UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~January 2,~~July 3, 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 ~~February 2,~~August 3, 2009, the registrant had ~~57,000,000~~56,251,900 shares of its Class A common stock ~~par value $0.01 per share,~~ outstanding.

DYNCORP INTERNATIONAL INC.
TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION

Forward-Looking Statements

Item 1. Financial Statements (unaudited)

Unaudited Consolidated Statements of Income—Fiscal Quarters Ended July 3, 2009 and July 4, 2008		3

Unaudited ~~Condensed~~ Consolidated ~~Statements of Income—~~ ~~Three Months Ended January 2,~~Balance Sheets—July 3, 2009 and ~~December 28, 2007~~		April 3,

~~Unaudited Condensed Consolidated Statements of Income—~~ ~~Nine Months Ended January 2,~~ 2009 ~~and December 28, 2007~~		4

Unaudited ~~Condensed~~ Consolidated ~~Balance Sheets—~~ ~~January 2,~~Statements of Cash Flows—Fiscal Quarters Ended July 3, 2009 and ~~March 28,~~July 4, 2008		5

Unaudited ~~Condensed~~ Consolidated Statements of ~~Cash Flows—~~ ~~Nine Months~~Shareholders’ Equity—Fiscal Quarters Ended ~~January 2,~~July 3, 2009 and ~~December 28, 2007~~April 3, 2009		6

Notes to ~~Condensed~~ Consolidated Financial Statements (unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2623

Item 3. Quantitative and Qualitative Disclosures About Market Risk		4034

Item 4. Controls and Procedures		4134

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		4235

Item 1A. Risk Factors		4235

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4235

Item 3. Defaults Upon Senior Securities		4236

Item 4. Submission of Matters to a Vote of Security Holders		4236

Item 5. Other Information		4236

Item 6. Exhibits		4336

~~Exhibit 10.1~~
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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: our substantial level of indebtedness; policy and/or spending changes implemented by the new Presidential 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 and LOGCAP IV 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 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. 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.		~~ITEM 1.~~ FINANCIAL STATEMENTS

DYNCORP INTERNATIONAL INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)


	For the Three Months Ended						For the Fiscal Quarter Ended
	January 2, 2009			December 28, 2007			July 3, 2009			July 4, 2008

Revenue	$	792,327		$	523,071		$	785,177		$	716,794

Cost of services		(704,210	)		(452,341	)		(699,093	)		(638,389	)
Selling, general and administrative expenses		(26,505	)		(28,995	)		(23,438	)		(27,851	)
Depreciation and amortization expense		(10,029	)		(10,910	)		(10,145	)		(10,560	)

Operating income		51,583			30,825			52,501			39,994
Interest expense		(15,322	)		(14,052	)		(14,610	)		(14,215	)
Loss on early extinguishment of debt		—			—
Earnings from affiliates		1,319			1,253			1,054			1,117
Interest income		730			522			339			344
Other income, net		(856	)		380
Other (loss)/income, net								(213	)		705

Income before income taxes		37,454			18,928			39,071			27,945
Provision for income taxes		(11,639	)		(6,968	)		(12,627	)		(9,316	)

Income before minority interest		25,815			11,960
Minority interest		(6,062	)		—
Net income								26,444			18,629
Noncontrolling interests								(5,799	)		(649	)

Net income	$	19,753		$	11,960
Net income attributable to DynCorp International Inc.							$	20,645		$	17,980

Basic earnings per share	$	0.35		$	0.21

Diluted earnings per share	$	0.34		$	0.21

Basic and diluted earnings per share							$	0.36		$	0.31

See notes to ~~condensed~~ consolidated financial statements.

DYNCORP INTERNATIONAL INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED ~~STATEMENTS OF INCOME~~BALANCE SHEETS

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

For the Nine Months Ended
January 2, 2009 December 28, 2007

Revenue $ 2,288,272 $ 1,566,853

Cost of services (2,039,118 ) (1,358,062 )
Selling, general and administrative expenses (80,350 ) (79,916 )
Depreciation and amortization expense (30,594 ) (31,901 )

Operating income 138,210 96,974
Interest expense (44,442 ) (42,247 )
Loss on early extinguishment of debt (4,443 ) —
Earnings from affiliates 3,959 3,320
Interest income 1,751 2,202
Other income, net 809 (162 )

Income before income taxes 95,844 60,087
Provision for income taxes (30,086 ) (21,916 )

Income before minority interest 65,758 38,171
Minority interest (15,154 ) —

Net income $ 50,604 $ 38,171

Basic earnings per share $ 0.89 $ 0.67

Diluted earnings per share $ 0.88 $ 0.67


	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

See notes to ~~condensed~~ consolidated financial statements.

DYNCORP INTERNATIONAL INC.

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

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

As of
January 2, 2009 March 28, 2008
ASSETS

Current assets:
Cash and cash equivalents $ 150,580 $ 85,379
Restricted cash 18,039 11,308
Accounts receivable, net of allowances of $8 and $268, respectively 634,924 513,312
Prepaid expenses and other current assets 125,756 109,027
Deferred income taxes — 17,341

Total current assets 929,299 736,367
Property and equipment, net 18,022 15,442
Goodwill 420,180 420,180
Tradename 18,318 18,318
Other intangibles, net 151,151 176,146
Deferred income taxes 5,773 18,168
Other assets, net 31,506 18,088

Total assets $ 1,574,249 $ 1,402,709

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Current portion of long-term debt $ — $ 3,096
Accounts payable 209,116 148,787
Accrued payroll and employee costs 111,579 85,186
Deferred income taxes 1,927 —
Other accrued liabilities 121,582 129,240
Income taxes payable 5,347 8,245

Total current liabilities 449,551 374,554

Long-term debt, less current portion 615,903 590,066
Other long-term liabilities 12,121 13,804

Commitments and contingencies

Minority interest 11,848 —

Shareholders’ equity:
Common stock, $0.01 par value — 232,000,000 shares authorized; 57,000,000 shares issued and outstanding 570 570
Additional paid-in capital 365,887 357,026
Retained earnings 124,207 73,603
Accumulated other comprehensive loss (5,838 ) (6,914 )

Total shareholders’ equity 484,826 424,285

Total liabilities and shareholders’ equity $ 1,574,249 $ 1,402,709


	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

See notes to ~~condensed~~ consolidated financial statements.

DYNCORP INTERNATIONAL INC.

UNAUDITED ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY

(~~Amounts~~Dollars and Shares in ~~thousands)~~Thousands)

For the Nine Months Ended
January 2, 2009 December 28, 2007

Cash flows from operating activities

Net income $ 50,604 $ 38,171
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 31,388 32,924
Amortization of deferred loan costs 2,696 2,261
(Recovery) for losses on accounts receivable (283 ) (1,127 )
Earnings from affiliates (3,959 ) (3,320 )
Dividends from affiliates 2,439 2,652
Deferred income taxes 32,193 313
Equity-based compensation 2,385 3,360
Minority interest 15,154 —
Loss on early extinguishment of debt 4,443 —
Other (772 ) (138 )
Changes in assets and liabilities:
Restricted cash (see Note 1) 8,429 10,133
Accounts receivable (121,329 ) (120,018 )
Prepaid expenses and other current assets (20,711 ) (22,546 )
Accounts payable and accrued liabilities 68,957 11,832
Income taxes payable (1,439 ) (3,753 )

Net cash provided by (used in) operating activities 70,195 (49,256 )

Cash flows from investing activities

Purchase of property and equipment (3,407 ) (2,822 )
Purchase of computer software (1,634 ) (996 )
Change in cash restricted as collateral on letters of credit (see Note 1) (15,160 ) —
Contributions to affiliates (2,231 ) (3,366 )
Other investing activities 362 (57 )

Net cash (used in) investing activities (22,070 ) (7,241 )

Cash flows from financing activities

Borrowings under debt agreements (see Note 5) 323,751 13,500
Repayments on debt agreements (see Note 5) (301,129 ) (37,058 )
Net borrowings (payments) under other financing arrangements 4,299 (8,957 )
Payments of deferred financing cost (9,834 ) —
Other net financing activities (11 ) 138

Net cash provided by (used in) financing activities 17,076 (32,377 )

Net increase in cash and cash equivalents 65,201 (88,874 )
Cash and cash equivalents, beginning of period 85,379 102,455

Cash and cash equivalents, end of period $ 150,580 $ 13,581

Income taxes paid (net of refunds) $ 18,622 $ 21,949
Interest paid $ 34,354 $ 33,231
Non-cash sale of DIFZ including related financing (see Note 8) $ 8,296 $ —


																		Total
																		Shareholders’
																		Equity
															Accumulated			Attributable
						Additional									Other			to DynCorp
	Common					Paid-in			Retained			Treasury			Comprehensive			International			Noncontrolling			Total
	Stock					Capital			Earnings			Stock			Income (Loss)			Inc.			Interests			Equity
Balance at April 3, 2009		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
Interest rate swap, net of tax							—			—			—			566			566			—			566
Currency translation adjustment, net of tax							—			—			—			348			348			—			348

Comprehensive income							—			26,444			—			914			27,358			—			27,358
Noncontrolling interests							—			(5,799	)		—			—			(5,799	)		—			(5,799)

Comprehensive income attributable to DynCorp International Inc.							—			20,645			—			914			21,559			—			21,559
Net income and comprehensive income attributable to noncontrolling interests							—			—			—			—			—			5,799			5,799
DIFZ financing, net of tax							112			—			—			—			112			—			112
Treasury stock		(55	)				—			—			(712	)		—			(712	)		—			(712	)
Equity-based compensation							191			—			—			—			191			—			191
Tax benefit associated with equity-based compensation							(13	)		—			—			—			(13	)		—			(13	)
Dividends declared to noncontrolling interests							—			—			—			—			—			(10,700	)		(10,700	)

Balance at July 3, 2009		56,252		$	570	$	366,910		$	164,018		$	(9,330	)	$	(3,510	)	$	518,658		$	5,835		$	524,493

See notes to ~~condensed~~ consolidated financial statements.

DYNCORP INTERNATIONAL INC.

NOTES TO ~~CONDENSED~~ 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 ~~outsourced by~~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 ~~condensed~~ consolidated financial statements include the accounts of the Company and ~~its~~our domestic and foreign subsidiaries. These ~~condensed~~ consolidated financial statements have been prepared, ~~by the Company,~~ 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, ~~the Company believes~~we believe that all disclosures are adequate to make the information presented not misleading. These ~~condensed~~ consolidated financial statements should be read in conjunction with ~~the Company’s~~our audited consolidated financial statements and the related notes thereto included in the Company’s ~~2008~~fiscal 2009 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on June ~~10, 2008.~~11, 2009.

~~The Company reports its~~We report our results on a 52/~~53-week~~53 week fiscal year with the fiscal year ending on the Friday closest to March 31 of such year (April ~~3, 2009~~2, 2010 for fiscal year ~~2009~~2010 which is a ~~53-week~~52 week fiscal year). The ~~nine-month~~ fiscal ~~period~~quarter ended ~~January 2,~~July 3, 2009 was a ~~40-week~~13-week period from April 4, 2009 to July 3, 2009. The fiscal quarter ended July 4, 2008 was a 14-week period from March 29, 2008 to ~~January 2, 2009. The nine-month fiscal period ended December 28, 2007 was a 39-week period from March 31, 2007 to December 28, 2007.~~July 4, 2008.

In the opinion of management, all adjustments necessary to fairly present ~~the Company’s~~our financial position at ~~January 2,~~July 3, 2009 and ~~March 28, 2008,~~April 3, 2009, the results of operations for the ~~three and nine months~~fiscal quarters ended ~~January 2,~~July 3, 2009 and ~~December 28, 2007,~~July 4, 2008, and cash flows for the ~~nine months~~fiscal quarters ended ~~January 2,~~July 3, 2009 and ~~December 28, 2007,~~July 4, 2008, have been ~~included and are of a normal and recurring nature.~~included. The results of operations for the ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 are not necessarily indicative of the results to be expected for the full fiscal year or for any future periods. ~~The Company uses~~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.

~~For purposes~~As a result of ~~comparability,~~the implementation of Statement of Financial Standards (the “FASB”) No. 160 “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”), certain prior year amounts ~~specifically our segment reporting structure as further discussed in Note 14,~~ have been reclassified to conform to the current year presentation. This included 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.~~income attributable to DynCorp International Inc.

Principles of Consolidation

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

~~The following table sets forth the Company’s~~We have ownership interests in three active joint ventures ~~and companies~~ that are not consolidated into ~~the Company’s~~our financial statements as of ~~January 2,~~July 3, 2009, and are accounted for byusing 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.


~~DynEgypt LLC~~	~~50.0~~	%
~~TSDI Pty Ltd~~	~~50.0~~	%
~~Dyn Puerto Rico Corporation~~	~~49.9~~	%
Contingency Response Services LLC	45.0	%
Babcock DynCorp Limited	44.0	%
Partnership for Temporary Housing LLC	40.0	%
~~DCP Contingency Services LLC~~	~~40.0~~	%

~~On July 31, 2008, the Company~~In fiscal year 2009, we sold 50% of ~~its~~our ownership interest in ~~its~~our previously wholly owned subsidiary, DynCorp International FZ-LLC (“DIFZ”), for approximately ~~$8.2~~$9.7 million. DIFZ was previously a wholly owned subsidiary and, therefore, consolidated into ~~the Company’s~~our financial statements. ~~No gain has been recognized on the sale as of January 2, 2009 as the Company completely financed the transaction by accepting three promissory notes provided by the purchaser. As a result, the~~The sale was accounted for as a capital transaction reflected in additional paid in ~~capital (“APIC”).~~capital. We have financed the transaction by accepting three promissory notes provided by the purchaser. Repayment of the notes ~~to the Company is to be made through~~included a ~~single cash~~$0.5 million dollar payment ~~of $500,000~~in fiscal year 2009, with the remainder to be repaid through a portion of the purchaser’s ~~portion of~~ DIFZ quarterly dividends. ~~The sale price~~A dividend was declared in June 2009, a portion of which reduced our note receivable balance. This dividend is ~~contingent upon a revaluation based on actual DIFZ results through January 31, 2009, with any adjustments to the purchase price~~expected to be ~~reflected by an increase or decrease~~paid in ~~the notes.~~our second quarter of fiscal year 2010. Additionally, the ~~interest component~~next dividend is scheduled to be declared and paid during the second quarter ending October 2, 2009. As of the ~~three notes receivable held by the Company will also increase APIC due to the structure~~date of this transaction and will not impact the Company’s consolidated statements of income. The sale agreement governing the transaction provides indemnification to the buyer for losses arising out of tax related matters specific to DIFZ. After the transaction, it was determined that ~~the Company was~~we were the primary beneficiary as defined in FIN No. 46R.

The following table sets forth ~~the Company’s~~our ownership in joint ventures that are consolidated into ~~the Company’s~~our financial statements as of ~~January 2,~~July 3, 2009. For the entities list below, ~~the Company is~~we are the primary beneficiary as defined in FIN No. 46R.



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

~~Minority Interest~~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 ~~minority interest. Minority interest~~noncontrolling interests. Noncontrolling interests is presented on the face of the income statement as an increase or reduction in arriving at net ~~income.~~income attributable to DynCorp International Inc. The presentation of ~~minority interest~~noncontrolling interests on the balance sheet is ~~typically~~ located in ~~a mezzanine account between liabilities~~the equity section.

Property and ~~equity. As~~Equipment

Depreciation expense was $1.0 million and $0.8 million for the quarters ended July 3, 2009 and July 4, 2008, respectively. Accumulated depreciation was $9.4 million and $8.6 million as of ~~March 28, 2008, the minority interest balance related to Global Linguist Solutions LLC (“GLS”) was recorded as an asset within prepaid expenses~~July 3, 2009 and ~~other current assets, due to cumulative losses incurred. As of January 2,~~April 3, 2009, ~~all minority interest, including minority interest related to DIFZ, were recorded as mezzanine equity.~~

~~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.

~~The following table reconciles our restricted cash to the cash flow statement:~~

As of Cash provided by/
(amounts in thousands) January 2, 2009 March 28, 2008 (used in)

Type of restricted cash

Contract related $ 2,879 $ 11,308 $ 8,429
Required as collateral 15,160 — (15,160 )

Total $ 18,039 $ 11,308 $ (6,731 )
respectively.

Accounting Policies

There have been no material changes to our significant accounting policies as detailed in Note 1 of our ~~2008~~fiscal 2009 Annual Report on Form 10-K filed with the SEC on June ~~10, 2008.~~11, 2009, except for the accounting rule changes associated with noncontrolling interests, which only affects presentation and disclosure. SeePronouncements Implementedbelow.

Accounting Developments

Pronouncements Implemented

In ~~September 2006,~~December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which is an amendment of Accounting ~~Standards Board (“FASB”)~~Research Bulletin No. 51. This statement covers several areas including (i) defining the way the noncontrolling interests should be presented in the financial statements and notes, (ii) clarifies that all transactions between a 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 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 and consolidated statements of shareholders’ equity. We have applied SFAS No. 160 retrospectively to the presentation of our balance sheets, statements of income and statement of equity.

In December 2007, the FASB issued ~~Statement of Financial Accounting Standard (“SFAS”)~~SFAS No. ~~157, “Fair Value Measurements”~~141 (revised 2007), “Business Combinations” (“SFAS No. ~~157”~~141(R)”). This statement replaces FASB Statement No. 141, “Business Combinations.” This statement retains the fundamental requirements in SFAS No. ~~157 establishes a single definition~~141 that the acquisition method of ~~fair value and a framework for measuring fair value under GAAP and expands disclosures about fair value measurements.~~accounting (which SFAS No. ~~157 applies~~141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Additionally, this statement 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 also requires acquisition related costs to be expensed as incurred. This statement has been 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 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 became effective for us in the first quarter of fiscal year 2010. The adoption of EITF 07-1 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 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 ~~other accounting pronouncements that require or permit fair value measurements; however, it does not require any new fair value measurements.~~ SFAS No. ~~157~~142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will apply FSP No. 142-3 for any applicable events and transactions in fiscal year 2010.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after ~~November~~December 15, ~~2007. In February~~ 2008, ~~the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, which provides a one year deferral of the effective date of SFAS No. 157 for non-financial assets~~ and ~~non-financial liabilities, except~~interim periods within those that are recognized or disclosed in the financial statements at fair value at least annually. In October 2008, the FASB issued Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active”, which clarifies the application of FAS 157 in a market that is not active and defines additional key criteria in determining the fair value of a financial asset when the market for that financial asset is not active.years. The adoption of ~~SFAS No. 157~~FSP EITF 03-6-1 did not have, and is not expected to have, a material impact on ~~our consolidated financial condition and results of operations. See Note 12 for the applicable fair value disclosures.~~basic or diluted earnings per share.

In ~~February 2007,~~May 2009, the FASB issued ~~SFAS~~Statement of Financial Standards No. ~~159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”~~165 “Subsequent Events (as amended)” (“SFAS No. ~~159”~~165”)., which provides guidance on management’s assessment of subsequent events. The new standard clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date “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. ~~159 permits entities~~165 requires management to ~~choose~~disclose, in addition to ~~measure many~~the disclosures in Auditing Standards Section 560, the date through which subsequent events have been evaluated and whether that is the date on which the financial ~~instruments and certain other items at fair value that are not currently required~~statements were issued or were available to be measured at fair value. It provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.issued. SFAS No. ~~159~~165 is effective prospectively for ~~fiscal years beginning~~interim or annual financial periods ending after ~~November~~June 15, ~~2007. The adoption of SFAS No. 159 did not impact our consolidated financial condition~~2009. We have adopted this guidance through enhanced disclosures for any applicable events and ~~results of operations~~transactions as ~~we did not elect to apply the fair value option to items that have previously been measured at historical cost.~~further described in Note 15.

Pronouncements Not Yet Implemented

In ~~December 2007,~~April 2009, the FASB issued ~~SFAS No. 141 (revised 2007), “Business Combinations”~~FSP FAS 141(R) — “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies (“~~SFAS No. 141R”~~FSP FAS 141(R)”). This ~~statement replaces FASB Statement No. 141, “Business Combinations” (“SFAS No. 141”). This statement retains the fundamental requirements in SFAS No. 141~~clarifies guidance pertaining to contingencies. FSP FAS 141(R) states that ~~the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for~~ an acquirer to be identified for each business combination. This statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. This statement requires an acquirer toshall recognize ~~the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree~~at fair value, at the acquisition date, ~~measured at their~~an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair ~~values as~~value of that ~~date, with limited exceptions specified~~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 ~~statement. This statement applies prospectively to business combinations for which~~measurement period, an asset or a liability shall be recognized at the acquisition date ~~is on or after the beginning~~if both of the ~~first annual reporting period beginning on or after December 15, 2008, with~~following criteria are met which are (i) information available before the ~~exception~~end of the ~~accounting for valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions. SFAS No. 141R amends SFAS No. 109, “Accounting for Income Taxes” such~~measurement period indicates that ~~adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions~~it is probable that closed prior to the effective date of SFAS No. 141R would also apply the provisions of SFAS No. 141R. We do not expect the provisions of SFAS No. 141R to have a material impact on our consolidated financial statements unless we complete a business combination.

~~In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which is~~ an ~~amendment of Accounting Research Bulletin No. 51. This statement clarifies~~asset existed or that a ~~noncontrolling interest~~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 a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement changes the way the consolidated income statement is presented, thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest. This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We are currently evaluating the potential impact of SFAS No. 160 on our consolidated financial statements.year 2010.

In ~~March 2008,~~June 2009, the FASB issued Statement of Financial ~~Accounting~~ Standards No. ~~161, “Disclosures about Derivative Instruments and Hedging Activities”~~167, “Amendments to FASB Interpretation 46(R)” (“SFAS No. ~~161”~~167”). ~~SFAS No. 161~~This statement amends the guidance for (i) determining whether an entity is ~~intended to improve financial~~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 about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for financial statements issued for fiscal years and interim periods beginningperiod that begins after November 15, ~~2008, with early application encouraged.~~2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. We ~~do not expect~~are currently evaluating the ~~provisions of~~future impact to SFAS No. ~~161~~167 on our financial statements.

In June 2009, the FASB issued SFAS No. 168,The“FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). This standard will replace 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 will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. As the codification was not intended to change or alter existing GAAP, it will not have ~~a material~~any impact on our consolidated financial statements.

~~In April 2008,~~ All other non-grandfathered, non-SEC accounting literature not included in the FASB issued Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). FSP No. 142-3codification will become non-authoritative. This standard is effective for financial statements ~~issued~~ for ~~fiscal years beginning~~interim or annual reporting periods ending after ~~December~~September 15, 2008, and interim periods within those fiscal years; however, early adoption is not permitted. We are currently evaluating the potential impact of FSP No. 142-3 on our consolidated financial statements.2009.

Note 2—Earnings Per Share

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

As discussed in Note 1, we adopted FSP EITF 03-6-1 during our first quarter of ~~January 2, 2009,~~fiscal year 2010. Under the ~~only common stock equivalent was~~FSP, our unvested restricted stock ~~units. These restricted stock units may be dilutive~~unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and, therefore, are included ~~or anti-dilutive and excluded~~ in ~~future~~the computation of basic earnings per share ~~calculations as they are liability awards as defined by SFAS 123R.~~ pursuant to the two-class method. The FSP has been applied retrospectively to all periods presented.

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 Nine Months Ended
(Amounts in thousands, except per share data) January 2, 2009 December 28, 2007 January 2, 2009 December 28, 2007
Numerator

Net income $ 19,753 $ 11,960 $ 50,604 $ 38,171
Denominator

Weighted average common shares — basic 57,000 57,000 57,000 57,000
Weighted average effect of dilutive securities:

Restricted stock units 437 — 324 —

Weighted average common shares — diluted 57,437 57,000 57,324 57,000

Basic earnings per share $ 0.35 $ 0.21 $ 0.89 $ 0.67
Diluted income per share $ 0.34 $ 0.21 $ 0.88 $ 0.67


	For the Fiscal Quarter Ended
(Amounts in thousands, except per share data)	July 3, 2009			July 4, 2008
Numerator
Net income attributable to DynCorp International Inc.	$	20,645		$	17,980
Less undistributed earnings allocated to participating securities		(112	)		(57	)

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

Basic and diluted earnings per share	$	0.36		$	0.31

Note 3—Goodwill and Other Intangible Assets

~~Goodwill~~

~~The Company conducts its annual goodwill impairment test as of the end of February of each fiscal year. During the second quarter of~~As announced on April 6, 2009, we changed from reporting financial results on our three segments utilized in fiscal year 2009 ~~indictors of potential impairment, specifically the operational results of the Afghanistan construction business, caused the Company~~ to ~~conduct an interim impairment test. The result of this impairment test did not indicate impairment had occurred at that time.~~

~~During the third quarter of~~reporting under three new segments, beginning with fiscal year ~~2009,~~2010. Under the ~~Company determined that a second interim impairment analysis as~~new organizational alignment, the three prior business segments of January 2, 2009 would be prudent due to the continued challenges in its Afghanistan construction business. In accordance with SFAS No. 142, the Company completed step one of the impairment analysis and concluded that, as of January 2, 2009, the fair value of the Operations MaintenanceInternational Security Services (“ISS”), Logistics and Construction Management (“~~OMCM”~~LCM”) ~~reporting unit was greater than the respective carrying value, including goodwill indicating the reporting unit’s goodwill was not impaired.~~

~~The Company used income~~ and ~~market based approaches,~~Maintenance and Technical Support (“MTSS”) are realigned into three segments, two of which, ~~involved a discounted cash flow analysis~~Global Stabilization and Development Solutions (“GSDS”) and Global Platform Support Solutions (“GPSS”) are wholly-owned, and a valuation analysis. The estimates and assumptions used in assessing the fair value of the reporting unit and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. These analyses also require management to make assumptions and estimates and review relevant industry and market data. The contracts in the OMCM reporting unit not related to Afghanistan Construction, as well as forecasted new business, were among the significant factors in the OMCM impairment analysis.third segment, Global Linguist Solutions (“GLS”), is a 51% owned joint venture.

~~The changes in the carrying amount of goodwill for the nine months ended January 2, 2009 are as follows:~~

(Amounts in thousands) ISS⁽¹⁾ LCM MTSS Total

Balance as of March 28, 2008 $ 340,029 $ — $ 80,151 $ 420,180
Transfer between reporting segments⁽²⁾
(39,935 ) 39,935 — —

Balance as of January 2, 2009 $ 300,094 $ 39,935 $ 80,151 $ 420,180


~~(1)~~		Balance as of March 28, 2008 represents the goodwill balance of the Government Services (“GS”) segment. International Security Services (“ISS”) and Logistics and Construction Management (“LCM”) did not exist as reportable segments at that date. On April 1, 2008, the Company announced it would change from reporting financial results of two segments, GS and Maintenance and Technical Support Services (“MTSS”), to reporting three segments, beginning with the first fiscal quarter of 2009. This was accomplished by splitting GS into two distinct reporting segments, ISS and LCM.

~~(2)~~		Transfer between reporting segments as described further in Note 14, is the result of a reorganization of the Company’s reporting structure within its segments and a contemporaneous independent fair value analysis of the reporting units within the Company’s reporting segments, in the manner required by SFAS No. 142.

1110

~~Intangible Assets~~The goodwill carrying value was reallocated to the three new operating segments using a relative fair value approach based on the new reporting unit structure. The GLS segment has no goodwill carrying value as this distinct service line came into existence after the legacy goodwill carrying value was established. The change in presentation of our goodwill balance by operating segment from April 3, 2009 to July 3, 2009 is as follows:


(Dollars in thousands)	ISS		LCM		MTSS		Total
Goodwill balance as of April 3, 2009	$	300,094	$	39,935	$	80,151	$	420,180

All of the contracts that made up the ISS and LCM operating segments were realigned into the GSDS operating segment except for GLS, which became a unique operating segment and the Specialty Aviation & Counter Drug strategic business area (“SBA”), which was realigned into the GPSS operating segment. In addition to the Specialty Aviation & Counter Drug SBA, all legacy MTSS programs were realigned into the GPSS operating segment.


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

The following tables provide information about changes relating to intangible assets:


	January 2, 2009										July 3, 2009
	Weighted										Weighted
	Average										Average
	Useful Life			Gross		Accumulated					Useful Life		Gross		Accumulated
(Amounts in thousands, except years)	(Years)			Carrying Value		Amortization			Net		(Years)		Carrying Value		Amortization			Net
Finite-lived intangible assets:
Customer-related intangible assets		8.5		$	290,716	$	(146,492	)	$	144,224		8.5	$	290,716	$	(163,793	)	$	126,923
Other		5.2			14,978		(8,051	)		6,927		5.4		15,865		(9,025	)		6,840

				$	305,694	$	(154,543	)	$	151,151			$	306,581	$	(172,818	)	$	133,763


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


	March 28, 2008									April 3, 2009
	Weighted									Weighted
	Average									Average
	Useful Life		Gross		Accumulated					Useful Life		Gross		Accumulated
(Amounts in thousands, except years)	(Years)		Carrying Value		Amortization			Net		(Years)		Carrying Value		Amortization			Net
Finite-lived intangible assets:
Customer-related intangible assets		8.5	$	290,716	$	(119,997	)	$	170,719		8.5	$	290,716	$	(155,142	)	$	135,574
Other		4.2		10,887		(5,460	)		5,427		5.5		15,351		(8,206	)		7,145

			$	301,603	$	(125,457	)	$	176,146			$	306,067	$	(163,348	)	$	142,719


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

Amortization expense for customer-related and other intangibles was $9.5 million and ~~$10.4~~$10.1 million for the ~~three months~~fiscal quarters ended ~~January 2,~~July 3, 2009 and ~~December 28, 2007, respectively, and $29.1 million and $30.4 million for the nine months ended January 2, 2009 and December 28, 2007,~~July 4, 2008, respectively.

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


	Amortization		Amortization
(Amounts in thousands)	Expense
	Expense
Three month period ended April 3, 2009	$	9,506
Estimate for fiscal year 2010		37,550
			(Dollars in thousands)
Nine month period ended April 2, 2010			$	28,255
Estimate for fiscal year 2011		33,240		33,618
Estimate for fiscal year 2012		22,654		22,986
Estimate for fiscal year 2013		19,123		19,308
Estimate for fiscal year 2014				8,184
Thereafter		29,078		21,412

Total	$	151,151

Note 4— Income Taxes

The provision for income taxes consists of the following:


	Fiscal Quarter Ended
	July 3, 2009		July 4, 2008
	(Dollars in thousands)
Current portion:
Federal	$	3,162	$	9,589
State		393	��	807
Foreign		843		2,539

		4,398		12,935

Deferred portion:
Federal		7,959		(3,496	)
State		266		(117	)
Foreign		4		(6	)

		8,229		(3,619	)

Provision for income taxes	$	12,627	$	9,316

Deferred tax assets and liabilities are reported as:


	July 3, 2009			April 3, 2009
	(Dollars in thousands)
Current deferred tax liabilities	$	(9,615	)	$	(8,278	)
Non-current deferred tax assets		8,430			12,788

Deferred tax (liabilities)/assets, net	$	(1,185	)	$	4,510

As of July 3, 2009 and April 3, 2009, we have $9.3 million and $6.1 million, respectively, of total unrecognized tax benefits. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $0.2 million and $0.1 million for July 3, 2009 and April 3, 2009, respectively.

It is reasonably possible that in the next 12 months the gross amount of unrecognized tax benefits will increase by $0.2 million. However, we do not expect any material changes to its effective tax rate as a result.

We recognize interest accrued related to uncertain tax positions in interest expense and penalties in income tax expense in our unaudited Condensed Consolidated Statements of Income, which is consistent with the recognition of these items in prior periods. We have recorded a liability of approximately $0.3 million and $0.2 million for the payment of interest and penalties as of July 3, 2009 and April 3, 2009, respectively.

We file income tax returns in U.S. federal and state jurisdictions and in various foreign jurisdictions. The statute of limitations is open for federal and state examinations for our fiscal year 2005 forward and, with few exceptions, foreign income tax examinations for the calendar year 2005 forward.

For the fiscal quarter ended July 3, 2009 our effective tax rate was 32.3% as compared to 33.3% for the fiscal quarter ended July 4, 2008. The reduction in the effective tax rate below the U.S. marginal federal statutory rate of 35% was primarily due to the impact of our consolidated joint ventures such as GLS and DIFZ. These are consolidated for financial reporting purposes; but, are considered unconsolidated entities for U.S. income tax purposes.

Note 4—5— Accounts Receivable

Accounts Receivable, net consisted of the following:


(Amounts in thousands)	January 2, 2009		March 28, 2008
(Dollars in thousands)					July 3, 2009		April 3, 2009
Billed	$	265,132	$	193,337	$	272,344	$	220,501
Unbilled		369,792		319,975		367,126		343,931

Total	$	634,924	$	513,312	$	639,470	$	564,432

Unbilled receivables at ~~January 2,~~July 3, 2009 and ~~March 28, 2008~~April 3, 2009 include ~~$38.3~~$31.6 million and ~~$52.8~~$30.7 million, respectively, related to costs incurred on projects for which ~~the Company has~~we have been requested by the customer to begin work under a new contract or extend work under an existing contract, and for which formal contracts or contract modifications have not been executed at the end of the ~~fiscal period.~~respective periods. These amounts include $5.3 million related to contract claims at ~~January 2,~~July 3, 2009 and ~~March 28, 2008.~~April 3, 2009. The balance of unbilled receivables consists of costs and fees billable immediately, on contract completion or other specified events, ~~substantially all~~the majority of which is expected to be billed and collected within one year.

Note 5—6—Long-Term Debt

Long-term debt consisted of the following:


(Amounts in thousands)	January 2, 2009		March 28, 2008
						July 3, 2009		April 3, 2009
						(Dollars in thousands)
Term loans	$	200,000	$	301,130		$	176,637	$	200,000
9.5% Senior subordinated notes⁽¹⁾		415,903		292,032			389,746		399,912

		615,903		593,162			566,383		599,912
Less current portion of long-term debt							—		(30,540	)

Less current portion of long-term debt		—		(3,096	)

Total long-term debt	$	615,903	$	590,066		$	566,383	$	569,372


(1)		~~Senior subordinated notes are net~~This includes the impact of the discount which had a ~~$1.1~~carrying value of ($0.9) million ~~unamortized discount as~~($1.0) million of ~~January 2, 2009. There was no unamortized discount as of March 28, 2008.~~July 3, 2009 and April 3, 2009, respectively.

~~Future maturities~~For a description of ~~long-term debt for~~our indebtedness, see Note 7,Long-Term Debt, to the ~~three months ending April 3,~~consolidated financial statements in our fiscal 2009 ~~and each of~~Annual Report on Form 10-K filed with the ~~fiscal years subsequent to April 3, 2009 were as follows:~~SEC on June 11, 2009.

(Amounts in thousands)
Three months ending April 3, 2009 $ —
2010 16,875
2011 50,625
2012 55,500
2013 494,032
Thereafter —

Total long-term debt (including current portion)⁽¹⁾
$ 617,032


~~(1)~~		~~Future maturities of long-term debt include $1.1 million unamortized discount as of January 2, 2009, which is presented net in the financial statements.~~

Senior Secured Credit Facility

On July 28, 2008 the Company entered into a senior secured credit facility (the “Credit Facility”) consisting of a revolving credit facility of $200.0 million (including a letter of credit sub facility of $125.0 million) (the “Revolving Facility”) and a senior secured term loan facility of $200.0 million (the “Term Loan Facility”). The maturity date of the Revolving Facility and the Term Loan Facility is August 15, 2012. Quarterly principal payments will begin on September 22, 2009 and end on the maturity date of August 15, 2012. The scheduled quarterly Term Loan Facility payments beginning on September 22, 2009,We are considered long term since the Company has the intent and ability to make a revolver borrowing equal to or greater than the quarterly payments in order to maintain hedge accounting on the full $200.0 million through May 22, 2010, as disclosed in Note 10. The Credit Facility is subject to various financial covenants, including a total leverage ratio, an interest coverage ratio, maximum capital expenditures and certain limitations based upon eligible accounts receivable. Borrowings under the Credit Facility are secured by substantially all the assets of the Company and the capital stock of its subsidiaries.

On July 28, 2008, the Company borrowed $200.0 million under the Term Loan Facility at the applicable three-month LIBOR (“London Interbank Offered Rate”) plus the applicable margin then in effect to refinance certain existing indebtedness and pay certain transaction costs related to the Credit Facility and the offering of additional senior subordinated notes, as described below. The applicable margin for LIBOR as of January 2, 2009 was 2.5% per annum, resulting in an effective interest rate under the Term Loan Facility of 4.3% per annum. This rate is fully hedged through the Company’s swap agreements as disclosed in Note 10.

Borrowings under the Revolving Facility bear interest at a rate per annum equal to either the Alternate Base Rate plus an applicable margin determined by reference to the leverage ratio, as set forth in the Credit Facility (“Applicable Margin”) or LIBOR plus the Applicable Margin. As of both January 2, 2009 and March 28, 2008, the Company had no outstanding borrowings under the Revolving Facility.

Our available borrowing capacity under the Revolving Facility totaled $185.8 million at January 2, 2009, which gives effect to $14.2 million of outstanding letters of credit under the letter of credit sub facility. With respect to each letter of credit, a quarterly commission in an amount equal to the face amount of such letter of credit multiplied by the Applicable Margin and a nominal fronting fee are required to be paid. The combined rate as of January 2, 2009 was 2.6%.

As of January 2, 2009, the Company also had $14.4 million of letters of credit outstanding that were not part of the Revolving Facility. These letters of credit are collateralized by $15.2 million of restricted cash, which is recorded as such in the Company’s consolidated balance sheet as of January 2, 2009.

~~The Company is~~ required, under certain circumstances as defined in ~~the Credit Facility,~~our credit agreement, to use a percentage of excess cash generated from operations to reduce the outstanding principal of the ~~Term Loan Facility~~term loans in the ~~year after~~following year. Such payments are due near the end of the first quarter of the following fiscal year. We paid $23.4 million under the excess cash flow ~~is generated. The actual amount of the required repayment if any,~~requirement in ~~respect to~~June 2009 stemming from our fiscal year 2009 ~~could vary significantly~~results. This payment was lower than the $30.5 million estimate in our fiscal year 2009 annual report as several members of our banking syndicate waived their excess cash flow principal payment option. The excess cash flow measurement is an annual requirement of the credit agreement and, as a result, we cannot predict with certainty the excess cash flow that will be generated, if any, for the results related to the fiscal year ending April 2, 2010.

All of our senior secured credit facility borrowings are considered long term as principal payments do not start to occur until September 2010. At July 3, 2009, availability under the revolving credit facility for additional borrowings was approximately $170.5 million (which gives effect to approximately $29.5 million of outstanding letters of credit, which reduced our availability by that amount). The credit agreement requires an unused line fee equal to 0.5% per annum, payable quarterly in arrears, for the unused portion of the revolving credit facility. The fair value of our borrowings under our senior secured credit facility approximates 98% of the carrying amount based on ~~such factors~~market quotes as ~~the timing~~ of ~~cash receipts and cash payments near fiscal year end. Because of this, the Company cannot make a reasonable estimate of the required repayment if any, in respect to fiscal year~~July 3, 2009. In the event a repayment is required to be made, which would be paid during the first quarter of fiscal year 2010, the Company anticipates utilizing borrowings under the Revolving Facility to make such payment.

On July 28, 2008, upon entering in to the Credit Facility, the Company’s pre-existing Senior Secured Credit Facility was extinguished. Deferred financing fees totaling $4.4 million were expensed in the current reporting period. Deferred financing fees associated with the Credit Facility totaling $5.0 million were recorded in other assets on the Company’s consolidated balance sheet.

9.5% Senior Subordinated Notes

In February 2005, the Company completed an offering of $320.0 million in aggregate principal amount of its 9.5% senior subordinated notes due 2013. Interest is payable semi-annually on February 15 and August 15 of each year. Proceeds from the original issuance of the senior subordinated notes, net of fees, were $310.0 million and were used to pay the consideration for, and fees and expenses relating to our 2005 formation as an independent company from Computer Science Corporation. The senior subordinated notes are general unsecured obligations of the Company’s subsidiary, DynCorp International LLC, and certain guarantor subsidiaries of DynCorp International LLC.

In July 2008, the Company completed an offering in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended, of $125.0 million in aggregate principal amount of additional 9.5% senior subordinated notes under the same indenture as the senior subordinated notes issued in February 2005. Net proceeds from the additional offering of senior subordinated notes were used to refinance the then existing Senior Secured Credit Facility, to pay related fees and expenses and for general corporate purposes. The additional senior subordinated notes mature on February 15, 2013. The additional senior subordinated notes were issued at approximately a 1.0% discount totaling $1.2 million. Deferred financing fees associated with this offering totaled $4.6 million. The Company’s registration statement with respect to these notes was declared effective on January 13, 2009. The Company has launched an exchange offer for the notes that is expected to end on or about February 11, 2009.

Prior to February 15, 2009, the Company may redeem the senior subordinated notes, in whole or in part, at a price equal to 100% of the principal amount of the senior subordinated notes plus a defined make-whole premium, plus accrued interest to the redemption date. After February 15, 2009, the CompanyWe can redeem the senior subordinated notes, in whole or in part, at defined redemption prices, plus accrued interest to the redemption date. ~~While the Company is restricted under the terms~~Our board of ~~Credit Facility from redeeming the~~directors approved a plan in fiscal year 2009, which allows for $25.0 million in repurchases for a combination of common stock and/or senior subordinated notes per fiscal year during fiscal years 2009 and 2010. In June 2009, our board of directors added a requirement that stock repurchases could only occur if the ~~holders~~price was less than or equal to $14.00 per share. In the first quarter of ~~the~~fiscal year 2010, we purchased 54,900 shares for $0.7 million at an average price of $12.93 per share. We also repurchased $10.3 million of face value of our senior subordinated notes ~~may require~~for $10.0 million, including applicable fees. When including the ~~Company to repurchase~~impact of the ~~senior subordinated notes~~applicable portion of the discount and deferred financing fees, the redemption resulted in an insignificant gain. These repurchases utilized $10.7 million of the $25.0 million leaving $14.3 million of availability for additional repurchases in fiscal year 2010. Current board approval ends at ~~defined prices in~~ the ~~event~~end of ~~certain specified triggering events, including but not limited to certain asset sales, change-of-control events, and debt covenant violations.~~fiscal year 2010.

1413

The fair value of the senior subordinated notes is based on their quoted market value. As of ~~January 2,~~July 3, 2009, the quoted market value of the senior subordinated notes was approximately ~~87%~~97% of stated value.

Note 6—7— Interest Rate Derivatives

At April 3, 2009, our derivative instruments consisted of two interest rate swap agreements. The $168.6 million dollar derivative is designated as a cash flow hedge that effectively fixes the interest rate on the applicable notional amount of our variable rate debt. The $31.4 million swap derivative no longer qualifies for hedge accounting as it was fully dedesignated as of July 3, 2009.

Fixed

Variable

Notional

Interest Rate

Date Entered

Amount

Paid*

Received

Expiration Date

April 2007

168,620

4.975

3-month LIBOR

May 2010

April 2007

31,380

4.975

3-month LIBOR

May 2010


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

During the quarter ended July 3, 2009, we paid $1.9 million in net settlements and incurred $2.1 million of expenses, of which $1.9 million was recorded to interest expense and $0.2 million was recorded to other (loss)/income. In the quarter ended July 4, 2008, we paid $1.6 million in net settlements and incurred $1.9 million of expenses, of which $1.5 million was recorded to interest expense and $0.4 million was recorded to other (loss)/income.

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, 2009 and April 3, 2009 are summarized as follows (in thousands):


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

	Total	$	5,565	$	6,216


		Fair Value at		Fair Value at
Derivatives not designated as hedges under SFAS No. 133	Balance Sheet Location	July 3, 2009		April 3, 2009
Interest Rate Swaps	Other accrued liabilities	$	1,028	$	893
Interest Rate Swaps	Other long-term liabilities		—		182

	Total	$	1,028	$	1,075


Total Derivatives		$	6,593	$	7,291

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


	Gains (Losses)
	Recognized in OCI			GAINS (LOSSES) RECLASSIFIED FROM				GAINS (LOSSES) RECOGNIZED
	on Derivatives			ACCUMULATED OCI INTO INCOME				IN INCOME ON DERIVATIVES
	(Effective Portion)			(EFFECTIVE PORTION)				(INEFFECTIVE PORTION)
Derivatives Designated as Cash Flow Hedging	Quarter ended July 3,			Line Item in Statements				Line Item in Statements
Instruments under SFAS No. 133	2009			of Income	Amount			of Income	Amount
Interest rate derivatives	$	(5,319	)	Interest expense	$	(1,898	)	Other (loss)/income, net	$	—


Total	$	(5,319	)		$	(1,898	)		$	—

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


	Gains (Losses)
	Recognized in OCI			GAINS (LOSSES) RECLASSIFIED FROM				GAINS (LOSSES) RECOGNIZED
	on Derivatives			ACCUMULATED OCI INTO INCOME				IN INCOME ON DERIVATIVES
	(Effective Portion)			(EFFECTIVE PORTION)				(INEFFECTIVE PORTION)
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
Interest rate derivatives	$	(5,627	)	Interest expense	$	(1,812	)	Interest expense	$	308


Total	$	(5,627	)		$	(1,812	)		$	308

We had a hedge dedesignation event in the quarter ended July 4, 2008. We did not have any hedge de-designation events in the quarter ended July 3, 2009. The effects of our derivative instruments not designated as hedging instruments under SFAS No. 133 on our Consolidated Statement of Income for the quarter ended July 3, 2009 and quarter ended July 4, 2008 are summarized as follows (in thousands):


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


Total		$	(188	)	$	(404	)

As of July 3, 2009, we estimate that approximately $5.3 million of losses associated with the interest rate swap related to $168.6 million of notional debt included in accumulated other comprehensive income will be reclassified into earnings over the remaining life of the derivative which expires in May 2010. The other interest rate swap does not qualify for hedge accounting and has been marked to market, which generated a $1.0 million liability at July 3, 2009. See Note 14 for fair value disclosures associated with these hedges.

Note 8—Commitments and Contingencies

Commitments

~~The Company has~~We have operating leases for the use of real estate and certain property and equipment which are either non-cancelable, cancelable only by the payment of penalties or cancelable upon one month’s notice. All lease payments are based on the lapse of time but include, in some cases, payments for insurance, maintenance and property taxes. There are no purchase options on operating leases at favorable terms, but most leases have one or more renewal options. Certain leases on real estate are subject to annual escalations for increases in base rents, utilities and property taxes. Lease rental expense amounted to ~~$15.1~~$13.1 million and ~~$14.6~~$13.7 million for the ~~three months~~fiscal quarters ended ~~January 2,~~July 3, 2009 and ~~December 28, 2007, respectively, and $38.8 million and $39.3 million for the nine months ended January 2, 2009 and December 28, 2007,~~July 4, 2008, respectively.

~~Contingencies~~

General Legal Matters

~~The Company and its subsidiaries and affiliates~~We are involved in various lawsuits and claims that have arisen in the normal course of business. In most cases, ~~the Company has~~we have denied, or ~~believes it has~~believe we have a basis to deny any liability. Related to these matters, ~~the Company has~~we have recorded a reserve of approximately $18.5 million ~~for pending litigation and claims.~~as of July 3, 2009. While it is not possible to predict with certainty the outcome of litigation and other matters discussed below, ~~it is~~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 ~~opinion of the Company’s management that recorded reserves are sufficient to cover known matters based on information available as of this Quarterly Report.~~long term.

Pending ~~Litigation~~litigation and ~~Claims~~claims

On May 14, 2008, a jury in the Eastern District of Virginia found against ~~the Company~~us in a case brought by a former subcontractor, Worldwide Network Services (“WWNS”), on two Department of State ~~Department~~(“DoS”) contracts, in which WWNS alleged racial discrimination, ~~tortious~~tortuous interference and certain other claims. The jury awarded WWNS approximately $15.7 million in compensatory and punitive damages and awarded ~~the Company~~us approximately $200,000 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, ~~the Company~~we filed an appeal with respect to this matter. As of ~~January 2,~~July 3, 2009, ~~the Company believes it has~~we believe we have adequate reserves recorded for this matter.

On April 24, 2007, March 14, 2007, December 29, 2006 and December 4, 2006, four lawsuits were served, seeking unspecified monetary damages against DynCorp International LLC and several of its former affiliates in the U.S. District Court for the Southern District of Florida, concerning the spraying of narcotic plant crops along the Colombian border adjacent to Ecuador. Three of the lawsuits, filed on behalf of the ~~Providences~~Provinces of Esmeraldas, Sucumbíos, and Carchi in Ecuador, allege violations of Ecuadorian law, international law, and statutory and common law tort ~~law~~ violations, including negligence, trespass, and nuisance. The fourth lawsuit, filed on behalf of citizens of the Ecuadorian provinces of Esmeraldas and Sucumbíos, alleges personal injury, various counts of negligence, trespass, battery, assault, intentional infliction of emotional distress, violations of the Alien Tort Claims Act, and various violations of international law. The four lawsuits were consolidated, and based on ~~the Company’s~~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 ~~the Company,~~us, although ~~believed by the Company~~we believe to be remote, could have a material adverse effect on ~~its~~our results of operations and financial condition. The aerial spraying operations were and continue to be managed by ~~the Company~~us under a ~~Department of State (“DoS”)~~DoS contract in cooperation with the Colombian government. The DoS contract provides indemnification to ~~the Company~~us against third-party liabilities arising out of the contract, subject to available funding. The DoS has reimbursed ~~the Company~~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 ~~the Company~~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 ~~DynCorp International LLC~~our operating company against third-party liabilities arising out of the contract, subject to available funding. The DoS has reimbursed ~~the Company~~us for all legal expenses to date. ~~The Company is~~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 ~~the Company. The Company believes~~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 ~~the~~our results of operations or financial condition ~~of the Company~~ 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, ~~the Company~~we filed a separate lawsuit against ~~the Company’s~~our aviation insurance carriers seeking defense and coverage of the referenced claims. The carriers filed a lawsuit against ~~the Company~~us on February 5, 2009 seeking rescission of certain aviation insurance policies based on an alleged misrepresentation by ~~the Company~~us concerning the existence of certain of the lawsuits relating to the eradication of narcotic plant crops.

On May 29, 2003, Gloria Longest, a former accounting manager for the Company, filed suit against DynCorp International LLC and a subsidiary of Computer Sciences Corporation under the False Claims Act and the Florida Whistleblower Statute, alleging that the defendants submitted false claims to the U.S. government under the International Narcotics & Law Enforcement contract with the DoS. The U.S. Department of Justice approved the terms of the confidential settlement between the parties and the court entered an order of dismissal on September 26, 2008. The terms of the settlement did not have a material adverse effect on the Company’s results of operations or financial condition.

U.S. Government Investigations

We also are occasionally the subject of investigations by various agencies of the U.S. government. Such investigations, whether related to our U.S. government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting.

On January 30, 2007, the Special Inspector General for Iraq Reconstruction (“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 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 cooperating with the OIG’s investigation and, based on information currently known to management, do not believe this matter will have a material adverse effect on our operating performance.

U.S. Government Audits

Our contracts are regularly audited by the DCAA and other government agencies. 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 ~~the Company~~us of non-compliance with Cost Accounting Standard 403, Allocation of Home Office Expenses to Segments, on April 11, 2007. ~~The Company~~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 ~~the Company’s~~our divisions. On August 13, 2007, the DCMA notified ~~the Company~~us that additional information would be necessary to justify the proposed solution. ~~The Company~~We issued responses on September 17, 2007 and April 28, 2008 and the matter is pending resolution. ~~In management’s opinion and based~~Based on facts currently known, we do not believe the ~~above-described~~ matters described in this and the preceding paragraph will ~~not~~ have a material adverse effect on ~~the Company’s~~our results of operations or financial condition.

~~The Company,~~We are currently is 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 ~~the Company’s~~our treatment of exempting from U.S. employment taxes all U.S. residents working abroad for a foreign subsidiary. While ~~the Company believes its~~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 ~~quarter~~year 2009 we terminated for cause a contract to build the Akwa Ibom International Airport for the State of Akwa Ibom in Nigeria. Consequently, we terminated certain subcontracts and purchase orders the customer advised us it did not want to assume. Based on our experience with this particular Nigerian state government customer, we believe it likely the customer will challenge our termination of the contract for cause and initiate legal action against us. Our termination of certain 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.

~~Note 7— Income Taxes~~

~~The provision for income taxes consists~~ Although we believe our right to terminate this contract and such subcontracts was justified and permissible under the terms of the ~~following:~~

Three Months Ended
January 2, December 28,
(Amounts in thousands) 2009 2007
Current portion:
Federal $ (27,825 ) $ 1,752
State (1,397 ) 222
Foreign 1,046 973

Total current portion of tax provision (28,176 ) 2,947

Deferred portion:
Federal 38,586 3,872
State 1,290 149
Foreign (61 ) —

Total deferred portion of tax provision 39,815 4,021

Total income tax provision $ 11,639 $ 6,968

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.

Nine Months Ended
January 2, December 28,
(Amounts in thousands) 2009 2007
Current portion:
Federal $ (7,217 ) $ 16,896
State 253 1,124
Foreign 4,857 3,045

Total current portion of tax provision (2,107 ) 21,065

Deferred portion:
Federal 31,218 819
State 1,044 (33 )
Foreign (69 ) 65

Total deferred portion of tax provision 32,193 851

Total income tax provision $ 30,086 $ 21,916

~~Deferred tax assets and liabilities are reported as:~~

January 2, March 28,
(Amounts in thousands) 2009 2008
Current deferred tax assets (liabilities) $ (1,927 ) $ 17,341
Non-current deferred tax assets (liabilities) 5,773 18,168

Deferred tax assets, net $ 3,846 $ 35,509

As of January 2, 2009 and March 28, 2008, we have $4.0 million and $2.7 million, respectively, of total unrecognized tax benefits. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.3 million and $1.2 million for January 2, 2009 and March 28, 2008, respectively.

It is reasonably possible that in the next 12 months the gross amount of unrecognized tax benefits will decrease by $2.2 million due to settlements with taxing authorities. However, the Company does not expect any material changes to its effective tax rate as a result of such settlements.

The Company recognizes interest accrued related to uncertain tax positions in interest expense and penalties in income tax expense in its unaudited Condensed Consolidated Statements of Income, which is consistent with the recognition of these items in prior periods. The Company has recorded a liability of approximately $0.8 million and $0.6 million for the payment of interest and penalties as of January 2, 2009 and March 28, 2008, respectively.

The Company and its subsidiaries file income tax returns in U.S. federal and state jurisdictions and in various foreign jurisdictions. The Company currently is under audit by the Internal Revenue Service for fiscal years 2005 through 2007. In addition, the statute of limitations is open for federal and state examinations for the Company’s fiscal year 2005 forward and, with few exceptions, foreign income tax examinations for the calendar year 2004 forward.

For the three and nine months ended January 2, 2009, the Company’s effective tax rate was 31.1% and 31.4%, respectively, as compared to 36.8% and 36.5% for the respective three and nine months ended December 28, 2007. The reduction in the effective tax rate was primarily due to the impact of GLS and DIFZ, which are consolidated joint ventures for financial reporting purposes but are unconsolidated entities for U.S. income tax purposes.

During the third quarter of fiscal year 2009, the Company filed an Application for Change in Accounting Method (“CIAM”) with the IRS on form 3115. The application was for a change in the tax accounting method that the Company uses to recognize income with respect to unbilled receivables. Prior to the method change request, the Company’s tax accounting method generally followed the financial accounting treatment which recognizes income on unbilled receivables under the percentage of completion method, with the exception of award fees which for tax purposes were not recognized until they became billable. If accepted by the IRS, the CIAM will allow the Company to defer, for tax purposes, the financial reported income on unbilled receivables until such receivables become fixed and determined for tax purposes. The Company has recorded the amount believed to be more-likely-than-not as of January 2, 2009.

~~Note 8— Shareholders’ Equity~~

~~Shareholders’ Equity~~~~— The following table presents the changes to shareholders’ equity during the nine months ended January 2, 2009:~~

Accumulated
Additional Other Total
Common Stock Paid-In Comprehensive Shareholders’
(Amounts in thousands) Shares Amount Capital Retained Earnings (Loss) Income Equity
Balance at March 28, 2008 57,000 $ 570 $ 357,026 $ 73,603 $ (6,914 ) $ 424,285

Comprehensive income:
Net income — 50,604 — 50,604
Interest rate swap, net of tax $1.0 million 1,710 1,710
Currency translation adjustment, net of tax $0.4 million — — (634 ) (634 )

Comprehensive income — 50,604 1,076 51,680

Equity-based compensation 575 — — 575
Tax benefit/(liability) associated with equity-based compensation (10 ) — — (10 )
Sale of non-controlling interest of DIFZ 8,190 — — 8,190
DIFZ financing, net of tax 106 — — 106

Balance at January 2, 2009 57,000 $ 570 $ 365,887 $ 124,207 $ (5,838 ) $ 484,826

As described in Note 1, on July 31, 2008, the Company sold 50% of its ownership interest in DIFZ for approximately $8.2 million. No gain has been recognized on the sale as of January 2, 2009, as the Company completely financed the transaction by accepting three promissory notes provided by the purchaser. As a result, the sale was accounted for as a capital transaction reflected in APIC. Additionally, the interest component of the three notes receivable held by the Company is also reflected in APIC, shown above as “DIFZ financing”, and has not impacted the Company’s consolidated statements of income as of January 2, 2009.

~~Common Stock Repurchase~~— The Board of Directors of the Company (the “Board”) has authorized the Company to repurchase up to $25.0 million of its outstanding common stock. The shares may be repurchased from time to time in open market conditions or through privately negotiated transactions at the Company’s discretion, subject to market conditions, and in accordance with applicable federal and state securities laws and regulations. Shares of common stock repurchased under this plan will be held as treasury shares. The share repurchase program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any time at the Company’s discretion. The purchases will be funded from available working capital. No shares have been repurchased under this program through January 2, 2009.

Note 9—Equity-Based Compensation

As of ~~January 2,~~July 3, 2009, ~~the Company had~~we have provided equity-based compensation through the grant of ~~Class~~ Class��B interests in DIV Holding LLC, the majority holder of ~~the Company’s~~our common stock and the grant of ~~Restricted Stock Units~~restricted stock units (“RSUs”) and performance stock units (“PSUs”) under ~~the Company’s~~our 2007 Omnibus Incentive Plan (the “2007 Plan”). All of ~~the Company’s~~our equity-based compensation is accounted for under SFAS No. 123(R), “Share-Based Payment”. Under this method, ~~the Company~~we recorded equity-based compensation expense of ~~$1.2~~$0.9 million and ~~$1.1~~a credit of ($0.8) million for the ~~three months~~quarters ended ~~January 2,~~July 3, 2009 and ~~December 28, 2007, respectively, and $2.4 million and $3.4 million for the nine months ended January 2, 2009 and December 28, 2007,~~July 4, 2008, respectively.

Class B ~~Interests~~Equity

During the fiscal quarter, we had no new grants but; had one forfeiture event. Consequently, the expenses recognized were the result of the quarterly amortization from the graded vesting schedule, partially offset by the impact of the forfeited shares.

A summary of Class B activity during the first quarter of fiscal year 2009, the Company’s former CEO, Herbert J. Lanese, was terminated without cause in accordance with the conditions of his employment agreement, which resulted in the forfeiture of his unvested Class B interests in DIV Holding LLC granted to him as an employee of the Company. Mr. Lanese was subsequently issued additional Class B interests for his continued service on the Board. In addition, his separation resulted in severance liabilities of approximately $4.1 million recorded in the first fiscal quarter of 2009, which will be paid in installments over the twelve months following the date of his termination.

During the third quarter of fiscal year 2009, the Company’s former Executive Vice President, General Anthony Zinni (USMC Ret.), resigned which resulted in the forfeiture of his unvested Class B interests in DIV Holding LLC granted to him as an employee of the Company.

~~A summary of Class B interest activity during fiscal year 2009~~2010 is as follows:

% Interest in Grant Date
(Dollar amounts in thousands) DIV Holding Fair Value
Balance March 28, 2008
6.24 % $ 13,248
First Quarter Fiscal Year 2009 Grants 0.20 % 867
First Quarter Fiscal Year 2009 Forfeitures (1.20 %) (2,530 )

Balance July 4, 2008
5.24 % $ 11,585

Second Quarter Fiscal Year 2009 Grants 0.00 % —
Second Quarter Fiscal Year 2009 Forfeitures 0.00 % —

Balance October 3, 2008
5.24 % $ 11,585

Third Quarter Fiscal Year 2009 Grants 0.00 % —
Third Quarter Fiscal Year 2009 Forfeitures (0.01 %) (73 )

Balance January 2, 2009
5.23 % $ 11,512

March 28, 2008 Vested
2.82 % $ 4,641
First Quarter Fiscal Year 2009 Vesting 0.12 % 520

July 4, 2008 Vested
2.94 % 5,161
Second Quarter Fiscal Year 2009 Vesting 0.05 % 73

October 3, 2008 Vested
2.99 % 5,234
Third Quarter Fiscal Year 2009 Vesting 0.34 % 1,282

January 2, 2009 Vested
3.33 % $ 6,516

March 28, 2008 Nonvested
3.42 % $ 8,607
January 2, 2009 Nonvested
1.90 % $ 4,996


	% Interest in			Grant Date
	DIV Holding			Fair Value

Balance April 3, 2009		4.71	%		9,669
First quarter fiscal year 2010 grants		0.00	%		—
First quarter fiscal year 2010 forfeitures		(0.03	%)		(37	)

Balance July 3, 2009		4.68	%	$	9,632
April 3, 2009 vested		3.69	%	$	6,950
First quarter fiscal year 2010 vesting		0.04	%		174

July 3, 2009 vested		3.73	%	$	7,124
April 3, 2009 nonvested		1.02	%	$	2,718
July 3, 2009 nonvested		0.95	%	$	2,508

Assuming each grant outstanding, net of estimated forfeitures, as of ~~January 2,~~July 3, 2009 fully ~~vests, the Company~~vest, we will recognize the related non-cash compensation expense as follows ~~(amounts in~~(in thousands):

Three month period ended April 3, 2009 $ 369
Fiscal year ended April 2, 2010 1,139
Fiscal year ended April 1, 2011 and thereafter 566

Total $ 2,074


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

Total	$	729

Restricted Stock Units

Our RSUs vest based on the passage of time and our PSUs vest based on the achievement of performance criteria. During the first ~~nine months~~quarter of fiscal year 2010, we had no RSU grants. However, we issued 12,500 PSUs to our Chief Executive Officer (“CEO”) as a result of fiscal year 2009 the Company awarded service-based and performance-based RSUs to certain key employees (“Participants”). The grants were made pursuant to the terms and conditions of the 2007 Plan and are subject to award agreements between the Company and each Participant.

~~During the first nine months of fiscal year 2009, 186,800 performance-based RSUs were granted to certain key employees. These performance-based awards are tied to the Company’s financial~~ performance, specifically fiscal year 2011 EBITDA (earnings before interest, taxes, depreciation and amortization), and cliff vest upon achievement of this target. Based on current estimates, the costs of these awards are being accrued with the expectation of a 100% achievement of the performance goal.

In addition to employee grants, 22,425 service-based RSUs were granted to Board members. These awards vest within one year of grant, but include a post-vesting restriction of six months after the applicable directors’ Board service ends. The RSUs have assigned value equivalent to the Company’s common stock and may be settled in cash or shares of the Company’s common stock at the discretion of the Compensation Committee of the Board.

As of January 2, 2009, 100,000 RSUs have been awarded to our current CEO. Half of these awards are service-based and vest ratably over a three year period on the anniversary of the CEO’s employment commencement date. The remaining 50,000 RSUs are performance-based and are tied to specific performance goals for fiscal year 2009. If the performance measures are achieved for fiscal year 2009, the awards will vest over a three-year service period with one third vesting ~~each~~on his employment anniversary date in fiscal year 2010, fiscal year 2011 and fiscal year 2012. During the first quarter ended July 3, 2009, 37,500 RSU awards vested but were not settled as of July 3, 2009.

In accordance with SFAS No. 123(R) and our policy, we recognize compensation expense related to the RSUs and PSUs on a graded schedule over the ~~anniversary~~requisite service period, net of estimated forfeitures. Compensation expense related to RSUs and PSUs was approximately $0.7 million for the ~~CEO’s employment commencement date. Based on current estimates, the costs of these awards are being accrued with the expectation of a 100% achievement of the performance goal.~~

~~The~~quarter ended July 3, 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 ~~all~~the RSUs and PSUs was approximately $5.3 million, net of ~~estimated~~ forfeitures, based on the closing market price of ~~the Company’s~~our stock on the grant ~~date~~date. The estimated fair value of ~~each respective award,~~all RSUs and PSUs, net of forfeitures, was approximately ~~$6.1~~$5.1 million based on the closing market price of ~~the Company’s~~our stock on ~~January 2,~~July 3, 2009. ~~During the nine months ended January 2, 2009, 53,250 RSU awards vested and 52,250 of these awards were subsequently settled for $0.8 million in cash.~~

A summary of the combined RSU and PSU activity during the ~~nine months ended January 2, 2009~~first quarter of fiscal year 2010 is as follows:

Weighted
Average
Outstanding Grant
Restricted Date
Stock Units Fair Value
Outstanding, March 28, 2008 159,600 $ 21.49
Units granted 309,225 15.54
Units cancelled (32,350 ) 20.25
Units vested and settled (52,250 ) 21.19

Outstanding, January 2, 2009⁽¹⁾
384,225 $ 16.85


				Weighted
				Average
	Outstanding			Grant
	Restricted			Date
	Stock Units			Fair Value

Outstanding, April 3, 2009		345,895		$	16.71
Units granted		12,500			13.86
Units forfeited		(40,300	)		16.32
Units vested and settled⁽¹⁾		—			—

Outstanding, July 3, 2009		318,095		$	16.65


(1)		~~Total outstanding includes 1,000 RSUs~~During the first quarter ended July 3, 2009, 37,500 RSU awards vested ~~and unsettled~~but were not settled as of ~~January 2,~~July 3, 2009.

Assuming each grant outstanding as of ~~January 2,~~July 3, 2009, net of estimated forfeitures, fully vests, ~~(assuming 100% for performance-based awards), the Company~~we will recognize the related equity-based compensation expense as follows based on the value of these liability awards as of ~~January 2,~~July 3, 2009 ~~(amounts in~~(in thousands):

Three month period ended April 3, 2009 $ 614
Fiscal year ended April 2, 2010 2,180
Fiscal year ended April 1, 2011 and thereafter 1,718

Total $ 4,512


Nine month period ended April 2, 2010	$	1,208
Fiscal year ended April 1, 2011		1,037
Fiscal year ended March 30, 2012 and thereafter		413

Total	$	2,658

Note 10—~~Interest Rate Derivatives~~

At January 2, 2009, the Company’s derivative instruments consisted of two interest rate swap agreements, designated as cash flow hedges, that effectively fix the interest rate on the applicable notional amounts of the Company’s variable rate debt as follows (dollar amounts in thousands):

Fixed Variable
Notional Interest Interest Rate
Date Entered Amount Rate Paid⁽¹⁾ Received Expiration Date
April 2007 $ 168,620 4.975 % 3-month LIBOR May 2010
April 2007 $ 31,380 4.975 % 3-month LIBOR May 2010


~~(1)~~		~~Plus applicable margin (2.5% at January 2, 2009).~~

The fair value of the interest rate swap agreements was a liability of $8.7 million at January 2, 2009, of which $2.9 million was considered long term. Unrealized net loss from the changes in fair value of the interest rate swap agreements of $1.7 million, net of tax, for the nine months ended January 2, 2009 is included in other comprehensive income (loss). There was no material impact on earnings due to hedge ineffectiveness for the three and nine months ended January 2, 2009.

~~Note 11—~~Composition of Certain Financial Statement Captions

The following tables present financial information of certain consolidated balance sheet ~~captions.~~captions (dollars in thousands).

Prepaid ~~expense~~expenses and other current assets —Prepaid ~~expense~~expenses and other current assets were:

January 2, March 28,
(Amounts in thousands) 2009 2008
Prepaid expenses $ 40,160 $ 43,205
Inventories 9,927 8,463
Work-in-process inventories 38,570 45,245
Minority interest — 3,306
Income taxes receivable 19,203 —
Joint venture receivables 8,878 2,076
Other current assets 9,018 6,732

$ 125,756 $ 109,027


	July 3, 2009		April 3, 2009
Prepaid expenses	$	53,959	$	61,570
Inventories		11,332		10,840
Work-in-process		32,606		33,885
Joint Venture Receivables		3,746		2,491
Other current assets		8,382		15,428

Total	$	110,025	$	124,214

Prepaid expenses include prepaid insurance, prepaid vendor deposits, and prepaid rent, none of which individually exceed 5% of current assets. As

Other assets, net —Other assets, net were:


	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

Deferred financing cost is amortized to interest expense. Amortization related to deferred financing costs was $1.1 million and $0.8 million as of ~~March 28,~~the quarters ended July 3, 2009 and July 4, 2008, ~~the minority interest resulted in a net debit balance due to the accumulated net loss in GLS.~~respectively.

Accrued payroll and employee costs —Accrued payroll and employee costs were:


	January 2,		March 28,		July 3, 2009		April 3, 2009
(Amounts in thousands)	2009		2008
Wages, compensation and other benefits	$	82,621	$	57,940
Wages, compensation and other benefits⁽¹⁾					$	90,752	$	108,879
Accrued vacation		26,037		24,760		26,670		26,329
Accrued contributions to employee benefit plans		2,921		2,486		3,078		2,785

Total					$	120,500	$	137,993
	$	111,579	$	85,186


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

Other accrued liabilities —~~Other accrued~~Accrued liabilities were:

January 2, March 28,
(Amounts in thousands) 2009 2008
Deferred revenue $ 31,308 $ 53,083
Accrued insurance 24,539 36,260
Accrued interest 15,888 9,885
Contract losses and customer liabilities 12,793 134
Legal matters 18,478 19,851
Short-term swap liability 5,787 5,783
Other notes payable 4,674 374
Other 8,115 3,870

$ 121,582 $ 129,240


	July 3, 2009		April 3, 2009
Deferred revenue	$	30,514	$	30,739
Insurance expense		30,190		28,061
Interest expense and short-term swap liability		21,113		11,688
Contract losses		5,730		11,730
Legal matter		18,507		16,993
Other		11,327		12,379

Total	$	117,381	$	111,590

Deferred revenue is primarily due to payments in excess of revenue recognized. Contract losses relate to accrued losses recorded on certain Afghanistan construction contracts.

Note 11—Related Parties, Joint Ventures and Variable Interest Entities

Management Fee

We pay Veritas Capital an annual management fee of $0.3 million plus expenses to provide us with general business management, financial, strategic and consulting services. We paid $0.1 million to Veritas in the quarters ended July 3, 2009 and July 4, 2008.

Joint Ventures

Amounts due from our unconsolidated joint ventures totaled $3.7 million and $2.5 million as of July 3, 2009 and April 3, 2009, respectively. These receivables are a result of items purchased and services ~~provided~~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, 2009 resulted in a use of operating cash for ~~certain contracts~~the quarter ended July 3, 2009 of approximately $1.2 million. The related revenue associated with our unconsolidated joint ventures totaled $1.3 million and $2.6 million for the quarters ended July 3, 2009 and July 4, 2008, respectively. Additionally, we earned $0.9 and $1.1 million in ~~addition to payments received for services that must be deferred~~equity method income from the Babcock joint venture in the first quarter ended July 3, 2009 and the first quarter ended July 4, 2008, respectively.

As a result of the DIFZ sale, we currently hold three promissory notes from Palm which had an initial value of $9.7 million as a result of ~~multiple element arrangements being recorded~~the sales price. The notes are included in Prepaid expenses and other current assets and in Other assets on our consolidated balance sheet for the short and long term portions, respectively. As of July 3, 2009, the loan balance outstanding with Palm was $8.7 million, reflecting the initial value plus accrued interest, less payments against the promissory notes.

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 on our fiscal year 2009 annual report. Additionally, our controlling shareholder continues to be the majority owner of McNeil Technologies, our GLS partner.

GLS assets and liabilities were $161.1 million and $119.0 million at July 3, 2009, as ~~a single unit~~compared to $150.5 million and $129.6 million at April 3, 2009. Additionally, GLS revenue was $198.4 million for the quarter ended July 3, 2009 as compared to $118.4 million for the quarter ended July 4, 2008.

DIFZ assets and liabilities were $54.2 million and $52.7 million, respectively, as of ~~accounting. Included in~~July 3, 2009, as compared to $38.0 million and $36.5 million at April 3, 2009. Additionally, DIFZ revenue was $94.6 million for the ~~contract losses and customer liabilities balance is $10.1 million of estimated future losses associated with an Afghanistan construction project.~~quarter ended July 3, 2009.

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 Collaborative 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 ended July 3, 2009 and July 4, 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 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 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.

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
	July 3, 2009			July 4, 2008
Revenue
Global Stabilization and Development Solutions	$	284,085		$	269,554
Global Platform Support Solutions		303,648			329,736
Global Linguist Solutions		198,354			118,422
Other/Elimination		(910	)		(918	)

Total revenue	$	785,177		$	716,794


Operating Income
Global Stabilization and Development Solutions	$	15,874		$	22,971
Global Platform Support Solutions		25,910			15,742
Global Linguist Solutions		10,717			1,281

Total operating income	$	52,501		$	39,994


Depreciation and amortization
Global Stabilization and Development Solutions	$	4,940		$	5,176
Global Platform Support Solutions		5,009			5,238
Global Linguist Solutions		196			146

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


	As of
	July 3, 2009		April 3, 2009
Assets
Global Stabilization and Development Solutions	$	648,382	$	594,207
Global Platform Support Solutions		513,705		510,583
Global Linguist Solutions		161,073		152,090
Other/Elimination⁽¹⁾		222,465		282,334

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


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

Note 14—Fair Value of Financial Assets and Liabilities

Effective March 29, 2008, the Company adopted SFAS No. 157. In February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”, which provides a one year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities only. Although the adoption of SFAS No. 157 did not materially impact the Company’s financial condition, results of operations, or cash flow, the Company is required to provide additional disclosures as part of its financial statements.

SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

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

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 ~~January 2,~~July 3, 2009, ~~the Company~~we held certain assets ~~and had incurred certain liabilities~~ 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. ~~The Company’s~~Our interest rate derivatives, as further described in Note ~~10,~~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, ~~the Company has~~we have categorized these interest rate swap contracts as Level 2. ~~The Company has~~We have consistently applied these valuation techniques in all periods presented.

~~The Company’s~~

Our assets and liabilities measured at fair value on a recurring basis subject to the disclosure requirements of SFAS No. 157 at ~~January 2,~~July 3, 2009, were as follows:

Fair Value Measurements at Reporting Date Using


	Book value of								Book value of		Quoted Prices in
	financial		Quoted Prices in						financial		Active Markets		Significant Other		Significant
	assets/(liabilities)		Active Markets		Significant Other		Significant		assets/(liabilities)		for Identical Assets		Observable Inputs		Unobservable Inputs
	as of January 2,		for Identical		Observable Inputs		Unobservable
(amounts in thousands)	2009		Assets (Level 1)		(Level 2)		Inputs (Level 3)
(Amounts in thousands)									as of July 3, 2009		(Level 1)		(Level 2)		(Level 3)
*Assets*
Cash equivalents⁽¹⁾	$	168,619	$	168,619	$	—	$	—	$	164,993	$	164,993	$	—	$	—

Total assets measured at fair value	$	168,619	$	168,619	$	—	$	—	$	164,993	$	164,993	$	—	$	—


*Liabilities*
Interest rate derivatives	$	8,727	$	—	$	8,727	$	—	$	6,593	$	—	$	6,593	$	—


Total liabilities measured at fair value	$	8,727	$	—	$	8,727	$	—	$	6,593	$	—	$	6,593	$	—


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

Note ~~13—Joint Ventures and Related Parties~~15—Subsequent Events

~~Amounts due from~~We evaluated subsequent events that occurred after the Company’s unconsolidated joint ventures totaled $8.9 million and $2.1 million as of January 2, 2009 and March 28, 2008, respectively. These receivables are a result of items purchased and services rendered by the Companyperiod end date through August 3, 2009. We concluded that no subsequent events have occurred that require recognition on behalf of the Company’s unconsolidated joint ventures. The Company has assessed these receivables as having minimal collection risk based on the historic experience with these joint ventures and the Company’s inherent influence through its ownership interest. The change in these receivables from March 28, 2008 to January 2, 2009 resulted in a use of operating cashour financial statements for the ~~nine months~~period ended ~~January 2,~~July 3, 2009. However, we determined that the two items discussed below merited disclosure.

In July 2009 we completed the repurchase of ~~$6.8 million.~~an additional $14.5 million of face value of our senior subordinated notes for $14.3 million, including applicable fees. The ~~related revenue associated with the Company’s unconsolidated joint ventures totaled $2.1 million~~total amount of both common stock and ~~$16.1 million~~senior subordinated notes repurchased for the ~~three and nine months ended January 2, 2009, respectively, and $3.2~~fiscal year totaled approximately $25 million, ~~and $5.1 million for the three and nine months ended December 28, 2007.~~

~~As discussed~~which is our allowable repurchase basket per our current authorization as more fully described in Note ~~1, the Company sold half~~6.

In July 2009 we obtained a consent from our lenders under our senior secured credit facility to allow us to expand our capability to purchase capital assets by an additional $52 million during fiscal year 2010. The purpose of ~~its previously wholly owned subsidiary, DIFZ, on July 31, 2008~~obtaining this consent was to ~~Palm Trading Investment Corp. (“Palm”). DIFZ provides leased contract employees, back office staff and outsourced payroll and human resource~~enable us to acquire certain capital assets in support ~~services through its approximately 4,100 employees. Currently, all DIFZ revenue and costs are eliminated through the Company’s consolidation process.~~

Asof a ~~result of the DIFZ sale, the Company currently holds three promissory notes from Palm for~~new program requiring the purchase ~~price which totaled $8.2 million. The notes are included in Prepaid expenses and other~~of certain capital assets, ~~and in Other assets on our consolidated balance sheet for the short and long term portions, respectively. As of January 2, 2009, the loan balance outstanding with Palm was $8.3 million,~~ including ~~accrued interest of $0.1 million. As indicated in Note 8, accrued interest is recorded in APIC.~~helicopters.

~~Note 14—Segment Information~~

On April 1, 2008, the Company announced it would change from reporting financial results on two segments, GS and MTSS, to reporting three segments, beginning with the first fiscal quarter of 2009. This was accomplished by splitting GS into two distinct reporting segments.

~~The three segments are as follows:~~

~~International Security Services, or ISS~~ ~~segment, which consists of the Law Enforcement and Security, or LES, business unit, the Specialty Aviation and Counter Drug , or SACD, business unit, and Global Linguist Solutions, or GLS.~~

~~Logistics and Construction Management, or LCM~~ segment, and is comprised of the Contingency and Logistics Operations, or CLO, business unit and the Operations, Maintenance, and Construction Management, or OMCM, business unit. This segment is also responsible for winning and performing new work on our LOGCAP IV contract.

~~Maintenance and Technical Support Services, or MTSS~~ ~~segment, consists of its original components and DynMarine Services, which was previously reported under the GS segment.~~

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

Three Months Ended
(Amounts in thousands) January 2, 2009 December 28, 2007
Revenue

International Security Services $ 465,757 $ 265,722
Logistics and Construction Management 90,423 73,064
Maintenance and Technical Support Services 237,842 184,285
Other/elimination (1,695 ) —

Total revenue $ 792,327 $ 523,071

Operating Income

International Security Services $ 33,167 $ 20,576
Logistics and Construction Management 536 5,016
Maintenance and Technical Support Services 17,880 5,233

Total operating income $ 51,583 $ 30,825

Depreciation and amortization

International Security Services $ 6,671 $ 7,153
Logistics and Construction Management 675 804
Maintenance and Technical Support Services 2,683 2,953

Total depreciation and amortization $ 10,029 $ 10,910

Nine Months Ended
(Amounts in thousands) January 2, 2009 December 28, 2007
Revenue

International Security Services $ 1,343,467 $ 825,134
Logistics and Construction Management 269,351 183,815
Maintenance and Technical Support Services 679,449 557,904
Other/elimination (3,995 ) —

Total revenue $ 2,288,272 $ 1,566,853

Operating Income

International Security Services $ 108,545 $ 78,069
Logistics and Construction Management (16,451 ) 4,674
Maintenance and Technical Support Services 46,116 14,231

Total operating income $ 138,210 $ 96,974

Depreciation and amortization

International Security Services $ 20,297 $ 21,198
Logistics and Construction Management 2,144 2,102
Maintenance and Technical Support Services 8,153 8,601

Total depreciation and amortization $ 30,594 $ 31,901

As of
(Amounts in thousands) January 2, 2009 March 28, 2008

Assets

International Security Services $ 795,198 $ 725,775
Logistics and Construction Management 204,975 199,088
Maintenance and Technical Support Services 342,431 336,721
Corporate/other⁽¹⁾
231,645 141,125

Total assets $ 1,574,249 $ 1,402,709


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


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

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the ~~condensed~~ consolidated financial statements, and the notes thereto, and other data contained elsewhere in this Quarterly Report. The following discussion and analysis should also be read in conjunction with our audited consolidated financial statements, and notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on June ~~10, 2008.~~11, 2009. 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.

COMPANY OVERVIEW

We are a leading provider of specialized mission-critical professional and support services ~~outsourced by~~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, through approximately 47 active contracts ranging in duration from three to ten years and over 100 task orders. As of January 2, 2009, we had approximately 21,000 employees in approximately 30 countries. DynCorp International and its predecessorsincluding those services provided under the recently-awarded LOGCAP IV contract. We have provided essential services to numerous U.S. government departments and agencies since 1951. Our current customers include the U.S. Department of Defense (“DoD”), the DoS, foreign governments, commercial customers and certain other U.S. federal, state and local government departments and agencies. Revenue from U.S. government contracts accounted for approximately 96% of our total revenue in fiscal year 2009 and we were the prime contractor on contracts representing approximately 96% of our total revenues in fiscal year 2009. As of July 3, 2009, we had over 25,100 employees in more than 30 countries, approximately 58 active contracts ranging in duration from three to ten years and 110 task orders.

SBAs & Service Offerings

We ~~operate~~utilize Strategic Business Areas (“SBAs”) to manage, review, and assess our business ~~through three segments: ISS; LCM;~~performance at a program level. We also aggregate our SBAs into service offerings to manage our business based on what constitutes our primary lines of business. We aggregate SBAs that provide similar services and ~~MTTS. Each of~~utilize similar methods to provide these ~~segments is described below.~~services.

~~International Security Services~~Global Stabilization and Development Solutions

~~ISS~~GSDS provides ~~various~~a diverse collection of outsourced services primarily to government agencies worldwide. ~~ISS consists~~GSDS includes three service offerings as described below:

Security & Training— This service offering is comprised of the following ~~strategic business units:~~SBAs:

~~Law Enforcement and Security~~

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

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

~~Specialty Aviation~~Contingency Support and ~~Counter-drug~~ Operations— This ~~operating unit’s services include drug eradication and host nation pilot and crew training.~~

~~Global Linguist Solutions~~— This consolidated joint venture between DynCorp International and McNeil Technologies provides rapid recruitment, deployment and on-site management of interpreters and translators in-theatre to the U.S. Army for a wide range of foreign languages.

~~Logistics and Construction Management~~

~~LCM provides technical support services to government agencies and commercial customers worldwide. LCM consists~~service offering is comprised of the following ~~strategic business units:~~SBAs:

~~Contingency and Logistics Operations~~

LOGCAP IV — This ~~operating unit~~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, ~~de-mining,~~weapons removal and abatement, worldwide contingency planning and other rapid response services. In addition, it offers inventory procurement and tracking services, ~~equipment maintenance,~~ property control, data entry and mobile repair services.

~~Operations Maintenance and Construction Management~~~~— This operating unit~~ Furthermore, this SBA provides facility and equipment maintenance and control and custodial and administrative services. ~~In addition, it~~

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

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

~~Maintenance and Technical~~Global Platform Support ~~Services~~Solutions

~~MTSS~~GPSS provides a wide range of technical, engineering, logistics and maintenance support services primarily to government agencies worldwide. ~~MTSS consists~~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 ~~strategic business areas:~~SBAs:

~~Contract Logistics~~

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. ~~Contract Logistics Support (“CLS”) provides~~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.

Domestic 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, base and depot operations, program management and engineering services. Additionally, this SBA provides aerial firefighting services. These services are provided in the U.S.

Field Service Operations— Provides worldwide maintenance, modification, repair, and logistics support on aircraft, weapons systems, and related support equipment to the ~~Department of Defense (“DoD”)~~DoD and other U.S. government agencies. Contract Field Teams (“CFT”) is the most significant program in our Field Service Operations SBA. Our ~~company~~Company and its predecessors have provided CFT ~~service~~services for over ~~55 consecutive~~58 years. This program deploys highly mobile, quick-response field teams to customer locations to supplement a customer’s workforce.

International Aviation Operations and ~~Maintenance Services~~Support — Provides aircraft fleet maintenance and modification services, ground vehicle maintenance and modification services, ~~marine services,~~ pilot and maintenance training, logistics support, air traffic control services, air transportation, base and depot operations, program management and engineering services. These services are ~~offered on~~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 ~~domestic~~single SBA:

Land Systems — This SBA provides maintenance, operations, support, life extension, engineering, marine services and ~~international basis.~~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 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

External Factors

Over most of the last two decades, the U.S. government has ~~been increasing~~increased its reliance on the private sector for a wide range of professional and support services. This increased use of ~~outsourcing~~contractors to augment non-combat forces during conflict operations by the U.S. government has been driven by a variety of factors including: lean-government initiatives launched in the 1990s; surges in demand during times of national crisis; the increased complexity of missions conducted by the U.S. military and the ~~Department of State (“DoS”); the~~DoS; increased focus of the U.S. military on war-fighting efforts; and the loss of skills within the government caused by workforce reductions and retirements. ~~These factors lead us~~

In the current environment of economic uncertainty and market turmoil, developing and implementing spending, tax, and other initiatives to ~~believe that~~stimulate the faltering economy are at the forefront of the U.S. government’s ~~growing mission and~~activities. While we expect to see continued ~~human capital challenges have combined~~support for defense initiatives under the Obama Administration, we expect that initiatives to create a new market dynamic, one that is less directly reflective of overall government budgets and more reflective of the ongoing shift of service delivery from the federal workforce to competent, efficient private sector providers.

~~We believe the following industry trends will result in continued strong demand in our target markets for the types of outsourced services that we provide:~~

	•		The continued transformation of military forces, leading to increased outsourcing of non-combat functions, including life-cycle asset management functions ranging from organizational to depot level maintenance;

	•		~~An increase in the level and frequency of overseas deployments and peace-keeping operations for the DoS, DoD and United Nations;~~

	•		~~Increased maintenance, overhaul and upgrade needs to support aging military platforms;~~

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

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

~~We believe that the cost of current and proposed~~address economic stimulus ~~packages~~will compete with other national priorities, such as DoD and ~~other initiatives undertaken by the Federal government in connection with the current economic crisis~~DoS initiatives. While these dynamics will ~~likely have an eventual negative impact~~place pressure on ~~the~~ defense ~~budget. We~~spending, we believe ~~however,~~ 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 ~~eventual~~the draw down in Iraq and (iii) deployments into Afghanistan.

~~Initial statements~~

There is an increasing indication from the ~~new~~ Obama administration ~~indicate~~ 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 continue to monitor this trend going forward, we do not believe that insourcing will have a material impact to our operations in the near term. We believe the following industry trends will result in continued strong demand in 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 believe that the withdrawal will commence between 2010 and 2011. On the other hand, President ~~will seek to withdraw troops from Iraq, specifically U.S. combat forces by as early as mid-2010. The new administration also~~Obama has indicated ~~that it will~~his support anfor expanded ~~presence~~troop levels in ~~Afghanistan of additional U.S. troops. Based on the foregoing,~~Afghanistan. As a result, we expect our level of business involving Iraq to be relatively stable over the next few years, ~~with demand remaining strong for logistics, equipment reset, training and mentoring of Iraqi forces and government agencies and translation services to support security and peacekeeping activities.~~assuming we are successful in winning new LOGCAP IV task orders in Iraq. In Afghanistan, we ~~believe we are well positioned~~aim to capitalize on ~~any increased~~this increase in U.S. government focus through many of our service offerings, including police training and mentoring, aircraft logistics and operations, infrastructure development, ~~mine resistant and ambush protected (“MRAP”)~~MRAP services, ~~poppy eradication~~ and logistics services. Our recent LOGCAP IV award to provide services ~~under LOGCAP IV.~~in southern Afghanistan is an example of achievements in this area.

Current Economic Conditions

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 generally.~~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.

~~Furthermore, we~~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 ~~sustained~~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.

~~See “Part II — Other Information —Item 1A. Risk Factors — Current or worsening economic conditions could impact our business.”~~

Internal Factors

~~Our internal focus~~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 ~~success centers~~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 ~~five key principles:~~

	•		Performance — Through a relentless mind set in meeting our commitments to our customers every day and in operating with absolute integrity and in accordance with our Code of Ethics and Business Conduct in all that we do.

	•		Lean Infrastructure — In order to further fuel our growth and invest in our people, we must generate additional investment capacity by ensuring that our infrastructure is as efficient as possible without jeopardizing our ability to perform.

	•		Strategic Investment — We must have clarity in our strategic priorities, and we must properly focus our investments in people, new program pursuits and efforts to penetrate new segments of the market.

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.

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Objective

	•		New Business — Growing our business profitably starts with winning new business. This involves having a winning attitude across our enterprise, particularly in satisfying our customers and competing for business.

	•		People — We must be the employer of choice, with strong, trusted leadership, an employee-focused environment and a culture of mutual respect in which our employees are empowered and rewarded for serving our customers and ensuring their success.

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 ~~apply these key principles continuously as we assess our operational and administrative performance.~~

~~Current Events~~

~~The results of our operations for~~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 ~~nine months ended January 2, 2009 exceeded expectations~~being people’s employer of choice, we are able to quickly organize and deploy an integrated workforce, material, and technology solutions across all our ~~core business~~ areas ~~with~~of specialty. From rapid-response field assignments to long-term engagements, we believe that we provide the ~~exception~~world’s most comprehensive array of integrated solutions for ensuring our ~~Afghanistan construction contracts, within our LCM segment, which encountered cost overruns due to significant challenges, including~~customers’ success — regardless of the ~~deteriorating security situation. Management has determined that several of our Afghanistan construction contracts will operate at a loss~~location or ~~at margins approaching zero over their contract terms. We do not expect to bid any similar firm fixed price contracts without revised terms and~~ conditions.

~~See the Results of Operations section below for further information regarding the financial impact of our construction business on our consolidated financial results.~~

CONTRACT TYPES

Our business ~~generally~~ is performed under fixed-price, time-and-materials or cost-reimbursement contracts. Each ~~of these~~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 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 contract, which are often awarded to multiple contractors. An IDIQ contract does not represent a firm order for services. Our ~~historical~~Civilian Police, Field Teams, and LOGCAP IV programs are three examples of IDIQ contracts.

The following table sets forth our approximate contract mix ~~by type,~~as of the dates indicated:


	Fiscal Quarter Ended
	July 3, 2009			July 4, 2008
Fixed Price		26	%		31	%
Time-and-Materials		21	%		26	%
Cost-Reimbursement		53	%		43	%

		100	%		100	%

Over the last year, we have seen an increase in our revenue attributable to cost-reimbursable contracts with corresponding decreases to fixed price and time-and-materials contracts. This was primarily due to changes from fixed-price to cost-reimbursable task orders on our CivPol program as well as GLS making up a greater percentage of our consolidated revenue in fiscal year 2010 as compared to fiscal year 2009. We expect this trend to continue as a ~~percentage~~result of ~~revenue, is indicated~~growth in ~~the table below.~~

Three Months Ended Nine Months Ended
January 2, 2009 December 28, 2007 January 2, 2009 December 28, 2007
Fixed Price 23.6 % 41.2 % 27.6 % 40.4 %
Time-and-Materials 23.1 % 32.8 % 24.4 % 34.5 %
Cost-Reimbursement 53.3 % 26.0 % 48.0 % 25.1 %

100 % 100 % 100 % 100 %
LOGCAP IV.

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BACKLOG

We track backlog in order to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised, priced contract options and the unfunded portion of exercised contract options.

Most of our U.S. government contracts allow the customer the option to extend the period of performance of a contract for a period of one or more years. These priced options may or may not be exercised at the sole discretion of the customer. ~~Historically, it~~It has been our experience that ~~customers have~~the customer has typically exercised contract options.

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

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


(in millions)	January 2, 2009		March 28, 2008
					July 3, 2009		April 3, 2009

Funded Backlog	$	1,485	$	1,164	$	1,506	$	1,431
Unfunded Backlog		5,067		4,797		5,182		4,867

Total Backlog	$	6,552	$	5,961	$	6,688	$	6,298

Total backlog as of ~~January 2,~~July 3, 2009 was ~~$6.6~~$6.7 billion, which increased by $0.4 billion as compared to ~~$6.0~~$6.3 billion as of ~~March 28, 2008,~~April 3, 2009, primarily due to ~~the award of the War Reserve Materiel recompete during the first~~a new Worldwide Personal Protective Services (“WPPS”) task order which is expected to ramp up on our second fiscal quarter of ~~the fiscal year.~~2010. As of ~~January 2,~~July 3, 2009 and ~~March 28, 2008,~~April 3, 2009, total backlog related to GLS was ~~$3.3~~$2.9 billion and ~~$3.5~~$3.1 billion, respectively and is incorporated into the schedule above. Additionally, total backlog related to LOGCAP IV was $79 million at July 3, 2009 and included in the ~~table~~schedule above.

ESTIMATED REMAINING CONTRACT VALUE

Our estimated remaining contract value represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from 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 ~~management judgments 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 contracts and whether we successfully compete with any multiple bidders in IDIQ contracts. ~~The Company’s~~As of July 3, 2009 and April 3, 2009, our estimated remaining contract value ~~as of January 2, 2009 increased to $9.7~~was $8.7 billion ~~from $7.5~~and $8.4 billion, ~~as of March 28, 2008,~~respectively, primarily due to ~~the successful recompete~~a new WPPS task order, which is expected to ramp up in our second fiscal quarter of ~~the Contract Field Teams contract.~~2010.

RESULTS OF OPERATIONS — Fiscal Quarters Ended July 3, 2009 and July 4, 2008

The ~~Company reports its results on a 52/53-week~~ fiscal ~~year, with the fiscal year ending on the Friday closest to March 31 of such year (April~~quarter ended July 3, ~~2009 for fiscal year 2009, which is a 53-week fiscal year). The nine-month fiscal period ended January 2,~~ 2009 was a ~~40-week~~13-week period from April 4, 2009 to July 3, 2009. The fiscal quarter ended July 4, 2008 was a 14-week period from March 29, 2008 to ~~January 2, 2009. The nine-month fiscal period ended December 28, 2007 was a 39-week period from March 31, 2007 to December 28, 2007.~~July 4, 2008.

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Consolidated

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

Three Months Ended
(Amounts in thousands) January 2, 2009 December 28, 2007

Revenue $ 792,327 100.0 % $ 523,071 100.0 %
Cost of services (704,210 ) (88.9 %) (452,341 ) (86.5 %)
Selling, general and administrative expenses (26,505 ) (3.3 %) (28,995 ) (5.5 %)
Depreciation and amortization expense (10,029 ) (1.3 %) (10,910 ) (2.1 %)

Operating income 51,583 6.5 % 30,825 5.9 %
Interest expense (15,322 ) (1.9 %) (14,052 ) (2.7 %)
Loss on early extinguishment of debt — 0.0 % — 0.0 %
Earnings from affiliates 1,319 0.2 % 1,253 0.2 %
Interest income 730 0.1 % 522 0.1 %
Other income, net (856 ) (0.1 %) 380 0.1 %

Income before taxes 37,454 4.7 % 18,928 3.6 %
Provision for income tax (as a percentage of income before tax) (11,639 ) (31.1 %) (6,968 ) (36.8 %)

Income before minority interest 25,815 3.3 % 11,960 2.3 %

Minority interest (6,062 ) (0.8 %) — 0.0 %

Net income $ 19,753 2.5 % $ 11,960 2.3 %


	Nine Months Ended										Fiscal Quarter Ended
(Amounts in thousands)	January 2, 2009					December 28, 2007
(Dollars in thousands)											July 3, 2009					July 4, 2008

Revenue	$	2,288,272		100.0	%	$	1,566,853		100.0	%	$	785,177		100.0	%	$	716,794		100.0	%

Cost of services		(2,039,118	)	(89.1	%)		(1,358,062	)	(86.7	%)		(699,093	)	(89.0	%)		(638,389	)	(89.1	%)
Selling, general and administrative expenses		(80,350	)	(3.5	%)		(79,916	)	(5.1	%)		(23,438	)	(3.0	%)		(27,851	)	(3.9	%)
Depreciation and amortization expense		(30,594	)	(1.3	%)		(31,901	)	(2.0	%)		(10,145	)	(1.3	%)		(10,560	)	(1.5	%)

Operating income		138,210		6.0	%		96,974		6.2	%		52,501		6.7	%		39,994		5.6	%
Interest expense		(44,442	)	(1.9	%)		(42,247	)	(2.7	%)		(14,610	)	(1.9	)%		(14,215	)	(2.0	%)
Loss on early extinguishment of debt		(4,443	)	(0.2	%)		—		0.0	%
Earnings from affiliates		3,959		0.2	%		3,320		0.2	%		1,054		0.1	%		1,117		0.2	%
Interest income		1,751		0.1	%		2,202		0.1	%		339		0.0	%		344		0.0	%
Other income, net		809		0.0	%		(162	)	0.0	%
Other (loss)/income, net												(213	)	(0.0	)%		705		0.1	%

Income before taxes		95,844		4.2	%		60,087		3.8	%		39,071		5.0	%		27,945		3.9	%
Provision for income tax (as a percentage of income before tax)		(30,086	)	(31.4	%)		(21,916	)	(36.5	%)
Provision for income taxes												(12,627	)	(1.6	%)		(9,316	)	(1.3	%)

Income before minority interest		65,758		2.9	%		38,171		2.4	%
Minority interest		(15,154	)	(0.7	%)		—		0.0	%
Net Income												26,444		3.4	%		18,629		2.6	%
Noncontrolling interests												(5,799	)	(0.7	%)		(649	)	(0.1	%)

Net income	$	50,604		2.2	%	$	38,171		2.4	%
Net income attributable to DynCorp International Inc.											$	20,645		2.6	%	$	17,980		2.5	%

Revenue —Revenue for the ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 of $785.2 million increased ~~$269.3~~by $68.4 million, or ~~51.5%~~9.5%, ~~and $721.4 million, or 46.0%, respectively,~~ as compared with the ~~three and nine months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. The increase, as more fully described in the results by segment, is ~~principally~~primarily due to ~~growth~~a full quarter of revenue from ~~new contracts such as~~ the Intelligence and Security Command (“INSCOM”) ~~contract.~~contract, including award fee, in the current fiscal quarter as compared to the ramp-up period in the quarter ended July 4, 2008.

Cost of services —~~Cost~~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 ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 increased by ~~$251.9~~$60.7 million, or ~~55.7% and $681.1 million, or 50.1%~~9.5%, ~~respectively~~ compared with the ~~three and nine months~~fiscal quarter ended ~~December 28, 2007~~July 4, 2008 and was primarily a result of revenue growth. As a percentage of revenue, costs of services ~~increased~~decreased to ~~88.9% and 89.1%, respectively,~~89.0% for the ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 ~~as compared to 86.5% and 86.7%, respectively,~~from 89.1% for the ~~three~~fiscal quarter ended July 4, 2008. This decrease was driven by cost management efforts in the GPSS segment and ~~nine months ended December 28, 2007, primarily as~~higher award fees in the GLS segment, partially offset by cost increases relative to revenue resulting from a ~~result of a change~~shift from fixed price to cost reimbursable type contracts in ~~contract mix, with~~ the INSCOM contract and changes in portions of the CIVPOL contract increasing our percentage of revenue from cost type contracts. Cost overruns by our Afghanistan construction contracts, as further described below, also contributed to the change.GSDS segment.

Selling, general and administrative expenses (“SG&A”) —SG&A primarily relates to functions such as management, legal, ~~finance,~~financial accounting, contracts and administration, human resources, management information systems, purchasing and business development. SG&A for the three and nine months ended January 2, 2009 decreased $2.5 million, or 8.6%, and increased $0.4 million, or 0.5%, respectively, compared with the three and nine months ended December 28, 2007. SG&A for the three months ended January 2, 2009 decreased primarily as a result of lean infrastructure initiatives focused on controlling SG&A costs. SG&A for the nine months ended January 2, 2009 increased as a result ofwas impacted by growth in our underlying business, various initiatives to improve organizational capability, compliance and ~~compliance,~~ systems ~~improvements and severance costs, offset in part by implementing lean infrastructure initiatives which controlled~~improvements. SG&A ~~growth relative to revenue growth during~~for the ~~nine months~~fiscal quarter ended ~~January 2, 2009.~~July 3, 2009 decreased by $4.4 million, or 15.8%, compared with the fiscal quarter ended July 4, 2008. SG&A as a percentage of revenue decreased to ~~3.3% and 3.5%~~3.0% for the ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 ~~respectively,~~ compared to ~~5.5% and 5.1%~~3.9% for the ~~respective three~~fiscal quarter ended July 4, 2008. This was primarily the result of our former CEO’s severance package being incurred in the fiscal quarter ended July 4, 2008 and ~~nine month periods~~lean infrastructure initiatives in place for the full quarter ended ~~December 28, 2007.~~July 3, 2009.

Depreciation and amortization —Depreciation and amortization for the fiscal quarter ended July 3, 2009 decreased $0.4 million, or 3.9%, as compared with the fiscal quarter ended July 4, 2008. The decrease was primarily attributed to calculating depreciation and amortization over 13 weeks in fiscal quarter ended July 3, 2009, as compared to 14 weeks for the quarter ended July 4, 2008.

Interest expense —Interest expense for the ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 increased by ~~$1.3~~$0.4 million, or ~~9.0%~~2.8%, ~~and $2.2 million, or 5.2%, respectively,~~ as compared with the ~~three and nine months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. The interest expense incurred relates to our ~~Credit Facility,~~credit facility, senior subordinated notes and amortization of deferred financing fees. The increase in interest expense iswas primarily ~~due to~~driven by the senior subordinated notes making up a higher ~~average outstanding~~percentage of our total debt, ~~balance and~~which has consistently carried a higher ~~average~~ interest ~~rates~~rate than the senior secured credit facility. Higher deferred financing fee amortization as a result of our ~~new~~July 2008 debt ~~financing. In addition~~refinancing also contributed to this increase. This was partially offset by the ~~change~~lack of revolver borrowings in ~~interest expense, deferred financing fees associated with our prior debt were also written-off as further discussed in Note 5. The impact~~the first fiscal quarter of ~~this write-off is separately disclosed in our consolidated statements of income.~~2010.

Income tax expense-— Our effective tax rate ~~of 31.1% and 31.4%~~decreased to 32.3% for the ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 ~~respectively, decreased~~ from ~~36.8% and 36.5%~~33.3% for the ~~respective three and nine months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. 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 ~~rather~~ are instead taxed as ~~partnerships~~a partnership under the Internal Revenue Code.

~~Impact of our Afghanistan Construction Contracts~~

For the three and nine months ended January 2, 2009, revenue from our Afghanistan construction contracts was $15.5 million and $59.9 million, respectively. There was $0.2 million of revenue from Afghanistan construction contracts for the three and nine months ended December 28, 2007. Our remaining revenue through completion of these contracts in our third quarter of fiscal year 2010 is expected to be approximately $125 million.

As discussed in “Current Operating Conditions and Outlook — Current Events” above, our construction business encountered operational difficulties starting in the second quarter of fiscal year 2009, which resulted in higher non-reimbursable delivery costs and contractual milestone delays. As a result, a contract loss reserve and associated provision, specific to a large fixed price type construction contract in Afghanistan, were estimated and recorded during the second quarter of fiscal year 2009 which totaled $18.4 million. During the third quarter of fiscal year 2009, we continued to encounter challenges despite significant progress and improvements on this construction project. Based on our assessment of the current status of this project and considering the current security environment in Afghanistan, an additional contract loss of $2.1 million was recorded in the third quarter of fiscal year 2009. Utilization of the contract loss reserve through January 2, 2009 was $10.4 million.

The recording of the additional loss also triggered an interim assessment of goodwill for potential impairment, as further discussed in Note 3 to our financial statements. As a result of this assessment, we concluded that no goodwill impairment had occurred.

Additionally, revisions were made to the estimated margins on all other fixed priced Afghanistan construction contracts within the OMCM strategic business unit, resulting in a reduction to gross profit of $6.1 million during the second quarter of fiscal year 2009. No further adjustments were made during the third quarter of fiscal year 2009. These fixed price Afghanistan construction contracts are expected to operate with margins at or approaching zero over their remaining contract terms.

The contract loss provision and revisions to estimated margins are based on the best information currently available. Although we believe that these amounts have been estimated appropriately, there can be no assurance that future events will not require us to revise these estimates.

Results by Segment

The following table sets forth the revenue and operating income for our ~~ISS, LCM~~GSDS, GPSS and ~~MTSS~~GLS operating segments, both in dollars and as a percentage of our consolidated revenue ~~for segment revenue~~ and ~~as a percentage of our consolidated operating income for segment specific~~ operating income, for the ~~three and nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 as compared to the fiscal ~~three and nine months~~quarter ended ~~December 28, 2007.~~July 4, 2008.


	For the Fiscal Quarter Ended
(Dollars in thousands)	July 3, 2009					July 4, 2008
Revenue
Global Stabilization and Development Solutions	$	284,085		36.2	%	$	269,554		37.6	%
Global Platform Support Solutions		303,648		38.6	%		329,736		46.0	%
Global Linguist Solutions		198,354		25.3	%		118,422		16.5	%
Other/elimination		(910	)	(0.1	%)		(918	)	(0.1	%)


Consolidated	$	785,177		100.0	%	$	716,794		100.0	%


Operating Income
Global Stabilization and Development Solutions	$	15,874		30.2	%	$	22,971		57.4	%
Global Platform Support Solutions		25,910		49.4	%		15,742		39.4	%
Global Linguist Solutions		10,717		20.4	%		1,281		3.2	%


Consolidated	$	52,501		100.0	%	$	39,994		100.0	%

~~Three Months Ended January 2, 2009 Compared to Three Months Ended December 28, 2007~~

Three Months Ended
(Amounts in thousands) January 2, 2009 December 28, 2007

Revenue

International Security Services $ 465,757 58.8 % $ 265,722 50.8 %
Logistics and Construction Management 90,423 11.4 % 73,064 14.0 %
Maintenance and Technical Support Services 237,842 30.0 % 184,285 35.2 %
Other/elimination (1,695 ) -0.2 % — 0.0 %

Consolidated $ 792,327 100.0 % $ 523,071 100.0 %
Operating Income & Margin

International Security Services $ 33,167 7.1 % $ 20,576 7.7 %
Logistics and Construction Management 536 0.6 % 5,016 6.9 %
Maintenance and Technical Support Services 17,880 7.5 % 5,233 2.8 %

Consolidated $ 51,583 6.5 % $ 30,825 5.9 %

~~International Security Services~~Global Stabilization and Development Solutions

Revenue —Revenue of $284.1 million for the ~~three months~~fiscal quarter ended ~~January 2,~~July 3, 2009 increased ~~$200.0~~$14.5 million, or ~~75.3%~~5.4%, as compared with the ~~three months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. The increase was primarily ~~resulted from~~the result of the following:

~~Law Enforcement and Security:~~Security & Training: Revenue of $190.3 million increased ~~$13.2~~$14.0 million, or ~~8.2%~~7.9%, primarily due to new contracts for WPPS in Pakistan and the Multinational Security Transition Command-Iraq (“MNSTC-I”). Revenue from our CivPol programs declined slightly, primarily due to changes in contract type from firm fixed price to cost reimbursable in Afghanistan offset by additional revenue from increased service levels in Iraq. Although our current CivPol contract is set to expire in February 2010, we believe that we will retain either all or a large portion of the services under this contract upon its renewal.

Contingency Support and Operations: Revenue of $74.9 million increased $26.7 million or 55.4%, primarily due to increases from the Kuwait 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 security services in Iraq, Palestine, Liberia, Haiti and Qatar, offset by a decline in security services in Afghanistan. Revenue from our civilian police services in Iraq increased $16.4 million primarilyLOGCAP IV program that carries annual revenue potential of approximately $643 million. Although we have started work on this program, due to ~~higher personnel levels. As a result~~the timing of ~~new contracts started in early fiscal year 2009,~~the award and transition period, we provided civilian police and security services in Palestine, Haiti and Liberia, which contributed $6.2 million, $1.1 million and $0.8 million, respectively, in increased revenue for the period. These increases were offset by a decline in Afghanistan, which was a result primarily of a shift from a fixed price contract structuredo not expect to achieve in fiscal year ~~2008 to a cost reimbursable contract structure in~~2010 the full fiscal year ~~2009.~~revenue implied by the annual revenue potential.

Infrastructure: Revenue ~~also was impacted~~of $18.9 million decreased by ~~fewer supplies and equipment sales to the customer in Afghanistan during the three months ended January 2, 2009 as compared to the three months ended December 28, 2007.~~

~~Specialty Aviation and Counter-drug Operations: Revenue decreased $10.6~~$26.2 million, or 10.3%, primarily due to a decline in our International Narcotics Law Enforcement programs resulting from scope reductions, offset by new contracts associated with security and drug eradication training in Afghanistan.

Global Linguist Solutions: Revenue was $199.0 million for the INSCOM contract through our GLS joint venture, which began in the fourth quarter of fiscal year 2008. Revenue also benefited from the recognition of the GLS award fee of $7.8 million for the quarter. The award fee is based on achieving specific contract performance criteria, such as operational fill rates. Based on our contract performance history to date, we anticipate the ability to accrue award fees through the remaining life of the contract.

~~Operating Income —~~Operating income for the three months ended January 2, 2009 increased $12.6 million, or 61.2%, as compared with the three months ended December 28, 2007. The increase primarily resulted from the following:

Law Enforcement and Security: Operating income decreased $6.3 million, or 22.6%, due to declining margins, primarily in our Civilian Police services. This margin decline resulted from a shift in portions of our task orders for these services from fixed price type in the prior fiscal year to cost reimbursable in the current fiscal year.

Specialty Aviation and Counter-drug Operations: Operating income increased $0.3 million, or 3.4%, primarily due to higher margins on several new security and drug eradication training contracts in Afghanistan, offset by lower revenue for the fiscal quarter.

Global Linguist Solutions: Operating income was $10.4 million for GLS for the three months ended January 2, 2009. Operating income benefited from GLS revenue, including the accrual of the GLS award fee of $7.8 million, which represents the award earned or accrued during the quarter. The award fee is based on achieving specific contract performance criteria, such as operational fill rates.

General SG&A Factors: SG&A expense declined for the three months ended January 2, 2009, as compared to the three months ended December 28, 2007. The decline in SG&A expense in the current period as compared to the prior period, was primarily a result of improved SG&A cost management during the current period. This SG&A decline contributed positively to operating income growth for the fiscal quarter.

~~Logistics and Construction Management~~

~~Revenue —~~~~Revenue for the three months ended January 2, 2009 increased $17.4 million, or 23.8%, as compared with the three months ended December 28, 2007. The increase primarily resulted from the following:~~

~~Contingency and Logistics Operations: Revenue increased by $1.0 million, or 2.2%~~58.0%, primarily due to the ~~expansion~~wind down of ~~operations services~~a large construction project in Afghanistan combined with the termination of an airport construction contract in Africa, which occurred in the Philippines, which increased $9.7 million. Revenue also benefited from our continued support services, primarily through providing temporary housing in response to the severe flooding in Iowa during the summerfirst quarter of ~~2008 and increased services provided in Sudan.~~fiscal year 2009. These ~~increases~~declines were offset in part by ~~a decline in our Africa Peacekeeping program, primarily a result of reductions in current work levels within this program.~~

~~Operations Maintenance and Construction Management: Revenue increased $15.2 million, or 56.3%, primarily due to continued progress on our~~increases from two separate Afghanistan construction projects ~~and contract closeout activities for a construction project in Nigeria. As discussed above in “—Results~~that have commenced since the first quarter of Operations—Consolidated—Impact of our Afghanistan Construction Contracts,” due to significant challenges on several Afghanistan construction contracts resulting partly from the deteriorating security situation in that country, wefiscal year 2009. We do not expect to bid on any similar fixed-price contracts 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 $15.9 million for the ~~three months~~fiscal quarter ended ~~January 2,~~July 3, 2009 decreased ~~$4.5~~$7.1 million, or ~~89.3%~~30.9%, as compared with the ~~three months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. Operating income did not increase proportionally with the growth in revenue due to lower margins stemming from a shift 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. Also contributing to the decline 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 in services on both our WPPS programs in Iraq and Pakistan and our MNSTC-I program and increases in the Somalia task order on our Africa Peacekeeping Program resulting from scope increases in both services and equipment sales coupled with a higher fee structure.

Global Platform Support Solutions

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

~~Contingency and Logistics Operations: Operating income~~Aviation: Revenue of $265.3 million decreased ~~by $0.9~~$34.7 million, or ~~35.7%~~11.6%, for the ~~three months~~fiscal quarter ended ~~January 2,~~July 3, 2009, as compared to the ~~three months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. The decrease was primarily driven by ~~higher costs~~declines in ~~the current quarter related to the ramp-up~~INL Air Wing of ~~our new LOGCAP IV contract, which~~$31.7 million and FSO of $17.1 million. The revenue decline in INL Air Wing revenue was ~~awarded~~driven by non-recurring equipment sales and construction work in ~~early~~both Camp Alvarado and Camp Valdes in Afghanistan performed in fiscal year 2009. ~~Currently, LOGCAP IV does~~FSO revenue declined due to the loss of several CFT task orders, which was a result of additional competitors in this service space. While this is putting downward pressure on fiscal year 2010 revenue, we do not ~~contribute significantly~~believe this will limit our long term opportunities under the CFT program. These declines were partially offset by additional services including a new task order as a subcontractor to ~~revenue but incurs costs associated with contract set-up~~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 other overhead costs. Additionally, several programs which contributed positively to revenue growth in the quarter did not contribute to operating income since we have not yet recognized award fees. We anticipate an increase in operating income associated with these projects once we have completed portionsair transportation services.

Land Systems: Revenue of ~~the projects and recognize award fees as revenue in accordance with our policies.~~

~~Operations Maintenance and Construction Management: Operating income~~$38.3 million increased ~~by $0.2~~$8.8 million, or ~~21.2%~~29.7%, for the ~~three months~~fiscal quarter ended ~~January 2,~~July 3, 2009, as compared to the ~~three months~~fiscal quarter ended December 28, 2007, primarily due to contract closeout activities for a construction project in Nigeria. Partially offsetting the increase was the additional contract loss provision associated with a specific construction project in Afghanistan, as discussed above in “—Results of Operations—Consolidated—Impact of our Afghanistan Construction Contracts.”

~~Maintenance and Technical Support Services~~

~~Revenue —~~~~Revenue for the three months ended January 2, 2009 increased $53.6 million, or 29.1%, as compared with the three months ended December 28, 2007. The increase primarily resulted from the following:~~

Contract Logistics Support: Revenue increased $18.8 million, or 36.7%, primarily due to higher deliveries of support equipment associated with our C-21 and Life Cycle Contractor Support (“LCCS”) programs. This increase is primarily due to scope increases from the U.S. government for spending related to the global war on terror.

~~Field Service Operations: Revenue increased $12.6 million, or 15.7%, primarily due to a new contract for logistics services at Fort Campbell, which started in May~~July 4, 2008, ~~and additional revenue from higher personnel levels in our CFT program.~~

~~Aviation and Maintenance Services: Revenue increased $22.0 million, or 41.4%,~~ primarily due to increased ~~work~~services associated with the MRAP ~~vehicles and increased revenue associated with~~contract. This was partially offset by decreases in services provided under our General Maintenance Corps ~~contract. These increases were offset by a decline in our marine services and a decrease in threat management systems work.~~(“GMC”) program.

Operating Income —Operating income for the ~~three months~~fiscal quarter ended ~~January 2,~~July 3, 2009 increased ~~$12.6~~$10.2 million, ~~to $17.9 million,~~or 64.6%, as compared ~~to $5.2 million for~~with the ~~three months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. The increase was primarily ~~resulted from the following:~~

~~Contract Logistics Support: Operating income for the three months ended January 2, 2009 increased~~driven by ~~$4.2 million, to $4.8 million, as compared to operating income of $0.6 million for the three months ended December 28, 2007. The positive results were primarily due to improved project~~better cost management in several key ~~programs.~~

~~Field Service Operations: Operating income increased $0.5 million, or 10.4%, for the three months ended January 2, 2009,~~Aviation programs as ~~compared~~well as growth from new contracts and task orders within that service offering. Increased services under our MRAP program also contributed to the ~~three months ended December 28, 2007, driven primarily by increased revenue.~~

Aviation and Maintenance Services: Operating income increased $8.6 million, or 193.6%, for the three months ended January 2, 2009, as compared to the three months ended December 28, 2007, primarily due to increased revenue in key high-margin service areas such as our MRAP program.

~~Nine Months Ended January 2, 2009 Compared to Nine Months Ended December 28, 2007~~

Nine months ended
(Amounts in thousands) January 2, 2009 December 28, 2007

Revenue

International Security Services $ 1,343,467 58.7 % $ 825,134 52.7 %
Logistics and Construction Management 269,351 11.8 % 183,815 11.7 %
Maintenance and Technical Support Services 679,449 29.7 % 557,904 35.6 %
Other/elimination (3,995 ) -0.2 % — 0.0 %

Consolidated $ 2,288,272 100.0 % $ 1,566,853 100.0 %
Operating Income & Margin

International Security Services $ 108,545 8.0 % $ 78,069 9.5 %
Logistics and Construction Management (16,451 ) (6.1 )% 4,674 2.5 %
Maintenance and Technical Support Services 46,116 6.8 % 14,231 2.6 %

Consolidated $ 138,210 6.0 % $ 96,974 6.2 %
increase.

3531

~~International Security Services~~Global Linguist Solutions

Revenue —~~Revenue~~of $198.4 million increased $79.9 million, or 67.5%, for the ~~nine months~~fiscal quarter ended ~~January 2, 2009 increased $518.3 million, or 62.8%, as compared with the nine months ended December 28, 2007. The increase primarily resulted from the following:~~

Law Enforcement and Security: Revenue increased $8.9 million, or 1.7%, primarily due to increases in our security services in Iraq, Palestine, Liberia, Haiti and Qatar, offset by a decline in Afghanistan. Revenue from our civilian police services in Iraq increased $7.5 million primarily due to higher personnel levels offset by non-recurring revenue from fiscal year 2008 related to transition of our operations from leased facilities to customer furnished facilities in May 2007. Revenue also increased $19.7 million under our Palestinian security sector program for which we provide equipment and supplies in addition to security services. We benefited from new contracts started in early fiscal year 2009, through which we provide civilian police and security services in Liberia, Haiti and Qatar. These contracts contributed $3.0 million, $2.8 million and $2.4 million, respectively, in increased revenue for the period. These increases were offset by the decline in Afghanistan which was a result primarily from non-recurring revenue recognized in the prior year associated with our construction of a camp facility, completed in August 2007. Also contributing to the revenue decline in Afghanistan was the shift in contract structure specific to our services providing supplies and equipment, from a fixed price contract structure in fiscal year 2008 to a cost reimbursable contract structure in fiscal year 2009. The impact of the change in contract structure was further amplified by a reduction in the volume of supplies and equipment provided to customers in Afghanistan during the nine months ended January 2,July 3, 2009, as compared to the ~~nine months~~fiscal quarter ended ~~December 28, 2007.~~

Specialty Aviation and Counter-drug Operations: Revenue decreased $7.1 million, or 2.3%, primarily due to declines in our International Narcotics Law Enforcement programs as a result of program scope reductions offset by new contracts associated with security and drug eradication training in Afghanistan.

Global Linguist Solutions: Revenue was $518.7 million for the INSCOM contract, which we perform through our GLS joint venture. Revenue also benefited from the recognition of the GLS award fee of $22.2 million, which represents the award earned or accrued since the contract’s inception. The award fee is based on achieving specific contract performance criteria, such as operational fill rates.

~~Operating Income —~~Operating income for the nine months ended January 2, 2009 increased $30.5 million, or 39.0%, as compared with the nine months ended December 28, 2007. The increase primarily resulted from the following:

Law Enforcement and Security: Operating income decreased $23.9 million, or 23.9%, primarily due to declining margins in our civilian police services. This margin decline resulted from a shift in portions of our task orders for supplies and equipment related to these services from primarily fixed price type in the prior period to cost reimbursable type in the current period.

Specialty Aviation and Counter-drug Operations: Operating income increased $10.3 million, or 59.0%, primarily due to higher margins on several new security and drug eradication training contracts in Afghanistan.

Global Linguist Solutions: Operating income was $29.4 million for GLS for the nine months ended January 2, 2009. Operating income benefited from GLS revenue, including the accrual of the GLS award fee of $22.2 million, which represents the award earned or accrued since the contract’s inception. The award fee is based on achieving specific contract performance criteria, such as operational fill rates.

General SG&A Factors: SG&A expense declined for the nine months ended January 2, 2009, as compared to the nine months ended December 28, 2007. The decline in SG&A expense in the current period as compared to the prior period, was principally a result of prior period proposal costs associated with the INSCOM contract combined with improved SG&A cost management during the current period. This SG&A decline contributed positively to operating income growth for the fiscal quarter.

~~Logistics and Construction Management~~

~~Revenue —~~~~Revenue for the nine months ended January 2, 2009 increased $85.5 million, or 46.5%, as compared with the nine months ended December 28, 2007. The increase primarily resulted from the following:~~

~~Contingency and Logistics Operations: Revenue increased by $23.9 million, or 24.8%, for the nine months ended January 2, 2009, as compared to the nine months ended December 28, 2007.~~July 4, 2008. This increase was primarily due to the ~~expansion of operations services~~fact that the INSCOM contract was fully operational throughout the quarter ended July 3, 2009, whereas INSCOM was ramping up in the ~~Philippines, which~~quarter ended July 4, 2008. Revenue was also impacted by the recognition of the INSCOM award fee in the quarter ended July 3, 2009. No award fee was recorded in the first quarter ended July 4, 2008 as there was not sufficient history at that time to support award fee revenue recognition.

Operating income of $10.7 million increased $14.9 million. Revenue also benefited from an increase in our support services, primarily through providing temporary housing in response to the severe flooding in Iowa during the summer of 2008, adding $12.0$9.4 million in additional revenue as compared to the prior period. These increases were primarily offset by a decline in our Africa Peacekeeping program, primarily a result of reductions in current work levels within this program.

~~Operations Maintenance and Construction Management: Revenue increased $59.7 million, or 68.3%,~~ for the ~~nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009, as compared to the ~~nine months~~fiscal quarter ended December 28, 2007, primarily due to our construction projects in Africa and Afghanistan. As discussed above in “—Results of Operations—Consolidated—Impact of our Afghanistan Construction Contracts,” due to significant challenges on several Afghanistan construction contracts resulting partly from the deteriorating security situation in that country, we do not expect to bid on any similar fixed-price contracts without revised terms and conditions.July 4, 2008. This ~~strategic decision may impact future revenue in this segment by limiting the construction opportunities available to us.~~

~~Operating Income —~~Operating income decreased $21.1 million, to an operating loss of $16.5 million, for the nine months ended January 2, 2009, as compared to operating income of $4.7 million for the nine months ended December 28, 2007. The decrease primarily resulted from the following:

Contingency and Logistics Operations: Operating income decreased $1.4 million, or 19.9%, for the nine months ended January 2, 2009, as compared to the nine months ended December 28, 2007. We experienced higher costs in the current period related to the ramp-up of our new LOGCAP IV contract which was awarded in early fiscal year 2009. Currently, LOGCAP IV incurs costs associated with contract set-up and other overhead costs without a significant revenue contribution.

Operations Maintenance and Construction Management: Operating loss was $16.3 million for the nine months ended January 2, 2009, as compared to operating income of $1.7 million for the nine months ended December 28, 2007. As discussed above in “—Results of Operations—Consolidated—Impact of our Afghanistan Construction Contracts,” the operating loss in the current period was the result of a contract loss provision associated with a specific construction project in Afghanistan and adjustment to our estimated margins on several other Afghanistan construction projects.

~~Maintenance and Technical Support Services~~

~~Revenue —~~~~Revenue for the nine months ended January 2, 2009 increased $121.5 million, or 21.8%, as compared with the nine months ended December 28, 2007. The increase primarily resulted from the following:~~

~~Contract Logistics Support: Revenue increased $35.6 million, or 23.5%, primarily due to higher deliveries of support equipment associated with our C-21 and LCCS programs. This increase~~ is primarily due to ~~scope increases~~the fact that 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. 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 ~~U.S. government for spending related~~joint venture are reflected in noncontrolling interests as a reduction to ~~the global war on terror.~~net income attributable to DynCorp International Inc.

Field Service Operations: Revenue increased $27.6 million, or 11.1%, for the nine months ended January 2, 2009, as compared to the nine months ended December 28, 2007, primarily due to a new contract for logistics services at Fort Campbell which started in May 2008 and additional revenue from higher personnel levels in our CFT program.

Aviation and Maintenance Services: Revenue increased $56.8 million, or 36.0%, for the nine months ended January 2, 2009, as compared to the nine months ended December 28, 2007, primarily due to increased work associated with MRAP vehicles and increased revenue associated with our General Maintenance Corps contract. These increases were partially offset by declines in our marine services, Columbus Air Force Base support services and in our threat management systems work.

~~Operating Income —~~Operating income for the nine months ended January 2, 2009 increased $31.9 million, to $46.1 million, as compared to $14.2 million for the nine months ended December 28, 2007. The increase primarily resulted from the following:

Contract Logistics Support: Operating income for the nine months ended January 2, 2009 increased by $8.0 million, to $7.2 million as compared to a $0.7 loss for the nine months ended December 28, 2007. The positive results were primarily due to improved project management in several key programs.

Field Service Operations: Operating income increased $2.5 million, or 16.1%, for the nine months ended January 2, 2009, as compared to the nine months ended December 28, 2007, primarily due to increased revenue.

Aviation and Maintenance Services: Operating income increased $23.9 million, or 220.2%, for the nine months ended January 2, 2009, as compared to the nine months ended December 28, 2007, primarily due to increased revenue and improved margins in our MRAP program.

LIQUIDITY AND CAPITAL RESOURCES

Cash generated by operations and borrowings available under our ~~Revolving Facility~~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 ~~Revolving Facility~~credit facility will be adequate to meet our liquidity needs for ~~at least~~ the ~~next twelve months.~~foreseeable future. However, we cannot ~~assure you~~be assured that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our ~~Revolving Facility~~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.

To support growth related to potential contract and task order awards that could occur over the remainder of the fiscal year and to service our current indebtedness, we 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.

We ~~are required, under certain circumstances as defined~~expect that our improved cash collection efforts achieved in fiscal year 2009, evidenced by our ~~Credit Facility, to use a percentage of~~reduced days sales outstanding, will be sustainable in fiscal year 2010 and will help facilitate sufficient cash ~~generated~~flow from operations to ~~reduce~~fund our expected growth. We expect significant investment requirements from three new activities during the outstanding principal of our Term Loan. The actual amount of the required repayment if any, in respect to fiscal year 2009, could vary significantly based on such factors as the timing of cash receipts and cash payments near fiscal year end. Because of this, we cannot make a reasonable estimate of our required repayment if any, in respect to fiscal year 2009. In the event a repayment is required to be made, which would be paid during our first quarterremainder 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.

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. During the second quarter, we will utilize cash on hand to purchase $52 million of helicopters in order to support the requirements on a new task order received during the fiscal year. 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 ~~we anticipate utilizing borrowings under our Revolving Facility to make sure payment.~~acquisitions from available borrowing capacity and cash on hand.

Cash Flow Analysis

~~The following table sets forth cash flow data for the periods indicated.~~


	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

Nine Months Ended
(Amounts in thousands) January 2, 2009 December 28, 2007
Net Cash provided by (used in) operating activities $ 70,195 $ (49,256 )
Net Cash (used in) investing activities (22,070 ) (7,241 )
Net Cash provided by (used in) financing activities 17,076 (32,377 )

Cash provided by operating activities for the ~~nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 was ~~$70.2~~$5.4 million, as compared to ~~$49.3~~$71.1 million of cash used ~~for operations for~~in the ~~nine months~~fiscal quarter ended December 28, 2007. Our positive operating cash flow for the period was primarily the result of higher cash generated from operations offset by a reduction in cash from an increase in our net working capital.July 4, 2008. Cash generated from operations in the quarter ended July 3, 2009 benefited from the combination of our continued ~~revenue~~net income growth from new ~~contracts. The change in net~~contracts and continued focus on working capital ~~was primarily due to an increase in accounts receivable.~~management. Net of revenue growth, our accounts receivable ~~actually declined~~improved due to ~~improved~~billing and collection ~~efforts~~efficiencies implemented during ~~the nine months ended January 2,~~fiscal year 2009. As a result of these efforts, ~~days sales outstanding,~~Days Sales Outstanding (“DSO”), a key metric utilized by management to monitor collection efforts on accounts receivable, decreased ~~from 92~~to 71 days for the quarter ended July 3, 2009 as ~~of December 28, 2007~~compared to 6982 days ~~as of January 2, 2009.~~for the quarter ended July 4, 2008.

Cash used in investing activities was ~~$22.1~~$1.3 million for the ~~nine months~~fiscal quarter ended ~~January 2,~~July 3, 2009 as compared to ~~$7.2~~$1.5 million for the ~~nine months~~fiscal quarter ended ~~December 28, 2007. This use of~~July 4, 2008. The cash ~~from investing~~used was primarily for computer software upgrades and property and equipment additions.

Cash used in financing activities was ~~primarily a result of changes in our cash restricted as collateral on letters of credit of $15.2 million. Additionally, the combination of PP&E and software purchases used approximately $5.0~~$45.1 million for the ~~nine months~~fiscal quarter ended ~~January 2, 2009.~~

~~Cash provided by financing activities was $17.1 million for the nine months ended January 2,~~July 3, 2009, as compared to cash ~~used~~provided of ~~$32.4~~$20.7 million for the ~~nine months~~fiscal quarter ended ~~December 28, 2007.~~July 4, 2008. The cash ~~provided~~used by financing activities during the ~~period~~fiscal quarter ended July 3, 2009 was primarily ~~from~~due to the ~~$12.8 million net effect~~excess cash flow principal repayment on our senior secured credit facility, the repurchases of ~~extinguishing debt and issuing new debt discussed below as well as in Note 5~~a portion of our ~~financial statements. This also included the $4.3 million in cash provided from net borrowings to finance insurance policies. Cash used~~senior subordinated notes and payments of ~~$32.4 in financing activities for the nine months ended December 28, 2007 was due primarily to repayments of principal on debt.~~noncontrolling interests dividends.

Financing

Our Credit Facility consists of a revolving credit facility of $200.0 million (including a letter of credit sub facility of $125.0 million) (the “Revolving Facility”) and a term loan facility of $200.0 million (the “Term Loan Facility”). We have borrowed $200.0 million under the Term Loan Facility at the LIBOR rate plus the applicable margin then in effect, see “Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk.” The maturity date of the Revolving Facility and the Term Loan Facility is August 15, 2012.

As of ~~January 2,~~July 3, 2009, no balance was outstanding under the Revolving Facility, and ~~$200.0~~$176.6 million was outstanding under the Term Loan Facility. Our available borrowing capacity under the Revolving Facility totaled ~~$185.8~~$170.5 million at ~~January 2,~~July 3, 2009, which gives effect to ~~$14.2~~$29.5 million of outstanding letters of credit. The weighted-average interest rate at July 3, 2009 for our borrowings under the credit facility was 3.66% excluding the impact of our interest rate swaps.

We have entered into interest rate swap agreements to hedge our exposure to interest rate increases onrelated 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 ~~notional~~percentage of excess cash generated from operations to reduce the outstanding principal ~~amount~~ of ~~$200.0 million.~~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.

In the first quarter of fiscal year 2010, we repurchased $10.3 million of our senior subordinated notes at a discount resulting in an insignificant gain. As of ~~January 2,~~July 3, 2009, ~~$415.9~~$389.7 million of principal ~~amount of~~was outstanding under our senior subordinated ~~notes was outstanding, net of a $1.1 million unamortized discount.~~notes. Our senior subordinated notes mature ~~during~~ February 2013. Interest accrues on ~~the~~our senior subordinated notes and is payable semi-annually.

Debt Covenants and Other Matters

~~The Credit Facility contains~~Our credit facility in place as of July 3, 2009 contained various financial covenants, including ~~a total leverage ratio, an~~minimum levels of earnings before interest, taxes, depreciation and amortization (“EBITDA”), minimum interest and fixed charge coverage ~~ratio, limitations on~~ratios, and maximum capital expenditures and ~~certain limitations based upon eligible accounts receivable. The Credit Facility and the indenture pertaining~~total leverage ratio. Non-financial covenants restrict our ability to ~~the senior subordinated notes also contain covenants that restrict the ability of the Company and its subsidiaries to, among other things,~~ 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.~~

~~At January 2, 2009, we were in compliance~~affiliates; and otherwise restrict certain corporate activities. We had no instances of noncompliance with ~~the~~our various financial and non-financial covenants ~~contained in the Credit Facility and the indenture pertaining to the senior subordinated notes.~~at July 3, 2009.

OFF BALANCE SHEET ARRANGEMENTS

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

Any obligation under certain guarantee contracts;

A retained or contingent interest in assets transferred to ~~operating lease obligations~~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 ~~letters~~

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

As of July 3, 2009, we did not have any off balance sheet arrangements as defined above. We recognize all derivatives as either assets or liabilities at fair value in ~~accordance with GAAP. Our letters~~our consolidated balance sheets. Refer to Note 7 of ~~credit and lease obligations are described in Notes 5 and 6, respectively, in the notes to~~ our consolidated financial ~~statements.~~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 ~~condensed~~ 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 ~~2008~~2009 Annual Report on Form 10-K for the fiscal year ended ~~March 28, 2008,~~April 3, 2009, filed with the SEC on June ~~10, 2008.~~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 ~~March 28, 2008.~~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, ~~revenues~~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 ~~condensed~~ consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations.

ACCOUNTING DEVELOPMENTS

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

~~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 the Company’s 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. Statements regarding the amount of our backlog, estimated remaining contract values and estimated total contract values are other examples of forward-looking statements. Forward-looking statements involve risks and uncertainties. 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: our substantial level of indebtedness; government policies and changes thereto; termination of key U.S. government contracts; changes in the demand for services that we provide; pursuit of new commercial business and foreign government opportunities; activities of competitors; bid protests; changes in significant operating expenses; changes in availability of capital; general economic and business conditions in the 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; and other risks detailed from time to time in our reports filed with the 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.


ITEM 3.		~~ITEM 3.~~ QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~The inherent risk~~There have been no material changes in market risk ~~sensitive instruments~~from the information provided in Part II, Item 7A, “Quantitative and positions primarily relates to potential losses arising from adverse changes in interest rates and foreign currency exchange rates. For further discussion of market risks we may encounter, see “Risk Factors”Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~March 28, 2008,~~April 3, 2009, filed with the SEC on June ~~10, 2008.~~

~~Interest Rate Risk~~

We have interest rate risk relating to changes in interest rates on our variable rate debt. Our policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments. Borrowings under the Notes are at a fixed rate and represent the largest portion of our debt as of January 2,11, 2009. Borrowings under the senior secured credit facility bear interest at a rate per annum equal to, at our option, either (1) a base rate or (2) LIBOR, plus, in either case, an applicable margin determined by reference to the leverage ratio, as set forth in the senior secured credit agreement. The applicable margins for the base rate and LIBOR rate as of January 2, 2009 were 1.5% and 2.5% respectively. As of January 2, 2009, we had $615.9 million of indebtedness, including the Notes and excluding accrued interest thereon, of which $200.0 million was secured. On the same date, we had approximately $185.8 million available under our senior secured credit facility (which gives effect to $14.2 million of outstanding letters of credit). Each quarter point change in interest rates results in an approximately $0.5 million change in annual interest expense on the senior secured credit facility.

~~The table below provides information about our fixed rate and variable rate long-term debt as of January 2, 2009.~~

Expected Maturity as of
Fiscal Year
2009 2010 2011 2012 2013 Thereafter Total

Fixed rate $ — $ — $ — $ — $ 417,032 $ — $ 417,032
Variable rate — 16,875 50,625 55,500 77,000 — 200,000

Total debt — 16,875 50,625 55,500 494,032 — 617,032

The fair value of our term loan borrowings under the senior secured credit facility is approximately $200.0 million. The fair value of the Notes is approximately $362.8 million based on their quoted market value. The above table does not give effect to $28.6 million of outstanding letters of credit, $14.4 million of which were collateralized by restricted cash, or unamortized discount of $1.1 million on the Notes, in each case as of January 2, 2009.

During fiscal 2008, in order to mitigate interest rate risk related to our floating rate indebtedness, we entered into interest rate swap agreements with notional amounts totaling $275.0 million. The interest rate swaps effectively fixed the interest rate at 6.96%, including applicable margin of 2% at March 28, 2008, on the first $275.0 million of our floating rate debt. The interest rate on the notional amount of $75.0 million was effectively fixed through September 2008 and the interest rate on the remaining $200.0 million was effectively fixed through May 2010. We concluded that the interest rate swaps qualify as cash flow hedges under the provisions of SFAS No. 133, “~~Accounting for Derivative Instruments and Hedging Activities~~.”

~~Foreign Currency Exchange Rate Risk~~

We are exposed to changes in foreign currency rates. At present, we do not utilize any derivative instruments to manage risk associated with currency exchange rate fluctuations. The functional currency of certain foreign operations is the local currency. Accordingly, these foreign entities translate assets and liabilities from their local currencies to U.S. dollars using year-end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as accumulated other comprehensive (loss) income. Management has determined that our foreign currency transactions are not material.


ITEM 4.		~~ITEM 4.~~ CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

~~Our~~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 ~~Chief Executive Officer~~management, including the CEO and ~~our Chief Financial Officer, has evaluated~~CFO, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules ~~13a-15~~13a-15(e) and ~~15d-15 of~~15(d)-15(e) under the Exchange ~~Act). Based on that evaluation, our Chief Executive Officer~~Act of 1934), the CEO and ~~Chief Financial Officer~~CFO have concluded that ~~as of the end of the period covered by this report,~~ our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.are effective.

4134

(b) Changes in Internal Controls

There have been no changes in our internal controls over financial reporting that have occurred during the fiscal quarter ended ~~January 2,~~July 3, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

~~ITEM 1. LEGAL MATTERS~~
ITEM 1.
LEGAL PROCEEDINGS

Information related to various commitments and contingencies is described in Note 68 to the condensed consolidated financial statements.


ITEM 1A.		~~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 ~~March 28, 2008,~~April 3, 2009, filed with the SEC on June ~~10, 2008, except as follows:~~

~~Current or worsening economic conditions could impact our business.~~

Over the last several months, there has been a significant deterioration in the U.S. and global economy, which many economic observers expect to worsen and be prolonged. In addition, liquidity has contracted significantly and borrowing rates have increased. We believe that our industry and customer base are less likely to be affected by many of the factors affecting business and consumer spending generally. Accordingly, we believe that we continue to be well positioned in the current economic environment as a result of historic demand factors affecting our industry, the nature of our contracts and our sources of liquidity. However, we cannot assure you that the economic environment or other factors will not adversely impact our business, financial condition or results of operations in the future. In particular, if the Federal government, due to budgetary considerations, accelerates the expected reduction in combat troops from Iraq, fails to implement expected troop increases in Afghanistan, otherwise reduces the DoD Operations and Maintenance budget or reduces funding for DoS initiatives in which we participate, our business, financial condition and results of operations could be adversely affected.

Furthermore, although we believe that our current sources of liquidity will enable us to continue to perform under our existing contracts and further grow our business, we cannot assure you that will be the case. A longer term credit crisis could adversely affect our ability to obtain additional liquidity or refinance existing indebtedness on acceptable terms or at all, which could adversely affect our business, financial condition and results of operations.11, 2009.


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

~~None.~~Our board of directors has authorized us to repurchase up to $25.0 million per fiscal year of our outstanding common stock and/or senior subordinated notes during fiscal years 2009 and 2010. The securities may be repurchased from time to time in the open market or through privately negotiated transactions at our discretion, subject to market conditions, and in accordance with applicable federal and state securities laws and regulations. Shares of common stock repurchased under this plan will be held as treasury shares. As of July 3, 2009, a total of 748,100 shares have been repurchased under this authorization.

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

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

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

~~None.~~

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

~~None.~~

~~ITEM 5. OTHER INFORMATION~~

~~None.~~


(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.

4235


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

None.


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

None.


ITEM 5.		OTHER INFORMATION

None.


ITEM 6.		~~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
	10.1*			~~Employment Agreement effective as of December 29, 2008, between DynCorp International LLC and Tony Smeraglinolo.~~
	31.1*			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
	31.2*
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
	32.1*
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
	32.2*
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~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: February 10, 2009~~
~~/s/ MICHAEL J. THORNE~~	Date: August 5, 2009
~~Name:~~
	/s/ Michael J. Thorne
	Name:	Michael J. Thorne
	Title:	Senior Vice President and Chief Financial Officer

4336


	For the Nine Months Ended
	January 2, 2009			December 28, 2007

Revenue	$	2,288,272		$	1,566,853

Cost of services		(2,039,118	)		(1,358,062	)
Selling, general and administrative expenses		(80,350	)		(79,916	)
Depreciation and amortization expense		(30,594	)		(31,901	)

Operating income		138,210			96,974
Interest expense		(44,442	)		(42,247	)
Loss on early extinguishment of debt		(4,443	)		—
Earnings from affiliates		3,959			3,320
Interest income		1,751			2,202
Other income, net		809			(162	)

Income before income taxes		95,844			60,087
Provision for income taxes		(30,086	)		(21,916	)

Income before minority interest		65,758			38,171
Minority interest		(15,154	)		—

Net income	$	50,604		$	38,171

Basic earnings per share	$	0.89		$	0.67

Diluted earnings per share	$	0.88		$	0.67


	As of				Cash provided by/
(amounts in thousands)	January 2, 2009		March 28, 2008		(used in)

Type of restricted cash
Contract related	$	2,879	$	11,308	$	8,429
Required as collateral		15,160		—		(15,160	)


Total	$	18,039	$	11,308	$	(6,731	)


(Amounts in thousands)	ISS⁽¹⁾			LCM		MTSS		Total

Balance as of March 28, 2008	$	340,029		$	—	$	80,151	$	420,180
Transfer between reporting segments⁽²⁾		(39,935	)		39,935		—		—

Balance as of January 2, 2009	$	300,094		$	39,935	$	80,151	$	420,180


(Amounts in thousands)
Three months ending April 3, 2009	$	—
2010		16,875
2011		50,625
2012		55,500
2013		494,032
Thereafter		—

Total long-term debt (including current portion)⁽¹⁾	$	617,032


	Three Months Ended
	January 2,			December 28,
(Amounts in thousands)	2009			2007
Current portion:
Federal	$	(27,825	)	$	1,752
State		(1,397	)		222
Foreign		1,046			973

Total current portion of tax provision		(28,176	)		2,947


Deferred portion:
Federal		38,586			3,872
State		1,290			149
Foreign		(61	)		—

Total deferred portion of tax provision		39,815			4,021


Total income tax provision	$	11,639		$	6,968


	% Interest in			Grant Date
(Dollar amounts in thousands)	DIV Holding			Fair Value
Balance March 28, 2008		6.24	%	$	13,248
First Quarter Fiscal Year 2009 Grants		0.20	%		867
First Quarter Fiscal Year 2009 Forfeitures		(1.20	%)		(2,530	)

Balance July 4, 2008		5.24	%	$	11,585

Second Quarter Fiscal Year 2009 Grants		0.00	%		—
Second Quarter Fiscal Year 2009 Forfeitures		0.00	%		—

Balance October 3, 2008		5.24	%	$	11,585

Third Quarter Fiscal Year 2009 Grants		0.00	%		—
Third Quarter Fiscal Year 2009 Forfeitures		(0.01	%)		(73	)

Balance January 2, 2009		5.23	%	$	11,512


March 28, 2008 Vested		2.82	%	$	4,641
First Quarter Fiscal Year 2009 Vesting		0.12	%		520

July 4, 2008 Vested		2.94	%		5,161
Second Quarter Fiscal Year 2009 Vesting		0.05	%		73

October 3, 2008 Vested		2.99	%		5,234
Third Quarter Fiscal Year 2009 Vesting		0.34	%		1,282

January 2, 2009 Vested		3.33	%	$	6,516


March 28, 2008 Nonvested		3.42	%	$	8,607
January 2, 2009 Nonvested		1.90	%	$	4,996


Three month period ended April 3, 2009	$	369
Fiscal year ended April 2, 2010		1,139
Fiscal year ended April 1, 2011 and thereafter		566

Total	$	2,074


Three month period ended April 3, 2009	$	614
Fiscal year ended April 2, 2010		2,180
Fiscal year ended April 1, 2011 and thereafter		1,718

Total	$	4,512


	Expected Maturity as of
	Fiscal Year
	2009		2010		2011		2012		2013		Thereafter		Total

Fixed rate	$	—	$	—	$	—	$	—	$	417,032	$	—	$	417,032
Variable rate		—		16,875		50,625		55,500		77,000		—		200,000

Total debt		—		16,875		50,625		55,500		494,032		—		617,032


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