DynCorp International Inc.
Delta Tucker Holdings, Inc. (Form: 10-Q, Received: 08/13/2012 17:15:33)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

     x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2012

or

 

     ¨      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from         to         

Commission File Number: 333-173746

 

 

DELTA TUCKER HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-2525959

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3190 Fairview Park Drive, Suite 700, Falls Church, Virginia 22042

(571) 722-0210

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ¨     No   x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

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

 

Large accelerated filer    ¨    Accelerated filer    ¨
Non-accelerated filer    x   (Do not check if a smaller reporting company)    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

As of August 13, 2012, the registrant had 100 shares of its Class A common stock outstanding.

 

 

 


Table of Contents

Delta Tucker Holdings, Inc.

Table of Contents

 

         Page  
 

Disclosure Regarding Forward-Looking Information

     2   
 

Calendar Year

     2   

PART I. FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements

  
 

Unaudited Condensed Consolidated Statements of Operations - Three and Six Months Ended June 29, 2012 and July 1, 2011

     3   
 

Unaudited Condensed Consolidated Statement of Comprehensive Income - Three and Six Months Ended June  29, 2012 and July 1, 2011

     4   
 

Unaudited Condensed Consolidated Balance Sheets - June 29, 2012 and December 30, 2011

     5   
 

Unaudited Condensed Consolidated Statements of Cash Flows - Six Months Ended June 29, 2012 and July 1, 2011

     6   
 

Unaudited Condensed Consolidated Statement of Equity - Six Months Ended June 29, 2012 and July 1, 2011

     7   
 

Notes to Unaudited Condensed Consolidated Financial Statements

     8   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     39   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     56   

Item 4.

 

Controls and Procedures

     56   

PART II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     56   

Item 1A.

 

Risk Factors

     57   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     57   

Item 3.

 

Defaults Upon Senior Securities

     57   

Item 4.

 

Mine Safety Disclosures

     57   

Item 5.

 

Other Information

     57   

Item 6.

 

Exhibits

     57   


Table of Contents

Disclosure Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created by the Private Securities Litigation Reform Act of 1995 under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). Without limiting the foregoing, the words “believes,” “thinks,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties. Statements regarding the amount of our backlog and estimated total contract values are other examples of forward-looking statements. We caution that these statements are further qualified by important economic, competitive, governmental, international and technological factors that could cause our business, strategy, projections or actual results or events to differ materially, or otherwise, from those in the forward-looking statements. These factors, risks and uncertainties include, among others, the following:

 

   

the future impact of mergers, acquisitions, joint ventures or teaming agreements;

 

   

our substantial level of indebtedness and changes in availability of capital and cost of capital;

 

   

our dependence on customers within the defense industry and business risks related to that industry, including changing priorities or reductions in the annual U.S. Department of Defense (“DoD”) budgets and the outcome of potential additional reductions due to the sequestration process;

 

   

the outcome of any material litigation, government investigation, government audit or other regulatory matters;

 

   

policy and/or spending changes implemented by the Obama Administration, any subsequent administration or Congress;

 

   

termination or modification of key United States (“U.S.”) government or commercial contracts, including subcontracts;

 

   

changes in the demand for services that we provide or work awarded under our contracts, including without limitation, the Civilian Police (“CivPol”), International Narcotics and Law Enforcement (“INL”), Worldwide Protective Services (“WPS”), Afghanistan Ministry of Defense Program (“AMDP”), Contract Field Teams (“CFT”) and Logistics Civil Augmentation Program (“LOGCAP IV”) contracts;

 

   

changes in the demand for services provided by our joint venture partners;

 

   

pursuit of new commercial business in the U.S. and abroad;

 

   

activities of competitors and the outcome of bid protests;

 

   

changes in significant operating expenses;

 

   

impact of lower than expected win rates for new business;

 

   

general political, economic, regulatory and business conditions in the U.S. or in other countries in which we operate;

 

   

acts of war or terrorist activities;

 

   

variations in performance of financial markets;

 

   

the inherent difficulties of estimating future contract revenue and changes in anticipated revenue from indefinite delivery, indefinite quantity (“IDIQ”) contracts;

 

   

the timing or magnitude of any award fee granted under our government contracts, including, but not limited to, LOGCAP IV;

 

   

changes in expected percentages of future revenue represented by fixed-price and time-and-materials contracts, including increased competition with respect to task orders subject to such contracts;

 

   

termination or modification of key subcontractor performance or delivery;

 

   

statements covering our business strategy, those described in “Item 1A. Risk Factors” of this Quarterly Report and under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 30, 2011 filed with the Securities and Exchange Commission (“SEC”) on April 9, 2012 (“2011 Annual Report”) and other risks detailed from time to time in our reports filed with SEC; and

 

   

other risks detailed from time to time in our reports posted to our website or made available publicly through other means.

Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and therefore, there can be no assurance that any forward-looking statement contained herein will prove to be accurate. We assume no obligation to update the forward-looking statements.

Calendar Year

We report the results of our operations using a 52-53 week basis ending on the Friday closest to December 31. Included in this Quarterly Report are our unaudited condensed consolidated statements of operations and comprehensive income for the three and six months ended June 29, 2012 and July 1, 2011, the related statements of equity and cash flows for the six months ended June 29, 2012 and July 1, 2011 and the unaudited condensed consolidated balance sheets as of June 29, 2012 and December 30, 2011.

 

2


Table of Contents

PART I. FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS.

Delta Tucker Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations

 

(Amounts in thousands)    Three Months Ended
June 29, 2012
    Three Months Ended
July 1, 2011
    Six Months Ended
June 29, 2012
    Six Months Ended
July 1, 2011
 

Revenue

   $ 961,089      $ 918,724      $ 2,008,155      $ 1,803,048   

Cost of services

     (873,091     (848,876     (1,839,701     (1,655,067

Selling, general and administrative expenses

     (38,324     (31,834     (76,475     (69,361

Depreciation and amortization expense

     (12,659     (12,843     (25,219     (25,974

Earnings from equity method investees

     13        3,210        223        7,936   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     37,028        28,381        66,983        60,582   

Interest expense

     (21,736     (23,195     (43,427     (46,701

Loss on early extinguishment of debt

     (783     —          (783     (2,397

Interest income

     35        64        73        139   

Other income, net

     1,326        1,259        4,700        4,107   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     15,870        6,509        27,546        15,730   

Provision for income taxes

     (5,555     (2,516     (10,351     (6,091
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     10,315        3,993        17,195        9,639   

Noncontrolling interests

     (1,324     (667     (2,629     (1,405
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Delta Tucker Holdings, Inc.

   $ 8,991      $ 3,326      $ 14,566      $ 8,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Delta Tucker Holdings, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

(Amounts in thousands)    Three Months Ended
June 29, 2012
    Three Months Ended
July 1, 2011
    Six Months Ended
June 29, 2012
    Six Months Ended
July 1, 2011
 

Net income

   $ 10,315      $ 3,993      $ 17,195      $ 9,639   

Other comprehensive income:

        

Currency translation adjustment

     (345     (105     (149     296   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     (345     (105     (149     296   

Income tax expense related to items of other comprehensive income

     113        (40     52        (165
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (232     (145     (97     131   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     10,083        3,848        17,098        9,770   

Noncontrolling interests

     (1,324     (667     (2,629     (1,405
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Delta Tucker Holdings, Inc.

   $ 8,759      $ 3,181      $ 14,469      $ 8,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Delta Tucker Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

 

     As of  
(Amounts in thousands, except share data)    June 29, 2012     December 30, 2011  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 77,581      $ 70,205   

Restricted cash

     1,659        10,773   

Accounts receivable, net of allowances of $1,619 and $1,947, respectively

     808,061        752,756   

Prepaid expenses and other current assets

     66,393        88,877   
  

 

 

   

 

 

 

Total current assets

     953,694        922,611   

Property and equipment, net

     22,424        24,084   

Goodwill

     645,603        645,603   

Tradenames, net

     43,571        43,660   

Other intangibles, net

     289,382        310,740   

Other assets, net

     58,568        67,723   
  

 

 

   

 

 

 

Total assets

   $ 2,013,242      $ 2,014,421   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

Current portion of long-term debt

   $ 637      $ —     

Accounts payable

     282,060        275,068   

Accrued payroll and employee costs

     137,996        129,027   

Deferred income taxes

     67,619        78,912   

Accrued liabilities

     152,028        149,175   

Income taxes payable

     1,871        1,077   
  

 

 

   

 

 

 

Total current liabilities

     642,211        633,259   

Long-term debt, less current portion

     842,272        872,909   

Long-term deferred taxes

     44,014        23,136   

Other long-term liabilities

     13,354        27,632   
  

 

 

   

 

 

 

Total liabilities

     1,541,851        1,556,936   

Commitments and contingencies

    

Equity:

    

Common stock, $0.01 par value – 1,000 shares authorized and 100 shares issued and outstanding at June 29, 2012 and December 30, 2011, respectively.

     —          —     

Additional paid-in capital

     549,161        550,951   

Accumulated deficit

     (84,027     (98,593

Accumulated other comprehensive income (loss)

     (156     (59
  

 

 

   

 

 

 

Total equity attributable to Delta Tucker Holdings, Inc.

     464,978        452,299   

Noncontrolling interests

     6,413        5,186   
  

 

 

   

 

 

 

Total equity

     471,391        457,485   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 2,013,242      $ 2,014,421   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Delta Tucker Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

(Amounts in thousands)    Six Months Ended
June 29, 2012
    Six Months Ended
July 1, 2011
 

Cash flows from operating activities

    

Net income

   $ 17,195      $ 9,639   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     26,040        26,797   

Loss on early extinguishment of debt

     783        2,397   

Amortization of deferred loan costs

     3,891        4,145   

Earnings from equity method investees

     (4,100     (10,630

Distributions from affiliates

     1,733        12,587   

Deferred income taxes

     8,282        4,179   

Other

     (3,421     1,304   

Changes in assets and liabilities:

    

Restricted cash

     9,114        3,306   

Accounts receivable

     (55,104     (17,028

Prepaid expenses and other current assets

     20,891        35,744   

Accounts payable and accrued liabilities

     24,956        (45,843

Income taxes receivable

     2,497        49,559   
  

 

 

   

 

 

 

Net cash provided by operating activities

     52,757        76,156   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchase of property and equipment, net

     (2,227     (1,510

Proceeds from sale of property, plant and equipment

     8        45   

Purchase of software

     (1,095     (1,364

Return of capital from equity method investees

     5,600        9,147   

Contributions to equity method investees

     (1,479     —     
  

 

 

   

 

 

 

Net cash provided by investing activities

     807        6,318   
  

 

 

   

 

 

 

Cash flows from financing activities

    

Borrowings on long-term debt

     293,200        214,300   

Payments on long-term debt

     (323,200     (265,603

Borrowings related to financed insurance

     5,041        —     

Payments related to financed insurance

     (20,955     (9,888

Payment of dividends to noncontrolling interests

     (274     (784
  

 

 

   

 

 

 

Net cash used in financing activities

     (46,188     (61,975
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     7,376        20,499   

Cash and cash equivalents, beginning of period

     70,205        52,537   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 77,581      $ 73,036   
  

 

 

   

 

 

 

Income taxes received, net of payments

   $ 476      $ 44,745   

Interest paid

   $ 38,776      $ 65,108   

See notes to unaudited condensed consolidated financial statements.

 

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Delta Tucker Holdings, Inc.

Unaudited Condensed Consolidated Statement of Equity

 

(Amounts in thousands)    Common
Stock
     Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
    Total Equity
Attributable to
Delta Tucker
Holdings, Inc.
    Noncontrolling
Interest
    Total
Equity
 

Balance at December 30, 2011

     —         $ —         $ 550,951      $ (98,593   $ (59   $ 452,299      $ 5,186      $ 457,485   

Comprehensive income attributable to Delta Tucker Holdings, Inc.

           —          14,566        (97     14,469        —          14,469   

Noncontrolling interests

           —          —          —          —          2,629        2,629   

DIFZ financing, net of tax

           208        —          —          208        —          208   

Distribution to affiliates of Parent

           (1,998     —          —          (1,998     696        (1,302

Dividends declared to noncontrolling interests

     —           —           —          —          —          —          (2,098     (2,098
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 29, 2012

     —         $ —         $ 549,161      $ (84,027   $ (156   $ 464,978      $ 6,413      $ 471,391   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(Amounts in thousands)    Common
Stock
     Additional
Paid-in
Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
     Total Equity
Attributable to
Delta Tucker
Holdings, Inc.
     Noncontrolling
Interest
    Total
Equity
 

Balance at December 31, 2010

           $       $ 550,492       $ (37,659   $ 142       $ 512,975       $ 4,351      $ 517,326   

Comprehensive income attributable to Delta Tucker Holdings, Inc.

           —           8,234        131         8,365         —          8,365   

Noncontrolling interests

           —           —          —           —           1,405        1,405   

DIFZ financing, net of tax

           223         —          —           223         —          223   

Dividends declared to noncontrolling interests

           —           —          —           —           (1,569     (1,569
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance at July 1, 2011

     —         $ —         $ 550,715       $ (29,425   $ 273       $ 521,563       $ 4,187      $ 525,750   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Delta Tucker Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Basis of Presentation and Accounting Policies

Basis of Presentation

Delta Tucker Holdings, Inc., (“Holdings”), the parent of DynCorp International Inc., through its subsidiaries (together, “the Company”), provides defense and technical services and government outsourced solutions primarily to U.S. government agencies domestically and internationally. The Company was incorporated in the state of Delaware on April 1, 2010. Primary customers include the U.S. Department of Defense (“DoD”), the U.S. Department of State (“DoS”), and other government agencies, including foreign governments and commercial customers. Unless the context otherwise indicates, references herein to “we,” “our,” “us,” or “the Company” refer to Delta Tucker Holdings, Inc. and our consolidated subsidiaries.

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

Certain information and footnote disclosures normally included in financial statements, prepared in accordance with GAAP, have been condensed or omitted pursuant to such rules and regulations. However, we believe that all disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto included in the Company’s 2011 Annual Report.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to fairly present our financial position as of June 29, 2012 and December 30, 2011, the results of operations for the three and six months ended June 29, 2012 and July 1, 2011 and cash flows for the six months ended June 29, 2012 and July 1, 2011 have been included. The results of operations for the three and six months ended June 29, 2012, and the cash flows for the six months ended June 29, 2012 and July 1, 2011, are not necessarily indicative of the results to be expected for the full calendar year or for any future periods. We use estimates and assumptions required for preparation of the financial statements. The estimates are primarily based on historical experience and business knowledge and are revised as circumstances change. However, actual results could differ from the estimates.

Principles of Consolidation

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

We classify our equity method investees in two distinct groups based on management’s day-to-day involvement in the operations of each entity and the nature of each joint venture’s business. If the joint venture is deemed to be an extension of one of our strategic business Groups and operationally integral to the business, our share of the joint venture’s earnings is reported within operating income in “Earnings from equity method investees” in the consolidated statement of operations. If the Company considers our involvement less significant, our share of the joint venture’s net earnings is reported in “Other income, net” in the consolidated statement of operations.

Noncontrolling interest

We record the impact of our partners’ interest in less than wholly owned consolidated joint ventures as noncontrolling interest. Currently, DynCorp International FZ-LLC (“DIFZ”) is our only consolidated joint venture for which we do not own 100% of the entity. On March 15, 2012, we entered into a non-cash dividend distribution transaction with Cerberus Series Four Holdings, LLC and Cerberus Partners II, L.P., in which we distributed half of our 50% ownership in DIFZ. We now hold 25% ownership interest in DIFZ. We continue to consolidate DIFZ as we still exercise power over activities that significantly impact DIFZ’s economic performance and have the obligation to absorb losses or receive benefits of DIFZ that could potentially be significant to DIFZ. Noncontrolling interest is presented on the face of the statement of operations as an increase or reduction in arriving at “Net income attributable to Delta Tucker Holdings, Inc.” Noncontrolling interest on the balance sheet is located in the equity section. See Note 10 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information regarding DIFZ.

 

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Accounting Policies

There have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in our 2011 Annual Report, except for the adoption of ASU No. 2011-04 - Fair Value Measurements and ASU No. 2011-05 - Presentation of Comprehensive Income as discussed in “Accounting Developments” below.

Accounting Developments

Pronouncements Implemented

On May 12, 2011, the FASB issued ASU No. 2011-04 - Fair Value Measurements . The ASU was issued as a joint effort by the FASB and International Accounting Standards Board (“IASB”) to develop a single converged fair value framework. The ASU provides guidance on how and when to measure fair value and the required disclosures. There are few differences between the ASU and the international counterpart. While the ASU is largely consistent with existing fair value measurement principles under U.S. GAAP, it expands ASC 820’s existing disclosure requirements for fair value measurements and makes other amendments. Many of these amendments are being made to eliminate unnecessary wording differences between U.S. GAAP and IFRS. However, some could change how the fair value measurement guidance in ASC 820 is applied. The ASU is effective for interim and annual periods beginning after December 15, 2011, for public entities. We adopted ASU No. 2011-04 during the quarter ended March 30, 2012.

 

In June 2011, the FASB issued ASU No. 2011-05 - Presentation of Comprehensive Income . The ASU amends FASB ASC 220, Comprehensive Income , to eliminate the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in stockholders’ equity, require presentation of each component of net income and each component of OCI (and their respective totals) either in a single continuous statement or in two separate statements, and require presentation of reclassification adjustments on the face of the statement. The amendments do not change the option to present components of OCI either before or after related income tax effects; they do not change the items that must be reported in OCI, when an item of OCI should be reclassified to net income, or the computation of earnings per share. On October 21, 2011, the FASB issued a deferral of the new requirement to present reclassifications of OCI on the face of the income statement. Companies were still required to adopt the other requirements contained in the new accounting standard for the presentation of comprehensive income. The amendments made are applied retrospectively and are effective for SEC registrants for fiscal years and interim periods beginning after December 15, 2011, with early adoption permitted. We adopted ASU No. 2011-05 during the quarter ended March 30, 2012 and chose to present comprehensive income as two separate but consecutive statements. See the Statements of Operations and Statements of Comprehensive Income.

Pronouncements Not Yet Implemented

 

On July 27 2012, the FASB issued ASU No. 2012-02 - Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The ASU was issued to amend the guidance on testing indefinite-lived intangible assets, other than goodwill, for impairment. This ASU permits an entity the option to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. The results of the qualitative assessment would be used as a basis in determining whether it is necessary to perform the two-step quantitative impairment test. If the qualitative assessment supports the conclusion that it is more-likely-than-not that the fair value of the asset exceeds its carrying amount, the entity would not need to perform the two-step quantitative impairment test. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. We do not believe that the adoption of this ASU will have a material effect on our consolidated financial position and results of operations.

 

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Note 2 — Composition of Certain Financial Statement Captions

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

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

 

     As Of  
(Amounts in thousands)    June 29, 2012      December 30, 2011  

Prepaid expenses

   $ 26,788       $ 38,092   

Income tax refunds receivable

     1,900         2,236   

Inventories

     7,069         7,005   

Assets held for sale

     10,947         11,084   

Work-in-process

     8,572         10,223   

Joint venture receivables

     976         3,959   

Favorable contracts

     2,370         4,825   

Other current assets

     7,771         11,453   
  

 

 

    

 

 

 

Total prepaid expenses and other current assets

   $ 66,393       $ 88,877   
  

 

 

    

 

 

 

Prepaid expenses include prepaid insurance, prepaid vendor deposits, and prepaid rent, none of which individually exceed 5% of current assets. Income tax refunds receivable represents refunds expected through the remainder of the year. We value our inventory at lower of cost or market.

Assets held for sale is made up of seven helicopters, valued at $8.2 million, that were not deployed on existing programs as of June 29, 2012, as well as aircraft parts inventory related to our former Life Cycle Support Services (“LCCS”) Navy contract.

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

 

     As Of  
(Amounts in thousands)    June 29, 2012     December 30, 2011  

Helicopters

   $ 8,087      $ 8,087   

Computers and other equipment

     10,447        9,524   

Leasehold improvements

     9,585        9,367   

Office furniture and fixtures

     4,692        4,738   
  

 

 

   

 

 

 

Gross property and equipment

     32,811        31,716   

Less accumulated depreciation

     (10,387     (7,632
  

 

 

   

 

 

 

Total property and equipment, net

   $ 22,424      $ 24,084   
  

 

 

   

 

 

 

Depreciation expense was $1.5 million and $2.9 million during the three and six months ended June 29, 2012, respectively, including certain depreciation amounts classified as Cost of services. Depreciation expense was $1.3 million and $2.7 million during the three and six months ended July 1, 2011, respectively, including certain depreciation amounts classified as Cost of services.

Other assets, net — Other assets, net were:

 

     As Of  
(Amounts in thousands)    June 29, 2012      December 30, 2011  

Deferred financing costs, net

   $ 28,037       $ 32,710   

Investment in affiliates

     25,108         27,700   

Palm promissory notes, long-term portion

     4,404         5,307   

Other

     1,019         2,006   
  

 

 

    

 

 

 

Total other assets, net

   $ 58,568       $ 67,723   
  

 

 

    

 

 

 

Deferred financing cost is amortized through interest expense. Amortization related to deferred financing costs was $1.9 million and $3.9 million during the three and six months ended June 29, 2012, respectively. Amortization related to deferred financing costs was $2.0 million and $4.1 million for the three and six months ended July 1, 2011, respectively. Deferred financing costs were reduced during the six months ended June 29, 2012 and July 1, 2011 by $0.8 million and $2.4 million, respectively, related to the pro rata write–off of financing costs to loss on early extinguishment of debt as a result of prepayments on the term loan. We made principal prepayments of $30.0 million during the six months ended June 29, 2012 and $48.6 million during the six months ended July 1, 2011, respectively. See Note 7 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further discussion of our debt.

 

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

 

     As Of  
(Amounts in thousands)    June 29, 2012      December 30, 2011  

Wages, compensation and other benefits

   $ 115,600       $ 102,427   

Accrued vacation

     21,883         26,077   

Accrued contributions to employee benefit plans

     513         523   
  

 

 

    

 

 

 

Total accrued payroll and employee costs

   $ 137,996       $ 129,027   
  

 

 

    

 

 

 

Accrued liabilities — Accrued liabilities were:

 

     As Of  
(Amounts in thousands)    June 29, 2012      December 30, 2011  

Deferred revenue and customer liability

   $ 21,617       $ 12,084   

Insurance expense

     57,472         48,715   

Interest expense

     25,357         24,480   

Unfavorable contract liability

     5,148         6,867   

Contract losses

     10,139         6,456   

Legal matters

     6,800         4,782   

Subcontractor retention

     11,773         5,927   

Financed insurance

     1,889         17,804   

Other

     11,833         22,060   
  

 

 

    

 

 

 

Total accrued liabilities

   $ 152,028       $ 149,175   
  

 

 

    

 

 

 

Deferred revenue is primarily due to payments in excess of revenue recognized related to customer advances. Subcontractor retention is related to the retention primarily under the LOGCAP IV and INL programs. Other is comprised of Accrued rent and workers compensation related claims and other individual balances that are not individually material to the consolidated financial statements.

Other long-term liabilities — Other long-term liabilities were:

 

     As Of  
(Amounts in thousands)    June 29, 2012      December 30, 2011  

Unfavorable contract liability

   $ 2,717       $ 6,761   

Unrecognized tax benefit

     1,712         2,614   

Unfavorable lease accrual

     5,971         14,631   

Other

     2,954         3,626   
  

 

 

    

 

 

 

Total other long-term liabilities

   $ 13,354       $ 27,632   
  

 

 

    

 

 

 

Note 3 — Goodwill and Other Intangible Assets

In January of 2012, our organizational structure was amended. As part of these changes, we re-aligned our Business Area Teams (“BATs”) into strategic business “Groups” reporting directly to the President of the Company. The prior three reporting segments, Global Stabilization and Development Solutions (“GSDS”), Global Platform Support Solutions (“GPSS”) and Global Linguist Solutions (“GLS”) were re-aligned into six reporting segments which include the LOGCAP (“LOGCAP”) Group, Aviation (“Aviation”) Group, Training and Intelligence Solutions (“TIS”) Group, Global Logistics & Development Solutions (“GLDS”) Group, Security Services (“Security”) Group and the GLS Group. GLS is a 51% owned unconsolidated joint venture. We do not have control over the operational performance of GLS, however, our senior management, including our chief executive officer, who is our chief operating decision maker, regularly reviews GLS operating results and metrics to make decisions about resources to be allocated to the segment and assess performance; thus GLS is classified as an reporting segment. The change in presentation of our goodwill balance by reporting segment from December 30, 2011 to June 29, 2012 is as follows:

 

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(Amounts in thousands)    Aviation      GLDS      TIS      LOGCAP      Security      GLS      Total  

Goodwill balance as of December 30, 2011

   $ 439,350       $ 120,636       $ 71,882       $ —         $ 13,735       $ —         $ 645,603   

Changes between December 30, 2011 and June 29, 2012

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Goodwill balance as of June 29, 2012

   $ 439,350       $ 120,636       $ 71,882       $ —         $ 13,735       $ —         $ 645,603   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     As of June 29, 2012  
(Amounts in thousands, except years)    Weighted
Average
Remaining
Useful Life
(Years)
     Gross
Carrying
Value
     Accumulated
Amortization
    Net  

Other intangible assets:

          

Customer-related intangible assets

     7.1       $ 350,912       $ (79,097   $ 271,815   

Other

     4.8         32,235         (14,668     17,567   
     

 

 

    

 

 

   

 

 

 

Total other intangibles

      $ 383,147       $ (93,765   $ 289,382   
     

 

 

    

 

 

   

 

 

 

Tradenames:

          

Finite-lived

     2.9       $ 869       $ (356   $ 513   

Indefinite-lived

        43,058         —          43,058   
     

 

 

    

 

 

   

 

 

 

Total tradenames

      $ 43,927       $ (356   $ 43,571   
     

 

 

    

 

 

   

 

 

 

 

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

Other intangible assets:

  

Customer-related intangible assets

     7.6       $ 350,912       $ (59,399   $ 291,513   

Other

     5.0         30,500         (11,273     19,227   
     

 

 

    

 

 

   

 

 

 

Total other intangibles

      $ 381,412       $ (70,672   $ 310,740   
     

 

 

    

 

 

   

 

 

 

Tradenames:

  

Finite-lived

     3.4       $ 869       $ (267   $ 602   

Indefinite-lived

        43,058         —          43,058   
     

 

 

    

 

 

   

 

 

 

Total tradenames

      $ 43,927       $ (267   $ 43,660   
     

 

 

    

 

 

   

 

 

 

Amortization expense for customer-related intangibles, other intangibles and finite-lived tradenames was $11.6 million and $23.2 million for the three and six months ended June 29, 2012, respectively. Amortization expense for customer-related intangibles, other intangibles and finite-lived tradenames was $11.9 million and $24.1 million for the three and six months ended July 1, 2011, respectively. Other intangibles is primarily representative of our capitalized software which had a net value of $10.8 million and $11.2 million as of June 29, 2012 and December 30, 2011, respectively.

 

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The following table outlines an estimate of future amortization based upon the finite-lived intangible assets owned and the finite-lived tradenames as of June 29, 2012:

 

(Amounts in thousands)    Amortization Expense  

Estimate for six month period ending December 28, 2012

   $ 23,092   

Estimate for calendar year 2013

     43,989   

Estimate for calendar year 2014

     43,311   

Estimate for calendar year 2015

     41,310   

Estimate for calendar year 2016

     38,956   

Thereafter

     99,237   

Note 4 — Income Taxes

The provision for income taxes consists of the following:

 

(Amounts in thousands)    Three Months Ended
June 29, 2012
    Three Months Ended
July 1, 2011
    Six Months Ended
June 29, 2012
    Six Months Ended
July 1, 2011
 

Current portion:

        

Federal

   $ —        $ —        $ —        $ —     

State

     91        189        226        356   

Foreign

     560        700        1,614        1,479   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 651      $ 889      $ 1,840      $ 1,835   

Deferred portion :

        

Federal

   $ 4,836      $ 1,607      $ 8,405      $ 4,192   

State

     90        45        133        117   

Foreign

     (22     (25     (27     (53
  

 

 

   

 

 

   

 

 

   

 

 

 
     4,904        1,627        8,511        4,256   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

   $ 5,555      $ 2,516      $ 10,351      $ 6,091   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets and liabilities are reported as:

 

     As Of  
(Amounts in thousands)    June 29, 2012     December 30, 2011  

Current deferred tax liabilities

   $ (67,619   $ (78,912

Non-current deferred tax liabilities

     (44,014     (23,136
  

 

 

   

 

 

 

Deferred tax liabilities, net

   $ (111,633   $ (102,048
  

 

 

   

 

 

 

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

 

     Three Months Ended
June 29, 2012
    Three Months Ended
July 1, 2011
    Six Months Ended
June 29, 2012
    Six Months Ended
July 1, 2011
 

Statutory rate

     35.0     35.0     35.0     35.0

State income tax, less effect of federal deduction

     1.1     2.9     1.3     2.5

Noncontrolling interests

     (2.9 )%      (2.8 )%      (2.6 )%      (2.6 )% 

Other

     1.8     3.6     4.0     3.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

     35.0     38.7     37.7     38.7
  

 

 

   

 

 

   

 

 

   

 

 

 

As of June 29, 2012, we had U.S. federal and state net operating losses of approximately $2.2 million and $139.0 million, respectively. As of December 30, 2011 we had approximately $60.8 million and $197.4 million in U.S. federal and state net operating losses, respectively. Our federal net operating losses will begin to expire in 2030, and our state net operating losses will begin to expire in 2015 but the majority will not begin to expire until 2020 or later. Additionally, at June 29, 2012 and

 

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December 30, 2011, we had foreign tax credit carry forwards of approximately $22.5 million and $20.9 million, respectively, that will begin to expire in 2017. We expect to fully utilize our federal and state net operating losses as well as our foreign tax credit carry forwards prior to their expiration.

In evaluating our deferred tax assets, we assess the need for any related valuation allowances or adjust the amount of any allowances, if necessary. We assess such factors as the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and available tax planning strategies in determining the need for or sufficiency of a valuation allowance. Based on this assessment, we concluded that no valuation allowance was necessary as of June 29, 2012.

As of June 29, 2012 and December 30, 2011, we had $11.2 million and $11.2 million of total unrecognized tax benefits, respectively, of which $5.0 million and $6.1 million, respectively, would impact our effective tax rate if recognized. It is expected that of the $11.2 million of unrecognized tax benefits, $0.1 million will change in the next twelve months. As of December 30, 2011, we recorded a reserve for uncertain tax positions in the deferred tax accounts, offsetting the NOLs, and FTCs in the amount of $8.6 million.

Note 5 — Accounts Receivable

Accounts receivable, net consisted of the following:

 

     As Of  
(Amounts in thousands)    June 29, 2012      December 30, 2011  

Billed

   $ 353,513       $ 291,780   

Unbilled

     454,548         460,976   
  

 

 

    

 

 

 

Total accounts receivable

   $ 808,061       $ 752,756   
  

 

 

    

 

 

 

Unbilled receivables as of June 29, 2012 and December 30, 2011 include $26.3 million and $25.8 million, respectively, related to costs incurred on projects for which we have been requested by the customer to begin work under a new contract or extend work under an existing contract and for which formal contracts or contract modifications have not been executed at the end of the respective periods. There were no contract claims included in the amount as of June 29, 2012 or December 30, 2011. The balance of unbilled receivables consists of costs and fees billable immediately, upon contract completion or other specified events. All of the unbilled receivables are expected to be billed and collected within one year, except items that may result in a request for equitable adjustment or a formal claim.

Note 6—Fair Value of Financial Assets and Liabilities

ASC 820 – Fair Value Measurements and Disclosures establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

 

   

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

 

   

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

 

   

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

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, and borrowings. Because of the short-term nature of cash and cash equivalents, accounts and notes receivable and accounts payable, the fair value of these instruments approximates the carrying value. Our estimate of the fair value of our long-term debt is based on quoted prices in active markets which are Level 1 inputs as defined above.

 

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     June 29, 2012      December 30, 2011  
(Amounts in thousands)    Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

10.375% senior unsecured notes

   $ 455,000       $ 389,025       $ 455,000       $ 395,850   

Senior secured credit facility

     387,272         387,272         417,272         408,927   

9.5% senior subordinated notes

     —           —           637         622   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 842,272       $ 776,297       $ 872,909       $ 805,399   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 7 — Long-Term Debt

Long-term debt consisted of the following:

 

     As of  
(Amounts in thousands)    June 29, 2012      December 30, 2011  

9.5% Senior subordinated notes

   $ 637       $ 637   

Term loan

     387,272         417,272   

10.375% Senior unsecured notes

     455,000         455,000   

Outstanding revolver borrowings

     —           —     
  

 

 

    

 

 

 

Total indebtedness

     842,909         872,909   

Less current portion of long-term debt

     637         —     
  

 

 

    

 

 

 

Total long-term debt

   $ 842,272       $ 872,909   
  

 

 

    

 

 

 

The current portion of long-term debt as of June 29, 2012 was $0.6 million, which consists of our 9.5% senior subordinated notes that mature on February 15, 2013. The total due on the Term Loan is included in Long-term debt, in our consolidated balance sheet as of June 29, 2012 and December 30, 2011.

Senior Credit Facility

On July 7, 2010, we entered into a senior secured credit facility (the “Original Senior Credit Facility”), with a banking syndicate and Bank of America, NA as Agent. On August 10, 2011, DynCorp International Inc. entered into an amendment to the Senior Credit Facility (the “Amendment” and, together with the Original Senior Credit Facility, the “Senior Credit Facility”).

Our Senior Credit Facility is secured by substantially all of our assets and is guaranteed by substantially all of our subsidiaries. It provides for a six year, $570 million term loan facility (“Term Loan”) and a four year, $150 million revolving credit facility (“Revolver”), including a $100 million letter of credit subfacility. As of June 29, 2012 and December 30, 2011, the additional available borrowing capacity under the Senior Credit Facility was approximately $109.8 million and $109.6 million, respectively, which gives effect to $40.2 million and $40.4 million, respectively, in letters of credit. The maturity date on the Term Loan is July 7, 2016 and the maturity date on the Revolver is July 7, 2014. Amounts borrowed under our Revolver are used to fund operations. We had no Revolver borrowings as of June 29, 2012. As of March 30, 2012 we were in default under our Revolver for failing to deliver annual financial statements and other related documents by March 29, 2012. Because of the default we did not have access to borrow additional funds under the Revolver. We filed our annual financial statements on April 9, 2012 curing the default and restoring full access to the Revolver. As of June 29, 2012, we were in compliance with our financial covenants.

Interest Rates on Term Loan & Revolver

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

 

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

The Eurocurrency Rate is the rate per annum equal to the British Bankers Association London Interbank Offered Rate (“BBA LIBOR”) as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) two Business Days prior to the commencement of such interest period. The variable Eurocurrency rate has a floor of 1.75%. As of June 29, 2012 and December 30, 2011, the applicable interest rate for our Term Loan was 6.25%.

Interest Rates on Letter of Credit Subfacility and Unused Commitment Fees

The letter of credit subfacility bears interest at the applicable margin for Eurocurrency Rate Loans, which ranges from 4.0% to 4.5%. The unused commitment fee on our Revolver ranges from 0.50% to 0.75% depending on the Secured Leverage Ratio, as defined in the Senior Credit Facility. Payments on both the letter of credit subfacility and unused commitments are payable quarterly in arrears. As of June 29, 2012 and December 30, 2011, the applicable interest rates for our letter of credit subfacility were 4.50%. As of June 29, 2012 and December 30, 2011, the applicable interest rates for our unused commitment fees were 0.75%. All of our letters of credit are also subject to a 0.25% fronting fee.

Principal Payments

There is an annual excess cash flow requirement, which is defined in the Senior Credit Facility. This excess cash flow requirement began in 2012, based on our annual financial results from 2011. We are not required in 2012, to make an additional principal payment related to this excess cash flow requirement. Certain other transactions can trigger mandatory principal payments such as tax refunds, a disposition of a portion of the business or a significant asset sale. We had no such transactions for the quarter ended June 29, 2012.

During the six months ended June 29, 2012, we made a $30.0 million principal prepayment on our Term Loan facility. Deferred financing costs associated with the prepayment totaling $0.8 million and $2.4 million were expensed and are included in the Loss on early extinguishment of debt in our consolidated statement of operations for the six months ended June 29, 2012 and July 1, 2011, respectively.

During the six months ended July 1, 2011, we made a $48.6 million principal prepayment on our Term Loan facility, and $2.7 million in quarterly principal payments. Our Term Loan facility provided for quarterly principal payments of $1.4 million that began in December 2010. In October 2011, the principal prepayment of $48.7 million made on our Term Loan was applied to all future schedule maturities and satisfied our responsibility to make quarterly principal payments through July 7, 2016.

Covenants

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

 

   

declare dividends and make other distributions;

 

   

redeem or repurchase our capital stock;

 

   

prepay, redeem or repurchase certain of our indebtedness;

 

   

grant liens;

 

   

make loans or investments (including acquisitions);

 

   

incur additional indebtedness;

 

   

modify the terms of certain debt;

 

   

restrict dividends from our subsidiaries;

 

   

change our business or business of our subsidiaries;

 

   

merge or enter into acquisitions;

 

   

sell our assets;

 

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enter into transactions with our affiliates; and

 

   

make capital expenditures.

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

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

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

In the event we fail to comply with the covenants specified in the Senior Credit Facility and the Indenture governing our Senior Unsecured Notes, we may be in default. On March 30, 2012, we notified Bank of America N.A. (the “Administrative Agent”) of a default in connection with the failure to deliver to the Administrative Agent the financial statements, reports and other documents under the Senior Credit Facility with respect to the fiscal year ended December 30, 2011. The default was cured with the filing of the 2011 Annual Report to the SEC on April 9, 2012.

Senior Unsecured Notes

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

The Senior Unsecured Notes contain various covenants that restrict our ability to:

 

   

incur additional indebtedness;

 

   

make certain payments including declaring or paying certain dividends;

 

   

purchase or retire certain equity interests;

 

   

retire subordinated indebtedness;

 

   

make certain investments;

 

   

sell assets;

 

   

engage in certain transactions with affiliates;

 

   

create liens on assets;

 

   

make acquisitions; and

 

   

engage in mergers or consolidations.

The aforementioned restrictions are considered to be in place unless we achieve investment grade ratings by both Moody’s Investor Services and Standard and Poor’s.

We can redeem the Senior Unsecured Notes, in whole or in part, at defined call prices, plus accrued interest through the redemption date. The Indenture requires us to offer to repurchase the Senior Unsecured Notes at defined prices in the event of certain asset sales and change of control events. In the case of Asset Sales (as defined in the Indenture), we are required under the Indenture to use the proceeds from such asset sales to either (i) prepay secured debt or nonguarantor debt, (ii) reinvest in our business or (iii) to the extent asset sale proceeds not applied in accordance with clause (i) or (ii) exceed $15 million, make an offer to repurchase the Senior Unsecured Notes at 100% of the principal amount thereof.

Call and Put Options

We can voluntarily settle all or a portion of the Senior Unsecured Notes at any time prior to July 1, 2014. Such a voluntary settlement would require payment of 100% of the principal amount plus the applicable premium (or make-whole premium), and accrued and unpaid interest and additional interest, if any, as of the applicable redemption date. The applicable premium with respect to the Senior Unsecured Notes on any applicable redemption date is the greater of (1) 1.0% of the then outstanding principal amount of the Senior Unsecured Notes; and (2) the excess of (a) the present value at such redemption

 

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date of (i) the redemption price of the Senior Unsecured Notes at July 1, 2014 plus (ii) all required interest payments due on the Note through July 1, 2014 (excluding accrued but unpaid interest), computed using a discount rate equal to the treasury rate, as defined in the Indenture, as of such redemption date plus 50 basis points; over (b) the then outstanding principal amount of the Senior Unsecured Notes.

In the event of a change in control, each holder of the Senior Unsecured Notes will have the right to require the Company to repurchase some or all of the Senior Unsecured Notes at 101% of their face amount, plus accrued and unpaid interest to the repurchase date.

Note 8 — Commitments and Contingencies

Commitments

We have operating leases for the use of real estate and certain property and equipment which are either non-cancelable or cancelable only by the payment of penalties or cancelable upon one month’s notice. All lease payments are based on the lapse of time but include, in some cases, payments for insurance, maintenance and property taxes. There are no purchase options on operating leases at favorable terms, but most leases have one or more renewal options. Certain leases on real estate are subject to annual escalations for increases in base rents, utilities and property taxes. Lease rental expense was $54.5 million and $121.1 million during the three and six months ended June 29, 2012, respectively. Lease rental expense was $29.0 million and $55.7 million during the three and six months ended July 1, 2011, respectively. We have no significant long-term purchase agreements with service providers.

Contingencies

General Legal Matters

We are involved in various lawsuits and claims that arise in the normal course of business. We have established reserves for matters in which it is believed that losses are probable and can be reasonably estimated. Reserves related to these matters have been recorded in “Other accrued liabilities” totaling approximately $6.8 million and $4.8 million as of June 29, 2012 and December 30, 2011, respectively. None of our reserves as of June 29, 2012 were individually material. We believe that appropriate accruals have been established for such matters based on information currently available; however, some of the matters may involve compensatory, punitive, or other claims or sanctions that if granted, could require us to pay damages or make other expenditures in amounts that could not be reasonably estimated at June 29, 2012. These accrued reserves represent the best estimate of amounts believed to be our liability in a range of expected losses. In addition to matters that are considered probable and can be reasonably estimated, we also have certain matters considered reasonably possible. Other than matters disclosed below, we believe the aggregate range of possible loss related to matters considered reasonably possible was not material as of June 29, 2012. Litigation is inherently unpredictable and unfavorable resolutions could occur. Accordingly, it is possible that an adverse outcome from such proceedings could (i) exceed the amounts accrued for probable matters; or (ii) require a reserve for a matter we did not originally believe to be probable or could be reasonably estimated. Such changes could be material to our financial condition, results of operations and cash flows in any particular reporting period. Our view of the matters not specifically disclosed could possibly change in future periods as events thereto unfold.

Pending Litigation and Claims

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

 

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A lawsuit filed on September 11, 2001, and amended on March 24, 2008, seeking unspecified damages on behalf of twenty-six residents of the Sucumbíos Province in Ecuador, was brought against our operating company and several of its former affiliates in the U.S. District Court for the District of Columbia. The action alleges violations of the laws of nations and U.S. treaties, negligence, emotional distress, nuisance, battery, trespass, strict liability, and medical monitoring arising from the spraying of herbicides near the Ecuador-Colombia border in connection with the performance of the DoS, International Narcotics and Law Enforcement contract for the eradication of narcotic plant crops in Colombia. As of January 12, 2010, fifteen of the plaintiffs have been dismissed by court order. We have filed multiple motions for summary judgment which are pending. The terms of the DoS contract provide that the DoS will indemnify our operating company against third-party liabilities arising out of the contract, subject to available funding. We are also entitled to indemnification by Computer Sciences Corporation in connection with this lawsuit, subject to certain limitations. Additionally, any damage award would have to be apportioned between the other defendants and our operating company. We believe that the likelihood of an unfavorable judgment in this matter is remote; however, estimation of potential damages is not possible as there is potential apportionment of damages to multiple defendants and indemnification available to us from multiple sources, including the DoS and Computer Sciences Corporation.

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

In 2009, we terminated for cause a contract to build the Akwa Ibom International Airport for the State of Akwa Ibom in Nigeria. Consequently, we terminated certain subcontracts and purchase orders the customer advised us it did not want to assume. 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, was challenged in certain instances. In December 2011, the customer filed arbitration alleging fraud, gross negligence, contract violations, and conversion of funds and asserted damages of approximately $150 million. We believe our right to terminate this contract was justified and permissible under the terms of the contract, and we intend to vigorously contest the claims brought against us. Additionally, we believe the contract limits any damages to a maximum of $3 million, except in situations of gross negligence and willful misconduct. We are not able to determine the likely outcome of the arbitration as the specific assertions are uncertain; thus, we cannot estimate a range of potential loss, if any.

U.S. Government Investigations

We primarily sell our services to the U.S. government. These contracts are subject to extensive legal and regulatory requirements, and we are occasionally the subject of investigations by various agencies of the U.S. government who investigate whether our operations are being conducted in accordance with these requirements, including as previously disclosed in our periodic filings, the Special Inspector General for Iraq Reconstruction report regarding certain reimbursements and the U.S. Department of State Office of Inspector General’s records subpoena with respect to Civilian Police (“CivPol”). Such investigations, whether related to our U.S. government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon us, or could lead to suspension or debarment from future U.S. government contracting. U.S. government investigations often take years to complete and many result in adverse action against us. We believe that any adverse actions arising from such matters could have a material effect on our ability to invoice and receive timely payment on our contracts, perform contracts or compete for contracts with the U.S. government and could have a material effect on our operating performance.

As previously disclosed, we identified certain payments made on our behalf by two subcontractors to expedite the issuance of a limited number of visas and licenses from a foreign government’s agencies that may raise compliance issues under the U.S. Foreign Corrupt Practices Act. We retained outside counsel to investigate these payments. In November 2009, we voluntarily brought this matter to the attention of the U.S. Department of Justice and the SEC. We are cooperating with the government’s review of this matter. We are also continuing our evaluation of our internal policies and procedures. Based on the facts currently known, we believe that this matter will not yield a negative outcome and will not have a material effect on our business, financial condition, results of operations or cash flow.

 

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On August 16, 2005, we were served with a Department of Justice Federal Grand Jury Subpoena seeking documents concerning work performed by a former subcontractor, Al Ghabban in 2002-2005. Specifically, during the 2002-2005 timeframe, Al Ghabban performed line haul trucking work to transport materials throughout the Middle Eastern theater on the War Reserve Materials Program. In response to the subpoena in 2005, we provided the requested documents to the Department of Justice, and the matter was subsequently closed in 2005 without any action taken. In April 2009, we received a follow up telephone call concerning this matter from the Department of Justice Civil Litigation Division. Since that time, we have had several discussions with the government regarding the civil matter. In response to requests, we provided additional information to the Department of Justice Civil Litigation Division. We are fully cooperating with the government’s review and believe that the likelihood of an unfavorable judgment resulting from this matter is reasonably possible. If our operations are found to be in violation of any laws or government regulations, we may be subject to penalties, damages or fines, any or all of which could adversely affect our financial results. At this time, an estimate or a range of potential damages is not possible as this matter is still under review by the Department of Justice and no formal complaint has been filed.

On February 24, 2012, we were advised by the Department of Justice Civil Litigation Division that they are conducting an investigation regarding the CivPol and Department of State Advisor Support Mission (“DASM”) contracts in Iraq and Corporate Bank, a former subcontractor. The issues include allowable hours worked under a specific task order and invoices to the DoS for certain hotel leasing, labor rates and overhead within the 2003 to 2008 timeframe. The Department of Justice Civil Litigation Division has requested information from the Company, and we are fully cooperating with the government’s review. If our operations are found to be in violation of any laws or government regulations, we may be subject to penalties, damages or fines, any or all of which could adversely affect our financial results. At this time, an estimate or a range of potential damages is not possible as this matter is still under review by the Department of Justice and no formal complaint has been filed.

U.S. Government Audits

Our contracts are regularly audited by the Defense Contract Audit Agency (“DCAA”), the Defense Contract Management Agency (“DCMA”) and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. The government also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our purchasing, property, estimating and accounting systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed. The DCAA will in some cases issue a Form 1 representing the non-conformance of such costs or requirements as it relates to our government contracts. If the Company is unable to provide sufficient evidence of the costs in question, the costs could be suspended or disallowed which could be material to our financial statements. Government contract payments received by us for direct and indirect costs are subject to adjustment after government audit and repayment to the government if the payments exceed allowable costs as defined in the government regulations. Since we cannot reasonably estimate the results of a DCAA or other government agency audit, these items represent loss contingencies that we consider reasonably possible. Due to the nature of our business, the continual oversight of and audits by governmental agencies and the number of contracts under which we perform, we cannot, at this time, provide a reasonable estimate of the range of loss for these contingencies.

The DCMA formally notified us of non-compliance with Cost Accounting Standard 403, Allocation of Home Office Expenses to Segments, on April 11, 2007. We issued a response to the DCMA on April 26, 2007 with a proposed solution to resolve the area of non-compliance, which related to the allocation of corporate general and administrative costs between our divisions. On August 13, 2007, the DCMA notified us that additional information would be necessary to justify the proposed solution. We issued responses on September 17, 2007, April 28, 2008 and September 10, 2009. In June 2012, we reached a favorable final resolution on this matter resulting in no impact to the Company. The matter is now considered closed.

Over the past year, we have received a series of final audit reports from the DCAA, some of which have resulted in Form 1’s, related to their examination of certain incurred, invoiced and reimbursed costs on our Civilian Police program for periods ranging from April 17, 2004 through April 2, 2010. The Form 1’s identify several cost categories where the DCAA has asserted instances of potential deviations from the explicit terms of the contract or from certain provisions of government regulations. The asserted amounts are derived from extrapolation methodologies used to estimate potential exposure amounts for the cost categories which when aggregated for all final audit reports and Form 1’s total approximately $136.2 million. Although material to our results of operations, cash flows and financial condition, we do not believe the extrapolated amounts are an appropriate basis to determine a range of potential exposure. We have provided responses to the DCAA for each letter, in which we have articulated our position on each issue and have attempted to answer their questions and provide clarification of the facts to resolve the issues raised. We have also sought to obtain clarification from our customer through formal contract modifications in an attempt to assist the DCAA in closing these issues. We believe the majority of these issues will be resolved and thus represent loss contingencies that we consider reasonably possible or remote depending on the cost category. We continue to work with the customer and the DCAA to resolve any remaining questions they may have and provide clarification of the facts and circumstances surrounding the issues.

 

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Credit and Concentration Risks

As a U.S. government contractor we are subject to certain risks not experienced by our commercial counterparts because of the unilateral contract right of the U.S. government to terminate a contract. Funding for our programs is dependent upon annual budget and appropriation decisions, as well as geo-political and macroeconomic conditions, which are beyond our control. Should Congress and the Administration fail to change or delay a pending sequestration of appropriations in fiscal year 2013 imposed by the Budget Control Act of 2011, many U.S. government agencies and departments could see their budgets dramatically reduced across the board in January 2013. While these dynamics could place pressure on DoD and DoS spending, we believe the services we provide will likely receive less pressure than asset centric programs. While we believe it is reasonably possible that we will see a material reduction in the funding available to the programs we support, we are not currently aware of any specific contingencies or changes in management estimates that would be materially impacted by sequestration. The specific contracts to be effected by sequestration, if any, are not known at this time as the U.S. government has not provided such information.

Risk Management Liabilities and Reserves

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

Note 9 — Segment Information

As of December 30, 2011, we had three operating and reportable segments, GSDS, GPSS and GLS, two of which were wholly-owned. The third segment, GLS, is a 51% owned joint venture. In January of 2012, our organizational structure was amended to better align how the Company addresses the markets we serve, respond to changes in our customers’ strategic outlook and better reflect the current economic environment. As part of these changes, we re-aligned our BATs into strategic business “Groups.” Under the new alignment, there are six operating and reportable segments which include LOGCAP, Aviation, Training and Intelligence Solutions, Global Logistics & Development Solutions, Security Services, and GLS. Our Groups will continue to operate principally within a regulatory environment subject to governmental contracting and accounting requirements, including Federal Acquisition Regulations, Cost Accounting Standards and audits by various U.S. federal agencies. We excluded certain costs that are not directly allocable to our reportable segments from the segment results and included these costs in headquarters.

 

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

 

(Amounts in thousands)    Three Months Ended
June 29, 2012
    Three Months Ended
July 1, 2011
    Six Months Ended
June 29, 2012
    Six Months Ended
July 1, 2011
 

Revenue

        

LOGCAP

   $ 417,469      $ 401,920      $ 895,515      $ 781,777   

Aviation

     313,231        269,808        619,646        530,435   

Training & Intelligence Solutions

     132,337        161,645        288,935        314,817   

Global Logistics & Development Solutions

     70,693        73,578        149,835        145,389   

Security Services

     27,422        12,890        51,299        27,340   

GLS

     14,762        98,746        29,752        225,152   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reportable segments

     975,914        1,018,587        2,034,982        2,024,910   

GLS deconsolidation (4)

     (14,762     (98,746     (29,752     (225,152

Headquarters (1)

     (63     (1,117     2,925        3,290   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

   $ 961,089      $ 918,724      $ 2,008,155      $ 1,803,048   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income (5)

        

LOGCAP

   $ 10,024      $ 9,620      $ 26,942      $ 21,394   

Aviation

     28,182        17,774        50,688        30,029   

Training & Intelligence Solutions

     4,186        10,462        9,133        20,702   

Global Logistics & Development Solutions

     6,958        2,684        12,270        6,405   

Security Services

     (1,527     823        (8,159     2,170   

GLS

     1,294        6,304        2,051        15,468   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reportable segments

     49,117        47,667        92,925        96,168   

GLS deconsolidation (4)

     (1,294     (6,304     (2,051     (15,468

Headquarters (2)

     (10,795     (12,982     (23,891     (20,118
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

   $ 37,028      $ 28,381      $ 66,983      $ 60,582   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

        

LOGCAP

   $ 197      $ 203      $ 394      $ 406   

Aviation

     187        174        358        340   

Training & Intelligence Solutions

     12        42        84        84   

Global Logistics & Development Solutions

     32        29        54        40   

Security Services

     —          —          —          —     

GLS

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reportable segments

     428        448        890        870   

GLS deconsolidation (4)

     —          —          —          —     

Headquarters

     12,656        12,826        25,150        25,927   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total depreciation and amortization (3)

   $ 13,084      $ 13,274      $ 26,040      $ 26,797   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Represents revenue earned on shared services arrangements for general and administrative services provided to unconsolidated joint ventures.
(2) Headquarters operating expenses primarily relate to amortization of intangible assets and other costs that are not allocated to segments and are not billable to our U.S. government customers.
(3) Includes amounts included in Cost of services of $0.4 million and $0.8 million for the three and six months ended June 29, 2012, respectively and $0.4 million and $0.8 million for the three and six months ended July 1, 2011, respectively.
(4) We deconsolidated GLS effective July 7, 2010.
(5) Operating income is presented as items below operating income are primarily representative of headquarter expenses. Operating income is more representative of our reporting segment financial information.

 

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

 

     As Of  
(Amounts in thousands)    June 29, 2012     December 30, 2011  

Assets

    

LOGCAP

   $ 753,540      $ 606,703   

Aviation

     494,727        377,823   

Training & Intelligence Solutions

     340,533        324,020   

Global Logistics & Development Solutions

     153,323        157,367   

Security Services

     87,908        72,010   

GLS

     63,146        68,165   
  

 

 

   

 

 

 

Total reportable segments

     1,893,177        1,606,088   

GLS deconsolidation (2)

     (63,146     (68,165

Headquarters (1)

     183,211        476,498   
  

 

 

   

 

 

 

Total assets

   $ 2,013,242      $ 2,014,421   
  

 

 

   

 

 

 

 

(1) Assets primarily include cash, investments in unconsolidated subsidiaries, deferred income taxes, intangible assets (excluding goodwill) and deferred debt issuance cost.
(2) We deconsolidated GLS effective July 7, 2010.

Note 10 — Related Parties, Joint Ventures and Variable Interest Entities

Consulting Fee

The Company has a Master Consulting and Advisory Services agreement (“COAC Agreement”) with Cerberus Operations and Advisory Company, LLC, where pursuant to the terms of the agreement, they make personnel available to us for the purpose of providing reasonably requested business advisory services. The services are priced on a case by case basis depending on the requirements of the project and agreements in pricing. We incurred $0.7 million and $1.3 million in expenses for Cerberus consulting fees during the three and six months ended June 29, 2012, respectively, and $0.7 million and $1.2 million during the three and six months ended July 1, 2011, respectively.

Joint Ventures and Variable Interest Entities

PaTH is a joint venture formed in May 2006 with two other partners for the purpose of procuring government contracts with the Federal Emergency Management Authority.

CRS is a joint venture formed in March 2006 with two other partners for the purpose of procuring government contracts with the U.S. Navy.

The GRS joint venture was formed in August of 2010 with one partner, for the purpose of procuring government contracts with the U.S. Navy. During the year ended December 30, 2011, this joint venture was selected as one of four contractors for an IDIQ multiple award contract.

Mission Readiness is a joint venture formed in September 2010 with three members for the purpose of procuring government contracts with the DoD. Subsequent to formation, a fourth member joined the joint venture. Mission Readiness was pursuing a significant contract for which the potential customer requested a 100% performance guarantee from one of the joint venture members. We agreed to provide this guarantee in exchange for similar guarantees from each of the joint venture members. The fair value of our guarantee to the potential customer was determined to be zero at the inception of the contract, thus the related liability was also determined to be zero. There is no value assigned to the guarantees provided to us from the other joint venture members. During the three months ended June 29, 2012, the Company learned Mission Readiness was unsuccessful in obtaining the contract the joint venture was established to pursue. As a result, the members have agreed to liquidate the joint venture. Our investment in and cost incurred associated with the Missions Readiness joint venture were not material.

GLS is a joint venture formed in August 2006 with one partner, McNeil Technologies, Inc., for the purpose of procuring government contracts with the U.S. Army. We incur significant costs on behalf of GLS related to the normal operations of the venture. However, these costs typically support revenue billable to our customer. GLS is not a guarantor under our Senior Credit Facility or our Senior Unsecured Notes in accordance with the agreement.

Babcock is a joint venture formed in January 2005 and currently provides services to the British Ministry of Defence.

 

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Receivables due from our unconsolidated joint ventures, totaled $1.0 million and $3.9 million as of June 29, 2012 and December 30, 2011, respectively, an operational cash impact of $2.9 million. These receivables are a result of items purchased and services rendered by us on behalf of our unconsolidated joint ventures. We have assessed these receivables as having minimal collection risk based on our historic experience with these joint ventures and our inherent influence through our ownership interest. The related revenue we earned from our unconsolidated joint ventures, totaled $1.8 million and $3.1 million during the three and six months ended June 29, 2012, respectively, and $2.7 million and $6.5 million during the three and six months ended July 1, 2011, respectively. The related cost of services was $1.0 million and $1.8 million during the three and six months ended June 29, 2012, respectively, and $1.1 million and $1.2 million during the three and six months ended July 1, 2011, respectively. Additionally, we earned $0.6 million and $4.1 million in equity method income (includes operationally integral and non-integral income) during the three and six months ended June 29, 2012, respectively, and $3.8 million and $10.6 million during the three and six months ended July 1, 2011.

GLS’ revenue was $14.8 million and $29.8 million during the three and six months ended June 29, 2012, respectively, and $98.7 million and $225.2 million during the three and six months ended July 1, 2011, respectively. GLS’ operating income was $1.3 million and $2.1 million during the three and six months ended June 29, 2012, respectively, and $6.3 million and $15.5 million during the three and six months ended July 1, 2011, respectively. GLS’ net income was $1.3 million and $2.1 million during the three and six months ended June 29, 2012, respectively, and $6.3 million and $15.5 million during the three and six months ended July 1, 2011. As a result of the impairment recorded in September 2011, we no longer recognized any earnings related to GLS, until we receive cash through dividend distributions.

On October 5, 2011, the DCAA issued GLS a Form 1 in the amount of $95.9 million which pertains to potential inconsistencies of certain contractual requirements. As a result of the Form 1, the customer informed GLS it would withhold a portion of outstanding invoices until the Form 1 is resolved.

On February 8, 2012, the DCAA issued GLS a second Form 1 in the amount of $102.0 million, asserting inconsistencies with labor related costs for the fiscal year ended April 3, 2009. The customer has withheld $5.0 million, until this issue is resolved. GLS does not agree with the DCAA’s findings on either of the Form 1s and is currently working with the DCAA and the customer to provide clarification and resolve both matters. If the DCAA Form 1s are not overruled and subsequent appeals are unsuccessful, the decision could have a material effect on GLS’ results of operations. Additionally, in March 2012, GLS received a subpoena from the Inspector General of the U.S. Department of Defense requesting documentation related to its contract with the United States Army. GLS appeared before the Inspector General in April of 2012 with the requested information.

As of December 30, 2011, we owned 50% of DIFZ. On March 15, 2012, we entered into a non-cash dividend distribution transaction with Cerberus Series Four Holdings, LLC and Cerberus Partners II, L.P., in which we distributed half of our 50% ownership in DIFZ. As a result of the distribution we now hold 25% ownership. We recognized the distribution as an increase in noncontrolling interest and a reduction to our Additional-paid-in-capital, given our Accumulated deficit. We continue to consolidate DIFZ as we still exercise power over activities that significantly impact DIFZ’s economic performance and have the obligation to absorb losses or receive benefits of DIFZ that could potentially be significant to DIFZ as we continue to incur significant costs on behalf of DIFZ related to our normal operations. The vast majority of these costs are considered direct contract costs and thus billable on several of our contracts supported by DIFZ services.

We currently hold a promissory note from Palm Trading Investment Corp, which had an aggregate initial value of $9.2 million. The note is included in (i) Prepaid expenses and other current assets and in (ii) Other assets on our unaudited condensed consolidated balance sheet for the short and long-term portions, respectively. The loan balance outstanding was $6.0 million and $6.0 million as of June 29, 2012 and December 30, 2011, respectively, reflecting the initial value plus accrued interest, less payments against the promissory notes. The fair value of the notes receivable is not materially different from its carrying value.

 

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The following tables’ presents selected financial information for DIFZ as of June 29, 2012 and December 30, 2011 and for the three and six months ended June 29, 2012 and July 1, 2011:

 

     As of  
(Amounts in millions)    June 29, 2012      December 30, 2011  

Assets

   $ 48.6       $ 31.2   

Liabilities

     42.1         27.3   

 

(Amounts in millions)    Three Months Ended
June 29, 2012
     Three Months Ended
July 1, 2011
     Six Months Ended
June 29, 2012
     Six Months Ended
July 1, 2011
 

Revenue

   $ 124.9       $ 120.9       $ 249.4       $ 237.2   

We account for our investments in VIE’s in accordance with ASC 810 - Consolidation . In cases where we have (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant or the right to receive benefits from the entity that could potentially be significant to the VIE, we consolidate the entity. Alternatively, in cases where all of the aforementioned criteria are not met, the investment is accounted for under the equity method. As of June 29, 2012, we accounted for PaTH, CRS, Babcock, GRS, Mission Readiness and GLS as equity method investments. Alternatively, we consolidated DIFZ based on the aforementioned criteria. We present our share of the PaTH, CRS, GRS, Mission Readiness and GLS earnings in Earnings from unconsolidated affiliates as these joint ventures are considered operationally integral. Alternatively, we present our share of the Babcock earnings in Other income, net as it is not considered operationally integral.

The following tables presents selected financial information for our equity method investees as of June 29, 2012 and December 30, 2011 and for the three and six months ended June 29, 2012 and July 1, 2011:

 

     As of  
(Amounts in millions)    June 29, 2012      December 30, 2011  

Current assets

   $ 129.0       $ 146.3   

Total assets

     129.1         146.4   

Current liabilities

     69.1         76.6   

Total liabilities

     69.7         77.0   

 

(Amounts in millions)    Three Months Ended
June 29, 2012
     Three Months Ended
July 1, 2011
     Six Months Ended
June 29, 2012
     Six Months Ended
July 1, 2011
 

Revenue

   $ 50.0       $ 137.1       $ 140.8       $ 329.0   

Net income

     2.5         7.8         7.0         19.5   

Many of our VIEs only perform on a single contract. The modification or termination of a contract under a VIE could trigger an impairment in the fair value of our investment in unconsolidated subsidiaries. In the aggregate, our maximum exposure to losses as a result of our investment consists of our (i) $25.1 million investment in unconsolidated subsidiaries, (ii) $1.0 million in receivables from our unconsolidated joint ventures, (iii) $6.0 million note receivable from Palm Trading Investment Corp. (“Palm”) and (iv) contingent liabilities that were neither probable nor reasonably estimable as of June 29, 2012.

Note 11 — Collaborative Arrangements

We participate in a collaborative arrangement with CH2M Hill on the LOGCAP IV program. During 2008, we executed a subcontract and teaming agreement with CH2M Hill with respect to operations on the LOGCAP IV program, which is considered a collaborative arrangement under GAAP. The purpose of this arrangement is to share some of the risks and rewards associated with this U.S. government contract. Our current share of profits of the LOGCAP IV program is 70%.

We account for this collaborative arrangement under ASC 808 — Collaborative Arrangements and record revenue gross as the principal participant. The cash inflows and outflows, as well as expenses incurred, are recorded in Cost of services in the period realized. Revenue on LOGCAP IV was $417.5 million and $895.5 million during the three and six months ended June 29, 2012, respectively, and $401.3 million and $780.6 million during the three and six months ended July 1, 2011, respectively. Cost of services on LOGCAP IV program was $389.9 million and $836.8 million during the three and six months

 

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ended June 29, 2012, respectively, and $377.5 million and $732.4 million during the three and six months ended July 1, 2011, respectively. Our share of the total LOGCAP IV profits was $14.9 million and $31.8 million during the three and six months ended June 29, 2012, respectively, and $9.7 million and $21.5 million during the three and six months ended July 1, 2011, respectively.

In June 2012, we executed a collaborative arrangement with Logix USA Corporation on the Egypt Personnel Support Services (“EPSS”) program. The purpose of the arrangement is to share risks and rewards associated with the U.S. government contract. Our share of profits will be 85%, and as the principal participant, we will record the revenue and expenses gross in Cost of services in the period realized. Revenue on the EPSS program was $2.8 million during the three months ended June 29, 2012. Cost of services on the EPSS program was $2.4 million during the three months ended June 29, 2012. Our share of the total EPSS program profits was $0.3 million during the three months ended June 29, 2012.

Note 12 — Consolidating Financial Statements of Subsidiary Guarantors

The Senior Unsecured Notes issued by DynCorp International Inc. (“Subsidiary Issuer”) and the Senior Credit Facility are fully and unconditionally guaranteed, jointly and severally, by the Company (“Parent”) and all of the domestic subsidiaries of Subsidiary Issuer: DynCorp International LLC, DTS Aviation Services LLC, DynCorp Aerospace Operations LLC, DynCorp International Services LLC, DIV Capital Corporation, Dyn Marine Services of Virginia LLC, Services International LLC, Worldwide Humanitarian Services LLC, Worldwide Recruiting and Staffing Services LLC, Phoenix Consulting Group LLC and Casals & Associates Inc. (“Subsidiary Guarantors”). Each of the Subsidiary Issuers and the Subsidiary Guarantors is 100% owned by the Company.

The following condensed consolidating financial statements present (i) the unaudited condensed consolidating statements of operations for the three and six months ended June 29, 2012 and July 1, 2011, (ii) the unaudited condensed consolidating balance sheets as of June 29, 2012 and December 30, 2011, (iii) the unaudited condensed consolidating statements of cash flows for the six months ended June 29, 2012 and July 1, 2011 and (iv) elimination entries necessary to consolidate Parent and its subsidiaries.

The Parent company, the Subsidiary Issuer, the combined Subsidiary Guarantors and the combined subsidiary non-guarantors account for their investments in subsidiaries using the equity method of accounting; therefore, the Parent column reflects the equity income of the subsidiary and its subsidiary guarantors, and subsidiary non-guarantors. Additionally, the Subsidiary Guarantors’ column reflects the equity income of its subsidiary non-guarantors.

DynCorp International, Inc. is considered the Subsidiary Issuer as it issued the Senior Unsecured Notes.

 

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Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Operations Information

For the Three Months Ended June 29, 2012

 

(Amounts in thousands)    Parent      Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Consolidated  

Revenue

   $ —         $ —        $ 967,146      $ 132,362      $ (138,419   $ 961,089   

Cost of services

     —           —          (882,023     (126,429     135,361        (873,091

Selling, general and administrative expenses

     —           —          (38,213     (3,169     3,058        (38,324

Depreciation and amortization expense

     —           —          (12,508     (151     —          (12,659

Earnings from equity method investees

     —           —          13        —          —          13   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —           —          34,415        2,613        —          37,028   

Interest expense

     —           (20,302     (1,434     —          —          (21,736

Loss on early extinguishment of debt

     —           (783     —          —          —          (783

Equity in income of consolidated subsidiaries, net of tax

     8,991         22,863        1,213        —          (33,067     —     

Other income (loss), net

     —           —          1,292        69        —          1,361   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     8,991         1,778        35,486        2,682        (33,067     15,870   

Benefit (provision) for income taxes

     —           7,213        (12,623     (145     —          (5,555
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     8,991         8,991        22,863        2,537        (33,067     10,315   

Noncontrolling interests

     —           —          —          (1,324     —          (1,324
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Delta Tucker Holdings, Inc.

   $ 8,991       $ 8,991      $ 22,863      $ 1,213      $ (33,067   $ 8,991   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Operations Information

For the Three Months Ended July 1, 2011

 

(Amounts in thousands)    Parent      Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Consolidated  

Revenue

   $ —         $ —        $ 916,698      $ 133,416      $ (131,390   $ 918,724   

Cost of services

     —           —          (848,932     (127,993     128,049        (848,876

Selling, general and administrative expenses

     —           —          (31,810     (3,365     3,341        (31,834

Depreciation and amortization expense

     —           —          (12,684     (159     —          (12,843

Earnings from equity method investees

     —           —          3,210        —          —          3,210   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —           —          26,482        1,899        —          28,381   

Interest expense

     —           (23,102     (93     —          —          (23,195

Loss on early extinguishment of debt

     —           —          —          —          —          —     

Equity in income of consolidated subsidiaries, net of tax

     3,326         17,493        982        —          (21,801     —     

Other income (loss), net

     —           —          1,352        (29     —          1,323   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     3,326         (5,609     28,723        1,870        (21,801     6,509   

Benefit (provision) for income taxes

     —           8,935        (11,230     (221     —          (2,516
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     3,326         3,326        17,493        1,649        (21,801     3,993   

Noncontrolling interests

     —           —          —          (667     —          (667
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Delta Tucker Holdings, Inc.

   $ 3,326       $ 3,326      $ 17,493      $ 982      $ (21,801   $ 3,326   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Operations Information

For the Six Months Ended June 29, 2012

 

(Amounts in thousands)    Parent      Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Consolidated  

Revenue

   $ —         $ —        $ 2,018,878      $ 263,926      $ (274,649   $ 2,008,155   

Cost of services

     —           —          (1,855,968     (252,392     268,659        (1,839,701

Selling, general and administrative expenses

     —           —          (76,194     (6,271     5,990        (76,475

Depreciation and amortization expense

     —           —          (24,916     (303     —          (25,219

Earnings from equity method investees

     —           —          223        —          —          223   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —           —          62,023        4,960        —          66,983   

Interest expense

     —           (40,608     (2,819     —          —          (43,427

Loss on early extinguishment of debt

     —           (783     —          —          —          (783

Equity in income of consolidated subsidiaries, net of tax

     14,566         40,402        2,033        —          (57,001     —     

Other income (loss), net

     —           —          4,756        17        —          4,773   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     14,566         (989     65,993        4,977        (57,001     27,546   

Benefit (provision) for income taxes

     —           15,555        (25,591     (315     —          (10,351
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     14,566         14,566        40,402        4,662        (57,001     17,195   

Noncontrolling interests

     —           —          —          (2,629     —          (2,629
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Delta Tucker Holdings, Inc.

   $ 14,566       $ 14,566      $ 40,402      $ 2,033      $ (57,001   $ 14,566   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Operations Information

For the Six Months Ended July 1, 2011

 

(Amounts in thousands)    Parent      Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Consolidated  

Revenue

   $ —         $ —        $ 1,806,465      $ 259,236      $ (262,653   $ 1,803,048   

Cost of services

     —           —          (1,663,096     (248,393     256,422        (1,655,067

Selling, general and administrative expenses

     —           —          (69,097     (6,495     6,231        (69,361

Depreciation and amortization expense

     —           —          (25,654     (320     —          (25,974

Earnings from equity method investees

     —           —          7,936        —          —          7,936   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —           —          56,554        4,028        —          60,582   

Interest expense

     —           (46,555     (146     —          —          (46,701

Loss on early extinguishment of debt

     —           (2,397     —          —          —          (2,397

Equity in income of consolidated subsidiaries, net of tax

     8,234         38,229        2,066        —          (48,529     —     

Other income (loss), net

     —           —          4,278        (32     —          4,246   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     8,234         (10,723     62,752        3,996        (48,529     15,730   

Benefit (provision) for income taxes

     —           18,957        (24,523     (525     —          (6,091
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     8,234         8,234        38,229        3,471        (48,529     9,639   

Noncontrolling interests

     —           —          —          (1,405     —          (1,405
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Delta Tucker Holdings, Inc.

   $ 8,234       $ 8,234      $ 38,229      $ 2,066      $ (48,529   $ 8,234   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Comprehensive Income Information

For the Three Months Ended June 29, 2012

 

(Amounts in thousands)    Parent     Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Consolidated  

Net income

   $ 8,991      $ 8,991      $ 22,863      $ 2,537      $ (33,067   $ 10,315   

Other comprehensive income:

            

Currency translation adjustment

     (345     (345     (150     (195     690        (345
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     (345     (345     (150     (195     690        (345

Income tax expense related to items of other comprehensive income

     113        113        55        58        (226     113   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (232     (232     (95     (137     464        (232
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     8,759        8,759        22,768        2,400        (32,603     10,083   

Noncontrolling interests

     —          —          —          (1,324     —          (1,324
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Delta Tucker Holdings, Inc.

   $ 8,759      $ 8,759      $ 22,768      $ 1,076      $ (32,603   $ 8,759   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Comprehensive Income Information

For the Three Months Ended July 1, 2011

 

(Amounts in thousands)    Parent     Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  

Net income

   $ 3,326      $ 3,326      $ 17,493      $ 1,649      $ (21,801   $ 3,993   

Other comprehensive income:

            

Currency translation adjustment

     (105     (105     (190     85        210        (105
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     (105     (105     (190     85        210        (105

Income tax expense related to items of other comprehensive income

     (40     (40     (72     32        80        (40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (145     (145     (262     117        290        (145
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     3,181        3,181        17,231        1,766        (21,511     3,848   

Noncontrolling interests

     —          —          —          (667     —          (667
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Delta Tucker Holdings, Inc.

   $ 3,181      $ 3,181      $ 17,231      $ 1,099      $ (21,511   $ 3,181   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Comprehensive Income Information

For the Six Months Ended June 29, 2012

 

(Amounts in thousands)    Parent     Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-
Guarantors
    Eliminations     Consolidated  

Net income

   $ 14,566      $ 14,566      $ 40,402      $ 4,662      $ (57,001   $ 17,195   

Other comprehensive income:

            

Currency translation adjustment

     (149     (149     (27     (122     298        (149
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     (149     (149     (27     (122     298        (149

Income tax expense related to items of other comprehensive income

     52        52        10        42        (104     52   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (97     (97     (17     (80     194        (97
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     14,469        14,469        40,385        4,582        (56,807     17,098   

Noncontrolling interests

     —          —          —          (2,629     —          (2,629
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Delta Tucker Holdings, Inc.

   $ 14,469      $ 14,469      $ 40,385      $ 1,953      $ (56,807   $ 14,469   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Statement of Comprehensive Income Information

For the Six Months Ended July 1, 2011

 

(Amounts in thousands)    Parent     Subsidiary
Issuer
    Subsidiary
Guarantors
    Subsidiary
Non-Guarantors
    Eliminations     Consolidated  

Net income

   $ 8,234      $ 8,234      $ 38,229      $ 3,471      $ (48,529   $ 9,639   

Other comprehensive income:

            

Currency translation adjustment

     (296     (296     (74     370        592        296   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     (296     (296     (74     370        592        296   

Income tax expense related to items of other comprehensive income

     (165     (165     41        (206     330        (165
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (461     (461     (33     164        922        131   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     7,773        7,773        38,196        3,635        (47,607     9,770   

Noncontrolling interests

     —          —          —          (1,405     —          (1,405
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Delta Tucker Holdings, Inc.

   $ 7,773      $ 7,773      $ 38,196      $ 2,230      $ (47,607   $ 8,365   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

Delta Tucker Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidating Balance Sheet Information

June 29, 2012

 

(Amounts in thousands)    Parent      Subsidiary
Issuer
     Subsidiary
Guarantors
     Subsidiary
Non-
Guarantors
     Eliminations     Consolidated  
     ASSETS   

Current assets:

                

Cash and cash equivalents

   $ —         $ —         $ 33,679       $ 43,902       $ —        $ 77,581   

Restricted cash

     —           —           1,659         —           —          1,659   

Accounts receivable, net

     —           —           796,594         3,590         7,877        808,061   

Intercompany receivables

     —           —           190,619         8,210         (198,829     —     

Prepaid expenses and other current assets

     —           —           63,410         1,665         1,318        66,393   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     —           —           1,085,961         57,367         (189,634     953,694   

Property and equipment, net

     —           —           21,634         790         —          22,424   

Goodwill

     —           —           613,204         32,399         —          645,603   

Tradenames, net

     —           —           43,571         —           —          43,571   

Other intangibles, net

     —           —           287,643         1,739         —          289,382   

Investment in subsidiaries

     510,063         1,478,710         34,401            (2,023,174     —     

Other assets, net

     3,170         28,086         27,367         —           (55     58,568   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 513,233       $ 1,506,796       $ 2,113,781       $ 92,295       $ (2,212,863   $ 2,013,242   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     LIABILITIES & EQUITY   

Current liabilities:

                

Current portion of long-term debt

   $ —         $ —         $ 637       $ —         $ —        $ 637   

Accounts payable

     —           —           281,778         1,655         (1,373     282,060   

Accrued payroll and employee costs

     —           —           94,183         43,823         (10     137,996   

Intercompany payables

     48,255         130,433         8,210         11,931         (198,829  

Deferred income taxes

     —           —           67,571         48         —          67,619   

Accrued liabilities

     —           24,028         117,108         369         10,523        152,028   

Income taxes payable

     —           —           1,803         68         —          1,871   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     48,255         154,461         571,290         57,894         (189,689     642,211   

Long-term debt, less current portion

     —           842,272         —           —           —          842,272