##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, 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 JUNE 30, 2009.
 COMMISSION FILE NUMBER 33389756
 
 
 Alion Science and Technology Corporation
  DELAWARE
(State or Other Jurisdiction of 
Incorporation of Organization)
    
    542061691
(I.R.S. Employer
Identification No.)
 1750 Tysons Boulevard, Suite 1300
McLean, VA 22102
(703) 9184480  (Address, including Zip Code and Telephone Number with
 (Former name, former address and former fiscal year, if changed since last report)
 o þ
 o Yes o No
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



ALION SCIENCE AND TECHNOLOGY CORPORATION
 FORM 10-Q
 FOR THE QUARTER ENDED JUNE 30, 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
    
    
    49Item 4. Controls and Procedures
    
    
    49Item 4T. Controls and Procedures
    
    
    50PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    50Item 1A. Risk Factors
    
    
    50Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    50Item 3. Defaults Upon Senior Securities
    
    
    50Item 4. Submission of Matters to a Vote of Security Holders
    
    
    50Item 5. Other Information
    
    
    50Item 6. Exhibits
    
    
    51Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (unaudited)
 ALION SCIENCE AND TECHNOLOGY CORPORATION
 
 Condensed Consolidated Balance Sheets (unaudited)
 As of June 30, 2009 and September 30, 2008
 June 30,
    
    
    September 30,2009
    
    
    2008(In thousands, except share and pershare information)Current assets:Cash and cash equivalents
    
    $
    2,190
    
    
    $
    16,287Accounts receivable, net
    
    
    176,586
    
    
    
    168,451Stock subscriptions receivable
    
    
    
    
    
    
    2,669Prepaid expenses and other current assets
    
    
    4,237
    
    
    
    3,135Total current assets
    
    
    183,013
    
    
    
    190,542Property, plant and equipment, net
    
    
    15,506
    
    
    
    18,601Intangible assets, net
    
    
    31,512
    
    
    
    41,248Goodwill
    
    
    398,871
    
    
    
    398,871Other assets
    
    
    6,775
    
    
    
    6,684Total assets
    
    $
    635,677
    
    
    $
    655,946Current liabilities:Interest payable
    
    $
    15,412
    
    
    $
    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
    
    
    40,852
    
    
    
    57,164Accrued liabilities
    
    
    44,336
    
    
    
    39,227Accrued payroll and related liabilities
    
    
    48,343
    
    
    
    41,557Billings in excess of revenue earned
    
    
    3,872
    
    
    
    2,708Total current liabilities
    
    
    158,204
    
    
    
    157,267Senior term loan payable, excluding current portion
    
    
    229,387
    
    
    
    229,831Senior unsecured notes
    
    
    245,020
    
    
    
    244,355Subordinated note payable
    
    
    45,294
    
    
    
    42,656Accrued compensation, excluding current portion
    
    
    5,063
    
    
    
    11,305Accrued postretirement benefit obligations
    
    
    656
    
    
    
    627Non-current portion of lease obligations
    
    
    6,652
    
    
    
    6,260Redeemable common stock warrants
    
    
    33,258
    
    
    
    39,996Redeemable common stock, $0.01 par value, 8,000,000 shares
authorized, 5,264,725 and 5,229,756 shares issued and outstanding at June 30, 2009 and
September 30, 2008
    
    
    180,580
    
    
    
    200,561Accumulated other comprehensive loss
    
    
    (36
    )
    
    
    (36
    )Accumulated deficit
    
    
    (268,401
    )
    
    
    (276,876
    )Total liabilities, redeemable common stock and accumulated deficit
    
    $
    635,677
    
    
    $
    655,946
 See accompanying notes to condensed consolidated financial statements.
  3




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ALION SCIENCE AND TECHNOLOGY CORPORATION
 
 Condensed Consolidated Statements of Operations (unaudited)
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except share and per share information)Contract revenue
    
    $
    204,160
    
    
    $
    185,876
    
    
    $
    588,385
    
    
    $
    558,264Direct contract expense
    
    
    157,666
    
    
    
    142,862
    
    
    
    452,123
    
    
    
    426,274Gross profit
    
    
    46,494
    
    
    
    43,014
    
    
    
    136,262
    
    
    
    131,990Operating expenses:Indirect contract expense
    
    
    9,443
    
    
    
    10,410
    
    
    
    27,899
    
    
    
    31,369Research and development
    
    
    223
    
    
    
    359
    
    
    
    370
    
    
    
    815General and administrative
    
    
    17,253
    
    
    
    15,298
    
    
    
    40,852
    
    
    
    48,004Rental and occupancy expense
    
    
    8,169
    
    
    
    7,979
    
    
    
    24,375
    
    
    
    23,392Depreciation and amortization
    
    
    5,156
    
    
    
    5,313
    
    
    
    14,662
    
    
    
    15,673Total operating expenses
    
    
    40,244
    
    
    
    39,359
    
    
    
    108,158
    
    
    
    119,253Operating income
    
    
    6,250
    
    
    
    3,655
    
    
    
    28,104
    
    
    
    12,737Other income (expense):Interest income
    
    
    15
    
    
    
    92
    
    
    
    63
    
    
    
    364Interest expense
    
    
    (15,766
    )
    
    
    (12,332
    )
    
    
    (40,098
    )
    
    
    (39,439
    )Other
    
    
    90
    
    
    
    706
    
    
    
    (32
    )
    
    
    (41
    )Gain on sale of non-operating
assets
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )
    
    
    Total other expenses
    
    
    (15,680
    )
    
    
    (11,534
    )
    
    
    (40,086
    )
    
    
    (39,116
    )Loss before income taxes
    
    
    (9,430
    )
    
    
    (7,879
    )
    
    
    (11,982
    )
    
    
    (26,379
    )Income tax benefit (expense)
    
    
    (7
    )
    
    
    (14
    )
    
    
    44
    
    
    
    (25
    )Net loss
    
    $
    (9,437
    )
    
    $
    (7,893
    )
    
    $
    (11,938
    )
    
    $
    (26,404
    )Basic and diluted loss per share
    
    
    (1.79
    )
    
    
    (1.55
    )
    
    
    (2.28
    )
    
    
    (5.24
    )Basic and diluted weighted average
common shares outstanding
    
    
    5,240,778
    
    
    
    5,104,958
    
    
    
    5,264,762
    
    
    
    5,043,375
 See accompanying notes to condensed consolidated financial statements.
  4




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ALION SCIENCE AND TECHNOLOGY CORPORATION
 
 Condensed Consolidated Statements of Cash Flows (unaudited)
 Nine Months Ended June 30,2009
    
    
    2008(In thousands)Cash flows from operating activities:Net loss
    
    $
    (11,938
    )
    
    $
    (26,404
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    14,662
    
    
    
    15,673Bad debt expense
    
    
    760
    
    
    
    (146
    )Loss on sale of non-operating assets
    
    
    19
    
    
    
    Accretion of debt to face value
    
    
    1,769
    
    
    
    760Amortization of debt issuance costs
    
    
    2,045
    
    
    
    1,325Change in fair value of redeemable common stock warrants
    
    
    (6,738
    )
    
    
    436Stock-based compensation
    
    
    (5,353
    )
    
    
    5,686Loss on interest rate swap
    
    
    18
    
    
    
    276Changes in assets and liabilities:Accounts receivable
    
    
    (8,895
    )
    
    
    (21,133
    )Other assets
    
    
    (1,214
    )
    
    
    (485
    )Trade accounts payable
    
    
    (16,310
    )
    
    
    6,834Accrued liabilities
    
    
    16,331
    
    
    
    10,789Interest payable
    
    
    8,869
    
    
    
    902Other liabilities
    
    
    5,454
    
    
    
    3,038Net cash used in operating activities
    
    
    (521
    )
    
    
    (2,449
    )Cash flows from investing activities:Cash paid for acquisitions-related obligations
    
    
    (166
    )
    
    
    (7,946
    )Capital expenditures
    
    
    (1,789
    )
    
    
    (4,091
    )Net cash used in investing activities
    
    
    (1,955
    )
    
    
    (12,037
    )Cash flows from financing activities:Cash (paid for) received from interest rate swap
    
    
    (4,647
    )
    
    
    969Payment of senior term loan principal
    
    
    (1,825
    )
    
    
    (1,855
    )Payment of subordinated note principal
    
    
    (3,000
    )
    
    
    Revolver borrowings
    
    
    349,925
    
    
    
    361,755Revolver payments
    
    
    (349,925
    )
    
    
    (360,155
    )Loan to ESOP Trust
    
    
    (5,936
    )
    
    
    (3,369
    )ESOP loan repayment
    
    
    5,936
    
    
    
    3,369Redeemable common stock purchased from ESOP Trust
    
    
    (7,264
    )
    
    
    (1,250
    )Redeemable common stock sold to ESOP Trust
    
    
    5,115
    
    
    
    3,377Net cash (used in) provided by financing activities
    
    
    (11,621
    )
    
    
    2,841Net decrease in cash and cash equivalents
    
    
    (14,097
    )
    
    
    (11,645
    )Cash and cash equivalents at beginning of period
    
    
    16,287
    
    
    
    11,684Cash and cash equivalents at end of period
    
    $
    2,190
    
    
    $
    39Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    30,284
    
    
    $
    33,477Cash paid (received) for taxes
    
    $
    (104
    )
    
    $
    67Non-cash financing activities:Common stock issued to ESOP Trust in satisfaction of employer
contribution liability
    
    $
    5,043
    
    
    $
    5,043
 See accompanying notes to condensed consolidated financial statements.
  5




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ALION SCIENCE AND TECHNOLOGY CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 (1) Description and Formation of the Business
   (2) Summary of Significant Accounting Policies
 Basis of Presentation and Principles of Consolidation
   Fiscal, Quarter and Interim Periods
  Use of Estimates
  Reclassifications
  Revenue Recognition
   6




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
     Accounting for Performance on Construction-Type and Certain Production-Type Contracts.
 Income Taxes
  Cash and Cash Equivalents
  Accounts Receivable and Billings in Excess of Revenue Earned
   7




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Property, Plant and Equipment
  Goodwill and Intangible Assets
 Goodwill and Other Intangible Assets
 Business Combinations.
     8




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
    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




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
  Concentration of Credit Risk
  Fair Value of Financial Instruments
  Recently Issued Accounting Pronouncements
 Business Combinations,
 Noncontrolling Interests in Consolidated
Financial Statements,
    10




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
  (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




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 (7) Accounts Receivable
  June 30,
    
    
    September 30,2009
    
    
    2008(In thousands)Billed receivables
    
    $
    104,672
    
    
    $
    99,794Unbilled receivables:Amounts currently billable
    
    
    26,621
    
    
    
    37,883Revenues recorded in excess of milestone billings on fixed price
contracts
    
    
    3,620
    
    
    
    2,651Revenues recorded in excess of estimated contract value or funding
    
    
    32,093
    
    
    
    18,925Retainages and other amounts billable upon contract completion
    
    
    13,952
    
    
    
    13,160Allowance for doubtful accounts
    
    
    (4,372
    )
    
    
    (3,962
    )Total Accounts Receivable
    
    $
    176,586
    
    
    $
    168,451
  (8) Property, Plant and Equipment
 June 30,
    
    
    September 30,2009
    
    
    2008(In thousands)Leasehold improvements
    
    $
    9,934
    
    
    $
    9,451Equipment and software
    
    
    32,062
    
    
    
    31,393Total cost
    
    
    41,996
    
    
    
    40,844Less: accumulated depreciation and amortization
    
    
    (26,489
    )
    
    
    (22,243
    )Net Property, Plant and Equipment
    
    $
    15,506
    
    
    $
    18,601
   12




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 (9) Goodwill and Intangible Assets
   June 30, 2009
    
    
    September 30, 2008Weighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RemainingAccumulated
    
    
    
    
    
    
    Amortization
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    AmortizationGross
    
    
    Amortization
    
    
    Net
    
    
    Period
    
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    PeriodPurchased contracts
    
    $
    111,635
    
    
    $
    (80,834
    )
    
    $
    30,801
    
    
    6.1 yrs
    
    
    $
    111,635
    
    
    $
    (71,410
    )
    
    $
    40,225
    
    
    6.3 yrsInternal use
software and
engineering designs
    
    
    2,155
    
    
    
    (1,471
    )
    
    
    684
    
    
    2.7 yrs
    
    
    
    2,155
    
    
    
    (1,178
    )
    
    
    977
    
    
    2.9 yrsNon-compete
agreements
    
    
    725
    
    
    
    (698
    )
    
    
    27
    
    
    1.6 yrs
    
    
    
    725
    
    
    
    (679
    )
    
    
    46
    
    
    1.8 yrsTotal
    
    $
    114,515
    
    
    $
    (83,003
    )
    
    $
    31,512
    
    
    6.0 yrs
    
    
    $
    114,515
    
    
    $
    (73,267
    )
    
    $
    41,248
    
    
    6.0 yrs
  (In thousands)For the remaining three months:2009
    
    $
    2,831For the year ending September 30:2010
    
    
    10,9852011
    
    
    6,8432012
    
    
    5,7672013
    
    
    3,2462014
    
    
    879Thereafter
    
    
    961$
    31,512
 (10)
    
    Long-Term Debt Term B Senior Credit Facility
    13




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Interest and Fees.
 Other Fees and Expenses.
  Financial Covenants .
 Senior Unsecured Notes
  Interest and Fees.
 Interest Payable
  June 30,
    
    
    September 30,2009
    
    
    2008(In thousands)Senior Unsecured Notes
    
    $
    10,677
    
    
    $
    4,271Senior Term Loan
    
    
    3,951
    
    
    
    2,272Subordinated Note Payable
    
    
    784
    
    
    
    Total
    
    $
    15,412
    
    
    $
    6,543
 Subordinated Note
   14




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
   2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    Total(In thousands)Senior Term Loan (1)
    
    $
    608
    
    
    $
    2,433
    
    
    $
    2,433
    
    
    $
    2,433
    
    
    $
    229,297
    
    
    $
    
    
    
    $
    
    
    
    $
    237,204Senior Unsecured
Notes (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    250,000Subordinated Seller Note
(3)
    
    
    
    
    
    
    3,000
    
    
    
    3,000
    
    
    
    2,000
    
    
    
    70,311
    
    
    
    
    
    
    
    
    
    
    
    78,311Total Principal Payments
    
    $
    608
    
    
    $
    5,433
    
    
    $
    5,433
    
    
    $
    4,433
    
    
    $
    299,608
    
    
    $
    
    
    
    $
    250,000
    
    
    $
    565,515
 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 $237.2 million in principal and $5.4
million in unamortized debt issue costs as of June 30, 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 $5.0 million in unamortized debt issue costs as of June 30, 2009 (originally
$7.1 million).3.
    
    The Subordinated Note on the face of the balance sheet includes approximately $10.8
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   15




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
     Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Level 1
    
    
    Level 2
    
    
    Level 3Liabilities:Redeemable common stock warrants
    
    $
    
    
    
    $
    
    
    
    $
    (33,258
    )
  16




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
  Quarter ended
    
    
    Nine Months endedJune 30, 2009
    
    
    June 30, 2009Redeemable CommonStock WarrantsBalance, beginning of period
    
    $
    (33,098
    )
    
    $
    (39,996
    )Total realized and unrealized gains and (losses)Included in interest expense
    
    
    (160
    )
    
    
    6,738Included in other comprehensive income (loss)Issuances and settlementsTransfers in (out)Balance, end of period
    
    $
    (33,258
    )
    
    $
    (33,258
    )
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  (12) Interest Rate Swap
  (13) Redeemable Common Stock Warrants
     17




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ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 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)
    
    $
    6,5932010
    
    
    27,3752011
    
    
    25,2842012
    
    
    21,3412013
    
    
    20,1142014
    
    
    13,682And thereafter
    
    
    37,667Gross lease payments
    
    $
    152,056Less: non-cancelable subtenant receipts
    
    
    (3,365
    )Net lease payments
    
    $
    148,691
 Composition of Total Rent Expense
 June 30,2009
    
    
    2008(In thousands)Minimum rentals
    
    $
    19,494
    
    
    $
    18,765Less: Sublease rental income
    
    
    (2,189
    )
    
    
    (2,671
    )Total rent expense, net
    
    $
    17,305
    
    
    $
    16,094
 15) Long Term Incentive Compensation Plan
  (16) Stock Appreciation Rights
   18




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
  Share-Based Payment
 
 Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    VestedGranted to
    
    
    Exercise
    
    
    Outstanding
    
    
    Outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    at
    
    
    ExercisableDate of Grant
    
    Employees
    
    
    Price
    
    
    at 9/30/08
    
    
    at 6/30/09
    
    
    Forfeited
    
    
    Exercised
    
    
    Expired
    
    
    6/30/09
    
    
    at 6/30/09November 2003
    
    
    129,550
    
    
    $
    14.71
    
    
    
    68,335
    
    
    
    1,315
    
    
    
    540
    
    
    
    66,480
    
    
    
    
    
    
    
    1,315
    
    
    
    February 2004
    
    
    2,000
    
    
    $
    14.71
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,250
    
    
    
    June 2005
    
    
    2,000
    
    
    $
    29.81
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    December 2005
    
    
    276,675
    
    
    $
    35.89
    
    
    
    203,774
    
    
    
    189,808
    
    
    
    8,321
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500
    
    
    
    July 2006
    
    
    15,000
    
    
    $
    37.06
    
    
    
    10,500
    
    
    
    10,000
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    7,500
    
    
    
    October 2006
    
    
    2,500
    
    
    $
    41.02
    
    
    
    2,500
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250
    
    
    
    December 2006
    
    
    238,350
    
    
    $
    41.02
    
    
    
    201,083
    
    
    
    182,598
    
    
    
    13,872
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    September 2007
    
    
    2,000
    
    
    $
    43.37
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    December 2007
    
    
    232,385
    
    
    $
    40.05
    
    
    
    210,310
    
    
    
    199,489
    
    
    
    10,822
    
    
    
    
    
    
    
    
    
    
    
    51,184
    
    
    
    April 2008
    
    
    2,000
    
    
    $
    41.00
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    September 2008
    
    
    2,000
    
    
    $
    41.00
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 2008
    
    
    203,250
    
    
    $
    38.35
    
    
    
    
    
    
    
    197,600
    
    
    
    5,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,370,660
    
    
    
    
    
    
    
    862,114
    
    
    
    937,047
    
    
    
    43,617
    
    
    
    84,700
    
    
    
    
    
    
    
    431,764
    
    
    
    Wtd Avg Exercise Price
    
    $
    33.91
    
    
    
    
    
    
    $
    34.77
    
    
    $
    36.89
    
    
    $
    37.89
    
    
    $
    18.33
    
    
    $
    
    
    
    $
    34.20
    
    
    $
    
  19




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 
 RemainingExpected
    
    
    LifeDate of Grant
    
    Risk Free Interest Rate
    
    
    Volatility
    
    
    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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.5
 (17)
    
    Phantom Stock Plans    20




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
  Share-Based Payment
 
 SharesShares
    
    
    Granted
    
    
    Total
    
    
    Grant DateGranted to
    
    
    to
    
    
    Shares
    
    
    Price per
    
    
    Outstanding
    
    
    Outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested at
    
    
    ExercisableDate of Grant
    
    Employees
    
    
    Directors
    
    
    Granted
    
    
    Share
    
    
    at 9/30/08
    
    
    at 6/30/09
    
    
    Forfeited
    
    
    Exercised
    
    
    Expired
    
    
    6/30/09
    
    
    at 6/30/09November 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
  21




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 
 RemainingRisk Free Interest
    
    
    
    
    
    
    Expected
    
    
    LifeDate of Grant
    
    Rate
    
    
    Volatility
    
    
    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
 (18) Segment Information and Customer Concentration
   (19) Guarantor/Non-guarantor Condensed Consolidated Financial Information
   22




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Balance Sheet Information at June 30, 2009
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    Eliminations
    
    
    ConsolidatedCurrent assets:Cash and cash equivalents
    
    $
    2,219
    
    
    $
    (36
    )
    
    $
    7
    
    
    $
    
    
    
    $
    2,190Accounts receivable
    
    
    169,629
    
    
    
    4,076
    
    
    
    2,881
    
    
    
    
    
    
    
    176,586Prepaid expenses and other current assets
    
    
    4,135
    
    
    
    84
    
    
    
    18
    
    
    
    
    
    
    
    4,237Total current assets
    
    
    175,983
    
    
    
    4,124
    
    
    
    2,906
    
    
    
    
    
    
    
    183,013Property, plant and equipment, net
    
    
    15,385
    
    
    
    61
    
    
    
    60
    
    
    
    
    
    
    
    15,506Intangible assets, net
    
    
    31,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,512Goodwill
    
    
    398,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    398,871Investment in subsidiaries
    
    
    15,151
    
    
    
    
    
    
    
    
    
    
    
    (15,151
    )
    
    
    Intercompany receivables
    
    
    
    
    
    
    10,392
    
    
    
    1,697
    
    
    
    (12,089
    )
    
    
    Other assets
    
    
    6,759
    
    
    
    13
    
    
    
    3
    
    
    
    
    
    
    
    6,775Total assets
    
    $
    643,661
    
    
    $
    14,590
    
    
    $
    4,666
    
    
    $
    (27,240
    )
    
    $
    635,677Current liabilities:Interest payable
    
    
    15,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,412Current portion, Senior Term Loan payable
    
    
    2,389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,389Current portion, subordinated note payable
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Trade accounts payable
    
    
    39,777
    
    
    
    301
    
    
    
    774
    
    
    
    
    
    
    
    40,852Accrued liabilities
    
    
    42,888
    
    
    
    1,048
    
    
    
    400
    
    
    
    
    
    
    
    44,336Accrued payroll and related liabilities
    
    
    46,833
    
    
    
    832
    
    
    
    678
    
    
    
    
    
    
    
    48,343Billings in excess of costs revenue earned
    
    
    3,872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,872Total current liabilities
    
    
    154,171
    
    
    
    2,181
    
    
    
    1,852
    
    
    
    
    
    
    
    158,204Intercompany payables
    
    
    12,089
    
    
    
    
    
    
    
    
    
    
    
    (12,089
    )
    
    
    Senior Term Loan payable, excluding current portion
    
    
    229,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229,387Senior Unsecured Notes
    
    
    245,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,020Subordinated note payable
    
    
    45,294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,294Accrued compensation, excluding current portion
    
    
    5,063
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,063Accrued postretirement benefit obligations
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    656Non-current portion of lease obligations
    
    
    6,580
    
    
    
    53
    
    
    
    19
    
    
    
    
    
    
    
    6,652Redeemable common stock warrants
    
    
    33,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,258Common stock of subsidiaries
    
    
    
    
    
    
    2,799
    
    
    
    1
    
    
    
    (2,800
    )
    
    
    Redeemable common stock
    
    
    180,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180,580Accumulated other comprehensive loss
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Accumulated surplus (deficit)
    
    
    (268,401
    )
    
    
    9,557
    
    
    
    2,794
    
    
    
    (12,351
    )
    
    
    (268,401
    )Total liabilities, redeemable
common stock and accumulated
deficit
    
    $
    643,661
    
    
    $
    14,590
    
    
    $
    4,666
    
    
    $
    (27,240
    )
    
    $
    635,677
  23




---



##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Balance Sheet Information at September 30, 2008
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    Eliminations
    
    
    ConsolidatedCurrent 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




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2009
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    Eliminations
    
    
    ConsolidatedContract revenue
    
    $
    195,465
    
    
    $
    5,167
    
    
    $
    3,528
    
    
    $
    
    
    
    $
    204,160Direct contract expense
    
    
    151,834
    
    
    
    3,205
    
    
    
    2,627
    
    
    
    
    
    
    
    157,666Gross profit
    
    
    43,631
    
    
    
    1,962
    
    
    
    901
    
    
    
    
    
    
    
    46,494Operating expenses:Indirect contract expense
    
    
    8,463
    
    
    
    755
    
    
    
    225
    
    
    
    
    
    
    
    9,443Research and development
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    223General and administrative
    
    
    17,005
    
    
    
    259
    
    
    
    (11
    )
    
    
    
    
    
    
    17,253Rental and occupancy expense
    
    
    8,000
    
    
    
    80
    
    
    
    89
    
    
    
    
    
    
    
    8,169Depreciation and amortization
    
    
    5,143
    
    
    
    6
    
    
    
    7
    
    
    
    
    
    
    
    5,156Total operating expenses
    
    
    38,834
    
    
    
    1,100
    
    
    
    310
    
    
    
    
    
    
    
    40,244Operating income
    
    
    4,797
    
    
    
    862
    
    
    
    591
    
    
    
    
    
    
    
    6,250Other income (expense):Interest income
    
    
    12
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    15Interest expense
    
    
    (15,766
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,766
    )Other
    
    
    (96
    )
    
    
    189
    
    
    
    (3
    )
    
    
    
    
    
    
    90Gain on sale of non-operating
assets
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Equity in net income (loss) of
subsidiaries
    
    
    1,642
    
    
    
    
    
    
    
    
    
    
    
    (1,642
    )
    
    
    Total other income (expense)
    
    
    (14,227
    )
    
    
    189
    
    
    
    
    
    
    
    (1,642
    )
    
    
    (15,680
    )Income (loss) before income
taxes
    
    
    (9,430
    )
    
    
    1,051
    
    
    
    591
    
    
    
    (1,642
    )
    
    
    (9,430
    )Income tax expense
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Net income (loss)
    
    $
    (9,437
    )
    
    $
    1,051
    
    
    $
    591
    
    
    $
    (1,642
    )
    
    $
    (9,437
    )
  25




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2008
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    Eliminations
    
    
    ConsolidatedContract revenue
    
    $
    177,667
    
    
    $
    5,400
    
    
    $
    2,809
    
    
    $
    
    
    
    $
    185,876Direct contract expense
    
    
    136,932
    
    
    
    3,791
    
    
    
    2,139
    
    
    
    
    
    
    
    142,862Gross profit
    
    
    40,735
    
    
    
    1,609
    
    
    
    670
    
    
    
    
    
    
    
    43,014Operating expenses:Indirect contract expense
    
    
    9,049
    
    
    
    1,148
    
    
    
    213
    
    
    
    
    
    
    
    10,410Research and development
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359General and administrative
    
    
    15,095
    
    
    
    196
    
    
    
    7
    
    
    
    
    
    
    
    15,298Rental and occupancy expense
    
    
    7,977
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    7,979Depreciation and amortization
    
    
    5,290
    
    
    
    18
    
    
    
    5
    
    
    
    
    
    
    
    5,313Total operating expenses
    
    
    37,770
    
    
    
    1,362
    
    
    
    227
    
    
    
    
    
    
    
    39,359Operating income
    
    
    2,965
    
    
    
    247
    
    
    
    443
    
    
    
    
    
    
    
    3,655Other income (expense):Interest income
    
    
    81
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    92Interest expense
    
    
    (12,332
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,332
    )Other
    
    
    594
    
    
    
    114
    
    
    
    (2
    )
    
    
    
    
    
    
    706Equity in net income of subsidiaries
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    (813
    )
    
    
    Total other income (expense)
    
    
    (10,844
    )
    
    
    125
    
    
    
    (2
    )
    
    
    (813
    )
    
    
    (11,534
    )Income (loss) before income taxes
    
    
    (7,879
    )
    
    
    372
    
    
    
    441
    
    
    
    (813
    )
    
    
    (7,879
    )Income tax expense
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )Net income (loss)
    
    $
    (7,893
    )
    
    $
    372
    
    
    $
    441
    
    
    $
    (813
    )
    
    $
    (7,893
    )
  26




---



##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2009
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    Eliminations
    
    
    ConsolidatedContract revenue
    
    $
    561,582
    
    
    $
    16,595
    
    
    $
    10,208
    
    
    $
    
    
    
    $
    588,385Direct contract expense
    
    
    433,204
    
    
    
    11,239
    
    
    
    7,680
    
    
    
    
    
    
    
    452,123Gross profit
    
    
    128,378
    
    
    
    5,356
    
    
    
    2,528
    
    
    
    
    
    
    
    136,262Operating expenses:Indirect contract expense
    
    
    25,097
    
    
    
    2,276
    
    
    
    526
    
    
    
    
    
    
    
    27,899Research and development
    
    
    370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370General and administrative
    
    
    40,229
    
    
    
    613
    
    
    
    10
    
    
    
    
    
    
    
    40,852Rental and occupancy expense
    
    
    23,924
    
    
    
    225
    
    
    
    226
    
    
    
    
    
    
    
    24,375Depreciation and amortization
    
    
    14,624
    
    
    
    17
    
    
    
    21
    
    
    
    
    
    
    
    14,662Total operating expenses
    
    
    104,244
    
    
    
    3,131
    
    
    
    783
    
    
    
    
    
    
    
    108,158Operating income
    
    
    24,134
    
    
    
    2,225
    
    
    
    1,745
    
    
    
    
    
    
    
    28,104Other income (expense):Interest income
    
    
    44
    
    
    
    16
    
    
    
    3
    
    
    
    
    
    
    
    63Interest expense
    
    
    (40,098
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,098
    )Other
    
    
    (363
    )
    
    
    339
    
    
    
    (8
    )
    
    
    
    
    
    
    (32
    )Gain on sale of non-operating assets
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Equity in net income (loss) of
subsidiaries
    
    
    4,320
    
    
    
    
    
    
    
    
    
    
    
    (4,320
    )
    
    
    Total other income (expense)
    
    
    (36,116
    )
    
    
    355
    
    
    
    (5
    )
    
    
    (4,320
    )
    
    
    (40,086
    )Income (loss) before income
taxes
    
    
    (11,982
    )
    
    
    2,580
    
    
    
    1,740
    
    
    
    (4,320
    )
    
    
    (11,982
    )Income tax benefit
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Net income (loss)
    
    $
    (11,938
    )
    
    $
    2,580
    
    
    $
    1,740
    
    
    $
    (4,320
    )
    
    $
    (11,938
    )
  27




---



##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2008
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    Eliminations
    
    
    ConsolidatedContract revenue
    
    $
    533,155
    
    
    $
    18,171
    
    
    $
    6,938
    
    
    $
    
    
    
    $
    558,264Direct contract expense
    
    
    408,245
    
    
    
    12,884
    
    
    
    5,145
    
    
    
    
    
    
    
    426,274Gross profit
    
    
    124,910
    
    
    
    5,287
    
    
    
    1,793
    
    
    
    
    
    
    
    131,990Operating expenses:Indirect contract expense
    
    
    27,235
    
    
    
    3,427
    
    
    
    707
    
    
    
    
    
    
    
    31,369Research and development
    
    
    811
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    815General and administrative
    
    
    47,346
    
    
    
    650
    
    
    
    8
    
    
    
    
    
    
    
    48,004Rental and occupancy expense
    
    
    23,383
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    23,392Depreciation and amortization
    
    
    15,571
    
    
    
    91
    
    
    
    11
    
    
    
    
    
    
    
    15,673Total operating expenses
    
    
    114,346
    
    
    
    4,168
    
    
    
    739
    
    
    
    
    
    
    
    119,253Operating income
    
    
    10,564
    
    
    
    1,119
    
    
    
    1,054
    
    
    
    
    
    
    
    12,737Other income (expense):Interest income
    
    
    353
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    364Interest expense
    
    
    (39,439
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,439
    )Other
    
    
    (297
    )
    
    
    259
    
    
    
    (3
    )
    
    
    
    
    
    
    (41
    )Equity in net income (loss) of
subsidiaries
    
    
    2,440
    
    
    
    
    
    
    
    
    
    
    
    (2,440
    )
    
    
    Total other income (expenses)
    
    
    (36,943
    )
    
    
    270
    
    
    
    (3
    )
    
    
    (2,440
    )
    
    
    (39,116
    )Income (loss) before income taxes
    
    
    (26,379
    )
    
    
    1,389
    
    
    
    1,051
    
    
    
    (2,440
    )
    
    
    (26,379
    )Income tax expense
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Net income (loss)
    
    $
    (26,404
    )
    
    $
    1,389
    
    
    $
    1,051
    
    
    $
    (2,440
    )
    
    $
    (26,404
    )
  28




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2009
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    ConsolidatedNet cash (used in) provided by operating activities
    
    $
    (627
    )
    
    
    26
    
    
    
    50
    
    
    $
    (521
    )Cash flows from investing activities:Cash paid for acquisitions
    
    
    (166
    )
    
    
    
    
    
    
    
    
    
    
    (166
    )Capital expenditures
    
    
    (1,789
    )
    
    
    
    
    
    
    
    
    
    
    (1,789
    )Net cash (used in) provided by investing activities
    
    
    (1,955
    )
    
    
    
    
    
    
    
    
    
    
    (1,955
    )Cash flows from financing activities:Change in book overdraft
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash (paid for) received from interest rate swap
    
    
    (4,647
    )
    
    
    
    
    
    
    
    
    
    
    (4,647
    )Repayment of senior term loan payable
    
    
    (1,825
    )
    
    
    
    
    
    
    
    
    
    
    (1,825
    )Repayment of subordinated note payable
    
    
    (3,000
    )
    
    
    
    
    
    
    
    
    
    
    (3,000
    )Revolver borrowings
    
    
    349,925
    
    
    
    
    
    
    
    
    
    
    
    349,925Revolver payments
    
    
    (349,925
    )
    
    
    
    
    
    
    
    
    
    
    (349,925
    )Loan to ESOP Trust
    
    
    (5,936
    )
    
    
    
    
    
    
    
    
    
    
    (5,936
    )ESOP Trust loan repayment
    
    
    5,936
    
    
    
    
    
    
    
    
    
    
    
    5,936Purchase of common stock from ESOP Trust
    
    
    (7,264
    )
    
    
    
    
    
    
    
    
    
    
    (7,264
    )Cash received from sale of common stock to ESOP
Trust
    
    
    5,115
    
    
    
    
    
    
    
    
    
    
    
    5,115Net cash used in financing activities
    
    
    (11,621
    )
    
    
    
    
    
    
    
    
    
    
    (11,621
    )Net increase (decrease) in cash and cash equivalents
    
    
    (14,173
    )
    
    
    26
    
    
    
    50
    
    
    
    (14,097
    )Cash and cash equivalents at beginning of period
    
    
    16,392
    
    
    
    (62
    )
    
    
    (43
    )
    
    
    16,287Cash and cash equivalents at end of period
    
    $
    2,219
    
    
    $
    (36
    )
    
    $
    7
    
    
    $
    2,190
  29




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##### Table of Contents



ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
 Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2008
(In thousands)
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Companies
    
    
    Companies
    
    
    ConsolidatedNet cash (used in) operating activities
    
    $
    (2,369
    )
    
    $
    (53
    )
    
    $
    (27
    )
    
    $
    (2,449
    )Cash flows from investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (7,946
    )
    
    
    
    
    
    
    
    
    
    
    (7,946
    )Capital expenditures
    
    
    (3,991
    )
    
    
    
    
    
    
    (100
    )
    
    
    (4,091
    )Net cash used in investing activities
    
    
    (11,937
    )
    
    
    
    
    
    
    (100
    )
    
    
    (12,037
    )Cash flows from financing activities:Cash received from interest rate swap
    
    
    969
    
    
    
    
    
    
    
    
    
    
    
    969Repayment of Term B Credit Facility note payable
    
    
    (1,855
    )
    
    
    
    
    
    
    
    
    
    
    (1,855
    )Revolver borrowings
    
    
    (361,755
    )
    
    
    
    
    
    
    
    
    
    
    361,755Revolver payments
    
    
    (360,155
    )
    
    
    
    
    
    
    
    
    
    
    (360,155
    )Loan to ESOP Trust
    
    
    (3,369
    )
    
    
    
    
    
    
    
    
    
    
    (3,369
    )ESOP Trust loan repayment
    
    
    3,369
    
    
    
    
    
    
    
    
    
    
    
    3,369Purchase of shares of common stock from ESOP
Trust
    
    
    (1,250
    )
    
    
    
    
    
    
    
    
    
    
    (1,250
    )Cash received from issuance of common stock to
Trust
    
    
    3,377
    
    
    
    
    
    
    
    
    
    
    
    3,377Net cash provided by financing activities
    
    
    2,841
    
    
    
    
    
    
    
    
    
    
    
    2,841Net decrease in cash and cash equivalents
    
    
    (11,465
    )
    
    
    (53
    )
    
    
    (127
    )
    
    
    (11,645
    )Cash and cash equivalents at beginning of year
    
    
    11,718
    
    
    
    (33
    )
    
    
    (1
    )
    
    
    11,684Cash and cash equivalents at end of year
    
    $
    253
    
    
    $
    (86
    )
    
    $
    (128
    )
    
    $
    39
 (20) Commitments and Contingencies
 Earn-Out Commitments
  Legal Proceedings
  Government Audits
  (21) Subsequent Events
   30




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   For the Nine Months Ended June 30,Revenue by Contract Type
    
    2009
    
    
    2008(In thousands)Cost-reimbursement
    
    $
    419,432
    
    
    
    71.3
    %
    
    $
    388,516
    
    
    
    69.6
    %Fixed-price
    
    
    60,626
    
    
    
    10.3
    %
    
    
    57,159
    
    
    
    10.2
    %Time-and-material
    
    
    108,327
    
    
    
    18.4
    %
    
    
    112,589
    
    
    
    20.2
    %Total
    
    $
    588,385
    
    
    
    100.0
    %
    
    $
    558,264
    
    
    
    100.0
    %
  For the Nine Months EndedJune 30,Revenue by Customer Type
    
    2009
    
    
    2008(In thousands)U.S. Department of Defense (DoD)
    
    $
    542,229
    
    
    
    92.2
    %
    
    $
    481,489
    
    
    
    86.3
    %Other Federal Civilian Agencies
    
    
    24,039
    
    
    
    4.1
    %
    
    
    34,851
    
    
    
    6.2
    %Commercial / State / Local and
International
    
    
    22,117
    
    
    
    3.8
    %
    
    
    41,924
    
    
    
    7.5
    %Total
    
    $
    588,385
    
    
    
    100.0
    %
    
    $
    558,264
    
    
    
    100.0
    %
    31




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##### Table of Contents



For the Nine Months EndedJune 30,Core Business Area
    
    2009
    
    
    2008(In thousands)Naval Architecture and Marine Engineering
    
    $
    271,193
    
    
    
    46.1
    %
    
    $
    235,867
    
    
    
    42.4
    %Defense Operations Support
    
    
    101,580
    
    
    
    17.3
    %
    
    
    119,686
    
    
    
    21.4
    %Industrial Technology Solutions
    
    
    92,267
    
    
    
    15.7
    %
    
    
    86,445
    
    
    
    15.5
    %Modeling and Simulation
    
    
    63,065
    
    
    
    10.7
    %
    
    
    50,238
    
    
    
    9.0
    %Nuclear and Environmental Sciences
    
    
    39,737
    
    
    
    6.8
    %
    
    
    40,918
    
    
    
    7.3
    %Information Technology
    
    
    20,543
    
    
    
    3.5
    %
    
    
    25,111
    
    
    
    4.4
    %Total
    
    $
    588,385
    
    
    
    100
    %
    
    $
    558,264
    
    
    
    100
    %
 Backlog .
  32




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##### Table of Contents



Results of Operations
 Quarter Ended June 30, 2009 Compared to Quarter Ended June 30, 2008
 Consolidated Operations of AlionQuarter Ended June 30,2009
    
    
    2008Selected Financial Information
    
    (Dollars in thousands)%
    
    
    
    
    
    
    %revenue
    
    
    
    
    
    
    revenueTotal contract revenue
    
    $
    204,160
    
    
    
    
    
    
    $
    185,876Total direct contract costs
    
    
    157,666
    
    
    
    77.2
    %
    
    
    142,862
    
    
    
    76.9
    %Direct labor costs
    
    
    68,700
    
    
    
    33.7
    %
    
    
    63,346
    
    
    
    34.1
    %Material and subcontract costs
    
    
    81,229
    
    
    
    39.8
    %
    
    
    73,861
    
    
    
    39.8
    %Other direct costs
    
    
    7,737
    
    
    
    3.8
    %
    
    
    5,654
    
    
    
    3.1
    %Gross profit
    
    
    46,494
    
    
    
    22.8
    %
    
    
    43,014
    
    
    
    23.1
    %Total operating expense
    
    
    40,244
    
    
    
    19.7
    %
    
    
    39,359
    
    
    
    21.2
    %Major components of operating expenseIndirect expenses including facilities costs
    
    
    17,711
    
    
    
    8.7
    %
    
    
    18,389
    
    
    
    9.9
    %General and administrative (excluding stock-
based compensation)
    
    
    16,842
    
    
    
    8.2
    %
    
    
    13,936
    
    
    
    7.5
    %Stock-based compensation
    
    
    411
    
    
    
    0.2
    %
    
    
    1,362
    
    
    
    0.8
    %Depreciation and amortization
    
    
    5,156
    
    
    
    2.5
    %
    
    
    5,313
    
    
    
    2.9
    %Income from operations
    
    $
    6,250
    
    
    
    3.1
    %
    
    $
    3,655
    
    
    
    2.0
    %
 Revenue.
   Direct Contract Expense and Gross Profit.
  33




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##### Table of Contents



Operating Expenses.
 Income from Operations.
 Other Expense.
  Quarter Ended June 30,2009
    
    
    2008(In thousands)Cash Pay InterestRevolver
    
    $
    289
    
    
    $
    319Senior Term Loan
    
    
    5,711
    
    
    
    3,763Senior Unsecured Notes
    
    
    6,406
    
    
    
    6,406Subordinated Note
    
    
    784
    
    
    
    Other cash pay interest and fees
    
    
    88
    
    
    
    113Sub-total cash pay interest
    
    
    13,278
    
    
    
    10,601Deferred and Non- cash InterestDebt issue costs and other non-cash items
    
    
    1,270
    
    
    
    698Subordinated Note interest
    
    
    1,057
    
    
    
    895Redeemable warrants
    
    
    161
    
    
    
    138Sub-total non-cash interest
    
    
    2,488
    
    
    
    1,731Total interest expense
    
    $
    15,766
    
    
    $
    12,332
 Income Tax Expense.
  34




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##### Table of Contents



Net Income (Loss)
 Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008
 Consolidated Operations of AlionNine Months Ended June 30,2009
    
    
    2008Selected Financial Information
    
    (Dollars in thousands)%
    
    
    
    
    
    
    %revenue
    
    
    
    
    
    
    revenueTotal contract revenue
    
    $
    588,385
    
    
    
    
    
    
    $
    558,264Total direct contract costs
    
    
    452,123
    
    
    
    76.8
    %
    
    
    426,274
    
    
    
    76.4
    %Direct labor costs
    
    
    203,287
    
    
    
    34.5
    %
    
    
    182,268
    
    
    
    32.7
    %Material and subcontract costs
    
    
    229,078
    
    
    
    38.9
    %
    
    
    227,417
    
    
    
    40.7
    %Other direct costs
    
    
    19,757
    
    
    
    3.4
    %
    
    
    16,589
    
    
    
    3.0
    %Gross profit
    
    
    136,262
    
    
    
    23.2
    %
    
    
    131,990
    
    
    
    23.6
    %Total operating expense
    
    
    108,158
    
    
    
    18.4
    %
    
    
    119,253
    
    
    
    21.4
    %Major components of operating expenseIndirect expenses including facilities costs
    
    
    52,274
    
    
    
    8.9
    %
    
    
    54,761
    
    
    
    9.8
    %General and administrative (excluding stock-
based compensation)
    
    
    46,205
    
    
    
    7.9
    %
    
    
    42,318
    
    
    
    7.6
    %Stock-based compensation
    
    
    (5,353
    )
    
    
    (0.9
    )%
    
    
    5,686
    
    
    
    1.0
    %Depreciation and amortization
    
    
    14,662
    
    
    
    2.5
    %
    
    
    15,673
    
    
    
    2.8
    %Income from operations
    
    $
    28,104
    
    
    
    4.8
    %
    
    $
    12,737
    
    
    
    2.3
    %
 Revenue
  Direct Contract Expense and Gross Profit.
  35




---



##### Table of Contents



Operating Expenses.
 Income from Operations.
 Other Expense.
  Nine Months Ended June 30,2009
    
    
    2008(In thousands)Cash Pay InterestRevolver
    
    $
    811
    
    
    $
    1,725Senior Term Loan
    
    
    17,166
    
    
    
    13,001Senior Unsecured Notes
    
    
    19,219
    
    
    
    19,219Subordinated Note
    
    
    1,655
    
    
    
    Other cash pay interest and fees
    
    
    302
    
    
    
    332Sub-total cash pay interest
    
    
    39,153
    
    
    
    34,277Deferred and Non- cash InterestDebt issue costs and other non-cash items
    
    
    3,814
    
    
    
    2,085Subordinated Note interest
    
    
    3,869
    
    
    
    2,641Redeemable warrants
    
    
    (6,738
    )
    
    
    436Sub-total non-cash interest
    
    
    945
    
    
    
    5,162Total interest expense
    
    $
    40,098
    
    
    $
    39,439
 Income Tax Expense.
 Net Loss.
  36




---



##### Table of Contents



Liquidity and Capital Resources
  Cash Flows
        37




---



##### Table of Contents



Cash flow effects and risks associated with equity-related obligations
     Discussion of Debt Structure
  Senior Credit Facility
  
    
    the Senior Term Loan with principal of approximately $237.2 million;
 
    
    the $50 million Revolver (now $40.0 million), approximately $3.1 million of which was
allocated to letters of credit and deemed borrowed, but none of which was actually drawn
as of June 30, 2009; 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.
   38




---



##### Table of Contents



Interest, Fees, Prepayments and Use of Proceeds.
    Security.
  39




---



##### Table of Contents



Federal Funds
    
    
    Prime RateEurodollar
    
    
    ABR
    
    
    ABRLeverage Ratio
    
    Spread
    
    
    Spread
    
    
    Spread(in basis points)Category 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.
  Financial Covenants .
    40




---



##### Table of Contents



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
    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 EndedJune 30,2009
    
    
    2008Senior Secured Leverage Ratio
    
    
    3.76
    
    
    
    3.73Interest Coverage Ratio
    
    
    1.21
    
    
    
    1.81
  
    
    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
  41




---



##### Table of Contents




    
    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
   
    
    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
  42




---



##### Table of Contents



Subordinated Note  Redeemable Common Stock Warrants
     Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Companys Own Stock.
 Senior Unsecured Notes
  Interest and Fees.
  43




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##### Table of Contents



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
 
    
    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.
  44




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##### Table of Contents



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.
   Year
    
    Percentage of Principal2011
    
    
    105.125
    %2012
    
    
    102.563
    %2013 and thereafter
    
    
    100.000
    %
  45




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##### Table of Contents



7-Fiscal Year Period ($ In thousands)2009*
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015Bank revolver- Interest(1)
    
    $
    285
    
    
    $
    933
    
    
    $
    659
    
    
    $
    432
    
    
    $
    431
    
    
    $
    203
    
    
    $
    203Senior Term Loan- Interest(2)
    
    
    5,759
    
    
    
    22,759
    
    
    
    22,525
    
    
    
    22,352
    
    
    
    7,820
    
    
    
    
    
    
    
    - Principal(3)
    
    
    608
    
    
    
    2,433
    
    
    
    2,433
    
    
    
    2,433
    
    
    
    229,297
    
    
    
    
    
    
    
    Senior Unsecured Notes- Interest
    
    
    6,406
    
    
    
    25,625
    
    
    
    25,625
    
    
    
    25,625
    
    
    
    25,625
    
    
    
    25,625
    
    
    
    12,813- Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Subordinated Note- Interest
    
    
    793
    
    
    
    3,187
    
    
    
    3,332
    
    
    
    3,537
    
    
    
    4,254
    
    
    
    
    
    
    
    - Principal
    
    
    
    
    
    
    3,000
    
    
    
    3,000
    
    
    
    2,000
    
    
    
    70,311
    
    
    
    
    
    
    
    Total cash  pay interest
    
    
    13,243
    
    
    
    52,504
    
    
    
    52,141
    
    
    
    51,946
    
    
    
    38,130
    
    
    
    25,828
    
    
    
    13,016Total cash  pay principal
    
    
    608
    
    
    
    5,433
    
    
    
    5,433
    
    
    
    4,433
    
    
    
    299,608
    
    
    
    
    
    
    
    250,000Total
    
    $
    13,851
    
    
    $
    57,937
    
    
    $
    57,574
    
    
    $
    56,379
    
    
    $
    337,738
    
    
    $
    25,828
    
    
    $
    263,016
 *
    
    Estimated interest and principal payments for the remainder of fiscal year 2009.(1)
    
    Alion anticipates regularly accessing a $40.0 million revolving credit facility to finance
working capital. Alions existing Revolver expires in September 2009. The Company expects to
replace it or renew it annually with a similar facility continuing through 2015. 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
$40.0 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
$237.2 million as of June 30, 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 June 30, 2009, no mandatory prepayments are due. Contingent Obligations
 Earn-outs
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##### Table of Contents



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
    
    
    
    7,250April 2009
    
    
    122
    
    
    $
    34.30
    
    
    
    4May 2009
    
    
    38
    
    
    $
    34.30
    
    
    
    1Total
    
    
    189,271
    
    
    
    
    
    
    $
    7,264
     Recently Issued Accounting Pronouncements
 Business Combinations,
  47




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##### Table of Contents



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;
 
    
    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.
  48




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##### Table of Contents



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.
  49




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##### Table of Contents



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
  
 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
   50




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##### Table of Contents



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.
  51




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##### Table of Contents



SIGNATURES
  ALION SCIENCE AND TECHNOLOGY CORPORATIONBy:
    /s/  Michael J. AlberName:
    Michael J. AlberTitle:
    Principal Financial Officer and Duly Authorized Officer   52




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##### Table of Contents



EXHIBIT INDEX
 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.
  53