424B3 1 d60246b3e424b3.htm PROSPECTUS e424b3

PROSPECTUS

 
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-156317
 
(DYNCORP INTERNATIONAL LOGO)
 
DYNCORP INTERNATIONAL LLC
DIV CAPITAL CORPORATION
 
$125,090,000
 
OFFER TO EXCHANGE
9.50% Senior Subordinated Notes due 2013, Series B
for any and all outstanding
9.50% Senior Subordinated Notes due 2013, Series A
 
of
DynCorp International LLC and DIV Capital Corporation          
 
The exchange offer will expire at 5:00 p.m., New York City time,
on February 11, 2009, which is 20 business days after the commencement of the exchange offer, unless extended.
 
 
THE ISSUERS:
 
•  DynCorp International LLC, or DynCorp International, and DIV Capital Corporation. DIV Capital Corporation is a wholly owned subsidiary of DynCorp International with nominal assets, which conducts no business or operations. DynCorp International and DIV Capital Corporation are collectively referred to in this prospectus as the “issuers.”
 
THE OFFERING:
 
•  Offered securities:  the securities offered by this prospectus are senior subordinated notes, which we refer to as the “New Notes”, which are being issued in exchange for (1) $125.0 million of senior subordinated notes sold by us in a private placement that we consummated on July 28, 2008, and (2) $90,000 of other Existing Notes, as defined below, that were not exchanged for new notes in a prior exchange offer. Unless otherwise indicated by the context, we refer to the foregoing as the “Old Notes.” The $125.0 million of Old Notes referred to above were issued as an “add on” to our existing 9.50% Senior Subordinated Notes due 2013, which we had issued in February 2005 in the aggregate principal amount of $320,000,000 and which we refer to in this prospectus as the “Existing Notes.” The New Notes are substantially identical to the Old Notes and are governed by the same indenture governing the Old Notes and the Existing Notes. Old Notes tendered in the exchange offer must be in denominations of principal amount of $1,000 and any integral multiple thereof. The Old Notes, the New Notes and the Existing Notes are collectively referred to in this prospectus as the “Notes,” and they will be treated as a single class under the indenture governing them.
 
•  Each broker-dealer that receives New Notes pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the New Notes. If the broker-dealer acquired the Old Notes as a result of market making or other trading activities, such broker-dealer must use the prospectus for the exchange offer, as supplemented or amended, in connection with resales of the New Notes.
 
•  Broker-dealers who acquired the Old Notes directly from the issuers must, in the absence of an exemption, comply with the registration and prospectus delivery requirements of the Securities Act of 1933, or the Securities Act, in connection with secondary resales and cannot rely on the position of the Securities and Exchange Commission or SEC staff enunciated in the Exxon Capital Holding Corp. no-action letter (available May 13, 1988).
 
THE NEW NOTES:
 
•  Maturity:  February 15, 2013.
 
•  Interest payment dates:  semiannually on each February 15 and August 15, beginning on February 15, 2009.
 
•  Redemption:  we may redeem the New Notes at any time on or after February 15, 2009 at the redemption prices set forth in this prospectus. In addition, prior to February 15, 2009, we may redeem all or a portion of the New Notes at a price equal to 100% of the principal amount thereof plus the make-whole premium described in this prospectus. We are required to redeem the New Notes under some circumstances involving a change of control and asset sales.
 
•  Ranking:  the New Notes will be our general unsecured obligations, will be subordinated to our existing and future senior debt and will rank equally with our existing and future senior subordinated debt, including our Existing Notes. The guarantees will be general unsecured obligations of each guarantor and will be structurally subordinated to all of the existing and future senior debt of our guarantor subsidiaries and will rank equally with any of our guarantor subsidiaries’ senior subordinated debt. The New Notes will be structurally subordinated to all obligations of DynCorp International’s foreign subsidiaries, which will not guarantee the New Notes.
 
•  Neither an exchange of an Old Note for a New Note nor the filing of a registration statement with respect to the resale of the New Notes should be a taxable event to you, and you should not recognize any taxable gain or loss or any interest income as a result of such exchange or such filing.
 
See “Risk Factors,” beginning on page 11, for a discussion of some factors that should be considered by holders in connection with a decision to tender Old Notes in the exchange offer.
 
These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
The date of this prospectus is January 13, 2009.


 

 
TABLE OF CONTENTS
 
         
Information About the Transaction
    ii  
Market Data
    ii  
Backlog and Estimated Contract Values
    ii  
Prospectus Summary
    1  
Risk Factors
    11  
Information Regarding Forward Looking Statements
    27  
Use of Proceeds
    28  
Ratio of Earnings to Fixed Charges
    29  
Capitalization
    30  
Selected Historical Consolidated Financial Data
    31  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    33  
The Exchange Offer
    60  
Business
    69  
Management
    85  
Security Ownership of Certain Beneficial Owners and Management
    108  
Certain Relationships and Related Party Transactions
    110  
Description of Material Indebtedness
    112  
Description of New Notes
    115  
Material United States Federal Income Tax Consequences
    157  
Plan of Distribution
    161  
Legal Matters
    162  
Experts
    162  
Available Information
    162  
Index to Financial Statements
    F-1  


i


 

 
INFORMATION ABOUT THE TRANSACTION
 
This prospectus incorporates by reference important information about us that is not included in or delivered with this prospectus. This information is available without charge upon written or oral request directed to: Investor Relations, 13601 North Freeway, Forth Worth, TX 76177; telephone number: (571) 722-0210. To obtain timely delivery, you must request the information no later than five business days before February 11, 2009, unless the exchange offer is extended.
 
MARKET DATA
 
In this prospectus, we refer to information regarding market data obtained from internal sources, market research, publicly available information and industry publications. Estimates are inherently uncertain, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the caption “Risk Factors” in this prospectus.
 
BACKLOG AND ESTIMATED CONTRACT VALUES
 
We refer to “backlog,” “estimated remaining contract value” and “estimated total contract value” in this prospectus when describing our contracts and operating results. Each of these terms is described below.
 
Backlog
 
We track backlog in order to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contract options.
 
Most of our U.S. government contracts allow the customer the option to extend the period of performance of a contract for a period of one or more years. These priced options may or may not be exercised at the sole discretion of the customer. Historically, it has been our experience that customers have typically exercised contract options. Firm funding for our contracts is usually made for one year at a time, with the remainder of the contract period consisting of a series of one-year options. As is the case with the base period of our U.S. government contracts, option periods are subject to the availability of funding for contract performance. The U.S. government is legally prohibited from ordering work under a contract in the absence of funding. Our historical experience has been that the government has typically funded the option periods of our contracts.
 
Estimated Remaining Contract Value
 
Our estimated remaining contract value represents total backlog plus management’s estimate of future revenue under indefinite delivery, indefinite quantity, or “IDIQ,” contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from future task or delivery orders through the end of the term of such IDIQ contracts and is based on our experience under such IDIQ contracts and our estimates as to future performance. Although we believe our estimates are reasonable, there can be no assurance that our existing contracts will result in actual revenue in any particular period or at all. Our estimated remaining contract value could vary or even change significantly depending upon various factors, including government policies, government budgets and appropriations, the accuracy of our estimates of work to be performed under time and material contracts and whether we successfully compete with any multiple bidders in IDIQ contracts.


ii


 

Estimated Total Contract Value
 
The estimated total contract value represents amounts expected to be realized from the current award date to the current contract end date (i.e., revenue recognized to date plus estimated remaining contract value). For the reasons stated above and under the caption “Risk Factors,” the maximum contract value or ceiling value specified under a government contract or task order is not necessarily indicative of the revenue that we will realize under that contract.


iii


 

 
PROSPECTUS SUMMARY
 
The following summary contains basic information about us and this exchange offer. This summary likely does not contain all the information that may be important to you and should be read in conjunction with the other information included elsewhere in this prospectus. In this prospectus, unless the context requires otherwise, references to “we,” “our,” “the Company” or “us” refers, as applicable, to DynCorp International LLC, or DynCorp International, or its predecessors, and its consolidated subsidiaries. All references in this prospectus to the “issuers” are to DynCorp International and DIV Capital Corporation, or DIV Capital. We refer to The Veritas Capital Fund II, L.P. and its affiliates (other than DynCorp International Inc. and its subsidiaries) in this prospectus as “Veritas Capital” and we refer to DynCorp International Inc. in this prospectus as “our parent.” All references in this prospectus to fiscal years made in connection with our financial statements or operating results refer to the fiscal year ended on the Friday closest to March 31st of such year. For example, “fiscal 2008” or “fiscal year 2008” refers to our fiscal year ended March 28, 2008. All references to fiscal years of the U.S. government under “Business — Industry” refer to the fiscal year ended September 30th of each such year.
 
Our Company
 
We are a leading provider of specialized mission-critical professional and support services outsourced by the U.S. military, non-military U.S. governmental agencies and foreign governments. Our specific global expertise is in law enforcement training and support, security services, base and logistics operations, construction management, aviation services and operations, and linguist services. We also provide logistics support for all our services. We derived 95% of our fiscal 2008 revenue from the U.S. Department of State, or “DoS,” and the U.S. Army, Air Force, Navy and Marine Corps, which we collectively refer to as the “DoD.” As of October 3, 2008, we had approximately 23,000 employees in approximately 30 countries, approximately 47 active contracts ranging in duration from three to ten years and over 100 task orders. We have provided essential services to numerous U.S. government departments and agencies since 1951.
 
We conduct our operations through three business segments: International Security Services, or “ISS;” Maintenance and Technical Support Services, or “MTSS;” and Logistics and Construction Management, or “LCM.” The following table describes the key service offerings of these business segments:
 
         
    MAINTENANCE AND TECHNICAL
   
INTERNATIONAL SECURITY SERVICES
 
SUPPORT SERVICES
 
LOGISTICS AND CONSTRUCTION MANAGEMENT
 
• Law enforcement and security

• Specialty aviation and counter-drug operations

• Global Linguist Solutions joint venture
 
• Aviation services and operations

• Aviation engineering

• Aviation ground equipment support

• Ground vehicle maintenance
 
• Contingency and logistics operations

• Operating maintenance and construction management

• LOGCAP IV contract
 
Business Strengths
 
We believe that our core strengths include the following:
 
  •  A significant recurring contract base;
 
  •  Long-standing and strong prime customer relationships;
 
  •  A leading market position;
 
  •  Attractive cash flow dynamics;
 
  •  Attractive industry fundamentals;
 
  •  A global reach and fulfillment capability; and
 
  •  An experienced management team with strong government relationships.


1


 

 
Business Strategy
 
Our objective is to increase our revenues and earnings through the following strategies:
 
  •  Exploiting current business opportunities and backlog;
 
  •  Capitalizing on industry trends;
 
  •  Growing our recurring revenue base;
 
  •  Continuing to enhance financial performance and operating efficiency; and
 
  •  Pursuing foreign government opportunities.
 
Organizational Structure
 
The following chart shows our organizational structure. DIV Capital, an issuer of the New Notes, is our wholly owned subsidiary with nominal assets and no active business or operations. See “Security Ownership of Certain Beneficial Owners and Management” for additional information concerning the ownership of our company.
 
(CHART)
 
Corporate Information
 
We are a Delaware limited liability company. Our principal executive offices are located at 3190 Fairview Park Drive, Suite 700, Falls Church, VA 22042, and our telephone number is (571) 722-0210. Our website address is http://www.dyncorpinternational.com. We do not incorporate the information on our website into this prospectus, and you should not consider it part of this prospectus.


2


 

THE EXCHANGE OFFER
 
On July 28, 2008, we completed a private offering of an additional $125.0 million aggregate principal amount of our 9.50% Senior Subordinated Notes due 2013. As part of this private offering, we entered into a registration rights agreement with the initial purchasers of these Old Notes in which we agreed, among other things, to deliver this prospectus to you and to use our reasonable best efforts to complete the exchange offer no later than the 45th business day after the date on which the registration statement, of which this prospectus forms a part, is declared effective by the Securities and Exchange Commission, or the “Commission” or “SEC.” The following is a summary of the terms of the exchange offer.
 
Old Notes On July 28, 2008, we issued $125.0 million aggregate principal amount of 9.50% Senior Subordinated Notes due 2013. In addition, we previously issued $90,000 of Existing Notes that were not exchanged for new notes in a prior exchange offer.
 
Existing Notes We issued the $125.0 million of Old Notes referred to above as an addition or “add on” to our existing 9.50% Senior Subordinated Notes due 2013, which we had issued in February 2005 in the aggregate principal amount of $320.0 million.
 
Expiration Date 5:00 p.m., New York City time, on February 11, 2009, which is 20 business days after the commencement of the exchange offer, unless we extend the exchange offer.
 
Exchange and Registration Rights In an A/B exchange registration rights agreement dated July 28, 2008, the holders of the $125.0 million of Old Notes referred to above were granted exchange and registration rights. This exchange offer is intended to satisfy these rights. You have the right to exchange the Old Notes that you hold for the issuers’ 9.50% senior subordinated notes due 2013, series B, which are referred to in this prospectus as the “New Notes,” with substantially identical terms to those of the Old Notes and the Existing Notes, except that the transfer restrictions and registration rights relating to the Old Notes do not apply to the New Notes. Once the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your Old Notes.
 
Accrued Interest on the New Notes and Old Notes The New Notes will bear interest from August 15, 2008. Holders of Old Notes which are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on those Old Notes accrued to the date of issuance of the New Notes.
 
Conditions to the Exchange Offer The exchange offer is conditioned upon some customary conditions, which we may waive, and upon compliance with securities laws. All conditions to which the exchange offer is subject must be satisfied or waived on or before the expiration of the offer.
 
Procedures for Tendering Old Notes Each holder of Old Notes wishing to accept the exchange offer must:
 
• complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; or


3


 

 
• arrange for DTC to transmit required information in accordance with DTC’s procedures for transfer to the exchange agent in connection with a book-entry transfer.
 
You must mail or otherwise deliver this documentation together with the Old Notes to the exchange agent. Old Notes tendered in the exchange offer must be in denominations of principal amount of $1,000 and any integral multiple thereof.
 
Special Procedures for Beneficial Holders If you beneficially own Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Old Notes in the exchange offer, you should contact the registered holder promptly and instruct them to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your Old Notes, either arrange to have your Old Notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.
 
Guaranteed Delivery Procedures You must comply with the applicable procedures for tendering if you wish to tender your Old Notes and:
 
• time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer; or
 
• you cannot complete the procedure for book-entry transfer on time; or
 
• your Old Notes are not immediately available.
 
Withdrawal Rights You may withdraw your tender of Old Notes at any time by or prior to 12:00 midnight, New York City time, on the expiration date, unless previously accepted for exchange.
 
Failure to Exchange Will Affect You Adversely If you are eligible to participate in the exchange offer and you do not tender your Old Notes, you will not have further exchange or registration rights, and you will continue to be restricted from transferring your Old Notes. Accordingly, the liquidity of the Old Notes will be adversely affected.
 
Federal Tax Considerations We believe that the exchange of the Old Notes for the New Notes pursuant to the exchange offer will not be a taxable event for United States federal income tax purposes. A holder’s holding period for New Notes will include the holding period for Old Notes, and the adjusted tax basis of the New Notes will be the same as the adjusted tax basis of the Old Notes exchanged.
 
Exchange Agent Bank of New York Mellon, trustee under the indenture under which the New Notes will be issued, is serving as exchange agent.
 
Use of Proceeds We will not receive any proceeds from the exchange offer.


4


 

SUMMARY TERMS OF THE NEW NOTES
 
The summary below describes the principal terms of the New Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions.
 
Issuers DynCorp International and DIV Capital. DIV Capital is a wholly owned subsidiary of DynCorp International with nominal assets and which conducts no business or operations. DynCorp International and DIV Capital are collectively referred to in this prospectus as the “issuers.”
 
Securities Offered The New Notes will be substantially identical to the Existing Notes. The form and terms of the New Notes will be the same as the form and terms of the Old Notes except that:
 
• the New Notes will have the same CUSIP number as that of the Existing Notes and a CUSIP number different from that of any Old Notes that remain outstanding after the completion of the exchange offer;
 
• the New Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer; and
 
• you will not be entitled to any exchange or registration rights with respect to the New Notes.
 
The New Notes will evidence the same debt as the Old Notes. The New Notes offered hereby, together with the Existing Notes and any Old Notes that remain outstanding after the completion of the exchange offer, will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase.
 
Maturity February 15, 2013.
 
Interest The New Notes will bear cash interest at the rate of 9.50% per annum (calculated using a 360-day year), payable semi-annually in arrears.
 
Payment frequency: every six months on February 15 and August 15.
 
First payment: February 15, 2009.
 
Guarantees Each of our existing and future domestic subsidiaries will guarantee the New Notes. Our foreign subsidiaries will not guarantee the New Notes. See “Description of New Notes — The Subsidiary Guarantees.”
 
Ranking and Subordination The New Notes will be our general unsecured obligations, will be subordinated to our existing and future senior debt and will rank equally with our existing and future senior subordinated debt, including the Existing Notes. The guarantees will be general unsecured obligations of each guarantor and will be structurally subordinated to all of the existing and future senior debt of our guarantor subsidiaries and will rank equally with any of our guarantor subsidiaries’ senior subordinated debt. The New Notes will be structurally subordinated to all obligations of DynCorp


5


 

International’s foreign subsidiaries, which will not guarantee the New Notes. For the fiscal year ended March 28, 2008 and the six months ended October 3, 2008, our non-guarantor subsidiaries represented 15.5% and 13.1% of our revenue, respectively, and, as of October 3, 2008, 4.9% of our total assets.
 
Because the New Notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the New Notes will not receive any payment until holders of senior indebtedness have been paid in full. As of October 3, 2008, after giving effect to the offering and sale of $125.0 million of the New Notes:
 
•   we would have had approximately $200,000,000 of senior indebtedness (consisting solely of borrowings under our senior secured credit facility); this amount does not include up to $187,600,000 of additional borrowings that are available under our senior secured credit facility, which gives effect to $12,400,000 in outstanding letters of credit;
 
•   we would have had $417,032,000 of senior subordinated indebtedness, consisting of $292,032,000 of outstanding Existing Notes and $125,000,000 of New Notes;
 
•   we would not have had any indebtedness that is subordinate to the New Notes; and
 
•   our foreign subsidiaries, which will not guarantee the New Notes, would not have any indebtedness outstanding to third parties.
 
See “Description of New Notes — Subordination.”
 
Optional Redemption Prior to February 15, 2009, we may redeem the New Notes, in whole or in part, at a price equal to 100% of the principal amount of the New Notes plus the make-whole premium described under “Description of New Notes — Optional Redemption,” plus accrued and unpaid interest and special interest, if any, to the redemption date.
 
After February 15, 2009, we may redeem the New Notes, in whole or in part, at the applicable redemption prices described under “Description of New Notes — Optional Redemption,” plus accrued and unpaid interest and special interest, if any, to the redemption date.
 
Mandatory Offer to Repurchase If we sell certain assets without applying the proceeds in a specified manner, or experience certain change of control events, each holder of New Notes may require us to repurchase all or a portion of its New Notes at the purchase prices set forth in this prospectus, plus accrued and unpaid interest and special interest, if any, to the repurchase date. See “Description of New Notes — Repurchase at the Option of Holders.” Our senior secured credit facility may restrict us from repurchasing any of the New Notes, including upon any repurchase we may be required to make as a result of a change of control or certain asset sales. See “Risk Factors — Risks Relating to the New Notes — We may not have the


6


 

ability to raise the funds necessary to finance the change of control offer required by the indenture.”
 
Covenants The indenture governing the New Notes contains covenants that will impose significant restrictions on our business. The restrictions that these covenants place on us and our restricted subsidiaries include limitations on our ability and the ability of our restricted subsidiaries to, among other things:
 
•   incur additional indebtedness or issue disqualified stock or preferred stock;
 
•   make investments;
 
•   sell assets;
 
•   create liens;
 
•   consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
 
•   enter into transactions with our affiliates; and
 
•   designate our subsidiaries as unrestricted subsidiaries.
 
These covenants are subject to important exceptions and qualifications, which are described under “Description of New Notes.”
 
Exchange Offer; Registration Rights You have the right to exchange the Old Notes for New Notes with substantially identical terms.
 
This exchange offer is intended to satisfy that right. The New Notes will not provide you with any further exchange or registration rights.
 
Resales Without Further Registration We believe that the New Notes issued in the exchange offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, if:
 
• you are acquiring the New Notes issued in the exchange offer in the ordinary course of your business;
 
• you have not engaged in, do not intend to engage in and have no arrangement or understanding with any person to participate in the distribution of the New Notes issued to you in the exchange offer; and
 
• you are not our “affiliate,” as defined under Rule 405 of the Securities Act.
 
Each broker-dealer that receives New Notes pursuant to the exchange offer must deliver a prospectus in connection with any resale of the New Notes. If the broker-dealer acquired the Old Notes as a result of market making or other trading activities, such broker-dealer must use the prospectus for the exchange offer, as supplemented or amended in connection with the resales of the New Notes. We do not intend to list the New Notes on any securities exchange.


7


 

Summary Consolidated Historical Financial Data
 
The summary consolidated historical financial data for fiscal 2006, 2007 and 2008 are derived from our audited consolidated financial statements. The summary consolidated financial information as of and for the six month periods ended September 28, 2007 and October 3, 2008 have been derived from our unaudited consolidated financial statements which, in our opinion, have been prepared on the same basis as the financial statements and include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the information included therein.
 
The information set forth below should be read in conjunction with the information under “Capitalization,”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes and the financial statements included elsewhere in this prospectus.
 
                                         
    Year Ended
    Year Ended
    Year Ended
    Six Months
    Six Months
 
    March 31,
    March 30,
    March 28,
    Ended September 28,
    Ended October 3,
 
    2006     2007     2008     2007     2008  
(Dollars in thousands)                              
 
STATEMENT OF OPERATIONS DATA:
                                       
Revenue
  $ 1,966,993     $ 2,082,274     $ 2,139,761     $ 1,043,782     $ 1,495,945  
Costs of services
    (1,722,089 )     (1,817,707 )     (1,859,666 )     (905,721 )     (1,334,908 )
Selling, general and administrative expenses
    (97,520 )     (107,681 )     (117,919 )     (51,463 )     (53,845 )
Depreciation and amortization
    (46,147 )     (43,401 )     (42,173 )     (20,991 )     (20,565 )
                                         
Operating income
    101,237       113,485       120,003       65,607       86,627  
Interest expense
    (56,686 )     (58,412 )     (55,374 )     (28,195 )     (29,120 )
Loss on early extinguishment of debt
          (3,484 )                 (4,443 )
Earnings from affiliates, net of dividends
          2,913       4,758       2,067       2,670  
Interest income
    461       1,789       3,062       1,680       1,021  
Other income
                199             1,665  
                                         
Income before income taxes
    45,012       56,291       72,648       41,159       58,390  
Provision for income taxes
    (16,627 )     (20,549 )     (27,999 )     (14,948 )     (18,447 )
                                         
Income before minority interest
    28,385       35,742       44,649       26,211       39,943  
Minority interest
                3,306             (9,092 )
                                         
Net income (loss)
  $ 28,385     $ 35,742     $ 47,955     $ 26,211     $ 30,851  
                                         
OTHER FINANCIAL DATA:
                                       
EBITDA(1)
  $ 148,718     $ 163,438     $ 174,820     $ 90,986     $ 103,978  
Purchases of property and equipment and software
    6,180       9,317       7,738       3,378       3,515  
Cash interest paid
    57,464       49,090       53,065       27,234       30,054  
Depreciation and amortization
    47,020       45,251       43,492       21,632       21,087  
Net cash provided by operating activities
    55,111       93,533       42,361       49,910       37,953  
Net cash used by investing activities
    (6,231 )     (7,595 )     (11,306 )     (3,220 )     (19,718 )
Net cash (used by) provided by financing activities
    (41,781 )     (4,056 )     (48,131 )     (39,083 )     29,165  
Ratio of earnings to fixed charges(2)
    1.6 x     1.7 x     2.0 x     2.1 x     2.4 x
SELECTED OPERATING INFORMATION (at end of period):
                                       
Backlog(3)
  $ 2,641,000     $ 6,132,011     $ 5,961,004     $ 2,718,145     $ 6,490,822  
Estimated Remaining Contract Value(4)
    5,727,000       8,991,150       7,484,516       5,360,053       10,057,022  
BALANCE SHEET DATA (at end of period)
                                       
Cash and cash equivalents
  $ 20,573     $ 102,455     $ 85,379     $ 110,062     $ 132,779  
Working capital(5)
    251,329       282,929       361,813       457,718       577,589  
Total assets
    1,239,089       1,362,901       1,402,709       1,359,790       1,548,717  
Total debt (including current portion)
    661,551       630,994       593,162       591,614       615,835  
Members’ equity
    326,159       379,674       424,285       405,725       466,703  


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(1) We define EBITDA as GAAP net income before depreciation and amortization, interest expense, and income taxes. Our management uses EBITDA as a supplemental measure in the evaluation of our business and believes that EBITDA provides a meaningful measure of our operational performance on a consolidated basis because it eliminates the effects of period to period changes in taxes, costs associated with capital investments and interest expense and is consistent with one of the measures used by us to evaluate management’s performance for incentive compensation. EBITDA is not a financial measure calculated in accordance with GAAP. Accordingly, it should not be considered in isolation or as a substitute for net income or other financial measures prepared in accordance with GAAP. When evaluating EBITDA, investors should consider, among other factors, (i) increasing or decreasing trends in EBITDA, (ii) whether EBITDA has remained at positive levels historically, and (iii) how EBITDA compares to our debt outstanding. The non-GAAP measure of EBITDA has certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. EBITDA also excludes depreciation and amortization expenses. Because these are material and recurring items, any measure that excludes them has a material limitation. To mitigate these limitations, we have policies and procedures in place to identify expenses that qualify as interest, taxes, depreciation and amortization and to segregate these expenses from other expenses to ensure that our EBITDA is consistently reflected from period to period. EBITDA excludes some items that affect net income and may vary among companies. EBITDA as presented by us may not be comparable to similarly titled measures of other companies. EBITDA does not give effect to the cash we must use to service our debt or pay income taxes and thus do not reflect the funds generated from operations or actually available for capital investments.
 
The following table presents a reconciliation of EBITDA to net income for the periods indicated.
 
                                         
    Year Ended
    Year Ended
    Year Ended
    Six Months
    Six Months
 
    March 31,
    March 30,
    March 28,
    Ended September 28,
    Ended October 3,
 
    2006     2007     2008     2007     2008  
(Dollars in thousands)                              
 
Net income
  $ 28,385     $ 35,742     $ 47,955     $ 26,211     $ 30,851  
Income taxes
    16,627       20,549       27,999       14,948       18,447  
Interest expense and loss on early extinguishment of debt(a)
    56,686       61,896       55,374       28,195       33,563  
Depreciation and amortization
    47,020       45,251       43,492       21,632       21,087  
                                         
EBITDA
  $ 148,718     $ 163,438     $ 174,820     $ 90,986     $ 103,978  
                                         
 
 
  (a)  Fiscal 2007 includes the premium associated with the redemption of a portion of the existing notes and write-off of deferred financing costs associated with the early retirement of a portion of the existing notes. The six months ended October 3, 2008 includes the write-off of deferred financing costs associated with our prior credit facility. These premiums and write-offs represent additional costs of financing and management of our capital structure.
 
(2) For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes adjusted for equity investees and minority interest plus fixed charges. Fixed charges consist of total interest expense and estimated interest in rental expense.
 
(3) Backlog data is as of the end of the applicable period. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contract options.


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(4) “Estimated Remaining Contract Value” represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from future task or delivery orders through the end of the term of such IDIQ contracts and is based on our experience under such IDIQ contracts and our estimates as to future performance.
 
(5) Working capital is defined as current assets, net of current liabilities.


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RISKS FACTORS
 
In addition to the other information set forth in this prospectus, you should carefully consider the following factors before tendering the Old Notes in exchange for the New Notes. The following risks could materially harm our business, financial condition or future results. If that occurs, the value of the New Notes could decline, and you could lose all or part of your investment.
 
Risks Relating to the Exchange Offer
 
If you fail to exchange Old Notes, existing transfer restrictions will remain in effect, and the market value of Old Notes may be adversely affected because they may be more difficult to sell.
 
If you fail to exchange Old Notes for New Notes under the exchange offer, then you will continue to be subject to the existing transfer restrictions on the Old Notes. In general, the Old Notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. Except in connection with this exchange offer or as required by the registration rights agreement, we do not intend to register resales of the Old Notes.
 
The tender of Old Notes under the exchange offer will reduce the principal amount of the currently outstanding Old Notes. Due to the corresponding reduction in liquidity, this may have an adverse effect upon, and increase the volatility of, the market price of any currently outstanding Old Notes that you continue to hold following the completion of the exchange offer.
 
Risks Related to our Indebtedness
 
Our substantial level of indebtedness may make it difficult for us to satisfy our debt obligations and may adversely affect our ability to obtain financing for working capital, capitalize on business opportunities or respond to adverse changes in our industry.
 
As of October 3, 2008, we had $615.8 million of total indebtedness and $187.6 million of additional borrowing capacity under our senior secured credit facility (which gives effect to $12.4 million of outstanding letters of credit). Based on our indebtedness and other obligations as of October 3, 2008, we estimate our remaining contractual commitments, including interest associated with our indebtedness and other obligations, will be $903.1 million in the aggregate for the remaining period between October 3, 2008 through the end of fiscal 2013. Such indebtedness could have material consequences for our business, operations and liquidity position, including the following:
 
  •  it may be more difficult for us to satisfy our debt obligations;
 
  •  our ability to obtain additional financing for working capital, debt service requirements, general corporate or other purposes may be impaired;
 
  •  we must use a substantial portion of our cash flow to pay interest and principal on our indebtedness which will reduce the funds available for other purposes;
 
  •  we are more vulnerable to economic downturns and adverse industry conditions;
 
  •  our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in our industry as compared to our competitors may be compromised due to the high level of indebtedness; and
 
  •  our ability to refinance indebtedness may be limited.


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Servicing our indebtedness requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations, which could adversely affect our financial condition.
 
Our ability to make payments on and to refinance our indebtedness depends on our ability to generate cash. This, to a certain extent, is subject to general economic, political, financial, competitive, legislative, regulatory and other factors that are beyond our control.
 
We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior secured credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness. We cannot assure you that we will be able to refinance any of our indebtedness, including our senior secured credit facility, on commercially reasonable terms or at all. In addition, the terms of existing or future debt agreements, including our senior secured credit facility and the indenture governing the Notes, may restrict us from carrying out any of these alternatives. If we are unable to generate sufficient cash flow or refinance our debt on favorable terms, it could significantly adversely affect our financial condition.
 
Despite our current indebtedness level, we and our subsidiaries may incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.
 
As of October 3, 2008, we had up to $187.6 million of additional availability under our senior secured credit facility (which gives effect to $12.4 million of outstanding letters of credit). The terms of the senior secured credit facility and the Notes do not fully prohibit us or our subsidiaries from incurring additional indebtedness. It is not possible to quantify the specific dollar amount of indebtedness we may incur because our senior secured credit facility does not provide for a specific dollar amount of indebtedness we may incur. Our senior secured credit facility and the Notes allow us to incur only certain indebtedness that is expressly enumerated in our senior secured credit facility and the indenture governing the Notes. If either we or our subsidiaries were to incur additional indebtedness, the related risks that we now face could increase.
 
The indenture governing the New Notes and our senior secured credit facility contain various covenants limiting the discretion of our management in operating our business.
 
Our indenture and senior secured credit facility contain various restrictive covenants that limit our management’s discretion in operating our business. These instruments limit our ability to engage in among other things the following activities, except as permitted by those instruments and as described under the captions “Description of Material Indebtedness” and “Description of New Notes”:
 
  •  incur additional indebtedness or guarantee obligations;
 
  •  repay indebtedness (including the New Notes) prior to stated maturities;
 
  •  make interest payments on the New Notes and other indebtedness that is subordinate to our indebtedness under the senior secured credit facility;
 
  •  pay dividends or make certain other restricted payments;
 
  •  make investments or acquisitions;
 
  •  create liens or other encumbrances; and
 
  •  transfer or sell certain assets or merge or consolidate with another entity.
 
In addition, our senior secured credit facility also requires us to maintain certain financial ratios and limits our ability to make capital expenditures. These financial ratios include a minimum interest coverage ratio and a leverage ratio. The interest coverage ratio is the ratio of consolidated EBITDA (as defined in our senior secured credit facility) to cash interest expense for the preceding four quarters. The leverage ratio is a ratio of our debt to our consolidated EBITDA for the preceding four quarters. The senior secured credit


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facility also restricts the maximum amount of our capital expenditures during each year of the term of the senior secured credit facility. Subject to certain exceptions, our capital expenditures may not exceed, in any fiscal year, the greater of $15 million or 5% of our consolidated EBITDA for the preceding fiscal year during the term of our senior secured credit facility. Capital expenditures are expenditures that are required by generally accepted accounting principles to be classified as capital expenditures in a statement of cash flows.
 
If we fail to comply with the restrictions in the indenture or our senior secured credit facility or any other subsequent financing agreements, a default may allow the creditors under the relevant instruments, in certain circumstances, to accelerate the related debt and to exercise their remedies thereunder, which will typically include the right to declare the principal amount of such debt, together with accrued and unpaid interest and other related amounts immediately due and payable, to exercise any remedies such creditors may have to foreclose on any of our assets that are subject to liens securing such debt and to terminate any commitments they had made to supply us with further funds. Moreover, any of our other debt that has a cross-default or cross-acceleration provision that would be triggered by such default or acceleration would also be subject to acceleration upon the occurrence of such default or acceleration.
 
Our ability to comply with these covenants may be affected by events beyond our control, and an adverse development affecting our business could require us to seek waivers or amendments of covenants, alternative or additional sources of financing or reductions in expenditures. We cannot assure you that such waivers, amendments or alternative or additional financings could be obtained, or if obtained, would be on terms acceptable to us. In addition, the holders of the New Notes will have no control over any waivers or amendments with respect to any debt outstanding other than the debt outstanding under the indenture.
 
In response to the requirements of the indenture, we recently delivered to the trustee certain officers’ certificates. Certain of these certificates were delivered after the required delivery dates under the indenture. Although no assurances are possible, we believe that, as a result of these deliveries, we are now in compliance with all provisions of the indenture.
 
Our ability to make payments under the New Notes and to service our other debt may depend on cash flow from our subsidiaries.
 
Although we are an operating company, our subsidiaries hold material assets. Consequently, we may depend on distributions or other intercompany transfers from our subsidiaries to make payments under the New Notes and our other debt. In addition, distributions and intercompany transfers to us from our subsidiaries will depend on:
 
  •  their earnings;
 
  •  covenants contained in our and their debt agreements, including the indenture relating to the Notes and our senior secured credit facility;
 
  •  covenants contained in other agreements to which we or our subsidiaries are or may become subject;
 
  •  business and tax considerations; and
 
  •  applicable law, including laws regarding the payment of dividends and distributions and fraudulent transfer laws.
 
The operating results of our subsidiaries at any given time may not be sufficient to make distributions or other payments to us or to ensure that any distributions and/or payments will be adequate to pay any amounts due under the New Notes or our other indebtedness.


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Risks Relating to the New Notes
 
Your right to receive payments on the New Notes is subordinated to our existing and future senior indebtedness, and the existing and future senior indebtedness of our subsidiary guarantors, including the senior secured credit facility.
 
The New Notes and the subsidiary guarantees will be subordinated in right of payment to the prior payment in full of our and our subsidiary guarantors’ respective current and future senior indebtedness, including our and their obligations under our senior secured credit facility. As a result of the subordination provisions of the New Notes, in the event of the bankruptcy, liquidation or dissolution of us or any subsidiary guarantor, our assets or the assets of the applicable subsidiary guarantor would be available to pay obligations under the New Notes and our other senior subordinated obligations only after all payments had been made on our senior indebtedness or the senior indebtedness of the applicable subsidiary guarantor. As more fully described under “Description of New Notes — Subordination,” all payments on the New Notes and the subsidiary guarantees will be prohibited in the event of a payment default on our senior indebtedness and, for limited periods, upon the occurrence of other defaults under our senior indebtedness.
 
In addition, we depend on our subsidiaries for substantially all of our cash flow. Pursuant to the terms of our senior secured credit facility, certain of our subsidiaries would be prohibited from paying dividends or making other distributions to us upon the occurrence of certain events of default under the senior secured credit facility. If any of our subsidiaries is not permitted to pay us dividends or other distributions, we may not have sufficient cash to fulfill our obligations under the New Notes.
 
The New Notes and the guarantees are unsecured and, therefore, our bank lenders and future secured creditors will have a prior claim on our assets to the extent of the value of the collateral securing their claims.
 
The New Notes and the guarantees will not be secured by any of our assets. Holders of our secured indebtedness and the secured indebtedness of the guarantors will have claims that are prior to your claims as holders of the New Notes to the extent of the value of the assets securing such indebtedness. As of October 3, 2008, we had $200.0 million (which amount does not include $12.4 million of outstanding letters of credit) of secured indebtedness under our senior secured credit facility and up to $187.6 million of additional availability of revolving credit under our senior secured credit facility, which gives effect to $12.4 million of outstanding letters of credit. As more fully discussed under the caption “Description of Material Indebtedness,” borrowings under our senior secured credit facility are secured by substantially all of our and our subsidiaries’ assets and the assets of our parent. In addition, we and our subsidiaries may incur certain amounts of additional secured indebtedness in the future, as permitted by the indenture and the senior secured credit facility. Sufficient assets may not remain after all of these payments have been made to make any payments on the New Notes and our other senior subordinated obligations, including payments of interest when due.
 
Not all of our subsidiaries will guarantee the New Notes. The New Notes will be structurally subordinated to indebtedness and other liabilities of our non-guarantor subsidiaries.
 
None of our foreign subsidiaries will guarantee the New Notes. Revenues from our non-guarantor subsidiaries for fiscal 2008 and for the six months ended October 3, 2008 were $331.0 million and $195.5 million, respectively, or 15.5% and 13.1% of our revenue, respectively. As of October 3, 2008, assets associated with these operations were $75.3 million, or 4.9% of our total assets. As of October 3, 2008, the non-guarantor subsidiaries had no debt outstanding to third parties.
 
In the event that any of the non-guarantor subsidiaries becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of their indebtedness and their trade creditors will be entitled to payment on their claims from the assets of those subsidiaries before any such subsidiary would be able to distribute any of their assets to DynCorp International or any guarantor.


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Consequently, your claims in respect of the New Notes are structurally subordinated to all of the existing and future indebtedness and other liabilities of the non-guarantor subsidiaries.
 
We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture.
 
Upon the occurrence of a “change of control,” as defined in the indenture, we must offer to buy back the New Notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest and special interest (as defined in the indenture), if any, to the date of the repurchase. Our failure to purchase, or give notice of purchase of, the New Notes would be a default under the indenture, which would also be a default under our senior secured credit facility. A change of control is generally defined in the indenture as:
 
  •  the direct or indirect sale or other disposition (other than by merger or consolidation) of all or substantially all of our properties or assets to any “person” other than to Veritas Capital or its affiliates;
 
  •  the adoption of a plan relating to our liquidation or dissolution;
 
  •  the consummation of any transaction (including any merger or consolidation), that would result in any “person” other than Veritas Capital or any of its affiliates becoming the beneficial owner of more than 50% of our voting stock; or
 
  •  the first day on which a majority of the members of our board of directors are not “continuing directors,” which generally means, as of the date of determination, any member of our board of directors who was a member on the date of the indenture; or was nominated for election or elected to our board of directors with the approval of a majority of our directors who were members of our board of directors at the time of the nomination or election.
 
If a change of control occurs, it is possible that we may not have sufficient assets at the time of the change of control to make the required repurchase of New Notes or to satisfy all obligations under our senior secured credit facility and the indenture. In order to satisfy our obligations, we could seek to refinance the indebtedness under our senior secured credit facility and the indenture or obtain a waiver from the lenders or the holders of the New Notes. We cannot assure you that we would be able to obtain a waiver or to refinance our indebtedness on terms acceptable to us, if at all.
 
Federal and state laws permit courts to void guarantees under certain circumstances.
 
The New Notes will be guaranteed by all of our domestic subsidiaries. The guarantees may be subject to review under U.S. federal bankruptcy law and comparable provisions of state fraudulent conveyance laws if a bankruptcy or reorganization case or lawsuit is commenced by or on behalf of our or one of a guarantor’s unpaid creditors. Under these laws, a court could void the obligations under the guarantee, subordinate the guarantee of the New Notes to that guarantor’s other debt or take other action detrimental to holders of the New Notes and the guarantees of the New Notes, if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
 
  •  issued the guarantee to delay, hinder or defraud present or future creditors;
 
  •  received less than reasonably equivalent value or fair consideration for issuing the guarantee at the time it issued the guarantee;
 
  •  was insolvent or rendered insolvent by reason of issuing the guarantee;
 
  •  was engaged, or about to engage, in a business or transaction for which its remaining unencumbered assets constituted unreasonably small capital to carry on its business; or
 
  •  intended to incur, or believed that it would incur, debts beyond its ability to pay as they mature.


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The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:
 
  •  the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;
 
  •  the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing indebtedness, including contingent liabilities, as they become absolute and mature; or
 
  •  it could not pay its indebtedness as it becomes due.
 
We cannot be sure as to the standard that a court would use to determine whether or not a guarantor was solvent at the relevant time, or, regardless of the standard that the court uses, that the issuance of the guarantees would not be voided or the guarantees would not be subordinated to the guarantors’ other debt. If such a case were to occur, the guarantee could also be subject to the claim that, since the guarantee was incurred for our benefit and only indirectly for the benefit of the guarantor, the obligations of the applicable guarantor were incurred for less than fair consideration.
 
There is no established trading market for the New Notes. If an actual trading market does not develop for the New Notes, you may not be able to resell them quickly, for the price that you paid or at all.
 
There is no established trading market for the New Notes. We do not intend to apply for the New Notes to be listed on any securities exchange or to arrange for any quotation on any automated dealer quotation systems. The initial purchasers of the Old Notes are not obligated to make a market in the New Notes and any market making in the New Notes may be discontinued at any time without notice. As a result, we cannot assure you as to the liquidity of any trading market for the New Notes.
 
We also cannot assure you that you will be able to sell the New Notes at a particular time or at all, or that the prices that you receive when you sell them will be favorable. If no active trading market develops, you may not be able to resell your notes at their fair market value, or at all. The liquidity of and trading market for the New Notes may also be adversely affected by, among other things:
 
  •  changes in the overall market for high-yield debt securities;
 
  •  changes in our financial performance or prospects;
 
  •  the prospects for companies in our industry generally;
 
  •  the number of holders of the New Notes;
 
  •  the interest of securities dealers in making a market for the New Notes;
 
  •  prevailing interest rates; and
 
  •  any rating assigned to the Notes by a rating agency, and any downgrade, suspension or withdrawal of such rating.
 
Historically, and particularly in recent months, the market for non-investment-grade debt has been subject to disruptions that have caused volatility in prices of securities similar to the New Notes. It is possible that the market for the New Notes will be subject to disruptions. Any disruptions may have a negative effect on noteholders, regardless of our prospects and financial performance.
 
Risks Relating to our Business
 
Current or worsening economic conditions could adversely impact our business.
 
Over the last several months, there has been a significant deterioration in the U.S. and global economy, which many economic observers expect to worsen and be prolonged. In addition, liquidity has contracted significantly and interest rates on new indebtedness have increased. We believe that our


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industry and customer base are less likely to be affected by many of the factors affecting business and consumer spending generally. Accordingly, we believe that we continue to be well positioned in the current economic environment as a result of historic demand factors affecting our industry, the nature of our contracts and our sources of liquidity. However, we cannot assure you that the economic environment or other factors will not adversely impact our business, financial condition or results of operations in the future. In particular, if the Federal government, due to budgetary considerations, accelerates the expected reduction in combat troops from Iraq, fails to implement expected troop increases in Afghanistan, otherwise reduces the DoD Operations and Maintenance budget or reduces funding for DoS initiatives in which we participate, our business, financial condition and results of operations could be adversely affected.
 
Furthermore, although we believe that our current sources of liquidity will enable us to continue to perform under our existing contracts and further grow our business, we cannot assure you that will be the case. A longer term credit crisis could adversely affect our ability to obtain additional liquidity or refinance existing indebtedness on acceptable terms or at all, which could adversely affect our business, financial condition and results of operations.
 
We rely on sales to U.S. government entities. A loss of contracts, a failure to obtain new contracts or a reduction of sales under existing contracts with the U.S. government could adversely affect our operating performance and our ability to generate cash flow to fund our operations.
 
We derive approximately 95% of our revenue from contracts and subcontracts with the U.S. government and its agencies, primarily the DoD and the DoS. The remainder of our revenue is derived from commercial contracts and contracts with foreign governments. We expect that U.S. government contracts, particularly with the DoD and the DoS, will continue to be our primary source of revenue for the foreseeable future. The continuation and renewal of our existing government contracts and new government contracts are, among other things, contingent upon the availability of adequate funding for various U.S. government agencies, including the DoD and the DoS. Changes in U.S. government spending could directly affect our operating performance and lead to an unexpected loss of revenue. The loss or significant reduction in government funding of a large program in which we participate could also result in a material decrease to our future sales, earnings and cash flows. U.S. government contracts are also conditioned upon the continuing approval by Congress of the amount of necessary spending. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract periods of performance may extend over many years. Consequently, at the beginning of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. Among the factors that could impact U.S. government spending and reduce our federal government contracting business include:
 
  •  policy and/or spending changes implemented by the new Presidential administration;
 
  •  a significant decline in, or reapportioning of, spending by the U.S. government, in general, or by the DoD or the DoS, in particular;
 
  •  changes, delays or cancellations of U.S. government programs, requirements or policies;
 
  •  the adoption of new laws or regulations that affect companies that provide services to the U.S. government;
 
  •  U.S. government shutdowns or other delays in the government appropriations process;
 
  •  curtailment of the U.S. government’s outsourcing of services to private contractors;
 
  •  changes in the political climate, including with regard to the funding or operation of the services we provide; and
 
  •  general economic conditions, including a slowdown in the economy or unstable economic conditions in the United States or in the countries in which we operate.


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These or other factors could cause U.S. government agencies to reduce their purchases under our contracts, to exercise their right to terminate our contracts in whole or in part, to issue temporary stop-work orders, or decline to exercise options to renew, our contracts. The loss or significant curtailment of our material government contracts, or our failure to renew existing contracts or enter into new contracts could adversely affect our operating performance and lead to an unexpected loss of revenue.
 
Our U.S. government contracts may be terminated by the U.S. government at any time prior to their completion and contain other unfavorable provisions, which could lead to an unexpected loss of revenue and a reduction in backlog.
 
Under the terms of our contracts, the U.S. government may unilaterally:
 
  •  terminate or modify existing contracts;
 
  •  reduce the value of existing contracts through partial termination;
 
  •  delay the payment of our invoices by government payment offices;
 
  •  audit our contract-related costs and fees; and
 
  •  suspend us from receiving new contracts pending the resolution of alleged violations of procurement laws or regulations.
 
The U.S. government can terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform under the terms of the applicable contract. A termination arising out of our default could expose us to liability and adversely affect our operating performance and lead to an unexpected loss of revenue.
 
Our U.S. government contracts typically have an initial term of one year with multiple option periods, exercisable at the discretion of the government at previously negotiated prices. The government is not obligated to exercise any option under a contract. Furthermore, the government is typically required to compete all programs and, therefore, may not automatically renew a contract. In addition, at the time of completion of any of our government contracts, the contract is frequently required to be re-competed if the government still requires the services covered by the contract.
 
If the U.S. government terminates and/or materially modifies any of our contracts or if option periods are not exercised, our failure to replace revenue generated from such contracts would result in lower revenue and would likely adversely affect our earnings, which would have a material adverse effect on our financial condition and results of operations.
 
Our U.S. government contracts are subject to competitive bidding, both upon initial issuance and re-competition. If we are unable to successfully compete in the bidding process or if we fail to win recompetitions, it could adversely affect our operating performance and lead to an unexpected loss of revenue.
 
Substantially all of our U.S. government contracts are awarded through a competitive bidding process upon initial award and renewal, and we expect that this will continue to be the case. There often is significant competition and pricing pressure as a result of this process. The competitive bidding process presents a number of risks, including the following:
 
  •  we may expend substantial funds and time to prepare bids and proposals for contracts that may ultimately be awarded to one of our competitors;
 
  •  we may be unable to estimate accurately the resources and costs that will be required to perform any contract we are awarded, which could result in substantial cost overruns; and
 
  •  we may encounter expense and delay if our competitors protest or challenge awards of contracts to us, and any such protest or challenge could result in a requirement to resubmit bids on modified specifications or in the termination, reduction or modification of the awarded contract. Additionally,


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  the protest of contracts awarded to us may result in the delay of program performance and the generation of revenues while the protest is pending.
 
The government contracts for which we compete typically have multiple option periods, and if we fail to win a contract or a task order, we generally will be unable to compete again for that contract for several years. If we fail to win new contracts or to receive renewal contracts upon re-competition, it may result in additional costs and expenses and possible loss of revenue, and we will not have an opportunity to compete for these contract opportunities again until such contracts expire.
 
Because of the nature of our business, it is not unusual for us to lose contracts to competitors or to gain contracts once held by competitors during recompete periods. Additionally, some contracts simply end as projects are completed or funding is terminated.
 
Our operations involve considerable risks and hazards. An accident or incident involving our employees or third parties could harm our reputation, affect our ability to compete for business and, if not adequately insured or indemnified against, could adversely affect our results of operations and financial condition.
 
We are exposed to liabilities arising out of the services we provide. Such liabilities may relate to an accident or incident involving our employees or third parties, particularly where we are deployed on-site at active military installations or in locations experiencing political or civil unrest, or they may relate to an accident or incident involving aircraft or other equipment we have serviced or used in the course of our business. Any of these types of accidents or incidents could involve significant potential claims of injured employees and other third parties and claims relating to loss of or damage to government or third-party property.
 
We currently operate in countries such as Iraq, where our defensive use of force does not currently subject us or our employees to host country laws or liabilities. However, legislative initiatives are pending which, if adopted, could significantly alter our exposure and our employees’ exposure to such laws and liabilities. Such legislation could increase our costs of operations and make it more difficult to recruit employees willing to serve in such places.
 
We maintain insurance policies that mitigate risk and potential liabilities related to our operations. This insurance is maintained in amounts that we believe is reasonable. Our insurance coverage may not be adequate to cover those claims or liabilities and we may be forced to bear substantial costs from an accident or incident. Substantial claims in excess of our related insurance coverage could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
Furthermore, any accident or incident for which we are liable, even if fully insured, may result in negative publicity which could adversely affect our reputation among our customers, including our government customers, and the public, which could result in us losing existing and future contracts or make it more difficult for us to compete effectively for future contracts. This could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
Political destabilization or insurgency in the regions in which we operate could have a material adverse effect on our operating performance.
 
Certain regions in which we operate are highly unstable. Insurgent activities in the areas in which we operate may cause further destabilization in these regions. There can be no assurance that the regions in which we operate will continue to be stable enough to allow us to operate profitably or at all. For the fiscal year ended March 28, 2008 and for the six months ended October 3, 2008, revenue generated from our operations in the Middle East contributed 52% and 51% of our revenue, respectively. Insurgents in Iraq and Afghanistan have targeted installations where we have personnel and such insurgents have contributed to instability in these countries. This could impair our ability to attract and deploy personnel to perform services in either or both locations. In addition, we have been required to increase compensation to our personnel as an incentive to deploy them to these regions. To date, we have been able to recover this added cost under the contracts, but there is no guarantee that future increases, if required, will be able to be


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passed onto our customers through our contracts. To the extent that we are unable to pass through such increased compensation costs to our customers, our operating margins would be adversely impacted, which could adversely affect our operating performance. In addition, increased insurgent activities or destabilization, including civil unrest or a civil war in Iraq or Afghanistan, may lead to a determination by the U.S. government to halt our operations in a particular location, country or region and to perform the services using military personnel. Furthermore, in extreme circumstances, the U.S. government may decide to terminate all U.S. government activities including our operations under U.S. government contracts in a particular location, country or region and to withdraw all military personnel. The change of U.S. presidential administrations in January 2009 may lead to policy changes with respect to U.S. government activities in Iraq. Congressional pressure to reduce, if not eliminate, the number of U.S. troops in Iraq or Afghanistan, may also lead to U.S. government procurement actions that reduce or terminate the services and support we provide in that theater of conflict. Any of the foregoing could adversely affect our operating performance and may result in additional costs and expenses and loss of revenue.
 
We are exposed to risks associated with operating internationally.
 
A large portion of our business is conducted internationally. Consequently, we are subject to a variety of risks that are specific to international operations, including the following:
 
  •  export regulations that could erode profit margins or restricted exports;
 
  •  compliance with the U.S. Foreign Corrupt Practices Act;
 
  •  the burden and cost of compliance with foreign laws, treaties and technical standards and changes in those regulations;
 
  •  contract award and funding delays;
 
  •  potential restrictions on transfers of funds;
 
  •  foreign currency fluctuations;
 
  •  import and export duties and value added taxes;
 
  •  transportation delays and interruptions;
 
  •  uncertainties arising from foreign local business practices and cultural considerations;
 
  •  requirements by foreign governments that we make a minimum level of local investments as part of our contracts with them, which investments may not yield any return; and
 
  •  potential military conflicts, civil strife and political risks.
 
While we have and will continue to adopt measures to reduce the potential impact of losses resulting from the risks of our foreign business, we cannot ensure that such measures will be adequate.
 
Our IDIQ contracts are not firm orders for services, and we may never receive revenue from these contracts, which could adversely affect our operating performance.
 
Many of our government contracts are IDIQ contracts, which are often awarded to multiple contractors. The award of an IDIQ contract does not represent a firm order for services. Generally, under an IDIQ contract, the government is not obligated to order a minimum of services or supplies from its contractor, irrespective of the total estimated contract value. Furthermore, under an IDIQ contract, the customer develops requirements for task orders that are competitively bid against all of the contract awardees, usually under a best-value approach. However, many contracts also permit the government customer to direct work to a specific contractor. Our Civilian Police, Contract Field Team and LOGCAP IV programs are three of our contracts performed under IDIQ contracts. We may not win new task orders under these contracts for various reasons, such as failing to rapidly deploy personnel or high prices, which would have an adverse effect on our operating performance and may result in additional expenses and loss of revenue. There can be no assurance that our existing IDIQ contracts will result in actual revenue during


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any particular period or at all. In fiscal 2008 and the six months ended October 3, 2008, 52% and 59% of our revenue, respectively, was attributable to IDIQ contracts.
 
Our cost of performing under time-and-materials and fixed-price contracts may exceed our revenue, which would result in a recorded loss on the contracts.
 
Our government contract services have three distinct pricing structures: cost-reimbursement, time-and-materials and fixed-price. With cost-reimbursement contracts, so long as actual costs incurred are within the contract funding and allowable under the terms of the contract, we are entitled to reimbursement of the costs plus a stipulated fixed fee and, in some cases, an incentive-based award fee. We assume additional financial risk on time-and-materials and fixed-price contracts, however, because we assume the risk of performing those contracts at the stipulated prices or negotiated hourly/daily rates. If we do not accurately estimate ultimate costs and control costs during performance of the work, we could lose money on a particular contract or have lower than anticipated margins. Also, we assume the risk of damage or loss to government property and we are responsible for third- party claims under fixed-price contracts. The failure to meet contractually defined performance standards may result in a loss of a particular contract or lower-than-anticipated margins. This could adversely affect our operating performance and may result in additional costs and expenses and possible loss of revenue.
 
A negative audit or other actions by the U.S. government could adversely affect our operating performance.
 
At any given time, many of our contracts are under review by the Defense Contract Audit Agency, or “DCAA,” and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. Such DCAA audits may include contracts under which we have performed services in Iraq and Afghanistan under especially demanding circumstances. The DCAA also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed. In addition, government contract payments received by us for allowable direct and indirect costs are subject to adjustment after audit by government auditors and repayment to the government if the payments exceed allowable costs as defined in the government contracts.
 
Audits have been completed on our incurred contract costs through fiscal year 2005 and the Defense Contract Management Agency has approved these costs through fiscal year 2003. Audits and approvals are continuing for subsequent periods. We cannot predict the outcome of such audits and what, if any, impact such audits may have on our future operating performance. For further discussion, see “Business — Legal Proceedings”.
 
We are subject to investigation by the U.S. government, which could result in our inability to receive government contracts and could adversely affect our future operating performance.
 
As a U.S. government contractor, we must comply with laws and regulations relating to U.S. government contracts that do not apply to a commercial company. From time to time, we are investigated by government agencies with respect to our compliance with these laws and regulations. If we are found to be in violation of the law, we may be subject to civil or criminal penalties or administrative sanctions, including contract termination, the assessment of penalties and suspension or prohibition from doing business with U.S. government agencies. For example, many of the contracts we perform in the United States are subject to the Service Contract Act, which requires hourly employees to be paid certain specified wages and benefits. If the U.S. Department of Labor determines that we violated the Service Contract Act or its implementing regulations, we could be suspended from being awarded new government contracts or renewals of existing contracts for a period of time, which could adversely affect our future operating performance. We are subject to a greater risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities than companies with solely commercial customers. In addition, if an audit uncovers improper or illegal activities, we may be subject to civil and


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criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government.
 
Furthermore, our reputation could suffer serious harm if allegations of impropriety were made against us. If we were suspended or prohibited from contracting with the U.S. government, or any significant U.S. government agency, if our reputation or relationship with U.S. government agencies was impaired or if the U.S. government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, it could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
U.S. government contractors like us that provide support services in theaters of conflict such as Iraq have come under increasing scrutiny by agency inspector generals, government auditors and congressional committees. Investigations pursued by any or all of these groups may result in adverse publicity for us and consequent reputational harm, regardless of the underlying merit of the allegations being investigated. As a matter of general policy, we have cooperated and expect to continue to cooperate with government inquiries of this nature.
 
The expiration of our collective bargaining agreements could result in increased operating costs or work disruptions, which could potentially affect our operating performance.
 
As of October 3, 2008, we had approximately 23,000 employees located in approximately 30 countries around the world. Of these employees, approximately 2,600 are represented by labor unions. As of October 3, 2008, we had approximately 73 collective bargaining agreements with these unions. These agreements expire between the current date and November 2011. There can be no assurance that we will not experience labor disruptions associated with the expiration or renegotiation of collective bargaining agreements or otherwise. We could experience a significant disruption of operations and increased operating costs as a result of higher wages or benefits paid to union members, which could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
Proceedings against us in domestic and foreign courts could result in legal costs and adverse monetary judgments, adversely affect our operating performance and cause harm to our reputation.
 
We are involved in various claims and lawsuits from time to time. For example, we are a defendant in two consolidated lawsuits seeking unspecified damages brought by citizens and certain provinces of Ecuador. The basis for the actions, both pending in U.S. District Court for the District of Columbia, arises from our performance of a U.S. Department of State contract for the eradication of narcotic plant crops in Colombia. The lawsuits allege personal injury, property damage and wrongful death as a consequence of the spraying of narcotic crops along the Colombian border adjacent to Ecuador. In the event that a court decides against us in these lawsuits and we are unable to obtain indemnification from the government or from Computer Sciences Corporation, from whom our business was acquired in 2005, in one of the cases, or contributions from the other defendants, we may incur substantial costs, which could have a material adverse effect on our results. An adverse ruling in these cases also could adversely affect our reputation and have a material adverse effect on our ability to win future government contracts.
 
Other litigation in which we are involved includes wrongful termination and other adverse employment actions, breach of contract, personal injury and property damage actions filed by third parties. Actions involving third-party liability claims generally are covered by insurance; however, in the event our insurance coverage is inadequate to cover such claims, we will be forced to bear the costs arising from a judgment. We do not have insurance coverage for adverse employment and breach of contract actions and we bear all costs associated with such litigation and claims.


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


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customers’ needs and increase the costs and time required to perform our contractual obligations. This could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
Loss of our skilled personnel, including members of senior management, may have an adverse effect on our operations and/or our operating performance.
 
Our continued success depends in large part on our ability to recruit and retain the skilled personnel necessary to serve our customers effectively, including personnel with extensive military and law enforcement training and backgrounds. The proper execution of our contract objectives depends upon the availability of quality resources, especially qualified personnel. Given the nature of our business, we have substantial need for personnel who are willing to work overseas, frequently in locations experiencing political or civil unrest, for extended periods of time and often on short notice. We may not be able to meet the need for qualified personnel as such need arises.
 
In addition, we must comply with provisions in U.S. government contracts that require employment of persons with specified work experience and security clearances. An inability to maintain employees with the required security clearances could have a material adverse effect on our ability to win new business and satisfy our existing contractual obligations, and could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
The loss of services of any of the members of our senior management could adversely affect our business until a suitable replacement can be found. There may be a limited number of personnel with the requisite skills to serve in these positions, and we may be unable to locate or employ such qualified personnel on acceptable terms.
 
If our subcontractors or joint venture partners fail to perform their contractual obligations, then our performance as the prime contractor and our ability to obtain future business could be materially and adversely impacted.
 
Many of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to our customers. These subcontractors generally perform niche or specialty services for which they have more direct experience, such as construction, catering services or specialized technical services, or they have local knowledge of the region in which we will be performing and the ability to communicate with local nationals and assist in making arrangements for commencement of performance. Often, we enter into subcontract arrangements in order to meet government requirements to award certain categories of services to small businesses. A failure by one or more of our subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact our ability to perform our obligations as the prime contractor. Such subcontractor performance deficiencies could result in a customer terminating our contract for default. A default termination could expose us to liability and adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
We often enter into joint ventures so that we can jointly bid and perform on a particular project. The success of these and other joint ventures depends, in large part, on the satisfactory performance of the contractual obligations by our joint venture partners. If our partners do not meet their obligations, the joint ventures may be unable to adequately perform and deliver its contracted services. Under these circumstances, we may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture, which could also affect our reputation in the industries we serve.


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Environmental laws and regulations may subject us to significant costs and liabilities that could adversely affect our operating performance.
 
We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. In the U.S., these laws and regulations include those governing the management and disposal of hazardous substances and wastes and the maintenance of a safe workplace, primarily associated with our aviation services activities, including painting aircraft and handling substances that may qualify as hazardous waste, such as used batteries and petroleum products. In addition to U.S. federal laws and regulations, states and other countries where we do business have numerous environmental, legal and regulatory requirements by which we must abide. We could incur substantial costs, including clean-up costs, as a result of violations of, or liabilities under, environmental laws. This could adversely affect our operating performance and may result in additional expenses and possible loss of revenue.
 
We are subject to the Internal Control Evaluation and Attestation Requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
 
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting and our audited financial statements as of the end of each fiscal year. Furthermore, our independent registered public accounting firm is required to report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of the end of each fiscal year. In future years, if we fail to timely complete this assessment, or if our independent registered public accounting firm cannot timely attest to the effectiveness of our internal control over financial reporting, we could be subject to regulatory sanctions and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.
 
We are controlled by affiliates of Veritas Capital, whose interests may not be aligned with yours.
 
We are a direct wholly owned subsidiary of DynCorp International Inc., our parent, and an indirect subsidiary of DIV Holding LLC or “DIV Holding”. DIV Holding is our parent’s controlling stockholder. Veritas Capital, in turn, owns a controlling interest in the outstanding membership interests in DIV Holding. Through its interest in DIV Holding, Veritas Capital indirectly controls approximately 56.1% of our parent’s Class A common stock. So long as Veritas Capital continues to beneficially own a significant amount of the outstanding shares of our parent’s Class A common stock, it will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions. As a result, Veritas Capital is able to control the election of our parent’s directors, determine our and our parent’s corporate and management policies and determine, without the consent of our parent’s other stockholders, the outcome of any corporate transaction or other matter submitted to our parent’s stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. Two of our parent’s thirteen directors are employees of Veritas Capital. Veritas Capital has sufficient voting power to amend our parent’s organizational documents. The interests of Veritas Capital may not coincide with the interests of other holders of our parent’s Class A common stock. Additionally, Veritas Capital is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Veritas Capital may also pursue, for its own account, acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. In addition, our parent’s bylaws provide that so long as Veritas Capital beneficially owns a majority of our parent’s outstanding Class A common stock, the advance notice procedures for stockholder proposals will not apply to it. Amendment of the provisions described above in our parent’s amended and restated certificate of incorporation generally will require an affirmative vote of our parent’s directors, as well as the affirmative vote of at least a majority of our parent’s then outstanding voting stock if Veritas Capital beneficially owns a majority


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of our parent’s outstanding Class A common stock, or the affirmative vote of at least 80% of our parent’s then outstanding voting stock if Veritas Capital beneficially owns less than a majority of our parent’s then outstanding Class A common stock. Amendments to any other provisions of our parent’s amended and restated certificate of incorporation generally will require the affirmative vote of a majority of our parent’s outstanding voting stock. In addition, because our parent is a controlled company within the meaning of the New York Stock Exchange rules, our parent’s board is exempt from the New York Stock Exchange requirements that it be composed of a majority of independent directors, and that its compensation and corporate governance committees be composed entirely of independent directors.
 
DIV Holding is a party to a registration rights agreement, which grants it rights to require our parent to effect the registration of its shares of common stock. In addition, if our parent proposes to register any of its common stock under the Securities Act, whether for its own account or otherwise, DIV Holding is entitled to include its shares of common stock in that registration.


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INFORMATION REGARDING FORWARD LOOKING STATEMENTS
 
This prospectus contains various forward looking statements. All statements other than statements of historical fact are forward looking statements. Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward looking statements. Statements regarding the amounts of our backlog, estimated remaining contract values and estimated total contract values are other examples of forward looking statements. Forward looking statements involve risks and uncertainties. We caution that these statements are further qualified by important economic, competitive, governmental and technological factors that could cause our business, strategy or actual results or events to differ materially, or otherwise, from those in the forward looking statements. These factors, risks and uncertainties include, among others, the following:
 
  •  our substantial level of indebtedness;
 
  •  policy and/or spending changes implemented by the new Presidential administration;
 
  •  termination of key U.S. government contracts;
 
  •  changes in the demand for services that we provide;
 
  •  pursuit of new commercial business and foreign government opportunities;
 
  •  activities of competitors;
 
  •  bid protests;
 
  •  changes in significant operating expenses;
 
  •  changes in availability of or cost of capital;
 
  •  general political, economic and business conditions in the United States;
 
  •  acts of war or terrorist activities;
 
  •  variations in performance of financial markets;
 
  •  the inherent difficulties of estimating future contract revenues;
 
  •  anticipated revenue from IDIQ contracts;
 
  •  expected percentages of future revenue represented by fixed-price and time-and-materials contracts; and
 
  •  other risks detailed in this prospectus, including those under “Risk Factors.”
 
Accordingly, such forward looking statements do not purport to be predictions of future events or circumstances; therefore, there can be no assurance that any forward looking statement contained herein will prove to be accurate. We assume no obligation to update the forward looking statements.


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USE OF PROCEEDS
 
This exchange offer is intended to satisfy our obligations under the registration rights agreement entered into in connection with the offering of $125.0 million of Old Notes during July 2008. We will not receive any proceeds from the exchange offer. In consideration for issuing the New Notes, we will receive Old Notes with like original principal amount. The form and terms of the Old Notes are the same as the form and terms of the New Notes, except as otherwise described in this prospectus. The Old Notes surrendered in exchange for the New Notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the New Notes will not result in any increase in our outstanding debt.
 
The net proceeds from the offering of the Old Notes issued during July 2008, together with the proceeds from our senior secured credit facility entered into at the same time, were approximately $323.8 and were used to refinance our then existing senior secured credit facility, to pay related fees and expenses and for general corporate purposes.


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RATIO OF EARNINGS TO FIXED CHARGES
 
The table below sets forth our ratio of earnings to fixed charges for the periods indicated on a consolidated historical basis, except as indicated below. For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes adjusted for equity investees and minority interest plus fixed charges. Fixed charges consist of total interest expense and estimated interest in rental expense.
 
                                                 
        Six Months
    Fiscal Year Ended   Ended October 3,
    2004   2005   2006   2007   2008   2008
 
Ratio of earnings to fixed charges
    8.9x       1.3x (1)     1.6x       1.7x       2.0x       2.4x  
 
 
(1) The ratio of earnings to fixed charges for fiscal year 2005 has been calculated on a pro forma basis giving effect to the acquisition of our business from Computer Sciences Corporation and the financing transactions in connection with the acquisition.


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CAPITALIZATION
 
The following table sets forth both our capitalization and cash and cash equivalents as of October 3, 2008. You should read this table together with our historical financial statements and the related notes thereto included elsewhere in this prospectus. For additional information regarding our outstanding indebtedness and the New Notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”, “Description of Material Indebtedness” and “Description of New Notes”.
 
         
    As of
 
    October 3,
 
(Dollars in thousands)   2008  
 
Cash and cash equivalents
  $ 132,779  
         
Long-term debt, including current portion:
       
Senior secured credit facility
       
Revolving credit facility(1)
     
Term loan facility
    200,000  
Old Notes issued July 2008
    123,800  
Existing Notes
    292,032  
         
Total long-term debt, including current portion
    615,835  
Total equity
    466,703  
         
Total capitalization
  $ 1,082,538  
         
 
 
(1) Excludes $12.4 million of outstanding letters of credit as of October 3, 2008.
 
(2) Net of $1.2 million unamortized discount.


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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
On March 7, 2003, DynCorp International and its subsidiaries were acquired by Computer Sciences Corporation. The selected historical consolidated financial data as of and for the fiscal year ended April 2, 2004 and for the period from April 3, 2004 through February 11, 2005, the period of Computer Science Corporation’s ownership, are derived from our consolidated financial statements and that period is referred to as the “immediate predecessor” period.
 
On February 11, 2005, DynCorp International was sold by Computer Sciences Corporation to an entity controlled by Veritas Capital. The period that commenced on February 12, 2005 is referred to as the “successor” period. The selected historical consolidated financial data as of and for the period from February 12, 2005 through April 1, 2005 and as of and for the fiscal years ended March 31, 2006, March 30, 2007 and March 28, 2008 are derived from our audited consolidated financial statements included herein. The summary consolidated financial information as of and for the six month periods ended September 28, 2007 and October 3, 2008 have been derived from our unaudited consolidated financial statements which, in our opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the information included therein.
 
We report the results of our operations using a 52-53 week basis. In line with this reporting schedule, each quarter of the fiscal year contains 13 weeks, except for the infrequent fiscal years with 53 weeks. The fiscal year ended April 2, 2004 was a 53-week year. The fiscal years ended March 31, 2006, March 30, 2007 and March 28, 2008 were 52-week years.
 
This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus.
 
                                                                   
    Immediate Predecessor       Successor  
    Fiscal Year
    April 3, 2004
      49 Days
                               
    Ended
    to
      Ended
    Fiscal Year Ended     Six Months Ended  
    April 2,
    Feb 11,
      April 1,
    March 31,
    March 30,
    March 28,
    September 28,
    October 3,
 
(Dollars in thousands)   2004     2005       2005     2006     2007     2008     2007     2008  
STATEMENT OF OPERATIONS DATA:
                                                                 
Revenue
  $ 1,214,289     $ 1,654,305       $ 266,604     $ 1,966,993     $ 2,082,274     $ 2,139,761     $ 1,043,782     $ 1,495,945  
Cost of services
    (1,106,571 )     (1,496,109 )       (245,406 )     (1,722,089 )     (1,817,707 )     (1,859,666 )     (905,721 )     (1,334,908 )
Selling, general and administrative expenses
    (48,350 )     (57,755 )       (8,408 )     (97,520 )     (107,681 )     (117,919 )     (51,463 )     (53,845 )
Depreciation and amortization
    (8,148 )     (5,922 )       (5,605 )     (46,147 )     (43,401 )     (42,173 )     (20,991 )     (20,565 )
Operating income
    51,220       94,519         7,185       101,237       113,485       120,003       65,607       86,627  
Interest expense
                  (8,054 )     (56,686 )     (58,412 )     (55,374 )     (28,195 )     (29,120 )
Loss on early extinguishment of debt
                              (3,484 )                 (4,443 )
Earnings from affiliates, net of dividends
                              2,913       4,758       2,067       2,670  
Interest income
    64       170         7       461       1,789       3,062       1,680       1,021  
Other income
                                    199             1,665  
Income before income taxes
    51,284       94,689         (862 )     45,012       56,291       72,648       41,159       58,390  
Provision for income taxes
    (19,924 )     (34,956 )       (60 )     (16,627 )     (20,549 )     (27,999 )     (14,948 )     (18,447 )
Income before minority interest
    31,360       59,733         (922 )     28,385       35,742       44,649       26,211       39,943  
Minority interest
                                    3,306             (9,092 )
Net income (loss)
    31,360       59,733         (922 )     28,385       35,742       47,955       26,211       30,851  
OTHER FINANCIAL DATA:
                                                                 
Purchases of property and equipment and software
  $ 2,047     $ 8,473       $ 244     $ 6,180     $ 9,317     $ 7,738     $ 3,378     $ 3,515  
Cash interest paid
                  322       57,464       49,090       53,065       27,234       30,054  
Depreciation and amortization
    8,148       5,922         5,605       47,020       45,251       43,492       21,632       21,087  
Net cash provided (used) by operating activities
    (6,756 )     (2,092 )       (31,240 )     55,111       93,533       42,361       49,910       37,953  
Net cash used by investing activities
    (2,292 )     (10,707 )       (869,394 )     (6,231 )     (7,595 )     (11,306 )     (3,220 )     (19,718 )


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    Immediate Predecessor       Successor  
    Fiscal Year
    April 3, 2004
      49 Days
                               
    Ended
    to
      Ended
    Fiscal Year Ended     Six Months Ended  
    April 2,
    Feb 11,
      April 1,
    March 31,
    March 30,
    March 28,
    September 28,
    October 3,
 
(Dollars in thousands)   2004     2005       2005     2006     2007     2008     2007     2008  
Net cash (used) provided by financing activities
  $ 11,017     $ 14,325       $ 906,072     $ (41,781 )   $ (4,056 )   $ (48,131 )   $ (39,083 )   $ 29,165  
Ratio of earnings to fixed charges(1)
    8.9 x     26.2 x       0.9 x     1.6 x     1.7 s     2.0 x     2.1 x     2.4 x
SELECTED OPERATING INFORMATION (at end of period)
                                                                 
Backlog(2)
  $ 2,164,000       N/A       $ 2,040,000     $ 2,641,000     $ 6,132,011     $ 5,961,004     $ 2,718,145     $ 6,490,822  
Estimated remaining contract value(3)
    2,812,000       N/A         4,413,000       5,727,000       8,991,150       7,484,516       5,360,053       10,057,022  
BALANCE SHEET DATA (at end of period):
                                                                 
Cash and cash equivalents
  $ 6,510       N/A       $ 13,474     $ 20,573     $ 102,455     $ 85,379     $ 110,062     $ 132,779  
Working capital(4)
    104,335       N/A         200,367       251,329       282,929       361,813       457,718       577,589  
Total assets
    579,829       N/A         1,148,193       1,239,089       1,362,901       1,402,709       1,359,790       1,548,717  
Total debt (including current portion)
    N/A       N/A         700,000       661,551       630,994       593,162       591,614       615,835  
Members’ equity
    396,573       N/A         223,908       326,159       379,674       424,285       405,725       466,703  
                                                                   
 
 
(1) For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes adjusted for equity investees and minority interest plus fixed charges. Fixed charges consist of total interest expense and estimated interest in rental expense. On a pro forma basis after giving effect to the acquisition of our business from Computer Sciences Corporation and the financing transactions in connection with the acquisition, our ratio of earnings to fixed charges for fiscal year 2005 was 1.3x.
 
(2) Backlog data is as of the end of the applicable period. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contract options.
 
(3) “Estimated Remaining Contract Value” represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from future task or delivery orders through the end of the term of such IDIQ contracts and is based on our experience under such IDIQ contracts and our estimates as to future performance.
 
(4) Working capital is defined as current assets, net of current liabilities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and other data contained elsewhere in this prospectus. Please see “Risk Factors” and “Information Regarding Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions associated with these statements. Unless otherwise noted, all amounts discussed herein are consolidated.
 
Company Overview
 
We are a leading provider of specialized mission-critical professional and support services outsourced by the U.S. military, non-military U.S. governmental agencies and foreign governments. Our specific global expertise is in law enforcement training and support, security services, base and logistics operations, construction management, aviation services and operations, and linguist services. We also provide logistics support for all our services. As of October 3, 2008, we had approximately 23,000 employees in approximately 30 countries, approximately 47 active contracts ranging in duration from three to ten years and over 100 task orders. We have provided essential services to numerous U.S. government departments and agencies since 1951.
 
Change in Business Segments
 
On March 29, 2008, at the beginning of our 2009 fiscal year, we divided our Government Services reporting segment into two new business segments to enable us to better capitalize on business development opportunities and enhance our ongoing service. Our new Logistics and Construction Management, or “LCM,” reporting segment consists of our Contingency and Logistics Operations business unit and our Operations Maintenance and Construction Management business unit, and will include any work awarded under our LOGCAP IV contract. Our new International Security Services, or “ISS,” reporting segment consists of our Law Enforcement and Security business unit, our Specialty Aviation and Counter-Drug Operations business unit and Global Linguist Solutions, or “GLS,” our joint venture for the Intelligence and Security Command, or “INSCOM”, contract. Our third segment is our Maintenance and Technical Support Services segment, which has not changed. Our financial results and other data presented by segment have been recast to reflect the reorganization of our reporting segments.
 
Current Operating Conditions and Outlook
 
External Factors
 
Over most of the last two decades, the U.S. government has been increasing its reliance on the private sector for a wide range of professional and support services. This increased use of outsourcing by the U.S. government has been driven by a variety of factors, including: lean-government initiatives launched in the 1990s; surges in demand during times of national crisis; the increased complexity of missions conducted by the U.S. military and the DoS; the increased focus of the U.S. military on war-fighting efforts; and the loss of skills within the government caused by workforce reductions and retirements. These factors lead us to believe that the U.S. government’s growing mission and continued human capital challenges have combined to create a new market dynamic, one that is less directly reflective of overall government budgets and more reflective of the ongoing shift of service delivery from the federal workforce to competent, efficient private sector providers.
 
We believe the following industry trends will result in continued strong demand in our target markets for the types of outsourced services that we provide:
 
  •  The continued transformation of military forces, leading to increased outsourcing of non-combat functions, including life-cycle asset management functions ranging from organizational to depot level maintenance;


33


 

 
  •  An increase in the level and frequency of overseas deployments and peace-keeping operations for the DoS, DoD and United Nations;
 
  •  Increased maintenance, overhaul and upgrade needs to support aging military platforms;
 
  •  Increased outsourcing by foreign militaries of maintenance, supply support, facilities management and construction management-related services; and
 
  •  The shift from single award to more multiple award IDIQ contracts, which may offer us an opportunity to increase revenues under these contracts by competing for task orders with the other contract awardees.
 
The $700 billion financial rescue plan, the possibility of Congress approving a second economic stimulus package and other initiatives undertaken by the Federal government in connection with the current economic crisis will likely have an eventual impact on the defense budget. We believe, however, that, within the defense budget, weapon system acquisitions will be the most likely initial target for budget reductions, and operations and maintenance budgets will remain robust, driven by (i) the need to reset equipment coming out of Iraq, (ii) the logistics and support chain associated with repositioning of forces and eventual draw down in Iraq and (iii) deployments into Afghanistan.
 
Subject to the outcome of negotiations between the U.S. and Iraqi governments, many industry observers believe that President-elect Obama will seek to withdraw troops from Iraq, specifically U.S. combat forces, by December 31, 2011, if not sooner, and that he will support an expanded presence in Afghanistan of approximately 20,000 additional U.S. troops. As a result, we expect our level of business involving Iraq to be relatively stable over the next few years, with demand remaining strong for logistics, equipment reset, training and mentoring of Iraqi forces and government agencies and translation services to support security and peacekeeping activities. In Afghanistan, we believe we are well positioned to capitalize on any increased U.S. government focus through many of our service offerings, including police training and mentoring, aircraft logistics and operations, infrastructure development, mine resistant and ambush protected, or “MRAP”, services, poppy eradication and logistics services under LOGCAP IV.
 
Current Economic Conditions
 
We believe that our industry and customer base are less likely to be affected by many of the factors affecting business and consumer spending generally. Accordingly, we believe that we continue to be well positioned in the current economic environment as a result of historic demand factors affecting our industry, the nature of our contracts and our sources of liquidity. However, we cannot be certain that the economic environment or other factors will not adversely impact our business, financial condition or results of operations in the future.
 
Furthermore, we believe that our current sources of liquidity will enable us to continue to perform under our existing contracts and further grow our business. However, a longer term credit crisis could adversely affect our ability to obtain additional liquidity or refinance existing indebtedness on acceptable terms or at all, which could adversely affect our business, financial condition and results of operations.
 
See “Risk Factors — Risks Relating to our Business — Current or worsening economic conditions could adversely impact our business.”


34


 

Results of Operations
 
Three and Six Months Ended October 3, 2008 Compared to Three and Six Months Ended September 28, 2007
 
Consolidated
 
The following tables set forth, for the periods indicated, our consolidated results of operations, both in dollars and as a percentage of revenues:
 
                                 
    Three Months Ended  
    October 3, 2008     September 28, 2007  
    (Dollars in thousands)  
 
Revenue
  $ 779,151       100.0 %   $ 495,109       100.0 %
Cost of services
    (696,519 )     –89.4 %     (425,633 )     –86.0 %
Selling, general and administrative expenses
    (25,994 )     –3.3 %     (24,928 )     –5.0 %
Depreciation and amortization expense
    (10,005 )     –1.3 %     (10,601 )     –2.1 %
                                 
Operating income
    46,633       6.0 %     33,947       6.9 %
Interest expense
    (14,905 )     –1.9 %     (13,705 )     –2.8 %
Loss on early extinguishment of debt
    (4,443 )     –0.6 %           0.0 %
Earnings from affiliates
    1,523       0.2 %     1,176       0.2 %
Interest income
    677       0.1 %     430       0.1 %
Other income, net
    960       0.1 %           0.0 %
                                 
Income before taxes
    30,445       3.9 %     21,848       4.4 %
Provision for income taxes
    (9,131 )     —1.2 %     (7,895 )     –1.6 %
                                 
Income before minority interest
    21,314       2.7 %     13,953       2.8 %
Minority interest
    (8,443 )     –1.1 %           0.0 %
                                 
Net income
  $ 12,871       1.7 %   $ 13,953       2.8 %
                                 
 
                                 
    Six Months Ended  
    October 3, 2008     September 28, 2007  
    (Dollars in thousands)  
 
Revenue
  $ 1,495,945       100.0 %   $ 1,043,782       100.0 %
Cost of services
    (1,334,908 )     –89.2 %     (905,721 )     –86.8 %
Selling, general and administrative expenses
    (53,845 )     –3.6 %     (51,463 )     –4.9 %
Depreciation and amortization expense
    (20,565 )     –1.4 %     (20,991 )     –2.0 %
                                 
Operating income
    86,627       5.8 %     65,607       6.3 %
Interest expense
    (29,120 )     –1.9 %     (28,195 )     –2.7 %
Loss on early extinguishment of debt
    (4,443 )     –0.3 %           0.0 %
Earnings from affiliates
    2,640       0.2 %     2,067       0.2 %
Interest income
    1,021       0.1 %     1,680       0.2 %
Other income, net
    1,665       0.1 %           0.0 %
                                 
Income before taxes
    58,390       3.9 %     41,159       3.9 %
Provision for income taxes
    (18,447 )     –1.2 %     (14,948 )     –1.4 %
                                 
Income before minority interest
    39,943       2.7 %     26,211       2.5 %
Minority interest
    (9,092 )     –0.6 %           0.0 %
                                 
Net income
  $ 30,851       2.1 %   $ 26,211       2.5 %
                                 
 
Revenues.  Revenues for the three and six months ended October 3, 2008 increased $284.0 million, or 57.4%, and $452.2 million, or 43.3%, respectively, as compared with the three and six months ended


35


 

September 28, 2007. The increase, as more fully described below in the results by segment, is primarily due to growth from new contracts such as the INSCOM contract.
 
Cost of services.  Cost of services are comprised of direct labor, direct material, subcontractor costs, other direct costs and overhead. Other direct costs include travel, supplies and other miscellaneous costs. Costs of services for the three and six months ended October 3, 2008 increased by $270.9 million, or 63.6% and $429.2 million, or 47.4%, respectively compared with the three and six months ended September 28, 2007 and was primarily a result of revenue growth. As a percentage of revenue, costs of services increased to 89.4% and 89.2%, respectively, for the three and six months ended October 3, 2008 as compared to 86.0% and 86.8%, respectively, for the three and six months ended September 28, 2007, primarily as a result of cost overruns by our Afghanistan construction contracts as further described below.
 
Selling, general and administrative, or “SG&A,” expenses.  SG&A primarily relates to functions such as management, legal, finance, accounting, contracts and administration, human resources, management information systems, purchasing and business development. SG&A for the three and six months ended October 3, 2008 increased $1.1 million, or 4.3%, and $2.4 million, or 4.6%, respectively, compared with the three and six months ended September 28, 2007. SG&A increased as a result of growth in our underlying business, various initiatives to improve organizational capability and compliance, systems improvements and severance costs, offset in part by implementing lean infrastructure initiatives which controlled SG&A growth relative to revenue growth during the six months ended October 3, 2008. SG&A as a percentage of revenue decreased to 3.3% and 3.6% for the three and six months ended October 3, 2008, respectively, compared to 5.0% and 4.9% for the respective three and six month periods ended September 28, 2007.
 
Depreciation and amortization.  Depreciation and amortization for the three and six months ended October 3, 2008 decreased $0.6 million, or 5.6%, and $0.4 million, or 2.0%, respectively, as compared with the three and six months ended September 28, 2007. The decrease was primarily attributed to a decrease in amortization related to intangibles becoming fully amortized during the first six months of fiscal year 2009. The decline in depreciation and amortization expense as a percentage of revenue was a result of revenue growth in contracts that are non-Company owned asset intensive.
 
Interest expense.  Interest expense for the three and six months ended October 3, 2008 increased by $1.2 million, or 8.8%, and $0.9 million, or 3.3%, respectively, as compared with the three and six months ended September 28, 2007. The interest expense incurred relates to our existing and prior senior secured credit facility, Notes and amortization of deferred financing fees. The increase in interest expense is primarily due to a higher average outstanding debt balance and higher average interest rates as a result of our new debt financing. In addition to the change in interest expense, deferred financing fees associated with our prior debt were also written-off as further discussed in Note 5 to our interim period financial statements. The impact of this write-off is separately disclosed in our consolidated statements of income.
 
Income tax expense.  Our effective tax rate of 30.0% and 31.6% for the three and six months ended October 3, 2008, respectively, decreased from 36.1% and 36.3% for the respective three and six months ended September 28, 2007. Our effective tax rate was impacted by the tax treatment of our GLS and DynCorp International Free Zone, or “DIFZ,” joint ventures which are not consolidated for tax purposes but rather are taxed as partnerships under the Internal Revenue Code.
 
Minority Interest.  Minority interest reflects the impact of our joint venture partners’ interest in our consolidated joint ventures, GLS and DIFZ. For the three and six months ended October 3, 2008, minority interest for GLS was $7.8 million and $8.5 million, respectively. Minority interest for DIFZ was $0.6 million for both the three and six months ended October 3, 2008.
 
Impact of our Afghanistan Construction Contracts
 
For the three and six months ended October 3, 2008, revenue from our Afghanistan construction contracts was $21.7 million and $44.4 million, respectively. There was no revenue from Afghanistan construction contracts for the three and six months ended September 28, 2007. Our expected remaining


36


 

revenue through completion of these contracts in our third quarter of fiscal year 2010 is approximately $142.4 million.
 
As discussed in “— Current Operating Conditions and Outlook — Current Economic Conditions” above, our construction business encountered operational difficulties during the second quarter of fiscal year 2009, which resulted in higher delivery costs and contractual milestone delays. As a result, a contract loss reserve and associated provision, specific to a large construction project in Afghanistan, was estimated and recorded during the quarter which totaled $18.4 million. Additionally, revisions were made to the estimated margins on all other Afghanistan construction contracts within the Operations, Maintenance, and Construction Management strategic business unit of our LCM segment resulting in an additional reduction to gross profit of $6.1 million. These contracts are expected to operate with margins at or approaching zero over their remaining contract terms.
 
The contract loss provision and revisions to estimated margins are based on the best information currently available. However, although we believe that these amounts have been estimated appropriately, there can be no assurance that future events will not require us to revise these estimates.
 
Results of Operations by Reportable Segment
 
Three Months Ended October 3, 2008 Compared to Three Months Ended September 28, 2007
 
The following table sets forth the revenues and operating income for our ISS, LCM and MTSS operating segments, both in dollars and as a percentage of our consolidated revenues for segment revenue and as a percentage of our consolidated operating income for segment specific operating income, for the three months ended October 3, 2008 as compared to the three months ended September 28, 2007.
 
                                 
    Three Months Ended  
    October 3, 2008     September 28, 2007  
    (Dollars in thousands)  
 
Revenues
                               
International Security Services
  $ 472,335       60.6 %   $ 270,847       54.7 %
Logistics and Construction Management
    85,466       11.0 %     47,623       9.6 %
Maintenance and Technical Support Services
    222,730       28.6 %     176,794       35.7 %
Other/elimination
    (1,380 )     –0.2 %     (155 )     0.0 %
                                 
Consolidated
  $ 779,151       100.0 %   $ 495,109       100.0 %
                                 
Operating Income and Margin
                               
International Security Services
  $ 49,949       6.4 %   $ 32,975       6.7 %
Logistics and Construction Management
    (23,057 )     –3.0 %     (2,728 )     –0.6 %
Maintenance and Technical Support Services
    19,741       2.5 %     3,700       0.7 %
                                 
Consolidated
  $ 46,633       6.0 %   $ 33,947       6.9 %
                                 
 
International Security Services
 
The following table sets forth the revenue and operating income for the ISS operating segment for the three months ended October 3, 2008 as compared to the three months ended September 28, 2007.
 
                         
    Three Months Ended  
    October 3, 2008     September 28, 2007     Change  
    (Dollars in thousands)  
 
Revenue
  $ 472,335     $ 270,847     $ 201,488  
Operating income
    49,949       32,975       16,974  


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Revenue.  Revenue for the three months ended October 3, 2008 increased $201.5 million, or 74.4%, as compared with the three months ended September 28, 2007. The increase primarily resulted from the following:
 
• Law Enforcement and Security.  Revenue increased $5.9 million, or 3.4%, primarily due to increases in our security services in Iraq, Palestine, Liberia, and Qatar, offset by a decline in security services in Afghanistan. Revenue from our civilian police services in Iraq increased $5.1 million, which was offset by a decline in civilian police services in Afghanistan of $7.4 million. The increase in Iraq was due to increased personnel levels during the quarter while the decline in Afghanistan was due to revenue recognized in the prior year associated with our construction of a camp facility, which was completed in August 2007. As a result of new contracts started in early fiscal year 2009, we provided civilian police and security services in Palestine and Haiti, which contributed $4.8 million and $0.7 million, respectively, in increased revenue for the period. Our worldwide personal protective services and our security guard services in Qatar also increased which accounted for $2.2 million and $0.7 million in increased revenue, respectively.
 
• Specialty Aviation and Counter-drug Operations.  Revenue decreased $6.3 million, or 6.4%, primarily due to a decline in our International Narcotics Law Enforcement programs resulting from scope reductions, offset by new contracts associated with security and drug eradication training in Afghanistan.
 
• Global Linguist Solutions.  Revenue was $201.3 million for the INSCOM contract through our GLS joint venture, which began in the fourth quarter of fiscal year 2008. Revenue benefited from the recognition of the GLS award fee of $14.4 million, which represents the award earned or accrued since the contract’s inception. The award fee is based on achieving specific contract performance criteria, such as operational fill rates. The second quarter of fiscal year 2009 is the first period in which we had sufficient basis to recognize the award fee for GLS. Based on our contract performance history to date, we anticipate the ability to accrue award fees through the remaining life of the contract.
 
Operating Income.  Operating income for the three months ended October 3, 2008 increased $17.0 million, or 51.5%, as compared with the three months ended September 28, 2007. The increase primarily resulted from the following:
 
• Law Enforcement and Security.  Operating income decreased $12.4 million, or 29.3%, due to declining margins, primarily in our civilian police services. This margin decline resulted from a shift in our contracts for these services from fixed price type contracts in the prior fiscal year to cost reimbursable type contracts in the current fiscal year.
 
• Specialty Aviation and Counter-drug Operations.  Operating income increased $6.2 million, or 176.2%, primarily due to higher margins on several new security and drug eradication training contracts in Afghanistan, offset by lower revenue for the fiscal quarter.
 
• Global Linguist Solutions.  Operating income was $17.2 million for GLS for the three months ended October 3, 2008. Operating income benefited from the accrual of the GLS award fee of $14.4 million, which represents the award earned or accrued since the contract’s inception. The award fee is based on achieving specific contract performance criteria, such as operational fill rates. The second fiscal quarter of fiscal year 2009 is the first period in which we had sufficient basis to recognize the award fee for GLS.
 
• General SG&A Factors.  SG&A expense declined for the three months ended October 3, 2008, as compared to the three months ended September 28, 2007. The decline in SG&A expense in the current period as compared to the prior period, is a result of prior period proposal costs associated with the INSCOM contract combined with improved SG&A cost management during the current period. This SG&A decline contributed positively to operating income growth for the fiscal quarter.


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Logistics and Construction Management
 
The following table sets forth the revenue and operating income for the LCM operating segment for the three months ended October 3, 2008 as compared to the three months ended September 28, 2007.
 
                         
    Three Months Ended        
    October 3, 2008     September 28, 2007     Change  
    (Dollars in thousands)  
 
Revenue
  $ 85,466     $ 47,623     $ 37,843  
Operating income
    (23,057 )     (2,728 )     (20,329 )
 
Revenue.  Revenues for the three months ended October 3, 2008 increased $37.8 million, or 79.5%, as compared with the three months ended September 28, 2007. The increase primarily resulted from the following:
 
• Contingency and Logistics Operations.  Revenue increased by $21.8 million, or 94.3%, primarily due to support services performed in response to the severe flooding in Iowa which occurred during the summer of 2008. These services contributed $10.8 million of the increase in revenue. Our operations and peacekeeping services in Africa and the Philippines also contributed by adding $2.9 million and $6.1 million of increased revenue, respectively. Revenue was also positively impacted through an increase in our weapons removal and abatement program which increased $1.1 million.
 
• Operations Maintenance and Construction Management.  Revenue increased $15.5 million, or 63.1%, primarily due to our construction projects in Afghanistan, partially offset by the termination of a construction project in Africa. As discussed above in “— Results of Operations — Consolidated — Impact of our Afghanistan Construction Contracts,” due to significant challenges on several Afghanistan construction contracts resulting partly from the deteriorating security situation in that country, we have made a strategic decision to not bid any similar fixed-price contracts without revised terms and condition. This strategic decision is expected to impact future revenue in this segment by limiting the construction opportunities available to us.
 
Operating Income.  Operating income for the three months ended October 3, 2008 decreased $20.3 million as compared with the three months ended September 28, 2007. The decrease primarily resulted from the following:
 
• Contingency and Logistics Operations.  Operating income increased by $1.2 million, or 64.0%, for the three months ended October 3, 2008, as compared to the three months ended September 28, 2007. The increase was driven by revenue growth in our logistics support service and operations and peacekeeping services, offset by higher costs in the current quarter related to the ramp-up of our new LOGCAP IV contract, which was awarded in early fiscal year 2009. Currently, LOGCAP IV does not contribute significantly to revenue but incurs costs associated with contract set-up and other overhead costs. Additionally, several programs which contributed positively to revenue growth in the quarter did not contribute to operating income since we have not yet recognized award fees. We anticipate an increase in operating income associated with these projects once we have completed portions of the projects and recognize award fees as revenue in accordance with our policies.
 
• Operations Maintenance and Construction Management.  Operating income decreased by $21.6 million to an operating loss of $23.7 million, as compared to an operating loss of $2.1 million for the three months ended September 28, 2007. As discussed above in “— Results of Operations — Consolidated — Impact of our Afghanistan Construction Contracts,” the operating loss in the current period was the result of a contract loss provision associated with a specific construction project in Afghanistan and adjustment to our estimated margins on several other Afghanistan construction projects.


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Maintenance and Technical Support Services
 
The following table sets forth the revenue and operating income for the MTSS operating segment for the three months ended October 3, 2008 as compared to the three months ended September 28, 2007.
 
                         
    Three Months Ended        
    October 3, 2008     September 28, 2007     Change  
    (Dollars in thousands)  
 
Revenue
  $ 222,730     $ 176,794     $ 45,936  
Operating income
    19,741       3,700       16,041  
 
Revenue.  Revenue for the three months ended October 3, 2008 increased $45.9 million, or 26.0%, as compared with the three months ended September 28, 2007. The increase primarily resulted from the following:
 
• Contract Logistics Support.  Revenue increased $12.5 million, or 28.2%, primarily due to higher deliveries of engines and other support equipment associated with our C-21 and Life Cycle Contractor Support, or “LCCS”, programs. We expect additional revenue growth for the remainder of the fiscal year due to scope increases from the U.S. government for spending related to the global war on terror.
 
• Field Service Operations.  Revenue increased $10.7 million, or 13.6%, primarily due to a new contract for logistics services at Fort Campbell which started in May 2008 and additional revenue from higher personnel levels in our Contract Field Teams, or “CFT,” program.
 
• Aviation & Maintenance Services.  Revenue increased $21.6 million, or 39.7%, primarily due to increased work associated with MRAP vehicles and increased revenue associated with our General Maintenance Corps contract. These increases were offset by a decline in our marine services and a decrease in threat management systems work.
 
Operating Income.  Operating income for the three months ended October 3, 2008 increased $16.0 million, to $19.7 million, as compared to $3.7 million for the three months ended September 28, 2007. The increase primarily resulted from the following:
 
• Contract Logistics Support.  Operating income for the three months ended October 3, 2008 increased by $3.6 million, to $2.4 million for the three months ended October 3, 2008, as compared to an operating loss of $1.1 million for the three months ended September 28, 2007. The positive results were primarily due to improved project management in several key programs.
 
• Field Service Operations.  Operating income increased $2.2 million, or 45.8%, for the three months ended October 3, 2008, as compared to the three months ended September 28, 2007, driven primarily by increased revenue.
 
• Aviation & Maintenance Services.  Operating income increased $11.4 million, or 358.2%, for the three months ended October 3, 2008, as compared to the three months ended September 28, 2007, primarily due to increased revenue in key high-margin service areas such as our MRAP program.
 
Six Months Ended October 3, 2008 Compared to Six Months Ended September 28, 2007
 
The following table sets forth the revenues and operating income for our ISS, LCM and MTSS operating segments, both in dollars and as a percentage of our consolidated revenues for segment revenue and as a percentage of our consolidated operating income for segment specific operating income, for the six months ended October 3, 2008 as compared to the six months ended September 28, 2007.
 


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    Six Months Ended  
    October 3, 2008     September 28, 2007  
    (Dollars in thousands)  
 
Revenues
                               
International Security Services
  $ 877,709       58.7 %   $ 559,412       53.6 %
Logistics and Construction Management
    178,928       12.0 %     110,751       10.6 %
Maintenance and Technical Support Services
    441,607       29.5 %     373,619       35.8 %
Other/elimination
    (2,299 )     –0.2 %           0.0 %
                                 
Consolidated
  $ 1,495,945       100.0 %   $ 1,043,782       100.0 %
                                 
Operating Income and Margin
                               
International Security Services
  $ 75,378       5.0 %   $ 57,134       5.5 %
Logistics and Construction Management
    (16,987 )     –1.1 %     (431 )     –0.1 %
Maintenance and Technical Support Services
    28,236       1.9 %     8,904       0.9 %
                                 
Consolidated
  $ 86,627       5.8 %   $ 65,607       6.3 %
                                 
 
International Security Services
 
The following table sets forth the revenue and operating income for the ISS operating segment for the six months ended October 3, 2008 as compared to the six months ended September 28, 2007.
 
                         
    Six Months Ended    
    October 3, 2008   September 28, 2007   Change
    (Dollars in thousands)
 
Revenue
  $ 877,709     $ 559,412     $ 318,297  
Operating income
    75,378       57,134       18,244  
 
Revenue.  Revenue for the six months ended October 3, 2008 increased $318.3 million, or 56.9%, as compared with the six months ended September 28, 2007. The increase primarily resulted from the following:
 
• Law Enforcement and Security.  Revenue decreased $4.3 million, or 1.2%, primarily due to decreases in our security services in Afghanistan and Iraq offset by increases in Palestine, Liberia and Qatar. Revenue from our civilian police services in Afghanistan and Iraq decreased $15.9 million and $8.9 million, respectively. The decline in Afghanistan was due to revenue recognized in the prior year associated with our construction of a camp facility, which was completed in August 2007. In Iraq, revenue was lower due to the transition of our operations from leased facilities to customer furnished facilities in May 2007. Both of these projects resulted in significant non-recurring billable costs in the first six months of fiscal year 2008. We also experienced a decline of $0.8 million in our personal protective services due to declines in personnel levels. These declines were offset by new contracts started in early fiscal year 2009, through which we provide civilian police and security services in Palestine, Liberia and Haiti. These contracts contributed $13.5 million, $2.2 million and $1.6 million, respectively, in increased revenue for the period. Our worldwide personal protective services and our security guard services in Qatar also increased, which accounted for $1.0 million and $2.6 million in increased revenue, respectively.
 
• Specialty Aviation and Counter-drug Operations.  Revenue increased $3.5 million, or 1.8%, primarily due to new contracts associated with security and drug eradication training in Afghanistan, offset by a decline in our International Narcotics Law Enforcement programs due to program scope reductions.
 
• Global Linguist Solutions.  Revenue was $319.7 million for the INSCOM contract, which we perform through our GLS joint venture. Revenue benefited from the recognition of the GLS award fee of $14.4 million, which represents the award earned or accrued since the contract’s inception. The award fee is based on achieving specific contract performance criteria, such as operational fill rates. The second quarter of fiscal year 2009 is the first period in which we had sufficient basis to recognize

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the award fee for GLS. Revenue for the first six months of fiscal year 2009 may not be indicative of revenue for the remaining six months of fiscal year 2009 due to the contract ramp-up period which occurred primarily in the first three months of fiscal year 2009.
 
Operating Income.   Operating income for the six months ended October 3, 2008 increased $18.2 million, or 31.9%, as compared with the six months ended September 28, 2007. The increase primarily resulted from the following:
 
• Law Enforcement and Security.   Operating income decreased $17.6 million, or 24.4%, primarily due to declining margins in our civilian police services. This margin decline resulted from a shift in our contracts for these services from primarily fixed price type contracts in the prior period to cost reimbursable type contracts in the current period.
 
• Specialty Aviation and Counter-drug Operations.   Operating income increased $10.1 million, or 101.1%, primarily due to higher margins on several new security and drug eradication training contracts in Afghanistan.
 
• Global Linguist Solutions.   Operating income was $19.0 million for GLS for the six months ended October 3, 2008. Operating income benefited from the accrual of the GLS award fee of $14.4 million, which represents the award earned or accrued since the contract’s inception. The award fee is based on achieving specific contract performance criteria, such as operational fill rates. The second fiscal quarter of fiscal year 2009 is the first period in which we had sufficient basis to recognize the award fee for GLS. Operating income for the first six months of fiscal year 2009 may not be indicative of operating income for the remaining six months of fiscal year 2009 due to the contract ramp-up period which occurred primarily in the first three months of fiscal year 2009.
 
• General SG&A Factors.   SG&A expense declined for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007. The decline in SG&A expense in the current period as compared to the prior period, is principally a result of prior period proposal costs associated with the INSCOM contract combined with improved SG&A cost management during the current period. This SG&A decline contributed positively to operating income growth for the fiscal quarter.
 
Logistics and Construction Management
 
The following table sets forth the revenue and operating income for the LCM operating segment for the six months ended October 3, 2008 as compared to the six months ended September 28, 2007.
 
                         
    Six Months Ended    
    October 3, 2008   September 28, 2007   Change
    (Dollars in thousands)
 
Revenue
  $ 178,928     $ 110,751     $ 68,177  
Operating income
    (16,987 )     (431 )     (16,556 )
 
Revenue.   Revenues for the six months ended October 3, 2008 increased $68.2 million, or 61.6%, as compared with the six months ended September 28, 2007. The increase primarily resulted from the following:
 
• Contingency and Logistics Operations.  Revenue increased by $22.9 million, or 45.5%, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007. This increase was primarily due to the expansion of operations and peacekeeping services in Africa and the Philippines, which increased $2.6 million and $14.3 million, respectively. Our growth in Africa was primarily driven by our Africa Peacekeeping program which declined in the first quarter of fiscal year 2009 but had significant growth in the second quarter of the fiscal year 2009 due to a successful contract recompete. Support services performed in response to the severe flooding which occurred in Iowa during the summer of 2008 also contributed to the increase, adding $10.8 million in additional revenue as compared to the prior period. These increases were offset by a decline in our Cecom/CRS Response programs due to a decline in current work levels in these programs.


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• Operations Maintenance and Construction Management.  Revenue increased $44.5 million, or 73.7%, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007, primarily due to our construction projects in Africa and Afghanistan. As discussed above in “— Results of Operations — Consolidated — Impact of our Afghanistan Construction Contracts,” due to significant challenges on several Afghanistan construction contracts resulting partly from the deteriorating security situation in that country, we have made a strategic decision to not bid on any similar fixed-price contracts without revised terms and condition. This strategic decision is expected to impact future revenue in this segment by limiting the construction opportunities available to us.
 
Operating Income.   Operating income decreased $16.6 million, to an operating loss of $17.0 million, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007. The decrease primarily resulted from the following:
 
• Contingency and Logistics Operations.  Operating income decreased $0.5 million, or 11.6%, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007. We experienced higher costs in the current period related to the ramp-up of our new LOGCAP IV contract, which was awarded in early fiscal year 2009. Currently, LOGCAP IV does not contribute significantly to revenue but incurs costs associated with contract set-up and other overhead costs. Additionally, several programs which contributed positively to revenue growth in the quarter did not contribute to operating income since we have not yet recognized award fees. We anticipate an increase in operating income associated with these projects once we have completed portions of the projects and recognize award fees as revenue in accordance with our policies.
 
• Operations Maintenance and Construction Management.  Operating loss was $17.7 million for the six months ended October 3, 2008, as compared to operating income of $0.5 million for the six months ended September 28, 2007. As discussed above in “— Results of Operations — Consolidated — Impact of our Afghanistan Construction Contracts,” the operating loss in the current period was the result of a contract loss provision associated with a specific construction project in Afghanistan and adjustment to our estimated margins on several other Afghanistan construction projects.
 
Maintenance & Technical Support Services
 
The following table sets forth the revenue and operating income for the MTSS operating segment for the six months ended October 3, 2008 as compared to the six months ended September 28, 2007.
 
                         
    Six Months Ended    
    October 3, 2008   September 28, 2007   Change
    (Dollars in thousands)
 
Revenue
  $ 441,607     $ 373,619     $ 67,988  
Operating income
    28,236       8,904     $ 19,332  
 
Revenue.   Revenue for the six months ended October 3, 2008 increased $68.0 million, or 18.2%, as compared with the six months ended September 28, 2007. The increase primarily resulted from the following:
 
• Contract Logistics Support.  Revenue increased $16.8 million, or 16.7%, primarily due to higher deliveries of engines and other support equipment associated with our C-21 and LCCS programs. We expect additional revenue growth for the remainder of the fiscal year due to scope increases from the U.S. government for spending related to the global war on terror.
 
• Field Service Operations.  Revenue increased $15.0 million, or 8.9%, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007, primarily due to a new contract for logistics services at Fort Campbell which started in May 2008 and additional revenue from higher personnel levels in our CFT program.
 
• Aviation & Maintenance Services.  Revenue increased $34.8 million, or 33.3%, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007, primarily due to increased work associated with MRAP vehicles and increased revenue associated with our


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General Maintenance Corps contract. These increases were offset by declines in our marine services, Columbus Air Force Base support services and in our threat management systems work.
 
Operating Income.   Operating income for the six months ended October 3, 2008 increased $19.3 million, to $28.2 million, as compared to $8.9 million for the six months ended September 28, 2007. The increase primarily resulted from the following:
 
• Contract Logistics Support.   Operating income for the six months ended October 3, 2008 increased by $3.8 million, to $2.5 million as compared to a $1.3 loss for the six months ended September 28, 2007. The improved results were primarily due to improved project management in several key programs.
 
• Field Service Operations.   Operating income increased $2.1 million, or 18.4%, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007, primarily due to increased revenue.
 
• Aviation & Maintenance Services.   Operating income increased $15.3 million, or 238.6%, for the six months ended October 3, 2008, as compared to the six months ended September 28, 2007, primarily due to increased revenue and improved margins in our MRAP program.
 
Fiscal Year Ended March 28, 2008 Compared to Fiscal Year Ended March 30, 2007
 
Consolidated
 
The following table sets forth, for the periods indicated, our consolidated results of operations, both in dollars and as a percentage of revenue:
 
                                 
    Fiscal Year Ended  
    March 28, 2008     March 30, 2007  
    (Dollars in thousands)  
 
Revenue
  $ 2,139,761       100.0 %   $ 2,082,274       100.0 %
Cost of services
    (1,859,666 )     (86.9 )%     (1,817,707 )     (87.3 )%
Selling, general and administrative expenses
    (117,919 )     (5.5 )%     (107,681 )     (5.2 )%
Depreciation and amortization expense
    (42,173 )     (2.0 )%     (43,401 )     (2.1 )%
                                 
Operating income
    120,003       5.6 %     113,485       5.4 %
Interest expense
    (55,374 )     (2.6 )%     (58,412 )     (2.8 )%
Loss on early extinguishment of debt
          0.0 %     (3,484 )     (0.1 )%
Earnings from affiliates, net of dividends
    4,758       0.2 %     2,913       0.1 %
Interest income
    3,062       0.1 %     1,789       0.1 %
Other income, net
    199       0.0 %           0.0 %
                                 
Income before taxes
    72,648       3.4 %     56,291       2.7 %
Provision for income taxes
    (27,999 )     (1.3 )%     (20,549 )     (1.0 )%
                                 
Income before minority interest
    44,649       2.1 %     35,742       1.7 %
                                 
Minority interest
    3,306       0.2 %           0.0 %
                                 
Net income
  $ 47,955       2.2 %   $ 35,742       1.7 %
                                 
 
Revenue.  Revenue for the fiscal year ended March 28, 2008 increased $57.5 million or 2.8% as compared with the fiscal year ended March 30, 2007, reflecting increased revenue in all reporting segments. See “— Results of Operations by Reportable Segment” below for more analysis of our revenue growth by reportable segment.
 
Cost of services.  Cost of services for fiscal 2008 increased $42.0 million or 2.3% primarily due to growth in operations. As a percentage of revenue, costs of services decreased to 86.9% for fiscal year ended March 28, 2008 from 87.3% for fiscal year ended March 30, 2007. The key factors contributing to the decrease in cost of services as a percentage of revenue were continued strong performance of fixed-price task orders combined with contract modifications for construction efforts completed in earlier periods within the GS segment.


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Selling, general and administrative expenses.  SG&A for the fiscal year ended March 28, 2008 increased $10.2 million or 9.5% as compared with the fiscal year ended March 30, 2007. Factors contributing to the increased SG&A included: (i) litigation costs associated primarily with the Worldwide Network Services litigation, which is further described in “Business — Legal Proceedings,” (ii) costs incurred in fiscal 2008 related to our Sarbanes-Oxley compliance preparation, (iii) consulting costs related to proposal activity for potential new contracts; and (iv) general SG&A costs necessary to support the current and anticipated growth of our business. Offsetting these increases were (i) non-recurring severance costs incurred in fiscal 2007 for certain former executives, and (ii) bonus compensation incurred in fiscal 2007 associated with our parent’s equity offering.
 
Depreciation and amortization expense.  Depreciation and amortization for the fiscal year ended March 28, 2008 decreased $1.2 million, or 2.8% as compared to the fiscal year ended March 30, 2007, primarily due to the effects of acquired software becoming fully amortized during the fiscal year.
 
Interest expense.  Interest expense for the fiscal year ended March 28, 2008 decreased $3.0 million, or 5.2% as compared with the fiscal year ended March 30, 2007. The decrease was primarily due to lower average debt outstanding in the fiscal year ended March 28, 2008, as compared with the fiscal year ended March 30, 2007. The interest expense incurred relates to our then existing senior secured credit facility, the Existing Notes and amortization of deferred financing fees.
 
Interest income.  Interest income for the fiscal year ended March 28, 2008 increased $1.3 million, or 71.2% as compared with the fiscal year ended March 30, 2007 due to higher average balance of our cash sweep accounts.
 
Provision for income taxes.  Provision for income taxes for the fiscal year ended March 28, 2008 increased $7.5 million or 36.3% as compared to the fiscal year ended March 30, 2007 due to an increase in taxable income. The effective tax rate increased to 38.5% from 36.5% for the fiscal years ended March 28, 2008 and March 30, 2007, respectively.
 
Results of Operations by Reportable Segment
 
International Security Services
 
The following table sets forth the revenue and operating income for the ISS operating segment for the fiscal year ended March 28, 2008 as compared to the fiscal year ended March 30, 2007.
 
                         
    Fiscal Year Ended        
    March 28, 2008     March 30, 2007     Change  
    (Dollars in thousands)  
 
Revenue
  $ 1,097,083     $ 1,086,481     $ 10,602  
Operating income
    89,588       89,130       458  
 
Revenue.  Revenue for the fiscal year ended March 28, 2008 increased $10.6 million, or 1.0%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following:
 
• Law Enforcement and Security.  Revenue decreased $49.3 million primarily due to a decline in revenue from our operations in Iraq of $84.4 million offset in part by an increase in Afghanistan of $35.0 million. An additional $0.6 million increase was attributable mainly to non-recurring work in other Middle Eastern nations. In Iraq, we experienced a $66.1 million decrease in our CIVPOL services due to the transition of our operations from leased facilities to customer furnished facilities. As we had operated these leased locations and earned revenue through task orders, this planned transition from these facilities negatively affected our CIVPOL revenue. Despite the decline from the relocation, our core CIVPOL personnel levels remained consistent in Iraq and were not a driver of the decrease. The remaining decrease in revenue from our operations in Iraq was driven primarily by declines in non-recurring work associated with our personal protection services of $18.3 million. The increase in revenue from our operations in Afghanistan was due largely to increased personnel levels as well as additional services associated with the Afghan Poppy Eradication Program.


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• Specialty Aviation and Counter-drug Operations.  Revenue increased $56.5 million primarily due to a $45.1 million increase in drug eradication services and $11.4 million of increase in other services. Our drug eradication services continue to grow through increases in our scope of services for these projects. We experienced significant growth in Afghanistan, where our services have played a key role in reducing narcotics in that country. Growth in other services includes counter narcotics technologies and forestry support services.
 
• Global Linguist Solutions.  Revenue was $3.6 million for the new INSCOM contract through our GLS joint venture, which began in our fiscal fourth quarter.
 
Operating income.  Operating income for the fiscal year ended March 28, 2008 increased $0.5 million or 0.5%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following:
 
• Law Enforcement and Security.  Operating income increased $31.0 million as a result of improved contract performance and elimination of non-recurring write-offs from contract losses that occurred in the prior year. Our improved contract performance was primarily a result of effective cost management strategies executed in fiscal 2008 which allowed us to improve operating income despite a decline in revenue for our services within this strategic business unit, or “SBU”.
 
• Specialty Aviation and Counter-drug Operations.  Operating income decreased $4.7 million due to charges related to non-fee bearing, unscheduled maintenance of aircraft during the fiscal year. While the nature of this incremental work had a positive and significant impact on revenue, its structure as a “cost reimbursable only” contract did not provide a benefit to operating income.
 
• Global Linguist Solutions.  Start-up costs associated with this contract contributed to a decrease in our operating income of $6.7 million in the fiscal year ended March 28, 2008.
 
• General SG&A Factors.  We incurred a decrease of $19.1 million in operating income related to SG&A expenses in the fiscal year ended March 28, 2008. The fluctuation was due primarily to additional expenses from proposal costs associated with INSCOM, specific contract litigation expenses associated with the WWNS litigation and increases in necessary support functions associated with our current and anticipated growth. These cost increases were offset by one-time costs incurred in the prior year period related to severance expenses for certain former executives and bonus compensation associated with our parent’s initial public offering.
 
Logistics and Construction Management
 
The following table sets forth the revenue and operating income for the LCM operating segment for the fiscal year ended March 28, 2008 as compared to the fiscal year ended March 30, 2007.
 
                         
    Fiscal Year Ended        
    March 28, 2008     March 30, 2007     Change  
    (Dollars in thousands)  
 
Revenue
  $ 285,317     $ 266,050     $ 19,267  
Operating income
    10,854       13,227       (2,373 )
 
Revenue.  Revenue for the fiscal year ended March 28, 2008 increased $19.3 million, or 7.2%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following:
 
• Contingency and Logistics Operations.  Revenue decreased by $10.1 million primarily due to non-recurring revenue associated with Hurricane Katrina in fiscal 2007.
 
• Operations Maintenance and Construction Management.  Revenue increased $25.5 million due to the ramp-up in various construction projects in regions including Africa and Afghanistan. Our strategic focus has been on our construction services, where we are executing a strategy that includes capitalizing on our construction expertise and our global resources in these areas. Because of our focus on this aspect of the business, growth in construction has outpaced our other services within this SBU, such as equipment positioning and military logistics.


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Operating income.  Operating income for the fiscal year ended March 28, 2008 decreased $2.4 million or 17.9%, as compared to the fiscal year ended March 30, 2007. The decrease primarily resulted from the following:
 
• Contingency and Logistics Operations.  Operating income decreased by $6.0 million primarily due to the decline in revenue for non-recurring projects as discussed above.
 
• Operations Maintenance and Construction Management.  Continued growth through the ramp-up of new construction projects helped increase our operating income by $2.4 million.
 
• General SG&A Factors.  We had an increase of $1.2 million in operating income related to SG&A expenses in the current fiscal year. The improvement in SG&A expense was primarily a result of one-time costs incurred in the prior year related to severance expenses for certain former executives and bonus compensation associated with our parent’s initial public offering offset by additional expenses from proposal costs associated with LOGCAP IV.
 
Maintenance and Technical Support Services
 
The following table sets forth the revenue and operating income for the MTSS operating segment for the fiscal year ended March 28, 2008 as compared to the fiscal year ended March 30, 2007.
 
                         
    Fiscal Year Ended        
    March 28, 2008     March 30, 2007     Change  
    (Dollars in thousands)  
 
Revenue
  $ 757,361     $ 729,743     $ 27,618  
Operating income
    19,561       11,128       8,433  
 
Revenue.  Revenue for the fiscal year ended March 28, 2008 increased $27.6 million, or 3.8%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following:
 
• Contract Logistics Support.  Revenue increased $31.9 million due to escalating support requirements associated with our LCCS programs, which include various services such as overhauls, support personnel and equipment supply, primarily for deployments in Iraq and Afghanistan. The increase was driven by shorter time periods between field overhauls on engines and propellers, which are two of our key services. A trend of higher overhauls was noted during the year due to a combination of factors, including longer equipment deployments, higher flight volumes and the harsh desert conditions in those regions.
 
• Field Service Operations.  Revenue decreased $31.9 million due to a temporary decline in personnel and level of services provided resulting from longer deployment cycles of equipment in Iraq and Afghanistan. While the longer deployment cycles have benefited our Contract Logistics Support Strategic Business Area, or “SBA”, it created a temporary decline in our FSO as planes and equipment are not rotated out of the theatre as frequently for complete resetting overhauls.
 
• Aviation & Maintenance Services.  Revenue increased $27.6 million primarily due to increased work associated with mine resistant vehicles and new threat management systems, offset by normal occurrence of completed projects.
 
Operating income.  Operating income for the fiscal year ended March 28, 2008 increased $8.4 million or 75.8%, as compared to the fiscal year ended March 30, 2007. The increase primarily resulted from the following:
 
• Contract Logistics Support.  Operating income increased $12.7 million due to better margins realized on higher revenue associated with our LCCS programs primarily supporting deployments in Iraq and Afghanistan, in addition to non-recurring losses from fiscal 2007 associated with our Commercial Support Services, or “CSS,” program.


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• Field Service Operations.  Operating income decreased $6.5 million due to lower revenue offset in part by lower operating costs. The decrease in revenue created an undesirable cost structure due to the nature of our services within this SBA.
 
• Aviation & Maintenance Services.  Operating income increased $0.1 million, which was a result of higher revenue offset by a decrease in margin from several high margin non-recurring projects in fiscal year 2007, in addition to no margin “cost reimbursement only” projects for aircraft maintenance in fiscal year 2008 which increased revenue but ultimately reduced operating margin percentages.
 
• General SG&A Factors.  We had an increase of $2.1 million in operating income related to SG&A expenses in the current fiscal year. The fluctuation was primarily due to one time costs incurred in the prior year related to severance expenses for certain former executives and bonus compensation associated with our parent’s initial public offering.
 
Fiscal Year Ended March 30, 2007 Compared to Fiscal Year Ended March 31, 2006
 
Consolidated
 
The following table sets forth, for the periods indicated, our consolidated results of operations, both in dollars and as a percentage of revenue:
 
                                 
    Fiscal Year Ended  
    March 30, 2007     March 31, 2006  
    (Dollars in thousands)  
 
Revenue
  $ 2,082,274       100.0 %   $ 1,966,993       100.0 %
Cost of services
    (1,817,707 )     (87.3 )%     (1,722,089 )     (87.5 )%
Selling, general and administrative expenses
    (107,681 )     (5.2 )%     (97,520 )     (5.0 )%
Depreciation and amortization expense
    (43,401 )     (2.1 )%     (46,147 )     (2.4 )%
                                 
Operating income
    113,485       5.4 %     101,237       5.1 %
Interest expense
    (58,412 )     (2.8 )%     (56,686 )     (2.9 )%
Loss on early extinguishment of debt
    (3,484 )     (0.1 )%           0.0 %
Net earnings from affiliates
    2,913       0.1 %           0.0 %
Interest income
    1,789       0.1 %     461       0.0 %
                                 
Income before taxes
    56,291       2.7 %     45,012       2.2 %
Provision for income taxes
    (20,549 )     (1.0 )%     (16,627 )     (0.8 )%
                                 
Net income
  $ 35,742       1.7 %   $ 28,385       1.4 %
                                 
 
Revenue.  Revenue in the fiscal year ended March 30, 2007 increased by $115.3 million, or 5.9%, as compared with the fiscal year ended March 31, 2006. The increase, as more fully described in the results by segment, was a result of revenue growth in each of our reportable segments. In our ISS segment, revenue growth was primarily a result of additional services provided under the Air-Wing drug eradication contract and a higher number of international police liaison officers deployed in the Middle East under the Civilian Police program. In our LCM segment, revenue growth was primarily the result of additional services provided under our African Peacekeeping program. In our MTSS segment, revenue growth was primarily the result of increased aviation maintenance services. See “— Results by Reportable Operating Segment” below for more analysis of our revenue growth by reportable segment.
 
Costs of services.  Costs of services in the fiscal year ended March 30, 2007 increased by $95.6 million, or 5.6%, compared with the fiscal year ended March 31, 2006. As a percentage of revenue, costs of services decreased to 87.3% for fiscal year ended March 30, 2007 from 87.5% for fiscal year ended March 31, 2006. The factors contributing to the decrease in cost of services as a percentage of revenue were: (i) continued strong performance of fixed-price task orders under the Civilian Police and Air-Wing programs; (ii) improved contract mix resulting from a larger proportion of higher-margin fixed-price and time-and-materials contracts; (iii) contract modifications for construction efforts in Afghanistan completed in earlier periods; and (iv) wage pass-through claims within the MTSS segment. These factors were offset by:


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(i) operating costs in excess of contract funding to complete a base camp in Iraq in the second quarter of fiscal 2007; and (ii) the suspension of a security contract with a customer in Saudi Arabia.
 
Selling, general and administrative expenses.  SG&A in the fiscal year ended March 30, 2007 increased $10.2 million, or 10.4%, compared with the fiscal year ended March 31, 2006. In addition, as a percentage of revenue, SG&A increased slightly to 5.2% for the fiscal year ended March 30, 2007 from 5.0% for the fiscal year ended March 31, 2006. Factors contributing to the increase for the fiscal year ended March 30, 2007 include an increase in business development costs and an increase in corporate administrative costs, primarily the result of developing these functions as an independent company. In addition, fiscal 2007 SG&A includes $6.5 million related to severance expenses for certain former executives and bonus compensation associated with our parent’s equity offering. Offsetting these increases was a $7.0 million reduction in bad debt expense compared to fiscal 2006.
 
Depreciation and amortization.  Depreciation and amortization in the fiscal year ended March 30, 2007 decreased $2.7 million, or 6%, as compared with the fiscal year ended March 31, 2006.
 
Interest expense.  Interest expense in the fiscal year ended March 30, 2007 increased by $1.7 million, or 3.0%, as compared with the fiscal year ended March 31, 2006. The interest expense incurred relates to our then existing senior secured credit facility, the Existing Notes and amortization of deferred financing fees. The increase is due to the higher interest expense related to that senior secured credit facility from increasing variable interest rates during the fiscal year ended March 30, 2007. Partially offsetting the higher variable rate interest expense was lower interest incurred on the Existing Notes, which have a fixed interest rate of 9.5%, due to the partial redemption in connection with our parent’s equity offering.
 
Loss on debt extinguishment.  In conjunction with our parent’s equity offering in May 2006, we incurred: (i) a premium of $2.7 million related to the redemption of a portion of the Existing Notes; and (ii) the write-off of $0.8 million in deferred financing costs associated with the early retirement of a portion of the Existing Notes.
 
Income tax expense.  Income tax expense in the fiscal year ended March 30, 2007 increased $3.9 million or 23.6%, compared with the fiscal year ended March 31, 2006. The increase is consistent with the increase in net income before tax as the effective tax rate for both fiscal years was approximately 36.5%.
 
Results by Reportable Operating Segment
 
International Security Services
 
The following table sets forth the revenue and operating income for the ISS operating segment for the fiscal year ended March 30, 2007 as compared to the fiscal year ended March 31, 2006.
 
                         
    Fiscal Year Ended        
    March 30, 2007     March 31, 2006     Change  
    (Dollars in thousands)  
 
Revenue
  $ 1,086,481     $ 1,039,650     $ 46,831  
Operating income
    89,130       91,816       (2,686 )


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Revenue.  Revenue for the fiscal year ended March 30, 2007 increased $46.8 million, or 4.5%, as compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
 
  •  increased aviation support services of drug eradication activities under the Air-Wing program in South America and Afghanistan — $85.8 million;
 
  •  a higher net number of international police liaison officers deployed in the Middle East under the Civilian Police program — $16.0 million; and
 
  •  new security service and specialty aviation contracts — $30.4 million;
 
partially offset by:
 
  •  conclusion of five task orders under the World Wide Personal Protective Services program — $73.8 million; and
 
  •  the suspension of a security contract with a customer located in the Middle East — $11.8 million.
 
Operating income.  Operating income for the fiscal year ended March 30, 2007 decreased $2.7 million, or 2.9%, as compared with the fiscal year ended March 31, 2006. The decrease primarily reflected the following:
 
  •  the suspension of a security contract with a customer located in the Middle East — $7.8 million; and
 
  •  lower contribution from the Worldwide Personal Protection Services programs, including the completion of task orders in Israel, Haiti, Afghanistan and central Iraq, unrealized investment in personnel training and cost in excess of contract funding to complete the construction of a base camp in Iraq for the DoS — $14.5 million;
 
partially offset by:
 
  •  improved profitability on fixed-price task orders under the Air-Wing program due to strong performance and favorable contract changes — $11.4 million; and
 
  •  a reduction in bad debt expense — $7.0 million.
 
Logistics and Construction Management
 
The following table sets forth the revenue and operating income for the LCM operating segment for the fiscal year ended March 30, 2007 as compared to the fiscal year ended March 31, 2006.
 
                         
    Fiscal Year Ended        
    March 30, 2007     March 31, 2006     Change  
    (Dollars in thousands)  
 
Revenue
  $ 266,050     $ 218,711     $ 47,339  
Operating income
    13,227       6,080       7,147  
 
Revenue.  Revenue for the fiscal year ended March 30, 2007 increased $47.3 million, or 21.6%, as compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
 
  •  additional contingency and logistics services provided under the Africa Peacekeeping contract — $43.4 million;
 
  •  increased weapons removal and abatement services in Afghanistan — $6.9 million; and
 
  •  construction management services progress in Africa — $9.3 million;
 
partially offset by:
 
  •  non-recurring contingency and logistics services provided to FEMA after Hurricane Katrina — $11.6 million.


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Operating income.  Operating income for the fiscal year ended March 30, 2007 increased $7.1 million, or 117.5%, as compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
 
  •  a contract modification for construction activities in Afghanistan completed in earlier periods — $7.6 million; and
 
  •  increased logistic support services under the Africa Peacekeeping program with the DoS — $3.7 million;
 
partially offset by:
 
  •  non-recurring contingency and logistics services provided to FEMA after Hurricane Katrina — $2.8 million; and
 
  •  lower contribution from the Forward Operating Locations programs, primarily due to a lower number of vehicles purchased by the customer — $0.7 million.
 
Maintenance and Technical Support Services
 
The following table sets forth the revenue and operating income for the MTSS operating segment for the fiscal year ended March 30, 2007 as compared to the fiscal year ended March 31, 2006.
 
                         
    Fiscal Year Ended        
    March 30, 2007     March 31, 2006     Change  
    (Dollars in thousands)  
 
Revenue
  $ 729,743     $ 708,632     $ 21,111  
Operating income
    11,128       3,341       7,787  
 
Revenue.  Revenue for the fiscal year ended March 30, 2007 increased $21.1 million, or 3.0%, compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
 
  •  an increase in personnel and services provided under the Contract Field Teams program — $19.7 million;
 
  •  increased domestic aviation services provided to the U.S. Air Force through a subcontract agreement under the C-21 Contractor Logistics Support program — $25.7 million;
 
  •  revenue recorded in connection with wage pass-through claims — $10.4 million; and
 
  •  new business and net growth in existing contracts — $24.5 million;
 
partially offset by:
 
  •  reduced U.S. government funding for the Army Pre-Positioned Stocks Afloat program — $20.7 million;
 
  •  the completion of the Fort Hood contract and Bell Helicopter contracts under the Domestic Aviation program — $31.4 million;
 
  •  a decrease in services provided on the V-22 helicopter under the Contract Field Teams contract — $2.3 million; and
 
  •  the cyclic nature of time between overhauls on engines and propellers performed under the LCCS program — $5.4 million.
 
Operating income.  Operating income for the fiscal year ended March 30, 2007 increased $7.8 million, or 233.1%, compared with the fiscal year ended March 31, 2006. The increase primarily reflected the following:
 
  •  wage pass-through claims — $10.4 million;
 
  •  various new business and net growth in existing contracts — $5.5 million;


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  •  increased domestic aviation services provided to the U.S. Air Force through a subcontract agreement under the C-21 Contractor Logistics Support program — $0.4 million; and
 
  •  improved profitability on the Contract Field Teams program, which benefited from maintenance and repair activities performed on military equipment returning from Iraq and Afghanistan — $1.3 million;
 
partially offset by:
 
  •  operating losses from services provided to the U.S. Army under the LCCS program and CSS program — $8.0 million; and
 
  •  completion of the Fort Hood contract in July 2006 — $1.1 million.
 
Liquidity and Capital Resources
 
Cash generated by operations and borrowings available under our senior secured credit facility are our primary sources of short-term liquidity. Based on our current level of operations, we believe our cash flow from operations and our available borrowings under our senior secured credit facility will be adequate to meet our liquidity needs for the foreseeable future. However, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facility in an amount sufficient to enable us to repay our indebtedness, including the Notes, or to fund our other liquidity needs.
 
Consolidated Cash Flows
 
The following table sets forth cash flow data for the periods indicated therein:
 
                                         
    Fiscal Year Ended     Six Months Ended  
    March 31,
    March 30,
    March 28,
    September 28,
    October 3,
 
    2006     2007     2008     2007     2008  
    (Dollars in thousands)  
 
Net cash provided by (used in) operating activities
  $ 55,111     $ 93,533     $ 42,361     $ 49,910     $ 37,953  
Net cash used by investing activities
    (6,231 )     (7,595 )     (11,306 )     (3,220 )     (19,718 )
Net cash provided by (used by) financing activities
    (41,781 )     (4,056 )     (48,131 )     (39,083 )     29,165  
 
Cash provided by operating activities for the six months ended October 3, 2008 was $38.0 million, as compared to $49.9 million for the six months ended September 28, 2007. Our strong operating cash flow for the period was the result of higher cash generated from operations offset by a reduction in cash from an increase in our net working capital. Cash generated from operations benefited from our strong operational performance combined with seasonal payment cycles associated with our largest customers’ fiscal calendar. The change in net working capital was primarily due to increases in accounts payable and accrued liabilities and an increase in accounts receivable. Net of revenue growth, our accounts receivable actually declined due to improved collection efforts implemented during the six months ended October 3, 2008. As a result of these efforts, days sales outstanding, a key metric utilized by management to monitor collection efforts on accounts receivable, decreased from 73 days as of March 28, 2008 to 63 days as of October 3, 2008.
 
Operating cash flow, a key source of our liquidity, was $42.4 million for fiscal 2008, a decrease of $51.2 million, or 54.7%, as compared to the fiscal year 2007. The decrease in operating cash flow compared to fiscal 2007 was primarily attributable to changes in working capital, particularly in accounts receivable and prepaid expenses and other current assets of $92.1 million offset by a net release of restricted cash in the current year as compared to a net use of cash in fiscal 2007 which had a net impact of $29.1 million. The $12.2 million increase in net income also helped offset the decreases from working capital. The


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changes in working capital were due to the timing of collections along with business growth from new customers net of GLS expenditures in the fourth quarter.
 
Operating cash flow was $93.5 million for fiscal 2007, an increase of $38.4 million, or 70%, as compared to the fiscal year 2006. The increase in operating cash flow is primarily attributable to earnings growth of $7.4 million and cash flows provided by working capital of $37.2 million, particularly, accounts payable and accrued liability activities related to the timing of payroll processing, interest payments and customer advances. The timing for payroll processing, interest payments and customer advances can vary from quarter to quarter. Partially offsetting the increased operating cash flow was the payment of special cash bonuses subsequent to our parent’s equity offering of $3.1 million in the aggregate to our executive officers and certain other members of management. These bonuses rewarded management for their efforts in connection with the successful consummation of the equity offering.
 
Cash used in investing activities was $19.7 million for the six months ended October 3, 2008 as compared to cash used in investing activities of $3.2 million for the six months ended September 28, 2007. This use of cash from investing activities was the result primarily of changes in our cash restricted as collateral on letters of credit.
 
Net cash used in investing activities was $11.3 million in fiscal 2008 compared to $7.6 million in fiscal 2007. The increase in cash used by investing activities was primarily due to a permanent investment in an unconsolidated equity investee.
 
Cash flows related to investing consisted primarily of cash used for capital expenditures. Net cash used by investing activities was $7.6 million in fiscal 2007 compared to $6.2 million for the fiscal 2006. Capital spending related to the purchase of property and equipment increased $4.7 million in 2007 from 2006 levels to $7.0 million, primarily due to purchase of vehicles, equipment and for certain leasehold improvements. Capital expenditures are made primarily due to contractual requirements. We customarily lease our vehicles and equipment and intend to continue our practice of leasing our vehicles and equipment in the future.
 
Cash provided by financing activities was $29.2 million for the six months ended October 3, 2008, as compared to cash used of $39.1 million for the six months ended September 28, 2007. The cash provided by financing activities during the period was primarily from our new financing arrangements discussed below and borrowings under our financed insurance contracts. Cash used in financing activities for the six months ended September 28, 2007 was due primarily to repayments of borrowings under our term loans.
 
Cash used by financing activities was $4.1 million for the fiscal year ended March 30, 2007, compared to cash used of $41.8 million for the fiscal year March 31, 2006. Financing activities during the fiscal year 2007 included: (i) partial redemption of Existing Notes of $31.5 million, including redemption premium; (ii) transfers received from our parent; and (iii) borrowings under other financing arrangements. The cash used in financing activities during the fiscal year 2006 was due to the $35.0 million repayment of borrowings under our revolving credit facility, the $3.4 million scheduled repayment of our bank note borrowings, the $1.9 million payment of offering expenses and the $0.5 million purchase of an interest rate cap that limits our exposure to upward movements in variable rate debt.
 
Financings
 
On July 28, 2008, we entered into a new senior secured credit facility consisting of a revolving credit facility of $200 million (including a letter of credit sub facility of $125 million) and a term loan facility of $200 million. On that date, we borrowed $200 million under the term loan facility at the LIBOR rate plus the applicable margin then in effect to refinance certain existing indebtedness and pay certain transaction costs relating to the senior secured credit facility and the July 2008 offering of Old Notes. The maturity date of the revolving credit facility and the term loan facility is August 15, 2012. The senior secured credit facility contains various financial covenants, including a total leverage ratio, an interest coverage ratio, limitations on capital expenditures and certain limitations based upon eligible accounts receivable. See


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“Description of Material Indebtedness” for additional information concerning the senior secured credit facility.
 
As of October 3, 2008, no balance was outstanding under our revolving credit facility and $200.0 million was outstanding under the term loan facility. Our available borrowing capacity under the revolving credit facility totaled $187.6 million at October 3, 2008, which gives effect to $12.4 million of outstanding letters of credit. The interest rate at October 3, 2008 for our borrowings under the senior secured credit facility was 5.96%.
 
We currently have in place interest rate swap agreements to hedge our exposure to interest rate increases on a notional principal amount of $200 million. See “— Quantitative and Qualitative Disclosure About Market Risk — Interest Rate Risk” and Note 10 to our condensed consolidated financial statements for the six months ended October 3, 2008.
 
On July 28, 2008, we issued $125 million in aggregate principal amount of Old Notes. These Old Notes were issued under the indenture pertaining to our Existing Notes. As of October 3, 2008, approximately $417 million of aggregate principal amount of Notes were outstanding. The Notes mature during February 2013. Interest accrues on the Notes at the rate of 9.5% per annum and is payable semi-annually. See “Description of Notes” for additional information concerning our Notes.
 
Contractual Commitments
 
The following table presents our contractual commitments associated with our debt and other obligations as of October 3, 2008:
 
                                                         
    Fiscal              
    2009     2010     2011     2012     2013     Thereafter     Total  
    (Dollars in thousands)  
 
Contractual obligations:
                                                       
Term loan(1)
  $     $ 16,875     $ 50,625     $ 55,500     $ 77,000     $     $ 200,000  
Senior subordinated notes
                            417,032             417,032  
Operating leases(2)
    17,583       19,002       9,376       9,077       8,784       26,421       90,244  
Interest on indebtedness(3)
    25,438       51,451       50,026       46,351       41,262             214,528  
Contractual indemnity(4)
    2,268                                     2,268  
Management fee(5)
    300       300       300       300       300       300       1,800  
FIN 48 liabilities(6)
          2,547       1,437                               3,983  
                                                         
Total contractual obligations
  $ 45,589     $ 90,175     $ 111,764     $ 111,228     $ 544,378     $ 26,721     $ 929,855  
                                                         
 
 
(1) As of October 3, 2008, there were no amounts outstanding under the revolving credit facility. It is therefore not included in this table. This table also excludes $22.1 million of letters of credit, $15.7 million of which were collateralized by restricted cash.
 
(2) For additional information about our operating leases, see Note 7 to our consolidated financial statements for fiscal 2008.
 
(3) Represents interest expense calculated using interest rates of: (i) 5.96% on the term loan facility; and (ii) 9.5% on the Notes.
 
(4) Contracted statutory severance obligation for employees due at end of a specific U.S. federal government contract. Payment will be deferred if the contract is extended beyond the current term.
 
(5) For additional information on the management fee, see Note 14 to our consolidated financial statements for fiscal 2008.
 
(6) See “— Critical Accounting Policies — Deferred Taxes, Valuation Allowances and Tax Reserves” for further information concerning FIN 48.
 
Off-Balance Sheet Arrangements
 
Our off-balance sheet arrangements consist of letters of credit and operating lease obligations, which are excluded from the balance sheet in accordance with GAAP. Our letters of credit and lease obligations are


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described in Notes 6 and 7, respectively, in the notes to our consolidated financial statements for fiscal 2008 and in Notes 5 and 6, respectively, to our financial statements for the six month period ended October 3, 2008. In addition, the future operating lease expense is reflected in “— Contractual Commitments.”
 
Effects of Inflation
 
We have generally been able to anticipate increases in costs when pricing our contracts. Bids for longer-term fixed-price and time-and-materials type contracts typically include sufficient labor and other cost escalations in amounts expected to cover cost increases over the period of performance. Consequently, because costs and revenue include an inflationary increase commensurate with the general economy in which we operate, net income as a percentage of revenue has not been significantly impacted by inflation.
 
Quantitative and Qualitative Disclosures About Market Risk
 
The inherent risk in market risk sensitive instruments and positions primarily relates to potential losses arising from adverse changes in interest rates and foreign currency exchange rates. For further discussion of market risks we may encounter, see “Risk Factors.”
 
Interest Rate Risk
 
We have interest rate risk relating to changes in interest rates on our variable rate debt. Our policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments. Borrowings under the senior secured credit facility bear interest at a rate per annum equal to, at our option, either (1) a base rate or (2) LIBOR, plus, in either case, an applicable margin determined by reference to the leverage ratio, as set forth in the senior secured credit agreement. The applicable margins for the base rate and LIBOR rate as of October 3, 2008 were 1.75% and 2.75%, respectively. On November 25, 2008, the applicable margins were reset in accordance with the terms of our senior secured credit facility. The applicable margins for the base rate and LIBOR rate as of November 25, 2008 were 1.5% and 2.5%. As of October 3, 2008, we had $615.8 million of indebtedness, including the Notes and excluding accrued interest thereon, of which $200.0 million was secured. On the same date, we had approximately $187.6 million available under our senior secured credit facility (which gives effect to $12.4 million of outstanding letters of credit). Each quarter point change in interest rates results in an approximately $0.5 million change in annual interest expense on the term loan facility.
 
The table below provides information about our fixed rate and variable rate long-term debt as of October 3, 2008.
 
                                                                 
                                              Average
 
    Expected Maturity as of Fiscal Year     Interest
 
    2009     2010     2011     2012     2013     Thereafter     Total     Rate  
    (Dollars in thousands)  
 
Fixed rate
  $     $     $     $     $ 417,032     $     $ 417,032       9.50 %
Variable rate
          16,875       50,625       55,000       77,500             200,000       5.96 %
                                                                 
Total debt
  $     $ 16,875     $ 50,625       55,000     $ 494,532     $     $ 617,032          
                                                                 
 
The fair value of our term loan borrowings under the senior secured credit facility is approximately $200.0 million. The fair value of the Notes is approximately $410.8 million based on their quoted market value. The above table does not give effect to $28.1 million of outstanding letters of credit, $15.7 million of which were collateralized by restricted cash, or unamortized discount of $12 million on the Notes, in each case as of October 3, 2008.
 
During fiscal 2008, in order to mitigate interest rate risk related to our floating rate indebtedness, we entered into interest rate swap agreements with notional amounts totaling $275 million. The interest rate swaps effectively fixed the interest rate at 6.96%, including applicable margin of 2% at March 28, 2008, on the first $275 million of our floating rate debt. The interest rate on the notional amount of $75 million was effectively fixed through September 2008 and the interest rate on the remaining $200 million was effectively


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fixed through May 2010. We concluded that the interest rate swaps qualify as cash flow hedges under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
 
Foreign Currency Exchange Rate Risk
 
We are exposed to changes in foreign currency rates. At present, we do not utilize any derivative instruments to manage risk associated with currency exchange rate fluctuations. The functional currency of certain foreign operations is the local currency. Accordingly, these foreign entities translate assets and liabilities from their local currencies to U.S. dollars using year-end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as accumulated other comprehensive (loss) income. Management has determined that our foreign currency transactions are not material.
 
Critical Accounting Policies
 
The process of preparing financial statements in conformity with GAAP requires the use of estimates and assumptions to determine reported amounts of certain assets, liabilities, revenue and expenses and the disclosure of related contingent assets and liabilities. These estimates and assumptions are based upon information available at the time of the estimates or assumptions, including our historical experience, where relevant. These significant estimates and assumptions are reviewed quarterly by management with oversight by the Disclosure Control Committee, an internal committee comprised of members of senior management. The Disclosure Control Committee presents its views to the Audit Committee of our parent’s board of directors. Because of the uncertainty of factors surrounding the estimates, assumptions and judgments used in the preparation of our financial statements, actual results may differ from the estimates, and the difference may be material.
 
Our critical accounting policies are those policies that are both most important to our financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following represent our critical accounting policies. For a summary of all of our significant accounting policies, see Note 1 to our fiscal 2008 consolidated financial statements included in this prospectus. Our external auditors have discussed our critical accounting policies with the Audit Committee of our parent’s board of directors.
 
Revenue Recognition
 
We are predominantly a services provider and only include products or systems when necessary for the execution of the service arrangement and as such, systems, equipment or materials are not generally separable from services. Revenue is recognized when persuasive evidence of an arrangement exists, services or products have been provided to the client, the sales price is fixed or determinable, and collectability is reasonably assured. Each arrangement is unique and revenue recognition is evaluated on a contract by contract basis. Our contracts typically fall into four categories with the first representing the vast majority of our revenue. The contract types are federal government contracts, construction type contracts, software contracts and multiple arrangement type contracts. We apply the appropriate guidance consistently to similar contracts.
 
We expense pre-contract costs as incurred for an anticipated contract until the contract is awarded. Throughout the life of the contract, indirect costs, including general and administrative costs, are expensed as incurred. Management regularly reviews project profitability and underlying estimates. Revisions to estimates are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management.
 
Major factors we consider in determining total estimated revenue and cost include the basic contract price, contract options, change orders (modifications of the original contract), back charges and claims, and contract provisions for penalties, award fees and performance incentives. All of these factors and other


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special contract provisions are evaluated throughout the life of our contracts when estimating total contract revenue under the percentage-of-completion or proportional methods of accounting.
 
Federal Government Contracts — For all non-construction and non-software U.S. federal government contracts or contract elements, we apply the guidance in the AICPA Accounting and Auditing Guide, Federal Government Contractors, or “AAG-FGC.” We apply the combination and segmentation guidance in the AAG-FGC in analyzing the deliverables contained in the applicable contract to determine appropriate profit centers. Revenue is recognized by profit center using the percentage-of-completion method or completed contract method.
 
Projects under our U.S. federal government contracts typically have different pricing mechanisms that influence how revenue is earned and recognized. These pricing mechanisms are classified as cost plus fixed-fee, fixed-price, cost plus award fee, time-and-materials (including unit-price/level-of-effort contracts), or IDIQ. The exact timing and quantity of delivery for IDIQ profit centers are not known at the time of contract award, but they can contain any type of pricing mechanism.
 
Revenue on projects with a fixed-price or fixed-fee is generally recognized ratably over the contract period measured by either output or input methods appropriate to the services or products provided. For example, “output measures” can include period of service, such as for aircraft fleet maintenance; and units delivered or produced, such as aircraft for which modification has been completed. “Input measures” can include a cost-to-cost method, such as for procurement-related services.
 
Revenue on time and materials projects is recognized at contractual billing rates for applicable units of measure (e.g. labor hours incurred, units delivered).
 
The completed contract method is sometimes used when reliable estimates cannot be supported for percentage-of-completion method recognition or for short duration projects when the results of operations would not vary materially from those resulting from use of the percentage-of-completion method. Until complete, project costs are maintained in work in progress, a component of inventory.
 
Construction Contracts or Contract Elements — For all construction contracts or contract elements, revenue is recognized by profit center using the percentage-of-completion method.
 
Software Contracts or Contract Elements — It is our policy to review any arrangement containing software or software deliverables using applicable GAAP guidance for software revenue recognition to ensure accurate accounting of these arrangements as discussed further in Note 1 to our consolidated financial statements for fiscal 2008. We never sell software on a separate, standalone basis. As a result, software arrangements are typically accounted for as one unit of accounting and are recognized over the service period, including the period of post-contract customer support.
 
Other Contracts or Contract Elements — Our contracts with non-federal government customers are predominantly multiple-element. Multiple-element arrangements involve multiple obligations in various combinations to perform services, deliver equipment or materials, grant licenses or other rights, or take certain actions. We evaluate all deliverables in an arrangement to determine whether they represent separate units of accounting and arrangement consideration is allocated among the separate units of accounting based on their relative fair values. Fair values are established by evaluating vendor specific objective evidence, or “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.
 
Deferred Taxes, Tax Valuation Allowances and Tax Reserves
 
Our income tax expense, deferred tax assets and liabilities and reserves for uncertain tax positions reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.


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Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.
 
We recognize valuation allowances to reduce the carrying value of deferred tax assets to amounts that we expect are more likely than not to be realized. Our valuation allowances primarily relate to the deferred tax assets established for certain tax credit carryforwards and net operating loss carryforwards for U.S. and non-U.S. subsidiaries, and we evaluate the realizability of our deferred tax assets by assessing the related valuation allowance and by adjusting the amount of these allowances, if necessary. We assess such factors as our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets in determining the sufficiency of our valuation allowances. Failure to achieve forecasted taxable income in the applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in our effective tax rate on future earnings. Implementation of different tax structures in certain jurisdictions could, if successful, result in future reductions of certain valuation allowances.
 
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in potential assessments. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for open tax years for uncertain tax positions that may be subject to challenge by various tax authorities. The consolidated tax provision and related accruals include the impact of such reasonably estimable losses and related interest and penalties as deemed appropriate.
 
On March 31, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” an Interpretation of Statement of Financial Accounting Standards No. 109, or “FIN No. 48,” which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN No. 48, we may recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information.
 
The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
 
We believe we have adequately provided for any reasonably foreseeable outcome related to these matters, and our future results may include favorable or unfavorable adjustments to our estimated tax liabilities. To the extent that the expected tax outcome of these matters changes, such changes in estimate will impact the income tax provision in the period in which such determination is made.
 
Equity-Based Compensation Expense
 
We have adopted the provisions of and accounted for equity-based compensation in accordance with FASB No. 123 (revised 2004), “Share-Based Payment”, or “SFAS No. 123R.” Under the fair value recognition provisions, equity-based compensation expense is measured using the grant date fair value for equity awards or is revalued each accounting period for liability awards. See Note 10 of our audited consolidated financial statements for fiscal 2008 for further information regarding the SFAS No. 123(R) disclosures.


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We currently have two types of share-based payment awards, restricted stock units, or “RSUs,” in our parent and Class B membership interests in DIV Holding, which we refer to as “Class B membership interests”. The “RSUs” are classified as liability awards under GAAP and are thus revalued based on our parent’s closing stock price at the end of each accounting period. The Class B membership interests are considered equity awards under GAAP and were valued at the grant date using the Black-Scholes model.
 
The determination of the fair value of the Class B membership interests is affected by our parent’s stock price as well as assumptions including volatility, the risk-free interest rate and expected dividends. We base the risk-free interest rate that we use in the pricing model on a forward curve of risk free interest rates based on constant maturity rates provided by the U.S. Treasury. Our parent has not paid and does not anticipate paying any cash dividends in the foreseeable future and we therefore used an expected dividend yield of zero in the pricing model.
 
We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate forfeitures and record stock-based compensation expense only for those awards that are expected to vest. Our share-based payment awards typically vest ratably over the requisite service periods, which differs from our recognition of compensation expense that is recognized on an accelerated basis over the awards’ requisite service periods.
 
Recent Accounting Pronouncements
 
Information regarding recent accounting pronouncements is included in Note 1 to our fiscal 2008 consolidated financial statements included in this prospectus.


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THE EXCHANGE OFFER
 
General
 
The issuers issued and sold $125.0 million of Old Notes on July 28, 2008, or the “Closing Date,” in a transaction exempt from the registration requirements of the Securities Act. An additional $90,000 of Existing Notes were issued in a prior private placement and were not exchanged for new notes in a prior exchange offer. The initial purchasers of the Old Notes subsequently resold them to qualified institutional buyers in reliance on Rule 144A.
 
In connection with the sale of $125.0 million of Old Notes to the initial purchasers on July 28, 2008, the holders of those Old Notes became entitled to the benefits of an A/B exchange registration rights agreement, or “Registration Rights Agreement,” dated the Closing Date between the issuers, our domestic subsidiaries that guaranteed the Old Notes and the initial purchaser. The holders of the additional $90,000 of Existing Notes referred to above do not have any rights pursuant to the Registration Rights Agreement.
 
Under the Registration Rights Agreement, the issuers became obligated to file a registration statement in connection with an exchange offer within 180 days after the Closing Date and use their reasonable best efforts to cause an exchange offer registration statement to become effective within 270 days after the Closing Date. The exchange offer being made by this prospectus, if consummated within the required time periods, will satisfy the issuers’ obligations under the Registration Rights Agreement. This prospectus, together with the letter of transmittal, is being sent to all beneficial holders known to the issuers.
 
Terms of the Exchange Offer
 
Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, the issuers will accept all Old Notes properly tendered and not withdrawn on or prior to the expiration date, The issuers will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the exchange offer. Holders may tender some or all of their Old Notes pursuant to the exchange offer.
 
Based on no-action letters issued by the staff of the SEC to third parties, the issuers believe that holders of the New Notes issued in exchange for Old Notes may offer for resale, resell and otherwise transfer the New Notes, other than any holder that is an affiliate of the issuers within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act. This is true as long as the New Notes are acquired in the ordinary course of the holder’s business, the holder has no arrangement or understanding with any person to participate in the distribution of the New Notes and neither the holder nor any other person is engaging in or intends to engage in a distribution of the New Notes. Each broker-dealer that receives New Notes pursuant to the exchange offer must deliver a prospectus in connection with the resale of the New Notes. If the broker-dealer acquired the Old Notes as a result of market-making or other trading activities, such broker-dealer must use the prospectus for the exchange offer, as supplemented or amended, in connection with resales of New Notes. Broker-dealers who acquired the Old Notes directly from the issuers must, in the absence of an exemption from registration, comply with the registration and prospectus delivery requirements of the Securities Act in connection with secondary resales and cannot rely on the position of the SEC staff enunciated in the Exxon Capital Holding Corp. no-action letter (available May 13, 1998). See “Plan of Distribution” for additional information. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the New Notes cannot rely on the no-action letters of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.
 
The issuers will be deemed to have accepted validly tendered Old Notes when, as and if they have given oral or written notice of the acceptance of those notes to the exchange agent. The exchange agent will act as agent for the tendering holders of Old Notes for the purposes of receiving the New Notes from the issuers and delivering New Notes to those holders. Pursuant to Rule 14e-1(c) of the Exchange Act, the issuers will promptly deliver the New Notes upon consummation of the exchange offer or return the Old Notes if the exchange offer is withdrawn.


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If any tendered Old Notes are not accepted for exchange because of an Invalid tender or the occurrence of the conditions set forth under “— Conditions” without waiver by the issuers, certificates or any of those unaccepted Old Notes will be returned, without expense, to the tendering holder of any of those Old Notes promptly upon expiration or termination of the exchange offer.
 
Holders of Old Notes who tender in the exchange offer will not be required to pay brokerage commissions or fees or, in accordance with the instructions in the letter of transmittal, transfer taxes with respect to the exchange of Old Notes, pursuant to the exchange offer. The issuers will pay all charges and expenses, other than taxes applicable to holders in connection with the exchange offer. See “— Fees and Expenses.”
 
Shelf Registration Statement
 
If (1) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the issuers are not permitted to effect the exchange offer; or (2) the exchange offer has not been completed within 310 days following the closing date; or (3) certain holders of the Old Notes are prohibited by law or SEC policy from participating in the exchange offer; or (4) in certain circumstances, certain holders of the registered New Notes so request; or (5) in the case of any holder that participates in the exchange offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws, then the issuers will, in lieu of or in addition to conducting the exchange offer, file a shelf registration statement covering resales of the Old Notes under the Securities Act as soon as reasonably practicable, but no later than 45 business days after the time of such obligation to file arises. The issuers agree to use all commercially reasonable efforts to (a) cause the shelf registration statement to become or be declared effective no later than 150 days after the shelf registration statement is filed and (b) use their reasonable best efforts to keep the shelf registration statement effective (other than during any blackout period) until the earlier of two years after the shelf registration becomes effective or such time as all of the applicable Old Notes have been sold thereunder.
 
The issuers will, in the event that a shelf registration statement is filed, provide to each holder copies of the prospectus that is a part of the shelf registration statement, notify each such holder when the shelf registration statement for the Old Notes has become effective and take certain other actions as are required to permit unrestricted resales of the Old Notes. The issuers agree to supplement or make amendments to the shelf registration statement as and when required by the registration form used for the shelf registration statement or by the Securities Act or rules and regulations under the Securities Act for shelf registrations. The issuers agree to furnish to certain holders copies of any such supplement or amendment prior to its being used or promptly following its filing. A holder that sells Old Notes pursuant to the shelf registration statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such a holder (including certain indemnification rights and obligations).
 
Notwithstanding anything to the contrary in the Registration Rights Agreement, upon notice to the holders of the Old Notes, the issuers may suspend use of the prospectus included in any shelf registration statement in the event that and for a period of time, or blackout period, not to exceed an aggregate of 60 days in any twelve-month period (1) the issuers’ board of managers or board of directors, as applicable, or our parent’s board of directors determines, in good faith, that the disclosure of an event, occurrence or other item at such time could reasonably be expected to have a material adverse effect on the business, operations or prospects of us and our subsidiaries or (2) the disclosure otherwise relates to a material business transaction which has not been publicly disclosed and the issuers’ board of managers or board of directors, as applicable, or our parent’s board of directors determines, in good faith, that any such disclosure would jeopardize the success of the transaction or that disclosure of the transaction is prohibited pursuant to the terms thereof.


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Special Interest
 
If the issuers fail to meet the targets listed in the three paragraphs immediately following this paragraph, then additional interest, which we refer to as Special Interest, shall accrue and become payable in respect of the notes at the rates set forth in the three numbered paragraphs immediately following this paragraph as follows (each event referred to in clauses (A) and (B) of each of the numbered paragraphs below constituting a registration default, and each period during which the registration default(s) has occurred and is continuing is a registration default period):
 
1. if (A) the exchange offer registration statement is not filed with the SEC on or prior to 180 days after the Closing Date or (B) notwithstanding that the issuers have consummated or will consummate an exchange offer, the issuers are required to file a shelf registration statement and such shelf registration statement is not filed on or prior to the date required by the Registration Rights Agreement, then commencing on the day after either such required filing date, Special Interest shall accrue on the principal amount of the notes at a rate of 0.25% per annum for the first 90 days of the registration default period, at a rate of 0.50% per annum for the second 90 days of the registration default period, at a rate of 0.75% per annum for the third 90 days of the registration default period, and at a rate of 1.0% thereafter for the remaining portion of the registration default period; or
 
2. if (A) the exchange offer registration statement is not declared effective by the SEC on or prior to 270 days after the Closing Date or (B) notwithstanding that the issuers have consummated or will consummate an exchange offer, the issuers are required to file a shelf registration statement and such shelf registration statement is not declared effective by the SEC on or prior to the date required by the Registration Rights Agreement, then, commencing on the day after either such required effective date, Special Interest shall accrue on the principal amount of the notes at a rate of 0.25% per annum for the first 90 days of the registration default period, at a rate of 0.50% per annum for the second 90 days of the registration default period, at a rate of 0.75% per annum for the third 90 days of the registration default period, and at a rate of 1.0% thereafter for the remaining portion of the registration default period; or
 
3. if (A) the exchange offer has not been completed within 45 business days after the initial effective date of the exchange offer registration statement or (B) any exchange offer registration statement or shelf registration statement required under the Registration Rights Agreement is filed and declared effective but thereafter is either withdrawn by the issuers or becomes subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted in the Registration Rights Agreement and including any blackout period permitting therein), then Special Interest shall accrue on the principal amount of the notes at a rate of 0.25% per annum for the first 90 days of the registration default period, at a rate of 0.50% per annum for the second 90 days of the registration default period, at a rate of 0.75% per annum for the third 90 days of the registration default period, and at a rate of 1.0% thereafter for the remaining portion of the registration default period;
 
provided, however, (x) that the Special Interest rate on the notes may not accrue under more than one of the foregoing clauses (1) — (3) at any one time and at no time shall the aggregate amount of Special Interest accruing exceed 1.0% per annum and (y) Special Interest shall not accrue under clause 3(B) above during the continuation of a blackout period; provided, further, however, that (a) upon the filing of the exchange offer registration statement or a shelf registration statement (in the case of clause (1) above), (b) upon the effectiveness of the exchange offer registration statement or a shelf registration statement (in the case of clause (2) above), or (c) upon the exchange of New Notes for all Old Notes tendered (in the case of clause (3) (A) above), or upon the effectiveness of the shelf registration statement which had ceased to remain effective (in the case of clause (3) (B) above), Special Interest on the notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue.
 
No Special Interest shall accrue with respect to notes that are not Registrable Notes, as defined in the Registration Rights Agreement.


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Any amounts of Special Interest due pursuant to clause (1), (2) or (3) above will be payable in cash on the same original interest payment dates as the Notes.
 
Expiration Date; Extensions; Amendment
 
The term “expiration date” means 5:00 p.m., New York City time, on February 11, 2009, which is 20 business days after the commencement of the exchange offer, unless the issuers extend the exchange offer, in which case, the term “expiration date” means the latest date to which the exchange offer is extended.
 
In order to extend the expiration date, the issuers will notify the exchange agent of any extension by oral or written notice and will issue a press release of the extension, each prior to 9:00 am., New York City time, on the next business day after the previously scheduled expiration date.
 
The issuers reserve the right:
 
(a) to delay accepting of any Old Notes, to the extent in a manner compliant with Rule 14e-1(c) of the Exchange Act, to extend the exchange offer or to terminate the exchange offer and not accept Old Notes not previously accepted if the exchange offer violates any applicable law or interpretation by the staff of the SEC and such conditions shall not have been waived by them, if permitted to be waived by them, by giving oral or written notice of the delay, extension or termination to the exchange agent, or
 
(b) to amend the terms of the exchange offer in any manner deemed by them to be advantageous to the holders of the Old Notes.
 
The issuers will notify you as promptly as practicable of any delay in acceptance, extension, termination or amendment. If the exchange offer is amended in a manner determined by the issuers to constitute a material change, the issuers will promptly disclose the amendment in a manner intended to inform the holders of the Old Notes of the amendment. Depending upon the significance of the amendment, the issuers may extend the exchange offer if it otherwise would expire during the extension period. Any such extension will be made in compliance with Rule 14d-4(d) of the Exchange Act.
 
Without limiting the manner in which the issuers may choose to publicly announce any extension, amendment or termination of the exchange offer, the issuers will not be obligated to publish, advertise, or otherwise communicate that announcement, other than by making a timely release to an appropriate news agency.
 
Procedures for Tendering
 
To tender in the exchange offer, a holder must:
 
  •  complete, sign and date the letter of transmittal or a facsimile of the letter of transmittal;
 
  •  have the signatures on the letter of transmittal guaranteed if required by instruction 3 of the letter of transmittal; and
 
  •  mail or otherwise deliver the letter of transmittal or the facsimile in connection with a book-entry transfer, together with the Old Notes and any other required documents.
 
To be validly tendered, the documents must reach the exchange agent by or before 12:00 midnight, New York City time, on the expiration date. Delivery of the Old Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of the book-entry transfer must be received by the exchange agent on or prior to the expiration date.
 
The tender by a holder of Old Notes will constitute an agreement between that holder and the issuers in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.


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Delivery of all documents must be made to the exchange agent at its address set forth below. Holders may also request their brokers, dealers, commercial banks, trust companies or nominees to effect the tender for those holders.
 
The method of delivery of Old Notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holders. Instead of deliver by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the exchange agent by or before 12:00 midnight, New York City time, on the expiration date. No letter of transmittal or Old Notes should be sent to the issuers.
 
Only a holder of Old Notes may tender Old Notes in the exchange offer. The term “holder” with respect to the exchange offer means any person in whose name Old Notes are registered on the issuers’ books or any other person who has obtained a properly completed bond power from the registered holder.
 
Any beneficial holder whose Old Notes are registered in the name of its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on its behalf. If the beneficial holder wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its Old Notes, either make appropriate arrangements to register ownership of the Old Notes in the holder’s name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time.
 
Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by a member firm of a registered national securities exchange or of the Financial Industry Regulatory Authority, Inc. or a commercial bank or trust company having an office or correspondent in the United States referred to as an “eligible institution,” unless the Old Notes are tendered: (a) by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal or (b) for the account of an eligible institution. In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantee must be by an eligible institution.
 
If the letter of transmittal is signed by a person other than the registered holder of any Old Notes listed therein, those Old Notes must be endorsed or accompanied by appropriate bond powers and a proxy which authorizes that person to tender the Old Notes on behalf of the registered holder, in each case, signed as the name of the registered holder or holders appears on the Old Notes.
 
If the letter of transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, they should indicate that when signing and, unless waived by the issuers, submit evidence satisfactory to the issuers of their authority to act with the letter of transmittal.
 
All questions as to the validity, form, eligibility, including time of receipt, and withdrawal of the tendered Old Notes will be determined by the issuers in their sole discretion. This determination will be final and binding. The issuers reserve the absolute right to reject any Old Notes not properly tendered or any Old Notes their acceptance of which, in the opinion of counsel for the issuers, would be unlawful. The issuers interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes, must be cured within such time as the issuers shall determine. None of the issuers, the exchange agent or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability for failure to give notification. Tenders of Old Notes will not be deemed to have been made until irregularities have been cured or waived. Any Old Notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost by the exchange agent to the tendering holders of Old Notes, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.


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In addition, the issuers reserve the right in their sole discretion to:
 
(a) purchase or make offers for any Old Notes that remain outstanding subsequent to the expiration date or, as set forth under “— Conditions,” to terminate the exchange offer in accordance with the terms of the Registration Rights Agreement; and
 
(b) to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the exchange offer.
 
By tendering Old Notes pursuant to the exchange offer, each holder will represent to the issuers that, among other things,
 
(a) the New Notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of such holder;
 
(b) the holder is not engaged in and does not intend to engage in a distribution of the New Notes;
 
(c) the holder has no arrangement or understanding with any person to participate in the distribution of such New Notes; and
 
(d) the holder is not an “affiliate” of the issuers, as defined under Rule 405 of the Securities Act, or, if the holder is an affiliate, will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.
 
Book-Entry Transfer
 
The issuers understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the Old Notes at the Depository Trust Company, or “DTC,” for the purpose of facilitating the exchange offer, and upon the establishment of those accounts, any financial institution that is a participant in DTC’s system may make book-entry delivery of Old Notes by causing DTC to transfer the Old Notes into the exchange agent’s account with respect to the Old Notes in accordance with DTC’s procedures for transfers. Although delivery of the Old Notes may be effected through book-entry transfer into the exchange agent’s account at the DTC, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee, and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under the procedures. Delivery of documents to the DTC does not constitute delivery to the exchange agent.
 
Guaranteed Delivery Procedures
 
Holders who wish to tender their Old Notes and
 
(a) whose Old Notes are not immediately available or
 
(b) who cannot deliver their Old Notes, the letter of transmittal or any other required documents to the exchange agent on or prior to the expiration date, may effect a tender if:
 
(1) the tender is made through an eligible institution;
 
(2) on or prior to the expiration date, the exchange agent receives from the eligible institution a properly completed and duly executed Notice of Guaranteed Delivery, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the Old Notes, the certificate number or numbers of the Old Notes and the principal amount of Old Notes tendered stating that the tender is being made thereby, and guaranteeing that, within three business days after the expiration date, the letter of transmittal, or facsimile thereof, together with the certificate(s) representing the Old


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Notes to be tendered in proper form for transfer and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and
 
(3) the properly completed and executed letter of transmittal, or facsimile thereof, together with the certificate(s) representing all tendered Old Notes in proper form for transfer and all other documents required by the letter of transmittal are received by the exchange agent within three business days after the expiration date.
 
Withdrawal of Tenders
 
Except as otherwise provided in this prospectus, tenders of Old Notes may be withdrawn at any time by or prior to 12:00 midnight, New York City time, on the expiration date, unless previously accepted for exchange.
 
To withdraw a tender of Old Notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in this prospectus by 12:00 midnight, New York City time, on the expiration date. Any such notice of withdrawal must:
 
(a) specify the name of the depositor, who is the person having deposited the Old Notes to be withdrawn;
 
(b) identify the Old Notes to be withdrawn, including the certificate number or numbers and principal amount of the Old Notes or, in the case of Old Notes transferred by book-entry transfer, the name and number of the account at DTC to be credited;
 
(c) be signed by the holder in the same manner as the original signature on the letter of transmittal by which such Old Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the depositor withdrawing the tender; and
 
(d) specify the name in which any such Old Notes are being registered if different from that of the depositor.
 
All questions as to the validity, form and eligibility, including time of receipt, of withdrawal notices will be determined by the issuers, and their determination will be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no New Notes will be issued with respect to the Old Notes withdrawn unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange will be returned to their holder without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under “— Procedures for Tendering” at any time on or prior to the expiration date.
 
Conditions
 
Notwithstanding any other term of the exchange offer, the issuers will not be required to accept for exchange, or exchange, any New Notes for any Old Notes, and may terminate or amend the exchange offer on or before the expiration date, if the exchange offer violates any applicable law or interpretation by the staff of the SEC.
 
If the issuers determine in their reasonable discretion that the foregoing condition exists, they may:
 
  •  refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders;
 
  •  extend the exchange offer and retain all Old Notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders who tendered the Old Notes to withdraw their tendered Old Notes; or


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  •  waive such condition, if permissible, with respect to the exchange offer and accept all properly tendered Old Notes which have not been withdrawn.
 
If a waiver constitutes a material change to the exchange offer. the issuers will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the holders, and they will extend the exchange offer as required by applicable law.
 
Pursuant to the Registration Rights Agreement, the issuers are required to use their reasonable best efforts to file with the SEC a shelf registration statement with respect to the Old Notes on or prior to the 45th day after the time such obligation to file arises, as per Section 2(b) of the Registration Rights Agreement, and thereafter use their reasonable best efforts to cause the shelf registration statement declared effective on or prior to the 150th day after the shelf registration is filed, if:
 
(1) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the issuers are not permitted to effect the exchange offer; or
 
(2) the exchange offer has not been completed within 310 days following the Closing Date; or
 
(3) certain holders of the Old Notes are prohibited by law or SEC policy from participating in the exchange offer; or
 
(4) in certain circumstances, certain holders of the registered New Notes so request; or
 
(5) in the case of any holder that participates in the exchange offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws.
 
Exchange Agent
 
The Bank of New York has been appointed as exchange agent for the exchange offer, and is also the trustee under the indenture under which the New Notes will be issued. Questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to The Bank of New York, addressed as follows:
 
For information by Telephone:
(212) 815-2742
 
     
By Mail:   By Hand or Overnight Delivery Service:
The Bank of New York Mellon
Corporate Trust Operations
Reorganization Unit
101 Barclay Street, 7 East
New York, NY 10286
Attn: Ms. Diane Amoroso
  The Bank of New York Mellon
Corporate Trust Operations
Reorganization Unit
101 Barclay Street, 7 East
New York, NY 10286
Attn: Ms. Diane Amoroso
 
By Facsimile Transmission:
(212) 298-1915
 
(Telephone Confirmation)
(212) 815-2742
 
Fees and Expenses
 
The issuers have agreed to bear the expenses of the exchange offer pursuant to the Registration Rights Agreement. The issuers have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. The issuers, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection with providing the services.


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The issuers will pay the cash expenses to be incurred in connection with the exchange offer. These expenses include fees and expenses of The Bank of New York as exchange agent, accounting and legal fees, and printing costs, among others.
 
Accounting Treatment
 
The New Notes will be recorded at the same carrying value as the Old Notes as reflected in our accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by us. The expenses of the exchange offer and the unamortized expenses related to the issuance of the Old Notes will be amortized over the remaining term of the Notes.
 
Consequences of Failure to Exchange
 
Holders of Old Notes who are eligible to participate in the exchange offer but who do not tender their Old Notes will not have any further registration rights, and their Old Notes will continue to be restricted for transfer. Accordingly, such Old Notes may be resold only:
 
(a) to the issuers, upon redemption of the Old Notes or otherwise;
 
(b) so long as the Old Notes are eligible for resale pursuant to Rule 144A under the Securities Act to a person inside the United States whom the seller reasonably believes is a “qualified institutional buyer” within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A;
 
(c) in accordance with Rule 144 under the Securities Act, or under another exemption from the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to the issuers;
 
(d) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or
 
(e) under an effective registration statement under the Securities Act;
 
in each case in accordance with any applicable securities laws of any state of the United States.
 
Regulatory Approvals
 
The issuers do not believe that the receipt of any material federal or state regulatory approval will be necessary in connection with the exchange offer, other than the effectiveness of the exchange offer registration statement under the Securities Act.
 
Other
 
Participation in the exchange offer is voluntary and holders of Old Notes should carefully consider whether to accept the terms and condition of this exchange offer. Holders of the Old Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the exchange offer.


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BUSINESS
 
We are a leading provider of specialized mission-critical professional and support services outsourced by the U.S. military, non-military U.S. governmental agencies and foreign governments. Our specific global expertise is in law enforcement training and support, security services, base and logistics operations, construction management, aviation services and operations, and linguist services. We also provide logistics support for all our services. As of October 3, 2008, we had approximately 23,000 employees in approximately 30 countries, approximately 47 active contracts ranging in duration from three to ten years and over 100 task orders. We have provided essential services to numerous U.S. government departments and agencies since 1951.
 
Industry Overview
 
Over most of the last two decades, the U.S. government has been increasing its reliance on the private sector for a wide range of professional and support services. This increased use of outsourcing by the U.S. government has been driven by a variety of factors, including: the lean-government initiatives launched in the 1990s; surges in demand during times of national crisis; the increased complexity of missions conducted by the U.S. military and the DoS; the increased focus of the U.S. military on warfighting efforts; and the loss of skills within the government caused by workforce reductions and retirements. While the number of DoD employees dropped by 36% from fiscal 1989 through fiscal 2008, the DoD’s budget increased by 95% over the same period. According to the Government Accountability Office, or “GAO”, the DoD’s obligations on service contracts increased from approximately $85.1 billion in fiscal 1996 to more than $151.0 billion in fiscal 2006, an increase of approximately 78%. We believe that the U.S. government’s expansive mission and continued human capital challenges have combined to create a market dynamic promoting the ongoing shift of service delivery from the federal workforce to private sector providers.
 
The DoD budget for fiscal 2009, excluding supplemental funding relating to operations in Iraq and Afghanistan, has been proposed to Congress at $515.4 billion, a 74% increase over fiscal 2001. The DoD forecasts that its annual budget will continue to grow to over $548.9 billion (excluding supplemental funding) by fiscal 2013. The Operation and Maintenance, or “O&M”, portion of the DoD budget, which funds the majority of the services that we provide, is the largest segment of the DoD military spending. For fiscal 2009, the DoD proposed O&M spending of $179.8 billion, which represents 35% of the total DoD military budget and is 9.2% greater than the proposed fiscal 2008 O&M budget. Further, the O&M budget is forecasted by the DoD to increase to $197.2 billion by fiscal 2013. The fiscal 2009 DoS and International Assistance budget has been proposed to Congress at $38.3 billion, representing a 68% increase over fiscal 2001 and is forecasted by the Office of Management and Budget, or “OMB”, to reach $40.4 billion in 2013. Similarly, the U.S. Department of Homeland Security, or “DHS”, budget for fiscal 2009 has been proposed to Congress at $37.6 billion, which represents a 134% increase over the fiscal 2001 budget for the DHS and its predecessor entities and is forecasted by the OMB to reach $41.2 billion by fiscal 2013. The United Nations has also been expanding peacekeeping operations, with spending increasing from $2.6 billion in fiscal 2001 to an estimated $6.7 billion for fiscal 2008. Services reflected in these budgets include many that we provide, such as law enforcement training, eradication of international narcotics, temporary housing for victims of calamities, training and deployment of agents along national borders, and certain contingency and security services.
 
In addition to projected U.S. government budget growth, we believe the following industry trends will further increase demand for the services we provide in our target markets:
 
  •  the continued transformation of military forces, leading to increased outsourcing of non-combat functions, including life-cycle asset management functions ranging from organizational to depot level maintenance;
 
  •  an increase in the level and frequency of overseas deployments and peace-keeping operations for the DoS, DoD and United Nations;


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  •  increased maintenance, overhaul and upgrade needs to support aging military platforms;
 
  •  increased outsourcing by foreign militaries of maintenance, supply support, facilities management and construction management-related services; and
 
  •  the shift from single award to more multiple award IDIQ contracts, which may offer us an opportunity to increase revenues under these contracts by competing for task orders with the other contract awardees.
 
Business Strengths
 
We believe that our core strengths include the following:
 
Significant Recurring Contract Base.  We believe that the long-term and recurring nature of most of our principal contracts, coupled with our current backlog and new business pipeline under our existing contracts, enhances the predictability of our future operating results. We have a stable revenue base derived from approximately 47 active contracts and over 100 active task orders as of October 3, 2008. Our task orders under these contracts come from various agencies and departments of the U.S. government and are spread over a diverse mix of activities, services and platforms. The terms of our contracts generally range from three to ten years and, as of October 3, 2008, we had backlog of approximately $6.5 billion. From fiscal 2006 to fiscal 2008, we recognized an average of $2.1 billion of annual revenue and received, on average, annual additional estimated total contract value of approximately $3.4 billion. Over that same time period, approximately 75% of each fiscal year’s revenue was generated from backlog that existed at the beginning of the fiscal year, and management believes that this will continue to be the case in fiscal 2009.
 
Long-Standing and Strong Prime Customer Relationships.  We have a long history of serving our principal customers, which includes more than 56 years and 17 years of experience in serving the DoD and the DoS, respectively. We have provided services under our ten largest contracts, taking into account contract renewals, for approximately 14 years on average, and we have participated in the CFT program for over 56 years. In fiscal 2008, we generated approximately 97% of our revenue as a prime contractor. As a prime contractor, we manage the customer relationship and believe that we are therefore better positioned for further contract opportunities. We believe that the longevity and depth of our customer relationships has positioned us as a contractor of choice for our customers.
 
Leading Market Position.  We are one of the few providers with the ability to perform large-scale, complex programs in our targeted service areas. Our global presence and highly specialized personnel enable us to meet our customers’ specifications anywhere in the world. We were pioneers in the CFT program and believe that we are currently the largest provider of CFT services to the DoD. We are also the sole contractor under the DoS International Narcotics and Law Enforcement Air-Wing program.
 
Attractive Cash Flow Dynamics.  The services that we provide have low ongoing capital expenditure requirements, averaging approximately $5.1 million over the past three full fiscal years, which contributes to our ability to generate strong cash flow. We also generate strong cash flow through actively managing our working capital to reduce the days sales outstanding of our accounts receivable. We believe that our ability to generate strong cash flow provides us with a substantial degree of operating flexibility beyond servicing our debt, enabling us to fund our contract initiatives.
 
Attractive Industry Fundamentals.  For fiscal 2009, the DoD proposed O&M spending of $179.8 billion, which represents 35% of the total DoD military budget and is 9.2% greater than the proposed fiscal 2008 O&M budget. The O&M budget is forecasted by the DoD to increase further to $197.2 billion by fiscal 2013. The fiscal 2009 DoS and International Assistance budget has been proposed at $38.3 billion, 9.4% greater than the proposed fiscal 2008 budget and is forecasted by the OMB to reach $40.4 billion in 2013. The U.S. worldwide military presence and the war on terror have led to the deployment of over 350,000 troops in over 130 foreign countries. The global deployment and ongoing transformation of the U.S. military are straining existing government resources and shifting service


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delivery from government employees to more cost-effective commercial vendors. As a result, outsourcing to private contractors by the U.S. government has increased and is expected to continue.
 
Global Reach and Fulfillment Capability.  We have frontline sales and marketing and contract management personnel in the United States, Europe, the Middle East and Africa. Our extensive global reach allows us to meet our customers’ quick response requirements and shifting needs. As of October 3, 2008, we had approximately 23,000 employees located in approximately 30 countries. We believe that our global presence across multiple service offerings and our ability to offer an extensive suite of services distinguish us from most of our competitors and strategically position us to win new contracts and capture an increased amount of the growing government outsourcing market.
 
Experienced Management Team with Strong Government Relationships.  Our senior management team has extensive industry expertise, with an average of 32 years of industry experience. Many members of our management and our parent’s board of directors have high-ranking military and government experience and have long-standing relationships with U.S. military and U.S. government officials. Our parent’s board of directors includes three retired four-star generals and two retired four star admirals. Our President and CEO, William L. Ballhaus, also has extensive experience serving the U.S. defense, intelligence and homeland security markets.
 
Business Strategy
 
Our objective is to increase our revenues and earnings through the following strategies:
 
Exploit Current Business Opportunities and Backlog.  As of October 3, 2008, our backlog was approximately $6.5 billion, including $3.2 billion from INSCOM, one of our two recent significant contract awards. INSCOM, a 5-year contract with a maximum contract value of $4.6 billion for the management of translation and interpretation services to the U.S. Army, was awarded to GLS, a joint venture in which we own a 51% interest. Our joint venture partner is McNeil Technologies, which is controlled by Veritas Capital. In addition to servicing our backlog, we intend to leverage our existing contract base to expand the scope of our activities as a result of contract renewals, favorable contract modifications and new task orders. For example, we have taken our maintenance service capabilities developed in the United States and successfully expanded those to other countries, including the United Arab Emirates. We also plan to expand the scope of services we provide to our existing customers.
 
Capitalize on Industry Trends.  We intend to continue to capitalize on the U.S. government’s increasing reliance on outsourcing and increased spending on the types of services we provide. This increase has been driven in part by the DoD’s need to outsource services because of fewer U.S. military personnel available to support non-warfighting efforts, an increase in overseas operations by the U.S. military, the decrease in the size of the DoD’s civilian workforce and the DoD’s decision to increase reliance on contractors to provide support to troops worldwide. The DoS and DoD are increasingly depending on outsourced vendors with global operations to provide services for peacekeeping and other military and security operations. We believe that we are well positioned to benefit from these trends, given our breadth of services and experience, global reach and strong operating performance.
 
Grow Our Recurring Revenue Base.  We plan to maintain and grow our contractually recurring revenue base by winning recompetitions for our existing contracts and leveraging our deep customer relationships to create new business opportunities. Historically, a significant portion of our revenue has been under contract at the beginning of our fiscal year. We actively seek to expand our relationships to provide additional services and solutions to our customers as their needs evolve, as evidenced by our recent INSCOM and LOGCAP IV contract awards. These awards significantly expand our business with the DoD, and we believe our proven ability to perform large-scale, complex programs for customers in our targeted service areas will continue to create additional recurring revenue opportunities in the future.


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Continue to Enhance Financial Performance and Operating Efficiency.  We believe a key element of our success has been our continued focus on growing our business and expanding our margins. We will seek to further increase our profitability by reducing operating costs and realizing improved efficiencies across our business. Furthermore, we believe that, by aligning ourselves with the right strategic partners, such as McNeil Technologies, our joint venture partner in GLS, and CH2M Hill and Taos Industries, Inc., our partners under LOGCAP IV, we will be well-positioned to meet our customers’ requirements and win future contract awards and task orders, leading over time to further revenue growth and enhanced profitability.
 
Pursue Foreign Government Opportunities.  We believe that there is significant potential to increase the business that we generate from foreign governments by leveraging the expertise that we have developed through our work with the U.S. government. In particular, certain oil- and natural gas-rich nations have indicated a desire to increase spending for security, logistics and aviation services expertise that is often unavailable domestically. We believe that our significant experience in the Middle East and other parts of the world will allow us to effectively compete for these contracts. For example, as we note above, in fiscal 2007, we were awarded a subcontract to provide the United Arab Emirates, Ministry of Defense depot-level maintenance, supply-chain management, maintenance training and facilities management for approximately 17,000 items of ground equipment. This subcontract has an estimated total contract value of approximately $164 million.
 
Our Segments
 
On March 29, 2008, we divided our GS reporting segment into two new business segments to enable us to better capitalize on business development opportunities and enhance our ongoing service. Our new International Security Services, or “ISS,” reporting segment consists of our Law Enforcement and Security strategic business unit, our Specialty Aviation and Counter-Drug Operations strategic business unit and GLS, our joint venture for the INSCOM contract described below. Our new Logistics and Construction Management, or “LCM,” reporting segment consists of our Contingency and Logistics Operations strategic business unit and our Operations Maintenance and Construction Management strategic business unit, and will include any work awarded under the LOGCAP IV contract. Our third segment is our Maintenance and Technical Support Services, or “MTSS,” segment, which has not significantly changed.
 
International Security Services
 
ISS provides outsourced services primarily to government agencies worldwide. ISS consists of the following operating units:
 
Law Enforcement and Security.  This operating unit provides international policing and police training, judicial support, immigration support and base operations. In addition, it provides security and personal protection for diplomats, designs, installs and operates security systems, security software, smart cards and biometrics for use by government agencies and commercial customers.
 
Specialty Aviation and Counter-drug Operations.  This operating unit provides services including drug eradication and host nation pilot and crew training.
 
Global Linguist Solutions.  This joint venture between DynCorp International and McNeil Technologies, in which we have a 51% ownership interest, provides rapid recruitment, deployment and on-site management of interpreters and translators in-theatre for a wide range of foreign languages.
 
Key ISS Contracts
 
Intelligence and Security Command.  In December 2006, GLS was awarded the INSCOM contract by the U.S. Army for the management of linguist and translation services in support of the military mission known as Operation Iraqi Freedom, or “OIF.” On March 13, 2008, the U.S. Army authorized GLS to resume performance on a contract for management of translation and interpretation services in support of OIF


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after a February 2008 protest of the contract award was withdrawn. This five year contract has a maximum value of $4.6 billion and a current awarded value of $3.5 billion.
 
Under the contract, GLS will provide rapid recruitment, deployment, and on-site management of interpreters and translators in-theater for a wide range of foreign languages. This effort will support the U.S. Army, unified commands, attached forces, combined forces, and joint elements executing the OIF mission, and other U.S. government agencies supporting the OIF mission. The foreign language interpretation and translation services provided by GLS under this contract will allow OIF forces to communicate with the local populace, gather information for force protection and interact with other foreign military units. We believe that, pursuant to this contract, GLS will employ up to 7,500 locally-hired translators and up to 1,500 U.S. citizens with security clearances who are fluent in the languages spoken in Iraq.
 
Civilian Police.  The Civilian Police contract was awarded to us by the DoS in February 2004. Our Civilian Police contract has an estimated total contract value of $2.94 billion over the five-year term of this program, through February 2009. Through the Civilian Police program, we have deployed civilian police officers from the United States to 12 countries to train and offer logistics support to the local police and assist them with infrastructure reconstruction. Our first significant deployment of civilian police personnel began in the Balkans in 1996, where we helped train local police and provided support during the height of the conflict. We remained in the region through 2004. In addition, we have been awarded multiple task orders under the Civilian Police program, including assignments in Iraq and Afghanistan.
 
International Narcotics Eradication and Law Enforcement.  In May 2005, the DoS awarded us a contract in support of the International Narcotics and Law Enforcement Air-Wing, or “INL,” program to aid in the eradication of illegal drug operations. We are the sole awardee of this contract, which has an estimated contract value of $1.09 billion for the first three years of the nine-year term. The contract expires in October 2014. This program has been ongoing since 1991 in cooperation with multiple Latin American countries. A similar program in Afghanistan began in 2006.
 
California Department of Forestry.  We have been helping to fight fires in California since December 2001. We maintain 55 aircraft, providing nearly all types and levels of maintenance — scheduled, annual, emergency repairs, and even structural depot level repair. McClelland Field in Sacramento is home base for 77 DynCorp International mechanics, data entry staff, and quality control inspectors. In addition, we have 50 pilots who operate these aircraft.
 
The following table sets forth certain information for our principal ISS contracts, including estimated total contract values of the current contracts as of October 3, 2008:
 
                         
                  Estimated
 
            Current
    Total
 
        Initial/Current
  Contract
    Contract
 
Contract
  Principal Customer   Award Date   End Date     Value(1)  
 
INSCOM/GLS
  U.S. Army   Mar. 2008     Apr. 2013     $ 3.5 billion(2 )
Civilian Police Program
  DoS   Feb. 1994/Feb 2004     Feb. 2009     $ 2.94 billion(3 )
INL
  DoS   Jan. 1991/May 2005     Oct. 2014     $ 1.09 billion(3 )(4)
California Department of Forestry
  State of California   Jan. 2002/July 2008     Dec. 2014     $ 138 million  
 
 
(1) Estimated total contract value has the meaning indicated in “Backlog and Estimated Contract Values — Estimated Total Contract Value”, except as described in footnote 4 to this table.
 
(2) Awarded to GLS, a joint venture of DynCorp International (which owns a 51% majority interest) and McNeil Technologies (which owns the remaining interest).
 
(3) This contract is an IDIQ contract. For more information about IDIQ contracts see “— Contract Types.” Also, for a discussion of how we define estimated remaining contract value for IDIQ contracts, see “Backlog and Estimated Contract Values — Estimated Remaining Contract Value.”


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(4) We are the sole awardee of this contract, which has an estimated contract value of $1.03 billion for the first three years of this nine-year contract through October 2014. In January 2007, we were awarded the fourth year of this nine year award term contract.
 
Logistics and Construction Management
 
LCM provides technical support services to government agencies and commercial customers worldwide. LCM consists of the following operating units:
 
Contingency and Logistics Operations.  This operating unit provides peace-keeping support, humanitarian relief, de-mining, worldwide contingency planning and other rapid response services. In addition, it offers inventory procurement and tracking services, equipment maintenance, property control, data entry and mobile repair services.
 
Operations Maintenance and Construction Management.  This operating unit provides facility and equipment maintenance and control and custodial and administrative services. In addition, it provides civil, electrical, infrastructure, environmental and mechanical engineering and construction management services.
 
Key LCM Contracts
 
Logistics Civil Augmentation Program.  On April 17, 2008, we were advised that we were one of three prime contractors selected to provide logistics support under the LOGCAP IV contract. LOGCAP IV is the Army component of the DoD’s initiative to award contracts to U.S. companies with a broad range of logistics capabilities to support U.S. and allied forces during combat, peacekeeping, humanitarian and training operations. The contract has a term of up to ten years and an annual ceiling value to us and our subcontractors of approximately $5 billion, depending on the number of individual task orders that are awarded under the contract. The LOGCAP IV objective is to use civilian contractors to perform selected services in a theater of operations to augment U.S. Army forces and release military units for other missions or to fill U.S. Army resource shortfalls.
 
War Reserve Materiel.  Through our War Reserve Materiel program, we provide management of the U.S. Air Force Southwest Asia War Reserve Materiel Pre-positioning program, which includes operations in Oman, Bahrain, Qatar, Kuwait and two locations in the United States: Albany, Georgia; and Shaw Air Force base, South Carolina. We store, maintain and deploy assets such as tents, generators, vehicles, kitchens and medical supplies to deployed forces in the global war on terror. During Operation Enduring Freedom and OIF, we sent teams into the field to assist in the setup of tent cities prior to the arrival of the deployed forces. The War Reserve Materiel program continues to partner with the U.S. Central Command Air Force in the development of new and innovative approaches to asset management.
 
Africa Peacekeeping.  We have taken on increasing responsibilities in Africa through our Africa peacekeeping contract operations, supporting the DoS in Ethiopia, Liberia, Nigeria, Senegal, Somalia, and Sudan. Our experience in logistics and contingency operations is a valuable asset to many efforts such as peacekeeping, humanitarian aid, and national reconstruction. We arrange transportation, manage construction and provide security and equipment training. We also provide advisors and serve as a liaison with the DoS.


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The following table sets forth certain information for our principal LCM contracts, including estimated total contract values of the current contracts as of October 3, 2008:
 
                         
                  Estimated
 
            Current
    Total
 
        Initial/Current
  Contract
    Contract
 
Contract
  Principal Customer   Award Date   End Date     Value(1)  
 
LOGCAP IV
  DoD   Apr. 2008     Apr. 2018     $ 50 billion  
War Reserve Materiel
  U.S. Air Force   May 2000     Sep. 2013     $ 419 million  
Africa Peacekeeping
  DoS   May 2003     May 2009     $ 287 million  
 
 
(1) Estimated total contract value has the meaning indicated in “Backlog and Estimated Contract Values — Estimated Total Contract Value.”
 
Maintenance and Technical Support Services
 
MTSS offers the following services:
 
Aviation Services and Operations.  Our aviation services and operations include aircraft fleet maintenance, depot augmentation, aftermarket logistics support, aircrew services and training, ground equipment maintenance and modifications, quality control, Federal Aviation Administration, or “FAA,” certification, facilities and operations support, aircraft scheduling and flight planning and the provisioning of pilots, test pilots and flight crews. Services are provided from both the main base locations and forward operating locations.
 
Aviation Engineering.  Our aviation engineering technicians manufacture and install aircraft modification programs for a broad range of weapons systems and aircraft engines. In addition, we provide services such as engineering design, kit manufacturing and installation, field installations, configuration management, avionics upgrades, cockpit and fuselage redesign and technical data, drawings and manual revisions.
 
Aviation Ground Equipment Support.  Our aviation ground equipment support services include ground equipment support, maintenance and overhaul, modifications and upgrades, corrosion control, engine rebuilding, hydraulic and load testing and serviceability inspections. We provide these services worldwide and offer both short- and long-duration field teams. As of October 3, 2008, we employed over 850 mechanics, technicians and support personnel who perform depot level overhaul of ground support equipment for U.S. Navy and U.S. Coast Guard programs and provide depot level ground support equipment at 20 worldwide locations.
 
Ground Vehicle Maintenance.  Our ground vehicle maintenance services include vehicle maintenance, overhaul and corrosion control and scheduling and work flow management. We perform maintenance and overhaul on wheeled and tracked vehicles for the U.S. Army and U.S. Marine Corps, in support of their pre-positioning programs and for the UAE military, working in conjunction with a UAE government agency. We also provide overall program management, logistics support, tear down and inspection of equipment cycled off of pre-positioned ships.
 
Key MTSS Contracts
 
Contract Field Teams.  Contract Field Teams is the most significant program in our MTSS segment. We have provided this service for over 55 consecutive years. This program deploys highly mobile, quick-response field teams to customer locations to supplement a customer’s workforce. The services we provide under the Contract Field Teams program generally include mission support to aircraft and weapons systems and depot-level repair. The principal customer for our Contract Field Teams program is the DoD. Our Contract Field Teams contract is up for re-competition in September 2015. This contract has a $10.1 billion estimated total contract value for multiple awardees over a seven year term through September 2015.


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Life Cycle Contractor Support.  This MTSS program consists of contracts with the U.S. Army and the U.S. Navy. Under the Life Cycle Contractor Support-Army contracts, we provide aircraft maintenance and logistics for 165 C-12/RC-12 and 27 UC-35 aircraft, as well as services for a major avionics suite upgrade of 39 aircraft for Global Air Traffic Management compliance. Under our Life Cycle Contractor Support-Navy contracts, we provide aircraft maintenance and logistics for the U.S. Navy’s 6 UC-35 aircraft. We entered into the Life Cycle Contractor Support-Army and Life Cycle Contractor Support-Navy contracts in August 2000 and the Global Air Traffic Management portion of our Army contract in March 2003. The Life Cycle Contractor Support-Army and Life Cycle Contractor Support-Navy contracts are up for re-competition in January 2010. These contracts have estimated total contract values of $1.172 billion and $58 million for Life Cycle Contractor Support-Army and Life Cycle Contractor Support-Navy, respectively.
 
Andrews Air Force Base.  Under the Andrews Air Force Base contract, we perform aircraft maintenance and base supply functions, including full back shop support, organizational level maintenance, fleet fuel services and supply, launch and recovery and FAA repair services. Our principal customer under this contract is the U.S. Air Force. We entered into this contract in January 2001 and it is up for re-competition in December 2011. This contract has a $363 million estimated total value.
 
Columbus Air Force Base.  We provide aircraft and equipment maintenance functions for T-37, T-38, T-1 and T-6 training aircraft in support of the Columbus AFB Specialized Undergraduate Pilot Training Program in Columbus, Mississippi. Our customer under this program is the U.S. Air Force — Air Education and Training Command and specifically the 14th Flying Training Wing. This contract provides for a firm fixed price incentive fee with an incentive award fee. The total awarded value was $245 million. The current estimated total contract value stands at $286 million. The performance period started October 2005 and runs through September 2012. We have completed a transition from the old T-37 primary trainer to the new T-6 turbo prop. Additionally, the 14th Flying Training Wing has one additional squadron of T-38s dedicated to fighter lead in training.
 
Army Prepositions Stocks Afloat.  We perform organizational and intermediate level maintenance and support services on U.S. Army equipment at Army Field Support Battalion Afloat located in Charleston, South Carolina and aboard ships. The customer is the Army Sustainment Command; Army Field Support — Afloat. The contract terms provide for a cost plus / fixed fee and includes an award fee. The contract has an estimated total contract value of $252 million. The recompete process for this contract has commenced as it expires in fiscal 2009. There are approximately 450 of our employees on this contract.
 
UAE General Maintenance Corporation.  In December 2007, the UAE Ministry of Defense selected us to provide maintenance, training, supply chain management, and facilities management for its fleet of 17,000 military and commercial ground vehicles. This is a seven-year contract with an estimated total contract value of $164 million, with an option to renew for an additional five years. The contract is under the authority of the UAE Land Forces’ General Maintenance Corporation.
 
C-21 Contractor Logistics Support.  Under the C-21A CLS Program, we perform organizational, intermediate and depot level maintenance, together with supply chain management, for 56 C-21A (Lear 35A) aircraft operated by the U.S. Air Force at seven main operating bases and one deployed location.


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The following table sets forth certain information for our principal MTSS contracts, including estimated total contract values of the current contracts as of October 3, 2008:
 
                         
                  Estimated
 
            Current
    Total
 
        Initial/Current
  Contract
    Contract
 
Contract
 
Principal Customer
  Award Date   End Date     Value(1)  
 
Contract Field Teams
  DoD   Oct. 1951/Jul. 2008     Sept. 2015     $ 2.3 billion (2)
Life Cycle Contractor Support
  U.S. Army and U.S. Navy   Aug. 2000     Jan. 2010     $ 1.23 billion  
Andrews Air Force Base
  U.S. Air Force   Jan. 2001     Dec. 2011     $ 363 million  
Columbus Air Force Base
  U.S. Air Force   Oct. 1998/Jul. 2005     Sep. 2012     $ 286 million  
Army Prepositions Stocks Afloat
  U.S. Army   Feb. 1999     Jul. 2009     $ 252 million  
UAE General Maintenance Corp. 
  United Arab Emirates
Armed Forces
  Dec. 2006     Dec. 2013     $ 164 million  
C-21 Contractor Logistics Support
  U.S. Air Force   Sept. 2006     Sept. 2011     $ 184 million  
 
 
(1) Estimated total contract value has the meaning indicated in “Backlog and Estimated Contract Values — Estimated Total Contract Value.”
 
(2) This contract is an IDIQ contract. For more information about IDIQ contracts see “— Contract Types.” Also, for a discussion of how we define estimated remaining contract value for IDIQ contracts, see “Backlog and Estimated Contract Values — Estimated Remaining Contract Value.” This contract has a $10.1 billion estimated total contract value for multiple awardees.
 
Contract Types
 
Our contracts typically have a term of three to ten years consisting of a base period of one year with multiple one-year options. Our contracts typically are awarded for an estimated dollar value based on the forecast of the work to be performed under the contract over its maximum life. In addition, we have historically received additional revenue through increases in program scope beyond that of the original contract. These contract modifications typically consist of “over and above” requests derived from changing customer requirements and are reviewed by us for appropriate revenue recognition. The U.S. government is not obligated to exercise options under a contract after the base period. At the time of completion of the contract term of a government contract, the contract is re-competed to the extent that the service is still required.
 
Contracts between us and the U.S. government or the government’s prime contractor (to the extent that we are a subcontractor) generally contain standard, unilateral provisions under which the customer may terminate for convenience or for default. U.S. government contracts generally also contain provisions that allow the U.S. government to unilaterally suspend us from obtaining new contracts pending resolution of alleged violations of procurement laws or regulations, reduce the value of existing contracts, issue modifications to a contract and control and potentially prohibit the export of our services and associated materials.
 
Our business generally is performed under fixed-price, time-and-materials or cost-reimbursement contracts. Each of these is described below.
 
  •  Fixed-Price Type Contracts.  In a fixed-price contract, the price is not subject to adjustment based on costs incurred, which can favorably or adversely impact our profitability depending upon our execution in performing the contracted service. Our fixed-price contracts include firm fixed-price, fixed-price with economic adjustment and fixed-price incentive.


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  •  Time-and-Materials Type Contracts.  A time-and-materials type contract provides for acquiring supplies or services on the basis of direct labor hours at fixed hourly/daily rates plus materials at cost.
 
  •  Cost-Reimbursement Type Contracts.  Cost-reimbursement type contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus a fixed-fee, award-fee or incentive-fee. Award-fees or incentive-fees are generally based upon various objective and subjective criteria, such as aircraft mission capability rates and meeting cost targets.
 
Any of these three types of contracts discussed above may be executed under an IDIQ contract, which are often awarded to multiple contractors. An IDIQ contract does not represent a firm order for services. Our Civilian Police and Contract Field Teams programs are two examples of IDIQ contracts. In fiscal 2008 and the six months ended October 3, 2008, 52% and 59% of our revenue, respectively, were attributable to IDIQ contracts. When a customer wishes to order services under an IDIQ contract, the customer issues a task order request for proposal to the contractor awardees. The contract awardees then submit proposals to the customer and task orders are typically awarded under a best-value approach. However, many IDIQ contracts permit the customer to direct work to a particular contractor. In some instances, the contractor may identify specific projects and propose to perform the service for a customer within the scope of the IDIQ contract, although the customer is not obligated to order the services.
 
Our historical contract mix by type for the last three fiscal years and the six months ended October 3, 2008, as a percentage of revenue, is indicated in the table below.
 
                                 
                      Six Months
 
                      Ended
 
    Fiscal Year     October 3,
 
Contract Type
  2006     2007     2008     2008  
 
Fixed-price
    33 %     41 %     37 %     40 %
Time-and-materials
    38 %     36 %     33 %     35 %
Cost-reimbursement
    29 %     23 %     30 %     24 %
                                 
Total
    100 %     100 %     100 %     100 %
                                 
 
The INSCOM contract is a cost-reimbursement type contract and we expect that the majority of the task orders issued under the LOGCAP IV contract will be cost-reimbursement type task orders. We therefore anticipate that cost-reimbursement type contracts will represent a greater percentage of our revenue in the foreseeable future. With this shift to cost-reimbursement type contracts, our consolidated operating margin percentage could be lower, as cost-reimbursement type contracts typically carry lower margins than other contract types, but also carry lower risk of loss.
 
Under many of our contracts, we rely on subcontractors to perform all or a portion of the services we are obligated to provide to our customers. We often enter into subcontract arrangements in order to meet government requirements that certain categories of services be awarded to small businesses. We use subcontractors primarily for specialized technical labor and certain functions such as construction and catering. For fiscal 2008 and the six months ended October 3, 2008, we paid our subcontractors approximately $219.1 million and $221.4 million, respectively.
 
Backlog
 
We track backlog in order to assess our current business development effectiveness and to assist us in forecasting our future business needs and financial performance. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contract options.
 
Most of our U.S. government contracts allow the customer the option to extend the period of performance of a contract for a period of one or more years. These priced options may or may not be


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exercised at the sole discretion of the customer. Historically, it has been our experience that the customer has typically exercised contract options. Firm funding for our contracts is usually made for one year at a time, with the remainder of the contract period consisting of a series of one-year options. As is the case with the base period of our U.S. government contracts, option periods are subject to the availability of funding for contract performance. The U.S. government is legally prohibited from ordering work under a contract in the absence of funding. Our historical experience has been that the government has typically funded the option periods of our contracts.
 
The following table sets forth our approximate backlog as of the dates indicated.
 
                                 
    March 31,
    March 30,
    March 28,
    October 3,
 
    2006     2007     2008     2008  
    (Dollars in millions)  
 
ISS:
                               
Funded backlog
  $ 455     $ 727     $ 464     $ 696  
Unfunded backlog
    582       3,758       4,030       3,718  
                                 
Total ISS backlog
  $ 1,037     $ 4,485     $ 4,494     $ 4,414  
                                 
LCM:
                               
Funded backlog
  $ 175     $ 149     $ 140     $ 132  
Unfunded backlog
    161       91       59       619  
                                 
Total LCM backlog
  $ 336     $ 240     $ 199     $ 751  
                                 
MTSS:
                               
Funded backlog
  $ 394     $ 526     $ 560     $ 502  
Unfunded backlog
    874       882       708       824  
                                 
Total MTSS backlog
  $ 1,268     $ 1,407     $ 1,268     $ 1,326  
                                 
Total consolidated:
                               
Funded backlog
  $ 1,024     $ 1,402     $ 1,164     $ 1,330  
Unfunded backlog
    1,617       4,730       4,797       5,161  
                                 
Total consolidated backlog
  $ 2,641     $ 6,132     $ 5,961     $ 6,491  
                                 
 
Estimated Remaining Contract Value
 
Our estimated remaining contract value represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from the end of current task orders until the end of the IDIQ contract term and is based on our experience and performance under our existing contracts and management judgments and estimates with respect to future task or delivery order awards. Although we believe our estimates are reasonable, there can be no assurance that our existing contracts will result in actual revenue in any particular period or at all. Our estimated remaining contract value could vary or even change significantly depending upon various factors, including government policies, government budgets and appropriations, the accuracy of our estimates of work to be performed under time and material contracts and whether we successfully compete with any multiple bidders in IDIQ contracts.


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The following table sets forth our estimated remaining contract value as of the dates indicated.
 
                                 
    March 31,
    March 30,
    March 28,
    October 3,
 
    2006     2007     2008     2008  
    (Dollars in millions)  
 
ISS estimated remaining contract value
  $ 3,650     $ 7,249     $ 5,976     $ 5,796  
LCM estimated remaining contract value
    388       335       241,       776  
MTSS estimated remaining contract value
    1,689       1,407       1,268       3,485  
                                 
Total estimated remaining contract value
  $ 5,727     $ 8,991     $ 7,485     $ 10,057  
                                 
 
Regulatory Matters Relating to Our Contracts
 
Contracts with the U.S. government are subject to certain regulatory requirements. Under U.S. government regulations, certain costs, including certain financing costs, portions of research and development costs, lobbying expenses, certain types of legal expenses and certain marketing expenses related to the preparation of bids and proposals, are not allowed for pricing purposes and calculation of contract reimbursement rates under cost-reimbursement contracts. The U.S. government also regulates the methods by which allowable costs may be allocated under U.S. government contracts.
 
Our government contracts are subject to audits at various points in the contracting process. Pre-award audits are performed at the time a proposal is submitted to the U.S. government for cost-reimbursement contracts. The purpose of a pre-award audit is to determine the basis of the bid and provide the information required for the U.S. government to negotiate the contract effectively. In addition, the U.S. government may perform a pre-award audit to determine our capability to perform under a contract. During the performance of a contract, the U.S. government may have the right to examine our costs incurred in the contract, including any labor charges, material purchases and overhead charges. Upon a contract’s completion, the U.S. government performs an incurred cost audit of all aspects of contract performance for cost-reimbursement contracts to ensure that we have performed the contract in a manner consistent with our proposal. The government also may perform a post-award audit for proposals that are subject to the Truth in Negotiations Act, which are proposals in excess of $600,000, to determine if the cost proposed and negotiated was accurate, current and complete as of the time of negotiations.
 
The DCAA performs these audits on behalf of the U.S. government. The DCAA also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our purchasing, property, estimating, compensation and management information systems. The DCAA has the right to perform audits on our incurred costs on all contracts on a yearly basis. We have DCAA auditors on site to monitor our billing and back office operations. An adverse finding under a DCAA audit could result in the disallowance of our costs under a U.S. government contract, termination of U.S. government contracts, forfeiture of profits, suspension of payments, fines and suspension and prohibition from doing business with the U.S. government. In the event that an audit by the DCAA recommends disallowance of our costs under a contract, we have the right to appeal the findings of the audit under applicable dispute resolution provisions. Approval of submitted yearly contract incurred costs can take from one to three years from the date of submission of the contract costs. All of our contract incurred costs for U.S. government contracts completed through fiscal year 2003 have been audited by the DCAA and approved by the Defense Contract Management Agency. The audits for such costs during subsequent periods are continuing. See “Risk Factors — Risks Relating to Our Business — A negative audit or other actions by the U.S. government could adversely affect our operating performance”.
 
At any given time, many of our contracts are under review by the DCAA and other government agencies. We cannot predict the outcome of such ongoing audits and what, if any, impact such audits may have on our future operating performance.


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Sales and Marketing
 
We market our services to U.S. and foreign governments, including their military branches. We also market our services to commercial entities in the United States and abroad. We position our sales and marketing personnel to cover key accounts such as the DoS and the United Nations as well as market segments that we believe hold the most promise for aggressive growth. Our sales and marketing personnel are positioned globally to establish a local presence in select market segments. We also participate in national and international tradeshows, particularly as they apply to aviation services, logistics, humanitarian services, contingency support, and law enforcement and security.
 
 
We also seek to form strategic partnerships with large systems and platform based companies to augment their capabilities in the areas of logistics and construction management, leveraging our experience and capability in providing value added and complementary services to companies that require support in remote and hazardous regions of the globe.
 
Intellectual Property
 
We hold an exclusive, perpetual, irrevocable, worldwide, royalty-free and fully paid license to use the “Dyn International” and “DynCorp International” names in connection with aviation services, security services, technical services and marine services. We do not own any trademarks or patents and do not believe our business is dependent on trademarks or patents.
 
Environmental Matters
 
Our operations include the use, generation and disposal of petroleum products and other hazardous materials. We are subject to various U.S. federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and the maintenance of a safe workplace. We believe we have been and are in substantial compliance with environmental laws and regulations, and we have no liabilities under environmental requirements that would have a material adverse effect on our business, results of operations or financial condition. We have not incurred, nor do we expect to incur, material costs relating to environmental compliance.
 
Competition
 
We compete with various entities across geographic and business lines based on a number of factors, including services offered, experience, price, geographic reach and mobility. Most activities in which we engage are highly competitive and require that we have highly skilled and experienced technical personnel to compete. Some of our competitors have greater financial and other resources than we do or are better positioned than we are to compete for certain contract opportunities. Our competitors include Civilian Police International, Science Applications International Corporation, ITT Corporation, KBR, Inc., IAP Worldwide Services, Inc., Blackwater, Triple Canopy, Lockheed Martin Corporation, United Technologies Corporation, L-3 Holdings, Aerospace Industrial Development Corporation, Al Salam Aircraft Company Ltd. and Serco Group Plc. We believe that the primary competitive factors for our services include reputation, technical skills, past contract performance, experience in the industry, cost competitiveness and customer relationships.
 
Employees
 
As of October 3, 2008, we had approximately 23,000 employees in approximately 30 countries, of which approximately 2,600 are represented by labor unions.
 
Properties and Facilities
 

We have our headquarters in Falls Church, Virginia with major administrative offices in Dallas-Fort Worth, Texas. As of October 3, 2008, we leased 204 commercial facilities in 23 countries used in connection with the various services rendered to our customers. Lease expirations range from month-to-month to ten


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years. Upon expiration of our leases, we do not anticipate any difficulty in obtaining renewals or alternative space. Many of the current leases are non-cancelable. We do not own any real property.
 
The following locations represent our major facilities as of October 3, 2008.
 
                 
Location
 
Description
    Size (sq ft)  
 
Fort Worth, TX
    Executive offices — finance and administration       194,335  
Falls Church, VA
    Executive offices — headquarters       113,366  
Kabul, Afghanistan
    Offices and residence       47,000  
McClellan, CA
    Warehouse — California Fire Program       18,800  
Dubai, UAE
    Executive offices — finance and administration       15,700  
Herndon, VA
    Offices — GLS recruiting center       11,400  
San Diego, CA
    Offices — GLS recruiting center       9,400  
 
We believe that substantially all of our property and equipment is in good condition, subject to normal wear and tear, and that our facilities have sufficient capacity to meet the current and projected needs of our business.
 
Legal Proceedings
 
General Legal Matters
 
We and our subsidiaries and affiliates are involved in various lawsuits and claims that have arisen in the normal course of business. In most cases, we have denied, or believe we have a basis to deny, any liability. Related to these matters, we have recorded a reserve of approximately $20.5 million for pending litigation and claims. While it is not possible to predict with certainty the outcome of litigation and other matters discussed below, it is the opinion of our management that recorded reserves are sufficient to cover known matters based on information available as of the date hereof.
 
Pending Litigation and Claims
 
On May 14, 2008, a jury in the Eastern District of Virginia found against us in a discrimination case brought by a former subcontractor, Worldwide Network Services, or “WWNS,” on two State Department contracts, in which WWNS alleged racial discrimination, tortious interference and certain other claims. The jury awarded WWNS approximately $15.7 million in compensatory and punitive damages and awarded us approximately $200,000 on a counterclaim. In addition to the jury award, the court awarded WWNS approximately $3.0 million in connection with certain contract claims. On September 22, 2008, WWNS was awarded approximately $1.8 million in attorneys’ fees. We have filed a notice of appeal with respect to this matter. We believe we have adequate reserves recorded for this matter.
 
On April 24, 2007, March 14, 2007, December 29, 2006 and December 4, 2006, four lawsuits were served, seeking unspecified monetary damages against us and several of our former affiliates in the U.S. District Court for the Southern District of Florida, concerning the spraying of narcotic plant crops along the Colombian border adjacent to Ecuador. Three of the lawsuits, filed on behalf of the Providences of Esmeraldas, Sucumbíos, and Carchi in Ecuador, allege violations of Ecuadorian law, international law, and the statutes and common law of Florida, including negligence, trespass, and nuisance. The fourth lawsuit, filed on behalf of citizens of the Ecuadorian provinces of Esmeraldas and Sucumbíos, alleges personal injury, various counts of negligence, trespass, battery, assault, intentional infliction of emotional distress, violations of the Alien Tort Claims Act, and various violations of international law. The four lawsuits were consolidated and, based on our motion granted by the court, the case was subsequently transferred to the U.S. District Court for the District of Columbia. On March 26, 2008, a First Amended Consolidated Complaint was filed that identified 3,266 individual plaintiffs. The amended complaint does not demand any specific monetary damages; however, a court decision against us, although believed by us to be remote, could have a material adverse effect on our results of operations and financial condition. The aerial spraying operations were and continue to be managed by us under a DoS contract in cooperation


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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 us and several of our former affiliates in the U.S. District Court for the District of Columbia. The action alleges violations of the laws of nations and United States treaties, negligence, emotional distress, nuisance, battery, trespass, strict liability, and medical monitoring arising from the spraying of herbicides near the Ecuador-Colombia border in connection with the performance of the DoS, International Narcotics and Law Enforcement contract for the eradication of narcotic plant crops in Colombia. The terms of the DoS contract provide that the DoS will indemnify us 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 us. We believe that the likelihood of an unfavorable judgment in this matter is remote and that, even if that were to occur, the judgment is unlikely to result in a material adverse effect on our results of operations or financial condition as a result of the third party indemnification and apportionment of damages described above.
 
U.S. Government Investigations
 
We also are occasionally the subject of investigations by various agencies of the U.S. government. Such investigations, whether related to our U.S. government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting.
 
On January 30, 2007, the Special Inspector General for Iraq Reconstruction, or “SIGIR,” issued a report on one of our task orders concerning the Iraqi Police Training Program. Among other items, the report raises questions about our work to establish a residential camp in Baghdad to house training personnel. Specifically, the SIGIR report recommends that DoS seek reimbursement from us of $4.2 million paid by the DoS for work that the SIGIR maintains was not contractually authorized. In addition, the SIGIR report recommends that the DoS request the DCAA to review two of our invoices totaling $19.1 million. On June 28, 2007, we received a letter from the DoS contracting officer requesting our repayment of approximately $4.0 million for work performed under this task order, which the letter claims was unauthorized. We responded to the DoS contracting officer in letters dated July 7, 2007 and September 4, 2007, explaining that the work for which we were paid by DoS was appropriately performed and denying DoS’ request for repayment of approximately $4.0 million. By letter dated April 30, 2008, the DoS contracting officer responded to our July 7, 2007 and September 4, 2007 correspondence by taking exception to the explanation set forth in our letters and reasserting the DoS’ request for a refund of approximately $4.0 million. On May 8, 2008, we replied to the DoS letter dated April 30, 2008 and provided additional support for our position.
 
On September 17, 2008, the U.S. Department of State Office of Inspector General, or “OIG”, served us with a records subpoena for the production of documents relating to our Civilian Police Program in Iraq. Among other items, the subpoena seeks documents relating to our business dealings with a former subcontractor, Corporate Bank. We are cooperating with the OIG’s investigation and, based on information currently known to management, do not believe this matter will have a material adverse effect on our operating performance.
 
U.S. Government Audits
 
Our contracts are regularly audited by the DCAA and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed. In addition, government contract payments received by us for allowable direct and indirect costs are subject to adjustment after audit by government auditors and repayment to the government if the payments exceed allowable costs as defined in the government contracts.


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The Defense Contract Management Agency, or “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 non-compliance, which related to the allocation of corporate general and administrative costs between our divisions. On August 13, 2007, the DCMA notified us that additional information would be necessary to justify the proposed solution. We issued responses on September 17, 2007 and April 28, 2008 and the matter is pending resolution. In management’s opinion and based on facts currently known, the above described matters will not have a material adverse effect on our consolidated financial condition, results of operations or liquidity.
 
Contract Matters
 
During the first fiscal quarter, 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 the customer advised us it did not want to assume. Based on our experience with this particular Nigerian state government customer, we believe it likely the customer will challenge our termination of the contract for cause and initiate legal action against us. Our termination of certain subcontracts not assumed by the customer, including our actions to recover against advance payment and performance guarantees established by the subcontractors for our benefit, is being challenged in certain instances.


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MANAGEMENT
 
The following table sets forth certain information regarding our executive officers and the members of our parent’s board of directors, as of January 1, 2009. Our parent owns all of our membership interests, and the sole member of our board of managers is Robert B. McKeon. Mr. McKeon is the sole director of DIV Capital, the co-issuer of the notes. Each of the individuals set forth below has served in the respective positions since the dates indicated below in their biographical data.
 
             
Name
 
Age
 
Position
 
Robert B. McKeon
    54     Sole member of the board of managers of DynCorp International, sole Director of DIV Capital and
Chairman and Director of our parent
William L. Ballhaus
    41     President and Chief Executive Officer and Director of
our parent
William D. Cavanaugh
    55     Senior Vice President, Business Development
Natale S. (Chris) DiGesualdo
    69     President, Maintenance & Technical Support Services segment
Robert B. Rosenkranz
    69     Executive Vice President — Chief of Staff
Curtis L. Schehr
    50     Senior Vice President and General Counsel
Anthony Smeraglinolo
    58     President, International Security Services segment
Michael J. Thorne
    51     Senior Vice President and Chief Financial Officer
Richard M. Walsh
    64     Acting President, Logistics and Construction Management segment
Michael J. Bayer
    61     Director of our parent
General Richard E. Hawley
(USAF Ret.)
   
67
    Director of our parent
Herbert J. Lanese
    63     Director of our parent
General Barry R. McCaffrey
(USA Ret.)
   
66
    Director of our parent
Ramzi M. Musallam
    40     Director of our parent
Admiral Joseph W. Prueher
(USN Ret.)
   
66
    Director of our parent
Charles S. Ream
    65     Director of our parent
Mark H. Ronald
    67     Director of our parent
Admiral Leighton W. Smith, Jr.
(USN Ret.)
   
69
    Director of our parent
William G. Tobin
    71     Director of our parent
General Peter J. Schoomaker
(USA Ret.)
   
62
    Director of our parent
 
Robert B. McKeon, age 54, has been a director of our parent and the Chairman of our parent’s board of directors, the sole member of our board of managers and the sole director of DIV Capital since 2005. Mr. McKeon is the Chairman of the Executive and Compensation Committees of the board of directors of our parent and a member of the Corporate Governance and Nominating Committee of the board of directors of our parent. Mr. McKeon is the President of Veritas Capital, which he founded in 1992. Mr. McKeon is on the Board of Trustees of Fordham University, a member of the Board of Fellows of Trinity College, Hartford, Connecticut, a member of the Council on Foreign Relations and a director of several private companies. Mr. McKeon holds a Bachelor’s degree from Fordham University and a Master’s degree in business administration from Harvard Business School.
 
William L. Ballhaus, age 41, has been our President and Chief Executive Officer and a director of our parent since May 19, 2008. From March 2007 to May 2008, he was president of the Network Systems business for the Electronics & Integrated Solutions Operating Group of BAE Systems Inc. From 2003 to 2007, he was president of BAE Systems Inc.’s National Security Solutions and Mission Solutions businesses. He holds a Bachelor’s degree in mechanical engineering from the University of California at Davis, and Master’s and Doctorate degrees in aeronautics and astronautics from Stanford University, as well as a Master’s degree in business administration from the Anderson Graduate School of Management at UCLA. He serves on the United States Geospatial Intelligence Foundation Board of Directors. He is an Associate


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Fellow of the American Institute of Aeronautics and Astronautics and a Fellow of the British American Project.
 
William D. Cavanaugh, age 55, has served as Senior Vice President, Business Development since December 2006. He was the Senior Vice President, Business Development of our Government Services division from February 2006 until December 2006. He was an independent business consultant during 2003 and from 2004 until 2006. He was the Chief Operating Officer of Kelly, Andersen & Associates (government consulting) from 2003 to 2004 and Vice President, Business Development, Fluor Corporation Federal Services from 1999 to 2002. He holds a Bachelor’s degree in marketing and advanced degrees in business and education.
 
Natale S. (Chris) DiGesualdo, age 69, is the President of our Maintenance & Technical Support Services segment. He is responsible for the operations and financial management for more than 5,000 employees worldwide. Mr. DiGesualdo has more than 45 years of experience applicable to aviation maintenance and maintenance management, of which more than 40 years are with DynCorp International Contract Field Teams operations. He has served in various positions, ranging from Avionics Technician to Supervisor, rising to his current position as President, Maintenance & Technical Support Services. Mr. DiGesualdo attended Wichita State University and earned credit toward a Bachelor’s degree in Business Administration. Mr. DiGesualdo has been employed by DynCorp International and its predecessors since 1961.
 
Robert B. Rosenkranz, age 69, has served as our Executive Vice President — Chief of Staff since December 2008. From 2005 to December 2008, he was the President of our International Security Services segment. He graduated from the United States Military Academy, holds a Masters degree from the University of Pennsylvania and retired from the U.S. Army with the rank of major general. He served as Senior Vice President for range and logistics services of our predecessor from 1995 to 2001; as Vice President of business development for MPRI/L-3 from 2001 to 2003; as General Manager of Beamhit for MPRI/L-3 from 2003 to 2004; and as a Vice President of business development for KEI Pearson, Inc. from January to August 2005.
 
Curtis L. Schehr, age 50, has served as Senior Vice President & General Counsel since October 2006. He was elected Secretary of our parent in May 2007. Prior to joining us, Mr. Schehr was Senior Vice President, General Counsel & Secretary of Anteon International Corporation for approximately ten years. At Anteon, Mr. Schehr was part of the corporate leadership team that spearheaded the company’s growth and acquisition strategy, including an initial public offering in early 2002. From 1991-1996, he was Associate General Counsel of Vitro Corporation. Prior to that, Mr. Schehr was Corporate Legal Counsel at Information Systems and Networks Corporation and served in several legal and contracts positions at Westinghouse Electric Corporation’s defense group. Mr. Schehr holds a J.D. degree, with honors, from the George Washington University Law School and two B.A. degrees from Lehigh University, where he was elected to Phi Beta Kappa.
 
Anthony Smeraglinolo, age 58, has served as the President of our International Security Services segment since December 2008. He was the President of the Intelligence Solutions Division of L-3 Communications from 2006 to December 2008 and the Vice President of Operations for Harris corporation from 2002 to 2006. Mr. Smeraglinolo holds a Bachelor’s degree in business administration from Fairfield University and a Master’s degree in business administration from Florida Institute of Technology.
 
Michael J. Thorne, age 51, has served as Senior Vice President and Chief Financial Officer since 2005. Before assuming this position, he was Vice President of Contracts and a director for joint ventures in the United Kingdom, Saudi Arabia and Puerto Rico. Mr. Thorne’s other responsibilities have included financial forecasts, forward pricing rates, incurred cost submissions, disclosure statements, and program/contract pricing. He joined our company in 2001, after 22 years of service with Lockheed Martin in various key financial positions. Mr. Thorne graduated from the University of Georgia with a BBA degree in Finance and subsequently earned his MBA in Finance.
 
Richard M. Walsh, age 64, has been the Acting President of our Logistics and Construction Management segment since November, 2008. The segment provides technical support services to


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government agencies and commercial customers worldwide. He was our Senior Vice President & Chief Information Officer from November 2007 to October 2008 and was Vice President for Operations in our Government Services segment from December 2005 to November 2007. Prior to that, he was an independent business consultant from 2001 to 2005. He holds a Bachelor’s degree in history from Seton Hall University and a Master’s degree in international relations from Lehigh University. He is a graduate of the U.S. Army War College and U.S. Army Command and General Staff College. He retired from the U.S. Army in 1995, following 29 years of service.
 
Michael J. Bayer, age 61, has been a member of our parent’s board of directors since September 2006 and is a member of the Audit Committee and Corporate Governance and Nominating Committee of our parent’s board of directors. Since 2003, he has been a private consultant in the energy and national security sectors and, from 2006 to 2007, the President and Chief Executive Officer of Dumbarton Strategies LLC, an energy and national security consulting firm. He is the Chairman of the U.S. Department of Defense’s Business Board and a member of the Sandia National Laboratory’s National Security Advisory Panel, the U.S. Department of Defense’s Science Board and the Chief of Naval Operations’ Executive Panel. He is a director of Willbros Group, Inc.
 
General Richard E. Hawley (USAF Ret.), age 67, has been a member of our parent’s board of directors since 2005. Since 1999, General Hawley has been an independent consultant to the U.S. government and various aerospace companies. He retired in July 1999 after a 35-year career in the U.S. Air Force, where he served as Commander, Air Combat Command from 1996 to 1999 and as Commander, Allied Air Forces Central Europe and Commander, U.S. Air Forces Europe from 1995 to 1996. General Hawley holds a Bachelor’s degree from the U.S. Air Force Academy and a Master’s degree in Economics from Georgetown University. He is a director of the Astronautics Corporation of America and McNeil Technologies, Inc., an affiliate of Veritas Capital, and a member of the Board of Advisors of Christopher Newport University’s School of Business.
 
Herbert J. Lanese, age 63, served as our President and Chief Executive Officer from July 2006 to May 2008 and has been a member of our parent’s board of directors since March 2006. Mr. Lanese was an independent businessman and private investor for the five years before becoming our President and Chief Executive Officer. He is a former President of McDonnell Douglas Aerospace Company. Mr. Lanese also held positions as Executive Vice President and Chief Financial Officer at McDonnell Douglas Corporation. Prior to joining McDonnell Douglas, he served as Corporate Vice President of Tenneco, Inc., where he was responsible for strategic planning, capital structure, accounting and information systems. Earlier, he held positions as Vice President & CFO of Tenneco Inc.’s Newport News Shipbuilding business and Vice President of Finance of Tenneco Chemicals. He began his career in Engineering and Production Management at General Motors Corporation before becoming Director, U.S. Chemical Operations, at BF Goodrich Company. Mr. Lanese holds a Bachelor’s degree in Business and Mathematics and a Master’s degree in Business Administration from Bowling Green State University.
 
General Barry R. McCaffrey (USA Ret.), age 66, has been a member of our parent’s board of directors since 2005. General McCaffrey was Director, White House Office of National Drug Control Policy, from February 1996 to January 2001, serving as a member of the President’s Cabinet and the National Security Council. During his career in the U.S. Army, he served as Commander in-Chief, U.S. Southern Command, from 1994 to 1996. General McCaffrey holds a Bachelor’s degree in General Engineering from the U.S. Military Academy and a Master’s degree in Civil Government from American University. General McCaffrey is the President of BR McCaffrey Associates LLC (a private consulting firm). He is also a member of the boards of several private companies.
 
Ramzi M. Musallam, age 40, has been a member of our parent’s board of directors since 2005. He is a member of the Compensation Committee and Executive Committee of the board of directors of our parent. Mr. Musallam is a partner at Veritas Capital, with which he has been associated since 1997. He is also a director of several private companies. Mr. Musallam holds a Bachelor’s degree from Colgate University with a double major in Economics and Mathematics and a Master’s degree in Business Administration from the University of Chicago Graduate School of Business.


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Admiral Joseph W. Prueher (USN Ret.), age 66, has been a member of our parent’s board of directors since 2005 and is the Chairman of the Corporate Governance and Nominating Committee of the board of directors of our parent. Admiral Prueher served as U.S. Ambassador to the People’s Republic of China from November 1999 to May 2001. His diplomatic post followed a 35-year career in the U.S. Navy, where he served as Commander in Chief, U.S. Pacific Command from January 1996 to February 1999. Admiral Prueher holds a Bachelor’s degree in Naval Science from the U.S. Naval Academy and a Master’s degree in International Relations from George Washington University. He is a consulting professor at Stanford and Harvard Universities and a trustee of The Nature Conservancy of Virginia. He is a director of Emerson Electric Co., Fluor Corporation, Merrill Lynch & Co, Inc. and New York Life Insurance Company.
 
Charles S. Ream, age 65, has been a member of our parent’s board of directors since March 2006 and is the Chairman of the Audit Committee and a member of the Compensation Committee of the board of directors of our parent. Mr. Ream served as the Executive Vice President and Chief Financial Officer of Anteon International Corporation from 2003 to 2006. Mr. Ream also served as Senior Vice President and CFO of Newport News Shipbuilding Inc. from 2000 to 2001. Previously he served as Senior Vice President, Finance of Raytheon Systems Company and Senior Vice President and CFO at Hughes Aircraft Company. He was formerly a partner at Deloitte & Touche LLP. Mr. Ream holds a Master of Accountancy degree from the University of Arizona and is a Certified Public Accountant. He is a director of The Allied Defense Group, Inc., Stanley, Inc. and Vangent, Inc., an affiliate of Veritas Capital.
 
Mark H. Ronald, age 67, has been a member of our parent’s board of directors since January 2007. He is a member of the Corporate Governance and Nominating Committee of the board of directors of our parent. He is an independent consultant specializing in management and mergers and acquisitions. He was president and chief executive officer of BAE Systems Inc. from 2000 to 2006 and was chief operating officer and a director of BAE Systems plc from 2002 to 2006. He holds the title of Honorary Commander of the Most Excellent Order of the British Empire (CBE), awarded in recognition of the valuable services he has rendered to furthering transatlantic cooperation in the U.S.-U.K. defense industries. He is a director of Alliant Techsystems Inc. and Cobham plc. He is a member of the U.S. Department of Defense’s Business Board and a trustee of Polytechnic University. He received a Bachelor’s degree in electrical engineering from Bucknell University and a Master’s degree in electrical engineering from Polytechnic University.
 
Admiral Leighton W. Smith, Jr. (USN Ret.), age 69, has been a member of our parent’s board of directors since 2005 and is a member of the Audit Committee of the board of directors of our parent. Admiral Smith was appointed to four-star rank in April 1994, became Commander in Chief, Allied Forces Southern Europe and concurrently assumed the command of the NATO-led Implementation Force in Bosnia in December 1995. Admiral Smith retired from the U.S. Navy after 34 years of service in 1996. Admiral Smith has served as a Senior Fellow at the Center for Naval Analysis and as a Senior Advisor to the Institute for Defense Analysis. Admiral Smith holds a Bachelor’s degree in Naval Science from the U.S. Naval Academy and a Master’s degree in Personnel Counseling from Troy State University. He is a director of Billing Services Group Limited, a U.K.-registered public company, and a member of the boards of several private companies.
 
William G. Tobin, age 71, has been a member of our parent’s board of directors since 2005 and is a member of the Compensation Committee of the board of directors of our parent. Mr. Tobin is a consultant. He was a Managing Director and Chairman of the Defense & Aerospace practice of Korn/Ferry International from 1986 until his retirement in 2004. From 1961 to 1981, Mr. Tobin was a military officer serving in a variety of command and staff positions worldwide. Mr. Tobin holds a Bachelor’s degree in Engineering from the U.S. Military Academy and advanced degrees from George Washington University and Long Island University.
 
General Peter J. Schoomaker (USA Ret.), age 62, has been a member of our parent’s board of directors since November 2007. He is an individual consultant on defense matters. He served as Chief of Staff of the U.S. Army from 2003 until his second retirement in 2007 and as Commander in Chief, U.S. Special Operations Command from 1997 to 2000, when he retired from the U.S. Army for the first time. He was the president of Quiet Pros, Inc. (defense consulting) from 2000 to 2003. General Schoomaker holds a


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Bachelor of Science degree in Education from the University of Wyoming and a Master’s degree in Management and Supervision from Central Michigan University. He is a member of the boards of several non-profit and private companies.
 
Committees of our Parent’s Board of Directors
 
The standing committees of our parent’s board of directors consist of (1) an Audit Committee, (2) a Compensation Committee and (3) a Corporate Governance and Nominating Committee. The board of directors of our parent also has an Executive Committee established pursuant to its bylaws. In addition, special committees may be established under the direction of the board of directors when necessary to address specific issues.
 
Audit Committee.  The Audit Committee oversees our financial reporting process on behalf of the board of directors. It is directly responsible for the appointment, compensation and oversight of our parent’s and our independent auditors. Charles A. Ream is the Chairman of the Audit Committee, and Michael J. Bayer and Leighton W. Smith Jr. are the other members. Our parent’s board of directors has determined that Mr. Ream is an “audit committee financial expert” as defined by SEC rules.
 
Compensation Committee.  The Compensation Committee is responsible for making recommendations to the board of directors concerning the compensation of the Chief Executive Officer, or “CEO”, and other executive officers, including the appropriateness of salary, incentive compensation, equity-based compensation plans and other benefit plans. The Compensation Committee evaluates the performance of the CEO and executive officers in setting their compensation levels and considers the Company’s performance and relative stockholder return and competitive market data, as well as other factors deemed appropriate by the Compensation Committee. The Compensation Committee occasionally engages an independent consulting firm to review and evaluate various elements of the CEO’s and other executive officers’ total compensation program. Robert B. McKeon is the Chairman of the Compensation Committee, and the other members are Ramzi S. Musallam, Charles S. Ream and William G. Tobin.
 
Corporate Governance and Nominating Committee.  The Corporate Governance and Nominating Committee is responsible for making recommendations to the board of directors regarding the size of the board of directors, qualifications of directors, selection of director nominees and director compensation. It assists the board of directors in fulfilling its role in the corporate governance process, including development of the Corporate Governance Guidelines, and oversees the annual board of directors and committee self-evaluation processes. Joseph W. Prueher is the Chairman of our Corporate Governance and Nominating Committee, and the other members are Michael J. Bayer, Robert B. McKeon and Mark H. Ronald.
 
Executive Committee.  The Executive Committee possesses all the powers of the board of directors not otherwise reserved to the board of directors by law and acts on behalf of the board of directors in the interim periods between regular or special meetings of the board of directors. Robert. B. McKeon is the Chairman of the Executive Committee, and Ramzi M. Musallam is the other member.


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Director Independence
 
A majority of the directors of our parent, and all the members of the Audit Committee of our parent, have been determined by the board of directors of our parent to be independent directors under the rules of the New York Stock Exchange, or “NYSE.” The rules of the NYSE provide that a director must have no material relationship, either directly or as a partner, shareholder or officer of an organization that has a relationship with our parent in order to be an “independent director.” The rules of the NYSE further require that all the members of the Audit Committee of our parent must be independent. Because more than 50% of the voting power in our parent is held by DIV Holding, our parent is a “controlled company” under the NYSE rules. Therefore, under the NYSE rules our parent is not subject to the requirements that a majority of its board of directors be composed of independent directors or that all the members of its Corporate Governance and Nominating Committee and its Compensation Committee be independent. DIV Holding conducts no operations and was established for the primary purpose of holding our parent’s equity.
 
The directors of our parent, upon recommendation of our parent’s Corporate Governance and Nominating Committee and written submissions by the directors of our parent, has determined that the following directors and nominees for director do not have any material relationship with our parent, other than their roles as directors, and therefore are “independent” under the NYSE rules:
 
Michael J. Bayer
Barry R. McCaffrey
Richard E. Hawley
Joseph W. Prueher
Charles S. Ream
Mark H. Ronald
Peter J. Schoomaker
Leighton W. Smith, Jr.
William G. Tobin
 
Compensation Discussion and Analysis
 
Overview
 
All references to the Board, our stockholders and our common stock in this Compensation Discussion and Analysis section refer to the board of directors of our parent, stockholders of our parent and common stock of our parent. This Compensation Discussion and Analysis discusses the policies and objectives underlying the compensation programs for our executive officers. Accordingly, we address and analyze each element of the compensation program. Following this section is a series of tables containing specific information about the compensation awarded to, earned by or paid to our Named Executive Officers, or “NEOs,” for fiscal 2008. The NEOs as of such date were:
 
Herbert J. Lanese, former President & Chief Executive Officer;
Anthony C. Zinni, former Executive Vice President;
Robert B. Rosenkranz, Executive Vice President — Chief of Staff;
Curtis L. Schehr, Senior Vice President, and General Counsel; and
Michael J. Thorne, Senior Vice President, Chief Financial Officer & Treasurer.
 
Mr. Ballhaus became a NEO during fiscal 2009, Messrs. Lanese and Zinni ceased to be NEOs during that fiscal period.
 
Executive Compensation Oversight
 
Our executive compensation program is administered by the Compensation Committee of our parent’s board. As reflected in its charter, the Compensation Committee is charged with reviewing and approving goals and objectives relevant to the performance of the NEOs. In addition, no less than annually, the Compensation Committee will appraise the performance of the NEOs in light of these goals and objectives and set compensation levels based on this evaluation. In setting the NEOs’ compensation, the


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Compensation Committee considers our performance and relative stockholder return, the compensation of executive officers at comparable companies and other factors deemed appropriate.
 
From time to time, the Compensation Committee engages an independent consulting firm to review and evaluate various elements of the NEOs’ total compensation prog