- Fourth quarter Revenue of $983 million, up 14.8%
- Fourth quarter Net loss attributable to Delta Tucker Holdings,Inc. of $27.5 million, up $3.5 million, excluding the impactof the fourth quarter goodwill impairment
- Fourth quarter Adjusted EBITDA of $41.4 million, down $5.3million
- Total Backlog of $5.7 billion, up $959.0 million from year end2010
- DSO of 69 days, down 7 days from third quarter and down 13 daysfrom year end 2010
- Debt reduction of $98.7 million during fourth quarte
Falls Church, Va. – (April 9, 2012)– Delta Tucker Holdings, Inc. (“Holdings”), the parent ofDynCorp International Inc. (“DI”, and together with Holdings, the”Company”), a global government services provider supporting theUnited States’ national security and foreign policy objectives,today reported final fourth quarter revenue of $983 million, anincrease of 14.8% over fourth quarter 2010, and final full year2011 revenue of $3.7 billion, up $334.4 million or 9.9% fromcalendar year 2010, when adjusting for the deconsolidation of theGlobal Linguist Solutions (“GLS”) joint venture. Net incomeattributable to Holdings was $19.8 million for the full year 2011,after adjusting for the $49.1 million, net of tax, non-cashimpairment of our GLS investment and the $31.7 million, net of tax,non-cash goodwill impairment related to our GSDS reporting segmentrecorded during the third and fourth quarter, respectively. Netincome of Holdings for 2010 was $39.7 million after adjusting forthe after tax $45.1 million of merger related expenses associatedwith the merger with affiliates of Cerberus Capital Management,L.P. in 2010.
“Our team delivered a very solid year of performance in 2011,”said Steven F. Gaffney, DI chairman and chief executive officer.”We focused on the right things – improving our processes,reorganizing our structure and upgrading our talent – to keep us ona path of growth. Our redesigned business development platformhelped increase our backlog almost $1 billion over the year anddrove significant increases in our new business pipeline. Structural changes reduced our indirect cost structure, making usmore competitive and responsive. And process improvements improvedour working capital by reducing DSO by 13 days, allowing us to meetour deleveraging plan by paying down more than $150 million on theterm loan in 2011.”
Fourth Quarter Highlights
- In October 2011, DI was awarded a task order under the ContractField Team (“CFT”) contract with the U.S. Army to provide aviationmaintenance, modifications and logistics support for the Armyrotary wing aircraft. The task order is for one base year and oneoption year and has a potential value of approximately $80.0million, if all options are exercised
- In November and December 2011, DI received its most recentaward fee determination related to Afghanistan and Kuwaitoperations on the Logistics Civil Augmentation Program (“LOGCAPIV”) contract. These award fee determinations covereddefinitized costs from February 1, 2011 through July 31, 2011 andin total were lower than estimated award fee scores.
- The Company reduced Days Sales Outstanding (DSO) by 7 daysduring the fourth quarter to end at 69 days and reduced workingcapital as a percentage of revenue to 10.1%.
- In October and December 2011, DI made term loan principalpayments of $48.7 million and $50.0 million, respectively. TheOctober payment eliminated all future quarterly amortizationpayments until maturity. These payments caused the acceleration ofunamortized deferred financing fees of $4.9 million, which wererecorded as a loss on extinguishment of debt within the Statementof Operations during the fourth quarter of 2011.
- As a result of our impairment test completed in October of2011, it was determined that the fair value of our goodwill for tworeporting units within our GSDS segment was in excess of itsrelated carrying value. The second step of the impairmenttest determined that the implied goodwill for our IntelligenceTraining and Solutions (“ITS”) and Training and Mentoring (“TM”)reporting units was a total of $33.8 million lower than thecarrying value amount. A non-cash impairment charge was recordedfor this amount for the two reporting units within our GSDSreporting segment, for the year ended December 30,2011.
Summary Operating Results
Revenue for the fourth quarter of $983.0 million was up 14.8%from the same quarter in 2010 based on: continued strong demandunder the LOGCAP IV contract; a 35% increase under the AirOperations Business Area Team (“BAT”), primarily due toconstruction services and secure air transportation services inIraq and Afghanistan; increased business from the Security ServicesBAT, primarily in Iraq; and a 19.9% top line growth in the Trainingand Mentoring BAT from additional services under the AfghanNational Police MOI Development Program (“AMDP”) and CombinedSecurity Transition Command- Afghanistan (“CSTC-A”)contracts. Revenue for the quarter was partially offset bythe loss of the Life Cycle Contract Support (“LCCS”) contract underthe Aviation BAT.
Revenue for the year ended December 30, 2011 was $3.7 billion,up $334.4 million or 9.9% from the comparable period in 2010,adjusted for the deconsolidation of GLS, which recorded $309.1million of revenue in 2010. Increased demand under the LOGCAPIV contract, the INL Air Wing contract and the Training andMentoring BAT drove the increase.
Fourth quarter net income attributable to Holdings was $4.1million, adjusted for the $31.7 million goodwill impairment relatedto GSDS reporting segment during the fourth quarter, net of tax, up$3.5 million from the same quarter in 2010. The change in netincome attributable to Holdings was due primarily to increasedvolume and lower selling, general and administrative expenses,lower interest and tax expense, partially offset by a reduction inprofitability attributable to the GLS joint venture and a $4.9million loss on early extinguishment of debt.
Net income attributable to Holdings for the year ended 2011 was$19.8 million, adjusted for the $80.8 million, net of tax,impairment of the carrying value of DI’s investment in the GlobalLinguist Solutions (“GLS”) joint venture and the goodwillimpairment related to the ITS and TM reporting unit during thefourth quarter, down $19.9 million, from the comparable period in2010, which is adjusted for the after tax $45.1 million mergerrelated expense. The change in net income attributable to Holdingswas due primarily to increases in revenue resulting from higherdemand under the LOGCAP IV, AMDP and INL Air Wing contracts; andimproved profitability in the Aviation BAT. These increases in netincome were more than offset by a decrease in earnings from equitymethod investees due primarily to the decrease in GLS’ earnings, aloss recognized on the early extinguishment of debt and the shiftin mix from the Civilian Police (“CivPol”) Afghanistan program toAMDP. Lower volume levels and profitability on the Mine ResistantAmbush Protected Vehicles (“MRAP”) contracts as that program movesinto the sustainment phase of its lifecycle also drove the negativecomparison.
Adjusted EBITDA for fourth quarter 2011 was $41.4 million or$5.3 million lower than the comparable period in 2010. AdjustedEBITDA was negatively impacted by lower LCCS volumes, reduceddemand for services of the GLS joint venture as a result of troopwithdrawals in Iraq, lower volume on the CivPol contract, and atrue-up under the Contingency Operations BAT for lower thananticipated award fee scores on the LOGCAP IV contract. Partially offsetting these decreases were increased demand underthe LOGCAP IV contract, increased volume and profitability on theINL Air Wing contract for construction and secure aviationtransportation in Iraq and Afghanistan, improved margins on the CFTcontract, and higher volume and profitability under the SecurityServices BAT.
2011 full year adjusted EBITDA of $193.6 million decreased $26.2million from the comparable 2010 period primarily due to the lossof the LCCS programs, lower earnings from GLS, lower profitabilityon the MRAP program as it transitioned to a sustainment mode, and lower margins on the AMDP program compared to the program itreplaced, CivPol Afghanistan (“ACAS”). Additional volume on theLOGCAP IV program, new contracts under the Aviation BAT andimproved performance on the CFT and Counter-NarcoterrorismTechnology Program Office (“CNTPO”) programs helped offset thesedeclines.
Reportable Segments Results:
Global Stabilization and Development Solutions(GSDS):
The GSDS segment produced revenue of $638.8 million for thefourth quarter representing a 17.7% increase from the same periodin 2010 and full year revenue of $2.4 billion, an increase of 15.1%over the calendar year 2010. GSDS represented 64.5% of totalrevenue for the year ended December 30, 2011. The performance wasprimarily driven by the following:
- Strong continued demand from the LOGCAP IV program, increasing$65.5 million and $290.8 million from the fourth quarter andcalendar year 2010, respectively, was the major contributor to theContingency Operations revenue growth. Additionalrevenue growth under the AFCAP and AFRICAP programs during the yearoffset the loss of the APK Somalia Task order, which was active in2010.
Training and Mentoring:
- Revenue of $164.5 million and $620.9 million, up 19.9% and16.1%, compared to fourth quarter and calendar year 2010,respectively, in the Training and Mentoring BAT was drivenprimarily by the AMDP program, which became fully operational inthe third quarter of 2011 along with the CSTC-A program. CivPol continued to contribute to revenue, although at reducedlevels as the ACAS task order was replaced by AMDP during theyear.
- Fourth quarter revenue increased $9.8 million from the fourthquarter 2010 to $23.5 million and was essentially flat for theyear, compared to calendar year 2010, as a result of the WPSprogram replacing the WPPS program, which experienced reduceddemand in late 2010 and ended during calendar year 2011. The WPSprogram was obtained in July 2011 and was fully operational duringthe fourth quarter.
- Operating income of $57.9 million for the year ended December30, 2011, adjusted for goodwill impairment charge of $33.8 millionfor the ITS and TM reporting units. Operating income was primarilydue to revenue contributions on such programs as LOGCAP IV, AMDPand CivPol. The LOGCAP IV program provided additional revenuethrough the related award fees and base fees earned during theyear. Operating income was offset by non-routine severancecosts within the ITS and Development BATs incurred in thefirst quarter of calendar year 2011 and an investment in theContingency Operations BAT incurred to strategically enteradditional service areas in Afghanistan. As a percentage ofrevenue, operating income was 2.4% of revenue primarily due tolarger volume contracts LOGCAP IV, AMDP and CivPol carrying lowermargins than firm fixed price contracts.
Global Platform Support Solutions (GPSS):
The GPSS segment produced revenue of $349.4 million for thefourth quarter representing an 11.6% increase from the same periodin 2010 and full year revenue of $1.3 billion, an increase of 1.3%over the calendar year 2010. GPSS represented 35.3% of totalrevenue for the year ended December 30, 2011. The performance wasprimarily driven by the following:
- Revenue was down $8.8 million and $56.8 million compared to thefourth quarter and full year 2010, respectively. The fourth quarterof 2011 saw the positive impact of recent wins as our AndrewsVIPSAM, C21 CLS, and Pax River contracts all added tooperations. Additionally, the CFT contract recognizedimproved revenue and profitability for the quarter and fullyear. These programs coupled with growth on the CNTPOcontract in 2011 were not enough to offset the revenue headwindexperienced with the loss of the LCCS-Army contract in late 2010and the LCCS-Navy contract in first quarter 2011.
- The Air Operations BAT experienced strong demand forconstruction services and secure aviation transportation in Iraqand Afghanistan with the INL Air Wing program during 2011,producing revenue of $126.6 million in the fourth quarter, anincrease of 35% compared to fourth quarter 2010, and $465.3 millionfor the full year of 2011, up 25% compared to the calendar year2010.
Operations and Maintenance:
- During the fourth quarter revenue increased approximately $11.1million, or 22.5% compared to the same period in 2010, to $60.3million driven primarily by the revenue earned on the War ReserveMateriel, Philippines Operations Support, and our MRAP programs.Revenue of $208.7 million for the year ended December 30, 2011 wasdown 9.5% when compared to calendar year 2010 primarily driven bythe change of MRAP programs to cost responsive versus fixed pricetype contracts.
- Operating income of $111.3 million for the year ended December30, 2011 represented 8.5% of revenues for the year and wasprimarily attributable to income produced by our INL Air Wingprogram from operations in Iraq, Afghanistan and other countries.Operating income was also impacted by increased profitability ofour Aviation BAT, partially offset by first quarter events, such as$2.2 million of severance expense related to certain Germanemployees on the CFT program and a $1.9 million write-down of LCCSinventory.
Global Linguist Solutions (GLS):
- The Company recorded zero Adjusted EBITDA for the fourthquarter of 2011, down approximately $4.9 million from thecomparable quarter in 2010, driven by the reduction in deployedlinguists in support of U.S. troop levels in Iraq as the war cameto an end. In the third quarter of 2011, the Company recordedan impairment of its investment in GLS in the amount of $76.6million and does not anticipate GLS to contribute to operations in2012 .
Steve Schorer, president, commented on recent organizationalchanges, “To capitalize on the success we saw in 2011 and tocontinue the momentum into 2012, we analyzed the global marketsthat are most attractive to DI, made changes to align and size ourbusinesses accordingly, and brought in new team members to helpsecure new opportunities.”
Under this new structure, the Company’s organization is asfollows:
- Aviation Group – Aviation BAT, Air Operations BAT
- Global Logistics & Development Solutions Group -Development, Operations and Maintenance, and Contingency OperationsBATs (excluding the LOGCAP IV program)
- Security Services Group – Security BAT
- Training & Intelligence Group – Training & MentoringBAT, Intelligence Training & Solutions BAT
- LOGCAP IV program – due to the size of this program, LOGCAP IVwill operate as a standalone group to optimize management,oversight and performance of the tea
Cash provided by Operating Activities of $168.0 million for theyear ended December 30, 2011 was driven from strong collections ofreceivables, reducing DSO to 69 days, as well as the collection ofa $46.0 million tax refund resulting from an approved change inaccounting method with the IRS.
During the year, the Company made principal prepayments in theamount of $151.3 million on its Term Loan facility to reduce grossdebt outstanding by 14.8%. The principal prepayment made inOctober of 2011 satisfied the Company’s responsibility tomake quarterly principle payments through 2016.
The Company enters 2012 with a strong backlog of orders andmarket position and depth of services to meet the life-cycle ofneeds to support the nation
l security and foreign policyobjectives of the U.S. and its allies. Backlog ended the yearat $5.7 billion, up $959 million from calendar year 2010, a 20.1%increase. Each of DI’s BATS successfully won new contracts orre-competes during the year including significant wins in theSecurity Services and Aviation BATS and the extension of the firstoption year under the LOGCAP IV contract.
Bill Kansky, Chief Financial Officer stated, “We anticipategrowth in both sales and profitability in 2012. The headwind fromour GLS JV and lower CivPol volumes will be offset by continuedgains on the AMDP contract, growth in our Aviation group andimproved award fee scores on the LOGCAP IVprogram. This shouldresult in overall margins remaining at current levels.”
About DynCorp International
DynCorp International Inc., a wholly owned subsidiary of DeltaTucker Holdings, Inc., is a global government services providerworking in support of U.S. national security and foreign policyobjectives, delivering support solutions for defense, diplomacy,and international development. DynCorp International operates majorprograms in logistics, platform support, contingency operations,and training and mentoring to reinforce security, communitystability, and the rule of law. DynCorp International isheadquartered in Falls Church, Va. For more information, visitwww.dyn-intl.com.
Reconciliation to GAAP
In addition to the Company’s financial results reported inaccordance with accounting principles generally accepted in theUnited States of America (“GAAP”) included in this press release,the Company has provided certain financial measures that are notcalculated according to GAAP, Including EBITDA. We define EBITDA asGAAP net income attributable to the Company adjusted for interest,taxes, depreciation and amortization. Adjusted EBITDA is calculatedby adjusting EBITDA for certain noncash items from operations andcertain other items as defined in our 10.375% Senior UnsecuredNotes and our Credit Facility. Management believes these non-GAAPfinancial measures are useful in evaluating operating performanceand are regularly used by security analysts, institutionalinvestors and other interested parties in reviewing the Company.Non-GAAP financial measures such as EBITDA and Adjusted EBITDA arenot intended to be a substitute for any GAAP financial measure and,as calculated, may not be comparable to other similarly titledmeasures of the performance of other companies. We believe thatAdjusted EBITDA is useful in assessing our ability to generate cashto cover our debt obligations including interest and principalpayments. Non-GAAP financial measures are not intended to be asubstitute for any GAAP financial measure and, as calculated, maynot be comparable to other similarly titled measures of theperformance of other companies.
For a reconciliation of non-GAAP financial measures to thecomparable GAAP financial measures please see the financialschedules accompanying this release.
This announcement may contain forward-looking statementsregarding future events and our future results that are subject tothe safe harbors created by the Private Securities LitigationReform Act of 1995 under the Securities Act of 1933 (the”Securities Act”) and the Securities Exchange Act of 1934 (the”Exchange Act”). Without limiting the foregoing, the words”believes,” “thinks,” “anticipates,” “plans,” “expects” and similarexpressions are intended to identify forward-looking statements.Forward-looking statements involve risks and uncertainties.Statements regarding the amount of our backlog, estimated totalcontract values, and 2012 outlook are other examples offorward-looking statements. We caution that these statements arefurther qualified by important economic, competitive, governmental,international and technological factors that could cause ourbusiness, strategy, projections or actual results or events todiffer materially, or otherwise, from those in the forward-lookingstatements. These factors, risks and uncertainties include, amongothers, the following: the future impact of mergers acquisitions,joint ventures or teaming agreements; our substantial level ofindebtedness and changes in availability of capital and cost ofcapital; the outcome of any material litigation, governmentinvestigation, audit or other regulatory matters; policy and/orspending changes implemented by the Obama Administration, anysubsequent administration or Congress; termination or modificationof key U.S. government or commercial contracts, includingsubcontracts; changes in the demand for services that we provide orwork awarded under our contracts, including without limitation, theCivilian Police, International Narcotics and Law Enforcement,Worldwide Personal Protection Services and LOGCAP IV contracts;change in demand for services provided by our joint venturepartners; pursuit of new commercial business in the U.S. andabroad; activities of competitors and the outcome of bid protests;changes in significant operating expenses; impact of lower thanexpected win rates for new business; general political, economic,regulatory and business conditions in the U.S. or in othercountries in which we operate; acts of war or terrorist activities;variations in performance of financial markets; the inherentdifficulties of estimating future contract revenue and changes inanticipated revenue from indefinite delivery, indefinite quantitycontracts; the timing or magnitude of any award fee granted underour government contracts, including, but not limited to, LOGCAP IV;changes in expected percentages of future revenue represented byfixed-price and time-and-materials contracts, including increasedcompetition with respect to task orders subject to such contracts;termination or modification of key subcontractor performance ordelivery; and statements covering our business strategy, thosedescribed in “Risk Factors” in our Annual Report on Form 10-K forthe year ended December 30, 2011 filed with the SEC on April 9,2012 and other risks detailed from time to time in our reportsfiled with the SEC. Accordingly, such forward-looking statements donot purport to be predictions of future events or circumstances andtherefore, there can be no assurance that any forward-lookingstatement contained herein will prove to be accurate. Weassume no obligation to update the forward-lookingstatements. Given these risk and uncertainties, you arecautioned not to place undue reliance on forward-lookingstatements. The Company’s actual results could differ materiallyfrom those contained in the forward-looking statements.
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