UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July 3,~~October 2, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-32869

DYNCORP INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)


Delaware		01-0824791
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		~~01-0824791~~ ~~(I.R.S. Employer~~ Identification No.)

3190 Fairview Park Drive, Suite 700, Falls Church, Virginia 22042
(571) 722-0210
(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso Noþ

As of ~~August~~November 3, 2009, the registrant had ~~56,251,900~~56,273,575 shares of its Class A common stock outstanding.

Disclosure Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements, written, oral or otherwise made, represent our expectation or belief concerning future events. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties. Statements regarding the amount of our backlog, estimated remaining contract values and estimated total contract values are other examples of forward-looking statements. We caution that these statements are further qualified by important economic, competitive, governmental and technological factors that could cause our business, strategy or actual results or events to differ materially, or otherwise, from those in the forward-looking statements. These factors, risks and uncertainties include, among others, the following: the future impact of acquisitions, joint ventures or teaming agreements; our substantial level of indebtedness; the outcome of any material litigation, government or internal investigation or other regulatory matter; policy and/or spending changes implemented by the ~~new Presidential~~Obama administration; termination of key U.S. government contracts; changes in the demand for services that we provide; work awarded under our contracts, including without limitation, the Civilian Police, International Narcotics and Law Enforcement, Worldwide Personnel Protection Services (“WPPS”) and Logistics Civil Augmentation Program (“LOGCAP IVIV”) contracts; pursuit of new commercial business in the U.S. and abroad; activities of competitors; bid protests; changes in significant operating expenses; changes in availability of or cost of capital; general political, economic and business conditions in the United States (“U.S.”); acts of war or terrorist activities; variations in performance of financial markets; the inherent difficulties of estimating future contract revenue; anticipated revenue from indefinite delivery, indefinite quantity contracts; expected percentages of future revenue represented by fixed-price and time-and-materials contracts, including increased competition with respect to task orders subject to such contracts; and statements covering our business strategy, those described in “Risk Factors” and other risks detailed from time to time in our reports filed with the ~~SEC.~~Securities and Exchange Commission (“SEC”). Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and therefore there can be no assurance that any forward-looking statement contained herein will prove to be accurate. We assume no obligation to update the forward-looking statements.

PART I — FINANCIAL INFORMATION


ITEM 1.		FINANCIAL STATEMENTS

DYNCORP INTERNATIONAL INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)


	For the Fiscal Quarter Ended						For the Three Months Ended
	July 3, 2009			July 4, 2008			October 2, 2009			October 3, 2008

Revenue	$	785,177		$	716,794		$	821,372		$	779,151

Cost of services		(699,093	)		(638,389	)		(727,279	)		(696,519	)
Selling, general and administrative expenses		(23,438	)		(27,851	)		(31,304	)		(25,994	)
Depreciation and amortization expense		(10,145	)		(10,560	)		(10,238	)		(10,005	)

Operating income		52,501			39,994			52,551			46,633
Interest expense		(14,610	)		(14,215	)		(13,691	)		(14,905	)
Loss on early extinguishment of debt								(162	)		(4,443	)
Earnings from affiliates		1,054			1,117			1,527			1,523
Interest income		339			344			103			677
Other (loss)/income, net		(213	)		705			(12	)		960

Income before income taxes		39,071			27,945			40,316			30,445
Provision for income taxes		(12,627	)		(9,316	)		(13,301	)		(9,131	)

Net income		26,444			18,629			27,015			21,314
Noncontrolling interests		(5,799	)		(649	)		(6,460	)		(8,443	)

Net income attributable to DynCorp International Inc.	$	20,645		$	17,980		$	20,555		$	12,871


Basic and diluted earnings per share	$	0.36		$	0.31		$	0.37		$	0.23

DYNCORP INTERNATIONAL INC.

UNAUDITED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

As of
July 3, 2009 April 3, 2009
ASSETS

Current assets:
Cash and cash equivalents $ 159,293 $ 200,222
Restricted cash 5,700 5,935
Accounts receivable, net of allowances of $348 and $68, respectively 639,470 564,432
Prepaid expenses and other current assets 110,025 124,214

Total current assets 914,488 894,803
Property and equipment, net 18,481 18,338
Goodwill 420,180 420,180
Tradename 18,318 18,318
Other intangibles, net 133,763 142,719
Deferred income taxes 8,430 12,788
Other assets, net 31,965 32,068

Total assets $ 1,545,625 $ 1,539,214

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Current portion of long-term debt $ — $ 30,540
Accounts payable 196,198 160,419
Accrued payroll and employee costs 120,500 137,993
Deferred income taxes 9,615 8,278

Other accrued liabilities 117,381 111,590
Income taxes payable 5,437 5,986

Total current liabilities 449,131 454,806

Long-term debt, less current portion 566,383 569,372
Other long-term liabilities 5,618 6,779

Total liabilities 1,021,132 1,030,957

Commitments and contingencies

Shareholders’ equity:
Common stock, $0.01 par value — 232,000,000 shares authorized; 57,000,000 shares issued and 56,251,900 and 56,306,800 shares outstanding, respectively 570 570
Additional paid-in capital 366,910 366,620
Retained earnings 164,018 143,373
Treasury shares, 748,100 shares and 693,200 shares, respectively (9,330 ) (8,618 )
Accumulated other comprehensive loss (3,510 ) (4,424 )

Total shareholders’ equity attributable to DynCorp International Inc. 518,658 497,521
Noncontrolling interests 5,835 10,736

Total equity 524,493 508,257

Total liabilities and shareholders’ equity $ 1,545,625 $ 1,539,214


	For the Six Months Ended
	October 2, 2009			October 3, 2008

Revenue	$	1,606,549		$	1,495,945

Cost of services		(1,426,372	)		(1,334,908	)
Selling, general and administrative expenses		(54,742	)		(53,845	)
Depreciation and amortization expense		(20,383	)		(20,565	)

Operating income		105,052			86,627
Interest expense		(28,301	)		(29,120	)
Loss on early extinguishment of debt		(146	)		(4,443	)
Earnings from affiliates		2,581			2,640
Interest income		442			1,021
Other (loss)/income, net		(241	)		1,665

Income before income taxes		79,387			58,390
Provision for income taxes		(25,928	)		(18,447	)

Net income		53,459			39,943
Noncontrolling interests		(12,259	)		(9,092	)

Net income attributable to DynCorp International Inc.	$	41,200		$	30,851


Basic and diluted earnings per share	$	0.73		$	0.54

See notes to consolidated financial statements.

DYNCORP INTERNATIONAL INC.

UNAUDITED CONSOLIDATED ~~STATEMENTS OF CASH FLOWS~~BALANCE SHEETS

(~~Dollars~~Amounts in ~~thousands)~~thousands, except share data)

For the Fiscal Quarter Ended
July 3, 2009 July 4, 2008

Cash flows from operating activities

Net income $ 26,444 $ 18,629
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 10,424 10,811
Amortization of deferred loan costs 1,000 821
Allowance for losses on accounts receivable 264 —
Earnings from affiliates (1,054 ) (1,117 )
Deferred income taxes 8,229 (1,609 )
Equity-based compensation 866 (803 )
Other (4 ) (256 )
Changes in assets and liabilities:
Restricted cash 235 5,236
Accounts receivable (75,302 ) (138,958 )
Prepaid expenses and other current assets 14,035 (25,560 )
Accounts payable and accrued liabilities 23,131 56,382
Income taxes payable (2,820 ) 5,293

Net cash provided by (used in) operating activities 5,448 (71,131 )

Cash flows from investing activities

Purchase of property and equipment (780 ) (1,208 )
Purchase of computer software (514 ) (608 )
Other assets — 365

Net cash used in investing activities (1,294 ) (1,451 )

Cash flows from financing activities

Payments on long-term debt (34,337 ) (1,548 )
Purchases of treasury stock (712 ) —
Borrowings under other financing arrangements — 22,319
Payments of dividends to noncontrolling interests (10,034 ) —
Other financing activities — (68 )

Net cash (used in) provided by financing activities (45,083 ) 20,703

Net decrease in cash and cash equivalents (40,929 ) (51,879 )
Cash and cash equivalents, beginning of period 200,222 85,379

Cash and cash equivalents, end of period $ 159,293 $ 33,500

Income taxes paid (net of refunds) $ 614 $ 7,023
Interest paid $ 4,599 $ 10,866
Non-cash investing activities $ — $ 4,265


		As of
		October 2, 2009			April 3, 2009
ASSETS
Current assets:
Cash and cash equivalents		$	132,084		$	200,222
Restricted cash			15,990			5,935
Accounts receivable, net of allowances of $348 and $68, respectively			636,352			564,432
Prepaid expenses and other current assets			116,277			124,214

Total current assets	��		900,703			894,803
Property and equipment, net			54,166			18,338
Goodwill			420,180			420,180
Tradename			18,318			18,318
Other intangibles, net			125,377			142,719
Deferred income taxes			9,530			12,788
Other assets, net			30,177			32,068

Total assets		$	1,558,451		$	1,539,214

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	14,137		$	30,540
Accounts payable			213,699			160,419
Accrued payroll and employee costs			113,275			137,993
Deferred income taxes			14,700			8,278
Other accrued liabilities			108,390			111,590
Income taxes payable			3,843			5,986

Total current liabilities			468,044			454,806
Long-term debt, less current portion			537,887			569,372
Other long-term liabilities			6,101			6,779

Total liabilities			1,012,032			1,030,957

Commitments and contingencies

Shareholders’ equity:
Common stock, $0.01 par value — 232,000,000 shares authorized; 57,000,000 shares issued and 56,273,575 and 56,306,800 shares outstanding, respectively			570			570
Additional paid-in capital			367,225			366,620
Retained earnings			184,573			143,373
Treasury shares, 726,425 shares and 693,200 shares, respectively			(9,085	)		(8,618	)
Accumulated other comprehensive loss			(3,257	)		(4,424	)

Total shareholders’ equity attributable to DynCorp International Inc.			540,026			497,521
Noncontrolling interests			6,393			10,736

Total equity			546,419			508,257

Total liabilities and shareholders’ equity		$	1,558,451		$	1,539,214

See notes to consolidated financial statements.

DYNCORP INTERNATIONAL INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)


	For the Six Months Ended
	October 2, 2009			October 3, 2008
Cash flows from operating activities
Net income	$	53,459		$	39,943
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		20,979			21,087
Amortization of deferred loan costs		1,969			1,723
Loss on early extinguishment of debt		146			4,443
Recovery for losses on accounts receivable		(12	)		(173	)
Equity-based compensation		2,171			1,225
Loss on disposition of assets, net		453			—
Earnings from affiliates		(2,581	)		(2,640	)
Distributions from affiliates		1,725			1,385
Deferred income taxes		13,540			(4,112	)
Other		195			(304	)
Changes in assets and liabilities:
Restricted cash		(10,055	)		7,326
Accounts receivable		(71,908	)		(64,104	)
Prepaid expenses and other current assets		7,054			(26,070	)
Accounts payable and accrued liabilities		21,519			54,096
Income taxes payable		(5,276	)		4,128

Net cash provided by operating activities		33,378			37,953

Cash flows from investing activities
Purchase of property and equipment		(34,687	)		(2,303	)
Purchase of computer software		(1,635	)		(1,212	)
Change in cash restricted as collateral on letters of credit		—			(16,568	)
Other		60			365

Net cash (used in) investing activities		(36,262	)		(19,718	)

Cash flows from financing activities
Borrowings on long-term debt		—			323,751
Payments on long-term debt		(48,626	)		(301,129	)
Purchases of treasury stock		(712	)		—
Borrowings under other financing arrangements		—			16,158
Payments of deferred financing cost		13			(9,645	)
Payments of dividends to noncontrolling interests		(15,936	)		—
Other financing activities		7			30

Net cash (used in) provided by financing activities		(65,254	)		29,165

Net (decrease) increase in cash and cash equivalents		(68,138	)		47,400
Cash and cash equivalents, beginning of period		200,222			85,379

Cash and cash equivalents, end of period	$	132,084		$	132,779

Income taxes paid, net of refunds	$	9,848		$	18,965
Interest paid	$	27,103		$	30,054
Non-cash investing activities	$	3,394		$	10,722

See notes to consolidated financial statements.

DYNCORP INTERNATIONAL INC.

UNAUDITED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars and Shares in ~~Thousands)~~thousands)


																		Total
																		Shareholders’
																		Equity
															Accumulated			Attributable																						Accumulated			Total Shareholders’
						Additional									Other			to DynCorp														Additional								Other			Equity Attributable
	Common					Paid-in			Retained			Treasury			Comprehensive			International			Noncontrolling			Total								Paid in		Retained			Treasury			Comprehensive			to DynCorp			Noncontrolling
	Stock					Capital			Earnings			Stock			Income (Loss)			Inc.			Interests			Equity			Common Stock					Capital		Earnings			Shares			Income (Loss)			International Inc.			Interests			Total Equity
Balance at April 3, 2009		56,307		$	570	$	366,620		$	143,373		$	(8,618	)	$	(4,424	)	$	497,521		$	10,736		$	508,257			56,307		$	570	$	366,620	$	143,373		$	(8,618	)	$	(4,424	)	$	497,521		$	10,736		$	508,257
Comprehensive income (loss):
Net income							—			26,444			—			—			26,444			—			26,444								—		53,459						—			53,459			—			53,459
Interest rate swap, net of tax							—			—			—			566			566			—			566								—		—			—			769			769			—			769
Currency translation adjustment, net of tax							—			—			—			348			348			—			348								—		—			—			398			398			—			398

Comprehensive income							—			26,444			—			914			27,358			—			27,358								—		53,459			—			1,167			54,626			—			54,626
Noncontrolling interests							—			(5,799	)		—			—			(5,799	)		—			(5,799)										(12,259	)		—						(12,259	)					(12,259	)

Comprehensive income attributable to DynCorp International Inc.							—			20,645			—			914			21,559			—			21,559										41,200			—			1,167			42,367			—			42,367
Net income and comprehensive income attributable to noncontrolling interests							—			—			—			—			—			5,799			5,799
Net Income and comprehensive income attributable to noncontrolling interests																																			—			—			—			—			12,259			12,259
DIFZ financing, net of tax							112			—			—			—			112			—			112								189		—			—			—			189			—			189
Treasury stock		(55	)				—			—			(712	)		—			(712	)		—			(712	)
Treasury share repurchases																												(55	)				—		—			(712	)		—			(712	)		—			(712	)
Treasury shares issued to settle RSU liability																												22					55		—			245			—			300			—			300
Equity-based compensation							191			—			—			—			191			—			191								354		—			—			—			354			—			354
Tax benefit associated with equity-based compensation							(13	)		—			—			—			(13	)		—			(13	)
Dividends declared to noncontrolling interests							—			—			—			—			—			(10,700	)		(10,700	)
Tax benefit reduction associated with equity-based compensation																																	7		—			—			—			7			—			7
Dividends paid to noncontrolling interests																																	—		—			—			—			—			(16,602	)		(16,602	)

Balance at July 3, 2009		56,252		$	570	$	366,910		$	164,018		$	(9,330	)	$	(3,510	)	$	518,658		$	5,835		$	524,493
Balance at October 2, 2009																												56,274		$	570	$	367,225	$	184,573		$	(9,085	)	$	(3,257	)	$	540,026		$	6,393		$	546,419

DYNCORP INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Accounting Policies

Basis of Presentation

DynCorp International Inc., through its subsidiaries, is a leading provider of specialized, mission-critical professional and support services for the U.S. military, non-military U.S. governmental agencies and foreign governments. Our specific global expertise is in law enforcement training and support, security services, base and logistics operations, construction management, aviation services and operations and linguist ~~services. We also provide logistics support for all our~~ services. References herein to “DynCorp International”, the “Company”, “we”, “our”, or “us” refer to DynCorp International Inc. and its subsidiaries unless otherwise stated or indicated by the context.

The consolidated financial statements include the accounts of the Company and our domestic and foreign subsidiaries. These consolidated financial statements have been prepared, without audit, pursuant to accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that all disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto included in the Company’s fiscal 2009 Annual Report on Form 10-K, filed with the ~~Securities and Exchange Commission (the “SEC”)~~SEC on June 11, 2009.

We report our results on a 52/53 week fiscal year with the fiscal year ending on the Friday closest to March 31 of such year (April 2, 2010 for fiscal year 2010 which is a 52 week fiscal year). The ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009 was a 13-week period from July 4, 2009 to October 2, 2009. The three months ended October 3, 2008 was a 13-week period from July 5, 2008 to October 3, 2008. The six months ended October 2, 2009 was a 26-week period from April 4, 2009 to ~~July 3,~~October 2, 2009. The ~~fiscal quarter~~six months ended ~~July 4,~~October 3, 2008 was a ~~14-week~~27-week period from March 29, 2008 to ~~July 4,~~October 3, 2008.

In the opinion of management, all adjustments necessary to fairly present our financial position at ~~July 3,~~October 2, 2009 and April 3, 2009, the results of operations for the ~~fiscal quarters~~three and six months ended ~~July 3,~~October 2, 2009 and ~~July 4,~~October 3, 2008, and cash flows for the ~~fiscal quarters~~six months ended ~~July 3,~~October 2, 2009 and ~~July 4,~~October 3, 2008, have been included. The results of operations for the ~~fiscal quarter~~three months and the six months ended ~~July 3,~~October 2, 2009 are not necessarily indicative of the results to be expected for the full fiscal year or for any future periods. We use estimates and assumptions required for preparation of the financial statements. The estimates are primarily based on historical experience and business knowledge and are revised as circumstances change. However, actual results could differ from the estimates.

As a result of the implementation of ~~Statement of~~the noncontrolling interest rules in accordance with the Financial Accounting Standards ~~(the “FASB”~~Board Codification (“ASC”) ~~No. 160 “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”)~~810 —Consolidation, certain prior year amounts have been reclassified to conform to the current year presentation. This ~~included~~includes moving the $10.7 million noncontrolling interests balance (previously “Minority Interest”) as of April 3, 2009 out of the mezzanine section of the balance sheet and into the equity section. Such reclassifications have no impact on previously reported net income attributable to DynCorp International Inc.

Principles of Consolidation

The consolidated financial statements include the accounts of both our domestic and foreign subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Generally, investments in which we own a 20% to 50% ownership interest are accounted for by the equity method. These investments are in business entities in which we do not have control, but have the ability to exercise significant influence over operating and financial policies and are not the primary beneficiary as defined in ~~FASB Interpretation No. 46R (Revised 2003),~~ASC 810 —“Consolidation ~~of Variable Interest Entities”~~~~(“FIN No. 46R”)~~. We have no investments in business entities of less than 20%.

We have ownership interests in three active joint ventures that are not consolidated into our financial statements as of ~~July 3,~~October 2, 2009, and are accounted for using the equity method. ~~We also have open joint venture agreements in inactive entities that are not material to our financials.~~ Economic rights in active joint ventures are indicated by the ownership percentages in the table listed below.


Contingency Response Services LLC	45.0	%
Babcock DynCorp Limited	44.0	%
Partnership for Temporary Housing LLC	40.0	%

In fiscal year 2009, we sold 50% of our ownership interest in our previously wholly owned subsidiary, DynCorp International FZ-LLC (“DIFZ”), for approximately $9.7 million. DIFZ was previously a wholly owned subsidiary and, therefore, consolidated into our financial statements. The sale was accounted for as a capital transaction reflected in additional paid in capital. We have financed the transaction by accepting three promissory notes provided by the purchaser. Repayment of the notes included a $0.5 million dollar payment in fiscal year 2009, with the remainder to be repaid through a portion of the purchaser’s DIFZ quarterly dividends. A dividend was declared in June 2009, a portion of which reduced our note receivable balance. This dividend is expected to be paid in our second quarter of fiscal year 2010. Additionally, the next dividend is scheduled to be declared and paid during the second quarter ending October 2, 2009. As of the date of the transaction, it was determined that we were the primary beneficiary as defined in FIN No. 46R.

The following table sets forth our ownership in joint ventures that are consolidated into our financial statements as of ~~July 3,~~October 2, 2009. For the entities list below, we are the primary beneficiary as defined in ~~FIN No. 46R.~~ASC 810 —Consolidation.



Global Linguist Solutions LLC	51.0	%
DynCorp International FZ-LLC	50.0	%

Noncontrolling Interests

We hold various ownership interests in a number of joint ventures as disclosed in Note 1 to our fiscal 2009 Annual Report on Form 10-K as filed with the SEC on June 11, 2009. We are required by GAAP to consolidate certain joint ventures for which we do not hold a 100% interest. We record the impact of our joint venture partners’ interests in these consolidated joint ventures as noncontrolling interests. Noncontrolling interests is presented on the face of the income statement as an increase or reduction in arriving at net income attributable to DynCorp International Inc. The presentation of noncontrolling interests on the balance sheet is located in the equity section.

Restricted cash

Restricted cash represents cash restricted by certain contracts in which advance payments are not available for use except to pay specified costs and vendors for work performed on the specific contract and cash restricted and invested as collateral as required by our letters of credit. Changes in restricted cash related to our contracts are included as operating activities whereas changes in restricted cash for funds invested as collateral are included as investing activities in the consolidated statements of cash flows.

Property and Equipment

Depreciation expense was $1.0 million and ~~$0.8~~$0.7 million for the ~~quarters~~three months ended ~~July 3,~~October 2, 2009 and ~~July 4,~~October 3, 2008, respectively. Depreciation expense was $2.0 million and $1.5 million for the six months ended October 2, 2009 and October 3, 2008, respectively. Accumulated depreciation was ~~$9.4~~$9.2 million and $8.6 million ~~as of July 3,~~at October 2, 2009 and April 3, 2009, respectively.

Accounting Policies

There have been no material changes to our other significant accounting policies as detailed in Note 1 of our fiscal 2009 Annual Report on Form 10-K filed with the SEC on June 11, 2009, except for the accounting rule changes associated with noncontrolling interests, which only affects presentation and disclosure. See~~Pronouncements Implementedbelow.~~not disclosed above.

Accounting Developments

Pronouncements Implemented

In December 2007, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~SFAS~~Statement of Financial Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which is an amendment of Accounting Research Bulletin No. 51. ~~This~~Certain portions of this statement were incorporated into the Accounting Standards Codifications (“ASC”) 810 —Consolidation. ASC 810 covers several areas including (i) defining the way the noncontrolling interests should be presented in the financial statements and notes, (ii) ~~clarifies~~clarifying that all transactions between a parent and subsidiary are to be accounted for as equity transactions if the parent retains its controlling financial interest in the subsidiary and (iii) ~~requires~~requiring that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We adopted this statement in the first quarter of fiscal year 2010, which changed our presentation of noncontrolling interests on our consolidated statements of income, consolidated balance sheets, consolidated statements of cash flows and consolidated statements of shareholders’ equity. We have applied ~~SFAS No. 160~~the newly codified noncontrolling interest rules in ASC 810 retrospectively to the presentation of our balance sheets, statements of income, statements of cash flows and ~~statement~~statements of equity.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). This statement replaces FASB Statement No. 141, “Business Combinations.” Certain portions of this statement were incorporated into the ASC 805 —Business Combinations. This ~~statement~~topic area retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. ~~This statement~~ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Additionally, ~~this statement~~ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. Furthermore, ~~this statement~~ASC 805 also requires acquisition related costs to be expensed as incurred. ~~This statement has been~~ASC 805 was adopted in the first quarter of fiscal year 2010.

In December 2007, the FASB ratified EITF 07-1, “Accounting for Collaborative Arrangements”. ~~EITF 07-1~~Certain portions of this statement were incorporated into the ASC 808 —Collaborative Arrangements. ASC 808 provides guidance for determining if a collaborative arrangement exists and establishes procedures for reporting revenue and costs generated from transactions with third parties, as well as between the parties within the collaborative arrangement, and provides guidance for financial statement disclosures of collaborative arrangements. ~~EITF 07-1~~ASC 808 became effective for us in the first quarter of fiscal year 2010. The adoption of ~~EITF 07-1~~ASC 808 did not have a material effect on our consolidated financial position or results of operations. We have included additional disclosure on a collaborative arrangement in Note 12.

In April 2008, the FASB issued Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. 142-3”). ~~FSP No. 142-3~~Certain portions of this statement were incorporated into both ASC 350 —Intangiblesas well as ASC 275 —Risks and Uncertainties. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). ~~FSP No. 142-3 is~~The applicable portions of the ASC are effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will apply ~~FSP No. 142-3~~the newly codified rules for any applicable events and transactions in fiscal year 2010.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” ~~This FSP~~Certain portions of this statement were incorporated into ASC — 260Earnings Per Share. The codification provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The adoption of ~~FSP EITF 03-6-1~~the newly codified rules in ASC 260 did not ~~have, and is not expected to~~ have a material impact on basic or diluted earnings per share.

In April 2009, the FASB issued FSP FAS 141(R)-1 “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies” (“FSP FAS 141(R)-1”). Certain portions of this statement were incorporated into ASC 805 —Business Combinations. This clarifies guidance pertaining to contingencies. The updated guidance states that an acquirer shall recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value of an asset acquired or a liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, an asset or a liability shall be recognized at the acquisition date if both of the following criteria are met which are (i) information available before the end of the measurement period indicates that it is probable that an asset existed or that a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. We will apply the newly codified guidance in ASC 805 for any applicable events and transactions in fiscal year 2010.

In May 2009, the FASB issued Statement of Financial Standards No. 165 “Subsequent Events (as amended)” (“SFAS No. 165”), which provides guidance on management’s assessment of subsequent events. Certain portions of this statement were incorporated into the ASC — 855Subsequent Events. The new ~~standard~~guidance clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date ~~“through~~through the date that the financial statements are issued or are available to be issued.” Management must perform its assessment for both interim and annual financial reporting periods. ~~SFAS No. 165~~ASC 855 requires management to disclose, in addition to the disclosures in the American Institute of Certified Public Accountants Auditing Standards ~~Section~~(“AU”) 560, the date through which subsequent events have been evaluated and whether that is the date on which the financial statements were issued or were available to be issued. ~~SFAS No. 165~~ASC 855 is effective prospectively for interim or annual financial periods ending after June 15, 2009. We have adopted this guidance through enhanced disclosures for any applicable events and transactions as further described in Note 15.

In June 2009, the FASB issued SFAS No. 168, “FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). Certain portions of this statement were incorporated into ASC 105 —Generally Accepted Accounting Principles. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. ASC 105 replaced SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”), and establishes only two levels of GAAP, authoritative and non-authoritative. The codification is the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the codification will become non-authoritative. As the codification was not intended to change or alter existing GAAP, it did not have any impact on our consolidated financial statements.

Pronouncements Not Yet Implemented

In April 2009, the FASB issued FSP FAS 141(R) — “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies (“FSP FAS 141(R)”). This clarifies guidance pertaining to contingencies. FSP FAS 141(R) states that an acquirer shall recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value of an asset acquired or a liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, an asset or a liability shall be recognized at the acquisition date if both of the following criteria are met which are (i) information available before the end of the measurement period indicates that it is probable that an asset existed or that a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. We will apply FSP FAS 141 (R) for any applicable events and transactions in fiscal year 2010.

In June 2009, the FASB issued Statement of Financial Standards No. 167, “Amendments to FASB Interpretation 46(R)” (“SFAS No. 167”). SFAS No. 167 will be incorporated into ASC 810 -Consolidationonce effective. This statement amends the guidance for (i) determining whether an entity is a variable interest entity (“VIE”), (ii) the determination of the primary beneficiary of a variable interest entity, (iii) requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and (iv) changes the disclosure requirements in FIN 46(R)-8. This Statement is effective as of our first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. We are currently evaluating the future impact to SFAS No. 167 on our financial statements.

In ~~June~~October 2009, the FASB issued ~~SFAS No. 168,~~~~The~~~~“FASB~~ Accounting Standards ~~Codification and the Hierarchy of Generally Accepted Accounting Principles”~~Update No. 2009-013, “Revenue Recognition Multiple-Deliverable Revenue Arrangements” (“~~SFAS No. 168”~~ASU-12”). This ~~standard will replace SFAS No. 162, “The Hierarchy~~update (i) removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to determine whether an arrangement involving multiple deliverables contains more than one unit of ~~Generally Accepted Accounting Principles (“SFAS No. 162”),~~accounting, (ii) replaces references to “fair value” with “selling price” to distinguish from the fair value measurements required under theFair Value Measurements and ~~establishes only two levels of GAAP, authoritative and non-authoritative. The codification will become~~Disclosuresguidance, (iii) provides a hierarchy that entities must use to estimate the ~~source of authoritative, nongovernmental GAAP, except for rules and interpretive releases~~selling price, (iv) eliminates the use of the ~~SEC, which are sources~~residual method for allocation, and (v) expands the ongoing disclosure requirements. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption is permitted. Management is currently evaluating the effect that adoption of ~~authoritative GAAP for SEC registrants. As~~this update will have on the ~~codification was not intended to change or alter existing GAAP, it will not have any impact on our~~company’s consolidated financial statements. All other non-grandfathered, non-SEC accounting literature not included in the codification will become non-authoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009.position and results of operations.

Note 2—Earnings Per Share

Basic earnings per share are based on the weighted average number of common shares outstanding during each period. Diluted earnings per share isare based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents during each period. ~~We did not have any dilutive stock equivalents during the periods presented.~~

As discussed in Note 1, we adopted ~~FSP EITF 03-6-1~~ASC 260 during ~~our first quarter of~~ fiscal year 2010. Under ~~the FSP, our unvested restricted~~ASC 260, common stock ~~unit awards~~equivalents that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and, therefore, are included in the computation of basic earnings per share pursuant to the two-class method. ~~The FSP has been applied retrospectively~~As of October 2, 2009, we did not have any common stock equivalents that contained non-forfeitable rights to ~~all periods presented.~~dividends or dividend equivalents.

As of the period ended October 2, 2009, our only common stock equivalents were restricted stock units (“RSUs”) and performance stock units (“PSUs”). Our RSUs and PSUs may be dilutive and included in earnings per share calculations or anti-dilutive and excluded as they are liability awards per the guidance in ASC 718 —Compensation — Stock Compensation. The following table reconciles the numerators and denominators used in the computations of basic and diluted earnings per share:


							For the Three Months Ended				For the Six Months Ended
	For the Fiscal Quarter Ended						October 2,		October 3,		October 2,		October 3,
(Amounts in thousands, except per share data)	July 3, 2009			July 4, 2008			2009		2008		2009		2008
Numerator
Net income attributable to DynCorp International Inc.	$	20,645		$	17,980		$	20,555	$	12,871	$	41,200	$	30,851
Less undistributed earnings allocated to participating securities		(112	)		(57	)
Denominator
Weighted average common shares — basic								56,268		57,000		56,263		57,000
Weighted average affect of dilutive securities:

Undistributed earnings allocated to common stock	$	20,533		$	17,923
Denominator
Weighted average common shares — basic and diluted		56,258			57,000
Restricted and performance stock units								—		61		33		40

Basic and diluted earnings per share	$	0.36		$	0.31
Weighted average common shares-diluted								56,268		57,061		56,296		57,040


Basic earnings per share							$	0.37	$	0.23	$	0.73	$	0.54
Diluted earnings per share							$	0.37	$	0.23	$	0.73	$	0.54


	April 3, 2009
	Weighted
	Average
	Useful Life		Gross		Accumulated
(Amounts in thousands, except years)	(Years)		Carrying Value		Amortization			Net

Finite-lived intangible assets:
Customer-related intangible assets		8.5	$	290,716	$	(155,142	)	$	135,574
Other		5.5		15,351		(8,206	)		7,145

			$	306,067	$	(163,348	)	$	142,719


Indefinite-lived intangible assets — Tradename			$	18,318	$	—		$	18,318

Amortization expense for customer-related and other intangibles was $9.5 million for the three months ended October 2, 2009 and ~~$10.1~~October 3, 2008, and $19.0 million and $19.6 million for the ~~fiscal quarters~~six months ended ~~July 3,~~October 2, 2009 and ~~July 4,~~October 3, 2008, respectively.

The following schedule outlines an estimate of future amortization based upon the finite-lived intangible assets owned at ~~July 3,~~October 2, 2009:


	Amortization		Amortization
	Expense		Expense
	(Dollars in thousands)		(Dollars in
Nine month period ended April 2, 2010	$	28,255
			thousands)
Six month period ended October 2, 2010			$	18,995
Estimate for fiscal year 2011		33,618		33,926
Estimate for fiscal year 2012		22,986		23,248
Estimate for fiscal year 2013		19,308		19,480
Estimate for fiscal year 2014		8,184		8,282
Thereafter		21,412		21,446

During the ~~quarter~~three and six months ended ~~July 3,~~October 2, 2009, we paid ~~$1.9~~$2.2 million and $4.1 million in net settlements and incurred ~~$2.1~~$2.2 million of expenses of which $1.9 million was recorded to interest expense and ~~$0.2~~$0.3 million was recorded to other (loss)/~~income. In~~income and incurred $4.3 million of expenses, of which $3.8 million was recorded to interest expense and $0.5 million was recorded to other (loss)/income, respectively.

During the ~~quarter~~three and six months ended ~~July 4,~~October 3, 2008, we paid ~~$1.6~~$1.5 million and $3.1 million in net settlements and incurred ~~$1.9~~$1.1 million of expenses, which was recorded to interest expense and incurred $3.0 million in expenses of which ~~$1.5~~$2.6 million was recorded to interest expense and $0.4 million was recorded to other (loss)/~~income.~~income, respectively.

Amounts are reclassified from accumulated other comprehensive income into earnings as net cash settlements occur, changes from quarterly derivative valuations are updated, new circumstances dictate the disqualification of hedge accounting and adjustments for cumulative ineffectiveness are recorded.

The fair values of our derivative instruments and the line items on the Consolidated Balance Sheet to which they were recorded as of ~~July 3,~~October 2, 2009 and April 3, 2009 are summarized as follows (in thousands):


		Fair Value at		Fair Value at			Fair Value at		Fair Value at
Derivatives designated as hedges under SFAS No. 133	Balance Sheet Location	July 3, 2009		April 3, 2009
Derivatives designated as hedges under ASC 815						Balance Sheet Location	October 2, 2009		April 3, 2009
Interest Rate Swaps	Other accrued liabilities	$	5,565	$	5,259	Other accrued liabilities	$	5,221	$	5,259
Interest Rate Swaps	Other long-term liabilities		—		957	Other long-term liabilities		—		957

	Total	$	5,565	$	6,216
						Total	$	5,221	$	6,216

The effects of our derivative instruments on other comprehensive income (“OCI”) and our Consolidated Statements of Income for the ~~quarter~~three months ended ~~July 3,~~October 2, 2009 are summarized as follows (in thousands):

Gains (Losses)

GAINS (LOSSES) RECLASSIFIED FROM

GAINS (LOSSES) RECOGNIZED

Recognized in OCI

GAINS (LOSSES) RECLASSIFIED FROM

GAINS (LOSSES) RECOGNIZED

ACCUMULATED OCI INTO INCOME

IN INCOME ON DERIVATIVES

on Derivatives

ACCUMULATED OCI INTO INCOME

IN INCOME ON DERIVATIVES

(EFFECTIVE PORTION)

(INEFFECTIVE PORTION)

(Effective Portion)

(EFFECTIVE PORTION)

(INEFFECTIVE PORTION)

Change in OCI from

Derivatives Designated as Cash Flow Hedging

Quarter ended July 3,

Line Item in Statements

Instruments under SFAS No. 133

2009

of Income

Amount

of Income

Amount

Gains (Losses)

Recognized in OCI

on Derivatives

Derivatives Designated as

(Effective Portion)

Line Item

Cash Flow Hedging

Three Months ended

Line Item in Statements

in Statements

Instruments under ASC 815

October 2, 2009

of Income

Amount

of Income

Amount

Interest rate derivatives

(5,319

)

Interest expense

(1,898

)

Other (loss)/income, net

—

320

Interest expense

(1,854

)

Other (loss)/income, net

—

Total

(5,319

)

(1,898

)

—

320

(1,854

)

—

The effects of our derivative instruments on other OCI and our Consolidated Statements of Income for the six months ended October 2, 2009 are summarized as follows (in thousands):

GAINS (LOSSES) RECLASSIFIED FROM

GAINS (LOSSES) RECOGNIZED

ACCUMULATED OCI INTO INCOME

IN INCOME ON DERIVATIVES

(EFFECTIVE PORTION)

(INEFFECTIVE PORTION)

Change in OCI from

Gains (Losses)

Recognized in OCI

on Derivatives

Derivatives Designated as

(Effective Portion)

Line Item

Cash Flow Hedging

Six Months ended

Line Item in Statements

in Statements

Instruments under ASC 815

October 2, 2009

of Income

Amount

of Income

Amount

Interest rate derivatives

1,206

Interest expense

(3,754

)

Other (loss)/income net

—

Total

1,206

(3,754

)

—

The effects of our derivative instruments on OCI and our Consolidated Statements of Income for the ~~quarter~~three months ended ~~July 4,~~October 3, 2008 are summarized as follows (in thousands):


	Gains (Losses)													GAINS (LOSSES) RECLASSIFIED FROM				GAINS (LOSSES) RECOGNIZED
	Recognized in OCI			GAINS (LOSSES) RECLASSIFIED FROM				GAINS (LOSSES) RECOGNIZED						ACCUMULATED OCI INTO INCOME				IN INCOME ON DERIVATIVES
	on Derivatives			ACCUMULATED OCI INTO INCOME				IN INCOME ON DERIVATIVES						(EFFECTIVE PORTION)				(INEFFECTIVE PORTION)
	(Effective Portion)			(EFFECTIVE PORTION)				(INEFFECTIVE PORTION)			Change in OCI from Gains
Derivatives Designated as Cash Flow Hedging	Quarter ended July 4,			Line Item in Statements				Line Item in Statements
Instruments under SFAS No. 133	2008			of Income	Amount			of Income	Amount
											(Losses)
											Recognized in OCI
											on Derivatives
Derivatives Designated as											(Effective Portion)							Line Item
Cash Flow Hedging											Three Months ended			Line Item in Statements				in Statements
Instruments under ASC 815											October 3, 2008			of Income	Amount			of Incomes	Amount
Interest rate derivatives	$	(5,627	)	Interest expense	$	(1,812	)	Interest expense	$	308	$	(56	)	Interest expense	$	(918	)	Interest expense	$	(152	)


Total	$	(5,627	)		$	(1,812	)		$	308	$	(56	)		$	(918	)		$	(152	)

General Legal Matters

We 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 any liability. Related to these matters, we have recorded a reserve of approximately ~~$18.5~~$21.3 million as of ~~July 3,~~October 2, 2009. While it is not possible to predict with certainty the outcome of litigation and other matters discussed below, we believe that liabilities in excess of those recorded, if any, arising from such matters would not have a material adverse effect on our results of operations, consolidated financial condition or liquidity over the ~~long term.~~long-term.

We have identified certain payments made to expedite the issuance of a limited number of visas and licenses from foreign government agencies that may raise compliance issues under the U.S. Foreign Corrupt Practices Act. The payments, which we believe totaled approximately $300,000 in the aggregate, were made to sub-contractors in connection with servicing a single existing task order that the Company has with a U.S. government agency. We have retained outside counsel to investigate these payments. We are in the process of evaluating our internal policies and procedures and are committed to improving our compliance procedures. During the past week, we voluntarily brought these matters to the attention of the U.S. Department of Justice and the Securities and Exchange Commission. We cannot predict the ultimate consequences of these matters at this time, nor can we reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known, we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flow. We have not recorded any reserves with respect to this matter.

Pending litigation and claims

On May 14, 2008, a jury in the Eastern District of Virginia found against us in a case brought by a former subcontractor, Worldwide Network Services (“WWNS”), on two Department of State (“DoS”) contracts, in which WWNS alleged racial discrimination, tortuous interference and certain other claims. The jury awarded WWNS approximately $15.7 million in compensatory and punitive damages and awarded us approximately ~~$200,000~~$0.2 million on a counterclaim. In addition to the jury award, the court awarded WWNS approximately $3.0 million in connection with certain contract claims. On September 22, 2008, WWNS was awarded approximately $1.8 million in attorneys’ fees. On February 2, 2009, we filed an appeal with respect to this matter. On September 22, 2009, the Court of Appeals heard oral arguments. As of ~~July 3,~~October 2, 2009, we believe we have adequate reserves recorded for this matter.

On ~~April 24, 2007,~~December 4, 2006, December 29, 2006, March 14, 2007 ~~December 29, 2006~~ and ~~December 4, 2006,~~April 24, 2007, four lawsuits were served, seeking unspecified monetary damages against DynCorp International LLC and several of its former affiliates in the U.S. District Court for the Southern District of Florida, concerning the spraying of narcotic plant crops along the Colombian border adjacent to Ecuador. Three of the lawsuits, filed on behalf of the Provinces of Esmeraldas, Sucumbíos, and Carchi in Ecuador, allege violations of Ecuadorian law, international law, and statutory and common law tort violations, including negligence, trespass, and nuisance. The fourth lawsuit, filed on behalf of citizens of the Ecuadorian provinces of Esmeraldas and Sucumbíos, alleges personal injury, various counts of negligence, trespass, battery, assault, intentional infliction of emotional distress, violations of the Alien Tort Claims Act, and various violations of international law. The four lawsuits were consolidated, and based on our motion granted by the court, the case was subsequently transferred to the U.S. District Court for the District of Columbia. On March 26, 2008, a First Amended Consolidated Complaint was filed that identified 3,266 individual plaintiffs. The amended complaint does not demand any specific monetary damages; however, a court decision against us, although we believe to be remote, could have a material adverse effect on our results of operations and financial condition. The aerial spraying operations were and continue to be managed by us under a DoS contract in cooperation with the Colombian government. The DoS contract provides indemnification to us against third-party liabilities arising out of the contract, subject to available funding. The DoS has reimbursed us for all legal expenses to date.

A lawsuit filed on September 11, 2001, and amended on March 24, 2008, seeking unspecified damages on behalf of twenty-six residents of the Sucumbíos Province in Ecuador, was brought against our operating company and several of its former affiliates in the U.S. District Court for the District of Columbia. The action alleges violations of the laws of nations and United States treaties, negligence, emotional distress, nuisance, battery, trespass, strict liability, and medical monitoring arising from the spraying of herbicides near the Ecuador-Colombia border in connection with the performance of the DoS, International Narcotics and Law Enforcement contract for the eradication of narcotic plant crops in Colombia. The terms of the DoS contract provide that the DoS will indemnify our operating company against third-party liabilities arising out of the contract, subject to available funding. The DoS has reimbursed us for all legal expenses to date. We are also entitled to indemnification by Computer Sciences Corporation in connection with this lawsuit, subject to certain limitations. Additionally, any damage award would have to be apportioned between the other defendants and our operating company. We believe that the likelihood of an unfavorable judgment in this matter is remote and that, even if that were to occur, the judgment is unlikely to result in a material adverse effect on our results of operations or financial condition as a result of the third party indemnification and apportionment of damages described above.

Arising out of the litigation described in the preceding two paragraphs, we filed a separate lawsuit against our aviation insurance carriers seeking defense and coverage of the referenced claims. The carriers filed a lawsuit against us on February 5, 2009 seeking rescission of certain aviation insurance policies based on an alleged misrepresentation by us concerning the existence of certain of the lawsuits relating to the eradication of narcotic plant crops.

On January 30, 2007, the Special Inspector General for Iraq Reconstruction (“SIGIR”) issued a report on one of our task orders concerning the Iraqi Police Training Program. Among other items, the report raises questions about our work to establish a residential camp in Baghdad to house training personnel. Specifically, the SIGIR report recommends that the DoS seek reimbursement ~~from us~~ of $4.2 million paid by the DoS to us for work that the SIGIR maintains was not contractually authorized. In addition, the SIGIR report recommends that the DoS request the Defense Contract Audit Agency (“DCAA”) to review two of our invoices totaling $19.1 million. On June 28, 2007, we received a letter from the DoS contracting officer requesting our repayment of approximately $4.0 million for work performed under this task order, which the letter claims was unauthorized. We responded to the DoS contracting officer in letters dated July 7, 2007 and September 4, 2007, explaining that the work for which we were paid by DoS was appropriately performed and denying DoS’ request for repayment of approximately $4.0 million. By letter dated April 30, 2008, the DoS contracting officer responded to our July 7, 2007 and September 4, 2007 correspondence by taking exception to the explanation set forth in our letters and reasserting the DoS’ request for a refund of approximately $4.0 million. On May 8, 2008, we replied to the DoS letter dated April 30, 2008 and provided additional support for our position.

On September 17, 2008, the U.S. Department of State Office of Inspector General (“OIG”) served us with a records subpoena for the production of documents relating to our Civilian Police Program in Iraq. Among other items, the subpoena seeks documents relating to our business dealings with a former subcontractor, Corporate Bank. We ~~are~~have been cooperating with the OIG’s investigation. In October 2009, we were notified by the Department of Justice that this investigation ~~and, based~~is being done in connection with aqui tamlitigation brought by a private individual on ~~information currently known to management, do not believe~~behalf of the U.S. government. The subject matter of this ~~matter will have a material adverse effect~~litigation is still under seal; therefore, we cannot assess its effects on our operating performance.

U.S. Government Audits

Our contracts are regularly audited by the DCAA and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our 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 us for allowable direct and indirect costs are subject to adjustment after audit by government auditors and repayment to the government if the payments exceed allowable costs as defined in the government contracts.

The Defense Contract Management Agency (“DCMA”) formally notified us of non-compliance with Cost Accounting Standard 403, Allocation of Home Office Expenses to Segments, on April 11, 2007. We issued a response to the DCMA on April 26, 2007 with a proposed solution to resolve the area of non-compliance, which related to the allocation of corporate general and administrative costs between our divisions. On August 13, 2007, the DCMA notified us that additional information would be necessary to justify the proposed solution. We issued responses on September 17, 2007, ~~and~~ April 28, 2008 and September 10, 2009 and the matter is pending resolution. Based on facts currently known, we do not believe the matters described in this and the preceding paragraph will have a material adverse effect on our results of operations or financial condition.

We are currently under audit by the Internal Revenue Service (“IRS”) for employment taxes covering the calendar years 2005 through 2007. In the course of the audit process, the IRS has questioned our treatment of exempting from U.S. employment taxes all U.S. residents working abroad for a foreign subsidiary. While we believe our treatment with respect to employment taxes, for these employees, was appropriate, a negative outcome on this matter could result in a potential liability, including penalties, of approximately $113.8 million related to these calendar years.

Contract Matters

During the first quarter of fiscal year 2009 we terminated for cause a contract to build the Akwa Ibom International Airport for the State of Akwa Ibom in Nigeria. Consequently, we terminated certain subcontracts and purchase orders the customer advised us it did not want to assume. Based on our experience with this particular Nigerian state government customer, we believe it is likely the customer will challenge our termination of the contract for cause and initiate legal action against us. Our termination of certain subcontracts not assumed by the customer, including our actions to recover against advance payment and performance guarantees established by the subcontractors for our benefit is being challenged in certain instances. Although we believe our right to terminate this contract and such subcontracts was justified and permissible under the terms of the contracts, and we intend to rigorously contest any claims brought against us arising out of such terminations, if courts were to conclude that we were not entitled to terminate one or more of the contracts and damages were assessed against us, such damages could have a material adverse effect on our results of operations or financial condition.

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Note 9—Equity-Based Compensation

As of ~~July 3,~~October 2, 2009, we have ~~provided~~outstanding equity-based compensation through the grant of ~~Class��~~Class B interests in DIV Holding LLC, the ~~majority~~largest holder of our common stock and ~~the grant of~~have granted restricted stock units ~~(“RSUs”)~~ and performance stock units ~~(“PSUs”)~~ under our 2007 Omnibus Incentive Plan (the “2007 Plan”). All of our equity-based compensation is accounted for under ~~SFAS No. 123(R), “Share-Based Payment”~~ASC 718 —Compensation-Stock Compensation. Under this method, we recorded equity-based compensation expense of ~~$0.9~~$1.3 million and ~~a credit of ($0.8)~~$1.4 million for the ~~quarters~~three months ended ~~July 3,~~October 2, 2009 and ~~July 4,~~October 3, 2008, respectively, and $2.2 million and $1.2 million for the six months ended October 2, 2009 and October 3, 2008, respectively.

Class B Equity

During the ~~fiscal quarter,~~six months ended October 2, 2009, we had no new grants ~~but;~~but had one forfeiture ~~event.~~event in the first quarter of fiscal year 2010. Consequently, the fiscal year to date expenses recognized were the result of the quarterly amortization from the graded vesting schedule, partially offset by the impact of the forfeited ~~shares.~~class B interests.

A summary of Class B activity during the first ~~quarter~~six months of fiscal year 2010 is as follows:


	% Interest in			Grant Date
	DIV Holding			Fair Value			% Interest in			Grant Date
	DIV Holding			Fair Value
Balance April 3, 2009		4.71	%		9,669			4.71	%	$	9,669
First quarter fiscal year 2010 grants		0.00	%		—
First quarter fiscal year 2010 forfeitures		(0.03	%)		(37	)		(0.03	%)		(37	)

Balance July 3, 2009		4.68	%	$	9,632			4.68	%	$	9,632

Second quarter fiscal year 2010 forfeitures								0.0	%		—
Balance October 2, 2009								4.68	%	$	9,632

April 3, 2009 vested		3.69	%	$	6,950			3.69	%	$	6,950
First quarter fiscal year 2010 vesting		0.04	%		174			0.04	%		174

July 3, 2009 vested		3.73	%	$	7,124			3.73	%	$	7,124
Second quarter fiscal year 2010 vesting								0.05	%		73

October 2, 2009 vested								3.78	%	$	7,197

April 3, 2009 nonvested		1.02	%	$	2,718			1.02	%	$	2,718
July 3, 2009 nonvested		0.95	%	$	2,508
October 2, 2009 nonvested								0.90	%	$	2,436

During the ~~first quarter~~six months ended ~~July 3,~~October 2, 2009, 37,500 RSU vested awards ~~vested but~~held by our CEO were settled by issuing 21,675 treasury shares, net of payroll withholding, with a value of $0.3 million.

During the six months ended October 2, 2009, one of our consolidated joint ventures, DIFZ, in which we have a 50% ownership interest, established a 2009 Omnibus Incentive Plan (the “DIFZ Plan”). Under the DIFZ Plan, the joint venture can issue equity based awards to its employees. Although these awards are only paid in cash, the value of these awards is tied to our common stock. As such, these awards qualify as equity-based compensation under ASC 718. As of the six months ended October 2, 2009, the liabilities and expenses associated with the DIFZ Plan were not ~~settled as of July 3, 2009.~~material.

In accordance with ~~SFAS No. 123(R)~~ASC 718 and our policy, we recognize compensation expense related to the RSUs and PSUs on a graded schedule over the requisite service period, net of estimated forfeitures. Compensation expense related to RSUs and PSUs was approximately ~~$0.7~~$1.1 million for the ~~quarter~~three months ended ~~July 3,~~October 2, 2009, and approximately $1.8 million for the six months ended October 2, 2009. Additionally, all RSUs and PSUs have been determined to be liability awards; therefore, the fair value of the RSUs and PSUs are re-measured at each financial reporting date as long as they remain liability awards. The estimated fair value of the RSUs and PSUs outstanding as of October 2, 2009, was approximately ~~$5.3~~$13.0 million ~~net~~excluding the impact of estimated future forfeitures based on the closing market price of our stock on the grant ~~date. The estimated fair value of all RSUs~~date and ~~PSUs, net of forfeitures,~~ was approximately ~~$5.1~~$13.6 million excluding the impact of estimated future forfeitures based on the closing market price of our stock on ~~July 3,~~October 2, 2009.

Amounts due from our unconsolidated joint ventures totaled ~~$3.7~~$5.1 million and $2.5 million as of ~~July 3,~~October 2, 2009 and April 3, 2009, respectively. These receivables are a result of items purchased and services rendered by us on behalf of our unconsolidated joint ventures. We have assessed these receivables as having minimal collection risk based on our historic experience with these joint ventures and our inherent influence through our ownership interest. The change in these receivables from April 3, 2009 to ~~July 3,~~October 2, 2009 resulted in a use of operating cash for the ~~quarter~~six months ended ~~July 3,~~October 2, 2009 of approximately ~~$1.2~~$2.6 million. The related revenue associated with our unconsolidated joint ventures totaled $1.3 million and $2.6 million for the ~~quarters~~three and six months ended ~~July~~October 2, 2009, respectively, and $11.4 million and $14.1 million for the three and six months ended and October 3, ~~2009 and July 4,~~ 2008, respectively. Additionally, we earned ~~$0.9~~$1.1 million and ~~$1.1~~$2.0 million in equity method income from the Babcock joint venture in the ~~first quarter~~three and six months ended ~~July~~October 2, 2009, respectively, and $1.3 million and $2.4 million in the three and six months ended October 3, ~~2009 and the first quarter ended July 4,~~ 2008, respectively.

Variable Interest Entities

Our population of variable interest entities, associated primary beneficiary assessments, and our joint venture ownership percentages have not changed from the information disclosed onin our fiscal year 2009 annual report. Additionally, ~~our controlling shareholder~~Veritas Capital continues to be the majority owner of McNeil Technologies, our GLS partner. In the aggregate, our maximum exposure to losses as a result of our investment in VIEs consists of our $9.5 million investment in unconsolidated subsidiaries as well as contingent liabilities that were neither probable nor reasonably estimable as of October 2, 2009.

GLS assets and liabilities were ~~$161.1~~$147.7 million and ~~$119.0~~$108.3 million at ~~July 3,~~October 2, 2009, respectively, as compared to ~~$150.5~~$152.0 million and $129.6 million at April 3, ~~2009.~~2009, respectively. Additionally, GLS revenue was $198.4 million and $396.7 million for the ~~quarter~~three and six months ended ~~July 3,~~October 2, 2009, respectively, as compared to ~~$118.4~~$201.3 million and $319.7 million for the ~~quarter~~three and six months ended ~~July 4, 2008.~~October 3, 2008, respectively.

DIFZ assets and liabilities were ~~$54.2~~$43.2 million and ~~$52.7~~$40.4 million, respectively, as of ~~July 3,~~October 2, 2009, as compared to $38.0 million and $36.5 million at April 3, ~~2009.~~2009, respectively. Additionally, DIFZ revenue was ~~$94.6~~$99.4 million and $194.0 million for the ~~quarter~~three and six months ended ~~July 3, 2009.~~October 2, 2009, respectively. DIFZ revenue and costs are eliminated in consolidation.

Note 12—Collaborative Arrangement

We participate in a collaborative arrangement with two of our partners on the Logistics Civil Augmentation Program (“LOGCAP IV”). The purpose of this arrangement is to share some of the risks and rewards associated with this contract. We receive working capital contributions to mitigate the risks associated with the timing of cash inflows and outflows. We also share in the profits. We account for this collaborative arrangement under ~~EITF 07-1 “Accounting for~~ ASC 808 —Collaborative ~~Arrangements”~~Arrangements. We record revenue gross as the prime contractor. The cash inflows, outflows, as well as expenses incurred impact cost of services in the period realized or incurred. The expenses incurred from our profit sharing arrangement were not material for the ~~quarters~~three or six months ended ~~July 3,~~October 2, 2009 and ~~July 4,~~October 3, 2008.

Note 13—Segment Information

As discussed in Note 3, we have a new organizational realignment which resulted in three new operating segments. The purpose of the realignment is to support our transition, as we become an integrated global enterprise, by more closely aligning our organization with our strategic markets and continuing to streamline our infrastructure to facilitate growth. ~~This~~We believe this new structure better reflects our market focus and ~~we believe~~ better positions us to achieve our goal of becoming the leading global government services provider and a high-performing integrated global enterprise.

The three segments are as follows:

Global Stabilization and Development Solutions, or GSDS segment provides a diverse collection of outsourced services, primarily to government agencies worldwide. GSDS consists of the International Civilian Police Program (“CivPol”) SBA, the Security & ~~Training~~Mentoring SBA, the LOGCAP IV SBA, the Operations SBA, and the Infrastructure SBA.

Global Platform Support Solutions, or GPSS segment provides a wide range of technical, engineering, logistics and maintenance support services primarily to government agencies worldwide. Additionally, GPSS provides services including drug eradication and host nation pilot and crew training. GPSS consists of the Aviation Life Cycle Support SBA, the Domestic Aviation Operations and Support SBA, the Field Service Operations SBA, the International Aviation Operations & Support SBA, the International Narcotics and Law Enforcement (“INL Air Wing”) SBA and the Land Systems SBA.

Global Linguist Solutions, or GLS segment provides rapid recruitment, deployment and on-site management of in-theatre interpreters and translators to the U.S. military for a wide range of foreign languages. GLS consists of the linguist service line SBA.

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The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the consolidated financial statements. All prior periods presented have been recast to reflect the new segment reporting.


	Fiscal Quarter Ended						Three Months Ended
	July 3, 2009			July 4, 2008			October 2, 2009		October 3, 2008
Revenue
Global Stabilization and Development Solutions	$	284,085		$	269,554		$	336,521	$	263,985
Global Platform Support Solutions		303,648			329,736			284,512		315,241
Global Linguist Solutions		198,354			118,422			198,393		201,305
Other/Elimination		(910	)		(918	)		1,946		(1,380	)

Total revenue	$	785,177		$	716,794		$	821,372	$	779,151


Operating Income
Global Stabilization and Development Solutions	$	15,874		$	22,971		$	20,386	$	1,036
Global Platform Support Solutions		25,910			15,742			19,813		28,284
Global Linguist Solutions		10,717			1,281			12,352		17,313

Total operating income	$	52,501		$	39,994		$	52,551	$	46,633


Depreciation and amortization
Global Stabilization and Development Solutions	$	4,940		$	5,176		$	4,952	$	4,777
Global Platform Support Solutions		5,009			5,238			5,129		5,013
Global Linguist Solutions		196			146			157		215

Total depreciation and amortization	$	10,145		$	10,560		$	10,238	$	10,005


	As of
	October 2, 2009		April 3, 2009
Assets
Global Stabilization and Development Solutions	$	674,551	$	594,207
Global Platform Support Solutions		533,264		510,583
Global Linguist Solutions		147,743		152,090
Corporate⁽¹⁾		202,893		282,334

Total assets	$	1,558,451	$	1,539,214


⁽¹⁾		~~Assets~~Corporate assets primarily include cash, deferred income taxes, and deferred debt issuance cost.

Note 14—Fair Value of Financial Assets and Liabilities

~~SFAS No. 157~~ ASC 820 —Fair Value Measurements and Disclosuresestablishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1, defined as observable inputs such as quoted prices in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of ~~July 3,~~October 2, 2009, we held certain assets that are required to be measured at fair value on a recurring basis. These included cash equivalents (including restricted cash) and interest rate derivatives. Cash equivalents consist of petty cash, cash in-bank and short-term, highly liquid, income-producing investments with original maturities of 90 days or less. Our interest rate derivatives, as further described in Note 7, consist of interest rate swap contracts. The fair values of the interest rate swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, we have categorized these interest rate swap contracts as Level 2. We have consistently applied these valuation techniques in all periods presented.

~~In July~~Business Combination

On October 19, 2009, we ~~completed~~acquired 100% of Phoenix Consulting Group, Inc. (“Phoenix”), which was a privately held company based in Arlington, Virginia. Phoenix is a leading provider of intelligence training, consultative and augmentation services to a wide range of U.S. government organizations. The acquisition broadens our service offerings into the ~~repurchase~~intelligence community which is consistent with our goal of accelerating growth, expanding service offerings and penetrating new segments.

The total purchase price for Phoenix consists of a base price of approximately $46.0 million (including an ~~additional $14.5~~adjustment thereto made at closing based on estimated net working capital at closing), a post-closing net working capital adjustment and a potential contingent payment ranging from zero to $5 million. The base purchase price was paid at closing and funded with cash on hand.

Through the post-closing net working capital adjustment, we will either pay or receive proceeds based on the final determination of net working capital at closing to the extent that the amount thereof is greater or less than the estimated net working capital at closing.

The base purchase price and the contingent consideration exclude acquisition related costs of approximately $0.5 million, ~~of face~~which are included in selling, general and administrative expenses.

The acquisition will be accounted for as a business purchase pursuant to ASC 805 —Business Combinations.In accordance with ASC 805, the purchase price will be allocated to assets and liabilities based on their estimated fair value at the acquisition date. The fair value of the contingent consideration at the acquisition date will be included in the purchase price allocation.

The goodwill arising from the acquisition consists largely of expectations that the addition of Phoenix extends our ~~senior subordinated notes~~ability to deliver compelling services to the intelligence communities and national security clients. The goodwill recognized is expected to be deductible for ~~$14.3 million, including applicable fees.~~income tax purposes.

Phoenix will be incorporated into the GSDS operating segment. The ~~total amount~~assets, liabilities and results of ~~both common stock and senior subordinated notes repurchased for the~~operations are not expected to be material to our consolidated financial position or results or operations in fiscal year ~~totaled approximately $25 million, which is our allowable repurchase basket per our current authorization as more fully described in Note 6.~~

Global Stabilization and Development Solutions

GSDS provides a diverse collection of outsourced services primarily to government agencies worldwide. As of October 2, 2009 GSDS includes three service offerings as described below:

Security & Training— This service offering is comprised of the following SBAs:

~~CivPol —~~CivPol— This SBA provides international policing and police training, judicial support, immigration support and base operations.

Security & ~~Training~~Mentoring — This SBA provides senior advisors and mentors to foreign governmental agencies. In addition, it provides security and personal protection for diplomats and governmental senior officials.

Contingency Support and Operations— This service offering is comprised of the following SBAs:

LOGCAP IV — This SBA supports U.S. military operations and maintenance support, including but not limited to: construction services, facilities management, electrical power, water, sewage and waste management, laundry operations, food services and transportation motor pool operations.

Contingency Support & Operations — This SBA provides peace-keeping logistics support, humanitarian relief, weapons removal and abatement, worldwide contingency planning and other rapid response services. In addition, it offers inventory procurement and tracking services, property control, data entry and mobile repair services. Furthermore, this SBA provides facility and equipment maintenance and control and custodial and administrative services.

Infrastructure— This service offering is comprised of a single SBA:

Infrastructure — This SBA provides civil, electrical, environmental and mechanical engineering and construction management services.

As discussed in Note 15 to our Financial Statements, we closed on the acquisition of Phoenix Consulting Group Inc., which will be consolidated within the GSDS business unit. It will operate as the fourth service offering — Intelligence Training and Solutions. Under this service offering, we will (i) provide proprietary training courses, management consulting and augmentation services to the intelligence community and (ii) expand our services to the intelligence community and national security clients.

Global Platform Support Solutions

GPSS provides a wide range of technical, engineering, logistics and maintenance support services primarily to government agencies worldwide. Additionally, GPSS provides services including drug eradication and host nation pilot and crew training. GPSS includes two service offerings as described below:

Aviation— Our Aviation service offering provides a host of services that primarily features either aircraft maintenance or aircraft operations. This includes the following SBAs:

Aviation Life Cycle Support — Provides worldwide support of U.S. Army, Air Force and Navy fixed wing assets. Aircraft are deployed throughout the U.S., Europe, Asia, South America and the Middle East. This includes flight line and depot level maintenance consisting of scheduled and unscheduled events. Specific functions include repair, overhaul and procurement of components, and procurement of consumable materials and transportation of materials to and from the operating sites. In addition, the team is responsible for obsolescence engineering, quality control, inventory management, avionics upgrades and recovery of downed aircraft.

Field Service Operations — Provides worldwide maintenance, modification, repair, and logistics support on aircraft, weapons systems, and related support equipment to the DoD and other U.S. government agencies. Contract Field Teams (“CFT”) is the most significant program in our Field Service Operations SBA. Our Company and its predecessors have provided CFT services for over 58 years. This program deploys highly mobile, quick-response field teams to customer locations to supplement a customer’s workforce.

International Aviation Operations and Support — Provides aircraft fleet maintenance and modification services, ground vehicle maintenance and modification services, pilot and maintenance training, logistics support, air traffic control services, air transportation, base and depot operations, program management and engineering services. These services are provided internationally.

INL Air Wing — Conducts foreign assistance programs to reduce the flow of international narcotics.

Land Systems— This service offering is comprised of a single SBA:

Land Systems — This SBA provides maintenance, operations, support, life extension, engineering, marine services and program management services primarily for ground vehicles and docked ships. This includes the Mine Resistant Ambush Protected Vehicles Logistics Support (“MRAP”) contract.

Global Linguist Solutions

Global Linguist Solutions— This consolidated joint venture between DynCorp International Inc. and McNeil Technologies provides rapid recruitment, deployment and on-site management of in-theatre interpreters and translators to the U.S. military for a wide range of foreign languages. Our GLS operating segment is comprised of a single linguist service offering/SBA.

CURRENT OPERATING CONDITIONS AND OUTLOOK

There have been no material changes to the Company’s industry outlook, economic conditions, or internal strategy from those disclosed in the Company’s Form 10-Q for the fiscal period ended July 3, 2009.

~~External Factors~~Notable Events for the six months ended October 2, 2009

~~Over most~~
LOGCAP IV task order in southern Afghanistan with an estimated value of ~~the last two decades, the U.S. government has increased its reliance on the private sector for~~approximately $600 million was awarded in July 2009 and began ramp-up activities in September 2009.

In September 2009, we were awarded a ~~wide range of professional and support services. This increased use of contractors to augment non-combat forces during conflict operations~~contract by the U.S. ~~government has been driven by~~Air Force to provide aircraft maintenance support at Sheppard Air Force Base. The value of the contract is $31.2 million for the base period, and a ~~variety~~potential maximum value of ~~factors including: lean-government initiatives launched~~$230 million over seven years, if all options are exercised.

We were awarded a Worldwide Personal Protective Services (“WPPS”) task order that was originally expected to ramp up in the ~~1990s; surges~~second quarter of fiscal year 2010, but due to changes in ~~demand during times of national crisis; the increased complexity of missions conducted~~customer requirements was delayed. Our current expectation is that we will begin performance on this program by the ~~U.S. military and~~fourth fiscal quarter of 2010.

During the ~~DoS; increased focus~~second quarter, we made a decision to purchase helicopters in support of our new WPPS air services task order. Given availability of customer assets to support this program, we mutually agreed to a task order modification under which the customer will now supply its own helicopters. As a result, we plan to utilize all but three of the ~~U.S. military~~purchased helicopter assets on ~~war-fighting efforts; and~~other programs, some of which may be structured cost-reimbursable instead of fixed priced. We plan to sell the ~~loss of skills within the government caused by workforce reductions and retirements.~~

~~In the current environment of economic uncertainty and market turmoil, developing and implementing spending, tax, and~~three helicopters that we do not intend to use on other initiatives to stimulate the faltering economy are at the forefront of the U.S. government’s activities. While we expect to see continued support for defense initiatives under the Obama Administration, we expect that initiatives to address economic stimulus will compete with other national priorities, such as DoD and DoS initiatives. While these dynamics will place pressure on defense spending, we believe that, within the defense budget, weapon system acquisitions will be the most likely initial target for budget reductions, and operations and maintenance budgets will remain robust, driven by (i) the need to reset equipment coming out of Iraq, (ii) the logistics and support chain associated with repositioning of forces and the draw down in Iraq and (iii) deployments into Afghanistan.programs.

2529

There is an increasing indication from the Obama administration that the U.S. government may move away from private contractors and utilize military or government personnel in performing support services throughout the federal government. This “insourcing” of previously contracted support services could diminish the U.S. government’s reliance on private contractors in the future. While we

We continue to ~~monitor this trend going forward,~~encounter cost overruns in our Afghanistan construction projects, within our infrastructure service offering, due to significant challenges including the deteriorating security situation in and issues with getting equipment through customs in Afghanistan. Fiscal year 2010 second quarter results included a loss on Afghanistan construction of $5.3 million. We expect that our firm fixed-price Afghanistan construction contracts will continue to operate at a loss or at margins approaching zero over the contract terms. Accordingly, we do not ~~believe that insourcing will have~~expect to bid any similar firm fixed-price contracts without revised terms and conditions.

On the GLS program, we completed negotiations with the customer to modify our largest task order to include a ~~material impact~~ceiling for recoverable cost of $752 million, resulting in a cumulative reduction to ~~our operations~~revenue of $3.4 million in the ~~near term. We believe the following industry trends will result in continued strong demand in~~second quarter of fiscal year 2010. In connection with these negotiations, we received indications from our ~~target markets for the types of services we provide:~~

The continued use of contractors to augment non-combat forces during conflict operations, including personnel support, base operations and logistics, platform support and maintenance, and contingency operations due to increased military operational tempo, equipment service life extensions and economic pressures on the DoD budget;

Increased use of contractor support in post-conflict rebuilding efforts, including military logistics and equipment reset support, infrastructure development, training and mentoring, and capacity building;

~~Increased outsourcing by foreign militaries of maintenance, supply support, facilities management and construction management-related services; and~~

The shift from single award to more multiple award indefinite order indefinite quantity (“IDIQ”) contracts, which may offer us an opportunity to increase revenues under these contracts by competing for task orders with the other contract awardees.

Both the U.S. and Iraqi governments have recently communicated the goal and intent for U.S. troop reductions from Iraq. The exact timing of the initial withdrawal and amount of time to fully withdraw U.S. troops is uncertain. However, many industry observers believecustomer that the ~~withdrawal~~next option period from December 2009 to December 2010 will ~~commence between 2010 and 2011. On the other hand, President Obama has indicated his support for expanded troop levels in Afghanistan. As a result, we expect our level of business involving Iraq to~~ be relatively stable over the next few years, assuming we are successful in winning new LOGCAP IV task orders in Iraq. In Afghanistan, we aim to capitalize on this increase in U.S. government focus through many of our service offerings, including police training and mentoring, aircraft logistics and operations, infrastructure development, MRAP services, and logistics services. Our recent LOGCAP IV award to provide services in southern Afghanistan is an example of achievements in this area.exercised.

~~Current Economic Conditions~~
•
We signed an acquisition agreement in September 2009 and subsequently closed the acquisition of Phoenix Consulting Group, Inc. on October 19, 2009. See Note 15 —Subsequent Eventsfor additional information concerning this acquisition.

We believe that our industry and customer base are less likely to be affected by many of the factors generally affecting business and consumer spending. Accordingly, we believe that we continue to be well positioned in the current economic environment as a result of historic demand factors affecting our industry, the nature of our contracts and our sources of liquidity. However, we cannot be certain that the economic environment or other factors will not adversely impact our business, financial condition or results of operations in the future.

We believe that our current sources of liquidity will enable us to continue to perform under our existing contracts and further grow our business. However, a longer term credit crisis could adversely affect our ability to obtain additional liquidity or refinance existing indebtedness on acceptable terms or at all, which could adversely affect our business, financial condition and results of operations.

~~Internal Factors~~

~~We apply a focused strategy that centers on a defined strategic framework. The four key areas identified by DynCorp’s Strategic Framework are Purpose, Objective, Strategy, and Focus Areas.~~

~~Purpose~~

~~Each word of DynCorp International’s purpose statement “We serve today for a safe tomorrow.~~^TM” is rich in meaning. We... DynCorp International is an integrated global enterprise, united by our shared purpose and values. Serve... This is the essence of how we approach our customers, our shareholders and our employees. Today... we always work with a strong sense of immediacy and urgency. Safe... This is the difference we make in the world. We lay the groundwork for millions of people around the world to live safer and better lives by helping to rebuild the institution of civil society in war torn regions, training civilian police, and sustaining peacekeepers. Tomorrow... The difference we make has enduring effect. We are a force for shaping a better future.

~~Objective~~

Driven by our purpose, we strive to be the leading global government services provider in support of U.S. national security and foreign policy objectives. We provide services essential to national security, humanitarian operations, nation building, peacekeeping, and aviation. For approximately 60 years, we have sustained our reputation as a trusted partner to the U.S. government and selected foreign governments by successfully fulfilling the toughest assignments across the globe.

~~Strategy~~

To achieve our objective, we crafted a three-part strategy. First, we continue to seek to defend and grow our core business. Second, we believe that the Obama administration’s emphasis on defense, diplomacy, and development creates significant potential for us to expand our business in stabilization & development. Concurrently, we believe that platform support is a promising source of near-term growth, driven largely by reset of equipment. Finally, after servicing the intelligence services through our GLS joint venture, we plan to selectively service new segments to prudently diversify our portfolio, while also adding differentiation to our current offerings.

~~Focus Areas~~

We support the three Strategic Framework elements above by leveraging our worldwide infrastructure through five focus areas. We believe that by combining relentless performance, lean enterprise, clear strategy, a winning culture, and being people’s employer of choice, we are able to quickly organize and deploy an integrated workforce, material, and technology solutions across all our areas of specialty. From rapid-response field assignments to long-term engagements, we believe that we provide the world’s most comprehensive array of integrated solutions for ensuring our customers’ success — regardless of the location or conditions.

CONTRACT TYPES

Our business is performed under fixed-price, time-and-materials or cost-reimbursement contracts. Each contract type is described below.

•

Fixed-Price Type Contracts:In a fixed-price contract, the price is not subject to adjustment based on costs incurred, which can favorably or adversely impact our profitability depending upon our execution in performing the contracted service. Fixed-price ~~types~~contracts received by us include firm fixed-price, fixed-price with economic adjustment, and fixed-price incentive.

•

Time-and-Materials Type Contracts:A time-and-materials type contract provides for acquiring supplies or services on the basis of direct labor hours at fixed hourly/daily rates plus materials at cost.

•

Cost-Reimbursement Type Contracts:Cost-reimbursement type contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus a fixed-fee, award-fee or incentive-fee. Award-fees or incentive-fees are generally based upon various objective and subjective criteria, such as aircraft mission capability rates and meeting cost targets.

Any of these three types of contracts discussed above may be executed under an ~~IDIQ~~indefinite order indefinite quantity (“IDIQ”) contract, which are often awarded to multiple contractors. An IDIQ contract does not represent a firm order for services. Our ~~Civilian Police,~~CivPol, Field Teams, and LOGCAP IV programs are three examples of IDIQ contracts.

The following table sets forth our approximate fiscal year revenue recognized per our contract mix as of the dates indicated:


	Fiscal Quarter Ended						Three Months Ended						Six Months Ended
	July 3, 2009			July 4, 2008			October 2,			October 3,			October 2,			October 3,
Fixed Price		26	%		31	%
							2009			2008			2009			2008
Fixed-Price								27	%		28	%		26	%		30	%
Time-and-Materials		21	%		26	%		18	%		24	%		19	%		25	%
Cost-Reimbursement		53	%		43	%		55	%		48	%		55	%		45	%

		100	%		100	%

Total								100	%		100	%		100	%		100	%

BACKLOG

We track backlog in order to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised, priced contract options, and the unfunded portion of exercised contract options. Most of our U.S. government contracts allow the customer the option to extend the period of performance of a contract for a period of one or more years. These priced options may or may not be exercised at the sole discretion of the customer. It has been our experience that the customer has typically exercised contract options.

Firm funding for our contracts is usually made for one year at a time, with the remainder of the contract period consisting of a series of one-year options. ~~As is the case with the base period of our U.S. government contracts, option~~Option periods are subject to the availability of funding for contract performance. The U.S. government is legally prohibited from ordering work under a contract in the absence of funding. Our historical experience has been that the government has typically funded the option periods of our contracts.

The following table sets forth our ~~approximate~~ backlog as of the dates indicated (dollars in millions):


	July 3, 2009		April 3, 2009		October 2, 2009		April 3, 2009

Funded Backlog	$	1,506	$	1,431	$	1,809	$	1,431
Unfunded Backlog		5,182		4,867		4,867		4,867

Total Backlog	$	6,688	$	6,298	$	6,676	$	6,298

Our estimated remaining contract value represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from future task or delivery orders through the end of the term of such IDIQ contracts and is based on our experience under such IDIQ contracts and our estimates as to future performance. Although we believe our estimates are reasonable, there can be no assurance that our existing contracts will result in actual revenue in any particular period or at all. Our estimated remaining contract value could vary or even change significantly depending upon various factors including government policies, government budgets and appropriations, the accuracy of our estimates of work to be performed under ~~time and material~~time-and-material contracts and whether we successfully compete with any multiple bidders in IDIQ contracts. As of ~~July 3,~~October 2, 2009 and April 3, 2009, our estimated remaining contract value was ~~$8.7~~$9.0 billion and $8.4 billion, respectively, primarily due to ~~a new WPPS task order, which is expected to ramp up~~an increase in ~~our second fiscal quarter of 2010.~~backlog.

Consolidated — Three and Six Months Ended October 2, 2009 Compared to Three and Six Months Ended October 3, 2008

The following tables set forth, for the periods indicated, our consolidated results of operations, both in dollars and as a percentage of revenue:


	Fiscal Quarter Ended										Three Months Ended
(Dollars in thousands)	July 3, 2009					July 4, 2008					October 2, 2009					October 3, 2008

Revenue	$	785,177		100.0	%	$	716,794		100.0	%	$	821,372		100.0	%	$	779,151		100.0	%
Cost of services		(699,093	)	(89.0	%)		(638,389	)	(89.1	%)		(727,279	)	(88.5	%)		(696,519	)	(89.4	%)
Selling, general and administrative expenses		(23,438	)	(3.0	%)		(27,851	)	(3.9	%)		(31,304	)	(3.8	%)		(25,994	)	(3.3	%)
Depreciation and amortization expense		(10,145	)	(1.3	%)		(10,560	)	(1.5	%)		(10,238	)	(1.2	%)		(10,005	)	(1.3	%)

Operating income		52,501		6.7	%		39,994		5.6	%		52,551		6.4	%		46,633		6.0	%
Interest expense		(14,610	)	(1.9	)%		(14,215	)	(2.0	%)		(13,691	)	(1.7	%)		(14,905	)	(1.9	%)
Loss on early extinguishment of debt												(162	)	(0.0	%)		(4,443	)	(0.6	%)
Earnings from affiliates		1,054		0.1	%		1,117		0.2	%		1,527		0.2	%		1,523		0.2	%
Interest income		339		0.0	%		344		0.0	%		103		0.0	%		677		0.1	%
Other (loss)/income, net		(213	)	(0.0	)%		705		0.1	%		(12	)	(0.0	%)		960		0.1	%

Income before taxes		39,071		5.0	%		27,945		3.9	%		40,316		4.9	%		30,445		3.9	%
Provision for income taxes		(12,627	)	(1.6	%)		(9,316	)	(1.3	%)		(13,301	)	(1.6	%)		(9,131	)	(1.2	%)

Net Income		26,444		3.4	%		18,629		2.6	%
Net income												27,015		3.3	%		21,314		2.7	%
Noncontrolling interests		(5,799	)	(0.7	%)		(649	)	(0.1	%)		(6,460	)	(0.8	%)		(8,443	)	(1.1	%)

Net income attributable to DynCorp International Inc.	$	20,645		2.6	%	$	17,980		2.5	%	$	20,555		2.5	%	$	12,871		1.7	%

Cost 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 quarter~~three and six months ended ~~July 3,~~October 2, 2009 increased by ~~$60.7~~$30.7 million, or ~~9.5%~~4.4%, and $91.4 million, or 6.9%, respectively, as compared with the ~~fiscal quarter~~three and six months ended ~~July 4,~~October 3, 2008 and was primarily a result of revenue growth. As a percentage of revenue, costs of services decreased to ~~89.0%~~88.5% and 88.8% for the ~~fiscal quarter~~three and six months ended ~~July 3,~~October 2, 2009, ~~from 89.1%~~respectively, as compared with 89.4% and 89.2% for the ~~fiscal quarter~~three and six months ended ~~July 4, 2008.~~October 3, 2008, respectively. This decrease was primarily driven by effective cost management efforts on certain programs in the GPSS segment, ~~and~~ higher award fees in the GLS segment which have no corresponding costs, and lower losses associated with Afghanistan construction, partially offset by ~~cost increases relative~~lower margins associated with our Field Teams contracts due to ~~revenue resulting from~~increased competition, and lower margin on our LOGCAP IV program as a ~~shift from fixed price to cost reimbursable type contracts in~~result of the ~~GSDS segment.~~fee sharing arrangement with our partners.

Selling, general and administrative expenses (“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 ~~was impacted by growth in our underlying business, various initiatives to improve organizational capability, compliance and systems improvements. SG&A~~expenses for the ~~fiscal quarter~~three months ended ~~July~~October 2, 2009 increased by $5.3 million as compared to the three months ended October 3, 2008. As a percentage of revenue, SG&A expenses increased to 3.8% for the three months ended October 2, 2009 ~~decreased~~as compared to 3.3% for the three months ended October 3, 2008, contributed in part by ~~$4.4 million, or 15.8%, compared~~increased legal costs, costs associated with the ~~fiscal quarter~~filing of a Form S-3 registration statement, costs associated with our acquisition strategy, and higher business development costs incurred in support of our growth strategy. SG&A expenses for the six months ended ~~July 4,~~October 2, 2009 increased by $0.9 million as compared to the six months ended October 3, 2008. As a percentage of revenue, SG&A expenses decreased to 3.4% for the six months ended October 2, 2009 as compared to 3.6% for the six months ended October 3, 2008. This difference as a percentage of revenue ~~decreased to 3.0% for the fiscal quarter ended July 3, 2009 compared to 3.9% for the fiscal quarter ended July 4, 2008. This~~ was primarily the result of our former CEO’s severance package ~~being~~ incurred in the first quarter of fiscal ~~quarter ended July 4, 2008 and lean infrastructure initiatives in place for the full quarter ended July 3,~~year 2009.

Depreciation and amortization —Depreciation and amortization for the ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009 ~~decreased $0.4~~increased by $0.2 million or ~~3.9%, as compared~~2.3%. This increase was primarily due to incremental depreciation and amortization associated with our technology transformation initiative which began ramping up in the second quarter of fiscal ~~quarter ended July 4, 2008. The decrease was~~year 2010. This investment to modernize and upgrade our IT systems will enable more efficient and effective utilization of IT applications, provide better redundancy and reliability, integrate systems that were previously disconnected and support future growth. From a six month perspective, depreciation and amortization expense had a $0.2 million decline primarily attributed to calculating depreciation and amortization over 1326 weeks ~~in fiscal quarter~~for the six months ended ~~July 3,~~October 2, 2009, as compared to 1427 weeks for the ~~quarter~~six months ended ~~July 4,~~October 3, 2008.

Interest expense —Interest expense for the ~~fiscal quarter~~three and six months ended ~~July 3,~~October 2, 2009 ~~increased~~decreased by ~~$0.4~~$1.2 million, or 8.1%, and $0.8 million, or 2.8%, respectively, as compared with the ~~fiscal quarter~~three and six months ended ~~July 4,~~October 3, 2008. The interest expense incurred relates to our credit facility, senior subordinated notes, and amortization of deferred financing fees. The ~~increase~~decrease in interest expense was primarily ~~driven by~~due to lower principal stemming from the excess cash flow principal payment on the credit facility and repurchases of senior subordinated notes ~~making up a higher percentage~~that occurred in fiscal year 2010. Also impacting the decrease was one less week of ~~our total debt, which has consistently carried a higher~~ interest ~~rate than~~expense during the ~~senior secured credit facility. Higher deferred financing fee amortization~~six months ended October 2, 2009 as ~~a result of our July 2008 debt refinancing also contributed~~compared to ~~this increase. This was partially offset by~~ the ~~lack of revolver borrowings in the first fiscal quarter of 2010.~~six months ended October 3, 2008.

Income tax expense— Our effective tax rate ~~decreased~~increased to ~~32.3%~~33.0% and 32.7% for the ~~fiscal quarter~~three and six months ended ~~July 3,~~October 2, 2009, ~~from 33.3%~~respectively, as compared with 30.0% and 31.6% for the ~~fiscal quarter~~three and six months ended ~~July 4, 2008.~~October 3, 2008, respectively. Our effective tax rate was impacted by the tax treatment of our GLS and DIFZ joint ventures, which are not consolidated for tax purposes but are instead taxed as ~~a partnership~~partnerships under the Internal Revenue Code.

Results by Segment — Three Months Ended October 2, 2009 Compared to Three Months Ended October 3, 2008

The following ~~table sets~~tables set forth the revenue and operating income for our GSDS, GPSS and GLS operating segments, both in dollars and as a percentage of our consolidated revenue and segment operating ~~income,~~margin, for the ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009 as compared to the ~~fiscal quarter~~three months ended ~~July 4,~~October 3, 2008.


	For the Fiscal Quarter Ended										For the Three Months Ended
(Dollars in thousands)	July 3, 2009					July 4, 2008					October 2, 2009				October 3, 2008
Revenue
Global Stabilization and Development Solutions	$	284,085		36.2	%	$	269,554		37.6	%	$	336,521	41.0	%	$	263,985		33.9	%
Global Platform Support Solutions		303,648		38.6	%		329,736		46.0	%		284,512	34.6	%		315,241		40.5	%
Global Linguist Solutions		198,354		25.3	%		118,422		16.5	%		198,393	24.2	%		201,305		25.8	%
Other/elimination		(910	)	(0.1	%)		(918	)	(0.1	%)		1,946	0.2	%		(1,380	)	(0.2	%)


Consolidated	$	785,177		100.0	%	$	716,794		100.0	%	$	821,372	100.0	%	$	779,151		100.0	%


Operating Income
Global Stabilization and Development Solutions	$	15,874		30.2	%	$	22,971		57.4	%	$	20,386	6.1	%	$	1,036		0.4	%
Global Platform Support Solutions		25,910		49.4	%		15,742		39.4	%		19,813	7.0	%		28,284		9.0	%
Global Linguist Solutions		10,717		20.4	%		1,281		3.2	%		12,352	6.2	%		17,313		8.6	%


Consolidated	$	52,501		100.0	%	$	39,994		100.0	%	$	52,551	6.4	%	$	46,633		6.0	%

Global Stabilization and Development Solutions
Revenue —Revenue of ~~$284.1~~$336.5 million for the ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009 increased ~~$14.5~~$72.5 million, or ~~5.4%~~27.5%, as compared with the ~~fiscal quarter~~three months ended ~~July 4,~~October 3, 2008. The increase was primarily the result of the following:
Security & Training: Revenue of ~~$190.3~~$183.4 million increased ~~$14.0~~$4.3 million, or ~~7.9%~~2.4%, primarily ~~due~~as a result of a scope increase in our WPPS security services task order in Iraq and a new WPPS security services task order in Pakistan. Also contributing to the increase was our new ~~contracts for WPPS in Pakistan and the~~ Multinational Security Transition Command-Iraq (“MNSTC-I”)~~. Revenue from~~ program which launched after October 3, 2008. Partially offsetting the revenue generated by these programs was the impact of a decline in our Civilian Police program as a result of reductions in equipment purchases. We expect CivPol ~~programs declined slightly, primarily~~revenue to increase during the remainder of fiscal year 2010 due to ~~changes~~scope increases in ~~contract type from firm fixed price to cost reimbursable~~Afghanistan. In terms of the training mission going forward in Afghanistan ~~offset by additional revenue from increased service levels~~we believe that operational oversight will transition to the DoD in ~~Iraq. Although~~the not too distant future. The contract vehicle for the police training mission may also transfer to a DoD vehicle. While the time table for a potential contract transition is not clear, we believe that our current ~~CivPol~~task order, which currently ends in February 2010, can be extended. If the contract is ~~set to expire in February 2010,~~renewed, we believe that we will retain either all or a large portion of the services under this contract; however, any material changes to the contract, ~~upon its renewal.~~including, but not limited to, the governmental agency that administers the contract, the amount of government funding or the overall scope of services under the renewed program could adversely affect our operating performance.
Contingency Support and Operations: Revenue of ~~$74.9~~$126.6 million increased ~~$26.7~~$65.5 million or ~~55.4%~~107.2%, primarily due to increases from both the Kuwait and Afghanistan task orders on our LOGCAP IV program. We expect future growth in this service offering to be primarily driven by the recently awarded Afghanistan South task order on our LOGCAP IV program that carries annual revenue potential of approximately ~~$643~~$600 million. Although we have started work on this program, due to the timing of the award and transition period, we do not expect to achieve in fiscal year 2010, the full fiscal year revenue implied by the annual revenue ~~potential.~~potential of this program.
Infrastructure: Revenue of ~~$18.9~~$26.6 million ~~decreased~~increased by ~~$26.2~~$2.8 million, or ~~58.0%~~11.6%, primarily due to the wind down of a large construction project in Afghanistan combined with the termination of an airport construction contract in Africa, which occurred in the first quarter of fiscal year 2009. These declines were offset in part by increases from two separate Afghanistan construction projects that ~~have~~ commenced ~~since~~after the ~~first quarter~~beginning of fiscal year 2009. We do not expect to bid on any similar fixed-price contracts in Afghanistan without revised terms and conditions. This may impact future revenue in this segment by limiting the construction opportunities available to us.
30

Operating Income —Operating income of ~~$15.9~~$20.4 million for the ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009 ~~decreased $7.1~~increased $19.4 million ~~or 30.9%,~~ as compared with the ~~fiscal quarter~~three months ended ~~July 4,~~October 3, 2008. ~~Operating income did not increase proportionally with the growth in revenue due to lower margins stemming from a shift~~Prior period results were negatively affected by large losses on our ~~CivPol task orders from fixed price to cost reimbursable in both~~ Afghanistan ~~and Iraq and the ramp up costs incurred on the recently awarded LOGCAP IV Afghanistan South task order.~~construction programs. Also contributing to the ~~decline~~increase was ~~additional loss reserves of $3.2 million on our Afghanistan construction contracts recorded during the fiscal quarter combined with the impact of the termination of~~ an ~~airport construction contract in Africa, which occurred at the end of the first quarter of fiscal year 2009. This was partially offset by increases~~expansion in services on both our WPPS programs in Iraq and Pakistan and our MNSTC-I program, and ~~increases~~non-recurring revenue of $5.8 million on our WPPS program. Partially offsetting this increase was a decline in margins on CivPol resulting from the final close out of several firm fixed price task orders in the ~~Somalia task order on our Africa Peacekeeping Program resulting from~~second quarter of fiscal year 2009. For the remainder of fiscal year 2010, we expect an increase in CivPol operating income due to scope increases in ~~both services and equipment sales coupled with a higher fee structure.~~Afghanistan.

Global Platform Support Solutions

Revenue —Revenue of ~~$303.6~~$284.5 million for the ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009 decreased ~~$26.0~~$30.7 million, or ~~7.9%~~9.7%, as compared with the ~~fiscal quarter~~three months ended ~~July 4,~~October 3, 2008. The decrease primarily resulted from the following:

Aviation: Revenue of ~~$265.3~~$249.5 million decreased ~~$34.7~~$24.8 million, or ~~11.6%~~9%, for the ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009, as compared to the ~~fiscal quarter~~three months ended ~~July 4,~~October 3, 2008. The decrease was primarily driven by declines in ~~INL Air Wing~~the Field Service Operations (“FSO”) business area of ~~$31.7 million and FSO of $17.1~~$27.9 million. ~~The revenue decline in INL Air Wing revenue was driven by non-recurring equipment sales and construction work in both Camp Alvarado and Camp Valdes in Afghanistan performed in fiscal year 2009.~~ FSO revenue declined due to the ~~loss~~completion of several CFT task orders, for which ~~was a result of~~we did not win the re-competes due to additional competitors in this service space. While ~~this is putting~~the additional competition puts downward pressure on fiscal year 2010 revenue, we do not believe this will limit our ~~long term~~long-term opportunities under the CFT program. These declines were partially offset by additional services, including a new task order as a subcontractor to provide aircraft maintenance to support the Afghanistan air force through our Counter Narcotics Technical Program Office (“CNTPO”) program. We also expect continued growth driven by a recent WPPS task order win to provide aircraft maintenance and air transportation ~~services.~~services that is expected to ramp up by the fourth quarter of fiscal year 2010. This program was originally slated to ramp-up in the current quarter but was delayed due to a change in customer requirements.

Land Systems: Revenue of ~~$38.3~~$35.0 million ~~increased $8.8~~decreased $5.9 million, or ~~29.7%~~14.4%, for the ~~fiscal quarter~~three months ended ~~July 3,~~October 2, 2009, as compared to the three months ended October 3, 2008, primarily due to a decrease in our General Maintenance Corps (“GMC”) program, partially offset by an increase in services associated with our MRAP program.

Operating Income —Operating income of $19.8 million for the three months ended October 2, 2009 decreased by $8.5 million, or 30.0%, as compared with the three months ended October 3, 2008. The decrease was primarily driven by lower gross profit of $5.6 million on our FSO programs resulting from completion of task orders and $3.4 million on our GMC program resulting from adjustments to the estimated contract value on the GMC program. SG&A costs increased primarily due to an increase in bid and proposal activity. Partially offsetting this was better cost management in several key aviation programs as well as improved margins on our INL Air Wing Program driven by effective cost management and favorable foreign currency rates. Although we expect our MRAP program to continue to be profitable in fiscal year 2011, we expect lower gross profit on our MRAP program starting in fiscal year 2011 reflecting an adjusted rate structure on the next option period.

Global Linguist Solutions

Revenue of $198.4 million decreased $2.9 million, or 1.4%, for the three months ended October 2, 2009, as compared to the three months ended October 3, 2008. This quarter-over-quarter decrease was primarily due to the timing of the award fee accrual in the second quarter of fiscal year 2009, which represented the initial recognition of the award fee from the contract’s inception. Additionally, we completed negotiations with the customer to modify our largest task order to include a ceiling for recoverable cost of $752 million, resulting in a cumulative reduction to revenue of $3.4 million in the second quarter of fiscal year 2010. In connection with these negotiations, we received indications from our customer that the next option period from December 2009 to December 2010 will be exercised. During the quarter we also received better than expected award fee determinations from our customer which resulted in additional revenue in the period.

Operating income of $12.4 million decreased $5.0 million for the three months ended ~~July 4,~~October 2, 2009, as compared to the three months ended October 3, 2008. This decrease was primarily attributable to the timing of the award fee accrual in the second quarter of fiscal year 2009, which represented the initial recognition of the award fee from the contract’s inception. Operating income earned by GLS benefits net income attributable to DynCorp International Inc. by our 51% ownership of the joint venture.

Results by Segment — Six Months Ended October 2, 2009 as Compared to the Six Months Ended October 3, 2008

The following tables set forth the revenue and operating income for our GSDS, GPSS and GLS operating segments, both in dollars and as a percentage of our consolidated revenue and segment operating margin, for the six months ended October 2, 2009 as compared to the six months ended October 3, 2008.

For the Six Months Ended
(Dollars in thousands) October 2, 2009 October 3, 2008
Revenue

Global Stabilization and Development Solutions $ 620,606 38.6 % $ 533,539 35.7 %
Global Platform Support Solutions 588,160 36.6 % 644,978 43.1 %
Global Linguist Solutions 396,748 24.7 % 319,727 21.4 %
Other/elimination 1,035 0.1 % (2,299 ) (0.2 %)

Consolidated $ 1,606,549 100.0 % $ 1,495,945 100.0 %

Operating Income

Global Stabilization and Development Solutions $ 36,278 5.9 % $ 24,006 4.5 %
Global Platform Support Solutions 45,710 7.8 % 44,027 6.8 %
Global Linguist Solutions 23,064 5.8 % 18,549 5.8 %

Consolidated $ 105,052 6.5 % $ 86,627 5.8 %

Global Stabilization and Development Solutions

Revenue —Revenue of $620.6 million for the six months ended October 2, 2009 increased $87.1 million, or 16.3%, as compared with the six months ended October 3, 2008. The increase was primarily the result of the following:

Security & Training: Revenue of $373.7 million increased $18.3 million, or 5.2%, primarily as a result of a scope increase in our WPPS security services task order in Iraq and a new WPPS security services task order in Pakistan. Also contributing to the increase was our new MNSTC-I program which launched after October 3, 2008. Partially offsetting this increase was a decline in our CivPol program as a result of reductions in equipment purchases. However, we expect increases in CivPol revenue during the rest of fiscal year 2010 due to scope increases in Afghanistan. In terms of the training mission going forward in Afghanistan we believe that operational oversight will transition to the DoD in the not too distant future. The contract vehicle for the police training mission may also transfer to a DoD vehicle. While the time table for a potential contract transition is not clear, we believe that our current task order, which currently ends in February 2010, can be extended. If the contract is renewed, we believe that we will retain either all or a large portion of the services under this contract; however, any material changes to the contract, including, but not limited to, the governmental agency that administers the contract, the amount of government funding or the overall scope of services under the renewed program could adversely affect our operating performance.

Contingency Support and Operations: Revenue of $201.4 million increased $92.2 million or 84.4%, primarily due to increases from the Kuwait task orders and ramp-up of our southern Afghanistan task orders on our LOGCAP IV program. We expect future growth in this service offering to be primarily driven by the recently awarded Afghanistan task order on our LOGCAP IV program that carries annual revenue potential of approximately $600 million. Although we have started work on this program, due to the timing of the award and transition period, we do not expect to achieve in fiscal year 2010 the full fiscal year revenue implied by the annual revenue potential of this program.

Infrastructure: Revenue of $45.5 million decreased by $23.4 million, or 34.0%, primarily due to the wind-down of a large construction project in Afghanistan combined with the termination of an airport construction contract in Africa, which occurred in the first quarter of fiscal year 2009. These declines were offset in part by increases from two separate Afghanistan construction projects that commenced after the beginning of fiscal year 2009. We do not expect to bid on any similar fixed-price contracts in Afghanistan without revised terms and conditions. This may impact future revenue in this segment by limiting the construction opportunities available to us.

Operating Income —Operating income of $36.3 million for the six months ended October 2, 2009 increased $12.3 million, or 51.4%, as compared with the six months ended October 3, 2008. Prior period results were negatively affected by large losses on our Afghanistan construction programs. Also contributing to the increase was an expansion in services on both our WPPS programs in Iraq and Pakistan and our MNSTC-I program, and non-recurring revenue of $5.8 million on our WPPS program. Partially offsetting this increase was lower profitability in our CivPol program as a result of the final close out of several firm fixed price task orders in the second quarter of fiscal year 2009. For the remainder of fiscal year 2010, we expect an increase in CivPol operating income due to scope increases in Afghanistan.

Global Platform Support Solutions

Revenue —Revenue of $588.2 million for the six months ended October 2, 2009 decreased $56.8 million, or 8.8%, as compared with the six months ended October 3, 2008. The decrease primarily resulted from the following:

Aviation: Revenue of $514.8 million decreased $59.7 million, or 10.4%, for the six months ended October 2, 2009, as compared to the six months ended October 3, 2008. The decrease was primarily driven by declines in FSO programs of $44.6 million and the INL Air Wing program of $37.8 million. FSO revenue declined due to the completion of several CFT task orders, for which we did not win the re-competes due to additional competitors in this service space. While this is putting downward pressure on fiscal year 2010 revenue, we do not believe this will limit our long-term opportunities under the CFT program. The revenue decline in INL Air Wing revenue was driven by non-recurring equipment sales and construction work in both Camp Alvarado and Camp Valdes in Afghanistan performed in fiscal year 2009. These declines were partially offset by additional services including a new task order as a subcontractor to provide aircraft maintenance to support the Afghanistan air force through our CNTPO program. We also expect continued growth driven by a recent WPPS task order win to provide aircraft maintenance and air transportation services that is expected to ramp up by the fourth quarter of fiscal year 2010.

Land Systems: Revenue of $73.4 million increased $2.9 million, or 4.1%, for the six months ended October 2, 2009, as compared to the six months ended October 3, 2008, primarily due to increased services associated with the MRAP ~~contract.~~contract which generated $49.8 million of revenue for the six months ended October 2, 2009 as compared to $35.3 for the six months ended October 3, 2008. This was partially offset by ~~decreases~~a decrease in ~~services provided under~~ our ~~General Maintenance Corps (“GMC”)~~GMC program.

Operating Income —Operating income of $45.7 million for the ~~fiscal quarter~~six months ended ~~July 3,~~October 2, 2009 increased ~~$10.2~~$1.6 million, or ~~64.6%~~3.8%, as compared with the ~~fiscal quarter~~six months ended ~~July 4,~~October 3, 2008. The increase was primarily driven by better cost management in several key ~~Aviation~~aviation programs, ~~as well as growth from new contracts~~improved cost management and ~~task orders within that service offering. Increased~~favorable foreign currency rates in the INL Air Wing program, and increased services under our MRAP ~~program also contributed~~program. This was partially offset due to lower gross profit on our FSO programs due to the ~~increase.~~loss of several CFT task orders and lower margins on some existing CFT task orders, which was a result of additional competitors in this service space. Also negatively impacting operating income was adjustments to the estimated contract value on the GMC program. Although we expect our MRAP program to continue to be profitable in fiscal year 2011, we expect lower gross profit on our MRAP program starting in fiscal year 2011, reflecting an adjusted rate structure on the next option period.

Global Linguist Solutions

Revenue of ~~$198.4~~$396.7 million increased ~~$79.9~~$77.0 million, or ~~67.5%~~24.1%, for the ~~fiscal quarter~~six months ended ~~July 3,~~October 2, 2009, as compared to the six months ended October 3, 2008. GLS revenue benefited from higher award fees as a result of improved performance, higher fill rates as compared to the first six months of fiscal ~~quarter~~year 2009 and a full six months of performance during the first half of fiscal year 2010 as compared to fiscal year 2009 in which GLS was transitioning the contract from the prior provider.

Operating income of $23.1 million increased $4.5 million, or 24.2% for the six months ended ~~July 4,~~October 2, 2009, as compared to the six months ended October 3, 2008. This increase was primarily due to the fact that the INSCOM contract was fully operational throughout the quarter ended July 3, 2009, whereas INSCOM was ramping up in the quarter ended July 4, 2008. Revenue was also impacted by the recognitiona full six months of ~~the INSCOM award fee in the quarter ended July 3, 2009. No award fee was recorded in~~performance during the first ~~quarter ended July 4, 2008 as there was not sufficient history at that time to support award fee revenue recognition.~~

~~Operating income~~half of ~~$10.7 million increased $9.4 million for the~~ fiscal ~~quarter ended July 3, 2009,~~year 2010 as compared to fiscal year 2009 in which GLS was transitioning the ~~fiscal quarter ended July 4, 2008. This is primarily due to~~contract from the ~~fact that~~prior provider. The increase was also supported by higher award fees earned during the period, partially offset by the impact of the modification on the INSCOM contract was fully operational throughout the quarter ended July 3, 2009, whereas GLS was ramping up in the quarter ended July 4, 2008. Operating income was also significantly impacted by the inclusion of the award fee in the quarter ended July 3, 2009.contract. Operating income earned by GLS benefits net income attributable to DynCorp International Inc. ~~only~~ by our 51% ownership ~~portion, as 49%~~ of ~~earnings from~~ the joint ~~venture are reflected in noncontrolling interests as a reduction to net income attributable to DynCorp International Inc.~~venture.

LIQUIDITY AND CAPITAL RESOURCES

Cash generated by operations and borrowings available under our credit facility are our primary sources of short-term liquidity. Based on our current level of operations, we believe our cash flow from operations and our available borrowings under our credit facility will be adequate to meet our liquidity needs for the foreseeable future. However, we cannot be assured that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our credit facility in an amount sufficient to enable us to repay our indebtedness, including the senior subordinated notes, or to fund our other liquidity needs.

ToIn the second quarter of fiscal year 2010, we capitalized approximately $42.6 million in helicopter assets of which approximately $39.7 million was paid in cash. Of these helicopter assets, $6.3 million were classified as available for sale and included in the inventory. The remainder were classified as fixed assets and included in Property and equipment, net. These helicopter assets were originally purchased in support ~~growth related~~of a new program in our GPSS operating segment. Given availability of customer assets to ~~potential contract and~~support this program, we mutually agreed to a task order ~~awards that could occur over~~modification under which the ~~remainder~~customer will now supply its own helicopters. As a result, we plan to utilize the purchased helicopter assets on other programs, some of ~~the fiscal year and to service our current indebtedness, we~~which may ~~require additional capital beyond that currently provided from operations and by our senior secured credit facility. There can~~ be no assurance that sufficient capital will continue to be available in the future or that it will be available on terms acceptable to us. Failure to obtain sufficient capital could materially affect our future expansion strategies.structured as cost-reimbursable instead of fixed priced.

We expect ~~that our improved~~significant cash collection efforts achieved in fiscal year 2009, evidenced by our reduced days sales outstanding, will be sustainable in fiscal year 2010 and will help facilitate sufficient cash flow from operations to fund our expected growth. We expect significant investment requirements from three ~~new activities~~areas of our business during the remainder of fiscal year 2010: (i) the expansion of the LOGCAP IV contract (ii) ~~a significant fixed asset purchase, and (iii)~~ the potential for one or more ~~acquisitions.~~

acquisitions and (iii) noncontrolling interest payments to our joint venture partners. Our recent win of a new LOGCAP IV task order in southern Afghanistan and the potential to win additional sizeable task orders later this fiscal year will produce demands for liquidity to fund growth on this program. We expect cash contributions from our LOGCAP IV collaborative partners and timely cash collections on the project to support the liquidity needed on this program.

We paid approximately $46 million on October 19, 2009 from cash on hand to acquire Phoenix. Aside from the maximum of $5 million of contingent consideration which may be payable in fiscal year 2011, we do not foresee the need to make significant capital investments into Phoenix and expect Phoenix to generate positive operating cash flows. As we continue our acquisition strategy, we may need to borrow to fund larger acquisitions or multiple acquisitions.

Cash Flow Analysis

Six Months Ended
(Dollars in thousands) October 2, 2009 October 3, 2008
Net Cash provided by operating activities $ 33,378 $ 37,953
Net Cash used in investing activities (36,262 ) (19,718 )
Net Cash (used in) provided by financing activities (65,254 ) 29,165

Cash provided by operating activities for the six months ended October 2, 2009 was $33.4 million, as compared to $38.0 million for the six months ended October 3, 2008. Cash generated from operations in the six months ended October 2, 2009 benefited from the combination of our continued profitable revenue growth from new contracts combined with seasonal payment cycles associated with our largest customers’ fiscal calendar, offset by changes in working capital, an increase in restricted cash and amounts spent on helicopter assets considered available for sale. Net of revenue growth, our accounts receivable collections efforts continued to be effective. Days Sales Outstanding (“DSO”), a key metric utilized by management to monitor collection efforts on accounts receivable was 68 days at the end of the second quarter of fiscal year 2010, consistent with our expectation of high 60s to low 70s on an ongoing basis.

Cash used in investing activities was $36.3 million for the six months ended October 2, 2009 as compared to $19.7 million for the six months ended October 3, 2008. During the second quarter, we ~~will utilize~~utilized cash on hand to purchase ~~$52 million of~~ helicopters in ~~order to~~ support ~~the requirements on~~of a new task ~~order received during the fiscal year.~~order. While we do not typically invest capital in fixed asset purchases due to the service nature of our operations, such a purchase may be necessary from time to time. Lastly, as part of our business strategy, we may invest in one or more business acquisitions from time to time. We expect to fund our fiscal year 2010 acquisitions from available borrowing capacity and cash on hand.

~~Cash Flow Analysis~~

Fiscal Quarter Ended
(Dollars in thousands) July 3, 2009 July 4, 2008
Net Cash provided by (used in) operating activities $ 5,448 $ (71,131 )
Net Cash used in investing activities (1,294 ) (1,451 )
Net Cash (used in) provided by financing activities (45,083 ) 20,703

Cash provided by operating activities for the fiscal quarter ended July 3, 2009 was $5.4 million, as compared to $71.1 million of cash used in the fiscal quarter ended July 4, 2008. Cash generated from operations in the quarter ended July 3, 2009 benefited from the combination of our continued net income growth from new contracts and continued focus on working capital management. Net of revenue growth, our accounts receivable improved due to billing and collection efficiencies implemented during fiscal year 2009. As a result of these efforts, Days Sales Outstanding (“DSO”), a key metric utilized by management to monitor collection efforts on accounts receivable, decreased to 71 days for the quarter ended July 3, 2009 as compared to 82 days for the quarter ended July 4, 2008.

Cash used in investing activities was $1.3 million for the fiscal quarter ended July 3, 2009 as compared to $1.5 million for the fiscal quarter ended July 4, 2008. The cash used was primarily for computer software upgrades and property and equipment additions.

Cash used in financing activities was ~~$45.1~~$65.3 million for the ~~fiscal quarter~~six months ended ~~July 3,~~October 2, 2009, as compared to cash provided of ~~$20.7~~$29.2 million for the ~~fiscal quarter~~six months ended ~~July 4,~~October 3, 2008. The cash used by financing activities during the ~~fiscal quarter~~six months ended ~~July 3,~~October 2, 2009 was primarily due to the excess cash flow principal repayment on our senior secured credit facility, the repurchases of a portion of our senior subordinated notes and payments of noncontrolling ~~interests~~interest dividends.

Financing

As of ~~July 3,~~October 2, 2009, there were no ~~balance was outstanding~~borrowings under the ~~Revolving Facility,~~revolving facility, and $176.6 million was outstanding under the ~~Term Loan Facility.~~term loan facility. Our available borrowing capacity under the ~~Revolving Facility~~revolving facility totaled ~~$170.5~~$170.6 million at ~~July 3,~~October 2, 2009, which gives effect to ~~$29.5~~$29.4 million of outstanding letters of credit. The weighted-average interest rate ~~at July 3,~~for the six months ended October 2, 2009 for our borrowings under the credit facility was ~~3.66%~~3.39% excluding the impact of our interest rate swaps. We expect the applicable margin on our credit facility to decline by 0.25% in the third quarter of fiscal year 2010.

We have entered into interest rate swap agreements to hedge our exposure to interest rate increases related to our credit facility. These agreements are more fully described in Note 7 to our consolidated financial statements included in this Quarterly Report.

We are required, under certain circumstances as defined in our credit agreement, to use a percentage of excess cash generated from operations to reduce the outstanding principal of the term loans in the following year. Such payments are due near the end of the first quarter of the following fiscal year. We paid $23.4 million in June 2009 to satisfy our fiscal year 2009 requirement. The excess cash flow measurement is an annual requirement of the credit ~~agreement and, as a result, we cannot estimate with certainty the excess cash flow that will be generated, if any, for the fiscal year ending April 2, 2010.~~agreement.

In the first ~~quarter~~two quarters of fiscal year 2010, we repurchased ~~$10.3~~$24.3 million of our senior subordinated ~~notes at a discount resulting in an insignificant gain.~~notes. As of ~~July 3,~~October 2, 2009, ~~$389.7~~$375.4 million of principal was outstanding under our senior subordinated notes. Our senior subordinated notes mature February 2013. Interest accrues on our senior subordinated notes and is payable semi-annually.

Debt Covenants and Other Matters

Our credit facility ~~in place as of July 3, 2009 contained~~and senior subordinated notes contain various financial covenants, including minimum levels of earnings before interest, taxes, depreciation and amortization (“EBITDA”), minimum interest and fixed charge coverage ratios, and maximum capital expenditures and total leverage ratio. Non-financial covenants restrict our ability 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. We had no instances of noncompliance with our various financial and non-financial covenants at ~~July 3,~~October 2, 2009.

3338

Our credit facility and senior subordinated notes contain specific covenant requirements which may limit our ability to make acquisitions or require us to obtain debt holder approval. We may also be limited by our debt agreements as to the cumulative size of our acquisitions, the type of businesses we may purchase and the forecasted effects on our overall financial statements.

OFF BALANCE SHEET ARRANGEMENTS

~~In accordance with the definition under SEC rules, the following qualify as off-balance sheet arrangements:~~

~~Any obligation under certain guarantee contracts;~~

~~A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;~~

~~Any obligation under certain derivative instruments; and~~

Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

As of ~~July 3,~~October 2, 2009, we did not have any off balance sheet arrangements as defined ~~above.~~under SEC rules. We recognize all derivatives as either assets or liabilities at fair value in our consolidated balance sheets. Refer to Note 7 of our consolidated financial statements for additional disclosure on derivatives and Note 11 for additional disclosure on variable interest entities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based on our consolidated financial statements and related footnotes contained within this Quarterly Report. Our more critical accounting policies used in the preparation of the consolidated financial statements were discussed in our 2009 Annual Report on Form 10-K for the fiscal year ended April 3, 2009, filed with the SEC on June 11, 2009. There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the fiscal year ended April 3, 2009.

The process of preparing financial statements in conformity with GAAP requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenue and expenses. These estimates and assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates.

Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations.

Interim Goodwill Assessment

We evaluate goodwill for impairment annually and when an event occurs or circumstances change to suggest that the carrying value may not be recoverable. Our annual testing date is at the fiscal end of February of each fiscal year. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is less than the book value, we record impairment, if any, to the extent that the estimated fair value of goodwill is less than the carrying value.

We estimate a portion of the fair value of our reporting units under the income approach by utilizing a discounted cash flow model based on several factors including balance sheet carrying values, historical results, our most recent forecasts, and other relevant quantitative and qualitative information. We discount the related cash flow forecasts using the weighted-average cost of capital method at the date of evaluation. We also use the market approach to estimate the remaining portion of our reporting unit valuation. This technique utilizes comparative market multiples in the valuation estimate. We have historically applied a 50%/50% weighting to each approach. While the income approach has the advantage of utilizing more company specific information, the market approach has the advantage of capturing market based transaction pricing. Significant changes in these forecasts, the discount rate selected, or the weighting of the income and market approach could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

The combined estimated fair value of all of our reporting units from the weighted total of the market approach and income approach often results in a premium over our market capitalization, commonly referred to as a control premium. The calculated control premium percentage is evaluated and compared to an estimated acceptable maximum percentage. In the event that the calculated control premium is above this maximum, a portion of the excess control premium is allocated to reduce the fair value of each reporting unit in order to further access whether any reporting units have incurred goodwill impairment. Assessing the acceptable control premium percentage requires judgment and is impacted by external factors such as observed control premiums from comparable transactions derived from the prices paid on recent publically disclosed acquisitions in our industry.

In determining whether an interim triggering event has occurred, management monitors (i) the actual performance of the business relative to the fair value assumptions used during our annual goodwill impairment test, (ii) significant changes to future expectations (iii) and our market capitalization, which is based on our average stock price and average common shares over a recent timeframe. During the six months ended October 2, 2009, we did not identify any triggering events which would require an update to our annual impairment test.

ACCOUNTING DEVELOPMENTS

We have presented the information about accounting pronouncements not yet implemented in Note 1 to our consolidated financial statements included in this Quarterly Report.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended April 3, 2009, filed with the SEC on June 11, 2009.


ITEM 4.		CONTROLS AND PROCEDURES

~~(a) Evaluation of~~ Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the chief executive officer (“CEO”) and chief financial officer (“CFO”), allowing timely decisions regarding required disclosure. As of the last fiscal quarter covered by this report, based on an evaluation carried out under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act of 1934), the CEO and CFO have concluded that our disclosure controls and procedures are effective.

PART II — OTHER INFORMATION


ITEM 1.		LEGAL ~~PROCEEDINGS~~MATTERS

Information related to various commitments and contingencies is described in Note 8 to the ~~condensed~~ consolidated financial statements.


ITEM 1A.		RISK FACTORS

There have been no material changes in risk factors from those described in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended April 3, 2009, filed with the SEC on June 11, 2009.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our ~~board~~Board of ~~directors has~~Directors authorized us to repurchase up to $25.0 million per fiscal year of our outstanding common stock and/or senior subordinated notes during fiscal years 2009 and 2010. ~~The securities may be repurchased from time to time in~~During the ~~open market or through privately negotiated transactions at~~first quarter of fiscal year 2010, we purchased 54,900 shares and $10 million of senior subordinated notes, including applicable fees, which utilized $10.7 million of our ~~discretion, subject to market conditions, and in accordance with applicable federal and state securities laws and regulations.~~availability under the fiscal year 2010 portion of the authorization. During the second quarter of fiscal year 2010, we purchased $14.3 million of senior subordinated notes, which utilized almost all of the remaining availability except for ade minimusamount. Shares of common stock repurchased under this plan ~~will be~~are held as treasury shares. AsAdditionally, 21,675 of ~~July 3, 2009, a total~~these shares were issued to our CEO to settle equity-based compensation liabilities resulting in 726,425 treasury shares as of ~~748,100 shares have been repurchased under this authorization.~~October 2, 2009.

~~The following table presents information with respect to those purchases of our common stock made during the first quarter of fiscal year 2010:~~

Period Total Number of Shares Repurchased Average Price Paid Per Share Total Number of Shares Purchased Pursuant to Publically AnnouncedPlans⁽³⁾ Approx. Dollar Value of Shares that May Yet Be Purchased Under the Plan⁽⁴⁾
Apr. 4, 2009 – May 1, 2009⁽¹⁾
46,100 $ 12.91 739,300 $ 24,404,794
May 2, 2009 – May 29, 2009⁽¹⁾
8,800 13.00 748,100 24,290,397
May 30, 2009 – Jul. 3, 2009⁽¹⁾⁽²⁾
— — 748,100 14,288,876

Total 54,900 $ 12.93 748,100 $ 14,288,876


~~(1)~~		~~The monthly periods presented are based on our first three fiscal months of fiscal year 2010.~~

~~(2)~~		~~During the month of June we repurchased senior subordinated notes at a cost of $10.0 million. This repurchase reduced our available capacity under the plan to repurchase common stock.~~

~~(3)~~		~~Amounts represent cumulative shares purchased since the inception of our publically announced plans.~~

~~(4)~~		The current approval by our board of directors in fiscal year 2010 allows for $25 million in repurchases for a combination of common stock and/or senior subordinated notes during fiscal year 2010. Subsequent repurchases of senior subordinated notes are described in Note 15 to the condensed consolidated financial statements. Unused amounts in fiscal year 2010 are not available for use in future years. For the first quarter of fiscal year 2010, we purchased 54,900 shares and $10.0 million of senior subordinated notes, including applicable fees, which utilized $10.7 million of our availability under the fiscal year 2010 portion of the authorization. The current authorization effectively ends at the end of fiscal year 2010.

Proposal 2: Ratification of the selection of Deloitte and Touche LLP, and independent registered public accounting firm, as our independent auditors for fiscal year 2010:


Votes for:			55,176,103
Votes against:			19,295
Abstentions:			3,305
Broker non-votes:			—


ITEM 5.		OTHER INFORMATION

None.


ITEM 6.		EXHIBITS

~~The following exhibits are filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q.~~


Exhibit
Number			Description

31.1*	1.1		Underwriting Agreement (Incorporated by reference to Exhibit 1.1 to DynCorp International Inc.’s Form S-3/A with the SEC on August 4, 2009)
	31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2
31.2**		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1
32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2
32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*		Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DYNCORP INTERNATIONAL INC.
	~~Date: August 5, 2009~~

/s/ Michael J. Thorne
~~Name:~~	Michael J. Thorne
~~Title:~~	Senior Vice President and Chief Financial Officer	Date: November 9, 2009

3642


	Page

PART I. FINANCIAL INFORMATION

Forward-Looking Statements

Item 1. Financial Statements ~~(unaudited)~~

Unaudited Consolidated Statements of Income—~~Fiscal Quarters~~Three Months Ended ~~July 3,~~October 2, 2009 and ~~July 4,~~October 3, 2008		3

Unaudited Consolidated ~~Balance Sheets—July 3,~~Statements of Income—Six Months Ended October 2, 2009 and ~~April~~October 3, ~~2009~~2008		4

Unaudited Consolidated ~~Statements of Cash Flows—Fiscal Quarters Ended July~~Balance Sheets—October 2, 2009 and April 3, 2009 ~~and July 4, 2008~~		5

Unaudited Consolidated Statements of Cash Flows—Six Months Ended October 2, 2009 and October 3, 2008		6

Unaudited Consolidated Statements of Shareholders’ Equity—~~Fiscal Quarters~~Six Months Ended ~~July 3,~~October 2, 2009 and April 3, 2009		67

Notes to Consolidated Financial Statements (unaudited)		78

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2327

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3440

Item 4. Controls and Procedures		3440

PART II. OTHER INFORMATION

Item 1. Legal ~~Proceedings~~Matters		3541

Item 1A. Risk Factors		3541

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3541

Item 3. Defaults Upon Senior Securities		3641

Item 4. Submission of Matters to a Vote of Security Holders		3641

Item 5. Other Information		3642

Item 6. Exhibits		3642

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


(Dollars in thousands)	ISS		LCM		MTSS		Total		LCM/GSDS		ISS /GLS			MTSS/GPSS		Total
Goodwill balance as of April 3, 2009	$	300,094	$	39,935	$	80,151	$	420,180	$	39,935	$	300,094		$	80,151	$	420,180
Reallocation of goodwill										169,138		(300,094	)		130,956		—

Goodwill balance as of October 2, 2009									$	209,073	$	—		$	211,107	$	420,180


				Weighted
				Average					Weighted
	Outstanding			Grant		Outstanding			Average
	Restricted			Date		Restricted			Grant Date
	Stock Units			Fair Value		Stock Units			Fair Value

Outstanding, April 3, 2009		345,895		$	16.71		345,895		$	16.71
Units granted		12,500			13.86		510,350		$	16.89
Units forfeited		(40,300	)		16.32		(48,170	)	$	16.40
Units vested and settled⁽¹⁾		—			—		(37,500	)	$	15.74

Outstanding, July 3, 2009		318,095		$	16.65
Outstanding, October 2, 2009							770,575		$	16.90


Nine month period ended April 2, 2010	$	1,208
Six month fiscal period ended April 2, 2010			$	2,217
Fiscal year ended April 1, 2011		1,037		3,846
Fiscal year ended March 30, 2012 and thereafter		413		4,619

Total	$	2,658	$	10,682


					October 2,		April 3,
	July 3, 2009		April 3, 2009		2009		2009
Prepaid expenses	$	53,959	$	61,570	$	53,608	$	61,570
Inventories		11,332		10,840		16,971		10,840
Work-in-process		32,606		33,885		30,184		33,885
Joint Venture Receivables		3,746		2,491
Joint venture receivables						5,125		2,491
Other current assets		8,382		15,428		10,389		15,428

Total	$	110,025	$	124,214	$	116,277	$	124,214


(Dollars in thousands)	GSDS		GPSS		GLS		Total
Goodwill balance as of July 3, 2009	$	209,073	$	211,107	$	—	$	420,180


(1)		This includes the impact of the discount which had a carrying value of ($~~0.9)~~0.8) million ($1.0) million as of ~~July 3,~~October 2, 2009 and April 3, 2009, respectively.


*		Plus applicable margin (2.5% at ~~July 3,~~October 2, 2009).


	AMOUNT OF GAIN OR (LOSS) RECOGNIZED IN INCOME ON DERIVATIVE								Three Months			Three Months
Derivatives not Designated as Hedging	Line Item in Statements	July 3, 2009			July 4, 2008
Instruments under SFAS No. 133	of Income	Amount			Amount
								AMOUNT OF GAIN OR (LOSS) RECOGNIZED IN	Ended			Ended
Derivatives not Designated								INCOME ON DERIVATE	October 2,			October 3,
as Hedging Instruments								Line Item in Statements	2009			2008
under ASC 815								of Income	Amount			Amount
Interest rate derivatives	Other (loss)/income, net	$	(188	)	$	(404	)	Other (loss)/ income, net	$	(319	)	$	—


Total		$	(188	)	$	(404	)		$	(319	)	$	—


		Six Months			Six Months
	AMOUNT OF GAIN OR (LOSS) RECOGNIZED IN	Ended			Ended
Derivatives not Designated	INCOME ON DERIVATE	October 2,			October 3,
as Hedging Instruments	Line Item in Statements	2009			2008
under ASC 815	of Income	Amount			Amount
Interest rate derivatives	Other (loss)/ income, net	$	(506	)	$	(404	)


Total		$	(506	)	$	(404	)


Nine month period ending April 2, 2010	$	438
Six month period ending April 2, 2010			$	259
Fiscal year ending April 1, 2011		229		229
Fiscal year ending March 30, 2012 and thereafter		62		62

Total	$	729	$	550


	July 3, 2009		April 3, 2009
Deferred financing costs, net	$	12,665	$	13,828
Investment in affiliates		10,111		8,982
Palm promissory notes, long-term portion		6,808		6,631
Other		2,381		2,627

Total	$	31,965	$	32,068


⁽¹⁾		Includes RSUs accounted for as liability awards presented in Note 9.


	Book value of		Quoted Prices in						Book value of
	financial		Active Markets		Significant Other		Significant		financial		Quoted Prices in
	assets/(liabilities)		for Identical Assets		Observable Inputs		Unobservable Inputs		assets/(liabilities)		Active Markets		Significant Other		Significant
(Amounts in thousands)	as of July 3, 2009		(Level 1)		(Level 2)		(Level 3)
									as of October 2,		for Identical		Observable Inputs		Unobservable
(amounts in thousands)									2009		Assets (Level 1)		(Level 2)		Inputs (Level 3)
*Assets*
Cash equivalents⁽¹⁾	$	164,993	$	164,993	$	—	$	—	$	148,074	$	148,074	$	—	$	—

Total assets measured at fair value	$	164,993	$	164,993	$	—	$	—	$	148,074	$	148,074	$	—	$	—

*Liabilities*
Interest rate derivatives	$	6,593	$	—	$	6,593	$	—	$	6,185	$	—	$	6,185	$	—

Total liabilities measured at fair value	$	6,593	$	—	$	6,593	$	—	$	6,185	$	—	$	6,185	$	—


(1)		Includes cash ~~and cash~~ equivalents and restricted ~~cash.~~cash


						Three Months Ended
	Fiscal Quarter Ended					October 2,			October 3,
	July 3, 2009		July 4, 2008			2009			2008
	(Dollars in thousands)					(Dollars in thousands)
Current portion:
Federal	$	3,162	$	9,589		$	5,346		$	11,024
State		393	��	807			676			842
Foreign		843		2,539			1,968			1,271

							7,990			13,137
		4,398		12,935

Deferred portion:
Federal		7,959		(3,496	)		5,146			(3,874	)
State		266		(117	)		172			(130	)
Foreign		4		(6	)		(7	)		(2	)

		8,229		(3,619	)		5,311			(4,006	)

Provision for income taxes	$	12,627	$	9,316		$	13,301		$	9,131


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Period	Total Number of Shares Repurchased		Average Price Paid Per Share		Total Number of Shares Purchased Pursuant to Publically AnnouncedPlans⁽³⁾		Approx. Dollar Value of Shares that May Yet Be Purchased Under the Plan⁽⁴⁾
Apr. 4, 2009 – May 1, 2009⁽¹⁾		46,100	$	12.91		739,300	$	24,404,794
May 2, 2009 – May 29, 2009⁽¹⁾		8,800		13.00		748,100		24,290,397
May 30, 2009 – Jul. 3, 2009⁽¹⁾⁽²⁾		—		—		748,100		14,288,876

Total		54,900	$	12.93		748,100	$	14,288,876


ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


Nominee	Votes For		Votes Withheld		Broker Non-Votes
Ramzi M. Musallam		46,129,690		9,069,013		—
Mark H. Ronald		54,564,955		633,748		—