DynCorp International Inc.
Delta Tucker Holdings, Inc. (Form: 10-Q, Received: 05/09/2016 17:31:51)




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File Number: 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.)
1700 Old Meadow Road, McLean, Virginia 22102
(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   o      No   þ
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    þ      No    o
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
o
Accelerated filer
o
Non-accelerated filer
þ   (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes    o      No    þ
As of May 9, 2016 , the registrant had 100 shares of its Class A common stock outstanding.






Delta Tucker Holdings, Inc.
Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 

2




Disclosure Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains various 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:
our substantial level of indebtedness, our ability to refinance or amend the terms of that indebtedness, and changes in availability of capital and cost of capital;
our ability to successfully implement the Refinancing Transactions (as defined herein), including the Exchange Offer (as defined herein) and the Consent Solicitation (as defined herein);
the ability to refinance, amend or generate sufficient cash to repay our Senior Credit Facility, consisting of our Term Loan (as defined herein) and Revolver (as defined herein), maturing on July 7, 2016 , through the effectiveness of the New Senior Credit Facility (as defined herein as part of the Refinancing Transactions) or otherwise, or to refinance, amend or repay our other indebtedness, including any future indebtedness, which may force us to take other actions to satisfy our obligations under our indebtedness, which may not be successful;
the future impact of mergers, acquisitions, divestitures, joint ventures or teaming agreements;
the outcome of any material litigation, government investigation, audit or other regulatory matters;
restatement of our financial statements causing credit ratings to be downgraded or covenant violations under our debt agreements;
policy and/or spending changes implemented by the Obama Administration, any subsequent administration or Congress, including any further changes to the sequestration that the United States ("U.S.") Department of Defense ("DoD") is currently operating under;
termination or modification of key 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 Bureau for International Narcotics and Law Enforcement Affairs, Office of Aviation ("INL Air Wing"), Contract Field Teams ("CFT") and Logistics Civil Augmentation Program ("LOGCAP IV") contracts;
the outcome of recompetes on existing programs, including but not limited to any upcoming recompetes on the INL Air Wing or War Reserve Materiel programs;
changes in the demand for services provided by our joint venture partners;
changes due to 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, including cyber security threats;
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 and indefinite quantity contracts ("IQC");
the timing or magnitude of any award, performance or incentive fee granted under our government contracts;
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;
decline in the estimated fair value of a reporting unit resulting in a goodwill impairment and a related non-cash impairment charged against earnings;
changes in underlying assumptions, circumstances or estimates that may have a material adverse effect upon the profitability of one or more contracts and our performance;
changes in our tax provisions or exposure to additional income tax liabilities that could affect our profitability and cash flows;
uncertainty created by management turnover;
termination or modification of key subcontractor performance or delivery;
the ability to receive timely payments from prime contractors where we act as a subcontractor; and
statements covering our business strategy, those described in "Item 1A. Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission ("SEC") on March 30, 2016 and other risks detailed from time to time in our reports filed with SEC.

3




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 statements contained herein will prove to be accurate. We assume no obligation to update the forward-looking statements.

4




Calendar Year
We report the results of our operations using a basis where each quarterly period ends on the last Friday of the calendar quarter, except for the fourth quarter of the fiscal year, which ends on December 31. Included in this Quarterly Report are our unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 25, 2016 and March 27, 2015 , the related statements of deficit and cash flows for the three months ended March 25, 2016 and March 27, 2015 and the unaudited condensed consolidated balance sheets as of March 25, 2016 and December 31, 2015 .

5




PART I. FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS.

Delta Tucker Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations
 
Three Months Ended
(Amounts in thousands)
March 25, 2016
 
March 27, 2015
Revenue
$
419,990

 
$
467,022

Cost of services
(372,498
)
 
(424,158
)
Selling, general and administrative expenses
(34,090
)
 
(31,223
)
Depreciation and amortization expense
(8,291
)
 
(7,259
)
Earnings from equity method investees
367

 
68

Operating income
5,478

 
4,450

Interest expense
(15,968
)
 
(16,055
)
Interest income
60

 
17

Other income, net
352

 
994

Loss before income taxes
(10,078
)
 
(10,594
)
Provision for income taxes
(4,494
)
 
(3,809
)
Net loss
(14,572
)
 
(14,403
)
Noncontrolling interests
(187
)
 
(431
)
Net loss attributable to Delta Tucker Holdings, Inc.
$
(14,759
)
 
$
(14,834
)
See notes to unaudited condensed consolidated financial statements

6




Delta Tucker Holdings, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Loss

 
Three Months Ended
(Amounts in thousands)
March 25, 2016
 
March 27, 2015
Net loss
$
(14,572
)
 
$
(14,403
)
Other comprehensive loss, net of tax:
 
 
 
Foreign currency translation adjustment
3

 
(113
)
Other comprehensive income (loss), before tax
3

 
(113
)
Income tax (expense) benefit related to items of other comprehensive loss
(1
)
 
40

Other comprehensive income (loss)
2

 
(73
)
Comprehensive loss
(14,570
)
 
(14,476
)
Comprehensive loss attributable to noncontrolling interests
(187
)
 
(431
)
Comprehensive loss attributable to Delta Tucker Holdings, Inc.
$
(14,757
)
 
$
(14,907
)

See notes to unaudited condensed consolidated financial statements

7




Delta Tucker Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheets
 
As Of
(Amounts in thousands, except share data)
March 25, 2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
74,787

 
$
108,782

Restricted cash
721

 
721

Accounts receivable, net of allowances of $16,364 and $16,283 respectively
381,632

 
386,097

Prepaid expenses and other current assets
50,973

 
55,683

Assets held for sale
6,155

 
7,913

Total current assets
514,268

 
559,196

Property and equipment, net
15,688

 
15,694

Goodwill
42,093

 
42,093

Tradenames, net
28,536

 
28,536

Other intangibles, net
107,211

 
113,479

Long-term deferred taxes

 
13,364

Other assets, net
15,756

 
12,327

Total assets
$
723,552

 
$
784,689

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
185,948

 
$
184,866

Accounts payable
87,475

 
90,610

Accrued payroll and employee costs
97,572

 
100,681

Deferred income taxes

 
27,334

Accrued liabilities
83,765

 
114,718

Liabilities held for sale
426

 
784

Income taxes payable
10,042

 
8,130

Total current liabilities
465,228

 
527,123

Long-term debt
452,605

 
452,165

Long-term deferred taxes
16,495

 

Other long-term liabilities
12,351

 
13,571

Total liabilities
946,679

 
992,859

DEFICIT
 
 
 
Common stock, $0.01 par value – 1,000 shares authorized and 100 shares issued and outstanding at March 25, 2016 and December 31, 2015, respectively

 

Additional paid-in capital
554,598

 
554,379

Accumulated deficit
(782,740
)
 
(767,981
)
Accumulated other comprehensive loss
(358
)
 
(360
)
Total deficit attributable to Delta Tucker Holdings, Inc.
(228,500
)
 
(213,962
)
Noncontrolling interests
5,373

 
5,792

Total deficit
(223,127
)
 
(208,170
)
Total liabilities and deficit
$
723,552

 
$
784,689

See notes to unaudited condensed consolidated financial statements

8




Delta Tucker Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
 
Three Months Ended
(Amounts in thousands)
March 25, 2016
 
March 27, 2015
Cash flows from operating activities
 
 
 
Net loss
$
(14,572
)
 
$
(14,403
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
8,516

 
7,798

Amortization of deferred loan costs
1,522

 
1,540

Earnings from equity method investees
(367
)
 
(517
)
Deferred income taxes
2,525

 
2,140

Share based compensation
17

 
193

Other
125

 
(1,049
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
4,341

 
(18,952
)
Prepaid expenses and other current assets
4,608

 
3,737

Accounts payable and accrued liabilities
(39,313
)
 
(13,032
)
Income taxes payable
2,055

 
(1,018
)
Net cash used in operating activities
(30,543
)
 
(33,563
)
Cash flows from investing activities
 
 
 
Purchase of property and equipment
(812
)
 
(173
)
Purchase of software
(1,261
)
 
(417
)
Return of capital from equity method investees

 
1,822

Contributions to equity method investees
(1,225
)
 
(500
)
Net cash (used in) provided by investing activities
(3,298
)
 
732

Cash flows from financing activities
 
 
 
Borrowings on indebtedness

 
34,900

Payments on indebtedness

 
(34,900
)
Payments under other financing arrangements

 
(1,023
)
Equity contribution from affiliates of Cerberus
250

 

Payment of dividends to noncontrolling interests
(404
)
 
(303
)
Net cash used in financing activities
(154
)
 
(1,326
)
Net decrease in cash and cash equivalents
(33,995
)
 
(34,157
)
Cash and cash equivalents, beginning of period
108,782

 
94,004

Cash and cash equivalents, end of period
$
74,787

 
$
59,847

 
 
 
 
Income tax (refund received) paid, net
$
(3
)
 
$
3,022

Interest paid
$
26,916

 
$
24,202

See notes to unaudited condensed consolidated financial statements

9




Delta Tucker Holdings, Inc.
Unaudited Condensed Consolidated Statements of Deficit
(Amounts in thousands)
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Loss
 
Total Deficit Attributable to Delta Tucker Holdings, Inc.
 
Noncontrolling
Interest
 
Total
Deficit
Balance at December 31, 2014

 
$

 
$
552,894

 
$
(635,379
)
 
$
(281
)
 
$
(82,766
)
 
$
5,489

 
$
(77,277
)
Share based compensation, net

 

 
171

 

 

 
171

 

 
171

Comprehensive loss attributable to Delta Tucker Holdings, Inc.

 

 

 
(14,834
)
 
(73
)
 
(14,907
)
 
431

 
(14,476
)
DIFZ financing, net of tax

 

 
(77
)
 

 

 
(77
)
 

 
(77
)
Dividends declared to noncontrolling interests

 

 

 

 

 

 
(303
)
 
(303
)
Balance at March 27, 2015

 
$

 
$
552,988

 
$
(650,213
)
 
$
(354
)
 
$
(97,579
)
 
$
5,617

 
$
(91,962
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Amounts in thousands)
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Loss
 
Total Deficit Attributable to Delta Tucker Holdings, Inc.
 
Noncontrolling
Interest
 
Total Deficit
Balance at December 31, 2015

 
$

 
$
554,379

 
$
(767,981
)
 
$
(360
)
 
$
(213,962
)
 
$
5,792

 
$
(208,170
)
Share based compensation, net

 

 
9

 

 

 
9

 

 
9

Comprehensive loss attributable to Delta Tucker Holdings, Inc.

 

 

 
(14,759
)
 
2

 
(14,757
)
 
187

 
(14,570
)
Capital contribution

 

 
250

 

 

 
250

 

 
250

DIFZ financing, net of tax

 

 
(40
)
 

 

 
(40
)
 

 
(40
)
Dividends declared to noncontrolling interests

 

 

 

 

 

 
(606
)
 
(606
)
Balance at March 25, 2016

 
$

 
$
554,598

 
$
(782,740
)
 
$
(358
)
 
$
(228,500
)
 
$
5,373

 
$
(223,127
)
See notes to unaudited condensed consolidated financial statements

10




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. Our customers include the U.S. Department of Defense ("DoD"), the U.S. Department of State ("DoS"), the U.S. Agency for International Development ("USAID"), foreign governments, commercial customers and certain other U.S. federal, state and local government departments and agencies. 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 unaudited condensed consolidated financial statements have been prepared 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 and do not make the information presented 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 Annual Report on Form 10-K for the year ended December 31, 2015 .
In the opinion of management, normal recurring adjustments necessary to fairly present our financial position as of March 25, 2016 and December 31, 2015 , the results of operations and statements of comprehensive loss for the three months ended March 25, 2016 and March 27, 2015 and the statements of deficit and cash flows for the three months ended March 25, 2016 and March 27, 2015 have been included. The results of operations and statements of comprehensive loss for the three months ended March 25, 2016 and March 27, 2015 and the statements of deficit and cash flows for the three months ended March 25, 2016 and March 27, 2015 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. Our actual results may differ from these estimates.
As described below and further in Note 7, our Senior Credit Facility matures on July 7, 2016. We are addressing our upcoming maturity under the Senior Credit Facility through the refinancing actions discussed below. However, there can be no assurances that we will be able to complete these transactions. For example, if a "Material Adverse Effect", as defined in Amendment No. 5 (as defined below), were to occur prior to closing the Refinancing Transactions, such as if we did not win the recompete on the INL Air Wing contract and such failure to win the recompete were to result in a "Material Adverse Effect" under Amendment No. 5, then the Company’s lenders may not be required to fund the New Senior Credit Facility (as defined below). If the lenders did not fund the New Senior Credit Facility, we would not be able to close the refinancing transactions. If we are unable to complete these transactions or otherwise refinance the Senior Credit Facility prior to its scheduled maturity date or prior to an event which could result in an acceleration of the maturity date (such as the expiration of the New Senior Credit Facility Waiver (as defined below)), then the failure to pay all amounts due under the Senior Credit Facility at maturity or upon acceleration would be an event of default under the Senior Credit Facility. This potential outcome results in significant doubt in the Company’s ability to continue as a going concern. Such an event of default to pay principal due at scheduled maturity under or upon acceleration of the Senior Credit Facility would also cause an event of default under our Senior Unsecured Notes (as defined below). The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty.
Recent Developments / Refinancing Actions
As further described in Note 7, on April 30, 2016 , the Company entered into a support agreement (the “Support Agreement”) with holders of approximately 69% of our Senior Unsecured Notes (as defined herein). The Support Agreement was entered into in connection with the Company’s (1) offer to exchange (the “Exchange Offer”) any and all of its outstanding $455,000,000 principal amount of our Senior Unsecured Notes for $45,000,000 cash and up to $410,000,000 principal amount of newly issued 11.875% Senior Secured Second Lien Notes due 2020 of DynCorp International Inc. (the “New Notes”) and (2) related solicitation (the “Consent Solicitation”) of consents from holders of Senior Unsecured Notes to the proposed amendments to the indenture governing the Senior Unsecured Notes.

11




On May 2, 2016 , DynCorp International Inc. commenced the Exchange Offer and Consent Solicitation. The Exchange Offer and related Consent Solicitation are elements of a comprehensive refinancing of our outstanding secured and unsecured indebtedness to extend existing maturities (the “Refinancing Transactions”). If the Exchange Offer is consummated, interest on the New Notes will accrue at the rate of 11.875% per annum, comprised of 10.375% per annum in cash and 1.500% per annum payable in kind (“PIK”). In the Exchange Offer and Consent Solicitation, the Early Delivery Time (for receipt of the “Total Offer Consideration” as described in the Offering Memorandum and Consent Solicitation Statement, dated as of May 2, 2016 (the “Offering Memorandum”)), is 5:00 p.m., New York City time, on the later of (1) the fifth business day following the date that Holdings files its Quarterly Report on Form 10-Q for the period ended March 25, 2016 and (2) May 13, 2016 . Since we filed this Quarterly Report on Form 10-Q on May 9, 2016 , the Early Delivery Time is 5:00 p.m., New York City time, on May 16, 2016 . The Expiration Time for receiving the Exchange Offer Consideration (as described in the Offering Memorandum) is 5:00 p.m., New York City time, on June 10, 2016 . The Early Delivery Time and Expiration Time and other terms and conditions of the Exchange Offer and Consent Solicitation are subject to extension or amendment pursuant to the terms and conditions of the Offering Memorandum, the Support Agreement and applicable law.
As part of the Refinancing Transactions, on April 30, 2016 , the Company entered into Amendment No. 5 and Waiver (“Amendment No. 5”) to our Senior Credit Facility. The independent registered public accounting firm that audited our financial statements for the year ended December 31, 2015 included an explanatory paragraph in its audit report regarding our ability to continue as a going concern. Pursuant to Amendment No. 5, required lenders under the Senior Credit Facility agreed to waive the Company’s requirement to comply with the covenant that the Company’s annual financial statements include a report from its independent registered public accounting firm without a qualification as to the Company’s ability to continue as a going concern until the earlier of the effectiveness of the New Senior Credit Facility (at which time the waiver of this requirement for the fiscal year ended December 31, 2015 would become permanent) and June 30, 2016 (the “Senior Credit Facility Waiver”). During the effectiveness of the Senior Credit Facility Waiver, unless the effectiveness of the New Senior Credit Facility has occurred, the aggregate amount of outstanding revolving loans and letters of credit may not exceed 50% of the aggregate revolving credit commitments under the Senior Credit Facility. In addition, during the waiver period, any proceeds of revolving loans may only be used for working capital purposes and in the ordinary course of business for other general corporate purposes. The Company may not use the proceeds of revolving loans for dividends, prepayments of any junior debt or acquisition financing.
Upon the satisfaction of certain conditions, including consummation of the Exchange Offer and the other Refinancing Transactions, the New Senior Credit Facility shall become effective, and the Senior Credit Facility Waiver will become permanent. Pursuant to the terms of the New Senior Credit Facility, among other things, the maturity of certain of the revolving credit commitments shall be extended into the Extended Revolving Credit Facility and certain lenders will provide the New Term Loan Facility, the proceeds of which will be used to repay the existing term loans under the Senior Credit Facility in full. Upon the effectiveness of Amendment No. 5, the credit facilities under the New Senior Credit Facility will consist of (collectively, the “New Senior Credit Facility”):
a $207.3 million New Term Loan Facility (the “New Term Loan Facility”);
a $24.8 million class A revolving facility, with commitments to terminate on July 7, 2016 , as more fully described in Note 7;
a $107.3 million class B revolving facility, provided that each revolving lender’s class B revolving facility commitment shall be reduced by 20% on June 24, 2016 (or if the effective date of the New Senior Credit Facility occurs after June 24, 2016 , on the effective date of the New Senior Credit Facility), unless such lender declines such reduction (the “Extended Revolving Credit Facility”); and
up to $15.0 million in incremental revolving facilities provided by and at the discretion of certain non-debt fund affiliates that are controlled by Cerberus Capital Management, L.P. ("Cerberus"), which shall rank pari passu with, and be on the same terms as, the class B revolving facility.
In addition, on April 30, 2016 , DynCorp Funding LLC, a limited liability company managed by Cerberus, delivered to us a commitment letter (the “Cerberus Investment Commitment Letter”) to provide $30 million (the “Cerberus Investment”) of third-lien secured loans (the “Cerberus 3L Notes”) upon satisfaction of certain conditions, including consummation of the Exchange Offer. The consummation of each of the elements of the Refinancing Transactions is a condition to the Exchange Offer and vice versa. In addition, the Exchange Offer is conditioned upon, among other things, the valid tender and acceptance by DynCorp International Inc. of at least $409.5 million (or 90% ) (the “Minimum Condition”) aggregate principal amount of Senior Unsecured Notes in the Exchange Offer. See Note 7 for a description of certain other terms of the Senior Credit Facility Waiver, New Term Loan Facility, Extended Revolving Credit Facility and Cerberus 3L Notes.
Principles of Consolidation
The unaudited condensed 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

12




Standards Board ("FASB") Accounting Standards Codification ("ASC") 810 — Consolidation . In cases where the Company has (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant or the right to receive benefits from the entity that could potentially be significant to the VIE, the Company consolidates the entity. Alternatively, in cases where all of the aforementioned criteria are not met, the investment is accounted for under the equity method.
The Company classifies its equity method investees in two distinct groups based on management’s day-to-day involvement in the operations of each entity and the nature of each joint venture’s business. If the joint venture is deemed to be an extension of one of our segments and operationally integral to the business, our share of the joint venture’s earnings is reported within operating loss in Earnings from equity method investees in the consolidated statement of operations. If the Company considers our involvement less significant, the share of the joint venture’s net earnings is reported in Other income, net in the consolidated statement of operations.
Noncontrolling Interests
We record the impact of our partners' interests in less than wholly owned consolidated joint ventures as noncontrolling interests. Currently, DynCorp International FZ-LLC ("DIFZ") is our only consolidated joint venture for which we do not own 100% of the entity. We 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 interests is presented on the face of the statements of operations as an increase or reduction in arriving at "Net loss attributable to Delta Tucker Holdings, Inc." Noncontrolling interests is located in the equity section on the consolidated balance sheets. See Note 10 for further discussion regarding DIFZ.
Use of Estimates
The preparation of the financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the consolidated statements of operations in the period that they are determined. Changes in contract estimates related to certain types of contracts accounted for using the percentage of completion method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes. Changes in these estimates can occur over the life of a contract for a variety of reasons, including changes in scope, estimated incentive or award fees, cost estimates, level of effort and/or other assumptions impacting revenue or cost to perform a contract. The gross favorable and unfavorable adjustments below reflect these changes in contract estimates during each reporting period, excluding new or completed contracts where no comparative estimates exist between reporting periods.
The following table presents the aggregate gross favorable and unfavorable adjustments to income before taxes resulting from changes in contract estimates for the three months ended March 25, 2016 and March 27, 2015 .
 
Three Months Ended
(Amounts in millions)
March 25, 2016
 
March 27, 2015
Gross favorable adjustments
$
6.7

 
$
3.2

Gross unfavorable adjustments
(2.0
)
 
(5.8
)
Net adjustments
$
4.7

 
$
(2.6
)
Accounting Policies
In January 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and may be applied either prospectively or retrospectively to all prior periods presented in the financial statements. We prospectively adopted ASU No. 2015-01 during the quarter ended March 25, 2016 . The adoption of this guidance did not have a material impact on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 changes the consolidation guidance to address concerns of stakeholders that current accounting for certain legal entities might require a reporting entity to consolidate another legal entity in situations in which the reporting entity’s contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entity’s voting rights, or the reporting entity is not exposed to a majority of the legal entity’s economic benefits or obligations. ASU 2015-02 will be effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We adopted

13




ASU No. 2015-02 during the quarter ended March 25, 2016 . The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that deferred financing costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset, consistent with debt discounts. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update is effective for fiscal years beginning after December 15, 2015, and required retrospective application. We adopted ASU 2015-03 during the quarter ended March 25, 2016 and applied its provisions retrospectively. The adoption of ASU 2015-03 resulted in the reclassification of current deferred financing costs, net, of $2.4 million related to our Term Loan and Revolver from prepaid expenses and other current assets to the current portion of long-term debt and the reclassification of deferred financing costs, net, of $2.8 million related to our Senior Unsecured Notes from total other assets, net, to long-term debt within our Condensed Consolidated Balance Sheets as of December 31, 2015 . Adoption of this standard did not impact the results of operations, retained earnings, or cash flows in the current or previous interim and annual reporting periods.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes , which eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent amounts in a classified statement of financial position. Instead, entities will be required to classify all deferred tax assets and liabilities as noncurrent in a statement of financial position. This standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We adopted ASU No. 2015-17 during the quarter ended March 25, 2016 and applied it prospectively to the period ended March 25, 2016 . Prior periods were not retroactively adjusted. Adoption of this standard did not impact the results of operations, retained earnings, or cash flows in the current or previous interim and annual reporting periods.
Excluding the adoption of the accounting standards updates discussed above, there have been no material changes to our significant accounting policies from those described in our Annual Report on Form 10-K for the year ended December 31, 2015 .
Accounting Developments
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which outlines a single set of comprehensive principles for recognizing revenue under GAAP. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) . ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing . ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all entities that enter into contracts with customers to transfer goods or services. These ASUs are effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying these standards at the date of initial application and not adjusting comparative information. We are currently evaluating both methods of adoption as well as the effect of these standards will have on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires an entity who measures inventory using FIFO or average cost to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs. The update is effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2016 and applied prospectively. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the potential effects of the adoption of ASU 2015-11 on our consolidated financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases . The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases . ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the potential effects of the adoption of ASU 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments. ASU 2016-06 clarifies how to assess whether an embedded contingent put or call option is clearly and closely related to a debt host. The amendments are effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. The amendments are effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the potential effects of the adoption of ASU 2016-06 on our consolidated financial statements.

14




In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. ASU 2016-07 simplifies the equity method by eliminating the requirement to apply it retrospectively to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments are effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the potential effects of the adoption of ASU 2016-07 on our consolidated financial statements.
Other accounting standards updates effective after March 25, 2016 are not expected to have a material effect on our consolidated financial position or results of operations and cash flows for the period ended March 25, 2016 .


15




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
 
As Of
(Amounts in thousands)
March 25, 2016
 
December 31, 2015
Prepaid expenses
$
31,583

 
$
30,985

Income tax refunds receivable
63

 
204

Inventories
13,636

 
14,776

Work-in-process inventory
1,733

 
1,733

Joint venture receivables
351

 
460

Other current assets
3,607

 
7,525

Total prepaid expenses and other current assets
$
50,973

 
$
55,683

Prepaid expenses include prepaid insurance, prepaid vendor deposits, and prepaid rent, none of which individually exceed 5% of current assets.
We adopted ASU 2015-03 during the quarter ended March 25, 2016 and applied its provisions retrospectively. The adoption of ASU 2015-03 resulted in the reclassification of current deferred financing costs, net, of $2.4 million related to our Term Loan and Revolver from prepaid expenses and other current assets to the current portion of long-term debt within its consolidated balance sheets as of December 31, 2015 . See Note 7 for a tabular presentation of our deferred financing costs, net, reclassified by debt balance, as of March 25, 2016 and December 31, 2015 . See Note 1 for further discussion.
Other current assets decreased from $7.5 million as of December 31, 2015 to $3.6 million as of March 25, 2016 primarily due to the collection of an insurance receivable.
Held for Sale Assets and Liabilities
During the third quarter of 2015, we took strategic actions to begin the sale of the remaining assets of Heliworks. The assets, excluding cash and cash equivalents, of Heliworks were classified as held for sale as of September 25, 2015. As of March 25, 2016 and December 31, 2015 , Assets held for sale of $6.2 million and $7.9 million , respectively, consisted primarily of accounts receivable, inventory, property and equipment, net, and intangible assets. Liabilities held for sale of $0.4 million and $0.8 million , respectively, as of March 25, 2016 and December 31, 2015 consist primarily of accounts payables and accruals.
Property and equipment, net
 
As Of
(Amounts in thousands)
March 25, 2016
 
December 31, 2015
Helicopters
$
983

 
$
983

Computers and other equipment
10,814

 
10,392

Leasehold improvements
20,169

 
19,639

Office furniture and fixtures
4,551

 
4,541

Gross property and equipment
36,517

 
35,555

Less accumulated depreciation
(20,829
)
 
(19,861
)
Total property and equipment, net
$
15,688

 
$
15,694

As of March 25, 2016 and December 31, 2015 , Property and equipment, net also included the accrual for property additions of $0.2 million and $0.3 million , respectively. Depreciation expense, including certain depreciation amounts classified as Cost of services, was $1.0 million and $1.5 million during the three months ended March 25, 2016 and March 27, 2015 , respectively.

16




Other assets, net
 
As Of
(Amounts in thousands)
March 25, 2016
 
December 31, 2015
Investment in affiliates
8,304

 
6,712

Palm promissory note, long-term portion
1,708

 
2,079

Other
5,744

 
3,536

Total other assets, net
$
15,756

 
$
12,327

We adopted ASU 2015-03 during the quarter ended March 25, 2016 and applied its provisions retrospectively. The adoption of ASU 2015-03 resulted in the reclassification of deferred financing costs, net, of $2.8 million related to our Senior Unsecured Notes from total other assets, net, to long-term debt within its consolidated balance sheets as of December 31, 2015 . See Note 7 for a tabular presentation of our deferred financing costs, net, reclassified by debt balance, as of March 25, 2016 and December 31, 2015 . See Note 1 for further discussion.
Accrued payroll and employee costs
 
As Of
(Amounts in thousands)
March 25, 2016
 
December 31, 2015
Wages, compensation and other benefits
$
79,400

 
$
85,216

Accrued vacation
16,943

 
14,433

Accrued contributions to employee benefit plans
1,229

 
1,032

Total accrued payroll and employee costs
$
97,572

 
$
100,681

Accrued liabilities
 
As Of
(Amounts in thousands)
March 25, 2016
 
December 31, 2015
Customer liabilities
$
15,702

 
$
21,183

Accrued insurance
27,472

 
35,530

Accrued interest
11,864

 
24,370

Contract losses
9,941

 
15,718

Legal reserves
4,638

 
5,063

Subcontractor retention
1,363

 
1,646

Other
12,785

 
11,208

Total accrued liabilities
$
83,765

 
$
114,718

Customer liabilities represent amounts received from customers in excess of revenue recognized or for amounts due back to a customer. The decrease in customer liabilities was primarily due to payments to customers. The decrease in accrued insurance is primarily due to the timing of payments and the closing of certain insurance policies with our carriers. Contract losses represent our best estimate of forward losses using currently available information and could change in future periods as new facts and circumstances emerge. The decrease in contract losses was primarily due to the utilization of the contract loss liability. Legal matters include reserves related to various lawsuits and claims that arise in the normal course of business. See Note 8 for further discussion. Other is comprised primarily of accrued rent and workers' compensation related claims and other balances that are not individually material to the consolidated financial statements.
Other long-term liabilities
As of March 25, 2016 and December 31, 2015 , Other long-term liabilities were $12.4 million and $13.6 million , respectively. Other long-term liabilities are primarily due to our long-term incentive bonus plan and nonqualified unfunded deferred compensation plan of $3.5 million and $4.4 million as of March 25, 2016 and December 31, 2015 , respectively, and a long-term leasehold obligation related to our Tysons Corner facility in McLean, Virginia, of $3.7 million and $3.8 million as of March 25, 2016 and December 31, 2015 , respectively. Other long-term liabilities also include an uncertain tax benefit of $3.3 million and $3.3 million as of March 25, 2016 and December 31, 2015 , respectively. See Note 4 for further discussion.


17




Note 3 — Goodwill and Other Intangible Assets
We have two operating and reporting segments: DynAviation and DynLogistics. DynAviation and DynLogistics provide services domestically and in foreign countries primarily under contracts primarily with the U.S. government. Our current structure includes five reporting units: two reporting units in DynAviation and three reporting units in DynLogistics. Of our five reporting units, only two had a goodwill balance as of March 25, 2016 of which we assess for potential goodwill impairment.
We assess goodwill and other intangible assets with indefinite lives for impairment annually in October or when an event occurs or circumstances change that would suggest a triggering event. If a triggering event is identified, a step one assessment is performed to identify any possible impairment in the period in which the event is identified.
In connection with our annual assessment of goodwill during the fourth quarter of each year, we update our key assumptions, including our forecasts of revenue and income for each reporting unit. The projections for these reporting units include significant estimates related to new business opportunities. If we are unsuccessful in obtaining these opportunities in 2016, a triggering event could be identified and a step one assessment would be performed to identify any possible goodwill impairment in the period in which the event is identified. There can be no assurance that the estimates and assumptions regarding forecasted earnings and cash flows, the period of strength of the U.S. defense spending, and other inputs used in forecasting the present value of forecasted cash flows will prove to be accurate projections of future performance.
During the three months ended March 25, 2016 , we did not have a triggering event in any of our reporting units.
The carrying amounts of goodwill for each of our segments as of March 25, 2016 were as follows:
(Amounts in thousands)
DynAviation
 
DynLogistics
 
Total
Goodwill balance as of December 31, 2015
$

 
$
42,093

 
$
42,093

Changes between January 1, 2016 and March 25, 2016

 

 

Goodwill balance as of March 25, 2016
$

 
$
42,093

 
$
42,093


18




The following tables provide information about changes relating to certain intangible assets:
 
As of March 25, 2016
(Amounts in thousands, except years)
Weighted
Average
Remaining
Useful Life
(Years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Impairment
 
Transfer to Assets Held for Sale
 
Net
Other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Customer-related intangible assets
3.7
 
$
252,615

 
$
(149,119
)
 
$

 
$

 
$
103,496

Other
 
 
 
 
 
 
 
 
 
 
 
Finite-lived
0.9
 
14,580

 
(10,834
)
 

 
(31
)
 
3,715

Indefinite-lived
 
 

 

 

 

 

Total other intangibles
 
 
$
267,195

 
$
(159,953
)
 
$

 
$
(31
)
 
$
107,211

 
 
 
 
 
 
 
 
 
 
 
 
Tradenames:
 
 
 
 
 
 
 
 
 
 
 
Finite-lived
0.0
 
$
869

 
$
(869
)
 
$

 
$

 
$

Indefinite-lived
 
 
28,536

 

 

 

 
28,536

Total tradenames
 
 
$
29,405

 
$
(869
)
 
$

 
$

 
$
28,536

 
December 31, 2015
(Amounts in thousands, except years)
Weighted
Average
Remaining
Useful Life
(Years)
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Impairment
 
Transfer to Assets Held for Sale
 
Net
Other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Customer-related intangible assets
4.0
 
$
252,615

 
$
(142,020
)
 
$

 
$

 
$
110,595

Other
 
 
 
 
 
 
 
 
 
 
 
Finite-lived
0.7
 
13,325

 
(10,430
)
 

 
(11
)
 
2,884

Indefinite-lived
 
 
5,059

 

 
(5,059
)
 

 

Total other intangibles
 
 
$
270,999

 
$
(152,450
)
 
$
(5,059
)
 
$
(11
)
 
$
113,479

 
 
 
 
 
 
 
 
 
 
 
 
Tradenames:
 
 
 
 
 
 
 
 
 
 
 
Finite-lived
0.0
 
$
869

 
$
(869
)
 
$

 
$

 
$

Indefinite-lived
 
 
28,700

 

 
(164
)
 

 
28,536

Total tradenames
 
 
$
29,569

 
$
(869
)
 
$
(164
)
 
$

 
$
28,536

Amortization expense for customer-related intangible assets, other intangible assets and finite-lived tradenames was $7.5 million and $6.3 million for the three months ended March 25, 2016 and March 27, 2015 , respectively. Other intangible assets are primarily representative of our capitalized software which had a net carrying value of $3.7 million and $2.9 million as of March 25, 2016 and December 31, 2015 , respectively.




19




Note 4 — Income Taxes
The domestic and foreign components of Loss before income taxes are as follows:
 
Three Months Ended
(Amounts in thousands)
March 25, 2016
 
March 27, 2015
Domestic
$
(10,592
)
 
$
(11,325
)
Foreign
514

 
731

Loss before income taxes
$
(10,078
)
 
$
(10,594
)
Deferred tax liabilities, net consist of the following:
 
As Of
(Amounts in thousands)
March 25, 2016
 
December 31, 2015
Current deferred tax liabilities, net
$

 
$
(27,334
)
Non-current deferred tax (liabilities) assets, net
(16,495
)
 
13,364

Deferred tax liabilities, net
$
(16,495
)
 
$
(13,970
)
During the quarter ended March 25, 2016 , we adopted ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes , which eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent amounts in a classified statement of financial position and requires us to classify all deferred tax assets and liabilities as noncurrent in a statement of financial position. We applied ASU 2015-17 prospectively and prior periods were not retroactively adjusted.
Our effective tax rate ("ETR") was (44.6)% for the three months ended March 25, 2016 and (35.9)% for the three months ended March 27, 2015 , respectively. For both the three months ended March 25, 2016 and March 27, 2015 , the ETR was primarily impacted by an increase in our valuation allowance for each respective period.
Management assesses both the available positive and negative evidence to determine whether it is more likely than not that there will be sufficient sources of future taxable income to recognize deferred tax assets. We incurred cumulative losses over the three-year period ended December 31, 2015 . Cumulative losses in recent years are considered significant objective negative evidence in evaluating deferred tax assets under the more likely than not criteria for recognition of deferred tax assets. As a result of additional losses for which we could not recognize a tax benefit, we increased our valuation allowance from $71.6 million as of December 31, 2015 to $78.7 million as of March 25, 2016 .
As of March 25, 2016 and December 31, 2015 , we had $2.6 million of total unrecognized tax benefits, respectively, of which $2.3 million would impact our effective tax rate if recognized. We do not expect the unrecognized tax benefit of $3.3 million , inclusive of penalties, as of March 25, 2016 to be settled within the next twelve months.
During the three months ended March 25, 2016 , we made no estimated federal income tax payments. All of our income taxes paid or refunds received during the three months ended March 25, 2016 were related to state or foreign jurisdictions.

20




Note 5 — Accounts Receivable
Accounts receivable, net consisted of the following:
 
As Of
(Amounts in thousands)
March 25, 2016
 
December 31, 2015
Billed
$
162,367

 
$
136,127

Unbilled
219,265

 
249,970

Total accounts receivable, net
$
381,632

 
$
386,097

Unbilled receivables as of March 25, 2016 and December 31, 2015 include $29.5 million and $21.3 million , respectively, related to costs incurred on projects for which we have been requested by the customer to begin new work or extend work under an existing contract and for which formal contracts, contract modifications or other contract actions have not been executed as of the end of the respective periods.
As of March 25, 2016 and December 31, 2015 , we had no significant accounts receivable balances associated with contract claims. The balance of unbilled receivables above consists of costs and fees billable immediately upon contract completion or other specified events, all of which are expected to be billed and collected within one year, except items that may result in a request for equitable adjustment or formal claim.
We do not believe we have significant exposure to credit risk as our receivables are primarily with the U.S. government. Our allowance for doubtful accounts was $16.3 million as of December 31, 2015 compared to $16.4 million as of March 25, 2016 , and is primarily due to outstanding receivables of approximately $26.0 million , net of reserves, for which we have yet to be paid where we operated under a subcontract for a prime contractor on a U.S. government program that ended December 31, 2014 . We are currently seeking payment through legal action to resolve the matter. See Note 8 for further discussion.

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 receivable, accounts payable, and borrowings. Because of the short-term nature of cash and cash equivalents, accounts receivable, and accounts payable, the fair value of these instruments approximates the carrying value. Our estimate of the fair value of our debt is based on Level 1 and Level 2 inputs, as defined above.  
 
As Of
 
March 25, 2016
 
December 31, 2015
(Amounts in thousands)
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
10.375% senior unsecured notes
$
455,000

 
$
360,019

 
$
455,000

 
$
337,838

Term Loan
187,272

 
180,249

 
187,272

 
179,781

Total indebtedness
642,272

 
540,268

 
642,272

 
517,619

Less current portion of long-term debt
(187,272
)
 
(180,249
)
 
(187,272
)
 
(179,781
)
Total long-term debt
$
455,000

 
$
360,019

 
$
455,000

 
$
337,838



21




Note 7 — Debt
Debt consisted of the following:
 
As of March 25, 2016
(Amounts in thousands)
Carrying Amount
 
Deferred Financing Costs, Net
 
Carrying Amount less Deferred Financing Costs, Net
10.375% senior unsecured notes
$
455,000

 
$
(2,395
)
 
$
452,605

Term loan
187,272

 
(1,324
)
 
185,948

Total indebtedness
642,272

 
(3,719
)
 
638,553

Less current portion of long-term debt
(187,272
)
 
1,324

 
(185,948
)
Total long-term debt
$
455,000

 
$
(2,395
)
 
$
452,605

 
As of December 31, 2015
(Amounts in thousands)
Carrying Amount
 
Deferred Financing Costs, Net
 
Carrying Amount less Deferred Financing Costs, Net
10.375% senior unsecured notes
$
455,000

 
$
(2,835
)
 
$
452,165

Term loan
187,272

 
(2,406
)
 
184,866

Total indebtedness
642,272

 
(5,241
)
 
637,031

Less current portion of long-term debt
(187,272
)
 
2,406

 
(184,866
)
Total long-term debt
$
455,000

 
$
(2,835
)
 
$
452,165

We adopted ASU 2015-03 as of March 25, 2016 and applied its provisions retrospectively. The adoption of ASU 2015-03 resulted in the reclassification of current deferred financing costs, net, of $2.4 million related to our Term Loan and Revolver from Prepaid expenses and other current assets to the Current portion of long-term debt and the reclassification of deferred financing costs, net, of $2.8 million related to our Senior Unsecured Notes from Other assets, net, to Long-term debt within its consolidated balance sheets as of December 31, 2015 . See Note 1 for further discussion.
Deferred financing costs are amortized through interest expense. Amortization related to deferred financing costs was $1.5 million and $1.5 million during the three months ended March 25, 2016 and March 27, 2015 , respectively.
Senior Credit Facility
On July 7, 2010 , we entered into a senior secured credit facility (the "Senior Credit Facility"), with a banking syndicate and Bank of America, NA as Administrative Agent (the "Agent"). On January 21, 2011 , August 10, 2011 , June 19, 2013 and November 5, 2014 , DynCorp International Inc. entered into amendments to the Senior Credit Facility.
The Senior Credit Facility is secured by substantially all of our assets and is guaranteed by substantially all of our subsidiaries. As of March 25, 2016 , the Senior Credit Facility provided for a $187.3 million Term Loan and the $144.8 million Revolver, which includes a $100.0 million letter of credit subfacility. As of March 25, 2016 and December 31, 2015 , the available borrowing capacity under the Senior Credit Facility was approximately $102.2 million and $102.2 million , respectively, and includes $42.6 million and $42.6 million , respectively, in issued letters of credit. Amounts borrowed under the Revolver are used to fund operations. As of March 25, 2016 and December 31, 2015 there were no amounts borrowed under the Revolver. Giving effect to the Senior Credit Facility Waiver, available borrowing capacity under the Senior Credit Facility as of the date of this report (taking into account the existing $42.6 million in issued letters of credit) would be approximately $29.8 million . The current portion of long-term debt as of March 25, 2016 consisted of our Term Loan and the Revolver as both have a maturity date of July 7, 2016 (before giving effect to the New Senior Credit Facility and the Other Refinancing Transactions).
As described in Note 1, on April 30, 2016 , the Company entered into Amendment No. 5 as part of the Refinancing Transactions. The independent registered public accounting firm that audited our financial statements for the year ended December 31, 2015 included an explanatory paragraph in its audit report regarding our ability to continue as a going concern. Pursuant to Amendment No. 5, required lenders under the Senior Credit Facility agreed to the Senior Credit Facility Waiver, which waives the requirement to comply with the covenant under the Senior Credit Facility that the Company’s annual financial statements include a report from its independent registered public accounting firm without a qualification as to the Company’s ability to continue as a going concern until the earlier of the effectiveness of the New Senior Credit Facility (at which time the waiver of this requirement for the fiscal year ended December 31, 2015 would become permanent) and June 30, 2016 . During the effectiveness of the Senior Credit Facility Waiver, unless the effectiveness of the New Senior Credit Facility has occurred, the aggregate amount of outstanding revolving

22




loans and letters of credit may not exceed 50% of the aggregate revolving credit commitments under the Senior Credit Facility. In addition, during the waiver period, any proceeds of revolving loans may only be used for working capital purposes and in the ordinary course of business for other general corporate purposes. The Company may not use the proceeds of revolving loans for dividends, prepayments of any junior debt or acquisition financing.
Upon the satisfaction of certain conditions, including consummation of the Exchange Offer and the other Refinancing Transactions, the New Senior Credit Facility shall become effective, and the Senior Credit Facility Waiver will become permanent. Pursuant to the terms of the New Senior Credit Facility, among other things, the maturity of certain of the revolving credit commitments shall be extended into the Extended Revolving Credit Facility and certain lenders will provide the New Term Loan Facility, the proceeds of which will be used to repay the existing term loans under the Senior Credit Facility in full. Upon its effectiveness, the New Senior Credit Facility will consist of:
a $207.3 million New Term Loan Facility;
a $24.8 million class A revolving facility, with commitments to terminate on July 7, 2016 , as more fully described below;
a $107.3 million Extended Revolving Credit Facility, a class B revolving facility, provided that each revolving lender’s class B revolving facility commitment shall be reduced by 20% on June 24, 2016 (or if the effective date of the New Senior Credit Facility occurs after June 24, 2016 , on the effective date of the New Senior Credit Facility), unless such lender declines such reduction; and
up to $15.0 million in incremental revolving facilities provided by and at the discretion of certain non-debt fund affiliates that are controlled by Cerberus, which shall rank pari passu with, and be on the same terms as, the class B revolving facility.
Upon closing of the Exchange Offer and the other Refinancing Transactions, the term loans under the New Senior Credit Facility will be subject to a fee in the amount of 700 basis points, which fee will be reflected as original issue discount in the balance of the New Term Loan Facility, and each of the lenders holding class B revolving facility commitments on the effective date of the New Senior Credit Facility will be paid an upfront fee equal to 2.00% of the class B revolving facility commitment held by such lender. Availability under the class B revolving facility during the two years immediately after the effectiveness of the New Senior Credit Facility will be subject to a condition that, if, at the time of a request for revolving loans or an issuance of a letter of credit, the aggregate principal amount of revolving loans plus the face amount of outstanding letters of credit exceeds 50% of the aggregate amount of class B revolving facility commitments at such time, the aggregate amount of unrestricted cash and cash equivalents of DynCorp International Inc. and its subsidiaries (giving pro forma effect to requested revolving loans and any application of proceeds thereof or other cash on hand) may not exceed $60 million .
Interest Rates on Term Loan & Revolver
Under the Senior Credit Facility, 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 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 $75 million of unrestricted cash and cash equivalents) to consolidated earnings before interest, taxes, depreciation and 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.
Under the Senior Credit Facility, the Base Rate is equal to the higher of (a) the Federal Funds Rate plus one half of one percent 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% .
Under the New Senior Credit Facility, upon closing of the Exchange Offer and the other Refinancing Transactions, the interest rate per annum applicable to the term loans will be, at our option, equal to either a base rate or a eurocurrency rate for a one-, two-, three- or six-month interest period, or a twelve-month period, if available from all relevant lenders, in each case, plus (i) 5.00% in the case of base rate loans and (ii) 6.00% in the case of eurocurrency loans. The interest rate per annum applicable to the class A revolving loans will be, at our option, equal to either a base rate or a eurocurrency rate for a one-, two-, three- or six-month interest period, or a twelve-month period, if available from all relevant lenders, in each case, plus (i) a range of 3.00% to 3.50% based on the Secured Leverage Ratio of DynCorp International Inc. in the case of base rate loans and (ii) a range of 4.00% to 4.50% based on the Secured Leverage Ratio of DynCorp International Inc. in the case of eurocurrency loans. The interest rate per annum applicable to the class B revolving loans will be, at our option, equal to either a base rate or a eurocurrency rate for a one-, two-, three- or six-month interest period, or a twelve-month period, if available from all relevant lenders, in each case, plus (i) a

23




range of 4.50% to 5.00% based on the First-Lien Secured Leverage Ratio of DynCorp International Inc. in the case of base rate loans and (ii) a range of 5.50% to 6.00% based on the First-Lien Secured Leverage Ratio of DynCorp International Inc. in the case of eurocurrency loans. The First Lien Secured Leverage Ratio is calculated by the ratio of total first lien secured consolidated debt (net of up to $75 million of unrestricted cash and cash equivalents) to Consolidated EBITDA, as defined in the New Senior Credit Facility.
Under the New Senior Credit Facility, upon closing of the Exchange Offer and the other Refinancing Transactions, the Eurocurrency loans will be based on LIBOR and will be no lower than 1.75% . The base rate means the greater of (i) Bank of America’s prime rate and (ii) one-half of 1.0% over the weighted average of rates on overnight Federal Funds as published by the Federal Reserve Bank of New York; however, in no event shall the base rate be lower than the applicable eurocurrency rate plus 1.00% .
Under the Senior Credit Facility and under the New Senior Credit Facility, 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 March 25, 2016 and December 31, 2015 , the interest rate on the Term Loan was 6.25% .

Interest Rates on Letter of Credit Subfacility and Unused Commitment Fees
Under the Senior Credit Facility, the letter of credit subfacility bears interest at an applicable rate that 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. Interest payments on both the letter of credit subfacility and unused commitments are payable quarterly in arrears. The applicable interest rates for our letter of credit subfacility was 4.25% as of each of March 25, 2016 and December 31, 2015 . The applicable interest rate for our unused commitment fees was 0.50% as of each of March 25, 2016 and December 31, 2015 . All of our letters of credit are also subject to a 0.25% fronting fee.
Under the New Senior Credit Facility, upon closing of the Exchange Offer and the other Refinancing Transactions, the letter of credit subfacility bears interest at an applicable rate that from 4.0% to 4.5% with respect to the class A revolving loans and ranges from 5.5% to 6.0% with respect to the class B revolving loans. The unused commitment fee on our Revolver ranges from 0.50% to 0.75% depending on the Secured Leverage Ratio with respect to the class A revolving loans and depending on the First Lien Secured Leverage Ratio with respect to the class B revolving loans. Interest payments on both the letter of credit subfacility and unused commitments are payable quarterly in arrears.
Principal Payments
Pursuant to our Term Loan under the Senior Credit Facility, quarterly principal payments are required. However, certain principal prepayments made during the year ended December 30, 2011 were applied to the future scheduled maturities and satisfied our responsibility to make quarterly principal payments through July 7, 2016 .
During the three months ended March 25, 2016 and March 27, 2015 , we made no principal payments on the Term Loan, respectively.
Our Senior Credit Facility contains an annual requirement to submit a portion of our Excess Cash Flow, as defined in the Senior Credit Facility, as additional principal payments. Based on our annual financial results for the year ended December 31, 2015 , we made an additional principal payment as required under the Excess Cash Flow provision of $4.6 million on April 6, 2016 . Certain other transactions can trigger mandatory principal payments such as tax refunds, a disposition of a portion of our business or a significant asset sale. We had no such transactions during the three months ended March 25, 2016 .
After its effectiveness upon closing of the Exchange Offer and the other Refinancing Transactions, the New Senior Credit Facility will contain an annual requirement to submit 100% of Excess Cash Flow (as defined in Amendment No. 5) less the amount of certain voluntary prepayments as described in Amendment No. 5, as additional principal payments. Certain other transactions can trigger mandatory principal payments such as tax refunds, a disposition of a portion of our business or a significant asset sale.
Under the New Senior Credit Facility, upon closing of the Exchange Offer and the other Refinancing Transactions, we will be required to make amortization payments with respect to the term loans under the New Senior Credit Facility of $22.5 million on or prior to the first anniversary of the effectiveness of the New Senior Credit Facility and $22.5 million on or prior to the second anniversary of the effectiveness of the New Senior Credit Facility, which amounts may be reduced as a result of the application of certain prepayments, with the remaining amount payable on July 7, 2020 ; provided that, if on May 8, 2017 , any Senior Unsecured Notes are outstanding, unless the maturity date of all of the Senior Unsecured Notes has been extended to a date that is at least 91 days after July 7, 2020 , the principal amounts outstanding under the New Term Loan Facility will be due and payable in full on, and the commitments in respect thereof will terminate on, May 8, 2017 .

24




After the effectiveness of the New Senior Credit Facility upon closing of the Exchange Offer and the other Refinancing Transactions, principal amounts outstanding under the class A revolving facility will be due and payable in full on, and the commitments in respect thereof will terminate on, July 7, 2016 , and principal amounts outstanding under the class B revolving facility will be due and payable in full on, and the commitments in respect thereof will terminate on, July 7, 2019 ; provided that, with respect to the class B revolving facility, if on May 8, 2017 , any Senior Unsecured Notes are outstanding, unless the maturity date of all of the Senior Unsecured Notes has been extended to a date at least 91 days after July 7, 2020 , the principal amounts outstanding under the class B revolving facility will be due and payable in full on, and the commitments in respect thereof will terminate on, May 8, 2017 .
Covenants
The Senior Credit Facility contains, and the New Senior Credit Facility upon closing of the Exchange Offer and the other Refinancing Transactions will contain, financial, as well as non-financial, affirmative and negative covenants that we believe are usual and customary. These covenants, among other things, limit our ability to:
declare dividends and make other distributions;
redeem or repurchase our capital stock;
prepay, redeem or repurchase certain of our indebtedness;
grant liens;
make loans or investments (including acquisitions);
incur additional indebtedness;
modify the terms of certain debt;
restrict dividends from our subsidiaries;
change our business or business of our subsidiaries;
merge or enter into acquisitions;
sell our assets;
enter into transactions with our affiliates; and
make capital expenditures.
In addition, the Senior Credit Facility contains, and the New Senior Credit Facility upon closing of the Exchange Offer and the other Refinancing Transactions will contain, two financial maintenance covenants, a maximum total leverage ratio and a minimum interest coverage ratio.
In the Senior Credit Facility, the total leverage ratio is the Consolidated Total Debt, as defined in the Senior Credit Facility, less unrestricted cash and cash equivalents (up to $75.0 million ) to Consolidated EBITDA, as defined in the Senior Credit Facility, for the applicable period.
The maximum total leverage ratios under the Senior Credit Facility are set forth below as follows:
Period Ending
Total Leverage Ratio
March 25, 2016
7.60 to 1.0
June 24, 2016
6.90 to 1.0
June 25, 2016 and thereafter
6.60 to 1.0
 
The interest coverage ratio is the ratio of Consolidated EBITDA to Consolidated Interest Expense, as defined in the Senior Credit Facility. The minimum interest coverage ratios under the Senior Credit Facility are set forth below as follows:
Period Ending
Interest Coverage Ratio
March 25, 2016
1.15 to 1.0
June 24, 2016
1.20 to 1.0
June 25, 2016 and thereafter
1.30 to 1.0
As of March 25, 2016 and December 31, 2015 , we were in compliance with our financial maintenance covenants.
After the effectiveness of the New Senior Credit Facility upon closing of the Exchange Offer and the other Refinancing Transactions, the covenants in the New Senior Credit Facility will be more restrictive than the covenants in the Senior Credit Facility.

25




The New Senior Credit Facility will also require, solely for the benefit of the lenders under the Extended Revolving Credit Facility, for us to maintain minimum liquidity (based on availability of revolving credit commitments under the New Senior Credit Facility plus unrestricted cash and cash equivalents) as of the end of each fiscal quarter of not less than $60 million through the fiscal quarter ending December 31, 2017 , and of not less than $50 million thereafter.
After the effectiveness of the New Senior Credit Facility upon closing of the Exchange Offer and the other Refinancing Transactions, the total leverage ratio will be the Consolidated Total Debt, as defined in Amendment No. 5 (which definition excludes debt under the Cerberus 3L Notes), less unrestricted cash and cash equivalents (up to $75.0 million ) to Consolidated EBITDA, as defined in Amendment No. 5, for the applicable period.
The maximum total leverage ratios under the New Senior Credit Facility are set forth below as follows:
Period Ending
Total Leverage Ratio
March 25, 2016
7.60 to 1.0
June 24, 2016
7.40 to 1.0
September 30, 2016
7.50 to 1.0
December 31, 2016
7.40 to 1.0
March 31, 2017
7.30 to 1.0
June 30, 2017
6.75 to 1.0
September 29, 2017
6.50 to 1.0
December 31, 2017
5.75 to 1.0
March 30, 2018
5.75 to 1.0
June 29, 2018
5.50 to 1.0
September 28, 2018
5.40 to 1.0
September 29, 2018 and thereafter
4.75 to 1.0
After the effectiveness of the New Senior Credit Facility upon closing of the Exchange Offer and the other Refinancing Transactions, the interest coverage ratio will be the ratio of Consolidated EBITDA to Consolidated Interest Expense, as defined in Amendment No. 5 (which provides that interest expense with respect to the Cerberus 3L Notes is excluded). The minimum interest coverage ratios under the New Senior Credit Facility are set forth below as follows:
Period Ending
Interest Coverage Ratio
March 25, 2016
1.15 to 1.0
June 24, 2016
1.15 to 1.0
September 30, 2016
1.15 to 1.0
December 31, 2016
1.15 to 1.0
March 31, 2017
1.20 to 1.0
June 30, 2017
1.20 to 1.0
September 29, 2017
1.30 to 1.0
December 31, 2017
1.40 to 1.0
March 30, 2018
1.50 to 1.0
June 29, 2018
1.60 to 1.0
June 30, 2018 and thereafter
1.70 to 1.0
Senior Unsecured Notes
On July 7, 2010 , DynCorp International Inc. completed an offering of $455.0 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 Inc., and Wilmington Trust, National Association (as successor by merger to 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 .

26




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. An event of default under the Senior Credit Facility based on a failure to pay the principal due at the scheduled maturity or upon acceleration would also cause an event of default under the Senior Unsecured Notes.
See Note 1 for a description of the Support Agreement, Exchange Offer and Consent Solicitation with respect to the Senior Unsecured Notes.
Call and Put Options
We can voluntarily settle all or a portion of the Senior Unsecured Notes at any time prior to maturity at an applicable redemption price plus the accrued and unpaid interest, if any, as of the applicable redemption date. The applicable redemption prices with respect to the Senior Unsecured Notes on any applicable redemption date if redeemed during the 12-month period commencing on July 1 of the years set forth below are as follows:
Year
Redemption Price
2015
102.6
%
2016 and thereafter
100.0
%
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 $15.0 million , make an offer to repurchase the Senior Unsecured Notes at 100% of the principal amount thereof.
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.
The fair value of the Senior Unsecured Notes is based on their quoted market value. As of March 25, 2016 and December 31, 2015 , the quoted market value of the Senior Unsecured Notes was approximately 79.1% and 74.3% , respectively, of stated value.

Cerberus 3L Notes

As described in Note 1, on April 30, 2016 , DynCorp Funding LLC, a limited liability company managed by Cerberus, delivered to us the Cerberus Investment Commitment Letter to provide $30 million of the Cerberus 3L Notes upon satisfaction of certain conditions, including consummation of the Exchange Offer. We expect that the proceeds of the Cerberus 3L Notes will be used by DynCorp International Inc. solely to pay fees and expenses (including out-of-pocket expenses) in support of or related to the Company’s Global Advisory Group until the date that is two years after the funding of the Cerberus 3L Notes and, thereafter, for working capital and general corporate purposes.

Interest Rate and Fees
We expect the interest rate per annum applicable to the Cerberus 3L Notes will be 5.00% , payable in kind on a quarterly basis.

Prepayments
We expect that the Cerberus 3L Notes will not require any mandatory prepayments, and, subject to the terms of an intercreditor agreement, to be entered into by the collateral agent under the New Notes, the trustee under the New Notes, the Agent under the

27




New Senior Credit Facility, and the lenders under the Cerberus 3L Notes (or a collateral agent on behalf of lenders thereunder), that we will be permitted to voluntarily repay outstanding loans under the Cerberus 3L Notes without premium or penalty.

Maturity and Amortization
We expect that the Cerberus 3L Notes will not require any mandatory amortization payments prior to maturity, and that the outstanding principal amounts shall be payable on the tenth anniversary of the funding of the Cerberus 3L Notes.

Covenants
We expect that the Cerberus 3L Notes will include covenants consistent with the covenants set forth in the New Notes; provided that each “basket” or “cushion” set forth in the covenants shall be at least 25% less restrictive than the corresponding provision set forth in the New Notes.

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, 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 real estate leases are subject to annual escalations for increases in base rents, utilities and property taxes. Lease rental expense was $8.2 million and $14.0 million for the three months ended March 25, 2016 and March 27, 2015 , 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 $4.6 million and $5.1 million as of March 25, 2016 and December 31, 2015 , respectively. 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 March 25, 2016 . 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 that 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 March 25, 2016 . 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 were dismissed by court orders and, on September 15, 2010 , the Provinces of Esmeraldas, Sucumbíos, and Carchi were dismissed by court order. We filed multiple motions for summary judgment and, on February 15, 2013 , the court granted summary judgment and dismissed all claims. On March 18, 2013 , the plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the District of Columbia. On May 30, 2014 , the U.S. Court of Appeals for the District of Columbia affirmed the dismissal of the majority of the case, but

28




remanded the case to the trial court concerning a few remaining tort claims. At this time, we believe the likelihood of an unfavorable outcome in this case is remote.
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 filed multiple motions for summary judgment and, on February 15, 2013 , the court granted summary judgment and dismissed all claims. On March 18, 2013 , the plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the District of Columbia. On May 30, 2014, the U.S. Court of Appeals for the District of Columbia affirmed the dismissal of the majority of the case, but remanded the case to the trial court concerning a few remaining tort claims. We filed another motion for summary judgment, which is fully briefed and remains 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, the Company’s previous owners, 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.
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. We believe the claims asserted by the insurance carriers are without merit and the likelihood of an unfavorable judgment in this matter is remote.
In October 2007 , we entered into a subcontract with Northrop Grumman Technical Services, Inc. (“Northrop”) to support Northrop’s prime contract with the DoD Counter Narcotics Terrorism Program Office ("CNTPO"). We performed the services requested by Northrop, the government determined that it received “intended quality and skills of personnel,” and Northrop paid our invoices until July 2014 . Subsequent to July 2014 , Northrop stopped paying our periodic invoices. The contract operations ended on December 31, 2014 . In March 2015 , Northrop filed a civil action against us to obtain documents regarding our invoices and now asserts approximately $5 million in damages. We believe the damages asserted by Northrop represent a loss contingency that is remote. In September 2015 , we filed an Answer and Counterclaim seeking approximately $41 million for unpaid invoices. An unfavorable judgment which denies us a substantial amount of the full amount owed to us could have a material effect on our performance.
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. 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 on 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.
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 Department of State 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

29




Our contracts are regularly audited by the Defense Contract Audit Agency ("DCAA") and other government agencies. These agencies review our contract performance, cost structure and compliance with applicable laws, regulations and standards. The government also reviews the adequacy of, and our compliance with, our internal control systems and policies, including our purchasing, property, estimating, accounting and material management business 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 we are 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.
On our CivPol program, we had received a series of audit reports and related Form 1s from the DCAA based on their examination of certain incurred, invoiced and reimbursed costs. Over the course of multiple years, we have worked extensively with the DoS to settle the outstanding issues. Through our efforts, which included a series of contract actions (e.g. modifications) and negotiations, the issues have been resolved, resulting in final settlements of all audited costs of approximately $1.4 million .
On April 30, 2013 , we received several Form 1s from the DCAA for the periods ranging between 2000 to 2011 on the War Reserve Materiel program related to concerns on items such as the adequacy of documentation and reasonableness of costs. We are working with the Air Force to resolve these questions. Based on our recent correspondence with the customer, a substantial portion of these items represent loss contingencies that are remote. The remaining portion of these items totaling $1.8 million represent loss contingencies that we consider reasonably possible; however, we do anticipate resolving these contingencies for an immaterial amount as we continue to work with the customer.
We have received a series of audit reports from the DCAA related to their examination of certain incurred, invoiced and reimbursed costs on the LOGCAP IV. In April 2016, we received two draft Form 1s from the DCAA questioning approximately $48.0 million and we believe more could be issued in the future. Over the past several years, we have been successful in working with the DCAA, Defense Contract Management Agency and our customer in resolving matters included in Form 1s as well as other transmittals. Specific to the LOGCAP IV audit reports, we have provided responses to the DCAA that 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 are currently in process of reviewing and responding to the draft Form 1s recently received. While we believe that if final Form 1s are received we will be successful in defending our position, there can be no guarantees that we will be able to address all of their concerns or entirely avoid financial loss.
Foreign Contingencies
On January 22, 2014 , a tax assessment from the Large Tax Office of the Afghanistan Ministry of Finance (“MOF”) was received, seeking approximately $64.2 million in taxes and penalties specific to one of our business licenses in Afghanistan for periods between 2009 to 2012. The majority of this assessment was income tax related; however, $10.2 million of the assessed amount is non-income tax related and represents loss contingencies that we consider reasonably possible. We filed our initial appeal of the assessment with the MOF on February 19, 2014 . In May 2014 , the MOF ruled in our favor for the income tax related issue which totaled approximately $54.0 million . We are still working with the MOF to remove the assessment on the remaining non-income tax related items. As of March 25, 2016 , a reasonable estimate of loss or range of loss could not be made as we could not reasonably estimate the ultimate outcome related to the issues assessed.
Credit Risk
We are subject to concentrations of credit risk primarily by virtue of our accounts receivable. Departments and agencies of the U.S. federal government account for all but minor portions of our customer base, minimizing this credit risk. Furthermore, we continuously review all accounts receivable and record provisions for doubtful accounts when necessary.
Risk Management Liabilities and Reserves
We are insured for domestic workers' 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 of $10.7 million and $11.0 million as of March 25, 2016 and December 31, 2015 , respectively. 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 workers' compensation liabilities and medical costs. Our exposure under the stop-loss policies for domestic workers' compensation and medical costs is limited based on fixed dollar amounts. For domestic workers' compensation and employers' 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.

30




Note 9 — Segment Information
We have two operating and reporting segments: DynAviation and DynLogistics. The DynAviation and DynLogistics segments operate principally within a regulatory environment subject to governmental contracting and accounting requirements, including Federal Acquisition Regulations, Cost Accounting Standards and audits by various U.S. federal agencies.
The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the condensed consolidated financial statements:
 
Three Months Ended
(Amounts in thousands)
March 25, 2016
 
March 27, 2015
Revenue
 
 
 
DynAviation
$
288,510

 
$
309,905

DynLogistics
131,189

 
156,400

Headquarters / Other (1)
291

 
717

Total revenue
$
419,990

 
$
467,022

 
 
 
 
Operating income (loss)
 
 
 
DynAviation
$
10,699

 
$
4,598

DynLogistics
9,956

 
7,709

Headquarters / Other (2)
(15,177
)
 
(7,857
)
Total operating income (loss)
$
5,478

 
$
4,450

 
 
 
 
Depreciation and amortization
 
 
 
DynAviation
$
163

 
$
158

DynLogistics
62

 
820

Headquarters / Other
8,291

 
6,820

Total depreciation and amortization (3)
$
8,516

 
$
7,798

(1)
Headquarters revenue primarily represents revenue earned on shared services arrangements for general and administrative services provided to unconsolidated joint ventures and elimination of intercompany items between segments.
(2)
Headquarters operating expenses primarily relates to amortization of intangible assets and other costs that are not allocated to segments and are not billable to our U.S. government customers, partially offset by equity method investee income.
(3)
Includes amounts in Cost of services of $0.2 million and $0.5 million for the three months ended March 25, 2016 and March 27, 2015 , respectively.
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)
March 25, 2016
 
December 31, 2015
Assets
 
 
 
DynAviation
$
335,201

 
$
351,627

DynLogistics
180,427

 
173,036

Headquarters / Other (1)
207,924

 
260,026

Total assets
$
723,552

 
$
784,689

(1)
Assets primarily include cash, investments in unconsolidated subsidiaries, and intangible assets (excluding goodwill).


31




Note 10 — Related Parties, Joint Ventures and Variable Interest Entities
Consulting Fee
We have 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 $1.8 million and $1.7 million of consulting fees on a gross basis before considering the effect of our contract mix which provides for partial recovery in conjunction with the COAC agreement during the three months ended March 25, 2016 and March 27, 2015 , respectively.
We have two executives who are Cerberus Operations and Advisory Company, LLC (“COAC”) employees, who are seconded to us: (i) our Senior Vice President, Chief Administrative Officer, Chief Legal Officer and Corporate Secretary; and (ii) our Senior Vice President, DynGlobal. Inclusive of the $1.8 million and $1.7 million recognized during the three months ended March 25, 2016 and March 27, 2015 in COAC consulting fees, respectively, we recognized $0.6 million and $0.9 million of administrative expense in conjunction with these COAC employees for the three months ended March 25, 2016 and March 27, 2015 , respectively.
Certain members of executive management and board members of the Company and seconded COAC individuals may have agreements and conduct business with Cerberus and its affiliates for which they receive compensation. We recognize such compensation as an expense in the consolidated financial statements.
Joint Ventures and Variable Interest Entities
We account for our investments in VIEs 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 March 25, 2016 , we accounted for PaTH, CRS, Babcock, GRS and GLS as equity method investments. Alternatively, we consolidated DIFZ based on the aforementioned criteria. We present our share of the PaTH, CRS, GRS and GLS earnings in Earnings from equity method investees 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.
Receivables due from our unconsolidated joint ventures totaled $0.4 million and $0.5 million as of March 25, 2016 and December 31, 2015 , respectively. These receivables are a result of items purchased and services rendered by us on behalf of our unconsolidated joint ventures. We have assessed these receivables as having minimal collection risk based on our historic experience with these joint ventures and our inherent influence through our ownership interest.
The related revenue we earned from our unconsolidated joint ventures totaled $0.0 million and $0.1 million during the three months ended March 25, 2016 and March 27, 2015 , respectively. The related cost of services was $0.2 million and $0.2 million during the three months ended March 25, 2016 and March 27, 2015 , respectively. Additionally, we earned $0.4 million and $0.5 million in equity method income (includes operationally integral and non-integral income) during the three months ended March 25, 2016 and March 27, 2015 , respectively.
GLS’ revenue was $9.9 million and $6.7 million during the three months ended March 25, 2016 and March 27, 2015 , respectively. GLS’ operating and net loss was $0.8 million and $0.6 million during the three months ended March 25, 2016 and March 27, 2015 , respectively.
We currently hold one promissory note included in Other assets on our consolidated balance sheet from Palm Trading Investment Corp, which had an aggregate initial value of $9.2 million . The loan balance outstanding was $2.4 million and $2.5 million as of March 25, 2016 and December 31, 2015 , respectively, reflecting the initial value plus accrued interest, less payments against the promissory note. The fair value of the note receivable is not materially different from its carrying value.

32




As discussed above and in accordance with ASC 810 - Consolidation , we consolidate DIFZ. The following tables present selected financial information for DIFZ as of March 25, 2016 and December 31, 2015 and for the three months ended March 25, 2016 and March 27, 2015 :
 
As Of
(Amounts in millions)
March 25, 2016
 
December 31, 2015
Assets
$
5.0

 
$
4.7

Liabilities
2.0

 
1.1

 
Three Months Ended
(Amounts in millions)
March 25, 2016
 
March 27, 2015
Revenue
$
39.8

 
$
51.7

The following tables present selected financial information for our equity method investees as of March 25, 2016 and December 31, 2015 and for the three months ended March 25, 2016 and March 27, 2015 :
 
As Of
(Amounts in millions)
March 25, 2016
 
December 31, 2015
Current assets
$
36.8

 
$
32.2

Total assets
37.4

 
32.2

Current liabilities
18.4

 
12.5

Total liabilities
18.4

 
12.5

 
Three Months Ended
(Amounts in millions)
March 25, 2016
 
March 27, 2015
Revenue
$
14.7

 
$
45.8

Gross profit
0.3

 
5.1

Net income
0.4

 
4.0

Many of our joint ventures and VIEs only perform on a single contract. The modification or termination of a contract under a joint venture or VIE could trigger an impairment in the fair value of our investment in these entities. In the aggregate, our maximum exposure to losses as a result of our investment consists of our (i)  $8.3 million investment in unconsolidated joint ventures, (ii)  $0.4 million in receivables from our unconsolidated joint ventures, (iii) $2.4 million note receivable from Palm Trading Investment Corp. and (iv) contingent liabilities that were neither probable nor reasonably estimable as of March 25, 2016 .


33







Note 11 — 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 Management and Consulting Services LLC, Worldwide Recruiting and Staffing Services LLC, Heliworks LLC, Phoenix Consulting Group LLC and Casals & Associates Inc. ("Subsidiary Guarantors"). Each of the Subsidiary Issuer and the Subsidiary Guarantors is 100% owned by the Company. Under the indenture governing the Senior Unsecured Notes, a guarantee of a Subsidiary Guarantor will terminate upon the following customary circumstances: (i) the sale of the capital stock of such Subsidiary Guarantor if such sale complies with the indenture; (ii) the designation of such Subsidiary Guarantor as an unrestricted subsidiary; (iii) if such Subsidiary Guarantor no longer guarantees certain other indebtedness of the Subsidiary Issuer or (iv) the defeasance or discharge of the indenture.
The following condensed consolidating financial statements present (i) unaudited condensed consolidating balance sheets as of March 25, 2016 and December 31, 2015 , (ii) unaudited condensed consolidating statements of operations and comprehensive loss for the three months ended March 25, 2016 and March 27, 2015 , (iii) unaudited condensed consolidating statements of cash flows for the three months ended March 25, 2016 and March 27, 2015 and (iii) 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.

34




Delta Tucker Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidating Statement of Operations Information
For the Three Months Ended March 25, 2016  
(Amounts in thousands)
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantors
 
Subsidiary
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenue
$

 
$

 
$
423,427

 
$
44,818

 
$
(48,255
)
 
$
419,990

Cost of services

 

 
(375,778
)
 
(44,959
)
 
48,239

 
(372,498
)
Selling, general and administrative expenses

 

 
(34,082
)
 
(22
)
 
14

 
(34,090
)
Depreciation and amortization expense

 

 
(8,124
)
 
(169
)
 
2

 
(8,291
)
Earnings from equity method investees

 

 
367

 

 

 
367

Operating income (loss)

 

 
5,810

 
(332
)
 

 
5,478

Interest expense

 
(15,278
)
 
(690
)
 

 

 
(15,968
)
Interest income

 

 
59

 
1

 

 
60

Equity in loss of consolidated subsidiaries
(14,759
)
 
(4,828
)
 
(547
)
 

 
20,134

 

Other income (expense), net

 

 
359

 
(7
)
 

 
352

(Loss) income before income taxes
(14,759
)
 
(20,106
)
 
4,991

 
(338
)
 
20,134

 
(10,078
)
Benefit (provision) for income taxes

 
5,347

 
(9,819
)
 
(22
)
 

 
(4,494
)
Net loss
(14,759
)
 
(14,759
)
 
(4,828
)
 
(360
)
 
20,134

 
(14,572
)
Noncontrolling interests

 

 

 
(187
)
 

 
(187
)
Net loss attributable to Delta Tucker Holdings, Inc.
$
(14,759
)
 
$
(14,759
)
 
$
(4,828
)
 
$
(547
)
 
$
20,134

 
$
(14,759
)

35




Delta Tucker Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidating Statement of Operations Information
For the Three Months Ended March 27, 2015  
(Amounts in thousands)
Parent
 
Subsidiary
Issuer
 
Subsidiary
Guarantors
 
Subsidiary
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenue
$

 
$

 
$
471,525

 
$
57,266

 
$
(61,769
)
 
$
467,022

Cost of services

 

 
(429,391
)
 
(56,520
)
 
61,753

 
(424,158
)
Selling, general and administrative expenses

 

 
(31,231
)
 
(8
)
 
16

 
(31,223
)
Depreciation and amortization expense

 

 
(6,683
)
 
(576
)
 

 
(7,259
)
Earnings from equity method investees

 

 
68

 

 

 
68

Operating income

 

 
4,288

 
162

 

 
4,450

Interest expense

 
(15,574
)
 
(481
)
 

 

 
(16,055
)
Interest income

 

 
16

 
1

 

 
17

Equity in loss of consolidated subsidiaries
(14,834
)
 
(4,711
)
 
(502
)
 

 
20,047

 

Other income, net

 

 
912

 
82

 

 
994

(Loss) income before income taxes
(14,834
)
 
(20,285
)
 
4,233

 
245

 
20,047

 
(10,594
)
Benefit (provision) for income taxes

 
5,451

 
(8,943
)
 
(317
)
 

 
(3,809
)
Net loss
(14,834
)
 
(14,834
)
 
(4,710
)
 
(72