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SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
![(ALION LOGO)](https://capedge.com/proxy/10-Q/0000950123-11-077457/c17720c1772001.gif)
DELAWARE | 54-2061691 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation of Organization) | Identification No.) |
1750 Tysons Boulevard, Suite 1300 McLean, VA 22102 (703) 918-4480 (Address, including Zip Code and Telephone Number with Area Code, of Principal Executive Offices) |
Large Accelerated Filero | Accelerated Filero | Non-Accelerated Filerþ | Smaller Reporting Companyo | |||
(Do not check if a smaller reporting company) |
Table of Contents
Item 1. | Financial Statements (unaudited) |
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(In thousands, except share and | ||||||||
per share information) | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,529 | $ | 26,695 | ||||
Accounts receivable, net | 173,942 | 174,032 | ||||||
Receivable due from ESOP Trust | — | 1,896 | ||||||
Prepaid expenses and other current assets | 7,035 | 5,159 | ||||||
Total current assets | 182,506 | 207,782 | ||||||
Property, plant and equipment, net | 9,091 | 10,798 | ||||||
Intangible assets, net | 13,408 | 17,694 | ||||||
Goodwill | 398,921 | 398,921 | ||||||
Other assets | 12,515 | 11,107 | ||||||
Total assets | $ | 616,441 | $ | 646,302 | ||||
Current liabilities: | ||||||||
Interest payable | $ | 15,747 | $ | 17,217 | ||||
Trade accounts payable | 33,706 | 44,486 | ||||||
Accrued liabilities | 45,305 | 43,145 | ||||||
Accrued payroll and related liabilities | 37,511 | 40,221 | ||||||
Billings in excess of revenue earned | 2,568 | 2,917 | ||||||
Total current liabilities | 134,837 | 147,986 | ||||||
Senior secured notes | 287,186 | 275,831 | ||||||
Senior unsecured notes | 241,849 | 246,126 | ||||||
Accrued compensation and benefits, excluding current portion | 6,742 | 6,174 | ||||||
Non-current portion of lease obligations | 8,359 | 7,848 | ||||||
Deferred income taxes | 42,438 | 37,207 | ||||||
Other liabilities | 980 | — | ||||||
Redeemable common stock, $0.01 par value, 8,000,000 shares authorized, 5,701,198 and 5,658,234 shares issued and outstanding at June 30, 2011 and September 30, 2010 | 154,788 | 150,792 | ||||||
Common stock warrants | 20,785 | 20,785 | ||||||
Accumulated other comprehensive loss | (177 | ) | (177 | ) | ||||
Accumulated deficit | (281,346 | ) | (246,270 | ) | ||||
Total liabilities, redeemable common stock and accumulated deficit | $ | 616,441 | $ | 646,302 | ||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except share and per share information) | ||||||||||||||||
Contract revenue | $ | 192,797 | $ | 213,309 | $ | 596,116 | $ | 622,593 | ||||||||
Direct contract expense | 145,744 | 164,853 | 456,260 | 479,898 | ||||||||||||
Gross profit | 47,053 | 48,456 | 139,856 | 142,695 | ||||||||||||
Operating expenses: | ||||||||||||||||
Indirect contract expense | 10,166 | 10,167 | 30,521 | 29,435 | ||||||||||||
General and administrative | 17,798 | 19,585 | 49,883 | 54,628 | ||||||||||||
Rental and occupancy expense | 7,899 | 7,499 | 23,428 | 23,783 | ||||||||||||
Depreciation and amortization | 2,756 | 4,064 | 8,560 | 12,507 | ||||||||||||
Loss on sale of subsidiary | — | — | (148 | ) | — | |||||||||||
Total operating expenses | 38,619 | 41,315 | 112,244 | 120,353 | ||||||||||||
Operating income | 8,434 | 7,141 | 27,612 | 22,342 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 9 | 16 | 39 | 73 | ||||||||||||
Interest expense | (18,557 | ) | (18,292 | ) | (55,379 | ) | (49,275 | ) | ||||||||
Other | (97 | ) | (183 | ) | (255 | ) | (207 | ) | ||||||||
Gain on debt extinguishment | 479 | — | 939 | 50,749 | ||||||||||||
Total other income (expense) | (18,166 | ) | (18,459 | ) | (54,656 | ) | 1,340 | |||||||||
(Loss) income before taxes | (9,732 | ) | (11,318 | ) | (27,044 | ) | 23,682 | |||||||||
Income tax expense | (1,744 | ) | (1,798 | ) | (5,231 | ) | (35,573 | ) | ||||||||
Net loss | $ | (11,476 | ) | $ | (13,116 | ) | $ | (32,275 | ) | $ | (11,891 | ) | ||||
Basic and diluted earnings (loss) per share | (1.98 | ) | (2.40 | ) | (5.70 | ) | (2.19 | ) | ||||||||
Basic and weighted average common shares outstanding | 5,787,153 | 5,467,797 | 5,661,562 | 5,434,436 | ||||||||||||
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Nine Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (32,275 | ) | $ | (11,891 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 8,611 | 12,507 | ||||||
Paid in kind interest | 4,714 | — | ||||||
Amortization of debt issuance costs | 7,575 | 6,421 | ||||||
Change in fair value of redeemable common stock warrants | — | (160 | ) | |||||
Incentive and stock-based compensation | 2,220 | 2,645 | ||||||
Gain on debt extinguishment | (939 | ) | (50,749 | ) | ||||
Deferred income taxes | 5,231 | 35,615 | ||||||
Other gains and losses | 24 | 12 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 90 | 8,829 | ||||||
Other assets | (3,824 | ) | (1,463 | ) | ||||
Trade accounts payable | (10,779 | ) | (14,002 | ) | ||||
Accrued liabilities | 2,907 | 3,266 | ||||||
Interest payable | (1,469 | ) | 6,821 | |||||
Other liabilities | 1,136 | 1,650 | ||||||
Net cash used in operating activities | (16,778 | ) | (499 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash paid for acquisition-related obligations | — | (50 | ) | |||||
Capital expenditures | (1,636 | ) | (1,639 | ) | ||||
Asset sale proceeds | 11 | 5 | ||||||
Net cash used in investing activities | (1,625 | ) | (1,684 | ) | ||||
Cash flows from financing activities: | ||||||||
Sale of secured notes | — | 281,465 | ||||||
Sale of common stock warrants | — | 20,785 | ||||||
Payment of debt issue costs | (710 | ) | (18,177 | ) | ||||
Repayment of unsecured notes | (3,993 | ) | — | |||||
Payment of Term B Loan | — | (236,596 | ) | |||||
Repurchase of Subordinated Note and related warrants | — | (25,000 | ) | |||||
Revolver borrowings | 7,000 | 84,200 | ||||||
Revolver repayments | (7,000 | ) | (84,200 | ) | ||||
Loan to ESOP Trust | (776 | ) | (5,323 | ) | ||||
ESOP loan repayment | 776 | 5,323 | ||||||
Redeemable common stock purchased from ESOP Trust | (5,684 | ) | (9,326 | ) | ||||
Redeemable common stock sold to ESOP Trust | 3,624 | 2,128 | ||||||
Net cash (used in) provided by financing activities | (6,763 | ) | 15,279 | |||||
Net (decrease) increase in cash and cash equivalents | (25,166 | ) | 13,096 | |||||
Cash and cash equivalents at beginning of period | 26,695 | 11,185 | ||||||
Cash and cash equivalents at end of period | $ | 1,529 | $ | 24,281 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 44,573 | $ | 36,230 | ||||
Cash paid for taxes | — | 34 | ||||||
Non-cash financing activities: | ||||||||
Common stock issued to ESOP Trust in satisfaction of employer contribution liability | $ | 5,150 | $ | 5,268 |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Purchased contracts | 1 – 13 years | |
Internal use software and engineering designs | 2 – 3 years | |
Non-compete agreements | 3 – 6 years |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Billed receivables | $ | 81,420 | $ | 94,662 | ||||
Unbilled receivables: | ||||||||
Amounts currently billable | 33,607 | 36,021 | ||||||
Revenues recorded in excess of milestone billings on fixed price contracts | 2,568 | 2,917 | ||||||
Revenues recorded in excess of estimated contract value or funding | 35,807 | 24,952 | ||||||
Retainages and other amounts billable upon contract completion | 24,068 | 19,278 | ||||||
Allowance for doubtful accounts | (3,528 | ) | (3,798 | ) | ||||
Total Accounts Receivable | $ | 173,942 | $ | 174,032 | ||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Leasehold improvements | $ | 10,888 | $ | 10,862 | ||||
Equipment and software | 35,088 | 33,693 | ||||||
Total cost | 45,976 | 44,555 | ||||||
Less: accumulated depreciation and amortization | (36,885 | ) | (33,757 | ) | ||||
Net Property, Plant and Equipment | $ | 9,091 | $ | 10,798 | ||||
June 30, 2011 | September 30, 2010 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Gross | Amortization | Net | Gross | Amortization | Net | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Purchased contracts | $ | 111,635 | $ | (99,328 | ) | $ | 12,307 | $ | 111,635 | $ | (94,228 | ) | $ | 17,407 | ||||||||||
Internal use software and engineering designs | 3,182 | (2,081 | ) | 1,101 | 2,155 | (1,868 | ) | 287 | ||||||||||||||||
Total | $ | 114,817 | $ | (101,409 | ) | $ | 13,408 | $ | 113,790 | $ | (96,096 | ) | $ | 17,694 | ||||||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) | ||||
2011 (for the remainder of fiscal year) | $ | 1,672 | ||
2012 | 6,108 | |||
2013 | 3,588 | |||
2014 | 1,079 | |||
2015 | 737 | |||
2016 | 141 | |||
Thereafter | 83 | |||
$ | 13,408 | |||
�� |
Period | Minimum Consolidated EBITDA | |||
June 30, 2010 through March 31, 2011 | $52.5 million | |||
April 1, 2011 through June 30, 2011 | $55.0 million | |||
July 1, 2011 through September 30, 2011 | $55.5 million | |||
October 1, 2011 through September 30, 2012 | $60.5 million | |||
October 1, 2012 through September 30, 2013 | $63.0 million | |||
October 1, 2013 through August 22, 2014 | $65.5 million |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
• | consolidated interest expense; |
• | provision for income taxes; |
• | depreciation and amortization; |
• | cash contributed to the ESOP in respect of Alion’s repurchase liability; |
• | non-cash stock-based and incentive compensation expense; |
• | non-cash ESOP contributions; |
• | employee salary expense payments invested in Alion common stock; |
• | any extraordinary losses; and |
• | nonrecurring charges and adjustments included in ESOP valuation reports as prepared by an independent third party. |
• | all cash payments on account of reserves, restructuring charges or other cash or non-cash charges added to net income pursuant to the list above in a previous period; |
• | any extraordinary gains; and |
• | all non-cash items of income. |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Unsecured Notes | $ | 10,465 | $ | 4,271 | ||||
Secured Notes | 5,282 | 12,946 | ||||||
Total | $ | 15,747 | $ | 17,217 | ||||
Fiscal Year: | 2011 | 2012 | 2013 | 2014 | 2015 | Total | ||||||||||||||||||
Secured Notes and PIK Interest(1) | $ | — | $ | — | $ | — | $ | — | $ | 339,788 | $ | 339,788 | ||||||||||||
Unsecured Notes(2) | — | — | — | — | 245,000 | 245,000 | ||||||||||||||||||
Total Principal Payments | $ | — | $ | — | $ | — | $ | — | $ | 584,788 | $ | 584,788 | ||||||||||||
1. | The Secured Notes due in 2015 include $310 million of debt issued in March 2010 and an estimated $29.8 million in PIK interest added to principal over the life of the notes. As of June 30, 2011, the $287.2 million carrying value on the face of the balance sheet included $310 million in principal, $8.0 million in accrued PIK interest and is net of $30.8 million in aggregate unamortized debt issue costs. Initial debt issue costs consist of $7.7 million in original issue discount, $13.5 million in third-party costs and $20.8 million for the initial fair value of the new Secured Note warrants. | |
2. | The Unsecured Notes on the face of the balance sheet include $245 million in principal and $3.2 million in unamortized debt issue costs as of June 30, 2011 (initially $7.1 million). |
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Lease Payments for Fiscal Years Ending | (In thousands) | |||
2011 (for the remainder of fiscal year) | $ | 6,905 | ||
2012 | 26,310 | |||
2013 | 24,787 | |||
2014 | 23,761 | |||
2015 | 23,675 | |||
2016 | 20,048 | |||
And thereafter | 34,885 | |||
Gross lease payments | $ | 160,371 | ||
Less: non-cancelable subtenant receipts | (1,122 | ) | ||
Net lease payments | $ | 159,249 | ||
June 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Minimum rentals | $ | 16,833 | $ | 16,789 | ||||
Less: Sublease rental income | (1,464 | ) | (1,378 | ) | ||||
Total rent expense, net | $ | 15,369 | $ | 15,411 | ||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Current deferred tax asset | $ | 9,873 | $ | 11,175 | ||||
Noncurrent deferred tax asset | 42,773 | 25,754 | ||||||
Valuation allowance | (52,646 | ) | (36,929 | ) | ||||
Noncurrent deferred tax liability | (42,438 | ) | (37,207 | ) | ||||
Net deferred tax liability | $ | (42,438 | ) | $ | (37,207 | ) | ||
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Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Companies | Companies | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 1,556 | $ | (53 | ) | $ | 26 | $ | — | $ | 1,529 | |||||||||
Accounts receivable, net | 170,762 | 2,820 | 360 | — | 173,942 | |||||||||||||||
Prepaid expenses and other current assets | 6,962 | 71 | 2 | — | 7,035 | |||||||||||||||
Total current assets | 179,280 | 2,838 | 388 | — | 182,506 | |||||||||||||||
Property, plant and equipment, net | 9,052 | 33 | 6 | — | 9,091 | |||||||||||||||
Intangible assets, net | 13,408 | — | — | — | 13,408 | |||||||||||||||
Goodwill | 398,921 | — | — | — | 398,921 | |||||||||||||||
Investment in subsidiaries | 22,129 | — | — | (22,129 | ) | — | ||||||||||||||
Intercompany receivables | 1,349 | 21,737 | — | (23,086 | ) | — | ||||||||||||||
Other assets | 12,499 | 12 | 4 | — | 12,515 | |||||||||||||||
Total assets | $ | 636,638 | $ | 24,620 | $ | 398 | $ | (45,215 | ) | $ | 616,441 | |||||||||
Current liabilities: | ||||||||||||||||||||
Interest payable | $ | 15,747 | $ | — | $ | — | $ | — | $ | 15,747 | ||||||||||
Trade accounts payable | 33,512 | 194 | — | — | 33,706 | |||||||||||||||
Accrued liabilities | 44,997 | 232 | 76 | — | 45,305 | |||||||||||||||
Accrued payroll and related liabilities | 36,504 | 920 | 87 | — | 37,511 | |||||||||||||||
Billings in excess of revenue earned | 2,548 | 5 | 15 | — | 2,568 | |||||||||||||||
Total current liabilities | 133,308 | 1,351 | 178 | — | 134,837 | |||||||||||||||
Intercompany payables | 21,738 | — | 1,348 | (23,086 | ) | — | ||||||||||||||
Senior secured notes | 287,186 | — | — | — | 287,186 | |||||||||||||||
Senior unsecured notes | 241,849 | — | — | — | 241,849 | |||||||||||||||
Accrued compensation and benefits, excluding current portion | 6,742 | — | — | — | 6,742 | |||||||||||||||
Non-current portion of lease obligations | 8,347 | 12 | — | — | 8,359 | |||||||||||||||
Deferred income taxes | 42,438 | — | — | — | 42,438 | |||||||||||||||
Other liabilities | 980 | — | — | — | 980 | |||||||||||||||
Redeemable common stock | 154,788 | — | — | — | 154,788 | |||||||||||||||
Common stock warrants | 20,785 | — | — | — | 20,785 | |||||||||||||||
Common stock of subsidiaries | — | 2,801 | — | (2,801 | ) | — | ||||||||||||||
Accumulated other comprehensive loss | (177 | ) | — | — | — | (177 | ) | |||||||||||||
Accumulated deficit | (281,346 | ) | 20,456 | (1,128 | ) | (19,328 | ) | (281,346 | ) | |||||||||||
Total liabilities, redeemable common stock and accumulated deficit | $ | 636,638 | $ | 24,620 | $ | 398 | $ | (45,215 | ) | $ | 616,441 | |||||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Companies | Companies | Eliminations | Consolidated | ||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 26,770 | $ | (75 | ) | $ | — | $ | — | $ | 26,695 | |||||||||
Accounts receivable, net | 170,676 | 3,312 | 44 | — | 174,032 | |||||||||||||||
Receivable due from ESOP Trust | 1,896 | — | — | 1,896 | ||||||||||||||||
Prepaid expenses and other current assets | 5,112 | 47 | — | — | 5,159 | |||||||||||||||
Total current assets | 204,454 | 3,284 | 44 | — | 207,782 | |||||||||||||||
Property, plant and equipment, net | 10,755 | 43 | — | — | 10,798 | |||||||||||||||
Intangible assets, net | 17,694 | — | — | — | 17,694 | |||||||||||||||
Goodwill | 398,921 | — | — | — | 398,921 | |||||||||||||||
Investment in subsidiaries | 18,844 | — | — | (18,844 | ) | — | ||||||||||||||
Intercompany receivables | 1,054 | 18,235 | — | (19,289 | ) | — | ||||||||||||||
Other assets | 11,091 | 13 | 3 | — | 11,107 | |||||||||||||||
Total assets | $ | 662,813 | $ | 21,575 | $ | 47 | $ | (38,133 | ) | $ | 646,302 | |||||||||
Interest payable | $ | 17,217 | $ | — | $ | — | $ | — | $ | 17,217 | ||||||||||
Trade accounts payable | 44,065 | 421 | — | — | 44,486 | |||||||||||||||
Accrued liabilities | 42,865 | 271 | 9 | — | 43,145 | |||||||||||||||
Accrued payroll and related liabilities | 39,277 | 924 | 20 | — | 40,221 | |||||||||||||||
Billings in excess of revenue earned | 2,882 | 35 | — | — | 2,917 | |||||||||||||||
Total current liabilities | 146,306 | 1,651 | 29 | — | 147,986 | |||||||||||||||
Intercompany payables | 18,236 | — | 1,053 | (19,289 | ) | — | ||||||||||||||
Senior secured notes | 275,831 | — | — | — | 275,831 | |||||||||||||||
Senior unsecured notes | 246,126 | — | — | — | 246,126 | |||||||||||||||
Accrued compensation and benefits, excluding current portion | 6,174 | — | — | — | 6,174 | |||||||||||||||
Non-current portion of lease obligations | 7,805 | 43 | — | — | 7,848 | |||||||||||||||
Deferred income taxes | 37,207 | — | — | — | 37,207 | |||||||||||||||
Redeemable common stock | 150,792 | — | — | — | 150,792 | |||||||||||||||
Common stock of subsidiaries | — | 2,801 | — | (2,801 | ) | — | ||||||||||||||
Common stock warrants | 20,785 | 20,785 | ||||||||||||||||||
Accumulated other comprehensive loss | (177 | ) | — | — | — | (177 | ) | |||||||||||||
Accumulated deficit | (246,272 | ) | 17,080 | (1,035 | ) | (16,043 | ) | (246,270 | ) | |||||||||||
Total liabilities, redeemable common stock and accumulated deficit | $ | 662,813 | $ | 21,575 | $ | 47 | $ | (38,133 | ) | $ | 646,302 | |||||||||
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Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Companies | Companies | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Contract revenue | $ | 188,561 | 4,017 | 219 | — | $ | 192,797 | |||||||||||||
Direct contract expense | 143,487 | 2,119 | 138 | — | 145,744 | |||||||||||||||
Gross profit | 45,074 | 1,898 | 81 | — | 47,053 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Indirect contract expense | 9,428 | 728 | 10 | — | 10,166 | |||||||||||||||
General and administrative | 17,501 | 212 | 85 | — | 17,798 | |||||||||||||||
Rental and occupancy expense | 7,778 | 107 | 14 | — | 7,899 | |||||||||||||||
Depreciation and amortization | 2,751 | 4 | 1 | — | 2,756 | |||||||||||||||
Loss on sale of subsidiary | — | — | — | — | — | |||||||||||||||
Total operating expenses | 37,458 | 1,051 | 110 | — | 38,619 | |||||||||||||||
Operating income (loss) | 7,616 | 847 | (29 | ) | — | 8,434 | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 9 | — | — | — | 9 | |||||||||||||||
Interest expense | (18,557 | ) | — | — | — | (18,557 | ) | |||||||||||||
Other | (241 | ) | 144 | — | — | (97 | ) | |||||||||||||
Gain on debt extinguishment | 479 | — | — | — | 479 | |||||||||||||||
Equity in net income (loss) of subsidiaries | 962 | — | — | (962 | ) | — | ||||||||||||||
Total other expenses | (17,348 | ) | 144 | — | (962 | ) | (18,166 | ) | ||||||||||||
(Loss) income before taxes | (9,732 | ) | 991 | (29 | ) | (962 | ) | (9,732 | ) | |||||||||||
Income tax expense | (1,744 | ) | — | — | — | (1,744 | ) | |||||||||||||
Net (loss) income | $ | (11,476 | ) | 991 | (29 | ) | (962 | ) | $ | (11,476 | ) | |||||||||
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Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Companies | Companies | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Contract revenue | $ | 205,660 | $ | 7,603 | $ | 46 | $ | — | $ | 213,309 | ||||||||||
Direct contract expense | 159,764 | 5,054 | 35 | — | 164,853 | |||||||||||||||
Gross profit | 45,896 | 2,549 | 11 | — | 48,456 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Indirect contract expense | 9,286 | 869 | 12 | — | 10,167 | |||||||||||||||
General and administrative | 19,126 | 377 | 82 | — | 19,585 | |||||||||||||||
Rental and occupancy expense | 7,339 | 149 | 11 | — | 7,499 | |||||||||||||||
Depreciation and amortization | 4,050 | 14 | — | — | 4,064 | |||||||||||||||
Total operating expenses | 39,801 | 1,409 | 105 | — | 41,315 | |||||||||||||||
Operating income (loss) | 6,095 | 1,140 | (94 | ) | — | 7,141 | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 15 | 1 | — | — | 16 | |||||||||||||||
Interest expense | (18,292 | ) | — | — | — | (18,292 | ) | |||||||||||||
Other | (255 | ) | 72 | — | — | (183 | ) | |||||||||||||
Equity in net income of subsidiaries | 1,119 | — | — | (1,119 | ) | — | ||||||||||||||
Total other expenses | (17,413 | ) | 73 | — | (1,119 | ) | (18,459 | ) | ||||||||||||
(Loss) income before taxes | (11,318 | ) | 1,213 | (94 | ) | (1,119 | ) | (11,318 | ) | |||||||||||
Income tax (expense) benefit | (1,798 | ) | — | — | — | (1,798 | ) | |||||||||||||
Net (loss) income | $ | (13,116 | ) | $ | 1,213 | $ | (94 | ) | $ | (1,119 | ) | $ | (13,116 | ) | ||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Companies | Companies | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Contract revenue | $ | 582,477 | $ | 12,990 | $ | 649 | $ | — | $ | 596,116 | ||||||||||
Direct contract expense | 448,583 | 7,245 | 432 | — | 456,260 | |||||||||||||||
Gross profit | 133,894 | 5,745 | 217 | — | 139,856 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Indirect contract expense | 28,479 | 2,012 | 30 | — | 30,521 | |||||||||||||||
General and administrative | 49,216 | 427 | 240 | — | 49,883 | |||||||||||||||
Rental and occupancy expense | 23,086 | 304 | 38 | — | 23,428 | |||||||||||||||
Depreciation and amortization | 8,548 | 11 | 1 | — | 8,560 | |||||||||||||||
Loss on sale of subsidiary | (148 | ) | — | — | — | (148 | ) | |||||||||||||
Total operating expenses | 109,181 | 2,754 | 309 | — | 112,244 | |||||||||||||||
Operating income (loss) | 24,713 | 2,991 | (92 | ) | — | 27,612 | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 39 | — | — | — | 39 | |||||||||||||||
Interest expense | (55,379 | ) | — | — | — | (55,379 | ) | |||||||||||||
Other | (641 | ) | 386 | — | — | (255 | ) | |||||||||||||
Gain on debt extinguishment | 939 | — | — | — | 939 | |||||||||||||||
Equity in net income of subsidiaries | 3,285 | — | — | (3,285 | ) | — | ||||||||||||||
Total other expenses | (51,757 | ) | 386 | — | (3,285 | ) | (54,656 | ) | ||||||||||||
(Loss) income before taxes | (27,044 | ) | 3,377 | (92 | ) | (3,285 | ) | (27,044 | ) | |||||||||||
Income tax expense | (5,231 | ) | — | — | — | (5,231 | ) | |||||||||||||
Net (loss) income | $ | (32,275 | ) | $ | 3,377 | $ | (92 | ) | $ | (3,285 | ) | $ | (32,275 | ) | ||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Companies | Companies | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Contract revenue | $ | 598,126 | 24,351 | 116 | — | $ | 622,593 | |||||||||||||
Direct contract expense | 463,578 | 16,240 | 80 | — | 479,898 | |||||||||||||||
Gross profit | 134,548 | 8,111 | 36 | — | 142,695 | |||||||||||||||
Indirect contract expense | 26,680 | 2,725 | 30 | — | 29,435 | |||||||||||||||
General and administrative | 53,645 | 746 | 237 | — | 54,628 | |||||||||||||||
Rental and occupancy expense | 23,307 | 444 | 32 | — | 23,783 | |||||||||||||||
Depreciation and amortization | 12,468 | 39 | — | — | 12,507 | |||||||||||||||
Total operating expenses | 116,100 | 3,954 | 299 | — | 120,353 | |||||||||||||||
Operating income (loss) | 18,448 | 4,157 | (263 | ) | — | 22,342 | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 72 | 1 | — | — | 73 | |||||||||||||||
Interest expense | (49,275 | ) | — | — | — | (49,275 | ) | |||||||||||||
Other | (429 | ) | 222 | — | — | (207 | ) | |||||||||||||
Gain on debt extinguishment | 50,749 | — | — | — | 50,749 | |||||||||||||||
Equity in net income (loss) of subsidiaries | 4,159 | — | (4,159 | ) | — | |||||||||||||||
Total other expenses | 5,276 | 223 | — | (4,159 | ) | 1,340 | ||||||||||||||
Income (loss) before taxes | 23,724 | 4,380 | (263 | ) | (4,159 | ) | 23,682 | |||||||||||||
Income tax (expense) benefit | (35,615 | ) | 2 | 40 | — | (35,573 | ) | |||||||||||||
Net (loss) income | $ | (11,891 | ) | 4,382 | (223 | ) | (4,159 | ) | $ | (11,891 | ) | |||||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Non- | ||||||||||||||||
Guarantor | Guarantor | |||||||||||||||
Parent | Companies | Companies | Consolidated | |||||||||||||
(In thousands) | ||||||||||||||||
Net cash (used in) provided by operating activities | $ | (16,832 | ) | $ | 21 | $ | 33 | $ | (16,778 | ) | ||||||
Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (1,629 | ) | — | (7 | ) | (1,636 | ) | |||||||||
Asset sale proceeds | 11 | — | — | 11 | ||||||||||||
Net cash used in investing activities | (1,618 | ) | — | (7 | ) | (1,625 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||||
Payment of debt issue costs | (710 | ) | — | — | (710 | ) | ||||||||||
Repayment of unsecured notes | (3,993 | ) | — | — | (3,993 | ) | ||||||||||
Revolver borrowings | 7,000 | — | — | 7,000 | ||||||||||||
Revolver payments | (7,000 | ) | — | — | (7,000 | ) | ||||||||||
Loan to ESOP Trust | (776 | ) | — | — | (776 | ) | ||||||||||
ESOP loan repayment | 776 | — | — | 776 | ||||||||||||
Redeemable common stock purchased from ESOP Trust | (5,684 | ) | — | — | (5,684 | ) | ||||||||||
Redeemable common stock sold to ESOP Trust | 3,624 | — | — | 3,624 | ||||||||||||
Net cash used in financing activities | (6,763 | ) | — | — | (6,763 | ) | ||||||||||
Net (decrease) increase in cash and cash equivalents | (25,213 | ) | 21 | 26 | (25,166 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 26,769 | (74 | ) | — | 26,695 | |||||||||||
Cash and cash equivalents at end of period | $ | 1,556 | $ | (53 | ) | $ | 26 | $ | 1,529 | |||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Non- | ||||||||||||||||
Guarantor | Guarantor | |||||||||||||||
Parent | Companies | Companies | Consolidated | |||||||||||||
(In thousands) | ||||||||||||||||
Net cash (used in) provided by operating activities | $ | (974 | ) | $ | 461 | $ | 14 | $ | (499 | ) | ||||||
Cash flows from investing activities: | ||||||||||||||||
Cash paid for acquisitions-related obligations | (50 | ) | — | — | (50 | ) | ||||||||||
Capital expenditures | (1,633 | ) | (6 | ) | — | (1,639 | ) | |||||||||
Asset sale proceeds | 5 | — | — | 5 | ||||||||||||
Net cash used in investing activities | (1,678 | ) | (6 | ) | — | (1,684 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||||
Sale of secured notes | 281,465 | — | — | 281,465 | ||||||||||||
Sale of common stock warrants | 20,785 | — | — | 20,785 | ||||||||||||
Payment of debt issue costs | (18,177 | ) | — | — | (18,177 | ) | ||||||||||
Payment of Term B Loan | (236,596 | ) | — | — | (236,596 | ) | ||||||||||
Repurchase of subordinated note and related warrants | (25,000 | ) | — | — | (25,000 | ) | ||||||||||
Revolver borrowings | 84,200 | — | — | 84,200 | ||||||||||||
Revolver payments | (84,200 | ) | — | — | (84,200 | ) | ||||||||||
Loan to ESOP Trust | (5,323 | ) | — | — | (5,323 | ) | ||||||||||
ESOP loan repayment | 5,323 | — | — | 5,323 | ||||||||||||
Redeemable common stock purchased from ESOP Trust | (9,326 | ) | — | — | (9,326 | ) | ||||||||||
Redeemable common stock sold to ESOP Trust | 2,128 | — | — | 2,128 | ||||||||||||
Net cash provided by financing activities | 15,279 | — | — | 15,279 | ||||||||||||
Net increase in cash and cash equivalents | 12,627 | 455 | 14 | 13,096 | ||||||||||||
Cash and cash equivalents at beginning of period | 11,404 | (215 | ) | (4 | ) | 11,185 | ||||||||||
Cash and cash equivalents at end of period | $ | 24,031 | $ | 240 | $ | 10 | $ | 24,281 | ||||||||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Any future inability to maintain adequate internal control over financial reporting; |
• | Limits on financial and operational flexibility given our substantial debt and debt covenants; |
• | ERISA law changes related to the KSOP; |
• | Tax law changes that could affect tax liabilities or Alion’s effective tax rate; |
• | Changes in SEC rules, and other corporate governance requirements; |
• | Failure of government customers to exercise contract options; |
• | U.S. government project funding decisions; |
• | U.S. government shutdowns; |
• | Government contract bid protest and termination risks; |
• | Competitive factors such as pricing pressures and/or competition to hire and retain employees; |
• | Results of current and/or future legal proceedings and government agency proceedings which may arise from operations and attendant risks of fines, liabilities, penalties, suspension and/or debarment; |
• | Undertaking acquisitions that increase costs or liabilities or are disruptive; |
• | Taking on additional debt to fund acquisitions; |
• | Failing to adequately integrate acquired businesses; |
• | Risks from private securities litigation, regulatory proceedings or government enforcement actions relating to prior covenant compliance disclosures; |
• | Material changes in laws or regulations affecting our businesses; and |
• | Other risk factors discussed in Alion’s annual report on Form 10-K for the year ended September 30, 2010 filed with the SEC on December 14, 2010 and any subsequent reports. |
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For the Nine Months Ended June 30, | ||||||||||||||||
Revenue by Contract Type | 2011 | 2010 | ||||||||||||||
(In thousands) | ||||||||||||||||
Cost-reimbursement | $ | 483,331 | 81.1 | % | $ | 468,614 | 75.3 | % | ||||||||
Fixed-price | 44,873 | 7.5 | % | 68,577 | 11.0 | % | ||||||||||
Time-and-material | 67,912 | 11.4 | % | 85,402 | 13.7 | % | ||||||||||
Total | $ | 596,116 | 100.0 | % | $ | 622,593 | 100.0 | % | ||||||||
For the Nine Months Ended June 30, | ||||||||||||||||
Revenue by Customer Type | 2011 | 2010 | ||||||||||||||
(In thousands) | ||||||||||||||||
U.S. Department of Defense | $ | 543,699 | 91.2 | % | $ | 567,608 | 91.2 | % | ||||||||
Other Federal Civilian Agencies | 33,933 | 5.7 | % | 37,270 | 6.0 | % | ||||||||||
Commercial / State / Local and International | 18,484 | 3.1 | % | 17,715 | 2.8 | % | ||||||||||
Total | $ | 596,116 | 100.0 | % | $ | 622,593 | 100.0 | % | ||||||||
For the Nine Months Ended June 30, | ||||||||||||||||
Core Business Area | 2011 | 2010 | ||||||||||||||
(In thousands) | ||||||||||||||||
Naval Architecture and Marine Engineering | $ | 254,792 | 42.7 | % | $ | 272,487 | 43.8 | % | ||||||||
Defense Operations | 146,424 | 24.6 | % | 144,632 | 23.2 | % | ||||||||||
Modeling and Simulation | 110,627 | 18.6 | % | 109,909 | 17.7 | % | ||||||||||
Technology Integration | 36,522 | 6.1 | % | 38,298 | 6.2 | % | ||||||||||
Energy and Environmental Sciences | 24,220 | 4.1 | % | 29,389 | 4.7 | % | ||||||||||
Information Technology and Wireless Communications | 23,531 | 3.9 | % | 27,878 | 4.5 | % | ||||||||||
Total | $ | 596,116 | 100.0 | % | $ | 622,593 | 100.0 | % | ||||||||
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Consolidated Operations of Alion | ||||||||||||||||
Quarter Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
% of | % of | |||||||||||||||
Selected Financial Information | revenue | revenue | ||||||||||||||
Total contract revenue | $ | 192,797 | $ | 213,309 | ||||||||||||
Total direct contract costs | 145,744 | 75.6 | % | 164,853 | 77.3 | % | ||||||||||
Direct labor costs | 64,556 | 33.5 | % | 69,471 | 32.6 | % | ||||||||||
Material and subcontract costs | 76,425 | 39.6 | % | 90,738 | 42.5 | % | ||||||||||
Other direct costs | 4,763 | 2.5 | % | 4,644 | 2.2 | % | ||||||||||
Gross profit | 47,053 | 24.4 | % | 48,456 | 22.7 | % | ||||||||||
Total operating expense | 38,619 | 20.0 | % | 41,315 | 19.4 | % | ||||||||||
Major components of operating expense: | ||||||||||||||||
Indirect expenses and facilities costs | 18,065 | 9.4 | % | 17,666 | 8.3 | % | ||||||||||
General and administrative | 17,798 | 9.2 | % | 19,585 | 9.2 | % | ||||||||||
Depreciation and amortization | 2,756 | 1.4 | % | 4,064 | 1.9 | % | ||||||||||
Income from operations | $ | 8,434 | 4.4 | % | $ | 7,141 | 3.3 | % |
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Three Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash Pay Interest | ||||||||
Revolver | $ | 167 | $ | 112 | ||||
Secured Notes | 7,897 | 7,761 | ||||||
Unsecured Notes | 6,340 | 6,406 | ||||||
Other cash pay interest and fees | 15 | (31 | ) | |||||
Sub-total cash pay interest | 14,419 | 14,248 | ||||||
Deferred and Non-cash Interest | ||||||||
Secured Notes PIK interest | 1,580 | 1,554 | ||||||
Debt issue costs and other non-cash items | 2,558 | 2,490 | ||||||
Sub-total non-cash interest | 4,138 | 4,044 | ||||||
Total interest expense | $ | 18,557 | $ | 18,292 | ||||
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Consolidated Operations of Alion | ||||||||||||||||
Nine Months Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||
% of | % of | |||||||||||||||
Selected Financial Information | revenue | revenue | ||||||||||||||
Total contract revenue | $ | 596,116 | $ | 622,593 | ||||||||||||
Total direct contract costs | 456,260 | 76.5 | % | 479,898 | 77.1 | % | ||||||||||
Direct labor costs | 194,675 | 32.7 | % | 205,575 | 33.0 | % | ||||||||||
Material and subcontract costs | 248,369 | 41.7 | % | 261,305 | 42.0 | % | ||||||||||
Other direct costs | 13,216 | 2.2 | % | 13,018 | 2.1 | % | ||||||||||
Gross profit | 139,856 | 23.5 | % | 142,695 | 22.9 | % | ||||||||||
Total operating expense | 112,244 | 18.8 | % | 120,353 | 19.3 | % | ||||||||||
Major components of operating expense: | ||||||||||||||||
Indirect expenses including facilities costs | 53,949 | 9.1 | % | 53,218 | 8.5 | % | ||||||||||
General and administrative | 49,883 | 8.4 | % | 54,628 | 8.8 | % | ||||||||||
Depreciation and amortization | 8,560 | 1.4 | % | 12,507 | 2.0 | % | ||||||||||
Income from operations | $ | 27,612 | 4.6 | % | $ | 22,342 | 3.6 | % |
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Nine Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Cash Pay Interest | ||||||||
Revolver | $ | 402 | $ | 210 | ||||
Senior Term Loan | — | 11,047 | ||||||
Secured Notes | 23,560 | 8,536 | ||||||
Unsecured Notes | 19,071 | 19,219 | ||||||
Other cash pay interest and fees | 57 | 4,002 | ||||||
Sub-total cash pay interest | 43,090 | 43,014 | ||||||
Deferred and Non-cash Interest | ||||||||
Secured Notes PIK interest | 4,714 | 1,709 | ||||||
Debt issue costs and other non-cash items | 7,575 | 4,712 | ||||||
Subordinated Note warrants | — | (160 | ) | |||||
Sub-total non-cash interest | 12,289 | 6,261 | ||||||
Total interest expense | $ | 55,379 | $ | 49,275 | ||||
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34
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35
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Period | Minimum Consolidated EBITDA | |||
June 30, 2010 through March 31, 2011 | $52.5 million | |||
April 1, 2011 through June 30, 2011 | $55.0 million | |||
July 1, 2011 through September 30, 2011 | $55.5 million | |||
October 1, 2011 through September 30, 2012 | $60.5 million | |||
October 1, 2012 through September 30, 2013 | $63.5 million | |||
October 1, 2013 through August 22, 2014 | $65.5 million |
• | consolidated interest expense; |
• | provision for income taxes; |
• | depreciation and amortization; |
• | cash contributed to the ESOP in respect of Alion’s repurchase liability |
• | non-cash stock-based and incentive compensation expense; |
• | non-cash ESOP contributions; |
• | employee compensation expense payments invested in Alion common stock; |
• | any extraordinary losses; and |
• | nonrecurring charges and adjustments included in ESOP valuation reports as prepared by an independent third party. |
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• | all cash payments on account of reserves, restructuring charges or other cash or non-cash charges added to net income pursuant to the list above in a previous period; |
• | any extraordinary gains; and |
• | all non-cash items of income. |
• | incur additional debt other than permitted additional debt; |
• | grant certain liens and security interests; |
• | enter into sale and leaseback transactions; |
• | make certain loans and investments including acquisitions of businesses, other than permitted acquisitions; |
• | consolidate, merge or sell all or substantially all our assets; |
• | pay dividends or distributions other than distributions required by the ESOP Plan or by certain legal requirements; |
• | enter into certain transactions with our shareholders and affiliates; |
• | change lines of business; |
• | repay subordinated debt before it is due and redeem or repurchase certain equity; |
• | enter into certain transactions not permitted under ERISA; |
• | make more than $8 million in capital expenditures in any fiscal year; |
• | pay certain earn-outs in connection with permitted acquisitions; or |
• | change our fiscal year. |
• | breach of representations and warranties; |
• | payment default; |
• | uncured covenant breaches; |
• | default under certain other debt exceeding an agreed amount; |
• | bankruptcy and insolvency events; |
• | incurrence of a civil or criminal liability in excess of $5 million of Alion or any subsidiary arising from a government investigation; |
• | unstayed judgments in excess of an agreed amount; |
• | failure of any Credit Agreement guarantee to be in effect; |
• | failure of the security interests to be valid, perfected first priority security interests in the collateral; |
• | notice of debarment, suspension or termination under a material government contract; |
• | actual termination of a material contract due to alleged fraud, willful misconduct, negligence, default or any other wrongdoing; |
• | certain ERISA violations; |
• | imposition on the ESOP Trust of certain taxes in excess of an agreed amount; |
• | final determination the ESOP is not a qualified plan; |
• | so long as any Secured Notes remain outstanding, the Intercreditor Agreement shall fail to be effective; |
• | a borrowing which would cause us to exceed a certain cash balance limit, or |
• | change of control (as defined below). |
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• | Debt pursuant to certain agreements up to $25 million; |
• | Permitted inter-company debt; |
• | The Secured Notes and any public notes exchanged for those notes; |
• | Debt pre-dating the Secured Notes; |
• | Permitted debt of acquired subsidiaries; |
• | Permitted refinancing debt; |
• | Hedging agreement debt; |
• | Performance, bid, appeal and surety bonds and completion guarantees; |
• | Ordinary course insufficient funds coverage; |
• | Permitted refinancing debt guarantees; |
• | Working capital debt of non-U.S. subsidiaries; |
• | Debt for capital expenditures, and capital and synthetic leases up to $25 million in the aggregate $25 million and 2.5% of Alion’s Total Assets; |
• | Permitted subordinated debt of Alion or any Restricted Subsidiary to finance a permitted acquisition, certain permitted ESOP transactions and refinancing debt of acquired non-U.S. subsidiaries up to $35 million in the aggregate; |
• | Letter of credit reimbursement obligations; |
• | Certain agreements in connection with acquiring a business provided liabilities incurred in connection therewith are not reflected on the Company’s balance sheet; |
• | Certain deferred compensation agreements; and |
• | Certain other debt up to $20 million. |
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• | Such payments out of substantially concurrent contributions of equity and substantially concurrent incurrences of permitted debt; |
• | Certain limited and permitted dividends; |
• | Certain repurchases of the Company’s equity securities deemed to occur upon exercise of stock options or warrants; |
• | Cash payments in lieu of issuing fractional shares for the exercise of warrants, options or other securities convertible into or exchangeable for our equity securities; |
• | The required Secured Note premium payable on a change of control; |
• | Certain permitted inter-company subordinated obligations; |
• | Certain repurchases and redemptions of subordination obligations of the Company or a Subsidiary Guarantor from Net Available Cash; |
• | Repurchases of subordinated obligations in connection with an asset sale to the extent required by the Secured Note Indenture; |
• | Certain permitted ESOP transactions; |
• | Long-term incentive plan payments to our directors, officers and employees, subject to a $3 million annual cap that may increase annually; |
• | Any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of the Unsecured Notes, up to an aggregate amount of $10 million; and |
• | Certain other payments not exceeding $10 million in the aggregate. |
• | Payment default; |
• | Uncured covenant breaches; |
• | Default under an acceleration of certain other debt exceeding $30 million; |
• | Certain bankruptcy and insolvency events; |
• | Judgment for payment in excess of $30 million entered against Alion or any material subsidiary that remains outstanding for a period of 60 days and is not discharged, waived or stayed; |
• | Failure of any Secured Note guarantee to be in effect or any subsidiary guarantor’s denial or disaffirmation of its guaranty obligations; and |
• | Failure of any Secured Note security interest to constitute a valid and perfected lien with its applicable priority after a permitted cure period. |
• | Subject to certain exceptions, a person, other than the ESOP Trust, is or becomes the beneficial owner, directly or indirectly, of more than 35% of the total voting power or voting stock of Alion; |
• | Individuals who constituted Alion’s board of directors on March 22, 2010, cease for any reason to constitute a majority of the Company’s board of directors; |
• | Adoption of a plan relating to Alion’s liquidation or dissolution; and |
• | Subject to certain exceptions, Alion’s merger or consolidation with or into another person or the merger of another person with or into Alion, or the sale of all or substantially all our assets to another person. |
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Period | Redemption Price | |||
April 1, 2013 to September 30, 2013 | 105.0 | % | ||
October 1, 2013 to March 31, 2014 | 103.0 | % | ||
April 1, 2014 and thereafter | 100.0 | % |
• | Debt pursuant to our now terminated Term B Senior Credit Facility and certain other contracts up to $360 million less principal repayments made under that debt; |
• | Permitted inter-company debt; |
• | The Unsecured Notes; |
• | Debt pre-dating the Unsecured Notes; |
• | Permitted debt of acquired subsidiaries; |
• | Permitted refinancing debt; |
• | Hedging agreement debt; |
• | Performance, bid, appeal and surety bonds and completion guarantees; |
• | Ordinary course insufficient funds coverage; |
• | Permitted refinancing debt guarantees; |
• | Working capital debt of non-U.S. subsidiaries; |
• | Debt for capital expenditures, and capital and synthetic leases up to $25 million in the aggregate $25 million and 2.5% of Alion’s Total Assets; |
• | Permitted subordinated debt of Alion or any Restricted Subsidiary to finance a permitted acquisition, certain permitted ESOP transactions and refinancing debt of acquired non-U.S. subsidiaries up to $35 million in the aggregate; |
• | Letter of credit reimbursement obligations; |
• | Certain agreements in connection with acquiring a business provided liabilities incurred in connection therewith are not reflected on the Company’s balance sheet; |
• | Certain deferred compensation agreements; and |
• | Certain other debt up to $35 million. |
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• | Such payments out of substantially concurrent contributions of equity and substantially concurrent incurrences of permitted debt; |
• | Certain limited and permitted dividends; |
• | Certain repurchases of the Company’s equity securities deemed to occur upon exercise of stock options or warrants; |
• | Cash payments in lieu of issuing fractional shares for the exercise of warrants, options or other securities convertible into or exchangeable for our equity securities; |
• | The required Unsecured Note premium payable on a change of control; |
• | Certain permitted inter-company subordinated obligations; |
• | Certain repurchases and redemptions of subordination obligations of the Company or a Subsidiary Guarantor from Net Available Cash; |
• | Repurchases of subordinated obligations in connection with an asset sale to the extent required by the Indenture; |
• | Repurchase of common stock from former Alion Joint Spectrum Center employees; |
• | Certain permitted transactions with the ESOP not exceeding $25 million in the aggregate; and |
• | Certain other payments not exceeding $30 million in the aggregate. |
• | Payment default; |
• | Uncured covenant breaches; |
• | Default under an acceleration of certain other debt exceeding $30 million; |
• | Certain bankruptcy and insolvency events; |
• | Judgment for payment in excess of $30 million entered against Alion or any material subsidiary that remains outstanding for a period of 60 days and is not discharged, waived or stayed; and |
• | Failure of any Unsecured Note guarantee to be in effect or any subsidiary guarantor’s denial or disaffirmation of its guaranty obligations. |
• | Subject to certain exceptions, a person, other than the ESOP Trust, is or becomes the beneficial owner, directly or indirectly, of more than 35% of the total voting power or voting stock of Alion; |
• | Individuals who constituted Alion’s board of directors on February 8, 2007, cease for any reason to constitute a majority of the Company’s board of directors; |
• | Adoption of a plan relating to Alion’s liquidation or dissolution; and |
• | Subject to certain exceptions, Alion’s merger or consolidation with or into another person or the merger of another person with or into Alion, or the sale of all or substantially all our assets to another person. |
Period | Redemption Price | |||
2011 | 105.125 | % | ||
2012 | 102.563 | % | ||
2013 and thereafter | 100.000 | % |
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(In thousands) | ||||||||||||||||||||
Fiscal Year: | 2011 | 2012 | 2013 | 2014 | 2015 | |||||||||||||||
Bank revolving credit facility(1) | ||||||||||||||||||||
- Interest | $ | 112 | $ | 445 | $ | 444 | $ | 396 | $ | — | ||||||||||
Secured Notes(2) | ||||||||||||||||||||
- Interest | — | 31,851 | 32,491 | 33,144 | 16,821 | |||||||||||||||
- Principal and PIK Interest | — | — | — | — | 339,788 | |||||||||||||||
Unsecured Notes(3) | ||||||||||||||||||||
- Interest | 12,556 | 25,113 | 25,113 | 25,113 | 12,556 | |||||||||||||||
- Principal | — | — | — | — | 245,000 | |||||||||||||||
Total cash — pay interest | 12,668 | 57,409 | 58,048 | 58,653 | 29,377 | |||||||||||||||
Total cash — pay principal and PIK Interest | — | — | — | — | 584,788 | |||||||||||||||
Total | $ | 12,668 | $ | 57,409 | $ | 58,048 | $ | 58,653 | $ | 614,165 | ||||||||||
(1) | We expect we will occasionally use our $35.0 million revolving credit facility to meet working capital needs through 2014. Management expects the average utilized revolver balance will be immaterial and that interest expense will consist of commitment fees for unused balances. The current facility expires August 22, 2014. | |
(2) | The Secured Notes bear interest at 10% in cash and 2% in PIK. Outstanding principal will increase over time for the 2% compounding PIK interest added to the initial $310 million in principal. The Secured Notes, including $29.8 million in PIK interest, mature November 1, 2014. | |
(3) | The Senior Unsecured Notes bear interest at 10.25% and mature February 1, 2015. |
• | ESOP share repurchase and diversification obligations; and |
• | Long-term incentive compensation plan obligations. |
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Number of | ||||||||||||
Shares | Total Value | |||||||||||
Date | Repurchased | Share Price | Purchased | |||||||||
(In thousands) | ||||||||||||
December 2009 | 745 | $ | 34.50 | $ | 26 | |||||||
March 2010 | 218,408 | $ | 34.50 | 7,535 | ||||||||
April 2010 | 52 | $ | 28.00 | 1 | ||||||||
May 2010 | 108 | $ | 28.00 | 3 | ||||||||
June 2010 | 62,875 | $ | 28.00 | 1,760 | ||||||||
July 2010 | 145 | $ | 28.00 | 4 | ||||||||
August 2010 | 89 | $ | 28.00 | 2 | ||||||||
September 2010 | 209 | $ | 28.00 | 6 | ||||||||
December 2010 | 119,945 | $ | 26.65 | 3,195 | ||||||||
February 2011 | 322 | $ | 26.65 | 9 | ||||||||
March 2011 | 136 | $ | 26.65 | 4 | ||||||||
April 2011 | 166 | $ | 27.15 | 5 | ||||||||
May 2011 | 3,677 | $ | 27.15 | 100 | ||||||||
June 2011 | 87,319 | $ | 27.15 | 2,371 | ||||||||
Total | 494,196 | $ | 15,020 | |||||||||
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Alion depends heavily on federal government contracts. Delays in the federal budget process, including actions related to the debt ceiling, or a federal government shutdown, could delay procurement of the products, services and solutions the Company provides and adversely affect the Company’s sales and gross margins, operating results and cash flows.
Alion derives a significant portion of its revenue from the federal government and from prime contractors to the federal government. The Company expects to continue to derive significant sales from federal government contracts and prime contractors. Funding under those contracts is conditioned upon the continuing availability of Congressional appropriations and agency budgets. Congress usually appropriates funds on a fiscal year basis even though contract performance may extend over many years. The programs in which Alion participates must compete with other federal government programs and policies for funding during the budget and appropriation process. Concerns about increased deficit spending, along with continued economic challenges, continue to place pressure on federal customer budgets. While the Company believes that its programs are well aligned with national defense and other priorities, shifts in domestic spending and tax policy, changes in security, defense, and intelligence priorities, the affordability of the Company’s products and services, general economic conditions and developments, and other factors may affect a decision to fund or the level of funding for existing programs under which the Company performs contracts or proposed programs under which the Company may bid for future work.
When the federal government does not complete its budget process before its September 30 fiscal year end, it typically funds operations through a continuing resolution that authorizes federal government agencies to continue operating, but does not authorize new spending initiatives. When the federal government operates under a continuing resolution, product and service procurement delays can occur, which in turn could cause delays in payments to Alion which could negatively and materially affect our operating results, cash flow and liquidity.
The August 2011 agreement to increase the debt ceiling calls for numerous constraints on, and creates uncertainties concerning the level of, future federal spending. While specific budgetary decisions are not yet known, such constraints could delay or cancel key programs in which Alion is involved and could materially and adversely affect the Company’s cash flows, liquidity and operating results. If the federal budget process were to result in a prolonged federal government shutdown, it could result in Alion incurring substantial unreimbursed labor or other costs, or delay or cancel key programs, which could materially adversely affect the Company’s cash flows and operating results.
In addition, when the U.S. Government requires supplemental appropriations to operate or fund specific programs, and legislation to approve any supplemental appropriation bill is delayed, credit markets may react adversely to the uncertainty. Recently, Standard & Poor’s downgraded the credit rating of the U.S. national debt. These events could materially and adversely affect Alion’s access to credit, the cost of that credit to Alion if Alion’s floating interest rates were to increase, and the Company’s liquidity overall.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 3. | Defaults Upon Senior Securities |
Item 4. | [Removed and Reserved] |
Item 5. | Other Information |
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Item 6. | Exhibits |
Exhibit | ||||
No. | Description | |||
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. | |||
101 | * | The following materials from Alion Science and Technology Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Balance Sheet at June 30, 2011 and September 30, 2010, (ii) the Unaudited Condensed Consolidated Statement of Operations for the Three Months and Nine Months Ended June 30, 2011 and 2010, (iii) the Unaudited Condensed Consolidated Statement of Cash Flows for the Nine Months Ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements (Unaudited) tagged as blocks of text. |
* | As provided in Rule 406T of Regulation S-T, this information is furnished herewith and not filed for purposes of Sections 11 and 12 of the Securities Act and Section 18 of the Exchange Act. |
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ALION SCIENCE AND TECHNOLOGY CORPORATION | ||||||||
By: | /s/ Michael J. Alber | |||||||
Name: | Michael J. Alber | |||||||
Title: | Principal Financial Officer and Duly Authorized Officer |
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