory redeemable shares, or preferred stock, for the fiscal year ended March 31, 2006 was $21.1 million, as compared to $21.1 million for the fiscal year ended April 1, 2005 pro forma, which gives effect to the net working capital settlement. The interest is accrued, but unpaid.Income tax expense –We had income tax expense for the fiscal year ended March 31, 2006 of $16.6 million, an increase of $11.7 million, or 238.8%, from income tax expense of $4.9 million for the fiscal year ended April 1, 2005 pro forma. The interest expense related to the preferred shares is non-deductible for tax purposes resulting in the taxable position for the fiscal year ended March 31, 2006.Results by Segment We have aligned and report our business operations through two operating segments: GS and MTSS. The following table sets forth the revenues and operating income for our GS and MTSS operating segments, both in dollars and as a percentage of our consolidated revenues for segment revenue and as a percentage of segment specific revenue for operating income, for the fiscal year ended March 31, 2006 as compared to the fiscal year ended April 1, 2005 pro forma. Successor Immediate Predecessor (Dollars in thousands) Fiscal Year
Ended
March 31, 2006 Pro Forma for
the Year Ended
April 1, 2005Revenues Government Services $ 1,264,586 64.3% $ 1,232,720 64.2% Maintenance & Technical Support Services 702,407 35.7% 688,154 35.8% Other – – 35 0.0% Consolidated $ 1,966,993 100.0% $ 1,920,909 100.0% Operating Income Government Services 93,637 7.4% 46,824 3.8% Maintenance & Technical Support Services 10,017 1.4% 23,311 3.4% Other(1) (2,417) NA (1,665) NA Consolidated $ 101,237 5.1% $ 68,470 3.6% (1)Represents equity-based compensation expense.Government ServicesRevenues –Revenues for the fiscal year ended March 31, 2006 were $1,264.6 million, an increase of $31.9 million, or 2.6%, from $1,232.7 million for the fiscal year ended April 1, 2005 pro forma. The revenue increase was due to additional revenue under the International Narcotics and Law Enforcement Air-Wing program as a result of a new contract that went into effect on November 1, 2005 for operation, added work to provide helicopter support for ground eradication efforts in Afghanistan, new work providing hurricane relief efforts along the Gulf Coast, added work under our Africa Peacekeeping contract with the DoS and additional construction work under the Worldwide Personal Protective Services program. These increases were partially offset by a reduction of revenue under the Civilian Police program due to the timing of various construction efforts in the Middle East, and from a series of contracts to provide security and logistics support to various U.S. government construction efforts in the Middle East as a subcontractor. This type of subcontract effort was typically short term with delayed payments, and therefore we decided to exit this line of business until it can be performed in a more stable environment with improved financial terms. Further offsetting the increases described above was a reduction in our DynMarine Services of Virginia LLC business due to the discontinuance of our work under the Oceanographics Ships contract.Operating income –Operating income for the fiscal year ended March 31, 2006 was $93.6 million, an increase of $46.8 million, or 100.0%, from $46.8 million for the fiscal year ended April 1, 2005 pro forma. Operating income as a percentage of revenue for the fiscal year ended March 31, 2006 and April 1, 2005 pro forma was 7.4% and 3.8%, respectively. The increase is due to the following: (i) strong performance on fixed-price construction projects and on fixed-price task orders under the Civilian Police program; and (ii) improved contract mix resulting from a larger proportion of higher-margin fixed-price and time-and-materials contracts as opposed to lower-margin cost reimbursable contracts. The Civilian Police contract changed from cost-reimbursement to a combination of fixed-price and time-and-materials in February 2004, and the International Narcotics and Law Enforcement Air-Wing contract had a similar change effective November 2005. Fiscal 2006 also includes the recognition of an equitable adjustment related to our Civilian Police program. The equitable adjustment resulted in earnings of $5.5 million during fiscal 2006.Maintenance & Technical Support ServicesRevenues –Revenues for the fiscal year ended March 31, 2006 was $702.4 million, an increase of $14.2 million, or 2.0%, from $688.2 million for the fiscal year ended April 1, 2005 pro forma. This revenue increase was primarily from the Global Air Traffic Management avionics modification under the Life Cycle Contractor Support program, increases on Army Pre-positioned Stocks Afloat program workload and ramp-up of the AH-1/UH-1 program. These increases were partially offset by reduced workload under Contract Field Teams, and the withdrawal from the Al Salam contract due to unfavorable contract terms offered by the customer. Consequently, the customer decided to self perform the F-15 maintenance we had been providing.Operating income – Operating income for the fiscal year ended March 31, 2006 was $10.0 million, a decrease of $13.3 million, or 57.1%, from $23.3 million for the fiscal year ended April 1, 2005 pro forma. Operating income as a percentage of revenue for the fiscal year ended March 31, 2006 was 1.4% compared to 3.4% for the fiscal year ended April 1, 2005 pro forma. The primary factors contributing to the decrease were as follows: (i) higher indirect allocations not recoverable under our fixed-price and time-and-materials contracts of $9.5 million; (ii) incurred operating losses of $3.2 million in delivering services to the U.S. Army under our Life Cycle Contractor Support program. We have experienced operational issues in executing to the cost structure outlined in the original proposal.Our sources of operating cash generally include revenues and the reduction of our working capital, particularly accounts receivable. In addition, we completed our Equity Offering in May 2006 and used the net proceeds, together with cash on hand, to repay a portion of our term loan. Based on our ability to generatecurrent level of operations, we believe our cash flowsflow from operations and our borrowing capacityavailable borrowings under the seniorour credit facility we believe we will have sufficient capitalbe adequate to meet our anticipated short-termliquidity needs includingfor at least the next twelve months. However, to support growth related to potential contract awards and task orders that could occur in the next twelve months, we may require additional financing beyond that currently provided by our senior 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, there can be no assurance that sufficient debt obligations forfinancing will continue to be available in the foreseeable future. Fiscal Year Ended (Dollars in thousands) March 30, 2007 March 31, 2006 Pro Forma Combined
Fiscal Year Ended
April 1, 2005Net Cash provided by (used by) operating activities $ 86,836 $ 55,111 $ (33,332) Net Cash used by investing activities (7,595) (6,231) (880,101) Net Cash provided by (used by) financing activities 2,641 (41,781) 920,397 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 ) Company'sCompany’s liquidity, was $42.4 million for fiscal 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 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 current year as compared to a net use of cash in fiscal 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. year 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
Cash flows provided by operating
unconsolidated equity investee.
Net
$11.0 million.
Cash flows used by financing activities was $41.8 million for the fiscal year ended March 31, 2006, compared to cash flows provided of $920.4 million fiscal year ended April 1, 2005. The cash used in financing activities during the fiscal year ended March 31, 2006 is due to the repayment of borrowings under our revolving credit facility in the amount of $35.0 million, scheduled repayment of our bank note borrowings in the amount of $3.4 million, payment for equity offering expenses of $1.9 million, payment of debt issuance cost of $0.9 million and the purchase of an interest rate cap for $0.5 million, which limits our exposure to upward movements in variable rate debt. The net cash provided for fiscal year ended April 1, 2005 pro forma is primarily due to the issuance of debt and capital contributions to fund the 2005 Acquisition.
Equity Offering On May 9, 2006, we consummated an Equity Offering of 25,000,000 million shares of our Class A common stock, par value $0.01 per share, at a price of $15.00 per share. The gross proceeds from the Equity Offering of $375.0 million, together with cash on hand, were used: (i) to redeem all of our outstanding preferred stock, of which $222.8 million in stated amount, including accrued and unpaid dividends thereon, was outstanding as of May 9, 2006; (ii) to pay a special Class B distribution in the amount of $100.0 million, representing a return of capital of $95.9 million to DIV Holding LLC, the holder of our common stock; (iii) to redeem $28.0 million of our senior subordinated notes on June 8, 2006; (iv) to pay prepayment penalties of $8.4 million, $5.7 million of which represented prepayment penalties on our preferred stock and $2.7 million of which represented prepayment penalties on our senior subordinated notes; and (v) to pay transaction expenses of approximately $30.0 million, including an underwriters' commission of $22.5 million, a fee of $5.0 million to Veritas Capital and $2.5 million of miscellaneous fees and expenses related to the Equity Offering.Debt and Other Obligationsof the following:of: 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 Successor (Dollars in thousands) March 30, 2007 March 31, 2006 Term loans $ 338,962 $ 341,551 9.5% Senior subordinated notes 292,032 320,000 630,994 661,551 Less current portion of long-term debt (37,850) (2,588) Total long-term debt $ 593,144 $ 658,963 Future maturities of long-term debt for each of the fiscal years subsequent to March 30, 2007 were as follows:(Dollars in thousands) 2008 $ 37,850 2009 3,871 2010 3,096 2011 294,145 2012 – Thereafter 292,032 Total long-term debt (including current portion) $ 630,994 Senior Secured Credit Facility
On February 11, 2005, we entered into a senior secured credit facility (the "Senior Secured Credit Facility") with a syndicate of banks. The
28, 2008 was 2.0%.
We are required, under certain circumstances as defined in the Senior Secured Credit Facility, to use a percentage. As of excess cash generated from operations to reduce the outstanding principal of the term loans in the following year. Under this provision, additional principal payments of approximately $34.7 million are due to be paid in the first quarter of fiscalMarch 28, 2008 and are reflected in current portion of long-term debt.
On May 2, 2005, we entered into an interest rate cap, which has the effect of placing a ceiling on the interest expense we could incur on $172.5 million of variable debt indexed to LIBOR at 6.5% plus the applicable floating margin (2.25% at March 30, 2007) as defined by the Senior Secured Credit Facility agreement. See Note 11 to the consolidated financial statements for further discussion of interest rate derivatives.
On January 9, 2006, we entered into a first amendment and waiver of our Senior Secured Credit Facility. The first amendment and waiver increased the revolving commitment under our Senior Secured Credit Facility $15.0 million to $90.0 million, which includes an increase in the sub-limit for letters of credit equal to the same amount. The first amendment and waiver also permitted us to: (i) pay a transaction fee to Veritas Capital related to the Equity Offering of up to $10.0 million; (ii) pay a distribution to the holders of our Class B common stock in an amount equal to the sum of (x) $100.0 million plus (y) the proceeds, if any, of the underwriters' over-allotment option, net of discount and estimated offering expenses; (iii) redeem all of our then currently outstanding preferred stock; and (iv) redeem up to $65.0 million of the $320.0 million aggregate principal amount of the senior subordinated notes. The first amendment and waiver waived the requirement in the Senior Secured Credit Facility that we use 50% of the net cash proceeds from the Equity Offering to prepay loans under the Senior Secured Credit Facility and/or permanently reduce the revolving commitments.
On June 28, 2006, the Company and its operating company entered into a second amendment and waiver of our Senior Secured Credit Facility. The second amendment and waiver provided for a new term loan in the amount of $431.6 million, which was the outstanding balance of the existing term loan under our Senior Secured Credit Facility on the date of the second amendment and waiver. The maturity date of the new term loan is unchanged from the maturity date of the existing term loan. The proceeds from the new term loan were used to repay the existing term loan. The second amendment and waiver also, among other things, (i) decreases the interest rate margin applicable to the term loan under our Senior Secured Credit Facility; (ii) permits us to request an increase in our revolving credit facility by an aggregate amount of up to $30.0 million provided that none of the existing lenders or any other lender is committed to provide such increase; (iii) increases the amount of capital expenditures permitted under our Senior Secured Credit Facility from $4.0 million per fiscal year to $8.0 million per fiscal year; (iv) increases the amount of capitalized leases permitted under our Senior Secured Credit Facility; (v) allows for the payment of dividends and the repurchase of our capital stock in the amount of $10.0 million plus, if our leverage ratio (as defined in our Senior Secured Credit Facility) is below 3.25:1.00, 25% of our excess cash flow (as defined in our Senior Secured Credit Facility) for each fiscal year; and (vi) postpones the first prepayment of the Senior Secured Credit Facility based on our excess cash flow until 90 days following our fiscal year which ended on March 30, 2007.
In November 2006, the Company obtained additional commitments from two new lenders which increased the revolving credit facility to $103.0 million.
At March 30, 2007, availability under the revolving credit line for additional borrowings was approximately $81.9 million (which gives effect to approximately $21.1 million ofwe had no outstanding letters of credit, which reduced our 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.
The Senior Secured Credit Facility contain various financial covenants, including minimum levels of EBITDA, minimum interest and fixed charge coverage ratios, and maximum capital expenditures and total leverage ratio. Non-financial covenants restrict the ability of us and our 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 carrying amount of our borrowings under the Senior Secured Credit Facility approximates fair value basedour Revolving Facility.
9.5% Senior Subordinated Notes
In February 2005, we completed an offering of $320.0 million in aggregate principal amount of our 9.5%credit facilities and senior subordinated notes due 2013. Proceeds from the original issuancebased on outstanding borrowings as of the senior subordinated notes, net of fees, were $310.0March 28, 2008 are expected to be approximately $3.1 million in fiscal 2009, $3.1 million in fiscal 2010, $294.9 million in fiscal 2011, none in fiscal 2012, and were used to pay the consideration for, and fees and expenses relating to, the 2005 Acquisition (see Note 2). Interest on the senior subordinated notes is due semi-annually. The senior subordinated notes are general unsecured obligations of our subsidiary, DynCorp International LLC, and certain guarantor subsidiaries.
Prior to February 15, 2009, we may redeem the senior subordinated notes, in whole or in part, at a price equal to 100% of the principal amount of the senior subordinated notes plus a defined make-whole premium, plus accrued interest to the redemption date. After February 15, 2009, we can redeem the senior subordinated notes, in whole or in part, at defined redemption prices, plus accrued interest to the redemption date. We can also redeem up to 35% of the original aggregate principal amount of the senior subordinated notes at any time before February 15, 2008, with the net cash proceeds of certain equity offerings at a price equal to 109.5% of the principal amount of the senior subordinated notes, plus accrued interest to the redemption date. The holders of the senior subordinated notes may require us to repurchase the senior subordinated notes at defined prices$292.0 million in the event of certain asset sales or change-of-control events.
On June 9, 2006, in connection with the Equity Offering, we redeemed approximately $28.0 million of the $320.0 million aggregate principal amount of the senior subordinated notes. fiscal years thereafter.
The fair value of the senior subordinated notes is based on their quoted market value. As of March 30, 2007, the quoted market value of the senior subordinated notes was 106.1% of stated value.
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% on the term loan; and (ii) 9.5% on the senior subordinated notes. | |
(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. |
41
| Fiscal | | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | ||||||||||||||
Contractual Obligations: | |||||||||||||||||||||
Senior Secured Credit Facility Term Loan(1) | $ | 37.9 | $ | 3.9 | $ | 3.1 | $ | 294.1 | $ | – | $ | – | $ | 339.0 | |||||||
Senior Subordinated Notes | – | – | – | – | – | 292.0 | 292.0 | ||||||||||||||
Operating Leases(2) | 25.5 | 8.3 | 4.9 | 4.5 | 4.5 | 13.1 | 60.8 | ||||||||||||||
Interest on Indebtedness(3) | 50.7 | 50.0 | 49.7 | 38.6 | 27.7 | 24.2 | 240.9 | ||||||||||||||
Contractual Indemnity(4) | – | – | 3.7 | – | – | – | 3.7 | ||||||||||||||
Management Fee(5) | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | 1.8 | ||||||||||||||
Total Contractual Obligations | $ | 114.4 | $ | 62.5 | $ | 61.7 | $ | 337.5 | $ | 32.5 | $ | 329.6 | $ | 938.2 | |||||||
(Dollars in millions) | March 30, 2007 | March 31, 2006 | April 1, 2005 | ||||||
---|---|---|---|---|---|---|---|---|---|
Funded Backlog | $ | 1,402 | $ | 1,024 | $ | 1,140 | |||
Unfunded Backlog | 4,730 | 1,617 | 900 | ||||||
Total Backlog | $ | 6,132 | $ | 2,641 | $ | 2,040 | |||
In December 2006, the Company, through a joint venture named Global Linguist Solutions LLC ("GLS"), was awarded the Intelligence and Security Command ("INSCOM") contract by the U.S. Army for management 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
above table.
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(Dollars in millions) | March 30, 2007 | March 31, 2006 | April 1, 2005 | ||||||
---|---|---|---|---|---|---|---|---|---|
Estimated remaining contract value | $ | 8,991 | $ | 5,727 | $ | 4,413 | |||
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 | ||||||
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.
Our discussion and analysis
We have several
not generally separable from services. Revenue Recognition and Cost Estimation on Long-Term Contracts
General – Revenues areis 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 collectibilitycollectability is reasonably assured. RevenuesEach 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 types are federal government contracts, construction type in fiscal 2007 and 2006, and forcontracts or software contracts or multiple arrangement type contracts. The Company applies the combined periods in fiscal 2005 were as follows:appropriate guidance consistently to similar contracts.
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| Fiscal Year | |||||
---|---|---|---|---|---|---|
Contract Type | 2007 | 2006 | 2005 | |||
Fixed-Price | 43% | 34% | 27% | |||
Time-and-Materials | 36% | 38% | 39% | |||
Cost-Reimbursement | 21% | 28% | 34% | |||
100% | 100% | 100% | ||||
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.
Customer acceptance provisions generally allow the customer to cancel an arrangement when products delivered or services rendered do not meet benefits expected from the arrangement. Acceptance generally occurs before revenue recognition. However, if it can be shown objectively that the acceptance criteria have been satisfied for separable units of accounting or profit centers, as applicable within an arrangement, revenue is recognized before formal acceptance.
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.
mechanism.
Cost-reimbursement type contracts can be cost plus fixed fee, or cost plus award fee. Revenue recognition for these two contract types is very similar. In both cases, revenue is based on actual direct cost plus DCAA-approved indirect rates. In the case of cost plus fixed fee, the fixed fee is recognized based on the ratio of the fixed fee for the contract to the total estimated cost of the contract. In the case of cost plus award fee contracts, the fee is made up of two components, base fee and award fee. Base fee is recognized in the same manner as the fee on cost plus fixed fee contracts. Award fees for new contracts that lack specific experience are included in total expected revenues based on an average of the last two award fee periods or award experience for similar contracts.
units delivered).
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
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 | |||||||||||||||||||||||||
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Page | ||||
49 | ||||
50 | ||||
51 | ||||
52 | ||||
53 | ||||
54 | ||||
Financial Statement Schedules: | ||||
80 | ||||
84 |
48
49
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 | ||||||
50
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 | ||||
51
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 |
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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 | ||||||||||||
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Note 1 — | Significant Accounting Policies and Accounting Developments |
DynEgypt LLC | 50.0 | % | ||
Dyn Puerto Rico Corporation | 49.9 | % | ||
Contingency Response Services LLC | 45.0 | % | ||
Babcock DynCorp Limited | 44.0 | % | ||
Partnership for Temporary Housing LLC | 40.0 | % | ||
DCP Contingency Services LLC | 40.0 | % |
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55
Other contracts may include software and software related deliverables, construction contracts, and services with related equipment and materials. The same pricing mechanisms found in U.S. federal government contracts are found in other contracts.
56
The Company applies the guidance in FASB Statement of Position ("SOP") 97-2,"Software Revenue Recognition," to its software and software related deliverables, SOP 81-1"Accounting for Performance of Construction-Type and Certain Production-Type Contracts" to our construction contracts, and 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 to non-federal government services, equipment and materials.
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 |
Values
57
impact on our consolidated financial condition and results of operations of adopting FIN No. 48 in the first quarter of fiscal 2008 is presented in Note 4.
• | Level 1, defined as observable inputs such as quoted prices in active markets; |
58
• | 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. |
In February 2007, the FASB issued SFAS No. 159, ("SFAS No. 159"),"The Fair Value Option for Financial Assets and Financial Liabilities", which permits an entity to measure certain financial assets and financial liabilities at fair value. Under SFAS No. 159, entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions, as long as it is applied to the instrument in its entirety. The fair value option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes presentation and disclosure requirements to help financial statement users understand the effect of the entity's election on its earnings but does not eliminate disclosure requirements of other accounting standards. Assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. SFAS No. 159 requires prospective application. The Company does not expect to elect the fair value option for any of its assets and financial liabilities not already measured at fair value under other accounting literature.
In September 2006, the FASB issued SFAS No. 158,"Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans". Among other items, SFAS No. 158 requires recognition of the over-funded or under-funded status of an entity's defined benefit postretirement plan as an asset or liability in the financial statements, the measurement of defined benefit post-retirement plan assets and obligations as of the end of the employer's fiscal year and recognition of the funded status of defined benefit post-retirement plans in other comprehensive income ("OCI"). The standard was effective for the Company as of March 30, 2007. The adoption of SFAS No. 158 did not have an impact on the Company's consolidated financial position, results of operations and cash flows.
"Fair “Fair Value Measurements."” SFAS No. 157 definesestablishes a single definition of fair value establishesand a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, itSFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements; however, it does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff PositionNo. 157-2, “Effective Date of FASB Statement No. 157”, which provides 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 this statementSFAS No. 157 as of March 29, 2008 as required with respect to its financial assets and liabilities only. We do not expect the adoption of SFAS No. 157 to have a material impact on our consolidated financial condition and results of operations.appliedmeasured 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 the adoption of SFAS No. 159 to have a material impact on our consolidated financial condition and results of operations.
59
In September 2006, the SEC issued SAB No. 108"Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," to address diversity in practice in quantifying financial statement misstatements. SAB No. 108 requires the Company to quantify misstatements based on their impact on each of its consolidated financial statements and related disclosures. SAB No. 108 is effective as of the end of fiscal 2007, allowing a one-time transitional cumulative effect adjustment to retained earnings as of April 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB No. 108. The adoption of SAB No. 108 did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48,"Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting and reporting for income taxes recognized in accordance with SFAS No. 109,"Accounting for Income Taxes." This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The requirements of FIN 48 are effective for fiscal periods beginning after December 15, 2006. The Company is currently evaluating the interpretation and will adopt FIN 48 in the first quarter of fiscal year 2008. The cumulative effect of adopting FIN 48 will be recorded in retained earnings. The Company does not expect the adoption of FIN 48 to have a material impact on its consolidated financial position, results of operations and cash flows.
On May 18, 2006, the State of Texas enacted a law replacing the current franchise tax with a new margin tax that will go into effect on January 1, 2008. The Company estimates that the new margin tax will not have a significant impact on tax expense or deferred tax assets and liabilities.
In May 2005, the FASB issued SFAS No. 154,"Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS No. 154 provides guidance on the accounting for, and reporting of, accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting such a change when retrospective application is impracticable. The provisions of SFAS No. 154 are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The inherent risk in market risk sensitive instruments and positions primarily relates to potential losses arising from adverse changes in interest rates and foreign currency exchange rates. For further discussion of market risks we may encounter, see "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. Borrowings under the Senior Secured Credit Facility bear interest 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 in the debt agreement. The applicable margins for the Prime Rate and LIBOR as of March 30, 2007 were 1.25% and 2.25%, respectively. As of March 30, 2007, we had $631.0 million of indebtedness, including the senior subordinated notes and excluding interest thereon, of which $339.0 million was secured. On the same date, we had approximately $81.9 million available under our Senior Secured Credit Facility (which gives effect to $21.1 million of outstanding letters of credit). Each quarter point change in interest rates results in approximately $0.8 million change in annual interest expense on the term loan and, assuming the entire revolving loan was drawn, an approximately $0.3 million change in annual interest expense on the revolving loan.
The table below provides information about our fixed rate and variable rate long-term debt agreements, as of March 30, 2007.
| Expected Maturity as of March 30, 2007 Fiscal Year | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average Interest Rate | ||||||||||||||||||||||
(Dollars in millions) | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | ||||||||||||||||
Fixed Rate | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 292.0 | $ | 292.0 | 9.50% | ||||||||
Variable Rate | 37.9 | 3.9 | 3.1 | 294.1 | – | – | 339.0 | 7.39% | |||||||||||||||
Total debt | $ | 37.9 | $ | 3.9 | $ | 3.1 | $ | 294.1 | $ | – | $ | 292.0 | $ | 631.0 | |||||||||
The carrying amount of our borrowings under the Senior Secured Credit Facility approximates fair value based on the variable interest rates of this debt. The fair value of senior subordinated notes is based on their quoted market value. The above table does not give effect to $21.1 million of outstanding letters of credit as of March 30, 2007.
In April 2007, in order to mitigate interest rate risk related to the term loans, the Company entered into interest rate hedge agreements with notional amounts totaling $200.0 million, whereby the Company effectively fixed the interest rate at 4.975%, plus an applicable margin (2.25% at March 30, 2007) on the first $200.0 million of its debt indexed to LIBOR through May 22, 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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 30, 2007 and March 31, 2006 (Successor), and the related consolidated statements of operations, shareholders' equity, and cash flows for the fiscal year ended March 30, 2007, the fiscal year ended March 31, 2006, the 49 days ended April 1, 2005 (Successor), and the period from April 3, 2004 to February 11, 2005 (Immediate Predecessor). 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 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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.
As discussed in Note 2 to the financial statements, DynCorp International LLC was a wholly owned subsidiary of DynCorp, which was acquired by a newly formed entity, DynCorp International Inc., on February 11, 2005. As a result, the periods presented in the accompanying financial statements reflect a new basis of accounting beginning February 12, 2005.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 30, 2007 and March 31, 2006, and the results of their operations and their cash flows for the fiscal year ended March 30, 2007, the fiscal year ended March 31, 2006, the 49 days ended April 1, 2005, (Successor), and the period from April 3, 2004 to February 11, 2005 (Immediate Predecessor), 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 a whole, present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Fort Worth, Texas
June 18, 2007
DYNCORP INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF OPERATIONS(Dollars in thousands, except per share data)
| Successor | | Immediate Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | | | | |||||||||||
| | Period from April 3, 2004 to Feb 11, 2005 | |||||||||||||
| 49 Days Ended April 1, 2005 | ||||||||||||||
| March 30, 2007 | March 31, 2006 | | ||||||||||||
Revenues | $ | 2,082,274 | $ | 1,966,993 | $ | 266,604 | $ | 1,654,305 | |||||||
Cost of services | (1,817,707) | (1,722,089) | (245,406) | (1,496,109) | |||||||||||
Selling, general and administrative expenses | (107,681) | (97,520) | (8,408) | (57,755) | |||||||||||
Depreciation and amortization expense | (43,401) | (46,147) | (5,605) | (5,922) | |||||||||||
Operating income | 113,485 | 101,237 | 7,185 | 94,519 | |||||||||||
Interest expense | (58,412) | (56,686) | (8,054) | – | |||||||||||
Interest expense on mandatory redeemable shares | (3,002) | (21,142) | (2,182) | – | |||||||||||
Loss on early extinguishment of debt and preferred stock | (9,201) | – | – | – | |||||||||||
Net earnings from affiliates | 2,913 | – | – | – | |||||||||||
Interest income | 1,789 | 461 | 7 | 170 | |||||||||||
Income (loss) before income taxes | 47,572 | 23,870 | (3,044) | 94,689 | |||||||||||
Provision for income taxes | (20,549) | (16,627) | (60) | (34,956) | |||||||||||
Net income (loss) | $ | 27,023 | $ | 7,243 | $ | (3,104) | $ | 59,733 | |||||||
Basic and diluted income (loss) per share | $ | 0.49 | $ | 0.23 | $ | (0.10) | N/A | ||||||||
See notes to consolidated financial statements.
DYNCORP INTERNATIONAL INC.CONSOLIDATED BALANCE SHEETS(Amounts in thousands, except share data)
| Successor | |||||||
---|---|---|---|---|---|---|---|---|
| March 30, 2007 | March 31, 2006 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 102,455 | $ | 20,573 | ||||
Restricted cash | 20,224 | – | ||||||
Accounts receivable, net of allowances of $3,428 and $8,479 | 461,950 | 440,195 | ||||||
Prepaid expenses and other current assets | 69,487 | 43,733 | ||||||
Deferred income taxes | 12,864 | 795 | ||||||
Total current assets | 666,980 | 505,296 | ||||||
Property and equipment, net | 12,646 | 8,769 | ||||||
Goodwill | 420,180 | 420,180 | ||||||
Tradename | 18,318 | 18,318 | ||||||
Other intangibles, net | 214,364 | 254,363 | ||||||
Deferred income taxes | 13,459 | 11,518 | ||||||
Other assets, net | 16,954 | 20,645 | ||||||
Total assets | $ | 1,362,901 | $ | 1,239,089 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 37,850 | $ | 2,588 | ||||
Accounts payable | 127,282 | 132,396 | ||||||
Accrued payroll and employee costs | 88,929 | 65,586 | ||||||
Other accrued liabilities | 116,308 | 45,117 | ||||||
Income taxes payable | 13,682 | 8,280 | ||||||
Total current liabilities | 384,051 | 253,967 | ||||||
Long-term debt, less current portion | 593,144 | 658,963 | ||||||
Other long-term liabilities | 6,032 | – | ||||||
Shares subject to mandatory redemption Series A preferred stock, stated value $0 and $195,550; 50,000,000 and 350,000 shares authorized; 0 and 190,550 shares issued and outstanding; redemption value of $0 and $219,821 at March 30, 2007 and March 31, 2006, respectively | – | 219,821 | ||||||
Commitments and contingencies | ||||||||
Shareholders' equity: | ||||||||
Common stock, $0.01 par value – 57,000,000 and 32,000,000 shares issued and outstanding | 570 | 320 | ||||||
Additional paid-in capital | 352,245 | 102,097 | ||||||
Retained earnings | 27,023 | 4,139 | ||||||
Accumulated other comprehensive loss | (164) | (218) | ||||||
Total shareholders' equity | 379,674 | 106,338 | ||||||
Total liabilities and shareholders' equity | $ | 1,362,901 | $ | 1,239,089 | ||||
See notes to consolidated financial statements.
DYNCORP INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands)
| Successor | | Immediate Predecessor | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | | | | |||||||||||||
| | Period From April 3, 2004 to Feb 11, 2005 | |||||||||||||||
| 49 Days Ended April 1, 2005 | ||||||||||||||||
| March 30, 2007 | March 31, 2006 | | ||||||||||||||
Cash flows from operating activities | |||||||||||||||||
Net income (loss) | $ | 27,023 | $ | 7,243 | $ | (3,104) | $ | 59,733 | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: | |||||||||||||||||
Depreciation and amortization | 45,251 | 47,020 | 5,704 | 6,637 | |||||||||||||
Loss on early extinguishment of debt | 2,657 | – | – | – | |||||||||||||
Loss on early extinguishment of preferred stock | 5,717 | – | – | – | |||||||||||||
Excess tax benefits from equity-based compensation | (495) | – | – | – | |||||||||||||
Non-cash interest expense on redeemable preferred stock dividends | – | 21,142 | 2,182 | – | |||||||||||||
Amortization of deferred loan costs | 3,744 | 2,878 | 383 | – | |||||||||||||
Net loss on sale of assets | – | – | – | 21 | |||||||||||||
(Recovery) provision for losses on accounts receivable | (2,500) | 4,204 | – | 4,338 | |||||||||||||
Net earnings from affiliates | (2,913) | (214) | (4) | (65) | |||||||||||||
Deferred income taxes | (14,010) | (9,407) | – | 225 | |||||||||||||
Equity-based compensation | 2,353 | 2,417 | – | – | |||||||||||||
Changes in assets and liabilities: | |||||||||||||||||
Restricted cash | (20,224) | – | – | – | |||||||||||||
Accounts receivable | (19,255) | (21,885) | (58,344) | (133,185) | |||||||||||||
Prepaid expenses and other current assets | (25,165) | (17,485) | 9,866 | (20,672) | |||||||||||||
Accounts payable and accrued liabilities | 82,427 | 10,828 | 12,017 | 80,658 | |||||||||||||
Redeemable preferred stock dividend | (3,695) | – | – | – | |||||||||||||
Income taxes payable | 5,921 | 8,370 | 60 | 218 | |||||||||||||
Net cash provided by (used by) operating activities | 86,836 | 55,111 | (31,240) | (2,092) | |||||||||||||
Cash flows from investing activities | |||||||||||||||||
Acquisition, net of cash received | – | – | (865,053) | – | |||||||||||||
Purchase of property and equipment | (7,037) | (2,271) | (244) | (8,473) | |||||||||||||
Purchase of computer software | (2,280) | (3,909) | – | – | |||||||||||||
Other assets | 1,722 | (51) | (4,097) | (2,234) | |||||||||||||
Net cash used by investing activities | (7,595) | (6,231) | (869,394) | (10,707) | |||||||||||||
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 | (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 | 11,359 | – | – | – | |||||||||||||
Excess tax benefits from equity-based compensation | 495 | – | – | – | |||||||||||||
(Payments) proceeds under revolving credit facilities | – | (35,000) | 35,000 | – | |||||||||||||
Net transfers from parent company | – | – | – | 14,325 | |||||||||||||
Capital contributions | – | – | 224,825 | – | |||||||||||||
Proceeds from the issuance of long-term debt | – | – | 665,000 | – | |||||||||||||
Payment of initial public offering costs | – | (1,940) | – | – | |||||||||||||
Payment of debt issuance costs | – | (909) | (18,753) | – | |||||||||||||
Purchase of interest rate cap | – | (483) | – | – | |||||||||||||
Net cash provided by (used by) financing activities | 2,641 | (41,781) | 906,072 | 14,325 | |||||||||||||
Net increase in cash and cash equivalents | 81,882 | 7,099 | 5,438 | 1,526 | |||||||||||||
Cash and cash equivalents, beginning of period | 20,573 | 13,474 | 8,036 | 6,510 | |||||||||||||
Cash and cash equivalents, end of period | $ | 102,455 | $ | 20,573 | $ | 13,474 | $ | 8,036 | |||||||||
Income taxes paid (net of refunds) | $ | 26,183 | $ | 19,025 | $ | 2 | $ | (10) | |||||||||
Interest paid | $ | 55,486 | $ | 57,464 | $ | 322 | $ | – | |||||||||
Non-cash investing activities | $ | – | $ | 1,194 | $ | – | $ | – | |||||||||
See notes to consolidated financial statements.
DYNCORP INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(Dollars and shares in thousands)
| Common Stock | | | Accumulated Other Comprehensive Income (Loss) | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Immediate Predecessor | Additional Paid-In Capital | (Accumulated Deficit) Retained Earnings | Total Shareholders' Equity | ||||||||||||||||
Shares | Amount | ||||||||||||||||||
Balance at April 3, 2004 | $ | 396,566 | $ | 7 | $ | 396,573 | |||||||||||||
Comprehensive income: | |||||||||||||||||||
Net income | 59,733 | 59,733 | |||||||||||||||||
Foreign currency translation | 60 | 60 | |||||||||||||||||
Comprehensive income | 59,733 | 60 | 59,793 | ||||||||||||||||
Net transfers to Computer Sciences Corporation | 14,325 | – | 14,325 | ||||||||||||||||
Balance at February 11, 2005 | $ | 470,624 | $ | 67 | $ | 470,691 | |||||||||||||
Successor | |||||||||||||||||||
Initial Capitalization – February 12, 2005 | 32,000 | $ | 320 | $ | 99,680 | $ | – | $ | – | $ | 100,000 | ||||||||
Comprehensive loss: | |||||||||||||||||||
Net loss | (3,104) | – | (3,104) | ||||||||||||||||
Foreign currency translation | – | 22 | 22 | ||||||||||||||||
Comprehensive loss | (3,104) | 22 | (3,082) | ||||||||||||||||
Balance at April 1, 2005 | 32,000 | $ | 320 | $ | 99,680 | $ | (3,104) | $ | 22 | $ | 96,918 | ||||||||
Comprehensive income: | |||||||||||||||||||
Net income | – | 7,243 | – | 7,243 | |||||||||||||||
Change in fair value of interest rate cap | – | – | (260) | (260) | |||||||||||||||
Foreign currency translation | – | – | 20 | 20 | |||||||||||||||
Comprehensive income | – | 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: | |||||||||||||||||||
Net income | – | 27,023 | – | 27,023 | |||||||||||||||
Change in fair value of interest rate cap | – | – | (16) | (16) | |||||||||||||||
Foreign currency translation | – | – | 70 | 70 | |||||||||||||||
Comprehensive income | – | 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 | ||||||||
See notes to consolidated financial statements.
DYNCORP INTERNATIONAL INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Year Ended March 30, 2007, Fiscal Year Ended March 31, 2006, 49 Days EndedApril 1, 2005, and the Period from April 3, 2004 to February 11, 2005
Note 1—Summary of Significant Accounting Policies
DynCorp International Inc. through its subsidiaries (together, the "Company"), provides defense and technical services and government outsourced solutions primarily to 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. Departments 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 the accounts of the Company and its domestic and foreign subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Generally, investments in which the Company owns a 20% to 50% ownership interest are accounted for by the equity method. These investments are in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies and is not the primary beneficiary as defined in Financial Accounting Standards Board (the "FASB") Interpretation No. 46R (Revised 2003),"Consolidation of Variable Interest Entities" ("FIN 46R"). The Company has no investments in business entities of less than 20%.
The following table sets forth the Company's ownership in joint ventures and companies that are not consolidated into the Company's financial statements as of March 30, 2007, and are accounted for by the equity method. For all of the entities listed below, the Company has the right to elect half of the board of directors or other management body. Economic rights are indicated by the ownership percentages listed below.
The following table sets forth the Company's ownership in joint ventures that are consolidated into the Company's financial statements as of March 30, 2007. For the entities listed below, the Company has the right to elect half of the Board of Directors or other management body and is the primary beneficiary as defined in FIN 46R.
Revenue Recognition and Cost Estimation on Long-Term Contracts
General – Revenues are 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 collectibility is reasonably assured. Revenues by contract type in fiscal 2007 and 2006, and for the combined periods in fiscal 2005 were as follows:
| Fiscal Year | |||||
---|---|---|---|---|---|---|
Contract Type | 2007 | 2006 | 2005 | |||
Fixed-Price | 43% | 34% | 27% | |||
Time-and-Materials | 36% | 38% | 39% | |||
Cost-Reimbursement | 21% | 28% | 34% | |||
100% | 100% | 100% | ||||
The Company expenses 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.
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.
Customer acceptance provisions generally allow the customer to cancel an arrangement when products delivered or services rendered do not meet benefits expected from the arrangement. Acceptance generally occurs before revenue recognition. However, if it can be shown objectively that the acceptance criteria have been satisfied for separable units of accounting or profit centers, as applicable within an arrangement, revenue is recognized before formal acceptance.
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 considers 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 must be evaluated throughout the life of the Company's contracts when estimating total contract revenue to recognize in the periods in which they are earned under the percentage-of-completion or proportional methods of accounting.
Federal Government Contracts –Projects under the Company's 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 reimbursement, cost plus award fee, time-and-materials (including Unit-Price/level-of-effort contracts), or indefinite delivery, indefinite quantity ("IDIQ"). The exact timing and quantity of delivery for IDIQ profit centers are not known at the time of contract award, but they can contain any type of pricing mechanism; fixed-price, time and materials, cost reimbursable or cost plus fixed fee.
Revenue on fixed-price projects 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 fixed-price construction or production-type contracts is recognized on the basis of the estimated percentage of completion. Progress towards completion is typically measured based on achievement of specified contract milestones, when available, or based on costs incurred as a proportion of estimated total costs. Cost of sales is based on actual costs incurred to date, and revenues are recorded in an amount equal to costs incurred plus the estimated gross profit based on the percentage-of-completion. Gross profit for any period equals total expected revenues less total expected costs, multiplied by the percentage-complete at the end of the period in question, less gross profit recognized in prior periods.
Cost-reimbursement type contracts can be cost plus fixed fee, or cost plus award fee. Revenue recognition for these two contract types is very similar. In both cases, revenue is based on actual direct cost plus DCAA-approved indirect rates. In the case of cost plus fixed fee, the fixed fee is recognized based on the ratio of the fixed fee for the contract to the total estimated cost of the contract. In the case of cost plus award fee contracts, the fee is made up of two components, base fee and award fee. Base fee is recognized in the same manner as the fee on cost plus fixed fee contracts. Award fees for new contracts that lack specific experience are included in total expected revenues based on an average of the last two award fee periods or award experience for similar contracts.
The completed contract method is sometimes used for short duration projects when the results of operations would not vary materially from those resulting from use of the percentage-of-completion method or when reliable estimates cannot be supported for percentage-of-completion method recognition. Until complete, project costs are maintained in work in progress, a component of inventory.
Contract costs on U.S. government contracts, including indirect costs, are subject to audit and adjustment by negotiations between the Company and government representatives. Substantially all of the Company's indirect contract costs have been agreed upon through 2004. Contract revenues on U.S. government contracts have been recorded in amounts that are expected to be realized upon final settlement.
Other Contracts – The Company's contracts with non-federal government customers are predominantly multiple-element. Multiple-element arrangements involve multiple obligations in various combinations to deliver products, perform services, grant licenses or other rights, or take certain actions. The Company evaluates these elements to establish whether they represent separable units of accounting and allocate revenue to the identifiable units of accounting based on relative fair values. The timing of revenue recognition for a given unit of accounting will depend on the nature of the deliverable(s) whether recognition criteria have been met.
Other contracts may include software and software related deliverables, construction contracts, and services with related equipment and materials. The same pricing mechanisms found in federal government contracts are found in other contracts.
The Company applies the guidance in FASB Statement of Position ("SOP") 97-2,"Software Revenue Recognition," to its software and software related deliverables, SOP 81-1"Accounting for Performance of Construction-Type and Certain Production-Type Contracts" to its construction contracts, and 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 to non-federal government services, equipment and materials.
Cash and cash equivalents
For purposes of reporting cash and cash equivalents, the Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.
Restricted cash
Restricted cash represents cash restricted by a certain contract in which advance payments are not available for use except to pay specified costs and vendors for work performed on the specific contract.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles ("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 establishes 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's estimated allowance for doubtful accounts, which could significantly impact the Company's consolidated financial statements by incurring bad debt expense. Given that the Company primarily serves the U.S. government, management believes the risk to be relatively low that changes in its allowance for doubtful accounts would have a material impact on its 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. As part of the purchase accounting, which resulted from the acquisition, all fixed assets were adjusted to fair value on February 11, 2005, thus resetting accumulated depreciation to $0 at the acquisition date. See Note 2 for further discussion of the acquisition. The Company's depreciation and amortization policies are as follows:
Impairment of Long-Lived Assets, including Amortized Intangibles
Values of customer-related intangibles and internally developed technology 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 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 and customer-related intangibles is considered impaired when the anticipated undiscounted cash flow 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 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. As of March 30, 2007, management believes there have been no other events or circumstances that would indicate an impairment of long-lived assets.
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's reporting units with its carrying amount, including indefinite-lived assets. If the fair value of a reporting unit exceeds its carrying amount, 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 performs the annual test for impairment as of the end of February of each fiscal year. Based on the results of these tests, no impairment losses were identified.
Income Taxes
The Company determines the provision for income taxes using the asset and liability approach. 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. The Company records a valuation allowance to reduce deferred tax assets when uncertainty regarding their reliability exists.
Equity-Based Compensation Expense
The Company has 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 ratably over the requisite service period adjusted for forfeitures. See Note 12 for further discussion on equity-based compensation.
Fair Values of Financial Instruments
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.
Currency Translation
The assets and liabilities of the Company's subsidiaries outside the U.S. are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates. Income and expense items are translated at the average exchange rates prevailing during the period. Gains and losses resulting from currency transactions are recognized currently in income and those resulting from translation of financial statements are included in accumulated other comprehensive income.
Industry Segments
The Company's operations are aligned into two divisions, each of which constitutes a reporting segment: Government Services ("GS") and Maintenance and Technical Support Services ("MTSS").
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159,"The Fair Value Option for Financial Assets and Financial Liabilities", which permits an entity to measure certain financial assets and financial liabilities at fair value. Under SFAS No. 159, entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions, as long as it is applied to the instrument in its entirety. The fair value option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes presentation and disclosure requirements to help financial statement users understand the effect of the entity's election on its earnings but does not eliminate disclosure requirements of other accounting standards. Assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. SFAS No. 159 requires prospective application. The Company does not expect to elect the fair value option for any of its assets and financial liabilities not already measured at fair value under other accounting literature.
In September 2006, the FASB issued SFAS No. 158,"Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans". Among other items, SFAS No. 158 requires recognition of the over-funded or under-funded status of an entity's defined benefit postretirement plan as an asset or liability in the financial statements, the measurement of defined benefit post-retirement plan assets and obligations as of the end of the employer's fiscal year and recognition of the funded status of defined benefit post-retirement plans in other comprehensive income ("OCI"). The standard was effective for the Company as of March 30, 2007. The adoption of SFAS No. 158 did not have an impact on the Company's consolidated financial position, results of operations and cash flows.
In September 2006, the FASB issued SFAS No. 157,"Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS No. 157 on its consolidated financial statements.
In September 2006, the SEC issued SAB No. 108"Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," to address diversity in practice in quantifying financial statement misstatements. SAB No. 108 requires the Company to quantify misstatements based on their impact on each of its consolidated financial statements and related disclosures. SAB No. 108 is effective as of the end of fiscal 2007, allowing a one-time transitional cumulative effect adjustment to retained earnings as of April 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB No. 108. The adoption of SAB No. 108 did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48,"Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting and reporting for income taxes recognized in accordance with SFAS No. 109,"Accounting for Income Taxes." This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The requirements of FIN 48 are effective for fiscal periods beginning after December 15, 2006. The Company is currently evaluating the interpretation and will adopt FIN 48 in the first quarter of fiscal year 2008. The cumulative effect of adopting FIN 48 will be recorded in retained earnings. The Company does not expect the adoption of FIN 48 to have a material impact on its consolidated financial position, results of operations and cash flows.
On May 18, 2006, the State of Texas enacted a law replacing the current franchise tax with a new margin tax that will go into effect on January 1, 2008. The Company estimates that the new margin tax will not have a significant impact on tax expense or deferred tax assets and liabilities.
In May 2005, the FASB issued SFAS No. 154,"Accounting Changes and Error Corrections – a replacement of Accounting Principles Board ("APB") Opinion No. 20 and FASB Statement No. 3." SFAS No. 154 provides guidance on the accounting for, and reporting of, accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting such a change when retrospective application is impracticable. The provisions of SFAS No. 154 are effective for accounting changes and corrections of errors made in fiscal periods beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Note 2—Acquisition and Related Transition Services Agreements
February 11, 2005 Transaction
On February 11, 2005, DynCorp International Inc. (the "Successor Parent"), a newly formed entity controlled by The Veritas Capital Fund II, L.P. and its affiliates ("Veritas") completed the acquisition of all of the outstanding equity securities of DynCorp International LLC from Computer Sciences Corporation for an original purchase price of $865.3 million, including $775.0 million of cash, preferred stock of the Successor Parent valued at $75.0 million and transaction expenses. The cash payment and transaction expenses were financed through the issuance of the 9.5% senior subordinated notes, borrowings under the Credit Facility (see Note 8) and the issuance of common stock and preferred stock of $100.0 million and $50.0 million, respectively.
The original purchase price was subject to an adjustment to the extent that the net working capital of the Company differed from the original agreed upon level. On October 27, 2005, a working capital adjustment was finalized, resulting in an increase to the purchase price of $71.6 million payable in shares of preferred stock of the Successor Parent. The Company recorded the settlement amount, which included preferred stock issued of $65.5 million and the related accumulated dividend from February 11, 2005 to October 27, 2005 of $6.1 million, as an increase to goodwill and shareholders' equity at March 31, 2006. Other purchase accounting adjustments resulted in a net increase to goodwill of $4.0 million. See Note 4.
The acquisition was accounted for under the purchase method, and accordingly, the purchase price of the acquisition was allocated to the net assets acquired based on the fair values at the date of the acquisition.
A summary of the assets acquired and liabilities assumed in the acquisition is as follows:
The intangible assets include customer relationships, tradename and internally developed technologies of $290.4 million, $18.3 million and $3.4 million, respectively. The customer relationships were valued at the contract level and are being amortized straight-line over the weighted-average useful life of 8.5 years. The internally developed technologies were amortized over the two-year useful life and were fully amortized at March 30, 2007. The tradename and goodwill are not amortized for financial reporting purposes but are deductible for tax purposes. See Note 4 for further discussion of goodwill.
In connection with the acquisition, Veritas was paid a $12.1 million transaction fee and reimbursed for $0.9 million of expenses. The Company also paid $3.9 million of employee retention bonuses, which were expensed over a six-month period beginning February 12, 2005.
Management Fee
The Company agreed to pay Veritas an annual management fee of $0.3 million plus expenses. The Company recorded $0.7 million and $0.3 million in fees for the fiscal years ended March 30, 2007 and March 31, 2006, respectively. See Note 16.
Transition Services Agreement
Upon the closing of the 2005 Acquisition, the Company's operating company entered into a transition services agreement with Computer Sciences Corporation, which covered support services for certain operating areas, including information technology, business systems, financial operations, payroll, human resources and employee benefits. The total cost of transition services during fiscal 2006 and 2005 was $1.6 million and $0.4 million, respectively. Costs incurred during fiscal 2007 were not material. On May 15, 2006, the Company terminated the transition services agreement with Computer Sciences Corporation. All services previously provided by Computer Sciences Corporation are now performed by the Company's own employees.
The historical financial statements prior to February 12, 2005 do not reflect the impact of many significant events and changes that have occurred as a result of the separation from Computer Sciences Corporation, including, but not limited to, the establishment of a stand-alone capital structure; the issuance of the debt securities necessary to effect the sale (and the related incurrence of interest expense); and the creation of independent information technology, purchasing, banking, insurance and employee benefits programs.
Note 3—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. The Company did not have any
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
| Successor | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | | |||||||
(Amounts in thousands, except per share data) | March 30, 2007 | March 31, 2006 | 49 Days Ended April 1, 2005 | ||||||
Numerator | |||||||||
Net income (loss) | $ | 27,023 | $ | 7,243 | $ | (3,104) | |||
Denominator | |||||||||
Weighted average common shares – basic and diluted | 54,734 | 32,000 | 32,000 | ||||||
Basic and diluted income (loss) per share | $ | 0.49 | $ | 0.23 | $ | (0.10) |
Note 4—Goodwill and other Intangible Assets
Note 3 — | Goodwill and other Intangible Assets |
(Dollars in thousands) | GS | MTSS | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance – April 1, 2005 | $ | 262,331 | $ | 82,214 | $ | 344,545 | ||||
Refinements to purchase price(1) | 57,535 | 18,100 | 75,635 | |||||||
Balance – March 31, 2006 | 319,866 | 100,314 | 420,180 | |||||||
Transfer between reporting segments(2) | 20,163 | (20,163) | – | |||||||
Balance as of March 30, 2007 | $ | 340,029 | $ | 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 reporting segments is the result of a reorganization of the Company’s reporting structure within its segments and a related independent fair value analysis of the reporting units within the Company’s reporting segments, in the manner required by SFAS 142. |
| Successor | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| March 30, 2007 | ||||||||||
(Amounts in thousands, except years) | Weighted Average Useful Life (Years) | Gross Carrying Value | Accumulated Amortization | Net | |||||||
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 | |||||
| Successor | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2006 | ||||||||||
(Amounts in thousands, except years) | Weighted Average Useful Life (Years) | Gross Carrying Value | Accumulated Amortization | Net | |||||||
Finite-lived intangible assets: | |||||||||||
Customer-related intangible assets | 8.5 | $ | 290,381 | $ | (43,471) | $ | 246,910 | ||||
Other | 4.1 | 11,124 | (3,671) | 7,453 | |||||||
$ | 301,505 | $ | (47,142) | $ | 254,363 | ||||||
Indefinite-lived intangible assets – Tradename | $ | 18,318 | $ | – | $ | 18,318 | |||||
March 30, 2007:
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 | ||||||||||
61
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 5—Income Taxes
Fiscal Year Ended | ||||||||||||
March 28, | March 30, | March 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Current portion: | ||||||||||||
Federal | $ | 22,203 | $ | 28,295 | $ | 22,849 | ||||||
State | 2,338 | 1,629 | 1,448 | |||||||||
Foreign | 4,475 | 4,635 | 1,618 | |||||||||
29,016 | 34,559 | 25,915 | ||||||||||
Deferred portion: | ||||||||||||
Federal | (1,026 | ) | (12,635 | ) | (8,797 | ) | ||||||
State | 22 | (348 | ) | (338 | ) | |||||||
Foreign | (13 | ) | (1,027 | ) | (153 | ) | ||||||
(1,017 | ) | (14,010 | ) | (9,288 | ) | |||||||
Provision for income taxes | $ | 27,999 | $ | 20,549 | $ | 16,627 | ||||||
62
| Successor | Immediate Predecessor | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | | | ||||||||||
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | 49 Days Ended April 1, 2005 | Period From April 3, 2004 to February 11, 2005 | |||||||||
Current portion: | |||||||||||||
Federal | $ | 28,295 | $ | 22,849 | $ | – | $ | 32,658 | |||||
State | 1,629 | 1,448 | – | 1,627 | |||||||||
Foreign | 4,635 | 1,618 | 60 | 446 | |||||||||
34,559 | 25,915 | 60 | 34,731 | ||||||||||
Deferred portion: | |||||||||||||
Federal | (12,635) | (8,797) | (349) | 214 | |||||||||
State | (348) | (338) | (14) | 11 | |||||||||
Foreign | (1,027) | (153) | – | – | |||||||||
(14,010) | (9,288) | (363) | 225 | ||||||||||
Total provision (benefit) for income taxes before valuation allowance | $ | 20,549 | $ | 16,627 | $ | (303) | $ | 34,956 | |||||
Valuation allowance | – | – | 363 | – | |||||||||
Provision for income taxes | $ | 20,549 | $ | 16,627 | $ | 60 | $ | 34,956 | |||||
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | ||||||
---|---|---|---|---|---|---|---|---|
Deferred tax assets related to: | ||||||||
Worker's compensation accrual | $ | 7,169 | $ | 3,351 | ||||
Accrued vacation | 6,383 | 5,853 | ||||||
Bad debt allowance | 6,350 | 3,096 | ||||||
Completion bonus allowance | 4,458 | 2,370 | ||||||
Accrued severance | 1,991 | – | ||||||
Foreign tax credit carryforwards | 1,725 | – | ||||||
Accrued executive incentives | 1,561 | 1,729 | ||||||
Depreciable assets | 1,222 | 765 | ||||||
Warranty reserve | 1,041 | – | ||||||
Legal reserve | 884 | – | ||||||
Accrued health costs | 768 | 853 | ||||||
Contract loss reserve | 469 | 1,030 | ||||||
Leasehold improvements | 352 | – | ||||||
Accrued liability insurance | 337 | 1,206 | ||||||
Other | 354 | 512 | ||||||
Total deferred tax assets | 35,064 | 20,765 | ||||||
Deferred tax liabilities related to: | ||||||||
Prepaid insurance | (5,122) | (5,754) | ||||||
Customer intangibles | (3,157) | (897) | ||||||
Deferred revenue | (462) | (1,801) | ||||||
Total deferred tax liabilities | (8,741) | (8,452) | ||||||
Deferred tax assets, net | $ | 26,323 | $ | 12,313 | ||||
March 28, | March 30, | |||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Deferred tax assets related to: | ||||||||
Worker’s compensation accrual | $ | 9,481 | $ | 7,169 | ||||
Accrued vacation | 7,086 | 6,383 | ||||||
Bad debt allowance | 3,435 | 6,350 | ||||||
Completion bonus allowance | 5,761 | 4,458 | ||||||
Accrued severance | 1,027 | 1,991 | ||||||
Foreign tax credit carryforwards | — | 1,725 | ||||||
Accrued executive incentives | 1,526 | 1,561 | ||||||
Depreciable assets | 885 | 1,222 | ||||||
Warranty reserve | 458 | 1,041 | ||||||
Legal reserve | 7,180 | 884 | ||||||
Accrued health costs | 750 | 768 | ||||||
Leasehold improvements | 448 | 352 | ||||||
Interest rate swap | 4,223 | — | ||||||
Other accrued liabilities and reserves | 2,008 | 1,160 | ||||||
Total deferred tax assets | 44,268 | 35,064 | ||||||
Deferred tax liabilities related to: | ||||||||
Prepaid insurance | (1,096 | ) | (5,122 | ) | ||||
Customer intangibles | (7,196 | ) | (3,157 | ) | ||||
Deferred revenue | (467 | ) | (462 | ) | ||||
Total deferred tax liabilities | (8,759 | ) | (8,741 | ) | ||||
Deferred tax assets, net | $ | 35,509 | $ | 26,323 | ||||
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
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | ||||
---|---|---|---|---|---|---|
Current deferred tax assets | $ | 12,864 | $ | 795 | ||
Non-current deferred tax assets | 13,459 | 11,518 | ||||
Deferred tax assets, net | $ | 26,323 | $ | 12,313 | ||
| Successor | Immediate Predecessor | ||||||
---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | | | |||||
| March 30, 2007 | March 31, 2006 | 49 Days Ended April 1, 2005 | Period from April 3, 2004 to February 11, 2005 | ||||
Statutory rate | 35.0% | 35.0% | (35.0%) | 35.0% | ||||
State income tax, less effect of federal deduction | 1.2% | 2.6% | (4.6%) | 1.7% | ||||
Nondeductible preferred stock dividends | 6.7% | 32.8% | 29.8% | 0.0% | ||||
Other | 0.3% | 0.8% | 0.4% | 0.2% | ||||
Valuation allowance | 0.0% | (1.5%) | 11.4% | 0.0% | ||||
Effective tax rate | 43.2% | 69.7% | 2.0% | 36.9% | ||||
Earnings (loss) before 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 %
Balance at March 31, 2007 | $ | 5,881 | ||
Additions for tax positions related to current year | 1,619 | |||
Additions for tax positions taken in prior years | ||||
Reductions for tax positions of prior years | (4,786 | ) | ||
Settlements | — | |||
Lapse of statute of limitations | — | |||
Balance at March 28, 2008 | $ | 2,714 |
64
| Successor | Immediate Predecessor | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | | | |||||||||
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | 49 Days Ended April 1, 2005 | Period From April 3, 2004 to February 11, 2005 | ||||||||
U.S. | $ | 43,774 | $ | 23,679 | $ | (3,038) | $ | 94,334 | ||||
Non-U.S. | 3,798 | 191 | (6) | 355 | ||||||||
Total | $ | 47,572 | $ | 23,870 | $ | (3,044) | $ | 94,689 | ||||
Note 6—Accounts Receivable
Note 5 — | Accounts Receivable |
| Successor | |||||
---|---|---|---|---|---|---|
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | ||||
Billed | $ | 227,942 | $ | 188,458 | ||
Unbilled | 232,543 | 249,489 | ||||
Other receivables | 1,465 | 2,248 | ||||
Total | $ | 461,950 | $ | 440,195 | ||
March 28, | March 30, | |||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Billed, net | $ | 193,337 | $ | 227,942 | ||||
Unbilled | 319,975 | 232,543 | ||||||
Other receivables | — | 1,465 | ||||||
Total | $ | 513,312 | $ | 461,950 | ||||
Note 7—Savings Plans
For During the period presented through February 11, 2005, substantially all domestic Company employeesfiscal year, amounts formerly classified as other receivables were reclassified to prepaid expenses and certain foreign employees were able to participate in (a) one of two legacy defined contribution savings plans sponsored by DynCorp, its former parent, until July 2, 2004, and (b) after July 2, 2004, in a defined contribution savings plan sponsored by Computer Sciences Corporation, into which the legacy plans merged. The plans allowed employees to contribute a portion of their earnings in accordance with specified guidelines.
In July 2004, the savings plans were merged into Computer Sciences Corporation's defined contribution plan, the Matched Asset Plan ("MAP"). After the plan merger, the match and employer contribution formulas in the MAP remained substantially unchanged from their form in the savings plans.
Effective January 6, 2005, the MAP was bifurcated into two mirror image plans, the Computer Sciences Corporation MAP plan and the DynCorp International LLC MAP plan. In conjunction with the Acquisition, the Company agreed to retain the Computer Sciences Stock Fund for a period of two years. The Company adopted an amendment to the DynCorp International LLC MAP plan that prevented any new Company or participant contributions going to the Computer Sciences Corporation stock fund, changed all new Company contributions to cash, and made all Computer Sciences Corporation stock fund amounts diversifiable. All other terms of the plan are unchanged.
The Company incurred savings plan expense of approximately $10.7 million, $9.5 million Note 6 — 401(k) Savings Plans again amended the MAP and renamed itestablished the DynCorp International Savings Plan (the "Plan"“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"“Code”), and is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").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. 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.$8.3 million, $1.2 million and $6.8$8.3 million for the fiscal yearyears ended March 28, 2008, March 30, 2007 the fiscal year endedand March 31, 2006, the 49 days ended April 1, 2005, and the period from April 3, 2004 to February 11, 2005, respectively.Note 8—Long-Term DebtNote 7 — Long-Term Debt Successor (Dollars in thousands) March 30, 2007 March 31, 2006 March 28, March 30, 2008 2007 (Dollars in thousands) Term loans $ 338,962 $ 341,551 $ 301,130 $ 338,962 9.5% Senior subordinated notes 292,032 320,000 292,032 292,032 630,994 661,551 593,162 630,994 Less current portion of long-term debt (37,850) (2,588) (3,096 ) (37,850 ) Total long-term debt $ 593,144 $ 658,963 $ 590,066 $ 593,144
65
(Dollars in thousands) | | ||||||
---|---|---|---|---|---|---|---|
2008 | $ | 37,850 | |||||
(Dollars in thousands) | |||||||
2009 | 3,871 | $ | 3,096 | ||||
2010 | 3,096 | 3,096 | |||||
2011 | 294,145 | 294,938 | |||||
2012 | – | — | |||||
2013 | 292,032 | ||||||
Thereafter | 292,032 | — | |||||
Total long-term debt (including current portion) | $ | 630,994 | $ | 593,162 | |||
On February 11, 2005, the Company entered into a senior secured credit facility (the "Senior Secured Credit Facility") with a syndicate of banks. The
yielding an effective rate under our Term Loans of 4.6%.
we had no outstanding borrowings under our Revolving Facility.
On May 2, 2005,debt 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 fiscal 2009.
On January 9, 2006, the Company entered into a first amendment and waiver of its Senior Secured Credit Facility. The first amendment and waiver increased the revolving commitment under its Senior Secured Credit Facility by $15.0 million to $90.0 million, which includes an increase in the sub-limit for letters of credit equal to the same amount. The first amendment and waiver also permitted the Company to: (i) pay a transaction fee to Veritas Capital related to the Equity Offering of up to $10.0 million; (ii) pay a distribution to the holders of the Company's Class B common stock in an amount equal to the sum of (x) $100.0 million plus (y) the proceeds, if any, of the underwriters' over-allotment option, net of discount and estimated offering expenses; (iii) redeem all of the Company's then currently outstanding preferred stock; and (iv) redeem up to $65.0 million of the $320.0 million aggregate principal amount of the senior subordinated notes. The first amendment and waiver waived the requirement in the Senior Secured Credit Facility that the Company use 50% of the net cash proceeds from the Equity Offering to prepay loans under the Senior Secured Credit Facility and/or permanently reduce the revolving commitments.
On June 28, 2006, the Company and its operating company entered into a second amendment and waiver of its Senior Secured Credit Facility. The second amendment and waiver provided for a new term loan in the amount of $431.6 million, which was the outstanding balance of the existing term loan under the Company's Senior Secured Credit Facility on the date of the second amendment and waiver. The maturity date of the new term loan is unchanged from the maturity date of the existing term loan. The proceeds from the new term loan were used to repay the existing term loan. The second amendment and waiver also, among other things, (i) decreases the interest rate applicable toswap agreements was a liability of $11.6 million at March 28, 2008. Unrealized net loss from the term loan under the Company's Senior Secured Credit Facility; (ii) permits the Company to request an increasechanges in its revolving credit facility by an aggregate amount of up to $30.0 million provided that nonefair value of the existing lenders or any other lender is committed to provide such increase; (iii) increasesinterest rate swap agreements of $7.2 million, net of tax, for the amount of capital expenditures permitted under its Senior Secured Credit Facility from $4.0 million per fiscal year ended March 28, 2008 is included in other comprehensive income (loss). There was no material impact on earnings due to $8.0 million per fiscal year; (iv) increases the amount of capitalized leases permitted under its Senior Secured Credit Facility; (v) allowshedge ineffectiveness for the payment of dividends and the repurchase of its capital stock in the amount of $10.0 million plus, if the Company's leverage ratio (as defined in its Senior Secured Credit Facility) is below 3.25:1.00, 25% of the Company's excess cash flow (as defined in its Senior Secured Credit Facility) for each fiscal year; and (vi) postpones the first prepayment of the Senior Secured Credit Facility based on the Company's excess cash flow until 90 days following its fiscal year which ended on March 30, 2007.
In November 2006, the Company obtained additional commitments from two new lenders which increased the revolving credit facility to $103.0 million.
28, 2008.
66
28, 2008.
subsidiaries of DynCorp International LLC.
Note 8 — | Commitments and Contingencies |
Commitments
67
Fiscal Year | Real Estate | Equipment | Services | Real Estate | Equipment | Services | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2008 | $ | 16,013 | $ | 7,485 | $ | 1,963 | |||||||||||||||
2009 | 5,926 | 2,343 | – | $ | 14,129 | $ | 3,614 | $ | 4,623 | ||||||||||||
2010 | 4,423 | 522 | – | 7,959 | 796 | — | |||||||||||||||
2011 | 4,338 | 152 | – | 7,436 | 415 | — | |||||||||||||||
2012 | 4,338 | 121 | – | 7,448 | 339 | — | |||||||||||||||
2013 | 7,328 | 162 | — | ||||||||||||||||||
Thereafter | 13,056 | – | – | 20,941 | — | — | |||||||||||||||
$ | 48,094 | $ | 10,623 | $ | 1,963 | $ | 65,241 | $ | 5,326 | $ | 4,623 | ||||||||||
68
On
Company
DoS letter dated April 30, 2008 and provided additional support for our position.
69
Initial public offering – — The Company is insured for domestic worker'sworker’s compensation liabilities and a significant portion of its employee medical costs. However, the Company bears risk for a portion of claims pursuant to the terms of the applicable insurance contracts. The Company accounts for these programs based on actuarial estimates of the amount of loss inherent in that period'speriod’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 its risk by purchasing stop-loss insurance policies for significant claims incurred for both domestic worker'sworker’s compensation liabilities and medical costs. The Company'sCompany’s exposure under the stop-loss policies for domestic worker'sworker’s compensation and medical costs is limited based on fixed dollar amounts. For domestic worker'sworker’s compensation and employer'semployer’s liability under state and federal law, the fixed-dollar amount of stop-loss coverage is $1.0 million per occurrence. For medical costs, the fixed dollar amount of stop-loss coverage is from $0.25 million to $0.75 million per covered participant for the fiscal plan year.Note 9 — Shareholders’ Equity Note 10—Shareholders' Equity"Equity Offering"“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, net proceeds to the Company were approximately $345.0 million. The Company used the net proceeds, together with cash on hand, to repay a portion of its outstanding debt (see Note 8)7) and complete the transactions described below.Company'sCompany’s shareholders approved an amendment and restatement of the Company'sCompany’s certificate of incorporation with the Secretary of State of the State of Delaware. The amended and restated certificate of incorporation authorized the Company to issue up to:30, 2007,28, 2008, the Company had no preferred stock outstanding and 57 million shares of Class A common stock outstanding. – — On May 3, 2006, the Company'sCompany’s board of directors and shareholders approved a64-for-1 stock split for the 500,000 shares of the Company'sCompany’s 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. shareholders'
70
Note 11—Interest Rate Derivatives
Derivative financial
Note 10 — | Interest Rate Derivatives |
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% at March 28, 2008) |
In May 2005, the Company purchased at$11.6M Swap liability is considered a premium of approximately $0.5 million a three-year interest rate cap, which has the effect of placing a ceiling on the interest expense the Company could incur on $172.5 million of variable debt indexed to the LIBOR at 6.5% plus the applicable margin (2.25% at March 30, 2007) as defined by the Senior Secured Credit Facility agreement. short term liability.
71
income (loss). Net proceeds received on the interest rate swap agreements were not material to the financial statements as 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 |
Successor
| Successor | |||
---|---|---|---|---|
| March 30, 2007 | March 31, 2006 | ||
Risk-free interest rate | 4.75% | 4.00% | ||
Expected volatility | 45% | 40% | ||
Expected lives (for Black-Scholes model input) | 4.5 years | 5.0 years | ||
Annual rate of quarterly dividends | 0% | 0% |
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
During fiscal 2007, holders of Class B equity received tax advances totaling $1.5 million to meet the employer's minimum statutory withholding requirements for vested interest, which reduces the future redemption value of the vested interest.
In accordance with SFAS No. 123R, the Company records compensation expense based on the grant-date fair value on a straight-line basis for each separate vesting portion of the awards. For each of the fiscal years ended March 30, 2007 and March 31, 2006, the Company recognized non-cash compensation expense of approximately $2.4 million.
Assuming each grant outstanding as of March 30, 2007 fully vests, the Company will recognize additional non-cash compensation expense as follows (dollars in thousands):
FY 2008 | FY 2009 | FY 2010 | FY 2011 | FY 2012 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$ | 4,324 | $ | 2,309 | $ | 1,240 | $ | 494 | $ | 148 |
% Interest in | Grant Date | ||||||||||||
DIV Holding | Fair Value | ||||||||||||
| % Interest in DIV Holding | Grant Date Fair Value | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year 2006 Grants | 6.44% | $ | 7,641 | 6.44 | % | $ | 7,641 | ||||||
Fiscal Year 2006 Forfeitures | (0.04%) | (53) | (0.04 | )% | (53 | ) | |||||||
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 | ||||||||||
Fiscal Year 2008 Forfeitures | (0.12 | )% | (145 | ) | |||||||||
March 31, 2006 Vested % | 1.17% | $ | 1,383 | ||||||||||
Balance March 28, 2008 | 6.24 | % | $ | 13,248 | |||||||||
March 31, 2006 Vested | 1.17 | % | $ | 1,383 | |||||||||
Fiscal Year 2007 Vesting | 0.88% | 1,414 | 0.88 | % | 1,414 | ||||||||
March 30, 2007 Vested % | 2.05% | $ | 2,797 | ||||||||||
March 30, 2007 Vested | 2.05 | % | $ | 2,797 | |||||||||
Fiscal Year 2008 Vesting | 0.77 | % | 1,844 | ||||||||||
March 31, 2006 Nonvested % | 5.23% | $ | 6,205 | ||||||||||
March 30, 2007 Nonvested % | 4.30% | $ | 10,486 | ||||||||||
March 28, 2008 Vested | 2.82 | % | $ | 4,641 | |||||||||
March 31, 2006 Nonvested | 5.23 | % | $ | 6,205 | |||||||||
March 30, 2007 Nonvested | 4.30 | % | $ | 10,486 | |||||||||
March 28, 2008 Nonvested | 3.42 | % | $ | 8,607 |
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 | ||
At times, Computer Sciences Corporation issued
73
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 |
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 | ||
Composition of | ||||
Certain Financial Statement Captions |
The weighted-average fair value of stock awards granted during the period from April 3, 2004 to February 11, 2005, was $15.96. The fair value of each stock award was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
The Company participated in Computer Sciences Corporation's eight stock incentive plans, which authorized the issuance of stock options, restricted stock and other stock-based incentives to employees upon terms approved by the compensation committee of the Company's board of directors. Information concerning Computer Sciences Corporation stock options granted to employees of the Company is as follows:
At February 11, 2005, there were 21,500 stock options exercisable.
Note 13—Composition of Certain Financial Statement Captions
The following tables present financial information of certain consolidated balance sheet captions.
captions (dollars in thousands).
| Successor | March 28, | March 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 30, 2007 | March 31, 2006 | 2008 | 2007 | ||||||||||
| (Dollars in thousands) | |||||||||||||
Prepaid expenses | $ | 38,182 | $ | 24,000 | $ | 43,205 | $ | 38,182 | ||||||
Inventories | 9,836 | 3,653 | 8,463 | 9,836 | ||||||||||
Work-in-process | 21,469 | 16,080 | 45,245 | 21,469 | ||||||||||
Minority interest | 3,306 | — | ||||||||||||
Other current assets | 8,808 | — | ||||||||||||
$ | 69,487 | $ | 43,733 | $ | 109,027 | $ | 69,487 | |||||||
74
– Property and equipment, net were: Successor March 30, 2007 March 31, 2006 (Dollars in thousands) Computers and other equipment $ 7,960 $ 5,695 Leasehold improvements 4,437 519 Office furniture and fixtures 3,331 3,851 Gross property and equipment 15,728 10,065 Less accumulated depreciation (3,082) (1,296) Property and equipment, net $ 12,646 $ 8,769 March 28, March 30, 2008 2007 Computers and other equipment $ 11,813 $ 7,960 Leasehold improvements 4,649 4,437 Office furniture and fixtures 5,272 3,331 Gross property and equipment 21,734 15,728 Less accumulated depreciation (6,292 ) (3,082 ) Property and equipment, net $ 15,442 $ 12,646 – Other assets, net were: Successor March 28, March 30, March 30, 2007 March 31, 2006 2008 2007 (Dollars in thousands) Deferred financing costs, net $ 14,365 $ 17,469 $ 11,350 $ 14,365 Deferred offering costs 126 1,940 24 126 Investment in affiliates 2,195 911 6,287 2,195 Other 268 325 427 268 $ 16,954 $ 20,645 $ 18,088 $ 16,954 – Accrued payroll and employee costs were: Successor March 30, 2007 March 31, 2006 (Dollars in thousands) Wages, compensation and other benefits $ 64,410 $ 43,344 Accrued vacation 22,290 20,357 Accrued contributions to employee benefit plans 2,229 1,885 $ 88,929 $ 65,586 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
| Successor | |||||
---|---|---|---|---|---|---|
| March 30, 2007 | March 31, 2006 | ||||
| (Dollars in thousands) | |||||
Deferred revenue | $ | 53,749 | $ | 6,837 | ||
Insurance expense | 43,870 | 29,885 | ||||
Interest expense | 10,398 | 3,692 | ||||
Contract losses | 1,297 | 2,835 | ||||
Legal matters | 2,443 | 1,618 | ||||
Other | 4,551 | 250 | ||||
$ | 116,308 | $ | 45,117 | |||
Note 14—Segment and Geographic Information
March 28, March 30, 2008 2007 Deferred revenue $ 53,083 $ 53,749 Insurance expense 36,260 43,870 Interest expense 9,885 10,398 Contract losses 134 1,297 Legal matters 19,851 2,443 Short-term swap liability 5,783 — Other 4,244 4,551 $ 129,240 $ 116,308
Note 13 — | Segment and Geographic Information |
76
| Successor | | Immediate Predecessor | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended | | | |||||||||||||
(Dollars in thousands) | March 30, 2007 | March 31, 2006 | 49 Days Ended April 1, 2005 | Period from April 3, 2004 to February 11, 2005 | ||||||||||||
Revenues | ||||||||||||||||
Government Services | $ | 1,359,556 | $ | 1,264,586 | $ | 173,007 | $ | 1,059,713 | ||||||||
Maintenance and Technical Support Services | 722,718 | 702,407 | 93,674 | 594,480 | ||||||||||||
Total reportable segments | 2,082,274 | 1,966,993 | 266,681 | 1,654,193 | ||||||||||||
Corporate activities | – | – | (77) | 112 | ||||||||||||
$ | 2,082,274 | $ | 1,966,993 | $ | 266,604 | $ | 1,654,305 | |||||||||
Operating Income | ||||||||||||||||
Government Services | $ | 97,515 | $ | 93,637 | $ | 3,447 | $ | 68,198 | ||||||||
Maintenance and Technical Support Services | 18,323 | 10,017 | 3,662 | 27,755 | ||||||||||||
Total reportable segments | 115,838 | 103,654 | 7,109 | 95,953 | ||||||||||||
Net unallocated corporate (expenses) income(a) | (2,353) | (2,417) | 76 | (1,434) | ||||||||||||
$ | 113,485 | $ | 101,237 | $ | 7,185 | $ | 94,519 | |||||||||
Depreciation and amortization | ||||||||||||||||
Government Services | $ | 31,932 | $ | 32,437 | $ | 3,765 | $ | 2,731 | ||||||||
Maintenance and Technical Support Services | 13,319 | 12,872 | 1,397 | 3,878 | ||||||||||||
Total reportable segments | 45,251 | 45,309 | 5,162 | 6,609 | ||||||||||||
Corporate activities | – | 1,711 | 542 | 28 | ||||||||||||
$ | 45,251 | $ | 47,020 | $ | 5,704 | $ | 6,637 | |||||||||
Assets | ||||||||||||||||
Government Services | $ | 935,136 | $ | 874,366 | $ | 821,649 | $ | 462,662 | ||||||||
Maintenance and Technical Support Services | 293,152 | 320,303 | 310,303 | 257,747 | ||||||||||||
Total reportable segments | 1,228,288 | 1,194,669 | 1,131,952 | 720,409 | ||||||||||||
Corporate activities(b) | 134,613 | 44,420 | 16,241 | 14,638 | ||||||||||||
$ | 1,362,901 | $ | 1,239,089 | $ | 1,148,193 | $ | 735,047 | |||||||||
thousands).
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) | 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. |
| Successor | Immediate Predecessor | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ended March 30, 2007 | Fiscal Year Ended March 31, 2006 | 49 Days Ended April 1, 2005 | Period from April 3, 2004 to February 11, 2005 | ||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
United States | $ | 668,875 | 32% | $ | 703,117 | 36% | $ | 97,455 | 36% | $ | 557,700 | 34% | ||||||||
Middle East | 955,811 | 46% | 952,496 | 48% | 130,312 | 49% | 816,084 | 49% | ||||||||||||
Other Americas | 220,176 | 11% | 194,429 | 10% | 20,023 | 8% | 132,920 | 8% | ||||||||||||
Europe | 59,780 | 3% | 41,410 | 2% | 8,192 | 3% | 88,449 | 5% | ||||||||||||
Other | 177,632 | 8% | 75,541 | 4% | 10,622 | 4% | 59,152 | 4% | ||||||||||||
Total | $ | 2,082,274 | 100% | $ | 1,966,993 | 100% | $ | 266,604 | 100% | $ | 1,654,305 | 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 | % | ||||||||||||
77
16 for detailed information.
Note 14 — | Quarterly Financial Data (Unaudited) |
| Successor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year 2007 | ||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
Revenues | $ | 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 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 |
Successor | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year 2006 | ||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
Revenues | $ | 425,005 | $ | 439,629 | $ | 553,561 | $ | 548,798 | |||||
Operating Income | $ | 16,553 | $ | 23,337 | $ | 23,463 | $ | 37,884 | |||||
Net income (loss) | $ | (1,974) | $ | 1,825 | $ | 1,634 | $ | 5,758 | |||||
Earnings per share: | |||||||||||||
Basic and diluted | $ | (0.06) | $ | 0.06 | $ | 0.05 | $ | 0.18 | |||||
Average common shares outstanding: | |||||||||||||
Basic and diluted | 32,000 | 32,000 | 32,000 | 32,000 |
Fiscal Year 2008 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenue | $ | 548,673 | $ | 495,109 | $ | 523,071 | $ | 572,908 | ||||||||
Operating Income | $ | 32,202 | $ | 33,947 | $ | 30,825 | $ | 23,029 | ||||||||
Net income | $ | 12,258 | $ | 13,953 | $ | 11,960 | $ | 9,784 | ||||||||
Earnings per share: | ||||||||||||||||
Basic and diluted | $ | 0.22 | $ | 0.24 | $ | 0.21 | $ | 0.17 | ||||||||
Average common shares outstanding: | ||||||||||||||||
Basic | 57,000 | 57,000 | 57,000 | 57,000 | ||||||||||||
Diluted | 57,000 | 57,000 | 57,000 | 57,001 |
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 |
Note 15 — | Related Parties |
Management Fee
78
Note 16 — | Subsequent Events (Unaudited) |
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 | ||||||
Note 17—Subsequent Events (Unaudited)
Interest Rate Swap
In April 2007,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 ordera theater of operations to mitigate interest rate risk relatedaugment Army forces and release military units for other missions or to fill shortfalls.
Stock Repurchase Program
On June 6, 2007, the Company's board of directors authorized a program to repurchase up to $10.0 million of its outstanding common stock. The shares may 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 repurchased under this planMr. Lanese will be held as treasury shares. The program does not obligate the Company to acquire any particular amount of common stock and the program may be modified or suspended at any time at the Company's discretion. The purchases will be funded from available working capital.
approximately $4.3 million.
79
| March 30, 2007 | March 31, 2006 | ||||
---|---|---|---|---|---|---|
Assets | ||||||
Investment in subsidiaries | $ | 379,674 | $ | 326,159 | ||
Liabilities | ||||||
Shares subject to mandatory redemption Series A preferred stock, stated value $0 and $195,550; 50,000,000 and 350,000 shares authorized; 0 and 190,550 shares issued and outstanding; redemption value of $0 and $219,821 at March 30, 2007 and March 31, 2006, respectively | $ | – | $ | 219,821 | ||
Shareholders' Equity | ||||||
Common stock, $0.01 par value – 57,000,000 and 32,000,000 shares authorized, issued and outstanding at March 30, 3007 and March 31, 2006, respectively | 570 | 320 | ||||
Additional paid-in capital | 352,245 | 102,097 | ||||
Retained earnings | 27,023 | 4,139 | ||||
Accumulated other comprehensive loss | (164) | (218) | ||||
Total shareholders' equity | 379,674 | 106,338 | ||||
Total liabilities and shareholders' equity | $ | 379,674 | $ | 326,159 | ||
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 | ||||
80
| Fiscal Year Ended | |||||
---|---|---|---|---|---|---|
| March 30, 2007 | March 31, 2006 | ||||
Equity in income of subsidiaries, net of tax | $ | 30,025 | $ | 28,385 | ||
Interest on mandatory redeemable shares | 3,002 | 21,142 | ||||
Net income | $ | 27,023 | $ | 7,243 | ||
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 | ||||
81
| Fiscal Year Ended | ||||||
---|---|---|---|---|---|---|---|
| March 30, 2007 | March 31, 2006 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 27,023 | $ | 7,243 | |||
Adjustments to reconcile net income to net cash from operating activities: | |||||||
Non-cash interest expense (redeemable preferred stock dividend) | 3,002 | 21,142 | |||||
Equity in income of subsidiaries | (30,025) | (28,385) | |||||
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 | $ | – | $ | – | |||
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 | $ | — | $ | — | ||||
Note 1. | Basis of Presentation |
Note 2. Dividends Received from Consolidated Subsidiaries
Note 2. | Dividends Received from Consolidated Subsidiaries |
83
| Beginning of Period | Charged/(Credited) to Costs and Expense | Deductions from Reserve(1) | End of Period | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for doubtful accounts: | |||||||||||
April 3, 2004 - February 11, 2005 | $ | 1,188 | 4,338 | (1,026) | $ | 4,500 | |||||
February 12, 2005 - April 1, 2005 | $ | 4,500 | – | – | $ | 4,500 | |||||
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 |
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. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the Company's
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’s management, including the CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined inManagement'sRules 13a-15(e) and 15(d)-15(e) under the Exchange Act of 1934), the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.
This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of
Section 404 compliance project
Beginningsupervision and with the fiscal year ending March 28, 2008, Section 404participation of the Sarbanes-Oxley Act of 2002 will require the Company to include management's report on the Company's internal control over financial reporting in its Annual Report on Form 10-K. The internal control report must contain (1) a statement of management's responsibilityour CEO and CFO, is responsible for establishing and maintaining adequate internal control over the Company's financial reporting (2)as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act. Internal control over financial reporting is a statement identifyingprocess designed to provide reasonable assurance to our management and board of directors regarding the framework used by managementreliability 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 conduct the required evaluationmaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the effectivenessassets of the Company'sCompany; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) 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.
In order to achieve compliance with Section 404 within the prescribed period, during fiscal 2007, the Company commenced a Section 404 compliance project under which management has engaged outside consultants and adopted a detailed project work plan to assess the adequacy of the Company's internal control over financial reporting, remediate any control deficiencies that may be identified, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
included below.
During the fourth quarter of fiscal year ended March 30, 2007, there
85
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
On June 7, 2007,reporting of DynCorp International Inc. and subsidiaries (the “Company”) as of March 28, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Company filedCommittee 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.
86
All other
ITEM 9B. | OTHER INFORMATION. |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
ITEM 11. EXECUTIVE COMPENSATION.
no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.
ITEM 11. | EXECUTIVE COMPENSATION. |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.
ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
no later than 120 days after the conclusion of the registrant’s fiscal year ended March 28, 2008.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
87
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
Report of Independent Registered Public Accounting | ||||
• | Consolidated Statements of Operations | |||
• | ||||
• | Consolidated Statement of Cash Flows | |||
• | Consolidated Statements of Stockholder’s Equity for the fiscal | |||
• | Notes to Consolidated Financial Statements. |
Schedule I | ||||
• | Schedule II | |||
Signature | Title | Date | ||||
/s/ William L. Ballhaus | President and Chief Executive Officer and Director (principal executive officer) | June | ||||
/s/ Michael J. Thorne Michael J. Thorne | Senior Vice President, Chief Financial Officer | June | ||||
/s/ Robert B. McKeon Robert B. McKeon | ||||||
Director | June | |||||
Michael J. Bayer | Director | |||||
/s/ Mark H. Ronald Mark H. Ronald | Director | June 10, 2008 | ||||
/s/ General Richard E. Hawley General Richard E. Hawley | Director | June 10, 2008 | ||||
/s/ Herbert J. Lanese Herbert J. Lanese | Director | June 10, 2008 | ||||
/s/ General Barry R. McCaffrey General Barry R. McCaffrey | Director | June 10, 2008 | ||||
/s/ Ramzi M. Musallam Ramzi M. Musallam | Director | June 10, 2008 |
89
Signature | Title | Date | ||||
/s/ Admiral Joseph W. Prueher Admiral Joseph W. Prueher | Director | June | ||||
/s/ Charles S. Ream Charles S. Ream | Director | June | ||||
/s/ General Peter J. Schoomaker General Peter J. Schoomaker | Director | June 10, 2008 | ||||
/s/ Admiral Leighton W. Smith Jr. Admiral Leighton W. Smith, Jr. | ||||||
| ||||||
/s/ William G. Tobin William G. Tobin |
90
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. |
|
+ | Management contracts or compensatory plans or arrangements. |
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. | ||||
Previously filed as an exhibit to Amendment No. 2 toForm S-1 (Reg. No.333-128637) filed with the SEC on November 30, 2005. | ||||
Previously filed as an exhibit toForm 10-K filed with the SEC on June 29, 2006. | ||||
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) | — | Filed as an exhibit to DynCorp International LLC’sForm 10-K filed with the SEC on June 10, 2008. |
* Filed herewith.92
+ Management contracts or compensatory plans or arrangements.
(A)—Previously filed as an exhibit to Amendment No. 1 to DynCorp International LLC's Registration Statement on Form 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 to Form S-1 (Reg. No. 333-128637) filed with the SEC on November 30, 2005.
(C)—Previously filed as an exhibit to Form 10-K filed with the SEC on June 29, 2006.
(D)—Previously filed as an exhibit to Amendment No. 3 to Form S-1 (Reg. No. 333-128637) filed with the SEC on March 27, 2006.
(E)—Previously filed as an exhibit to Form 8-K filed with the SEC on July 19, 2006.
(F)—Previously filed as an exhibit to Form 8-K filed with the SEC on December 15, 2006.
(G)—Previously filed as an exhibit to Form 8-K filed with the SEC on February 27, 2007.
(H)—Previously filed as an exhibit to DynCorp International LLC's Form 8-K filed with the SEC on January 11, 2006.
(I)—Previously filed as an exhibit to DynCorp International LLC's Form 8-K filed with the SEC on April 17, 2006.
(J)—Previously filed as an exhibit to Form 8-K filed with the SEC on September 18, 2006.
(K)—Previously filed as an exhibit to DynCorp International LLC's Form 8-K filed with the SEC on April 4, 2006.