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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 14, 2003.

OR

[ ] TRANSITION REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT 1934

FOR THE TRANSITION PERIOD FROM                           TO                          

COMMISSION FILE NUMBER 333-89756

ALION SCIENCE AND TECHNOLOGY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)
     
DELAWARE   54-2061691
(State or Other Jurisdiction of
Incorporation of Organization) 		  (I.R.S. Employer
Identification No.)
 
10 West 35th Street
Chicago, IL 60616
(312) 567-4000		   1750 Tysons Boulevard, Suite 1300
McLean, VA 22102
(703) 918-4480
(Address, including Zip Code and Telephone Number with
Area Code, of Principal Executive Offices)
(Former name, former address and former fiscal year, if changed since last report)

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.

[X] Yes     [ ] No

Indicate by check mark whether the registrant is an

accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]     No [X]

The number of shares outstanding of Alion Science and Technology Corporation

common stock as of March 14, 2003, was:
Common Stock 2,575,508.127 Shares

 

ALION SCIENCE AND TECHNOLOGY CORPORATION

FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 14, 2003
             
PART I — FINANCIAL INFORMATION     1  
 
Item 1.
  Financial Statements     1  
    Consolidated Balance Sheets     1  
    Consolidated Statements of Operations     2  
    Pro Forma Consolidated Statements of Operations     3  
    Consolidated Statement of Shareholder’s Equity     4  
    Consolidated Statements of Cash Flows     5  
    Notes to Consolidated Financial Statements     6  
 
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     12  
 
Item 3.
  Quantitative and Qualitative Disclosures About Market Risk     23  
 
Item 4.
  Controls and Procedures     23  
PART II — OTHER INFORMATION     23  
 
Item 1.
  Legal Proceedings     23  
 
Item 2.
  Changes in Securities and Use of Proceeds     25  
 
Item 3.
  Defaults Upon Senior Securities     25  
 
Item 4.
  Submission of Matters to a Vote of Security Holders     25  
 
Item 5.
  Other Information     26  
 
Item 6.
  Exhibits and Reports on Form 8-K     26  

 

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALION SCIENCE AND TECHNOLOGY CORPORATION

Consolidated Balance Sheets

As of March 14, 2003 (unaudited) and September 30, 2002

(In thousands, except share information)
                     
March 14, September 30,
2003 2002
(unaudited)
Assets
                
Current assets:
               
 
Cash
  $ 797     $ 6  
 
Restricted cash
    79       —  
 
Accounts receivable, less allowance of $3,568 at March 14, 2003
    48,491       —  
 
Note receivable from Trust
    —       1  
 
Other current assets
    3,850       —  
     
     
 
   
Total current assets
    53,217       7  
Fixed assets, net
    9,109       —  
Intangible assets, net
    28,289       —  
Goodwill
    60,918       —  
     
     
 
   
Total assets
  $ 151,533     $ 7  
     
     
 
Liabilities and Shareholder’s Equity
                
Current liabilities:
               
 
Note payable to bank
  $ —     $ 10  
 
Notes payable to officer
    1       1  
 
Current portion of long-term debt
    7,000       —  
 
Current portion of senior note payable
    5,000       —  
 
Trade accounts payable and accrued liabilities
    10,051       —  
 
Accrued payroll and related liabilities
    11,198       86  
 
Advance payments
    86       —  
 
Billings in excess of costs and estimated earnings on uncompleted contracts
    533       —  
 
Due to IITRI
    3,240       —  
     
     
 
   
Total current liabilities
    37,109       97  
Long-term debt, excluding current portion
    956       —  
Senior note payable, excluding current portion
    27,156       —  
Mezzanine note payable
    17,357       —  
Subordinated note payable
    33,010       —  
Payable under agreement with officer
    731       —  
Accrued postretirement benefit obligation
    2,357       —  
Redeemable common stock warrants
    10,308       —  
     
     
 
   
Total liabilities
    128,984       97  
Shareholder’s equity:
               
 
Common stock, $0.01 par value, 15,000,000 shares authorized, 100 shares and 2,575,508 shares issued and outstanding at September 30, 2002 and March 14, 2003, respectively
    26       —  
 
Additional paid-in capital
    25,730       1  
 
Accumulated deficit
    (3,207 )     (91 )
     
     
 
   
Total shareholder’s equity (deficit)
    22,549       (90 )
     
     
 
 
Total liabilities and shareholder’s equity
  $ 151,533     $ 7  
     
     
 

See accompanying notes to consolidated financial statements.

1

 

ALION SCIENCE AND TECHNOLOGY CORPORATION

Consolidated Statements of Operations

For the 12-Week and 24-Week Periods Ended March 14, 2003 and March 15, 2002

(In thousands, except share information)
(Unaudited)
                                     
For the 12-Week Period For the 24-Week Period
Ended Ended Ended Ended
March 14, 2003 March 15, 2002 March 14, 2003 March 15, 2002
Contract revenue
  $ 49,005     $ —     $ 49,005     $ —  
Direct contract expenses
    36,031       —       36,031       —  
     
     
     
     
 
   
Gross profit
    12,974       —       12,974       —  
     
     
     
     
 
Operating expenses:
                               
 
Indirect contract expenses
    2,848       —       2,848       —  
 
Research and development
    19       —       19       —  
 
General and administrative
    5,432       —       5,473       —  
 
Nonrecurring transaction costs
    388       —       388       —  
 
Rental and occupancy expense
    2,093       —       2,093       —  
 
Depreciation and amortization
    2,819       —       2,819       —  
 
Bad debt expense
    155       —       155       —  
     
     
     
     
 
Total operating expense
    13,754       —       13,795       —  
     
     
     
     
 
   
Operating loss
    (780 )     —       (821 )     —  
     
     
     
     
 
Other expense:
                               
 
Interest income
    3       —       3       —  
 
Interest expense
    (2,223 )     —       (2,223 )     —  
 
Other
    (75 )     —       (75 )     —  
     
     
     
     
 
   
Loss before income taxes
    (3,075 )     —       (3,116 )     —  
 
Income tax expense
    —       —       —       —  
     
     
     
     
 
   
Net loss
  $ (3,075 )   $ —     $ (3,116 )   $ —  
     
     
     
     
 
Basic and diluted loss per share
  $ (1.19 )                        
     
                         
Basic and diluted weighted average common shares outstanding
    2,575,508                          

See accompanying notes to consolidated financial statements.

2

 

ALION SCIENCE AND TECHNOLOGY CORPORATION

Pro Forma Consolidated Statements of Operations (See Note 9)

For the 12-Week and 24-Week Periods Ended March 14, 2003 and March 15, 2002

(In thousands, except share information)
(Unaudited)
                                     
Pro Forma Pro Forma
For the 12-Week Period For the 24-Week Period
Ended Ended Ended Ended
March 14, 2003 March 15, 2002 March 14, 2003 March 15, 2002
Contract revenue
  $ 49,005     $ 44,852     $ 96,270     $ 88,554  
Direct contract expenses
    36,031       32,838       70,686       64,923  
     
     
     
     
 
   
Gross profit
    12,974       12,014       25,584       23,631  
     
     
     
     
 
Operating expenses:
                               
 
Indirect contract expenses
    2,848       2,249       5,416       4,794  
 
Research and development
    19       114       55       205  
 
General and administrative
    5,432       4,710       10,746       9,373  
 
Nonrecurring transaction costs
    388       1,078       5,836       1,078  
 
Rental and occupancy expense
    2,093       1,981       4,294       3,846  
 
Depreciation and amortization
    2,819       2,789       5,702       5,548  
 
Bad debt expense
    155       6       275       9  
     
     
     
     
 
Total operating expenses
    13,754       12,927       32,324       24,853  
     
     
     
     
 
   
Operating loss
    (780 )     (913 )     (6,740 )     (1,222 )
     
     
     
     
 
Other expense:
                               
 
Interest income
    3       13       25       15  
 
Interest expense
    (2,223 )     (2,178 )     (4,377 )     (4,335 )
 
Other
    (75 )     19       (96 )     (56 )
     
     
     
     
 
   
Loss before income taxes
    (3,075 )     (3,059 )     (11,188 )     (5,598 )
 
Income tax expense
    —       (159 )     (27 )     (366 )
     
     
     
     
 
   
Net loss
  $ (3,075 )   $ (3,218 )   $ (11,215 )   $ (5,964 )
     
     
     
     
 
Pro forma basic and diluted loss per share
  $ (1.19 )   $ (1.25 )   $ (4.35 )   $ (2.32 )
     
     
     
     
 
Pro forma basic and diluted weighted average common shares outstanding
    2,575,508       2,575,508       2,575,508       2,575,508  

See accompanying notes to consolidated financial statements.

3

 

ALION SCIENCE AND TECHNOLOGY CORPORATION

Consolidated Statement of Shareholder’s Equity (Deficit)

For the 24-Week Period Ended March 14, 2003

(In thousands, except share information)
(Unaudited)
                                         
Additional
Common Common Paid-in Accumulated
Shares Stock Capital Deficit Total
Balances at September 30, 2002
    100     $ —     $ 1     $ (91 )   $ (90 )
Issuance of common stock to Trust
    2,575,408       26       25,729       —       25,755  
Net loss, 24-week period ended March 14, 2003
    —       —       —       (3,116 )     (3,116 )
     
     
     
     
     
 
Balances at March 14, 2003
    2,575,508     $ 26     $ 25,730     $ (3,207 )   $ 22,549  
     
     
     
     
     
 

See accompanying notes to consolidated financial statements.

4

 

ALION SCIENCE AND TECHNOLOGY CORPORATION

Consolidated Statements of Cash Flows

For the 24-Week Periods Ended March 14, 2003 and March 15, 2002

(In thousands)
(unaudited)
                   
For the 24-Week Period
Ended Ended
March 14, 2003 March 15, 2002
Cash flows from operating activities
               
 
Net loss
  $ (3,116 )     —  
Adjustments to reconcile net los