Mail Stop 4561
October 25, 2005
Michael J. Thorne
Chief Financial Officer
DynCorp International LLC
8445 Freeport Parkway, Suite 400
Irving, Texas 75063
Re: DynCorp International LLC
Amendment No. 1 to Registration Statement on Form S-4
Filed September 27, 2005
File No. 333-127343
Dear Mr. Thorne:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. We note your statements that you are a "leading" provider of a
broad range of critical outsourced technical services. We further
note the support you provided that indicates you are approximately
the twentieth largest government contractor in terms of total
revenue, but only a fraction of the size of the fifth largest
government contractor. Please revise your disclosure to quantify
your leadership position and describe your relative size in
comparison to the top five government contractors in terms of
total
revenue or, alternatively, provide us with additional information
regarding your leadership position.
Prospectus Summary, page 3
2. We note your statement that you have increased your revenues
and
EBITDA from fiscal 2001 through fiscal 2005 at compound annual
growth
rates of 34.7% and 49.2%, respectively. We further note that you
do
not provide audited financial statements for fiscal years 2001 and
2002. As a result, please omit references to your compound annual
growth rates for these periods.
3. We note your response to comment no. 13 and the revised
disclosure
that: "Although we began to operate independently as a stand-alone
entity on December 27, 2000, since 1951, our predecessors have
provided essential services to numerous U.S. government
departments
and agencies." We also note your response where you indicate that
DynCorp was responsible for its own operations and never fully
integrated into CSC after its acquisition. Please revise your
disclosure to make clear that the company operated as a separate
subsidiary of first the former DynCorp and later CSC. Your
characterization of the company as a "stand-alone entity" may
leave
investors with the impression that the company operated
exclusively
on its own and did not have access to the financial or other
resources of the parent. In light of the transition services
agreement you have entered into with CSC, it does not appear that
you
operated in this manner.
4. We note your response to comment no. 15 and the revised
disclosure. We further note the registration statement on Form S-
1
filed by DynCorp International Inc. that discloses you had a net
loss
of $14 million for fiscal 2005. Please revise your disclosure on
page 1 to be consistent with the disclosure in the Form S-1 and
balance your discussion of the company`s financial position with
disclosure regarding the net loss for 2005, including a brief
description of the factors that have contributed to the net loss.
Alternatively, explain the apparent inconsistency.
Business Strategy, page 2
5. We note your response to comment no. 22 and the revised
disclosure. Since you highlight your "Competitive Strengths" in
the
summary section, please provide comparable disclosure of the risks
you face under a separate subheading that for the summary risk
factors.
Organizational Chart, page 5
6. We note your response to comment no. 16 and the revised
organization chart. We further note that Veritas Capital and its
affiliates and other third party investors hold all of the
outstanding shares of DIV Holding LLC. We reissue the portion of
the
comment that requested that you include your ultimate parent. In
addition, please identify the affiliates of Veritas Capital and
the
third party investors that hold shares of DIV Holding LLC and
provide
their respective ownership percentages. Please make corresponding
changes to the chart on page 29.
Risk Factors, page 14
Risks Related to Our Indebtedness, page 14
The indenture governing the Notes, our senior secured credit
facility..., page 15
7. We note your response to comment no. 27 and the revised
disclosure. Please note that the cross-references are not
sufficient
to briefly describe how these restrictions limit your ability to
do
the things listed in the bullet points, and we reissue the
comment.
In particular, please briefly describe whether you are allowed to
incur any additional indebtedness or repay any indebtedness. In
addition, please define "restricted payments."
8. We note that the senior secured credit facility also restricts
the
maximum amount of your capital expenditures during each year of
its
term. Please expand your disclosure to briefly describe these
restrictions.
Risks Relating to the New Notes, page 16
Your right to receive payments on the New Notes..., page 16
9. We note your response to comment no. 30 and the deletion of the
language regarding the prohibition on all payments on the New
Notes
and the subsidiary guarantees in the event of a payment default on
your senior indebtedness and, for limited periods, upon the
occurrence of other defaults under your senior indebtedness.
Please
revise to include this language and briefly describe the "other"
defaults and quantify "limited" periods or advise us as to why
this
disclosure is not material to the risk factor.
Loss of our skilled personnel..., page 25
10. We note your response to comment no. 39 and the revised
disclosure that you "depend" on your "senior management." We
continue to believe that you should identify the specific members
of
your senior management team upon whom you are reliant, and we
reissue
the comment.
The 2005 Acquisition, page 27
11. We note your response to comment no. 40 and the revised
disclosure that you are currently negotiating the amount of the
working capital adjustment. Please advise us as of the date on
which
the working capital adjustment was first disputed and when you
expect
to complete the final purchase price adjustment.
Management`s Discussion and Analysis, page 40
12. We note your response to comment no. 44 that the disclosure
has
been added. We are unable to locate the disclosure in this
section.
Please advise or revise.
13. We note your response to comment no. 45 and the revised
disclosure. We re-issue the portion of our comment that asked
that
you discuss the amount of cash flow required to service your debt
and
how this will impact your operations going forward. Please revise
accordingly.
Contract Backlog, page 43
14. We note your response to comment no. 48 and the revised
disclosure. We further note that unfunded backlog is the actual
dollar value of unexercised contract options. Please clarify, if
true, that the customer may never exercise these contract options.
In addition, please disclose, if true, that these options still
would
be subject to the annual appropriations process and discuss the
uncertainties associated with the appropriations process.
Liquidity and Capital Resources
Debt and Other Obligations, page 56
15. We note your response to comment no. 50 and the revised
disclosure that the senior credit facility also restricts the
maximum
amount of your capital expenditures during each year of the senior
credit facility. We re-issue the portion of our comment that
asked
that you expand your disclosure to briefly describe these
restrictions and discuss how all of the covenants will impact your
operations going forward. Please revise accordingly.
Business, page 69
Backlog, page 78
16. We note your response to comment no. 56 and the revised
disclosure that backlog does not take into account any expenses
associated with the contracts. Please revise to include
disclosure
comparable to that found on page 43 indicating that converting
backlog into revenue would not reflect net income associated with
the
contracts.
17. We note your response to comment no. 57 and the supplemental
materials provided. With respect to Tab 11 to the supplemental
materials provided in support of the statements on page 73 related
to
estimates by the Government Electronics and Information Technology
Association or GEIA, please confirm that GEIA was the source of
the
spreadsheet or alternatively tell us who created the spreadsheet.
Management Incentives, page 88
18. We note your response to comment no. 62 and the revised
disclosure that "certain other members" of management will
participate in your profits through a plan that grants them Class
B
interests in DIV Holding LLC. We re-issue the portion of that
comment that asked you to identify the named executives who will
be
eligible for this program. In addition, please state that you are
unable to quantify the aggregate dollar value of the grants that
will
be made under the plan. Please tell us when you expect an
enterprise
value of the company will be established.
Certain Relationships and Related Transactions, page 91
19. We note your response to comment no. 66 that the disclosure
pertaining to the fees payable to CSC has been added. We further
note your disclosure on page 4 that the total cost of the
transition
services during fiscal 2005 and the three months ended July 1,
2005,
were $355,000 and $988,000 respectively. Please expand your
disclosure in this section to include this information and clarify
whether you are still receiving services pursuant to the
transition
agreement.
Available Information, page 150
20. We note your response to comment no. 73 and the revised
disclosure. We further note the disclosure on page 150 that
references the Public Reference Section at 450 West Fifth Street
N.W., Washington, D.C. 20549. Please revise to note that the
Public
Reference Section is also located at 100 F Street, NE, Room 1580,
Washington, DC 20549.
Financial Statements
Note 1 - Summary of Significant Accounting Policies, page F-8
21. We have considered your response to our prior comment 76.
Please
tell us which of your predecessor entities represents the parent
entity and its basis for consolidation. Cite any relevant
accounting
literature in your response.
Unaudited financial statements for the period ended July 1, 2005
Note 3 - Acquisitions
February 11, 2005 Transaction
22. We note that you have determined an estimated range of
consideration due to the seller for the working capital
adjustment.
Tell us and clarify if the contingent consideration is currently
payable and provide your analysis of the guidance in paragraphs
26-27
of SFAS 141 for determining when you will record these amounts in
your financial statements.
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Robert Telewicz at 202-551-3438 or Cicely
Lucky, Accounting Branch Chief, at 202-551-3780 if you have
questions
regarding comments on the financial statements and related
matters.
Please contact Jennifer Gowetski at 202-551-3401 or me at 202-551-
3694 with any other questions.
Sincerely,
Owen Pinkerton
Senior Counsel
cc: Michael R. Littenberg, Esq. (via facsimile)
Schulte Roth & Zabel LLP
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Michael J. Thorne
DynCorp International LLC
October 25, 2005
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