UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2009
Alion Science and Technology Corporation
(Exact name of Registrant as Specified in its Charter)
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Delaware
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333-89756
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54-2061691 |
(State or Other Jurisdiction of
Organization)
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(Commission File Number)
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(IRS Employer Incorporation or Identification No.) |
1750 Tysons Boulevard
Suite 1300
McLean, VA 22101
(703) 918-4480
(Address, including Zip Code and Telephone Number, including
Area Code, of Principal Executive Offices)
Securities registered pursuant to Section 12(b) or 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes þ No o
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.:
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Large accelerated Filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller Reporting Company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Aggregate market value of the voting and non-voting common equity held by non-affiliates computed
by reference to the price at which the common equity was last sold as of the last business day of
the registrants most recently completed second fiscal quarter: None
The number of shares outstanding of Alion Science and Technology Corporation common stock as
of September 30, 2009 was 5,424,274.
Documents Incorporated by Reference: None
ALION SCIENCE AND TECHNOLOGY CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business
Some of the statements under Business, Managements Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this annual report on Form 10-K constitute
forward-looking statements, which involve known and unknown risks and uncertainties. These
statements relate to our future plans, objectives, expectations and intentions and are for
illustrative purposes only. These statements may be identified by the use of words such as
believe, expect, intend, plan, anticipate, likely, forecast, projections, could,
estimate, may, potential, should, would and similar expressions and may also include
references to assumptions.
The factors that could cause actual results to differ materially from those anticipated
include, but are not limited to: changes to the ERISA laws related to the Alion Science and
Technology Corporation Employee Ownership, Savings and Investment Plan; changes to the tax laws
relating to the treatment and deductibility of goodwill, or any change in the Companys effective
tax rate; additional costs associated with compliance with the Sarbanes Oxley Act of 2002,
including any changes in the SECs rules and other corporate governance requirements; failure of
government customers to exercise options under contracts; funding decisions relating to U.S.
Government projects; government contract procurement risks, such as contract award protests and
terminations; competitive factors such as pricing pressures and/or our ability to hire and retain
employees; results of current and/or future legal or government agency proceedings which may arise
from our operations including our government contracts, and the risk of fines, liabilities,
penalties, suspension and/or debarment; undertaking acquisitions that could increase costs or
liabilities or be disruptive; taking on additional debt to fund acquisitions; failure to
adequately integrate acquired businesses; material changes in other laws or regulations applicable
to the Companys businesses; availability and terms of financing; the general volatility of the
debt and securities markets; risks associated with Alions debt including the ability to meet
existing and future debt covenants; risks from private securities litigation, regulatory
proceedings or government enforcement actions relating to our prior disclosure regarding covenant
compliance; as well as other risks discussed elsewhere in this annual report.
Readers are cautioned not to place undue reliance on these forward-looking statements, which
reflect managements view only as of December 24, 2009. We undertake no obligation to update any of
these factors or to publicly announce any change to our forward-looking statements made herein,
whether as a result of new information, future events, changes in expectations or otherwise.
Overview
Alion Science and Technology Corporation (Alion, the Company, we, our) is an
employee-owned company. We provide scientific, engineering and information technology solutions for
problems relating to national defense, homeland security and energy and environmental analysis. We
provide research and development services primarily to U.S. government agencies, particularly the
U.S. Department of Defense (DoD), state and foreign governments, and other commercial customers.
Revenue for the year ended September 30, 2009 was $802.2 million, an 8.5% increase over the
prior year. Federal government contracts accounted for 96.5% of fiscal year 2009 revenue, with
91.9% from DoD contracts. For the year ended September 30, 2008, federal government contracts
accounted for 94.2% of revenue, with 89.3% from DoD contracts.
We apply our expertise to a range of specialized fields, or core business areas described
below. Our annual revenue, by core business area was:
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Revenue by Fiscal Year |
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Core Business Area |
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2009 |
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2008 |
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2007 |
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(In thousands) |
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Naval Architecture and Marine
Engineering |
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$ |
365,917 |
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45.6 |
% |
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$ |
325,611 |
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44.0 |
% |
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$ |
313,128 |
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42.5 |
% |
Defense Operations |
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203,859 |
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25.4 |
% |
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220,298 |
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29.8 |
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226,546 |
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30.7 |
% |
Modeling and Simulation |
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99,420 |
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12.4 |
% |
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67,119 |
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9.1 |
% |
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48,994 |
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6.6 |
% |
Technology Integration |
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50,762 |
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6.3 |
% |
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51,555 |
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7.0 |
% |
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54,580 |
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7.4 |
% |
Information Technology and
Wireless Communications |
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42,353 |
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5.3 |
% |
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37,791 |
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5.1 |
% |
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46,757 |
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6.3 |
% |
Energy and Environmental Sciences |
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39,914 |
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5.0 |
% |
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37,108 |
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5.0 |
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47,582 |
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6.5 |
% |
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Total |
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802,225 |
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100.0 |
% |
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739,482 |
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100.0 |
% |
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737,587 |
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100.0 |
% |
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3
Naval Architecture and Marine Engineering. We provide technical services for ship and systems
design from the initial phase of mission analysis and feasibility trade-off studies through
contract and detail design, production supervision, testing, and logistics support for the
commercial and naval markets.
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We provide total ship design services for military and commercial customers including
defining requirements, analyzing concepts, and studying feasibility. We provide contract
design, detail design and production support. |
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We provide systems engineering/design integration, hull form development and performance
analysis, structural design and analysis, weight engineering and intact and damage
stability analysis. |
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We design and engineer ship systems including propulsion, electrical, fluids/piping,
auxiliary, HVAC, deck machinery, and machinery automation and control systems. We provide
expertise for machinery integration, test and trials, failure analysis, modeling and
simulation, and integrated logistics support. |
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We provide mission and threat analysis, evaluate candidate warfare and combat systems,
and develop specifications and installation drawings for topside and below-deck interface
requirements, and ship modernizations. |
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We furnish acquisition planning, business and financial management, configuration and
data management, test and evaluation support, and production analysis and management in all
life cycle phases of equipment, systems and ships. |
Defense Operations. We perform military transformation analyses, assess logistics management
readiness and operational support training, and analyze critical infrastructure risks and
vulnerabilities.
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We analyze major programs and issues related to joint warfare training, mission
rehearsal, experimentation and other transformational activities. We develop net-centric
initiatives and integrate C4I (command, control, communication, and computer intelligence)
initiatives. |
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We support DoD strategic planning efforts and operational exercises. We analyze, plan
and implement base realignments and assess the defense industrial base. |
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We help develop department-wide DoD education programs. We develop technology, compile
courseware and translate it into electronic and web-based distance learning media. |
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We provide the tools and support to assess vulnerabilities and protect infrastructure
such as ports, power plants and communications nodes. |
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We collaborate with DoD communities of interest and produce Joint Capabilities
Integration and Development System analysis and capabilities documents. |
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We provide DoD requirements and concepts integration analysis (futures analysis). |
Modeling and Simulation. We use our modeling and simulation (M&S) expertise to assist our
customers in examining event outcomes.
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We design and conduct strategic and operations analytic war games to evaluate future
operational concepts and force transformation initiatives. We create and implement training
scenarios for multi-dimensional simulation systems. We support Joint Forces Commands
Multi-National Experiment series and Joint Conflict and Tactical Simulation scenarios. |
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We manage the DoD Modeling and Simulation Information Analysis Center. We develop M&S
tools to support integration and federation of stand-alone simulator based training and
large scale distributed training events. |
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We develop phenomenological models for nuclear, chemical, biological and electromagnetic
environments. |
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We develop multi-dimensional visualization files to simultaneously display actual IED
events, terrain databases and scenario scripts to replay events and allow units to adjust
tactics, techniques, and procedures. |
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We use current industry gaming technology to develop proprietary and open source
solutions for customers who use serious gaming for training and education. |
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We maintain a threat generation library to support world-wide Air Force and Joint
training and mission rehearsal operations. |
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We provide M&S, C4I and operational support for the U.S. Navys Fleet Synthetic Training
and its Continuous Training Environment which delivers distributed, on-demand training. |
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Technology Integration. We provide system integration and design services, including facility
engineering services, to the DoD, other federal departments and agencies, and commercial customers.
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We use technology, re-engineering, and materials selection to enhance production,
improve performance, reduce cost, and extend the life of engineered systems. |
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We develop and integrate processes and equipment for rapid prototype production and
flexible manufacturing and maintain our own rapid prototyping and limited production
manufacturing facilities. |
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We provide engineering, architectural, construction management, logistics, design
oversight, and inspection services. |
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We apply reliability engineering methods to improve system availability and enhance
maintainability and supportability. |
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We support numerous research and development activities focused on taking advantage of
new and emerging technologies. These include the Armys Night Vision and Electronic Sensors
Directorate, the Army Research Laboratory, the Air Force Research Laboratory, the Navy
Research Laboratory, and system developers throughout the Defense Department. |
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We develop Human Systems Integration products and provide technical services to ensure
Army, Air Force and Navy staff and force structures can operate, support and maintain their
complex integrated systems. |
Information Technology and Wireless Communications. We provide services and technologies to
improve information flow across networks and organizations. We analyze customer requirements,
develop system concepts and perform trade off studies to identify and implement the best design. We
lead efforts to verify a design is properly built and integrated, and provide post-delivery end
user support.
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We provide management and information technology consulting services focused on
developing and implementing innovative business solutions and management services for
Defense, civilian and commercial customers. |
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Our Management Solutions practice specializes in project management, Earned Value
Management, Change Management and Process Design and Improvement. |
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Our Technology Solutions practice specializes in Information Management, Enterprise
Architecture, Service Oriented Architecture, Web Portals and Business Intelligence. |
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We offer a full range of spectrum management, planning, and operational support services
to determine radio frequency propagation and coverage profiles for networks to operate free
of interference, cover desired geographic areas and perform as designed. |
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We deliver optimized information systems designs through advanced wireless design and
evaluation techniques using modeling and simulation, prototyping, experimentation, and
field testing. |
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We develop detailed data architectures and enhance data visualization to enable our
customers to design, document, test and deploy complex integrated systems that support
efficient data mining, data flow and knowledge management. |
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We provide wireless security, logistics and asset tracking technologies to support and
maximize fielded systems operational capabilities. |
Energy and Environmental Sciences. We support more cost-effective energy production and
enhance environmental protection for the DoD, other federal departments and agencies, and
commercial customers.
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We conduct, develop, and improve processes and equipment for generating power and
providing alternative energy sources. |
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We provide nuclear safety and other performance-related analyses to the U.S. Department
of Energy, National Laboratories, and the commercial power industry. |
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We develop and evaluate methods for detecting chemical, biological, and other toxic
agents. |
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We develop, test and implement methods for measuring air quality. |
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We operate laboratory facilities that determine the constituents and properties of
wastes and effluents, develop and validate analytical methods and instruments, and
determine the potential health effects of various substances for the U.S. Environmental
Protection Agency and the National Institutes of Health. |
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Our wholly-owned subsidiary, Human Factors Applications, Inc., remediates sites that
contain conventional explosive, toxic, radioactive, and chemical material; and
decontaminates and demolishes buildings and equipment contaminated with explosives. |
Recent Developments
The Term B Senior Secured Credit Facility Agreement (Term B Senior Credit Agreement) requires
Alion to satisfy two financial covenants, a senior secured leverage test and an interest coverage
test which compare Alions senior secured debt and its interest expense to its Consolidated EBITDA,
and maintain certain minimum thresholds which vary from period to period. Alion recently
discovered that historically it has not calculated Consolidated EBITDA in accordance with the
definition of Consolidated EBITDA in the Term B Senior Credit Agreement. The Term B Senior Credit
Agreement requires Alion to deduct from Consolidated EBITDA cash payments made in a current
accounting period on account of reserves, restructuring charges and other non-cash charges that
Alion added to its Consolidated EBITDA in a prior accounting period as permitted by the definition.
Alion discovered that in calculating Consolidated EBITDA it has not historically reduced its
Consolidated EBITDA by cash payments made on account of non-cash charges added back in prior
periods related to, among other things, Alions SAR and phantom stock plans.
As a result of miscalculating Consolidated EBITDA, the Company failed to comply with its
senior secured leverage ratio test (or predecessor test) beginning with its fiscal quarter ending
June 30, 2006 and continued to fail to comply through the quarter ending June 30, 2009 except the
Company complied for the quarters ending March 31, 2007, June 30, 2007 and September 30, 2007. The
Company also failed to comply with its interest coverage ratio test beginning with its quarter
ending December 31, 2007 and continued to fail to comply through the quarter ending September 30,
2009.
The failure to satisfy the senior secured leverage ratio (or predecessor test) and the
interest coverage ratio for the periods indicated resulted in Alion consequentially breaching a
number of affirmative and negative covenants in the Credit Facility. The affirmative covenants
consequentially breached related to Alions obligation to deliver to the Administrative Agent (a)
compliance certificates and supporting materials and (b) financial statements. The negative
covenants consequentially breached related to Alions obligation to refrain while in default from
(a) making certain restricted payments related to Alions stock appreciation rights and phantom
stock plans, (b) making certain restricted payments to departing employees under Alions ESOP, (c)
paying certain non-employee directors fees, (d) pre-paying principal on Alions junior subordinated
notes ahead of regularly scheduled times, and (e) paying certain earn-out obligations in connection
with consummated acquisitions. Further, each time Alion drew under its Revolver or borrowed a Term
Loan, Alion was deemed to make certain representations and warranties to the lenders under the Term
B Senior Credit Agreement, and, as a result of Alion breaching the various financial, affirmative
and negative covenants described above, certain of Alions representations and warranties were
incorrect.
On December 14, 2009, the Company entered into a waiver with the required lenders under the
Term B Senior Credit Agreement (Waiver). Under the Waiver, the requisite lenders under the Term B
Senior Credit Agreement waived all of Alions financial, affirmative and negative covenant defaults
described above, and its breach of certain representations and warranties, existing on December 14,
2009 and any defaults which will occur solely as a result of the proper application of required
cash deductions in the calculation of Consolidated EBITDA for the fiscal year and quarter ended
September 30, 2009.
Pursuant to the Waiver, Alion paid each lender granting the waiver a waiver fee in the amount
of 0.25% of the aggregate principal amount of the term loans and revolving credit commitments of
such lender outstanding on December 14, 2009. Alion has also promised to pay on March 1, 2010 each
lender granting the waiver a future fee equal to 1.0% of the aggregate principal amount of the term
loans and revolving credit commitments of such lender outstanding on March 1, 2010 unless such
lender shall have assigned all or a portion of such lenders holdings, in which case such lenders
assignee (unless otherwise agreed) shall be entitled to the future and supplemental 1.0% fee
payable by Alion. Alion paid an additional arrangement fee to the Administrative Agent in
connection with securing the Waiver.
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The Waiver does not change any of the terms or definitions of the Term B Senior Credit
Agreement. Going forward, the Company will be required to deduct cash payments relating to the
settlement of deferred compensation plans and certain retirement obligations in the calculation of
Consolidated EBITDA.
Restatement
The Companys above-mentioned financial, affirmative and negative covenant defaults under the
Credit Agreement resulted in the Companys Term B senior term loan and revolving loan payable
balances being callable either by the administrative agent or by lenders holding a majority of the
value of the outstanding loans and therefore, as of the issuance of the Companys fiscal year 2008
financial statements and the financial statements for the Affected Fiscal Quarters, such balances
should have been classified as current liabilities. The Term B senior term loan payable balance of
$229.8 million was incorrectly classified as long-term liabilities on the Companys fiscal year
2008 balance sheet. The Term B senior term loan and the revolving loan payable balances, the
amounts of which are set forth below, were likewise incorrectly classified as long-term liabilities
on the Companys balance sheets for the Affected Fiscal Quarters.
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Term B Senior Term Loan |
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Revolving Loan |
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Fiscal Quarter |
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Payable Balance |
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Payable Balance |
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December 31, 2007 |
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$ |
237,962 |
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$ |
26,550 |
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March 31, 2008 |
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$ |
237,567 |
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$ |
22,850 |
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June 30, 2008 |
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$ |
237,171 |
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$ |
10,850 |
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December 31, 2008 |
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$ |
229,684 |
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March 31, 2009 |
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$ |
229,536 |
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$ |
4,720 |
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June 30, 2009 |
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$ |
229,387 |
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Subsequently, as discussed above, the Company has obtained the Waiver from the lenders of the
aforementioned covenant defaults, and therefore the senior term loan and revolving loan payable
balances will be appropriately classified as long-term liabilities in the Companys fiscal year
2009 balance sheet.
Corporate History
Alion Science and Technology Corporation was organized in October 2001, as a for-profit
Delaware corporation to acquire substantially all the assets and liabilities of IITRI, a
not-for-profit Illinois corporation. Alion is an S corporation entirely owned by an employee stock
ownership plan (ESOP, the Plan). The Company is the successor in interest to IITRI, a government
contractor founded in 1935. The Alion Science and Technology Corporation Employee Ownership,
Savings and Investment Trust (the ESOP Trust) holds record title to all shares of Alions issued
and outstanding common stock. In December 2002, some eligible IITRI employees directed funds from
qualifying retirement account balances into Alions ESOP. State Street Bank and Trust Company, the
ESOP Trustee, used those proceeds to purchase Alion common stock. The Company used the ESOP
proceeds, together with funds from bank loans and other debt described elsewhere in this annual
report, to complete the IITRI purchase.
The Alion ESOP
The Alion Science and Technology Corporation Employee Ownership, Savings and Investment Plan,
is a KSOP a qualified retirement plan that includes an ESOP invested in Alion common stock and a
non-ESOP component invested in mutual funds. The ESOP Trust owns all outstanding shares of our
common stock. Eligible employees can purchase beneficial interests in our common stock by:
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rolling over an eligible retirement account balance from another plan into the ESOP
when initially hired; |
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transferring funds to the ESOP from the non-ESOP component of the KSOP during
semi-annual election periods; and/or |
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directing a portion of pre-tax earnings to the ESOP. |
The ESOP Trustee uses money employees invest in the ESOP component to purchase shares of Alion
common stock and allocates ESOP interests to employee accounts according to the Plans terms.
7
We make retirement plan contributions for all eligible employee participants. We contribute
to both the ESOP and the non-ESOP components. We also make matching contributions to the ESOP for
eligible employees based on their pre-tax salary deferrals.
The ESOP Trustee holds record title to all shares of Alion common stock allocated to ESOP
accounts. Except in certain limited circumstances, the ESOP Trustee must vote those shares as
directed by the ESOP committee. The ESOP
committee consists of four members of Alions management team and three other Alion employees; it
is responsible for financial management and administration of the ESOP.
By law, Alion is required to value the common stock held in the ESOP component at least once a
year. Alion has chosen to have the ESOP Trustee value the common stock in the ESOP twice a year
as of March 31 and September 30. All ESOP transactions must occur at the current fair market value
of the common stock held by the ESOP Trust. Semi-annual valuations permit employees to invest in
Alion common stock twice a year rather than only once and permit former employees and beneficiaries
to request ESOP distributions at mid-year and year-end instead of only at year end.
Business Strategy
We plan to grow revenue organically and through strategic acquisitions, capitalizing on our skilled
work force and our sophisticated solutions competencies. We have several key strategies.
Broaden existing core competencies. To expand our expertise and keep pace with technological
developments, we hire skilled employees, undertake expanded business development initiatives and
invest in research and development to extend our core business area capacity. We used acquisitions
to significantly enhance our core expertise in naval architecture and marine engineering,
information technology, modeling and simulation, and defense operations. We use employee training
and customer- and internally-funded research and development to expand our technology skills. Our
Alion University offers employees programs in engineering, program management, finance and
administration. We design our efforts to keep Alion at the forefront of the federal and commercial
technology solutions markets and enhance our ability to serve our customers.
Leverage experience and reputation to expand market share. We perform a variety of services
for a broad base of approximately 600 customers, including Cabinet-level government departments and
agencies, and state and foreign governments. We plan to use our sophisticated capabilities and
customer relationships to expand our market presence by delivering solutions to new customers. We
believe we can increase revenue by offering existing customers new capabilities. We intend to use
those relationships and our sophisticated technology expertise to strategically expand our
Department of Homeland Security (DHS) customer base. For the second straight year, our prime
contract revenue ranked Alion among the top 40 government contractors providing information
technology products and services, systems integration, telecommunications, and professional
engineering services.
Continue to improve financial performance and increase sales. We believe key elements of our
success have been our focus on growing our business and achieving operating efficiencies. Over the
past five years our revenue grew at a 19.9% compound annual rate from $269.9 million in 2004 to
$802.2 million in 2009. Last year revenue grew by 8.5% organically. We intend to strengthen
financial performance by growing our business, organically and through strategic acquisitions, and
by reducing operating costs. We believe improved financial performance will lead to a more
competitive cost structure which will enhance our ability to win business. We believe Alions
increased size and expertise, has positioned us to bid on larger government programs and broaden
our customer base.
Market and Industry Background
We recognize the new Administrations priority shift from defense and homeland security to
health care reform, energy and education. Nevertheless, with combined contractor spending
(outlays) in excess of $410 billion for Defense and Homeland Security versus $165 billion for all
other domestic Federal priorities, we share the 2010 Outlook conclusions of INPUT and Federal
Sources, Inc. that Defense and Homeland Security remain viable markets for technology service
providers in the foreseeable future.
Shift in Overall Federal Budget/Spending and Focus. Department of Defense and Homeland
Security budget priorities are shifting under the Obama Administration. Massive funding priorities
seek to resolve the conflicts of national preparedness and weapon and platform modernization versus
reset, as well as current operations and support for the troops. Early indications and stimulus
priorities have already identified major engineering development programs nearing production
maturity for cancellation. The Administrations budget proposals are simultaneously embracing many
new technology development efforts to leverage emerging research and science efforts to address
domestic and foreign operational security needs.
8
The 2010 defense budget requests $663.8 billion in new discretionary budget authority
$533.7 billion for the defense budget plus $130.1 billion for overseas contingency operations to
support military requirements in Iraq and Afghanistan. The $533.7 billion base request is a 4%
increase over last years base appropriation. Secretary of Defense Robert Gates declared DoD will
give operational forces the highest priority. The 2010 defense budget seeks $149.6 billion (up
4.7% from 2009) for greater end strength and military pay and an increase in health care to nearly
50% of force support expenditures.
In addition, the budget includes $2 billion specifically for ISR (intelligence, surveillance
and reconnaissance) to support forces in Iraq and Afghanistan. The budget proposal balances
increases in the Operations and Maintenance budget (up $1.9 billion to $275.6 billion) with a $2.3
billion decrease in procurement spending for major weapons systems and platforms ($131.1 billion).
The 2010 defense budget cancels the Armys major vehicle-modernization program, stops the
production of the Air Forces F-22 Raptor fighter jet, halts the increase of ground-based missile
defense programs in favor of more limited missile defense approaches, and treats the Navys large
surface-warfare platforms with caution. The budget places priority on the needs of a military at
war in Iraq and Afghanistan providing $11 billion to increase the size of the Army and Marine Corps
and expanding ISR and helicopter programs that have performed well.
As demonstrated by their use of the ISR and Joint IED Defeat Task Forces and the Rapid
Fielding Initiative, the Under Secretaries of Defense for Intelligence and AT&L (Acquisition,
Technology and Logistics) and the Director of Defense Research and Engineering are increasing the
emphasis on technology, prototyping and system integration as a way to address pressing operational
concerns in Iraq and Afghanistan. Shifting focus from Iraq to Afghanistan will cause a drawdown of
U.S. military in Iraq, including a level of equipment redeployment not seen in decades. A
different set of priorities in Afghanistan will include ISR, especially unmanned aerial vehicles;
helicopter and rotary wing lift cargo support; improved soldier systems; and adapted up-armored
vehicles. Differing priorities will also require revised training, situational decision support
and expanded modeling and simulation to prepare for and achieve the massive redeployment out of
Iraq.
The RDT&E (Research Development Test and Evaluation) request in the 2010 budget is down 3.4%
from last year largely due to cancelation or curtailment of large engineering development programs
such as Future Combat System and Joint Strike Fighter. However, the 2010 budget includes new
authority for three Littoral Combat Ships that support counterinsurgency operations in coastal
regions and four Joint High Speed Vessel ships to improve inter-theater lift capacity. Despite the
decline in RDT&E spending from last year, the 2010 budget also includes a $170 million increase in
Science and Technology budget authority signaling the Administrations commitment to strategic
science, technology, engineering and mathematics. Science and Technology spending is expected to
grow by $2.2 billion over the Five Year Defense Plan with increased emphasis on research areas
where Alion has engineering and technological expertise.
Quadrennial Defense Review. The on-going Quadrennial Defense Review (QDR) will permit the
Administration to put its first full imprint on future Defense budgets by examining major questions
including counter-insurgency and asymmetrical warfare that focus more on the current wars in Iraq
and Afghanistan, rather than on unknown future conflicts. The QDR is expected to examine new types
of maritime threats like piracy and subsurface and surface weaponry advances; tactical, cyber and
global asymmetric threats; proliferation of weapons of mass destruction, and commercial technology
exploitation by adversaries. The QDR will examine how to
|
|
|
Continue to better adapt the military to irregular war and institutionalize lessons
learned from ongoing wars. |
|
|
|
Deter and counter potential threats from proliferation of ballistic missiles and weapons
of mass destruction by utilizing anti-access weapons, anti-satellite weapons and long-range
anti-ship missiles. |
|
|
|
Adapt forward basing and presence to a changing world, and reduce duplicative efforts
among the services. |
|
|
|
Address inter-agency roles for domestic homeland security and foreign aid in concert
with efforts at the Departments of State and Homeland Security. |
|
|
|
Increase control over weapons system costs, by ensuring reasonable requirements and
adequately mature technology before programs go forward. |
|
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|
Implement major reforms to control U.S. satellite program costs and mitigate delays to
support expanded ISR capabilities. |
|
|
|
Analyze and determine cyber security needs and projected investments in enterprise
architecture and offense- and defense-driven technology solutions. |
9
Homeland Security Priorities. The Administration requested $2.6 billion more for DHS in
2010 than in 2009 concentrating on counterterrorism, disaster planning and recovery, border
security and organizational efficiency through consolidation, inter-agency cooperation, and
expanded technology infrastructure. The proposed $55.1 billion DHS budget expands efforts to detect
explosives in public spaces and transportation networks; protect against cyber attacks; and
increase information-sharing with other law enforcement agencies. Border security initiatives seek
to add technology, assets and manpower to southwestern border efforts including additional U.S.
Coast Guard cutters and patrol planes, and to increase smart security technology use in northern
border surveillance. Cybersecurity is a key DHS program driver focused on developing and deploying
technologies to counter national cyber security threats and securing critical information networks
and
infrastructure. Consistent with the cybersecurity mission, the DHS budget also seeks funds to
modernize infrastructure and information-sharing environments, and optimize architecture and
configuration.
Continuing Impact of U.S. Government Procurement Reform. In recent years, U.S. government
agencies have had increased access to alternative choices in contract vehiclessuch as indefinite
delivery/indefinite quantity contracts (ID/IQs), Government Wide Acquisition Contracts (GWACs),
General Services Administration (GSA) schedule contracts and agency-specific Blanket Purchase
Agreements (BPAs). These choices created a more market-based environment in U.S. government
procurement increased contracting flexibility and provided departments and agencies multiple
channels to access contractor services. A contractors successful past performance, its technical
capabilities and management skills remain critical elements in the award process. We believe
increased procurement flexibility from BPAs and ID/IQ, GWAC, and GSA schedule contracts will drive
continued use of these vehicles and will facilitate technology service provider access to meet
governments increased services and solutions demands.
The Administration has an ambitious agenda to alter the government-industry partnership with
acquisition reform at the head of the list. The Administration seeks increased fixed price
contracting and expanded procurement competition to shorten the time required to develop and deploy
new technologies. Both product suppliers and service contractors have come under intense scrutiny
regarding Organizational Conflicts of Interest (OCI). Passage of the Weapons System Acquisition
Reform Act this year has prompted hardware businesses to re-examine business portfolios,
effectively forcing them to choose between designing or providing systems. The government has
also shown an increasing desire for greater in-sourcing, as it focuses on inherently governmental
roles and responsibilities such as acquisition and procurement, logistics support, program and
contract management, and audit and financial management.
We are primarily a government contractor.
For the years ended September 30, 2009, 2008 and 2007, 96.5%. 94.2% and 93.9% of our revenue
came from federal government contracts. The Defense Department is our largest customer. We expect
most of our revenue will continue to come from federal government contracts that we perform as a
prime contractor or subcontractor. As a prime contractor, we have direct contact with the
applicable government agency. As a subcontractor, we work for a prime contractor, which serves as
the point of contact with the government agency overseeing the program.
Our federal government contracts are generally multi-year contracts funded on an annual basis
at the discretion of Congress. Congress usually appropriates funds for a given program at the
beginning of each government fiscal year in October. This means a contract is usually only
partially funded at the outset of a major program. Normally a procuring agency commits additional
money to a contract only as Congress makes appropriations in future fiscal years. The government
can modify or discontinue any contract at its discretion or due to default by the contractor. The
government in its discretion may terminate or modify a contract for any of a variety of reasons,
including funding constraints, changing government priorities or changes in program requirements.
If the government terminates one of our contracts at its discretion, it typically reimburses us for
all the services we performed and costs we incurred prior to termination, our termination-related
costs, and a negotiated contract fee.
Contract Types. We have a diverse contract base. Many customers utilize our ID/IQ
multiple-award delivery order contract vehicles. Five of our six largest contracts are ID/IQ
delivery order contracts. They accounted for approximately 57.9% of current year revenue. Our
single largest individual contract generated approximately 14% of current year revenue. As of
September 30, 2009, we had a portfolio of approximately 1,100 individual active contracts and task
orders. We have three types of pricing structures for our contracts: cost-reimbursement,
fixed-price and time-and-material.
Cost-reimbursement contracts allow us to recover our direct labor and materials costs, a share
of allocable indirect expenses, plus a fixed or variable fee depending on the contract. Indirect
expenses are costs related to operating our business we recover under government contract rules.
Fixed-price contracts oblige customers to pay us a fixed dollar amount to cover all direct and
indirect costs, and fees. We assume the risk of any cost overruns and receive the benefit of any
cost savings on fixed price contracts.
Time-and-material contracts have fixed hourly billing rates that cover labor costs, related
indirect expenses and an hourly fee, along with cost reimbursable provisions for materials and
other direct costs without fee.
10
In addition to traditional, closed-end contracts, we have multiple award contracts such as
ID/IQ, GSA schedule, BPA and GWAC contracts, which require us to make sustained post-award efforts
to realize revenue under such contracts. Our historical contract mix as a percentage of total
revenue for the years ended September 30, 2009, 2008 and 2007, is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30, |
|
Contract Type |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
Cost-reimbursement |
|
$ |
567,294 |
|
|
|
70.7 |
% |
|
$ |
517,692 |
|
|
|
70.0 |
% |
|
$ |
512,587 |
|
|
|
69.5 |
% |
Fixed-price |
|
|
91,885 |
|
|
|
11.5 |
% |
|
|
70,146 |
|
|
|
9.5 |
% |
|
|
70,946 |
|
|
|
9.6 |
% |
Time-and-material |
|
|
143,046 |
|
|
|
17.8 |
% |
|
|
151,644 |
|
|
|
20.5 |
% |
|
|
154,054 |
|
|
|
20.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
802,225 |
|
|
|
100.0 |
% |
|
$ |
739,482 |
|
|
|
100.0 |
% |
|
$ |
737,587 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We attempt to reduce our financial and performance risks at every stage of the contracting
process. However, sometimes we begin providing services before a U.S. government agency has
actually signed or funded a contract or task order. We are at risk for costs we incur prior to
award of a new contract or prior to modification of an existing contract. This practice is
customary in our industry, particularly where a contractor has oral notice of a contract award, but
has yet to receive required contract documentation. We designed our internal procedures to ensure
we only provide services at risk when we believe funding is highly probable and delays are
administrative or technical in nature. In most cases when a contract is ultimately executed or
modified, we get paid for all our costs. However, we cannot be certain, when we start work prior to
contract authorization, that we will receive an executed contract or that we will be paid for all
our costs. As of September 30, 2009, we had $36.3 million in contract costs at risk.
We compete for key contracts from various agencies of the U.S. government. Our business
development and technical personnel target contract opportunities and perform detailed analyses of
each customers priorities and overall market dynamics. Depending upon whether a targeted contract
is a renewal or a new opportunity, we spend between three and 18 months developing and executing
our competitive strategy. Once we decide to pursue a contract, we mobilize a core group of
employees with the requisite expertise to lead our bidding and proposal preparation efforts. We
supplement our internal capabilities with a network of consultants and other industry experts as
necessary. To enhance our likelihood of winning a contract, we team with other contractors,
frequently our competitors, who have complementary technical strengths.
When we win a contract or task order, we assign a project manager and a task leader to ensure
we timely deliver high-quality services. Program managers regularly interface with customers to
evaluate Alions performance and customer satisfaction levels. Managers use Alions financial
management and information systems to monitor costs against contract and task order funding
ceilings to measure performance and profitability.
Government Oversight. Federal government auditors and technical specialists regularly review
our contract administration and cost accounting policies and practices. Costs on flexibly-priced
federal government contracts are subject to Defense Contract Audit Agency (DCAA) and other audits
and negotiated adjustments. An audit may reveal that some costs charged to a government contract
are not allowable, either in whole or in part. In these circumstances, we must repay the federal
government any money they paid us for unallowable costs, plus interest and possible penalties. The
government considers Alion a major contractor and maintains an on site audit office. DCAA is
currently auditing the Companys 2005 and 2006 claimed indirect costs. Indirect rates through 2004
have been settled. The Company submitted its fiscal year 2008 and 2007 indirect cost proposals to
the government in March 2009 and 2008. Alion expects to submit its current fiscal year indirect
cost proposal next March. The Company has recorded revenue on federal government contracts in
amounts it expects to realize.
Backlog. Our contract backlog represents an estimate, as of a specific date, of the remaining
future revenue we expect from existing contracts. On September 30, 2009, backlog on existing
contracts and executed delivery orders totaled $2.7 billion, of which $376.5 million was funded.
The Company estimates it has an additional $3.7 billion of unfunded contract ceiling value for an
aggregate total backlog of $6.4 billion. Funded backlog is the value of executed contract funding
less previously recognized revenue. Unfunded backlog is the estimated value of additional funding
not yet authorized by customers on our existing contracts. Pre-negotiated contract options,
options not yet exercised by a customer for additional years and other extension opportunities in
existing contracts are included in estimated contract ceiling backlog. The Company estimates
unfunded contract ceiling value for ID/IQ and similar contracts as the difference between estimated
total contract value and the total value of all executed delivery orders.
11
Because the U.S. government operates under annual appropriations, its departments and agencies
typically fund contracts on an incremental basis. Thus, only a portion of total contract backlog is
funded. Funded backlog varies based on procurement and funding cycles and other factors beyond
our control. Future funding from execution of new contracts and extension or renewal of existing
contracts increases our backlog; completed contracts, early terminations, and reductions in
estimated future revenue on existing contracts reduce backlog. Estimates of future revenue from
contract backlog are by their nature inexact. Timing and receipt of future revenue are subject to
various contingencies, many of which are outside of our
control. Accordingly, year over year comparisons are not necessarily indicative of future revenue
trends. The table below shows the value of our contract backlog as of September 30, 2009, 2008 and
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
Backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
Funded |
|
$ |
376.5 |
|
|
$ |
340.5 |
|
|
$ |
360.0 |
|
Unfunded |
|
|
6,008.4 |
|
|
|
4,475.8 |
|
|
|
4,669.0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,384.9 |
|
|
$ |
4,816.3 |
|
|
$ |
5,029.0 |
|
|
|
|
|
|
|
|
|
|
|
Proposal backlog is an estimate, as of a specific date, of contract value of proposals we
are preparing to submit in response to a customer request, and proposals we have submitted for
which we are awaiting an award decision.
How much of our proposal backlog we ultimately realize as revenue depends upon our success in
the competitive proposal process, and on receiving tasks and funding under ensuing contracts. We
will not win contract awards for all of the proposals we submit to potential customers. Our past
proposal backlog contract win rates should not be viewed as an indication of our future success
rates. The table below shows the value of our proposal backlog as of September 30, 2009, 2008 and
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
In-process |
|
$ |
361.0 |
|
|
$ |
529.0 |
|
|
$ |
250.0 |
|
Submitted |
|
|
1,491.0 |
|
|
|
1,057.0 |
|
|
|
834.0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,852.0 |
|
|
$ |
1,586.0 |
|
|
$ |
1,084.0 |
|
|
|
|
|
|
|
|
|
|
|
12
Corporate Culture, Employees and Recruiting
We strive to create an organizational culture that promotes job performance excellence,
respect for our colleagues ideas and judgment and recognition of the value of our professional
staffs unique skills and capabilities. We seek to attract highly qualified and ambitious
employees. We strive to establish an environment in which all employees can make their best
personal contribution and have the satisfaction of being part of a unique team. We believe we have
a track record of successfully attracting and retaining highly skilled employees because of the
quality of our work environment, the professional challenges of our assignments, and the financial
and career advancement opportunities we make available.
As of September 30, 2009, we employed approximately 3,380 employees, of whom approximately
3,122 were full-time employees. Approximately 28% of our employees have Ph.D.s and masters degrees,
and approximately 72% of our employees have college degrees. Approximately 18% of our employees
have Top Secret or higher level security clearances. We believe our relationship with our employees
is good. None of our employees is covered by a collective bargaining agreement.
We view employees as our most valuable asset. Our success depends in large part on attracting
and retaining talented, innovative and experienced professionals at all levels. We rely on the
availability of skilled technical and administrative employees to perform our research, development
and technological services for our customers. The market for certain technical skills in our core
business areas is at times extremely competitive which makes employee recruiting and retention in
these and other specialized areas extremely important. We recognize that our benefits package, work
environment, incentive compensation, and employee-owned culture will continue to be important in
recruiting and retaining these highly skilled employees.
Our Customers
We provide scientific, research and development and technical expertise and operational
support to a diverse group of U.S. government customers, in addition to state, local and
international government organizations and commercial customers. As of September 30, 2009, we
served approximately 671 customers, including a number of Cabinet-level U.S. government departments
and agencies, state, and foreign governments. The Department of Defense accounted for 91.9% of
fiscal 2009 total revenue, including approximately more than 700 contracts and delivery orders with
customers such as the U.S. Navy, Army and Air Force; the Joint Forces Command; DARPA; and the
Defense Information Systems Agency. Other federal, state, and local government customers accounted
for 4.6% of total revenue, including the National Institute of Environmental Health
Sciences, the U.S. Department of Energy and the EPA. Commercial and international customers
accounted for the remaining 3.5% of total revenue. The table below shows revenue by customer
category for the fiscal years ended September 30, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
U.S. Department of Defense |
|
$ |
736,625 |
|
|
|
91.9 |
% |
|
$ |
660,270 |
|
|
|
89.3 |
% |
|
$ |
659,601 |
|
|
|
89.4 |
% |
Other Federal
Civilian Agencies |
|
|
37,197 |
|
|
|
4.6 |
% |
|
|
34,107 |
|
|
|
4.6 |
% |
|
|
29,503 |
|
|
|
4.0 |
% |
Commercial and
International |
|
|
28,403 |
|
|
|
3.5 |
% |
|
|
45,105 |
|
|
|
6.1 |
% |
|
|
48,483 |
|
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
802,225 |
|
|
|
100.0 |
% |
|
$ |
739,482 |
|
|
|
100.0 |
% |
|
$ |
737,587 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Competition
The U.S. government engineering and technology services industries consist of a large number
of enterprises ranging from small, niche-oriented companies to multi-billion dollar corporations
that serve many U.S. government customers. Corporations frequently form teams to pursue contract
opportunities because large contracting initiatives are highly competitive and government customers
have diverse requirements. Prime contractors leading large proposal efforts typically select team
members based on particular capabilities and experience relevant to each opportunity. Companies
that compete on one opportunity may be team members on another opportunity.
We frequently compete against well-known firms in the industry as a prime contractor. Our
competitors include Booz Allen Hamilton, CACI International Inc, Science Applications International
Corporation, SRA International, Inc., CSC and the services divisions of Lockheed Martin, General
Dynamics and Northrop Grumman. In the commercial arena, we compete most often with smaller, highly
specialized technical companies, as well as a number of larger companies such as, Westinghouse,
General Electric, Enercon, Accenture, CAE and L-3 Communications Corporation.
13
We also compete at the task order level, where knowledge of the customer, its procurement
requirements and its environment is often the key to winning business. We have been successful in
ensuring our presence on numerous contracts and GSA Schedules, and in competing for tasks under
those contracts. The variety of contract vehicles at our disposal, as a prime contractor or
subcontractor, allows us to market our services to any U.S. government agency. We have experience
providing services to a diverse array of U.S. government departments and agencies with first-hand
knowledge of our customers and their goals, problems and challenges. Most of the government
contracts we seek are competitive awards. We believe our customers typically consider the following
key factors in awarding contracts: technical capabilities and approach; personnel quality and
management capabilities; previous successful contract performance; and price.
In our experience, price and technical capabilities are a customers two most important
considerations in awarding contracts for complex technological programs. We believe our customer
knowledge, our U.S. government contracting and technical capabilities, and our pricing policies
enable us to compete effectively. Over the past three years, we won 65% of the dollar value of all
contracts we bid on. Over the past three years we won approximately 87% of the dollar value and
number of re-competed contracts where we were the incumbent.
S Corporation Status
The Internal Revenue Code provides that a corporation that meets certain requirements may
elect to be an S corporation for federal income tax purposes. An S corporation is a reporting
entity which can only have a single class of stock, no more than 100 shareholders, and only certain
types of shareholders, such as individuals, trusts and some tax-exempt organizations, including
ESOPs. Because we only have one class of stock and the ESOP Trust is our sole shareholder, we meet
the requirements to be an S corporation. All of Alions wholly-owned operating subsidiaries are
qualifying subchapter S subsidiaries that are consolidated into Alions federal income tax return.
The IRS accepted Alions S corporation election effective October 2001.
An S corporation, unlike a C corporation, generally does not pay federal corporate income tax
on its net income; its income is allocated to the S corporations shareholders. An ESOP is a
tax-exempt entity and does not pay tax on its allocable share of S corporation income.
Many states follow the federal tax treatment of S corporations. In some states, Alion is
subject to different tax treatment for state income tax purposes than for federal income tax
purposes. The Company and its subsidiaries operate in several states where we are subject to state
income taxes. The Company is also subject to other taxes such as franchise and business taxes in
certain jurisdictions.
A provision of the Internal Revenue Code permits the IRS to impose significant penalties on a
subchapter S employer that maintains an ESOP if the ESOP allocates stock to certain disqualified
persons above statutory limits or if disqualified persons as a group own 50% or more of the
companys stock. For this purpose, a disqualified person is generally someone who owns 10% or
more of the subchapter S employers stock (including deemed ownership through stock options,
warrants, stock appreciation rights, phantom stock, and similar rights). The KSOP, the SAR plan and
the phantom stock plan include provisions designed to prohibit allocations that violate these
limits. Apart from the warrants related to the IIT subordinated note that represent approximately
24% of our common stock, no one person holds ownership interests representing more than 5% of
Alion. See page 45, Subordinated Note Redeemable Common Stock Warrants.
Business Development and Promotional Activities
We primarily promote our contract research services by meeting face-to-face with current and
potential customers, obtaining new work from satisfied customers, and responding to requests for
proposals (RFPs) and international tenders current and prospective customers publish or direct to
our attention. We use our knowledge of and experience with U.S. government procurement procedures,
and relationships with government personnel, to help anticipate and to maximize our ability to
timely respond to RFPs and customer requests. We bid on contracts in our core business areas and
related extensions of those areas, that we believe we have a good chance of winning. When we bid
on a potential contract, we draw on our core business area expertise that reflect the technical
skills we can bring to a particular contract.
Our business developers work face to face with customers, are experienced in marketing to
government customers, know the services and products they represent, and understand each particular
customers organization, mission and culture. These professionals possess a working knowledge of
rules governing the marketing limitations that are unique to the government arena. They understand
government funding systems, conflict of interest restrictions and procurement integrity directives,
and the procedural requirements designed to establish a level competitive playing field and to
ensure the appropriate use of public funds.
14
Our technical staff is an integral part of our promotional efforts. The customer relationships
they develop over the course of contracts often lead to additional business and new research
opportunities. We hold weekly company-wide business development meetings to review proposal
opportunities and determine strategy in pursuing these opportunities. We also use independent
consultants for promoting business, developing proposal strategies and preparing proposals as
necessary.
We spent approximately $0.7 million, $1.0 million, and $2.4 million on internally-funded
research and development for the years ended September 30, 2009, 2008 and 2007. This is in addition
to our substantial research and development activities on customer-funded projects. We believe
actively fostering an environment of innovation is critical to our ability to grow our business
allowing us to be proactive in addressing issues of national concern in public health, safety and
national defense.
Resources
In most of our work, we use computer and laboratory equipment and other supplies readily
available from multiple vendors. Disruption in availability from any particular vendor is not
likely to materially affect our ability to perform our contracts. For some of our specialized
laboratory work, we depend on supplies of special materials and equipment whose unavailability
could adversely affect experimental laboratory tasks. However, we believe these kinds of delays or
disruptions are not likely to materially affect our overall operations or financial condition.
Patents and Proprietary Information
Our research and development and engineering services do not depend on patent protection. In
accordance with applicable law, our U.S. government contracts often provide government agencies
certain license rights to our inventions and copyright works. Government agencies and other
contractors (including our competitors) can obtain the right to exploit our inventions. Similarly,
our U.S. government contracts often license to us patents and copyright works owned by third
parties. We maintain an active program to track and protect our intellectual property. We routinely
enter into intellectual property assignment agreements with our employees to protect our rights to
any patents or technologies they develop while employed by Alion.
Foreign Operations
In fiscal years 2009, 2008 and 2007, nearly 100% of the Companys revenue was derived from
services provided under contracts with U.S.-based customers. The Company treats revenues resulting
from U.S. government customers as sales within the United States regardless of where the services
are performed.
Company Information Available on the Internet
The Companys internet address is www.alionscience.com. Information on the Companys website
is not incorporated by reference into this report.
Environmental Matters
We are subject to federal, state, local and foreign laws and regulations relating to, among
other things, emissions and discharges into the environment, handling and disposal of regulated
substances, and contamination by regulated substances and wastes. Some of our operations may
require environmental permits and/or controls to prevent or reduce air and water pollution.
Issuing authorities can renew, modify, or revoke these permits.
Operating and maintenance costs associated with environmental compliance and prevention of
contamination at our facilities are a normal, recurring part of our operations. These costs are not
material relative to our total operating costs or cash flows and are generally allowable as
contract costs under our U.S. government contracts. These costs have not been material in the past.
Based on information presently available to us and on current U.S. government environmental
policies relating to allowable costs, all of which are subject to change, we do not expect
environmental compliance to materially affect us. Based on historical experience, we believe a
significant percentage of our facilities total environmental compliance costs will continue to be
allowable.
15
Under existing U.S. environmental laws, potentially responsible parties can be held jointly
and severally liable. We could be potentially liable to the government or third parties for the
full cost of investigating or remediating contamination at our sites or at third-party sites in the
event contamination is identified and remediation is required. In the unlikely event that we were
required to fully fund remediation of a site, the statutory framework would allow us to pursue
rights of contribution from other potentially responsible parties.
Item 1A. Risk Factors
Risks Related to Our Business
We incurred a significant amount of debt; our debt load may limit our financial and operational
flexibility which could negatively affect the value of an investment in the ESOP component.
On August 2, 2004, we refinanced the senior debt we incurred to acquire IITRIs assets. Partly
to fund our growth through subsequent acquisitions, we incurred a substantial amount of additional
debt. As of September 30, 2009, we owe approximately $237 million in senior term loans, $250
million in senior unsecured notes, and approximately $60.1 million on our re-negotiated junior
subordinated note. We significantly increased our total senior debt load since we refinanced our
original senior credit facility.
In April 2005, we amended our Term B Senior Credit Facility and borrowed an additional $72.0
million in term loans. In March 2006, our second incremental term loan facility and second
amendment to the Term B Senior Credit Agreement increased the term loan commitment by $68.0 million
and increased the revolving credit facility commitment from $30.0 million to $50.0 million. In
June 2006, our third incremental term loan facility and third amendment to the Term B Senior Credit
Agreement added $50.0 million to our outstanding term loan debt. In January 2007, our fourth
increment to the Term B Senior Credit Agreement added $15.0 million to our outstanding term loan
debt. In February 2007, the fourth amendment to the Term B Senior Credit Agreement extended the
maturity date of the senior term loans to February 6, 2013; adjusted the principal repayment
schedule to require a balloon principal payment at maturity; and added an incurrence test as an
additional condition to our ability to incur permitted indebtedness. In July 2007, our fifth
incremental term loan facility added $25.0 million in term loans to the Term B Senior Credit
Agreement. In September 2008, we modified our financial covenants through September 30, 2009,
increased our interest rates payable and added additional flexibility to the restrictions on our
ability to borrow. In August 2009, we reduced our revolving credit facility by $10 million to $40
million and extended its maturity to September 2009. In September 2009, we extended the revolving
credit facility maturity to October 2009 and reduced the revolving commitment to $25 million. In
October 2009, we agreed with our senior lenders to extend the revolving credit facility maturity to
September 2010, to relax certain financial covenants through December 31, 2010, to increase
interest
rates payable if certain conditions occur and to add certain other covenants. On December 14,
2009, we entered into a waiver agreement with our senior lenders to waive any covenant defaults
under the Term B Senior Credit Agreement occurring prior to December 31, 2009 that resulted from
the Companys miscalculation of Consolidated EBITDA or the failure to comply with the covenants
under the Term B Senior Credit Agreement had the calculation for Consolidated EBITDA been done
correctly.
As of September 30, 2009, our senior consolidated debt, at face value, was approximately $487
million. We have managed significant amounts of debt since December 2002. However, we continue
to face challenges in functioning as a highly leveraged company in volatile and unfavorable credit
markets.
Our substantial debt has and could continue to:
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make it more difficult for us to satisfy our debt-related obligations; any failure to
comply with any of our debt instrument obligations, including restrictive and financial
covenants, could result in an event of default under our debt agreements; |
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make it more difficult for us to satisfy our repurchase obligations to ESOP
participants; |
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increase our vulnerability to general adverse economic and industry conditions and make
it more difficult for us to react to changing conditions; |
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limit our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, other business opportunities, new technologies or other general
corporate requirements; |
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require a substantial portion of our operating cash flow to pay interest on our debt and
reduce our ability to use our cash flow for future business needs; |
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expose us to interest rate fluctuation risks and higher interest expense for our $237
million in floating interest rate debt; |
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limit our flexibility to plan for, or react to changes in our business and the
government contracting industry; and |
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place us at a competitive disadvantage compared to less leveraged companies. |
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We could incur adverse effects from our prior disclosure relating to our compliance with our
financial covenants.
We recently discovered that our reporting of Consolidated EBITDA to our lenders does not
conform to the definition of such term in our Term B Senior Credit Agreement. Specifically, since
establishing the Term B Senior Credit Agreement in 2004, we have not in our calculation of
Consolidated EBITDA deducted cash outflows that relate to deferred compensation plans, including
the SAR plans, phantom stock plans and the LTIP, as well as the settlement of our match and
retirement plan obligations, resulting in calculations of Consolidated EBITDA that were higher by
the amount of these deductions. When these deductions are properly taken into account, the
adjusted Consolidated EBITDA calculations indicate the Companys non-compliance with the senior
secured leverage coverage ratio and interest coverage ratio covenants in the Term B Senior Credit
Agreement for eleven periods between June 30, 2006 and September 30, 2009. The non-compliance
with these financial covenants triggered non-compliance with other covenants under the Term B
Senior Credit Agreement.
The Companys above-mentioned financial, affirmative and negative covenant defaults under the
Credit Agreement resulted in the Companys Term B senior term loan and revolving loan payable
balances being callable either by the administrative agent or by lenders holding a majority of the
value of the outstanding loans and therefore, as of the issuance of the Companys fiscal year 2008
financial statements and the financial statements for each of the first three quarters of fiscal
year 2008 and 2009, such balances should have been classified as current liabilities.
On December 14, 2009, we entered into a waiver agreement to the Term B Senior Credit
Agreement, under which our lenders agreed to waive any covenant defaults occurring prior to
December 31, 2009 that result from either the miscalculations of the Consolidated EBITDA or the
failure to comply with covenants had the cash outflows relating to the settlement of deferred
compensation plans and certain retirement obligations been deducted from the calculation of
Consolidated EBITDA. The waiver agreement does not change any of the terms or definitions of the
Term B Senior Credit Agreement.
We are unable to predict the likelihood of or potential outcomes from private securities,
litigation, regulatory proceedings or government enforcement actions relating to our prior
disclosure regarding covenant compliance. The resolution of these matters could be time-consuming
and expensive, distract management from other business concerns and harm our reputation and our
business. Furthermore, if we were subject to adverse findings in litigation, regulatory proceedings
or
government enforcement actions, we could be required to pay damages or penalties or have other
remedies imposed, which could harm our reputation and our business and financial condition.
Despite our current debt levels, we and our subsidiaries may still be able to incur more debt. This
could further aggravate risks associated with our substantial leverage.
In certain circumstances, we have the ability to incur additional debt, including the ability
to raise up to $110.0 million of additional senior secured debt under our Term B Senior Credit
Agreement, subject to limitations imposed by the covenants in our Term B Senior Credit Agreement
and the Indenture governing the Senior Unsecured Notes (the Indenture). Restrictive covenants in
our Term B Senior Credit Agreement and the Indenture do not completely prohibit us from incurring
additional debt.
17
Our Term B Senior Credit Agreement and the Senior Unsecured Note Indenture will restrict our
operations.
Our Term B Senior Credit Agreement, the Indenture, and our future debt agreements may contain
covenants that may restrict our ability to engage in activities that may be in our long-term best
interest, including financing future operations or capital needs or engaging in other business
activities. Our Term B Senior Credit Agreement and the Indenture restrict, among other things, our
ability and the ability of our subsidiaries to:
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incur additional debt other than permitted additional debt; |
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pay dividends or distributions on our capital stock or purchase, redeem or retire
capital stock other than to satisfy ESOP repurchase obligations or pay certain amounts
required under our equity based compensation plans; |
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make acquisitions and investments other than permitted acquisitions and permitted
investments; |
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issue or sell preferred stock of subsidiaries; |
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create liens on our assets; |
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enter into certain transactions with affiliates; |
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merge or consolidate with another company; or |
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transfer or sell assets outside the ordinary course of business. |
Our Term B Senior Credit Agreement requires us, and our future debt agreements may require us,
to maintain specified financial ratios relating to, among other things, our interest coverage and
leverage levels. Events beyond on control can affect our ability to meet these financial ratios; we
cannot guarantee that we will meet these ratios.
On December 14, 2009, we entered into a waiver agreement with our senior lenders to waive any
covenant defaults under the Term B Senior Credit Agreement occurring prior to December 31, 2009
that resulted from the Companys miscalculation of Consolidated EBITDA or the failure to comply
with the covenants under the Term B Senior Credit Agreement had the calculation for Consolidated
EBITDA been done correctly. Default under our Term B Senior Credit Agreement or the Indenture
could allow lenders to declare all amounts outstanding under both our Term B Senior Credit
Agreement and the Senior Unsecured Notes to be immediately due and payable. We have pledged
substantially all of our assets to secure the debt under our Term B Senior Credit Agreement. If
lenders declare amounts outstanding under the Term B Senior Credit Agreement to be due, they could
proceed against those assets. Any event of default could have a material adverse effect on our
business, financial condition and operating results if creditors were to exercise their rights.
The Companys above-mentioned financial, affirmative and negative covenant defaults under the
Credit Agreement resulted in the Companys Term B senior term loan and revolving loan payable
balances being callable either by the administrative agent or by lenders holding a majority of the
value of the outstanding loans and therefore, as of the issuance of the Companys fiscal year 2008
financial statements and the financial statements for each of the first three quarters of fiscal
year 2008 and 2009, such balances should have been classified as current liabilities.
From time to time we may require consents or waivers from our lenders to permit actions that
the Term B Senior Credit Agreement or Indenture prohibit. If, in the future, lenders refuse to
waive Term B Senior Credit Agreement and/or Indenture restrictive covenants and/or financial
ratios, then we could be in default on the Term B Senior Credit Agreement and/or the Indenture. We
could be prohibited from undertaking actions necessary or desirable to maintain or expand our
business. There is no guarantee we will be able to obtain additional consents or waivers from our
lenders.
We may not be able to obtain financing in the future, and the terms of any future financings may
limit our ability to manage our business. Difficulties in obtaining financing on favorable terms
would have a negative effect on our ability to execute our business strategy.
We anticipate we may need to seek additional capital in the future, including refinancing or
replacing existing long-term debt or meeting current business plans and working capital needs. Our
senior revolving credit facility matures in September 2010. We intend to renew or replace the
revolving credit facility prior to maturity. Based on current market conditions, the availability
of financing is, and may continue to be, limited. There can be no assurance that we will be able
to obtain future financings on acceptable terms, if at all.
Our corporate credit ratings at Standard & Poors and Moodys Investors Service were lowered
in fiscal year 2007 to B- and Caa1. A downgrade in such ratings could increase the Companys cost
of capital should the Company refinance all or a portion of its debt, or attempt to obtain
additional financing in the future. An increase in our cost of capital would adversely affect our
results of operations and financial position.
18
If we are unable to obtain alternative or additional financing arrangements in the future, or
if we cannot obtain financing on acceptable terms, we may not be able to execute our business
strategies. Moreover, the terms of any such additional financing may restrict our financial
flexibility, including the debt we may incur in the future, or may restrict our ability to manage
our business as we had intended.
Our senior lenders require us to modify the interest payable on our junior Subordinated notes
to remove the requirement that Alion pay interest in cash. On December 21, 2009, the Company and
IIT agreed to modify the Subordinated Note to defer interest payable in January 2010 to April 2010.
Subject to certain future events and conditions, IIT agreed to sell its warrants and Subordinated
Note to Alion for $25 million. If we are unable to extinguish the Subordinated Note or enter into
a modification on acceptable terms, it could result in a default under our Term B Senior Credit
Agreement, which, among other things, could cause us to lose access to the liquidity available
under our revolving credit facility.
We may be required to amend the financial covenants of our Term B Senior Credit Agreement which
could materially impact our ability to finance our future operations, future acquisitions or
capital needs.
In October 2009, we agreed with our senior lenders to amend the interest coverage ratio and the
maximum senior secured leverage ratio covenants under our Term B Senior Credit Agreement effective
through the end of our fiscal year 2010 and through the end of our first quarter of our fiscal year
2011 in order to provide us with more flexibility. The senior lenders imposed additional financial
conditions that we must meet in February and June 2010. The interest coverage and maximum senior
secured leverage ratios become more restrictive over time. On December 14, 2009, we entered into a
waiver agreement with our senior lenders to waive any covenant defaults under the Term B Senior
Credit Agreement occurring prior to December 31, 2009 that resulted from the Companys
miscalculation of Consolidated EBITDA or the failure to comply with the covenants under the Term B
Senior Credit Agreement had the calculation for Consolidated EBITDA been done correctly. As of
September 30, 2009, after taking into account the provisions of the waiver agreement, we were in
compliance with the financial covenants set forth in our Term B Senior Credit Agreement.
We expect to be able to meet our existing financial and other debt covenants for at least the
next twelve months. However, we may be unable to meet our existing financial and other debt
covenants in the future, which could require us to amend our Term B Senior Credit Agreement on less
favorable terms. If we were to default under our Term B Senior Credit Agreement, we could pursue
an amendment or waiver of our Term B Senior Credit Agreement with our existing lenders, but there
can be no assurance that the lenders would grant another amendment and/or waiver. In light of
current credit market conditions, any such amendment or waiver might be on terms, including
additional fees, increased interest rates and other more stringent terms and conditions materially
disadvantageous to us. If we were unable to meet our existing financial covenants in the future
and unable to obtain future covenant relief or a senior lenders waiver, we could be in default
under our Term B Senior Credit Agreement. This could cause all amounts borrowed under it and all
underlying letters of credit to become immediately due and payable, expose our assets to seizure,
cause a potential cross-default under our Indenture and possibly require us to invoke insolvency
proceedings including, but not limited to, a voluntary case under the U.S. Bankruptcy Code.
We expect to experience net losses in at least our next four years of operation.
We have incurred a net loss every year since our inception in late 2002. We expect to incur a
net loss in at least our next four years of operation, fiscal years 2010 through 2013. Interest
expense on existing debt and amortization of purchased contracts are among the most significant
factors contributing to our estimated future net losses. The size of future losses and achieving
profitability depend on sustaining significant revenue growth and controlling expenses. If revenue
grows more
slowly than we anticipate, or if operating expenses exceed our expectations, we may not become
profitable. Even if we become profitable, we may not be able to sustain our profitability.
Our ability to meet our financial and other future obligations depends on our future operating
results. We cannot be sure we will be able to meet these obligations as they come due.
Our ability to pay our debt, to comply with financial covenants, and to fund working capital
and planned capital expenditures depends on our ability to generate cash flow in the future. We
cannot assure you that our business strategy will succeed or that we will achieve our anticipated
financial results. Our financial and operational performance depends upon a number of factors, many
of which are beyond our control. Risk factors include:
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when and how much of our contract backlog our customers fund; |
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how much time our customers take to pay us; |
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when and whether we win new contracts and how we perform on our contracts; |
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whether we can increase annual revenue and/or operating income; |
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how much in payroll deferrals and rollovers our employees spend to purchase our common
stock ; |
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how much we have to spend to repurchase our stock from current and former employees; |
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current economic conditions and conditions in the defense contracting industry; |
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U.S. government spending levels, both generally and by our particular customers; |
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failure by Congress to timely approve budgets for federal departments and agencies we
support; |
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operating difficulties, operating costs or pricing pressures; |
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new legislation or regulatory developments that adversely affect us; and |
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any delays in implementing strategic projects. |
These factors will also affect our ability to meet future KSOP repurchase obligations. On
September 30, 2010, we must re-pay any outstanding revolving credit facility balance. We are
required to re-pay all principal and accrued interest outstanding under our Term Loan on February
6, 2013. We are also required to pay all principal and paid-in-kind notes outstanding, under the
junior subordinated note on August 6, 2013. We are required to repurchase any junior subordinated
note warrants tendered to us on or before September 5, 2013.
We may not generate sufficient cash flow to comply with our financial covenants and to meet
our payment obligations when they become due. If we are unable to comply with our financial
covenants, or if we are unable to generate sufficient cash flow or otherwise obtain the funds we
need for required debt payments, we may have to refinance our debt. We cannot be certain we could
refinance our obligations on favorable terms, or at all. Absent refinancing, our lenders would be
able to accelerate our debts maturity. As a result, we could default under our other senior debt,
expose our assets to seizure, or declare bankruptcy.
We face intense competition from many companies that have greater resources than we do. This could
cause price reductions, reduced profitability, and loss of market share.
We operate in highly competitive markets and generally encounter intense competition to win
contracts. If we are unable to successfully compete for new business, our revenue growth and
operating margins may decline. Many of our competitors are larger and have greater financial,
technical, marketing, and public relations resources, larger client bases, and greater brand or
name recognition than we do. Larger competitors include U.S. federal systems integrators such as
Booz Allen Hamilton, Computer Sciences Corporation, CACI International Inc, Science Applications
International Corporation, SRA International, Inc., and the services divisions of large defense
contractors such as Lockheed Martin Corporation, General Dynamics Corporation and Northrop Grumman
Corporation. Our larger competitors may be able to vie more effectively for very large-scale
government contracts. Our larger competitors also may be able to provide clients with different or
greater capabilities or benefits than we can provide in areas such as technical qualifications,
past performance on large-scale contracts,
geographic presence, price, and availability of key professional personnel. Our competitors have
established relationships among themselves or with third parties, including through mergers and
acquisitions, to increase their ability to address client needs. They may establish new
relationships; new competitors or competitive alliances may emerge.
Our ability to compete for desirable contracts will depend on: the effectiveness of our
research and development programs; our ability to offer better performance than our competitors at
lower or comparable cost; the readiness of our facilities, equipment and personnel to perform the
programs for which we compete; and our ability to attract and retain key personnel. If we do not
continue to compete effectively and win contracts, our future business, financial condition,
results of operations and our ability to meet our financial obligations may be materially
compromised.
Historically, a few contracts have provided most of our revenue. If we do not retain or replace
these contracts our operations will suffer.
The following seven federal government contracts accounted for half of our revenue both this
year and last year.
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SeaPort Multiple Award Contract for the Naval Sea Systems Command (14.3% and 16.8%); |
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Technical and Analytical Support for the U.S. Air Force (9.5 % and 9.0%); |
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Engineering, Financial and Program Management Services to the Virtual SYSCOM for the
U.S. Navy (7.0% and 8.6%); |
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Modeling and Simulation Information Analysis Center for the Defense Modeling and
Simulation Office (6.8% and 4.7%); |
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Weapons System Technology Information Analysis Center for the Defense Information
Systems Agency (5.5 % and 5.0%); |
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Engineering, Technical and Program Management Services for U.S. Navy Surface Ship
Programs (5.2% and 2.5%); and |
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Engineering, Financial and Program Management Services to Naval Sea Systems Command
(3.5 % and 4.5%). |
Termination of these contracts or our inability to renew or replace them when they expire
could cause our revenue to decrease and could have a material adverse effect on our business,
financial condition, results of operations or our ability to meet our financial obligations.
If we are unable to manage our growth, our business could be adversely affected.
Sustaining our growth has placed significant demands on our management, as well as on our
administrative, operational and financial resources. To continue to manage our growth, we must
continue to improve our operational, financial and management information systems and expand,
motivate and manage our workforce. If we are unable to successfully manage our growth without
compromising our quality of service and our profit margins, or if new systems we implement to
assist in managing our growth do not produce the expected benefits, our business, prospects,
financial condition, operating results or our ability to meet our financial obligations could be
materially and adversely affected.
Acquisitions could increase our costs or liabilities or be disruptive.
One of our key operating strategies has been and continues to be to selectively pursue and
implement acquisitions. We have made a number of acquisitions in the past, and will consider other
acquisitions in the future. We may not be able to locate suitable acquisition candidates at prices
we consider appropriate or to finance acquisitions on terms satisfactory to us. If we do identify
an appropriate acquisition candidate, we may not be able to successfully negotiate acquisition
terms or financing or, if the acquisition occurs, integrate the acquired business into our existing
business. Negotiations of potential acquisitions and the integration of acquired business
operations could disrupt our business by diverting management away from day-to-day operations.
Acquisitions of businesses or other material operations may require additional debt or equity
financing, resulting in additional leverage or dilution of ownership. Integration difficulties
could be increased by the need to coordinate geographically dispersed organizations, integrate
personnel with disparate business backgrounds and combine different corporate cultures. We also may
not realize cost efficiencies or synergies that we anticipated when selecting our acquisition
candidates. In addition, future impairments of intangible assets could reduce our future reported
earnings. Acquisition candidates might have liabilities or adverse operating issues that we fail to
discover through due diligence prior to acquisition, but which we must generally assume in an
acquisition. Such liabilities could have a material adverse effect on our business, financial
condition, results of operations and our ability to meet our financial obligations.
Due to the inherent danger involved in some of the businesses that we conduct, there are risks of
claims by clients and third parties that could have a substantial adverse economic impact upon us.
Some businesses we conduct, such as tasks involving unexploded ordnance performed by a
wholly-owned subsidiary, inherently involve dangerous materials or other risks that could expose us
to substantial liability, if, for example, our services are involved in situations involving
substantial loss of life, personal injury, property damage or consequential damages. There can be
no assurance that our efforts to protect against such risks, including the purchase of liability
insurance, will be sufficient to avoid the adverse economic impact upon us, should claims by
clients and third parties arise in the future.
We depend on key management and may not be able to retain those employees due to competition for
their services.
We believe that our future success will be due, in part, to the continued services of our
senior management team. The loss of any one of these individuals could cause our operations to
suffer. We do not maintain key man life insurance policies on any members of management.
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Our business could suffer if we fail to attract, train and retain skilled employees.
Availability of highly trained and skilled professional, administrative and technical
personnel is critical to our future growth and profitability. Even in the current economic climate,
competition in our industry for scientists, engineers, technicians, management and professional
personnel is intense and competitors aggressively recruit key employees. Due to our growth and this
competition for experienced personnel, particularly in highly specialized areas, it has become more
difficult to meet all of our needs for these employees in a timely manner. We cannot be certain
that we will be able to attract and retain such employees on acceptable terms. Any failure to do so
could have a material adverse effect on our business, financial condition, results of operations
and our ability to meet our financial obligations. Failure to recruit and retain a sufficient
number of these employees could adversely affect our ability to maintain and grow our business.
Some of our contracts require us to staff a program with personnel the customer considers key to
successful performance. If we cannot provide these key personnel or acceptable substitutes, the
customer may terminate the contract, and we may not be able to recover our costs.
In order to succeed, we will have to keep up with rapid technological changes in a number of
industries. Various factors could impact our ability to keep pace with these changes.
Our success will depend on our ability to keep pace with technology changes in our core business
areas. Technologies in our core business areas can change rapidly. Even if we remain abreast of
the latest developments and available technology, newer services or technologies could negatively
affect our business. The integration of diverse technologies involved in our research services is
complex and in many instances has not been previously attempted. Our success will depend
significantly on our ability to develop, integrate and deliver technologically advanced products
and services at the same or faster pace as our competitors, many of which have greater resources
than we do.
An economic downturn could harm our business.
Our business, financial condition, results of operations and our ability to meet our financial
obligations may be affected by various economic factors. Unfavorable economic conditions may make
it more difficult for us to maintain and continue our revenue growth. In an economic recession, or
under other adverse economic conditions which may arise from natural or man-made events, customers
and vendors may be less likely to meet contractual terms and payment or delivery obligations.
Continued weakness or further deterioration of economic conditions may have a material adverse
effect on our business, financial condition, results of operations and our ability to meet our
financial obligations.
Our employees may engage in misconduct or other improper activities, which could harm our business.
We are exposed to the risk of employee fraud or other misconduct. Employee misconduct could
include intentional failures to comply with U.S. government procurement regulations, unauthorized
activities, attempts to obtain reimbursement for improper expenses, or submission of falsified time
records. Employee misconduct could also involve improper use of our customers sensitive or
classified information, which could result in regulatory sanctions against us and serious harm to
our reputation. It is not always possible to deter employee misconduct, and the precautions we take
to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks
or losses, which could harm our business, financial condition, results of operations and our
ability to meet our financial obligations.
The interests of the ESOP Trust may not be aligned with the interests of participants in the ESOP
component of the KSOP.
The ESOP Trust owns 100% of our outstanding shares of common stock. It can control the
election of a majority of our directors, the outcome of all matters submitted to a vote of
stockholders, and can change our management. The interests of the ESOP Trust may not be fully
aligned with the interests of the ESOP participants and this could lead to a strategy that is not
in the best interests of those participants.
Environmental laws and regulations and our use of hazardous materials may subject us to significant
liabilities.
Our operations are subject to U.S. federal, state and local environmental laws and
regulations, as well as environmental laws and regulations in the various countries in which we
operate. We are also subject to environmental laws and regulations relating to the discharge,
storage, treatment, handling, disposal and remediation of regulated substances and waste products,
such as radioactive, biochemical or other hazardous materials and explosives. We may incur
substantial costs in the future because of: modifications to current laws and regulations; new laws
and regulations; new guidance or new interpretation of existing laws or regulations; violations of
environmental laws or required operating permits; or discovery of previously unknown contamination.
22
Risks Related to Our Industry
We depend on U.S. government contracts for substantially all of our revenue. Changes in the
contracting or fiscal policies of the U.S. government could adversely affect our business,
financial condition or results of operations.
U.S. government agency contracts provided approximately 97%, 94%, and 94% of our revenue for
the years ended September 30, 2009, 2008 and 2007. In fiscal years 2009, 2008 and 2007, DoD
contracts accounted for approximately 92%, 89% and 89% of our total revenue while contracts with
other government agencies accounted for approximately 4%, 6% and 7% of our total revenue for the
same years. We expect U.S. government contracts are likely to continue to account for a significant
portion of our revenue in the future. Changes in U.S. government contracting policies could
directly affect our financial performance. Factors that could materially adversely affect our U.S.
government contracting business include:
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budgetary constraints affecting U.S. government spending generally, or specific
departments or agencies in particular; |
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changes in U.S. government fiscal policies or available funding; |
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changes in U.S. government programs or requirements; |
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curtailment of the U.S. governments use of technology services firms; |
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adoption of new laws or regulations; |
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technological developments; |
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U.S. government shutdowns (such as that which occurred during the U.S. governments
1996 fiscal year); |
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Competition and consolidation in the information industry; and |
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General economic conditions. |
These or other factors could cause U.S. government departments or agencies to reduce their
purchases under contracts, to exercise their right to terminate contracts or fail to exercise
options to renew contracts, any of which could have a material adverse effect on our business,
financial condition, results of operations and our ability to meet our financial obligations.
Many of our U.S. government customers are subject to increasing constraints. We have
substantial contracts in place with many U.S. government departments and agencies, and our
continued performance under these contracts, or award of additional contracts from these agencies,
could be materially adversely affected by spending reductions or budget cutbacks at these agencies.
Such reductions or cutbacks could have a material adverse effect on our business, financial
condition, results of operations and our ability to meet our financial obligations.
Failure by Congress to timely approve budgets for the federal agencies we support could delay or
reduce spending and cause us to lose revenue.
Each year, Congress must approve budgets that govern spending by each of the U.S. government
departments and agencies we support. When Congress is unable to agree on budget priorities, and is
unable to pass the annual budget on a timely basis, it typically enacts a continuing resolution. A
continuing resolution allows U.S. government agencies to operate at spending levels equal to or
less than levels approved in the previous budget cycle. This can delay funding we expect to receive
from clients for work we are already performing. A continuing resolution can delay or even cancel
new initiatives which could adversely affect our business, financial condition, results of
operations and our ability to meet our financial obligations.
We may not realize the full amount of our backlog, which could lower future revenue.
The maximum contract value specified under a U.S. government contract does not necessarily
determine the revenue we will realize under that contract. Congress normally appropriates funds
for a given program each fiscal year, even when actual contract performance may take many years. As
a result, U.S. government contracts ordinarily are only partially funded at the time of award.
Normally a procuring agency commits additional money to a contract only as Congress makes
subsequent fiscal year appropriations. Estimates of future revenue attributed to backlog are not
necessarily precise, and the receipt and timing of any of this revenue is subject to various
contingencies such as changed U.S. government spending priorities and government decisions not to
exercise options on existing contracts. Many of these contingencies are beyond our control. The
backlog on a given contract may not ultimately be funded or may only be partially funded, which may
cause our revenue to be lower than anticipated, and adversely affect our business, financial
condition, results of operations and our ability to meet our financial obligations.
23
Many of our U.S. government customers procure goods and services through ID/IQ, GWAC or GSA
Schedule contracts under which we must compete for post-award orders.
Budgetary pressures and reforms in the procurement process have caused many U.S. government
customers to purchase goods and services through ID/IQ, GSA Schedule contracts and other multiple
award and/or GWAC contract vehicles. These contract vehicles have resulted in increased competition
and pricing pressure requiring that we make sustained post-award efforts to realize revenue under
these contracts. There can be no assurance that we will increase revenue or otherwise sell
successfully under these contract vehicles. Our failure to compete effectively in this procurement
environment could harm our business, financial condition, results of operations and our ability to
meet our financial obligations.
U.S. government contracts contain termination provisions that are unfavorable to us.
Generally, U.S. government agencies can terminate contracts with suppliers at any time without
cause. If a government agency does terminate one of its contracts with us without cause, we are
likely to be entitled to receive compensation for the services we provided or costs we incurred up
to the termination date, payment for our termination-related costs, and a negotiated share of the
contract fee. However, if the U.S. government terminates a contract because we defaulted under the
terms of the contract, we may be liable for any excess costs the U.S. government incurs in
procuring the undelivered portion of the contract from another source. Termination of any of our
large U.S. government contracts may negatively impact our revenue and may adversely affect our
business, financial condition, results of operations and our ability to meet our financial
obligations.
If we do not accurately estimate the expenses, time and resources necessary to meet our contractual
obligations, our contract profits will be lower than expected.
The total price on a cost-reimbursement contract is based primarily on allowable costs
incurred, but is generally subject to a maximum contract funding limit. U.S. government regulations
require us to notify our customers of any cost overruns or underruns on a cost-reimbursement
contract. We may not be able to recover cost overruns in excess of a contracts funding limitation
and thus may not earn the anticipated profit on the contract.
In a fixed-price contract, we estimate project costs and agree to deliver a project for a
definite, predetermined price regardless of our actual costs to perform. We must fully absorb any
cost overruns. Failure to anticipate technical problems, accurately estimate costs or control
performance costs may reduce the profit margin on a fixed-price contract or even cause a loss.
Provisions in our financial statements for estimated losses on our fixed-price contracts may not be
adequate to cover all actual future losses.
Our operating margins and operating results may suffer if cost-reimbursement contracts increase in
proportion to our total contract mix.
In general, cost-reimbursement contracts are our least profitable type of contract. Our U.S.
government customers typically determine what type of contract they will award us. To the extent
that in the future we enter into more or larger cost-reimbursement contracts in proportion to our
total contract mix, our operating margins and operating results may suffer.
If our fixed-price contract revenue declines in total or as a proportion of our total business, or
if profit rates on these contracts deteriorate, our operating margins and operating results may
suffer.
We have historically earned higher profit margins on fixed-price contracts. If fixed-price
contract revenue decreases, or customers shift to other types of contracts, our operating margins
and operating results may suffer. Furthermore, we cannot ensure we will be able to maintain our
historic levels of profitability on fixed-price contracts in general.
Our subcontractors failure to perform contractual obligations could damage our reputation as a
prime contractor and our ability to obtain future business.
As a prime contractor, we often rely significantly upon other companies as subcontractors to
perform work we are obligated to deliver to our customers. A failure by one or more of our
subcontractors to timely perform services satisfactorily may cause us to be unable to perform our
duties as a prime contractor. We have limited involvement in the work our subcontractors perform,
and as a result, we may have exposure to problems our subcontractors cause. Performance
deficiencies on the part of our subcontractors could result in a government customer terminating
our contract for default. A default termination could make us liable for customer re-procurement
costs, damage our reputation, and hurt our ability to compete for future contracts.
24
Because U.S. government contracts are subject to government audits, contract payments are subject
to adjustment and repayment which may result in revenue attributed to a contract being lower than
expected.
U.S. government contract payments received that exceed allowable costs are subject to
adjustment and repayment after the government audits contract costs. All our federal government
contract indirect costs have been audited and negotiated through fiscal year 2004. The government
is auditing our claims for fiscal years 2005 and 2006. We have submitted our fiscal year 2008 and
2007 incurred cost proposals to the federal government and expect to submit our fiscal year 2009
proposal next March. If the estimated reserves in our financial statements for excess billings and
contract losses are not adequate, revenue attributed to our U.S. government contracts may be lower
than expected.
If we fail to recover at- risk contract costs, it may result in reduced fees or in losses.
We are at risk for any costs we incur before execution or renewal of a contract. It is
possible a customer will not pay us for these costs. At September 30, 2009, we had at-risk costs of
$36.3 million. While such costs were associated with specific anticipated contracts, we cannot be
certain that contracts or contract renewals will be executed or that we will recover all our
related at-risk costs.
Actual or perceived conflicts of interest may prevent us from being able to bid on or perform
contracts.
U.S. government agencies have conflict of interest policies that may prevent us from bidding
on or performing certain contracts. When dealing with U.S. government agencies that have conflict
of interest policies, we must decide, at times with insufficient information, whether to
participate in the design process and lose the chance of performing the contract or to turn down
the opportunity to assist in the design process for the chance of performing the future contract.
We have, on occasion, declined to bid on particular projects because of actual or perceived
conflicts of interest. We are likely to continue encountering such conflicts of interest in the
future, particularly if we acquire other U.S. government contractors. Future conflicts of interest
could cause us to be unable to secure key contracts with U.S. government customers.
As a U.S. government contractor, we must comply with complex procurement laws and regulations and
our failure to do so could have a negative impact upon our business.
We must comply with and are affected by laws and regulations relating to the formation,
administration and performance of U.S. government contracts, which may impose added costs on our
business. If a government review or investigation uncovers improper or illegal activities, we may
be subject to civil and/or criminal penalties and administrative sanctions, including termination
of contracts, forfeiture of fees, suspension of payments, fines and suspension or debarment from
doing business with U.S. government agencies, which may impair our ability to conduct our business.
We derive significant revenue from U.S. government contracts awarded through competitive bidding
which is an inherently unpredictable process.
We obtain most of our U.S. government contracts through competitive bidding that subjects us
to risks associated with:
|
|
|
the frequent need to bid on programs in advance of the completion of their design,
which can result in unforeseen technological difficulties and/or cost overruns; |
|
|
|
the substantial time and effort, including design, development and promotional
activities, required to prepare bids and proposals for contracts that may not be
awarded to us; and |
|
|
|
the rapid rate of technological advancement and the design complexity of most of our
research offerings. |
Upon expiration, U.S. government contracts may be subject to a competitive re-bidding process.
We may not succeed in winning new contract awards or renewals in the future. Our failure to renew
or replace existing contracts when they expire or win new contracts, would negatively impact our
business, financial condition, results of operations and our ability to meet our financial
obligations.
25
Our failure to obtain and maintain necessary security clearances may limit our ability to carry out
confidential work for U.S. government customers, which could cause our revenue to decline.
As of September 30, 2009, we had approximately 233 DoD contracts that require us to maintain
facility security clearances at our 26 sites, and approximately 2,712 of our employees held
security clearances needed to perform these U.S. government contracts. Each cleared facility has a
Facility Security Officer and Key Management Personnel whom the U.S. Department of Defense
Defense Security Service requires to be cleared to the level of the facility security clearance.
Individual employees are selected to be cleared, based on specific classified contract task
requirements and each employees technical, administrative or management expertise. Once an
employee gets security clearance, the individual is allowed access to classified contract
information, based on clearance level and a need to know. Protecting classified information on a
classified government contract is paramount. Loss of a facility clearance or an employees failure
to obtain or maintain a security clearance could result in a U.S. government customer terminating
an existing contract or choosing not to renew a contract when it expires. If we cannot maintain or
obtain the required security clearances for our facilities and our employees, or obtain these
clearances in a timely manner, we may be unable to perform certain U.S. government contracts. Lack
of required clearances could also impede our ability to bid on or win new U.S. government
contracts, which might result in termination of current research activities. This could damage our
reputation and our revenue would likely decline, which would adversely affect our business,
financial condition, results of operations and our ability to meet our financial obligations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal operating facilities are located in McLean, Virginia and Chicago, Illinois, and
consist of 23,823 square feet and 38,054 square feet of office space, held under leases. We also
lease approximately 80 additional office facilities totaling 976,526 square feet. Of these, our
largest offices are located in Washington, DC; Fairfax, Alexandria, Vienna, Arlington, Norfolk,
Suffolk, and Newport News, Virginia; Swissvale and West Conshohocken, Pennsylvania; Huntsville,
Alabama; Mystic, Connecticut; Annapolis Junction and Lanham, Maryland; Orlando, Florida; Rome, New
York; Iselin, New Jersey; Pascagoula, Mississippi; Fairborn, Ohio; Mt. Clements, Michigan; Boulder,
Colorado; Durham, North Carolina; Bath, Maine; San Diego, California; Albuquerque and Los Alamos,
New Mexico; and Warrenville, Illinois. We lease 24 laboratory facilities totaling 95,148 square
feet, for research functions in connection with the performance of our contracts. Of these, our
largest laboratories are located in Durham, North Carolina; Chicago and Geneva, Illinois; Annapolis
Junction and Lanham, Maryland; West Conshohocken, Pennsylvania; and Louisville, Colorado. The lease
terms vary from one to ten years, and are generally at market rates.
Aggregate average monthly base rental expense for fiscal years 2009 and 2008 was $2,005,800
and $1,967,164. We periodically enter into other lease agreements that are, in most cases,
directly chargeable to current contracts. These obligations are usually either covered by currently
available contract funds or cancelable upon termination of the related contracts. We consider our
leased space to be adequate for our current operations, and foresee no difficulties in meeting any
future space requirements.
Item 3. Legal Proceedings
Estate of Joseph Hudert vs. Alion Science and Technology Corporation; Estate of Frank Stotmeister
vs. Alion Science and Technology Corporation.
26
On December 23, 2004, the estate of Joseph Hudert filed an action against Grunley-Walsh Joint
Venture, L.L.C. (Grunley-Walsh) and the Company in the District of Columbia Superior Court for
damages in excess of $80 million. On January 6, 2005, the estate of Frank Stotmeister filed an
action against the Company in the same court on six counts, some of
which are duplicate causes of action, claiming $30 million for each count. The Hudert case has been
removed to the United States District Court for the District of Columbia. Both the Hudert and
Stotmeister actions are now consolidated in this same court.
The suits arose in connection with a steam pipe explosion that occurred on or about April 23,
2004 on a construction site at 17th Street, NW in Washington, D.C. The plaintiffs died, apparently
as a result of the explosion. They were employees of the prime contractor on the site,
Grunley-Walsh, and the subcontractor, Cherry Hill Construction Company Inc. Grunley-Walsh had a
contract with the U.S. General Services Administration (GSA) for construction on 17th Street NW
near the Old Executive Office Building in Washington, D.C. Some time after the award of
Grunley-Walshs construction contract, GSA awarded Alion a separate contract to engage in
non-supervisory monitoring of Grunley-Walshs activities and to report deviations from contract
requirements to GSA.
The Company has defended and intends to continue to defend these lawsuits vigorously. Based
on the facts underlying the lawsuits known to the Company at this time, and Alions non-supervisory
monitoring role at the project site, management believes the possibility of Alion incurring a
material loss from these lawsuits is remote. Management does not believe that these lawsuits will
materially adversely affect the Company, its operations, cash flows, or financial condition.
The Companys primary provider of general liability insurance, St. Paul Travelers, assumed
defense of these lawsuits. However, there is some uncertainty as to whether St. Paul Travelers
received timely notice of a potential claim by us in connection with these lawsuits under our
general liability insurance policy. Therefore, St. Paul Travelers indicated when it assumed
defense of the lawsuits, that it was doing so subject to a reservation of rights to deny coverage.
Nevertheless, even if St. Paul Travelers is ultimately able to properly deny coverage as a result
of late lawsuit notice, management does not believe the lawsuits will materially adversely affect
Alion, its operations, cash flows or financial condition. We have notified our excess insurance
carrier, American International Group, regarding these lawsuits.
Other than the foregoing action, we are not involved in any legal proceeding other than
routine legal proceedings occurring in the ordinary course of business. We believe that these
routine legal proceedings, in the aggregate, are not material to our financial condition, results
of operations, or cash flows.
As a government contractor, from time to time we may be subject to DCAA audits and federal
government inquiries about our operations. The federal government may suspend or debar from
federal contracting for a period of time, contractors found to have violated the False Claims Act,
or who have been indicted or convicted of violations of other federal laws. Such an event could
also result in fines or penalties. Given Alions dependence on federal government contracts,
suspension or debarment could have a material adverse effect on our business, financial condition,
results of operations, and ability to meet our financial obligations. The Company is not aware of
any such pending federal government claims or investigations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the vote of security holders for the fourth quarter of the fiscal
year ended September 30, 2009.
27
PART II
Item 5. Market for Registrants Common Equity, Related Stockholders Matters and Issuer Purchases of
Equity Securities
There is no established public trading market for Alions common stock. As of September 30,
2009, the ESOP Trust was the only holder of our common stock. The ESOP Trustee is independent of
the Company and its management. Consistent with its fiduciary responsibilities, the ESOP Trustee
retains an independent third party valuation firm to assist it in determining the fair market value
(share price) at which the Trustee may acquire or dispose of investments in Alion common stock.
Alions transactions with the Trust during the past two years were based on the fair market value
share prices and dates set out below.
|
|
|
|
|
|
|
Share |
|
Valuation Date |
|
Price |
|
|
|
|
|
|
September 30, 2009 |
|
$ |
34.50 |
|
March 31, 2009 |
|
$ |
34.30 |
|
September 30, 2008 |
|
$ |
38.35 |
|
March 31, 2008 |
|
$ |
41.00 |
|
In fiscal year 2009, Alion employees directed approximately $4.8 million in pre-tax salary
deferrals and rollovers to the ESOP Trust to purchase beneficial interests in Alion common stock at
$34.30 per share. The Company did not use an underwriter and did not pay underwriter discounts or
commissions. Alion offered and sold common stock and beneficial interests in the KSOP to eligible
employees pursuant to Rule 701 under the Securities Act of 1933, as amended.
There were no other sales of unregistered securities other than sales of unregistered
securities already reported by the Company in current reports on Form 8-K.
Dividend Policy
Unlike C corporations, S corporation payments to shareholders are considered distributions not
dividends. In this context, the term distributions differs from distributions to purchase
Alion common stock from the KSOP, which are repurchase obligations. We do not expect to make any
dividend-type distributions. We currently intend to retain future earnings, if any, for use in the
operation of our business. Any determination to pay dividend-type distributions in the future will
be at the discretion of our Board of Directors and will depend on our results of operations,
financial condition, contractual restrictions and other factors our Board of Directors determines
to be relevant, as well as applicable law. The Senior Unsecured Notes, Term B Senior Credit
Agreement, and the junior subordinated note prohibit us from paying dividend-type distributions
without the consent of the respective lenders.
Item 6. Selected Financial Data
The following table presents selected historical consolidated financial data for Alion for
each of the last five fiscal years through September 30, 2009. Read this information below in
conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and related notes included elsewhere in this
annual report. Consolidated operating data for the years ended September 30, 2009, 2008 and 2007
and consolidated balance sheet data as of September 30, 2009 and 2008 are derived from our audited
consolidated financial statements included in this annual report. Consolidated operating data for
the years ended September 30, 2006 and 2005 and consolidated balance sheet data as of September 30,
2007, 2006 and 2005 are derived from our consolidated financial statements not included in this
annual report. Our historical consolidated financial information may not be indicative of our
future performance. The financial information below reflects the restatement discussed in Note 11
to the consolidated financial statements.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Data of Alion Science and Technology Corporation |
|
|
|
For Years Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands, except share and per share data) |
|
Consolidated Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract revenue |
|
$ |
802,225 |
|
|
$ |
739,482 |
|
|
$ |
737,587 |
|
|
$ |
508,628 |
|
|
$ |
369,231 |
|
Direct contract expenses |
|
|
615,700 |
|
|
|
566,408 |
|
|
|
562,139 |
|
|
|
381,467 |
|
|
|
267,241 |
|
Operating expenses |
|
|
148,960 |
|
|
|
152,117 |
|
|
|
161,283 |
|
|
|
129,466 |
|
|
|
104,081 |
|
Operating income (loss) |
|
|
37,565 |
|
|
|
20,957 |
|
|
|
14,165 |
|
|
|
(2,305 |
) |
|
|
(2,091 |
) |
Interest expense (a) |
|
|
(55,154 |
) |
|
|
(47,382 |
) |
|
|
(51,226 |
) |
|
|
(29,691 |
) |
|
|
(38,696 |
) |
Net loss |
|
$ |
(17,041 |
) |
|
$ |
(25,334 |
) |
|
$ |
(42,770 |
) |
|
$ |
(31,115 |
) |
|
$ |
(40,238 |
) |
Basic and diluted loss per share |
|
$ |
(3.25 |
) |
|
$ |
(5.01 |
) |
|
$ |
(8.35 |
) |
|
$ |
(6.19 |
) |
|
$ |
(9.50 |
) |
Basic and diluted weighted-average
common shares outstanding |
|
|
5,246,227 |
|
|
|
5,057,337 |
|
|
|
5,121,033 |
|
|
|
5,029,670 |
|
|
|
4,235,947 |
|
Consolidated Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data at End of Period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net accounts receivable |
|
$ |
180,157 |
|
|
$ |
168,451 |
|
|
$ |
186,660 |
|
|
$ |
150,412 |
|
|
$ |
80,898 |
|
Total assets |
|
|
647,498 |
|
|
|
655,946 |
|
|
|
683,970 |
|
|
|
650,969 |
|
|
|
334,249 |
|
Working capital(b) |
|
|
27,833 |
|
|
|
(196,556 |
) |
|
|
(186,726 |
) |
|
|
(212,116 |
) |
|
|
59,775 |
|
Current portion of long-term debt (b) |
|
|
14,428 |
|
|
|
241,763 |
|
|
|
262,147 |
|
|
|
267,216 |
|
|
|
1,404 |
|
Long-term debt, excluding
current portion (b) |
|
|
521,394 |
|
|
|
287,011 |
|
|
|
285,546 |
|
|
|
199,343 |
|
|
|
180,833 |
|
Redeemable common stock warrants |
|
|
32,717 |
|
|
|
39,996 |
|
|
|
33,610 |
|
|
|
35,234 |
|
|
|
44,590 |
|
Redeemable common stock |
|
|
187,137 |
|
|
|
200,561 |
|
|
|
200,768 |
|
|
|
213,719 |
|
|
|
184,828 |
|
Accumulated deficit |
|
|
(274,559 |
) |
|
|
(276,876 |
) |
|
|
(260,147 |
) |
|
|
(221,009 |
) |
|
|
(164,354 |
) |
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
18,959 |
|
|
$ |
20,715 |
|
|
$ |
21,824 |
|
|
$ |
16,566 |
|
|
$ |
17,771 |
|
Cash flows provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
8,995 |
|
|
$ |
29,320 |
|
|
$ |
(5,008 |
) |
|
$ |
(15,678 |
) |
|
$ |
35,140 |
|
Investing activities |
|
|
(2,347 |
) |
|
|
(12,152 |
) |
|
|
(25,438 |
) |
|
|
(284,423 |
) |
|
|
(78,017 |
) |
Financing activities |
|
|
(11,750 |
) |
|
|
(12,565 |
) |
|
|
39,375 |
|
|
|
265,078 |
|
|
|
75,938 |
|
|
|
|
(a) |
|
Interest expense includes interest payable in cash and non-cash expenses for amortizing
original issue discount and debt issue costs, and changes in the fair value of redeemable stock
warrants. |
|
(b) |
|
Current and long-term debt include senior and subordinated debt and accrued interest, net of
unamortized debt issue costs and original issue discount. Balances payable under the Term B
Senior Credit Agreement have been restated and are now included in current portion of
long-term debt for fiscal years 2008, 2007 and 2006 based on the Companys failure to comply
with required affirmative and negative financial covenants for those years. The Company
reclassified $229,831 for 2008; $247,606 for 2007; and $264,400 for 2006. See Note 11 to the
accompanying audited financials statements. |
There were no significant acquisitions in 2009. Operating results for all prior acquisitions
are included in Alions results from their dates of acquisition. In July 2007, the Company
acquired substantially all assets of LogConGroup, Inc. for $1.7 million plus up to $0.6 million in
contingent consideration through 2011. In February 2006, Alion purchased BMH Associates, Inc. for
approximately $3.3 million and Washington Consulting, Inc. for $20.1 million. In May 2006, Alion
acquired Micro Analysis and Design, Inc. for approximately $17.8 million. In June 2006, Alion paid
Anteon Corporation approximately $221.4 million for a group of customer contracts and the related
workforce. In February 2005, Alion acquired METI Corporation for approximately $7.0 million and
Carmel Applied Technologies, Inc. for approximately $9.4 million. In April 2005, the Company
acquired JJMA Corporation (JJMA) for approximately $99.8 million.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of Alions financial condition and results of operations should be
read together with the consolidated financial statements and the notes to those statements included
elsewhere in this annual report. This discussion contains forward-looking statements about our
business and operations that involve risks and uncertainties. Future results may differ materially
from those we currently anticipate as a result of the Risk Factors described beginning on page
16, and elsewhere in this annual report.
29
About This Managements Discussion and Analysis
Our discussion provides an overview of our business and critical accounting policies; explains
year-over-year changes in operating results; describes our liquidity, capital resources and certain
other obligations; and discloses market and other risks that could affect us.
Overview
Alion provides scientific, engineering and information technology solutions and expertise to
research and develop technological solutions for problems relating to national defense, homeland
security and energy and environmental analysis, principally to federal government departments and
agencies and, to a lesser extent, to commercial and international customers. Our revenue increased
8.5%, 0.3%, and 45.0% for the years ended September 30, 2009, 2008 and 2007. The following table
presents summary operating results and contract backlog data for the past three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Revenue |
|
$ |
802,225 |
|
|
$ |
739,482 |
|
|
$ |
737,587 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,041 |
) |
|
$ |
(25,334 |
) |
|
$ |
(42,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
Backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
Funded |
|
$ |
376.5 |
|
|
$ |
340.5 |
|
|
$ |
360.0 |
|
Unfunded |
|
|
6,008.4 |
|
|
|
4,475.8 |
|
|
|
4,669.0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,384.9 |
|
|
$ |
4,816.3 |
|
|
$ |
5,029.0 |
|
|
|
|
|
|
|
|
|
|
|
Alion contracts primarily with the federal government. We expect most of our revenue will
continue to come from government contracts, mostly from contracts with the U.S. Department of
Defense. The balance of our revenue comes from a variety of commercial customers, and state, local
and foreign government customers. The table below shows the percentage of revenue derived from each
major customer type for each of the past three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
U.S. Department of Defense |
|
$ |
736,625 |
|
|
|
91.9 |
% |
|
$ |
660,270 |
|
|
|
89.3 |
% |
|
$ |
659,601 |
|
|
|
89.4 |
% |
Other Federal Civilian
Agencies |
|
|
37,197 |
|
|
|
4.6 |
% |
|
|
34,107 |
|
|
|
4.6 |
% |
|
|
29,503 |
|
|
|
4.0 |
% |
Commercial and
International |
|
|
28,403 |
|
|
|
3.5 |
% |
|
|
45,105 |
|
|
|
6.1 |
% |
|
|
48,483 |
|
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
802,225 |
|
|
|
100.0 |
% |
|
$ |
739,482 |
|
|
|
100.0 |
% |
|
$ |
737,587 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We intend to continue to expand our research offerings in commercial and international
markets; however, any expansion will be incremental. Commercial and international revenue amounted
to approximately 3.5%, 6.1%, and 6.6% of total revenue in fiscal 2009, 2008 and 2007. Our
international revenue primarily comes from naval architecture and marine engineering services and
telecommunications research and software.
We earn our revenue by providing employee and subcontractor services. When we win new
business, the key to generating revenue is hiring new employees to meet customer requirements;
retaining existing employees; and deploying our staff on revenue-generating contracts. We closely
monitor hiring success, attrition trends, and direct labor utilization. Hiring enough employees
with appropriate security clearances is a key challenge in maintaining and growing our business.
We try to optimize employee labor content on our contracts because we can earn higher profits from
employee services than from subcontractor services or from other contract costs like hardware and
software we re-sell to customers.
30
Earlier in 2009, Secretary of Defense Robert Gates proposed changes to some major programs
beginning with the governments fiscal 2010 budget cycle. Alion has already benefited from the
decision to build nine more DDG-51 ships. This is generating long-term engineering and project
management work for Alion at Bath Iron Works in Maine and at Northrop
Grumman Ship Systems on the Mississippi Gulf Coast. Alion support to the Naval Sea Systems Command
(NAVSEA) DDG-1000 destroyer program has led the Company to continue expanding its program-related
production oversight services. Alion is also a major support contractor for NAVSEAs Littoral
Combat Ship program. The decision to increase the number of littoral combat ships that NAVSEA will
ultimately acquire led to increased Alion staffing for this program and additional related program
management work at several shipyards.
While delaying final decisions about CG(X) cruiser capabilities may adversely affect some of
Alions planned engineering design work for this program, other engineering alternative analyses
for CG(X) systems have fueled some of the Companys significant increase in naval architecture and
marine engineering revenue. So far, increases have more than offset any potential workload
reductions. We plan to continue to grow revenue organically. If opportunities present themselves
and sufficient financial resources are available to us, we intend to pursue strategic acquisitions,
capitalizing on our skilled work force and our sophisticated solutions competencies.
Our mix of contract types (i.e., cost-reimbursement, fixed-price, and time-and-material)
affects our revenue and operating margins. A significant portion of our revenue comes from
services performed on cost-reimbursement contracts under which customers pay us for approved costs,
plus a fee (profit) on the work we perform. We recognize revenue on cost-reimbursement contracts
based on our actual costs plus a pro-rata share of fees earned. We also have a number of
fixed-price government and commercial contracts for which we use the percentage-of-completion
method to recognize revenue. Fixed price contracts involve higher financial risks, and in some
cases higher margins, because we must deliver specified services at a predetermined price
regardless of our actual costs. Failure to anticipate technical problems, estimate costs accurately
or control performance costs on a fixed-price contract may reduce the contracts overall profit or
cause a loss. On time-and-material contracts, customers pay us for labor and related costs at
negotiated, fixed hourly rates. We recognize time-and-material contract revenue at contractually
billable rates as we deliver labor hours and incur direct expenses.
Despite the Presidents stated goal of reducing governments use of cost-reimbursable
contracts, Alions cost-reimbursable revenue increased significantly this year. Because the
Company delivers scientific and engineering research services that are not generally considered to
be inherently governmental functions, Management believes any changes aimed at reducing reliance on
government contractors in general will not materially adversely affect operations. If the
government ultimately shifts contracting activity away from the cost-reimbursement arena to
time-and-material or fixed-price contracting, Management believes Alion would likely benefit. All
other factors being equal, the Companys time-and-material and fixed price type contracts
traditionally generate higher profit margins than cost-reimbursable contracts. Current quarter and
year to date revenue growth support Managements belief that Alion, is benefitting from and is
positioned to continue to benefit from the Presidents announced intention to increase federal
spending on sponsored science and technology to 5% of GDP.
The table below summarizes revenue by contract type for each of the past three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended September 30, |
|
Contract Type |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cost-reimbursement |
|
$ |
567,294 |
|
|
|
70.7 |
% |
|
$ |
517,692 |
|
|
|
70.0 |
% |
|
$ |
512,587 |
|
|
|
69.5 |
% |
Fixed-price |
|
|
91,885 |
|
|
|
11.5 |
% |
|
|
70,146 |
|
|
|
9.5 |
% |
|
|
70,946 |
|
|
|
9.6 |
% |
Time-and-material |
|
|
143,046 |
|
|
|
17.8 |
% |
|
|
151,644 |
|
|
|
20.5 |
% |
|
|
154,054 |
|
|
|
20.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
802,225 |
|
|
|
100.0 |
% |
|
$ |
739,482 |
|
|
|
100.0 |
% |
|
$ |
737,587 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
Although the Company completed eleven acquisitions between October 2003 and September 2009, no
significant acquisitions or transactions affected reported results in any of the past three fiscal
years.
Year ended September 30, 2009 Compared to Year ended September 30, 2008
The table below presents selected comparative financial information for the fiscal years ended
September 30, 2009 and 2008. Our discussion and analysis refers to financial information in this
table and to Alions consolidated financial statements in this annual report on Form 10-K.
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Selected Financial Information |
|
|
|
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
|
(In thousands) |
|
Total revenue |
|
$ |
802,225 |
|
|
|
|
|
|
$ |
739,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct contract costs |
|
|
615,700 |
|
|
|
76.7 |
% |
|
|
566,408 |
|
|
|
76.6 |
% |
Direct labor costs |
|
|
272,148 |
|
|
|
33.9 |
% |
|
|
248,409 |
|
|
|
33.6 |
% |
Material and subcontract costs |
|
|
316,957 |
|
|
|
39.5 |
% |
|
|
295,122 |
|
|
|
39.9 |
% |
Other direct costs |
|
|
26,595 |
|
|
|
3.3 |
% |
|
|
22,877 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
186,525 |
|
|
|
23.3 |
% |
|
|
173,074 |
|
|
|
23.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
148,960 |
|
|
|
18.6 |
% |
|
|
152,117 |
|
|
|
20.6 |
% |
Major components of operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect expenses including facilities costs |
|
|
68,457 |
|
|
|
8.5 |
% |
|
|
70,930 |
|
|
|
9.6 |
% |
General and administrative (excluding stock-
based compensation) |
|
|
66,082 |
|
|
|
8.2 |
% |
|
|
58,984 |
|
|
|
8.0 |
% |
Stock-based compensation |
|
|
(5,215 |
) |
|
|
(0.6 |
)% |
|
|
500 |
|
|
|
0.1 |
% |
Depreciation and amortization |
|
|
18,959 |
|
|
|
2.4 |
% |
|
|
20,715 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
37,565 |
|
|
|
4.7 |
% |
|
$ |
20,957 |
|
|
|
2.8 |
% |
Contract Revenue. Fiscal 2009 revenue increased $62.7 million (8.5%) over fiscal 2008. This
increase was attributable to a $49.6 million (9.6%) increase in cost-reimbursable contract revenue;
a $21.7 million (31.0%) increase in fixed price contract revenue; and an $8.6 million (5.7%)
decline in time and material contract revenue. Naval Architecture and
Marine Engineering revenue increased $40.3 million (12.4%) and was more than 64% of total increased
sales. Modeling and Simulation revenue increased $32.3 million (48.1%) which was more than 51% of
the total sales increase. Information Technology sales grew by $4.5 million (12.1%), about 7% of
overall increased sales. Growth in these areas in 2009 was offset by a $16.4 million decline in
Defense Operations revenue (7.5%), which was more than one-quarter of Alions year over year change
in revenue. Federal government contract revenue increased $78.4 million (11.6%) this year.
Department of Defense contracts accounted for $76.4 million of that increase. Revenue from state
and local government contracts and commercial and international customers continued to decline as
customers in these areas reduced expenses in response to lower tax revenues and weakened customer
demand. Alions increased fixed price revenue is partly due to its decision to offer its
commercial business capabilities to government customers.
Direct Contract Expenses and Gross Profit. Fiscal 2009 direct contract costs increased $49.3
million (8.7%) over fiscal 2008. Direct costs as a percentage of revenue did not materially
change. Direct labor and other costs grew by nearly 10% while subcontract and material costs only
increased by 7.4% reflecting increased work as a prime contractor rather than as a subcontractor.
Fiscal 2009 gross profit grew at a slightly lower rate (7.8%) than revenue did while contract fee
rates increased to historical levels (7.3% overall) compared to the lower levels seen in fiscal
2008 (5.6%).
Operating Expenses. Fiscal 2009 operating expenses were down $3.1 million (2.1% overall)
compared to fiscal 2008 and declined to 18.6% of current year sales. Indirect contract expenses
were down 11.4%, almost $4.6 million, as a result of higher labor productivity and reduced
information technology expenses. Higher rent and related costs ($2.1 million increase) were driven
by expanded use of existing space, declining sublease income and modest escalations in lease costs.
Amortization expense declined by almost $2.0 million as charges for prior years acquired
contracts began to tail off. Credits to stock-based compensation expense in fiscal 2009 were the
result of forfeitures of prior years phantom stock grants. Excluding stock-based compensation
adjustments, fiscal 2009 general and administrative expenses increased $7.1 million (12.1%).
Aggregate executive compensation expenses increased approximately $2.8 million: $5.5 million for
bonuses and long-term incentive programs was offset by $2.7 million in reduced executive severance
costs. The Company expanded its business development and IDIQ contract vehicle program management
office increasing current year costs by $2.4 million. The Company invested an additional $1.9
million in 2009 to expand and improve its information technology and management systems. Reduced
litigation expenses ($1.2 million) offset fiscal 2009 costs to upgrade corporate finance and
accounting functions and consolidate offices in Virginia.
32
Operating Income. Fiscal 2009 operating income of $37.5 million was $16.6 million (79%)
greater than prior year operating income due to higher contract fee margins and reduced operating
expenses. Operating income was 4.7% of revenue, compared to 2.8% of revenue in fiscal 2008.
Other Expense. Other expense for fiscal 2009 increased $8.4 million (18%) over last year
almost solely due to increases in cash interest expense. Last years amendments to the
Subordinated Note increased total interest expense and interest payable in cash ($2.4 million).
The higher interest rate on the Term B Senior Credit Agreement cost the Company $6.5 million more
in interest this year (39% increase) despite slightly lower interest expense for the revolving
credit facility due to lower average balances. Reduced non-cash interest expense from the decline
in the value of outstanding warrants was offset by increased expenses for amortizing fiscal 2008
debt issue costs and loan amendment fees. In fiscal 2008, Alion recognized a $750 thousand gain on
the sale of non-operating assets compared to a $19 thousand loss in 2009. In 2009, the Company
recognized $402 thousand in other income for de-recognition of acquisition-related liabilities.
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Cash Pay Interest |
|
|
|
|
|
|
|
|
Revolver |
|
$ |
1,005 |
|
|
$ |
1,884 |
|
Senior Term Loan |
|
|
22,925 |
|
|
|
16,453 |
|
Senior Unsecured Notes |
|
|
25,625 |
|
|
|
25,625 |
|
Subordinated Note |
|
|
2,447 |
|
|
|
|
|
Other cash pay interest and fees |
|
|
447 |
|
|
|
426 |
|
|
|
|
|
|
|
|
Sub-total cash pay interest |
|
|
52,449 |
|
|
|
44,388 |
|
Deferred and Non-cash Interest |
|
|
|
|
|
|
|
|
Debt issue costs and other non-cash items |
|
|
5,067 |
|
|
|
1,766 |
|
Subordinated Note interest |
|
|
4,917 |
|
|
|
3,978 |
|
Redeemable warrants |
|
|
(7,279 |
) |
|
|
(2,750 |
) |
|
|
|
|
|
|
|
Sub-total non-cash interest |
|
|
2,705 |
|
|
|
2,994 |
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
55,154 |
|
|
$ |
47,382 |
|
|
|
|
|
|
|
|
Income Tax Expense. The Company has filed qualified subchapter-S elections for all of its
wholly-owned domestic subsidiaries to treat them as disregarded entities for federal income tax
purposes. Some states do not recognize the effect of these elections or Alions S-corporation
status. The Companys Canadian subsidiary, Alion Science and Technology (Canada) Corporation,
accrues a tax liability, as required. In fiscal year 2009, the Company recognized a $152 thousand
tax benefit for Canadian research and development tax credits it received. In fiscal year 2008,
the Company recognized $7 thousand in state income tax expense.
Net Loss. This years $17.0 million net loss was $8.3 million (33%) less than last years due
to increased sales, improved contract margins and lower operating expenses that helped offset
higher borrowing costs.
Year ended September 30, 2008 Compared to Year ended September 30, 2007
The table below presents selected comparative financial information for the fiscal years ended
September 30, 2008 and 2007. Our discussion and analysis refers to financial information in this
table and to Alions consolidated financial statements in this annual report on Form 10-K.
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Selected Financial Information |
|
|
|
|
|
Revenue |
|
|
|
|
|
|
Revenue |
|
|
|
(In thousands) |
|
Total revenue |
|
$ |
739,482 |
|
|
|
|
|
|
$ |
737,587 |
|
|
|
|
|
Total direct contract expenses |
|
|
566,408 |
|
|
|
76.6 |
% |
|
|
562,139 |
|
|
|
76.2 |
% |
Major components of direct contract expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct labor expense |
|
|
248,409 |
|
|
|
33.6 |
% |
|
|
245,778 |
|
|
|
33.3 |
% |
Material and subcontract expense |
|
|
295,122 |
|
|
|
39.9 |
% |
|
|
295,099 |
|
|
|
40.0 |
% |
Other direct expense |
|
|
22,877 |
|
|
|
3.1 |
% |
|
|
21,261 |
|
|
|
2.9 |
% |
Gross profit |
|
|
173,074 |
|
|
|
23.4 |
% |
|
|
175,448 |
|
|
|
23.8 |
% |
Total operating expense |
|
|
152,117 |
|
|
|
20.6 |
% |
|
|
161,283 |
|
|
|
21.9 |
% |
Major components of operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect personnel and facilities |
|
|
70,930 |
|
|
|
9.6 |
% |
|
|
76,382 |
|
|
|
10.4 |
% |
General and administrative (excluding stock-
based compensation) |
|
|
58,984 |
|
|
|
8.0 |
% |
|
|
52,358 |
|
|
|
7.1 |
% |
Stock-based compensation |
|
|
500 |
|
|
|
0.1 |
% |
|
|
8,340 |
|
|
|
1.1 |
% |
Depreciation and amortization |
|
|
20,715 |
|
|
|
2.8 |
% |
|
|
21,824 |
|
|
|
3.0 |
% |
Income from operations |
|
$ |
20,957 |
|
|
|
2.8 |
% |
|
$ |
14,165 |
|
|
|
1.9 |
% |
Contract Revenue. Revenue for the year ended September 30, 2008 increased $1.9 million (0.3%)
over fiscal 2007. Naval architecture and marine engineering revenue grew $12.5 million (4.0%) and
modeling and simulation revenue grew $18.1 million (37.0%). Energy and environmental sciences
declined $10.5 million (22.0%), information technology and wireless communications declined $8.9
million (19.2%), defense operations declined $6.2 million (12.8%) and technology integration
declined $3.0 million (5.5%). Revenue from government customers increased $5.9 million, primarily
from civilian departments and agencies, offsetting a $4.0 million drop in commercial revenue.
Increased cost-reimbursable contract and delivery order revenue ($5.1 million) offset declines in
both fixed price and time and material revenue. Revenue from ID/IQ contract delivery orders was up
$66.0 million offsetting declines for all other contract types. Fiscal 2008 revenue increased
immaterially over fiscal 2007 revenue as result of contract funding delays that were not resolved
until after the end of 2008.
Direct Contract Expenses and Gross Profit. Fiscal 2008 direct contract costs increased $4.3
million or 0.8% over prior year levels. Direct cost as a percentage of revenue increased to 76.6%
from 76.2% in fiscal 2007.
Costs for direct labor, and materials and subcontracts increased consistent with Alions modest
revenue growth. Fiscal 2008 gross profit declined $2.4 million (1.4%) compared to fiscal 2007.
This was the result of overall lower contract fee rates which declined to 5.6% compared to 7.3% for
fiscal 2007.
Operating Expenses. Fiscal 2008 operating expenses decreased $9.2 million (5.7%) from fiscal
2007 to 20.6% of revenue. Indirect contract costs and facilities expenses declined $5.5 million
(7.2%) compared to fiscal 2007. Facility costs dropped $4.1 million, while higher labor
productivity reduced indirect labor costs by $1.5 million. General and administrative expenses
declined $1.2 million (2.0%) in fiscal 2008. Stock based compensation expense was $7.8 million
less in fiscal 2008 due to a decline in the estimated value of Alion common stock and forfeitures
of previously recognized grants. Bad debt expense decreased due to improved collections of accounts
receivable. General and administrative expenses increased $3.3 million for settlements with senior
executives; $1.4 million in legal, accounting and other fees for capital structuring and regulatory
filings; $1.2 million for Alion University and human resources programs, and approximately $0.8
million in other administrative expenses. Depreciation and amortization expense for fiscal year
2008 decreased approximately $1.1 million or 5.0% over the year ended September 30, 2007. A $0.5
million increase in depreciation expense for fixed assets partially offset a $1.6 million decline
in amortization expense for intangibles. Depreciation and amortization expense was 2.8% and 3.0% of
revenue for the years ended September 30, 2008 and 2007.
Operating Income. Fiscal 2008 operating income increased $6.8 million to $21.0 million from
$14.2 million for fiscal 2007. Reductions in all operating expense categories offset decreased
contract margins.
Other Expense. Other expense for fiscal 2008 decreased $10.6 million or 18.6% over the prior
year. The majority of the changes came from a $3.8 million current year decrease in interest
expense, $3.0 million of which was related to non-cash accounting charges and the absence of a $6.2
million loss on extinguishment of the Bridge Loan from fiscal 2007.
34
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cash Pay Interest |
|
|
|
|
|
|
|
|
Revolver |
|
$ |
1,884 |
|
|
$ |
2,063 |
|
Senior Term Loan |
|
|
16,453 |
|
|
|
19,573 |
|
Senior Unsecured Notes |
|
|
25,625 |
|
|
|
16,585 |
|
Bridge Loan |
|
|
|
|
|
|
6,810 |
|
Other cash pay interest and fees |
|
|
426 |
|
|
|
286 |
|
|
|
|
|
|
|
|
Sub-total cash pay interest |
|
|
44,388 |
|
|
|
45,317 |
|
Deferred and Non-cash Interest |
|
|
|
|
|
|
|
|
Debt issue costs and other non-cash items |
|
|
1,766 |
|
|
|
3,182 |
|
Subordinated Note interest |
|
|
3,978 |
|
|
|
3,381 |
|
Redeemable warrants |
|
|
(2,750 |
) |
|
|
(654 |
) |
|
|
|
|
|
|
|
Sub-total non-cash interest |
|
|
2,994 |
|
|
|
5,909 |
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
47,382 |
|
|
$ |
51,226 |
|
|
|
|
|
|
|
|
Income Tax Expense. The Company has filed qualified subchapter-S elections for all of its
wholly-owned domestic subsidiaries to treat them as disregarded entities for federal income tax
purposes. Some states do not recognize the effect of these elections or Alions S-corporation
status. The Companys Canadian subsidiary, Alion Science and Technology (Canada) Corporation,
accrues a tax liability, as required. For the years ended September 30, 2008 and 2007, the Company
recorded income tax benefit of $13 thousand and $10 thousand.
Net Loss. The net loss for fiscal year 2008 was less than the prior years loss due to careful
expense management and other factors discussed above.
Liquidity and Capital Resources
The Company requires liquidity to service its debt, invest in capital assets, and fund working
capital and acquisitions. Our principal working capital need is funding accounts receivable, which
increase as our business grows. We are funding our current business with cash from operating
activities and access to our revolving credit facility. We intend to fund future operations in a
similar fashion.
Cash Flows.
The following narrative discusses Alions cash flows for the years ended September 30, 2009
and 2008.
Although Alion lost $8.3 million less this year than last year; fiscal 2009 net operating cash
flows declined $20.3 million in the aggregate compared to fiscal 2008. Non-cash expenses included
in this years net loss were $4.0 million less than last year. Fiscal 2009 cash pay interest
expense increased $8.0 million compared to fiscal 2008 as a result of higher interest rates on the
Companys outstanding debt. However, the Company only paid $44 thousand more in interest this year
than last year. In fiscal 2008, the Company paid cash for both fiscal 2008 and prior year interest
obligations. Although warrants declined $7.3 million in value this year ($4.5 million more than
last year), debt issue cost amortization was up $3.3 million and non-cash interest was up $0.9
million, reflecting charges for loan amendments that occurred last year. In the aggregate,
non-cash interest charges declined by only $0.3 million this year compared to fiscal 2008.
Depreciation and amortization were down $1.8 million and executive compensation accruals were down
$2.0 million offsetting a $1.6 million increase in bad debt expense.
Alion collected $801.2 million in accounts receivable in fiscal 2009, up $27.4 million from
the $773.8 million collected in fiscal 2008. Current year collections were slightly less than total
revenue of $802.2 million as sales grew by more than $62.7 million from 2008 to 2009. The Company
measures days sales outstanding (DSO) based on trailing twelve month revenue and net accounts
receivable. DSO equals net accounts receivable divided by revenue per day (trailing twelve month
revenue divided by 365). During fiscal 2009, DSO decreased by 1.1 days to 82.0 days from 83.1 days
outstanding. Receivables consumed $12.7 million this year compared to providing $18.9 million last
year (a $31.6 million net unfavorable change year over year). This was largely the result of a
$17.4 million increase in customer work for which the Company had yet to receive contract
modifications that offset a $6.2 million net decline in outstanding and currently billable
receivables.
Accounts payable and expense accruals contributed $17.9 million to operating cash flow in 2009
compared to $17.2 million last year. Growth in other liabilities contributed $2.7 million more to
fiscal 2009 operating cash flow than in 2008 ($6.8
million this year versus $4.1 million last year). Accrued unpaid interest contributed $2.5 million
to fiscal 2009 cash flow compared to the $5.6 million we used to reduce last years interest
payable.
35
In fiscal 2009, Alion spent $9.8 million less on investing activities than it did in the prior
fiscal year. In fiscal 2008 Alion paid approximately $7.9 million of prior year acquisition
obligations earn outs and holdbacks. In 2009, we only paid out $166 thousand for a modest earn
out and to buy a number of General Dynamics Corporation delivery orders. This year we only
invested $2.2 million in capital assets compared to the nearly $5.0 million we spent in fiscal
2008. Last years higher capital purchase levels were associated with integrating acquisitions
and outfitting staff.
In fiscal 2009, Alions financing activities consumed $800 thousand less than in 2008 ($11.8
million this year compared to the $12.6 million Alion spent in fiscal 2008). This year Alion
settled its interest rate swap for $4.7 million; last year the Company received $4.3 million in
swap related payments it was able to use to pay down additional Term B senior loan principal. In
2008, the Company also paid off $9.3 million in prior year revolving line of credit principal.
This year the Company paid $3.0 million in Subordinated Note principal; while last year the Company
only paid $0.5 million in related Subordinated Note amendment fees In the aggregate, debt-related
transactions consumed $10.1 million in cash in fiscal 2009, compared to $11.9 million used in
fiscal 2008.
In 2009, the Company redeemed $9.2 million in common stock from ESOP participants, $5.1
million more than last year as more former employees were eligible to request pay outs and ESOP
account balances were higher this year than last year leading to increased re-purchase demands on
the Companys cash flow. Redemptions were offset by $4.8 million in sales to the ESOP Trust for
employee investments plus $2.7 million for September 2008 sales received this year. The Company
used $1.7 million in net transactions with the ESOP Trust in fiscal 2009 compared to $0.7 million
used in fiscal 2008. In all, the Company used $0.8 million less for financing activities in the
current year than it did in 2008.
While the Company cannot predict with any degree of accuracy the extent to which re-purchase
and diversification demands will increase in future years, as more employees meet statutory and
Plan-specific age and length of service requirements, potential diversification demands are likely
to increase. These demands can increase further with any increase in the price of a share of Alion
common stock. While a decline in the price of a share of Alion common stock could reduce the value
of each individual Plan participants beneficial interest, such a potential price decline could be
offset by increased diversification demands and thus might not reduce the aggregate value of future
demands on the Companys cash. The Company attempts to monitor future potential impacts through
reliance in part on internal and external financial models that incorporate Plan census data along
with financial inputs intended to simulate changes in Alions share price.
Despite past covenant breaches that would have limited the Companys ability to use its
revolver and despite a $25 million reduction in revolver availability since last July, the Company
believes it will have sufficient cash from operations and the revolver to meet obligations over the
next twelve months. Alion retains the ability to restrict or defer certain types of cash payments
that in the past caused the Company to fail to comply with certain debt covenants.
Cash flow effects and risks associated with equity-related obligations
Changes in the price of a share of Alion common stock affect stock-based compensation expense,
operating income and warrant-related interest expense. Management is unable to forecast the share
price the ESOP Trustee will determine in future valuations. Because future share prices may differ
from the current share price, the Company is unable to forecast the future expense it is likely to
recognize for already-issued Phantom Stock and SAR plan grants. Alion expects to recognize
non-cash interest expense related to outstanding warrants as the current share price, interest
rates, assumed volatility, and time to time expiration change. The carrying value of the warrants
exceeds their current net cash value by approximately $7.6 million which represents the time value
of the underlying options, $6.7 million of which is associated with the warrants issued in August
2008.
Although current financial information includes the effects of the most recent ESOP Trust
transactions, future expenses for stock-based compensation and warrant-related interest are likely
to differ from estimates as the price of a share of Alion common stock changes. The next regularly
scheduled valuation period will end in March 2010. Interest rates, market-based factors and
volatility, as well as the Companys financial results will affect the future value of a share of
Alion common stock.
36
Certain grantees of SARs and Phantom Stock are permitted to make qualifying elections to
further defer stock-based compensation payments by having funds deposited into a rabbi trust owned
by the Company. These elections will not have a material effect on either Alions planned payments
or its overall anticipated cash outflows.
After each semi-annual valuation period, the ESOP Plan permits former employees and
beneficiaries to request distribution of their vested ESOP account balances. Consistent with the
terms of the Plan, the Company intends to pay distribution requests in five annual installments and
to defer initial payments as permitted. The Plan allows the Company to defer initial installment
payments for five years for former employees who are not disabled, deceased or retired.
Discussion of Debt Structure
The discussion below describes the Term B Senior Credit Agreement, as modified by Amendments
One through Nine and Increments Four and Five; the Subordinated Note as subsequently amended; the
previously effective Bridge Loan Agreement and the Senior Unsecured Notes issued and sold by the
Company.
Term B Senior Credit Agreement
As of September 30, 2009, the Term B Senior Credit Agreement consisted of:
|
|
|
a senior term loan in the approximate amount of $236.6 million; |
|
|
|
a $25.0 million senior revolving credit facility approximately $182 thousand of which
was allocated to letters of credit and deemed borrowed, but none of which was actually
drawn as of September 30, 2009; and |
|
|
|
a $110.0 million uncommitted incremental term loan accordion facility which the
Company may be able to access in the future subject to satisfying a leverage-based
incurrence test. |
In August 2004, Alion entered into the Term B Senior Credit Agreement with a syndicate of
financial institutions for which Credit Suisse serves as arranger, administrative agent and
collateral agent, and for which Bank of America serves as syndication agent.
|
|
|
In April 2005, the first amendment made certain changes and added $72.0 million in
senior term loans to the total Term B Senior Credit Agreement debt. |
|
|
|
In March 2006, the second amendment made certain changes, increased the senior term loan
commitment by $68.0 million (drawn in full) and increased the revolving credit commitment
from $30.0 million to $50.0 million. |
|
|
|
In June 2006, the third amendment made certain changes and added $50.0 million in senior
term loans to the total Term B Senior Credit Agreement debt. |
|
|
|
In January 2007, the fourth increment added $15.0 million in senior term loans to the
total Term B Senior Credit Agreement debt. |
|
|
|
In February 2007, the fourth amendment made certain changes, extended the senior term
loan maturity date to February 6, 2013, adjusted the principal repayment schedule to
require a balloon principal payment at maturity, and added an incurrence test as an
additional condition precedent to Alions ability to borrow additional funds. |
|
|
|
In July 2007, the fifth increment added $25.0 million in senior term loans to the Term B
Senior Credit Agreement. |
|
|
|
On September 30, 2008, the fifth amendment made certain changes. |
|
(a) |
|
It increased the interest rate by 350 basis points to a minimum Eurodollar
interest rate of 3.50% plus 600 basis points, and a minimum alternate base rate of
4.50% plus 500 basis points. |
|
(b) |
|
If the Company refinances, replaces or extends the maturity of its existing
revolving line of credit with an interest rate spread which is more than 50 basis
points higher than the then-current interest rate spread applicable to the Companys
senior term loan, Alions interest rate spread would increase by the difference between
the higher revolving credit facility interest rate spread and 50 basis points. |
|
(c) |
|
Alion is required to use all (formerly half) of excess annual cash flow to
prepay outstanding senior term loans. |
|
(d) |
|
It amended financial covenants to provide Alion flexibility through September
30, 2009. |
|
(e) |
|
It restricts the Companys ability to pay the CEO or COO for previously awarded shares of phantom stock. |
|
(f) |
|
It permits Alion to incur additional second lien debt, subject to certain
conditions. |
37
|
|
|
In July 2009, the sixth amendment extended the revolving credit facility maturity date
to September 25, 2009 (which by later amendment was extended to September 30, 2010) and
reduced the aggregate amount of the revolving credit commitments from $50 million to $40
million (which by later amendment was reduced to $25 million). |
|
|
|
In September 2009, the seventh amendment extended the revolving credit facility maturity
date to October 9, 2009. |
|
|
|
In October 2009, the ninth amendment extended the revolving credit maturity date to
September 30, 2010, added a liquidity condition requiring Alion to pay in kind an
additional 100 basis points in interest if Alion does not secure an additional $35 million
in revolving credit commitments by February 1, 2010, added a leverage reduction condition
requiring Alion to pay in kind an additional 100 basis points in interest if Alions Senior
Secured Leverage Ratio is more than 2.75 to 1.00 as of June 30, 2010 and the additional
interest increases by 50 basis points each quarter thereafter if the leverage ratio is not
met, afforded the senior lenders the opportunity to appoint a designee to Alions board of
directors if Alions Senior Secured Leverage Ratio is more than 2.75 to 1.00 as of June 30,
2010, added a $25 million uncommitted incremental revolving credit facility, removed a
requirement that Alion maintain its S-corporation status, limited Alions ability to make
capital expenditures from June 30, 2009 to September 30, 2010 to $8 million and made other
modifications to Alions negative covenants. |
The Term B Senior Credit Agreement requires the Company to repay one percent of the principal
balance of the senior term loan during each of the next five fiscal years in equal quarterly
installments of approximately $0.6 million through December 31, 2012 and to repay the remaining
outstanding balance of approximately $229.3 million on February 6, 2013.
Under the senior revolving credit facility, Alion may request up to $20.0 million in letters
of credit and may borrow up to $5.0 million in swing line loans for short-term borrowing needs. The
Company must pay all principal obligations under the senior revolving credit facility in full no
later than September 30, 2010.
Alion may prepay all or any portion of its Senior Term Loan in minimum increments of $1
million, generally without penalty or premium, except for customary breakage costs associated with
pre-payment of Eurodollar-based loans. If the Company issues certain permitted debt, or sells,
transfers or disposes of certain assets, it must use all net proceeds to repay outstanding Senior
Term Loan principal. Alion must use all annual excess cash flow to prepay Senior Term Loan
principal. The Senior Credit Facility defines Excess Cash Flow for any fiscal year as Consolidated
EBITDA without duplication plus the decrease, if any, in current assets less current liabilities
for that fiscal year over the sum, without duplication, of (i) taxes payable in cash for the
Company and its Subsidiaries, (ii) Consolidated Interest Expense, (iii) capital expenditures made
in cash other than proceeds from indebtedness, equity raises, casualty losses, condemnation and
other proceeds not part of Consolidated EBITDA, (iv) permanent repayments of Indebtedness not
including repayments of the Companys revolving credit facility, (v) the increase, if any, in
current assets less current liabilities for that fiscal year, (vi) cash purchase price paid for a
permitted acquisition as defined in the Senior Credit Facility, (vii) cash contributions to the
ESOP, and (viii) extraordinary losses, non-recurring expenses and adjustments all to the extent
included in Consolidated EBITDA. The Company had no excess cash flow in either of the fiscal years
ended September 30, 2009 and 2008.
If the Company enters into an additional term loan, or incremental term loan, and certain
terms in that loan are more favorable to the new lenders than existing Senior Credit Facility
terms, the Senior Term Loan interest rate spread can increase. Thus additional term loans could
increase interest expense under Alions existing Term Loans.
The Senior Credit Facility permits Alion to use the Revolver for working capital, other
general corporate purposes, and to finance permitted acquisitions. The Senior Credit Facility
permits the Company to use proceeds from the uncommitted incremental term loan facility to finance
permitted acquisitions or for any other purpose permitted by a future incremental term loan.
If the Company borrows any additional term loan or revolving loan, including an incremental
term loan facility or an incremental revolving credit facility, and certain terms of such loan are
more favorable to the new lenders than existing terms under the Term B Senior Credit Agreement, the
applicable interest rate spread on the senior term loans and the revolving line of credit can
increase. As a result, additional term loans or revolving credit could increase the Companys
interest expense under its existing term loans and the revolving line of credit. Certain of the
Companys subsidiaries (HFA, CATI, METI, JJMA, BMH, WCI, WCGS and MA&D) guaranteed the Companys
obligations under the Companys Term B Senior Credit Agreement.
38
Use of Proceeds. In August 2004, the Company borrowed $50.0 million through the senior term
loan under the Term B Senior Credit Agreement. Alion used approximately $47.2 million to retire its
existing LaSalle Bank senior term loan and
revolving credit facility and paid approximately $2.8 million in transaction fees. In October
2004, the Company borrowed approximately $22.0 million under the senior term loan to retire its
existing $19.6 million mezzanine note and to pay approximately $2.4 million in accrued unpaid
interest and prepayment premium. In April 2005, the Company borrowed $72.0 million in an
incremental term loan under the Term B Senior Credit Agreement. Alion used approximately $58.7
million of the proceeds to pay part of the JJMA acquisition price, and approximately $1.3 million
for term loan transaction fees. The Company used approximately $12.0 million for part of the BMH
acquisition price. In March 2006, Amendment Two made
$68.0 million of term loans available to the Company. Alion used approximately $16.5 million
of these term loan proceeds to pay part of the WCI acquisition price, and approximately $13.6
million to redeem mezzanine warrants held by IIT and the CEO. In May 2006, the Company used $15.0
million of Amendment Two incremental term loan proceeds for part of the MA&D acquisition price. In
June 2006, the Company borrowed $21.0 million in Amendment Two incremental term loans and $50.0
million in Amendment Three incremental term loans to pay part of the Anteon Contracts acquisition
price. In January 2007, Alion paid a $0.3 million fee to borrow $15.0 million under Increment Four
to pay down part of its outstanding senior revolving credit facility balance. In July 2007, Alion
paid a $0.5 million fee to borrow $25.0 million under Increment Five to pay down part of its
outstanding senior revolving credit facility balance.
The Term B Senior Credit Agreement permits the Company to use the remainder of its senior
revolving credit facility for working capital needs, other general corporate purposes, and to
finance permitted acquisitions. The Term B Senior Credit Agreement permits the Company to use any
proceeds from the uncommitted incremental term loan facility to finance permitted acquisitions and
for any other purpose permitted by any future incremental term loan.
Security. The Term B Senior Credit Agreement is secured by a security interest in all of the
Companys current and future tangible and intangible property, as well as all of the current and
future tangible and intangible property of the Companys subsidiaries, HFA, CATI, METI, JJMA, BMH,
WCI, WCGS and MA&D.
Interest and Fees. Under the Term B Senior Credit Agreement, at the Companys election, the
senior term loan and the senior revolving credit facility can each bear interest at either of two
floating rates based on either a Eurodollar base or an alternative base rate (ABR).
Since April 2005 the senior term loans have been at the Eurodollar rate and the senior
revolving credit facility has been at the ABR rate. As of September 30, 2009, the Eurodollar rate
on the senior term loan was 5.49 percent (2.99 percent plus 2.50 percent Eurodollar spread) and the
ABR rate was 6.75 percent (5.00 percent plus 1.75 percent spread).
From October 1, 2007 through September 29, 2008, the interest rate on Alions revolving credit
facility depended on the Companys leverage ratio and whether the Company chose a Eurodollar or
alternate base rate loan. The table below sets out the leverage-based interest rate spreads for
Eurodollar, and prime rate and federal funds rate based ABR loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds |
|
|
Prime Rate |
|
|
|
Eurodollar |
|
|
ABR |
|
|
ABR |
|
Leverage Ratio |
|
Spread |
|
|
Spread |
|
|
Spread |
|
|
|
(in basis points) |
|
Category 1 |
|
|
275 |
|
|
|
225 |
|
|
|
175 |
|
Greater than or equal to 3.00 to 1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Category 2 |
|
|
250 |
|
|
|
200 |
|
|
|
150 |
|
Greater than or equal to 2.50 to
1.00 but less than 3.00 to 1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Category 3 |
|
|
225 |
|
|
|
175 |
|
|
|
125 |
|
Greater than or equal to 2.00 to
1.00 but less than 2.50 to 1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Category 4 |
|
|
200 |
|
|
|
150 |
|
|
|
100 |
|
Less than 2.00 to 1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Since September 30, 2008, the minimum interest rate on Alions term loan and revolving credit
facility has been 9.50% and no longer depends on the Companys leverage ratio. The Eurodollar rate
interest rate is 600 basis points plus a 3.5% minimum interest rate. The alternate base rate is
500 basis points plus a 4.5% minimum interest rate.
Interest Rate Swap. On January 30, 2008, Alion executed an interest rate swap with one of its
lenders to convert floating rate interest payable on a portion of its Term B senior term loan to a
fixed rate, and to shift the timing of some net interest payments related to its Term B senior term
loan. The swap agreement has a notional principal of $240 million and expired on November 1, 2008.
Alion was required to pay interest semi-annually at 6.52% on May 1 and November 1, 2008. The swap
called for the Company to receive floating rate interest payments quarterly on February 1, May 1,
August 1 and November 1, 2008, at the London Interbank Offering Rate plus 250 basis points. The
floating interest rate was 7.31813% for
the six months ended May 1, 2008 and 5.48625% for the six months ended November 1, 2008. All
swap payments were net cash settled.
39
Other Fees and Expenses. Each quarter Alion is required to pay a commitment fee equal to 50
basis points per year on the prior quarters daily unused balances of the revolving credit facility
and the senior term loan. As of September 30, 2009, $182 thousand was allocated to outstanding
letters of credit; the Senior Term Loan was fully utilized. For the year ended
September 30, 2009, the Company paid no Senior Term Loan commitment fee and a fee of $178
thousand for the revolving credit facility.
In addition to issuance and administrative fees, Alion is required to pay a fronting fee not
to exceed 25 basis points for each letter of credit issued. Each quarter Alion is required to pay
interest in arrears at the revolving credit facility rate for all outstanding letters of credit.
The Term B Senior Credit Agreement also requires the Company to pay an annual agents fee.
Financial Covenants. The Company is required to meet two financial covenant tests under its
Senior Credit Facility, a maximum senior secured leverage test and a minimum interest coverage
test, each of which is based in part on EBITDA (earnings before interest, taxes, depreciation and
amortization). Management believes EBITDA is useful in assessing operating performance and in
comparing Alions performance to other companies in the same industry. EBITDA is a common
financial metric in the government contracting industry, in part because it excludes from
performance the effects of a companys capital structure, in particular taxes and interest. EBITDA
is not a measure under U.S. GAAP. It does not measure operating income or liquidity in accordance
with U.S. GAAP and is subject to important limitations on its usefulness as an analytical tool.
Consolidated EBITDA as defined in the Senior Credit Facility excludes from debt-service metrics,
certain non-cash expenses and non-recurring items in order to evaluate the ability of Alions
continuing operations to meet the Companys obligations.
The maximum senior secured leverage test compares at any given time the Companys secured debt
(except its letters of credit) to the Companys Consolidated EBITDA for the period of four
consecutive fiscal quarters most recently ended on or prior to such date.
Consolidated EBITDA is defined as: (a) net income (or loss), as defined therein; plus (b) the
following items, without duplication, to the extent deducted from net income or included in the net
loss, the sum of: (i) interest expense; (ii) provision for income taxes; (iii) depreciation and
amortization, including amortization of other intangible assets; (iv) cash contributions to the
ESOP in respect of the repurchase liability of the Company under the ESOP Plan; (v) any non-cash
charges or expenses including (A) non-cash expenses associated with the recognition of the
difference between the fair market value of the Warrants and the exercise price of the Warrants,
(B) non-cash expenses with respect to the stock appreciation rights and phantom stock plans, and
the Warrants and accretion of the Warrants and (C) non-cash contributions to the ESOP; (vi) any
extraordinary losses and (vii) any nonrecurring charges and adjustments by third-party valuation
firm that prepares valuation reports in connection with the ESOP; minus (c) without duplication,
(i) all cash payments made on account of reserves, restructuring charges and other non-cash charges
added to net income (or included in net loss) pursuant to clause (b)(v) above in a previous period
and (ii) to the extent included in net income (or net loss), any extraordinary gains and all
non-cash items of income, in accordance with GAAP.
The Senior Credit Facility requires that the Companys ratio of total secured senior
indebtedness to Consolidated EBITDA not exceed the following ratios for the time periods indicated:
|
|
|
|
|
Period |
|
Ratio |
|
July 1, 2009 through June 30, 2010 |
|
|
4.00 to 1.00 |
|
July 1, 2010 through December 31, 2010 |
|
|
3.75 to 1.00 |
|
Thereafter |
|
|
3.00 to 1.00 |
|
The interest coverage test compares for any given period the Companys Consolidated EBITDA
less capital expenditures to the Companys Consolidated Interest Expense payable in cash for the
period of four consecutive fiscal quarters most recently ended on or prior to such date.
Consolidated Interest Expense is defined in the Senior Credit Facility for any period as: (a)
interest expense other than imputed interest expense for capital leases and synthetic leases plus
(b) accrued interest which was required to be capitalized all in accordance with GAAP, and is
determined after taking into account net payments made or received from interest rate hedging
agreements.
40
The Senior Credit Facility requires that the Companys Interest Coverage Ratio for any
period of four consecutive fiscal quarters be greater than the following ratios for the time
periods indicated:
|
|
|
|
|
Period |
|
Ratio |
|
July 1, 2009 through March 31, 2010 |
|
|
1.10 to 1.00 |
|
April 1, 2010 through June 30, 2010 |
|
|
1.15 to 1.00 |
|
July 1, 2010 through December 31, 2010 |
|
|
1.25 to 1.00 |
|
Thereafter |
|
|
1.35 to 1.00 |
|
The Companys Senior Secured Leverage and Interest Coverage Ratios for the twelve-month
periods ended September 30, 2009 and 2008 are included below.
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Senior Secured Leverage Ratio |
|
|
3.57 |
|
|
|
4.15 |
|
Interest Coverage Ratio |
|
|
1.17 |
|
|
|
1.60 |
|
Waiver Agreement
The Term B Senior Credit Agreement requires Alion to satisfy two financial covenants, a senior
secured leverage test and an interest coverage test which compare Alions senior secured debt and
its interest expense to its Consolidated EBITDA, and maintain certain minimum thresholds which vary
from period to period. Alion recently discovered that historically it has not calculated
Consolidated EBITDA in accordance with the definition of Consolidated EBITDA in the Term B Senior
Credit Agreement. The Term B Senior Credit Agreement requires Alion to deduct from Consolidated
EBITDA cash payments made in a current accounting period on account of reserves, restructuring
charges and other non-cash charges that Alion added to its Consolidated EBITDA in a prior
accounting period as permitted by the definition. Alion discovered that in calculating
Consolidated EBITDA it has not historically reduced it by cash payments made on account of non-cash
charges added back in prior periods related to, among other things, Alions SAR, phantom stock and
LTIP plans.
As a result of miscalculating Consolidated EBITDA, the Company failed to comply with its
senior secured leverage ratio test (or predecessor test) beginning with its fiscal quarter ending
June 30, 2006 and continued to fail to comply through the quarter ending June 30, 2009 except the
Company complied for the quarters ending March 31, 2007, June 30, 2007 and September 30, 2007. The
Company also failed to comply with its interest coverage ratio test beginning with its quarter
ending December 31, 2007 and continued to fail to comply through the quarter ending September 30,
2009.
The following two tables indicate each quarter ended in which Alion failed to satisfy its
senior secured leverage ratio (or predecessor ratio) and its interest coverage ratio, the ratios
Alion was required to satisfy and Alions actual performance. The Term B Senior Credit Agreement
tests Alions senior secured leverage and interest coverage quarterly on a four trailing quarter
basis.
Senior Secured Leverage Ratio
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Required Ratio |
|
|
Actual Performance |
|
June 30, 2006 |
|
|
6.50 |
|
|
|
6.87 |
|
September 30, 2006 |
|
|
6.50 |
|
|
|
6.74 |
|
December 31, 2006 |
|
|
6.50 |
|
|
|
6.84 |
|
December 31, 2007 |
|
|
3.75 |
|
|
|
4.01 |
|
March 31, 2008 |
|
|
3.75 |
|
|
|
4.07 |
|
June 30, 2008 |
|
|
3.75 |
|
|
|
4.37 |
|
September 30, 2008 |
|
|
4.10 |
|
|
|
4.56 |
|
December 31, 2008 |
|
|
4.10 |
|
|
|
4.49 |
|
March 31, 2009 |
|
|
4.25 |
|
|
|
4.58 |
|
June 30, 2009 |
|
|
4.25 |
|
|
|
4.36 |
|
41
Interest Coverage Ratio
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Required Ratio |
|
|
Actual Performance |
|
December 31, 2007 |
|
|
1.35 |
|
|
|
1.23 |
|
March 31, 2008 |
|
|
1.35 |
|
|
|
1.34 |
|
June 30, 2008 |
|
|
1.35 |
|
|
|
1.11 |
|
September 30, 2008 |
|
|
1.20 |
|
|
|
1.19 |
|
December 31, 2008 |
|
|
1.10 |
|
|
|
1.09 |
|
March 31, 2009 |
|
|
1.05 |
|
|
|
0.97 |
|
June 30, 2009 |
|
|
1.05 |
|
|
|
1.03 |
|
September 30, 2009 |
|
|
1.10 |
|
|
|
1.07 |
|
The failure to satisfy the senior secured leverage ratio (or predecessor test) and the
interest coverage ratio for the periods indicated resulted in Alion consequentially breaching a
number of affirmative and negative covenants in the Credit Facility. The affirmative covenants
consequentially breached related to Alions obligation to deliver to the Administrative Agent (a)
compliance certificates and supporting materials and (b) financial statements. The negative
covenants consequentially breached related to Alions obligation to refrain while in default from
(a) making certain restricted payments related to Alions stock appreciation rights and phantom
stock plans, (b) making certain restricted payments to departing employees under Alions ESOP, (c)
paying certain non-employee directors fees, (d) pre-paying principal on Alions junior subordinated
notes ahead of regularly scheduled times, and (e) paying certain earn-out obligations in connection
with consummated acquisitions. Further, each time Alion drew under its Revolver or borrowed a Term
Loan, Alion was deemed to make certain representations and warranties to the lenders under the Term
B Senior Credit Agreement, and, as a result of Alion breaching the various financial, affirmative
and negative covenants described above, certain of Alions representations and warranties were
incorrect.
On December 14, 2009, the Company entered into a waiver with the required lenders under the
Term B Senior Credit Agreement (Waiver). Under the Waiver, the requisite lenders under the Term B
Senior Credit Agreement waived all of Alions financial, affirmative and negative covenant defaults
described above, and its breach of certain representations and warranties, existing on December 14,
2009 and any defaults which will occur solely as a result of the proper application of required
cash deductions in the calculation of Consolidated EBITDA for the fiscal year and quarter ended
September 30, 2009.
Pursuant to the Waiver, Alion paid each lender granting the waiver a waiver fee in the amount
of 0.25% of the aggregate principal amount of the term loans and revolving credit commitments of
such lender outstanding on December 14, 2009. Alion has also promised to pay on March 1, 2010 each
lender granting the waiver a future fee equal to 1.0% of the aggregate principal amount of the term
loans and revolving credit commitments of such lender outstanding on March 1, 2010 unless such
lender shall have assigned all or a portion of such lenders holdings, in which case such lenders
assignee (unless otherwise agreed) shall be entitled to the future and supplemental 1.0% fee
payable by Alion. Alion paid an additional arrangement fee to the Administrative Agent in
connection with securing the Waiver.
The Waiver does not change any of the terms or definitions of the Term B Senior Credit
Agreement. Going forward, the Company will be required to deduct cash payments relating to the
settlement of deferred compensation plans and certain retirement obligations in the calculation of
Consolidated EBITDA.
As of September 30, 2009, after taking into account the provisions of the Waiver, we were in
compliance with the financial covenants set forth in our Term B Senior Credit Agreement. The
Companys above-mentioned financial, affirmative and negative covenant defaults under the Credit
Agreement resulted in the Companys Term B senior term loan and revolving loan payable balances
being callable either by the administrative agent or by lenders holding a majority of the value of
the outstanding loans and therefore, as of the issuance of the Companys fiscal year 2008 financial
statements and the financial statements for each of the first three quarters of fiscal year 2008
and 2009, such balances should have been classified as current liabilities.
42
The Term B Senior Credit Agreement includes other covenants which, among other things,
restrict the Companys ability to do the following without the prior consent of syndicate bank
members that have extended more than 50 percent of the aggregate amount of all loans then
outstanding under the Term B Senior Credit Agreement:
|
|
|
incur additional indebtedness other than permitted additional indebtedness after
satisfying a senior secured leverage-based incurrence test; |
|
|
|
consolidate, merge or sell all or substantially all of the Companys assets; |
|
|
|
make certain loans and investments including acquisitions of businesses, other than
permitted acquisitions; |
|
|
|
pay dividends or distributions other than distributions needed for the ESOP to satisfy
its repurchase obligations and certain payments required under the Companys equity based
incentive plans; |
|
|
|
enter into certain transactions with the Companys shareholders and affiliates; |
|
|
|
enter into certain transactions not permitted under ERISA; |
|
|
|
grant certain liens and security interests; |
|
|
|
enter into sale and leaseback transactions; |
|
|
|
change lines of business; |
|
|
|
repay subordinated indebtedness before it is due and redeem or repurchase certain
equity; |
|
|
|
pay certain earn-outs in connection with permitted acquisitions; |
|
|
|
spend more than $8 million on capital expenditures from June 30, 2009 to September 30,
2010; |
|
|
|
make payments to directors, officers, and employees of the Company or its subsidiaries
in connection with warrants, stock appreciation rights, phantom stock plans or similar
incentives or equity-based incentives in excess of $20 million in the aggregate; or |
|
|
|
use the proceeds of the Companys borrowings other than as permitted by the Term B
Senior Credit Agreement. |
Events of Default. The Term B Senior Credit Agreement contains customary events of default
including, without limitation:
|
|
|
breach of representations and warranties; |
|
|
|
uncured covenant breaches; |
|
|
|
default under certain other debt exceeding an agreed amount; |
|
|
|
bankruptcy and insolvency events; |
|
|
|
notice of debarment, suspension or termination under a material government contract; |
|
|
|
certain ERISA violations; |
|
|
|
unstayed judgments in excess of an agreed amount; |
|
|
|
failure of the subordinated note to remain subordinated to the Term B Senior Credit
Agreement; |
|
|
|
failure of any guarantee of the Term B Senior Credit Agreement to be in effect; |
|
|
|
failure of the security interests to be valid, perfected first priority security
interests in the collateral; |
|
|
|
failure of the Company to remain an S-corporation; |
|
|
|
imposition on the ESOP Trust of certain taxes in excess of an agreed amount; |
|
|
|
final determination the ESOP is not a qualified plan; |
|
|
|
incurrence of a civil or criminal liability in excess of $5 million of the Company or
any subsidiary arising from a government investigation; |
|
|
|
actual termination of a material contract due to alleged fraud, willful misconduct,
negligence, default or any other wrongdoing; or |
|
|
|
change of control (as defined below). |
For purposes of the Term B Senior Credit Agreement, a change of control generally occurs when,
before Alion lists its common stock to trade on a national securities exchange and the Company
obtains net proceeds from an underwritten public offering of at least $30.0 million, the ESOP Trust
fails to own at least 51 percent of the Companys outstanding equity interests, or, after the
Company has such a qualified public offering, any person or group other than IIT or the ESOP Trust
owns more than 37.5 percent of the Companys outstanding equity interests. A change of control may
also occur if a majority of the seats (other than vacant seats) on Alions Board of Directors shall
at any time be occupied by persons who were neither nominated by the board nor were appointed by
directors so nominated. A change of control may also occur if a change of control occurs under any
of Alions material indebtedness including the Companys Indenture or under Alions subordinated
note related warrants.
43
Bridge Loan Agreement
In June 2006, the Company entered into a Bridge Loan Agreement with Credit Suisse and borrowed
$170 million (the Bridge Loan). Certain of the Companys subsidiaries guaranteed the Bridge Loan
Agreement. The Company used the proceeds from the Bridge Loan to pay part of the cost of acquiring
the Anteon Contracts. In February 2007, the Company used a majority of the proceeds from the
Senior Unsecured Notes to repay the Bridge Loan.
Subordinated Note Redeemable Common Stock Warrants
In December 2002, Alion issued a $39.9 million Subordinated Note to IITRI as part of the
purchase price for substantially all of IITRIs assets. In July 2004, IIT acquired the
Subordinated Note and related warrant agreement from IITRI. In June 2006, the Company and IIT
agreed to increase the interest rate on the Subordinated Note for two years from December 2006
through December 2008. In August 2008, the Company and IIT amended the Subordinated Note to:
extend the maturity date of the Subordinated Note to August 2013; require Alion to re-pay $3.0
million in principal in November 2008, 2009 and 2010, and $2.0 million in November 2011; and
require Alion to pay cash interest at 6% rather than 16%, along with 10% in non-cash interest to be
added to principal. The amended Subordinated Note agreement prohibits Alion from redeeming vested
phantom stock held by the Chief Executive Officer and Chief Operating Officer unless the Company
timely makes its scheduled principal payment each year. The Company paid IIT a $0.5 million
amendment fee.
Up to and including December 2008, interest on the Subordinated Note was payable quarterly in
arrears by issuing paid-in-kind (PIK) notes maturing at the same time as the Subordinated Note.
The interest rate was 6.0% from December 2002 through December 2006; approximately 6.4% from
December 2006 to December 2007; and approximately 6.7% from December 2007 to December 2008. After
December 2008, interest is still payable quarterly in arrears, 6% to be paid in cash and 10% to be
paid in PIK notes due August 2013. Existing and future PIK notes defer related cash interest
expense on the Subordinated Note. Over the term of the Subordinated Note, Alion will issue
approximately $41.4 million in PIK notes. In addition to the principal payments required each
November from 2008 through 2011, Alion is required to pay a total of $70.3 million in principal and
PIK notes in August 2013.
In December 2002, the Company issued 1,080,437 detachable, redeemable common stock warrants at
an exercise price of $10.00 per share. Alion issued the warrants to IITRI in connection with the
Subordinated Note. The Company recognized approximately $7.1 million for the initial fair value of
the warrants as original issue debt discount to the $39.9 million face value of the Subordinated
Note. The Subordinated Note warrants were originally exercisable until December 2010. In June
2004, IITRI transferred the warrants to IIT.
In August 2008, Alion amended and restated the original warrants and issued an additional
550,000 redeemable common stock warrants at an exercise price of $36.95 per share. The Company
issued the second set of warrants to IIT in connection with the amendment of the Subordinated Note.
The new warrants are exercisable from April 2009 to September 2013 at the then-current fair value
per share of Alion common stock, less the exercise price. The original warrants are exercisable
currently and through September 2013. The Company recognized approximately $10.3 million in
debt issue costs for the fair value of the August 2008 warrants and the amendment to the December
2002 warrants.
Alion has classified the warrants as debt instruments and not equity, in accordance with ASC
815-40. The Company recognizes interest expense for changes in the fair value of the warrants
which had an aggregate estimated fair value of $32.7 million as of September 30, 2009. On December
21, 2009, Alion entered into a Note and Warrant Redemption Agreement, Fourth Amendment to Seller
Note Securities Purchase Agreement, First Amendment to the Second Amended and Restated Seller Note
and Rights Agreement Termination Agreement (the Redemption Agreement) dated as of December 18,
2009 between Alion and IIT.
Under the Redemption Agreement, Alion has agreed to redeem and repurchase, and IIT has agreed
to sell to Alion for an aggregate redemption and repurchase price of $25,000,000, (a) Alions
Second Amended and Restated Seller Note issued to and held by IIT with a capitalized aggregate
principal amount as of December 21, 2008 of $51,703,538.40 (the Seller Note), (b) a warrant
issued to and held by IIT to purchase 1,080,436.8 shares of Alion common stock for $10 per share
(Warrant No. 3), and (c) a warrant held by IIT to purchase 550,000 shares of Alion common stock
for $36.95 per share (Warrant No. 4 and with Warrant No. 3, the Seller Warrants).
Alions obligation to redeem and repurchase the Seller Note and the Seller Warrants remains
subject to certain conditions including, among others, Alion having: (a) access to sufficient
capital under the terms of its various debt agreements to pay the redemption and repurchase price;
and (b) permission or the right to pay IIT the redemption and repurchase price under Alions
various debt agreements.
44
Alion and IIT have agreed that interest otherwise due and payable under the Seller
Note on January 2, 2010 will not be due and payable until April 1, 2010. Upon the closing of the
redemption and repurchase of the Seller Note and the Seller Warrants, (a) the Seller Note
Securities Purchase Agreement and the Rights Agreement each dated as of December 20, 2002
between Alion and IIT (as successor to Illinois Institute of Technology Research Institute) will
terminate, and (b) two current members of Alions Board of Directors nominated by IIT will resign.
IIT has agreed not to exercise the Seller Warrants prior to March 31, 2010, and if Alion has not
redeemed and repurchased the Seller Note and the Seller Warrants by March 31, 2010, either Alion or
IIT may terminate the Redemption Agreement.
Senior Unsecured Notes
On February 8, 2007, Alion issued and sold $250.0 million of its private 10.25% senior
unsecured notes due February 1, 2015 (Senior Unsecured Notes) to Credit Suisse, which informed the
Company it had resold most of the notes to qualified institutional buyers. On June 20, 2007, Alion
exchanged its private Senior Unsecured Notes for publicly tradable Senior Unsecured Notes with the
same terms.
Interest and Fees. The Senior Unsecured Notes bear interest at 10.25% per year, payable
semi-annually in arrears on February 1 and August 1. Alion pays interest to holders of record as
of the immediately preceding January 15 and July 15. The Company must pay interest on overdue
principal or interest at 11.25% per annum to the extent lawful.
Covenants. As of September 30, 2009, the Company was in compliance with the covenants set
forth in the Companys Indenture with respect to the Companys 10.25% Senior Unsecured Notes. The
Companys Indenture does not contain any financial covenants.
The Company is subject to a covenant under its Indenture that restricts the Companys ability
to incur additional indebtedness. The Company and its Restricted Subsidiaries are prohibited from
issuing, incurring, assuming, guaranteeing, and otherwise becoming liable for any Indebtedness as
defined under the Indenture unless the Companys ratio of Adjusted EBITDA to Consolidated Interest
Expense (each as defined in the Indenture) exceeds 2.0 to 1.0. Even if the Companys Adjusted
EBITDA to Consolidated Interest Expense does not exceed 2.0 to 1.0, the Company may incur other
permitted indebtedness which includes:
|
|
|
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 Companys 10.25% notes |
|
|
|
Indebtedness pre-existing the issuance of the Companys 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 Companys 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 Companys balance
sheet |
|
|
|
Certain deferred compensation agreements |
|
|
|
Certain other indebtedness not exceeding $35 million. |
45
The Company is subject to a covenant under its Indenture that restricts the Companys ability
to declare and pay any cash dividend or other distribution with regard to any equity interest in
the Company, make any repurchase or redemption of any equity interest of the Company, make any
repurchase or redemption of subordinated indebtedness, and make certain investments, except that
the Company may make such payments in limited amounts if the Companys ratio of Adjusted EBITDA to
Consolidated Interest Expense exceeds 2.0 to 1.0 subject to certain limitations. Even if the
Companys Adjusted EBITDA to Consolidated Interest Expense does not exceed 2.0 to 1.0, the Company
may make or pay:
|
|
|
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 Companys 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
Companys 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. |
The Indenture restricts the Companys ability to engage in other transactions including
restricting the ability of subsidiaries to make distributions and pay dividends to parents, merging
or selling all or substantially all of the Companys assets, making certain issuances of Subsidiary
equity securities, engaging in certain transactions with affiliates, incurring liens, entering into
sale lease-back transactions and engaging in business unrelated to the Companys business at the
time the Company issued the Senior Unsecured Notes.
Events of Default. The Indenture contains customary events of default, including:
|
|
|
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. Upon a change in control, each Senior Unsecured Note holder has the right
to require Alion repurchase its notes in cash for 101% of principal plus accrued and unpaid
interest. Any of the following events constitutes a change in 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 Alions board of directors on the date the Senior Unsecured
Notes were issued, cease for any reason to constitute a majority of the Companys board of
directors; |
|
|
|
the adoption of a plan relating to Alions liquidation or dissolution; and |
|
|
|
subject to certain exceptions, the merger or consolidation of the Company with or into
another person or the merger of another person with or into the Company, or the sale of all
or substantially all the assets of Alion to another person. |
46
Optional Redemption. Prior to February 1, 2011, the Company may redeem all, but not less than
all, of the Senior Unsecured Notes at a redemption price equal to 100% of the principal amount of
the Senior Unsecured Notes plus accrued and unpaid interest to the redemption date plus an
applicable make-whole premium as of the redemption date.
In addition, any time prior to February 1, 2010, subject to certain conditions, the Company
may use the proceeds of a qualified equity offering to redeem Senior Unsecured Notes in an
aggregate principal amount not to exceed $87.5 million at a redemption price equal to the sum of
110.25% of the aggregate principal amount of the notes actually redeemed, plus accrued and unpaid
interest to the redemption date.
On or after February 1, 2011, the Company may redeem all or a portion of the Senior Unsecured
Notes at the redemption prices set forth below (expressed in percentages of principal amount on the
redemption date), plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period commencing on February 1 of the years set forth below:
|
|
|
|
|
Period |
|
Redemption Price |
|
2011 |
|
|
105.125 |
% |
2012 |
|
|
102.563 |
% |
2013 and thereafter |
|
|
100.000 |
% |
Exchange Offer; Registration Rights. The Company filed a registration statement with the
SEC offering to exchange the Senior Unsecured Notes for publicly registered notes. The
registration statement was declared effective May 10, 2007; the exchange offer closed June 20,
2007; all outstanding notes were exchanged for publicly registered notes. During the next seven
fiscal years the Company expects that at a minimum, it will have to make the estimated interest and
principal payments set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6-Fiscal Years ($ In thousands) |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
Bank revolving credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Interest(1) |
|
$ |
1,357 |
|
|
$ |
1,148 |
|
|
$ |
940 |
|
|
$ |
728 |
|
|
$ |
178 |
|
|
$ |
178 |
|
Senior Term Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Interest(2) |
|
|
22,701 |
|
|
|
22,467 |
|
|
|
22,598 |
|
|
|
8,309 |
|
|
|
|
|
|
|
|
|
- Principal(3) |
|
|
2,433 |
|
|
|
2,433 |
|
|
|
2,433 |
|
|
|
229,297 |
|
|
|
|
|
|
|
|
|
Senior Unsecured Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Interest |
|
|
25,625 |
|
|
|
25,625 |
|
|
|
25,625 |
|
|
|
25,625 |
|
|
|
25,625 |
|
|
|
12,813 |
|
- Principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Subordinated Note(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Interest |
|
|
3,223 |
|
|
|
3,369 |
|
|
|
3,594 |
|
|
|
3,332 |
|
|
|
|
|
|
|
|
|
- Principal |
|
|
3,000 |
|
|
|
3,000 |
|
|
|
2,000 |
|
|
|
70,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash pay interest |
|
|
53,074 |
|
|
|
52,977 |
|
|
|
53,291 |
|
|
|
38,497 |
|
|
|
25,803 |
|
|
|
12,991 |
|
Total cash pay principal |
|
|
5,433 |
|
|
|
5,433 |
|
|
|
4,433 |
|
|
|
299,608 |
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
55,339 |
|
|
$ |
55,042 |
|
|
$ |
55,190 |
|
|
$ |
337,602 |
|
|
$ |
25,803 |
|
|
$ |
262,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Alion anticipates it will regularly utilize a $25.0 million revolving credit facility to meet
working capital needs. The present revolving credit facility matures in September 2010. The
Company expects to replace it with a similar facility at least through 2015. Alion estimates
the average utilized revolver balance will be $13.5 million for fiscal year 2010; $11.2
million for fiscal year 2011, $8.9 million for 2012, $6.6 for 2013 through 2015 and minimal
thereafter. Interest expense includes estimated fees for the unused balance of a $25.0 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. Alion expects it will be able to meet existing Term B Senior Credit Agreement
financial covenants for the next 12 months. Therefore, the Company believes it will continue
to have access to its $25.0 million revolving credit facility. |
|
(2) |
|
Alion forecasts the average annual Term B Senior Credit Agreement senior term loan balance
will be:$235.7 million, $233.3 million, $230.8 million, and $81.0 million for fiscal years
2010 through 2013. The senior term loan matures February 2013. The Company expects it will need
to refinance the Term B senior term loan before it matures and forecasts
interest expense to continue at levels similar to prior years based on a forecast LIBOR rate
plus the Credit Suisse Eurodollar spread. If Alion does not meet certain financial covenants by
February 2010, interest on the Term B Senior Credit Agreement will increase beyond this rate by
100 basis points retroactive to the beginning of fiscal 2010. If Alion does not meet certain
additional financial covenants by June 2010, interest will increase by an additional 100 basis
points retroactive to the beginning of fiscal 2010. Each quarter that Alion continues not to
meet the June 2010 financial covenants, interest will increase by a further 25 basis points.
Alion estimates the effective annual interest rates for the fiscal years 2010 through 2013 will
be approximately 9.6%, 9.6%, 9.8%, and 10.1%. Interest expense includes estimated senior term
loan commitment fees. Alion expects it will be able to meet existing Term B Senior Credit
Agreement financial covenants for the next 12 months and that the senior term loan principal
will not be callable prior to maturity. |
47
|
|
|
(3) |
|
The Term B Senior Credit Agreement requires Alion to repay approximately 1.0 percent of the
principal balance outstanding under the senior term loan annually. On a cumulative basis,
Alion will pay approximately 4.3% of the principal through the first quarter of fiscal year
2013. The remaining principal balance is due on February 6, 2013, the senior term loan
maturity date. The table reflects the balance drawn of $236.6 million as of September 30,
2009,payments of approximately $2.4 million in each fiscal year from 2010 through 2012,
approximately $0.6 million payable the first quarter of fiscal 2013, and payment of the
remaining principal (balance of $228.7 million) on February 2013. If Alion generates certain
excess cash flow in a given fiscal year, issues or incurs certain debt or sells certain
assets, the Term B Senior Credit Agreement requires the Company to prepay a portion of the
principal. As of September 30, 2009, no mandatory prepayments are due. |
|
(4) |
|
The Term B Senior Credit Agreement prohibits Alion from making cash payments for principal or
interest on the Subordinated Note. The Company and IIT modified the Subordinated Note to
defer cash interest payments due January 2010 to April 2010. Failure to timely pay
Subordinated Note principal is not an event of default; failure to pay Subordinated Note
interest is an event of default that can accelerate repayment of the Term B Senior Credit
Agreement. The Company expects to be able to either retire the Subordinated Note prior to
April 2010 or amend it to defer cash interest payments until after the Term B Senior Credit
Agreement expires. |
Contingent Obligations
Earn-outs
The Company has one remaining earn-out commitment arising from its July 2007 LogCon Group
acquisition. The maximum potential earn out is $600 thousand though July 2011; $100 thousand has
already been earned. Through fiscal 2009, the Company had paid $50 thousand in LogCon Group
earn-outs. In fiscal 2008, the Company paid approximately $7.9 million for other earn out
obligations. Management believes any future LogCon Group earn-outs will not materially affect
Alions cash flows, financial position or operating results.
Other Contingent obligations which will impact the Companys cash flow
KSOP share repurchases and diversifications and Subordinated Note warrant put rights will
affect Alions cash flow.
Through September 2009, Alion had spent a cumulative total of approximately $71.6 million to
repurchase shares of its common stock to satisfy ESOP distribution requests from former employees
and Plan beneficiaries. Last year, the Company changed its prior practice of immediately paying
out all distribution requests in full. In March 2008, Alion began paying ESOP beneficiaries over
the five-year distribution period permitted by ERISA and the terms of the Plan. Alion intends to
continue this practice for the foreseeable future in part to offset the cash flow effects of annual
employee diversification requests that began in 2008 which are also expected to continue for the
foreseeable future. Management estimates that cash flow benefits from using a five-year payout
cycle will diminish over the next three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Total Value |
|
Date |
|
Shares Repurchased |
|
|
Share Price |
|
|
Purchased |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2007 |
|
|
90 |
|
|
$ |
40.05 |
|
|
$ |
4 |
|
December 2007 |
|
|
210 |
|
|
|
40.05 |
|
|
|
8 |
|
February 2008 |
|
|
648 |
|
|
|
40.05 |
|
|
|
26 |
|
March 2008 |
|
|
19,961 |
|
|
|
40.05 |
|
|
|
799 |
|
March 2008 |
|
|
10,011 |
|
|
|
41.00 |
|
|
|
410 |
|
April 2008 |
|
|
60 |
|
|
|
40.05 |
|
|
|
2 |
|
July 2008 |
|
|
306 |
|
|
|
41.00 |
|
|
|
13 |
|
September 2008 |
|
|
68,009 |
|
|
|
41.00 |
|
|
|
2,788 |
|
December 2008 |
|
|
233 |
|
|
|
38.35 |
|
|
|
9 |
|
March 2009 |
|
|
189,038 |
|
|
|
38.35 |
|
|
|
7,250 |
|
April 2009 |
|
|
122 |
|
|
|
34.30 |
|
|
|
4 |
|
May 2009 |
|
|
38 |
|
|
|
34.30 |
|
|
|
1 |
|
July 2009 |
|
|
100 |
|
|
|
34.30 |
|
|
|
3 |
|
July 2009 |
|
|
127 |
|
|
|
38.35 |
|
|
|
5 |
|
August 2009 |
|
|
178 |
|
|
|
34.30 |
|
|
|
6 |
|
September 2009 |
|
|
55,282 |
|
|
|
34.30 |
|
|
|
1,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
344,913 |
|
|
|
|
|
|
$ |
13,225 |
|
48
Alion management believes cash flow from operations and cash available under current and
anticipated revolving credit facilities should provide sufficient capital to fulfill current
business plans and fund working capital needs for at least the next 24 months. The Company intends
to continue its focus on organic growth, margin improvement and process improvement. Management
expects to continue improving cash flow from operations through more frequent electronic invoicing
and improved business practices overall. Although Alion expects to have positive cash flow from
operations, it will need to generate significant additional revenue beyond current levels and earn
net income in order to repay principal and interest on the Term B Senior Credit Agreement, the
Senior Unsecured Notes, the Subordinated Note and Warrants, and to meet ESOP repurchase and
diversification obligations.
The Term B Senior Credit Agreement and the Indenture governing the Senior Unsecured Notes
allow Alion to make certain permitted acquisitions, and the Company intends to use financing
available under the Term B Senior Credit Agreement to do so. Alion will need to renew or replace
its existing revolving credit facility prior to September 2010, and plans to refinance the Term B
senior term loan before its February 2013 maturity. In October 2009, the ninth amendment to the
Credit Facility reduced the aggregate amount of the revolving credit commitments to $25 million.
The Company is uncertain whether it will be able to refinance these obligations or if refinancing
terms will be favorable. If Alion is unable to refinance the Term B senior term loan, it will not
have sufficient cash from operations to satisfy all of its obligations. If plans or assumptions
change, if assumptions prove inaccurate, if Alion consummates additional or larger investments in
or acquisitions of other companies than are currently planned, if the Company experiences
unexpected costs or competitive pressures, or if existing cash and projected cash flow from
operations prove insufficient, the Company may need to obtain greater amounts of additional
financing and sooner than expected. While Alion intends only to enter into new financing or
refinancing it considers advantageous, given the current state of the credit markets, the Company
cannot be certain sources of financing will be available in the future, or, if available, that
financing terms would be favorable.
The following table summarizes the contractual and other forecasted long-term debt obligations
the Company is legally obligated to pay.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year |
|
|
|
Total |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt including
principal and interest |
|
$ |
791,967 |
|
|
$ |
55,339 |
|
|
$ |
55,042 |
|
|
$ |
55,190 |
|
|
$ |
337,602 |
|
|
$ |
25,803 |
|
|
$ |
262,991 |
|
Lease Obligations |
|
|
148,110 |
|
|
|
27,350 |
|
|
|
25,700 |
|
|
|
21,731 |
|
|
|
20,403 |
|
|
|
13,979 |
|
|
|
38,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual
obligations |
|
$ |
940,077 |
|
|
$ |
82,689 |
|
|
$ |
80,742 |
|
|
$ |
76,921 |
|
|
$ |
358,005 |
|
|
$ |
39,782 |
|
|
$ |
301,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Financing Arrangements
The Company accounts for operating leases entered into in the routine course of business in
accordance with ASC 840 Leases. The Company has no off-balance sheet financing arrangements other
than its operating leases. The Company has no relationship with any unconsolidated or special
purpose entity, nor has it issued any guarantees.
Summary of Critical Accounting Policies
Revenue Recognition
Alion derives its revenue from delivering technology services under a variety of contracts.
Some contracts provide for reimbursement of costs plus fees; others are fixed-price or
time-and-material type contracts. The Company generally recognizes revenue when a contract has been
executed, the contract price is fixed or determinable, delivery of services or products has
occurred and collectibility of the contract price is considered reasonably assured.
49
Alion recognizes revenue on cost-reimbursement contracts as it incurs costs and includes
estimated fees earned. The Company recognizes time-and-material contract revenue at negotiated,
fixed, contractually billable rates as it delivers labor hours and incurs other direct expenses.
Alion uses various performance measures under the percentage of completion method to recognize
revenue for fixed-price contracts. Estimating contract costs at completion and recognizing revenue
appropriately involve significant management estimates. Actual costs may differ from estimated
costs and affect estimated profitability and timing of revenue recognition. From time to time,
facts develop that require Alion to revise estimated total costs or expected revenue. Alion records
the cumulative effect of revised estimates in the period in which the facts requiring revised
estimates become known. Alion recognizes the full amount of anticipated losses on any type of
contract in the period in which a loss becomes known. For each of the periods presented, the
cumulative effects of revised estimates were immaterial to the Companys financial performance.
Contracts with agencies of the federal government are subject to periodic funding by the
contracting agency concerned. A contract may be fully funded at its inception or ratably throughout
its period of performance as services are provided. If the Company determines contract funding is
not probable, it defers revenue recognition until realization is probable. Federal government
contract costs are subject to federal government audit and adjustment through negotiations with
government representatives. The government considers Alion a major contractor and maintains an
office on site to perform various audits. The government has audited the Companys claimed costs
through fiscal year 2004. Indirect rates have been negotiated and settled through fiscal year 2004.
Settlement had no material adverse effect on the Companys results of operations or cash flows.
DCAA is currently auditing the Companys indirect cost proposals for fiscal 2005 and 2006. The
Company submitted its fiscal year 2008 and 2007 indirect cost proposals in March 2009 and 2008 and
expects to submit its current year proposal in March 2010. The Company has recorded revenue on
federal government contracts in amounts it expects to realize.
Alion recognizes revenue on unpriced change orders as it incurs expenses and only to the
extent it is probable it will recover such costs. The Company recognizes revenue in excess of costs
on unpriced change orders only when management can also estimate beyond a reasonable doubt the
amount of excess and experience provides a sufficient basis for recognition. Alion recognizes
revenue on claims as expenses are incurred only to the extent it is probable that it will recover
such costs and can reliably estimate the amount it will recover.
The Company generates software-related revenue from licensing software and providing services.
In general, professional services are essential to the functionality of the solution sold and the
Company recognizes revenue by applying the percentage of completion method in Accounting Standards
Codification (ASC) 605 Revenue Recognition.
Goodwill and Intangible Assets
Alion assigns the purchase price it pays to acquire the stock or assets of an entity to the
net assets acquired based on the estimated fair value of the assets acquired. Goodwill is the
purchase price in excess of the estimated fair value of the tangible net assets and separately
identified intangible assets acquired. Purchase price allocations for acquisitions involve
significant estimates and management judgments may be adjusted during the purchase price allocation
period. There are no acquisitions with open measurement periods.
The Company accounts for goodwill and other intangible assets in accordance with the
provisions of ASC 350, Intangibles, Goodwill and Other Assets. Alion is required to review goodwill
at least annually for impairment or, more frequently if events and circumstances indicate goodwill
might be impaired. The Company performs its annual review at the end of each fiscal year. Alion is
required to recognize an impairment loss to the extent that its goodwill carrying amount exceeds
fair value. Evaluating any impairment to goodwill involves significant management estimates. To
date, these annual reviews have resulted in no adjustments.
The Company operates in one segment and tests goodwill at the reporting unit level.
Management has identified three reporting units for the purpose of testing goodwill for impairment.
The reporting units are based on administrative organizational structure and the availability of
discrete financial information. Each reporting unit provides a similar range of scientific,
engineering and analytical services to departments and agencies of the U.S. government and
commercial customers. The Company employs a reasonable, supportable and consistent method to
assign goodwill to reporting units expected to benefit from the synergies arising from
acquisitions. Alion determines reporting unit goodwill in a manner similar to the way it
determines goodwill in a purchase allocation by using fair value to determine reporting unit
purchase price, assets, liabilities and goodwill. Reporting unit residual fair value after this
allocation is the implied fair value of reporting unit goodwill. The Companys reporting units
remained consistent in structure for all periods presented. From September 2007 to September 2008,
goodwill increased by approximately $2.9 million for contingent consideration recognized for prior
acquisitions. The
Company allocated changes in goodwill carrying value to reporting units based on acquisitions
attributable to each units current structure.
50
The Company performs its own independent analysis to determine whether goodwill is potentially
impaired. The Company performs discounted cash flow and market-multiple-based analyses to estimate
the enterprise fair value of Alion and its reporting units and the fair value of reporting unit
goodwill in order to test goodwill for potential impairment. Management independently determines
the rates and assumptions it uses to perform its goodwill impairment analysis. Management compares
forecast revenue to contract backlog and proposal backlog to assess the probability of future
contracts and revenue and to evaluate the recoverability of goodwill. September 2009 contract
backlog was nearly eight times trailing twelve month revenue.
Alions cash flow analysis depends on several significant management inputs and assumptions.
Management uses observable inputs, rates and assumptions generally consistent with those used by
the independent third party to prepare the valuation report for the ESOP Trustee. Managements cash
flow analysis includes the following significant inputs and assumptions: estimated future revenue
and revenue growth; estimated future operating margins and EBITDA; observable market multiples for
comparable companies; and a discount rate consistent with a market-based weighted average cost of
capital. Management includes EBITDA in its analysis in order to use publicly available valuation
data.
In the Companys most recent impairment testing, market multiples for trailing twelve month
EBITDA for comparable companies (publicly traded professional services government contractors)
ranged from a low of 9.0 to a high of 12.7, with a median value of 10.4. Market multiples for
trailing twelve month revenue ranged from a low of 0.76 to a high of 1.22, with a median value of
0.99. Management used median market multiples and a weighted average cost of capital rate of 12.5%
derived from market-based inputs, the tax-effected interest cost of Alions outstanding debt and a
hypothetical market participant capital structure. Management estimates future years EBITDA based
on Alions historical adjusted EBITDA as a percentage of revenue. Consistent with industry norms,
Management estimated future revenue would grow 7%-10% annually. Prior year market multiples for
trailing twelve month EBITDA for comparable professional services government contractors ranged
from a low of 9.4 to a high of 16.7, with a median value of 12.4. Prior year market multiples for
trailing twelve month revenue ranged from a low of 0.72 to a high of 1.75, with a median value of
1.02. The prior year weighted average cost of capital rate was 12.0% derived from market-based
inputs, the tax-effected interest cost of Alions outstanding debt and a hypothetical market
participant capital structure. There were no changes to the methods used to evaluate goodwill in
prior periods. Changes in one or more inputs could materially alter the calculation of Alions
enterprise fair value and thus the Companys determination of whether its goodwill is potentially
impaired. A hypothetical 10% increase or decrease in the weighted average cost of capital rate at
September 30, 2009 would have produced a corresponding approximate 5% decrease or increase in
estimated enterprise value. At September 30, 2009, market-multiple based enterprise value exceeded
discounted cash flow enterprise value by approximately 7%.
Management reviews the Companys internally computed enterprise fair value to confirm the
reasonableness of the Companys analysis and compares the results of its independent analysis with
the results of the independent third party valuation report prepared for the ESOP Trustee.
Management compares each reporting units carrying amount to its estimated fair value. If a
reporting units carrying value exceeds its estimated fair value, the Company compares the
reporting units goodwill carrying amount with the corresponding implied fair value of its
goodwill. If the carrying amount of reporting unit goodwill exceeds its fair value, the Company
recognizes an impairment loss to the extent that the carrying amount of goodwill exceeds implied
fair value.
Alion completed its most recent goodwill impairment analysis in the fourth quarter of fiscal
year 2009 and concluded no goodwill impairment existed as of September 30, 2009. As of September
30, 2009, the estimated fair value of each reporting unit substantially exceeded its carrying
value. Given the results of the Companys impairment testing under step one; it is unlikely that a
reasonably likely change in assumptions would have triggered an impairment. A hypothetical 10%
decrease in fair value would not have resulted in impairment to goodwill for any reporting unit or
triggered the need to perform additional step two analyses for any reporting unit.
There were no significant events in the year ended September 30, 2009, that indicated
impairment to goodwill as of September 30, 2009. Intangible assets are amortized as economic
benefits are consumed over their estimated useful lives. As of September 30, 2009, the Company had
goodwill of approximately $398.9 million and a recorded net intangible asset balance of
approximately $28.7 million, composed primarily of purchased contracts from the JJMA and Anteon
contract acquisitions.
|
|
|
|
|
Purchased contracts |
|
1 - 13 years |
Internal use software and engineering designs |
|
2 - 3 years |
Non-compete agreements |
|
3 - 6 years |
51
Redeemable Common Stock
There is no public market for Alions common stock and therefore no observable price for its
equity, individually or in the aggregate. The ESOP Trust holds all the Companys outstanding
common stock. Under certain circumstances, ESOP beneficiaries can require the ESOP Trust to
distribute the value of their beneficial interests. The ESOP Trustee can distribute cash or shares
of Alion common stock. The IRC and ERISA require the Company to offer ESOP participants who
receive Alion common stock a liquidity put right which requires the Company to purchase distributed
shares at fair market value. Eventual redemption of shares of Alion common stock is outside the
Companys control; therefore, Alion classifies its outstanding shares of redeemable common stock as
a liability.
At each reporting date Alion is required to increase or decrease the reported value of its
outstanding common stock to reflect its estimated redemption value. Management estimates the value
of this liability in part by considering the most recent price at which the Company was able to
sell shares to the ESOP Trust (current share price times total shares issued and outstanding). In
its fiduciary capacity the ESOP Trustee is independent of the Company and its management.
Consistent with its fiduciary responsibilities, the ESOP Trustee retains an independent third party
valuation firm to assist it in determining the fair market value (share price) at which the Trustee
may acquire or dispose of investments in Alion common stock. The Audit and Finance Committee of
Alions Board of Directors reviews the reasonableness of the liability Management has determined is
appropriate for the Company to recognize in its financial statements for outstanding redeemable
common stock. The Audit and Finance Committee considers various factors in its review, including,
in part, the most recent valuation report and the share price selected by the ESOP Trustee.
Alion records changes in the reported value of its outstanding common stock through an
offsetting charge or credit to accumulated deficit. The Company decreased its liability for
redeemable common stock by approximately $19.3 million for the year ended September 30, 2009. The
accumulated deficit at September 30, 2009 included $90.3 million for changes in the Companys share
redemption liability. Outstanding redeemable common stock had an aggregate fair value of
approximately $187.1 million as of September 30, 2009.
Recently Issued Accounting Pronouncements
Portions of Accounting Standards Codification (ASC) 805 Business Combinations are effective
for fiscal years beginning after December 15, 2008. The standard is based on a fair value model and
requires an acquirer to measure all assets acquired and liabilities assumed at their respective
fair values at the date of acquisition. This includes measuring noncontrolling (minority) interests
at fair value. ASC 805 establishes principles and requirements for recognizing and measuring
goodwill arising from a business combination, and any gain from a bargain purchase. It establishes
new disclosure standards and significantly alters the accounting for in-process research and
development and restructuring costs. It requires expensing of acquisition-related costs as
incurred. Transactions consummated in fiscal years beginning after December 15, 2008, apply the
standard prospectively. Business combinations consummated prior to December 15, 2008 apply previous
guidance.
ASC 810 Consolidation provides accounting and reporting standards for noncontrolling
(minority) interests in a subsidiary and deconsolidation of a subsidiary. ASC 810 requires
noncontrolling interests to be presented separately within equity in the consolidated statement of
financial position. Consolidated Net Income attributable to the parent and noncontrolling interests
are to be separately presented on the face of the statement of operations. A change in ownership
that does not affect control of a subsidiary is to be accounted for as an equity transaction. A
change in ownership that affects control results in recognition of a gain or loss and
re-measurement at fair value of any remaining noncontrolling interest. Because ASC 810 requires
that a noncontrolling interest continue to be attributed its share of losses, a noncontrolling
interest could have a negative carrying balance. Portions of ASC 810 are effective for fiscal years
beginning after December 15, 2008. In the year of adoption, presentation and disclosure
requirements will apply retrospectively to all periods presented. The Company does not expect
adopting ASC 810 will materially affect its consolidated financial statements or results of
operations.
The Company adopted ASC 820 Fair Value Disclosures in fiscal year 2009 for all financial
assets and liabilities recognized or disclosed at fair value in the financial statements. The
Company adopted the provisions of ASC 820 for nonfinancial assets and liabilities recognized or
disclosed at fair value in the financial statements on a recurring basis; no such assets or
liabilities exist at the balance sheet date. The Company has delayed implementing ASC 820 until
fiscal year 2010, for all nonfinancial assets and liabilities recognized or disclosed at fair value
in the financial statements on a nonrecurring basis. The Company does not expect adopting ASC 820
for items such as goodwill and long lived assets measured at fair value if impaired, will
materially affect its consolidated financial statements or results of operations.
52
ASC 855 Subsequent Events establishes requirements for disclosing and accounting for events
that occur after an entitys balance sheet date but before financial statements are issued or
available to be issued. Alion adopted ASC 855 in fiscal 2009 with no material effect on its
consolidated financial statements. Management evaluated subsequent events through December 24,
2009, the date the Company is issuing its financial statements.
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Interest rate risk
The Company is exposed to interest rate risk principally for debt incurred to finance its
acquisitions, its periodic borrowings and related debt amendments, and re-financings. The balance
on the $25.0 million senior revolving credit facility bears interest at variable rates currently
based on Credit Suisses (CS) prime rate plus a maximum spread of 500 basis points. The balance on
the Senior Secured Term B Loan bears interest at variable rates currently tied to the Eurodollar
rate plus 600 basis points. Such variable rates increase the risk that interest charges will
increase materially if market interest rates increase.
The approximate impact of a 1% increase in the interest rate, as applied to principal balances
drawn under the Senior Secured Term B Credit Facility would be $2.4 million, $2.3 million, $2.3
million, and $1.1 million of additional interest expense for years ending September 30, 2010
through 2013.
The Company does not use derivatives for trading purposes. It invests its excess cash in
short-term, investment grade, and interest-bearing securities.
Foreign currency risk
Expenses and revenues from international contracts are generally denominated in U.S. dollars.
Alion does not believe operations are subject to material risks from currency fluctuations.
Risk associated with value of Alion common stock
Changes in the fair market value of Alions common stock affect the economic basis for the
Companys estimated Subordinated Note warrant liability. The value of the warrant liability would
increase by approximately $4.9 million if the price of the Companys stock were to increase by 10%
and would decrease by approximately $4.9 million if the price of the Companys stock were to
decrease by 10%. Such changes would be reflected in interest expense in Alions consolidated
statements of operations.
Changes in the fair market value of Alions stock also affect the Companys estimated KSOP
share repurchase obligations and its stock-based compensation obligations for stock appreciation
rights. Several factors affect the timing and amount of these obligations, including: the number
of employees who seek to redeem shares of Alion stock following termination of employment, and the
number of employees who exercise stock appreciation rights during any particular time period.
53
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Alion Science and Technology Corporation
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Alion Science and Technology Corporation
McLean, Virginia
We have audited the accompanying consolidated balance sheets of Alion Science and Technology
Corporation and subsidiaries (the Company) as of September 30, 2009 and 2008, and the related
consolidated statements of operations, redeemable common stock and accumulated deficit, and cash
flows for each of the three years in the period ended September 30, 2009. Our audits also included
the financial statement schedule listed in the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Alion Science and Technology Corporation and subsidiaries as of September
30, 2009 and 2008, and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2009, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material, respects the information set forth therein.
As discussed in Note 11, the accompanying 2008 consolidated financial statements have been
restated.
|
|
|
/s/ DELOITTE & TOUCHE LLP
|
|
|
McLean, Virginia
December 24, 2009
55
ALION SCIENCE AND TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(As Restated |
|
|
|
|
|
|
See Note 11) |
|
|
|
(In thousands, except share and per |
|
|
|
share information) |
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
11,185 |
|
|
$ |
16,287 |
|
Accounts receivable, net |
|
|
180,157 |
|
|
|
168,451 |
|
Stock subscriptions receivable |
|
|
|
|
|
|
2,669 |
|
Prepaid expenses and other current assets |
|
|
3,795 |
|
|
|
3,135 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
195,137 |
|
|
|
190,542 |
|
Property, plant and equipment, net |
|
|
14,474 |
|
|
|
18,601 |
|
Intangible assets, net |
|
|
28,680 |
|
|
|
41,248 |
|
Goodwill |
|
|
398,921 |
|
|
|
398,871 |
|
Other assets |
|
|
10,286 |
|
|
|
6,684 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
647,498 |
|
|
$ |
655,946 |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Interest payable |
|
$ |
9,039 |
|
|
$ |
6,543 |
|
Current portion, senior term loan payable |
|
|
2,389 |
|
|
|
232,220 |
|
Interest rate swap liability |
|
|
|
|
|
|
4,629 |
|
Current portion of subordinated note payable |
|
|
3,000 |
|
|
|
3,000 |
|
Current portion, acquisition obligations |
|
|
50 |
|
|
|
50 |
|
Trade accounts payable |
|
|
60,707 |
|
|
|
57,164 |
|
Accrued liabilities |
|
|
45,425 |
|
|
|
39,227 |
|
Accrued payroll and related liabilities |
|
|
43,033 |
|
|
|
41,557 |
|
Billings in excess of revenue earned |
|
|
3,661 |
|
|
|
2,708 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
167,304 |
|
|
|
387,098 |
|
Senior term loan payable, excluding current portion |
|
|
229,221 |
|
|
|
|
|
Senior unsecured notes |
|
|
245,241 |
|
|
|
244,355 |
|
Subordinated note payable |
|
|
46,932 |
|
|
|
42,656 |
|
Accrued compensation, excluding current portion |
|
|
5,740 |
|
|
|
11,305 |
|
Accrued postretirement benefit obligations |
|
|
717 |
|
|
|
627 |
|
Non-current portion of lease obligations |
|
|
7,286 |
|
|
|
6,260 |
|
Redeemable common stock warrants |
|
|
32,717 |
|
|
|
39,996 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Redeemable common stock, $0.01 par value,
8,000,000 shares authorized, 5,424,274 and
5,229,756 shares issued and outstanding at
September 30, 2009 and September 30, 2008 |
|
|
187,137 |
|
|
|
200,561 |
|
Accumulated other comprehensive loss |
|
|
(238 |
) |
|
|
(36 |
) |
Accumulated deficit |
|
|
(274,559 |
) |
|
|
(276,876 |
) |
|
|
|
|
|
|
|
Total liabilities, redeemable common stock and
accumulated deficit |
|
$ |
647,498 |
|
|
$ |
655,946 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
56
ALION SCIENCE AND TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands, except share and per share |
|
|
|
information) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract revenue |
|
$ |
802,225 |
|
|
$ |
739,482 |
|
|
$ |
737,587 |
|
Direct contract expense |
|
|
615,700 |
|
|
|
566,408 |
|
|
|
562,139 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
186,525 |
|
|
|
173,074 |
|
|
|
175,448 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Indirect contract expense |
|
|
35,473 |
|
|
|
40,050 |
|
|
|
43,972 |
|
Research and development |
|
|
677 |
|
|
|
988 |
|
|
|
2,379 |
|
General and administrative |
|
|
60,867 |
|
|
|
59,484 |
|
|
|
60,698 |
|
Rental and occupancy expense |
|
|
32,984 |
|
|
|
30,880 |
|
|
|
32,410 |
|
Depreciation and amortization |
|
|
18,959 |
|
|
|
20,715 |
|
|
|
21,824 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
148,960 |
|
|
|
152,117 |
|
|
|
161,283 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
37,565 |
|
|
|
20,957 |
|
|
|
14,165 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
91 |
|
|
|
423 |
|
|
|
319 |
|
Interest expense |
|
|
(55,154 |
) |
|
|
(47,382 |
) |
|
|
(51,226 |
) |
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
(6,170 |
) |
Other |
|
|
305 |
|
|
|
655 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
(54,758 |
) |
|
|
(46,304 |
) |
|
|
(56,945 |
) |
Loss before income taxes |
|
|
(17,193 |
) |
|
|
(25,347 |
) |
|
|
(42,780 |
) |
Income tax benefit |
|
|
152 |
|
|
|
13 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,041 |
) |
|
$ |
(25,334 |
) |
|
$ |
(42,770 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(3.25 |
) |
|
$ |
(5.01 |
) |
|
$ |
(8.35 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted
average common shares
outstanding |
|
|
5,246,227 |
|
|
|
5,057,337 |
|
|
|
5,121,033 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
57
ALION SCIENCE AND TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK AND ACCUMULATED DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Common |
|
|
|
|
|
|
|
|
|
Stock |
|
|
Comprehensive |
|
|
Accumulated |
|
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Deficit |
|
|
|
(In thousands, except share and per share information) |
|
Balances at October 1, 2006 |
|
|
5,210,126 |
|
|
$ |
213,719 |
|
|
$ |
|
|
|
$ |
(221,009 |
) |
Issuance of redeemable common stock |
|
|
493,740 |
|
|
|
20,265 |
|
|
|
|
|
|
|
|
|
Retirement of redeemable common stock |
|
|
(690,932 |
) |
|
|
(29,584 |
) |
|
|
|
|
|
|
|
|
Reduction in common stock redemption value |
|
|
|
|
|
|
(3,632 |
) |
|
|
|
|
|
|
3,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for year ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
(42,770 |
) |
|
|
(42,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2007 |
|
|
5,012,934 |
|
|
$ |
200,768 |
|
|
$ |
|
|
|
$ |
(260,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of redeemable common stock |
|
|
316,117 |
|
|
$ |
12,449 |
|
|
|
|
|
|
|
|
|
Retirement of redeemable common stock |
|
|
(99,295 |
) |
|
|
(4,051 |
) |
|
|
|
|
|
|
|
|
Reduction in common stock redemption value |
|
|
|
|
|
|
(8,605 |
) |
|
|
|
|
|
|
8,605 |
|
Postretirement medical plan actuarial cost |
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
|
|
Net loss for year ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
(25,334 |
) |
|
|
(25,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for year ended
September 30, 2008 |
|
|
|
|
|
|
|
|
|
$ |
(25,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2008 |
|
|
5,229,756 |
|
|
$ |
200,561 |
|
|
|
|
|
|
$ |
(276,876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of redeemable common stock |
|
|
439,637 |
|
|
$ |
15,109 |
|
|
$ |
|
|
|
$ |
|
|
Retirement of redeemable common stock |
|
|
(245,119 |
) |
|
|
(9,175 |
) |
|
|
|
|
|
|
|
|
Reduction in common stock redemption value |
|
|
|
|
|
|
(19,358 |
) |
|
|
|
|
|
|
19,358 |
|
Postretirement medical plan actuarial cost |
|
|
|
|
|
|
|
|
|
|
(202 |
) |
|
|
|
|
Net loss for year ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
(17,041 |
) |
|
|
(17,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for year ended
September 30, 2009 |
|
|
|
|
|
|
|
|
|
$ |
(17,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009 |
|
|
5,424,274 |
|
|
$ |
187,137 |
|
|
|
|
|
|
$ |
(274,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
58
ALION SCIENCE AND TECHNOLOGY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,041 |
) |
|
$ |
(25,334 |
) |
|
$ |
(42,770 |
) |
Adjustments to reconcile net loss to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
18,959 |
|
|
|
20,715 |
|
|
|
21,824 |
|
Bad debt expense (recovery) |
|
|
1,014 |
|
|
|
(578 |
) |
|
|
1,812 |
|
Loss (gain) on sale of non-operating assets |
|
|
19 |
|
|
|
(750 |
) |
|
|
|
|
Accretion of debt to face value |
|
|
2,359 |
|
|
|
1,146 |
|
|
|
969 |
|
Amortization of debt issuance costs |
|
|
2,708 |
|
|
|
1,766 |
|
|
|
2,768 |
|
Change in fair value of redeemable common stock warrants |
|
|
(7,279 |
) |
|
|
(3,895 |
) |
|
|
(1,624 |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
6,170 |
|
Postretirement benefits curtailment gain |
|
|
|
|
|
|
|
|
|
|
(3,320 |
) |
Stock-based compensation |
|
|
(5,215 |
) |
|
|
500 |
|
|
|
8,340 |
|
Long term incentive compensation |
|
|
3,696 |
|
|
|
|
|
|
|
|
|
Other |
|
|
(407 |
) |
|
|
33 |
|
|
|
(28 |
) |
Loss on interest rate hedging agreements |
|
|
18 |
|
|
|
295 |
|
|
|
413 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(12,718 |
) |
|
|
18,941 |
|
|
|
(37,583 |
) |
Other assets |
|
|
(4,283 |
) |
|
|
771 |
|
|
|
(773 |
) |
Trade accounts payable |
|
|
3,544 |
|
|
|
11,059 |
|
|
|
10,229 |
|
Accrued liabilities |
|
|
14,340 |
|
|
|
6,119 |
|
|
|
10,734 |
|
Interest payable |
|
|
2,496 |
|
|
|
(5,568 |
) |
|
|
11,871 |
|
Other liabilities |
|
|
6,785 |
|
|
|
4,100 |
|
|
|
5,960 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
8,995 |
|
|
|
29,320 |
|
|
|
(5,008 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions-related obligations |
|
|
(166 |
) |
|
|
(7,946 |
) |
|
|
(14,751 |
) |
Capital expenditures |
|
|
(2,186 |
) |
|
|
(4,986 |
) |
|
|
(10,687 |
) |
Proceeds from sale of non-operating assets |
|
|
5 |
|
|
|
780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,347 |
) |
|
|
(12,152 |
) |
|
|
(25,438 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Term B Senior Credit Agreement note payable |
|
|
|
|
|
|
|
|
|
|
40,000 |
|
Proceeds from Senior Unsecured Notes |
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Cash (paid for) received from interest rate swap |
|
|
(4,647 |
) |
|
|
4,333 |
|
|
|
|
|
Payment of senior term loan principal |
|
|
(2,433 |
) |
|
|
(6,474 |
) |
|
|
(53,513 |
) |
Payment of subordinated note principal |
|
|
(3,000 |
) |
|
|
|
|
|
|
(170,000 |
) |
Payment of debt issuance cost |
|
|
|
|
|
|
(500 |
) |
|
|
(10,796 |
) |
Revolver borrowings |
|
|
504,900 |
|
|
|
450,505 |
|
|
|
465,245 |
|
Revolver payments |
|
|
(504,900 |
) |
|
|
(459,755 |
) |
|
|
(468,295 |
) |
Proceeds from interest cap agreement |
|
|
|
|
|
|
|
|
|
|
360 |
|
Loan to ESOP Trust |
|
|
(5,936 |
) |
|
|
(3,369 |
) |
|
|
|
|
ESOP loan repayment |
|
|
5,936 |
|
|
|
3,369 |
|
|
|
|
|
Redeemable common stock purchased from ESOP Trust |
|
|
(9,175 |
) |
|
|
(4,051 |
) |
|
|
(29,584 |
) |
Redeemable common stock sold to ESOP Trust |
|
|
7,505 |
|
|
|
3,377 |
|
|
|
15,958 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(11,750 |
) |
|
|
(12,565 |
) |
|
|
39,375 |
|
Net (decrease) increase in cash and cash equivalents |
|
|
(5,102 |
) |
|
|
4,603 |
|
|
|
8,929 |
|
Cash and cash equivalents at beginning of period |
|
|
16,287 |
|
|
|
11,684 |
|
|
|
2,755 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
11,185 |
|
|
$ |
16,287 |
|
|
$ |
11,684 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
49,953 |
|
|
$ |
49,909 |
|
|
$ |
33,695 |
|
Cash paid (received) for taxes |
|
|
(152 |
) |
|
|
28 |
|
|
|
68 |
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to ESOP Trust in satisfaction of
employer contribution liability |
|
|
10,273 |
|
|
|
9,781 |
|
|
|
9,920 |
|
See accompanying notes to consolidated financial statements.
59
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description and Formation of the Business
Alion Science and Technology Corporation and its subsidiaries (collectively, the Company or
Alion) provide scientific, engineering and information technology expertise to research and develop
technological solutions for problems relating to national defense, homeland security, and energy
and environmental analysis. Alion serves federal government departments and agencies, and to a
lesser extent, commercial and international customers.
Alion was formed as a for-profit S corporation in October 2001, to purchase substantially all
assets and certain liabilities of IIT Research Institute (IITRI), a not-for-profit corporation
controlled by Illinois Institute of Technology (IIT). In December 2002, Alion acquired
substantially all of IITRIs assets and liabilities except for its Life Sciences Operation, for
approximately $127.3 million. Prior to that time, the Companys activities were organizational in
nature.
(2) Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying audited consolidated financial statements include the accounts of Alion
Science and Technology Corporation and its subsidiaries and have been prepared in accordance with
U.S. generally accepted accounting principles on the accrual basis of accounting. The statements
include the accounts of Alion and its wholly-owned subsidiaries from date of formation or
acquisition. All inter-company accounts have been eliminated in consolidation. The wholly-owned
subsidiaries are:
|
|
|
Human Factors Application, Inc. (HFA) acquired November 1998 |
|
|
|
|
Innovative Technology Solution Corporation (ITSC) acquired October 2003 |
|
|
|
|
Alion IPS Corporation (IPS) acquired February 2004 |
|
|
|
|
Alion METI Corporation (METI) acquired February 2005 |
|
|
|
|
Alion CATI Corporation (CATI) acquired February 2005 |
|
|
|
|
Alion Canada (US) Corporation established February 2005 |
|
|
|
|
Alion Science and Technology (Canada) Corporation established February 2005 |
|
|
|
|
Alion JJMA Corporation (JJMA) acquired April 2005 |
|
|
|
|
Alion Technical Services Corporation (Virginia) established July 2005 |
|
|
|
|
Alion BMH Corporation (BMH) acquired February 2006 |
|
|
|
|
Washington Consulting, Inc. (WCI) acquired February 2006 |
|
|
|
|
Alion MA&D Corporation (MA&D) acquired May 2006 |
|
|
|
|
Alion Technical Services Corporation (Delaware) established May 2006 |
|
|
|
|
Washington Consulting Government Services, Inc. (WCGS) established July 2007 |
60
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal, Quarter and Interim Periods
Alions fiscal year ends on September 30. The Company operates based on a three-month quarter,
four-quarter fiscal year with quarters ending December 31, March 31, June 30, and September 30.
Use of Estimates
Preparing financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at
the date of financial statements and the reported amounts of operating results during the reported
period. Actual results are likely to differ from those estimates, but the Companys management does
not believe such differences will materially affect the Companys financial position, results of
operations, or cash flows.
Reclassifications
Bad debt expense in the 2008 and 2007 statements of cash flows has been reclassified to
conform to the current presentation. Reclassification did not change amounts presented in
statement of cash flows for cash flows from operations, investing or financing activities. Other
income in the 2008 and 2007 income statements has been reclassified to conform to the current
presentation. Reclassification did not change amounts presented for total other expenses or net
loss.
Summary of Critical Accounting Policies
Revenue Recognition
Alion derives its revenue from delivering technology services under a variety of contracts.
Some contracts provide for reimbursement of costs plus fees; others are fixed-price or
time-and-material type contracts. The Company generally recognizes revenue when a contract has been
executed, the contract price is fixed or determinable, delivery of services or products has
occurred and collectibility of the contract price is considered reasonably assured.
Alion recognizes revenue on cost-reimbursement contracts as it incurs costs and includes
estimated fees earned. The Company recognizes time-and-material contract revenue at negotiated,
fixed, contractually billable rates as it delivers labor hours and incurs other direct expenses.
Alion uses various performance measures under the percentage of completion method to recognize
revenue for fixed-price contracts. Estimating contract costs at completion and recognizing revenue
appropriately involve significant management estimates. Actual costs may differ from estimated
costs and affect estimated profitability and timing of revenue recognition. From time to time,
facts develop that require Alion to revise estimated total costs or expected revenue. Alion records
the cumulative effect of revised estimates in the period in which the facts requiring revised
estimates become known. Alion recognizes the full amount of anticipated losses on any type of
contract in the period in which a loss becomes known. For each of the periods presented, the
cumulative effects of revised estimates were immaterial to the Companys financial performance.
Contracts with agencies of the federal government are subject to periodic funding by the
contracting agency concerned. A contract may be fully funded at its inception or ratably throughout
its period of performance as services are provided. If the Company determines contract funding is
not probable, it defers revenue recognition until realization is probable. Federal government
contract costs are subject to federal government audit and adjustment through negotiations with
government representatives. The government considers Alion a major contractor and maintains an
office on site to perform various audits. The government has audited the Companys claimed costs
through fiscal year 2004. Indirect rates have been negotiated and settled through fiscal year 2004.
Settlement had no material adverse effect on the Companys results of operations or cash flows.
DCAA is currently auditing the Companys indirect cost proposals for fiscal 2005 and 2006. The
Company submitted its fiscal year 2008 and 2007 indirect cost proposals in March 2009 and 2008 and
expects to submit its current year proposal in March 2010. The Company has recorded revenue on
federal government contracts in amounts it expects to realize.
Alion recognizes revenue on unpriced change orders as it incurs expenses and only to the
extent it is probable it will recover such costs. The Company recognizes revenue in excess of costs
on unpriced change orders only when management can also estimate beyond a reasonable doubt the
amount of excess and experience provides a sufficient basis for recognition. Alion
recognizes revenue on claims as expenses are incurred only to the extent it is probable that
it will recover such costs and can reliably estimate the amount it will recover.
61
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company generates software-related revenue from licensing software and providing services.
In general, professional services are essential to the functionality of the solution sold and the
Company recognizes revenue by applying the percentage of completion method in accordance with ASC
605, Revenue Recognition.
Goodwill and Intangible Assets
Alion assigns the purchase price it pays to acquire the stock or assets of an entity to the
net assets acquired based on the estimated fair value of the assets acquired. Goodwill is the
purchase price in excess of the estimated fair value of the tangible net assets and separately
identified intangible assets acquired. Purchase price allocations for acquisitions involve
significant estimates and management judgments may be adjusted during the purchase price allocation
period. There are no acquisitions with open measurement periods.
The Company accounts for goodwill and other intangible assets in accordance with the
provisions of ASC 350, Intangibles, Goodwill and Other Assets. Alion is required to review goodwill
at least annually for impairment or, more frequently if events and circumstances indicate goodwill
might be impaired. The Company performs its annual review at the end of each fiscal year. Alion is
required to recognize an impairment loss to the extent that its goodwill carrying amount exceeds
fair value. Evaluating any impairment to goodwill involves significant management estimates. To
date, these annual reviews have resulted in no adjustments.
The Company operates in one segment and tests goodwill at the reporting unit level.
Management has identified three reporting units for the purpose of testing goodwill for impairment.
The reporting units are based on administrative organizational structure and the availability of
discrete financial information. Each reporting unit provides a similar range of scientific,
engineering and analytical services to departments and agencies of the U.S. government and
commercial customers. The Company employs a reasonable, supportable and consistent method to
assign goodwill to reporting units expected to benefit from the synergies arising from
acquisitions. Alion determines reporting unit goodwill in a manner similar to the way it
determines goodwill in a purchase allocation by using fair value to determine reporting unit
purchase price, assets, liabilities and goodwill. Reporting unit residual fair value after this
allocation is the implied fair value of reporting unit goodwill. The Companys reporting units
remained consistent in structure for all periods presented. From September 2007 to September 2008,
goodwill increased by approximately $2.9 million for contingent consideration recognized for prior
acquisitions. The Company allocated changes in goodwill carrying value to reporting units based on
acquisitions attributable to each units current structure.
The Company performs its own independent analysis to determine whether goodwill is potentially
impaired. The Company performs discounted cash flow and market-multiple-based analyses to estimate
the enterprise fair value of Alion and its reporting units and the fair value of reporting unit
goodwill in order to test goodwill for potential impairment. Management independently determines
the rates and assumptions it uses to perform its goodwill impairment analysis and assesses the
probability of future contracts and revenue and to evaluate the recoverability of goodwill.
Alions cash flow analysis depends on several significant management inputs and assumptions.
Management uses observable inputs, rates and assumptions generally consistent with those used by
the independent third party to prepare the valuation report for the ESOP Trustee. Managements cash
flow analysis includes the following significant inputs and assumptions: estimated future revenue
and revenue growth; estimated future operating margins and EBITDA; observable market multiples for
comparable companies; and a discount rate consistent with a market-based weighted average cost of
capital. Management includes EBITDA in its analysis in order to use publicly available valuation
data.
In the Companys most recent impairment testing, market multiples for trailing twelve month
EBITDA for comparable companies (publicly traded professional services government contractors)
ranged from a low of 9.0 to a high of 12.7, with a median value of 10.4. Market multiples for
trailing twelve month revenue ranged from a low of 0.76 to a high of 1.22, with a median value of
0.99. Management used median market multiples and a weighted average cost of capital rate of 12.5%
derived from market-based inputs, the tax-effected interest cost of Alions outstanding debt and a
hypothetical market participant capital structure. Management estimates future years EBITDA based
on Alions historical adjusted EBITDA as a percentage of revenue. Management estimated future
revenue would grow 7%-10% annually. Prior year market multiples for trailing twelve month EBITDA
for comparable professional services government contractors ranged from a low of 9.4 to a
62
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
high of 16.7, with a median value of 12.4. Prior year market multiples for trailing twelve
month revenue ranged from a low of 0.72 to a high of 1.75, with a median value of 1.02. The prior
year weighted average cost of capital rate was 12.0% derived from market-based inputs, the
tax-effected interest cost of Alions outstanding debt and a hypothetical market participant
capital structure. There were no changes to the methods used to evaluate goodwill in prior
periods. Changes in one or more inputs could materially alter the calculation of Alions
enterprise fair value and thus the Companys determination of whether its goodwill is potentially
impaired. A hypothetical 10% increase or decrease in the weighted average cost of capital rate at
September 30, 2009 would have produced a corresponding approximate 5% decrease or increase in
estimated enterprise value. At September 30, 2009, market-multiple based enterprise value exceeded
discounted cash flow enterprise value by approximately 7%.
Management reviews the Companys internally computed enterprise fair value to confirm the
reasonableness of the Companys analysis and compares the results of its independent analysis with
the results of the independent third party valuation report prepared for the ESOP Trustee.
Management compares each reporting units carrying amount to its estimated fair value. If a
reporting units carrying value exceeds its estimated fair value, the Company compares the
reporting units goodwill carrying amount with the corresponding implied fair value of its
goodwill. If the carrying amount of reporting unit goodwill exceeds its fair value, the Company
recognizes an impairment loss to the extent that the carrying amount of goodwill exceeds implied
fair value.
Alion completed its most recent goodwill impairment analysis in the fourth quarter of fiscal
year 2009 and concluded no goodwill impairment existed as of September 30, 2009. The estimated
fair value of each reporting unit substantially exceeded its September 2009 carrying value. A
hypothetical 10% decrease in fair value would not have resulted in impairment to goodwill for any
reporting unit or triggered the need to perform additional step two analyses for any reporting
unit.
Alion amortizes intangible assets as economic benefits are consumed over estimated useful
lives. As of September 30, 2009, the Company had a recorded net intangible asset balance of
approximately $28.7 million, composed primarily of purchased contracts from the JJMA and Anteon
contract acquisitions.
|
|
|
Purchased contracts
|
|
1 - 13 years |
Internal use software and engineering designs
|
|
2 - 3 years |
Non-compete agreements
|
|
3 - 6 years |
Redeemable Common Stock
There is no public market for Alions common stock and therefore no observable price for its
equity, individually or in the aggregate. The ESOP Trust holds all the Companys outstanding
common stock. Under certain circumstances, ESOP beneficiaries can require the ESOP Trust to
distribute the value of their beneficial interests. The ESOP Trustee can distribute cash or shares
of Alion common stock. The IRC and ERISA require the Company to offer ESOP participants who
receive Alion common stock a liquidity put right which requires the Company to purchase distributed
shares at fair market value. Eventual redemption of shares of Alion common stock is outside the
Companys control; therefore, Alion classifies its outstanding shares of redeemable common stock as
a liability.
At each reporting date Alion is required to increase or decrease the reported value of its
outstanding common stock to reflect its estimated redemption value. Management estimates the value
of this liability in part by considering the most recent price at which the Company was able to
sell shares to the ESOP Trust (current share price times total shares issued and outstanding). In
its fiduciary capacity the ESOP Trustee is independent of the Company and its management.
Consistent with its fiduciary responsibilities, the ESOP Trustee retains an independent third party
valuation firm to assist it in determining the fair market value (share price) at which the Trustee
may acquire or dispose of investments in Alion common stock. The Audit and Finance Committee of
Alions Board of Directors reviews the reasonableness of the liability Management has determined is
appropriate for the Company to recognize in its financial statements for outstanding redeemable
common stock. The Audit and Finance Committee considers various factors in its review, including,
in part, the most recent valuation report and the share price selected by the ESOP Trustee.
63
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alion records changes in the reported value of its outstanding common stock through an
offsetting charge or credit to accumulated deficit. The Company decreased its liability for
redeemable common stock by approximately $19.3 million for the year ended September 30, 2009. The
accumulated deficit at September 30, 2009 included $90.3 million for changes in the
Companys share redemption liability. Outstanding redeemable common stock had an aggregate
fair value of approximately $187.1 million as of September 30, 2009.
Income Taxes
Alion is an S-corporation under the provisions of the Internal Revenue Code of 1986, as
amended. For federal and certain state income tax purposes, the Company is not subject to tax on
its income. Alions income is allocated to its shareholder, the Alion Science and Technology
Corporation Employee Stock Ownership, Savings and Investment Trust (the Trust). Alion may be
subject to state income taxes in those states that do not recognize S corporations. The Company is
subject to franchise and business taxes. All of Alions wholly-owned operating subsidiaries are
qualified subchapter S or disregarded entities which are included in the Companys consolidated
federal income tax returns. Alions Canadian subsidiary is subject to income taxation in Canada at
the federal and provincial level.
64
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
The Company considers cash in banks, and deposits with financial institutions with maturities
of three months or less at time of purchase and that can be liquidated without prior notice or
penalty, to be cash and cash equivalents.
Accounts Receivable and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
Accounts receivable include billed accounts receivable, amounts currently billable and costs
and estimated earnings in excess of billings on uncompleted contracts that represent accumulated
project expenses and fees which have not been billed or are not currently billable as of the date
of the consolidated balance sheet. The costs and estimated earnings in excess of billings on
uncompleted contracts are stated at estimated realizable value. Unbilled accounts receivable
include revenue recognized for customer-related work performed by Alion on new and existing
contracts for which the Company had not received contracts or contract modifications. The allowance
for doubtful accounts is Alions best estimate of the amount of probable losses in the Companys
existing billed and unbilled accounts receivable. The Company determines the allowance using
specific identification and historical write-off experience based on age of receivables. Billings
in excess of costs and estimated earnings and advance collections from customers represent amounts
received from or billed to customers in excess of project revenue recognized to date.
Property, Plant and Equipment
Leasehold improvements, software and equipment are recorded at cost. Maintenance and repairs
that do not add significant value or significantly lengthen an assets useful life are charged to
current operations. Software and equipment are depreciated on the straight-line method over their
estimated useful lives (typically 3 years for software and 5 years for equipment). Leasehold
improvements are amortized on the straight-line method over the shorter of the assets estimated
useful life or the life of the lease. Upon sale or retirement of an asset, costs and related
accumulated depreciation are deducted from the accounts, and any gain or loss is recognized in the
consolidated statements of operations.
Postretirement Benefits
Alion accounts for postretirement medical and related benefits in accordance with ASC 715
Compensation Retirement Benefits. The Company accrues the cost of providing postretirement
benefits over employees periods of active service and determines costs on an actuarial basis. The
Company recognizes a liability for the underfunded status of its defined benefit postretirement
plan and recognizes in income, the effects of any change in funded status in the year a change
occurs. Alion curtailed its postretirement benefits plan at the end of fiscal year 2007. See Note
5 for further discussion.
Fair Value of Financial Instruments
The Company used the following methods and assumptions to estimate the fair value of each
class of financial instruments for which it is practicable to estimate fair value. It is
impracticable for the Company to estimate the fair value of its subordinated debt because the only
market for this financial instrument consists of principal to principal transactions. The Company
carries its subordinated debt at amortized cost. For each of the following items, the fair value
is not materially different than the carrying value.
Cash, cash equivalents, accounts payable and accounts receivable. Carrying amounts approximate
fair value because of the short maturity of those instruments.
Senior long-term debt. The carrying amount of the Companys senior debt approximates fair
value, estimated based on current rates offered to the Company for debt of the same remaining
maturities, and reflects amounts Alion is contractually required to pay.
Redeemable common stock warrants. Alion uses an option pricing model to estimate the fair
value of its redeemable common stock warrants. In estimating the Companys aggregate redeemable
common stock warrant liability, Management considers factors such as risk free interest rates,
share price volatility of comparable publicly traded companies, the valuation report prepared for
and the share price selected by the ESOP Trustee.
65
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Redeemable Alion Common Stock. Management estimates the fair value price per share of Alion
common stock by considering in part the most recent price at which the Company was able to sell
shares to the ESOP Trust as well as information contained in the most recent valuation report that
an independent, third-party firm prepares for the ESOP Trustee.
Recently Issued Accounting Pronouncements
Portions of Accounting Standards Codification (ASC) 805 Business Combinations are effective
for fiscal years beginning after December 15, 2008. The standard is based on a fair value model and
requires an acquirer to measure all assets acquired and liabilities assumed at their respective
fair values at the date of acquisition. This includes measuring noncontrolling (minority) interests
at fair value. ASC 805 establishes principles and requirements for recognizing and measuring
goodwill arising from a business combination, and any gain from a bargain purchase. It establishes
new disclosure standards and significantly alters the accounting for in-process research and
development and restructuring costs. It requires expensing of acquisition-related costs as
incurred. Transactions consummated in fiscal years beginning after December 15, 2008, apply the
standard prospectively. Business combinations consummated prior to December 15, 2008 apply previous
guidance.
ASC 810 Consolidation provides accounting and reporting standards for noncontrolling
(minority) interests in a subsidiary and deconsolidation of a subsidiary. ASC 810 requires
noncontrolling interests to be presented separately within equity in the consolidated statement of
financial position. Consolidated Net Income attributable to the parent and noncontrolling interests
are to be separately presented on the face of the statement of operations. A change in ownership
that does not affect control of a subsidiary is to be accounted for as an equity transaction. A
change in ownership that affects control results in recognition of a gain or loss and
re-measurement at fair value of any remaining noncontrolling interest. Because ASC 810 requires
that a noncontrolling interest continue to be attributed its share of losses, a noncontrolling
interest could have a negative carrying balance. Portions of ASC 810 are effective for fiscal years
beginning after December 15, 2008. In the year of adoption, presentation and disclosure
requirements will apply retrospectively to all periods presented. The Company does not expect
adopting ASC 810 will materially affect its consolidated financial statements or results of
operations.
The Company adopted ASC 820 Fair Value Disclosures in fiscal year 2009 for all financial
assets and liabilities recognized or disclosed at fair value in the financial statements. The
Company adopted the provisions of ASC 820 for nonfinancial assets and liabilities recognized or
disclosed at fair value in the financial statements on a recurring basis; no such assets or
liabilities exist at the balance sheet date. The Company has delayed implementing ASC 820 until
fiscal year 2010, for all nonfinancial assets and liabilities recognized or disclosed at fair value
in the financial statements on a nonrecurring basis. The Company does not expect adopting ASC 820
for items such as goodwill and long lived assets measured at fair value if impaired, will
materially affect its consolidated financial statements or results of operations.
ASC 855 Subsequent Events establishes requirements for disclosing and accounting for events
that occur after an entitys balance sheet date but before financial statements are issued or
available to be issued. Alion adopted ASC 855 in fiscal 2009 with no material effect on its
consolidated financial statements. Management evaluated subsequent events through December 24,
2009, the date the Company is issuing its financial statements.
(3) Business Combinations
Fiscal Year 2008 Acquisition
In March 2008, the Company purchased several delivery orders from General Dynamics
Information Technology for approximately $116 thousand and assigned this amount to acquired
intangible assets. This acquisition was neither material nor significant; therefore no pro forma
disclosures are presented in these consolidated financial statements.
Fiscal Year 2007 Acquisitions
LogConGroup, Inc. In July 2007, the Company acquired substantially all the assets of
LogConGroup, Inc. for $1.7 million plus up to $0.6 million in contingent earn out obligations over
a six year period. As of September 30, 2009, the Company has recorded approximately $1.7 million
in goodwill relating to this acquisition. The LogConGroup acquisition was neither material nor
significant; therefore no pro forma disclosures are presented in these consolidated financial
statements.
66
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Employee Stock Ownership Plan (ESOP) and Stock Ownership Trust
In December 2001, the Company adopted the Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Plan (the Plan) and Trust. The Plan, a tax qualified retirement
plan, includes ESOP and non-ESOP components. In August 2005, the Internal Revenue Service (IRS)
issued a determination letter that the Trust and the Plan, as amended through the Plans Ninth
Amendment, qualify under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986 as amended
(the Code). In January 2007, Alion amended and restated the Plan effective as of October 1, 2006,
and filed a determination letter request with the IRS. In July and September 2007, the Company
adopted the first and second amendments to the amended and restated Plan. Alion believes that the
Plan and the Trust have been designed and are being operated in compliance with the applicable
requirements of the Code.
The Company makes 401(k) matching contributions in shares of Alion common stock and
discretionary profit-sharing contributions in a combination of Alion common stock and cash. The
Company matches the first 3% and one-half of the next 2% of eligible employee salary deferrals by
contributing shares of Alion common stock to the ESOP Trust on March 31 and September 30 each year.
The Company also makes a profit sharing contribution of Alion common stock to the ESOP Trust on
the same dates equal to 1% of eligible employee compensation. Each pay period the Company makes a
cash contribution to the non-ESOP component of the KSOP equal to 1.5% of eligible employee
compensation. Alion recognized $13.6 million in compensation expense for the KSOP in 2009; $12.3
million in 2008; and $12.3 million in 2007.
(5) Postretirement Benefits
Alion sponsors a medical benefits plan providing certain medical, dental, and vision coverage
to eligible former employees. The Company is self-insured with a stop-loss limit under an insurance
agreement. Alion provides postretirement medical benefits for employees who met certain age and
service requirements. The plan was effectively amended in September 2007 to eliminate benefits for
those who retired after December 31, 2007. The plan is closed to new participants. Retired
employees became eligible for certain benefits at age 55 if they had 20 years of service, or at age
60 with 10 years of service. The plan provides benefits until age 65 and as of January 2009,
requires employees to pay the full expected cost of benefits. Through December 2008, participants
paid only one-half of their health care premiums. A small, closed group of employees is eligible
for coverage after age 65. These retirees contribute a fixed portion of the health care premium.
Estimated retiree contributions were approximately $21 thousand for fiscal year 2009.
Curtailment. The September 2007 plan amendment eliminated future benefits for individuals
retiring after December 31, 2007 and required pre-65 retirees to pay the full expected cost of
benefits beginning January 2009. The plan amendment did not affect benefits for grandfathered
employees with lifetime coverage. The plan amendment qualified as a curtailment requiring
recognition in two steps. First, the Company recognized a loss for previously unrecognized prior
service costs. Next, the Company recognized a curtailment gain for the excess of the decrease in
its Accumulated Postretirement Benefit Obligation over its previously unrecognized actuarial
losses. The two components resulted in a net curtailment gain of approximately $3.3 million for
the year ended September 30, 2007, included in general and administrative expense.
An employer must recognize an asset or liability for the over- or under-funded status of its
defined benefit postretirement plan. The Company recognizes actuarial gains and losses, prior
service costs or credits, and any remaining transition assets or obligations not previously
recognized in Accumulated Other Comprehensive Income (Loss), net of tax effects, until it has
amortized these amounts as a component of net periodic benefit cost. As of September 30, 2009,
Alion had recognized $150 thousand in Accumulated Other Comprehensive Losses. Tables below show
the benefit obligation, funded status of the Companys plan, amounts recognized in the financial
statements, and the principal weighted-average assumptions used. The subsequent table sets out
amounts recognized as defined benefit plan related changes in Accumulated Other Comprehensive Loss
that have not yet been included in net periodic postretirement benefit cost.
67
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Accumulated postretirement benefit obligation as of
September 30: |
|
|
|
|
|
|
|
|
Retirees |
|
$ |
717 |
|
|
$ |
627 |
|
|
|
|
|
|
|
|
Total active plan participants |
|
$ |
717 |
|
|
$ |
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Reconciliation of beginning and ending benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
627 |
|
|
$ |
1,175 |
|
Interest cost |
|
|
38 |
|
|
|
52 |
|
Actuarial loss |
|
|
202 |
|
|
|
36 |
|
Benefits paid |
|
|
(150 |
) |
|
|
(636 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
717 |
|
|
$ |
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Funded status of the plan: |
|
|
|
|
|
|
|
|
Obligation at September 30 |
|
$ |
(717 |
) |
|
$ |
(627 |
) |
|
|
|
|
|
|
|
Accrued postretirement benefits included in the
consolidated balance sheet |
|
$ |
(717 |
) |
|
$ |
(627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Amounts recognized in the statement of financial position
consist of: |
|
|
|
|
|
|
|
|
Noncurrent liabilities |
|
$ |
717 |
|
|
$ |
627 |
|
|
|
|
|
|
|
|
|
|
$ |
717 |
|
|
$ |
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Components of net periodic postretirement benefit cost: |
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
38 |
|
|
$ |
52 |
|
|
|
|
|
|
|
|
Net periodic postretirement benefit cost |
|
$ |
38 |
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Accumulated Other Comprehensive Income |
|
$ |
238 |
|
|
$ |
36 |
|
|
|
|
|
|
|
|
|
|
$ |
238 |
|
|
$ |
36 |
|
|
|
|
|
|
|
|
68
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There is no estimated net loss or transition obligation to be recognized into net periodic
postretirement benefit cost over the next fiscal year. The following weighted-average assumptions
were used to develop the actuarial present value of the projected benefit obligation for the year
listed and also the net periodic benefit costs.
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Accumulated post retirement benefit obligation at September 30 |
|
|
5.12 |
% |
|
|
7.00 |
% |
Service and interest cost portions of net periodic postretirement benefit cost |
|
|
7.00 |
% |
|
|
6.15 |
% |
The following table displays the assumed health care trends used to determine the accumulated
postretirement benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Health care cost trend rate assumed for next year |
|
|
10.0 |
% |
|
|
10.0 |
% |
Rate to which the cost trend rate is assumed to decline (ultimate trend rates) |
|
|
6.0 |
% |
|
|
6.0 |
% |
Year the rate reaches the ultimate trend rate |
|
|
2018 |
|
|
|
2017 |
|
A one-percentage-point change in assumed health care cost trend rates would have the following
effect:
|
|
|
|
|
|
|
|
|
|
|
One-Percentage-Point |
|
|
One-Percentage-Point |
|
|
|
Increase |
|
|
Decrease |
|
|
|
(In Thousands) |
|
Effect on total service and interest cost |
|
$ |
2 |
|
|
$ |
2 |
|
Effect on accumulated postretirement benefit obligation |
|
$ |
65 |
|
|
$ |
57 |
|
Estimated future benefit payments-fiscal years ending September 30:
|
|
|
|
|
|
|
(In thousands) |
|
2010 |
|
$ |
60 |
|
2011 |
|
|
64 |
|
2012 |
|
|
68 |
|
2013 |
|
|
70 |
|
2014 |
|
|
71 |
|
2015-2019 |
|
$ |
290 |
|
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D
and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. The Company has elected to defer the recognition
of the effect, if any, of the Act until such time when the authoritative guidance is issued. Any
measures of the accumulated postretirement benefit obligation or net periodic postretirement
benefit cost in the Companys financial statements do not reflect the effect of the Act. The
Company has a small, closed group of retirees covered for medical after age 65, thus the effect of
the Act is not expected to be material.
(6) Loss Per Share
Basic and diluted loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding excluding the impact of warrants, phantom stock and stock
appreciation rights described herein as this impact would be anti-dilutive for all periods
presented.
(7) Redeemable common stock owned by ESOP Trust
The ESOP Trust owns all of the Companys common stock, for the benefit of current and former
employee participants in the Alion KSOP. Participants and beneficiaries are entitled to
distribution of the fair value of their vested ESOP account balance upon death, disability,
retirement or termination of employment. The ESOP permits distributions to be paid over a five
year period commencing the year after a participants retirement at age 65, death or disability.
Alion can delay distributions to other terminating participants for five years before commencing
payment over a subsequent five year period.
69
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company can choose whether to distribute cash or shares of Alion common stock. If Alion
distributes common stock to a participant or beneficiary, the IRC and ERISA require that it provide
a put option to permit a recipient to sell the shares to the Company at the estimated fair value
price per share based on the most recent price at which the Company was
able to sell shares to the ESOP Trust ($34.50 at September 30, 2009 and $34.30 at March 31,
2009). Consistent with its duty of independence from Alion Management and its fiduciary
responsibilities, the ESOP Trustee retains an independent third party valuation firm to assist it
in determining the fair market value (share price) at which the Trustee may acquire or dispose of
investments in Alion common stock. The Audit and Finance Committee of Alions Board of Directors
reviews the reasonableness of the liability for outstanding redeemable common stock that Management
has determined is appropriate for the Company to recognize in its financial statements. The Audit
and Finance Committee considers various factors in its review, including in part, the valuation
report and the share price selected by the ESOP Trustee. Management considers the share price
selected by the ESOP Trustee along with other factors, to assist in estimating Alions aggregate
liability for outstanding redeemable common stock owned by the ESOP Trust. Certain participants who
beneficially acquired shares of Alion common stock on December 20, 2002, have the right to sell
such shares distributed from their accounts at the greater of the then current estimated fair value
per share or the original $10.00 purchase price.
Although the Company and the ESOP retain the right to delay distributions consistent with the
terms of the Alion KSOP and to control the circumstances of future distributions, eventual
redemption of shares of Alion common stock is deemed to be outside the Companys control.
(8) Accounts Receivable
Accounts receivable at September 30 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Billed receivables |
|
$ |
108,566 |
|
|
$ |
99,794 |
|
Unbilled receivables: |
|
|
|
|
|
|
|
|
Amounts currently billable |
|
|
22,954 |
|
|
|
37,883 |
|
Revenues recorded in excess of milestone billings on
fixed price contracts |
|
|
3,757 |
|
|
|
2,651 |
|
Revenues recorded in excess of estimated contract value or funding |
|
|
36,327 |
|
|
|
18,925 |
|
Retainages and other amounts billable upon contract completion |
|
|
12,972 |
|
|
|
13,160 |
|
Allowance for doubtful accounts |
|
|
(4,419 |
) |
|
|
(3,962 |
) |
|
|
|
|
|
|
|
Total Accounts Receivable |
|
$ |
180,157 |
|
|
$ |
168,451 |
|
|
|
|
|
|
|
|
Revenues recorded in excess of milestone billings on fixed price contracts are not yet
contractually billable. Amounts currently billable consist principally of amounts to be billed
within the next year. Any remaining unbilled balance including retainage is billable upon contract
completion or completion of DCAA audits. Revenue recorded in excess of contract value or funding is
billable upon receipt of contractual amendments or other modifications. Costs and estimated
earnings in excess of billings on uncompleted contracts totaled approximately $76.0 million as of
September 30, 2009 and included approximately $36.3 million for customer-requested work for which
the Company had not received contracts or contract modifications. In keeping with industry
practice, Alion classifies all contract-related accounts receivable as current assets based on
contractual operating cycles which frequently exceed one year. Unbilled receivables are expected
to be billed and collected within one year except for $13.0 million at September 30, 2009.
(9) Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Leasehold improvements |
|
$ |
10,214 |
|
|
$ |
9,451 |
|
Equipment and software |
|
|
32,807 |
|
|
|
31,393 |
|
|
|
|
|
|
|
|
Total cost |
|
|
43,021 |
|
|
|
40,844 |
|
Less: accumulated depreciation and amortization |
|
|
(28,547 |
) |
|
|
(22,243 |
) |
|
|
|
|
|
|
|
Net property, plant and equipment |
|
$ |
14,474 |
|
|
$ |
18,601 |
|
|
|
|
|
|
|
|
70
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and leasehold amortization expense for fixed assets was approximately $6.4
million, $6.2 million and $5.7 million for the years ended September 30, 2009, 2008, and 2007.
(10) Goodwill and Intangible Assets
The Company accounts for goodwill and other intangible assets according to ASC 350 Intangibles
Goodwill and Other which requires that Alion review goodwill at least annually for impairment.
The Company performs this review at the end of each fiscal year. As of September 30, 2009, Alion
recorded approximately $398.9 million in goodwill. The table below summarizes the changes in
goodwill carrying amounts during the years ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
Total |
|
|
|
(In thousands) |
|
Balance as of September 30, 2007 |
|
$ |
395,926 |
|
Adjustment to initial allocation (includes earn out obligations) |
|
|
2,945 |
|
|
|
|
|
Balance as of September 30, 2008 |
|
$ |
398,871 |
|
Adjustment to initial allocation (includes earn out obligations) |
|
|
50 |
|
|
|
|
|
Balance as of September 30, 2009 |
|
$ |
398,921 |
|
|
|
|
|
Intangible assets consist primarily of contracts acquired through the Anteon and JJMA
transactions. The table below shows the components of intangible assets as of September 30, 2009
and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
Purchased contracts |
|
$ |
111,635 |
|
|
$ |
(83,563 |
) |
|
$ |
28,072 |
|
|
$ |
111,635 |
|
|
$ |
(71,410 |
) |
|
$ |
40,225 |
|
Internal use
software and
engineering designs |
|
|
2,155 |
|
|
|
(1,568 |
) |
|
|
587 |
|
|
|
2,155 |
|
|
|
(1,178 |
) |
|
|
977 |
|
Non-compete
agreements |
|
|
725 |
|
|
|
(704 |
) |
|
|
21 |
|
|
|
725 |
|
|
|
(679 |
) |
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
114,515 |
|
|
$ |
(85,835 |
) |
|
$ |
28,680 |
|
|
$ |
114,515 |
|
|
$ |
(73,267 |
) |
|
$ |
41,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average remaining amortization period of intangible assets was approximately six
years at September 30, 2009. Amortization expense was approximately $12.6 million, $14.5 million,
and $16.1 million for the years ended September 30, 2009, 2008 and 2007. Estimated aggregate
amortization expense for the next five fiscal years and thereafter is as follows.
|
|
|
|
|
|
|
(In thousands) |
|
2010 |
|
$ |
10,985 |
|
2011 |
|
|
6,843 |
|
2012 |
|
|
5,766 |
|
2013 |
|
|
3,246 |
|
2014 |
|
|
879 |
|
Thereafter |
|
|
961 |
|
|
|
|
|
|
|
$ |
28,680 |
|
|
|
|
|
71
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Long-Term Debt
Term B Senior Credit Agreement
Alion entered into various debt agreements (Senior Credit Agreement, Mezzanine Note, and
Subordinated Note) on December 20, 2002 to fund its acquisition of substantially all of IITRIs
assets. In August 2004, Alion entered into a Term B senior secured credit facility (the Term B
Senior Credit Agreement) with a syndicate of financial institutions for which Credit
Suisse serves as arranger, administrative agent and collateral agent, and for which Bank of
America serves as syndication agent. The following amendments were made to the Term B Senior Credit
Agreement since August 2004.
|
|
|
In April 2005, the first amendment made certain changes and added $72.0 million in
senior term loans to the total Term B Senior Credit Agreement debt. |
|
|
|
|
In March 2006, the second amendment made certain changes, increased the senior term
loan commitment by $68.0 million (drawn in full) and increased the revolving credit
commitment from $30.0 million to $50.0 million. |
|
|
|
|
In June 2006, the third amendment made certain changes and added $50.0 million in
senior term loans to the total Term B Senior Credit Agreement debt. |
|
|
|
|
In January 2007, the fourth increment added $15.0 million in senior term loans to
the total Term B Senior Credit Agreement debt. |
|
|
|
|
In February 2007, the fourth amendment made certain changes, extended the senior
term loan maturity date to February 6, 2013, adjusted the principal repayment schedule
to require a balloon principal payment at maturity, and added an incurrence test as an
additional condition precedent to Alions ability to borrow additional funds. |
|
|
|
|
In July 2007, the fifth increment added $25.0 million in senior term loans to the
Term B Senior Credit Agreement. |
|
|
|
|
On September 30, 2008, the fifth amendment made certain changes. |
|
|
|
It increased the interest rate by 350 basis points to a minimum
Eurodollar interest rate of 3.50% plus 600 basis points, and a minimum alternate
base rate of 4.50% plus 500 basis points. |
|
|
|
|
If the Company refinances, replaces or extends the maturity of its
existing revolving line of credit with an interest rate spread which is more
than 50 basis points higher than the then-current interest rate spread
applicable to the Companys senior term loan, Alions interest rate spread would
increase by the difference between the higher revolving credit facility interest
rate spread and 50 basis points. |
|
|
|
|
Alion is required to use all (formerly half) of excess annual cash
flow to prepay outstanding senior term loans. |
|
|
|
|
It amended financial covenants to provide Alion flexibility through
September 30, 2009. |
|
|
|
|
It restricts the Companys ability to pay the CEO or COO for
previously awarded shares of phantom stock. |
|
|
|
|
It permits Alion to incur additional second lien debt, subject to
certain conditions. |
|
|
|
In July 2009, the sixth amendment extended the revolving credit facility maturity
date to September 25, 2009 (which by later amendment was extended to September 30,
2010) and reduced the aggregate amount of the revolving credit commitments from $50
million to $40 million (which by later amendment was reduced to $25 million). |
|
|
|
|
In September 2009, the seventh amendment extended the revolving credit facility
maturity date to October 9, 2009. |
|
|
|
|
In October 2009, the ninth amendment extended the revolving credit maturity date to
September 30, 2010, added a liquidity condition requiring Alion to pay in kind an
additional 100 basis points in interest if Alion does not secure an additional $35
million in revolving credit commitments by February 1, 2010, added a leverage reduction
condition requiring Alion to pay in kind an additional 100 basis points in interest if
Alions Senior Secured Leverage Ratio is more than 2.75 to 1.00 as of June 30, 2010 and
the additional interest increases by 50 basis points each quarter thereafter if the
leverage ratio is not met, afforded the senior lenders the opportunity to appoint a
designee to Alions board of directors if Alions Senior Secured Leverage Ratio is more
than 2.75 to 1.00 as of June 30, 2010, added a $25 million uncommitted incremental
revolving credit facility, removed a requirement that Alion maintain its S-corporation
status, limited Alions ability to make capital expenditures from June 30, 2009 to
September 30, 2010 to $8 million and made other modifications to Alions negative
covenants. |
72
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2009, the Term B Senior Credit Agreement consisted of:
|
|
|
a senior term loan in the approximate amount of $236.6 million; |
|
|
|
|
a $25.0 million senior revolving credit facility only $182 thousand of which was
allocated to letters of credit and deemed borrowed, but none of which was actually
drawn as of September 30, 2009; and |
|
|
|
|
a $110.0 million uncommitted incremental term loan accordion facility for which
loans may be permitted subject to satisfying the leverage based incurrence test. |
The Term B Senior Credit Agreement requires the Company to repay one percent of the principal
balance of the senior term loan during each of the next four fiscal years (December 2009 through
December 2012) in equal quarterly installments and to repay the remaining outstanding balance in
February 2013. Through December 31, 2012, the Company is currently obligated to make quarterly
principal installments of approximately $0.6 million. On February 6, 2013, the senior term loan
maturity date, the Company is obligated to pay approximately $229.3 million.
Under the senior revolving credit facility, the Company may request up to $20.0 million in
letters of credit and may borrow up to $5.0 million in swing line loans for short-term borrowing
needs. The Company must pay all principal obligations under the senior revolving credit facility
in full no later than September 30, 2010.
The Company may prepay all or any portion of its Senior Term Loan in minimum increments of
$1.0 million, generally without penalty or premium, except for customary breakage costs associated
with pre-payment of Eurodollar-based loans. If the Company issues certain permitted debt, or
sells, transfers or disposes of certain assets, it must use all net proceeds to repay any Term B
loan amounts outstanding. If the Company has excess cash flow (as defined in the Term B Senior
Credit Agreement) for any fiscal year, it must use all net proceeds or excess cash flow to repay
Senior Term Loan principal. The Company repaid approximately $4.0 million in additional principal
in September 2008.
If the Company enters into an additional term loan, or incremental term loan, and certain
terms in that loan are more favorable to the new lenders than existing Senior Credit Facility
terms, the applicable interest rate spread on the senior term loans could increase. As a result,
additional term loans could increase the Companys interest expense under its existing term loans.
The Companys significant subsidiaries (HFA, CATI, METI, JJMA, BMH, WCI, WCGS and MA&D) have
guaranteed the Companys obligations under the Companys Term B Senior Credit Agreement.
Use of Proceeds. In March 2006, the Company borrowed $32.0 million, used approximately $16.5
million to pay part of the WCI acquisition price, and paid approximately $13.6 million to redeem
mezzanine warrants held by IIT and the Companys Chief Executive Officer. In May 2006, the Company
borrowed $15.0 million to pay for part of the MA&D acquisition. On June 30, 2006, the Company
borrowed $71.0 million to pay part of the Anteon Contracts acquisition price. In January 2008, the
Company borrowed $15.0 million and in July 2008, another $25.0 million of incremental term loans to
pay down part of the senior revolving credit facility balance.
The Term B Senior Credit Agreement permits the Company to use its senior revolving credit
facility for working capital, general corporate purposes, and permitted acquisitions; and to use
proceeds from the uncommitted incremental term loan facility for permitted acquisitions and any
other purpose permitted by any future incremental term loan.
Security. The Term B Senior Credit Agreement is secured by a security interest in all the
current and future tangible and intangible property of Alion and many of its subsidiaries.
Interest and Fees. Under the Term B Senior Credit Agreement, the senior term loan and the
revolving credit facility can each bear interest at either of two floating rates.
Senior Term Loan. The Company is entitled to elect to pay interest on the senior term loan at
an annual rate equal to either: 1) the sum of: (a) the greater of 450 basis points or the
applicable alternate base interest rate charged by Credit Suisse; plus (b) a 500 basis point spread
or 2) the sum of: (a) the greater of 350 basis points or the Eurodollar rate; plus a 600 basis
point spread.
Senior Revolving Credit Facility. The Company is also entitled to elect that the senior
revolving credit facility bear interest at an annual rate dependent on whether the Company made a
Eurodollar or an alternate base borrowing at the same
rates as for senior term loans. As of September 30, 2009, the minimum interest rate on Alions term
loan and revolving credit facility is 9.50% and no longer depends on the Companys leverage ratio.
73
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 1, 2005, the Company chose to have the senior term loan bear interest at the
Eurodollar rate and the senior revolving credit facility bear interest at the ABR rate based on
Credit Suisses prime rate. Through September 30, 2008, the Eurodollar rate on the senior term
loan was 5.49 percent (2.99 percent plus 2.50 percent Eurodollar spread) and the ABR rate was 6.75
percent (5.00 percent plus 1.75 percent spread). Since September 30, 2009, the Eurodollar and
alternate base rates have been 9.5%, including applicable spreads.
Interest Rate Cap Agreements. Alion had three interest rate cap agreements that expired in
September 2007 which limited the floating component of the Companys interest rate but did not
affect leverage ratio-based spreads. The effective interest rate for each cap agreements notional
principal was the sum of the capped floating rate plus the applicable spread determined by the Term
B Senior Credit Agreement.
Other Fees and Expenses. Each quarter, Alion is required to pay a commitment fee of 50 basis
points per year on the prior quarters daily, unused revolving credit facility and senior term loan
commitment. As of September 30, 2009, only the $182 thousand allocated to letters of credit was
outstanding on the revolving credit facility; the senior term loan was fully utilized. For the
year ended September 30, 2009, the Company paid no commitment fee for the senior term loan and
approximately $173 thousand for the revolving credit facility.
Alion is required to pay issuance and administrative fee plus a fronting fee not to exceed 25
basis points for each letter of credit issued under the revolving credit facility. Each quarter
Alion is required to pay interest in arrears at the revolving credit facility rate for all
outstanding letter of credit. The Term B Senior Credit Agreement also requires the Company to pay
an annual agents fee.
Financial Covenants and Waiver Agreement. The Term B Senior Credit Agreement requires the
Company satisfy two financial covenants, a senior secured leverage test and an interest coverage
test which compare Alions senior secured debt and its interest expense to its Consolidated EBITDA,
and maintain certain minimum thresholds which vary from period to period. Alion recently
discovered that historically it has not calculated Consolidated EBITDA in accordance with the
definition of Consolidated EBITDA in the Term B Senior Credit Agreement. The Term B Senior Credit
Agreement requires Alion to deduct from Consolidated EBITDA cash payments made in a current
accounting period on account of reserves, restructuring charges and other non-cash charges that
Alion added to its Consolidated EBITDA in a prior accounting period as permitted by the definition.
Alion discovered that in calculating Consolidated EBITDA it has not historically reduced its
Consolidated EBITDA by cash payments made on account of non-cash charges added back in prior
periods related to, among other things, Alions SAR and phantom stock plans.
As a result of miscalculating Consolidated EBITDA, the Company failed to comply with its
senior secured leverage ratio test (or predecessor test) beginning with its fiscal quarter ending
June 30, 2006 and continued to fail to comply through the quarter ending June 30, 2009 except the
Company complied for the quarters ending March 31, 2007, June 30, 2007 and September 30, 2007. The
Company also failed to comply with its interest coverage ratio test beginning with its quarter
ending December 31, 2007 and continued to fail to comply through the quarter ending September 30,
2009.
The failure to satisfy the senior secured leverage ratio (or predecessor test) and the
interest coverage ratio for the periods indicated resulted in Alion consequentially breaching a
number of affirmative and negative covenants in the Credit Facility. The affirmative covenants
consequentially breached related to Alions obligation to deliver to the Administrative Agent (a)
compliance certificates and supporting materials and (b) financial statements. The negative
covenants consequentially breached related to Alions obligation to refrain while in default from
(a) making certain restricted payments related to Alions stock appreciation rights and phantom
stock plans, (b) making certain restricted payments to departing employees under Alions ESOP, (c)
paying certain non-employee directors fees, (d) pre-paying principal on Alions junior subordinated
notes ahead of regularly scheduled times, and (e) paying certain earn-out obligations in connection
with consummated acquisitions. Further, each time Alion drew under its Revolver or borrowed a Term
Loan, Alion was deemed to make certain representations and warranties to the lenders under the Term
B Senior Credit Agreement, and, as a result of Alion breaching the various financial, affirmative
and negative covenants described above, certain of Alions representations and warranties were
incorrect.
74
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 14, 2009, the Company entered into a waiver with the required lenders under the
Term B Senior Credit Agreement. Under the Waiver, the requisite lenders under the Term B Senior
Credit Agreement waived all of Alions financial, affirmative and negative covenant defaults
described above, and its breach of certain representations and warranties, existing on December 14,
2009 and any defaults which will occur solely as a result of the proper application of required
cash deductions in the calculation of Consolidated EBITDA for the fiscal year and quarter ended
September 30, 2009.
Pursuant to the Waiver, Alion paid each lender granting the waiver a waiver fee in the amount
of 0.25% of the aggregate principal amount of the term loans and revolving credit commitments of
such lender outstanding on December 14, 2009. Alion has also promised to pay on March 1, 2010 each
lender granting the waiver a future fee equal to 1.0% of the aggregate principal amount of the term
loans and revolving credit commitments of such lender outstanding on March 1, 2010 unless such
lender shall have assigned all or a portion of such lenders holdings, in which case such lenders
assignee (unless otherwise agreed) shall be entitled to the future and supplemental 1.0% fee
payable by Alion. Alion paid an additional arrangement fee to the Administrative Agent in
connection with securing the Waiver.
The Waiver does not change any of the terms or definitions of the Term B Senior Credit
Agreement. Going forward, the Company will be required to deduct cash payments relating to the
settlement of deferred compensation plans and certain retirement obligations in the calculation of
Consolidated EBITDA.
As of September 30, 2009, after taking into account the provisions of the Waiver, we were in
compliance with the financial covenants set forth in our Term B Senior Credit Agreement. The
Company expects to be able to meet its existing financial and other debt covenants for at least the
next 12 months.
Restatement
Subsequent to the issuance of its 2008 financial statements, the Company discovered it had
incorrectly computed certain adjustments to Consolidated EBITDA used in the calculation of its
financial covenants (as defined in the Term B Senior Credit Agreement). After correcting the
errors in its calculations, the Company was in violation of certain financial covenants that gave
its lenders the right to immediately call its entire outstanding Term B Loan balance. The Company
did not obtain a waiver of its covenant violations until after its 2008 financial statements were
issued; therefore the Company should have presented the entire amount payable under the Term B
Senior Credit Agreement as a current liability. The Company has restated its 2008 balance sheet
for the effects of its failure to comply with certain affirmative and negative financial covenants
under its Term B Senior Credit Agreement.
In its 2008 balance sheet, the Company has reclassified the total $229.8 million Term B loan
balance from non-current to current liabilities. For fiscal 2009, the Company has correctly
classified $229.2 million of its Term B loan balance as non-current. The fiscal 2009 presentation
is correct because prior to issuing its financial statements, the Company timely obtained a waiver
from its lenders of all breaches of affirmative and negative financial covenants through September
30, 2009.
Senior Unsecured Notes
On February 8, 2008, the Company issued and sold $250.0 million of private 10.25% senior
unsecured notes due February 1, 2015 (Senior Unsecured Notes) to Credit Suisse, which informed
Alion that it resold most of the notes to qualified institutional buyers. On June 20, 2008, Alion
exchanged the private Senior Unsecured Notes for publicly tradable Senior Unsecured Notes with the
same terms.
Use of Proceeds. The proceeds of the Senior Unsecured Notes were used to pay off all
outstanding amounts under the Bridge Loan Agreement and approximately $72.0 million of the amounts
outstanding under the Term B Senior Credit Agreement.
Security. The Senior Unsecured Notes are currently guaranteed by HFA, CATI, METI, JJMA, BMH,
WCI and MA&D and will be guaranteed by certain of the Companys future subsidiaries.
Ranking. The Senior Unsecured Notes are senior unsecured obligations of the Company and rank
the same in right of payment with all existing and future senior indebtedness of the Company
including future indebtedness under the Term B Senior Credit Agreement. However, all of the
Companys secured debt and other obligations in effect from time to time,
including the amounts outstanding under the Term B Senior Credit Agreement, are effectively senior
to the Senior Unsecured Notes to the extent of the value of the assets securing such debt or other
obligations. The Senior Unsecured Notes rank senior in right of payment to all existing and future
subordinated indebtedness, including the subordinated notes.
75
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest and Fees. The Senior Unsecured Notes bear interest at 10.25% per year, payable
semi-annually in arrears on February 1 and August 1, starting on August 1, 2008. The Company pays
interest to holders of record as of the immediately preceding January 15 and July 15. The Company
must pay interest on overdue principal at 11.25% per annum and, to the extent lawful, will pay
interest on overdue semi-annual interest installments at 11.25% per annum.
Optional Redemption. Prior to February 1, 2010, subject to certain conditions, the Company
may use the proceeds of a qualified equity offering to redeem up to $87.5 million of Senior
Unsecured Notes for 110.25% of the principal of the notes actually redeemed, plus unpaid interest
accrued to the redemption date.
Prior to February 1, 2011, the Company may redeem all, but not less than all, of the Senior
Unsecured Notes for 100% of the principal, all unpaid interest accrued to the redemption date, plus
an applicable make-whole premium as of the redemption date. From February 1, 2011 through January
31, 2012, the Company may redeem all or a portion of the Senior Unsecured Notes at 105.125% of the
principal amount on the redemption date, plus unpaid interest accrued to the redemption date. From
February 1, 2012 through January 31, 2013, the redemption price declines to 102.563% of the
principal redeemed, plus unpaid interest accrued to the redemption date. There is no redemption
premium after January 31, 2013.
Covenants. The Indenture governing the Senior Unsecured Notes contains covenants that, among
other things, limit the Companys ability and the ability of certain of its subsidiaries to incur
additional indebtedness and to make certain types of payments.
Exchange Offer; Registration Rights. The Company filed a registration statement with the SEC
offering to exchange the Senior Unsecured Notes for publicly registered notes. The registration
statement was declared effective May 10, 2008; the exchange offer closed June 20, 2008; all
outstanding notes were exchanged for publicly registered notes.
Bridge Loan
On June 30, 2006, the Company entered into a Bridge Loan agreement with Credit Suisse and
borrowed $170.0 million to pay part of the cost of acquiring the Anteon Contracts. In February
2007, the Company repaid the Bridge Loan which had a $163.8 million net carrying value prior to
pay-off. Alion recognized a $6.2 million loss on the extinguishment of the Bridge Loan in fiscal
year 2007.
Interest Payable
Interest Payable consisted of the following balances:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Senior Unsecured Notes |
|
$ |
4,271 |
|
|
$ |
4,271 |
|
Term B Senior Credit Agreement Note Payable |
|
|
3,975 |
|
|
|
2,272 |
|
Subordinated Note Payable |
|
|
793 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,039 |
|
|
$ |
6,543 |
|
|
|
|
|
|
|
|
76
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subordinated Note
In December 2002, Alion issued a $39.9 million Subordinated Note to IITRI as part of the
purchase price for substantially all of IITRIs assets. In July 2004, IIT acquired the
Subordinated Note and related warrant agreement from IITRI. In June 2006, the Company and IIT
agreed to increase the interest rate on the Subordinated Note for two years from December 2006
through December 2008. In August 2008, the Company and IIT amended the Subordinated Note to:
extend the maturity date of the Subordinated Note to August 2013; require Alion to re-pay $3.0
million in principal in November 2008, 2009 and
2010, and $2.0 million in November 2011; and require Alion to pay cash interest at 6% rather than
16%, along with 10% in non-cash interest to be added to principal. The amended Subordinated Note
agreement prohibits Alion from redeeming vested phantom stock held by the Chief Executive Officer
and Chief Operating Officer unless the Company timely makes its scheduled principal payment each
year. The Company paid IIT a $0.5 million amendment fee.
Up to and including December 2008, interest on the Subordinated Note was payable quarterly in
arrears by issuing paid-in-kind (PIK) notes maturing at the same time as the Subordinated Note.
The interest rate was 6.0% from December 2002 through December 2006; approximately 6.4% from
December 2006 to December 2007; and approximately 6.7% from December 2007 to December 2008. After
December 2008, interest is still payable quarterly in arrears, 6% to be paid in cash and 10% to be
paid in PIK notes due August 2013. Existing and future PIK notes defer related cash interest
expense on the Subordinated Note. Over the term of the Subordinated Note, Alion will be required
to issue approximately $41.4 million in PIK notes. In addition to the principal payments required
each November from 2008 through 2011, Alion is required to pay a total of $70.3 million in
principal and PIK notes in August 2013.
On December 21, 2009, the Company and IIT modified the terms of the Subordinated Note to defer
payment of interest due in January 2010 to April 2010. Subject to certain future events and
conditions, IIT agreed to sell its warrants and Subordinated Note to Alion for $25 million. The
Company expects to be able to either retire the Subordinated Note prior to April 2010 or amend it
to defer cash interest payments until after the Term B Senior Credit Agreement expires.
As of September 30, 2009, the remaining fiscal year principal repayments (at face amount
before debt discount) for outstanding indebtedness are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Total |
|
|
|
(In thousands) |
|
Senior Secured
Term B Loan(1) |
|
$ |
2,433 |
|
|
$ |
2,433 |
|
|
$ |
2,433 |
|
|
$ |
229,297 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
236,596 |
|
Senior Unsecured
Notes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
Subordinated Seller
Note(3) |
|
|
3,000 |
|
|
|
3,000 |
|
|
|
2,000 |
|
|
|
70,312 |
|
|
|
|
|
|
|
|
|
|
|
78,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Principal Payments |
|
$ |
5,433 |
|
|
$ |
5,433 |
|
|
$ |
4,433 |
|
|
$ |
299,609 |
|
|
$ |
|
|
|
$ |
250,000 |
|
|
$ |
564,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. |
|
The table does not include any Term B Senior Credit Agreement principal pre-payments.
The timing and amount of such payments is uncertain. The total on the face of the balance
sheet for the Term B Senior Term Loan includes approximately $236.6 million in principal
and $5.0 million in unamortized debt issue costs as of September 30, 2009. Debt issue
costs for the original loan and subsequent modifications totaled $12.5 million through
September 2009. The Company estimates it will need to refinance the Term B Senior Credit
Agreement before it matures. |
|
2. |
|
The Senior Unsecured Notes on the face of the balance sheet include $250 million in
principal and $4.8 million in unamortized debt issue costs as of September 30, 2009
(originally $7.1 million). |
|
3. |
|
The Subordinated Note on the face of the balance sheet includes approximately $10.2
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 Subordinated Note 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. The amounts presented do not reflect the anticipated effect of the
Companys agreement with IIT to retire the Subordinated Note and related Warrants for $25
million prior to April 2010. |
77
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Fair Value Measurement
The Company adopted ASC 805 Fair Value Disclosures in fiscal year 2009 for all financial
assets and liabilities recognized or disclosed at fair value in the financial statements. The
Company adopted the provisions of ASC 805 for nonfinancial assets and liabilities recognized or
disclosed at fair value in the financial statements on a recurring basis; no such assets or liabilities exist at the balance sheet date. The Company has delayed implementing ASC 805
until fiscal year 2010, for all nonfinancial assets and liabilities recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. The Company does not expect adopting ASC
805 for items such as goodwill and long lived assets measured at fair value if impaired, will
materially affect its consolidated financial statements or results of operations.
ASC 805 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability (an exit price) in an orderly transaction between market participants at the
measurement date. It establishes a fair value hierarchy and a framework which requires categorizing
assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing
the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3
generally requires significant management judgment. Level 1inputs are unadjusted, quoted market
prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs
other than quoted prices included in Level 1, such as quoted prices for similar assets or
liabilities in active markets or quoted prices for identical assets or liabilities in inactive
markets. Level 3 inputs include unobservable inputs that are supported by little, infrequent, or no
market activity and reflect managements own assumptions about inputs used in pricing the asset or
liability. The Company uses the following valuation techniques to measure fair value.
Level 1 primarily consists of financial instruments, such as overnight bank re-purchase
agreements or money market mutual funds whose value is based on quoted market prices published by a
financial institution, an exchange fund, exchange-traded instruments and listed equities.
Level 2 assets include U.S. Government and agency securities whose valuations are based on
market prices from a variety of industry-standard data providers or pricing that considers various
assumptions, including time value, yield curve, volatility factors, credit spreads, default rates,
loss severity, current market and contractual prices for the underlying instruments, and broker and
dealer quotes. All are observable in the market or can be derived principally from or corroborated
by observable market data for which the Company can obtain independent external valuation
information.
Level 3 consists of unobservable inputs. The Companys warrants are classified as a Level 3
liability. Assets and liabilities are considered Level 3 when their fair value inputs are
unobservable or not available, including situations involving limited market activity, where
determination of fair value requires significant judgment or estimation. At September 30, 2009, the
Company measured outstanding warrants at fair value based on the underlying estimated fair value of
a share of Alion common stock as of September 30, 2009, the valuation most recently performed for
the ESOP Trustee and approved by the Board of Directors ($34.50 per share), a risk-free U.S.
Treasury interest rate for a comparable investment period (1.85%) and 36% equity volatility factor
based on the historical volatility of the common stock of publicly-traded companies considered to
be comparable to Alion. Valuations techniques utilized in the fair value measurement of assets and
liabilities presented on the Companys balance sheet were unchanged from previous practice during
the reporting period.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents information about the Companys financial assets and financial
liabilities that are measured at fair value on a recurring basis as of September 2009, and
indicates the fair value hierarchy of the valuation techniques utilized to determine such fair
value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable common stock warrants |
|
$ |
|
|
|
$ |
|
|
|
$ |
(32,717 |
) |
|
|
|
|
|
|
|
|
|
|
78
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below provides a summary of the changes in fair value of all financial liabilities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the
years ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Redeemable Common Stock Warrants |
|
Balance, beginning of period |
|
$ |
(39,996 |
) |
|
$ |
(33,610 |
) |
Total realized and unrealized gains and (losses) |
|
|
|
|
|
|
|
|
Included in interest expense |
|
|
(7,279 |
) |
|
|
(3,895 |
) |
Issuances and settlements |
|
|
|
|
|
|
10,281 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
(32,717 |
) |
|
$ |
(39,996 |
) |
|
|
|
|
|
|
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Companys cost-method investment in VectorCommand is tested annually for impairment and is
not adjusted to market value at the end of each reporting period. Fair value would only be
determined on a nonrecurring basis if this investment were deemed to be other-than-temporarily
impaired. The Company has not recorded any other-than-temporary impairments to its VectorCommand
investment during the reporting period.
(13) Interest Rate Swap
In January 2008, Alion executed an interest rate swap with one of its lenders affiliates to
convert floating rate interest payable on a portion of its Term B senior term loan to a fixed rate,
and to effectively shift timing of some Term B senior term loan net interest payments. The swap
agreement had a notional amount of $240 million and expired in November 2008. The Company made its
final semi-annual interest payment November 1, 2008. Under the swap Alion received quarterly
floating rate interest payments on February 1, May 1, August 1 and November 1, 2008, at the London
Interbank Offering Rate plus 250 basis points. The floating rate was 7.32% for the six months
ended May 1, 2008 and 5.49% for the six months ended November 1, 2008. Alion paid interest at
6.52%. All swap payments were net cash settled. Alion was exposed to credit risk for net
settlements under the swap agreement, but not for the notional amount.
(14) Redeemable Common Stock Warrants
Alion uses an option pricing model to estimate the fair value of its redeemable common stock
warrants. Management considers the share price selected by the ESOP Trustee along with other
factors, to assist in estimating the Companys aggregate liability for outstanding redeemable
common stock warrants. The Audit and Finance Committee of Alions Board of Directors reviews the
reasonableness of the redeemable common stock warrant liability Management has determined is
appropriate for the Company to recognize. The Audit and Finance Committee considers various
factors in its review, including risk free interest rates, volatility of the common stock of
comparable publicly traded companies, and in part, the valuation report prepared for and the share
price selected by the ESOP Trustee.
In December 2002, the Company issued 1,080,437 detachable, redeemable common stock warrants at
an exercise price of $10.00 per share. Alion issued the warrants to IITRI in connection with the
Subordinated Note. The Company recognized approximately $7.1 million for the initial fair value of
the warrants as original issue debt discount to the $39.9 million face value of the Subordinated
Note. The Subordinated Note warrants were originally exercisable until December 2010. In June
2004, IITRI transferred the warrants to IIT.
In August 2008, Alion issued an additional 550,000 redeemable common stock warrants at an
exercise price of $36.95 per share. The Company issued the second set of warrants to IIT in
connection with the Subordinated Note amendment. Both sets of warrants are exercisable at the
current fair value per share of Alion common stock, less the exercise price. The Company
recognized approximately $10.3 million in debt issue costs for the fair value of the August
2008 warrants and the amendment to the December 2002 warrants.
In accordance with ASC 815 Derivatives, Alion has classified the warrants as debt
instruments indexed to and potentially settled in the Companys own stock and not as equity. The
Company recognizes interest expense for changes in the fair value of the warrants which had an
aggregate estimated fair value of $32.7 million as of September 30, 2009.
79
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) Leases
Future minimum lease payments under non-cancelable operating leases for buildings, equipment
and automobiles at September 30, 2009 are set out below. Under these operating leases, Alion
subleased some excess capacity to subtenants under non-cancelable operating leases. In connection
with certain acquisitions, Alion assumed operating leases at above-market rates; recorded loss
accruals of approximately $4.9 million based on the estimated fair value of the lease liabilities
assumed; and is amortizing these amounts over the lease terms. The remaining unamortized accrued
loss related to these acquisitions was $392 thousand at September 30, 2009. Alion also acquired a
related sub-lease with above-market rates. Based on the estimated fair value of the sublease, Alion
recognized an asset of $586 thousand which it fully amortized over the lease term.
|
|
|
|
|
Lease Payments for Fiscal Years Ending |
|
(In thousands) |
|
2010 |
|
$ |
27,350 |
|
2011 |
|
|
25,700 |
|
2012 |
|
|
21,731 |
|
2013 |
|
|
20,403 |
|
2014 |
|
|
13,979 |
|
And thereafter |
|
|
38,947 |
|
|
|
|
|
Gross lease payments |
|
$ |
148,110 |
|
Less: non-cancelable subtenant receipts |
|
|
(2,982 |
) |
|
|
|
|
Net lease payments |
|
$ |
145,128 |
|
|
|
|
|
Composition of Total Rent Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Minimum rentals |
|
$ |
25,742 |
|
|
$ |
24,794 |
|
|
$ |
25,574 |
|
Less: Sublease rental income |
|
|
(2,655 |
) |
|
|
(3,559 |
) |
|
|
(2,687 |
) |
|
|
|
|
|
|
|
|
|
|
Total rent expense, net |
|
$ |
23,087 |
|
|
$ |
21,235 |
|
|
$ |
22,887 |
|
|
|
|
|
|
|
|
|
|
|
(16) Stock Appreciation Rights
2002 SAR Plan
In November 2002, the Board of Directors adopted the Alion Science and Technology Corporation
2002 Stock Appreciation Rights (SAR) Plan (the 2002 SAR Plan). A grantee had the right to be paid
for vested SARs based on the difference in value of a share of Alion common stock as of the grant
date and the most recent ESOP Trust stock valuation prior to the exercise date. Employee grants
vested ratably over five years; director grants vested ratably over each directors then-current
term of office. The Company awarded 238,600 SARs under the 2002 SAR Plan. No grants remain in
effect.
2004 SAR Plan
In January 2005, the Board of Directors adopted the Alion Science and Technology Corporation
2004 Stock Appreciation Rights Plan (the 2004 SAR Plan), to comply with the deferred compensation
provisions of the American Jobs Creation Act of 2004. The 2004 SAR Plan has a 10-year term and
permits grants to Alion directors, officers, employees and consultants. Under the 2004 SAR Plan,
the chief executive officer has the authority to award SARs as he deems appropriate. However,
awards to executive officers are subject to approval of the 2004 SAR Plan administrative committee.
Outstanding SAR awards cannot exceed the equivalent of 12% of the Companys outstanding shares of
common stock on a fully diluted basis. Awards to employees vest ratably over four years and awards
to directors vest ratably over each directors term of service. The 2004 SAR Plan contains a
provision for accelerated vesting in the event of death, disability or a change in control of the
Company.
A grantee has the right to be paid for vested SARs based on the difference in value of a share
of Alion common stock as of the grant date and the exercise date, per the most recent stock
valuation for the ESOP Trust. Under the 2004 SAR plan, payment for awards granted before
November 9, 2005 and outstanding when a change in control of the Company occurs, is based on the
number of SARs times the higher of the change in control share price or the immediate prior
valuation share price. In November 2005, the Board of Directors amended the 2004 SAR Plan to
permit employees to make a one-time election to be paid for SARs as they vest each year or when
fully vested and to eliminate the timely exercise requirement for an employee to be paid. As of
September 30, 2009, the Company has awarded 1,240,110 SARs under the 2004 SAR Plan, of which
876,999 SARs remain outstanding. For the year ended September 30, 2009 the Company recognized a
credit to compensation expense of $0.6 million. Compensation expense for the SAR plans was
approximately $0.6 million and $1.2 million for the years ended September 30, 2008 and 2007.
80
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below sets out the disclosures required by ASC 718 Stock Compensation and the
assumptions used to value a share of Alion common stock and the Companys SAR grants as of
September 30, 2009. The Company uses intrinsic value to recognize compensation expense for grants
issued prior to October 1, 2006. For all subsequent grants, Alion uses a Black-Scholes-Merton
option pricing model to recognize compensation expense. Alion uses the fair market value of a
share of its common stock to recognize expense for all grants. There is no established public
trading market for Alions common stock. The ESOP Trust is the only holder of our common stock.
Alion does not expect to pay any dividends on its common stock and intends to retain future
earnings, if any, for use in the operation of its business.
Stock-based Compensation Disclosure per ASC 718
Stock Appreciation Rights
As of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
Granted to |
|
|
Exercise |
|
|
Outstanding at |
|
Date of Grant |
|
Employees |
|
|
Price |
|
|
9/30/2008 |
|
November 2003 |
|
|
129,550 |
|
|
$ |
14.71 |
|
|
|
68,335 |
|
February 2004 |
|
|
2,000 |
|
|
$ |
14.71 |
|
|
|
2,000 |
|
February 2005 |
|
|
165,000 |
|
|
$ |
19.94 |
|
|
|
89,162 |
|
March 2005 |
|
|
2,000 |
|
|
$ |
19.94 |
|
|
|
2,000 |
|
April 2005 |
|
|
33,000 |
|
|
$ |
29.81 |
|
|
|
20,250 |
|
June 2005 |
|
|
2,000 |
|
|
$ |
29.81 |
|
|
|
2,000 |
|
December 2005 |
|
|
276,675 |
|
|
$ |
35.89 |
|
|
|
203,774 |
|
February 2006 |
|
|
13,000 |
|
|
$ |
35.89 |
|
|
|
7,750 |
|
February 2006 |
|
|
7,500 |
|
|
$ |
35.89 |
|
|
|
3,750 |
|
May 2006 |
|
|
7,000 |
|
|
$ |
37.06 |
|
|
|
6,000 |
|
July 2006 |
|
|
15,000 |
|
|
$ |
37.06 |
|
|
|
10,500 |
|
October 2006 |
|
|
2,500 |
|
|
$ |
41.02 |
|
|
|
2,500 |
|
December 2006 |
|
|
238,350 |
|
|
$ |
41.02 |
|
|
|
201,083 |
|
February 2007 |
|
|
33,450 |
|
|
$ |
41.02 |
|
|
|
24,700 |
|
May 2007 |
|
|
2,000 |
|
|
$ |
43.37 |
|
|
|
2,000 |
|
September 2007 |
|
|
2,000 |
|
|
$ |
43.37 |
|
|
|
2,000 |
|
December 2007 |
|
|
232,385 |
|
|
$ |
40.05 |
|
|
|
210,310 |
|
April 2008 |
|
|
2,000 |
|
|
$ |
41.00 |
|
|
|
2,000 |
|
September 2008 |
|
|
2,000 |
|
|
$ |
41.00 |
|
|
|
2,000 |
|
December 2008 |
|
|
203,250 |
|
|
$ |
38.35 |
|
|
|
|
|
April 2009 |
|
|
1,000 |
|
|
$ |
34.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,371,660 |
|
|
|
|
|
|
|
862,114 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Exercise
Price |
|
$ |
$33.91 |
|
|
|
|
|
|
|
|
|
81
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based Compensation Disclosure per ASC 718
Stock Appreciation Rights
As of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at |
|
|
Exercisable |
|
Date of Grant |
|
at 9/30/09 |
|
|
Forfeited |
|
|
Exercised |
|
|
Expired |
|
|
9/30/09 |
|
|
at 9/30/09 |
|
November 2003 |
|
|
|
|
|
|
565 |
|
|
|
67,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2004 |
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 |
|
|
71,150 |
|
|
|
2,412 |
|
|
|
15,600 |
|
|
|
|
|
|
|
71,150 |
|
|
|
|
|
March 2005 |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
April 2005 |
|
|
18,000 |
|
|
|
|
|
|
|
2,250 |
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
June 2005 |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
December 2005 |
|
|
175,284 |
|
|
|
9,607 |
|
|
|
18,883 |
|
|
|
|
|
|
|
131,505 |
|
|
|
|
|
February 2006 |
|
|
7,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,813 |
|
|
|
|
|
February 2006 |
|
|
2,500 |
|
|
|
625 |
|
|
|
625 |
|
|
|
|
|
|
|
1,875 |
|
|
|
|
|
May 2006 |
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500 |
|
|
|
|
|
July 2006 |
|
|
10,000 |
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
7,500 |
|
|
|
|
|
October 2006 |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
|
|
December 2006 |
|
|
171,500 |
|
|
|
17,648 |
|
|
|
11,935 |
|
|
|
|
|
|
|
85,750 |
|
|
|
|
|
February 2007 |
|
|
21,700 |
|
|
|
1,500 |
|
|
|
1,500 |
|
|
|
|
|
|
|
10,850 |
|
|
|
|
|
May 2007 |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
September 2007 |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
December 2007 |
|
|
187,740 |
|
|
|
18,659 |
|
|
|
3,911 |
|
|
|
|
|
|
|
46,935 |
|
|
|
|
|
April 2008 |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
September 2008 |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
December 2008 |
|
|
189,875 |
|
|
|
13,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2009 |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
876,999 |
|
|
|
64,391 |
|
|
|
124,974 |
|
|
|
|
|
|
|
392,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Exercise Price |
|
$ |
37.07 |
|
|
$ |
38.35 |
|
|
$ |
22.65 |
|
|
$ |
|
|
|
$ |
34.47 |
|
|
$ |
|
|
82
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based Compensation Disclosures per ASC 718
Stock Appreciation Rights
As of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Free Interest |
|
|
|
|
|
|
Expected |
|
|
Remaining Life |
|
Date of Grant |
|
Rate |
|
|
Volatility |
|
|
Life |
|
|
(months) |
|
November 2003 |
|
|
4.06% - 4.49% |
|
|
|
60 |
% |
|
5 yrs |
|
|
|
|
February 2004 |
|
|
4.06% - 4.49% |
|
|
|
60 |
% |
|
5 yrs |
|
|
|
|
February 2005 |
|
|
3.10% - 3.60% |
|
|
|
45 |
% |
|
4 yrs |
|
|
|
|
March 2005 |
|
|
3.10% - 3.60% |
|
|
|
45 |
% |
|
4 yrs |
|
|
|
|
April 2005 |
|
|
4.10% - 4.20% |
|
|
|
45 |
% |
|
4 yrs |
|
|
|
|
June 2005 |
|
|
4.10% - 4.20% |
|
|
|
45 |
% |
|
4 yrs |
|
|
|
|
December 2005 |
|
|
4.20% - 4.20% |
|
|
|
40 |
% |
|
4 yrs |
|
|
2.7 |
|
February 2006 |
|
|
4.20% - 4.20% |
|
|
|
40 |
% |
|
4 yrs |
|
|
4.4 |
|
February 2006 |
|
|
4.20% - 4.20% |
|
|
|
40 |
% |
|
4 yrs |
|
|
4.8 |
|
May 2006 |
|
|
4.82% - 4.83% |
|
|
|
35 |
% |
|
4 yrs |
|
|
7.6 |
|
July 2006 |
|
|
4.82% - 4.83% |
|
|
|
35 |
% |
|
4 yrs |
|
|
9.0 |
|
October 2006 |
|
|
4.82% - 4.83% |
|
|
|
35 |
% |
|
4 yrs |
|
|
12.8 |
|
December 2006 |
|
|
4.54% - 4.58% |
|
|
|
35 |
% |
|
4 yrs |
|
|
14.7 |
|
February 2007 |
|
|
4.54% - 4.58% |
|
|
|
35 |
% |
|
4 yrs |
|
|
16.8 |
|
May 2007 |
|
|
4.54% - 4.58% |
|
|
|
35 |
% |
|
4 yrs |
|
|
19.6 |
|
September 2007 |
|
|
4.54% - 4.54% |
|
|
|
35 |
% |
|
4 yrs |
|
|
23.1 |
|
December 2007 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
4 yrs |
|
|
26.8 |
|
April 2008 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
4 yrs |
|
|
30.9 |
|
September 2008 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
4 yrs |
|
|
35.5 |
|
December 2008 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
4 yrs |
|
|
38.8 |
|
April 2009 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
4 yrs |
|
|
42.4 |
|
Weighted Average
Remaining Life
(months) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.5 |
|
83
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) Phantom Stock Plans
Phantom stock refers to theoretical shares of Alion common stock. Recipients, upon vesting,
are generally entitled to receive cash equal to the number of vested shares times the then-current
price of Alion common stock, based on the most recent stock valuation for the ESOP Trust. The
Compensation Committee of the Board of Directors administers the Companys phantom stock plans and
is authorized to grant phantom stock to key management employees and outside directors. Phantom
stock grants do not confer voting or any other rights associated with common stock ownership.
References to shares of common stock under the plan are for accounting and valuation purposes only.
The Company is authorized to issue up to 2.0 million shares of phantom stock in total for all
phantom stock plans.
Initial Phantom Stock Plan
In February 2003, the Compensation Committee of Alions Board of Directors approved, and the
Board of Directors subsequently adopted, the Alion Science and Technology Phantom Stock Plan (the
Initial Phantom Stock Plan). The Initial Phantom Stock plan has a term of ten years.
Vesting. The Initial Phantom Stock Plan contains provisions for acceleration of vesting and
payouts in connection with an employees death, disability, involuntary termination of employment
without cause or a change in control of the Company. As of September 30, 2009, the Company had
granted 223,685 shares of phantom stock under the Initial Phantom Stock Plan. No grants remain
outstanding under the Initial Phantom Stock Plan.
Second Phantom Stock Plan
In November 2004, the Companys Compensation Committee approved, and the full board adopted,
the Alion Science and Technology Corporation Performance Shares and Retention Phantom Stock Plan
(the Second Phantom Stock Plan) to comply with the requirements of the American Jobs Creation Act.
The Second Phantom Stock Plan permits awards of retention and performance share phantom stock. A
retention award is for a fixed number of shares set on the grant date. A performance award is for
an initial number of shares subject to change at the vesting date. Performance phantom shares are
subject to forfeiture for failure to achieve a specified threshold value for a share of the
Companys common stock as of the vesting date. If the value of a share of the Companys common
stock equals the threshold value but does not exceed the target value, the number of performance
shares in a given grant can decrease by up to 50%. If the value of a share of the Companys common
stock exceeds a pre-established target value on the vesting date, the number of performance shares
in a given grant can increase by up to 20%.
Vesting. Performance share awards vest three years from date of grant (unless otherwise
provided in an individual award agreement) and retention share awards vest as specified in each
individual award agreement, provided the individual remains an employee. Under limited
circumstances, a grantee may defer an award payout beyond the original date. The Second Phantom
Stock Plan contains provisions for acceleration of vesting and payouts in connection with an
employees death, disability, involuntary termination of employment without cause or a change in
control of the Company. In November 2005, the Board of Directors amended both the Initial Phantom
Stock Plan and the Second Phantom Stock Plan to permit employees to make a one-time election for
either or both plans to receive payment for phantom shares as they vest each year or when fully
vested. As of September 30, 2009, the Company has granted 340,312 shares of retention phantom stock
and 213,215 shares of performance phantom stock under the Second Phantom Stock Plan. No grants
remain outstanding.
Director Phantom Stock Plan
In November 2004 the Companys Compensation Committee approved, and the full board adopted,
the Alion Science and Technology Corporation Board of Directors Phantom Stock Plan (Director
Phantom Stock Plan). The Director Phantom Stock Plan provides for annual awards of shares of
phantom stock to non-employee directors of the Company for a fixed amount in addition to their
then-current annual directors fee. The number of shares of phantom stock is determined by
dividing the fixed amount by fair market value of a share of Alion common stock on the grant date
and rounding up to the next higher whole number. The fixed amount was $40,000 for fiscal 2008 and
$35,000 for 2007 and prior years. There were no grants to directors in fiscal 2009. Fair market
value is determined by the Compensation Committee in its sole discretion using the most recent
valuation of the Companys common stock made by an independent appraisal that meets the
requirements of IRC Section 401(a)(28)(C), as of a date that is no more than 12 months before the
date of the award.
84
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Director Phantom Stock Plan grants vest ratably over three years from the date of the award.
Vesting accelerates upon a directors death or disability or upon a change of control of the
Company. Before each award is granted (or within 30 days of
the grant date for individuals who become a director on the grant date), a director may elect
whether to receive payment for phantom shares as they vest, or when they are fully vested. A
director who elects to receive payment when an award has fully vested may elect to defer the
proceeds of the award into the Alion Science and Technology Director Deferred Compensation Plan
provided the election is made no later than one year before the award fully vests. All payments
made under the awards are required to be in cash. As of September 30, 2009, the Company had granted
20,779 shares of phantom stock under the Director Phantom Stock Plan.
For the years ended September 30, 2009 and 2008 the Company recognized credits to compensation
expense of approximately $4.5 million, and $ 0.1 million. Compensation expense for phantom stock
plans was $7.1 million for the year ended September 30, 2007.
The table below sets out the disclosures required by ASC 718 Stock Compensation and the
assumptions used to value a share of Alion common stock and the Companys phantom stock grants as
of September 30, 2009 and September 30, 2008. The Company uses intrinsic value to recognize phantom
stock plan compensation expense for grants prior to October 2006. For all subsequent grants, Alion
uses a Black Scholes Merton option pricing model to recognize compensation expense. Alion uses the
fair market value of a share of its common stock to recognize expense for all grants; therefore no
additional disclosures are required for these grants. There is no established public trading
market for Alions common stock. The ESOP Trust is the only holder of our common stock. Alion does
not expect to pay any dividends on its common stock and intends to retain future earnings, if any,
for use in the operation of its business.
Stock-based Compensation Disclosure per ASC 718
Phantom Stock
as of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Granted |
|
|
Shares Granted |
|
|
Total Shares |
|
|
Grant Date |
|
|
Outstanding at |
|
Date of Grant |
|
to Employees |
|
|
to Directors |
|
|
Granted |
|
|
Share Price |
|
|
9/30/08 |
|
November 2003 |
|
|
52,685 |
|
|
|
|
|
|
|
52,685 |
|
|
|
|
|
|
$ |
14.71 |
|
|
|
11,897 |
|
February 2005 |
|
|
213,215 |
|
|
|
|
|
|
|
213,215 |
|
|
|
|
|
|
$ |
19.94 |
|
|
|
66,436 |
|
February 2005 |
|
|
98,399 |
|
|
|
|
|
|
|
98,399 |
|
|
|
|
|
|
$ |
19.94 |
|
|
|
16,696 |
|
February 2005 |
|
|
5,015 |
|
|
|
|
|
|
|
5,015 |
|
|
|
|
|
|
$ |
19.94 |
|
|
|
5,015 |
|
August 2005 |
|
|
2,960 |
|
|
|
|
|
|
|
2,960 |
|
|
|
|
|
|
$ |
33.78 |
|
|
|
2,960 |
|
November 2005 |
|
|
66,592 |
|
|
|
|
|
|
|
66,592 |
|
|
|
|
|
|
$ |
35.89 |
|
|
|
51,268 |
|
November 2005 |
|
|
|
|
|
|
7,808 |
|
|
|
7,808 |
|
|
|
|
|
|
$ |
35.89 |
|
|
|
5,531 |
|
November 2005 |
|
|
55,726 |
|
|
|
|
|
|
|
55,726 |
|
|
|
|
|
|
$ |
35.89 |
|
|
|
41,795 |
|
November 2006 |
|
|
|
|
|
|
5,978 |
|
|
|
5,978 |
|
|
|
|
|
|
$ |
41.02 |
|
|
|
5,409 |
|
November 2006 |
|
|
65,456 |
|
|
|
|
|
|
|
65,456 |
|
|
|
|
|
|
$ |
41.02 |
|
|
|
50,341 |
|
November 2007 |
|
|
|
|
|
|
6,993 |
|
|
|
6,993 |
|
|
|
|
|
|
$ |
40.05 |
|
|
|
6,993 |
|
November 2007 |
|
|
42,447 |
|
|
|
|
|
|
|
42,447 |
|
|
|
|
|
|
$ |
40.05 |
|
|
|
39,950 |
|
January 2008 |
|
|
2,497 |
|
|
|
|
|
|
|
2,497 |
|
|
|
|
|
|
$ |
40.05 |
|
|
|
2,497 |
|
May 2008 |
|
|
1,220 |
|
|
|
|
|
|
|
1,220 |
|
|
|
|
|
|
$ |
41.00 |
|
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
606,212 |
|
|
|
20,779 |
|
|
|
626,991 |
|
|
|
|
|
|
|
|
|
|
|
308,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Grant Date Fair
Value Price Per
Share |
|
$ |
26.58 |
|
|
$ |
38.77 |
|
|
$ |
26.98 |
|
|
|
|
|
|
|
|
|
|
$ |
32.10 |
|
85
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based Compensation Disclosure per ASC 718
Phantom Stock
as of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at |
|
|
Exercisable |
|
Date of Grant |
|
9/30/09 |
|
|
Forfeited |
|
|
Exercised |
|
|
Expired |
|
|
9/30/09 |
|
|
at 9/30/09 |
|
November 2003 |
|
|
|
|
|
|
|
|
|
|
11,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 |
|
|
|
|
|
|
10,328 |
|
|
|
56,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 |
|
|
|
|
|
|
|
|
|
|
16,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2005 |
|
|
|
|
|
|
2,558 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2005 |
|
|
|
|
|
|
2,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2005 |
|
|
|
|
|
|
43,188 |
|
|
|
8,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2005 |
|
|
|
|
|
|
|
|
|
|
5,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2005 |
|
|
|
|
|
|
41,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2006 |
|
|
4,839 |
|
|
|
|
|
|
|
569 |
|
|
|
|
|
|
|
2,847 |
|
|
|
2,847 |
|
November 2006 |
|
|
|
|
|
|
46,684 |
|
|
|
3,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2007 |
|
|
5,994 |
|
|
|
|
|
|
|
999 |
|
|
|
|
|
|
|
1,332 |
|
|
|
1,332 |
|
November 2007 |
|
|
|
|
|
|
34,956 |
|
|
|
4,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2008 |
|
|
|
|
|
|
2,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2008 |
|
|
|
|
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10,833 |
|
|
|
186,186 |
|
|
|
110,988 |
|
|
|
|
|
|
|
4,179 |
|
|
|
4,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Grant Date Fair Value
Price Per Share |
|
$ |
40.48 |
|
|
$ |
36.91 |
|
|
$ |
23.22 |
|
|
$ |
|
|
|
$ |
40.71 |
|
|
$ |
40.71 |
|
Stock-based Compensation Disclosures per ASC 718
Phantom Stock
as of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Free Interest |
|
|
|
|
|
|
Expected |
|
|
Remaining Life |
|
Date of Grant |
|
Rate |
|
|
Volatility |
|
|
Life |
|
|
(months) |
|
November 2003 |
|
|
4.06% - 4.49% |
|
|
|
60 |
% |
|
5 yrs |
|
|
|
|
February 2005 |
|
|
3.10% - 3.60% |
|
|
|
45 |
% |
|
3 yrs |
|
|
|
|
February 2005 |
|
|
3.10% - 3.60% |
|
|
|
45 |
% |
|
3 yrs |
|
|
|
|
February 2005 |
|
|
3.10% - 3.60% |
|
|
|
45 |
% |
|
4 yrs |
|
|
|
|
August 2005 |
|
|
3.72% - 3.77% |
|
|
|
45 |
% |
|
3 yrs |
|
|
|
|
November 2005 |
|
|
4.20% - 4.20% |
|
|
|
40 |
% |
|
3 yrs |
|
|
|
|
November 2005 |
|
|
4.20% - 4.20% |
|
|
|
40 |
% |
|
3 yrs |
|
|
|
|
November 2005 |
|
|
4.20% - 4.20% |
|
|
|
40 |
% |
|
5 yrs |
|
|
|
|
November 2006 |
|
|
4.54% - 4.58% |
|
|
|
35 |
% |
|
3 yrs |
|
|
1.4 |
|
November 2006 |
|
|
4.54% - 4.58% |
|
|
|
35 |
% |
|
3 yrs |
|
|
|
|
November 2007 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
3 yrs |
|
|
13.4 |
|
November 2007 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
3 yrs |
|
|
|
|
January 2008 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
3 yrs |
|
|
|
|
May 2008 |
|
|
4.23% - 4.23% |
|
|
|
35 |
% |
|
3 yrs |
|
|
|
|
Weighted Average
Remaining Life |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0 |
|
86
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) Long Term Incentive Plan
In December 2008, Alion adopted a long-term incentive compensation plan to provide cash
compensation to certain executives. Grants under the plan to individuals contain specific
financial and other performance goals and vest over varying time periods. Some grants are for a
fixed amount; others contain provisions that provide for a range of compensation from a minimum of
50% to a maximum of 150% of an initial grant amount. The Company periodically evaluates the
probability of individuals meeting the financial and other performance goals in grant agreements.
Management estimates long term incentive compensation expense based on the stated amounts of
outstanding grants, estimated probability of achieving stated performance goals and estimated
probable future grant value. The Company recognized $3.7 million in long term incentive
compensation expense for the current year.
(19) Segment Information and Customer Concentration
The Company operates in one segment, delivering a broad array of scientific and engineering
expertise to research and develop technological solutions for problems relating to national
defense, public health and safety, and nuclear safety and analysis under contracts with the federal
government, state and local governments, and commercial customers. The Companys federal government
customers typically exercise independent contracting authority. Offices or divisions within an
agency or department may directly, or through a prime contractor, use the Companys services as a
separate customer so long as that customer has independent decision-making and contracting
authority within its organization.
Contract receivables from agencies of the federal government represented approximately $179.7
million, or 97.4%, and $164.2 million, or 95.2% of accounts receivable at September 30, 2009 and
2008. Contract revenue from agencies of the federal government represented approximately 96.5%,
93.9%, and 93.4% of total contract revenue during the years ended September 30, 2009, 2008 and
2007. The following contracts represent 8% or more of consolidated revenue during the years 2009,
2008 or 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
|
|
September 30, |
|
Government Agency |
|
Contract |
|
2009 |
|
|
2008 |
|
|
2007 |
|
DoD Navy |
|
SeaPort Multiple Award Contract NAVSEA |
|
|
14.3 |
% |
|
|
16.8 |
% |
|
|
14.2 |
% |
DoD Air Force |
|
Secretary of the Air Force |
|
|
9.5 |
% |
|
|
9.0 |
% |
|
|
8.7 |
% |
DoD Navy |
|
Seaport-e Multiple Award Contract |
|
|
7.0 |
% |
|
|
8.6 |
% |
|
|
6.7 |
% |
(20) Guarantor/Non-guarantor Condensed Consolidated Financial Information
Alions Senior Unsecured Notes are unsecured general obligations of the Company. Certain of
Alions 100% owned domestic subsidiaries have jointly, severally, fully and unconditionally
guaranteed the Senior Unsecured Notes. The following information presents condensed consolidating
balance sheet as of September 30, 2009 and September 30, 2008, condensed consolidating statements
of operations for the years ended September 30, 2009, 2008 and 2007; and condensed consolidating
statements of cash flows for the years ended September 30, 2009, 2008 and 2007 of the parent
company issuer, the guarantor subsidiaries and the non-guarantor subsidiaries. Investments include
investments in subsidiaries held by the parent company issuer and have been presented using the
equity method of accounting. The condensed consolidating statements of cash flows for the years
ended September 30, 2008 and 2007 have been revised to present the revolver borrowings and payments
on a gross basis.
87
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet Information at September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Companies |
|
|
Companies |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
11,404 |
|
|
$ |
(143 |
) |
|
$ |
(76 |
) |
|
$ |
|
|
|
$ |
11,185 |
|
Accounts receivable, net |
|
|
174,456 |
|
|
|
3,421 |
|
|
|
2,280 |
|
|
|
|
|
|
|
180,157 |
|
Prepaid expenses and other
current assets |
|
|
3,659 |
|
|
|
107 |
|
|
|
29 |
|
|
|
|
|
|
|
3,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
189,519 |
|
|
|
3,385 |
|
|
|
2,233 |
|
|
|
|
|
|
|
195,137 |
|
Property, plant and equipment, net |
|
|
14,346 |
|
|
|
68 |
|
|
|
60 |
|
|
|
|
|
|
|
14,474 |
|
Intangible assets, net |
|
|
28,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,680 |
|
Goodwill |
|
|
398,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398,921 |
|
Investment in subsidiaries |
|
|
17,132 |
|
|
|
|
|
|
|
|
|
|
|
(17,132 |
) |
|
|
|
|
Intercompany receivables |
|
|
702 |
|
|
|
12,534 |
|
|
|
3,405 |
|
|
|
(16,641 |
) |
|
|
|
|
Other assets |
|
|
10,270 |
|
|
|
13 |
|
|
|
3 |
|
|
|
|
|
|
|
10,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
659,570 |
|
|
$ |
16,000 |
|
|
$ |
5,701 |
|
|
$ |
(33,773 |
) |
|
$ |
647,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payable |
|
$ |
9,039 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,039 |
|
Current portion, senior term loan
payable |
|
|
2,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,389 |
|
Current portion, subordinated note
payable |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
Current portion, acquisition
obligations |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Trade accounts payable |
|
|
59,742 |
|
|
|
300 |
|
|
|
665 |
|
|
|
|
|
|
|
60,707 |
|
Accrued liabilities |
|
|
43,984 |
|
|
|
1,135 |
|
|
|
306 |
|
|
|
|
|
|
|
45,425 |
|
Accrued payroll and related
liabilities |
|
|
41,642 |
|
|
|
832 |
|
|
|
559 |
|
|
|
|
|
|
|
43,033 |
|
Billings in excess of revenue
earned |
|
|
3,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
163,507 |
|
|
|
2,267 |
|
|
|
1,530 |
|
|
|
|
|
|
|
167,304 |
|
Intercompany payables |
|
|
15,939 |
|
|
|
|
|
|
|
702 |
|
|
|
(16,641 |
) |
|
|
|
|
Senior term loan payable, excluding
current portion |
|
|
229,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,221 |
|
Senior unsecured Notes |
|
|
245,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,241 |
|
Subordinated note payable |
|
|
46,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,932 |
|
Accrued compensation, excluding
current portion |
|
|
5,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,740 |
|
Accrued postretirement benefit
obligations |
|
|
717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717 |
|
Non-current portion of lease obligations |
|
|
7,216 |
|
|
|
51 |
|
|
|
19 |
|
|
|
|
|
|
|
7,286 |
|
Redeemable common stock warrants |
|
|
32,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,717 |
|
Common stock of subsidiaries |
|
|
|
|
|
|
2,799 |
|
|
|
1 |
|
|
|
(2,800 |
) |
|
|
|
|
Redeemable common stock |
|
|
187,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,137 |
|
Accumulated other comprehensive loss |
|
|
(238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238 |
) |
Accumulated surplus (deficit) |
|
|
(274,559 |
) |
|
|
10,883 |
|
|
|
3,449 |
|
|
|
(14,332 |
) |
|
|
(274,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable
common stock and accumulated
deficit |
|
$ |
659,570 |
|
|
$ |
16,000 |
|
|
$ |
5,701 |
|
|
$ |
(33,773 |
) |
|
$ |
647,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet Information at September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Companies |
|
|
Companies |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
16,392 |
|
|
$ |
(62 |
) |
|
$ |
(43 |
) |
|
$ |
|
|
|
$ |
16,287 |
|
Accounts receivable, net |
|
|
161,519 |
|
|
|
3,872 |
|
|
|
3,060 |
|
|
|
|
|
|
|
168,451 |
|
Stock subscriptions receivable |
|
|
2,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,669 |
|
Prepaid expenses and other
current assets |
|
|
3,024 |
|
|
|
47 |
|
|
|
64 |
|
|
|
|
|
|
|
3,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
183,604 |
|
|
|
3,857 |
|
|
|
3,081 |
|
|
|
|
|
|
|
190,542 |
|
Property, plant and equipment, net |
|
|
18,419 |
|
|
|
97 |
|
|
|
85 |
|
|
|
|
|
|
|
18,601 |
|
Intangible assets, net |
|
|
41,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,248 |
|
Goodwill |
|
|
398,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398,871 |
|
Investment in subsidiaries |
|
|
10,831 |
|
|
|
|
|
|
|
|
|
|
|
(10,831 |
) |
|
|
|
|
Intercompany receivables |
|
|
|
|
|
|
8,038 |
|
|
|
72 |
|
|
|
(8,110 |
) |
|
|
|
|
Other assets |
|
|
6,668 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
6,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
659,641 |
|
|
$ |
12,008 |
|
|
$ |
3,238 |
|
|
$ |
(18,941 |
) |
|
$ |
655,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payable |
|
$ |
6,543 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,543 |
|
Current portion, senior term loan
payable |
|
|
232,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,220 |
|
Interest rate swap liability |
|
|
4,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,629 |
|
Current portion, subordinated note
payable |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
Current portion, acquisition
obligations |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Trade accounts payable |
|
|
55,932 |
|
|
|
467 |
|
|
|
765 |
|
|
|
|
|
|
|
57,164 |
|
Accrued liabilities |
|
|
37,678 |
|
|
|
1,007 |
|
|
|
542 |
|
|
|
|
|
|
|
39,227 |
|
Accrued payroll and related
liabilities |
|
|
40,569 |
|
|
|
696 |
|
|
|
292 |
|
|
|
|
|
|
|
41,557 |
|
Billings in excess of revenue earned |
|
|
2,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
383,329 |
|
|
|
2,170 |
|
|
|
1,599 |
|
|
|
|
|
|
|
387,098 |
|
Intercompany payables |
|
|
7,543 |
|
|
|
|
|
|
|
567 |
|
|
|
(8,110 |
) |
|
|
|
|
Senior term loan payable, excluding
current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes |
|
|
244,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,355 |
|
Subordinated note payable |
|
|
42,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,656 |
|
Accrued compensation, excluding
current portion |
|
|
11,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,305 |
|
Accrued postretirement benefit
obligations |
|
|
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
627 |
|
Non-current portion of lease obligations |
|
|
6,181 |
|
|
|
62 |
|
|
|
17 |
|
|
|
|
|
|
|
6,260 |
|
Redeemable common stock warrants |
|
|
39,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,996 |
|
Common stock of subsidiaries |
|
|
|
|
|
|
2,799 |
|
|
|
1 |
|
|
|
(2,800 |
) |
|
|
|
|
Redeemable common stock |
|
|
200,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,561 |
|
Accumulated 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations for the Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Companies |
|
|
Companies |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Contract revenue |
|
$ |
766,297 |
|
|
$ |
22,105 |
|
|
$ |
13,823 |
|
|
$ |
|
|
|
$ |
802,225 |
|
Direct contract expenses |
|
|
590,934 |
|
|
|
14,389 |
|
|
|
10,377 |
|
|
|
|
|
|
|
615,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
175,363 |
|
|
|
7,716 |
|
|
|
3,446 |
|
|
|
|
|
|
|
186,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect contract expense |
|
|
31,968 |
|
|
|
2,979 |
|
|
|
526 |
|
|
|
|
|
|
|
35,473 |
|
Research and development |
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677 |
|
General and administrative |
|
|
59,615 |
|
|
|
970 |
|
|
|
282 |
|
|
|
|
|
|
|
60,867 |
|
Rental and occupancy expense |
|
|
32,370 |
|
|
|
297 |
|
|
|
317 |
|
|
|
|
|
|
|
32,984 |
|
Depreciation and amortization |
|
|
18,907 |
|
|
|
23 |
|
|
|
29 |
|
|
|
|
|
|
|
18,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
143,537 |
|
|
|
4,269 |
|
|
|
1,154 |
|
|
|
|
|
|
|
148,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
31,826 |
|
|
|
3,447 |
|
|
|
2,292 |
|
|
|
|
|
|
|
37,565 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
72 |
|
|
|
16 |
|
|
|
3 |
|
|
|
|
|
|
|
91 |
|
Interest expense |
|
|
(55,154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,154 |
) |
Other |
|
|
(129 |
) |
|
|
445 |
|
|
|
(11 |
) |
|
|
|
|
|
|
305 |
|
Equity in net income of
subsidiaries |
|
|
6,300 |
|
|
|
|
|
|
|
|
|
|
|
(6,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(48,911 |
) |
|
|
461 |
|
|
|
(8 |
) |
|
|
(6,300 |
) |
|
|
(54,758 |
) |
Income (loss) before income taxes |
|
|
(17,085 |
) |
|
|
3,908 |
|
|
|
2,284 |
|
|
|
(6,300 |
) |
|
|
(17,193 |
) |
Income tax benefit (expense) |
|
|
44 |
|
|
|
(2 |
) |
|
|
110 |
|
|
|
|
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(17,041 |
) |
|
$ |
3,906 |
|
|
$ |
2,394 |
|
|
$ |
(6,300 |
) |
|
$ |
(17,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations for the Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Companies |
|
|
Companies |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Contract revenue |
|
$ |
706,699 |
|
|
$ |
22,914 |
|
|
$ |
9,869 |
|
|
$ |
|
|
|
$ |
739,482 |
|
Direct contract expense |
|
|
542,674 |
|
|
|
16,289 |
|
|
|
7,445 |
|
|
|
|
|
|
|
566,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
164,025 |
|
|
|
6,625 |
|
|
|
2,424 |
|
|
|
|
|
|
|
173,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect contract expense |
|
|
34,779 |
|
|
|
4,388 |
|
|
|
883 |
|
|
|
|
|
|
|
40,050 |
|
Research and development |
|
|
944 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
988 |
|
General and administrative |
|
|
58,582 |
|
|
|
886 |
|
|
|
16 |
|
|
|
|
|
|
|
59,484 |
|
Rental and occupancy expense |
|
|
30,869 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
30,880 |
|
Depreciation and amortization |
|
|
20,572 |
|
|
|
125 |
|
|
|
18 |
|
|
|
|
|
|
|
20,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
145,746 |
|
|
|
5,399 |
|
|
|
972 |
|
|
|
|
|
|
|
152,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
18,279 |
|
|
|
1,226 |
|
|
|
1,452 |
|
|
|
|
|
|
|
20,957 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
412 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
423 |
|
Interest expense |
|
|
(47,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,382 |
) |
Other |
|
|
193 |
|
|
|
471 |
|
|
|
(9 |
) |
|
|
|
|
|
|
655 |
|
Equity in operations of subsidiaries |
|
|
3,151 |
|
|
|
|
|
|
|
|
|
|
|
(3,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses) |
|
|
(43,626 |
) |
|
|
482 |
|
|
|
(9 |
) |
|
|
(3,151 |
) |
|
|
(46,304 |
) |
Income (loss) before income taxes |
|
|
(25,347 |
) |
|
|
1,708 |
|
|
|
1,443 |
|
|
|
(3,151 |
) |
|
|
(25,347 |
) |
Income tax benefit |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,334 |
) |
|
$ |
1,708 |
|
|
$ |
1,443 |
|
|
$ |
(3,151 |
) |
|
$ |
(25,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Operations for the Year Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Companies |
|
|
Companies |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Contract revenue |
|
$ |
709,980 |
|
|
$ |
27,375 |
|
|
$ |
232 |
|
|
$ |
|
|
|
$ |
737,587 |
|
Direct contract expense |
|
|
542,085 |
|
|
|
19,904 |
|
|
|
150 |
|
|
|
|
|
|
|
562,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
167,895 |
|
|
|
7,471 |
|
|
|
82 |
|
|
|
|
|
|
|
175,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect contract expense |
|
|
39,206 |
|
|
|
4,629 |
|
|
|
137 |
|
|
|
|
|
|
|
43,972 |
|
Research and development |
|
|
2,158 |
|
|
|
8 |
|
|
|
213 |
|
|
|
|
|
|
|
2,379 |
|
General and administrative |
|
|
59,379 |
|
|
|
1,445 |
|
|
|
(126 |
) |
|
|
|
|
|
|
60,698 |
|
Rental and occupancy expense |
|
|
32,098 |
|
|
|
273 |
|
|
|
39 |
|
|
|
|
|
|
|
32,410 |
|
Depreciation and amortization |
|
|
21,638 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
21,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
154,479 |
|
|
|
6,541 |
|
|
|
263 |
|
|
|
|
|
|
|
161,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
13,416 |
|
|
|
930 |
|
|
|
(181 |
) |
|
|
|
|
|
|
14,165 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319 |
|
Interest expense |
|
|
(51,226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,226 |
) |
Loss on extinguishment of debt |
|
|
(6,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,170 |
) |
Other |
|
|
1,191 |
|
|
|
(1,146 |
) |
|
|
87 |
|
|
|
|
|
|
|
132 |
|
Equity in operations of
subsidiaries |
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses) |
|
|
(56,186 |
) |
|
|
(1,146 |
) |
|
|
87 |
|
|
|
300 |
|
|
|
(56,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes |
|
|
(42,770 |
) |
|
|
(216 |
) |
|
|
(94 |
) |
|
|
300 |
|
|
|
(42,780 |
) |
Income tax benefit |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(42,770 |
) |
|
$ |
(206 |
) |
|
$ |
(94 |
) |
|
$ |
300 |
|
|
$ |
(42,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net cash provided by (used in) operating activities |
|
$ |
9,083 |
|
|
$ |
(63 |
) |
|
$ |
(25 |
) |
|
$ |
8,995 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions-related obligations |
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
|
(166 |
) |
Capital expenditures |
|
|
(2,160 |
) |
|
|
(18 |
) |
|
|
(8 |
) |
|
|
(2,186 |
) |
Proceeds from sale of non-operating assets |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,321 |
) |
|
|
(18 |
) |
|
|
(8 |
) |
|
|
(2,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash inflows (outflows) from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid under interest rate swap |
|
|
(4,647 |
) |
|
|
|
|
|
|
|
|
|
|
(4,647 |
) |
Payment of senior term loan principal |
|
|
(2,433 |
) |
|
|
|
|
|
|
|
|
|
|
(2,433 |
) |
Payment of subordinated note principal |
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
|
|
(3,000 |
) |
Revolver borrowings |
|
|
504,900 |
|
|
|
|
|
|
|
|
|
|
|
504,900 |
|
Revolver payments |
|
|
(504,900 |
) |
|
|
|
|
|
|
|
|
|
|
(504,900 |
) |
Loan to ESOP Trust |
|
|
(5,936 |
) |
|
|
|
|
|
|
|
|
|
|
(5,936 |
) |
ESOP loan repayment |
|
|
5,936 |
|
|
|
|
|
|
|
|
|
|
|
5,936 |
|
Redeemable common stock purchased from
ESOP Trust |
|
|
(9,175 |
) |
|
|
|
|
|
|
|
|
|
|
(9,175 |
) |
Redeemable common stock sold to ESOP Trust |
|
|
7,505 |
|
|
|
|
|
|
|
|
|
|
|
7,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(11,750 |
) |
|
|
|
|
|
|
|
|
|
|
(11,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(4,988 |
) |
|
|
(81 |
) |
|
|
(33 |
) |
|
|
(5,102 |
) |
Cash and cash equivalents at beginning of period |
|
|
16,392 |
|
|
|
(62 |
) |
|
|
(43 |
) |
|
|
16,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
11,404 |
|
|
$ |
(143 |
) |
|
$ |
(76 |
) |
|
$ |
11,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Parent |
|
|
Companies |
|
|
Companies |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net cash provided by (used in) operating activities |
|
$ |
29,268 |
|
|
$ |
(9 |
) |
|
$ |
61 |
|
|
$ |
29,320 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions-related obligations |
|
|
(7,946 |
) |
|
|
|
|
|
|
|
|
|
|
(7,946 |
) |
Capital expenditures |
|
|
(4,863 |
) |
|
|
(20 |
) |
|
|
(103 |
) |
|
|
(4,986 |
) |
Proceeds from sale of non-operating assets |
|
|
780 |
|
|
|
|
|
|
|
|
|
|
|
780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(12,029 |
) |
|
|
(20 |
) |
|
|
(103 |
) |
|
|
(12,152 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from interest rate swap |
|
|
4,333 |
|
|
|
|
|
|
|
|
|
|
|
4,333 |
|
Payment of debt issuance costs |
|
|
(500 |
) |
|
|
|
|
|
|
|
|
|
|
(500 |
) |
Payment of senior term loan principal |
|
|
(6,474 |
) |
|
|
|
|
|
|
|
|
|
|
(6,474 |
) |
Revolver borrowings |
|
|
450,505 |
|
|
|
|
|
|
|
|
|
|
|
450,505 |
|
Revolver payments |
|
|
(459,755 |
) |
|
|
|
|
|
|
|
|
|
|
(459,755 |
) |
Loan to ESOP Trust |
|
|
(3,369 |
) |
|
|
|
|
|
|
|
|
|
|
(3,369 |
) |
ESOP loan repayment |
|
|
3,369 |
|
|
|
|
|
|
|
|
|
|
|
3,369 |
|
Redeemable common stock purchased from
ESOP Trust |
|
|
(4,051 |
) |
|
|
|
|
|
|
|
|
|
|
(4,051 |
) |
Redeemable common stock sold to ESOP Trust |
|
|
3,377 |
|
|
|
|
|
|
|
|
|
|
|
3,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(12,565 |
) |
|
|
|
|
|
|
|
|
|
|
(12,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
4,674 |
|
|
|
(29 |
) |
|
|
(42 |
) |
|
|
4,603 |
|
Cash and cash equivalents at beginning of year |
|
|
11,718 |
|
|
|
(33 |
) |
|
|
(1 |
) |
|
|
11,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
16,392 |
|
|
$ |
(62 |
) |
|
$ |
(43 |
) |
|
$ |
16,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statement of Cash Flows
Year Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
Parent |
|
|
Companies |
|
|
Companies |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net cash provided by (used in) operating activities |
|
$ |
(4,986 |
) |
|
$ |
38 |
|
|
$ |
(60 |
) |
|
$ |
(5,008 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired |
|
|
(14,751 |
) |
|
|
|
|
|
|
|
|
|
|
(14,751 |
) |
Capital expenditures |
|
|
(10,648 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
(10,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(25,399 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
(25,438 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Term B Senior Credit Agreement
note payable |
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
Proceeds from Senior Unsecured Notes |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Payment of Bridge Loan |
|
|
(170,000 |
) |
|
|
|
|
|
|
|
|
|
|
(170,000 |
) |
Payment of debt issuance costs |
|
|
(10,796 |
) |
|
|
|
|
|
|
|
|
|
|
(10,796 |
) |
Repayment of Term B Credit Facility note payable |
|
|
(53,513 |
) |
|
|
|
|
|
|
|
|
|
|
(53,513 |
) |
Revolver borrowings |
|
|
465,245 |
|
|
|
|
|
|
|
|
|
|
|
465,245 |
|
Revolver payments |
|
|
(468,295 |
) |
|
|
|
|
|
|
|
|
|
|
(468,295 |
) |
Proceeds from interest rate cap agreement |
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
360 |
|
Purchase of redeemable common stock from
ESOP Trust |
|
|
(29,584 |
) |
|
|
|
|
|
|
|
|
|
|
(29,584 |
) |
Cash received from issuance of redeemable
common stock to ESOP Trust |
|
|
15,958 |
|
|
|
|
|
|
|
|
|
|
|
15,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
39,375 |
|
|
|
|
|
|
|
|
|
|
|
39,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
8,990 |
|
|
|
(1 |
) |
|
|
(60 |
) |
|
|
8,929 |
|
Cash and cash equivalents at beginning of year |
|
|
2,728 |
|
|
|
(32 |
) |
|
|
59 |
|
|
|
2,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
11,718 |
|
|
$ |
(33 |
) |
|
$ |
(1 |
) |
|
$ |
11,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(21) Related Party Transactions
Alion uses the consulting services of One Team, a company owned by General George Joulwan,
(USA Ret.), a member of Alions board of directors. The Company paid One Team approximately $60
thousand per year for fiscal years 2009, 2008 and 2007.
(22) Commitments and Contingencies
Earn-Out and Hold-Back Commitments
The Company has a $600 thousand maximum earn-out commitment through July 2013 for its
LogConGroup acquisition.
Government Audits
The amount of federal government contract revenue and expense reflected in the consolidated
financial statements attributable to cost reimbursement contracts is subject to audit and possible
adjustment by the Defense Contract Audit Agency (DCAA). The federal government considers the
Company to be a major contractor and DCAA maintains an office on site to perform its various audits
throughout the year. All of the Companys federal government contract indirect costs have been
audited through 2004. Indirect rates have been negotiated through fiscal year 2004. Contract
revenue on federal government contracts has been recorded in amounts that are expected to be
realized upon final settlement.
Legal Proceedings
Estate of Joseph Hudert vs. Alion Science and Technology Corporation; Estate of Frank Stotmeister
vs. Alion Science and Technology Corporation.
On December 23, 2004, the estate of Joseph Hudert filed an action against Grunley-Walsh Joint
Venture, L.L.C. (Grunley-Walsh) and the Company in the District of Columbia Superior Court for
damages in excess of $80 million. On January 6, 2005, the estate of Frank Stotmeister filed an
action against the Company in the same court on six counts, some of which are duplicate causes of
action, claiming $30 million for each count. The Hudert case has been removed to the United States
District Court for the District of Columbia. Both the Hudert and Stotmeister actions are now
consolidated in this same court.
The suits arose in connection with a steam pipe explosion that occurred on or about April 23,
2004 on a construction site at 17th Street, NW in Washington, D.C. The plaintiffs died, apparently
as a result of the explosion. They were employees of the prime contractor on the site,
Grunley-Walsh, and the subcontractor, Cherry Hill Construction Company Inc. Grunley-Walsh had a
contract with the U.S. General Services Administration (GSA) for construction on 17th Street NW
near the Old Executive Office Building in Washington, D.C. Some time after the award of
Grunley-Walshs construction contract, GSA awarded Alion a separate contract to engage in
non-supervisory monitoring of Grunley-Walshs activities and to report deviations from contract
requirements to GSA.
The Company has defended and intends to continue to defend these lawsuits vigorously. Based
on the facts underlying the lawsuits known to the Company at this time, and Alions non-supervisory
monitoring role at the project site, management believes the possibility of Alion incurring a
material loss from these lawsuits is remote. Management does not believe that these lawsuits will
materially adversely affect the Company, its operations, cash flows, or financial condition.
The Companys primary provider of general liability insurance, St. Paul Travelers, assumed
defense of these lawsuits. However, there is some uncertainty as to whether St. Paul Travelers
received timely notice of a potential claim by us in connection with these lawsuits under our
general liability insurance policy. Therefore, St. Paul Travelers indicated when it assumed
defense of the lawsuits, that it was doing so subject to a reservation of rights to deny coverage.
Nevertheless, even if St. Paul Travelers is ultimately able to properly deny coverage as a result
of late lawsuit notice, management does not believe the lawsuits will materially adversely affect
Alion, its operations, cash flows or financial condition. We have notified our excess insurance
carrier, American International Group, regarding these lawsuits.
96
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other than the foregoing action, we are not involved in any legal proceeding other than
routine legal proceedings occurring in the ordinary course of business. We believe that these
routine legal proceedings, in the aggregate, are not material to our financial condition, results
of operations, or cash flows.
As a government contractor, from time to time we may be subject to DCAA audits and federal
government inquiries about our operations. The federal government may suspend or debar from
federal contracting for a period of time, contractors found to have violated the False Claims Act,
or who have been indicted or convicted of violations of other federal laws. Such an event could
also result in fines or penalties. Given Alions dependence on federal government contracts,
suspension or debarment could have a material adverse effect on our business, financial condition,
results of operations, and ability to meet our financial obligations. The Company is not aware of
any such pending federal government claims or investigations.
(23) Interim Period (Unaudited, in thousands except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarters |
|
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
Revenue |
|
$ |
188,796 |
|
|
$ |
195,429 |
|
|
$ |
204,160 |
|
|
$ |
213,840 |
|
Gross profit |
|
$ |
43,474 |
|
|
$ |
46,294 |
|
|
$ |
46,494 |
|
|
$ |
50,263 |
|
Net income (loss) |
|
$ |
(2,540 |
) |
|
$ |
39 |
|
|
$ |
(9,437 |
) |
|
$ |
(5,103 |
) |
Income (loss) per share |
|
$ |
(0.49 |
) |
|
$ |
0.01 |
|
|
$ |
(1.79 |
) |
|
$ |
(0.97 |
) |
Current assets |
|
$ |
183,275 |
|
|
$ |
188,135 |
|
|
$ |
183,013 |
|
|
$ |
195,137 |
|
Current liabilities (restated) (1) |
|
$ |
383,750 |
|
|
$ |
389,738 |
|
|
$ |
387,591 |
|
|
$ |
167,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarters |
|
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
Revenue |
|
$ |
183,145 |
|
|
$ |
189,243 |
|
|
$ |
185,876 |
|
|
$ |
181,218 |
|
Gross profit |
|
$ |
42,763 |
|
|
$ |
46,213 |
|
|
$ |
43,014 |
|
|
$ |
41,084 |
|
Net income (loss) |
|
$ |
(8,706 |
) |
|
$ |
(9,805 |
) |
|
$ |
(7,893 |
) |
|
$ |
1,070 |
|
Income (loss) per share |
|
$ |
(1.74 |
) |
|
$ |
(1.96 |
) |
|
$ |
(1.55 |
) |
|
$ |
0.23 |
|
Current assets |
|
$ |
231,610 |
|
|
$ |
243,068 |
|
|
$ |
211,763 |
|
|
$ |
190,542 |
|
Current liabilities (restated) (1) |
|
$ |
428,749 |
|
|
$ |
441,532 |
|
|
$ |
412,634 |
|
|
$ |
387,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarters (Previously Reported) |
|
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
Current liabilities |
|
$ |
154,066 |
|
|
$ |
155,482 |
|
|
$ |
158,204 |
|
|
$ |
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarters (Previously Reported) |
|
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
Current liabilities |
|
$ |
164,237 |
|
|
$ |
181,115 |
|
|
$ |
164,613 |
|
|
$ |
157,267 |
|
|
|
|
(1) |
|
As a result of the Companys failure to comply with certain Term B Senior Credit Agreement
affirmative and negative covenants, all outstanding balances on the Companys Term B Senior
Credit Agreement for the first three quarters in 2009 and all periods in 2008 should have been
presented as current liabilities as these amounts were callable by the lenders. See Note 11. |
97
ALION SCIENCE AND TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(24) Subsequent Events
In October 2009, Alion and its lenders modified the terms of the Companys existing Term B
Senior Credit Agreement and extended a $25 million revolving credit facility through September
2010. In December 2009, the Company obtained a waiver from its lenders for all breaches of
affirmative and negative financial Senior Term B Credit Agreement covenants through September 30,
2009. See Note 11 above.
On December 21, 2009, the Company and IIT modified the terms of the Subordinated Note to defer
payment of interest due in January 2010 to April 2010. Subject to certain future events and
conditions, IIT agreed to sell its warrants and Subordinated Note to Alion for $25 million.
98
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A (T). Controls and Procedures
Disclosure Controls and Procedure. The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Companys disclosure controls and procedures (as such term is defined in Rule 15d 15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report. Disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports it is required to file or submit under the
Exchange Act, is recorded, processed, summarized and reported, within the time periods specified by
the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Companys management, including its Chief Executive and Chief
Financial Officers, as appropriate to allow timely decisions regarding required disclosures. Based
on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, the Companys disclosure controls and procedures are
effective and timely.
Limitations on the Effectiveness of Controls. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures.
Managements Report on Internal Control Over Financial Reporting. The Companys management is
responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act). The Companys internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of published financial statements in accordance with generally
accepted accounting principles
The Companys management assessed the effectiveness of our internal control over financial
reporting as of September 30, 2009. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on our assessment, we believe that as of September 30, 2009,
our internal control over financial reporting was effective based on criteria set forth by COSO in
Internal Control Integrated Framework. Based upon the assessments, the Companys management has
concluded that as of September 30, 2009 our internal control over financial reporting was
effective.
Changes in Internal Control Over Financial Reporting. The Company identified a material
weakness in the operation of its internal control over financial reporting (as such term is defined
in Rule 15d 15(f) under the Exchange Act). The material weakness involved the calculation of
certain financial covenants contained in the Term B Senior Credit Agreement. It arose from a
misinterpretation of Consolidated EBITDA as defined in the Term B Senior Credit Agreement which
resulted in the restatement of the September 30, 2008 balance sheet to reclassify balances under
the Term B Senior Credit Agreement from non current to current liabilities.
The Company remediated the material weakness this year by clarifying its understanding of
Consolidated EBITDA as defined in the Term B Senior Credit Agreement. The Companys covenant
calculations now appropriately mirror the defined terms. See Note 11 to the consolidated financial
statements.
Scope of the Assessment. This annual report does not include an attestation report of the
Companys registered public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by the Companys registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company
to provide only managements report in this annual report.
99
Item 9B. Other Information
In the fourth quarter of our fiscal year ended September 30, 2009, we reported all information
that was required to be disclosed in a current report on Form 8-K.
Because we are filing this annual report on Form 10-K within four business days after the
applicable triggering event, we are making the following disclosures under Part II, Item 9B of this
annual report instead of filing a report on Form 8-K for Item 5.02(b) and (c) Departure of
Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
On December 24, 2009, Mr. Gary Amstutz, Senior Vice President for Financial Operations stepped
down as the Companys principal accounting officer. On December 24, 2009, the Company appointed
Jeffrey L. Boyers, Corporate Vice President and Corporate Controller as the Companys principal
accounting officer, Mr. Boyers, age 54, has served as Corporate Vice President and Corporate
Controller of Alion since April 2008. From November 2005 to April 2008, Mr. Boyers served as
Director of Finance and Controller for Unisys Federal Systems, a $900 million division of Unisys.
From February 1996 to July 2004, Mr. Boyers served as Vice President and Controller for Northrop
Grummans $5 billion Information Technology Sector. Mr. Boyers received a Bachelor of Science in
Public Accounting from Benjamin Franklin University.
100
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information Regarding the Directors of the Registrant
The names, ages and positions of our current directors are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term |
|
Director |
Name |
|
Age |
|
Position |
|
Expires |
|
Since |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bahman Atefi
|
|
|
56 |
|
|
President, Chief Executive Officer and Chairman
|
|
|
2011 |
|
|
|
2001 |
|
Edward C. (Pete) Aldridge, Jr.
|
|
|
71 |
|
|
Director
|
|
|
2012 |
|
|
|
2003 |
|
Leslie L. Armitage
|
|
|
41 |
|
|
Director
|
|
|
2010 |
|
|
|
2002 |
|
Lewis Collens
|
|
|
71 |
|
|
Director
|
|
|
2010 |
|
|
|
2002 |
|
Admiral (Ret.) Harold W. Gehman, Jr.
|
|
|
66 |
|
|
Director
|
|
|
2010 |
|
|
|
2002 |
|
General (Ret.) George A. Joulwan
|
|
|
69 |
|
|
Director
|
|
|
2011 |
|
|
|
2002 |
|
General (Ret.) Michael E. Ryan
|
|
|
67 |
|
|
Director
|
|
|
2011 |
|
|
|
2002 |
|
David J. Vitale
|
|
|
63 |
|
|
Director
|
|
|
2012 |
|
|
|
2009 |
|
The Companys directors are divided into three classes. The first class of directors includes
Edward C. Aldridge, Jr. whose term expires on the date of Alions 2012 annual shareholder meeting
and David J. Vitale whose term expires in September 2012. The second class of directors: Leslie
Armitage, Lewis Collens and Admiral Harold W. Gehman, Jr.; have terms expiring on the date of
Alions 2010 annual shareholder meeting. The third class of directors: Bahman Atefi, General George
A. Joulwan and General Michael E. Ryan; have terms expiring on the date of the Alions 2011 annual
shareholder meeting. As the holder of the subordinated note and warrants, Illinois Institute of
Technology (IIT) is entitled to nominate two representatives whom the ESOP Trust is required to
elect to Alions Board of Directors. Messrs. Collens and Vitale are Illinois Institute of
Technologys board representatives.
The following sets forth the business experience, principal occupations and employment of each
of the directors.
Bahman Atefi was appointed president and chief executive officer of Alion in December 2001. He
is also chairman of Alions Board of Directors. Dr. Atefi also serves as chairman of the ESOP
committee. Dr. Atefi served as president of IITRI from August 1997 and as its chief executive
officer from October 2000 until December 20, 2002, the date Alion purchased substantially all of
IITRIs assets and liabilities (the Transaction). Dr. Atefi has also been chairman of the board of
directors of Human Factors Applications, Inc. since February 1999. From June 1994 to August 1997,
Dr. Atefi served as manager of the energy and environmental group at Science Applications
International Corporation. In this capacity, he was responsible for operation of a 600-person
business unit, with annual revenues in 1997 of approximately $80 million, which provided scientific
and engineering support to the U.S. Department of Energy, Nuclear Regulatory Commission,
Environmental Protection Agency, DoD, as well as commercial and international customers. Dr. Atefi
is a member of the board of trustees of Illinois Institute of Technology. Dr. Atefi received a BS
in Electrical Engineering from Cornell University, a masters degree in nuclear engineering and a
doctor of science in nuclear engineering from the Massachusetts Institute of Technology.
Edward C. (Pete) Aldridge, Jr. has served as a director of Alion since November 2003. Mr.
Aldridge retired from government service in May 2003 as the Under Secretary of Defense for
Acquisition, Technology, and Logistics, a position he held since May 2001. In this position, Mr.
Aldridge was responsible for all matters relating to DoD acquisition, research and development,
advanced technology, international programs, and the industrial base. From March 1992 to May 2001,
Mr. Aldridge also served as president and CEO of the Aerospace Corporation, president of McDonnell
Douglas Electronic Systems, Secretary of the Air Force, and numerous other positions within the
DoD. He is currently a director of Lockheed Martin Corporation and Global Crossing, Ltd.
Leslie L. Armitage has served as a director of Alion since May 2002. Ms. Armitage currently
serves as a Senior Managing Director and Co-Founder of Relativity Capital, a position she has held
since January 2006. Ms. Armitage served as a Managing Director and Partner of The Carlyle Group
from January 1999 until May 2005 and held various positions at Carlyle from 1990 to 1999. Ms.
Armitage serves on the Board of Directors of Nivisys Industries LLC, Berkshire Manufactured
Products and MHF Services, Inc. She previously served on the Board of Directors of Vought Aircraft
Industries, Inc., Honsel International Technologies, and United Components, Inc.
101
Lewis Collens has served as a director of Alion since May 2002. From 1990 to 2007, Mr. Collens
served as president of IIT. He is currently President Emeritus and Professor of Law at IIT,
Chicago-Kent College of Law, a position he has held since August 2008. Mr. Collens also served as
chief executive officer of IITRI from 1990 to October 2000. Mr. Collens serves as a director for
Dean Foods Company, Amsted Industries and Colson Group. Mr. Collens is one of IITs two
representatives on the Companys Board of Directors.
Admiral (Ret.) Harold W. Gehman, Jr. has served as a director of Alion since September 2002.
Admiral Gehman retired from over 35 years of active duty in the U.S. Navy in October 2000. While in
the U.S. Navy, Admiral Gehman served as NATOs Supreme Allied Commander, Atlantic and as the
Commander in Chief of the U.S. Joint Forces Command from September 1997 to September 2000. Since
his retirement in November 2000, Admiral Gehman has served as an independent consultant to the U.S.
Government from October 2000 to present. Admiral Gehman currently serves on the Board of Directors
of Maersk Lines, Ltd., Transystems Corp and Nivisys Corp. He also served on Old Dominion University
board of visitors. In addition, Admiral Gehman is a senior fellow at the National Defense
University and was the chairman of the Governor of Virginias Advisory Commission for Veterans
Affairs. Since retirement Admiral Gehman has served as co-chairman of the DoDs investigation into
the October 2000 attack on the U.S.S. Cole in Aden Harbor, Yemen, as chairman of the Space Shuttle
Columbia Accident Investigation Board, and as the Commissioner of the 2005 National Base
Realignment and Closure Act.
General (Ret.) George A. Joulwan has served as a director of Alion since May 2002. General
Joulwan retired from 36 years of service in the military in September 1997. While in the military,
General Joulwan served as commander in chief for the U.S. Army, for U.S. Southern Command in Panama
from 1990-1993 and served as commander in chief of the U.S. European Command and NATO Supreme
Allied Command from 1993-1997. From 1998 to 2000, General Joulwan served as an Olin Professor at
the U.S. Military Academy at West Point. General Joulwan has also served as an adjunct professor at
the National Defense University from 2001 to 2002. Since 1998, General Joulwan has served as
president of One Team, Inc., a strategic consulting company. General Joulwan also currently serves
as a director for General Dynamics Corporation, Accenture NSS, TRS-LLC, IAP Worldwide Services,
Remington Arms Company, Inc., and Bushmaster Firearms International, LLC, Inc.
General (Ret.) Michael E. Ryan has served as a director of Alion since May 2002. General Ryan
retired from the military in 2001 after 36 years of service. He served his last four years as the
16th Chief of Staff of the Air Force, responsible for organizing, training and equipping over
700,000 active duty, reserve and civilian members. He is currently president of the consulting
firm, Ryan Associates, focusing on national defense issues, a position he has held since January
2001. He is chairman of the board of CAE USA, Inc., Selex Sensor Airborne Systems (US) Inc. and the
Air Force Village Charitable Foundation. He serves on the Board of Directors of United Services
Automobile Association, Circadence Corporation, VT Services, Inc., USAF Academy Endowment and
Nivisys Industries LLC. He is a senior trustee of the Air Force Academy Falcon Foundation.
David J. Vitale has served as a director of Alion since September 2009. He served as the
Chief Administrative Officer for the Chicago Public School System from 2003 -2008. From February of
2001 through November of 2002, Mr. Vitale served as President and Chief Executive Officer of the
Chicago Board of Trade. In addition to serving as a member of the CBOTs Board of Directors and
Executive Committee, Mr. Vitale also served as President and CEO of the MidAmerica Commodity
Exchange, an affiliate of the CBOT. He is a former Vice Chairman and Director of Bank One
Corporation, where he was responsible for Bank Ones Commercial Banking, Real Estate, Private
Banking, Investment Management and Corporate Investments businesses. Mr. Vitale serves on the
Boards of Directors of United Airlines, ISO New England, Wheels Inc., and DNP Select Income Fund
(Chairman) and Ariel Investments. Mr. Vitale is one of IITs two representatives on the Companys
Board of Directors.
102
Establishment of Committees
The Board of Directors has established three committees, an Audit and Finance Committee, a
Compensation Committee, and a Governance and Compliance Committee. Each committee currently
consists of the following members:
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Committee |
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Chairperson |
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Members |
Audit and Finance Committee
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Leslie Armitage
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Harold Gehman, Michael Ryan |
Compensation Committee
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Harold Gehman
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Pete Aldridge, Leslie Armitage, Lewis Collens, George Joulwan |
Governance and Compliance Committee
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Michael Ryan
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Bahman Atefi, George Joulwan, Harold Gehman |
The Board of Directors has determined that Leslie Armitage qualifies as audit committee
financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and that she is independent
as independence for audit committee members is defined in the listing standards of NYSE Amex
Equities, formerly known as the American Stock Exchange or AMEX (NYSE Amex).
Audit and Finance Committee
The responsibilities of the Audit and Finance Committee are set forth in its charter and
include periodically reviewing and making recommendations to the Board of Directors and management
of the Company concerning:
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professional services provided by our independent registered public accounting firm; |
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independence of our independent registered public accounting firm from our
management; |
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our quarterly and annual financial statements and our system of internal control
over financial reporting; |
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our capital structure, including the issuance of equity and debt securities, the
incurrence of indebtedness, and related matters; |
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general financial planning, including cash flow and working capital management,
capital budgeting and expenditures, tax planning and compliance and related matters; |
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mergers, acquisitions and strategic transactions; |
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investment policies, financial performance and funding of our employee benefit
plans; and |
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other transactions or financial issues that the Board of Directors or management
presents to the committee to review. |
The Audit and Finance Committee met four times during fiscal year 2009.
Compensation Committee
The responsibilities of the Compensation Committee set forth in its charter include:
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determining the compensation of our Chief Executive Officer and reviewing and
approving the compensation of our other executive officers; |
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exercising all rights, authority and functions under our KSOP, retirement and other
compensation plans; |
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approving and making recommendations to the Board regarding non-employee director
compensation; |
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preparing an annual report on executive compensation for inclusion in our annual
report on Form 10-K in accordance with the rules and regulations of the Securities and
Exchange Commission; |
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establishing, implementing and monitoring adherence to the Companys compensation
philosophy; |
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evaluating performance and compensation to ensure that the Company maintains its
ability to attract and retain superior employees in key positions and that compensation
provided to key employees remains competitive relative to the compensation paid to
similarly situated executives of other companies; and |
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approving the selection of the independent compensation consultant. |
The Compensation Committee met three times during fiscal year 2009.
103
Corporate Governance and Compliance Committee
The Corporate Governance and Compliance Committee oversees and reviews nominations for our
Board of Directors and evaluates and recommends corporate governance policies and procedures. The
Corporate Governance and Compliance Committee is charged with annually assessing the performance of the Board of Directors and its
committees. This includes overseeing each committees annual self-assessment, including the
Corporate Governance and Compliance Committee itself. These assessments are intended to monitor
the effectiveness of the Board of Directors and each of its committees; gather information
regarding the ability of the Board and its committees to fulfill their mandates and
responsibilities; and provide a basis to further evaluate and improve policies of the Board and its
committees. The Corporate Governance and Compliance Committee met four times during fiscal year
2009.
Information Regarding the Executive Officers of the Registrant
The names, ages and positions of the Companys current executive officers and the dates from
which these positions have been held are set forth below.
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Name |
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Age |
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Office |
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Position Since |
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Bahman Atefi
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56 |
|
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President, Chief Executive Officer and Chairman of the Board of Directors (1)
|
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December 2001 |
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|
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Stacy Mendler
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|
46 |
|
|
Chief Operating Officer and Executive Vice President (1)
|
|
September 2006 |
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Michael Alber
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|
52 |
|
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Chief Financial Officer, Senior Vice President and Treasurer (1)
|
|
November 2008 |
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|
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Scott Fry
|
|
|
60 |
|
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Sector Senior Vice President Engineering and Integration Solutions Sector (1)
|
|
October 2005 |
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|
|
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Walter (Buck) Buchanan
|
|
|
59 |
|
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Sector Senior Vice President Engineering and Information Technology Sector
|
|
June 2007 |
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|
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|
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David Ohle
|
|
|
65 |
|
|
Senior Vice President Defense Operations Integration Sector
|
|
November 2008 |
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|
|
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James Fontana
|
|
|
52 |
|
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General Counsel
|
|
January 2004 |
|
|
|
(1) |
|
Member of the ESOP committee |
The following sets forth the business experience, principal occupations and employment of each
of the current executive officers who do not serve on the Board of Directors. Please read
Information Regarding the Directors of the Registrant above for the information with respect to
Dr. Atefi.
Stacy Mendler has served as Chief Operating Officer and Executive Vice President of Alion
since September 2006. She served as Executive Vice President and Chief Administrative Officer of
Alion from September 2005 until September 2006, and as Senior Vice President and Chief
Administrative Officer of Alion from May 2002 until September 2005. She is also a member of Alions
ESOP committee. Ms. Mendler served IITRI as Senior Vice President and Director of Administration
from October 1997 until December 20, 2002, the closing date of the Transaction. As of May 2002, Ms.
Mendler was IITRIs Chief Administrative Officer, as well as Senior Vice President. She also served
as IITRIs Assistant Corporate Secretary from November 1998 through completion of the Transaction
and has been a member of the Board of Directors of Human Factors Applications, Inc. since February
1999. From February 1995 to October 1997, Ms. Mendler was Vice President and Group Contracts
Manager for the Energy and Environment Group at Science Applications International Corporation
where she managed strategy, proposals, contracts, procurements, subcontracts and accounts
receivable. Ms. Mendler received a BBA in Marketing from James Madison University and a MS in
Contracts and Acquisition Management from Florida Institute of Technology.
Michael Alber has served as Senior Vice President, Chief Financial Officer and Treasurer since
November 2008. He was Senior Vice President and acting Chief Financial Officer from February 2008
to November 2008. He served as Senior Vice President and Director of Finance from November 2007 to
February 2008. Prior to joining Alion, Mr. Alber served as Senior Vice President and Group
Controller at Science Applications International Corporation (SAIC) from April 1990 to November
2007 where he was responsible for the financial and administrative oversight of the IT & Network
Solutions Group comprising three business units with over 9,300 employees and over 20 international and domestic
locations and with annual operating revenues over $1.5 billion. Prior to SAIC, Mr. Alber held
various senior finance and contract related positions with Network Solutions Inc., GeoTrans Inc.
and System Development Corporation. Mr. Alber received a BS in Business Administration from George
Mason University.
104
Scott Fry has served as Sector Senior Vice President for Alions Engineering and Integration
Solutions Sector since September 2006. Mr. Fry served as Senior Vice President and Sector Manager
of Alions JJMA Maritime Sector from October 2005 until September 2006, and as Senior Vice
President and Deputy Sector Manager for the JJMA Maritime Sector from April 2005 to October 2005.
Between January 2004 and April 2005 Mr. Fry was a Group Senior Vice President for Alions Strategic
Systems Group. Prior to joining Alion in January 2004, Mr. Fry served in the U.S. Navy for 32
years, retiring at the rank of Vice Admiral. His career included command and staff positions both
at sea and ashore with the Navy, NATO, and Joint Chiefs of Staff. In his last active duty
assignment he commanded the United States Sixth Fleet during Operation Iraqi Freedom and the Global
War on Terrorism. Mr. Fry received a B.S from the United States Naval Academy in Annapolis,
Maryland.
Walter E. Buchanan III has served as Sector Senior Vice President for the Engineering and
Information Technology Sector since June 2007. Mr. Buchanan served as Deputy Sector Manager for
the Engineering and Information Technology Sector from July 2006 to December 2006 and as a Group
Manager from December 2006 to June 2007. Prior to joining Alion in July 2006, Mr. Buchanan served
in the United States Air Force for 34 years, retiring at the rank of Lieutenant General. His
career included planning and execution of air operations in the Middle East to include those in
Iraq and Afghanistan. He served as a command pilot and has more than 3800 flight hours primarily in
fighter aircraft. His military awards include the Defense Distinguished Service Medal and Defense
Superior Service Medal. He is a Distinguished Graduate of the Army Command and General Staff
College and graduate of the National War College. Mr. Buchanan received a Masters Degree in
Management from Troy State University and a Bachelor of Science degree in Life Science from the US
Air Force Academy, where he also received his commission.
David H. Ohle has served as Senior Sector Vice President for the Defense Operations
Integration Sector since November 2008. From June 2002 through November 2008, Mr. Ohle was Vice
President and General Manager for Army Programs, CSC. He was Vice President, Human Resources, for
Shell Oil Company in Houston, Texas from September 2000 to May 2002. Mr. Ohle formerly served
as a Lieutenant General in the United States Army where his last position was Deputy Chief of Staff
for Personnel. Prior to his retirement in August 2000, his military experience spanned more than 30
years of service at various levels of command and staff positions. He commanded both a platoon and
company in combat. Mr. Ohle later served on the faculty at both the United States Military Academy
and the National War College in Washington, D.C. He then served as the deputy commandant of the
Command and General Staff College at Fort Leavenworth, Kansas. Mr. Ohle graduated from the United
States Military Academy and began his career in the United States Army as an infantry officer. He
holds a Master of Arts degree in organizational behavior from Ohio State University.
James C. Fontana has served as Senior as General Counsel of Alion since January 2004. From
January 2004 through December 2009, Mr. Fontana also served as Senior Vice President and Secretary
at Alion. He has 25 years of experience as an attorney specializing in government contracts,
technology law and transactions related to government contractors. From February 2003 to January
2004, Mr. Fontana was in private practice. From April 1997 to January 2003 he served as General
Counsel of Getronics Government Solutions, LLC (formerly Wang Federal). Prior to that, he was
General Counsel of Vinnell Corporation, and Senior Corporate Counsel to BDM International, Inc.,
Vinnells parent company. Mr. Fontanas law firm experience included Kominers Fort and Reed Smith,
and he was a founding member of Reed Smiths government contracts group. Mr. Fontana is a graduate
of Temple University School of Law. He received his undergraduate degree from The American
University, where he majored in economics.
There is no known family relationship between any director or executive officer.
Code of Ethics
In December 2001, Alion adopted a Code of Ethics, Conduct, and Responsibility that applied to
all employees, executive officers and directors of the Company and served as a code of ethics for
the Companys chief executive officer, chief financial officer, director of finance, controller,
and any person performing similar functions. In 2004, Alion reviewed the Companys 2001 Code of
Ethics and in September 2004, adopted a revised Code applicable to all Alion employees, including
Alions CEO and CFO. The 2001 Code met the definitional requirements set forth in the rules and
regulations of the Securities and Exchange Commission. In November 2008, the Company adopted a
newly revised Code of Ethics that applies to all Alion employees and meets the definitional
requirements set forth in the rules and regulations of the Securities and Exchange
Commission. Alion provides access to a telephone hotline so employees can report suspected
instances of improper business practices such as fraud, waste, and violations of the Code. The
Company revised its Code of Ethics in November 2009 to reflect changes in requirements set forth in
the Federal Acquisition Regulation (FAR). Alion posts a copy of its current Code of Ethics on
its external and internal websites. A copy of the 2009 Code of Ethics is filed as an exhibit to
this annual report.
105
Item 11. Executive Compensation
Compensation Discussion and Analysis
Objectives of Executive Compensation Program
Our executive compensation program is designed to create strong financial incentive for our
officers to increase revenues, profits, operating efficiency and returns, which we expect to lead
to an increase in shareholder value. Our compensation programs primary objective is to attract and
retain qualified, energetic employees who are enthusiastic about Alions mission and to reward
employees for their contributions to Alion. We strive to promote an ownership mentality among key
leadership and the Board of Directors. We endeavor to ensure that our compensation program is
perceived as fundamentally fair to all stakeholders.
The Compensation Committee of the Board of Directors (the Compensation Committee) evaluates
both performance and peer group companys compensation to ensure Alion maintains its ability to
attract and retain employees in key positions and that it compensates key employees at levels
competitive with the compensation other companies pay similarly situated executives. The Committee
believes compensation packages for Alions named executives and other officers should include both
cash and long-term incentive components that reward performance as measured against established
goals.
What Our Compensation Program is Designed to Reward
Our compensation program is designed to reward each employees contribution to the Company.
The Compensation Committee considers numerous factors including the Companys growth and financial
performance in measuring the contributions of named executive officers. Throughout this Form 10-K,
individuals who served as the Companys Chief Executive Officer and Chief Financial Officer during
fiscal year 2009, as well as the other individuals included in the Summary Compensation Table, are
referred to as named executive officers.
Roles and Responsibilities for Our Compensation Program
Role of the Compensation Committee
The Compensation Committee is responsible for establishing, implementing and monitoring
adherence to Alions compensation philosophy and for setting the individual cash and other
compensation levels for executive officers. The Compensation Committees responsibilities are set
forth in its charter and discussed in Item 10 under Establishment of Committees.
Role of the Chief Executive Officer
Our Chief Executive Officer provides recommendations to the Compensation Committee in the
evaluation of Alions executive officers, including recommendations of individual cash and other
compensation levels for executive officers. Dr. Atefi relies on his personal experience serving in
the capacity of Chief Executive Officer in evaluating the contribution of our other executive
officers and on comparable compensation guidance provided by an outside compensation consultant to
form the basis for his recommendations. Dr. Atefi was not present during Committee deliberations
and voting pertaining to the determination of his own compensation.
Role of the Compensation Consultant
The Compensation Committee annually retains a consultant to provide independent advice on
executive compensation matters and to perform specific project-related work. In fiscal year 2009,
we engaged Hewitt Associates LLC to review the compensation of our named executive officers and to
provide competitive data and analysis to the Compensation Committee. They performed no other
services for the Company.
106
Elements of Companys Executive Compensation Plan
Alions compensation program consists of several major components. Alion pays salaries that
are non-discriminatory to attract, retain, and motivate our named executive officers, competitive
with rates paid for similar jobs by other employers. We offer an extensive incentive program
designed to encourage exceptional employee performance. As a 100% ESOP-owned company, we offer our
named executive officers the ability to invest in the future of our company. The Alion Science and
Technology Corporation Employee Ownership, Savings and Investment Plan, consists of an ESOP, which
allows employees to own an interest in the companys stock, and a cash or deferred arrangement
under Section 401(k) of the Internal Revenue Code, which allows employees to have diversified
retirement savings in other investments. Investments in the ESOP are indirect investments in Alion
common stock. Investments in the 401(k) are investments in any of a number of mutual funds. We
offer fringe benefit and employee morale and wellness programs designed to attract and retain our
named executive officers.
Base Salary
Alion pays each named executive officer a base salary for services rendered during the fiscal
year. This fixed annual amount for performing specific job responsibilities is the minimum income
the named executive officer may receive in any given year. Each Alion executives base salary is
determined by his or her responsibilities and performance as well as comparative compensation
levels for the executives peers. The Compensation Committee determines the Chief Executive
Officers base salary, including periodic changes and determines base salaries and changes, for
other named executive officers following recommendations by the Chief Executive Officer.
Base salaries for our named executive officers for the 2009 fiscal year were:
|
|
|
|
|
Named Executive Officer |
|
Fiscal 2009 Base Salary |
|
Bahman Atefi |
|
$ |
650,000 |
|
Stacy Mendler |
|
$ |
375,000 |
|
Michael Alber |
|
$ |
300,000 |
|
Rob Goff* |
|
$ |
320,000 |
|
Scott Fry |
|
$ |
340,000 |
|
James Fontana |
|
$ |
280,000 |
|
|
|
|
* |
|
Mr. Goff resigned as Sector Senior Vice President in October 2008. |
Each year, the Compensation Committee utilizes salary survey information provided by its
outside compensation consultant for appropriate salary data for Alions senior positions.
Typically, the Compensation Committee reviews each named executive officers base salary as part of
Alions annual performance review process and upon a promotion or other change in job
responsibility.
In reviewing base salaries for our named executive officers, the Compensation Committee
considers:
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|
|
market data provided by the Companys outside compensation consultant; |
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|
|
the executives compensation, individually and relative to other officers; |
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|
|
the executives individual performance; and |
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|
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Alions financial and operating results. |
The Compensation Committee and its outside consultant use publicly available data from other
professional services government contracting companies to benchmark compensation for Alions named
executive officers. The benchmark companies include many of the publicly-traded companies Alion
uses in its market analyses to calculate enterprise value for goodwill impairment testing. The
Compensation Committee compares Alion data to median data for the benchmark group in evaluating
total named executive officer compensation and individual elements of total compensation. The
Compensation Committee evaluates base salaries, total cash compensation and various types of long
term incentive compensation provided to named executives at benchmark companies in making its
decisions about the components and levels of compensation for Alions named executive officers.
107
For fiscal 2009, the Compensation Committee reviewed a peer group of companies from the
information technology, professional services, and defense and aerospace industries. In its
analysis, the Compensation Committee compared data for the selected peer group with data from
several broader, national compensation surveys and Alions current executive
compensation levels. The following companies made up the compensation peer group. Alions fiscal
2008 revenue ranked the company approximately 16% below its peer group in overall size.
|
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Argon ST Inc.
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DynCorp International Inc.
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ManTech International Corp
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Stanley, Inc. |
CACI International Inc.
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Harris Corp
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Maximus Inc
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VSE Corp |
CIBER Inc.
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Heico Corp
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NCI, Inc. |
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Cubic Corp
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ICF International, Inc.
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Orbital Sciences Corp |
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Dynamics Research Corp.
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IHS Inc.
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SRA International Inc |
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Annual Bonus
We use our compensation programs annual bonus component to motivate and reward our named
executive officers for current, short term performance such as meeting annual financial performance
objectives and other non-financial performance objectives attainable within the year. The
Compensation Committee has determined it is important to encourage and reward both short-term and
long-term performance. The Compensation Committee has the discretion to set goals and objectives it
believes are consistent with creating shareholder value, including financial measures, operating
objectives, growth goals and other measures. The Compensation Committee also considers individual
achievement.
Alion pays named executive officers annual cash bonuses based upon achievement of performance
objectives. The objectives vary depending upon the executives responsibilities and include
objectives based upon the Company achieving certain earnings targets as well as other financial and
business objectives. Revenue growth and profitability are weighted as the most significant factors.
The Compensation Committee evaluates achievement of the objectives following the end of each year;
it makes annual bonus awards based on this assessment and the Chief Executive Officers
recommendations with respect to other executive officers.
Long-term Incentives/Awards
We also use our compensation programs incentives/awards component to motivate and reward our
named executive officers for long term performance and for executive retention. In November
2008, the Compensation Committee approved a new executive incentive compensation program intended
to establish goals for and reward achievement of long-term performance based on Alions business
objectives. The new program establishes performance-based award opportunities that are specific to
the financial performance of the Company and the performance of the specific business unit or
corporate department an individual leads.
Long-Term Incentive Plan
Effective November 1, 2008, we established the Alion Science and Technology Corporation
Long-Term Incentive Plan (LTIP). The LTIP provides for award opportunities based on the
achievement of predefined individual performance goals established by the Compensation Committee.
LTIP award opportunities are settled in cash. Our named executive officers and other key employees
are eligible to receive awards under the LTIP.
We established the LTIP to:
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provide certain employees an incentive for excellence in achieving certain Company
and business unit or departmental goals; |
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facilitate key employee retention and recruitment; |
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provide award opportunities that are at-risk and contingent on achievement of
selected performance criteria over an extended period; and |
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provide a meaningful incentive to achieve long-term growth and improve
profitability. |
Under the LTIP, our Compensation Committee is responsible for:
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selecting individuals to participate in the LTIP from certain of our key employees; |
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determining the period during which a given participant must achieve his or her
performance goals, (performance period); |
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setting each participants award opportunities with respect to a given performance
period; and |
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establishing the conditions for vesting of awards. |
108
Following consultation with the outside compensation consultant retained by the Compensation
Committee, we determined Alion needed a non-equity based compensation plan to properly incentivize
named executive officers and other key employees.
LTIP compensation costs could be considered an allowable indirect expense on government and
commercial contracts under certain circumstances and thus could be subject to customer
reimbursement. We do not expect to recover all LTIP compensation costs. Our LTIP is intended to
differ from our equity-based compensation plans which are not an allowable indirect expense and,
therefore, cannot be reimbursed through our contracts.
The Board of Directors has adopted separate forms of LTIP award agreements. Some of our named
executive officers may be eligible to receive awards under more than one of these agreements. The
forms of LTIP award agreements provide for the following:
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Form of Award |
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Minimum/ Maximum |
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Agreement |
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Date of Grant |
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Performance Cycles |
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Award Amount |
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Vesting Date |
Category A |
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November 1, 2008 |
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November 1, 2008 |
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N/A |
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Date performance goals achieved |
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until performance |
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goals achieved |
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Category B |
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November 1, 2008 |
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November 1, 2008- |
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80%/120% |
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November 15, 2009 |
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October 31, 2009 |
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Category C |
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November 1, 2008 |
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November 1, 2008- |
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50%/150% |
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November 15, 2010 |
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October 31, 2009 |
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November 1, 2009- |
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October 31, 2010 |
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Category D |
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November 1, 2008 |
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November 1, 2008- |
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50%/150% |
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November 15, 2011 |
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October 31, 2009 |
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November 1, 2009- |
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October 31, 2010 |
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November 1, 2010- |
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October 31, 2011 |
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Ongoing Category E |
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November 1, 2008 |
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November 1, 2008- |
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50%/150% |
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November 15, 2011 |
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October 31, 2009 |
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November 1, 2009- |
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October 31, 2010 |
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November 1, 2010- |
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October 31, 2011 |
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Ongoing Category F |
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November 1, 2009 |
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November 1, 2009- |
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50%/150% |
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November 15, 2011 |
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October 31, 2012 |
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Performance goals under these award agreements include, among others, reaching certain company
planned targets relating to revenue; EBITDA as measured consistent with the financial covenants in
the Term B Senior Credit Agreement; business sector net income; business sector revenue; compliance
with debt covenants; and days sales outstanding. For two-year grants, one half of the awarded
amount relates to each performance cycle during the term of the grant, and for Category D and E
three year-grants, one third of the awarded amount relates to each performance cycle during the
term of the grant. Category F grants vest at the end of the three-year performance period based on
a single set of three-year goals.
Subject to the Compensation Committees discretion, and as set forth in the table above, a
recipient may receive from 50% to 150% of the target amount up through the end of a performance
cycle depending on whether the individual achieves performance goals, or substantially under- or
over-achieves performance goals. Each earned award vests in full on its vesting date, provided
that the named executive officer is still employed with us.
109
The following table sets forth the target amounts approved by our Compensation Committee and
Board of Directors, for each of our named executive officers under each of the above-mentioned
categories of LTIP award agreements with respect to all performance cycles covered by such award
agreements. Consistent with the design of the LTIP, the Compensation Committee and the Board of
Directors approved LTIP awards to senior corporate officers in addition to our named executive
officers listed below.
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Name |
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Category A |
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Category B |
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Category C |
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Category D |
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|
Category E |
|
|
Category F |
|
Bahman Atefi |
|
$ |
998,223 |
|
|
$ |
934,910 |
|
|
$ |
1,738,830 |
|
|
|
|
|
|
$ |
800,000 |
|
|
$ |
1,000,000 |
|
Stacy Mendler |
|
$ |
479,559 |
|
|
$ |
411,360 |
|
|
$ |
725,782 |
|
|
|
|
|
|
$ |
300,000 |
|
|
$ |
350,000 |
|
Scott Fry |
|
|
|
|
|
$ |
233,125 |
|
|
$ |
191,511 |
|
|
|
|
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
Michael Alber |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
94,646 |
|
|
$ |
150,000 |
|
|
$ |
200,000 |
|
James Fontana |
|
|
|
|
|
$ |
112,189 |
|
|
$ |
86,180 |
|
|
|
|
|
|
$ |
100,000 |
|
|
|
|
|
The ranges reflect participation levels determined for each named executive officer in the
LTIP based on market information provided to us by our compensation consultant. Each named
executive officers participation level is based on his or her specific position, responsibilities,
accountabilities and impact within our company. The Compensation Committee and its consultant
compare these target participation levels against the participation levels of similarly situated
executive officers at peer companies.
Phantom Stock Plans
Phantom stock refers to hypothetical shares of Alion common stock. Each recipient of a phantom
stock award receives a grant of a specified number of shares. Recipients, upon vesting, are
generally entitled to receive cash equal to the number of hypothetical vested shares times the
current value of Alion common stock, based on the most recent stock valuation performed for the
ESOP Trust. Phantom stock may increase or decrease in value over time, resulting in cash payments
under the phantom stock awards that may be greater or less than the phantom stocks grant date
value. The Compensation Committee administers Alions phantom stock plans and is authorized to
grant phantom stock to the named executive officers.
Stock Appreciation Rights (SAR) Plan
2002 SAR Plan. In November 2002, the Board of Directors adopted the Alion Science and
Technology Corporation 2002 Stock Appreciation Rights Plan (the 2002 SAR Plan). The 2002 SAR Plan
was devised to attract, retain, reward and motivate employees responsible for the Companys
continued growth and development and its future financial success. The 2002 SAR Plan is
administered by the Compensation Committee or its delegate (the administrative committee). The 2002
SAR Plan has a 10-year term and permits grants to our directors, officers, employees and
consultants.
2004 SAR Plan. In January 2005, the Board of Directors adopted a second SAR plan, the Alion
Science and Technology Corporation 2004 Stock Appreciation Rights Plan (the 2004 SAR Plan), to
comply with the deferred compensation provisions of the American Jobs Creation Act of 2004. The
2004 SAR Plan is administered by the Compensation Committee or its delegate (the administrative
committee). The 2004 SAR Plan has a 10-year term and permits grants to Alion directors, officers,
employees and consultants. Under the 2004 SAR Plan, the Chief Executive Officer has the authority
to award SARs, as he deems appropriate; however, awards to executive officers are subject to the
approval of the administrative committee of the Plan.
110
Severance/Change in Control and Provisions in Employment Agreements
We maintain employment agreements with our named executive officers to help ensure they will
perform their roles for an extended period of time. These agreements provide for severance payments
if an executives employment is terminated under certain conditions, such as following a change of
control or a termination without cause as defined in the agreements.
Change in Control
As part of our normal course of business, we engage in discussions with other companies about
possible collaborations and/or other ways to work together to further our respective long-term
objectives. Many larger, established companies consider companies at stages of development similar
to ours as potential acquisition targets. In certain circumstances, a potential merger, acquisition or material investment could be in the best
interests of our shareholders. We provide severance compensation if an executives employment is
terminated following a change in control transaction. We do this to promote the ability of our
senior executives to act in the best interests of our stockholders even though their employment
could be terminated as a result of a transaction.
Termination without Cause
If we terminate the employment of a named executive officer without cause as defined in his or
her employment agreement, we are obligated to continue to pay certain amounts as described below
under Other Potential Post-Termination Payments. This provides us with flexibility to make a change
in senior management if such a change is in the best interests of Alion and its shareholders.
Health and Welfare Benefits
Alion provides all its named executive officers a comprehensive, balanced, and flexible fringe
benefit program. Our fringe benefit programs design plays an important role in attracting new
employees and retaining our named executive officers. We review industry-wide fringe benefit
packages annually to ensure that Alions fringe benefit program continues to provide the best value
to our named executive officers. Benefits include medical, prescription drug, vision and dental
coverage; life insurance; accidental death and dismemberment insurance, short and long-term
disability insurance; business travel accident, kidnap and ransom insurance; an employee assistance
program and flexible spending accounts for medical expense reimbursement and child care. Alion
provides workers compensation insurance and unemployment benefits required by law to all
employees, including named executive officers. We purchase workers compensation insurance and are
self-insured for unemployment payments. Our plans do not discriminate in favor of our named
executive officers. Alion provides the major portion of its fringe benefit program as a core
package of standard benefits supplemented by a set of employee-selected optional benefits. All
eligible employees, including named executive officers contribute to the cost of certain benefits
at the same rates and in the same manner.
KSOP
Alions KSOP is a qualified retirement plan that includes an ESOP component and a 401(k)
component. The ESOP Trust owns all of the Companys outstanding shares of common stock. Alion
makes retirement plan contributions to both the ESOP and 401(k) components on behalf of all
eligible employee KSOP participants. The Company also makes matching contributions on behalf of
eligible employees, in the ESOP component, based on their pre-tax Alion salary deferrals. Named
Executive Officers do not receive preferential KSOP benefits.
111
Summary Compensation Table Fiscal Year 2009
The following table sets forth all compensation with respect to our Chief Executive Officer
and our other named executive officers for the year ended September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term |
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom |
|
|
Incentive |
|
|
Incentive |
|
|
|
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Plan |
|
|
Plan |
|
|
All other |
|
|
|
|
Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus(1) |
|
|
Grants(2) |
|
|
Awards(3) |
|
|
Compensation(4) |
|
|
Compensation(5) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bahman Atefi |
|
|
2009 |
|
|
$ |
644,187 |
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
650,000 |
|
|
$ |
103,866 |
|
|
$ |
2,398,053 |
|
Chief Executive Officer and President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stacy Mendler |
|
|
2009 |
|
|
$ |
367,307 |
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
250,000 |
|
|
$ |
84,838 |
|
|
$ |
1,052,145 |
|
Chief Operating Officer and Executive Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Alber |
|
|
2009 |
|
|
$ |
303,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
200,000 |
|
|
$ |
44,277 |
|
|
$ |
747,277 |
|
Senior Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Fry |
|
|
2009 |
|
|
$ |
339,824 |
|
|
$ |
256,444 |
|
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
$ |
66,409 |
|
|
$ |
1,162,677 |
|
Engineering and Integration Solutions Sector Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Fontana (6) |
|
|
2009 |
|
|
$ |
288,803 |
|
|
$ |
637,176 |
|
|
|
|
|
|
|
|
|
|
|
90,000 |
|
|
$ |
74,987 |
|
|
$ |
1,090,966 |
|
Senior Vice President, General Counsel and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rob Goff (6) |
|
|
2009 |
|
|
|
351,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,563,155 |
|
|
$ |
1,914,800 |
|
Defense Operations Integration Sector, Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This column includes non-incentive based cash bonuses, such as special performance bonuses,
paid to Named Executive Officers. |
|
(2) |
|
There were no phantom stock grants in fiscal 2009. In fiscal 2009, Named Executive Officers
forfeited previously vested phantom stock awards. The Company recognized the following
credits to stock-based compensation expense for forfeitures: Dr. Atefi $2,466,756; Ms. Mendler
$1,137,091; Mr. Alber $26,600; Mr. Fry $465,300; and Mr. Fontana $748,222. |
|
(3) |
|
This column reflects the grant date value of Long Term Incentive Plan grants issued this year
for future performance. |
|
(4) |
|
This column includes cash bonuses awarded to our named executive officers under the
Non-Equity Incentive Plan for fiscal 2009 service. |
|
|
|
(5) |
|
This column (and table below) includes the following amounts for our Named Executive Officers: |
|
|
|
401(k) matching and profit sharing contributions under Alions KSOP; |
|
|
|
|
Company contributions for long and short term disability; |
|
|
|
|
Amounts paid for life insurance premiums; |
|
|
|
|
Amounts paid or reimbursed with respect to health and welfare; |
|
|
|
|
Amounts paid or reimbursed with respect to social club membership; |
|
|
|
|
Amounts paid or reimbursed with respect to leased cars; and |
|
|
|
|
Termination related payments for previously unreported vested Phantom Stock exercised. |
|
|
|
(6) |
|
Mr. Fontana resigned as Senior Vice President and Secretary on December 8, 2009. Mr. Goff
resigned as Sector Senior Vice President and Sector Manager of the Defense Operations
Integration Sector on October 23, 2008. He received $1,500,000 in payments for vested Phantom
Stock. |
112
All Other Compensation Fiscal Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matching |
|
|
|
|
|
|
Long and Short |
|
|
|
|
|
|
Term Life |
|
|
|
|
|
|
|
|
|
|
|
Name and |
|
Contributions |
|
|
Health and |
|
|
Term Disability |
|
|
Club |
|
|
Insurance |
|
|
|
|
|
|
Termination |
|
|
|
|
Principal |
|
Under |
|
|
Welfare |
|
|
Paid by |
|
|
Membership |
|
|
Paid by the |
|
|
Leased |
|
|
Related |
|
|
|
|
Position |
|
Alions KSOP |
|
|
Benefits |
|
|
the Company |
|
|
Fees |
|
|
Company |
|
|
Cars |
|
|
Payment (1) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bahman Atefi |
|
$ |
14,950 |
|
|
$ |
52,228 |
|
|
$ |
5,234 |
|
|
$ |
5,410 |
|
|
$ |
810 |
|
|
$ |
25,234 |
|
|
$ |
|
|
|
$ |
103,866 |
|
Stacy Mendler |
|
$ |
14,950 |
|
|
$ |
37,572 |
|
|
$ |
3,574 |
|
|
$ |
1,647 |
|
|
$ |
598 |
|
|
$ |
26,497 |
|
|
$ |
|
|
|
$ |
84,838 |
|
Michael Alber |
|
$ |
5,750 |
|
|
$ |
15,074 |
|
|
$ |
3,119 |
|
|
$ |
1,029 |
|
|
$ |
475 |
|
|
$ |
18,830 |
|
|
$ |
|
|
|
$ |
44,277 |
|
Scott Fry |
|
$ |
14,242 |
|
|
$ |
19,107 |
|
|
$ |
3,385 |
|
|
$ |
|
|
|
$ |
548 |
|
|
$ |
29,127 |
|
|
$ |
|
|
|
$ |
66,409 |
|
James Fontana |
|
$ |
15,391 |
|
|
$ |
33,918 |
|
|
$ |
3,031 |
|
|
$ |
500 |
|
|
$ |
451 |
|
|
$ |
21,696 |
|
|
$ |
|
|
|
$ |
74,987 |
|
Rob Goff |
|
$ |
13,965 |
|
|
$ |
28,793 |
|
|
$ |
252 |
|
|
$ |
|
|
|
$ |
40 |
|
|
$ |
20,105 |
|
|
$ |
1,500,000 |
|
|
$ |
1,563,155 |
|
|
|
|
(1) |
|
Mr. Goff received $1,500,000 in payments for vested Phantom Stock. |
Summary Compensation Table Fiscal Year 2008
The following table sets forth all compensation with respect to our Chief Executive Officer
and our other named executive officers for the year ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom |
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
SAR |
|
|
Plan |
|
|
All Other |
|
|
|
|
Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus(1) |
|
|
Awards(2) |
|
|
Awards(2) |
|
|
Compensation (3) |
|
|
Compensation(4) |
|
|
Total |
|
|
Bahman Atefi |
|
|
2008 |
|
|
$ |
604,749 |
|
|
|
|
|
|
$ |
1,630,296 |
|
|
|
|
|
|
$ |
500,000 |
|
|
$ |
146,488 |
|
|
$ |
2,881,533 |
|
Chief Executive Officer and President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stacy Mendler |
|
|
2008 |
|
|
$ |
333,185 |
|
|
|
|
|
|
$ |
759,346 |
|
|
|
|
|
|
$ |
200,000 |
|
|
$ |
100,071 |
|
|
$ |
1,392,602 |
|
Chief Operating Officer and Executive Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Alber |
|
|
2008 |
|
|
$ |
220,000 |
|
|
$ |
95,000 |
|
|
$ |
15,836 |
|
|
$ |
3,000 |
|
|
$ |
150,000 |
|
|
$ |
29,910 |
|
|
$ |
513,746 |
|
Senior Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rob Goff |
|
|
2008 |
|
|
$ |
318,090 |
|
|
|
|
|
|
$ |
662,625 |
|
|
|
|
|
|
|
|
|
|
$ |
54,577 |
|
|
$ |
1,035,292 |
|
Defense Operations Integration Sector Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Fry |
|
|
2008 |
|
|
$ |
316,171 |
|
|
|
|
|
|
$ |
183,937 |
|
|
|
|
|
|
$ |
225,000 |
|
|
$ |
51,263 |
|
|
$ |
776,371 |
|
Engineering and Integration Solutions Sector Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This column includes non-incentive based cash bonuses, such as sign-on bonuses, paid to named
executive officers. |
|
(2) |
|
These columns reflect the fiscal year 2008 expense Alion recognized under SFAS 123(R) for
current and prior year phantom stock and SAR awards to named executive officers. |
113
|
|
|
(3) |
|
This column includes cash bonuses awarded to our named executive officers under the
non-equity incentive plan for their service in fiscal year 2008. |
|
(4) |
|
This column includes the following amounts paid by Alion: |
|
|
|
401(k) matching and profit sharing contributions under Alions KSOP; |
|
|
|
Company contributions for long and short term disability insurance; |
|
|
|
Alions portion of life insurance premiums; |
|
|
|
Amounts paid or reimbursed with respect to health and welfare; |
|
|
|
Amounts paid or reimbursed for social club membership; and |
|
|
|
Amounts paid or reimbursed for car leases and automotive expenses. |
Please see table below for detailed information regarding all other compensation.
All Other Compensation Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matching |
|
|
|
|
|
|
Long and Short |
|
|
|
|
|
|
Term Life |
|
|
|
|
|
|
|
|
|
Contributions |
|
|
Health and |
|
|
Term Disability |
|
|
Club |
|
|
Insurance Paid |
|
|
|
|
|
|
|
Name and Principal |
|
Under Alions |
|
|
Welfare |
|
|
Paid by the |
|
|
Membership |
|
|
by the |
|
|
|
|
|
|
|
Position |
|
KSOP |
|
|
Benefits |
|
|
Company |
|
|
Fees |
|
|
Company |
|
|
Leased Cars |
|
|
Total |
|
|
Bahman Atefi |
|
$ |
14,625 |
|
|
$ |
94,337 |
|
|
$ |
4,840 |
|
|
$ |
5,120 |
|
|
$ |
735 |
|
|
$ |
26,831 |
|
|
$ |
146,488 |
|
Stacy Mendler |
|
$ |
14,625 |
|
|
$ |
55,208 |
|
|
$ |
3,210 |
|
|
|
|
|
|
$ |
531 |
|
|
$ |
26,497 |
|
|
$ |
100,071 |
|
Michael Alber |
|
|
|
|
|
|
12,530 |
|
|
$ |
2,421 |
|
|
|
|
|
|
$ |
356 |
|
|
$ |
14,603 |
|
|
$ |
29,910 |
|
Rob Goff |
|
$ |
14,625 |
|
|
$ |
12,812 |
|
|
$ |
3,120 |
|
|
|
|
|
|
$ |
512 |
|
|
$ |
23,508 |
|
|
$ |
54,577 |
|
Scott Fry |
|
$ |
10,228 |
|
|
$ |
13,748 |
|
|
$ |
3,108 |
|
|
|
|
|
|
$ |
512 |
|
|
$ |
23,667 |
|
|
$ |
51,263 |
|
Summary Compensation Table Fiscal Year 2007
The following table sets forth all compensation with respect to our named executive officers
for the year ended September 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom |
|
|
Incentive |
|
|
|
|
|
|
|
Name and Principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Plan |
|
|
All Other |
|
|
|
|
Position |
|
Year |
|
|
Salary |
|
|
Bonus(1) |
|
|
Awards (2) |
|
|
Compensation (3) |
|
|
Compensation(4) |
|
|
Total |
|
|
Bahman Atefi |
|
|
2007 |
|
|
$ |
532,997 |
|
|
|
|
|
|
$ |
976,353 |
|
|
$ |
490,000 |
|
|
$ |
87,119 |
|
|
$ |
2,086,469 |
|
Chief Executive Officer and President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stacy Mendler |
|
|
2007 |
|
|
$ |
321,206 |
|
|
|
|
|
|
$ |
429,595 |
|
|
$ |
180,000 |
|
|
$ |
65,618 |
|
|
$ |
996,419 |
|
Chief Operating Officer and Executive Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rob Goff |
|
|
2007 |
|
|
$ |
308,562 |
|
|
|
|
|
|
$ |
146,453 |
|
|
$ |
160,000 |
|
|
$ |
45,119 |
|
|
$ |
660,134 |
|
Defense Operations Integration Sector Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Fry |
|
|
2007 |
|
|
$ |
295,431 |
|
|
|
|
|
|
$ |
195,271 |
|
|
$ |
160,000 |
|
|
$ |
38,121 |
|
|
$ |
688,823 |
|
Engineering and Integration Solutions Sector Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This column includes non-incentive based cash bonuses awarded to our named executive
officers, such as sign-on bonuses. None of our named executive officers received any
non-incentive bonuses in fiscal year 2007. See the column entitled Non-equity Incentive
Plan Compensation for other bonuses awarded for their service in fiscal year 2007. |
|
(2) |
|
These columns reflect the dollar amounts that were recognized in fiscal 2007 for financial
statement reporting purposes under SFAS 123(R) with respect to phantom stock and SAR awards
granted to our named executive officers in fiscal year 2007. |
114
|
|
|
(3) |
|
This column includes cash bonuses awarded to our named executive officers under the
Non-Equity Incentive Plan for their service in fiscal year 2007. |
|
(4) |
|
This column includes the following amounts with respect to our Named Executive Officers: |
|
|
|
401(k) matching and profit sharing contributions under Alions KSOP; |
|
|
|
Company contributions for long and short term disability; |
|
|
|
Amounts paid for life insurance premiums; |
|
|
|
Amounts paid or reimbursed with respect to health and welfare; |
|
|
|
Amounts paid or reimbursed with respect to social club membership; and |
|
|
|
Amounts paid or reimbursed with respect to leased cars. |
Please see table below for detailed information regarding all other compensation.
All Other Compensation Fiscal Year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matching |
|
|
|
|
|
|
Long and Short |
|
|
|
|
|
Term Life |
|
|
|
|
|
|
|
|
|
Contributions |
|
|
Health and |
|
|
Term Disability |
|
|
Club |
|
|
Insurance Paid |
|
|
|
|
|
|
|
Name and |
|
Under Alions |
|
|
Welfare |
|
|
Paid by the |
|
|
Membership |
|
|
by the |
|
|
Leased |
|
|
|
|
Principal Position |
|
KSOP |
|
|
Benefits |
|
|
Company |
|
|
Fees |
|
|
Company |
|
|
Cars |
|
|
Total |
|
Bahman Atefi |
|
$ |
14,869 |
|
|
$ |
43,758 |
|
|
$ |
3,921 |
|
|
$ |
4,920 |
|
|
$ |
486 |
|
|
$ |
19,165 |
|
|
$ |
87,119 |
|
|
Stacy Mendler |
|
$ |
14,300 |
|
|
$ |
29,262 |
|
|
$ |
2,644 |
|
|
|
|
|
|
$ |
486 |
|
|
$ |
18,926 |
|
|
$ |
65,618 |
|
|
Rob Goff |
|
$ |
14,300 |
|
|
$ |
15,168 |
|
|
$ |
2,565 |
|
|
|
|
|
|
$ |
486 |
|
|
$ |
12,600 |
|
|
$ |
45,119 |
|
|
Scott Fry |
|
$ |
10,341 |
|
|
$ |
13,075 |
|
|
$ |
2,491 |
|
|
|
|
|
|
$ |
481 |
|
|
$ |
11,733 |
|
|
$ |
38,121 |
|
Phantom Stock Plans
Initial Phantom Stock Plan
In February 2003, the Compensation Committee of Alions Board of Directors approved, and the
Board of Directors subsequently adopted, the Alion Science and Technology Phantom Stock Plan (the
Initial Phantom Stock Plan). The Initial Phantom Stock Plan has a term of ten years. The Initial
Phantom Stock Plan is administered by the Compensation Committee or by the Board of Directors (if
it so chooses) which may grant key management employees awards of phantom stock.
Vesting. Under the Initial Phantom Stock Plan, awards vest according to the following
schedule:
|
|
|
|
|
|
|
|
|
|
|
Vested Amount for Grant in |
|
|
|
February |
|
|
November |
|
Anniversary from Grant Date |
|
2003 |
|
|
2003 |
|
1st |
|
|
|
|
|
|
20 |
% |
2nd |
|
|
|
|
|
|
20 |
% |
3rd |
|
|
50 |
% |
|
|
20 |
% |
4th |
|
|
25 |
% |
|
|
20 |
% |
5th |
|
|
25 |
% |
|
|
20 |
% |
The Initial Phantom Stock Plan contains provisions for acceleration of vesting in the event of
the employees death, disability, or a change in control of the Company or in other circumstances.
In certain instances, an employee may receive a pro rata portion of his or her unvested phantom
stock upon termination. For awards made prior to November 9, 2005, when an employee voluntarily
terminates for good reason or is involuntarily terminated for any reason other than cause or just
cause, as defined in his or her employment agreement with us, then that employee will receive a pro
rata portion of his or her unvested phantom stock based on a ratio:
|
|
|
the numerator of which is the number of months from the date of grant of the phantom
stock through the end of the month of such termination; and |
|
|
|
the denominator of which is 60. |
115
For awards made on or after November 9, 2005, when an employee voluntarily terminates for good
reason or is involuntarily terminated for any reason other than cause or just cause, as defined in
the Initial Phantom Stock Plan, then that employee will receive a pro rata portion of his or her phantom stock equal to the greater of
(i) the amount vested under the awards normal vesting schedule, or (ii) the number of shares of
phantom stock multiplied by the ratio set forth above.
Payments. Phantom stock awards issued under the Initial Phantom Stock Plan are normally paid
at the time the award becomes fully vested, or else upon the employees earlier death, disability
or termination of service. However, a grantee may request payment for any portion of a phantom
stock award that was vested on or before December 31, 2004, by filing a written election to
exercise with the Compensation Committee at least 6 months before the requested exercise date and
at least 3 months in advance of the ESOP valuation date that will apply to such exercise, and can
continue to hold such unexercised phantom stock awards until the award becomes completely vested.
Amendment. In November 2005, the Board of Directors amended the Initial Phantom Stock Plan to
permit employees to make a one-time election to receive payment for phantom shares as they vest
each year or when fully vested. This election does not apply to awards vested before December 31,
2004 under the Initial Phantom Stock Plan, because the phantom stock holder may already exercise
such awards at any time. An award holder who does not make an acceleration election as described
above may elect to defer the proceeds of phantom stock into the Alion Science and Technology
Corporation Executive Deferred Compensation Plan for a 5 year period, if he or she is eligible for
the plan, by filing a deferral election with the Company at least one year in advance of the
payment event. A 180 day election period applies for phantom stock awards vested on or before
December 31, 2004.
As of September 30, 2009, the Company had granted 223,685 shares of phantom stock under the
Initial Phantom Stock Plan. No awards are outstanding under this plan.
Second Phantom Stock Plan
On November 9, 2004, the Companys Compensation Committee approved, and the full Board of
Directors adopted, The Alion Science and Technology Corporation Performance Shares and Retention
Phantom Stock Plan (the Second Phantom Stock Plan) to comply with the requirements of the American
Jobs Creation Act. The Second Phantom Stock Plan permits awards of retention share phantom stock
and performance share phantom stock. A retention award is for a fixed number of shares determined
at the date of grant. A performance award is for an initial number of shares subject to change at
the vesting date. Performance phantom shares are subject to forfeiture for failure to achieve a
specified threshold value for a share of the Companys common stock as of the vesting date. If the
value of a share of the Companys common stock equals the threshold value but does not exceed the
target value, the number of performance shares in a given grant may be decreased by a specified
percentage (generally up to 50 percent). If the value of a share of the Companys common stock
exceeds a pre-established target price on the vesting date, the number of performance shares in a
given grant may be increased by a specified percentage (generally up to 20%).
Vesting. Performance share awards vest three years from date of grant (unless otherwise
provided in an individual award agreement) and retention share awards vest as specified in each
individual award agreement, provided that the grantee is still employed by the Company. Accelerated
vesting is provided in the event of death, disability, involuntary termination without cause, or
upon a change in control of the Company or in other circumstances, unless the individual award
agreement provides otherwise.
Payments. Grants are to be paid out on the payment date specified in the award agreement,
which is generally five years and sixty days from the date of grant, unless the award holder
elected to accelerate payment by filing an election no later than December 31, 2005, or elects to
defer the proceeds of phantom stock into the Alion Science and Technology Corporation Executive
Deferred Compensation Plan, as described below.
Amendment. In November 2005, the Board of Directors amended the Second Phantom Stock Plan to
permit employees to make a one-time election to receive payment for phantom shares as they vest
each year or when fully vested. An award holder who does not make an acceleration election as
described above may elect to defer the proceeds of phantom stock into the Alion Science and
Technology Corporation Executive Deferred Compensation Plan for a 5 year period, if he or she is
eligible for the plan, by filing a deferral election with the Company at least one year in advance
of the payment event.
116
As of September 30, 2009, the Company had granted 340,312 shares of retention incentive
phantom stock and 213,215 shares of performance incentive phantom stock of the Company pursuant to
the Second Phantom Stock Plan. The performance-based grants were fixed based on the September 30,
2008 share price. No retention or performance incentive awards remain outstanding.
Director Phantom Stock Plan
In November 2004 the Companys Compensation Committee approved, and the full board adopted,
the Alion Science and Technology Corporation Board of Directors Phantom Stock Plan (Director
Phantom Stock Plan). The Director Phantom Stock Plan provides for annual awards of shares of
phantom stock to non-employee directors of the Company for a fixed amount in addition to their
then-current annual directors fee. The number of shares of phantom stock is determined by
dividing the fixed amount by fair market value of a share of Alion common stock on the grant date
and rounding up to the next higher whole number. The fixed amount was $40,000 for fiscal 2008 and
$35,000 for 2007 and prior years. There were no grants to directors in fiscal 2009. Fair market
value is determined by the Compensation Committee in its sole discretion using the most recent
valuation of the Companys common stock made by an independent appraisal that meets the
requirements of IRC Section 401(a)(28)(C), as of a date that is no more than 12 months before the
date of the award.
Vesting. Grants under the Director Phantom Stock Plan vest in one-third increments each year
for three years from the date of the award. Vesting of an award accelerates upon a grantees death
or disability or upon a change of control of the Company or in other circumstances.
Payments. Before each award is granted (or within 30 days of the grant date for an individual
who becomes a director on the grant date), a director may elect whether to receive payment for
phantom shares as they vest, or when the award is fully vested. A director who elects to receive
payment when an award has fully vested may elect to defer the proceeds of the award into the Alion
Science and Technology Director Deferred Compensation Plan provided the election is made no later
than one year before the award fully vests. All payments made under the awards are required to be
in cash. As of September 30, 2009, the Company had granted 20,779 shares of phantom stock under
the Director Phantom Stock Plan.
Under the three phantom stock plans, members of the Companys Compensation Committee who are
eligible to receive phantom stock or who have been granted phantom stock may vote on any matters
affecting the administration of the plan or the grant of phantom stock, except that a member cannot
act upon the granting of phantom stock to himself or herself. These voting provisions also apply to
members of the Companys Board of Directors when the board resolves to act under the plans.
When granted, phantom stock provides the employee with the right to receive payment upon
exercise of the phantom stock. The terms of each phantom stock grant are evidenced in a phantom
stock agreement which determines the:
|
|
|
Number of shares of the phantom stock awarded; and |
|
|
|
Provisions governing vesting of the phantom stock awarded. |
The plans also provide that phantom stock awarded at different times need not contain similar
provisions.
Under the plans, the payment that the Company will make upon the vesting of phantom stock is
intended to be made in one lump sum within 60 days of the date of vesting unless a later date is
set forth in an individual award agreement. The Compensation Committee, or the Companys Board of
Directors, if it resolves to do so, may delay payment for five years. If the payment is delayed, it
will include interest accrued at the prime rate as of the date of vesting until the payment date.
In general, the Company expects that the Compensation Committee, or the Board of Directors if it
resolves to do so, will examine the Companys available cash and anticipated cash needs in
determining whether to delay payment. Under limited circumstances, payments from the exercise of
phantom stock may be rolled over into any non-qualified deferred compensation plan.
No voting or other rights associated with ownership of the Companys common stock are given to
phantom stockholders. References to shares of common stock under the plan are for accounting and
valuation purposes only. As a result, an individual who receives phantom stock does not have any of
the rights of a stockholder as a result of a grant of phantom stock.
117
All three phantom stock plans permit the Compensation Committee to defer payments if it
determines that payment is administratively impracticable or would jeopardize the solvency of the
Company (provided that such impracticability or insolvency was unforeseeable as of the grant date),
or if the payment would violate a loan covenant or similar contract, or not be deductible under
Section 162(m) of the Internal Revenue Code or if the payment would violate U.S. securities laws or
other applicable law.
All three phantom stock plans contain a provision to prevent an award to a person who is or
would become (if the award were made) a disqualified person for as long as the Company maintains
the ESOP. For this purpose, disqualified person means any individual who directly or beneficially (such as under the Alion ESOP) holds at
least 10% of Alion equity, including outstanding common stock and synthetic equity, such as SARs
or phantom stock. Any award that violates this provision is void.
Subject to adjustments for merger or other significant corporate transactions or special
circumstances, the shares of common stock that may be used for awards under all three phantom stock
plans of the Company shall not exceed 2,000,000 shares (whether or not such awards have expired,
terminated unexercised, or become unexercisable, or have been forfeited or otherwise terminated,
surrendered or cancelled).
The number of shares of the Companys common stock used for reference purposes with respect to
grants of phantom stock under the three phantom stock plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Shares |
|
|
|
Shares Issued by |
|
|
Cumulative Shares Issued |
|
|
Authorized under all |
|
Date of Issuance |
|
Plan |
|
|
by Plan |
|
|
Plans |
|
February 2003 |
|
|
171,000 |
(1) |
|
|
171,000 |
(1) |
|
|
173,000 |
(1) |
November 2003 |
|
|
52,685 |
(1) |
|
|
223,685 |
(1) |
|
|
225,000 |
(1) |
February 2005 |
|
|
316,629 |
(2) |
|
|
316,629 |
(2) |
|
|
2,000,000 |
(2) |
August 2005 |
|
|
2,960 |
(2) |
|
|
319,589 |
(2) |
|
|
2,000,000 |
(2) |
November 2005 |
|
|
122,318 |
(2) |
|
|
441,907 |
(2) |
|
|
2,000,000 |
(2) |
November 2006 |
|
|
65,456 |
(2) |
|
|
507,363 |
(2) |
|
|
2,000,000 |
(2) |
November 2007 |
|
|
42,447 |
(2) |
|
|
549,810 |
|
|
|
2,000,000 |
(2) |
January 2008 |
|
|
2,497 |
(2) |
|
|
552,307 |
|
|
|
2,000,000 |
(2) |
May 2008 |
|
|
1,120 |
(2) |
|
|
553,427 |
|
|
|
2,000,000 |
(2) |
November 2005 |
|
|
7,808 |
(3) |
|
|
7,808 |
(3) |
|
|
2,000,000 |
(3) |
November 2006 |
|
|
5,978 |
(3) |
|
|
13,786 |
(3) |
|
|
2,000,000 |
(3) |
November 2007 |
|
|
6,993 |
(3) |
|
|
20,779 |
|
|
|
2,000,000 |
(3) |
|
|
|
(1) |
|
Number of shares authorized under the Initial Phantom Stock Plan as periodically amended and
approved by the Compensation Committee of Alions Board of Directors. |
|
(2) |
|
Number of shares authorized under the Second Phantom Stock Plan as periodically amended and
approved by the Compensation Committee of Alions Board of Directors. |
|
(3) |
|
Number of shares authorized under the Director Phantom Stock Plan as periodically amended and
approved by the Compensation Committee of Alions Board of Directors. |
118
The following table sets forth information regarding phantom stock granted to the Named Executive
Officers pursuant to the Initial and Second phantom stock plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Name |
|
shares |
|
|
Grant Date |
|
Grant Type |
|
Full vesting period |
|
|
Period(s) until payout |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bahman Atefi |
|
|
65,500 |
(1) |
|
February 2003 |
|
Retention |
|
February 2008 (2) |
|
February 2006, 2007, 2008 (3) |
|
|
|
18,695 |
(1) |
|
November 2003 |
|
Retention |
|
November 2008 (2) |
|
November 2006, 2007, 2008 (3) |
|
|
|
43,951 |
|
|
February 2005 |
|
Retention |
|
February 2008 (4) |
|
February 2008 (4) |
|
|
|
67,888 |
(5) |
|
February 2005 |
|
Performance |
|
February 2008 (4) |
|
February 2008 (4) |
|
|
|
22,290 |
|
|
November 2005 |
|
Retention |
|
November 2008 (4) |
|
November 2008 (4) (6) |
|
|
|
27,863 |
|
|
November 2005 |
|
Retention |
|
November 2010 (4) |
|
November 2010 (4) (6) |
|
|
|
24,378 |
|
|
November 2006 |
|
Retention |
|
November 2009 (4) |
|
November 2009 (4) (6) |
|
|
|
17,478 |
|
|
November 2007 |
|
Retention |
|
November 2010 (4) |
|
November 2010 (4) (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Alber |
|
|
1,248 |
|
|
January 2008 |
|
Retention |
|
January 2011(4) |
|
January 2011(4) (6) |
|
|
|
1,219 |
|
|
May 2008 |
|
Retention |
|
May 2011(4) |
|
May 2011(4) (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stacy Mendler |
|
|
28,500 |
(1) |
|
February 2003 |
|
Retention |
|
February 2008 (2) |
|
February 2006, 2007, 2008 (3) |
|
|
|
6,798 |
(1) |
|
November 2003 |
|
Retention |
|
November 2008 (2) |
|
November 2006, 2007, 2008 (3) |
|
|
|
24,151 |
|
|
February 2005 |
|
Retention |
|
February 2008 (4) |
|
February 2008 (4) |
|
|
|
37,305 |
(5) |
|
February 2005 |
|
Performance |
|
February 2008 (4) |
|
February 2008 (4) |
|
|
|
11,145 |
|
|
November 2005 |
|
Retention |
|
November 2008 (4) |
|
November 2008 (4) (6) |
|
|
|
13,931 |
|
|
November 2005 |
|
Retention |
|
November 2010 (4) |
|
November 2010 (4) (6) |
|
|
|
10,726 |
|
|
November 2006 |
|
Retention |
|
November 2009 (4) |
|
November 2009 (4) (6) |
|
|
|
4,994 |
|
|
November 2007 |
|
Retention |
|
November 2010 (4) |
|
November 2010 (4) (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Goff |
|
|
3,399 |
(1) |
|
November 2003 |
|
Retention |
|
November 2008 (2) |
|
November 2008 (3) |
|
|
|
25,821 |
(5) |
|
February 2005 |
|
Performance |
|
February 2008 (4) |
|
November 2010 (4) |
|
|
|
8,080 |
|
|
November 2005 |
|
Retention |
|
November 2008 (4) |
|
November 2008 (4) |
|
|
|
3,657 |
|
|
November 2006 |
|
Retention |
|
November 2009 (4) |
|
November 2009 (4) |
|
|
|
4,994 |
|
|
November 2007 |
|
Retention |
|
November 2010 (4) |
|
November 2010 (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Fry |
|
|
2,507 |
|
|
February 2005 |
|
Retention |
|
February 2009 (4) |
|
February 2010 (4) (6) |
|
|
|
4,179 |
|
|
November 2005 |
|
Retention |
|
November 2008 (4) |
|
November 2008 (4) (6) |
|
|
|
4,876 |
|
|
November 2006 |
|
Retention |
|
November 2009 (4) |
|
November 2009 (4) (6) |
|
|
|
4,994 |
|
|
November 2007 |
|
Retention |
|
November 2010 (4) |
|
November 2010 (4) (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Fontana |
|
|
10,328 |
|
|
February 2005 |
|
Retention |
|
February 2008 (4) |
|
February 2010 (4) (6) |
|
|
|
5,573 |
|
|
November 2005 |
|
Retention |
|
November 2008 (4) |
|
November 2008 (4) (6) |
|
|
|
3,657 |
|
|
November 2006 |
|
Retention |
|
November 2009 (4) |
|
November 2009 (4) (6) |
|
|
|
2,497 |
|
|
November 2007 |
|
Retention |
|
November 2010 (4) |
|
November 2010 (4) (6) |
|
|
|
(1) |
|
The initial set of awards made in February 2003 was made solely to Alions executive
management team. The awards made in November 2003 were made to executives and Alion senior
management. |
|
(2) |
|
Pursuant to the Initial Phantom Stock Plan, recipients became fully vested on the fifth year
from the grant date, approximately February 2008 and November 2008. |
|
(3) |
|
Pursuant to the Initial Phantom Stock Plan, recipients were to be paid commencing on the
fifth year from the date of grant. In November 2005, the Initial Phantom Stock Plan was
amended to permit employees to make a one-time election to receive payment for phantom shares
as they vested each year or when fully vested. Dr. Atefi and Ms. Mendler made this election;
Mr. Goff did not. |
|
(4) |
|
Pursuant to the Second Phantom Stock Plan, recipients could be awarded performance-based or
retention-based phantom stock. Performance-based phantom stock fully vested three years from
the date of grant; retention-based phantom stock fully vested as specified in individual
agreements. Recipients of performance-based and retention-based phantom stock were paid as
specified in individual agreements for vested shares not forfeited. |
|
(5) |
|
Pursuant to the Second Phantom Stock Plan, performance awards were subject to change at the
vesting date. February 2005 performance-based grants were fixed based on the September 30,
2008 share price. |
|
(6) |
|
In December 2008, Dr. Atefi, Ms. Mendler, Mr. Fry and Mr. Fontana forfeited their right to
receive payment for certain vested, unpaid phantom stock awards. Along with Mr. Alber, they
also forfeited all phantom stock awards that had not yet vested. |
119
Stock Appreciation Rights (SAR) Plans
2004 SAR Plan
On January 13, 2005, the Companys Board of Directors adopted a second SAR plan, the Alion
Science and Technology Corporation 2004 Stock Appreciation Rights Plan (the 2004 SAR Plan), to
comply with the deferred compensation provisions of the American Jobs Creation Act of 2004. The
2004 SAR Plan is administered by the Compensation Committee or its delegate (the administrative
committee). The 2004 SAR Plan has a 10-year term and permits grants to Alion directors, officers,
employees and consultants. Under the 2004 SAR Plan, the chief executive officer has the authority
to award SARs, as he deems appropriate; however, awards to executive officers are subject to the
approval of the administrative committee of the 2004 SAR Plan. Outstanding SAR awards cannot exceed
the equivalent of 12 percent of the Companys outstanding shares of common stock on a fully diluted
basis (assuming the exercise of any outstanding options, warrants and rights including, without
limitation, SARs, and assuming the conversion into stock of any outstanding securities convertible
into stock), which amount may be adjusted in the event of a merger or other significant corporate
transaction or in other special circumstances. As per the 2002 SAR Plan, awards may not be made to
a disqualified person.
Vesting. Awards to employees vest ratably over four years and awards to directors vest ratably
over each directors term of service. The 2004 SAR Plan contains a provision for accelerated
vesting in the event of death, disability or a change in control of the Company or in other special
circumstances.
Payments. SARs are normally paid on the first anniversary of the date the award becomes fully
vested, or earlier upon the SAR holders death, disability or termination of service, or a change
in control. Under the 2004 SAR Plan, a SAR holder may elect to defer the proceeds of the SAR into
the Alion Science and Technology Corporation Executive Deferred Compensation Plan for a 5-year
period, if eligible for such plan, by filing a deferral election with the Company at least one year
in advance of the payment event. The 2004 SAR Plan permits the Compensation Committee to defer
payments if it determines payment is administratively impracticable or would jeopardize the
solvency of the Company (provided that such impracticability or insolvency was unforeseeable as of
the grant date); if the payment would violate a loan covenant or similar contract, or would not be
deductible under Section 162(m) of the Internal Revenue Code; or if the payment would violate U.S.
securities or other applicable laws.
A grantee under the 2004 SAR Plan has the right to receive payment for vested SARs equal to
the difference between the appraised value of a share of Alion common stock as of the grant date
and the appraised value of a share of Alion common stock as of the exercise date per the most
recent valuation of the common stock held by the ESOP Trust. For SARs granted under the 2004 SAR
Plan before November 9, 2005 and outstanding when a change in control of the Company occurs,
payment is based on the number of SARs multiplied by the share price at the date of the change in
control (or earlier valuation, if higher).
Amendment. In November 2005, the Board of Directors amended the 2004 SAR Plan to permit
employees to make a one-time election to receive payment for SARs as they vest each year or when
fully vested and to eliminate the timely exercise requirement for an employee to receive payment
for vested SARs. Subject to certain restrictions, our Board of Directors may amend or terminate
either SAR plan at any time.
As of September 30, 2009, the Company had granted, under the 2004 SAR Plan, 1,050,400 SARs of
which approximately 791,779 SARs remain outstanding.
120
Grants of Plan-Based Awards
There were no grants of plan-based awards to named executive officers during fiscal year 2009.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning SAR awards held by the named executive
officers during fiscal year 2009. There are no outstanding Phantom Stock awards to named executive
officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAR Awards |
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
securities |
|
|
securities |
|
|
|
|
|
|
|
|
|
underlying |
|
|
underlying |
|
|
|
|
|
|
|
|
|
unexercised |
|
|
unexercised |
|
|
SAR |
|
|
|
|
|
|
SARs (#) |
|
|
SARs (#) |
|
|
exercise |
|
|
SAR |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
price ($) |
|
|
expiration date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Fry (1) |
|
|
1,000 |
|
|
|
3,000 |
|
|
$ |
19.94 |
|
|
|
12/01/10 |
|
Michael Alber (2) |
|
|
1,250 |
|
|
|
3,750 |
|
|
$ |
40.05 |
|
|
|
12/13/13 |
|
|
|
|
(1) |
|
In February 2005, Mr. Fry was awarded 4,000 SARs at the exercise price of $19.94 per share,
all of which were outstanding as of September 30, 2009. |
|
(2) |
|
In December 2007, Mr. Alber was awarded 5,000 SARs at the exercise price of $40.05 per
share, all of which were outstanding as of September 30, 2009. |
SAR Exercises
|
|
The table below lists SARs exercised by the named executive officers during fiscal 2009. There
were no SAR or Phantom Stock grants to named executive officers in fiscal 2009. |
|
|
|
|
|
|
|
|
|
|
|
SAR Awards |
|
|
|
Number of |
|
|
|
|
|
|
shares |
|
|
Value realized |
|
|
|
acquired on |
|
|
on |
|
|
|
exercise |
|
|
exercise |
|
Name |
|
(#) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
Rob Goff (1) |
|
|
500 |
|
|
$ |
11,820 |
|
James Fontana (2) |
|
|
2,000 |
|
|
$ |
47,280 |
|
|
|
|
(1) |
|
Mr. Goff exercised 500 SARs at $38.35 with an exercise price of $14.71 per share. |
|
(2) |
|
Mr. Fontana exercised 2,000 SARs at $38.35 with an exercise share price of $14.71 per share. |
Deferred Compensation Plans
We maintain two Deferred Compensation Plans. One plan, the Executive Deferred Compensation
Plan, covers members of management and other highly compensated officers of the Company. The other
plan, the Directors Deferred Compensation Plan, covers members of the Companys Board of Directors.
Each plan permits an individual to make a qualifying election to forego current payment and
defer a portion of his or her compensation. Officers may defer up to 50% of their annual base
salary and up to 100% of their bonus, SAR and/or phantom stock payments. Directors may defer up to
100% of their fees and up to 100% of their stock-based compensation payments.
Each Plan permits an individual to defer payment to a specified future date and to specify
whether deferrals are to be paid in a lump sum or installments. Under certain limited
circumstances, deferrals may be paid out early or further deferred. In general, individuals may
make only one qualifying deferral election per year.
121
James Fontana and Scott Fry are the only named executive officers who elected to defer
compensation to a non-tax-qualified defined contribution plan during fiscal year 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
Executive |
|
|
Registrant |
|
|
Earnings |
|
|
Aggregate |
|
|
Aggregate |
|
|
|
Contributions |
|
|
Contributions |
|
|
in |
|
|
Withdrawals/ |
|
|
Balance at |
|
|
|
in Last FY |
|
|
in Last FY |
|
|
Last FY |
|
|
Distributions |
|
|
Last FYE |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
James Fontana |
|
|
|
|
|
|
|
|
|
$ |
(15,508 |
) |
|
|
|
|
|
$ |
210,167 |
|
Scott Fry |
|
|
|
|
|
|
|
|
|
$ |
(52,820 |
) |
|
|
|
|
|
$ |
321,215 |
|
Other Potential Post-Termination Payments
We have entered into agreements and arrangements with our named executive officers that
provide certain payments and benefits in the event their employment is terminated without cause or
the Company suffers a change in control.
Employment Agreements. We have employment agreements with each of our named executive
officers, which provide that if the officer is involuntarily terminated without cause or terminated
following a change in control, he or she will be entitled to receive lump sum cash payment as set
forth in his or her individual agreement. Named executive officers are entitled to receive
Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits for 18 months following
termination plus up to $25,000 in outplacement services up through December 31 of the second
calendar year following an officers separation from service.
Long Term Incentive and Deferred Compensation Plans. Under the terms of our long term
incentive and deferred compensation plans, all unvested awards held by the named executive
officers, are subject to accelerated vesting following termination.
The following table sets forth our estimates regarding the potential value of any cash
payments and benefits and accelerated vesting of stock awards to be received by named executive
officers under their employment agreements and plans, assuming a change in control of the Company
occurred on the last business day of fiscal 2009.
Termination by the Company without Cause;
Termination by Executive based upon Constructive Termination;
Termination in the event of Death or Disability;
Termination upon Expiration of the Employment Agreement due to Company Election Not to Extend;
Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Early Vesting of |
|
|
|
|
|
|
|
Name |
|
Amount |
|
|
LTIP Awards |
|
|
Other |
|
|
Total |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
Bahman Atefi |
|
$ |
2,700,000 |
|
|
$ |
2,737,053 |
|
|
$ |
25,000 |
|
|
$ |
5,462,053 |
|
Stacy Mendler |
|
$ |
975,000 |
|
|
$ |
1,205,341 |
|
|
$ |
25,000 |
|
|
$ |
2,205,341 |
|
Michael Alber |
|
$ |
525,000 |
|
|
$ |
94,646 |
|
|
$ |
25,000 |
|
|
$ |
644,646 |
|
Scott Fry |
|
$ |
600,000 |
|
|
$ |
210,662 |
|
|
$ |
25,000 |
|
|
$ |
835,662 |
|
James Fontana |
|
$ |
360,000 |
|
|
$ |
86,180 |
|
|
$ |
25,000 |
|
|
$ |
471,180 |
|
|
|
|
(a) |
|
Represents payment of a percentage of the executives annual salary and a percentage of
the bonus the executive would have earned as of such date based upon the actual bonus paid
for fiscal 2009 performance. |
|
|
|
|
|
|
|
|
|
Name |
|
Salary |
|
|
Bonus |
|
Bahman Atefi |
|
|
200 |
% |
|
|
200 |
% |
Stacy Mendler |
|
|
150 |
% |
|
|
150 |
% |
Michael Alber |
|
|
100 |
% |
|
|
100 |
% |
Scott Fry |
|
|
100 |
% |
|
|
100 |
% |
James Fontana |
|
|
100 |
% |
|
|
100 |
% |
122
|
|
|
(b) |
|
Represents the value of the vested LTIP awards not yet payable and unvested LTIP awards
held by the executive as of September 30, 2009. This amount does not include any amounts
for unvested Category E and F LTIP awards as no |
|
|
|
Named Executive Officer has as yet completed 18 months of post-award service. Amounts in
this column would be paid to the executive if termination were to occur within one year
following execution of a definitive change in control agreement where such transaction is
subsequently consummated. |
|
(c) |
|
Represents outplacement services in an amount not to exceed $25,000 with a firm
selected by the Company and at the reasonable expense of the Company; provided, however,
that under no circumstances shall such outplacement services be provided beyond the
December 31 of the second calendar year following the calendar year in which the
executives separation from service occurred. |
|
|
|
In addition, the Company is obligated to pay the executive, if he or she is eligible for and
elects to receive, medical and/or dental benefits pursuant to the provisions of COBRA for
himself and/or any qualifying beneficiaries. The Company shall pay on the executives
behalf the amount of the applicable COBRA that exceeds the amount of premium payable by the
executive for the same level of coverage immediately prior to the effective date of
termination. |
|
(d) |
|
Represents the maximum amount that the executive can receive, including payment for
accelerated LTIP award vesting in the event of a termination occurring within one year
following the execution of a definitive agreement for a change in control, which
transaction is subsequently consummated. |
Director Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees earned |
|
|
|
|
|
|
|
|
|
or paid in |
|
|
All other |
|
|
|
|
|
|
cash |
|
|
compensation |
|
|
|
|
Name |
|
($) (1) |
|
|
($) (2) |
|
|
Total |
|
Edward C. Pete Aldridge, Jr. |
|
$ |
51,500 |
|
|
$ |
3,963 |
|
|
$ |
55,463 |
|
Leslie Armitage |
|
$ |
45,000 |
|
|
|
|
|
|
$ |
45,000 |
|
Lewis Collens |
|
$ |
42,500 |
|
|
$ |
2,471 |
|
|
$ |
44,971 |
|
Admiral (Ret.) Harold W. Gehman, Jr. |
|
$ |
53,000 |
|
|
$ |
804 |
|
|
$ |
53,804 |
|
General (Ret.) George A. Joulwan |
|
$ |
50,000 |
|
|
|
|
|
|
$ |
50,000 |
|
General (Ret.) Michael E. Ryan |
|
$ |
52,000 |
|
|
$ |
3,108 |
|
|
$ |
55,108 |
|
David Vitale |
|
$ |
11,000 |
|
|
$ |
1,022 |
|
|
$ |
12,022 |
|
|
|
|
(1) |
|
This column represents the total fees including the annual retainer fee to non-employee
directors. The Companys employee directors do not receive any additional compensation for
their services as members of the Board of Directors. For the year ended September 30,
2009, the Companys non-employee directors received an annual retainer of $30,000, payable
in quarterly installments, for their services as members of the Board of Directors. In
addition, each director receives a fee of $2,500 for in-person attendance at a Board of
Directors meeting, and $1,000 for telephone attendance at a Board of Directors meeting. The
chairman of the Audit and Finance Committee receives $7,500 per year for each year he or
she serves in such capacity. The other board committee chairmen receive $5,000 per year
for each year he or she serves in such capacity. Board committee members receive $1,000 per
committee meeting if the committee meeting occurs on a day other than the day of a full
Alion Board of Directors meeting. Alion reimburses directors for reasonable travel expenses
in connection with attendance at Board of Directors and board committee meetings. |
|
(2) |
|
The amounts included in this column represent the amount paid by the Company for travel expenses to attend Board of Directors meetings. |
Compensation Committee Interlocks and Insider Participation
The members of the
Compensation Committee are Harold Gehman (Chairman), Leslie Armitage, Lewis Collens, George
Joulwan, and Pete Aldridge. None of the members, during the fiscal year, was an officer or employee
of our Company, formerly an officer of the Company or involved in a related party transaction. Dr. Atefi
is a member of the board of trustees of IIT where Mr. Collens was the President until July 2007. Dr. Atefi
is the President and Chief Executive Officer of the Company.
123
Compensation Committee Report
The Compensation, Committee of the Company has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on
such review and discussions, the Compensation Committee recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in this Annual Report.
THE COMPENSATION COMMITTEE
Harold Gehman, Jr., Chairman
Pete Aldridge, Jr., Committee Member
Leslie Armitage, Committee Member
Lewis Collens, Committee Member
George Joulwan, Committee Member
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders
Matters |
The following table sets forth certain information as of September 30, 2009, regarding the
beneficial ownership of the Companys common stock by certain beneficial owners and all directors
and Named Executive Officers, both individually and as a group. The Company knows of no other
person not disclosed herein who beneficially owns more than 5% of the Companys common stock. The
address of the beneficial owner (as required) and the dates applicable to the beneficial ownership
indicated are set forth in the footnotes below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature |
|
|
|
|
|
|
|
|
|
|
of Beneficial |
|
|
Percentage |
|
Name of Beneficial Owner |
|
Title of Class |
|
|
Ownership |
|
|
of Class (1) |
|
Five Percent Security Holders: |
|
|
|
|
|
|
|
|
|
|
|
|
Illinois Institute of Technology (2) |
|
Common stock |
|
|
1,630,437 |
(3) |
|
|
23.1 |
|
Directors (4) and Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
Bahman Atefi |
|
Common stock |
|
|
56,398 |
(5) |
|
|
1.0 |
|
Stacy Mendler |
|
Common stock |
|
|
74,278 |
(5) |
|
|
1.4 |
|
Michael Alber |
|
Common stock |
|
|
67 |
(5) |
|
|
* |
|
Scott Fry |
|
Common stock |
|
|
4,753 |
(5) |
|
|
* |
|
James Fontana |
|
Common stock |
|
|
5,132 |
(5) |
|
|
* |
|
All Directors and Executive Officers as a Group
(5 Persons ) |
|
Common stock |
|
|
140,628 |
(5) |
|
|
2.6 |
|
|
|
|
* |
|
less than 1%. |
|
(1) |
|
Percentages are based on 5,424,274, shares outstanding on September 30, 2009, including
common stock shares subject to warrants. Warrant related shares are deemed to be outstanding
in computing IITs percentage; they are not included when computing the ownership percentage
of any other person in this table. The table is based upon information that the Company
possesses and believes to be accurate. Unless indicated in the footnotes to this table and
subject to community property laws where applicable, the Company believes each of the
shareholders named in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned. |
124
|
|
|
(2) |
|
Illinois Institute of Technologys address is 3300 South Federal Street, Chicago, IL 60616. |
|
(3) |
|
The shares deemed to be beneficially held by IIT represents currently exercisable warrants
for 1,630,437 shares of common stock. |
|
(4) |
|
The Company does not believe any director other than Dr. Atefi beneficially owns any Alion
common stock. |
|
(5) |
|
Includes beneficial ownership of Alion common stock held by the Alion KSOP. |
Changes in Control
The Company does not know of any arrangements, the operation of which may at a subsequent date
result in a change in control of the Company.
|
|
|
Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
Since the beginning of the Companys last fiscal year, including any currently proposed
transactions, no directors, executive officers or immediate family members of such individuals were
engaged in transactions with us or any subsidiary involving more than $120,000 other than the
arrangements described in the section Executive Compensation.
In accordance with our Audit and Finance Committee Charter and procedures established by the
committee, our Audit and Finance Committee is responsible for reviewing and approving the terms and
conditions of all related party transactions. Any material financial transaction with a director or
executive officer of our company or a member of the immediate family of a director or officer would
need to be approved by our Audit and Finance Committee prior to our company entering into such
transaction.
Independent Directors
At least a majority of the Companys directors meet the test of independence as defined by
the listing standards of NYSE Amex. The NYSE Amex standards provide that to qualify as an
independent director, in addition to satisfying certain bright-line criteria, the board of
directors must affirmatively determine that a director has no material relationship with the
Company (either directly or as a partner, shareholder or officer of an organization that has a
relationship with the Company). Our board of directors has determined that Pete Aldridge, Jr.,
Leslie Armitage, Lewis Collens, Harold Gehman, Jr., David Vitale, George Joulwan, and Michael Ryan,
satisfy the bright-line criteria and that none has a relationship with the Company that would
interfere with such persons ability to exercise independent judgment as a member of the board.
Therefore, we believe that each of these directors is independent under the NYSE Amex rules.
The Audit and Finance Committee currently consists of Leslie Armitage, Harold Gehman, Jr., and
Michael Ryan. All members of the Audit and Finance Committee are independent in accordance with
the listing standards of the NYSE Amex.
The Compensation Committee currently consists of Harold Gehman, Jr., Pete Aldridge, Jr.,
Leslie Armitage, Lewis Collens and George Joulwan. All members of the Compensation Committee are
independent in accordance with the listing standards of the NYSE Amex.
The Governance and Compliance Committee currently consists of Michael Ryan, Bahman Atefi,
George Joulwan and Harold Gehman, Jr. All members of the Governance and Compliance Committee,
excluding Bahman Atefi, are independent in accordance with the listing standards of the NYSE Amex.
125
|
|
|
Item 14. |
|
Principal Accountant Fees and Services |
Consistent with its charter, the Audit and Finance Committee is responsible for engaging the
Companys independent public accountants. Since December 2003, all audit and permitted non-audit
services require advance approval by the Audit and Finance Committee. The full Committee approves
proposed services and estimated fees for these services. The Audit and Finance Committee approved
in advance all services performed by our auditors in fiscal 2009 and 2008.
The following table summarizes the fees of Deloitte & Touche LLP, the Companys independent
registered public accounting firm billed to the Company for each of the last two fiscal years for
audit services and billed to the Company in each of the last two fiscal years for other services:
|
|
|
|
|
|
|
|
|
Fee Category |
|
2009 |
|
|
2008 |
|
Audit Fees(1) |
|
$ |
1,025,000 |
|
|
$ |
1,052,885 |
|
Audit-Related Fees(2) |
|
|
158,515 |
|
|
|
142,115 |
|
Tax Fees |
|
|
196,088 |
|
|
|
154,485 |
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
1,379,603 |
|
|
$ |
1,349,485 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees include fees for auditing Alions financial statements, reviewing interim
financial statements included in quarterly reports on Form 10-Q, and providing other
professional services in connection with statutory and regulatory filings or engagements. |
|
(2) |
|
Audit-related fees are fees for assurance and similar services for employee benefit plan
audits and services provided in conjunction with acquisitions and accounting consultations.
These services were approved by the Audit and Finance Committee. |
|
|
|
Item 15. |
|
Exhibits and Financial Statement Schedules |
Consolidated Financial Statements of Alion Science and Technology Corporation
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
55 |
|
|
|
|
|
|
Consolidated Financial Statements: |
|
|
|
|
Consolidated Balance Sheets as of September 30, 2009 and 2008 (restated) |
|
|
56 |
|
Consolidated Statements of Operations for the years ended September 30, 2009, 2008 and 2007 |
|
|
57 |
|
Consolidated Statements of Redeemable Common Stock and Accumulated Deficit for the years
ended September 30, 2009, 2008, and 2007 |
|
|
58 |
|
Consolidated Statements of Cash Flows for the years ended September 30, 2009, 2008, and 2007 |
|
|
59 |
|
Notes to Consolidated Financial Statements |
|
|
60 |
|
Consolidated Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
Balance |
|
Allowance for Doubtful |
|
Beginning |
|
|
Costs and |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
at End of |
|
Accounts Receivable |
|
of Year |
|
|
Expenses |
|
|
Revenue |
|
|
Deductions (1) |
|
|
Acquisitions |
|
|
Year |
|
Fiscal year ended 2009 |
|
$ |
3,962 |
|
|
$ |
1,014 |
|
|
$ |
|
|
|
$ |
(557 |
) |
|
$ |
|
|
|
$ |
4,419 |
|
Fiscal year ended 2008 |
|
$ |
5,272 |
|
|
$ |
(578 |
) |
|
$ |
|
|
|
$ |
(732 |
) |
|
$ |
|
|
|
$ |
3,962 |
|
Fiscal year ended 2007 |
|
$ |
3,961 |
|
|
$ |
1,812 |
|
|
$ |
364 |
|
|
$ |
(865 |
) |
|
$ |
|
|
|
$ |
5,272 |
|
|
|
|
(1) |
|
Accounts receivable written off against the allowance for doubtful accounts. |
126
(b) Exhibits
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
3.2 |
|
|
Amended and Restated By-laws of Alion Science and Technology Corporation. (24) |
|
3.3 |
|
|
Third Amended and Restated Certificate of Incorporation of Alion Science and Technology Corporation. (15) |
|
4.1 |
|
|
Indenture dated as of February 8, 2007, among Alion Science and Technology Corporation,
certain subsidiary guarantors and Wilmington Trust Company, as trustee. (27) |
|
4.2 |
|
|
Form of 10.25% Senior Notes due 2015. (27) |
|
4.3 |
|
|
Amended and Restated Alion Science and Technology Corporation Employee Ownership, Savings and
Investment Plan. (28) |
|
4.4 |
|
|
First Amendment to Amended and Restated Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Plan. (30) |
|
4.5 |
|
|
Second Amendment to Amended and Restated Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Plan. (39) |
|
10.1 |
|
|
Seller Note Securities Purchase Agreement by and between IIT Research Institute and Alion
Science and Technology Corporation (Seller Note Agreement). (2) |
|
10.2 |
|
|
Seller Warrant Agreement by and among Alion Science and Technology Corporation, IIT Research
Institute and Alion Science and Technology Employee Ownership, Savings and Investment Trust
(Seller Warrant Agreement). (3) |
|
10.3 |
|
|
Rights Agreement by and among Alion Science and Technology Corporation, IIT Research
Institute and Alion Science and Technology Employee Ownership, Savings and Investment Trust.
(2) |
|
10.4 |
|
|
Term B Senior Credit Agreement (the Term B Senior Credit Agreement) that includes a
revolving credit facility and Term B note, by and among Credit Suisse First Boston as
arranger, various lenders, and Alion Science and Technology Corporation. (8) |
|
10.5 |
|
|
First Amendment to the Seller Warrant Agreement. (8) |
|
10.6 |
|
|
Second Amendment to the Seller Warrant Agreement. (9) |
|
10.7 |
|
|
Commitment letter agreement by and between Alion Science and Technology Corporation and
Credit Suisse First Boston. (10) |
|
10.8 |
|
|
Third Amendment to the Seller Warrant Agreement. (11) |
|
10.9 |
|
|
Stock Purchase Agreement by and among Alion Science and Technology Corporation, John J.
McMullen Associates, Inc., Marshall and Ilsley Trust Company, N.A. as Trustee to the John J.
McMullen, Inc. Employee Stock Ownership Trust and P. Thomas Diamant, Anthony Serro, and David
Hanafourde. (12) |
|
10.10 |
|
|
Incremental Term Loan Assumption Agreement and Amendment No. 1 under the Term B Senior
Credit Agreement. (13) |
|
10.11 |
|
|
Employment Agreement between Alion Science and Technology Corporation and Anthony Serro. (14)* |
|
10.12 |
|
|
Employment Agreement between Alion Science and Technology Corporation and P. Thomas Diamant. (14)* |
|
10.13 |
|
|
Alion Science and Technology Corporation Board of Directors Phantom Stock Plan. (16)* |
|
10.14 |
|
|
Amended and Restated Alion Science and Technology Corporation Phantom Stock Plan. (16)* |
|
10.15 |
|
|
Amended and Restated Alion Science and Technology Corporation Performance Shares and
Retention Phantom Stock Plan. (16)* |
|
10.16 |
|
|
Amended and Restated Alion Science and Technology Corporation 2002 Stock Appreciation Rights
Plan. (16)* |
|
10.17 |
|
|
Amended and Restated Alion Science and Technology Corporation 2004 Stock Appreciation Rights
Plan. (16)* |
|
10.18 |
|
|
Amended and Restated Alion Science and Technology Corporation Executive Deferred
Compensation Plan. (16)* |
|
10.19 |
|
|
Amended and Restated Alion Science and Technology Corporation Director Deferred Compensation
Plan. (16)* |
|
10.20 |
|
|
Commitment letter by and between Alion Science and Technology Corporation, Credit Suisse and
Credit Suisse Securities (USA) LLC. (18) |
|
10.21 |
|
|
Incremental Term Loan Assumption Agreement and Amendment No. 2 under the Term B Senior
Credit Agreement. (19) |
|
10.22 |
|
|
Fourth Amendment to the Seller Warrant Agreement. (20) |
|
10.23 |
|
|
Mezzanine Warrant Redemption Agreement by and between Alion Science and Technology
Corporation and Illinois Institute of Technology. (20) |
|
10.24 |
|
|
Alion Mezzanine Warrant Redemption Agreement by and among Alion Science and Technology
Corporation, Alion Science and Technology Employee Ownership, Savings and Investment Trust and
Bahman Atefi. (20) |
|
10.25 |
|
|
Asset Purchase Agreement dated as of June 4, 2006, by and between Anteon Corporation, Alion
Technical Services Corporation and Alion Science and Technology Corporation. (21) |
127
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
10.26 |
|
|
Incremental Term Loan Assumption Agreement and Amendment No. 3 under the Term B Senior
Credit Agreement. (21) |
|
10.27 |
|
|
Bridge Loan Agreement dated as of June 30, 2006, by and among Alion Science and Technology
Corporation, HFA, METI, CATI, JJMA, BMH, WCI, MA&D, CS, and the lenders party thereto (Bridge
Loan Agreement). (21) |
|
10.28 |
|
|
Closing Letter Agreement dated as of June 30, 2006, by and among Alion Science and
Technology Corporation, Alion Technical Services Corporation and Anteon Corporation. (21) |
|
10.29 |
|
|
First Amendment to Seller Note Agreement. (21) |
|
10.30 |
|
|
Commitment letter by and between Alion Science and Technology Corporation, Credit Suisse and
Credit Suisse Securities (USA) LLC. (22) |
|
10.31 |
|
|
Amendment No. 1 to Bridge Loan Agreement. (25) |
|
10.32 |
|
|
Incremental Term Loan Assumption Agreement under the Term B Senior Credit Agreement. (26) |
|
10.33 |
|
|
Purchase Agreement dated January 26, 2007 among Alion Science and Technology Corporation,
certain subsidiary guarantors and Credit Suisse Securities (USA) LLC. (27) |
|
10.34 |
|
|
Amendment No. 4 to the Term B Senior Credit Agreement. (27) |
|
10.35 |
|
|
Registration Rights Agreement dated February 8, 2007 among Alion Science and Technology
Corporation, certain subsidiary guarantors and Credit Suisse Securities (USA) LLC. (27) |
|
10.36 |
|
|
Employment Agreement between Alion Science and Technology Corporation and Dr. Bahman Atefi. (29)* |
|
10.37 |
|
|
Employment Agreement between Alion Science and Technology Corporation and Stacy Mendler. (31)* |
|
10.39 |
|
|
Employment Agreement between Alion Science and Technology Corporation and James Fontana. (38)* |
|
10.40 |
|
|
Employment Agreement between Alion Science and Technology Corporation and Rob Goff. (31)* |
|
10.41 |
|
|
Employment Agreement between Alion Science and Technology Corporation and Scott Fry. (38) * |
|
10.42 |
|
|
Employment Agreement between Alion Science and Technology Corporation and Buck Buchanan.(38)* |
|
10.43 |
|
|
Incremental Term Loan Assumption Agreement under the Term B Senior Credit Agreement. (32) |
|
10.44 |
|
|
Employment Agreement by and between Alion Science and Technology Corporation and Michael J.
Alber. * (34) |
|
10.46 |
|
|
Third Amendment to the Seller Note Securities Purchase Agreement and First Amendment to
Rights Agreement dated as of August 29, 2008, by and between Alion Science and Technology
Corporation, Illinois Institute of Technology, Alion Science and Technology Corporation
Employee Ownership, Savings and Investment Trust, Bahman Atefi and Stacy Mendler. (36) |
|
10.47 |
|
|
Junior Subordinated Second Amended and Restated Seller Note made by Alion Science and
Technology Corporation to the order of Illinois Institute of Technology dated as of August 29,
2008. (36) |
|
10.48 |
|
|
Amended and Restated Seller Warrant Agreement dated as August 29, 2008, by and between Alion
Science and Technology Corporation, Illinois Institute of Technology and Alion Science and
Technology Corporation Employee Ownership, Savings and Investment Trust. (36) |
|
10.50 |
|
|
Amendment No. 5 to the Term B Senior Credit Agreement. (37) |
|
10.51 |
|
|
Separation Agreement and General Release with Leroy R. Goff, III.* (39) |
|
10.52 |
|
|
Settlement Agreement and General Release with John M. Hughes.* (39) |
|
10.53 |
|
|
Alion Science and Technology Corporation Long-Term Incentive Plan.* (39) |
|
10.54 |
|
|
2008 Executive Bonus Agreement dated as of November 21, 2008, by and between Alion Science
and Technology Corporation and Scott Fry.* (39) |
|
10.55 |
|
|
Form of Alion Science and Technology Corporation Category A Long Term Incentive Plan Award
Agreement.* (39) |
|
10.56 |
|
|
Form of Alion Science and Technology Corporation Category B Long Term Incentive Plan Award
Agreement.* (39) |
|
10.57 |
|
|
Form of Alion Science and Technology Corporation Category C Long Term Incentive Plan Award
Agreement.* (39) |
|
10.58 |
|
|
Form of Alion Science and Technology Corporation Category D Long Term Incentive Plan Award
Agreement.* (39) |
|
10.59 |
|
|
Form of Alion Science and Technology Corporation Ongoing Long Term Incentive Plan Award
Agreement.* (39) |
|
10.60 |
|
|
Amendment No. 6 to the Term B Senior Credit Agreement. (40) |
|
10.61 |
|
|
Amendment No. 7 to the Term B Senior Credit Agreement. (41) |
|
10.62 |
|
|
Amendment No. 9 to the Term B Senior Credit Agreement. (42) |
|
10.63 |
|
|
Waiver dated as of December 14, 2009, by and among the Company, HFA, METI, CATI, JJMA, BMH,
WCI. MA&D, WCGS, CS and the lenders party thereto, related to the Term B Senior Credit
Agreement. (43) |
|
10.64 |
|
|
Note and Warrant Redemption Agreement, Fourth Amendment to Seller Note Securities Purchase
Agreement, First Amendment to the Second Amended and Restated Seller Note and Rights Agreement
Termination Agreement, dated as of December 18, 2009 between Alion Science and Technology
Corporation and Illinois Institute of Technology. (44) |
128
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
12 |
|
|
Computation of Ratios |
|
14 |
|
|
Fourth Edition of The Alion Code of Ethics, Conduct and Responsibility (33) |
|
21 |
|
|
Subsidiaries of Alion Science and Technology Corporation are wholly-owned (either directly or
indirectly) by Alion Science and Technology Corporation: |
|
(i |
) |
|
Human Factors Applications, Inc., incorporated in the Commonwealth of Pennsylvania, |
|
(ii |
) |
|
Innovative Technology Solutions Corporation, incorporated in the State of New Mexico, |
|
(iii |
) |
|
Alion-IPS Corporation, incorporated in the Commonwealth of Virginia, |
|
(iv |
) |
|
Alion-METI Corporation, incorporated in the Commonwealth of Virginia, |
|
(v |
) |
|
Alion-CATI Corporation, incorporated in the State of California, |
|
(vi |
) |
|
Alion-JJMA Corporation, incorporated in the State of New York, |
|
(vii |
) |
|
Alion Technical Services Corporation, incorporated in the Commonwealth of Virginia, |
|
(viii |
) |
|
Alion Technical Services Corporation, incorporated in the State of Delaware, |
|
(ix |
) |
|
Alion Canada (U.S.), Inc., incorporated in the State of Delaware, |
|
(x |
) |
|
Alion Science and Technology (Canada) Corporation, incorporated in the Province of Nova Scotia, |
|
(xi |
) |
|
Alion-BMH Corporation, incorporated in the Commonwealth of Virginia, |
|
(xii |
) |
|
Washington Consulting, Inc., incorporated in the Commonwealth of Virginia, |
|
(xiii |
) |
|
Alion-MA&D Corporation, incorporated in the State of Colorado, and |
|
(xiv |
) |
|
Washington Consulting Government Services, Inc., incorporated in the Commonwealth of Virginia. |
|
31.1 |
|
|
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. |
|
|
|
(1) |
|
Incorporated by reference from the Companys Pre-Effective Amendment No. 3 to the
Registration Statement on Form S-1 filed with the SEC on October 7, 2002. |
|
(2) |
|
Incorporated by reference from the Companys Post-Effective Amendment No. 3 to the
Registration Statement on Form S-1 filed with the SEC on March 24, 2003. |
|
(3) |
|
Incorporated by reference from the Companys December 2002 Form 10-Q filed with the SEC on
February 3, 2003. |
|
(4) |
|
Incorporated by reference from the Companys August 2003 Form 10-Q filed with the SEC on July
4, 2003. |
|
(5) |
|
Incorporated by reference from the Companys Registration Statement on Form S-8 filed with
the SEC on April 28, 2004. |
|
(6) |
|
Incorporated by reference from the Companys March 2004 Form 10-Q filed with the SEC on May
17, 2004. |
|
(7) |
|
Incorporated by reference from the Companys June 2004 Form 10-Q filed with the SEC on August
13, 2004. |
|
(8) |
|
Incorporated by reference from the Companys September 2004 Form 10-K filed with the SEC on
December 28, 2004. |
|
(9) |
|
Companys Post-effective Amendment No. 5 to the Registration Statement on Form S-1 filed with
the SEC on January 24, 2005. |
|
(10) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on March 9, 2005. |
|
(11) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on March 14, 2005. |
|
(12) |
|
Incorporated by reference from the Companys Form 8-K/A filed with the SEC on April 6, 2005. |
|
(13) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on April 6, 2005. |
|
(14) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on April 7, 2005. |
|
(15) |
|
Incorporated by reference from the Companys March 2005 Form 10-Q filed with the SEC on May
13, 2005. |
|
(16) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on December 2, 2005. |
|
(17) |
|
Incorporated by reference from the Companys September 2004 Form 10-K filed with the SEC on
January 31, 2006. |
|
(18) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on February 23,
2006. |
|
(19) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on March 29, 2006. |
|
(20) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on March 31, 2006. |
|
(21) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on June 7, 2006. |
|
(22) |
|
Incorporated by reference from the Companys June 2006 Form 10-Q filed with the SEC on August
14, 2006 |
|
(23) |
|
Incorporated by reference from the Companys Form 8-K/A filed with the SEC on June 1, 2006. |
|
(24) |
|
Incorporated by reference from the Companys September 2006 Form 10-K filed with the SEC on
December 1, 2006. |
|
(25) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on December 14,
2006. |
129
|
|
|
(26) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on January 10, 2007. |
|
(27) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on February 8, 2007. |
|
(28) |
|
Incorporated by reference from the Companys Form S-4 filed with the SEC on April 30, 2007. |
|
(29) |
|
Incorporated by reference from the Companys Form S-4 (8-K) filed with the SEC on June 21,
2007. |
|
(30) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on July 13, 2007. |
|
(31) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on July 20, 2007. |
|
(32) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on July 20, 2007. |
|
(33) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on November 9, 2009. |
|
(34) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on April 8, 2008. |
|
(35) |
|
Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2008 filed with the SEC on August 13, 2008. |
|
(36) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on September 4,
2008. |
|
(37) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on October 6, 2008. |
|
(38) |
|
Incorporated by reference from the Companys Form 10-K filed with the SEC on December 28,
2007. |
|
(39) |
|
Incorporated by reference from the Companys Form 10-K filed with the SEC on December 23,
2008. |
|
(40) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on July 29, 2009. |
|
(41) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on September 30,
2009. |
|
(42) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on October 13, 2009. |
|
(43) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on December 16,
2009. |
|
(44) |
|
Incorporated by reference from the Companys Form 8-K filed with the SEC on December 24, 2009 |
|
* |
|
Denotes management contract and/or compensatory plan/arrangement. |
130
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
Date: December 24, 2009 |
ALION SCIENCE AND TECHNOLOGY CORPORATION
(Registrant)
|
|
|
By: |
/s/ BAHMAN ATEFI
|
|
|
|
Bahman Atefi |
|
|
|
Chairman, Chief Executive Officer
and Director |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has
been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Bahman Atefi
Bahman Atefi
|
|
Chairman, Chief Executive Officer
and Director
|
|
December 24, 2009 |
|
|
|
|
|
/s/ Michael J. Alber
Michael J. Alber
|
|
Senior Vice President and
Chief Financial Officer
|
|
December 24, 2009 |
|
|
|
|
|
/s/ Jeffrey L. Boyers
Jeffrey L. Boyers
|
|
Corporate Vice President and
Principal Accounting Officer
|
|
December 24, 2009 |
|
|
|
|
|
/s/ Leslie L. Armitage
Leslie Armitage
|
|
Director
|
|
December 24, 2009 |
|
|
|
|
|
/s/ Lewis Collens
Lewis Collens
|
|
Director
|
|
December 24, 2009 |
|
|
|
|
|
/s/ Harold W. Gehman, Jr.
Harold Gehman
|
|
Director
|
|
December 24, 2009 |
|
|
|
|
|
|
|
Director
|
|
December 24, 2009 |
|
|
|
|
|
|
|
Director
|
|
December 24, 2009 |
George A. Joulwan |
|
|
|
|
|
|
|
|
|
/s/ Michael E. Ryan
Michael E. Ryan
|
|
Director
|
|
December 24, 2009 |
|
|
|
|
|
/s/ Edward C. Aldridge, Jr.
Edward C. (Pete) Aldridge, Jr.
|
|
Director
|
|
December 24, 2009 |
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the
Act by Registrants which Have Not Registered Securities Pursuant to Section 12 of the Act
No annual report or proxy material has been sent to security holders.
131