UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
      Form 10-Q
  þ QUARTERLY
    REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009.
  COMMISSION FILE NUMBER 333-89756
      
  Alion Science and Technology
    Corporation
 (Exact Name of Registrant as
    Specified in Its Charter)
 DELAWARE

54-2061691(State or Other Jurisdiction
    of

(I.R.S. EmployerIncorporation of
    Organization)

Identification No.)   1750 Tysons Boulevard, Suite 1300
    McLean, VA 22102
    (703) 918-4480
  (Address, including Zip Code and
    Telephone Number with Area Code, of Principal Executive
    Offices)
      (Former name, former address and
    former fiscal year, if changed since last report)
  o þ
  Regulation S-T o o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  FORM 10-Q
  FOR THE
    QUARTER ENDED MARCH 31, 2009
  PART I  FINANCIAL INFORMATIONItem 1.


Financial Statements (unaudited)


3Condensed Consolidated Balance Sheets (unaudited)


3Condensed Consolidated Statements of Operations (unaudited)


4Condensed Consolidated Statements of Cash Flows (unaudited)


5Notes to Condensed Consolidated Financial Statements (unaudited)


6Item 2.


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


31Item 3.


Quantitative and Qualitative Disclosures About Market Risk


52Item 4.


Controls and Procedures


52Item 4T.


Controls and Procedures


53PART II  OTHER INFORMATION


53Item 1.


Legal Proceedings


53Item 1A.


Risk Factors


53Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds


53Item 3.


Defaults Upon Senior Securities


53Item 4.


Submission of Matters to a Vote of Security Holders


53Item 5.


Other Information


53Item 6.


Exhibits


54  2




---



##### 



PART I 
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements (unaudited)  ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  Condensed
    Consolidated Balance Sheets (unaudited)
 As of
    March 31, 2009 and September 30, 2008
  March 31,


September 30,2009


2008(In thousands, except share and per share information)Current assets:Cash and cash equivalents

$



$
16,287Accounts receivable, net


183,763



168,451Stock subscriptions receivable






2,669Prepaid expenses and other current assets


4,372



3,135Total current assets


188,135



190,542Property, plant and equipment, net


16,824



18,601Intangible assets, net


34,624



41,248Goodwill


398,871



398,871Other assets


6,023



6,684Total assets

$
644,477


$
655,946Current liabilities:Book cash overdraft

$
100


$
Interest payable


9,021



6,543Current portion, senior term loan payable


2,389



2,389Interest rate swap liability






4,629Current portion of subordinated note payable


3,000



3,000Current portion, acquisition obligations






50Trade accounts payable


59,265



57,164Accrued liabilities


38,435



39,227Accrued payroll and related liabilities


39,594



41,557Billings in excess of revenue earned


3,678



2,708Total current liabilities


155,482



157,267Notes payable to bank


4,720



Senior term loan payable, excluding current portion


229,536



229,831Senior unsecured notes


244,798



244,355Subordinated note payable


43,647



42,656Accrued compensation, excluding current portion


4,482



11,305Accrued postretirement benefit obligations


646



627Non-current portion of lease obligations


6,482



6,260Redeemable common stock warrants


33,098



39,996Redeemable common stock, $0.01 par value,
    8,000,000 shares authorized, 5,264,885 and
    5,229,756 shares issued and outstanding at March 31,
    2009 and September 30, 2008


180,586



200,561Accumulated other comprehensive loss


(36
)


(36
)Accumulated deficit


(258,964
)


(276,876
)Total liabilities, redeemable common stock and accumulated
    deficit

$
644,477


$
655,946    3




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  Condensed
    Consolidated Statements of Operations (unaudited)
  Three Months Ended


Six Months EndedMarch 31,


March 31,2009


2008


2009


2008(In thousands, except share and per share information)Contract revenue

$
195,429


$
189,243


$
384,225


$
372,388Direct contract expense


149,135



143,030



294,457



283,412Gross profit


46,294



46,213



89,768



88,976Operating expenses:Indirect contract expense


9,332



11,076



18,456



20,959Research and development


78



295



147



456General and administrative


13,426



16,965



23,599



32,706Rental and occupancy expense


8,468



7,742



16,206



15,413Depreciation and amortization


4,700



5,333



9,506



10,360Total operating expenses


36,004



41,411



67,914



79,894Operating income


10,290



4,802



21,854



9,082Other income (expense):Interest income


25



117



48



272Interest expense


(10,244
)


(13,831
)


(24,332
)


(27,107
)Other


(87
)


(893
)


(122
)


(747
)Total other expenses


(10,306
)


(14,607
)


(24,406
)


(27,582
)Loss before income taxes


(16
)


(9,805
)


(2,552
)


(18,500
)Income tax benefit (expense)


55







51



(11
)Net income (loss)

$
39


$
(9,805
)

$
(2,501
)

$
(18,511
)Basic and diluted earnings (loss) per share


0.01



(1.96
)


(0.48
)


(3.69
)Basic and diluted weighted average common shares outstanding


5,227,835



5,012,671



5,228,787



5,012,753    4




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  Condensed
    Consolidated Statements of Cash Flows (unaudited)
  Six Months Ended March 31,2009


2008(In thousands)Cash flows from operating activities:Net loss

$
(2,501
)

$
(18,511
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation and amortization


9,506



10,360Bad debt expense


512



336Accretion of debt to face value


1,180



503Amortization of debt issuance costs


1,364



884Change in fair value of redeemable common stock warrants


(6,899
)


298Stock-based compensation


(5,764
)


4,324Loss on interest rate swap


18



933Changes in assets and liabilities:Accounts receivable


(15,824
)


(49,688
)Other assets


(578
)


(63
)Trade accounts payable


2,100



23,537Accrued liabilities


1,500



5,839Interest payable


2,478



(4,699
)Other liabilities


4,023



2,155Net cash used in operating activities


(8,885
)


(23,792
)Cash flows from investing activities:Cash paid for acquisitions-related obligations


(166
)


(980
)Capital expenditures


(1,076
)


(2,714
)Net cash used in investing activities


(1,242
)


(3,694
)Cash flows from financing activities:Change in book overdraft


100Cash (paid for) received from interest rate swap


(4,647
)


4,488Payment of senior term loan principal


(1,216
)


(1,237
)Payment of subordinated note principal


(3,000
)


Revolver borrowings


227,500



225,605Revolver payments


(222,780
)


(212,005
)Loan to ESOP Trust


(5,936
)


(3,369
)ESOP loan repayment


5,936



3,369Redeemable common stock purchased from ESOP Trust


(7,232
)


(1,248
)Redeemable common stock sold to ESOP Trust


5,115



3,377Net cash (used in) provided by financing activities


(6,160
)


18,980Net decrease in cash and cash equivalents


(16,287
)


(8,506
)Cash and cash equivalents at beginning of period


16,287



11,684Cash and cash equivalents at end of period

$



$
3,178Supplemental disclosure of cash flow information:Cash paid for interest

$
23,397


$
28,291Cash paid for taxes


(51
)


11Non-cash financing activities:Common stock issued to ESOP Trust in satisfaction of employer
    contribution liability

$
5,252


$
5,043    5




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    (UNAUDITED)
  (1)
    Description
    and Formation of the Business    not-for-profit
  (2)
    Summary
    of Significant Accounting Policies  Basis
    of Presentation and Principles of Consolidation
  Form 10-K
    Fiscal,
    Quarter and Interim Periods
    Use of
    Estimates
    Reclassifications
    Revenue
    Recognition
  time-and-material
 6




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  time-and-material
        SOP 81-1, Accounting for Performance on Construction-Type and Certain
    Production-Type Contracts.
  Income
    Taxes
    Cash
    and Cash Equivalents
   7




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounts
    Receivable and Billings in Excess of Revenue
    Earned
    Property,
    Plant and Equipment
    Goodwill
    and Intangible Assets
  Goodwill and Other Intangible Assets
  paragraphs 30-36
     8




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Business
    Combinations.
      Purchased contracts


1-13 yearsInternal use software and engineering designs


2-3 yearsNon-compete agreements


3-6 years   Postretirement
    Benefits
  Employers
    Accounting for Postretirement Benefits Other Than Pension Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans
  Redeemable
    Common Stock
     9




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Concentration
    of Credit Risk
    Fair
    Value of Financial Instruments
    Recently
    Issued Accounting Pronouncements
  Business Combinations, FAS 141-R(1) SFAS 141-R).
  Noncontrolling Interests in Consolidated Financial
    Statements,
 10




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (3)
    Employee
    Stock Ownership Plan (ESOP) and ESOP Trust    (4)
    Postretirement
    Benefits    (5)
    Earnings
    (Loss) Per Share    (6)
    Redeemable
    Common Stock Owned by ESOP Trust     11




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (7)
    Accounts
    Receivable    March 31,


September 30,2009


2008(In thousands)Billed receivables

$
116,903


$
99,794Unbilled receivables:Amounts currently billable


27,071



37,883Revenues recorded in excess of milestone billings on fixed price
    contracts


3,621



2,651Revenues recorded in excess of estimated contract value or
    funding


26,782



18,925Retainages and other amounts billable upon contract completion


13,509



13,160Allowance for doubtful accounts


(4,123
)


(3,962
)Total Accounts Receivable

$
183,763


$
168,451     (8)
    Property,
    Plant and Equipment  March 31,


September 30,2009


2008(In thousands)Leasehold improvements

$
9,698


$
9,451Equipment and software


32,222



31,393Total cost


41,920



40,844Less: accumulated depreciation and amortization


(25,096
)


(22,243
)Net Property, Plant and Equipment

$
16,824


$
18,601  12




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (9)
    Goodwill
    and Intangible Assets      March 31, 2009


September 30, 2008Weighted











WeightedAverage











AverageRemaining











RemainingAccumulated





Amortization





Accumulated





AmortizationGross


Amortization


Net


Period


Gross


Amortization


Net


PeriodPurchased contracts

$
111,635


$
(77,825
)

$
33,810



6.1 yrs


$
111,635


$
(71,410
)

$
40,225



6.3 yrsInternal use software and engineering designs


2,155



(1,374
)


781



2.7 yrs



2,155



(1,178
)


977



2.9 yrsNon-compete agreements


725



(692
)


33



1.6 yrs



725



(679
)


46



1.8 yrsTotal

$
114,515


$
(79,891
)

$
34,624



6.0 yrs


$
114,515


$
(73,267
)

$
41,248



6.0 yrs     (In thousands)For the remaining six months:2009

$
5,943For the year ending September 30:2010


10,9852011


6,8432012


5,7672013


3,2462014


879Thereafter


961$
34,624   (10)
    Long-Term
    Debt  Term B
    Senior Credit Facility
   13




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Interest and Fees.
  Other Fees and Expenses.
    Financial Covenants.
  Senior
    Unsecured Notes
    Interest and Fees.
 14




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest
    Payable
    March 31,


September 30,2009


2008(In thousands)Senior Unsecured Notes

$
4,271


$
4,271Senior Term Loan


3,880



2,272Subordinated Note Payable


870



Total

$
9,021


$
6,543   Subordinated
    Note
    paid-in-kind
    2009


2010


2011


2012


2013


2014


2015


Total(In thousands)Senior Term Loan(1)

$
1,216


$
2,433


$
2,433


$
2,433


$
229,297


$



$



$
237,812Senior Unsecured Notes(2)


























250,000



250,000Subordinated Seller Note(3)






3,000



3,000



2,000



70,311











78,311Total Principal Payments

$
1,216


$
5,433


$
5,433


$
4,433


$
299,608


$



$
250,000


$
566,123     (1)
    
    The table does not include any Senior Credit Facility principal
    pre-payments. The timing and amounts of such payments are
    uncertain. The total on the face of the balance sheet for the
    Senior Term Loan includes approximately $237.8 million in
    principal and $5.9 million in unamortized debt issue costs
    as of March 31, 2009. Debt issue costs for the original
    loan and subsequent modifications totaled $12.5 million.
    The Company anticipates it will need to refinance the Senior
    Credit Facility before it matures.(2)
    
    The Senior Unsecured Notes on the face of the balance sheet
    include $250 million in principal and $5.2 million in
    unamortized debt issue costs as of March 31, 2009
    (originally $7.1 million). 15




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (3)
    
    The Subordinated Note on the face of the balance sheet includes
    approximately $11.9 million of unamortized original issue
    discount for the fair value of the detachable warrants Alion
    issued in December 2002 and the warrants Alion issued for the
    September 2008 amendment. The first set of warrants had an
    initial fair value of approximately $7.1 million. The
    amendment to the first set of warrants had an initial fair value
    of $1.3 million and the additional warrants had an initial
    fair value of approximately $9.0 million. The Company
    recognized original issue discount for the fair value of the
    warrants in accordance with Emerging Issues Task Force Issue
    00-19
    Accounting for Derivative Financial Instruments Indexed to
    and Potentially Settled in, a Companys Own Stock.  (11)
    Fair
    Value Measurement  FSP 157-1, FSP 157-2, FSP 157-3 FSP 157-2, SFAS 157-2 SFAS 157-2
         16




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Assets
    and Liabilities Measured at Fair Value on a Recurring
    Basis
    Level 1


Level 2


Level 3Liabilities:Redeemable common stock warrants

$



$



$
(33,098
)     Quarter Ended


Six Months EndedMarch 31, 2009


March 31, 2009Redeemable CommonStock WarrantsBalance, beginning of period

$
(38,542
)

$
(39,996
)Total realized and unrealized gains and (losses)Included in interest expense


5,444



6,898Included in other comprehensive income (loss)






Issuances and settlements






Transfers in (out)






Balance, end of period

$
(33,098
)

$
(33,098
)   Assets
    and Liabilities Measured at Fair Value on a Nonrecurring
    Basis
    (12)
    Interest
    Rate Swap    (13)
    Redeemable
    Common Stock Warrants     17




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Company Own Stock.
  (14)
    Leases    Lease Payments for Fiscal Years Ending

(In thousands)2009 (for the remainder of fiscal year)

$
12,6442010


22,7202011


20,5652012


16,6562013


15,4912014


8,942And thereafter


28,459Gross lease payments

$
125,477Less: non-cancelable subtenant receipts


(5,292
)Net lease payments

$
120,185   Composition
    of Total Rent Expense
  March 31,2009


2008(In thousands)Minimum rentals

$
12,821


$
12,365Less: Sublease rental income


(1,484
)


(1,755
)Total rent expense, net

$
11,337


$
10,610   (15)
    Long Term
    Incentive Compensation Plan   18




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (16)
    Stock
    Appreciation Rights    Share-Based
    Payment
  Stock-based
    Compensation Disclosures per FAS 123 and FAS 123R
    Stock Appreciation Rights
    As of March 31, 2009
  SharesGranted to


Exercise


Outstanding


Outstanding











Vested


ExercisableDate of Grant

Employees


Price


at 9/30/08


at 3/31/09


Forfeited


Exercised


Expired


at 3/31/09


at 3/31/09November 2003


129,550


$
14.71



68,335



14,435



540



53,360







14,435



February 2004


2,000


$
14.71



2,000



2,000















2,000



February 2005


165,000


$
19.94



89,162



82,663



2,412



4,088







82,663



March 2005


2,000


$
19.94



2,000



2,000















2,000



April 2005


33,000


$
29.81



20,250



20,250















13,500



June 2005


2,000


$
29.81



2,000



2,000















1,500



December 2005


276,675


$
35.89



203,774



190,671



7,458



5,645







144,743



February 2006


13,000


$
35.89



7,750



7,750















5,813



February 2006


7,500


$
35.89



3,750



2,500



625



625







1,875



May 2006


7,000


$
37.06



6,000



6,000















3,000



July 2006


15,000


$
37.06



10,500



10,000







500







5,500



October 2006


2,500


$
41.02



2,500



2,500















1,250



December 2006


238,350


$
41.02



201,083



183,183



13,287



4,613







93,073



February 2007


33,450


$
41.02



24,700



22,575



1,375



750







11,600



May 2007


2,000


$
43.37



2,000



2,000















500



September 2007


2,000


$
43.37



2,000



2,000















500



December 2007


232,385


$
40.05



210,310



200,389



9,922











51,184



April 2008


2,000


$
41.00



2,000



2,000



















September 2008


2,000


$
41.00



2,000



2,000



















December 2008


203,250


$
38.35







198,850



4,400















Total


1,370,660







862,114



955,765



40,019



69,580







434,634



Wtd Avg Exercise Price

$
33.91






$
34.77


$
36.55


$
37.82


$
19.11


$



$
33.55


$
  19




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-based
    Compensation Disclosures per FAS 123 and 123R
    Stock Appreciation Rights
    As of March 31, 2009
  Risk Free





Remaining LifeDate of Grant

Interest Rate

Volatility

Expected Life

(Months)November 2003

4.06% - 4.49%

60%

5 yrs

0.0February 2004

4.06% - 4.49%

60%

5 yrs

0.0February 2005

3.10% - 3.60%

45%

4 yrs

0.0March 2005

3.10% - 3.60%

45%

4 yrs

0.0April 2005

4.10% - 4.20%

45%

4 yrs

0.0June 2005

4.10% - 4.20%

45%

4 yrs

2.2December 2005

4.20% - 4.20%

40%

4 yrs

8.7February 2006

4.20% - 4.20%

40%

4 yrs

10.4February 2006

4.20% - 4.20%

40%

4 yrs

10.8May 2006

4.82% - 4.83%

35%

4 yrs

13.6July 2006

4.82% - 4.83%

35%

4 yrs

15.0October 2006

4.82% - 4.83%

35%

4 yrs

18.8December 2006

4.54% - 4.58%

35%

4 yrs

20.7February 2007

4.54% - 4.58%

35%

4 yrs

22.8May 2007

4.54% - 4.58%

35%

4 yrs

25.6September 2007

4.54% - 4.54%

35%

4 yrs

29.1December 2007

4.23% - 4.23%

35%

4 yrs

32.8April 2008

4.23% - 4.23%

35%

4 yrs

36.9September 2008

4.23% - 4.23%

35%

4 yrs

41.5December 2008

4.23% - 4.23%

35%

4 yrs

44.8Wtd Avg Remaining Life (months)







23.1   (17)
    Phantom
    Stock Plans    Share-Based Payment
 20




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-based
    Compensation Disclosures per FAS 123 and FAS 123R
    Phantom Stock
    as of March 31, 2009
  GrantShares


Shares


Total


DateGranted to


Granted to


Shares


Price


Outstanding


Outstanding











Vested


ExercisableDate of Grant

Employees


Directors


Granted


per Share


at 9/30/08


at 3/31/09


Forfeited


Exercised


Expired


at 3/31/09


at 3/31/09November 2003


52,685







52,685


$
14.71



11,897











11,897











February 2005


213,215







213,215


$
19.94



66,436







10,328



56,108











February 2005


98,399







98,399


$
19.94



16,696











16,696











February 2005


5,015







5,015


$
19.94



5,015







2,558



2,457











August 2005


2,960







2,960


$
33.78



2,960







2,960















November 2005


66,592







66,592


$
35.89



51,268







43,188



8,080











November 2005






7,808



7,808


$
35.89



5,531











5,531











November 2005


55,726







55,726


$
35.89



41,795







41,795















November 2006






5,978



5,978


$
41.02



5,409



4,839







569







2,847



2,847November 2006


65,456







65,456


$
41.02



50,341







46,684



3,657











November 2007






6,993



6,993


$
40.05



6,993



5,994







999







1,332



1,332November 2007


42,447







42,447


$
40.05



39,950







34,956



4,994











January 2008


2,497







2,497


$
40.05



2,497







2,497















May 2008


1,220







1,220


$
41.00



1,220







1,220















Total


606,212



20,779



626,991







308,006



10,833



186,186



110,988







4,179



4,179Wtd Avg Grant Date Fair Value Price per Share

$
26.58


$
38.77


$
26.98






$
32.10


$
40.48


$
36.91


$
23.22






$
40.71


$
40.71   Stock-based
    Compensation Disclosures per FAS 123 and FAS 123R
    Phantom Stock
    as of March 31, 2009
  Risk Free





Remaining LifeDate of Grant

Interest Rate

Volatility

Expected Life

(Months)November 2003

4.06% - 4.49%

60%

5 yrs

0.0February 2005

3.10% - 3.60%

45%

3 yrs

0.0February 2005

3.10% - 3.60%

45%

3 yrs

0.0February 2005

3.10% - 3.60%

45%

4 yrs

1.0August 2005

3.72% - 3.77%

45%

3 yrs

0.0November 2005

4.20% - 4.20%

40%

3 yrs

0.0November 2005

4.20% - 4.20%

40%

3 yrs

0.0November 2005

4.20% - 4.20%

40%

5 yrs

22.3November 2006

4.54% - 4.58%

35%

3 yrs

10.4November 2006

4.54% - 4.58%

35%

3 yrs

10.4November 2007

4.23% - 4.23%

35%

3 yrs

22.4November 2007

4.23% - 4.23%

35%

3 yrs

22.4January 2008

4.23% - 4.23%

35%

3 yrs

24.4May 2008

4.23% - 4.23%

35%

3 yrs

28.4Wtd Avg Remaining Life (months)







17.0  21




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (18)
    Segment
    Information and Customer Concentration      (19)
    Guarantor/Non-guarantor
    Condensed Consolidated Financial Information   22




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Balance Sheet Information at March 31,
    2009
  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Current assets:Cash and cash equivalents

$
8


$
(3
)

$
(5
)

$



$
Accounts receivable


174,722



3,424



5,617







183,763Prepaid expenses and other current assets


4,187



116



69







4,372Total current assets


178,917



3,537



5,681







188,135Property, plant and equipment, net


16,690



67



67







16,824Intangible assets, net


34,624















34,624Goodwill


398,871















398,871Investment in subsidiaries


13,509











(13,509
)


Intercompany receivables






10,107







(10,107
)


Other assets


6,010



13











6,023Total assets

$
648,621


$
13,724


$
5,748


$
(23,616
)

$
644,477Current liabilities:Book cash overdraft


100















100Interest payable


9,021















9,021Current portion, Senior Term Loan payable


2,389















2,389Current portion, subordinated note payable


3,000















3,000Trade accounts payable


57,543



792



930







59,265Accrued liabilities


36,903



971



561







38,435Accrued payroll and related liabilities


38,526



600



468







39,594Billings in excess of costs revenue earned


3,678















3,678Total current liabilities


151,160



2,363



1,959







155,482Intercompany payables


8,541







1,566



(10,107
)


Notes payable to bank


4,720















4,720Senior Term Loan payable, excluding current portion


229,536















229,536Senior Unsecured Notes


244,798















244,798Subordinated note payable


43,647















43,647Accrued compensation, excluding current portion


4,482















4,482Accrued postretirement benefit obligations


646















646Non-current portion of lease obligations


6,407



56



19







6,482Redeemable common stock warrants


33,098















33,098Common stock of subsidiaries






2,799



1



(2,800
)


Redeemable common stock


180,586















180,586Accumulated other comprehensive loss


(36
)














(36
)Accumulated surplus (deficit)


(258,964
)


8,506



2,203



(10,709
)


(258,964
)Total liabilities, redeemable common stock and accumulated
    deficit

$
648,621


$
13,724


$
5,748


$
(23,616
)

$
644,477  23




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Balance Sheet Information at September 30,
    2008
   Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Current assets:Cash and cash equivalents

$
16,392


$
(62
)

$
(43
)

$



$
16,287Accounts receivable


161,519



3,872



3,060







168,451Stock subscriptions receivable


2,669















2,669Prepaid expenses and other current assets


3,024



47



64







3,135Total current assets


183,604



3,857



3,081







190,542Property, plant and equipment, net


18,419



97



85







18,601Intangible assets, net


41,248















41,248Goodwill


398,871















398,871Investment in subsidiaries


10,831











(10,831
)


Intercompany receivables






8,038



72



(8,110
)


Other assets


6,668



16











6,684Total assets

$
659,641


$
12,008


$
3,238


$
(18,941
)

$
655,946Current liabilities:Interest payable

$
6,543


$



$



$



$
6,543Interest rate swap liability


4,629















4,629Current portion, Senior Term Loan payable


2,389















2,389Current portion, subordinated note payable


3,000















3,000Current portion, acquisition obligations


50















50Trade accounts payable


55,933



467



765







57,164Accrued liabilities


37,678



1,007



542







39,227Accrued payroll and related liabilities


40,569



696



292







41,557Billings in excess of revenue earned


2,708















2,708Total current liabilities


153,498



2,170



1,599







157,267Intercompany payables


7,543







567



(8,110
)


Senior Term Loan payable, excluding current portion


229,831















229,831Senior Unsecured Notes


244,355















244,355Subordinated note payable


42,656















42,656Accrued compensation, excluding current portion


11,305















11,305Accrued postretirement benefit obligations


627















627Non-current portion of lease obligations


6,181



62



17







6,260Redeemable common stock warrants


39,996















39,996Common stock of subsidiaries






2,799



1



(2,800
)


Redeemable common stock


200,561















200,561Accumulated other comprehensive loss


(36
)














(36
)Accumulated surplus (deficit)


(276,876
)


6,977



1,054



(8,031
)


(276,876
)Total liabilities, redeemable common stock and accumulated
    deficit

$
659,641


$
12,008


$
3,238


$
(18,941
)

$
655,946  24




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Three Months Ended
    March 31, 2009
  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
186,153


$
5,778


$
3,498


$



$
195,429Direct contract expense


142,650



3,866



2,619







149,135Gross profit


43,503



1,912



879







46,294Operating expenses:Indirect contract expense


8,480



679



173







9,332Research and development


78















78General and administrative


13,162



243



21







13,426Rental and occupancy expense


8,311



81



76







8,468Depreciation and amortization


4,687



6



7







4,700Total operating expenses


34,718



1,009



277







36,004Operating income


8,785



903



602







10,290Other income (expense):Interest income


9



16











25Interest expense


(10,244
)














(10,244
)Other


(173
)


89



(3
)






(87
)Equity in net income (loss) of subsidiaries


1,607











(1,607
)


Income (loss) before income Taxes


(16
)


1,008



599



(1,607
)


(16
)Income tax benefit


55















55Net income (loss)

$
39


$
1,008


$
599


$
(1,607
)

$
39  25




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Three Months Ended
    March 31, 2008
  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
180,487


$
6,422


$
2,334


$



$
189,243Direct contract expense


136,744



4,544



1,742







143,030Gross profit


43,743



1,878



592







46,213Operating expenses:Indirect contract expense


9,932



984



160







11,076Research and development


291







4







295General and administrative


16,794



190



(19
)






16,965Rental and occupancy expense


7,634



27



81







7,742Depreciation and amortization


5,278



52



3







5,333Total operating expenses


39,929



1,253



229







41,411Operating income (loss)


3,814



625



363







4,802Other income (expense):Interest income


117















117Interest expense


(13,831
)














(13,831
)Other


(954
)


61











(893
)Equity in net income (loss) of subsidiaries


1,049











(1,049
)


Total other income (expense)


(13,619
)


61







(1,049
)


(14,607
)Income/(Loss) before income taxes


(9,805
)


686



363



(1,049
)


(9,805
)Income tax benefit (expense)


















Net income (loss)

$
(9,805
)

$
686


$
363


$
(1,049
)

$
(9,805
)  26




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Six Months Ended
    March 31, 2009
  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue

$
366,117


$
11,428


$
6,680


$



$
384,225Direct contract expense


281,370



8,034



5,053







294,457Gross profit


84,747



3,394



1,627







89,768Operating expenses:Indirect contract expense


16,634



1,521



301







18,456Research and development


147















147General and administrative


23,224



354



21







23,599Rental and occupancy expense


15,924



145



137







16,206Depreciation and amortization


9,481



11



14







9,506Total operating expenses


65,410



2,031



473







67,914Operating income


19,337



1,363



1,154







21,854Other income (expense):Interest income


32



16











48Interest expense


(24,332
)














(24,332
)Other


(267
)


150



(5
)






(122
)Equity in net income (loss) of subsidiaries


2,678











(2,678
)


Income (loss) before income Taxes


(2,552
)


1,529



1,149



(2,678
)


(2,552
)Income tax benefit


51















51Net loss

$
(2,501
)

$
1,529


$
1,149


$
(2,678
)

$
(2,501
)  27




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Operations for the Six Months Ended
    March 31, 2008
  Guarantor


Non-GuarantorParent


Companies


Companies


Eliminations


Consolidated(In thousands)Contract revenue


355,488



12,771



4,129






$
372,388Direct contract expense


271,313



9,093



3,006







283,412Gross profit


84,175



3,678



1,123







88,976Operating expenses:Indirect contract expense


18,449



2,175



335







20,959Research and development


452







4







456General and administrative


32,251



454



1







32,706Rental and occupancy expense


15,143



104



166







15,413Depreciation and amortization


10,281



73



6







10,360Total operating expenses


76,576



2,806



512







79,894Operating income (loss)


7,599



872



611







9,082Other income (expense):Interest income


272















272Interest expense


(27,107
)














(27,107
)Other


(891
)


145



(1
)






(747
)Equity in net income (loss) of subsidiaries


1,627











(1,627
)


Total other income (expenses)


(26,099
)


145



(1
)


(1,627
)


(27,582
)Income/(Loss) before income taxes


(18,500
)


1,017



610



(1,627
)


(18,500
)Income tax expense


(11
)














(11
)Net income (loss)


(18,511
)


1,017



610



(1,627
)


(18,511
)  28




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Six Months Ended March 31, 2009
  Guarantor


Non-GuarantorParent


Companies


Companies


Consolidated(In thousands)Net cash (used in) provided by operating activities

$
(8,959
)

$
40


$
34


$
(8,885
)Cash flows from investing activities:Cash paid for acquisitions


(166
)










(166
)Capital expenditures


(1,099
)


19



4



(1,076
)Net cash (used in) provided by investing activities


(1,265
)


19



4



(1,242
)Cash flows from financing activities:Change in book overdraft


100











100Cash (paid for) received from interest rate swap


(4,647
)










(4,647
)Repayment of senior term loan payable


(1,216
)










(1,216
)Repayment of subordinated note payable


(3,000
)










(3,000
)Revolver borrowings


227,500











227,500Revolver payments


(222,780
)










(222,780
)Loan to ESOP Trust


(5,936
)










(5,936
)ESOP Trust loan repayment


5,936











5,936Purchase of common stock from ESOP Trust


(7,232
)










(7,232
)Cash received from sale of common stock to ESOP Trust


(5,115
)










(5,115
)Net cash used in financing activities


(6,160
)










(6,160
)Net increase (decrease) in cash and cash equivalents


(16,384
)


59



38



(16,287
)Cash and cash equivalents at beginning of period


16,392



(62
)


(43
)


16,287Cash and cash equivalents at end of period

$
8


$
(3
)

$
(5
)

$
  29




---



##### 



ALION
    SCIENCE AND TECHNOLOGY CORPORATION
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Consolidating Statement of Cash Flows
    Six Months Ended March 31, 2008
  Guarantor


Non-GuarantorParent


Companies


Companies


Consolidated(In thousands)Net cash (used in)/provided by operating activities

$
(23,977
)

$
108


$
77


$
(23,792
)Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired


(980
)










(980
)Capital expenditures


(2,568
)


(91
)


(55
)


(2,714
)Net cash used in investing activities


(3,548
)


(91
)


(55
)


(3,694
)Cash flows from financing activities:Cash received from interest rate swap


4,488











4,488Repayment of senior term loan payable


(1,237
)










(1,237
)Revolver borrowings


225,605











225,605Revolver payments


(212,005
)










(212,005
)Loan to ESOP Trust


(3,369
)










(3,369
)ESOP Loan Repayment


3,369











3,369Purchase of shares of common stock from ESOP Trust


(1,248
)










(1,248
)Cash received from issuance of common stock to Trust


3,337











3,337Net cash provided by financing activities


18,980











18,980Net (decrease)/increase in cash and cash equivalents


(8,545
)


17



22



(8,506
)Cash and cash equivalents at beginning of year


11,718



(33
)


(1
)


11,684Cash and cash equivalents at end of year

$
3,173


$
(16
)

$
21


$
3,178   (20)
    Commitments
    and Contingencies  Earn-Out
    Commitments
    Legal
    Proceedings
    Government
    Audits
   30




---



##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K
  Overview
      For the Six Months Ended March 31,Revenue by Contract Type

2009


2008(In thousands)Cost-reimbursement

$
270,191



70.4
%

$
258,818



69.5
%Fixed-price


40,530



10.5
%


39,819



10.7
%Time-and-material


73,504



19.1
%


73,751



19.8
%Total

$
384,225



100
%

$
372,388



100.0
%     For the Six Months Ended March 31,Revenue by Customer Type

2009


2008(In thousands)U.S. Department of Defense (DoD)

$
353,227



91.9
%

$
319,722



85.9
%Other Federal Civilian Agencies


16,902



4.4
%


22,764



6.1
%Commercial / State / Local and International


14,096



3.7
%


29,902



8.0
%Total

$
384,225



100
%

$
372,388



100.0
%        31




---



##### 



time-and-material
    Form 10-K.
  For the Six Months Ended March 31,Core Business Area

2009


2008(In thousands)Naval Architecture and Marine Engineering

$
174,381



45.4
%

$
156,367



42.0
%Defense Operations Support


68,806



17.9
%


82,985



22.3
%Industrial Technology Solutions


59,133



15.4
%


55,304



14.9
%Modeling and Simulation


41,218



10.7
%


31,482



8.5
%Nuclear and Environmental Sciences


27,478



7.2
%


28,910



7.7
%Information Technology


13,209



3.4
%


17,340



4.6
%Total

$
384,225



100
%

$
372,388



100.0
%   Backlog.
 32




---



##### 



Results
    of Operations
  Quarter
    Ended March 31, 2009 Compared to Quarter Ended
    March 31, 2008
  Consolidated Operations of AlionQuarter Ended March 31,2009


2008%





%Revenue





Revenue(Dollars in thousands)Selected Financial InformationTotal contract revenue

$
195,429






$
189,243Alion labor-related revenue


117,277



60.0
%


109,169



57.7
%Material and subcontract revenue


78,152



40.0
%


80,074



42.3
%Total direct contract costs


149,135



76.3
%


143,030



75.6
%Direct labor costs


67,758



34.7
%


60,322



31.9
%Material and subcontract costs


75,385



38.6
%


76,995



40.7
%Other direct costs


5,992



3.1
%


5,714



3.0
%Gross profit


46,294



23.7
%


46,213



24.4
%Total operating expense


36,004



18.4
%


41,411



21.9
%Major components of operating expenseIndirect expenses including facilities costs


17,801



9.1
%


18,818



9.9
%General and administrative (excluding stock-based compensation)


14,587



7.5
%


14,686



7.8
%Stock-based compensation


(1,161
)


(0.6
)%


2,278



1.2
%Depreciation and amortization


4,700



2.4
%


5,333



2.8
%Income from operations

$
10,290



5.3
%

$
4,843



2.5
%   Revenue.
    Direct Contract Expense and Gross
    Profit.
 33




---



##### 



Operating Expenses.
  Income from Operations.
  Other Expense.
    Quarter Ended March 31,2009


2008(In thousands)Cash Pay InterestRevolver

$
390



762Senior Term Loan


5,662



4,546Senior Unsecured Notes


6,406



6,406Subordinated Note


776



Other cash pay interest and fees


116



121Sub-total cash pay interest


13,350



11,835Deferred and Non- cash InterestDebt issue costs and other non-cash items


1,272



699Subordinated Note interest


1,066



894Redeemable warrants


(5,444
)


403Sub-total non-cash interest


(3,107
)


1,996Total interest expense


10,244



13,831  34




---



##### 



Income Tax Expense.
  Net Income (Loss).
  Six
    Months Ended March 31, 2009 Compared to Six Months Ended
    March 31, 2008
  Consolidated Operations of AlionSix Months Ended March 31,2009


2008%





%Revenue





Revenue(Dollars in thousands)Selected Financial InformationTotal contract revenue

$
384,225






$
372,388Alion labor-related revenue


230,950



60.1
%


212,813



57.1
%Material and subcontract revenue


153,275



39.9
%


159,575



42.9
%Total direct contract costs


294,457



76.6
%


283,412



76.1
%Direct labor costs


134,588



35.0
%


118,922



31.9
%Material and subcontract costs


147,849



38.5
%


153,556



41.2
%Other direct costs


12,020



3.1
%


10,934



2.9
%Gross profit


89,768



23.4
%


88,976



23.9
%Total operating expense


67,914



17.7
%


79,894



21.5
%Major components of operating expenseIndirect expenses including facilities costs


34,563



9.0
%


36,372



9.8
%General and administrative (excluding stock- based compensation)


29,363



7.6
%


28,382



7.6
%Stock-based compensation


(5,764
)


(1.5
)%


4,324



1.2
%Depreciation and amortization


9,506



2.5
%


10,360



2.8
%Income from operations

$
21,854



5.7
%

$
9,082



2.4
%   Revenue.
  Direct Contract Expense and Gross
    Profit.
 35




---



##### 



Operating Expenses.
  Income from Operations.
  Other Expense.
    Six Months Ended March 31,2009


2008(In thousands)Cash Pay InterestRevolver


522



1,406Senior Term Loan


11,455



9,238Senior Unsecured Notes


12,813



12,813Subordinated Note


870



Other cash pay interest and fees


214



219Sub-total cash pay interest


25,874



23,676Deferred and Non- cash InterestDebt issue costs and other non-cash items


2,544



1,387Subordinated Note interest


2,812



1,746Redeemable warrants


(6,898
)


298Sub-total non-cash interest


(1,542
)


3,431Total interest expense


24,332



27,107  36




---



##### 



Income Tax Expense.
  Net Loss.
  Liquidity
    and Capital Resources
    Cash
    Flows
          fund Plan-required
 37




---



##### 



Cash
    flow effects and risks associated with equity-related
    obligations
          Discussion
    of Debt Structure
   38




---



##### 



Senior
    Credit Facility
    
    the Senior Term Loan with principal of approximately
    $237.8 million;
    the $50.0 million Revolver, including approximately
    $42.0 million that was unused and $3.3 million
    allocated to letters of credit deemed borrowed; and
    a $110.0 million uncommitted incremental term loan
    accordion facility that the Company may be able to
    access in the future if it satisfies a leverage-based incurrence
    test.      Interest, Fees, Prepayments and Use of
    Proceeds.
   39




---



##### 



Security.
    Federal Funds ABRSpread


Prime Rate ABRLeverage Ratio

Eurodollar Spread


(in Basis Points)


SpreadCategory 1


275



225



175Greater than or equal to 3.00 to 1.00Category 2


250



200



150Greater than or equal to 2.50 to 1.00 but less than 3.00 to 1.00Category 3


225



175



125Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00Category 4


200



150



100Less than 2.00 to 1.00     Interest Rate Swap.
  Other Fees and Expenses.
   40




---



##### 



Financial Covenants.
        Period

RatioJuly 1, 2008 through December 31, 2008


4.10 to 1.00January 1, 2009 through September 30, 2009


4.25 to 1.00Thereafter


3.00 to 1.00    41




---



##### 



Alion
    Science and Technology Corporation
    Non-GAAP Measures  EBITDA and Consolidated
    EBITDA Calculations
    For the Quarters Ended March 31, 2009 and 2008
    (Dollars in thousands)
    (Unaudited)
  Quarter Ended March 31Calculation of EBITDA

2009


2008(In thousands)Net loss

$
39


$
(9,805
)Plus: Interest expense


10,244



13,831Plus: Income tax expense (benefit)


(55
)


Plus: Depreciation and amortization expense


4,700



5,333EBITDA

$
14,928


$
9,359   Calculation of Consolidated EBITDA

2009


2008(In thousands)EBITDA

$
14,928


$
9,359Plus: Non-cash (credits) expenses with respect to the stock
    appreciation rights, phantom stock and long-term incentive plans


(1,162
)


2,279Plus: Other non-cash expense (including Long Term Incentive
    Plans (LTIP) contributions)


774



Plus: Non-cash contributions to the ESOP (including Company
    401-k match)


2,783



2,503Plus: Any non-recurring charges and adjustments by third-party
    valuation firm that prepares valuation reports in connection
    with the ESOP


218



1,001Plus: Non-cash expense for the adjustment of the swap
    arrangement to fair market value






933Consolidated EBITDA

$
17,541


$
16,074   Alion
    Science and Technology Corporation
    Non-GAAP Measures  EBITDA and Consolidated
    EBITDA Calculations
    for the Twelve Month Periods Ended March 31, 2009 and
    2008
    (Dollars in thousands)
    (Unaudited)
  Twelve Months EndedMarch 31Calculation of EBITDA

2009


2008(In thousands)Net loss

$
(9,324
)

$
(31,475
)Plus: Interest expense


44,607



49,284Plus: Income tax expense(benefit)


(75
)


13Plus: Depreciation and amortization expense


19,861



20,845EBITDA

$
55,069


$
38,667   42




---



##### 



Calculation of Consolidated EBITDA

2009


2008(In thousands)EBITDA

$
55,069


$
38,667Plus: Non-cash expenses (credits) with respect to the stock
    appreciation rights, phantom stock and long-term incentive plans


(9,588
)


6,216Plus: Other non-cash expense (including Long Term Incentive
    Plans (LTIP) contributions)


1,548



Plus: Non-cash contributions to the ESOP (including Company
    401-k match)


10,195



9,810Plus: Any non-recurring charges and adjustments by third-party
    valuation firm that prepares valuation reports in connection
    with the ESOP


6,485



15,846Minus: to the extent included in net income (or net loss), any
    extraordinary gains and all non-cash items of income


(638
)


(2,387
)Consolidated EBITDA

$
63,071


$
68,152         Period

RatioJuly 1, 2008 through September 30, 2008


1.20 to 1.00October 1, 2008 through December 31, 2008


1.10 to 1.00January 1, 2009 through September 30, 2009


1.05 to 1.00Thereafter


1.35 to 1.00     Twelve Months EndedMarch 31Senior Secured Leverage Ratio

2009


2008(In thousands)Numerator:Revolver balance drawn

$
4,720


$
9,250Term B Senior Credit Facility balance outstanding at face value


237,812



245,502Total outstanding senior debt

$
242,532


$
254,752Denominator-Consolidated EBITDA

$
63,071


$
68,152Senior Secured Leverage Ratio


3.85



3.74Interest Coverage RatioNumerator:Consolidated EBITDA

$
63,071


$
68,152Less: capital expenditures


(3,348
)


(10,687
)Total-Consolidated EBITDA less Cap Ex

$
59,723


$
57,465Denominator-Annual interest payable in cash

$
51,035


$
37,879Interest Coverage Ratio


1.17



1.52    43




---



##### 




    Indebtedness pre-existing the Senior Credit Facility
    Indebtedness incurred under the Senior Credit Facility
    Permitted inter-company Indebtedness
    Permitted refinancing Indebtedness
    No more than $20 million outstanding at any time when
    combined with permitted capital and synthetic leases incurred to
    acquire, construct, or improve any fixed or capital asset plus
    extensions and renewals of that Indebtedness
    Capital and synthetic leases not more than $20 million
    outstanding at any time in the aggregate when combined with
    Permitted Indebtedness incurred for fixed and capital assets
    Indebtedness under hedging agreements
    Indebtedness of acquired subsidiaries up to $7.5 million at
    any time outstanding
    Ordinary course warranties
    Unsecured subordinated Indebtedness up to $150 million at
    any time outstanding to refinance the Companys
    subordinated notes and warrants and to make acquisitions
    otherwise permitted by the Senior Credit Facility
    Performance bonds and workers compensation claims in the
    ordinary course of business
    Ordinary course insufficient funds coverage
    Indebtedness incurred in connection with the redemption of
    employee interests in the ESOP subsequent to their termination
    of employment with the Company
    Subordinated notes specifically authorized by the lenders
    Indebtedness of non-US subsidiaries up to $2.5 million at
    any time outstanding
    Deferred compensation
    The Companys 10.25% Senior Unsecured Notes due 2015
    Permitted Indebtedness used to pre-pay Term Loans in amounts not
    less than $50 million
    Other unsecured Indebtedness up to $30 million at any time
    outstanding    Period

RatioOctober 1, 2007 through September 30, 2008


6.50 to 1.00October 1, 2008 through September 30, 2009


6.25 to 1.00October 1, 2009 through September 30, 2010


6.00 to 1.00Thereafter


5.75 to 1.00      44




---



##### 




    Any subsidiary may declare and pay dividends ratably to its
    equity holders
    The Company may repurchase equity interests from the
    Companys and the subsidiaries directors, officers
    and employees in connection with warrants, options, SARs,
    phantom stock and similar incentives up to $20 million in
    the aggregate although additional restrictions apply to
    repurchases from the Companys CEO and another senior
    officer
    The Company may make distributions to employees on account of
    their interests in the ESOP upon separation from employment with
    the Company, other distributions and contributions to the ESOP
    as required by applicable law and the Plan Documents including
    non-statutory diversification elections under the ESOP Plan
    Documents
    The Company may redeem its junior subordinated warrants as long
    as it has $10 million of headroom under its Revolver and it
    is in compliance with the Senior Secured Leverage Ratio and the
    Interest Coverage Ratio and it is in further compliance as of
    the applicable date with a more demanding senior secured
    leverage ratio test which had been set forth in the Senior
    Credit Facility after taking into account the fourth amendment
    to the Senior Credit Facility but without taking into account
    the fifth amendment to the Senior Credit Facility
    The Company may make other restricted payments up to a variable
    amount based on the Companys Excess Cash Flow and net cash
    proceeds from certain equity offerings as long as the
    Companys Senior Secured Leverage Ratio is less than 2.5 to
    1.0 and the Company has at least $10.0 million of headroom
    under its Revolver.    Subordinated
    Note  Redeemable Common Stock Warrants
    paid-in-kind
 45




---



##### 



00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own Stock.
  Senior
    Unsecured Notes
    Interest and Fees.
  Covenants.
    
    Indebtedness incurred pursuant to the Senior Credit Facility and
    certain other contracts up to $360 million less principal
    repayments made under that indebtedness
    Permitted inter-company indebtedness
    The Companys 10.25% notes
    Indebtedness pre-existing the issuance of the Companys
    10.25% notes
    Permitted Indebtedness of acquired subsidiaries
    Permitted refinancing Indebtedness
    Indebtedness under hedging agreements
    Performance, bid, appeal and surety bonds and completion
    guarantees
    Ordinary course insufficient funds coverage 46




---



##### 




    Guarantees in connection with permitted refinancing indebtedness
    Indebtedness of
    non-U.S. subsidiaries
    incurred for working capital purposes
    Indebtedness incurred for capital expenditure purposes and
    indebtedness for capital and synthetic leases not exceeding in
    the aggregate $25 million and 2.5% of the Companys
    Total Assets as defined in the Indenture
    Permitted subordinated indebtedness of the Company or any
    Restricted Subsidiary incurred to finance a permitted
    acquisition, certain permitted transactions involving the ESOP
    and refinancing indebtedness of acquired
    non-U.S. subsidiaries
    in an amount not exceeding in the aggregate $35 million
    Reimbursement obligations with regard to letters of credit
    Certain agreements in connection with the acquisition of a
    business as long as the liabilities incurred in connection
    therewith are not reflected on the Companys balance sheet
    Certain deferred compensation agreements
    Certain other indebtedness not exceeding $35 million.    
    Restricted Payments out of substantially concurrent
    contributions of equity to the Company and substantially
    concurrent incurrences of permitted indebtedness
    Certain limited and permitted dividends
    Certain repurchases of the Companys equity securities
    deemed to occur upon exercise of stock options or warrants
    Cash payments in lieu of the issuance of fractional shares in
    connection with the exercise of warrants, options or other
    securities convertible into or exchangeable for the
    Companys equity securities
    The required premium payable on the Senior Unsecured Notes in
    connection with a change of control of the Company
    Certain permitted inter-company subordinated obligations
    Certain repurchases and redemptions of subordination obligations
    of the Company or a Subsidiary Guarantor from Net Available Cash
    (as defined in the Indenture)
    Repurchases of subordinated obligations in connection with an
    asset sale to the extent required by the Indenture
    The redemption or repurchase for value of any Company equity
    securities for former Company employees who were also former
    Joint Spectrum Center employees after voluntary or involuntary
    termination of employment with the Company
    Certain permitted transactions with the ESOP not exceeding
    $25 million in the aggregate
    Certain other payments not exceeding $30 million in the
    aggregate.   47




---



##### 



Events of Default.
  
    payment default;
    uncured covenant breaches;
    default under an acceleration of certain other debt exceeding
    $30 million;
    certain bankruptcy and insolvency events;
    a judgment for payment in excess of $30 million entered
    against the Company or any material subsidiary that remains
    outstanding for a period of 60 days and is not discharged,
    waived or stayed; and
    failure of any guarantee of the Senior Unsecured Notes to be in
    effect or the denial or disaffirmation by any subsidiary
    guarantor of its guaranty obligations.  Change of Control.
  
    subject to certain exceptions, a person, other than the ESOP
    Trust, is or becomes the beneficial owner, directly or
    indirectly, of more than 35% of the total voting power or voting
    stock of Alion;
    individuals who constituted Alions board of directors on
    the date the Senior Unsecured Notes were issued, cease for any
    reason to constitute a majority of the Companys board of
    directors;
    adoption of a plan relating to Alions liquidation or
    dissolution; and
    subject to certain exceptions, merger or consolidation of the
    Company with or into another person or merger of another person
    with or into the Company, or sale of all or substantially all of
    Alions assets.  Optional Redemption.
    12-month
  Percentage ofYear

Principal2011


105.125
%2012


102.563
%2013 and thereafter


100.000
%  48




---



##### 



7-Fiscal Year Period2009*


2010


2011


2012


2013


2014


2015($ In thousands)Bank revolver Interest(1)

$
585


$
983


$
710


$
483


$
482


$
253


$
253Senior Term Loan Interest(2)


5,696



22,759



22,525



22,352



7,820







 Principal(3)


1,216



2,433



2,433



2,433



229,297







Senior Unsecured Notes Interest


12,812



25,625



25,625



25,625



25,625



25,625



12,813 Principal


























250,000Subordinated Note Interest


1,560



3,187



3,332



3,537



4,254







 Principal






3,000



3,000



2,000



70,311







Total cash  pay interest


20,653



52,554



52,192



51,997



38,181



25,878



13,066Total cash  pay principal


1,216



5,433



5,433



4,433



299,608







250,000Total

$
21,869


$
57,987


$
57,625


$
56,430


$
337,789


$
25,878


$
263,066     *
    
    Estimated interest and principal payments for the remainder of
    fiscal year 2009.(1)
    
    Alion anticipates regularly accessing a $50.0 million
    revolving credit facility to finance working capital.
    Alions existing Revolver expires in August 2009. The
    Company expects to replace it with a similar facility continuing
    through 2013. Alion estimates the average revolver balance will
    be $10.0 million for fiscal year 2009; $8.0 million
    for fiscal year 2010, $5.0 million for 2011,
    $2.5 million for 2012 and 2013 and minimal thereafter.
    Interest expense includes estimated fees for the unused balance
    of a $50.0 million revolving credit facility. The Company
    estimates the effective average cash-pay interest rate,
    excluding fees for the unused balance on the Revolver, will be
    9.5% for all periods presented.(2)
    
    Alion estimates its average annual Senior Term Loan balance will
    be: $238.1 million, $235.7 million,
    $233.3 million, $230.8 million, and $81.0 million
    for fiscal years 2009 through 2013. The Senior Term Loan matures
    February 2013. The Company expects it will need to refinance the
    Senior Term Loan prior to maturity and forecasts interest
    expense to continue at existing levels based on Alions
    current minimum interest rate of 9.5%.(3)
    
    The Senior Credit Facility requires Alion to repay approximately
    1.0% of the Senior Term Loan principal annually. On a cumulative
    basis, Alion is required to pay approximately 4.3% of principal
    through the first quarter of fiscal year 2013. The remaining
    balance is due on February 6, 2013, the Senior Term Loan
    maturity date. The table reflects the balance drawn of
    $237.8 million as of March 31, 2009, payments of
    approximately $2.4 million each fiscal year from 2009
    through 2012, an approximate $0.6 million payment in the
    first quarter of fiscal 2013, and approximately
    $228.7 million in remaining principal due February 6,
    2013. If Alion generates excess cash flow in a given fiscal
    year, issues or incurs certain debt or sells certain assets, the
    Senior Credit Facility requires the Company to prepay a portion
    of the principal. As of March 31, 2009, no mandatory
    prepayments are due.  Contingent
    Obligations
  Earn-outs
   49




---



##### 



Other
    Contingent obligations which will impact the Companys cash
    flow
    
    IITs Subordinated Note warrant put rights;
    Stock-based and long-term incentive compensation plan
    obligations; and
    ESOP share repurchase and diversification obligations.    Number of Shares





Total ValueRepurchased





PurchasedDate

Fiscal 2009


Share Price


Fiscal 2009(In thousands)December 2008


233


$
38.35


$
9March 2009


189,038


$
38.35



7,250Total


189,271






$
7,259          50




---



##### 



Recently
    Issued Accounting Pronouncements
  Business Combinations, FAS 141-R(1) SFAS 141-R).
  Noncontrolling Interests in Consolidated Financial
    Statements,
    Forward
    Looking Statements
      
    changes to the ERISA laws related to the KSOP;
    changes to Alions subchapter S status, or any change in
    Alions effective tax rate;
    additional costs to comply with the Sarbanes-Oxley Act of 2002,
    including any changes in SEC rules, and other corporate
    governance requirements;
    failure of government customers to exercise contract options;
    U.S. government project funding decisions;
    government contract bid protest and termination risks;
    competitive factors such as pricing pressures
    and/or
    competition to hire and retain employees;
    results of current
    and/or
    future legal proceedings and government agency proceedings which
    may arise out of Alions operations and attendant risks of
    fines, liabilities, penalties, suspension
    and/or
    debarment;
    undertaking acquisitions that increase costs or liabilities or
    are disruptive;
    taking on additional debt to fund acquisitions; 51




---



##### 




    failing to adequately integrate acquired businesses;
    material changes in laws or regulations affecting Alions
    businesses;
    other risk factors discussed in the Companys annual report
    on Form 10-K
    for the year ended September 30, 2008 filed with the SEC on
    December 23, 2008.    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    rate risk
      Foreign
    currency risk
    Risk
    associated with value of Alion common stock
      Item 4.
    Controls
    and Procedures  Disclosure Controls and Procedures.
 52




---



##### 



Limitations on the Effectiveness of
    Controls.
  Changes in Internal Control Over Financial
    Reporting.
  Item 4T.
    Controls
    and Procedures   PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings      Item 1A.
    Risk
    Factors  Form 10-K
  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 3.
    Defaults
    Upon Senior Securities    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 5.
    Other
    Information   53




---



##### 



Item 6.
    Exhibits  ExhibitNo.

Description31
.1

Certification of Chief Executive Officer of Alion Science and
    Technology Corporation pursuant to
    Rule 15d-14(a)
    promulgated under the Securities Exchange Act of 1934, as
    amended.31
.2

Certification of Chief Financial Officer of Alion Science and
    Technology Corporation pursuant to
    15d-14(a)
    promulgated under the Securities Exchange Act of 1934, as
    amended.32
.1

Certification of Chief Executive Officer of Alion Science and
    Technology Corporation, pursuant to 18 U.S.C.
    Section 1350 as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial Officer of Alion Science and
    Technology Corporation, pursuant to 18 U.S.C.
    Section 1350 as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.  54




---



##### 



SIGNATURES
      By:
    /s/  Michael
    J. Alber   Title:
    Principal Financial Officer and 
    Duly Authorized Officer   55