Document And Entity Information
v4.2.117.0
Document And Entity Information
9 Months Ended
Sep. 30, 2011
Nov. 14, 2011
Common Class A [Member]
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2011
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2011  
Entity Registrant Name Delta Tucker Holdings, Inc.  
Entity Central Index Key 0001514226  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   100

Condensed Consolidated Statements Of Operations
v4.2.117.0
Condensed Consolidated Statements Of Operations (USD $)
In Thousands
3 Months Ended 6 Months Ended 9 Months Ended 3 Months Ended 6 Months Ended
Sep. 30, 2011
Oct. 01, 2010
Oct. 01, 2010
Sep. 30, 2011
Jul. 02, 2010
Dyncorp International Inc. [Member]
Jul. 02, 2010
Dyncorp International Inc. [Member]
Revenue $ 935,393 $ 841,046 $ 841,046 $ 2,738,441 $ 944,713 $ 1,998,504
Cost of services (845,345) (759,026) (759,026) (2,500,412) (856,974) (1,830,793)
Selling, general and administrative expenses (47,644) (40,474) (40,474) (117,005) (38,513) (57,822)
Merger expenses incurred by Delta Tucker Holdings, Inc.     (51,722)      
Depreciation and amortization expense (12,255) (12,345) (12,345) (38,229) (10,263) (20,989)
Earnings from equity method investees 3,894 5,126 5,126 11,830    
Operating (loss) income (42,604) 34,327 (17,395) 17,978 38,963 88,900
Interest expense (22,836) (22,409) (22,409) (69,537) (12,585) (26,279)
Bridge commitment fee     (7,963)      
Loss on early extinguishment of debt       (2,397)   (1,426)
Loss on impairment of equity method investment (76,647)     (76,647)    
Interest income 29 280 280 168 51 84
Other income, net 685 462 462 4,792 658 2,445
(Loss) income before income taxes (64,726) 12,660 (47,025) (48,996) 27,087 65,150
Benefit (provision) for income taxes 23,878 (5,255) 9,344 17,787 (9,279) (21,946)
Net (loss) income (40,848) 7,405 (37,681) (31,209) 17,808 43,204
Noncontrolling interests (780) (554) (554) (2,185) (5,004) (10,932)
Net (loss) income attributable to Delta Tucker Holdings, Inc. $ (41,628) $ 6,851 $ (38,235) $ (33,394) $ 12,804 $ 32,272

Condensed Consolidated Balance Sheets
v4.2.117.0
Condensed Consolidated Balance Sheets (USD $)
In Thousands
Sep. 30, 2011
Dec. 31, 2010
ASSETS    
Cash and cash equivalents $ 85,458 $ 52,537
Restricted cash 14,847 9,342
Accounts receivable, net of allowances of $883 and $558, respectively 785,559 782,095
Prepaid expenses and other current assets 97,703 150,613
Total current assets 983,567 994,587
Property and equipment, net 23,958 26,497
Goodwill 679,371 679,371
Tradename, net 43,705 43,839
Other intangibles, net 321,802 355,129
Other assets, net 66,335 163,932
Total assets 2,118,738 2,263,355
LIABILITIES AND EQUITY    
Current portion of long-term debt 5,212 5,700
Accounts payable 276,824 297,821
Accrued payroll and employee costs 117,297 99,295
Deferred income taxes 96,509 90,726
Accrued liabilities 132,666 147,859
Income taxes payable 124 3,471
Total current liabilities 628,632 644,872
Long-term debt, less current portion 966,394 1,018,512
Long-term deferred taxes 10,105 36,900
Other long-term liabilities 28,933 45,745
Total liabilities 1,634,064 1,746,029
Commitments and contingencies    
Equity:    
Common stock, $0.01 par value - 1,000 shares authorized and 100 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively.    
Additional paid-in capital 550,831 550,492
Accumulated deficit (71,045) (37,659)
Accumulated other comprehensive income (loss) 142 142
Total equity attributable to Delta Tucker Holdings, Inc. 479,928 512,975
Noncontrolling interest 4,746 4,351
Total equity 484,674 517,326
Total liabilities and equity $ 2,118,738 $ 2,263,355

Condensed Consolidated Balance Sheets (Parenthetical)
v4.2.117.0
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data
Sep. 30, 2011
Dec. 31, 2010
Condensed Consolidated Balance Sheets [Abstract]    
Accounts receivable, allowances $ 883 $ 558
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 1,000 1,000
Common stock, shares issued 100 100
Common stock, shares outstanding 100 100

Condensed Consolidated Statement Of Cash Flows
v4.2.117.0
Condensed Consolidated Statement Of Cash Flows (USD $)
In Thousands
6 Months Ended 9 Months Ended 6 Months Ended
Oct. 01, 2010
Sep. 30, 2011
Jul. 02, 2010
Dyncorp International Inc. [Member]
Cash flows from operating activities      
Net (loss) income $ (37,681) $ (31,209) $ 43,204
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 12,582 39,486 21,366
Loss on early extinguishment of debt   2,397 1,426
Amortization of deferred loan costs 1,880 6,275 1,926
Allowance for losses on accounts receivable   958 69
Loss on impairment of equity method investment   (76,647)  
Excess tax benefits from equity based compensation     (55)
Earnings from equity method investees (5,885) (15,089) (2,051)
Distributions from affiliates 5,687 16,346 1,263
Deferred income taxes 109,830 (21,013) 13,016
Equity-based compensation     3,845
Other 552 (75)  
Changes in assets and liabilities:      
Restricted cash (1,778) (5,505) 16,307
Accounts receivable (88,044) (4,422) (63,658)
Prepaid expenses and other current assets (85,088) (13,327) (992)
Accounts payable and accrued liabilities 16,900 (35,723) 62,388
Income taxes receivable (1,499) 48,618  
Income taxes payable     (1,437)
Net cash provided by (used in) operating activities (72,544) 64,364 96,617
Cash flows from investing activities      
Merger consideration for shares (869,043)    
Cash paid for acquisitions, net of cash acquired     (4,984)
Purchase of property and equipment, net (3,801) (1,877) (3,314)
Proceeds from sale of property, plant, and equipment   44  
Purchase of software (1,389) (2,310) (6,161)
Deconsolidation of equity method investee (see Note 1) (938)    
Payments received from equity method investment on note receivable (see Note 1) 138,001    
Disbursements made to equity method investee on note receivable (see Note 1) (150,198)    
Return of capital from equity method investees   9,147  
Net cash provided by (used in) investing activities (887,368) 5,004 (14,459)
Cash flows from financing activities      
Borrowings on long-term debt 1,296,900 214,300 227,600
Payments on long-term debt (819,143) (266,906) (227,600)
Equity contribution from Affiliates of Cerberus 550,927    
Capital contribution from noncontrolling interest   500  
Payments of deferred financing cost (49,092) (3,282)  
Borrowings/Payments under other financing arrangements 5,445   (2,011)
Borrowing related to financed insurance   44,252  
Payments related to financed insurance (1,408) (24,166)  
Excess tax benefits from equity-based compensation     55
Payment of dividends to noncontrolling interest (788) (1,145) (11,435)
Net cash provided by (used in) financing activities 982,841 (36,447) (13,391)
Net increase in cash and cash equivalents 22,929 32,921 68,767
Cash and cash equivalents, beginning of period   52,537 67,082
Cash and cash equivalents, end of period 22,929 85,458 135,849
Income taxes received, net 597 44,745 8,278
Interest paid $ 9,589 $ 74,186 $ 24,902

Condensed Consolidated Statement Of Equity
v4.2.117.0
Condensed Consolidated Statement Of Equity (USD $)
In Thousands, except Share data
Parent Company [Member]
Additional Paid-In Capital [Member]
Parent Company [Member]
Retained Earnings (Accumulated Deficit) [Member]
Parent Company [Member]
Accumulated Other Comprehensive Income [Member]
Parent Company [Member]
Total Equity Attributable To Delta Tucker Holdings, Inc.
Parent Company [Member]
Noncontrolling Interest [Member]
Dyncorp International Inc. [Member]
Common Stock [Member]
Dyncorp International Inc. [Member]
Additional Paid-In Capital [Member]
Dyncorp International Inc. [Member]
Retained Earnings (Accumulated Deficit) [Member]
Dyncorp International Inc. [Member]
Treasury Shares [Member]
Dyncorp International Inc. [Member]
Accumulated Other Comprehensive Income [Member]
Dyncorp International Inc. [Member]
Total Equity Attributable To Delta Tucker Holdings, Inc.
Dyncorp International Inc. [Member]
Noncontrolling Interest [Member]
Dyncorp International Inc. [Member]
Total
Balance at Dec. 31, 2009           $ 570 $ 367,228 $ 200,240 $ (8,948) $ (2,090) $ 557,000 $ 6,325 $ 563,325  
Balance (shares) at Dec. 31, 2009           56,307                
Comprehensive income (loss):                            
Net (loss) income               43,204     43,204   43,204  
Interest rate swap, net of tax                   1,976 1,976   1,976  
Currency translation adjustment, net of tax                   (614) (614)   (614)  
Comprehensive income               43,204   1,362 44,566   44,566  
Noncontrolling interests               (10,932)     (10,932)   (10,932)  
Comprehensive income               32,272   1,362 33,634   33,634  
Net income and comprehensive income attributable to noncontrolling interests                       10,932 10,932  
DIFZ financing, net of tax             210       210   210  
Treasury shares issued to settle RSU liability, shares           1                
Treasury shares issued to settle RSU liability             126   251   377   377  
Equity-based compensation             141       141   141  
Tax benefit associated with equity-based compensation             55       55   55  
Dividends declared to noncontrolling interest                       (12,315) (12,315)  
Balance at Jul. 02, 2010           570 367,760 232,512 (8,697) (728) 591,417 4,942 596,359  
Balance, (shares) at Jul. 02, 2010           56,308                
Balance at Apr. 02, 2010                            
Comprehensive income (loss):                            
Net (loss) income                         17,808  
Noncontrolling interests                         (5,004)  
Balance at Jul. 02, 2010                         596,359  
Balance at Dec. 31, 2010 550,492 (37,659) 142 512,975 4,351                 517,326
Balance (shares) at Dec. 31, 2010                           100
Comprehensive income (loss):                            
Net (loss) income   (31,209)   (31,209)                   (31,209)
Comprehensive income   (31,209)   (31,209)                    
Noncontrolling interests   (2,185)   (2,185)                   (2,185)
Comprehensive income   (33,394)   (33,394)                    
Net income and comprehensive income attributable to noncontrolling interests         2,185                  
DIFZ issuance of shares to Palm         500                  
DIFZ financing, net of tax 339 8   347                    
Dividends declared to noncontrolling interest         (2,290)                  
Balance at Sep. 30, 2011 $ 550,831 $ (71,045) $ 142 $ 479,928 $ 4,746                 $ 484,674
Balance, (shares) at Sep. 30, 2011                           100

Basis Of Presentation And Accounting Policies
v4.2.117.0
Basis Of Presentation And Accounting Policies
9 Months Ended
Sep. 30, 2011
Basis Of Presentation And Accounting Policies [Abstract]  
Basis Of Presentation And Accounting Policies

Note 1 — Basis of Presentation and Accounting Policies

Basis of Presentation

We are a leading provider of specialized, mission-critical professional and support services for the U.S. military, non-military U.S. governmental agencies and foreign governments. Our specific global expertise is in law enforcement training and support, security services, base and logistics operations, intelligence training, rule of law development, construction management, platform services and operations, and linguist services. We also provide logistics support for all our services. Unless the context otherwise indicates, references herein to "we," "our," "us," or "the Company" refer to Delta Tucker Holdings, Inc. and our consolidated subsidiaries. Delta Tucker Holdings, Inc., through its subsidiaries (together, the Company), provides defense and technical services and government outsourced solutions primarily to U.S. government agencies domestically and internationally. Primary customers include the U.S. Department of Defense ("DoD") and U.S. Department of State ("DoS"), but also include other government agencies, foreign governments and commercial customers.

The Company was incorporated in the state of Delaware on April 1, 2010. On July 7, 2010, DynCorp International Inc. ("DynCorp International") completed a merger with Delta Tucker Sub, Inc., a wholly owned subsidiary of the Company. Pursuant to the Agreement and Plan of Merger dated as of April 11, 2010, Delta Tucker Sub, Inc. merged with and into DynCorp International, with DynCorp International becoming the surviving corporation and a wholly-owned subsidiary of the Company (the "Merger"). Holders of DynCorp International's stock received $17.55 in cash for each outstanding share and since Cerberus Capital Management, L.P. ("Cerberus") indirectly owns all of our outstanding equity, DynCorp International's stock is no longer publicly traded as of the Merger.

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

Certain information and footnote disclosures normally included in financial statements, prepared in accordance with GAAP, have been condensed or omitted pursuant to such rules and regulations. However, we believe that all disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the related notes thereto included in the Company's Registration Statement on Form S-4 (File No. 333-173746) (the "Registration Statement") which was declared effective by the SEC on June 21, 2011.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to fairly present our financial position at September 30, 2011 and December 31, 2010, the results of operations during the three and nine months ended September 30, 2011, and the three months ended October 1, 2010 and for the period from April 1, 2010 (Inception) through October 1, 2010, and cash flows during the nine months ended September 30, 2011 and for the period from April 1, 2010 (Inception) through October 1, 2010, have been included. The results of operations during the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full calendar year or for any future periods. We use estimates and assumptions required for preparation of the financial statements. The estimates are primarily based on historical experience and business knowledge and are revised as circumstances change. However, actual results could differ from the estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of both our domestic and foreign subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company has investments in joint ventures that are variable interest entities ("VIEs"). The VIE investments are accounted for in accordance with Financial Accounting Standards Board ("FASB") Codification ("ASC") 810 — Consolidation. In cases where the Company has (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant or the right to receive benefits from the entity that could potentially be significant to the VIE, the Company consolidates the entity. Alternatively, in cases where all of the aforementioned criteria are not met, the investment is accounted for under the equity method.

 

The Company classifies its equity method investees in two distinct groups based on management's day-to-day involvement in the operations of each entity and the nature of each joint venture's business. If the joint venture is deemed to be an extension of one of our Business Area Teams ("BATs") and operationally integral to the business, our share of the joint venture's earnings is reported within operating income in "Earnings from equity method investees" in the consolidated statement of operations. If the Company considers our involvement less significant, our share of the joint venture's net earnings is reported in "Other income, net" in the consolidated statement of operations.

Economic rights in active joint ventures that are operationally integral are indicated by the ownership percentages in the table listed below.

 

Global Linguist Solutions LLC

     51.0

Contingency Response Services LLC

     45.0

Global Response Services LLC

     51.0

Partnership for Temporary Housing LLC

     40.0

Economic rights in an active joint venture that the Company does not consider operationally integral are indicated by the ownership percentage in the table listed below.

 

Babcock DynCorp Limited

     44.0

Global Linguist Solutions Deconsolidation

We deconsolidated GLS effective July 7, 2010. We continued to consolidate GLS after the implementation of ASU 2009-17 through the date of the Merger based on the related party relationship between us and McNeil Technologies Inc. ("McNeil"), our GLS joint venture partner. Through the date of the Merger, our largest stockholder, Veritas Capital LP ("Veritas"), owned the majority of McNeil. This related party relationship ended on the date of Merger resulting in the deconsolidation of GLS on that date.

Noncontrolling interest

We record the impact of our partner's interest in less than wholly owned consolidated joint ventures as noncontrolling interest. Currently DynCorp International FZ-LLC ("DIFZ") is our only consolidated joint venture for which we do not own 100% of the entity. Noncontrolling interest is presented on the face of the statement of operations as an increase or reduction in arriving at "Net income attributable to Delta Tucker Holdings, Inc." Noncontrolling interest on the balance sheet is located in the equity section. See Note 10 of the Delta Tucker Holdings, Inc. financial statements for further information regarding DIFZ.

Accounting Policies

There have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in our Registration Statement for the period from April 1, 2010 (Inception) to December 31, 2010, except for the adoption of Financial Accounting Standards Update ("ASU") 2009-13 ("ASU 2009-13") — Revenue Recognition Multiple-Deliverable Revenue as discussed in "Accounting Developments" and "Other Contracts or Contract Elements" below.

Other Contracts or Contract Elements

Multiple-element arrangements involve multiple obligations in various combinations to perform services, deliver equipment or materials, grant licenses or other rights, or take certain actions. We evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting. For contracts in execution prior to January 1, 2011, arrangement consideration is allocated among the separate units of accounting based on their relative fair values. Fair values are established by evaluating vendor specific objective evidence ("VSOE") or third-party evidence if available. Due to the customized nature of our arrangements, VSOE and third-party evidence is generally not available, resulting in applicable arrangements being accounted for as one unit of accounting.

For non-U.S. government contracts executed or materially modified after January 1, 2011, arrangement consideration is allocated among the separate units of accounting based on their relative selling price. Relative selling price is established by evaluating VSOE, third-party evidence, or management's best estimate of selling price. Due to the customized nature of our arrangements, VSOE and third-party evidence is generally not available resulting in applicable arrangements being accounted for using management's best estimate of selling price to identify the applicable units of accounting.

Accounting Developments

Pronouncements Implemented

In October 2009, the FASB issued ASU No. 2009-13 — Revenue Recognition Multiple-Deliverable Revenue Arrangements. This update (i) removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, (ii) replaces references to "fair value" with "selling price" to distinguish from the fair value measurements required under the fair value measurements and disclosures guidance, (iii) provides a hierarchy that entities must use to estimate the selling price, (iv) eliminates the use of the residual method for allocation, and (v) expands the ongoing disclosure requirements. The impact of this ASU is limited to new or materially modified non-U.S. government contracts. The amendments in this update are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We adopted ASU No. 2009-13 as of January 1, 2011. The adoption of this ASU did not have a material effect on our consolidated financial position and results of operations.

In October 2009, the FASB issued ASU No. 2009-14 — Certain Revenue Arrangements That Include Software Elements, which updates ASC 985 — Software, and clarifies which accounting guidance should be used for purposes of measuring and allocating revenue for arrangements that contain both tangible products and software, and where the software is more than incidental, to the tangible product as a whole. The amendments in this update are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We adopted ASU No. 2009-14 as of January 1, 2011.The adoption of this ASU did not have a material effect on our consolidated financial position and results of operations.

Pronouncements Not Yet Implemented

On May 12, 2011, the FASB issued ASU No. 2011-04 — Fair Value Measurements. The ASU was issued as a joint effort by the FASB and International Accounting Standards Board ("IASB") to develop a single converged fair value framework. The ASU provides guidance on how and when to measure fair value and the required disclosures. There are few differences between the ASU and the international counterpart. While the ASU is largely consistent with existing fair value measurement principles under U.S. GAAP, it expands ASC 820's existing disclosure requirements for fair value measurements and makes other amendments. Many of these amendments are being made to eliminate unnecessary wording differences between U.S. GAAP and IFRS. However, some could change how the fair value measurement guidance in ASC 820 is applied. The ASU is effective for interim and annual periods beginning after December 15, 2011, for public entities. Management does not believe that the adoption of this ASU will have a material effect on our consolidated financial position and results of operations.

In June 2011, the FASB issued ASU No. 2011-05 — Presentation of Comprehensive Income. The ASU amends FASB Codification Topic 220, Comprehensive Income, to eliminate the option to present components of other comprehensive income ("OCI") as part of the statement of changes in stockholders' equity, require presentation of each component of net income and each component of OCI (and their respective totals) either in a single continuous statement or in two separate statements, and require presentation of reclassification adjustments on the face of the statement. The amendments do not change the option to present components of OCI either before or after related income tax effects; they do not change the items that must be reported in OCI, when an item of OCI should be reclassified to net income, or the computation of earnings per share. On October 21, 2011, the FASB decided to propose a deferral of the new requirement to present reclassifications of other comprehensive income on the face of the income statement. Companies would still be required to adopt the other requirements contained in the new accounting standard for the presentation of comprehensive income. The amendments made should be applied retrospectively and become effective for SEC registrants for fiscal years and interim periods beginning after December 15, 2011, with early adoption permitted. Management does not believe that the adoption of this ASU will have a material effect on our consolidated financial position and results of operations.

 

In September 2011, the FASB issued ASU No. 2011-09 — Disclosures about an Employer's Participation in a Multiemployer Plan, which amends FASB ASC 715-80, Compensation—Retirement Benefits—Multiemployer Plans, to call for additional disclosures about the commitments an employer has made to a multiemployer plan and the potential future cash flow implication of participation in such a plan. Specifically, the additional disclosures require information concerning (1) identification of the multiemployer plans in which an employer participates, (2) the level of employer participation, including the amount of contributions made, (3) the financial condition of the plans, and (4) the nature of an employer's commitments to the plans. Additional disclosures are required in respect of plans for which information is not publicly available from the plan's annual report filed with the Internal Revenue Service. The amendments to FASB ASC 715-80 do not alter existing recognition and measurement guidance, which require recognition as pension or other postretirement benefit cost of the required contribution to the plan and application of the provisions of FASB ASC Topic 450, Contingencies, if it is probable or reasonably possible that withdrawal from a plan could give rise to an obligation, or that the contribution to a plan would be increased to cover a shortfall in funds necessary to maintain the required level of benefit coverage. The revised disclosure requirements should be applied retrospectively for fiscal years ending after December 15, 2011, for public entities. Early application is permitted. Management does not believe that the adoption of this ASU will have a material effect on our consolidated financial position and results of operations.

On September 15, 2011, the FASB issued ASU No.2011-08, which gives entities Testing Goodwill for Impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. The ASU is effective for all entities for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. Management does not believe that the adoption of this ASU will have a material effect on our consolidated financial position and results of operations.


Significant Accounting Policies And Accounting Developments
v4.2.117.0
Significant Accounting Policies And Accounting Developments (Dyncorp International Inc. [Member])
6 Months Ended
Jul. 02, 2010
Dyncorp International Inc. [Member]
 
Significant Accounting Policies And Accounting Developments

Note 1 — Significant Accounting Policies and Accounting Developments

Unless the context otherwise indicates, references herein to "we," "our," "us" or "DynCorp International" refer to DynCorp International Inc. and our consolidated subsidiaries. DynCorp International Inc., through its subsidiaries (together, the "Company"), provides defense and technical services and government outsourced solutions primarily to United States ("U.S.") government agencies domestically and internationally. Primary customers include the U.S. Department of Defense ("DoD") and U.S. Department of State ("DoS"), but also include other government agencies, foreign governments and commercial customers.

These consolidated financial statements have been prepared, without audit, pursuant to accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Certain information and footnote disclosures normally included in financial statements, prepared in accordance with GAAP, have been condensed or omitted pursuant to such rules and regulations. However, we believe that all disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the related notes thereto included in the Registration Statement on Form S-4 (File No. 333-173746) (the "Registration Statement") which was declared effective by the SEC on June 21, 2011.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to fairly present the results of operations during the three and six months ended July 2, 2010 and the cash flows for the six months ended July 2, 2010, have been included. The results of operations during the three and six months ended July 2, 2010 are not necessarily indicative of the results to be expected for the full fiscal year or for any future periods. We use estimates and assumptions required for preparation of the financial statements. The estimates are primarily based on historical experience and business knowledge and are revised as circumstances change. However, actual results could differ from the estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of both our domestic and foreign subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company has investments in joint ventures that are variable interest entities ("VIEs"). The VIE investments are accounted for in accordance with Financial Accounting Standards Board Codification ("ASC") ASC 810 — Consolidation. In cases where the Company has (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant or the right to receive benefits from the entity that could potentially be significant to the VIE, the Company consolidates the entity. Alternatively, in cases where all of the aforementioned criteria are not met, the investment is accounted for under the equity method.

We have ownership interests in three active joint ventures that are not consolidated into our financial statements as of July 2, 2010, and are accounted for using the equity method. Economic rights in active joint ventures are indicated by the ownership percentages in the table listed below.

 

         

Babcock DynCorp Limited

     44.0

Partnership for Temporary Housing LLC

     40.0

Contingency Response Services LLC

     45.0

The following table sets forth our ownership in joint ventures that are consolidated into our financial statements as of July 2, 2010. For the entities listed below, we are the primary beneficiary as defined in ASC 810 — Consolidation.

 

         

Global Linguist Solutions, LLC

     51.0

DynCorp International FZ-LLC

     50.0

 

Noncontrolling interests

We record the impact of our consolidated joint venture partners' interests as noncontrolling interests. Noncontrolling interests is presented on the face of the income statement as an increase or reduction in arriving at Net Income attributable to DynCorp International, Inc. Noncontrolling interests on the balance sheet is located in the equity section.

Accounting Policies

There have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in our Registration Statement.

Accounting Developments

Pronouncements Implemented

In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards No. 167-Amendments to FASB Interpretation 46(R) ("SFAS No. 167"). SFAS No. 167 was converted to Financial Accounting Standards Update 2009-17 and was incorporated into Financial Accounting Standards Codification 810 — Consolidation. This statement amends the guidance for (i) determining whether an entity is a VIE, (ii) determining the primary beneficiary of a VIE, (iii) requiring ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE and (iv) changing the disclosure requirements formerly listed in FASB Interpretation 46(R)-8. This statement was effective for us beginning April 3, 2010. The adoption of this statement did not impact our consolidation conclusions during the six months ended July 2, 2010. However, as a result of the Merger on July 7, 2010, we deconsolidated Global Linguist Solutions effective July 7, 2010 in accordance with ASU 2009-17. See Note 1 to Delta Tucker Holdings', Inc. Registration Statement for the period from April 1, 2010 (Inception) to December 31, 2010, for additional discussion on this matter.

Pronouncements Not Yet Implemented

In October 2009, the FASB issued ASU No. 2009-13—Revenue Recognition Multiple-Deliverable Revenue Arrangements ("ASU 2009-13"). This update (i) removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, (ii) replaces references to "fair value" with "selling price" to distinguish from the fair value measurements required under the fair value measurements and disclosures guidance, (iii) provides a hierarchy that entities must use to estimate the selling price, (iv) eliminates the use of the residual method for allocation, and (v) expands the ongoing disclosure requirements. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Management does not believe that adoption of this ASU will have a material effect on our consolidated financial position and results of operations.

In October 2009, the FASB issued ASU No. 2009-14—Certain Revenue Arrangements That Include Software Elements ("ASU 2009-14"), which updates ASC Topic 985—Software. ASU 2009-14 clarifies which accounting guidance should be used for purposes of measuring and allocating revenue for arrangements that contain both tangible products and software, and where the software is more than incidental to the tangible product as a whole. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Management does not believe that adoption of this ASU will have a material effect on our consolidated financial position and results of operations.

In April 2010, the FASB issued ASU No. 2010-17—Milestone Method of Revenue Recognition—a consensus of the FASB Emerging Issues Task Force ("ASU-2010-17"), which amends Topic 605—Revenue Recognition. This ASU establishes authoritative guidance permitting the use of the milestone method of revenue recognition for research or development arrangements that contain payment provisions or consideration contingent on the achievement of specified events. This guidance is effective for milestones achieved in fiscal years beginning on or after June 15, 2010 and allows for either prospective or retrospective application, with early adoption permitted. Management does not believe that adoption of this ASU will have a material effect on our consolidated financial position and results of operations. 


Goodwill And Other Intangible Assets
v4.2.117.0
Goodwill And Other Intangible Assets
9 Months Ended 6 Months Ended
Sep. 30, 2011
Parent Company [Member]
Jul. 02, 2010
Dyncorp International Inc. [Member]
Goodwill And Other Intangible Assets

Note 2 — Goodwill and other Intangible Assets

The following table provides information about our goodwill balances for our three segments, Global Stabilization and Development Solutions ("GSDS"), Global Platform Support Solutions ("GPSS") and Global Linguist Solutions LLC ("GLS"):

 

      000,00       000,00       000,00       000,00  
(Amounts in thousands)    GSDS      GPSS      GLS      Total  

Goodwill balance as of December 31, 2010

   $ 119,386       $ 559,985       $ —         $ 679,371   
    

 

 

    

 

 

    

 

 

    

 

 

 

Goodwill balance as of September 30, 2011

   $ 119,386       $ 559,985       $ —         $ 679,371   
    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

                                 
     As Of September 30, 2011  
(Amounts in thousands, except years)    Weighted
Average
Remaining
Useful Life
(Years)
     Gross
Carrying
Value
     Accumulated
Amortization
    Net  

Other intangible assets:

                                  

Customer-related intangible assets

     7.8       $ 350,912       $ (49,550   $ 301,362   

Other

     5.1         30,116         (9,676     20,440   
             

 

 

    

 

 

   

 

 

 

Total other intangibles

            $ 381,028       $ (59,226   $ 321,802   
             

 

 

    

 

 

   

 

 

 

Tradenames:

                                  

Finite-lived

     3.6       $ 869       $ (222   $ 647   

Indefinite-lived

              43,058         —          43,058   
             

 

 

    

 

 

   

 

 

 

Total tradenames

            $ 43,927       $ (222   $ 43,705   
             

 

 

    

 

 

   

 

 

 

 

                                 
     As Of December 31, 2010  
(Amounts in thousands, except years)    Weighted
Average
Remaining
Useful Life
(Years)
     Gross
Carrying
Value
     Accumulated
Amortization
    Net  

Other intangible assets:

                                  
         

Customer-related intangible assets

     9.2       $ 350,913       $ (20,003   $ 330,910   

Other

     6.1         28,093         (3,874     24,219   
             

 

 

    

 

 

   

 

 

 

Total other intangibles

            $ 379,006       $ (23,877   $ 355,129   
             

 

 

    

 

 

   

 

 

 

Tradenames::

                                  

Finite-lived

     4.8       $ 869       $ (88   $ 781   

Indefinite-lived

              43,058         —          43,058   
             

 

 

    

 

 

   

 

 

 

Total tradenames

            $ 43,927       $ (88   $ 43,839   
             

 

 

    

 

 

   

 

 

 

Amortization expense for customer-related intangibles, other intangibles, and finite-lived tradenames was $11.4 million and $35.5 million during the three and nine months ended September 30, 2011, respectively. Amortization expense for customer-related intangibles, other intangibles, and finite-lived tradenames was $11.5 million and $11.5 million during the three months ended October 1, 2010 and for the period from April 1, 2010 (Inception) through October 1, 2010, respectively.

The following table outlines an estimate of future amortization based upon the finite-lived intangible assets owned as of September 30, 2011:

 

         
(Amounts in thousands)    Amortization Expense  (1)  

Estimate for three month period ended December 30, 2011

   $ 11,435   

Estimate for calendar year 2012

     45,217   

Estimate for calendar year 2013

     43,535   

Estimate for calendar year 2014

     42,894   

Estimate for calendar year 2015

     41,198   

Thereafter

   $ 138,170   

 

(1) The future amortization is inclusive of the finite-lived intangible-assets and finite-lived tradenames.

 

Note 2 — Goodwill and other Intangible Assets

We evaluate goodwill for impairment annually and when an event occurs or circumstances change to suggest that the carrying value may not be recoverable.

Amortization expense for customer-related intangibles, other intangibles, and finite-lived tradename was $9.5 million and $19.6 million during the three and six months ended July 2, 2010.


Composition Of Certain Financial Statement Captions
v4.2.117.0
Composition Of Certain Financial Statement Captions
9 Months Ended
Sep. 30, 2011
Composition Of Certain Financial Statement Captions [Abstract]  
Composition Of Certain Financial Statement Captions

Note 3 — Composition of Certain Financial Statement Captions

The following tables present financial information of certain consolidated balance sheet captions.

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

 

     As Of  
(Amounts in thousands)    September 30, 2011      December 31, 2010  

Prepaid expenses

   $ 45,672       $ 34,801   

Prepaid income taxes

     4,070         54,927   

Inventories

     8,250         11,034   

Assets held for sale

     11,084         10,485   

Work-in-process

     3,346         5,132   

Joint venture receivables

     9,640         5,005   

Favorable contracts

     8,266         23,096   

Other current assets

     7,375         6,133   
  

 

 

    

 

 

 

Total prepaid expenses and other current assets

   $ 97,703       $ 150,613   
  

 

 

    

 

 

 

Prepaid expenses include prepaid insurance, prepaid vendor deposits, and prepaid rent, none of which individually exceed 5% of current assets. Prepaid income taxes represent refunds expected through the remainder of the year related to our change in accounting method for taxes. We value our inventory at lower of cost or market. Assets held for sale is made up of seven helicopters, valued at $8.1 million, that are not deployed on existing programs as of September 30, 2011, and aircraft parts inventory related to the loss of the Life Cycle Support Services ("LCCS") Navy contract.

As of December 31, 2010, we had 15 helicopters, of which six were included in Property and equipment, net and nine were included in Prepaid expenses and other current assets as assets held for sale. In March 2011, we entered into an agreement to sell two of the 15 helicopters. We sold the two helicopters in the second quarter of calendar year 2011.

Property and equipment, net — Property and equipment, net were:

 

     As Of  
(Amounts in thousands)    September 30, 2011     December 31, 2010  

Helicopters

   $ 8,087      $ 8,087   

Computers and other equipment

     9,775        9,119   

Leasehold improvements

     7,605        6,953   

Office furniture and fixtures

     4,738        4,598   
  

 

 

   

 

 

 

Gross property and equipment

     30,205        28,757   

Less accumulated depreciation

     (6,247     (2,260
  

 

 

   

 

 

 

Total property and equipment, net

   $ 23,958      $ 26,497   
  

 

 

   

 

 

 

Depreciation expense was $1.3 million and $4.0 million during the three and nine months ended September 30, 2011, respectively, including certain depreciation amounts classified as Cost of services. Depreciation expense was $1.1 million and $1.1 million during the three months ended October 1, 2010 and for the period from April 1, 2010 (Inception) through October 1, 2010, respectively, including certain depreciation amounts classified as Cost of services. The six helicopters that are included with Property and equipment were placed in service in January 2011.

Other assets, net — Other assets, net were:

 

     As Of  
(Amounts in thousands)    September 30, 2011      December 31, 2010  

Deferred financing costs, net

   $ 39,689       $ 45,080   

Investment in affiliates

     19,058         107,217   

Palm promissory notes, long-term portion

     5,180         5,482   

Phoenix retention asset

     —           3,128   

Other

     2,408         3,025   
  

 

 

    

 

 

 

Total other assets

   $ 66,335       $ 163,932   
  

 

 

    

 

 

 

 

Deferred financing cost is amortized through interest expense. Amortization related to deferred financing costs was $2.1 million and $6.3 million during the three and nine months ended September 30, 2011, respectively. Amortization related to deferred financing costs was $2.0 million and $2.0 million during the three months ended October 1, 2010 and for the period from April 1, 2010 (Inception) through October 1, 2010, respectively. Deferred financing costs were reduced during the nine months ended September 30, 2011 by $2.4 million related to the pro rata write–off of financing costs to loss on early extinguishment of debt as a result of the $48.6 million prepayment on the term loan. As a result of the acceleration of the retention bonus expense resulting from the restructurings of the Phoenix entity in the first quarter, the Phoenix retention asset was reduced to zero during the nine months ended September 30, 2011. Investment in affiliates was reduced during the nine months ended September 30, 2011 by a $1.5 million and by a $7.7 million return of capital from the Contingency Response Services LLC ("CRS") joint venture and the GLS joint venture, respectively.

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

 

     As Of  
(Amounts in thousands)    September 30, 2011      December 31, 2010  

Wages, compensation and other benefits

   $ 91,595       $ 77,713   

Accrued vacation

     24,723         20,608   

Accrued contributions to employee benefit plans

     979         974   
  

 

 

    

 

 

 

Total accrued payroll and employee costs

   $ 117,297       $ 99,295   
  

 

 

    

 

 

 

Other accrued liabilities — Accrued liabilities were:

 

     As Of  
(Amounts in thousands)    September 30, 2011      December 31, 2010  

Deferred revenue

   $ 5,250       $ 8,179   

Insurance expense

     36,057         22,342   

Interest expense

     12,447         23,380   

Unfavorable contract liability

     7,142         14,653   

Contract losses

     14,399         21,451   

Legal matters

     4,222         17,403   

Subcontractor retention

     6,489         14,574   

Financed insurance

     29,974         9,888   

Other

     16,686         15,989   
  

 

 

    

 

 

 

Total other accrued liabilities

   $ 132,666       $ 147,859   
  

 

 

    

 

 

 

The Company recorded $40.5 million during the quarter related to finance insurance as the renewal policy ended in June 2011. Deferred revenue is primarily due to payments in excess of revenue recognized. Contract losses relate to accrued losses recorded on certain contracts.

Other liabilities — Other long-term liabilities were:

 

     As Of  
(Amounts in thousands)    September 30, 2011      December 31, 2010  

Unfavorable contract liability

   $ 8,205       $ 19,418   

Unrecognized tax benefit

     2,614         3,098   

Unfavorable lease accrual

     5,361         6,963   

Long-term contract loss

     9,232         11,143   

Other

     3,521         5,123   
  

 

 

    

 

 

 

Total other liabilities

   $ 28,933       $ 45,745   
  

 

 

    

 

 

 

 


Income Taxes
v4.2.117.0
Income Taxes
9 Months Ended 6 Months Ended
Sep. 30, 2011
Jul. 02, 2010
Dyncorp International Inc. [Member]
Income Taxes

Note 4 — Income Taxes

The provision for income taxes consists of the following:

 

(Amounts in thousands)   

Three Months

Ended

September 30, 2011

   

Three Months

Ended

October 1, 2010

   

Nine Months

Ended

September 30, 2011

   

For The Period
From

April 1, 2010
(Inception)

Through

October 1, 2010

 

Current portion:

        

Federal

   $ (461   $ (98,969   $ (461   $ (112,907

State

     166        (4,066     522        (4,727

Foreign

     615        678        2,094        678   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 320      $ (102,357   $ 2,155      $ (116,956
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred portion:

        

Federal

   $ (23,531   $ 104,715      $ (19,339   $ 104,715   

State

     (656     2,918        (539     2,918   

Foreign

     (11     (21     (64     (21
  

 

 

   

 

 

   

 

 

   

 

 

 
     (24,198     107,612        (19,942     107,612   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

   $ (23,878   $ 5,255      $ (17,787   $ (9,344
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets and liabilities are reported as:

 

(Amounts in thousands)    As Of  
   September 30, 2011     December 31, 2010  

Current deferred tax liabilities

   $ (96,509   $ (90,726

Non-current deferred tax liabilities

     (10,105     (36,900
  

 

 

   

 

 

 

Deferred tax liabilities, net

   $ (106,614   $ (127,626
  

 

 

   

 

 

 

A reconciliation of the statutory federal income tax rate to our effective rate is provided below:

 

     Three Months
Ended
September 30, 2011
    Nine Months
Ended
September 30, 2011
    Three Months
Ended
October 1, 2010
    For The Period  From
April 1, 2010
(Inception)

Through
October 1, 2010
 

Statutory rate

     35.0     35.0     35.0     35.0

State income tax, less effect of federal deduction

     0.8     0.3     1.9     0.5

Noncontrolling interests

     1.0     2.1     —          0.0

Acquisition cost

     —          —          2.0     (7.2 %) 

Uncertain tax positions

     —          —          —          (7.7 %) 

Other

     0.1     (1.1 %)      2.6     (0.7 %) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

     36.9     36.3     41.5     19.9
  

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2011, we had U.S. federal and state net operating losses of approximately $107.7 and $263.4 million. As of December 31, 2010 we had approximately $94.3 million and $250.5 million in U.S. federal and state net operating losses. Our federal net operating losses will begin to expire in 2030, and our state net operating losses will begin to expire in 2015. Approximately $1.4 million of the state net operating loss expires in 2015. The remainder will not begin to expire until 2020 or later. Additionally, at September 30, 2011, we had foreign tax credit carry forwards of approximately $19.2 million that will begin to expire in 2017. We expect to fully utilize our federal and state net operating losses as well as our foreign tax credit carry forwards prior to their expiration.

 

In evaluating our need for a valuation allowance on deferred taxes, including net operating loss and foreign tax credit carry forwards, we assessed such factors as the scheduled reversal of deferred tax liabilities, including the impact of available carry back and carry forward periods, projected future taxable income and available tax planning strategies. Based on this assessment, we concluded that no valuation allowance was necessary as of September 30, 2011.

As of September 30, 2011 and December 31, 2010, we had $12.4 million and $12.9 million of total unrecognized tax benefits, respectively, of which $2.6 million and $3.1 million, respectively, was recorded as a liability with the remaining recorded as an offset to the net operating loss deferred tax asset. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of September 30, 2011 and December 31, 2010, was $6.1 million and $6.6 million, respectively. It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, we do not expect the change to have a material impact on the results of operations or our financial position.

Note 3 — Income Taxes

The provision for income taxes consists of the following:

 

(Amounts in thousands)   

Three

Months Ended

July 2, 2010

   

Six

Months Ended

July 2, 2010

 

Current portion:

    

Federal

   $ (138   $ 7,446   

State

     278        477   

Foreign

     494        990   
  

 

 

   

 

 

 
     634        8,913   

Deferred portion:

    

Federal

     8,421        12,790   

State

     218        235   

Foreign

     6        8   
  

 

 

   

 

 

 
     8,645        13,033   
  

 

 

   

 

 

 

Provision for income taxes

   $ 9,279      $ 21,946   
  

 

 

   

 

 

 

A reconciliation of the statutory federal income tax rate to our effective rate is provided below:

 

     Three Months
Ended July 2,
2010
    Six Months
Ended July 2,
2010
 

Statutory rate

     35.0     35.0

State income tax, less effect of federal deduction

     1.4     0.9

Noncontrolling interests

     (6.0 )%      (5.7 )% 

Other

     3.9     3.5
  

 

 

   

 

 

 

Effective tax rate

     34.3     33.7
  

 

 

   

 

 

 

As of July 2, 2010, we have $1.9 million of total unrecognized tax benefits. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.6 million for July 2, 2010.

It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, we do not expect the change to have a significant impact on our results of operations or our financial position.

We recognize interest accrued related to uncertain tax positions in interest expense and penalties in income tax expense in our unaudited consolidated statement of operations.

We file income tax returns in U.S. federal and state jurisdictions and in various foreign jurisdictions. The statute of limitations is open for U.S. federal income tax returns for our fiscal year 2008 and forward. The statute of limitations for state income tax returns is open for our fiscal year 2006 and forward, with few exceptions, and foreign income tax examinations for the calendar year 2007 and forward.

 


Accounts Receivable
v4.2.117.0
Accounts Receivable
9 Months Ended
Sep. 30, 2011
Accounts Receivable [Abstract]  
Accounts Receivable

Note 5 — Accounts Receivable

Accounts receivable, net consisted of the following:

 

     As Of  
(Amounts in thousands)    September 30, 2011      December 31, 2010  

Billed

   $ 287,380       $ 298,804   

Unbilled

     498,179         483,291   
  

 

 

    

 

 

 

Total accounts receivable

   $ 785,559       $ 782,095   
  

 

 

    

 

 

 

Unbilled receivables as of September 30, 2011 and December 31, 2010 include $22.5 million and $31.3 million, respectively, related to costs incurred on projects for which 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 respective periods. There were no contract claims included in the amount as of September 30, 2011. Contract claims as of December 31, 2010 were $0.1 million. The balance of unbilled receivables consists of costs and fees billable immediately, upon contract completion or other specified events. All of the unbilled receivables are expected to be billed and collected within one year, except items that may result in a request for equitable adjustment or a formal claim.


Equity
v4.2.117.0
Equity (Dyncorp International Inc. [Member])
6 Months Ended
Jul. 02, 2010
Dyncorp International Inc. [Member]
 
Equity

Note 5 — Equity

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss included only unrealized foreign currency losses as of July 2, 2010. The balance in accumulated other comprehensive loss related to unrealized foreign currency losses, net of tax, was $0.7 million as of July 2, 2010.

 


Fair Value Of Financial Assets And Liabilities
v4.2.117.0
Fair Value Of Financial Assets And Liabilities
9 Months Ended 6 Months Ended
Sep. 30, 2011
Parent Company [Member]
Jul. 02, 2010
Dyncorp International Inc. [Member]
Fair Value Of Financial Assets And Liabilities

Note 6—Fair Value of Financial Assets and Liabilities

ASC 820 – Fair Value Measurements and Disclosures 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 September 30, 2011, we measured cash equivalents, including restricted cash, at fair value on a recurring basis. 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. This asset is categorized as a Level 1 input as required by ASC 820.

 

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, and borrowings. The fair values of cash and cash equivalents, accounts and notes receivable, accounts payable and current portion of long-term debt approximated carrying values because of the short-term nature of these instruments. Our estimate of fair values for our long-term debt is based on third-party quoted market price.

 

                                 
     September 30, 2011      December 31, 2010  

(Amounts in thousands)

   Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

10.375% senior unsecured notes

   $ 455,000       $ 396,988       $ 455,000       $ 464,555   

Senior secured credit facility

     510,757         500,542         562,875         567,378   

9.5% senior subordinated notes

     637         616         637         637   
    

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 966,394       $ 898,146       $ 1,018,512       $ 1,032,570   

Note 10 — Fair Value of Financial Assets and Liabilities

ASC 820 – Fair Value Measurements and Disclosures 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.

The table below provides reconciliation between the beginning and ending balance of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) during the six months ended July 2, 2010.

 

(Amounts in thousands)       

Beginning balance at January 1, 2010

   $ 2,778   

Contingent earn-out consideration and compensation

     —     

Total gains included in earnings

     (1,548

Transfers in and/or out of Level 3

     —     
  

 

 

 

Ending balance at July 2, 2010

   $ 1,230   
  

 

 

 

Interest Rate Derivatives
v4.2.117.0
Interest Rate Derivatives (Dyncorp International Inc. [Member])
6 Months Ended
Jul. 02, 2010
Dyncorp International Inc. [Member]
 
Interest Rate Derivatives

Note 6 — Interest Rate Derivatives

As of July 2, 2010, there were no derivative instruments the two interest rate swap agreements expired in May 2010.

 

Date Entered

   Notional
Amount
     Fixed
Interest
Rate Paid*
    Variable
Interest Rate
Received
     Expiration
Date
 
     (Amounts in thousands)  

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 (2.25% as of July 2, 2010).

During the three months ended July 2, 2010, we had no activity associated with derivatives. During the three and six months ended July 2, 2010, we paid $1.6 million and $4.0 million in net settlements and incurred $1.1 million and $3.1 million of expenses, which was recorded to interest expense.


Equity-Based Compensation
v4.2.117.0
Equity-Based Compensation (Dyncorp International Inc. [Member])
6 Months Ended
Jul. 02, 2010
Dyncorp International Inc. [Member]
 
Equity-Based Compensation

Note 7 — Equity-Based Compensation

In accordance with ASC 718 — Compensation-Stock Compensation, we recognized compensation expense related to Restricted Stock Units ("RSUs") on a graded schedule over the requisite service period, net of estimated forfeitures. Under this method, we recorded equity-based compensation expense of $3.5 million and $3.9 million during the three and six months ended July 2, 2010. As of July 2, 2010, we had provided equity-based compensation through the granting of Class B interests in DIV Holding LLC, and the granting of RSUs under our 2007 Omnibus Incentive Plan (the "2007 Plan").

Class B Equity

During the three and six months ended July 2, 2010, we had no new grants or forfeiture events. Consequently, the three months and six ended July 2, 2010 expense recognized for Class B activity was the result of the quarterly amortization from the graded vesting schedule.

A summary of Class B activity during the three months ended July 2, 2010 is as follows:

 

     % Interest in
DIV Holding
    Grant Date
Fair Value
 
           (Amounts in thousands)  

Balance January 1, 2010

     4.6   $ 9,315   

Grants

     0.0     —     

Forfeitures

     0.0     —     
  

 

 

   

 

 

 

Balance April 2, 2010

     4.6   $ 9,315   

Grants

     0.0     —     

Forfeitures

     0.0     —     
  

 

 

   

 

 

 

Balance July 2, 2010

     4.6   $ 9,315   

January 1, 2010 vested

     4.0   $ 7,899   

Vesting

     0.3     348   
  

 

 

   

 

 

 

April 2, 2010 vested

     4.3   $ 8,247   

Vesting

     0.0     173   

July 2, 2010 vested

     4.3   $ 8,420   

July 2, 2010 nonvested

     0.3   $ 895   
  

 

 

   

 

 

 

In connection with the Merger on July 7, 2010, all Class B interests vested.

 

2007 Omnibus Equity Incentive Plan

In August 2007, our stockholders approved the adoption of the 2007 Omnibus Equity Incentive Plan. The 2007 Plan provided for the grant of stock options, stock appreciation rights, restricted stock and other share-based awards. Our employees, employees of our subsidiaries and non-employee members of the Board were eligible to be selected to participate in the 2007 Plan at the discretion of the Compensation Committee.

During the six months ended July 2, 2010, 207,309 shares were granted, 200,001 were service-based RSUs and 7,308 were performance-based RSUs, to certain key employees. The performance based RSU awards were tied to our financial performance, specifically fiscal year 2011 EBITDA (earnings before interest, taxes, depreciation and amortization), and cliff vest upon achievement of this target. The payouts were scaled based on actual performance results with a potential payout range of 50% to 150%. 14,706 service-based RSUs were granted to Board members during six months ended July 2, 2010. 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 our common stock and may be settled in cash or shares of our common stock at the discretion of the Compensation Committee of the Board. As of July 2, 2010, 17,395 units were vested but unsettled.

The estimated fair value of the RSUs granted, net of forfeitures, was approximately $16.7 million as of July 2, 2010 based on the closing market price of our stock on the grant date.

 

     Outstanding
RSUs
    Weighted
Average
Grant Date
Fair Value
 

Outstanding, January 1, 2010

     799,625      $ 16.85   

Units granted

     16,106      $ 11.64   

Units forfeited

     (26,133   $ 16.49   

Units vested and settled

     (7,200   $ 17.24   
  

 

 

   

 

 

 

Outstanding, April 2, 2010

     782,398      $ 16.75   
  

 

 

   

 

 

 

Units granted

     207,309      $ 16.95   
  

 

 

   

 

 

 

Units forfeited

     —          —     
  

 

 

   

 

 

 

Units vested and settled

     (37,500   $ 15.74   
  

 

 

   

 

 

 

Outstanding, July 2, 2010

     952,207      $ 16.83   
  

 

 

   

 

 

 

In connection with the Merger, all RSUs held by our directors and employees vested on July 7, 2010 and were settled in cash. These settlements were made net of payroll tax withholding.


Long-Term Debt
v4.2.117.0
Long-Term Debt
9 Months Ended
Sep. 30, 2011
Long-Term Debt [Abstract]  
Long-Term Debt

Note 7 — Long-Term Debt

Long-term debt consisted of the following:

 

     As of  
(Amounts in thousands)    September 30, 2011     December 31, 2010  

9.5% Senior subordinated notes

   $ 637      $ 637   

Term loan

     515,969        568,575   

10.375% Senior unsecured notes

     455,000        455,000   

Outstanding revolver borrowings

     —          —     
  

 

 

   

 

 

 

Total indebtedness

     971,606        1,024,212   

Less current portion of long-term debt

     (5,212     (5,700
  

 

 

   

 

 

 

Total long-term debt

   $ 966,394      $ 1,018,512   

The current portion of long-term debt as of September 30, 2011 and December 31, 2010 was $5.2 million and $5.7 million, respectively, which is comprised of quarterly principal payments of $1.3 million and $1.4 million, respectively. Quarterly principal payments reflect an adjustment for a pre-payment of $48.6 million on the term loan made in March 2011.

Senior Credit Facility

We entered into a senior secured credit facility on July 7, 2010 (the "Senior Credit Facility"), with a banking syndicate and Bank of America, NA as Agent, and amended the Senior Credit Facility on August 10, 2011. The description below reflects the Senior Credit Facility, as amended.

Our Senior Credit Facility is secured by substantially all of our assets and is guaranteed by substantially all of our subsidiaries. It provides for a six year, $570 million term loan facility ("Term Loan") and a four year, $150 million revolving credit facility ("Revolver"), including a $100 million letter of credit subfacility. As of September 30, 2011 and December 31, 2010, the additional available borrowing capacity under the Senior Credit Facility was approximately $109.4 million and $109.0 million, respectively, which gives effect to $40.6 million and $41.0 million, respectively, in letters of credit. The maturity date on the Term Loan is July 7, 2016 and the maturity date on the Revolver is July 7, 2014. Amounts borrowed under our Revolver are used to fund operations. During the three months ended September 30, 2011, we had no Revolver borrowings.

Interest Rates on Term Loan & Revolver

Both the Term Loan and Revolver bear interest at one of two options, based on our election, using either the (i) base rate ("Base Rate") as defined in the Senior Credit Facility plus an applicable margin or the (ii) London Interbank Offered Rate ("Eurocurrency Rate") as defined in the Senior Credit Facility plus an applicable margin. The applicable margin for the Term Loan is fixed at 3.5% for the Base Rate option and 4.5% for the Eurocurrency Rate option. The applicable margin for the Revolver ranges from 3.0% to 3.5% for the Base Rate option or 4.0% to 4.5% for the Eurocurrency Rate option based on our outstanding Secured Leverage Ratio at the end of the quarter. The Secured Leverage Ratio is calculated by the ratio of total secured consolidated debt (net of up to $50 million of unrestricted cash and cash equivalents) to consolidated earnings before interest, taxes, and depreciation & amortization ("Consolidated EBITDA"), as defined in the Senior Credit Facility. Interest payments on both the Term Loan and Revolver are payable at the end of the interest period as defined in the Senior Credit Facility, but not less than quarterly.

The Base Rate is equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate; provided that in no event shall the Base Rate be less than 1.00% plus the Eurocurrency Rate applicable to one month interest periods on the date of determination of the Base Rate. The variable Base Rate has a floor of 2.75%.

The Eurocurrency Rate is the rate per annum equal to the British Bankers Association London Interbank Offered Rate ("BBA LIBOR") as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) two Business Days prior to the commencement of such interest period. The variable Eurocurrency rate has a floor of 1.75%. As of September 30, 2011 and December 31, 2010, the applicable interest rate for our Term Loan was 6.25%.

Interest Rates on Letter of Credit Subfacility and Unused Commitment Fees

The letter of credit subfacility bears interest at the applicable margin for Eurocurrency Rate Loans, which ranges from 4.0% to 4.5%. The unused commitment fee on our Revolver ranges from 0.50% to 0.75% depending on the Secured Leverage Ratio, as defined in the Senior Credit Facility. Payments on both the letter of credit subfacility and unused commitments are payable quarterly in arrears. As of September 30, 2011 and December 31, 2010, the applicable interest rates for our letter of credit subfacility and unused commitment fees were 4.5% and 0.75%, respectively, for both periods. All of our letters of credit are also subject to a 0.25% fronting fee.

Principal Payments

Our Term Loan facility provides for quarterly principal payments of $1.4 million that began in December 2010. Additionally, there is an annual excess cash flow requirement, which is defined in the Senior Credit Facility. This excess cash flow requirement begins in calendar year 2012, based on our annual financial results in calendar year 2011, and could result in an additional principal payment. Our normal quarterly principal payments would be reduced by the amount of any additional principal payment from the excess cash flow requirement. Furthermore, certain transactions can trigger mandatory principal payments such as tax refunds, a disposition of a portion of the business or a significant asset sale.

During the three and nine months ended September 30, 2011, pursuant to our Term Loan facility, we made quarterly principal payments of $1.3 million and $4.0 million for the Senior Credit Facility. In addition, we made a $48.6 million principal prepayment in March 2011. Deferred financing costs associated with the prepayment totaling $2.4 million were expensed and are included in Loss on early extinguishment of debt in our consolidated statement of operations for the nine months ended September 30, 2011. There were no penalties associated with this prepayment and our quarterly payments were decreased to $1.3 million from $1.4 million beginning April 2011. Subsequent to the three months ended September 30, 2011, the Company completed another principal prepayment in October 2011 of $48.7 million on the Term Loan facility. This payment eliminated all future quarterly principal payments until maturity. No penalties were associated with the prepayment.

 

Covenants

The Senior Credit Facility contains financial, as well as non-financial, affirmative and negative covenants that we believe are usual and customary. The negative covenants in the Senior Credit Facility include, among other things, limits on our ability to:

 

   

declare dividends and make other distributions;

 

   

redeem or repurchase our capital stock;

 

   

prepay, redeem or repurchase certain of our indebtedness;

 

   

grant liens;

 

   

make loans or investments (including acquisitions);

 

   

incur additional indebtedness;

 

   

modify the terms of certain debt;

 

   

restrict dividends from our subsidiaries;

 

   

change our business or business of our subsidiaries;

 

   

merge or enter into acquisitions;

 

   

sell our assets;

 

   

enter into transactions with our affiliates; and

 

   

make capital expenditures.

In addition, the Senior Credit Facility stipulates a maximum total leverage ratio and a minimum interest coverage ratio that must be maintained.

The total leverage ratio is the Consolidated Total Debt as defined in the Senior Credit Facility, less unrestricted cash and cash equivalents (up to $50 million) to Consolidated EBITDA as defined in the Senior Credit Facility, for the applicable period. Our total leverage ratio could not be greater than 5.5 to 1.0 for the period of July 3, 2010 to September 30, 2011. After June 29, 2012, the maximum total leverage ratio diminishes either quarterly or semi-annually.

The interest coverage ratio is the ratio of Consolidated EBITDA to Consolidated Interest Expense, as defined in the Senior Credit Facility. The interest coverage ratio must not be less than 1.7 to 1.0 for the period of July 3, 2010 to September 30, 2011. The minimum interest ratio increases either quarterly or semi-annually beginning June 29, 2012.

The fair value of our borrowings under our Senior Credit Facility approximated 98.0% and 100.8% of the carrying amount based on quoted values as of September 30, 2011 and December 31, 2010, respectively.

On August 10, 2011, DynCorp International Inc. entered into an amendment to the Senior Credit Facility (the "Amendment"). The Amendment re-set leverage and interest covenant levels. Under the terms of the Amendment, the maximum total leverage ratio steps up to 5.50x through the period ending June 29, 2012 and steps down to 3.25x over time, the amount of unrestricted cash permitted to be netted from the calculation of the total leverage ratio is $50.0 million, and the minimum interest coverage ratio is 1.70x through the period ending June 29, 2012 and steps up to 2.25x over time.

Senior Unsecured Notes

On July 7, 2010, DynCorp International Inc. completed an offering of $455 million in aggregate principal of 10.375% senior unsecured notes due 2017 (the "Senior Unsecured Notes"). The initial purchasers were Bank of America Securities LLC, Citigroup Global Markets Inc., Barclays Capital Inc. and Deutsche Bank Securities Inc. The Senior Unsecured Notes were issued under an indenture dated July 7, 2010 (the "Indenture"), by and among us, the guarantors party thereto (the "Guarantors"), including DynCorp International, and Wilmington Trust FSB, as trustee. The Senior Unsecured Notes mature on July 1, 2017. Interest on the Senior Unsecured Notes is payable on January 1 and July 1 of each year, and commenced on January 1, 2011.

 

In connection with the issuance of the Senior Unsecured Notes, we entered into a registration rights agreement, pursuant to which we agreed, among other things, to offer to exchange the Senior Unsecured Notes for a new issue of substantially identical notes that have been registered under the Securities Act of 1933, as amended. Under this registration rights agreement, we were required to file an exchange offer registration statement and have it declared effective by the SEC within 300 days following July 7, 2010, which was May 3, 2011. Because the exchange offer registration statement did not go effective until June 21, 2011, we were required to pay additional interest to holders of the Senior Unsecured Notes in an amount equal to 0.25% per annum of the principal amount thereof from May 4, 2011 to June 21, 2011. We paid such additional interest of $183,264 to holders of the Senior Unsecured Notes on July 1, 2011 in compliance with the registration rights agreement. On July 26, 2011, we completed the exchange offer and approximately $454.6 million of registered Senior Unsecured Notes were issued in exchange for the old Senior Unsecured Notes.

The Senior Unsecured Notes contain various covenants that restrict our ability to enter into certain transactions. These include, but are not limited to, covenants that restrict our ability to incur additional indebtedness, make certain payments, including declaring or paying certain dividends, purchase or retire certain equity interests, retire subordinated indebtedness, make certain investments, sell assets, engage in certain transactions with affiliates, create liens on assets, make acquisitions and engage in mergers or consolidations. The aforementioned restrictions are considered to be in place unless we achieve investment grade ratings by both Moody's Investor Services and Standard and Poor's.

We can redeem the Senior Unsecured Notes, in whole or in part, at defined redemption prices, plus accrued interest through the redemption date. The Indenture requires us to repurchase the Senior Unsecured Notes at defined prices in the event of certain asset sales and change of control events.

The fair value of the Senior Unsecured Notes is based on their quoted market value. As of September 30, 2011 and December 31, 2010, the quoted market value of the Senior Unsecured Notes was approximately 87.25% and 102.1%, respectively, of stated value.

Call and Put Options

We can redeem the Senior Unsecured Notes, in whole or in part, at defined redemption prices, plus accrued interest through the redemption date. The Indenture Agreement requires us to repurchase the Senior Unsecured Notes at defined prices in the event of certain asset sales and change of control events.


Commitments And Contingencies
v4.2.117.0
Commitments And Contingencies
9 Months Ended 6 Months Ended
Sep. 30, 2011
Jul. 02, 2010
Dyncorp International Inc. [Member]
Commitments And Contingencies

Note 8 — Commitments and Contingencies

Commitments

We have operating leases for the use of real estate and certain property and equipment which are either non-cancelable or 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 was $35.8 million and $91.5 million during the three and nine months ended September 30, 2011, respectively. Lease rental expense was $22.9 million and $22.9 million during the three months ended October 1, 2010 and for the period from April 1, 2010 (Inception) through October 1, 2010, respectively. We have no significant long-term purchase agreements with service providers.

Contingencies

General Legal Matters

We are involved in various lawsuits and claims that have arisen in the normal course of business. In most cases, we have denied, or believe we have a basis to deny liability. Related to these matters, we have recorded reserves totaling approximately $4.2 million in "Other accrued liabilities" as of September 30, 2011. Liabilities in excess of those recorded, if any, arising from such matters may have a material effect on our results of operations, consolidated financial condition or liquidity.

 

Pending Litigation and Claims

On December 4, 2006, December 29, 2006, March 14, 2007 and April 24, 2007, four lawsuits were served, seeking unspecified monetary damages against DynCorp International LLC and several of its former affiliates in the U.S. District Court for the Southern District of Florida, concerning the spraying of narcotic plant crops along the Colombian border adjacent to Ecuador. Three of the lawsuits, filed on behalf of the Provinces of Esmeraldas, Sucumbíos, and Carchi in Ecuador, allege violations of Ecuadorian law, international law, and statutory and common law tort violations, including negligence, trespass, and nuisance. The fourth lawsuit, filed on behalf of citizens of the Ecuadorian provinces of Esmeraldas and Sucumbíos, alleges personal injury, various counts of negligence, trespass, battery, assault, intentional infliction of emotional distress, violations of the Alien Tort Claims Act and various violations of international law. The four lawsuits were consolidated, and based on our motion granted by the court, the case was subsequently transferred to the U.S. District Court for the District of Columbia. On March 26, 2008, a First Amended Consolidated Complaint was filed that identified 3,266 individual plaintiffs. On January 12, 2010, 1,256 of the plaintiffs have been dismissed by court orders and, on September 15, 2010, the Provinces of Esmeraldas, Sucumbíos, and Carchi were dismissed by court order. The amended complaint does not demand any specific monetary damages; however, a court decision against us, although we believe to be remote, could have a material effect on our results of operations and financial condition, if we are unable to seek reimbursement from the DoS. The aerial spraying operations were and continue to be managed by us under a DoS contract in cooperation with the Colombian government. The DoS contract provides indemnification to us against third-party liabilities arising out of the contract, subject to available funding.

A lawsuit filed on September 11, 2001, and amended on March 24, 2008, seeking unspecified damages on behalf of twenty-six residents of the Sucumbíos Province in Ecuador, was brought against our operating company and several of its former affiliates in the U.S. District Court for the District of Columbia. The action alleges violations of the laws of nations and U.S. 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. On January 12, 2010, fifteen of the plaintiffs have been dismissed by court order. The terms of the DoS contract provide that the DoS will indemnify our operating company against third-party liabilities arising out of the contract, subject to available funding. We are also entitled to indemnification by Computer Sciences Corporation in connection with this lawsuit, subject to certain limitations. Additionally, any damage award would have to be apportioned between the other defendants and our operating company. We believe that the likelihood of an unfavorable judgment in this matter is remote and that, even if that were to occur, the judgment is unlikely to result in a material effect on our results of operations or financial condition as a result of the third party indemnification and apportionment of damages described above.

Arising out of the litigation described in the preceding two paragraphs, on September 22, 2008, we filed a separate lawsuit against our aviation insurance carriers seeking defense and coverage of the referenced claims. On November 9, 2009, the court granted our Partial Motion for Summary Judgment regarding the duty to defend, and the carriers have paid the majority of the litigation expenses. In a related action, the carriers filed a lawsuit against us on February 5, 2009, seeking rescission of certain aviation insurance policies based on an alleged misrepresentation by us concerning the existence of certain of the lawsuits relating to the eradication of narcotic plant crops. On May 19, 2010, our aviation insurance carriers filed a complaint against us seeking reformation of previously provided insurance policies and the elimination of coverage for aerial spraying. The Company believes that the claims asserted by the insurance carriers are without merit and unlikely to result in a material effect on our results of operations or financial condition.

In November 2009, a U.S. grand jury indicted one of our subcontractors, Agility, on the Logistics Civil Augmentation Program ("LOGCAP IV") contract, on charges of fraud and conspiracy, alleging that it overcharged the U.S. Army on $8.5 billion worth of contracts to provide food to soldiers in Iraq, Kuwait and Jordan. These allegations were in no way related to the work performed under LOGCAP IV. Effective December 16, 2009, we removed Agility as a subcontractor on the LOGCAP IV contract and terminated the work under existing task orders. In April 2010, Agility filed an arbitration demand, asserting claims for breach of a joint venture agreement, breach of fiduciary duty and unjust enrichment. Agility is seeking a declaration that it is entitled to a 30% share of the LOGCAP IV fees over the life of the contract. We believe our right to remove Agility was justified and no joint venture agreement exists between the parties. The case is currently in arbitration. We believe the case is without merit and we intend to vigorously defend against Agility's claims, however, based on the size of the LOGCAP IV contract and Agility's claim, a negative outcome may have a material effect on our consolidated financial position, results of operations or cash flows.

 

U.S. Government Investigations

We primarily sell our services to the U.S. government. These contracts are subject to extensive legal and regulatory requirements, and we are occasionally the subject of investigations by various agencies of the U.S. government who investigate whether our operations are being conducted in accordance with these requirements, including as previously disclosed in our periodic filings, the Special Inspector General for Iraq Reconstruction report regarding certain reimbursements and the U.S. Department of State Office of Inspector General's records subpoena with respect to the Civilian Police ("CivPol") contract. 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. U.S. government investigations often take years to complete and many result in no adverse action against us. We do not believe that any adverse actions arising from such matters would have a material effect on our results of operations, consolidated financial condition or liquidity over the long term.

As previously disclosed, we identified certain payments made on our behalf by two subcontractors to expedite the issuance of a limited number of visas and licenses from a foreign government's agencies that may raise compliance issues under the U.S. Foreign Corrupt Practices Act. We retained outside counsel to investigate these payments. In November 2009, we voluntarily brought this matter to the attention of the U.S. Department of Justice and the SEC. We are cooperating with the government's review of this matter. We are also continuing our evaluation of our internal policies and procedures. We cannot predict the ultimate consequences of this matter at this time, nor can we reasonably estimate the potential liability, if any, related to this matter. However, based on the facts currently known, we do not believe that this matter will have a material effect on our business, financial condition, results of operations or cash flow.

On August 16, 2005, we were served with a Department of Justice Federal Grand Jury Subpoena seeking documents concerning work performed by a former subcontractor, Al Ghabban, in 2002-2005. Specifically, during the 2002-2005 timeframe Al Ghabban performed line haul trucking work to transport materials throughout the Middle Eastern theater on the War Reserve Materials Program. In response to the subpoena in 2005, we provided the requested documents to the Department of Justice, and the matter was subsequently closed in 2005 without any action taken. In April 2009, we received a follow up telephone call concerning this matter from the Department of Justice Civil Litigation Division. Since that time, we have had several discussions with the government regarding the civil matter. In response to recent requests, we have provided additional information to the Department of Justice Civil Litigation Division. We are fully cooperating with the government's review. If our operations are found to be in violation of any laws or government regulations, we may be subject to penalties, damages or fines, any or all of which could adversely affect our financial results.

U.S. Government Audits

Our contracts are regularly audited by the Defense Contract Audit Agency ("DCAA") and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. The government also reviews the adequacy of our internal controls and policies, including our accounting, estimating, purchasing, and property systems. Any costs found to be improperly allocated or charged to a specific contract will not be reimbursed. The DCAA will in some cases issue a Form 1 representing the non-conformance of such costs or requirements as it relates to our government contracts. If the Company is unable to provide sufficient evidence of the costs in question, the costs could be suspended or disallowed which could be material to our financial statements. Government contract payments received by us for direct and indirect costs are subject to adjustment after government audit and repayment to the government if the payments exceed allowable costs as defined in the government regulations.

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

 

We have received several letters from the DCAA with draft audit results related to their examination of certain incurred, invoiced and collected costs on our Civilian Police program for periods ranging from April 17, 2004 through April 2, 2010. The draft audit results identified multiple issues where the DCAA has asserted certain instances of potential deviations from the explicit terms of the contract or from certain provisions of government regulations. The draft audit results apply an extrapolation methodology to estimate a potential exposure amount for the issues which when aggregated for all letters totals approximately $138.4 million. Although the extrapolated amounts would be material to our results of operations, cash flows and financial condition, we do not believe the draft audit results and resulting extrapolation are an appropriate basis to determine a range of potential exposure. We have provided responses to the DCAA for each letter, in which we have articulated our position on each issue and have attempted to answer their questions and provide clarification of the facts to resolve the issues raised. In the few instances where we believe the issues identified were valid or represent a probable contingency, we have recorded a liability for approximately $0.2 million as of September 30, 2011. There are a number of issues raised by the DCAA for which we believe the DCAA did not consider all relevant facts. We strongly believe these issues will be resolved in our favor and thus represent loss contingencies that we consider remote. For the remaining issues, we believe the DCAA did not consider certain contractual provisions and long-standing patterns of dealing with the customer. Since we cannot predict the DCAA's acceptance of our initial responses and the ultimate outcome related to these remaining issues, we believe these items represent loss contingencies that we consider reasonably possible. At this time, we do not have a basis to estimate a range of loss for these reasonably possible contingencies. We continue to work with the DCAA to resolve any remaining questions they may have and provide clarification of the facts and circumstances surrounding the issues.

Contract Matters

In 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 the customer may challenge our termination of the contract for cause and initiate legal action against us. Our termination of certain subcontracts not assumed by the customer, including our actions to recover against advance payment and performance guarantees established by the subcontractors for our benefit is being challenged in certain instances. Although we believe our right to terminate this contract and such subcontracts was justified and permissible under the terms of the contracts, and we intend to vigorously 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 effect on our results of operations or financial condition. At this time, any such damages are not estimable.

Credit Risk

We are subject to concentrations of credit risk primarily by virtue of our accounts receivable. Departments and agencies of the U.S. federal government account for all but minor portions of our customer base, minimizing this credit risk. Furthermore, we continuously review all accounts receivable and recorded provisions for doubtful accounts.

Risk Management Liabilities and Reserves

We are insured for domestic worker's compensation liabilities and a significant portion of our employee medical costs. However, we bear risk for a portion of claims pursuant to the terms of the applicable insurance contracts. We account for these programs based on actuarial estimates of the amount of loss inherent in that period's claims, including losses for which claims have not been reported. These loss estimates rely on actuarial observations of ultimate loss experience for similar historical events. We limit our risk by purchasing stop-loss insurance policies for significant claims incurred for both domestic worker's compensation liabilities and medical costs. Our exposure under the stop-loss policies for domestic worker's compensation and medical costs is limited based on fixed dollar amounts. For domestic worker's compensation and employer's liability under state and federal law, the fixed dollar amount of stop-loss coverage is $1.0 million per occurrence on most policies; but, $0.25 million on a California based policy. For medical costs, the fixed dollar amount of stop-loss coverage is from $0.25 million to $0.75 million for total costs per covered participant per calendar year.

Note 4 — Commitments and Contingencies

Commitments

We have operating leases for the use of real estate and certain property and equipment, which are 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. Rental expense was $13.7 million and $31.7 million during the three and six months ended July 2, 2010.

Contingencies

General Legal Matters

We are involved in various lawsuits and claims that have arisen in the normal course of business. In most cases, we have denied, or believe we have a basis to deny any liability. Related to these matters, we have recorded reserves totaling approximately $6.7 million as of July 2, 2010. Liabilities in excess of those recorded, if any, arising from such matters may have a material effect on our results of operations, consolidated financial condition or liquidity.

Pending litigation and claims

On December 4, 2006, December 29, 2006, March 14, 2007 and April 24, 2007, four lawsuits were served, seeking unspecified monetary damages against DynCorp International LLC and several of its former affiliates in the U.S. District Court for the Southern District of Florida, concerning the spraying of narcotic plant crops along the Colombian border adjacent to Ecuador. Three of the lawsuits, filed on behalf of the Provinces of Esmeraldas, Sucumbíos, and Carchi in Ecuador, allege violations of Ecuadorian law, international law, and statutory and common law tort violations, including negligence, trespass, and nuisance. The fourth lawsuit, filed on behalf of citizens of the Ecuadorian provinces of Esmeraldas and Sucumbíos, alleges personal injury, various counts of negligence, trespass, battery, assault, intentional infliction of emotional distress, violations of the Alien Tort Claims Act and various violations of international law. The four lawsuits were consolidated, and based on our motion granted by the court, the case was subsequently transferred to the U.S. District Court for the District of Columbia. On March 26, 2008, a First Amended Consolidated Complaint was filed that identified 3,266 individual plaintiffs. On January 12, 2010, 1,256 of the plaintiffs have been dismissed by court orders. The amended complaint does not demand any specific monetary damages; however, a court decision against us, although we believe to be remote, could have a material effect on our results of operations and financial condition, if we are unable to seek reimbursement from the DoS. The aerial spraying operations were and continue to be managed by us under a DoS contract in cooperation with the Colombian government. The DoS contract provides indemnification to us against third-party liabilities arising out of the contract, subject to available funding.

A lawsuit filed on September 11, 2001, and amended on March 24, 2008, seeking unspecified damages on behalf of twenty-six residents of the Sucumbíos Province in Ecuador, was brought against our operating company and several of its former affiliates in the U.S. District Court for the District of Columbia. The action alleges violations of the laws of nations and United States treaties, negligence, emotional distress, nuisance, battery, trespass, strict liability, and medical monitoring arising from the spraying of herbicides near the Ecuador-Colombia border in connection with the performance of the DoS, International Narcotics and Law Enforcement contract for the eradication of narcotic plant crops in Colombia. On January 12, 2010, fifteen of the plaintiffs have been dismissed by court order. The terms of the DoS contract provide that the DoS will indemnify our operating company against third-party liabilities arising out of the contract, subject to available funding. We are also entitled to indemnification by Computer Sciences Corporation in connection with this lawsuit, subject to certain limitations. Additionally, any damage award would have to be apportioned between the other defendants and our operating company. We believe that the likelihood of an unfavorable judgment in this matter is remote and that, even if that were to occur, the judgment is unlikely to result in a material effect on our results of operations or financial condition as a result of the third party indemnification and apportionment of damages described above.

Arising out of the litigation described in the preceding two paragraphs, on September 22, 2008, we filed a separate lawsuit against our aviation insurance carriers seeking defense and coverage of the referenced claims. On November 9, 2009, the court granted our Partial Motion for Summary Judgment regarding the duty to defend, and the carriers have paid the majority of the litigation expenses. In a related action, the carriers filed a lawsuit against us on February 5, 2009, seeking rescission of certain aviation insurance policies based on an alleged misrepresentation by us concerning the existence of certain of the lawsuits relating to the eradication of narcotic plant crops. On May 19, 2010, our aviation insurance carriers filed a complaint against us seeking reformation of previously provided insurance policies and the elimination of coverage for aerial spraying. The Company believes that the claims asserted by the insurance carriers are without merit and we will defend against them vigorously.

 

In November 2009, a U.S. grand jury indicted one of our subcontractors, Agility, on the Logistics Civil Augmentation Program ("LOGCAP IV") contract, Agility, on charges of fraud and conspiracy, alleging that it overcharged the U.S. Army on $8.5 billion worth of contracts to provide food to soldiers in Iraq, Kuwait and Jordan. These allegations were in no way related to the work performed under LOGCAP IV. Effective December 16, 2009, we removed Agility as a subcontractor on the LOGCAP IV contract and terminated the work under existing task orders. In April 2010, Agility filed an arbitration demand, asserting claims for breach of a joint venture agreement, breach of fiduciary duty and unjust enrichment. Agility is seeking a declaration that it is entitled to a 30% share of the LOGCAP IV fees over the life of the contract. We believe our right to remove Agility was justified and no joint venture agreement exists between the parties. The case is currently in arbitration. We believe the case is without merit and we intend to vigorously defend against Agility's claims, however, based on the size of the LOGCAP IV contract and Agility's claim, a negative outcome may have a material effect on our consolidated financial position, results of operations or cash flows.

U.S. Government Investigations

We primarily sell our services to the U.S. government. These contracts are subject to extensive legal and regulatory requirements, and we are occasionally the subject of investigations by various agencies of the U.S. government who investigate whether our operations are being conducted in accordance with these requirements, including as previously disclosed in our periodic filings, the Special Inspector General for Iraq Reconstruction report regarding certain reimbursements and the U.S. Department of State Office of Inspector General's records subpoena with respect to the Civilian Police ("CivPol") contract. 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. U.S. government investigations often take years to complete and many result in no adverse action against us. We do not believe that any adverse actions arising from such matters would have a material effect on our results of operations, consolidated financial condition or liquidity over the long term.

As previously disclosed, we identified certain payments made on our behalf by two subcontractors to expedite the issuance of a limited number of visas and licenses from a foreign government's agencies that may raise compliance issues under the U.S. Foreign Corrupt Practices Act. We retained outside counsel to investigate these payments. In November 2009, we voluntarily brought this matter to the attention of the U.S. Department of Justice and the SEC. We are cooperating with the government's review of this matter. We are also continuing our evaluation of our internal policies and procedures. We cannot predict the ultimate consequences of this matter at this time, nor can we reasonably estimate the potential liability, if any, related to this matter. However, based on the facts currently known, we do not believe that this matter will have a material effect on our business, financial condition, results of operations or cash flow.

On August 16, 2005, we were served with a Department of Justice Federal Grand Jury Subpoena seeking documents concerning work performed by a former subcontractor, Al Ghabban in 2002-2005. Specifically, during the 2002-2005 timeframe, Al Ghabban performed line haul trucking work to transport materials throughout the Middle Eastern theater on the War Reserve Materials Program. In response to the subpoena in 2005, we provided the requested documents to the Department of Justice, and the matter was subsequently closed in 2005 without any action taken. In April 2009, we received a follow up telephone call concerning this matter from the Department of Justice Civil Litigation Division. Since that time, we have had several discussions with the government regarding the civil matter. In response to recent requests, we have provided additional information to the Department of Justice Civil Litigation Division. We are fully cooperating with the government's review. If our operations are found to be in violation of any laws or government regulations, we may be subject to penalties, damages or fines, any or all of which could adversely affect our financial results.

U.S. Government Audits

Our contracts are regularly audited by the Defense Contract Audit Agency ("DCAA") and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. The government also reviews the adequacy of our internal controls and policies, including our accounting, estimating, purchasing, and property systems. Any costs found to be improperly allocated or charged to a specific contract will not be reimbursed. The DCAA will in some cases issue a Form 1 representing the non-conformance of such costs or requirements as it relates to our government contracts. If the Company is unable to provide sufficient evidence of the costs in question, the costs could be suspended or disallowed which could be material to our financial statements. Government contract payments received by us for direct and indirect costs are subject to adjustment after government audit and repayment to the government if the payments exceed allowable costs as defined in the government regulations.

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

We were under audit by the Internal Revenue Service ("IRS") for employment taxes covering the years 2005 through 2007. In the course of the audit process, the IRS had questioned our treatment of exempting from U.S. employment taxes all U.S. residents working abroad for some of our foreign subsidiaries. We do not have any reserves for periods subsequent to 2007 related to this employment tax issue.

Contract Matters

In 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 the customer may challenge our termination of the contract for cause and initiate legal action against us. Our termination of certain subcontracts not assumed by the customer, including our actions to recover against advance payment and performance guarantees established by the subcontractors for our benefit is being challenged in certain instances. Although we believe our right to terminate this contract and such subcontracts was justified and permissible under the terms of the contracts, and we intend to vigorously 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 effect on our results of operations or financial condition. At this time, any such damages are not estimable.

Credit Risk

We are subject to concentrations of credit risk primarily by virtue of our accounts receivable. Departments and agencies of the U.S. federal government account for all but minor portions of our customer base, minimizing this credit risk. Furthermore, we continuously review all accounts receivable and recorded provisions for doubtful accounts.

Risk Management Liabilities and Reserves

We are insured for domestic worker's compensation liabilities and a significant portion of our employee medical costs. However, we bear risk for a portion of claims pursuant to the terms of the applicable insurance contracts. We account for these programs based on actuarial estimates of the amount of loss inherent in that period's claims, including losses for which claims have not been reported. These loss estimates rely on actuarial observations of ultimate loss experience for similar historical events. We limit our risk by purchasing stop-loss insurance policies for significant claims incurred for both domestic worker's compensation liabilities and medical costs. Our exposure under the stop-loss policies for domestic worker's compensation and medical costs is limited based on fixed dollar amounts. For domestic worker's compensation and employer's liability under state and federal law, the fixed dollar amount of stop-loss coverage is $1.0 million per occurrence on most policies; but, $0.25 million on a California based policy. For medical costs, the fixed dollar amount of stop-loss coverage is from $0.25 million to $0.75 million for total costs per covered participant per calendar year.


Segment And Geographic Information
v4.2.117.0
Segment And Geographic Information
9 Months Ended 6 Months Ended
Sep. 30, 2011
Jul. 02, 2010
Dyncorp International Inc. [Member]
Segment And Geographic Information

Note 9 — Segment Information

We have three operating and reportable segments, Global Stabilization and Development Solutions ("GSDS"), Global Platform Support Solutions ("GPSS"), and Global Linguist Solutions ("GLS"). Two of our segments, GSDS and GPSS, are wholly-owned. Our third segment, GLS, is a 51% owned joint venture. While we do not have control over the performance of GLS, our senior management, including our chief executive officer, who is our chief operating decision maker, regularly review GLS' operating results and metrics to make decisions about resources to be allocated to the segment and assess performance; thus, GLS is classified as an operating segment.

 

Our GPSS operating segment provides services domestically and in foreign countries under contracts with the U.S. government and some foreign customers, whereas our GSDS and GLS operating segments primarily provide services in foreign countries with the U.S. government as the primary customer. All three segments operate principally within a regulatory environment subject to governmental contracting and accounting requirements, including Federal Acquisition Regulations, Cost Accounting Standards and audits by various U.S. federal agencies. In order to realign measurement of true business performance with segment presentation, we excluded certain costs that are not directly allocable to business units from the segment results and included these costs in headquarters.

The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the consolidated financial statements:

 

(Amounts in thousands)    Three Months
Ended

September 30,
2011
    Three
Months
Ended
October 1,
2010
    Nine
Months
Ended

September 30,
2011
    For The
Period From
April 1, 2010
(Inception)
Through

October 1,
2010
 

Revenue

        

Global Stabilization and Development Solutions

   $ 589,561      $ 511,087      $ 1,763,315      $ 511,087   

Global Platform Support Solutions

     340,183        326,024        964,219        326,024   

Global Linguist Solutions

     89,524        147,694        314,675        147,694   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reportable segments

   $ 1,019,268      $ 984,805      $ 3,042,209      $ 984,805   

Headquarters (1)

     5,649        3,935        10,907        3,935   

Global Linguist Solutions deconsolidation(4)

     (89,524     (147,694     (314,675     (147,694
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

   $ 935,393      $ 841,046      $ 2,738,441      $ 841,046   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

        

Global Stabilization and Development Solutions

   $ 16,940      $ 18,091      $ 48,146      $ 18,091   

Global Platform Support Solutions

     31,873        31,071        80,651        31,071   

Global Linguist Solutions

     7,740        9,760        23,208        9,760   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reportable segments

   $ 56,553      $ 58,922      $ 152,005      $ 58,922   

Headquarters (2)

     (91,417     (14,835     (110,819     (66,557

Global Linguist Solutions deconsolidation(4)

     (7,740     (9,760     (23,208     (9,760
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating (loss) income

   $ (42,604   $ 34,327      $ 17,978      $ (17,395
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

        

Global Stabilization and Development Solutions

   $ 74      $ 62      $ 205      $ 62   

Global Platform Support Solutions

     18        4        55        4   

Global Linguist Solutions

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reportable segments

   $ 92      $ 66      $ 260      $ 66   

Headquarters

     12,163        12,279        37,969        12,279   

Global Linguist Solutions deconsolidation(4)

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total depreciation and amortization (3)

   $ 12,255      $ 12,345      $ 38,229      $ 12,345   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) Represents revenue earned on shared services arrangements for general and administrative services provided to unconsolidated joint ventures.
  (2) Headquarters operating expense primarily relate to amortization of intangible assets and other costs that are not allocated to segments and are not billable to our U.S. government customers. During the three months ended September 30, 2011 we recognized an impairment on our equity method investment in GLS. See Note 10 to the Delta Tucker Holdings, Inc. financial statements for further discussion.
  (3) Excludes amounts included in "Cost of services" of $0.4 million and $1.3 million during the three and nine months ended September 30, 2011, respectively. Excludes amounts included in "Cost of services" of $0.2 million and $0.2 million during the three months ended October 1, 2010 and for the period from April 1, 2010 (Inception) through October 1, 2010, respectively.
  (4) The Company deconsolidated Global Linguist Solutions effective July 7, 2010.

The following is a summary of the assets of the reportable segments reconciled to the amounts reported in the consolidated financial statements:

 

(Amounts in thousands)    As Of  
     September 30,
2011
    December 31,
2010
 

Assets

    

Global Stabilization and Development Solutions

   $ 809,167      $ 881,093   

Global Platform Support Solutions

     809,690        788,586   

Global Linguist Solutions

     103,646        123,940   
  

 

 

   

 

 

 

Total reportable segments

   $ 1,722,503      $ 1,793,619   

Headquarters (1)

     499,881        593,676   

Global Linguist Solutions deconsolidation(2)