• | DynCorp International LLC, or DynCorp International, and DIV Capital Corporation. DIV Capital Corporation is a wholly owned subsidiary of DynCorp International with nominal assets, which conducts no business or operations. DynCorp International and DIV Capital Corporation are collectively referred to in this prospectus as the “issuers.” |
• | Offered securities: the securities offered by this prospectus are senior subordinated notes, which we refer to as the “New Notes”, which are being issued in exchange for (1) $125.0 million of senior subordinated notes sold by us in a private placement that we consummated on July 28, 2008, and (2) $90,000 of other Existing Notes, as defined below, that were not exchanged for new notes in a prior exchange offer. Unless otherwise indicated by the context, we refer to the foregoing as the “Old Notes.” The $125.0 million of Old Notes referred to above were issued as an “add on” to our existing 9.50% Senior Subordinated Notes due 2013, which we had issued in February 2005 in the aggregate principal amount of $320,000,000 and which we refer to in this prospectus as the “Existing Notes.” The New Notes are substantially identical to the Old Notes and are governed by the same indenture governing the Old Notes and the Existing Notes. Old Notes tendered in the exchange offer must be in denominations of principal amount of $1,000 and any integral multiple thereof. The Old Notes, the New Notes and the Existing Notes are collectively referred to in this prospectus as the “Notes,” and they will be treated as a single class under the indenture governing them. |
• | Each broker-dealer that receives New Notes pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the New Notes. If the broker-dealer acquired the Old Notes as a result of market making or other trading activities, such broker-dealer must use the prospectus for the exchange offer, as supplemented or amended, in connection with resales of the New Notes. |
• | Broker-dealers who acquired the Old Notes directly from the issuers must, in the absence of an exemption, comply with the registration and prospectus delivery requirements of the Securities Act of 1933, or the Securities Act, in connection with secondary resales and cannot rely on the position of the Securities and Exchange Commission or SEC staff enunciated in the Exxon Capital Holding Corp. no-action letter (available May 13, 1988). |
• | Maturity: February 15, 2013. |
• | Interest payment dates: semiannually on each February 15 and August 15, beginning on February 15, 2009. |
• | Redemption: we may redeem the New Notes at any time on or after February 15, 2009 at the redemption prices set forth in this prospectus. In addition, prior to February 15, 2009, we may redeem all or a portion of the New Notes at a price equal to 100% of the principal amount thereof plus the make-whole premium described in this prospectus. We are required to redeem the New Notes under some circumstances involving a change of control and asset sales. |
• | Ranking: the New Notes will be our general unsecured obligations, will be subordinated to our existing and future senior debt and will rank equally with our existing and future senior subordinated debt, including our Existing Notes. The guarantees will be general unsecured obligations of each guarantor and will be structurally subordinated to all of the existing and future senior debt of our guarantor subsidiaries and will rank equally with any of our guarantor subsidiaries’ senior subordinated debt. The New Notes will be structurally subordinated to all obligations of DynCorp International’s foreign subsidiaries, which will not guarantee the New Notes. |
• | Neither an exchange of an Old Note for a New Note nor the filing of a registration statement with respect to the resale of the New Notes should be a taxable event to you, and you should not recognize any taxable gain or loss or any interest income as a result of such exchange or such filing. |
Information About the Transaction | ii | |||
Market Data | ii | |||
Backlog and Estimated Contract Values | ii | |||
Prospectus Summary | 1 | |||
Risk Factors | 11 | |||
Information Regarding Forward Looking Statements | 27 | |||
Use of Proceeds | 28 | |||
Ratio of Earnings to Fixed Charges | 29 | |||
Capitalization | 30 | |||
Selected Historical Consolidated Financial Data | 31 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 | |||
The Exchange Offer | 60 | |||
Business | 69 | |||
Management | 85 | |||
Security Ownership of Certain Beneficial Owners and Management | 108 | |||
Certain Relationships and Related Party Transactions | 110 | |||
Description of Material Indebtedness | 112 | |||
Description of New Notes | 115 | |||
Material United States Federal Income Tax Consequences | 157 | |||
Plan of Distribution | 161 | |||
Legal Matters | 162 | |||
Experts | 162 | |||
Available Information | 162 | |||
Index to Financial Statements | F-1 |
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MAINTENANCE AND TECHNICAL | ||||
INTERNATIONAL SECURITY SERVICES | SUPPORT SERVICES | LOGISTICS AND CONSTRUCTION MANAGEMENT | ||
• Law enforcement and security • Specialty aviation and counter-drug operations • Global Linguist Solutions joint venture | • Aviation services and operations • Aviation engineering • Aviation ground equipment support • Ground vehicle maintenance | • Contingency and logistics operations • Operating maintenance and construction management • LOGCAP IV contract |
• | A significant recurring contract base; | |
• | Long-standing and strong prime customer relationships; | |
• | A leading market position; | |
• | Attractive cash flow dynamics; | |
• | Attractive industry fundamentals; | |
• | A global reach and fulfillment capability; and | |
• | An experienced management team with strong government relationships. |
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• | Exploiting current business opportunities and backlog; | |
• | Capitalizing on industry trends; | |
• | Growing our recurring revenue base; | |
• | Continuing to enhance financial performance and operating efficiency; and | |
• | Pursuing foreign government opportunities. |
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Old Notes | On July 28, 2008, we issued $125.0 million aggregate principal amount of 9.50% Senior Subordinated Notes due 2013. In addition, we previously issued $90,000 of Existing Notes that were not exchanged for new notes in a prior exchange offer. | |
Existing Notes | We issued the $125.0 million of Old Notes referred to above as an addition or “add on” to our existing 9.50% Senior Subordinated Notes due 2013, which we had issued in February 2005 in the aggregate principal amount of $320.0 million. | |
Expiration Date | 5:00 p.m., New York City time, on February 11, 2009, which is 20 business days after the commencement of the exchange offer, unless we extend the exchange offer. | |
Exchange and Registration Rights | In an A/B exchange registration rights agreement dated July 28, 2008, the holders of the $125.0 million of Old Notes referred to above were granted exchange and registration rights. This exchange offer is intended to satisfy these rights. You have the right to exchange the Old Notes that you hold for the issuers’ 9.50% senior subordinated notes due 2013, series B, which are referred to in this prospectus as the “New Notes,” with substantially identical terms to those of the Old Notes and the Existing Notes, except that the transfer restrictions and registration rights relating to the Old Notes do not apply to the New Notes. Once the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your Old Notes. | |
Accrued Interest on the New Notes and Old Notes | The New Notes will bear interest from August 15, 2008. Holders of Old Notes which are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on those Old Notes accrued to the date of issuance of the New Notes. | |
Conditions to the Exchange Offer | The exchange offer is conditioned upon some customary conditions, which we may waive, and upon compliance with securities laws. All conditions to which the exchange offer is subject must be satisfied or waived on or before the expiration of the offer. | |
Procedures for Tendering Old Notes | Each holder of Old Notes wishing to accept the exchange offer must: | |
• complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; or |
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• arrange for DTC to transmit required information in accordance with DTC’s procedures for transfer to the exchange agent in connection with a book-entry transfer. | ||
You must mail or otherwise deliver this documentation together with the Old Notes to the exchange agent. Old Notes tendered in the exchange offer must be in denominations of principal amount of $1,000 and any integral multiple thereof. | ||
Special Procedures for Beneficial Holders | If you beneficially own Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Old Notes in the exchange offer, you should contact the registered holder promptly and instruct them to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your Old Notes, either arrange to have your Old Notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. | |
Guaranteed Delivery Procedures | You must comply with the applicable procedures for tendering if you wish to tender your Old Notes and: | |
• time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer; or | ||
• you cannot complete the procedure for book-entry transfer on time; or | ||
• your Old Notes are not immediately available. | ||
Withdrawal Rights | You may withdraw your tender of Old Notes at any time by or prior to 12:00 midnight, New York City time, on the expiration date, unless previously accepted for exchange. | |
Failure to Exchange Will Affect You Adversely | If you are eligible to participate in the exchange offer and you do not tender your Old Notes, you will not have further exchange or registration rights, and you will continue to be restricted from transferring your Old Notes. Accordingly, the liquidity of the Old Notes will be adversely affected. | |
Federal Tax Considerations | We believe that the exchange of the Old Notes for the New Notes pursuant to the exchange offer will not be a taxable event for United States federal income tax purposes. A holder’s holding period for New Notes will include the holding period for Old Notes, and the adjusted tax basis of the New Notes will be the same as the adjusted tax basis of the Old Notes exchanged. | |
Exchange Agent | Bank of New York Mellon, trustee under the indenture under which the New Notes will be issued, is serving as exchange agent. | |
Use of Proceeds | We will not receive any proceeds from the exchange offer. |
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Issuers | DynCorp International and DIV Capital. DIV Capital is a wholly owned subsidiary of DynCorp International with nominal assets and which conducts no business or operations. DynCorp International and DIV Capital are collectively referred to in this prospectus as the “issuers.” | |
Securities Offered | The New Notes will be substantially identical to the Existing Notes. The form and terms of the New Notes will be the same as the form and terms of the Old Notes except that: | |
• the New Notes will have the same CUSIP number as that of the Existing Notes and a CUSIP number different from that of any Old Notes that remain outstanding after the completion of the exchange offer; | ||
• the New Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer; and | ||
• you will not be entitled to any exchange or registration rights with respect to the New Notes. | ||
The New Notes will evidence the same debt as the Old Notes. The New Notes offered hereby, together with the Existing Notes and any Old Notes that remain outstanding after the completion of the exchange offer, will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. | ||
Maturity | February 15, 2013. | |
Interest | The New Notes will bear cash interest at the rate of 9.50% per annum (calculated using a360-day year), payable semi-annually in arrears. | |
Payment frequency: every six months on February 15 and August 15. | ||
First payment: February 15, 2009. | ||
Guarantees | Each of our existing and future domestic subsidiaries will guarantee the New Notes. Our foreign subsidiaries will not guarantee the New Notes. See “Description of New Notes — The Subsidiary Guarantees.” | |
Ranking and Subordination | The New Notes will be our general unsecured obligations, will be subordinated to our existing and future senior debt and will rank equally with our existing and future senior subordinated debt, including the Existing Notes. The guarantees will be general unsecured obligations of each guarantor and will be structurally subordinated to all of the existing and future senior debt of our guarantor subsidiaries and will rank equally with any of our guarantor subsidiaries’ senior subordinated debt. The New Notes will be structurally subordinated to all obligations of DynCorp |
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International’s foreign subsidiaries, which will not guarantee the New Notes. For the fiscal year ended March 28, 2008 and the six months ended October 3, 2008, our non-guarantor subsidiaries represented 15.5% and 13.1% of our revenue, respectively, and, as of October 3, 2008, 4.9% of our total assets. | ||
Because the New Notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the New Notes will not receive any payment until holders of senior indebtedness have been paid in full. As of October 3, 2008, after giving effect to the offering and sale of $125.0 million of the New Notes: | ||
• we would have had approximately $200,000,000 of senior indebtedness (consisting solely of borrowings under our senior secured credit facility); this amount does not include up to $187,600,000 of additional borrowings that are available under our senior secured credit facility, which gives effect to $12,400,000 in outstanding letters of credit; | ||
• we would have had $417,032,000 of senior subordinated indebtedness, consisting of $292,032,000 of outstanding Existing Notes and $125,000,000 of New Notes; | ||
• we would not have had any indebtedness that is subordinate to the New Notes; and | ||
• our foreign subsidiaries, which will not guarantee the New Notes, would not have any indebtedness outstanding to third parties. | ||
See “Description of New Notes — Subordination.” | ||
Optional Redemption | Prior to February 15, 2009, we may redeem the New Notes, in whole or in part, at a price equal to 100% of the principal amount of the New Notes plus the make-whole premium described under “Description of New Notes — Optional Redemption,” plus accrued and unpaid interest and special interest, if any, to the redemption date. | |
After February 15, 2009, we may redeem the New Notes, in whole or in part, at the applicable redemption prices described under “Description of New Notes — Optional Redemption,” plus accrued and unpaid interest and special interest, if any, to the redemption date. | ||
Mandatory Offer to Repurchase | If we sell certain assets without applying the proceeds in a specified manner, or experience certain change of control events, each holder of New Notes may require us to repurchase all or a portion of its New Notes at the purchase prices set forth in this prospectus, plus accrued and unpaid interest and special interest, if any, to the repurchase date. See “Description of New Notes — Repurchase at the Option of Holders.” Our senior secured credit facility may restrict us from repurchasing any of the New Notes, including upon any repurchase we may be required to make as a result of a change of control or certain asset sales. See “Risk Factors — Risks Relating to the New Notes — We may not have the |
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ability to raise the funds necessary to finance the change of control offer required by the indenture.” | ||
Covenants | The indenture governing the New Notes contains covenants that will impose significant restrictions on our business. The restrictions that these covenants place on us and our restricted subsidiaries include limitations on our ability and the ability of our restricted subsidiaries to, among other things: | |
• incur additional indebtedness or issue disqualified stock or preferred stock; | ||
• make investments; | ||
• sell assets; | ||
• create liens; | ||
• consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; | ||
• enter into transactions with our affiliates; and | ||
• designate our subsidiaries as unrestricted subsidiaries. | ||
These covenants are subject to important exceptions and qualifications, which are described under “Description of New Notes.” | ||
Exchange Offer; Registration Rights | You have the right to exchange the Old Notes for New Notes with substantially identical terms. | |
This exchange offer is intended to satisfy that right. The New Notes will not provide you with any further exchange or registration rights. | ||
Resales Without Further Registration | We believe that the New Notes issued in the exchange offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, if: | |
• you are acquiring the New Notes issued in the exchange offer in the ordinary course of your business; | ||
• you have not engaged in, do not intend to engage in and have no arrangement or understanding with any person to participate in the distribution of the New Notes issued to you in the exchange offer; and | ||
• you are not our “affiliate,” as defined under Rule 405 of the Securities Act. | ||
Each broker-dealer that receives New Notes pursuant to the exchange offer must deliver a prospectus in connection with any resale of the New Notes. If the broker-dealer acquired the Old Notes as a result of market making or other trading activities, such broker-dealer must use the prospectus for the exchange offer, as supplemented or amended in connection with the resales of the New Notes. We do not intend to list the New Notes on any securities exchange. |
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Year Ended | Year Ended | Year Ended | Six Months | Six Months | ||||||||||||||||
March 31, | March 30, | March 28, | Ended September 28, | Ended October 3, | ||||||||||||||||
2006 | 2007 | 2008 | 2007 | 2008 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
STATEMENT OF OPERATIONS DATA: | ||||||||||||||||||||
Revenue | $ | 1,966,993 | $ | 2,082,274 | $ | 2,139,761 | $ | 1,043,782 | $ | 1,495,945 | ||||||||||
Costs of services | (1,722,089 | ) | (1,817,707 | ) | (1,859,666 | ) | (905,721 | ) | (1,334,908 | ) | ||||||||||
Selling, general and administrative expenses | (97,520 | ) | (107,681 | ) | (117,919 | ) | (51,463 | ) | (53,845 | ) | ||||||||||
Depreciation and amortization | (46,147 | ) | (43,401 | ) | (42,173 | ) | (20,991 | ) | (20,565 | ) | ||||||||||
Operating income | 101,237 | 113,485 | 120,003 | 65,607 | 86,627 | |||||||||||||||
Interest expense | (56,686 | ) | (58,412 | ) | (55,374 | ) | (28,195 | ) | (29,120 | ) | ||||||||||
Loss on early extinguishment of debt | — | (3,484 | ) | — | — | (4,443 | ) | |||||||||||||
Earnings from affiliates, net of dividends | — | 2,913 | 4,758 | 2,067 | 2,670 | |||||||||||||||
Interest income | 461 | 1,789 | 3,062 | 1,680 | 1,021 | |||||||||||||||
Other income | — | — | 199 | — | 1,665 | |||||||||||||||
Income before income taxes | 45,012 | 56,291 | 72,648 | 41,159 | 58,390 | |||||||||||||||
Provision for income taxes | (16,627 | ) | (20,549 | ) | (27,999 | ) | (14,948 | ) | (18,447 | ) | ||||||||||
Income before minority interest | 28,385 | 35,742 | 44,649 | 26,211 | 39,943 | |||||||||||||||
Minority interest | — | — | 3,306 | — | (9,092 | ) | ||||||||||||||
Net income (loss) | $ | 28,385 | $ | 35,742 | $ | 47,955 | $ | 26,211 | $ | 30,851 | ||||||||||
OTHER FINANCIAL DATA: | ||||||||||||||||||||
EBITDA(1) | $ | 148,718 | $ | 163,438 | $ | 174,820 | $ | 90,986 | $ | 103,978 | ||||||||||
Purchases of property and equipment and software | 6,180 | 9,317 | 7,738 | 3,378 | 3,515 | |||||||||||||||
Cash interest paid | 57,464 | 49,090 | 53,065 | 27,234 | 30,054 | |||||||||||||||
Depreciation and amortization | 47,020 | 45,251 | 43,492 | 21,632 | 21,087 | |||||||||||||||
Net cash provided by operating activities | 55,111 | 93,533 | 42,361 | 49,910 | 37,953 | |||||||||||||||
Net cash used by investing activities | (6,231 | ) | (7,595 | ) | (11,306 | ) | (3,220 | ) | (19,718 | ) | ||||||||||
Net cash (used by) provided by financing activities | (41,781 | ) | (4,056 | ) | (48,131 | ) | (39,083 | ) | 29,165 | |||||||||||
Ratio of earnings to fixed charges(2) | 1.6 | x | 1.7 | x | 2.0 | x | 2.1 | x | 2.4 | x | ||||||||||
SELECTED OPERATING INFORMATION (at end of period): | ||||||||||||||||||||
Backlog(3) | $ | 2,641,000 | $ | 6,132,011 | $ | 5,961,004 | $ | 2,718,145 | $ | 6,490,822 | ||||||||||
Estimated Remaining Contract Value(4) | 5,727,000 | 8,991,150 | 7,484,516 | 5,360,053 | 10,057,022 | |||||||||||||||
BALANCE SHEET DATA (at end of period) | ||||||||||||||||||||
Cash and cash equivalents | $ | 20,573 | $ | 102,455 | $ | 85,379 | $ | 110,062 | $ | 132,779 | ||||||||||
Working capital(5) | 251,329 | 282,929 | 361,813 | 457,718 | 577,589 | |||||||||||||||
Total assets | 1,239,089 | 1,362,901 | 1,402,709 | 1,359,790 | 1,548,717 | |||||||||||||||
Total debt (including current portion) | 661,551 | 630,994 | 593,162 | 591,614 | 615,835 | |||||||||||||||
Members’ equity | 326,159 | 379,674 | 424,285 | 405,725 | 466,703 |
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(1) | We define EBITDA as GAAP net income before depreciation and amortization, interest expense, and income taxes. Our management uses EBITDA as a supplemental measure in the evaluation of our business and believes that EBITDA provides a meaningful measure of our operational performance on a consolidated basis because it eliminates the effects of period to period changes in taxes, costs associated with capital investments and interest expense and is consistent with one of the measures used by us to evaluate management’s performance for incentive compensation. EBITDA is not a financial measure calculated in accordance with GAAP. Accordingly, it should not be considered in isolation or as a substitute for net income or other financial measures prepared in accordance with GAAP. When evaluating EBITDA, investors should consider, among other factors, (i) increasing or decreasing trends in EBITDA, (ii) whether EBITDA has remained at positive levels historically, and (iii) how EBITDA compares to our debt outstanding. The non-GAAP measure of EBITDA has certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. EBITDA also excludes depreciation and amortization expenses. Because these are material and recurring items, any measure that excludes them has a material limitation. To mitigate these limitations, we have policies and procedures in place to identify expenses that qualify as interest, taxes, depreciation and amortization and to segregate these expenses from other expenses to ensure that our EBITDA is consistently reflected from period to period. EBITDA excludes some items that affect net income and may vary among companies. EBITDA as presented by us may not be comparable to similarly titled measures of other companies. EBITDA does not give effect to the cash we must use to service our debt or pay income taxes and thus do not reflect the funds generated from operations or actually available for capital investments. |
Year Ended | Year Ended | Year Ended | Six Months | Six Months | ||||||||||||||||
March 31, | March 30, | March 28, | Ended September 28, | Ended October 3, | ||||||||||||||||
2006 | 2007 | 2008 | 2007 | 2008 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net income | $ | 28,385 | $ | 35,742 | $ | 47,955 | $ | 26,211 | $ | 30,851 | ||||||||||
Income taxes | 16,627 | 20,549 | 27,999 | 14,948 | 18,447 | |||||||||||||||
Interest expense and loss on early extinguishment of debt(a) | 56,686 | 61,896 | 55,374 | 28,195 | 33,563 | |||||||||||||||
Depreciation and amortization | 47,020 | 45,251 | 43,492 | 21,632 | 21,087 | |||||||||||||||
EBITDA | $ | 148,718 | $ | 163,438 | $ | 174,820 | $ | 90,986 | $ | 103,978 | ||||||||||
(a) | Fiscal 2007 includes the premium associated with the redemption of a portion of the existing notes and write-off of deferred financing costs associated with the early retirement of a portion of the existing notes. The six months ended October 3, 2008 includes the write-off of deferred financing costs associated with our prior credit facility. These premiums and write-offs represent additional costs of financing and management of our capital structure. |
(2) | For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes adjusted for equity investees and minority interest plus fixed charges. Fixed charges consist of total interest expense and estimated interest in rental expense. | |
(3) | Backlog data is as of the end of the applicable period. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contract options. |
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(4) | “Estimated Remaining Contract Value” represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from future task or delivery orders through the end of the term of such IDIQ contracts and is based on our experience under such IDIQ contracts and our estimates as to future performance. | |
(5) | Working capital is defined as current assets, net of current liabilities. |
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• | it may be more difficult for us to satisfy our debt obligations; | |
• | our ability to obtain additional financing for working capital, debt service requirements, general corporate or other purposes may be impaired; | |
• | we must use a substantial portion of our cash flow to pay interest and principal on our indebtedness which will reduce the funds available for other purposes; | |
• | we are more vulnerable to economic downturns and adverse industry conditions; | |
• | our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in our industry as compared to our competitors may be compromised due to the high level of indebtedness; and | |
• | our ability to refinance indebtedness may be limited. |
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• | incur additional indebtedness or guarantee obligations; | |
• | repay indebtedness (including the New Notes) prior to stated maturities; | |
• | make interest payments on the New Notes and other indebtedness that is subordinate to our indebtedness under the senior secured credit facility; | |
• | pay dividends or make certain other restricted payments; | |
• | make investments or acquisitions; | |
• | create liens or other encumbrances; and | |
• | transfer or sell certain assets or merge or consolidate with another entity. |
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• | their earnings; | |
• | covenants contained in our and their debt agreements, including the indenture relating to the Notes and our senior secured credit facility; | |
• | covenants contained in other agreements to which we or our subsidiaries are or may become subject; | |
• | business and tax considerations; and | |
• | applicable law, including laws regarding the payment of dividends and distributions and fraudulent transfer laws. |
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• | the direct or indirect sale or other disposition (other than by merger or consolidation) of all or substantially all of our properties or assets to any “person” other than to Veritas Capital or its affiliates; | |
• | the adoption of a plan relating to our liquidation or dissolution; | |
• | the consummation of any transaction (including any merger or consolidation), that would result in any “person” other than Veritas Capital or any of its affiliates becoming the beneficial owner of more than 50% of our voting stock; or | |
• | the first day on which a majority of the members of our board of directors are not “continuing directors,” which generally means, as of the date of determination, any member of our board of directors who was a member on the date of the indenture; or was nominated for election or elected to our board of directors with the approval of a majority of our directors who were members of our board of directors at the time of the nomination or election. |
• | issued the guarantee to delay, hinder or defraud present or future creditors; | |
• | received less than reasonably equivalent value or fair consideration for issuing the guarantee at the time it issued the guarantee; | |
• | was insolvent or rendered insolvent by reason of issuing the guarantee; | |
• | was engaged, or about to engage, in a business or transaction for which its remaining unencumbered assets constituted unreasonably small capital to carry on its business; or | |
• | intended to incur, or believed that it would incur, debts beyond its ability to pay as they mature. |
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• | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; | |
• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing indebtedness, including contingent liabilities, as they become absolute and mature; or | |
• | it could not pay its indebtedness as it becomes due. |
• | changes in the overall market for high-yield debt securities; | |
• | changes in our financial performance or prospects; | |
• | the prospects for companies in our industry generally; | |
• | the number of holders of the New Notes; | |
• | the interest of securities dealers in making a market for the New Notes; | |
• | prevailing interest rates; and | |
• | any rating assigned to the Notes by a rating agency, and any downgrade, suspension or withdrawal of such rating. |
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• | policy and/or spending changes implemented by the new Presidential administration; | |
• | a significant decline in, or reapportioning of, spending by the U.S. government, in general, or by the DoD or the DoS, in particular; | |
• | changes, delays or cancellations of U.S. government programs, requirements or policies; | |
• | the adoption of new laws or regulations that affect companies that provide services to the U.S. government; | |
• | U.S. government shutdowns or other delays in the government appropriations process; | |
• | curtailment of the U.S. government’s outsourcing of services to private contractors; | |
• | changes in the political climate, including with regard to the funding or operation of the services we provide; and | |
• | general economic conditions, including a slowdown in the economy or unstable economic conditions in the United States or in the countries in which we operate. |
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• | terminate or modify existing contracts; | |
• | reduce the value of existing contracts through partial termination; | |
• | delay the payment of our invoices by government payment offices; | |
• | audit our contract-related costs and fees; and | |
• | suspend us from receiving new contracts pending the resolution of alleged violations of procurement laws or regulations. |
• | we may expend substantial funds and time to prepare bids and proposals for contracts that may ultimately be awarded to one of our competitors; | |
• | we may be unable to estimate accurately the resources and costs that will be required to perform any contract we are awarded, which could result in substantial cost overruns; and | |
• | we may encounter expense and delay if our competitors protest or challenge awards of contracts to us, and any such protest or challenge could result in a requirement to resubmit bids on modified specifications or in the termination, reduction or modification of the awarded contract. Additionally, |
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the protest of contracts awarded to us may result in the delay of program performance and the generation of revenues while the protest is pending. |
19
• | export regulations that could erode profit margins or restricted exports; | |
• | compliance with the U.S. Foreign Corrupt Practices Act; | |
• | the burden and cost of compliance with foreign laws, treaties and technical standards and changes in those regulations; | |
• | contract award and funding delays; | |
• | potential restrictions on transfers of funds; | |
• | foreign currency fluctuations; | |
• | import and export duties and value added taxes; | |
• | transportation delays and interruptions; | |
• | uncertainties arising from foreign local business practices and cultural considerations; | |
• | requirements by foreign governments that we make a minimum level of local investments as part of our contracts with them, which investments may not yield any return; and | |
• | potential military conflicts, civil strife and political risks. |
20
21
22
23
24
25
26
• | our substantial level of indebtedness; | |
• | policy and/or spending changes implemented by the new Presidential administration; | |
• | termination of key U.S. government contracts; | |
• | changes in the demand for services that we provide; | |
• | pursuit of new commercial business and foreign government opportunities; | |
• | activities of competitors; | |
• | bid protests; | |
• | changes in significant operating expenses; | |
• | changes in availability of or cost of capital; | |
• | general political, economic and business conditions in the United States; | |
• | acts of war or terrorist activities; | |
• | variations in performance of financial markets; | |
• | the inherent difficulties of estimating future contract revenues; | |
• | anticipated revenue from IDIQ contracts; | |
• | expected percentages of future revenue represented by fixed-price andtime-and-materials contracts; and | |
• | other risks detailed in this prospectus, including those under “Risk Factors.” |
27
28
Six Months | ||||||||||||||||||||||||
Fiscal Year Ended | Ended October 3, | |||||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | 2008 | |||||||||||||||||||
Ratio of earnings to fixed charges | 8.9x | 1.3x | (1) | 1.6x | 1.7x | 2.0x | 2.4x |
(1) | The ratio of earnings to fixed charges for fiscal year 2005 has been calculated on a pro forma basis giving effect to the acquisition of our business from Computer Sciences Corporation and the financing transactions in connection with the acquisition. |
29
As of | ||||
October 3, | ||||
(Dollars in thousands) | 2008 | |||
Cash and cash equivalents | $ | 132,779 | ||
Long-term debt, including current portion: | ||||
Senior secured credit facility | ||||
Revolving credit facility(1) | — | |||
Term loan facility | 200,000 | |||
Old Notes issued July 2008 | 123,800 | |||
Existing Notes | 292,032 | |||
Total long-term debt, including current portion | 615,835 | |||
Total equity | 466,703 | |||
Total capitalization | $ | 1,082,538 | ||
(1) | Excludes $12.4 million of outstanding letters of credit as of October 3, 2008. | |
(2) | Net of $1.2 million unamortized discount. |
30
Immediate Predecessor | Successor | ||||||||||||||||||||||||||||||||
Fiscal Year | April 3, 2004 | 49 Days | |||||||||||||||||||||||||||||||
Ended | to | Ended | Fiscal Year Ended | Six Months Ended | |||||||||||||||||||||||||||||
April 2, | Feb 11, | April 1, | March 31, | March 30, | March 28, | September 28, | October 3, | ||||||||||||||||||||||||||
(Dollars in thousands) | 2004 | 2005 | 2005 | 2006 | 2007 | 2008 | 2007 | 2008 | |||||||||||||||||||||||||
STATEMENT OF OPERATIONS DATA: | |||||||||||||||||||||||||||||||||
Revenue | $ | 1,214,289 | $ | 1,654,305 | $ | 266,604 | $ | 1,966,993 | $ | 2,082,274 | $ | 2,139,761 | $ | 1,043,782 | $ | 1,495,945 | |||||||||||||||||
Cost of services | (1,106,571 | ) | (1,496,109 | ) | (245,406 | ) | (1,722,089 | ) | (1,817,707 | ) | (1,859,666 | ) | (905,721 | ) | (1,334,908 | ) | |||||||||||||||||
Selling, general and administrative expenses | (48,350 | ) | (57,755 | ) | (8,408 | ) | (97,520 | ) | (107,681 | ) | (117,919 | ) | (51,463 | ) | (53,845 | ) | |||||||||||||||||
Depreciation and amortization | (8,148 | ) | (5,922 | ) | (5,605 | ) | (46,147 | ) | (43,401 | ) | (42,173 | ) | (20,991 | ) | (20,565 | ) | |||||||||||||||||
Operating income | 51,220 | 94,519 | 7,185 | 101,237 | 113,485 | 120,003 | 65,607 | 86,627 | |||||||||||||||||||||||||
Interest expense | — | — | (8,054 | ) | (56,686 | ) | (58,412 | ) | (55,374 | ) | (28,195 | ) | (29,120 | ) | |||||||||||||||||||
Loss on early extinguishment of debt | — | — | — | — | (3,484 | ) | — | — | (4,443 | ) | |||||||||||||||||||||||
Earnings from affiliates, net of dividends | — | — | — | — | 2,913 | 4,758 | 2,067 | 2,670 | |||||||||||||||||||||||||
Interest income | 64 | 170 | 7 | 461 | 1,789 | 3,062 | 1,680 | 1,021 | |||||||||||||||||||||||||
Other income | — | — | — | — | — | 199 | — | 1,665 | |||||||||||||||||||||||||
Income before income taxes | 51,284 | 94,689 | (862 | ) | 45,012 | 56,291 | 72,648 | 41,159 | 58,390 | ||||||||||||||||||||||||
Provision for income taxes | (19,924 | ) | (34,956 | ) | (60 | ) | (16,627 | ) | (20,549 | ) | (27,999 | ) | (14,948 | ) | (18,447 | ) | |||||||||||||||||
Income before minority interest | 31,360 | 59,733 | (922 | ) | 28,385 | 35,742 | 44,649 | 26,211 | 39,943 | ||||||||||||||||||||||||
Minority interest | — | — | — | — | — | 3,306 | — | (9,092 | ) | ||||||||||||||||||||||||
Net income (loss) | 31,360 | 59,733 | (922 | ) | 28,385 | 35,742 | 47,955 | 26,211 | 30,851 | ||||||||||||||||||||||||
OTHER FINANCIAL DATA: | |||||||||||||||||||||||||||||||||
Purchases of property and equipment and software | $ | 2,047 | $ | 8,473 | $ | 244 | $ | 6,180 | $ | 9,317 | $ | 7,738 | $ | 3,378 | $ | 3,515 | |||||||||||||||||
Cash interest paid | — | — | 322 | 57,464 | 49,090 | 53,065 | 27,234 | 30,054 | |||||||||||||||||||||||||
Depreciation and amortization | 8,148 | 5,922 | 5,605 | 47,020 | 45,251 | 43,492 | 21,632 | 21,087 | |||||||||||||||||||||||||
Net cash provided (used) by operating activities | (6,756 | ) | (2,092 | ) | (31,240 | ) | 55,111 | 93,533 | 42,361 | 49,910 | 37,953 | ||||||||||||||||||||||
Net cash used by investing activities | (2,292 | ) | (10,707 | ) | (869,394 | ) | (6,231 | ) | (7,595 | ) | (11,306 | ) | (3,220 | ) | (19,718 | ) |
31
Immediate Predecessor | Successor | ||||||||||||||||||||||||||||||||
Fiscal Year | April 3, 2004 | 49 Days | |||||||||||||||||||||||||||||||
Ended | to | Ended | Fiscal Year Ended | Six Months Ended | |||||||||||||||||||||||||||||
April 2, | Feb 11, | April 1, | March 31, | March 30, | March 28, | September 28, | October 3, | ||||||||||||||||||||||||||
(Dollars in thousands) | 2004 | 2005 | 2005 | 2006 | 2007 | 2008 | 2007 | 2008 | |||||||||||||||||||||||||
Net cash (used) provided by financing activities | $ | 11,017 | $ | 14,325 | $ | 906,072 | $ | (41,781 | ) | $ | (4,056 | ) | $ | (48,131 | ) | $ | (39,083 | ) | $ | 29,165 | |||||||||||||
Ratio of earnings to fixed charges(1) | 8.9 | x | 26.2 | x | 0.9 | x | 1.6 | x | 1.7 | s | 2.0 | x | 2.1 | x | 2.4 | x | |||||||||||||||||
SELECTED OPERATING INFORMATION (at end of period) | |||||||||||||||||||||||||||||||||
Backlog(2) | $ | 2,164,000 | N/A | $ | 2,040,000 | $ | 2,641,000 | $ | 6,132,011 | $ | 5,961,004 | $ | 2,718,145 | $ | 6,490,822 | ||||||||||||||||||
Estimated remaining contract value(3) | 2,812,000 | N/A | 4,413,000 | 5,727,000 | 8,991,150 | 7,484,516 | 5,360,053 | 10,057,022 | |||||||||||||||||||||||||
BALANCE SHEET DATA (at end of period): | |||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 6,510 | N/A | $ | 13,474 | $ | 20,573 | $ | 102,455 | $ | 85,379 | $ | 110,062 | $ | 132,779 | ||||||||||||||||||
Working capital(4) | 104,335 | N/A | 200,367 | 251,329 | 282,929 | 361,813 | 457,718 | 577,589 | |||||||||||||||||||||||||
Total assets | 579,829 | N/A | 1,148,193 | 1,239,089 | 1,362,901 | 1,402,709 | 1,359,790 | 1,548,717 | |||||||||||||||||||||||||
Total debt (including current portion) | N/A | N/A | 700,000 | 661,551 | 630,994 | 593,162 | 591,614 | 615,835 | |||||||||||||||||||||||||
Members’ equity | 396,573 | N/A | 223,908 | 326,159 | 379,674 | 424,285 | 405,725 | 466,703 | |||||||||||||||||||||||||
(1) | For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes adjusted for equity investees and minority interest plus fixed charges. Fixed charges consist of total interest expense and estimated interest in rental expense. On a pro forma basis after giving effect to the acquisition of our business from Computer Sciences Corporation and the financing transactions in connection with the acquisition, our ratio of earnings to fixed charges for fiscal year 2005 was 1.3x. | |
(2) | Backlog data is as of the end of the applicable period. Our backlog consists of funded and unfunded amounts under contracts. Funded backlog is equal to the amounts actually appropriated by a customer for payment of goods and services less actual revenue recognized as of the measurement date under that appropriation. Unfunded backlog is the actual dollar value of unexercised priced contract options. | |
(3) | “Estimated Remaining Contract Value” represents total backlog plus management’s estimate of future revenue under IDIQ contracts for task or delivery orders that have not been awarded. Future revenue represents management’s estimate of revenue that will be recognized from future task or delivery orders through the end of the term of such IDIQ contracts and is based on our experience under such IDIQ contracts and our estimates as to future performance. | |
(4) | Working capital is defined as current assets, net of current liabilities. |
32
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• | The continued transformation of military forces, leading to increased outsourcing of non-combat functions, including life-cycle asset management functions ranging from organizational to depot level maintenance; |
33
• | An increase in the level and frequency of overseas deployments and peace-keeping operations for the DoS, DoD and United Nations; | |
• | Increased maintenance, overhaul and upgrade needs to support aging military platforms; | |
• | Increased outsourcing by foreign militaries of maintenance, supply support, facilities management and construction management-related services; and | |
• | The shift from single award to more multiple award IDIQ contracts, which may offer us an opportunity to increase revenues under these contracts by competing for task orders with the other contract awardees. |
34
Three Months Ended | ||||||||||||||||
October 3, 2008 | September 28, 2007 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenue | $ | 779,151 | 100.0 | % | $ | 495,109 | 100.0 | % | ||||||||
Cost of services | (696,519 | ) | –89.4 | % | (425,633 | ) | –86.0 | % | ||||||||
Selling, general and administrative expenses | (25,994 | ) | –3.3 | % | (24,928 | ) | –5.0 | % | ||||||||
Depreciation and amortization expense | (10,005 | ) | –1.3 | % | (10,601 | ) | –2.1 | % | ||||||||
Operating income | 46,633 | 6.0 | % | 33,947 | 6.9 | % | ||||||||||
Interest expense | (14,905 | ) | –1.9 | % | (13,705 | ) | –2.8 | % | ||||||||
Loss on early extinguishment of debt | (4,443 | ) | –0.6 | % | — | 0.0 | % | |||||||||
Earnings from affiliates | 1,523 | 0.2 | % | 1,176 | 0.2 | % | ||||||||||
Interest income | 677 | 0.1 | % | 430 | 0.1 | % | ||||||||||
Other income, net | 960 | 0.1 | % | — | 0.0 | % | ||||||||||
Income before taxes | 30,445 | 3.9 | % | 21,848 | 4.4 | % | ||||||||||
Provision for income taxes | (9,131 | ) | —1.2 | % | (7,895 | ) | –1.6 | % | ||||||||
Income before minority interest | 21,314 | 2.7 | % | 13,953 | 2.8 | % | ||||||||||
Minority interest | (8,443 | ) | –1.1 | % | — | 0.0 | % | |||||||||
Net income | $ | 12,871 | 1.7 | % | $ | 13,953 | 2.8 | % | ||||||||
Six Months Ended | ||||||||||||||||
October 3, 2008 | September 28, 2007 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenue | $ | 1,495,945 | 100.0 | % | $ | 1,043,782 | 100.0 | % | ||||||||
Cost of services | (1,334,908 | ) | –89.2 | % | (905,721 | ) | –86.8 | % | ||||||||
Selling, general and administrative expenses | (53,845 | ) | –3.6 | % | (51,463 | ) | –4.9 | % | ||||||||
Depreciation and amortization expense | (20,565 | ) | –1.4 | % | (20,991 | ) | –2.0 | % | ||||||||
Operating income | 86,627 | 5.8 | % | 65,607 | 6.3 | % | ||||||||||
Interest expense | (29,120 | ) | –1.9 | % | (28,195 | ) | –2.7 | % | ||||||||
Loss on early extinguishment of debt | (4,443 | ) | –0.3 | % | — | 0.0 | % | |||||||||
Earnings from affiliates | 2,640 | 0.2 | % | 2,067 | 0.2 | % | ||||||||||
Interest income | 1,021 | 0.1 | % | 1,680 | 0.2 | % | ||||||||||
Other income, net | 1,665 | 0.1 | % | — | 0.0 | % | ||||||||||
Income before taxes | 58,390 | 3.9 | % | 41,159 | 3.9 | % | ||||||||||
Provision for income taxes | (18,447 | ) | –1.2 | % | (14,948 | ) | –1.4 | % | ||||||||
Income before minority interest | 39,943 | 2.7 | % | 26,211 | 2.5 | % | ||||||||||
Minority interest | (9,092 | ) | –0.6 | % | — | 0.0 | % | |||||||||
Net income | $ | 30,851 | 2.1 | % | $ | 26,211 | 2.5 | % | ||||||||
35
36
Three Months Ended | ||||||||||||||||
October 3, 2008 | September 28, 2007 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | ||||||||||||||||
International Security Services | $ | 472,335 | 60.6 | % | $ | 270,847 | 54.7 | % | ||||||||
Logistics and Construction Management | 85,466 | 11.0 | % | 47,623 | 9.6 | % | ||||||||||
Maintenance and Technical Support Services | 222,730 | 28.6 | % | 176,794 | 35.7 | % | ||||||||||
Other/elimination | (1,380 | ) | –0.2 | % | (155 | ) | 0.0 | % | ||||||||
Consolidated | $ | 779,151 | 100.0 | % | $ | 495,109 | 100.0 | % | ||||||||
Operating Income and Margin | ||||||||||||||||
International Security Services | $ | 49,949 | 6.4 | % | $ | 32,975 | 6.7 | % | ||||||||
Logistics and Construction Management | (23,057 | ) | –3.0 | % | (2,728 | ) | –0.6 | % | ||||||||
Maintenance and Technical Support Services | 19,741 | 2.5 | % | 3,700 | 0.7 | % | ||||||||||
Consolidated | $ | 46,633 | 6.0 | % | $ | 33,947 | 6.9 | % | ||||||||
Three Months Ended | ||||||||||||
October 3, 2008 | September 28, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 472,335 | $ | 270,847 | $ | 201,488 | ||||||
Operating income | 49,949 | 32,975 | 16,974 |
37
38
Three Months Ended | ||||||||||||
October 3, 2008 | September 28, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 85,466 | $ | 47,623 | $ | 37,843 | ||||||
Operating income | (23,057 | ) | (2,728 | ) | (20,329 | ) |
39
Three Months Ended | ||||||||||||
October 3, 2008 | September 28, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 222,730 | $ | 176,794 | $ | 45,936 | ||||||
Operating income | 19,741 | 3,700 | 16,041 |
40
Six Months Ended | ||||||||||||||||
October 3, 2008 | September 28, 2007 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenues | ||||||||||||||||
International Security Services | $ | 877,709 | 58.7 | % | $ | 559,412 | 53.6 | % | ||||||||
Logistics and Construction Management | 178,928 | 12.0 | % | 110,751 | 10.6 | % | ||||||||||
Maintenance and Technical Support Services | 441,607 | 29.5 | % | 373,619 | 35.8 | % | ||||||||||
Other/elimination | (2,299 | ) | –0.2 | % | — | 0.0 | % | |||||||||
Consolidated | $ | 1,495,945 | 100.0 | % | $ | 1,043,782 | 100.0 | % | ||||||||
Operating Income and Margin | ||||||||||||||||
International Security Services | $ | 75,378 | 5.0 | % | $ | 57,134 | 5.5 | % | ||||||||
Logistics and Construction Management | (16,987 | ) | –1.1 | % | (431 | ) | –0.1 | % | ||||||||
Maintenance and Technical Support Services | 28,236 | 1.9 | % | 8,904 | 0.9 | % | ||||||||||
Consolidated | $ | 86,627 | 5.8 | % | $ | 65,607 | 6.3 | % | ||||||||
Six Months Ended | ||||||||||||
October 3, 2008 | September 28, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 877,709 | $ | 559,412 | $ | 318,297 | ||||||
Operating income | 75,378 | 57,134 | 18,244 |
41
Six Months Ended | ||||||||||||
October 3, 2008 | September 28, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 178,928 | $ | 110,751 | $ | 68,177 | ||||||
Operating income | (16,987 | ) | (431 | ) | (16,556 | ) |
42
Six Months Ended | ||||||||||||
October 3, 2008 | September 28, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 441,607 | $ | 373,619 | $ | 67,988 | ||||||
Operating income | 28,236 | 8,904 | $ | 19,332 |
43
Fiscal Year Ended | ||||||||||||||||
March 28, 2008 | March 30, 2007 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenue | $ | 2,139,761 | 100.0 | % | $ | 2,082,274 | 100.0 | % | ||||||||
Cost of services | (1,859,666 | ) | (86.9 | )% | (1,817,707 | ) | (87.3 | )% | ||||||||
Selling, general and administrative expenses | (117,919 | ) | (5.5 | )% | (107,681 | ) | (5.2 | )% | ||||||||
Depreciation and amortization expense | (42,173 | ) | (2.0 | )% | (43,401 | ) | (2.1 | )% | ||||||||
Operating income | 120,003 | 5.6 | % | 113,485 | 5.4 | % | ||||||||||
Interest expense | (55,374 | ) | (2.6 | )% | (58,412 | ) | (2.8 | )% | ||||||||
Loss on early extinguishment of debt | — | 0.0 | % | (3,484 | ) | (0.1 | )% | |||||||||
Earnings from affiliates, net of dividends | 4,758 | 0.2 | % | 2,913 | 0.1 | % | ||||||||||
Interest income | 3,062 | 0.1 | % | 1,789 | 0.1 | % | ||||||||||
Other income, net | 199 | 0.0 | % | — | 0.0 | % | ||||||||||
Income before taxes | 72,648 | 3.4 | % | 56,291 | 2.7 | % | ||||||||||
Provision for income taxes | (27,999 | ) | (1.3 | )% | (20,549 | ) | (1.0 | )% | ||||||||
Income before minority interest | 44,649 | 2.1 | % | 35,742 | 1.7 | % | ||||||||||
Minority interest | 3,306 | 0.2 | % | — | 0.0 | % | ||||||||||
Net income | $ | 47,955 | 2.2 | % | $ | 35,742 | 1.7 | % | ||||||||
44
Fiscal Year Ended | ||||||||||||
March 28, 2008 | March 30, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 1,097,083 | $ | 1,086,481 | $ | 10,602 | ||||||
Operating income | 89,588 | 89,130 | 458 |
45
Fiscal Year Ended | ||||||||||||
March 28, 2008 | March 30, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 285,317 | $ | 266,050 | $ | 19,267 | ||||||
Operating income | 10,854 | 13,227 | (2,373 | ) |
46
Fiscal Year Ended | ||||||||||||
March 28, 2008 | March 30, 2007 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 757,361 | $ | 729,743 | $ | 27,618 | ||||||
Operating income | 19,561 | 11,128 | 8,433 |
47
Fiscal Year Ended | ||||||||||||||||
March 30, 2007 | March 31, 2006 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Revenue | $ | 2,082,274 | 100.0 | % | $ | 1,966,993 | 100.0 | % | ||||||||
Cost of services | (1,817,707 | ) | (87.3 | )% | (1,722,089 | ) | (87.5 | )% | ||||||||
Selling, general and administrative expenses | (107,681 | ) | (5.2 | )% | (97,520 | ) | (5.0 | )% | ||||||||
Depreciation and amortization expense | (43,401 | ) | (2.1 | )% | (46,147 | ) | (2.4 | )% | ||||||||
Operating income | 113,485 | 5.4 | % | 101,237 | 5.1 | % | ||||||||||
Interest expense | (58,412 | ) | (2.8 | )% | (56,686 | ) | (2.9 | )% | ||||||||
Loss on early extinguishment of debt | (3,484 | ) | (0.1 | )% | — | 0.0 | % | |||||||||
Net earnings from affiliates | 2,913 | 0.1 | % | — | 0.0 | % | ||||||||||
Interest income | 1,789 | 0.1 | % | 461 | 0.0 | % | ||||||||||
Income before taxes | 56,291 | 2.7 | % | 45,012 | 2.2 | % | ||||||||||
Provision for income taxes | (20,549 | ) | (1.0 | )% | (16,627 | ) | (0.8 | )% | ||||||||
Net income | $ | 35,742 | 1.7 | % | $ | 28,385 | 1.4 | % | ||||||||
48
Fiscal Year Ended | ||||||||||||
March 30, 2007 | March 31, 2006 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 1,086,481 | $ | 1,039,650 | $ | 46,831 | ||||||
Operating income | 89,130 | 91,816 | (2,686 | ) |
49
• | increased aviation support services of drug eradication activities under the Air-Wing program in South America and Afghanistan — $85.8 million; | |
• | a higher net number of international police liaison officers deployed in the Middle East under the Civilian Police program — $16.0 million; and | |
• | new security service and specialty aviation contracts — $30.4 million; |
• | conclusion of five task orders under the World Wide Personal Protective Services program — $73.8 million; and | |
• | the suspension of a security contract with a customer located in the Middle East — $11.8 million. |
• | the suspension of a security contract with a customer located in the Middle East — $7.8 million; and | |
• | lower contribution from the Worldwide Personal Protection Services programs, including the completion of task orders in Israel, Haiti, Afghanistan and central Iraq, unrealized investment in personnel training and cost in excess of contract funding to complete the construction of a base camp in Iraq for the DoS — $14.5 million; |
• | improved profitability on fixed-price task orders under the Air-Wing program due to strong performance and favorable contract changes — $11.4 million; and | |
• | a reduction in bad debt expense — $7.0 million. |
Fiscal Year Ended | ||||||||||||
March 30, 2007 | March 31, 2006 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 266,050 | $ | 218,711 | $ | 47,339 | ||||||
Operating income | 13,227 | 6,080 | 7,147 |
• | additional contingency and logistics services provided under the Africa Peacekeeping contract — $43.4 million; | |
• | increased weapons removal and abatement services in Afghanistan — $6.9 million; and | |
• | construction management services progress in Africa — $9.3 million; |
• | non-recurring contingency and logistics services provided to FEMA after Hurricane Katrina — $11.6 million. |
50
• | a contract modification for construction activities in Afghanistan completed in earlier periods — $7.6 million; and | |
• | increased logistic support services under the Africa Peacekeeping program with the DoS — $3.7 million; |
• | non-recurring contingency and logistics services provided to FEMA after Hurricane Katrina — $2.8 million; and | |
• | lower contribution from the Forward Operating Locations programs, primarily due to a lower number of vehicles purchased by the customer — $0.7 million. |
Fiscal Year Ended | ||||||||||||
March 30, 2007 | March 31, 2006 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenue | $ | 729,743 | $ | 708,632 | $ | 21,111 | ||||||
Operating income | 11,128 | 3,341 | 7,787 |
• | an increase in personnel and services provided under the Contract Field Teams program — $19.7 million; | |
• | increased domestic aviation services provided to the U.S. Air Force through a subcontract agreement under the C-21 Contractor Logistics Support program — $25.7 million; | |
• | revenue recorded in connection with wage pass-through claims — $10.4 million; and | |
• | new business and net growth in existing contracts — $24.5 million; |
• | reduced U.S. government funding for the Army Pre-Positioned Stocks Afloat program — $20.7 million; | |
• | the completion of the Fort Hood contract and Bell Helicopter contracts under the Domestic Aviation program — $31.4 million; | |
• | a decrease in services provided on the V-22 helicopter under the Contract Field Teams contract — $2.3 million; and | |
• | the cyclic nature of time between overhauls on engines and propellers performed under the LCCS program — $5.4 million. |
• | wage pass-through claims — $10.4 million; | |
• | various new business and net growth in existing contracts — $5.5 million; |
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• | increased domestic aviation services provided to the U.S. Air Force through a subcontract agreement under the C-21 Contractor Logistics Support program — $0.4 million; and | |
• | improved profitability on the Contract Field Teams program, which benefited from maintenance and repair activities performed on military equipment returning from Iraq and Afghanistan — $1.3 million; |
• | operating losses from services provided to the U.S. Army under the LCCS program and CSS program — $8.0 million; and | |
• | completion of the Fort Hood contract in July 2006 — $1.1 million. |
Fiscal Year Ended | Six Months Ended | |||||||||||||||||||
March 31, | March 30, | March 28, | September 28, | October 3, | ||||||||||||||||
2006 | 2007 | 2008 | 2007 | 2008 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 55,111 | $ | 93,533 | $ | 42,361 | $ | 49,910 | $ | 37,953 | ||||||||||
Net cash used by investing activities | (6,231 | ) | (7,595 | ) | (11,306 | ) | (3,220 | ) | (19,718 | ) | ||||||||||
Net cash provided by (used by) financing activities | (41,781 | ) | (4,056 | ) | (48,131 | ) | (39,083 | ) | 29,165 |
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Fiscal | ||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Contractual obligations: | ||||||||||||||||||||||||||||
Term loan(1) | $ | — | $ | 16,875 | $ | 50,625 | $ | 55,500 | $ | 77,000 | $ | — | $ | 200,000 | ||||||||||||||
Senior subordinated notes | — | — | — | — | 417,032 | — | 417,032 | |||||||||||||||||||||
Operating leases(2) | 17,583 | 19,002 | 9,376 | 9,077 | 8,784 | 26,421 | 90,244 | |||||||||||||||||||||
Interest on indebtedness(3) | 25,438 | 51,451 | 50,026 | 46,351 | 41,262 | — | 214,528 | |||||||||||||||||||||
Contractual indemnity(4) | 2,268 | — | — | — | — | — | 2,268 | |||||||||||||||||||||
Management fee(5) | 300 | 300 | 300 | 300 | 300 | 300 | 1,800 | |||||||||||||||||||||
FIN 48 liabilities(6) | — | 2,547 | 1,437 | 3,983 | ||||||||||||||||||||||||
Total contractual obligations | $ | 45,589 | $ | 90,175 | $ | 111,764 | $ | 111,228 | $ | 544,378 | $ | 26,721 | $ | 929,855 | ||||||||||||||
(1) | As of October 3, 2008, there were no amounts outstanding under the revolving credit facility. It is therefore not included in this table. This table also excludes $22.1 million of letters of credit, $15.7 million of which were collateralized by restricted cash. | |
(2) | For additional information about our operating leases, see Note 7 to our consolidated financial statements for fiscal 2008. | |
(3) | Represents interest expense calculated using interest rates of: (i) 5.96% on the term loan facility; and (ii) 9.5% on the Notes. | |
(4) | Contracted statutory severance obligation for employees due at end of a specific U.S. federal government contract. Payment will be deferred if the contract is extended beyond the current term. | |
(5) | For additional information on the management fee, see Note 14 to our consolidated financial statements for fiscal 2008. | |
(6) | See “— Critical Accounting Policies — Deferred Taxes, Valuation Allowances and Tax Reserves” for further information concerning FIN 48. |
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Average | ||||||||||||||||||||||||||||||||
Expected Maturity as of Fiscal Year | Interest | |||||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Rate | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Fixed rate | $ | — | $ | — | $ | — | $ | — | $ | 417,032 | $ | — | $ | 417,032 | 9.50 | % | ||||||||||||||||
Variable rate | — | 16,875 | 50,625 | 55,000 | 77,500 | — | 200,000 | 5.96 | % | |||||||||||||||||||||||
Total debt | $ | — | $ | 16,875 | $ | 50,625 | 55,000 | $ | 494,532 | $ | — | $ | 617,032 | |||||||||||||||||||
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• | complete, sign and date the letter of transmittal or a facsimile of the letter of transmittal; | |
• | have the signatures on the letter of transmittal guaranteed if required by instruction 3 of the letter of transmittal; and | |
• | mail or otherwise deliver the letter of transmittal or the facsimile in connection with a book-entry transfer, together with the Old Notes and any other required documents. |
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• | refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders; | |
• | extend the exchange offer and retain all Old Notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders who tendered the Old Notes to withdraw their tendered Old Notes; or |
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• | waive such condition, if permissible, with respect to the exchange offer and accept all properly tendered Old Notes which have not been withdrawn. |
By Mail: | By Hand or Overnight Delivery Service: | |
The Bank of New York Mellon Corporate Trust Operations Reorganization Unit 101 Barclay Street, 7 East New York, NY 10286 Attn: Ms. Diane Amoroso | The Bank of New York Mellon Corporate Trust Operations Reorganization Unit 101 Barclay Street, 7 East New York, NY 10286 Attn: Ms. Diane Amoroso |
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• | the continued transformation of military forces, leading to increased outsourcing of non-combat functions, including life-cycle asset management functions ranging from organizational to depot level maintenance; | |
• | an increase in the level and frequency of overseas deployments and peace-keeping operations for the DoS, DoD and United Nations; |
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• | increased maintenance, overhaul and upgrade needs to support aging military platforms; | |
• | increased outsourcing by foreign militaries of maintenance, supply support, facilities management and construction management-related services; and | |
• | the shift from single award to more multiple award IDIQ contracts, which may offer us an opportunity to increase revenues under these contracts by competing for task orders with the other contract awardees. |
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Estimated | ||||||||||||
Current | Total | |||||||||||
Initial/Current | Contract | Contract | ||||||||||
Contract | Principal Customer | Award Date | End Date | Value(1) | ||||||||
INSCOM/GLS | U.S. Army | Mar. 2008 | Apr. 2013 | $ | 3.5 billion(2 | ) | ||||||
Civilian Police Program | DoS | Feb. 1994/Feb 2004 | Feb. 2009 | $ | 2.94 billion(3 | ) | ||||||
INL | DoS | Jan. 1991/May 2005 | Oct. 2014 | $ | 1.09 billion(3 | )(4) | ||||||
California Department of Forestry | State of California | Jan. 2002/July 2008 | Dec. 2014 | $ | 138 million |
(1) | Estimated total contract value has the meaning indicated in “Backlog and Estimated Contract Values — Estimated Total Contract Value”, except as described in footnote 4 to this table. | |
(2) | Awarded to GLS, a joint venture of DynCorp International (which owns a 51% majority interest) and McNeil Technologies (which owns the remaining interest). | |
(3) | This contract is an IDIQ contract. For more information about IDIQ contracts see “— Contract Types.” Also, for a discussion of how we define estimated remaining contract value for IDIQ contracts, see “Backlog and Estimated Contract Values — Estimated Remaining Contract Value.” |
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(4) | We are the sole awardee of this contract, which has an estimated contract value of $1.03 billion for the first three years of this nine-year contract through October 2014. In January 2007, we were awarded the fourth year of this nine year award term contract. |
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Estimated | ||||||||||||
Current | Total | |||||||||||
Initial/Current | Contract | Contract | ||||||||||
Contract | Principal Customer | Award Date | End Date | Value(1) | ||||||||
LOGCAP IV | DoD | Apr. 2008 | Apr. 2018 | $ | 50 billion | |||||||
War Reserve Materiel | U.S. Air Force | May 2000 | Sep. 2013 | $ | 419 million | |||||||
Africa Peacekeeping | DoS | May 2003 | May 2009 | $ | 287 million |
(1) | Estimated total contract value has the meaning indicated in “Backlog and Estimated Contract Values — Estimated Total Contract Value.” |
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Estimated | ||||||||||||
Current | Total | |||||||||||
Initial/Current | Contract | Contract | ||||||||||
Contract | Principal Customer | Award Date | End Date | Value(1) | ||||||||
Contract Field Teams | DoD | Oct. 1951/Jul. 2008 | Sept. 2015 | $ | 2.3 billion | (2) | ||||||
Life Cycle Contractor Support | U.S. Army and U.S. Navy | Aug. 2000 | Jan. 2010 | $ | 1.23 billion | |||||||
Andrews Air Force Base | U.S. Air Force | Jan. 2001 | Dec. 2011 | $ | 363 million | |||||||
Columbus Air Force Base | U.S. Air Force | Oct. 1998/Jul. 2005 | Sep. 2012 | $ | 286 million | |||||||
Army Prepositions Stocks Afloat | U.S. Army | Feb. 1999 | Jul. 2009 | $ | 252 million | |||||||
UAE General Maintenance Corp. | United Arab Emirates Armed Forces | Dec. 2006 | Dec. 2013 | $ | 164 million | |||||||
C-21 Contractor Logistics Support | U.S. Air Force | Sept. 2006 | Sept. 2011 | $ | 184 million |
(1) | Estimated total contract value has the meaning indicated in “Backlog and Estimated Contract Values — Estimated Total Contract Value.” | |
(2) | This contract is an IDIQ contract. For more information about IDIQ contracts see “— Contract Types.” Also, for a discussion of how we define estimated remaining contract value for IDIQ contracts, see “Backlog and Estimated Contract Values — Estimated Remaining Contract Value.” This contract has a $10.1 billion estimated total contract value for multiple awardees. |
• | Fixed-Price Type Contracts. In a fixed-price contract, the price is not subject to adjustment based on costs incurred, which can favorably or adversely impact our profitability depending upon our execution in performing the contracted service. Our fixed-price contracts include firm fixed-price, fixed-price with economic adjustment and fixed-price incentive. |
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• | Time-and-Materials Type Contracts. Atime-and-materials type contract provides for acquiring supplies or services on the basis of direct labor hours at fixed hourly/daily rates plus materials at cost. | |
• | Cost-Reimbursement Type Contracts. Cost-reimbursement type contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus a fixed-fee, award-fee or incentive-fee. Award-fees or incentive-fees are generally based upon various objective and subjective criteria, such as aircraft mission capability rates and meeting cost targets. |
Six Months | ||||||||||||||||
Ended | ||||||||||||||||
Fiscal Year | October 3, | |||||||||||||||
Contract Type | 2006 | 2007 | 2008 | 2008 | ||||||||||||
Fixed-price | 33 | % | 41 | % | 37 | % | 40 | % | ||||||||
Time-and-materials | 38 | % | 36 | % | 33 | % | 35 | % | ||||||||
Cost-reimbursement | 29 | % | 23 | % | 30 | % | 24 | % | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
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March 31, | March 30, | March 28, | October 3, | |||||||||||||
2006 | 2007 | 2008 | 2008 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
ISS: | ||||||||||||||||
Funded backlog | $ | 455 | $ | 727 | $ | 464 | $ | 696 | ||||||||
Unfunded backlog | 582 | 3,758 | 4,030 | 3,718 | ||||||||||||
Total ISS backlog | $ | 1,037 | $ | 4,485 | $ | 4,494 | $ | 4,414 | ||||||||
LCM: | ||||||||||||||||
Funded backlog | $ | 175 | $ | 149 | $ | 140 | $ | 132 | ||||||||
Unfunded backlog | 161 | 91 | 59 | 619 | ||||||||||||
Total LCM backlog | $ | 336 | $ | 240 | $ | 199 | $ | 751 | ||||||||
MTSS: | ||||||||||||||||
Funded backlog | $ | 394 | $ | 526 | $ | 560 | $ | 502 | ||||||||
Unfunded backlog | 874 | 882 | 708 | 824 | ||||||||||||
Total MTSS backlog | $ | 1,268 | $ | 1,407 | $ | 1,268 | $ | 1,326 | ||||||||
Total consolidated: | ||||||||||||||||
Funded backlog | $ | 1,024 | $ | 1,402 | $ | 1,164 | $ | 1,330 | ||||||||
Unfunded backlog | 1,617 | 4,730 | 4,797 | 5,161 | ||||||||||||
Total consolidated backlog | $ | 2,641 | $ | 6,132 | $ | 5,961 | $ | 6,491 | ||||||||
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March 31, | March 30, | March 28, | October 3, | |||||||||||||
2006 | 2007 | 2008 | 2008 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
ISS estimated remaining contract value | $ | 3,650 | $ | 7,249 | $ | 5,976 | $ | 5,796 | ||||||||
LCM estimated remaining contract value | 388 | 335 | 241, | 776 | ||||||||||||
MTSS estimated remaining contract value | 1,689 | 1,407 | 1,268 | 3,485 | ||||||||||||
Total estimated remaining contract value | $ | 5,727 | $ | 8,991 | $ | 7,485 | $ | 10,057 | ||||||||
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Location | Description | Size (sq ft) | ||||||
Fort Worth, TX | Executive offices — finance and administration | 194,335 | ||||||
Falls Church, VA | Executive offices — headquarters | 113,366 | ||||||
Kabul, Afghanistan | Offices and residence | 47,000 | ||||||
McClellan, CA | Warehouse — California Fire Program | 18,800 | ||||||
Dubai, UAE | Executive offices — finance and administration | 15,700 | ||||||
Herndon, VA | Offices — GLS recruiting center | 11,400 | ||||||
San Diego, CA | Offices — GLS recruiting center | 9,400 |
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Name | Age | Position | ||||
Robert B. McKeon | 54 | Sole member of the board of managers of DynCorp International, sole Director of DIV Capital and Chairman and Director of our parent | ||||
William L. Ballhaus | 41 | President and Chief Executive Officer and Director of our parent | ||||
William D. Cavanaugh | 55 | Senior Vice President, Business Development | ||||
Natale S. (Chris) DiGesualdo | 69 | President, Maintenance & Technical Support Services segment | ||||
Robert B. Rosenkranz | 69 | Executive Vice President — Chief of Staff | ||||
Curtis L. Schehr | 50 | Senior Vice President and General Counsel | ||||
Anthony Smeraglinolo | 58 | President, International Security Services segment | ||||
Michael J. Thorne | 51 | Senior Vice President and Chief Financial Officer | ||||
Richard M. Walsh | 64 | Acting President, Logistics and Construction Management segment | ||||
Michael J. Bayer | 61 | Director of our parent | ||||
General Richard E. Hawley (USAF Ret.) | 67 | Director of our parent | ||||
Herbert J. Lanese | 63 | Director of our parent | ||||
General Barry R. McCaffrey (USA Ret.) | 66 | Director of our parent | ||||
Ramzi M. Musallam | 40 | Director of our parent | ||||
Admiral Joseph W. Prueher (USN Ret.) | 66 | Director of our parent | ||||
Charles S. Ream | 65 | Director of our parent | ||||
Mark H. Ronald | 67 | Director of our parent | ||||
Admiral Leighton W. Smith, Jr. (USN Ret.) | 69 | Director of our parent | ||||
William G. Tobin | 71 | Director of our parent | ||||
General Peter J. Schoomaker (USA Ret.) | 62 | Director of our parent |
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Barry R. McCaffrey
Richard E. Hawley
Joseph W. Prueher
Charles S. Ream
Mark H. Ronald
Peter J. Schoomaker
Leighton W. Smith, Jr.
William G. Tobin
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• | Alliant Techsystems Inc. | |
• | Armor Holdings, Inc. | |
• | CACI International Inc. | |
• | DRS Technologies, Inc. | |
• | Hexcel Corporation | |
• | ITT Corporation | |
• | L-3 Communications Holdings, Inc. | |
• | Rockwell Collins, Inc. | |
• | SAIC, Inc. | |
• | Teledyne Technologies Incorporated |
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• | base salary; | |
• | an annual incentive bonus, paid in cash; | |
• | a long-term incentive compensation plan; | |
• | long-term equity-based awards from our controlling stockholder; | |
• | a tax-qualified savings plan with matching company contributions; and | |
• | perquisites and other personal benefits. |
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Target | Target | |||||||||||||||
Fiscal | Base | Bonus | Bonus | |||||||||||||
Covered NEO | Year | Salary | Percentage | Amount | ||||||||||||
Mr. Lanese | 2008 | $ | 850,000 | 125% | $1,062,500 | |||||||||||
2007 | $ | 800,000 | N/A | (1) | $1,000,000 | |||||||||||
General Zinni | 2008 | $ | 500,000 | N/A | (2) | $500,000 | ||||||||||
Mr. Schehr | 2008 | $ | 355,000 | 50% | $177,500 | |||||||||||
Mr. Rosenkranz | 2008 | $ | 408,000 | 60% | $244,800 | |||||||||||
2007 | $ | 370,000 | 50% | $185,000 | ||||||||||||
Mr. Thorne | 2008 | $ | 380,000 | 60% | $228,000 | |||||||||||
2007 | $ | 362,000 | 60% | $217,200 |
(1) | Mr. Lanese’s bonus for FY 2007 was a fixed amount of $1,000,000. | |
(2) | General Zinni’s bonus for FY 2008 was a fixed amount of $500,000. |
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• | an increased number of available financial performance criteria have been established; | |
• | the maximum target award has been increased from 100% of annual base salary to 200% of annual base salary, but not to exceed $2,000,000; | |
• | the Compensation Committee has discretionary authority to reduce, but not increase an individual award as to a “covered employee” within the meaning of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, or the “Code”, as discussed below; and | |
• | the EIP is designed to meet the requirements of Code Section 162(m). |
Performance | Weighting of | Actual Results | ||||||||||||||
Performance | Targets for Fiscal | Performance | (for the Fiscal | |||||||||||||
Fiscal Year Ended | Metric | Year | Metrics | Year) | ||||||||||||
March 28, 2008 | EBITDA | $205 million | 50 | % | $175 million | |||||||||||
Revenues | $2.400 billion | 25 | % | 2.140 billion | ||||||||||||
DSO | 74 days | 25 | % | 79 days | ||||||||||||
March 30, 2007 | Adjusted EBITDA | $170 million | 75 | % | $174 million | |||||||||||
DSO | 77 days | 25 | % | 75 days |
• | equity-based and cash-based awards; | |
• | executives, other employees and directors are eligible; | |
• | stock options will have a maximum10-year term, will be priced at 100% of fair market value on date of grant and may not be re-priced without stockholder consent; |
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• | stock appreciation rights will have a base price at 100% of fair market value of common stock on the grant date, may not be re-priced without stockholder consent and will result in a cash payment equal to the excess of the market price of our common stock on the exercise date over the base price; | |
• | performance awards will be cash payments or equity grants based on company performance metrics over a pre-established period; | |
• | restricted stock grants may be in the form of actual shares or share units; | |
• | other share-based awards primarily apply to grants of deferred stock for director compensation; | |
• | there are maximum individual award limits; and | |
• | awards may vest in the event of a change in control. |
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Non-Equity | |||||||||||||||||||||||||||||||||||
Incentive | All | ||||||||||||||||||||||||||||||||||
Stock | Plan | Other | |||||||||||||||||||||||||||||||||
(Equity) | Compen- | Compen- | |||||||||||||||||||||||||||||||||
Name and Principal | Fiscal | Salary | Bonus | Awards | sation | sation | Total | ||||||||||||||||||||||||||||
Position | Year | ($) | ($)(5) | ($)(6) | ($)(7) | ($)(8) | ($) | ||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (g) | (i) | (j) | ||||||||||||||||||||||||||||
Herbert J. Lanese | 2008 | 834,616 | — | 8,309 | 327,300 | 172,706 | 1,342,932 | ||||||||||||||||||||||||||||
President & Chief | 2007 | 553,846 | — | 851,509 | 1,000,000 | 107,636 | 2,512,991 | ||||||||||||||||||||||||||||
Executive Officer(1) | |||||||||||||||||||||||||||||||||||
Anthony C. Zinni | 2008 | 322,116 | 24,038 | 36,428 | 500,000 | 64,200 | 946,782 | ||||||||||||||||||||||||||||
Executive Vice President(2)(3) | |||||||||||||||||||||||||||||||||||
Robert B. Rosenkranz | 2008 | 396,554 | — | 407,034 | 75,400 | 49,545 | 928,533 | ||||||||||||||||||||||||||||
President, International | 2007 | 358,746 | 25,000 | 50,447 | 260,000 | 55,323 | 749,516 | ||||||||||||||||||||||||||||
Security Services segment(4) | |||||||||||||||||||||||||||||||||||
Curtis L. Schehr | 2008 | 350,385 | — | 317,528 | 54,700 | 20,302 | 742,915 | ||||||||||||||||||||||||||||
Senior Vice President, General Counsel & Secretary(3) | |||||||||||||||||||||||||||||||||||
Michael J. Thorne | 2008 | 374,462 | — | 151,343 | 70,200 | 39,699 | 635,703 | ||||||||||||||||||||||||||||
Senior Vice President, | 2007 | 349,942 | 125,000 | 151,342 | 221,340 | 51,474 | 899,098 | ||||||||||||||||||||||||||||
Chief Financial Officer & Treasurer |
(1) | Mr. Lanese served as our President & Chief Executive Officer until May 19, 2008. His date of hire was July 17, 2006, and this table only reflects compensation for his services as an officer and employee following such date. | |
(2) | General Zinni’s date of hire was July 16, 2007, and this table only reflects compensation for his services as an officer and employee following such date. His compensation for services as a director prior to that date is reflected in the table below under the heading “Director Compensation”. General Zinni ceased to be an NEO during fiscal year 2009. | |
(3) | Prior year information is not included for General Zinni or Mr. Schehr, as they were new NEOs for fiscal year 2008. | |
(4) | Mr. Rosenkranz became our Executive Vice President-Chief of Staff during fiscal year 2009. | |
(5) | The amounts reported in column (d) for fiscal year 2008 represent a sign-on bonus associated with General Zinni’s employment contract. The fiscal year 2007 amounts represent the portion of cash bonuses earned during fiscal year 2007 by our NEOs related to our initial public offering of common stock in May 2006. | |
(6) | The amounts reported in column (e) reflect vesting from equity-based awards which comprise RSUs (General Zinni only) and vesting of Class B Interests. Assumptions used in the calculation of these awards are discussed in Note 11 to our audited financial statements for the fiscal year ended March 28, 2008. Further information is provided under “— Grants of Plan-Based Awards” and “— Other Equity-Based Awards”. | |
(7) | The amounts reported in column (g) represent cash bonuses that were earned in fiscal years 2007 and 2008 pursuant to our EIP, which is discussed above under “— Long-Term Incentive Compensation Plan”. Bonuses were paid out on June 11, 2007 and June 10, 2008. |
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(8) | The amount of each component of All Other Compensation reported in column (i) for each NEO is set forth below. |
401(k) | Paid | Cost of | Total | ||||||||||||||||||||||||||||||||
Matching | Relocation | Car | Time | Insurance | Other | ||||||||||||||||||||||||||||||
Fiscal | Contributions | Allowance | Allowance | Off | Policies | Compensation | |||||||||||||||||||||||||||||
Name | Year | ($) | ($) | ($) | ($)(1) | ($)(2) | ($) | ||||||||||||||||||||||||||||
Mr. Lanese | 2008 | 10,000 | 45,314 | — | — | 117,392 | 172,706 | ||||||||||||||||||||||||||||
2007 | 10,461 | — | — | — | 97,175 | 107,636 | |||||||||||||||||||||||||||||
Gen. Zinni | 2008 | 7,452 | — | — | — | 56,748 | 64,200 | ||||||||||||||||||||||||||||
Mr. Rosenkranz | 2008 | 10,000 | — | — | — | 39,545 | 49,545 | ||||||||||||||||||||||||||||
2007 | 9,755 | 9,554 | — | 36,014 | 55,323 | ||||||||||||||||||||||||||||||
Mr. Schehr | 2008 | 10,000 | — | — | — | 10,302 | 20,302 | ||||||||||||||||||||||||||||
Mr. Thorne | 2008 | 10,000 | — | — | 15,315 | 14,384 | 39,699 | ||||||||||||||||||||||||||||
2007 | 11,126 | 10,615 | 26,934 | 2,799 | 51,474 |
(1) | Represents compensation paid out during the fiscal year in lieu of unused vacation and personal time. | |
(2) | Represents our cost of the NEOs health care benefits, the cost of company-paid term-life insurance policies for the NEOs and the NEOs’ share of premiums for special business travel accident policies, including taxgross-up amounts paid to the NEOs, for the benefit of Messrs. Lanese, Zinni and Rosenkranz. |
Estimated Future Payouts under | Estimated Future Payouts under | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Equity Incentive Plan Awards | Equity Incentive Plan Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
All Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
All Other | Option Awards: | Grant Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Awards: | Number of | Exercise or | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | Securities | Base Price | of Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares of | Underlying | of Option | and Option | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Threshold | Target | Maximum | Stock or Units | Options | Awards | Awards | |||||||||||||||||||||||||||||||||||||||||||||
Name | Date | ($)(1) | ($)(1) | ($)(1) | ($)(3) | ($)(3) | ($)(3) | (#) | (#) | ($/Sh) | ($) | ||||||||||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | ||||||||||||||||||||||||||||||||||||||||||||
Mr. Lanese | 6/28/07 | 329,880 | 1,062,500 | 2,125,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Gen. Zinni(2) | 12/3/07 | — | — | — | 317,850 | 317,850 | 317,850 | 15,000 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
7/16/07 | 500,000 | 500,000 | 1,000,000 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Mr. Rosenkranz | 6/28/07 | 76,004 | 244,800 | 489,600 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Mr. Schehr | 6/28/07 | 55,109 | 177,500 | 355,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Mr. Thorne | 6/28/07 | 70,788 | 228,000 | 456,000 | — | — | — | — | — | — | — |
(1) | Threshold, target and maximum amounts are calculated based on the weighted average of the respective performance measure as defined by the EIP, which is discussed further above under “— Incentive Bonus Compensation”. | |
(2) | As further discussed above under “— Executive Compensation Philosophy,” General Zinni received a guaranteed 100% payout under the EIP for fiscal year 2008 and was the only NEO granted RSUs in fiscal year 2008. | |
(3) | Amount represents grant-date fair value of the RSU awards. RSUs are accounted for as liability awards in accordance with SFAS 123(R) and are subsequently re-measured at each reporting period. |
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Option awards | Stock awards | ||||||||||||||||||||||||||||||||||||||||||||
Equity Incentive | |||||||||||||||||||||||||||||||||||||||||||||
Equity | Plan Awards: | ||||||||||||||||||||||||||||||||||||||||||||
Incentive | Market | Number of | Equity Incentive | ||||||||||||||||||||||||||||||||||||||||||
Number of | Number of | Plan Awards: | Number of | Value of | Unearned Shares, | Plan Awards: Market | |||||||||||||||||||||||||||||||||||||||
Securities | Securities | Number of | Shares or | Shares or | Units or | or Payout Value of | |||||||||||||||||||||||||||||||||||||||
Underlying | Underlying | Securities | Units of | Units of | Other | Unearned Shares, | |||||||||||||||||||||||||||||||||||||||
Unexercised | Unexercised | Underlying | Option | Option | Stock that | Stock that | Rights that | Units or Other | |||||||||||||||||||||||||||||||||||||
Options | Options | Unexercised | Exercise | Expiration | have not | have not | have | Rights that have | |||||||||||||||||||||||||||||||||||||
(#) | (#) | Unearned options | Price | Date | Vested(1) | Vested(1) | not Vested | not Vested | |||||||||||||||||||||||||||||||||||||
Name | exercisable | unexercisable | (#) | ($) | (#) | (#) | (#) | ($) | |||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||||||||||||||||||||
Mr. Lanese | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Gen. Zinni(2) | — | — | — | — | — | 15,000 | 248,400 | — | — | ||||||||||||||||||||||||||||||||||||
Mr. Rosenkranz | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Mr. Schehr | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Mr. Thorne | — | — | — | — | — | — | — | — | — |
(1) | As of March 28, 2008, no plan-based awards had vested. The market value of the unvested plan-based awards was calculated using our parent’s closing stock price on March 28, 2008. | |
(2) | As further discussed above under “— Executive Compensation Philosophy”, General Zinni received a guaranteed 100% payout under the EIP plan and was the only NEO granted RSUs in fiscal year 2008. As of March 28, 2008, no vesting had occurred on RSU awards received by General Zinni. |
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Book | ||||||||||||||||||||||||||||||
Class B | Book | Value of | ||||||||||||||||||||||||||||
Class B | Interests | Value of | Unvested | |||||||||||||||||||||||||||
Class B | Interests | Class B | That Have | Class B | Class B | |||||||||||||||||||||||||
Interests | Vested | Interests | Not Vested | Interests That | Interests | |||||||||||||||||||||||||
Vested as of | During | Vested as of | as of | Vested in | as of | |||||||||||||||||||||||||
March 30, | Fiscal | March 28, | March 28, | Fiscal | March 28, | |||||||||||||||||||||||||
2007 | Year 2008 | 2008 | 2008 | Year 2008 | 2008 | |||||||||||||||||||||||||
Name | (%)(2) | (%)(2) | (%)(2) | (%)(3) | ($)(4) | ($)(4) | ||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | ||||||||||||||||||||||||
Mr. Lanese | 0.4070 | 0.0070 | 0.4140 | 1.2280 | 8,309 | 2,554,527 | ||||||||||||||||||||||||
Gen. Zinni(1) | 0.0140 | 0.0070 | 0.0210 | 0.0140 | 36,428 | 72,856 | ||||||||||||||||||||||||
Mr. Schehr | 0.0000 | 0.1000 | 0.1000 | 0.3000 | 317,528 | 952,584 | ||||||||||||||||||||||||
Mr. Rosenkranz | 0.0425 | 0.1300 | 0.1725 | 0.4775 | 407,034 | 1,577,688 | ||||||||||||||||||||||||
Mr. Thorne | 0.2550 | 0.1275 | 0.3825 | 0.2550 | 151,343 | 302,685 |
(1) | During fiscal year 2008, the original Class B Interests received by General Zinni as a director on our parent’s board were forfeited due to a technicality. Subsequently, a new grant was received by General Zinni from DIV Holding in order to restore him to his original position prior to the forfeiture. No further modifications were made during the fiscal year, and no other Class B Interests were granted to our NEOs. | |
(2) | Columns (b), (c) and (d) effectively roll forward the vesting for each of our NEOs. Percentages reflect vested and unvested Class B Interests, as described above under “— Other Equity-Based Awards”. | |
(3) | Percentages in column (e) reflect unvested Class B Interests, as described above under “— OtherEquity-Based Awards”. Class B Interests vest ratably over the five-year period following the grant, except in the case of Mr. Lanese who received an additionalfour-year-vesting grant in July 2006 associated with his move from our parent’s board to become our CEO, and Mr. Schehr who received a four-year grant in 2006 associated with him joining our company. While Mr. Lanese’s previous grant as a director vested ratably, his additional grant received in July 2006, when he became CEO, vested based on his employment agreement. Mr. Schehr had no previous grants. | |
(4) | Columns (f) and (g) reflect the book value of the Class B Interests that vested during the fiscal year ended March 28, 2008 or that were unvested as of March 28, 2008. The related market value of the vested and unvested Class B Interests as of March 28, 2008 was $2,141,901 and $5,460,340, respectively, which would represent 129,341 and 329,730 common stock equivalents respectively based on our parent’s closing stock price on March 28, 2008. The market value of the Class B Interests was calculated using a market value model that includes the following variables: our parent’s stock price, the number of outstanding common shares, DIV Holding’s ownership percentage, remaining preference to DIV Holding Class A membership interest holders, and a discount for lack of marketability. |
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Covered NEO | Base salary | Target bonus | ||||||
Mr. Ballhaus(1) | $ | 650,000 | $ | 650,000 | ||||
Mr. Rosenkranz | $ | 408,000 | $ | 244,000 | ||||
Mr. Schehr | $ | 355,000 | $ | 177,500 | ||||
Mr. Thorne | $ | 380,000 | $ | 228,000 |
(1) | Mr. Ballhaus’ employment agreement provides that his bonus shall be no less than $625,000 in fiscal 2009, provided he continues to be employed by us at the time of the bonus payment. |
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• | a payment equal to the pro rated portion of such executive’s incentive compensation that would be payable to such executive based on our projected performance through the termination date; | |
• | a payment equal to two times the sum of such executive’s then base salary plus target bonus, payable in two installments during the year following termination; | |
• | reimbursement for the cost of continued medical coverage for the same portion of such executive’s COBRA health insurance premium that we paid during such executive’s employment, until the earlier of either the last day of such executive’s COBRA health insurance benefits or the date on which the executive becomes covered under any other group health plan; and | |
• | the right to exercise any vested stock options or other rights based upon the appreciation in value of our parent’s stock (but excluding any rights in Class B Interests). |
• | a payment of his accrued but unpaid base salary to the day of termination and any employee benefits that Mr. Ballhaus is entitled to receive pursuant to our employee benefit plans; and | |
• | upon Mr. Ballhaus or his heirs furnishing a waiver and release of claims, a pro rated portion of his bonus that would have been payable to him through the termination date. |
• | a payment equal to the pro rated portion of such executive’s incentive compensation that would be payable to such executive based on our projected performance through the termination date; and | |
• | the right to exercise any vested stock options or other rights based upon the appreciation in value of our parent’s stock (but excluding any rights in Class B Interests). |
• | a payment equivalent to the sum of his base salary plus the average of his annual bonus earned for the fiscal year prior to the year of termination and his target annual bonus, payable in two equal installments; | |
• | a payment equal to his annual bonus, if any, that would have been paid during the 90 days following termination of employment if his employment had continued during such 90 days, payable when the annual bonus is paid to our other executives; and | |
• | full vesting of any RSUs that would have vested during the 90 days following termination of employment if his employment had continued during such 90 days. |
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• | accrued but unpaid base salary to the date of termination; | |
• | his earned bonus for fiscal year 2008, in the amount of $327,250; | |
• | a pro rated portion of his target bonus for fiscal year 2009, in the amount of $148,922; | |
• | a cash severance payment of $3,825,000, equal to two times the sum of Mr. Lanese’s base salary plus target bonus, payable in two equal lump sum payments, with the first payment made on the first payroll date that was six months following the termination, and the second payment being made on the first payroll date that is twelve months following the termination; | |
• | continued health benefits coverage until age 65, with his portion of the premium costs being the same as the amounts he paid during his employment, at a cost to us of approximately $27,000; | |
• | continued participation for the remainder of calendar year 2008 in the Executive Benefits Plan, with reimbursements not to exceed $15,000; | |
• | reimbursement for completion of the design and installation of a home security system for his residence, the cost of which was $11,614. |
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Fees | ||||||||||||||||||||
Earned or | Stock | All Other | ||||||||||||||||||
Paid in | (Equity) | Compen- | ||||||||||||||||||
Cash | Awards | sation | Total | |||||||||||||||||
Name | ($) | ($)(1) | ($) | ($) | ||||||||||||||||
Michael J. Bayer | 64,000 | 22,227 | — | 86,227 | ||||||||||||||||
Richard E. Hawley | 36,000 | 8,309 | — | 44,309 | ||||||||||||||||
Herbert J. Lanese(2) | — | 8,309 | — | 8,309 | ||||||||||||||||
Barry R. McCaffrey | 36,000 | 8,309 | — | 44,309 | ||||||||||||||||
Robert B. McKeon(3) | — | — | — | — | ||||||||||||||||
Ramzi M. Musallam(3) | — | — | — | — | ||||||||||||||||
Joseph W. Prueher | 68,000 | 8,309 | — | 76,309 | ||||||||||||||||
Charles S. Ream | 75,000 | 8,309 | — | 83,309 | ||||||||||||||||
Mark H. Ronald | 50,000 | 28,527 | — | 78,527 | ||||||||||||||||
Peter J. Schoomaker | 20,000 | — | — | 20,000 | ||||||||||||||||
Leighton W. Smith Jr. | 48,500 | 8,309 | — | 56,809 | ||||||||||||||||
William G. Tobin | 50,000 | 8,309 | — | 58,309 | ||||||||||||||||
Anthony C. Zinni(4) | 12,000 | — | 75,000 | 87,000 |
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(1) | The amounts reported in this column reflect the grant-date fair value of equity-based awards that vested in fiscal year 2008 pursuant to the Equity Award Program and in accordance with SFAS No. 123(R). Assumptions used in the calculation of these awards are discussed in Note 11 to our audited financial statements for the fiscal year ended March 28, 2008. | |
(2) | Mr. Lanese, our former President and Chief Executive Officer, did not receive any director retainer or fees during fiscal year 2008. | |
(3) | Messrs. McKeon and Musallam are principals of Veritas Capital. As Veritas Capital executives, they are not paid by us or our parent for their services as directors or members of committees of our parent’s board. We paid a total of $300,000 in management fees and $229,700 in expenses to Veritas Capital in the fiscal year ended March 28, 2008. | |
(4) | General Zinni, our former Executive Vice President, served as a director of our parent until July 16, 2007, when he became an officer and employee of our company. Amounts shown in this table reflect only his compensation while an independent director. He did not receive any director retainer or fees for the period following July 16, 2007. He was also paid $75,000 in consulting fees while he was a director, for services unrelated to his service on the parent’s board. |
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Amount | ||||||||
of Beneficial | Percentage of Class A | |||||||
Name and Address(1) | Ownership(2) | Common Stock(3) | ||||||
DIV Holding LLC(4) | 32,000,000 | 56.1 | % | |||||
Iridian Asset Management LLC(5) | 7,023,751 | 12.3 | % | |||||
Elm Ridge Capital Management, LLC(6) | 3,501,153 | 6.1 | ||||||
Royal Capital Management, LLC(7) | 3,267,800 | 5.7 | ||||||
William L. Ballhaus(8) | — | — | ||||||
Michael J. Bayer(9)(10) | — | — | ||||||
Richard E. Hawley(9)(10) | 3,000 | * | ||||||
Barry R. McCaffrey(9)(10) | — | — | ||||||
Robert B. McKeon(4) | 32,255,300 | 56.6 | % | |||||
Ramzi M. Musallam(4) | — | — | ||||||
Joseph W. Prueher(9)(10) | 3,000 | * | ||||||
Charles S. Ream(9)(10) | 4,000 | * | ||||||
Mark H. Ronald(9)(10) | — | — | ||||||
Robert B. Rosenkranz(9) | 600 | * | ||||||
Curtis L. Schehr(9) | — | — | ||||||
Peter J. Schoomaker(11) | — | — | ||||||
Leighton W. Smith, Jr.(9)(10) | 1,000 | * | ||||||
Michael J. Thorne(9) | 2,000 | * | ||||||
William G. Tobin(9)(10) | 1,000 | * | ||||||
All named executive officers and directors as a group (15 Persons) | 32,269,900 | 56.6 | % |
* | Reflects less than 1% ownership interest. | |
(1) | Except as otherwise indicated, the address for each of the beneficial owners is 3190 Fairview Park Drive, Suite 700, Falls Church, VA 22042. | |
(2) | Except as otherwise indicated, all shares are owned directly. | |
(3) | Includes vested restricted stock units granted pursuant to the DynCorp International 2007 Omnibus Incentive Plan. | |
(4) | The address for the beneficial owner is 590 Madison Avenue, 41st floor, New York, NY 10022. 32,000,000 issued and outstanding shares of Class A common stock are held by DIV Holding. The Veritas Capital Fund II, L.P., a Delaware limited partnership of which Veritas Capital Management II, L.L.C. is the general partner, is the manager of DIV Holding and has the right to direct the voting of the shares owned by DIV Holding. Mr. McKeon, Chairman of our parent’s board, is the managing member |
108
of Veritas Capital Management II, L.L.C., and as such may be deemed a beneficial owner of the shares owned beneficially by Veritas Capital Management II, L.L.C. or voted under the direction of Veritas Capital Management II, L.L.C. Mr. McKeon disclaims this beneficial ownership, except to the extent of his pecuniary interest in The Veritas Capital Fund II, L.P. and DIV Holding. 255,300 shares of our Class A common stock are owned directly by Mr. McKeon. |
(5) | The address for the beneficial owner is 276 Post Road West, Westport, CT 06880. Iridian Asset Management LLC has shared voting and dispositive power with The Governor and Company of the Bank of Ireland and BIAM Holdings, each of whose address is Head Office, Lower Baggot Street, Dublin 2, Ireland, and BancIreland (US) Holdings, Inc. and BIAM (US) Inc., each of whose address is Liberty Park, #15, 282 Route 101, Amherst, NH 03110. Information contained herein concerning Iridian Asset Management LLC and its affiliates are based solely on public filings made by them. | |
(6) | The address for the beneficial owner is 3 West Main Street, 3rd Floor, Irvington, NY 10533. Information contained herein concerning Elm Ridge Capital Management, LLC and its affiliates are based solely on public filings made by them. | |
(7) | The address for the beneficial owner is 623 Fifth Avenue, 24th Floor, New York, New York 10022. Information contained herein concerning Royal Capital Management, LLC and its affiliates are based solely on public filings made by them. | |
(8) | Excludes 100,000 restricted stock units granted to Mr. Ballhaus on September 3, 2008. One-sixth of these restricted stock units vests on each of May 19, 2009, May 19, 2010, and May 19, 2011, subject to Mr. Ballhaus’ continued employment. The remaining one half will be earned in accordance with Mr. Ballhaus’ achievement of performance targets for fiscal year 2009 established in accordance with the DynCorp International Executive Incentive Plan and, if earned, will vest proportionately on each of May 19, 2009, May 19, 2010, and May 19, 2011, subject to Mr. Ballhaus’ continued employment. Any portion not earned or vested will be forfeited. | |
(9) | The named individual owns beneficial interests in the parent through its ownership of Class B Interests in DIV Holding. The named individual owns less than 1.0% of the Class B Interests and, accordingly, has a beneficial interest in less than 1.0% of the outstanding shares of the Class A common stock of our parent. Any shares indicated in the table for the named individual consist solely of shares of Class A common stock owned directly by the named individual. For further information concerning the Class B Interests, see “Management — Compensation Discussion and Analysis — Elements of our Executive Compensation Program — Other Equity-Based Awards” and “Management — Executive Compensation — Other Equity-Based Awards.” | |
(10) | Excludes 1,700 restricted stock units granted to the named individual that vest on July 14, 2009. | |
(11) | Excludes 3,895 restricted stock units granted to General Schoomaker that vest on July 14, 2009. |
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111
112
113
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• | will be general unsecured obligations of the Issuers; | |
• | will be subordinated in right of payment to all existing and future Senior Debt of the Issuers, including borrowings under the Credit Agreement; | |
• | will be structurally subordinated to any existing and future indebtedness and liabilities of the Company’s foreign subsidiaries; | |
• | will bepari passuin right of payment to any existing and future senior subordinated Indebtedness (including the Existing Notes) of the Issuers; | |
• | will be senior in right of payment to any future subordinated Indebtedness of the Issuers; and | |
• | will be unconditionally guaranteed by the Guarantors. |
115
• | will be a general unsecured obligation of the Guarantor; | |
• | will be subordinated in right of payment to all existing and future Senior Debt of that Guarantor, including guarantees of Indebtedness under the Credit Agreement; | |
• | will bepari passuin right of payment with any existing and future senior subordinated Indebtedness (including the Existing Notes) of that Guarantor; and | |
• | will be senior in right of payment to any future Indebted of that Guarantor that is expressly subordinated to the New Notes. |
116
117
118
Year | Percentage | |||
2009 | 104.750 | % | ||
2010 | 102.375 | % | ||
2011 and thereafter | 100.000 | % |
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
• | you do not actually (or constructively) own 10% or more of the total combined voting power of all classes of our voting stock within the meaning of the Code and the Treasury Regulations; | |
• | you are not a controlled foreign corporation that is related, directly or indirectly, to us through stock ownership; | |
• | you are not a bank whose receipt of interest on the Notes is pursuant to a loan agreement entered into in the ordinary course of business; and | |
• | you have fulfilled the statement requirements set forth in section 871(h) or section 881(c) of the Code, as discussed below. |
159
• | that gain is effectively connected with the conduct of a trade or business in the United States by you and, if a tax treaty applies, is attributable to a permanent establishment in the United States; | |
• | you are an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or | |
• | you are subject to tax under tax laws applicable to certain U.S. expatriates. |
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Page | ||||
Annual Period | ||||
Report of Independent Registered Public Accounting Firm | F-2 | |||
Consolidated Statements of Income for the fiscal years ended March 28, 2008, March 30, 2007 and March 31, 2006 | F-3 | |||
Consolidated Balance Sheets as of March 28, 2008 and March 30, 2007 | F-4 | |||
Consolidated Statements of Cash Flows for the fiscal years ended March 28, 2008, March 30, 2007 and March 31, 2006 | F-5 | |||
Consolidated Statements of Members’ Equity for the fiscal years ended March 28, 2008, March 30, 2007 and March 31, 2006 | F-6 | |||
Notes to Consolidated Financial Statements | F-7 | |||
Interim Period | ||||
Condensed Consolidated Statements of Income (Unaudited) for the three months ended October 3, 2008 and the three months ended September 28, 2007 | F-41 | |||
Condensed Consolidated Statements of Income (Unaudited) for the six months ended October 3, 2008 and the six months ended September 28, 2008 | F-42 | |||
Condensed Consolidated Balance Sheets (Unaudited) as of October 3, 2008 and March 28, 2008 | F-43 | |||
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended October 3, 2008 and the six months ended September 28, 2007 | F-44 | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) | F-45 |
F-1
F-2
Fiscal Year Ended | ||||||||||||
March 28, | March 30, | March 31, | ||||||||||
(Dollars in thousands, except per share data) | 2008 | 2007 | 2006 | |||||||||
Revenue | $ | 2,139,761 | $ | 2,082,274 | $ | 1,966,993 | ||||||
Cost of services | (1,859,666 | ) | (1,817,707 | ) | (1,722,089 | ) | ||||||
Selling, general and administrative expenses | (117,919 | ) | (107,681 | ) | (97,520 | ) | ||||||
Depreciation and amortization expense | (42,173 | ) | (43,401 | ) | (46,147 | ) | ||||||
Operating income | 120,003 | 113,485 | 101,237 | |||||||||
Interest expense | (55,374 | ) | (58,412 | ) | (56,686 | ) | ||||||
Loss on early extinguishment of debt | — | (3,484 | ) | — | ||||||||
Earnings from affiliates | 4,758 | 2,913 | — | |||||||||
Interest income | 3,062 | 1,789 | 461 | |||||||||
Other income, net | 199 | — | — | |||||||||
Income before income taxes | 72,648 | 56,291 | 45,012 | |||||||||
Provision for income taxes | (27,999 | ) | (20,549 | ) | (16,627 | ) | ||||||
Income before minority interest | 44,649 | 35,742 | 28,385 | |||||||||
Minority interest | 3,306 | — | — | |||||||||
Net income | $ | 47,955 | $ | 35,742 | $ | 28,385 | ||||||
F-3
March 28, | March 30, | |||||||
(Amounts in thousands, except share data) | 2008 | 2007 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 85,379 | $ | 102,455 | ||||
Restricted cash | 11,308 | 20,224 | ||||||
Accounts receivable, net of allowances of $268 and $3,428 | 513,312 | 461,950 | ||||||
Prepaid expenses and other current assets | 109,027 | 69,487 | ||||||
Deferred income taxes | 17,341 | 12,864 | ||||||
Total current assets | 736,367 | 666,980 | ||||||
Property and equipment, net | 15,442 | 12,646 | ||||||
Goodwill | 420,180 | 420,180 | ||||||
Tradename | 18,318 | 18,318 | ||||||
Other intangibles, net | 176,146 | 214,364 | ||||||
Deferred income taxes | 18,168 | 13,459 | ||||||
Other assets, net | 18,088 | 16,954 | ||||||
Total assets | $ | 1,402,709 | $ | 1,362,901 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 3,096 | $ | 37,850 | ||||
Accounts payable | 148,787 | 127,282 | ||||||
Accrued payroll and employee costs | 85,186 | 88,929 | ||||||
Other accrued liabilities | 129,240 | 116,308 | ||||||
Income taxes payable | 8,245 | 13,682 | ||||||
Total current liabilities | 374,554 | 384,051 | ||||||
Long-term debt, less current portion | 590,066 | 593,144 | ||||||
Other long-term liabilities | 13,804 | 6,032 | ||||||
Commitments and contingencies | ||||||||
Members’ equity: | ||||||||
Members’ units, 100 outstanding | $ | 321,414 | $ | 316,633 | ||||
Retained earnings | 109,785 | 63,205 | ||||||
Accumulated other comprehensive loss | (6,914 | ) | (164 | ) | ||||
Total members’ equity | 424,285 | 379,674 | ||||||
Total liabilities and members’ equity | $ | 1,402,709 | $ | 1,362,901 | ||||
F-4
Fiscal Year Ended | ||||||||||||
March 28, | March 30, | March 31, | ||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | |||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 47,955 | $ | 35,742 | $ | 28,385 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 43,492 | 45,251 | 47,020 | |||||||||
Loss on early extinguishment of debt | — | 2,657 | — | |||||||||
Excess tax benefits from equity-based compensation | (686 | ) | (495 | ) | — | |||||||
Amortization of deferred loan costs | 3,015 | 3,744 | 2,878 | |||||||||
(Recovery) provision for losses on accounts receivable | (923 | ) | (2,500 | ) | 4,204 | |||||||
Earnings from affiliates | (4,758 | ) | (2,913 | ) | (214 | ) | ||||||
Deferred income taxes | (1,017 | ) | (14,010 | ) | (9,407 | ) | ||||||
Equity-based compensation | 4,599 | 2,353 | 2,417 | |||||||||
Minority interest | (3,306 | ) | — | — | ||||||||
Changes in assets and liabilities: | ||||||||||||
Restricted cash | 8,916 | (20,224 | ) | — | ||||||||
Accounts receivable | (49,675 | ) | (19,255 | ) | (21,885 | ) | ||||||
Prepaid expenses and other current assets | (36,123 | ) | (25,165 | ) | (17,485 | ) | ||||||
Accounts payable and accrued liabilities | 31,679 | 82,427 | 10,828 | |||||||||
Income taxes payable | (3,458 | ) | 5,921 | 8,370 | ||||||||
Distributions from affiliates | 2,651 | — | — | |||||||||
Net cash provided by operating activities | 42,361 | 93,533 | 55,111 | |||||||||
Cash flows from investing activities | ||||||||||||
Purchase of property and equipment | (6,081 | ) | (7,037 | ) | (2,271 | ) | ||||||
Purchase of computer software | (1,657 | ) | (2,280 | ) | (3,909 | ) | ||||||
Other assets | (3,568 | ) | 1,722 | (51 | ) | |||||||
Net cash used by investing activities | (11,306 | ) | (7,595 | ) | (6,231 | ) | ||||||
Cash flows from financing activities | ||||||||||||
Payments on long-term debt | (37,832 | ) | (30,556 | ) | (3,449 | ) | ||||||
Premium paid on redemption of senior subordinated notes | — | (2,657 | ) | — | ||||||||
Payment of deferred financing costs | — | (640 | ) | — | ||||||||
Borrowings under other financing arrangements | 7,423 | 18,770 | — | |||||||||
Net transfers from parent company | — | 17,943 | — | |||||||||
Payments under other financing arrangements | (18,408 | ) | (7,411 | ) | — | |||||||
Excess tax benefits from equity-based compensation | 686 | 495 | — | |||||||||
Payments under revolving credit facilities | — | — | (35,000 | ) | ||||||||
Payment of initial public offering costs | — | — | (1,940 | ) | ||||||||
Payment of debt issuance costs | — | — | (909 | ) | ||||||||
Purchase of interest rate cap | — | — | (483 | ) | ||||||||
Net cash provided by (used by) financing activities | (48,131 | ) | (4,056 | ) | (41,781 | ) | ||||||
Net (decrease) increase in cash and cash equivalents | (17,076 | ) | 81,882 | 7,099 | ||||||||
Cash and cash equivalents, beginning of year | 102,455 | 20,573 | 13,474 | |||||||||
Cash and cash equivalents, end of year | $ | 85,379 | $ | 102,455 | $ | 20,573 | ||||||
Income taxes paid (net of refunds) | $ | 36,740 | �� | $ | 26,183 | $ | 19,025 | |||||
Interest paid | $ | 53,065 | $ | 49,090 | $ | 57,464 | ||||||
Non-cash investing activities | $ | — | $ | — | $ | 1,194 |
F-5
(Accumulated | ||||||||||||||||
Deficit) | Accumulated | |||||||||||||||
Member’s | Retained | Other | ||||||||||||||
(Dollars and shares in thousands) | Units | Earnings | Comprehensive | Total | ||||||||||||
Balance at April 1, 2005 | $ | 224,808 | $ | (922 | ) | $ | 22 | $ | 223,908 | |||||||
Comprehensive income: | ||||||||||||||||
Net income | 28,385 | — | 28,385 | |||||||||||||
Change in fair value of interest rate cap | — | 20 | 20 | |||||||||||||
Foreign currency translation | — | (260 | ) | (260 | ) | |||||||||||
Comprehensive income | 28,385 | (240 | ) | 28,145 | ||||||||||||
Working capital adjustment | 71,689 | 71,689 | ||||||||||||||
Equity-based compensation | 2,417 | — | 2,417 | |||||||||||||
Balance at March 31, 2006 | 298,914 | 27,463 | (218 | ) | 326,159 | |||||||||||
Comprehensive income: | ||||||||||||||||
Net income | 35,742 | — | 35,742 | |||||||||||||
Change in fair value of interest rate cap | — | (16 | ) | (16 | ) | |||||||||||
Foreign currency translation | — | 70 | 70 | |||||||||||||
Comprehensive income | 35,742 | 54 | 35,796 | |||||||||||||
Contribution from parent | 14,871 | — | — | 14,871 | ||||||||||||
Tax benefit associated with equity-based compensation | 495 | — | — | 495 | ||||||||||||
Equity-based compensation | 2,353 | — | — | 2,353 | ||||||||||||
Balance at March 30, 2007 | 316,633 | 63,205 | (164 | ) | 379,674 | |||||||||||
Comprehensive income: | ||||||||||||||||
Net income | 47,955 | 47,955 | ||||||||||||||
Interest Rate Cap | 276 | 276 | ||||||||||||||
Interest Rate Swap | — | (7,174 | ) | (7,174 | ) | |||||||||||
Currency translation Adjustment | — | 148 | 148 | |||||||||||||
Comprehensive income (loss) | 47,955 | (6,750 | ) | 41,205 | ||||||||||||
Adjustment for the adoption of FIN No. 48 | (1,375 | ) | (1,375 | ) | ||||||||||||
Tax benefit associated with equity-based compensation | 686 | — | — | 686 | ||||||||||||
Equity-based compensation | 4,095 | — | — | 4,095 | ||||||||||||
Balance at March 28, 2008 | $ | 321,414 | $ | 109,785 | $ | (6,914 | ) | $ | 424,285 | |||||||
F-6
Note 1 — | Significant Accounting Policies and Accounting Developments |
DynEgypt LLC | 50.0 | % | ||
Dyn Puerto Rico Corporation | 49.9 | % | ||
Contingency Response Services LLC | 45.0 | % | ||
Babcock DynCorp Limited | 44.0 | % | ||
Partnership for Temporary Housing LLC | 40.0 | % | ||
DCP Contingency Services LLC | 40.0 | % |
F-7
F-8
F-9
Computer and related equipment | 3 to 5 years | |
Furniture and other equipment | 2 to 10 years | |
Leasehold improvements | Shorter of lease term or useful life |
F-10
F-11
• | 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. |
F-12
F-13
Note 2 — | Goodwill and other Intangible Assets |
(Amounts in thousands) | ISS | LCM | MTSS | Total | ||||||||||||
Balance — March 31, 2006 | $ | 300,094 | $ | 39,935 | $ | 80,151 | $ | 420,180 | ||||||||
Additions Adjustments | — | — | — | — | ||||||||||||
Balance — March 30, 2007 | $ | 300,094 | $ | 39,935 | $ | 80,151 | $ | 420,180 | ||||||||
Additions Adjustments | — | — | — | — | ||||||||||||
Balance — March 28, 2008 | $ | 300,094 | $ | 39,935 | $ | 80,151 | $ | 420,180 | ||||||||
March 28, 2008 | ||||||||||||||||
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Useful Life | Gross | Accumulated | ||||||||||||||
(Amounts in thousands, except years) | (Years) | Carrying Value | Amortization | Net | ||||||||||||
Finite-lived intangible assets: | ||||||||||||||||
Customer-related intangible assets | 8.5 | $ | 290,716 | $ | (119,997 | ) | $ | 170,719 | ||||||||
Other | 4.2 | 10,887 | (5,460 | ) | 5,427 | |||||||||||
$ | 301,603 | $ | (125,457 | ) | $ | 176,146 | ||||||||||
Indefinite-lived intangible assets — Tradename | $ | 18,318 | $ | — | $ | 18,318 | ||||||||||
March 30, 2007 | ||||||||||||||||
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Useful Life | Gross | Accumulated | ||||||||||||||
(Amounts in thousands, except years) | (Years) | Carrying Value | Amortization | Net | ||||||||||||
Finite-lived intangible assets: | ||||||||||||||||
Customer-related intangible assets | 8.5 | $ | 290,381 | $ | (82,233 | ) | $ | 208,148 | ||||||||
Other | 4.2 | 12,599 | (6,383 | ) | 6,216 | |||||||||||
$ | 302,980 | $ | (88,616 | ) | $ | 214,364 | ||||||||||
Indefinite-lived intangible assets — Tradename | $ | 18,318 | $ | — | $ | 18,318 | ||||||||||
F-14
Amortization | ||||
(Dollars in thousands) | Expense | |||
Estimate for fiscal year 2009 | $ | 37,458 | ||
Estimate for fiscal year 2010 | 37,141 | |||
Estimate for fiscal year 2011 | 32,879 | |||
Estimate for fiscal year 2012 | 22,310 | |||
Estimate for fiscal year 2013 | 18,710 | |||
Thereafter | 27,648 |
Note 3 — | Income Taxes |
Fiscal Year Ended | ||||||||||||
(Dollars in thousands) | March 28, 2008 | March 30, 2007 | March 31, 2006 | |||||||||
Current portion: | ||||||||||||
Federal | $ | 22,203 | $ | 28,295 | $ | 22,849 | ||||||
State | 2,338 | 1,629 | 1,448 | |||||||||
Foreign | 4,475 | 4,635 | 1,618 | |||||||||
29,016 | 34,559 | 25,915 | ||||||||||
Deferred portion: | ||||||||||||
Federal | (1,026 | ) | (12,635 | ) | (8,797 | ) | ||||||
State | 22 | (348 | ) | (338 | ) | |||||||
Foreign | (13 | ) | (1,027 | ) | (153 | ) | ||||||
(1,017 | ) | (14,010 | ) | (9,288 | ) | |||||||
Provision for income taxes | $ | 27,999 | $ | 20,549 | $ | 16,627 | ||||||
(Dollars in thousands) | March 28, 2008 | March 30, 2007 | ||||||
Deferred tax assets related to: | ||||||||
Worker’s compensation accrual | $ | 9,481 | $ | 7,169 | ||||
Accrued vacation | 7,086 | 6,383 | ||||||
Bad debt allowance | 3,435 | 6,350 | ||||||
Completion bonus allowance | 5,761 | 4,458 | ||||||
Accrued severance | 1,027 | 1,991 | ||||||
Foreign tax credit carryforwards | — | 1,725 | ||||||
Accrued executive incentives | 1,526 | 1,561 | ||||||
Depreciable assets | 885 | 1,222 | ||||||
Warranty reserve | 458 | 1,041 | ||||||
Legal reserve | 7,180 | 884 | ||||||
Accrued health costs | 750 | 768 | ||||||
Leasehold improvements | 448 | 352 | ||||||
Interest rate swap | 4,223 | — | ||||||
Other accrued liabilities and reserves | 2,008 | 1,160 | ||||||
Total deferred tax assets | 44,268 | 35,064 | ||||||
F-15
(Dollars in thousands) | March 28, 2008 | March 30, 2007 | ||||||
Deferred tax liabilities related to: | ||||||||
Prepaid insurance | (1,096 | ) | (5,122 | ) | ||||
Customer intangibles | (7,196 | ) | (3,157 | ) | ||||
Deferred revenue | (467 | ) | (462 | ) | ||||
Total deferred tax liabilities | (8,759 | ) | (8,741 | ) | ||||
Deferred tax assets, net | $ | 35,509 | $ | 26,323 | ||||
(Dollars in thousands) | March 28, 2008 | March 30, 2007 | ||||||
Current deferred tax assets | $ | 17,341 | $ | 12,864 | ||||
Non-current deferred tax assets | 18,168 | 13,459 | ||||||
Deferred tax assets, net | $ | 35,509 | $ | 26,323 | ||||
Fiscal Year Ended | ||||||||||||
March 28, 2008 | March 30, 2007 | March 31, 2006 | ||||||||||
Statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income tax, less effect of federal deduction | 2.0 | % | 1.2 | % | 1.4 | % | ||||||
Minority interest | 1.5 | % | 0.0 | % | 0.0 | % | ||||||
Other | 0.0 | % | 0.3 | % | 1.3 | % | ||||||
Valuation allowance | 0.0 | % | 0.0 | % | (0.8 | )% | ||||||
Effective tax rate | 38.5 | % | 36.5 | % | 36.9 | % | ||||||
Balance at March 31, 2007 | $ | 5,881 | ||
Additions for tax positions related to current year | 1,619 | |||
Additions for tax positions taken in prior years | ||||
Reductions for tax positions of prior years | — | |||
Settlements | (317 | ) | ||
Lapse of statute of limitations | (4,415 | ) | ||
Balance at March 28, 2008 | $ | 2,714 |
F-16
Note 4 — | Accounts Receivable |
(Dollars in thousands) | March 28, 2008 | March 30, 2007 | ||||||
Billed, net | $ | 193,337 | $ | 227,942 | ||||
Unbilled | 319,975 | 232,543 | ||||||
Other receivables | — | 1,465 | ||||||
Total | $ | 513,312 | $ | 461,950 | ||||
Note 5 — | 401(k) Savings Plans |
F-17
Note 6 — | Long-Term Debt |
(Dollars in thousands) | March 28, 2008 | March 30, 2007 | ||||||
Term loans | $ | 301,130 | $ | 338,962 | ||||
9.5% Senior subordinated notes | 292,032 | 292,032 | ||||||
593,162 | 630,994 | |||||||
Less current portion of long-term debt | (3,096 | ) | (37,850 | ) | ||||
Total long-term debt | $ | 590,066 | $ | 593,144 | ||||
(Dollars in thousands) | ||||
2009 | $ | 3,096 | ||
2010 | 3,096 | |||
2011 | 294,938 | |||
2012 | — | |||
2013 | 292,032 | |||
Thereafter | — | |||
Total long-term debt (including current portion) | $ | 593,162 | ||
F-18
F-19
Note 7 — | Commitments and Contingencies |
Fiscal Year | Real Estate | Equipment | Services | |||||||||
2009 | $ | 14,129 | $ | 3,614 | $ | 4,623 | ||||||
2010 | 7,959 | 796 | — | |||||||||
2011 | 7,436 | 415 | — | |||||||||
2012 | 7,448 | 339 | — | |||||||||
2013 | 7,328 | 162 | — | |||||||||
Thereafter | 20,941 | — | — | |||||||||
$ | 65,241 | $ | 5,326 | $ | 4,623 | |||||||
F-20
F-21
F-22
Note 8 — | Valuation and Qualifying Accounts |
Charged/(Credited) | Deductions | |||||||||||||||
Beginning | to Costs and | from | End of | |||||||||||||
(Dollars in thousands) | of Period | Expense | Reserve(1) | Period | ||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
April 2, 2005 — March 31, 2006 | $ | 4,500 | 4,203 | (224 | ) | $ | 8,479 | |||||||||
April 1, 2006 — March 30, 2007 | $ | 8,479 | (2,500 | ) | (2,551 | ) | $ | 3,428 | ||||||||
March 31, 2007 — March 28, 2008 | $ | 3,428 | (923 | ) | (2,237 | ) | $ | 268 |
(1) | Deductions from reserve represent accounts written off, net of recoveries. |
Note 9 — | Interest Rate Derivatives |
Fixed | Variable | |||||||||||||||
Notional | Interest | Interest Rate | ||||||||||||||
Date Entered | Amount | Rate Paid* | Received | Expiration Date | ||||||||||||
April 2007 | $ | 168,620 | 4.975 | % | 3-month LIBOR | May 2010 | ||||||||||
April 2007 | $ | 31,380 | 4.975 | % | 3-month LIBOR | May 2010 | ||||||||||
September 2007 | $ | 75,000 | 4.910 | % | 3-month LIBOR | September 2008 |
* | plus applicable margin (2% at March 28, 2008) |
Note 10 — | Equity-Based Compensation |
F-23
March 28, | March 30, | March 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
Risk-free interest rate | 4.10 | % | 4.75 | % | 4.00 | % | ||||||
Expected volatility | 47 | % | 45 | % | 40 | % | ||||||
Expected lives (for Black-Scholes model input) | 2.4 years | 4.5 years | 5.0 years | |||||||||
Annual rate of quarterly dividends | 0 | % | 0 | % | 0 | % |
F-24
% Interest | Grant Date | |||||||
in DIV Holding | Fair Value | |||||||
Fiscal Year 2006 Grants | 6.44 | % | $ | 7,641 | ||||
Fiscal Year 2006 Forfeitures | (0.04 | )% | (53 | ) | ||||
Balance March 31, 2006 | 6.40 | % | 7,588 | |||||
Fiscal Year 2007 Grants | 3.26 | % | 9,703 | |||||
Fiscal Year 2007 Forfeitures | (3.32 | )% | (4,007 | ) | ||||
Balance March 30, 2007 | 6.34 | % | $ | 13,284 | ||||
Fiscal Year 2008 Grants | 0.02 | % | 109 | |||||
Fiscal Year 2008 Forfeitures | (0.12 | )% | (145 | ) | ||||
Balance March 28, 2008 | 6.24 | % | $ | 13,248 | ||||
March 31, 2006 Vested | 1.17 | % | $ | 1,383 | ||||
Fiscal Year 2007 Vesting | 0.88 | % | 1,414 | |||||
March 30, 2007 Vested | 2.05 | % | $ | 2,797 | ||||
Fiscal Year 2008 Vesting | 0.77 | % | 1,844 | |||||
March 28, 2008 Vested | 2.82 | % | $ | 4,641 | ||||
March 31, 2006 Nonvested | 5.23 | % | $ | 6,205 | ||||
March 30, 2007 Nonvested | 4.30 | % | $ | 10,486 | ||||
March 28, 2008 Nonvested | 3.42 | % | $ | 8,607 |
Fiscal year ended April 3, 2009 | $ | 2,421 | ||
Fiscal year ended April 2, 2010 | 1,291 | |||
Fiscal year ended April 1, 2011 and thereafter | 672 | |||
Total | $ | 4,384 | ||
F-25
Outstanding | Weighted Average | |||||||
Restricted | Grant Date | |||||||
Stock Units | Fair Value | |||||||
Outstanding, March 30, 2007 | — | $ | — | |||||
Units granted | 161,550 | 21.48 | ||||||
Units cancelled | (1,950 | ) | 21.19 | |||||
Units vested | — | — | ||||||
Outstanding, March 28, 2008 | 159,600 | $ | 21.49 |
Fiscal year ended April 3, 2009 | $ | 1,313 | ||
Fiscal year ended April 2, 2010 | 299 | |||
Fiscal year ended April 1, 2011 and thereafter | 222 | |||
Total | $ | 1,834 | ||
Note 11 — | Composition of Certain Financial Statement Captions |
March 28, | March 30, | |||||||
2008 | 2007 | |||||||
Prepaid expenses | $ | 43,205 | $ | 38,182 | ||||
Inventories | 8,463 | 9,836 | ||||||
Work-in-process | 45,245 | 21,469 | ||||||
Minority interest | 3,306 | — | ||||||
Other current assets | 8,808 | — | ||||||
$ | 109,027 | $ | 69,487 | |||||
F-26
March 28, | March 30, | |||||||
2008 | 2007 | |||||||
Computers and other equipment | $ | 11,813 | $ | 7,960 | ||||
Leasehold improvements | 4,649 | 4,437 | ||||||
Office furniture and fixtures | 5,272 | 3,331 | ||||||
Gross property and equipment | 21,734 | 15,728 | ||||||
Less accumulated depreciation | (6,292 | ) | (3,082 | ) | ||||
Property and equipment, net | $ | 15,442 | $ | 12,646 | ||||
March 28, | March 30, | |||||||
2008 | 2007 | |||||||
Deferred financing costs, net | $ | 11,350 | $ | 14,365 | ||||
Deferred offering costs | 24 | 126 | ||||||
Investment in affiliates | 6,287 | 2,195 | ||||||
Other | 427 | 268 | ||||||
$ | 18,088 | $ | 16,954 | |||||
March 28, | March 30, | |||||||
2008 | 2007 | |||||||
Wages, compensation and other benefits | $ | 57,940 | $ | 64,410 | ||||
Accrued vacation | 24,760 | 22,290 | ||||||
Accrued contributions to employee benefit plans | 2,486 | 2,229 | ||||||
$ | 85,186 | $ | 88,929 | |||||
March 28, | March 30, | |||||||
2008 | 2007 | |||||||
Deferred revenue | $ | 53,083 | $ | 53,749 | ||||
Insurance expense | 36,260 | 43,870 | ||||||
Interest expense | 9,885 | 10,398 | ||||||
Contract losses | 134 | 1,297 | ||||||
Legal matters | 19,851 | 2,443 | ||||||
Short-term swap liability | 5,783 | — | ||||||
Other | 4,244 | 4,551 | ||||||
$ | 129,240 | $ | 116,308 | |||||
F-27
Note 12 — | Segment and Geographic Information |
F-28
Fiscal Year Ended | ||||||||||||
March 28, | March 30, | March 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenue | ||||||||||||
International Security Services | $ | 1,097,083 | $ | 1,086,481 | $ | 1,039,650 | ||||||
Logistics and Construction Management | 285,317 | 266,050 | 218,711 | |||||||||
Maintenance and Technical Support Services | 757,361 | 729,743 | 708,632 | |||||||||
Total reportable segments | $ | 2,139,761 | $ | 2,082,274 | $ | 1,966,993 | ||||||
Operating Income | ||||||||||||
International Security Services | $ | 89,588 | $ | 89,130 | $ | 91,816 | ||||||
Logistics and Construction Management | 10,854 | $ | 13,227 | 6,080 | ||||||||
Maintenance and Technical Support Services | 19,561 | 11,128 | 3,341 | |||||||||
Total reportable segments | $ | 120,003 | $ | 113,485 | $ | 101,237 | ||||||
Depreciation and amortization | ||||||||||||
International Security Services | $ | 27,017 | $ | 26,248 | $ | 29,475 | ||||||
Logistics and Construction Management | 3,307 | 3,540 | 3,005 | |||||||||
Maintenance and Technical Support Services | 11,849 | 13,613 | 13,667 | |||||||||
Total reportable segments | $ | 42,173 | $ | 43,401 | $ | 46,147 | ||||||
Assets | ||||||||||||
International Security Services | $ | 725,775 | $ | 709,044 | $ | 733,836 | ||||||
Logistics and Construction Management | 199,088 | 187,750 | 142,950 | |||||||||
Maintenance and Technical Support Services | 336,721 | 308,533 | 299,109 | |||||||||
Total reportable segments | 1,261,584 | 1,205,327 | 1,175,896 | |||||||||
Corporate activities(1) | 141,125 | 157,574 | 63,194 | |||||||||
$ | 1,402,709 | $ | 1,362,901 | $ | 1,239,089 | |||||||
(1) | Assets primarily include cash, deferred income taxes, and deferred debt issuance cost. |
Fiscal Year Ended | ||||||||||||||||||||||||
March 28, | March 30, | March 31, | ||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
United States | $ | 718,787 | 34 | % | $ | 668,875 | 32 | % | $ | 703,117 | 36 | % | ||||||||||||
Middle East | 1,120,910 | 52 | % | 955,811 | 46 | % | 952,496 | 48 | % | |||||||||||||||
Other Americas | 194,767 | 9 | % | 220,176 | 11 | % | 194,429 | 10 | % | |||||||||||||||
Europe | 46,242 | 2 | % | 59,780 | 3 | % | 41,410 | 2 | % | |||||||||||||||
Other | 59,055 | 3 | % | 177,632 | 8 | % | 75,541 | 4 | % | |||||||||||||||
Total | $ | 2,139,761 | 100 | % | $ | 2,082,274 | 100 | % | $ | 1,966,993 | 100 | % | ||||||||||||
F-29
Note 13 — | Quarterly Financial Data (Unaudited) |
Fiscal Year 2008 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenue | $ | 548,673 | $ | 495,109 | $ | 523,071 | $ | 572,908 | ||||||||
Operating Income | $ | 32,202 | $ | 33,947 | $ | 30,825 | $ | 23,029 | ||||||||
Net income | $ | 12,258 | $ | 13,953 | $ | 11,960 | $ | 9,784 |
Fiscal Year 2007 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenue | $ | 537,684 | $ | 474,721 | $ | 517,539 | $ | 552,330 | ||||||||
Operating Income | $ | 28,808 | $ | 9,524 | $ | 32,254 | $ | 42,899 | ||||||||
Net income (loss) | $ | (617 | ) | $ | (2,880 | ) | $ | 11,594 | $ | 18,926 |
Note 14 — | Related Parties |
Note 15 — | Consolidating Financial Statements of Subsidiary Guarantors |
F-30
F-31
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 79,484 | $ | 3,835 | $ | 2,060 | $ | — | $ | 85,379 | ||||||||||
Restricted cash | — | 11,308 | — | — | 11,308 | |||||||||||||||
Accounts receivable, net | 481,810 | 30,804 | 698 | — | 513,312 | |||||||||||||||
Prepaid expenses and other current assets | 85,822 | 40,503 | 43 | — | 126,368 | |||||||||||||||
Total current assets | 647,116 | 86,450 | 2,801 | — | 736,367 | |||||||||||||||
Property and equipment, net | 11,087 | 4,049 | 306 | — | 15,442 | |||||||||||||||
Goodwill | 398,559 | 21,621 | — | — | 420,180 | |||||||||||||||
Tradename | 18,318 | — | — | — | 18,318 | |||||||||||||||
Other intangibles, net | 162,261 | 13,885 | 176,146 | |||||||||||||||||
Investment in subsidiaries | 39,880 | 739 | — | (40,619 | ) | — | ||||||||||||||
Other assets, net | 36,236 | 20 | — | — | 36,256 | |||||||||||||||
Intercompany receivables | — | — | 59,466 | (59,466 | ) | — | ||||||||||||||
Total assets | $ | 1,313,457 | $ | 126,764 | $ | 62,573 | $ | (100,085 | ) | $ | 1,402,709 | |||||||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | 3,096 | $ | — | $ | — | $ | — | $ | 3,096 | ||||||||||
Accounts payable | 132,146 | 16,533 | 108 | 148,787 | ||||||||||||||||
Accrued payroll and employee costs | 43,102 | 13,612 | 28,472 | — | 85,186 | |||||||||||||||
Other accrued liabilities | 64,538 | 40,028 | 24,674 | — | 129,240 | |||||||||||||||
Income taxes payable | 5,485 | 2,789 | (29 | ) | 8,245 | |||||||||||||||
Total current liabilities | 248,367 | 72,962 | 53,225 | — | 374,554 | |||||||||||||||
Long-term debt, less current portion | 590,066 | — | — | — | 509,066 | |||||||||||||||
Other long-term liabilities | 9,510 | 4,282 | 12 | — | 13,804 | |||||||||||||||
Intercompany payables | 41,229 | 18,034 | 203 | (59,466 | ) | — | ||||||||||||||
Member’s equity | 424,285 | 31,486 | 9,133 | (40,619 | ) | 424,285 | ||||||||||||||
Total liabilities and member’s equity | $ | 1,313,457 | $ | 126,764 | $ | 62,573 | $ | (100,085 | ) | $ | 1,402,709 | |||||||||
F-32
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 95,458 | $ | 5,212 | $ | 1,785 | $ | — | $ | 102,455 | ||||||||||
Restricted cash | — | 20,224 | — | — | 20,224 | |||||||||||||||
Accounts receivable, net | 425,847 | 35,979 | 124 | — | 461,950 | |||||||||||||||
Prepaid expenses and other current assets | 55,404 | 26,883 | 64 | — | 82,351 | |||||||||||||||
Total current assets | 576,709 | 88,298 | 1,973 | — | 666,980 | |||||||||||||||
Property and equipment, net | 8,592 | 3,496 | 558 | — | 12,646 | |||||||||||||||
Goodwill | 398,559 | 21,621 | — | — | 420,180 | |||||||||||||||
Tradename | 18,318 | — | — | — | 18,318 | |||||||||||||||
Other intangibles, net | 200,479 | 13,885 | 214,364 | |||||||||||||||||
Investment in subsidiaries | 30,410 | 529 | — | (30,939 | ) | — | ||||||||||||||
Other assets, net | 29,863 | 550 | — | — | 30,413 | |||||||||||||||
Intercompany receivables | — | — | 56,326 | (56,326 | ) | — | ||||||||||||||
Total assets | $ | 1,262,930 | $ | 128,379 | $ | 58,857 | $ | (87,265 | ) | $ | 1,362,901 | |||||||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | 37,850 | $ | — | $ | — | $ | — | $ | 37,850 | ||||||||||
Accounts payable | 118,806 | 8,466 | 10 | 127,282 | ||||||||||||||||
Accrued payroll and employee costs | 53,971 | 9,072 | 25,886 | — | 88,929 | |||||||||||||||
Other accrued liabilities | 39,873 | 47,755 | 28,680 | — | 116,308 | |||||||||||||||
Income taxes payable | 11,997 | 1,571 | 114 | 13,682 | ||||||||||||||||
Total current liabilities | 262,497 | 66,864 | 54,690 | — | 384,051 | |||||||||||||||
Long-term debt, less current portion | 593,144 | — | — | — | 593,144 | |||||||||||||||
Other long-term liabilities | 2,412 | 3,620 | — | — | 6,032 | |||||||||||||||
Intercompany payables | 25,203 | 31,123 | — | (56,326 | ) | — | ||||||||||||||
Member’s equity | 379,674 | 26,772 | 4,167 | (30,939 | ) | 379,674 | ||||||||||||||
Total liabilities and member’s equity | $ | 1,262,930 | $ | 128,379 | $ | 58,857 | $ | (87,265 | ) | $ | 1,362,901 | |||||||||
F-33
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Revenue | $ | 1,878,060 | $ | 261,701 | $ | 331,030 | $ | (331,030 | ) | $ | 2,139,761 | |||||||||
Cost of services | (1,622,541 | ) | (242,736 | ) | (325,419 | ) | 331,030 | (1,859,666 | ) | |||||||||||
Selling, general and administrative expenses | (106,741 | ) | (11,158 | ) | (20 | ) | — | (117,919 | ) | |||||||||||
Depreciation and amortization expense | (41,834 | ) | — | (339 | ) | — | (42,173 | ) | ||||||||||||
Operating income | 106,944 | 7,807 | 5,252 | — | 120,003 | |||||||||||||||
Interest expense | (55,374 | ) | — | — | — | (55,374 | ) | |||||||||||||
Earnings from affiliates | 4,758 | — | — | — | 4,758 | |||||||||||||||
Loss on early extinguishment of debt | — | — | — | — | ||||||||||||||||
Equity in income of subsidiaries | 9,680 | 211 | — | (9,891 | ) | — | ||||||||||||||
Interest income | 2,992 | 70 | 3,062 | |||||||||||||||||
Other, net | 485 | (289 | ) | 3 | — | 199 | ||||||||||||||
Income before income taxes | 69,485 | 7,799 | 5,255 | (9,891 | ) | 72,648 | ||||||||||||||
Provision for income taxes | (24,836 | ) | (2,872 | ) | (291 | ) | — | (27,999 | ) | |||||||||||
Minority interest | 3,306 | — | — | — | 3,306 | |||||||||||||||
Net income | $ | 47,955 | $ | 4,927 | $ | 4,964 | $ | (9,891 | ) | $ | 47,955 | |||||||||
F-34
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Revenue | $ | 1,843,917 | $ | 238,357 | $ | 299,285 | $ | (299,285 | ) | $ | 2,082,274 | |||||||||
Cost of services | (1,610,396 | ) | (211,673 | ) | (294,923 | ) | 299,285 | (1,817,707 | ) | |||||||||||
Selling, general and administrative expenses | (98,727 | ) | (8,866 | ) | (88 | ) | — | (107,681 | ) | |||||||||||
Depreciation and amortization expense | (43,324 | ) | — | (77 | ) | — | (43,401 | ) | ||||||||||||
Operating income | 91,470 | 17,818 | 4,197 | — | 113,485 | |||||||||||||||
Interest expense | (58,412 | ) | — | — | — | (58,412 | ) | |||||||||||||
Net earnings from affiliates | 2,913 | — | — | — | 2,913 | |||||||||||||||
Loss on early extinguishment of debt | (3,484 | ) | — | — | — | (3,484 | ) | |||||||||||||
Equity in income of subsidiaries | 20,758 | 313 | — | (21,071 | ) | — | ||||||||||||||
Interest income | 1,741 | 47 | 1 | 1,789 | ||||||||||||||||
Income before income taxes | 54,986 | 18,178 | 4,198 | (21,071 | ) | 56,291 | ||||||||||||||
Provision for income taxes | (19,244 | ) | (1,111 | ) | (194 | ) | — | (20,549 | ) | |||||||||||
Net income | $ | 35,742 | $ | 17,067 | $ | 4,004 | $ | (21,071 | ) | $ | 35,742 | |||||||||
F-35
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Revenue | $ | 1,731,796 | $ | 235,197 | $ | 205,428 | $ | (205,428 | ) | $ | 1,966,993 | |||||||||
Cost of services | (1,500,303 | ) | (222,196 | ) | (205,018 | ) | 205,428 | (1,722,089 | ) | |||||||||||
Selling, general and administrative expenses | (91,522 | ) | (5,997 | ) | (1 | ) | — | (97,520 | ) | |||||||||||
Depreciation and amortization expense | (46,061 | ) | — | (86 | ) | — | (46,147 | ) | ||||||||||||
Operating income | 93,910 | 7,004 | 323 | — | 101,237 | |||||||||||||||
Interest (expense) income | (56,703 | ) | 16 | 1 | — | (56,686 | ) | |||||||||||||
Equity in income of subsidiaries | 6,764 | 210 | — | (6,974 | ) | — | ||||||||||||||
Interest income | 461 | — | — | — | 461 | |||||||||||||||
Income before income taxes | 44,432 | 7,230 | 324 | (6,974 | ) | 45,012 | ||||||||||||||
Provision for income taxes | (16,047 | ) | (459 | ) | (121 | ) | — | (16,627 | ) | |||||||||||
Net income | $ | 28,385 | $ | 6,771 | $ | 203 | $ | (6,974 | ) | $ | 28,385 | |||||||||
F-36
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net cash provided by operating activities | $ | 27,437 | $ | 11,712 | $ | 3,212 | $ | — | $ | 42,361 | ||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchase of property and equipment | (7,738 | ) | — | — | — | (7,738 | ) | |||||||||||||
Other investing cash flows | (3,568 | ) | — | — | — | (3,568 | ) | |||||||||||||
Net cash used in investing activities | (11,306 | ) | — | — | — | (11,306 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Net transfers from (to) Parent | 16,026 | (13,089 | ) | (2,937 | ) | — | — | |||||||||||||
Payments on long term debt | (37,832 | ) | — | — | — | (37,832 | ) | |||||||||||||
Other financing activities | (10,299 | ) | — | — | — | (10,299 | ) | |||||||||||||
Net cash used in financing activities | (32,105 | ) | (13,089 | ) | (2,937 | ) | — | (48,131 | ) | |||||||||||
Net decrease in cash and cash equivalents | (15,974 | ) | (1,377 | ) | 275 | — | (17,076 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 95,458 | 5,212 | 1,785 | — | 102,455 | |||||||||||||||
$ | 79,484 | $ | 3,835 | $ | 2,060 | $ | — | $ | 85,379 | |||||||||||
F-37
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net cash provided by operating activities | $ | 52,552 | $ | 7,188 | $ | 33,793 | $ | — | $ | 93,533 | ||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchase of property and equipment | (5,908 | ) | (916 | ) | (213 | ) | — | (7,037 | ) | |||||||||||
Other investing cash flows | (558 | ) | — | — | — | (558 | ) | |||||||||||||
Net cash used in investing activities | (6,466 | ) | (916 | ) | (213 | ) | — | (7,595 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Net transfers from (to) Parent | 45,861 | (11,809 | ) | (34,052 | ) | — | — | |||||||||||||
Net transfers from Successor Parent | 17,943 | — | — | — | 17,943 | |||||||||||||||
Payments on credit facility | (30,556 | ) | — | — | — | (30,556 | ) | |||||||||||||
Other financing activities | 8,557 | — | — | — | 8,557 | |||||||||||||||
Net cash used in financing activities | 41,805 | (11,809 | ) | (34,052 | ) | — | (4,056 | ) | ||||||||||||
Net increase in cash and cash equivalents | 87,891 | (5,537 | ) | (472 | ) | — | 81,882 | |||||||||||||
Cash and cash equivalents, beginning of period | 7,567 | 10,749 | 2,257 | — | 20,573 | |||||||||||||||
$ | 95,458 | $ | 5,212 | $ | 1,785 | $ | — | $ | 102,455 | |||||||||||
F-38
Subsidiary | Subsidiary | |||||||||||||||||||
(Dollars in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net cash provided by operating activities | $ | 18,189 | $ | 22,304 | $ | 14,618 | — | $ | 55,111 | |||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchase of property and equipment | (1,711 | ) | (483 | ) | (77 | ) | — | (2,271 | ) | |||||||||||
Other investing cash flows | (3,960 | ) | — | — | — | (3,960 | ) | |||||||||||||
Net cash used in investing activities | (5,671 | ) | (483 | ) | (77 | ) | — | (6,231 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Net transfers from (to) Parent | 26,299 | (12,495 | ) | (13,804 | ) | — | — | |||||||||||||
Payments on credit facility | (35,000 | ) | — | — | — | (35,000 | ) | |||||||||||||
Other financing activities | (6,781 | ) | — | — | — | (6,781 | ) | |||||||||||||
Net cash used in financing activities | (15,482 | ) | (12,495 | ) | (13,804 | ) | — | (41,781 | ) | |||||||||||
Net increase in cash and cash equivalents | (2,964 | ) | 9,326 | 737 | — | 7,099 | ||||||||||||||
Cash and cash equivalents, beginning of period | 10,531 | 1,423 | 1,520 | — | 13,474 | |||||||||||||||
Cash and cash equivalents, end of period | $ | 7,567 | $ | 10,749 | $ | 2,257 | $ | — | $ | 20,573 | ||||||||||
F-39
Note 16 — | Subsequent Events (Unaudited) |
Fiscal Year Ended | ||||||||||||
March 28, | March 30, | March 31, | ||||||||||
(Dollars in thousands) | 2008 | 2007 | 2006 | |||||||||
Revenue | ||||||||||||
International Security Services | $ | 1,097,083 | $ | 1,086,481 | $ | 1,039,650 | ||||||
Logistics and Construction Management | 285,317 | 266,050 | 218,711 | |||||||||
Maintenance and Technical Support Services | 757,361 | 729,743 | 708,632 | |||||||||
Total reportable segments | $ | 2,139,761 | $ | 2,082,274 | $ | 1,966,993 | ||||||
F-40
For the Three Months Ended | ||||||||
October 3, | September 28, | |||||||
(Amounts in thousands) | 2008 | 2007 | ||||||
Revenue | $ | 779,151 | $ | 495,109 | ||||
Cost of services | (696,519 | ) | (425,633 | ) | ||||
Selling, general and administrative expenses | (25,994 | ) | (24,928 | ) | ||||
Depreciation and amortization expense | (10,005 | ) | (10,601 | ) | ||||
Operating income | 46,633 | 33,947 | ||||||
Interest expense | (14,905 | ) | (13,705 | ) | ||||
Loss on early extinguishment of debt | (4,443 | ) | — | |||||
Earnings from affiliates | 1,523 | 1,176 | ||||||
Interest income | 677 | 430 | ||||||
Other income, net | 960 | — | ||||||
Income before income taxes | 30,445 | 21,848 | ||||||
Provision for income taxes | (9,131 | ) | (7,895 | ) | ||||
Income before minority interest | 21,314 | 13,953 | ||||||
Minority interest | (8,443 | ) | — | |||||
Net income | $ | 12,871 | $ | 13,953 | ||||
F-41
For the Six Months Ended | ||||||||
October 3, | September 28, | |||||||
(Amounts in thousands) | 2008 | 2007 | ||||||
Revenue | $ | 1,495,945 | $ | 1,043,782 | ||||
Cost of services | (1,334,908 | ) | (905,721 | ) | ||||
Selling, general and administrative expenses | (53,845 | ) | (51,463 | ) | ||||
Depreciation and amortization expense | (20,565 | ) | (20,991 | ) | ||||
Operating income | 86,627 | 65,607 | ||||||
Interest expense | (29,120 | ) | (28,195 | ) | ||||
Loss on early extinguishment of debt | (4,443 | ) | — | |||||
Earnings from affiliates | 2,640 | 2,067 | ||||||
Interest income | 1,021 | 1,680 | ||||||
Other income, net | 1,665 | — | ||||||
Income before income taxes | 58,390 | 41,159 | ||||||
Provision for income taxes | (18,447 | ) | (14,948 | ) | ||||
Income before minority interest | 39,943 | 26,211 | ||||||
Minority interest | (9,092 | ) | — | |||||
Net income | $ | 30,851 | $ | 26,211 | ||||
F-42
As of | ||||||||
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 132,779 | $ | 85,379 | ||||
Restricted cash | 20,550 | 11,308 | ||||||
Accounts receivable, net of allowances of $592 and $268, respectively | 577,589 | 513,312 | ||||||
Prepaid expenses and other current assets | 132,720 | 109,027 | ||||||
Deferred income taxes | 28,254 | 17,341 | ||||||
Total current assets | 891,892 | 736,367 | ||||||
Property and equipment, net | 17,866 | 15,442 | ||||||
Goodwill | 420,180 | 420,180 | ||||||
Tradename | 18,318 | 18,318 | ||||||
Other intangibles, net | 160,226 | 176,146 | ||||||
Deferred income taxes | 11,367 | 18,168 | ||||||
Other assets, net | 28,868 | 18,088 | ||||||
Total assets | $ | 1,548,717 | $ | 1,402,709 | ||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | — | $ | 3,096 | ||||
Accounts payable | 158,436 | 148,787 | ||||||
Accrued payroll and employee costs | 135,305 | 85,186 | ||||||
Other accrued liabilities | 141,084 | 129,240 | ||||||
Income taxes payable | 11,443 | 8,245 | ||||||
Total current liabilities | 446,268 | 374,554 | ||||||
Long-term debt, less current portion | 615,835 | 590,066 | ||||||
Other long-term liabilities | 14,125 | 13,804 | ||||||
Commitments and contingencies | ||||||||
Minority interest | 5,786 | — | ||||||
Member’s equity: | ||||||||
Member’s units, 100 outstanding | 329,801 | 321,414 | ||||||
Retained earnings | 140,636 | 109,785 | ||||||
Accumulated other comprehensive loss | (3,734 | ) | (6,914 | ) | ||||
Total member’s equity | 466,703 | 424,285 | ||||||
Total liabilities and member’s equity | $ | 1,548,717 | $ | 1,402,709 | ||||
F-43
For the Six Months Ended | ||||||||
October 3, | September 28, | |||||||
(Amounts in thousands) | 2008 | 2007 | ||||||
Cash flows from operating activities | ||||||||
Net income | $ | 30,851 | $ | 26,211 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 21,087 | 21,632 | ||||||
Amortization of deferred loan costs | 1,723 | 1,507 | ||||||
(Recovery) for losses on accounts receivable | (173 | ) | (1,066 | ) | ||||
Earnings from affiliates | (1,255 | ) | (511 | ) | ||||
Deferred income taxes | (4,112 | ) | (1,957 | ) | ||||
Equity-based compensation | 1,225 | 2,263 | ||||||
Minority interest | 9,092 | — | ||||||
Loss on early extinguishment of debt | 4,443 | — | ||||||
Other | (304 | ) | 116 | |||||
Changes in assets and liabilities: | ||||||||
Restricted cash (see Note 1) | 7,326 | 2,597 | ||||||
Accounts receivable | (64,104 | ) | 6,062 | |||||
Prepaid expenses and other current assets | (26,070 | ) | (9,227 | ) | ||||
Accounts payable and accrued liabilities | 54,096 | 7,671 | ||||||
Income taxes payable | 4,128 | (5,388 | ) | |||||
Net cash provided by operating activities | 37,953 | 49,910 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (2,303 | ) | (2,114 | ) | ||||
Purchase of computer software | (1,212 | ) | (1,264 | ) | ||||
Change in cash restricted as collateral on letters of credit (see Note 1) | (16,568 | ) | — | |||||
Other assets | 365 | 158 | ||||||
Net cash used in investing activities | (19,718 | ) | (3,220 | ) | ||||
Cash flows from financing activities | ||||||||
Borrowings under debt agreements (see Note 5) | 323,751 | — | ||||||
Repayments on debt agreements (see Note 5) | (301,129 | ) | (36,285 | ) | ||||
Net borrowings (payments) under other financing arrangements | 16,158 | (2,860 | ) | |||||
Payments of deferred financing cost | (9,645 | ) | — | |||||
Other net financing activities | 30 | 62 | ||||||
Net cash provided by (used in) financing activities | 29,165 | (39,083 | ) | |||||
Net increase in cash and cash equivalents | 47,400 | 7,607 | ||||||
Cash and cash equivalents, beginning of period | 85,379 | 102,455 | ||||||
Cash and cash equivalents, end of period | $ | 132,779 | $ | 110,062 | ||||
Income taxes paid (net of refunds) | $ | 18,965 | $ | 21,297 | ||||
Interest paid | $ | 30,054 | $ | 27,234 | ||||
Non-cash purchase of property, equipment and computer software | $ | 2,458 | — | |||||
Non-cash sale of DIFZ including related financing (see Note 8) | $ | 8,264 | $ | — |
F-44
F-45
DynEgypt LLC | 50.0 | % | ||
Dyn Puerto Rico Corporation | 49.9 | % | ||
Contingency Response Services LLC | 45.0 | % | ||
Babcock DynCorp Limited | 44.0 | % | ||
Partnership for Temporary Housing LLC | 40.0 | % | ||
DCP Contingency Services LLC | 40.0 | % |
Global Linguist Solutions LLC | 51.0 | % | ||
DynCorp International Free Zone LLC | 50.0 | % |
F-46
As of | ||||||||||||
March 28, | October 3, | Cash provided by/ | ||||||||||
(Amounts in thousands) | 2008 | 2008 | (used in) | |||||||||
Type of restricted cash | ||||||||||||
Contract related | $ | 11,308 | $ | 3,982 | $ | 7,326 | ||||||
Required as collateral | — | 16,568 | (16,568 | ) | ||||||||
Total | $ | 11,308 | $ | 20,550 | $ | (9,242 | ) | |||||
F-47
F-48
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
Prepaid expenses | $ | 63,657 | $ | 43,205 | ||||
Inventories | 9,254 | 8,463 | ||||||
Work-in-process | 38,485 | 45,245 | ||||||
Minority interest | — | 3,306 | ||||||
Joint venture receivables | 12,844 | 2,076 | ||||||
Other current assets | 8,480 | 6,732 | ||||||
$ | 132,720 | $ | 109,027 | |||||
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
Wages, compensation and other benefits | $ | 107,340 | $ | 57,940 | ||||
Accrued vacation | 24,958 | 24,760 | ||||||
Accrued contributions to employee benefit plans | 3,007 | 2,486 | ||||||
$ | 135,305 | $ | 85,186 | |||||
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
Deferred revenue | $ | 36,459 | $ | 53,083 | ||||
Accrued insurance | 30,220 | 36,260 | ||||||
Accrued interest | 5,964 | 9,885 | ||||||
Contract losses | 18,966 | 134 | ||||||
Legal matters | 20,491 | 19,851 | ||||||
Short-term swap liability | 2,382 | 5,783 | ||||||
Other notes payable | 16,533 | 374 | ||||||
Other | 10,069 | 3,870 | ||||||
$ | 141,084 | $ | 129,240 | |||||
F-49
(Amounts in thousands) | ISS(1) | LCM | MTSS | Total | ||||||||||||
Balance as of March 28, 2008 | $ | 340,029 | $ | — | $ | 80,151 | $ | 420,180 | ||||||||
Transfer between reporting segments(2) | (39,935 | ) | 39,935 | — | — | |||||||||||
Balance as of October 3, 2008 | $ | 300,094 | $ | 39,935 | $ | 80,151 | $ | 420,180 | ||||||||
(1) | Balance as of March 28, 2008 represents the goodwill balance of the Government Services (“GS”) segment. International Security Services (“ISS”) and Logistics and Construction Management (“LCM”) did not exist as reportable segments at that date. On April 1, 2008, the Company announced it would change from reporting financial results of two segments, GS and Maintenance and Technical Support Services (“MTSS”), to reporting three segments, beginning with the first fiscal quarter of 2009. This was accomplished by splitting GS into two distinct reporting segments, ISS and LCM. | |
(2) | Transfer between reporting segments as described further in Note 14, is the result of a reorganization of the Company’s reporting structure within its segments and a contemporaneous independent fair value analysis of the reporting units within the Company’s reporting segments, in the manner required by SFAS 142. |
October 3, 2008 | ||||||||||||||||
Weighted | ||||||||||||||||
Average | Gross | |||||||||||||||
Useful Life | Carrying | Accumulated | ||||||||||||||
(Amounts in thousands, except years) | (Years) | Value | Amortization | Net | ||||||||||||
Finite-lived intangible assets: | ||||||||||||||||
Customer-related intangible assets | 8.5 | $ | 290,716 | $ | (137,842 | ) | $ | 152,874 | ||||||||
Other | 5.2 | 14,557 | (7,205 | ) | 7,352 | |||||||||||
$ | 305,273 | $ | (145,047 | ) | $ | 160,226 | ||||||||||
Indefinite-lived intangible assets — Tradename | $ | 18,318 | $ | — | $ | 18,318 | ||||||||||
March 28, 2008 | ||||||||||||||||
Weighted | ||||||||||||||||
Average | Gross | |||||||||||||||
Useful Life | Carrying | Accumulated | ||||||||||||||
(Amounts in thousands, except years) | (Years) | Value | Amortization | Net | ||||||||||||
Finite-lived intangible assets: | ||||||||||||||||
Customer-related intangible assets | 8.5 | $ | 290,716 | $ | (119,997 | ) | $ | 170,719 | ||||||||
Other | 4.2 | 10,887 | (5,460 | ) | 5,427 | |||||||||||
$ | 301,603 | $ | (125,457 | ) | $ | 176,146 | ||||||||||
Indefinite-lived intangible assets — Tradename | $ | 18,318 | $ | — | $ | 18,318 | ||||||||||
F-50
Amortization | ||||
(Amounts in thousands) | Expense | |||
Six month period ended April 3, 2009 | $ | 18,973 | ||
Estimate for fiscal year 2010 | 37,466 | |||
Estimate for fiscal year 2011 | 33,173 | |||
Estimate for fiscal year 2012 | 22,587 | |||
Estimate for fiscal year 2013 | 19,010 | |||
Thereafter | 29,017 |
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
Billed | $ | 214,816 | $ | 193,337 | ||||
Unbilled | 362,773 | 319,975 | ||||||
Total | $ | 577,589 | $ | 513,312 | ||||
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
Term loans | $ | 200,000 | $ | 301,130 | ||||
9.5% Senior subordinated notes(1) | 415,835 | 292,032 | ||||||
615,835 | 593,162 | |||||||
Less current portion of long-term debt | — | (3,096 | ) | |||||
Total long-term debt | $ | 615,835 | $ | 590,066 | ||||
(1) | Senior subordinated notes are net of a $1.2 million unamortized discount as of October 3, 2008. There was no unamortized discount as of March 28, 2008. |
F-51
(Amounts in thousands) | ||||
Six months ending April 3, 2009 | $ | — | ||
2010 | 16,875 | |||
2011 | 50,625 | |||
2012 | 55,000 | |||
2013 | 493,335 | |||
Thereafter | — | |||
Total long-term debt (including current portion) | $ | 615,835 | ||
F-52
F-53
F-54
F-55
Three Months Ended | ||||||||
October 3, | September 28, | |||||||
(Amounts in thousands) | 2008 | 2007 | ||||||
Current portion: | ||||||||
Federal | $ | 11,024 | $ | 9,256 | ||||
State | 842 | 568 | ||||||
Foreign | 1,271 | 1,464 | ||||||
13,137 | 11,288 | |||||||
Deferred portion: | ||||||||
Federal | (3,874 | ) | (3,236 | ) | ||||
State | (130 | ) | (189 | ) | ||||
Foreign | (2 | ) | 32 | |||||
(4,006 | ) | (3,393 | ) | |||||
Provision for income taxes | $ | 9,131 | $ | 7,895 | ||||
F-56
Six Months Ended | ||||||||
October 3, | September 28, | |||||||
(Amounts in thousands) | 2008 | 2007 | ||||||
Current portion: | ||||||||
Federal | $ | 20,610 | $ | 15,145 | ||||
State | 1,650 | 902 | ||||||
Foreign | 3,811 | 2,071 | ||||||
26,071 | 18,118 | |||||||
Deferred portion: | ||||||||
Federal | (7,370 | ) | (3,052 | ) | ||||
State | (246 | ) | (182 | ) | ||||
Foreign | (8 | ) | 64 | |||||
(7,624 | ) | (3,170 | ) | |||||
Provision for income taxes | $ | 18,447 | $ | 14,948 | ||||
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
Current deferred tax assets | $ | 28,254 | $ | 17,341 | ||||
Non-current deferred tax assets | 11,367 | 18,168 | ||||||
Deferred tax assets, net | $ | 39,621 | $ | 35,509 | ||||
F-57
Accumulated | ||||||||||||||||
Other | Total | |||||||||||||||
Member’s | Retained | Comprehensive | Member’s | |||||||||||||
(Amounts in thousands) | Units | Earnings | (Loss) Income | Equity | ||||||||||||
Balance at March 28, 2008 | $ | 321,414 | $ | 109,785 | $ | (6,914 | ) | $ | 424,285 | |||||||
Comprehensive income: | ||||||||||||||||
Net income | — | 30,851 | — | 30,851 | ||||||||||||
Interest rate swap, net of tax $2.1 million | 3,619 | 3,619 | ||||||||||||||
Currency translation adjustment, net of tax | — | — | (439 | ) | (439 | ) | ||||||||||
Comprehensive income | — | 30,851 | 3,180 | 34,031 | ||||||||||||
Equity-based compensation | 93 | — | — | 93 | ||||||||||||
Tax benefit associated with equity-based compensation | 30 | — | — | 30 | ||||||||||||
Sale of non-controlling interest of DIFZ | 8,190 | — | — | 8,190 | ||||||||||||
DIFZ financing, net of tax | 74 | — | — | 74 | ||||||||||||
Balance at October 3, 2008 | $ | 329,801 | $ | 140,636 | $ | (3,734 | ) | $ | 466,703 | |||||||
F-58
% Interest in | Grant Date | |||||||
(Dollar amounts in thousands) | DIV Holding | Fair Value | ||||||
Balance March 28, 2008 | 6.24 | % | $ | 13,248 | ||||
First Quarter Fiscal Year 2009 Grants | 0.20 | % | 867 | |||||
First Quarter Fiscal Year 2009 Forfeitures | (1.20 | )% | (2,530 | ) | ||||
Balance July 4, 2008 | 5.24 | % | $ | 11,585 | ||||
Second Quarter Fiscal Year 2009 Grants | 0.00 | % | — | |||||
Second Quarter Fiscal Year 2009 Forfeitures | 0.00 | % | — | |||||
Balance October 3, 2008 | 5.24 | % | $ | 11,585 | ||||
March 28, 2008 Vested | 2.82 | % | $ | 4,641 | ||||
First Quarter Fiscal Year 2009 Vesting | 0.12 | % | 520 | |||||
July 4, 2008 Vested | 2.94 | % | 5,161 | |||||
Second Quarter Fiscal Year 2009 Vesting | 0.05 | % | 73 | |||||
October 3, 2008 Vested | 2.99 | % | $ | 5,234 | ||||
March 28, 2008 Nonvested | 3.42 | % | $ | 8,607 | ||||
October 3, 2008 Nonvested | 2.25 | % | $ | 6,351 |
Six month period ended April 3, 2009 | $ | 910 | ||
Fiscal year ended April 2, 2010 | 1,102 | |||
Fiscal year ended April 1, 2011 and thereafter | 616 | |||
Total | $ | 2,628 | ||
F-59
Weighted | ||||||||
Average | ||||||||
Outstanding | Grant | |||||||
Restricted | Date | |||||||
Stock Units | Fair Value | |||||||
Outstanding, March 28, 2008 | 159,600 | $ | 21.49 | |||||
Units granted | 309,225 | 15.42 | ||||||
Units cancelled | (7,650 | ) | 14.60 | |||||
Units vested | — | — | ||||||
Outstanding, October 3, 2008 | 461,175 | $ | 17.54 | |||||
Six month period ended April 3, 2009 | $ | 1,477 | ||
Fiscal year ended April 2, 2010 | 2,175 | |||
Fiscal year ended April 1, 2011 and thereafter | 1,739 | |||
Total | $ | 5,391 | ||
Fixed | Variable | |||||||||||||||
Notional | Interest | Interest Rate | ||||||||||||||
Date Entered | Amount | Rate Paid(1) | Received | Expiration Date | ||||||||||||
April 2007 | $ | 168,620 | 4.975 | % | 3-month LIBOR | May 2010 | ||||||||||
April 2007 | $ | 31,380 | 4.975 | % | 3-month LIBOR | May 2010 |
(1) | Plus applicable margin (2% at October 3, 2008). |
F-60
F-61
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Revenue | $ | 520,815 | $ | 258,336 | $ | 98,780 | $ | (98,780 | ) | $ | 779,151 | |||||||||
Cost of services | (471,107 | ) | (231,331 | ) | (92,861 | ) | 98,780 | (696,519 | ) | |||||||||||
Selling, general and administrative expenses | (19,053 | ) | (6,750 | ) | (191 | ) | — | (25,994 | ) | |||||||||||
Depreciation and amortization expense | (9,989 | ) | — | (16 | ) | — | (10,005 | ) | ||||||||||||
Operating income | 20,666 | 20,255 | 5,712 | — | 46,633 | |||||||||||||||
Interest expense | (14,905 | ) | — | — | — | (14,905 | ) | |||||||||||||
Loss on extinguishment of debt | (4,443 | ) | — | — | — | (4,443 | ) | |||||||||||||
Earnings from affiliates | 1,523 | — | — | — | 1,523 | |||||||||||||||
Equity in income of subsidiaries, net of tax | 15,311 | (44 | ) | — | (15,267 | ) | — | |||||||||||||
Interest income | 672 | — | 5 | — | 677 | |||||||||||||||
Other, net | 804 | 46 | 110 | — | 960 | |||||||||||||||
Income before income taxes | 19,628 | 20,257 | 5,827 | (15,267 | ) | 30,445 | ||||||||||||||
Provision for income taxes | (6,757 | ) | (912 | ) | (1,462 | ) | — | (9,131 | ) | |||||||||||
Minority interest | — | (7,813 | ) | (630 | ) | — | (8,443 | ) | ||||||||||||
Net income | $ | 12,871 | $ | 11,532 | $ | 3,735 | $ | (15,267 | ) | $ | 12,871 | |||||||||
F-62
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Revenue | $ | 425,433 | $ | 69,676 | $ | 82,138 | $ | (82,138 | ) | $ | 495,109 | |||||||||
Cost of services | (363,696 | ) | (64,071 | ) | (80,004 | ) | 82,138 | (425,633 | ) | |||||||||||
Selling, general and administrative expenses | (21,733 | ) | (2,703 | ) | (492 | ) | — | (24,928 | ) | |||||||||||
Depreciation and amortization expense | (10,381 | ) | — | (220 | ) | — | (10,601 | ) | ||||||||||||
Operating income | 29,623 | 2,902 | 1,422 | — | 33,947 | |||||||||||||||
Interest expense | (13,705 | ) | — | — | — | (13,705 | ) | |||||||||||||
Earnings from affiliates | 1,176 | — | — | — | 1,176 | |||||||||||||||
Equity in income of subsidiaries, net of tax | 2,963 | (101 | ) | — | (2,862 | ) | — | |||||||||||||
Interest income | 417 | 13 | — | — | 430 | |||||||||||||||
Other, net | — | — | — | — | — | |||||||||||||||
Income before income taxes | 20,474 | 2,814 | 1,422 | (2,862 | ) | 21,848 | ||||||||||||||
Provision for income taxes | (6,521 | ) | (1,284 | ) | (90 | ) | — | (7,895 | ) | |||||||||||
Minority interest | — | — | — | — | — | |||||||||||||||
Net income | $ | 13,953 | $ | 1,530 | $ | 1,332 | $ | (2,862 | ) | $ | 13,953 | |||||||||
F-63
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Revenue | $ | 1,063,773 | $ | 432,172 | $ | 195,468 | $ | (195,468 | ) | $ | 1,495,945 | |||||||||
Cost of services | (945,659 | ) | (397,450 | ) | (187,267 | ) | 195,468 | (1,334,908 | ) | |||||||||||
Selling, general and administrative expenses | (41,180 | ) | (12,249 | ) | (416 | ) | — | (53,845 | ) | |||||||||||
Depreciation and amortization expense | (20,514 | ) | — | (51 | ) | — | (20,565 | ) | ||||||||||||
Operating income | 56,420 | 22,473 | 7,734 | — | 86,627 | |||||||||||||||
Interest expense | (29,120 | ) | — | — | — | (29,120 | ) | |||||||||||||
Loss on extinguishment of debt | (4,443 | ) | — | — | — | (4,443 | ) | |||||||||||||
Earnings from affiliates | 2,640 | — | — | — | 2,640 | |||||||||||||||
Equity in income of subsidiaries, net of tax | 18,000 | (150 | ) | — | (17,850 | ) | — | |||||||||||||
Interest income | 1,003 | 5 | 13 | — | 1,021 | |||||||||||||||
Other, net | 1,404 | 156 | 105 | — | 1,665 | |||||||||||||||
Income before income taxes | 45,904 | 22,484 | 7,852 | (17,850 | ) | 58,390 | ||||||||||||||
Provision for income taxes | (15,053 | ) | (1,110 | ) | (2,284 | ) | — | (18,447 | ) | |||||||||||
Minority interest | — | (8,462 | ) | (630 | ) | — | (9,092 | ) | ||||||||||||
Net income | $ | 30,851 | $ | 12,912 | $ | 4,938 | $ | (17,850 | ) | $ | 30,851 | |||||||||
F-64
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Revenue | $ | 907,190 | $ | 136,592 | $ | 164,694 | $ | (164,694 | ) | $ | 1,043,782 | |||||||||
Cost of services | (783,363 | ) | (126,063 | ) | (160,989 | ) | 164,694 | (905,721 | ) | |||||||||||
Selling, general and administrative expenses | (45,085 | ) | (5,463 | ) | (915 | ) | — | (51,463 | ) | |||||||||||
Depreciation and amortization expense | (20,746 | ) | — | (245 | ) | — | (20,991 | ) | ||||||||||||
Operating income | 57,996 | 5,066 | 2,545 | — | 65,607 | |||||||||||||||
Interest expense | (28,195 | ) | — | — | — | (28,195 | ) | |||||||||||||
Earnings from affiliates | 2,067 | — | — | — | 2,067 | |||||||||||||||
Equity in income of subsidiaries, net of tax | 6,162 | 11 | — | (6,173 | ) | — | ||||||||||||||
Interest income | 1,660 | 20 | — | — | 1,680 | |||||||||||||||
Other, net | — | — | — | — | — | |||||||||||||||
Income before income taxes | 39,690 | 5,097 | 2,545 | (6,173 | ) | 41,159 | ||||||||||||||
Provision for income taxes | (13,479 | ) | (1,291 | ) | (178 | ) | — | (14,948 | ) | |||||||||||
Minority interest | — | — | — | — | — | |||||||||||||||
Net income | $ | 26,211 | $ | 3,806 | $ | 2,367 | $ | (6,173 | ) | $ | 26,211 | |||||||||
F-65
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 124,424 | $ | 4,273 | $ | 4,082 | $ | — | $ | 132,779 | ||||||||||
Restricted cash | 20,550 | — | — | — | 20,550 | |||||||||||||||
Accounts receivable, net | 351,417 | 180,689 | 45,483 | — | 577,589 | |||||||||||||||
Prepaid expenses and other current assets | 151,425 | 8,264 | 1,285 | — | 160,974 | |||||||||||||||
Total current assets | 647,816 | 193,226 | 50,850 | — | 891,892 | |||||||||||||||
Property and equipment, net | 13,861 | 3,721 | 284 | — | 17,866 | |||||||||||||||
Goodwill | 398,559 | 21,621 | — | — | 420,180 | |||||||||||||||
Tradename | 18,318 | — | — | — | 18,318 | |||||||||||||||
Other intangibles, net | 146,341 | 13,885 | — | — | 160,226 | |||||||||||||||
Investment in subsidiaries | 55,689 | 588 | — | (56,277 | ) | — | ||||||||||||||
Other assets, net | 40,137 | 98 | — | — | 40,235 | |||||||||||||||
Intercompany receivables | 82,940 | — | 24,161 | (107,101 | ) | — | ||||||||||||||
Total assets | $ | 1,403,661 | $ | 233,139 | $ | 75,295 | $ | (163,378 | ) | $ | 1,548,717 | |||||||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Accounts payable | 93,470 | 64,272 | 694 | — | 158,436 | |||||||||||||||
Accrued payroll and employee costs | 60,377 | 50,855 | 24,073 | — | 135,305 | |||||||||||||||
Other accrued liabilities | 101,008 | 7,432 | 32,644 | — | 141,084 | |||||||||||||||
Income taxes payable | 10,570 | — | 873 | — | 11,443 | |||||||||||||||
Total current liabilities | 265,425 | 122,559 | 58,284 | — | 446,268 | |||||||||||||||
Long-term debt, less current portion | 615,835 | — | — | — | 615,835 | |||||||||||||||
Other long-term liabilities | 11,637 | 2,441 | 47 | — | 14,125 | |||||||||||||||
Intercompany payables | 38,275 | 66,603 | 2,223 | (107,101 | ) | — | ||||||||||||||
Minority interest | 5,786 | — | — | — | 5,786 | |||||||||||||||
Member’s equity | 466,703 | 41,536 | 14,741 | (56,277 | ) | 466,703 | ||||||||||||||
Total liabilities and member’s equity | $ | 1,403,661 | $ | 233,139 | $ | 75,295 | $ | (163,378 | ) | $ | 1,548,717 | |||||||||
F-66
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 79,484 | $ | 3,835 | $ | 2,060 | $ | — | $ | 85,379 | ||||||||||
Restricted cash | — | 11,308 | — | — | 11,308 | |||||||||||||||
Accounts receivable, net | 481,810 | 30,804 | 698 | — | 513,312 | |||||||||||||||
Prepaid expenses and other current assets | 85,822 | 40,503 | 43 | — | 126,368 | |||||||||||||||
Total current assets | 647,116 | 86,450 | 2,801 | — | 736,367 | |||||||||||||||
Property and equipment, net | 11,087 | 4,049 | 306 | — | 15,442 | |||||||||||||||
Goodwill | 398,559 | 21,621 | — | — | 420,180 | |||||||||||||||
Tradename | 18,318 | — | — | — | 18,318 | |||||||||||||||
Other intangibles, net | 162,261 | 13,885 | — | — | 176,146 | |||||||||||||||
Investment in subsidiaries | 39,880 | 739 | — | (40,619 | ) | — | ||||||||||||||
Other assets, net | 36,236 | 20 | — | — | 36,256 | |||||||||||||||
Intercompany receivables | — | — | 59,466 | (59,466 | ) | — | ||||||||||||||
Total assets | $ | 1,313,457 | $ | 126,764 | $ | 62,573 | $ | (100,085 | ) | $ | 1,402,709 | |||||||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | 3,096 | $ | — | $ | — | $ | — | $ | 3,096 | ||||||||||
Accounts payable | 132,146 | 16,533 | 108 | — | 148,787 | |||||||||||||||
Accrued payroll and employee costs | 43,102 | 13,612 | 28,472 | — | 85,186 | |||||||||||||||
Other accrued liabilities | 64,538 | 40,028 | 24,674 | — | 129,240 | |||||||||||||||
Income taxes payable | 5,485 | 2,789 | (29 | ) | 8,245 | |||||||||||||||
Total current liabilities | 248,367 | 72,962 | 53,225 | — | 374,554 | |||||||||||||||
Long-term debt, less current portion | 590,066 | — | — | — | 590,066 | |||||||||||||||
Other long-term liabilities | 9,510 | 4,282 | 12 | — | 13,804 | |||||||||||||||
Intercompany payables | 41,229 | 18,034 | 203 | (59,466 | ) | — | ||||||||||||||
Member’s equity | 424,285 | 31,486 | 9,133 | (40,619 | ) | 424,285 | ||||||||||||||
Total liabilities and member’s equity | $ | 1,313,457 | $ | 126,764 | $ | 62,573 | $ | (100,085 | ) | $ | 1,402,709 | |||||||||
F-67
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net cash provided by operating activities | $ | 121,387 | $ | (48,131 | ) | $ | (35,303 | ) | $ | — | $ | 37,953 | ||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchase of property and equipment | (2,303 | ) | — | — | — | (2,303 | ) | |||||||||||||
Other investing cash flows | (17,415 | ) | — | — | — | (17,415 | ) | |||||||||||||
Net cash used in investing activities | (19,718 | ) | — | — | — | (19,718 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Net transfers from (to) Parent | (85,894 | ) | 48,569 | 37,325 | — | — | ||||||||||||||
Net borrowings on credit facilities | 22,622 | — | — | — | 22,622 | |||||||||||||||
Other financing activities | 6,543 | — | — | — | 6,543 | |||||||||||||||
Net cash used in financing activities | (56,729 | ) | 48,569 | 37,325 | — | 29,165 | ||||||||||||||
Net decrease in cash and cash equivalents | 44,940 | 438 | 2,022 | — | 47,400 | |||||||||||||||
Cash and cash equivalents, beginning of period | 79,484 | 3,835 | 2,060 | — | 85,379 | |||||||||||||||
Cash and cash equivalents, end of period | $ | 124,424 | $ | 4,273 | $ | 4,082 | $ | — | $ | 132,779 | ||||||||||
F-68
Subsidiary | Subsidiary | |||||||||||||||||||
(Amounts in thousands) | Parent | Guarantor | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Net cash provided by operating activities | $ | 63,319 | $ | (6,409 | ) | $ | (7,000 | ) | $ | — | $ | 49,910 | ||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchase of property and equipment | (2,114 | ) | — | — | — | (2,114 | ) | |||||||||||||
Other investing cash flows | (1,106 | ) | — | — | — | (1,106 | ) | |||||||||||||
Net cash used in investing activities | (3,220 | ) | — | — | — | (3,220 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Net transfers from (to) Parent | (10,527 | ) | 3,018 | 7,509 | — | — | ||||||||||||||
Payments on long term debt | (36,285 | ) | — | — | — | (36,285 | ) | |||||||||||||
Other financing activities | (2,798 | ) | — | — | — | (2,798 | ) | |||||||||||||
Net cash used in financing activities | (49,610 | ) | 3,018 | 7,509 | — | (39,083 | ) | |||||||||||||
Net decrease in cash and cash equivalents | 10,489 | (3,391 | ) | 509 | — | 7,607 | ||||||||||||||
Cash and cash equivalents, beginning of period | 95,458 | 5,212 | 1,785 | — | 102,455 | |||||||||||||||
Cash and cash equivalents, end of period | $ | 105,947 | $ | 1,821 | $ | 2,294 | $ | — | $ | 110,062 | ||||||||||
• | 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. |
F-69
Book value of | ||||||||||||||||
financial | Quoted Prices in | |||||||||||||||
assets/(liabilities) | Active Markets | Significant Other | Significant | |||||||||||||
as of October 3, | for Identical | Observable Inputs | Unobservable | |||||||||||||
(Amounts in thousands) | 2008 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | ||||||||||||
Assets | ||||||||||||||||
Cash equivalents(1) | $ | 153,329 | $ | 153,329 | $ | — | $ | — | ||||||||
Total assets measured at fair value | $ | 153,329 | $ | 153,329 | $ | — | $ | — | ||||||||
Liabilities | ||||||||||||||||
Interest rate derivatives | $ | 5,729 | $ | — | $ | 5,729 | $ | — | ||||||||
Total liabilities measured at fair value | $ | 5,729 | $ | — | $ | 5,729 | $ | — | ||||||||
(1) | Includes cash and cash equivalents and restricted cash. |
F-70
Three Months Ended | ||||||||
October 3, | September 28, | |||||||
(Amounts in thousands) | 2008 | 2007 | ||||||
Revenue | ||||||||
International Security Services | $ | 472,335 | $ | 270,847 | ||||
Logistics and Construction Management | 85,466 | 47,623 | ||||||
Maintenance and Technical Support Services | 222,730 | 176,794 | ||||||
Other/elimination | (1,380 | ) | (155 | ) | ||||
Total revenue | $ | 779,151 | $ | 495,109 | ||||
Operating Income | ||||||||
International Security Services | $ | 49,949 | $ | 32,975 | ||||
Logistics and Construction Management | (23,057 | ) | (2,728 | ) | ||||
Maintenance and Technical Support Services | 19,741 | 3,700 | ||||||
Total operating income | $ | 46,633 | $ | 33,947 | ||||
Depreciation and amortization | ||||||||
International Security Services | $ | 6,448 | $ | 7,061 | ||||
Logistics and Construction Management | 682 | 652 | ||||||
Maintenance and Technical Support Services | 2,875 | 2,888 | ||||||
Total depreciation and amortization | $ | 10,005 | $ | 10,601 | ||||
F-71
Six Months Ended | ||||||||
October 3, | September 28, | |||||||
(Amounts in thousands) | 2008 | 2007 | ||||||
Revenue | ||||||||
International Security Services | $ | 877,709 | $ | 559,412 | ||||
Logistics and Construction Management | 178,928 | 110,751 | ||||||
Maintenance and Technical Support Services | 441,607 | 373,619 | ||||||
Other/elimination | (2,299 | ) | — | |||||
Total revenue | $ | 1,495,945 | $ | 1,043,782 | ||||
Operating Income | ||||||||
International Security Services | $ | 75,378 | $ | 57,134 | ||||
Logistics and Construction Management | (16,987 | ) | (431 | ) | ||||
Maintenance and Technical Support Services | 28,236 | 8,904 | ||||||
Total operating income | $ | 86,627 | $ | 65,607 | ||||
Depreciation and amortization | ||||||||
International Security Services | $ | 13,118 | $ | 13,624 | ||||
Logistics and Construction Management | 1,461 | 1,300 | ||||||
Maintenance and Technical Support Services | 5,986 | 6,067 | ||||||
Total depreciation and amortization | $ | 20,565 | $ | 20,991 | ||||
As of | ||||||||
October 3, | March 28, | |||||||
(Amounts in thousands) | 2008 | 2008 | ||||||
Assets | ||||||||
International Security Services | $ | 786,316 | $ | 725,775 | ||||
Logistics and Construction Management | 208,515 | 199,088 | ||||||
Maintenance and Technical Support Services | 312,192 | 336,721 | ||||||
Corporate/other(1) | 241,694 | 141,125 | ||||||
Total assets | $ | 1,548,717 | $ | 1,402,709 | ||||
(1) | Assets primarily include cash, deferred income taxes, and deferred debt issuance cost. |
F-72