High yield alionsciencetechnologycorp by Sutherland Global Services

High Yield â&#x20AC;&#x201C; Alion Science and Technology Corp

ALION SCIENCE AND TECHNOLOGY CORP. Overview Business Overview Alion Science & Technology Corp is an employee owned company providing scientific, engineering and information technology solutions for the problems relating to national defense, homeland security and energy and environmental analysis. The company provides research and development services to the U.S. government agencies, particularly the U.S. Department of Defense, state and foreign governments and other commercial customers. For the LTM ended 30-Jun-12, federal government contract revenue (prime contracts and subcontracts) accounted for 98.3% of its total revenues. The company provides its professional engineering services and scientific expertise in core business areas which are as follows: 1) Naval Architecture and Marine Engineering (45% of LTM revenues): The company provides cradle-to-grave technical expertise for total ship and systems design. The company is involved from the initial phase of mission analysis and feasibility trade-off studies through contract and detailed design. The company offers production supervision, testing, delivery and life-cycle engineering support to commercial and naval markets, domestic and international. 2) Defense Operations (21.6% of LTM revenues): The company performs military and policy analyses, assess logistics management readiness and operational support training, and analyze critical infrastructure risks for the Department of Defense. 3) Modeling and Simulation (12.6% of LTM revenues): The company uses its modeling and simulation expertise to examine event outcomes and identify technical failures and operational risks. The company recommends solutions to mitigate risk and improve performance 4) Technology Design and Other Services (20.8% of LTM revenues): The company provides services and technologies to government and commercial customers to reduce cost, enhance performance and safety of complex systems and improve information flow across networks and organizations. The company has a diverse contract base. Four of its five largest contracts are ID/IQ delivery order contracts representing 47% of FY’11 sales. Single largest individual contract accounted for 11% of FY’11 sales. As of September 30, 2011, the company had a portfolio of approximately 700 individual active contracts and task orders. The company’s contracts have three types of pricing structures including cost-reimbursement (82.9% of LTM revenues), fixed-price (6.6% of LTM revenues) and time-and-material (10.5% of LTM revenues) The main competitors in the prime contracting business for the company include Booz Allen Hamilton, CACI International Inc, Science Applications International Corporation, SRA International, Inc., and the services divisions of Lockheed Martin Corporation, General Dynamics Corporation and Northrop Grumman Corporation. In the commercial arena, Alion competes most often with smaller, highly specialized technical companies, as well as a number of larger companies. Larger competitors include, Westinghouse, General Electric, Enercon, Accenture, CAE and L-3 Communications Corporation. The company generated revenue of $789.7 mn and EBITDA of $49.8 mn (6.3% margin) for the LTM period ended 30-Jun-12. As of 30-Jun-12, the company had total backlog of $5.9 bn out of which $344.0 mn was funded. Recent Development: 15-Nov-12: The company has been awarded a $24.0 mn contract to provide Naval Surface Warfare Center, Panama City Division (NSWC PCD), with technology development, integration and evaluation expertise. 22-Oct-12: The company has been awarded a $63.0 mn contract to continue its support at Navy Warfare Development Command (NWDC) through Software, Networks, Information, Modeling and Simulation (SNIM) indefinite delivery/indefinite quantity contract. 28-Jun-12: The company has been awarded a contract valued at up to $542 mn to provide technical and management expertise to support the U.S. Navy’s submarine force. The contract, issued by the Naval Sea Systems Command, covers a full range of services to the Team Submarine Program Offices, including engineering, logistics, program management and business and financial management. Credit Outlook The company continues to have weak credit metrics as reflected by its leverage ratio and cash interest coverage ratio of 11.5x and 0.9x respectively as on 30-Jun-12. The company has a highly leveraged balance sheet which is expected to remain so in future. Although Department of Defense's budget cuts are anticipated, the effect of these cuts on the company are likely to be less severe compared to others in the aerospace and defense sector, due to the company’s focus on highly sophisticated scientific and engineering research services. Nevertheless, the company is not expected to be immune to changes in the defense budget such as contract funding delays which would negatively impact the financial position of the company. The company has a decent revenue visibility but is marred by low operating margins and heavy cash interest payment requirements which should suppress free cash flow generation. The company would be able to improve operating cash flow only when it is able to substantially reduce its dependence on cost-reimbursement contracts or refinance its high interest bearing debt. The company is trying to reduce costs by reducing headcount for indirect and administrative staff and seeking to reduce office space to position the company to serve its customers more effectively and at lower cost.

The minimum EBITDA covenant steps-up incrementally from $60.5 mn on 30-Jun-12 to $65.5 mn after 30-Sep-13. The company has a low EBITDA cushion of 15% for its minimum EBITDA covenant as on 30-Jun-12 indicating a small headroom for EBITDA reduction in future. The company should have a major refinancing stress in FY’15 as approximately $600.0mn of total debt is due for repayment in the same year. Refinancing of 12% Secured Notes and 10.25% Senior Notes has been assumed in the model due to lack of liquidity. The company’s asset based recovery remains poor as goodwill & intangible assets comprises of 64.1% of total assets as on 30-Jun-12. Business Risks 1) Higher Contribution of Cost-reimbursement Contracts: The company derives major portion (~82.9% of LTM revenue) of its revenues from services performed on cost-reimbursement contracts. Although cost-reimbursement contracts provides cushion under inflationary scenario, the management believes that the operating margin have remained low historically when the contribution from cost-reimbursement contract was high. 2) Reliance on Sales to U.S. Government Agencies: The company derived approx. 98.3% of its LTM revenues from contracts and subcontracts with the U.S. government and government agencies of which DoD contracts accounted for 92.5% of LTM revenues. The remainder of the revenue is derived from other commercial contracts and contracts with foreign governments. The continuation and renewal of existing government contracts and new government contracts are, among other things, contingent upon the availability of adequate funding for various U.S. government agencies. 3) Revenue Concentration: Top five contracts for the company generated half of the total revenues in FY’11. A loss of contracts, a failure to obtain new contracts or a reduction of sales under existing contracts could have negative impact on the operating performance of the company. 4) Continuous Losses: The company has been making losses ever since its incorporation in 2002, and the management expects the company to make loses for the next four years. Even if the company does manage to make profits in any of the next four years, the management feels the profitability would not be sustainable. Mitigants 1) DoD Planning to Reduce Cost-based Contracts: The Obama administration seeks to reduce DoD's use of cost-based contracts which would have positive impact on the company’s operating performance. 2) Huge Order Backlogs: As of 30-Jun-12, the company had backlog on existing contracts and executed delivery orders of $2.2 bn. The company estimates that it has total backlog of $5.9 bn out of which $344.0 mn was funded. At the current run rate of revenue in the range of $750-$850mn, the backlog provides considerable visibility of revenue in future. 3) Government Slowing Down Insourcing: On 2-Feb-11, the Secretary of the Army sent out a memo directing the Department to stop insourcing, unless a complete justification package has been submitted and approved by the Secretary's Office. The step taken by government appears to be positive for the company as, in last two years, the company has lost approximately 50-100 employees per year due to insourcing. Demand Drivers > Defense budget of the U.S. government > Demand and budget availability for services in areas other than defense Liquidity As of 30-Jun-12, Alion had cash and cash equivalents of $7.8 mn and availability under the revolver of $31.1 mn. With no near term debt maturity, the current liquidity position would be sufficient to fund capex and working capital requirement for the next twelve months. The company should have a major refinancing stress in FY’15 as approximately $600.0mn of total debt is due for repayment in the same year. In the model we have assumed that the credit facility will be refinanced at its maturity. However, we have not assumed similar refinancing of bonds at maturity. SWOT Analysis Strengths Leading provider of specialized outsourced technical services High re-compete win rate of 84% and total win rate of 55% over past 3 years Strong backlog Weakness Revenue concentration (98.3% from federal govt; 82.9% from cost-reimbursement contracts) High leverage and low interest coverage Lowest operating margin in the peer set

Opportunities Outsourcing as a cost saving measure Acquisitions to lever product & geography diversification Threats Uncertainty about long term defense budget outlook Insourcing by the government Fiscal cliff induced auto cuts

Alion Science & Technology Corporation (in $mn unless noted otherwise) Capital Structure (in $mn unless noted otherwise)

Note

Issuer

Ratings

Price

YTW

LFY 30-Sep-11

30-Jun-12

(b)

Coupon

30-Sep-13

12.5

6.00%

0.7

Alion Science & Technology Corp

B1/B

0.0

L+6.00%

22-Aug-2014

0.8

Alion Science & Technology Corp

B3/B-

95.75%

14.66% $

Alion Science & Technology Corp Caa3/CCC-

52.60%

47.41% $

Cash and cash equivalents Net Debt

Operating lease capitalized (Factor of 7)

10.8

12.5

324.4

310.6

330.4

$ 336.9

$ 323.1

245.0

128.9

575.4

$ 581.9

$ 452.0

20.8

7.8

554.5

$ 574.1

$ 444.2

142.7

144.4

$ 718.5

697.2

EBITDA

46.8

EBITDAR

319.6

Total Adjusted Debt (Adjusted Debt/EBITDAR)

67.1

0.26x

0.29x

1.5 12.00%

6.93x

6.65x

11.98x

9.59x

13.72x

11.82x

9.43x

13.53x

10.38x

16.94x $

69.2

42.4 63.1

Corporate Structure

Liquidity Position 26-Nov-12 0.19%

(in $mn unless noted otherwise)

Amount

Coupon/Fee

Floor

35.0

L/C

6.00%

0.00%

3.7

Outstanding

6.00%

2.50%

0.0

Available to draw

1.75%

0.00%

31.3

RCF Facility Size

Alion Science & Technology Corp Capital Lease

12.5 0.0

Revolving Credit Facility due 2014 Total First Lien Debt

12.5

12% Secured Cash+PIK Notes due in 2014

324.4

Secured Debt

324.4

Total Secured Debt

336.9

10.25% Senior Notes due 2015

245.0

Total Non- Guaranteed Unsecured Debt Total Debt

245.0 581.9

Other Operating Subsidiaries

105.00%

38.9

1-Feb-2015

27-Dec-2012

102.56%

25.1 65.6

(b) Forward leverage calculated on forecast FY 2013 EBITDA & EBITDAR Other key information

1-Apr-2013

40.5 10.25%

48.6

1-Nov-2014

7.94x

(a) The Secured Notes carry 12% coupon rate, out of which 10% is paid on cash basis while remaining 2% is PIK

LIBOR (3 Month)

Next Call Next Call Interest Date Price

10.8

Total Debt

(Source: Bloomberg)

Maturity

Total Secured Debt 10.25% Senior Notes due 2015

30-Jun-12

Forward

$ (a)

LTM at MV

Total First Lien Debt 12% Secured Cash+PIK Notes due in 2014

30-Jun-12

LTM

Capital Lease Revolving Credit Facility due 2014

MV of Debt

LTM

Alion Science & Technology Corporation (in $mn unless noted otherwise) Multiple Based Coverage Analysis Scenario Revenue (LTM) Increase / Decrease over realistic scenario EBITDA (LTM) Increase / Decrease over realistic scenario

Optimistic $868.7

Realistic $789.7

10% $55.9

Pessimistic $631.8 -20%

$48.6

15%

$36.4 -25%

EBITDA Margins (LTM)

6.4%

6.2%

5.8%

Average EV/EBITDA Multiple

6.3x

5.3x

4.3x

Enterprise Value

$352.0

$257.5

$156.7

Total First Lien Secured Debt

$12.5

Residual Value Available

352.0

257.5

156.7

Coverage

28.2x

20.6x

12.5x

Recovery

100.0%

Total Secured Debt

$324.4

339.5

245.0

144.2

Residual Value Available Coverage

1.0x

0.8x

0.4x

Recovery

100.0%

75.5%

44.4%

Total Senior Unsecured Debt

$245.0

Residual Value Available

15.1

$245.0 (79.4)

$245.0 (180.2)

Coverage

0.1x

0.0x

Recovery

6.2%

0.0%

(229.9)

(324.4)

(425.2)

Available to Equity

SENSITIVITY ANALYSIS EBITDA EV/EBITDA Multiple

Sensitivity Analysis at First Lien Senior Secured Credit Facility

Step

2.3 x 3.3 x 4.3 x 5.3 x 6.3 x 7.3 x 8.3 x 1.0 x

33.7

38.7

43.7

48.7

53.7

Step 58.7

5.0 63.7

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

33.7

38.7

43.7

48.7

53.7

Step 58.7

5.0 63.7

20.1% 30.5% 40.9% 51.3% 61.7% 72.1% 82.5%

23.6% 35.6% 47.5% 59.4% 71.4% 83.3% 95.3%

27.2% 40.6% 54.1% 67.6% 81.1% 94.6% 100.0%

30.7% 45.7% 60.7% 75.8% 90.8% 100.0% 100.0%

34.2% 50.8% 67.4% 83.9% 100.0% 100.0% 100.0%

37.8% 55.9% 74.0% 92.1% 100.0% 100.0% 100.0%

41.3% 61.0% 80.6% 100.0% 100.0% 100.0% 100.0%

38.7

43.7

48.7

53.7

Step 58.7

5.0 63.7

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10.7%

0.0% 0.0% 0.0% 0.0% 0.0% 7.7% 27.6%

0.0% 0.0% 0.0% 0.0% 0.7% 22.6% 44.5%

0.0% 0.0% 0.0% 0.0% 13.5% 37.5% 61.5%

0.0% 0.0% 0.0% 0.4% 26.4% 52.4% 78.4%

SENSITIVITY ANALYSIS EBITDA EV/EBITDA Multiple

Sensitivity Analysis at 12% Senior Secured PIK Notes

Step

2.3 x 3.3 x 4.3 x 5.3 x 6.3 x 7.3 x 8.3 x 1.0 x

SENSITIVITY ANALYSIS EBITDA EV/EBITDA Multiple

Sensitivity Analysis at 10.25% Senior Unsecured Notes

Step

33.7 2.3 x 3.3 x 4.3 x 5.3 x 6.3 x 7.3 x 8.3 x 1.0 x

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Asset Based Coverage Analysis Optimistic

Realistic

Pessimistic

Cash and cash equivalents

100.0%

Accounts receivable, net

100.0%

90.0%

80.0%

Receivable due from ESOP Trust

100.0%

90.0%

75.0%

Prepaid expenses and other current assets

100.0%

80.0%

75.0%

Property, plant and equipment

100.0%

90.0%

Intangible assets

0.0%

Goodwill

0.0%

100.0%

90.0%

75.0%

Other assets

Q3 12

Recoverable Value Cash and cash equivalents

$7.8

7.8

Accounts receivable, net

195.8

176.3

156.7

195.8

Receivable due from ESOP Trust

0.0

Prepaid expenses and other current assets

7.7

6.2

5.8

7.7

11.6

10.4

11.6

Intangible assets

0.0

6.7

Goodwill

0.0

398.9

Property, plant and equipment

Other assets

11.7

10.6

8.8

11.7

Total Assets

234.6

211.2

189.4

640.3 150.7

Trade Payables & accrued liabilities Funds available for loan payment Total First Lien Secured Debt Asset Coverage

go @100%

150.7

$84.0

$60.5

$38.8

$12.5

6.7x

4.8x

3.1x

Recovery

100.0%

Total Secured Debt

$324.4

Asset Coverage Recovery Total Senior Unsecured Debt Asset Coverage Recovery

0.2x

0.1x

22.0%

14.8%

8.1%

$245.0

0.0x

0.0%

Alion Science & Technology Corporation (in $mn unless noted otherwise)

ALION SCIENCE AND TECHNOLOGY CORP.

ITT CORPORATION

CACI INTERNATIONAL INC.

SAIC INC.

BOOZ ALLEN HAMILTON

Caa2/CCC+

Baa3/BBB-/A-

A3/A- *-

30-Jun-12

30-Sep-12

31-Jul-12

30-Sep-12

LTM Revenue

$ 789.7

$ 2,218.4

$3,781.3

$ 10,933.0

$ 5,803.4

LTM EBITDA % Margin

$ 49.8 6.3%

$ 98.8 4.5%

$344.6 9.1%

$ 385.0 3.5%

$ 503.0 8.7%

Less: CapEx

(7.0)

(44.2)

(21.1)

(68.0)

(47.7)

Less: Interest Expense (Cash)

(57.7)

(13.3)

(108.0)

(54.5)

8.3

(652.1)

299.3

291.0

525.0

EBITDA - Int. Expense % of Net Debt (Total)

(8.0) (1.4%)

NA NA

331.3 52.6%

277.0 50.9%

448.5 35.9%

Balance Sheet Statistics Cash & Equiv. Cash-Pay Debt Non Cash Pay Debt Total Debt Net Debt

7.8 257.5 323.3 $ 580.8 573.0

762.0 0.0 0.0 $ 0.0 (762.0)

48.6 678.7 0.0 $ 678.7 630.1

756.0 1,300.0 0.0 $ 1,300.0 544.0

489.0 1,737.6 0.0 $ 1,737.6 1,248.6

No. of Shares Outstanding Market Price Total Market capitalization Preferred Equity & Minority Interest

6.3 NA NA 0.0

92.3 21.7 2,000.1 0.0

22.8 52.2 1,190.2 2.7

341.8 11.6 3,971.7 0.0

144.4 14.1 2,042.3 0.0

EV ( Book Value of Net Debt) EV/Sales EV/EBITDA (BV of Net Debt)

NM NA NA

1,238.1 0.6x 12.5x

1,823.0 0.5x 5.3x

4,515.7 0.4x 11.7x

3,290.9 0.6x 6.5x

0.5x 9.0x

0.9x 11.5x

NM NM

26.0x 1.8x

3.6x 1.4x

9.2x 2.5x

12.9x 1.9x

Comps (USD IN MILLIONS) Operating Statistics: LTM Ended

CFO - CapEx

Credit Statistics Coverage (EBITDA/Int. Exp) Leverage (Net, based on BV of debt)

Average

6.4%

Securities Outstanding

Description YTW (bps) YTW/leverage (bps)

12% Secured Bonds due 2014 1465.6 127.3

10.25% Unsecured 7.4% Sr. Unsecured Bonds due 2015 Bonds due 2025 4535.5 394.0

542.1 NM

4.45% Sr. Unsecured Bonds due 2020

NA NA

314.7 222.7

NA NA

248.00

Alion Science & Technology Corporation (in $mn unless noted otherwise)

Revenue (in mn) and Growth (%)

Margin (%)

900.0 800.0

12.0%

30.0%

8.0%

25.0%

4.0%

700.0 600.0 500.0 *FY 08

FY 09

FY 10

FY 11

FY 12E

Revenue

FY 13E

FY 14E

15.0%

0.0%

10.0%

-4.0%

5.0%

-8.0% FY 07

20.0%

FY 15E

0.0% (5.0%) (10.0%) FY 07

Growth

*FY 08

FY 09 Gross

40.0%

50.0

30.0%

40.0

20.0%

(10.0)

30.0

10.0%

(20.0)

20.0

0.0%

(30.0)

10.0

-10.0%

(40.0)

-20.0%

(50.0)

*FY 08

FY 09

FY 10

FY 11

FY 12E

EBITDA

FY 13E

FY 11 EBITDA

FY 12E

FY 13E FY 14E Net Profit

FY 14E

FY 15E

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E 100.0%

50.0% 0.0% -50.0% -100.0% -150.0% -200.0%

(60.0)

-250.0% Net Profit

Growth

Debt to Equity ratio

Growth

EBITDA (in mn) and Net Debt to EBITDA Ratio

15.0x

16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x

60.0 50.0

12.0x

40.0

9.0x

30.0 20.0

6.0x

10.0 3.0x

FY 07

0.0x FY 07

*FY 08

FY 09

FY 10

FY 11

FY 15E

Net Profit (in mn) and Growth (%)

EBITDA (in mn) and Growth (%)

60.0

FY 07

FY 10

FY 12E

FY 13E

FY 14E

FY 15E

*FY 08

FY 09

FY 10 EBITDA

FY 11

FY 12E

FY 13E

Net debt / EBITDA

FY 14E

FY 15E

EBITDA (in mn) and Coverage Ratio

Backlog( in mn) and Book to Bill (%)

60.0

1.2x

7,500.0

50.0

1.0x

6,000.0

40.0

0.8x

30.0

0.6x

20.0

0.4x

10.0

0.2x

1,500.0

0.0x

0.0

FY 07

*FY 08

FY 09

EBITDA

FY 10

FY 11

FY 12E

EBITDA / Interest

FY 13E

FY 14E

4,500.0 3,000.0

FY 15E

FY 07

*FY 08

FY 09

(EBITDA - Capex) / Interest

FY 10

FY 11

FY 12E

Opening Backlog

Revenue by Contract type (in mn)

1,000.0

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

800.0

600.0

400.0

200.0

FY 14E

FY 15E

Book to Bill

Revenue by Costumer (in mn)

1,000.0

800.0

FY 13E

0.0

0.0 FY 07

*FY 08

Time and material

FY 09

Fixed-price

FY 10

Cost-reimbursement

FY 11

FY 07

Commercial and International

*FY 08

FY 09

Other Federal Civilian Agencies

FY 10

FY 11

U.S. Department of Defense

Alion Science & Technology Corporation (in $mn unless noted otherwise) Income Statement (in $mn unless noted otherwise)

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12E

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Key Data Revenue

737.6

739.5

802.2

834.0

787.3

789.1

791.4

802.8

200.8

202.6

192.8

191.2

189.9

197.1

211.5

190.6

Gross Profit

175.4

173.1

186.5

196.0

183.8

179.9

180.4

183.0

45.3

47.5

47.1

44.0

43.5

46.7

46.5

43.2

EBITDAR

58.9

62.9

79.6

73.4

67.1

63.1

63.2

63.8

16.7

18.4

16.5

15.5

15.7

18.1

19.8

9.4

EBITDA

36.0

41.7

56.5

53.1

46.8

42.4

42.5

43.2

11.6

13.4

11.2

10.5

13.0

14.5

4.4

EBIT

14.2

21.0

37.6

36.3

35.3

31.4

34.4

37.5

38.8

8.6

10.6

8.4

7.7

10.2

11.6

2.0

(42.8)

(25.3)

(17.0)

(15.2)

(44.4)

(49.3)

(37.2)

(34.9)

(52.5)

(11.1)

(9.7)

(11.5)

(12.1)

(12.8)

(10.2)

(8.9)

(17.4)

Net Profit Margin

23.8%

23.4%

23.3%

23.5%

23.3%

22.8%

22.5%

23.5%

24.4%

23.0%

22.9%

23.7%

22.0%

EBITDAR

Gross

8.0%

8.5%

9.9%

8.8%

8.5%

8.0%

7.9%

8.3%

9.1%

8.5%

8.1%

8.3%

9.2%

9.4%

4.9%

EBITDA

4.9%

5.6%

7.0%

6.4%

5.9%

5.4%

5.8%

6.6%

5.8%

5.5%

5.6%

6.6%

6.8%

2.3%

EBIT Net Profit

22.7%

1.9%

2.8%

4.7%

4.4%

4.5%

4.0%

4.4%

4.7%

4.8%

4.3%

5.2%

4.4%

4.0%

5.2%

5.5%

1.0%

(5.8%)

(3.4%)

(2.1%)

(1.8%)

(5.6%)

(6.3%)

(4.7%)

(4.4%)

(6.5%)

(5.5%)

(4.8%)

(6.0%)

(6.3%)

(6.7%)

(5.2%)

(4.2%)

(9.1%)

Growth Revenue

0.3%

8.5%

4.0%

(5.6%)

0.2%

(0.0%)

0.3%

1.4%

(5.4%)

(2.7%)

9.7%

(0.3%)

EBITDAR

6.8%

26.6%

(7.8%)

(8.5%)

(6.1%)

(0.0%)

0.2%

1.0%

(5.8%)

(1.8%)

20.4%

(39.5%)

EBITDA

15.8%

35.6%

(6.1%)

(12.0%)

(9.2%)

(0.0%)

0.3%

1.4%

(9.2%)

(2.7%)

29.1%

(58.3%)

EBIT

47.9%

79.2%

(3.3%)

(2.7%)

(11.1%)

9.5%

9.0%

3.4%

(10.7%)

(3.9%)

37.4%

(74.2%)

Net Profit

40.8%

32.7%

10.6%

(191.4%)

(11.2%)

24.5%

6.2%

(50.4%)

(15.1%)

(6.0%)

22.7%

(43.8%)

Coverage Ratios Interest Coverage ratio (EBIT)

0.3x

0.4x

0.7x

0.5x

0.4x

0.5x

0.4x

0.5x

0.4x

Interest Coverage ratio (EBITDA)

0.7x

0.9x

1.0x

0.8x

0.6x

0.5x

0.6x

0.7x

0.6x

Interest Coverage ratio (EBITDAR)

0.8x

0.9x

1.0x

0.8x

0.7x

0.6x

0.7x

Cash Interest Coverage ratio (EBIT)

0.4x

0.8x

0.7x

0.6x

0.5x

0.6x

0.4x

0.6x

0.5x

Cash Interest Coverage ratio (EBITDA)

1.1x

0.8x

1.1x

0.8x

0.7x

0.6x

0.5x

0.8x

0.7x

Cash Interest Coverage ratio (EBITDAR)

1.0x

0.9x

1.1x

0.9x

0.8x

0.7x

0.6x

0.9x

0.8x

0.9x

0.8x

Total Debt Cash & cash Equivalents Net Debt Interest expense

256.9

490.5

257.9

529.8

543.8

562.0

574.6

588.9

11.7

16.3

11.2

26.7

20.8

43.5

23.7

5.0

43.6

531.8

536.1

537.4

543.8

549.1

553.8

557.8

(591.7)

15.3

20.6

1.5

20.8

16.7

8.8

7.8

245.3

474.2

246.7

503.1

523.0

518.5

550.9

33.7

49.9

50.0

49.2

57.3

62.8

562.0 43.5

583.9

635.2

516.5

515.4

535.9

523.0

532.4

545.0

550.0

518.5

65.1

65.8

90.7

15.7

12.9

16.0

12.7

16.0

12.8

16.2

17.8

Credit ratio Debt / EBITDA

7.1x

11.8x

4.6x

10.0x

11.6x

13.2x

13.5x

13.8x

1.0x

12.9x

13.0x

10.6x

9.6x

32.0x

Net debt / EBITDA

6.8x

11.4x

4.4x

9.5x

11.2x

12.2x

13.0x

13.7x

14.7x

12.4x

12.6x

10.4x

9.5x

29.5x

EBITDA / Interest

1.1x

0.8x

1.1x

0.8x

0.7x

0.6x

0.5x

0.7x

1.0x

0.7x

0.8x

0.7x

1.0x

0.9x

0.2x

(EBITDA - Capex) / Interest

0.8x

0.7x

1.1x

1.0x

0.7x

0.6x

0.4x

0.7x

1.0x

0.6x

0.5x

0.6x

1.0x

0.8x

0.2x

EBIT / Interest

0.4x

0.8x

0.7x

0.6x

0.5x

0.6x

0.4x

0.5x

0.8x

0.5x

0.6x

0.5x

0.8x

0.7x

0.1x

ALION SCIENCE AND TECHNOLOGY CORP. Trends

Q3 2012 (Ending June 30, 2012) - The 3Q’12 revenue stood at $211.5mn (up 9.7% y-o-y) on account of new contracts from Naval Architecture and Marine Engineering (Navy) (up 11.1% y-o-y), and Technology Design and Other Services (TDOS) (8.6% y-o-y). These two divisions accounted for 44.6% and 24.4%, respectively of the quarter's revenue. - The uptake in the Navy revenue was attributable to $16.1mn bridge contract awarded to the company during the quarter as well as expanded work for the Naval Surface Warfare Center. While, TDOS revenue increase was driven by improved offerings of rapid weapons system prototyping analysis and logistical support functions. - The revenues from Defense Operations (Defense Ops), and Modeling and Simulation (M&S) saw declines of 18.7% and 19.7% in 3Q’12 respectively primarily on account of defense budgetary cuts. These two divisions account for 19.6% and 11.4%, respectively of the total revenue for the quarter. - Proportion of revenue from cost-reimbursement based contracts went down from 82.1% for 9M’11 to 81.9% in 9M’12, whereas the proportion of fixed-price contracts remained stable at 7.1% of revenue. - Contract backlog and executed delivery orders totaled $2.2bn at the end of 3Q’12, of which $344.0mn was funded. Total backlog considering the contract ceiling value for unfunded contracts stood at $5.9bn - Gross profit for the period stood at $46.5mn (down 1.2% y-o-y). Gross profit margin (22.0%) for the period was depressed on account of lower fees on subcontractors and material purchases. - EBITDA margin (6.8%) improved by 100bps y-o-y owing to cost containment efforts and headcount reductions. Q2 2012 (Ending March 31, 2012) - The 2Q’12 revenue stood at $197.1mn (down 3.0% y-o-y) on account of M&S (down 43.3%), and Defense Ops. (down 13.9%). The decline in the M&S and Defense Ops revenue was attributable to budget cuts by the U.S. Air Force and Army. Moreover, change in mix away from Defense Ops to TDOS continues - Revenue from Navy (5.1%) and TDOS (44.6%) increased during the quarter driven by follow-on business captured in the previous year. - Proportion of revenue from cost-reimbursement based contracts went up from 82.0% for 6M’11 to 82.8% in 6M’12, whereas the proportion of fixed-price contracts went down from 7.1% in 6M’11 to 6.7% of revenue. - Contract backlog and executed delivery orders totaled $2.3bn at the end of 2Q’12, of which $369.0mn was funded. Total backlog considering the contract ceiling value for unfunded contracts stood at $5.8bn - Gross profit for the period stood at $46.6mn (down 1.8% y-o-y). Gross profit margin (23.7%) for the period improved 20bps y-o-y on account of lower labor costs. - EBITDA margin (6.6%) remained constant on y-o-y basis on account of constant operating expense levels. Q1 2012 (Ending December 31, 2011) - The 1Q’12 revenue stood at $189.9mn (down 5.4% y-o-y) on account of Defense Ops. (down 13.3%) and M&S (down 44.9%). The decrease in the M&S and Defense Ops revenue was attributable to considerable decline in sales to the U.S. Air Force and Army - Revenue from Navy (10.4%) and TDOS (28.0%) increased during the quarter driven by start-up on contracts wins that have been delayed - Proportion of revenue from cost-reimbursement based contracts went down from 82.3% for 3M’11 to 81.9% in 3M’12, whereas the proportion of fixed-price contracts went up from 6.8% in 3M’11 to 7.4% of revenue. - Contract backlog and executed delivery orders totaled $2.5bn at the end of 1Q’12, of which $368.0mn was funded. Total backlog considering the contract ceiling value for unfunded contracts stood at $6.1bn - Gross profit for the period stood at $43.5mn (down 3.8% y-o-y). Gross profit margin (22.9%) for the period improved on account of lower direct contract expenses. - EBITDA margin (5.6%) declined by 20bps in consistent with the fall in the revenue for the period.

Alion Science & Technology Corporation (in $mn unless noted otherwise) Income Statement

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12E

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

737.6

739.5

802.2

834.0

787.3

789.1

791.4

802.8

200.8

202.6

192.8

191.2

189.9

197.1

211.5

0.3%

8.5%

4.0%

(5.6%)

0.2%

(0.0%)

0.3%

1.4%

(5.4%)

(2.7%)

9.7%

(0.3%)

Direct contract expenses Gross Margin on Sales

(562.1)

(566.4)

(615.7)

(638.0)

(603.5)

(609.3)

(611.0)

(619.8)

(155.5)

(155.0)

(145.7)

(147.2)

(146.3)

(150.4)

(165.0)

(147.4)

175.4

173.1

186.5

196.0

183.8

179.9

180.4

183.0

45.3

47.5

47.1

44.0

43.5

46.7

46.5

43.2

Indirect contract expense

(44.0)

(40.1)

(35.5)

General and administrative

(63.1)

(60.5)

(61.5)

Rental and occupancy expense

(32.4)

(30.9)

(33.0)

Depreciation and amortization

(21.8)

(20.7)

(19.0)

Gain (loss) on sale of subsidiary

0.0

(in $mn unless noted otherwise) *restated balance sheet numbers Sales y-o-y growth

Gain on sale of contracts Operating Profit Gain on debt extinguishment

14.2 (6.2)

21.0 0.0

37.6 -

Other

0.1

0.7

0.3

Earnings before interest and taxes

8.1

21.6

37.9

Interest Income

0.3

0.4

0.1

(40.0)

190.6

(40.4)

(40.5)

(40.6)

(41.2)

(9.6)

(11.5)

(12.5)

(3.0)

(71.7)

(65.5)

(65.6)

(65.8)

(66.7)

(16.3)

(16.7)

(18.3)

(14.1)

(12.7)

(13.2)

(11.5)

(28.1)

(31.2)

(31.3)

(31.4)

(31.5)

(31.9)

(7.7)

(7.8)

(7.9)

(7.8)

(7.9)

(8.0)

(7.7)

(16.7)

(11.4)

(11.0)

(8.0)

(5.0)

(4.4)

(3.0)

(2.8)

(2.9)

(2.4)

0.1

0.0

0.1

0.0

5.0

0.0

10.6

8.4

7.9

7.7

10.2

11.6

38.9 50.7 (0.2) 89.4 0.1

35.5 0.9 0.0 36.5 0.0

31.4 (0.1) 31.4 0.1

34.4 34.4 -

37.5 37.5 -

38.8

8.6

0.5

(0.1)

38.8 -

9.0 0.0

0.5

0.0

(0.1)

0.3

(0.1)

8.8

8.2

7.6

10.5 0.0

0.0

(0.0) 10.2 0.0

0.1 11.7 0.0

2.0 2.0 -

Interest Expense (a)

(51.2)

(47.4)

(55.2)

(67.6)

(73.9)

(75.5)

(71.6)

(72.4)

(91.3)

(18.4)

(18.6)

(18.5)

(18.6)

(18.7)

(18.8)

(19.4)

Net Interest Expense

(50.9)

(47.0)

(55.1)

(67.5)

(73.9)

(75.5)

(71.6)

(72.4)

(91.3)

(18.4)

(18.5)

(18.6)

(18.7)

(18.8)

(19.4)

Income Before Income Taxes

(42.8)

(25.3)

(17.2)

21.9

(37.2)

(34.9)

(52.5)

(9.4)

(7.9)

(9.7)

(10.4)

(11.1)

(8.5)

(7.1)

(17.4)

(1.7)

(9.7)

(11.5)

(12.1)

(12.8)

(10.2)

(8.9)

Income Tax Expense Net Income

0.0 (42.8)

Parity Check

Earnings per share ($/share)

0.0 (25.3)

0.2 (17.0)

0.000

(37.4)

(44.1)

(37.2)

(7.0)

(5.2)

(15.2)

(44.4)

(49.3)

(37.2)

(34.9)

(52.5)

(11.1)

(1.97)

(1.74)

8.6

10.6

(0.000)

(8.35)

(5.01)

(3.25)

(2.81)

(7.83)

0.000

(1.98)

0.000

(17.4)

(2.12)

(1.73)

(1.39)

7.7

10.2

11.6

Adjusted EBITDA Calculation Operating profit

14.2

21.0

37.6

38.9

35.5

8.4

7.9

Gain (loss) on sale of subsidiary

0.0

2.4

(0.1)

0.0

(0.1)

0.0

Gain on sale of contracts

0.0

(5.0)

0.0

(2.6)

(0.1)

36.3

35.3

8.4

7.7

Total Adjustments Adjusted EBIT "EBIT"

14.2

21.0

37.6

31.4

34.4

37.5

38.8

8.6

10.6

10.2

11.6

2.0

21.8

20.7

19.0

16.8

11.4

11.0

8.0

5.0

4.4

3.0

2.8

2.9

2.4

Adjusted EBITDA "EBITDA"

36.0

41.7

56.5

53.1

46.8

42.4

42.5

43.2

11.6

13.4

11.2

10.5

13.0

14.5

4.4

Add; Lease rentals

22.9

21.2

23.1

20.3

20.4

20.6

5.1

5.0

5.3

5.0

5.2

5.1

5.4

5.0

Adjusted EBITDAR "EBITDAR"

58.9

62.9

79.6

73.4

67.1

63.1

63.2

63.8

16.7

18.4

16.5

15.5

15.7

18.1

19.8

9.4

0.0

0.2

Add; D&A

Tax expenses As % of Income before tax

Balance Sheet (in $mn unless noted otherwise)

(37.2)

(7.0)

(5.2)

-169%

30.0%

(1.7)

30.0%

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12E

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Current Assets Cash and cash equivalents

11.7

16.3

11.2

26.7

20.8

43.5

23.7

5.0

Accounts receivable, net

186.7

168.5

180.2

174.0

180.4

176.5

177.0

0.0

1.9

0.0

Receivable due from ESOP Trust Prepaid expenses and other current assets Total

7.0

5.8

3.8

5.2

6.1

7.7

205.4

190.5

195.1

207.8

207.3

227.7

207.9

189.7

(591.7)

15.3

20.6

1.5

20.8

16.7

8.8

7.8

43.5

179.5

173.6

178.4

173.9

180.4

183.3

183.1

195.8

176.5

0.0

1.3

7.7 (404.4)

—

5.9

6.6

7.0

6.1

5.8

7.5

7.7

194.8

205.6

182.5

207.3

205.8

200.7

211.3

227.7

Non-current Assets Property, plant and equipment Intangible assets

19.6

18.6

14.5

10.8

10.4

11.1

9.7

8.9

8.5

9.8

9.2

9.1

10.4

11.3

11.8

11.6

11.1

55.7

41.2

28.7

17.7

11.7

5.6

2.1

1.1

0.3

15.9

14.2

13.4

11.7

10.0

8.4

6.7

5.6

395.9

398.9

7.5

6.7

10.3

11.1

16.2

11.7

11.1

11.3

12.5

16.2

16.1

12.3

11.7

Total

478.6

465.4

452.4

438.5

437.2

427.4

422.5

420.6

419.5

435.8

433.6

433.9

437.2

436.4

431.4

429.0

427.4

Total Assets

684.0

655.9

647.5

646.3

644.5

655.1

630.4

610.3

15.0

630.6

639.2

616.4

644.5

642.3

632.1

640.3

655.1

7.3

239.9

Goodwill Other assets

Current Liabilities: Current portion of long term debt

5.4

Interest payable

12.1

6.5

9.0

17.2

17.4

15.9

15.8

17.3

15.7

17.4

15.8

17.5

15.9

Trade accounts payable

46.1

57.2

60.7

44.5

52.4

63.0

63.2

64.1

46.6

50.3

33.7

52.4

62.2

50.3

59.7

63.0

Accrued liabilities

33.2

39.2

45.5

43.1

48.4

63.3

63.5

64.4

44.4

41.9

45.3

48.4

49.0

45.1

49.5

63.3

Accrued payroll and related liabilities

43.7

41.6

43.0

40.2

39.7

49.9

50.0

50.8

33.1

35.8

37.5

39.7

36.7

36.9

39.0

2.1

2.7

3.7

2.9

2.8

2.4

3.1

2.6

2.8

2.5

2.3

2.4

144.5

387.1

167.3

148.0

160.7

194.5

195.0

197.6

142.9

147.9

134.8

160.7

166.2

152.2

166.5

194.5

279.6

Billings in excess of revenue earned Total

49.9

Non Current Liabilities Senior secured notes

275.8

291.0

283.4

287.2

291.0

294.9

298.7

302.6

Senior unsecured notes

243.5

244.4

245.2

246.1

242.1

244.4

244.6

241.8

242.1

242.3

242.5

242.7

Total Debt excluding cap. Leases

243.5

244.4

245.2

522.0

533.1

549.5

562.1

576.4

31.1

524.0

528.0

529.0

533.1

537.2

541.2

545.3

16.7

11.9

6.5

6.2

5.7

6.2

6.5

6.7

5.7

6.0

5.7

6.2

6.3

7.3

7.8

10.8

12.5

7.8

8.1

8.4

10.8

11.9

12.5

37.2

44.2

49.4

39.0

40.7

42.4

44.2

45.9

47.7

49.4

Accrued compensation and benefits, excluding current po Non-current portion of lease obligations Deferred income taxes

1.0

549.5

Other liabilities

298.9

42.7

276.2

1.0

Total

565.3

305.2

535.1

573.2

594.7

617.2

629.7

644.1

98.7

576.9

583.3

587.6

594.7

602.0

608.2

613.0

617.2

Total Liabilities

709.7

692.3

702.4

721.2

755.4

811.7

824.3

839.1

296.3

719.8

731.2

722.4

755.4

768.2

760.4

779.5

811.7

Stockholders’ equity: Redeemable common stock warrants Redeemable common stock

33.6

40.0

32.7

200.8

200.6

187.1

Commitments and contingencies

Common stock warrants

Accumulated other comprehensive loss

Accumulated deficit

150.8

126.6

112.7

147.6

157.3

154.8

126.6

124.3

114.8

112.7

0.0

20.8

(0.0)

(0.2)

(0.1)

(0.2)

(0.1)

(260.1)

(276.9)

(274.6)

(246.3)

(258.1)

(290.0)

(327.3)

(362.2)

(414.7)

(257.4)

(269.9)

(281.3)

(258.1)

(270.9)

(263.7)

(272.6)

(290.0)

Total stockholders’ equity

(25.8)

(36.4)

(54.9)

(74.9)

(110.9)

(156.6)

(193.9)

(228.8)

(281.3)

(89.2)

(92.0)

(106.0)

(110.9)

(126.0)

(128.3)

(139.2)

(156.6)

Total Liabilities & Shareholders Equity

684.0

655.9

647.5

646.3

644.5

655.1

630.4

610.3

15.0

630.6

639.2

616.4

644.5

642.3

632.1

640.3

655.1

Parity check

Cash Flow (in $mn unless noted otherwise) OPERATING ACTIVITIES: Net Income Adjustments: Depreciation and amortization

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12E

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

(42.8)

(25.3)

(17.0)

(15.2)

(44.4)

(49.3)

(37.2)

(34.9)

(52.5)

(11.1)

(9.7)

(11.5)

(12.1)

(12.8)

(10.2)

(8.9)

(17.4)

21.8

20.7

19.0

16.8

11.4

11.0

8.0

5.0

4.4

3.0

2.8

2.9

2.4 1.6

Paid in kind interest

0.0

6.3

6.4

6.5

6.7

0.6

1.6

Bad debt expense (recovery)

1.8

(0.6)

1.0

0.0

0.3

Accretion of debt to face value

1.0

1.1

2.4

3.3

0.0

Amortization of debt issuance costs

2.8

1.8

2.7

7.2

10.1

10.4

6.0

9.4

2.5

2.6

10.0

(3.8)

(9.2)

(8.5)

8.7

5.8

2.2

1.9

2.4

2.2

2.1

1.5

19.4

Other non cash items Changes in Working Capital Accounts receivable, net

(37.6)

18.9

(12.7)

6.6

(6.3)

3.6

0.0

(0.5)

(2.5)

0.4

(4.8)

4.4

(6.4)

(3.2)

0.2

(12.7)

Other assets

(0.8)

0.8

(4.3)

(1.3)

2.0

(0.8)

(0.2)

(2.8)

2.5

0.1

1.8

0.1

Trade accounts payable

10.2

11.1

3.5

(16.1)

7.9

10.7

(0.0)

0.2

0.9

2.1

3.7

(16.6)

18.6

9.8

(11.9)

9.5

3.3

Accrued liabilities

10.7

6.1

14.3

1.6

12.4

17.4

(0.0)

0.1

0.7

(6.8)

5.6

4.1

9.5

(2.7)

2.6

6.6

10.9

Interest payable

11.9

Other liabilities Net Cash Provided by Operating Activities

6.0 (5.0)

2.5

8.2

4.1

6.8

(0.1)

0.7

12.7

(0.0)

29.3

(5.6)

9.0

2.4

5.7

0.2

29.4

(1.5)

(16.7)

0.2 (17.2)

0.9 (38.1)

(1.4)

1.5

0.2

(0.3)

(8.3)

4.8

(1.6) 1.2 (13.3)

1.6 (0.4) 22.5

(1.6)

1.7

(1.7)

(0.2)

(0.0)

(0.9)

13.8

(1.2)

(6.7)

0.7

36.6

CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisitions-related obligations

(14.8)

(7.9)

(0.2)

(0.1)

0.0

Capital expenditures

(10.7)

(5.0)

(2.2)

(6.3)

(3.2)

(0.3)

(0.4)

(0.9)

(4.7)

(0.7)

(0.8)

(0.9)

(0.8)

0.8

0.0

0.1

0.0

(2.1)

(6.3)

(3.2)

(0.3)

(0.4)

(0.9)

(4.7)

(0.7)

(0.8)

(0.9)

(0.8)

(584.8)

Proceeds from sale of fixed assets Net Cash Used in Investing Activities

(25.4)

(12.2)

(2.3)

CASH FLOWS FROM FINANCING ACTIVITIES Change in debt

63.4

(15.7)

(5.4)

19.9

(4.0)

(1.5)

(2.5)

(10.8)

(0.5)

(18.2)

(0.7)

Sale of Common Stock Warrants

20.8

Cash paid for interest rate swap

0.4

4.3

(4.6)

Loan to ESOP Trust

(3.4)

(5.9)

(5.3)

(0.8)

(0.5)

(0.8)

(0.5)

ESOP loan repayment

3.4

5.9

5.3

0.8

0.5

0.8

0.5

(29.6)

(4.1)

(9.2)

(9.3)

(5.8)

(4.8)

(3.2)

(0.0)

(2.5)

(0.1)

(2.3)

(0.5)

(2.1)

Redeemable common stock sold to ESOP Trust

16.0

3.4

7.5

2.1

5.2

1.3

1.9

1.7

1.5

1.3

Net Cash used for Financing Activities

39.4

(5.3)

(3.5)

(584.8)

(2.8)

1.0

(5.0)

1.5

(2.3)

(0.5)

(0.8)

(19.8)

(20.4)

(626.1)

43.5

23.7

5.0

Cash available from opening balance

38.5

18.7

2.8

Total available cash

18.7

(1.7)

(626.1)

38.5

RCF Size

35.0

RCF opening availability

31.1

Payment of debt issuance cost

Redeemable common stock purchased from ESOP Trust

(12.6)

(11.8)

15.3

Change in cash before changes to revolver Opening Balance of Cash Minimum required cash balance

35.8 7.8

31.1

29.4

RCF Opening Balance

1.7

Revolver drawdown

1.7

29.4

Revolver Repayment

1.7

29.4

Change in revolver

Revolver Closing availability Change in Cash and Cash Equivalents

8.9

4.6

(5.1)

15.5

(5.9)

22.7

31.1

29.4

(19.8)

(18.7)

(596.7)

31.1 (11.4)

5.3

(19.1)

19.3

(4.1)

(8.0)

(1.0)

35.8

Effect of exchange rate changes on cash and cash equiva

Cash and Cash Equivalents at the Beginning of the period

2.8

11.7

16.3

11.2

26.7

20.8

43.5

23.7

5.0

26.7

15.3

20.6

1.5

20.8

16.7

8.8

7.8

11.7

16.3

11.2

26.7

20.8

43.5

23.7

5.0

15.3

20.6

1.5

20.8

16.7

8.8

7.8

43.5

Cash and Cash Equivalents at the end of the period Parity check

(591.7)

(33.7)

(49.9)

(50.0)

(49.2)

(57.3)

(0.1)

(0.0)

0.2

0.0

1.6x

1.2x

1.0x

1.1x

1.5x

(0.0)

(65.1)

(65.8)

(90.7)

(15.7)

(12.9)

(16.0)

(12.7)

(16.0)

(12.8)

(16.2)

(17.8)

Cash Paid Interest Income tax (paid) received (Operating cash flow + cash interest)/(cash interest)

Free Cash Flow Calculation (in $mn unless noted otherwise) Net Cash Provided by Operating Activities

(62.8)

1.4x

2.8x

1.0x

3.1x

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12E

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

29.4

(16.7)

(17.2)

(38.1)

(8.3)

4.8

(1.2)

(6.7)

(5.0)

(-) Capex

(10.7)

Simple FCF

(15.7)

29.3

9.0

2.4

(5.0)

(2.2)

(6.3)

6.8

0.2

(0.6)

24.3

5.7

(3.2) 26.2

(3.2)

(0.3)

(0.4)

(19.8)

(20.4)

(41.3)

(8.6)

4.3

(13.3) (0.9) (14.1)

22.5 (4.7) 17.8

0.7

(0.7)

(0.8)

(0.9)

(1.8)

(7.5)

(0.2)

36.6 (0.8) 35.8

Free Cash Flow - ("FCF") EBITDA

36.0

41.7

56.5

53.1

46.8

42.4

42.5

43.2

11.6

13.4

11.2

10.5

13.0

14.5

4.4

(33.7)

(49.9)

(50.0)

(49.2)

(57.3)

(62.8)

(65.1)

(65.8)

(90.7)

(15.7)

(12.9)

(16.0)

(12.7)

(16.0)

(12.8)

(16.2)

(17.8)

(0.1)

(0.0)

0.2

0.0

(-) Change in WC

(11.4)

41.0

7.7

(9.3)

13.4

46.4

0.0

(0.0)

(5.0)

4.1

(9.6)

23.8

3.8

(7.4)

2.6

47.4

(-) Capex

(10.7)

(5.0)

(2.2)

(6.3)

(3.2)

(0.3)

(0.4)

(0.9)

(4.7)

(0.7)

(0.8)

(0.9)

(0.8)

FCF

(19.9)

27.7

12.2

(7.5)

(3.5)

22.9

(25.8)

(26.4)

(50.8)

(9.4)

4.2

(15.2)

17.0

(2.4)

(7.8)

(0.1)

33.2

(2.7%)

3.8%

1.5%

(0.9%)

(0.4%)

2.9%

(3.3%)

(6.3%)

(4.7%)

2.1%

(7.9%)

8.9%

(1.3%)

(4.0%)

(0.0%)

17.4%

36.0

41.7

56.5

53.1

46.8

42.4

42.5

43.2

11.6

13.4

11.2

10.5

13.0

14.5

(-) Interest Paid (-) Taxes Paid

% of sales EBITDA FCF FCF as a % of EBITDA FCF / Total Debt

4.4

(19.9)

27.7

12.2

(7.5)

(3.5)

22.9

(25.8)

(26.4)

(50.8)

(9.4)

4.2

(15.2)

17.0

(2.4)

(7.8)

(0.1)

33.2

(55.3%)

66.6%

21.6%

(14.1%)

(7.5%)

53.8%

(60.9%)

(62.0%)

(117.6%)

(81.2%)

31.1%

(135.7%)

161.1%

(22.8%)

(60.1%)

(0.5%)

754.9%

(7.7%)

5.7%

4.7%

(1.4%)

(0.6%)

4.1%

(4.5%)

(116.4%)

(0.6%)

0.6%

(1.5%)

1.2%

4.1%

Alion Science & Technology Corporation (in $mn unless noted otherwise) Debt & Interest

Q4 12E

FY 12E

FY 13E

FY 14E

FY 15E

(in $mn unless noted otherwise)

Sep-12

Sep-13

Sep-14

Sep-15

Base

Floor

Coupon / Fee

LTM Balance

Capital Lease Opening Balance

12.5

Additions

Repayment

Closing Balance Interest Expense

12.5

0.2

0.8

35.0

3.9

31.1

29.4

0.19%

0.0%

6.00%

L/C Outstanding

0.00%

6.00%

Availability

0.00%

1.75%

31.1

Opening Balance

0.19%

0.00%

6.00%

12.5

Credit Facility RCF Size

Borrowings

1.7

29.4

Repayment

Closing

Interest Expense

0.19%

2.5%

6.00%

31.1

1.7

31.1

0.6

0.7

324.4

326.0

332.5

12% Secured Cash+PIK Notes due in 2014 Opening Balance Repayment

Closing Principal Balance Cash Interest PIK Interest

324.4

326.0

339.2 (339.8)

332.5

339.2

10.00%

8.1

32.6

33.3

2.9

2.00%

1.6

6.5

6.7

0.6

9.7

39.1

39.9

3.5

245.0

Total

326.0

(0.0)

10.25% Senior Notes due 2015 Opening Balance Repayment

245.0

Closing Balance Interest

10.25%

Interest Expense on Debt Interest Expense on Borrowings to Fund Shortfall

14.51%

Total Interest Expense Amortization of debt issuance cost Total Principal Balance of Debt Adjustments Balance sheet number

245.0

245.0 (245.0)

245.0

6.3

25.1

8.5

16.8

65.6

66.4

13.4

68.4

16.8

65.6

66.4

81.8

2.6

6.0

9.4

598.3

43.6

581.9

583.5

590.0

(24.08)

(21.5)

(15.5)

557.8

562.0

574.6

(9.4) 588.9

43.6

Alion Science & Technology Corporation (in $mn unless noted otherwise) Revenue Forecast

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12E

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Naval Architecture and Marine Engg.

313.1

325.6

365.9

363.0

335.3

355.2

336.1

337.0

341.9

77.6

85.5

86.2

85.9

85.7

89.4

94.4

85.7

Defense Operations

226.5

220.5

203.9

193.6

192.5

170.6

192.9

193.5

196.3

52.3

52.7

50.9

36.5

45.4

47.1

41.4

36.7

49.0

67.1

98.1

150.7

141.2

100.1

141.6

142.0

144.0

43.6

36.8

29.9

30.9

24.0

20.8

24.0

31.2

148.9

126.2

134.3

126.7

118.3

163.3

118.6

118.9

120.6

27.2

27.5

25.7

37.9

34.8

39.8

51.7

37.0

737.6

739.5

802.2

834.0

787.3

789.1

791.4

802.8

200.8

202.6

192.8

191.2

189.9

197.1

211.5

190.6

0.3%

8.5%

4.0%

-5.6%

0.2%

0.0%

0.3%

1.4%

(5.4%)

(2.7%)

9.7%

(0.3%)

(in $mn unless noted otherwise) Revenue (by business area)

Modeling and Simulation Technology Design and Other Services Total Growth Segmental Contribution Naval Architecture and Marine Engg.

42.5%

44.0%

45.6%

43.5%

42.6%

45.0%

42.6%

38.7%

42.2%

44.7%

44.9%

45.1%

45.4%

44.6%

45.0%

Defense Operations

30.7%

29.8%

25.4%

23.2%

24.4%

21.6%

24.4%

26.1%

26.0%

26.4%

19.1%

23.9%

19.6%

19.2%

6.6%

9.1%

12.2%

18.1%

17.9%

12.7%

17.9%

21.7%

18.2%

15.5%

16.2%

12.6%

10.6%

11.4%

16.4%

20.2%

17.1%

16.7%

15.2%

15.0%

20.7%

15.0%

13.5%

13.6%

13.4%

19.8%

18.3%

20.2%

24.4%

19.4%

Modeling and Simulation Technology Design and Other Services Backlog: Funded

360.0

340.5

376.5

407.8

403.8

321.0

338.0

294.7

403.8

368.0

369.0

344.0

4,669.0

4,475.8

2,331.5

2,366.8

2,158.7

2,079.0

1,962.0

1,905.3

2,158.7

2,132.0

1,931.0

1,856.0

3,676.8

3,839.0

3,655.2

3,800.0

3,900.0

4,100.0

3,655.2

3,600.0

3,500.0

3,700.0

Total Backlog at end of September

5,029.0

4,816.3

6,384.8

6,613.6

6,217.7

5,906.8

6,084.0

6,266.5

6,454.5

6,200.0

6,300.0

6,217.7

6,100.0

5,800.0

5,900.0

6,217.7

Opening Backlog

4,247.0

5,029.0

4,816.3

6,384.8

6,613.6

6,217.7

5,906.8

6,084.0

6,266.5

6,613.6

6,200.0

6,300.0

6,217.7

6,100.0

5,800.0

5,900.0

737.6

739.5

802.2

834.0

787.3

789.1

791.4

802.8

200.8

202.6

192.8

191.2

189.9

197.1

211.5

204.8

44.4

(952.2)

766.3

(605.2)

(611.9)

(608.9)

(614.8)

(614.4)

(202.6)

(92.8)

(273.5)

(307.6)

(497.1)

(111.5)

Unfunded Ceiling

Revenue Generated *Others Ending Backlog

5,029.0

Book to Bill

%growth in US Military Defense Spending

6,384.8

6,613.6

(1,100.0)

6,217.7

5,906.8

6,084.0

6,266.5

6,454.5

6,200.0

6,300.0

6,217.7

6,100.0

5,800.0

5,900.0

15.9%

16.3%

14.9%

12.1%

12.3%

13.0%

13.2%

13.0%

12.1%

13.1%

12.4%

12.1%

12.2%

12.8%

14.2%

14.0%

15.6%

(10.8%)

(18.2%)

(17.1%)

(10.1%)

(10.2%)

(10.0%)

-9.3%

-3.3%

-1.5%

-4.3%

-4.9%

-8.1%

-1.9%

1.9%

18.4%

(4.2%)

32.6%

3.6%

(6.0%)

(5.0%)

3.0%

5.7%

11.8%

7.2%

5.0%

1.8%

1.4%

(1.9%)

(14.8%)

(4.4%)

Proposal Backlog In-process

529.0

361.0

280.0

619.0

Submitted

1,057.0

1,491.0

1,715.0

1,905.0

1,586.0

1,852.0

1,995.0

2,524.0

512.6

517.8

567.3

636.2

641.9

165.3

158.6

152.6

155.6

165.0

175.4

70.9

70.1

91.9

87.6

54.7

13.7

14.9

12.8

13.4

14.0

12.1

16.3

154.1

151.6

143.1

110.2

90.7

21.8

22.3

21.4

25.2

20.3

20.1

19.9

737.6

739.5

802.2

834.0

787.3

200.8

202.6

192.8

191.2

189.9

197.1

211.6

659.6

661.0

731.8

774.4

Total

Revenue (by Contract type) Cost-reimbursement Fixed-price Time and material Total

789.1

791.4

802.8

Revenue (by Costumer) U.S. Department of Defense

726.1

185.6

184.4

177.5

178.6

174.5

180.4

193.5

Other Federal Civilian Agencies

29.5

33.2

37.4

38.7

45.1

10.9

11.7

11.4

11.0

10.8

11.6

12.0

Commercial and International

48.5

45.3

33.0

20.9

16.1

4.2

6.4

3.9

1.6

4.6

5.1

6.0

737.6

739.5

802.2

834.0

787.3

200.8

202.6

192.8

191.2

189.9

197.1

211.5

Total

113.0 6,217.7

(20.5%)

Backlog addition (cancellation) rate % growth

4,816.3

(1,183.2)

789.1

791.4

802.8

Alion Science & Technology Corporation (in $mn unless noted otherwise) Operating Drivers

FY 07

*FY 08

FY 09

FY 10

FY 11

FY 12E

FY 13E

FY 14E

FY 15E

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12E

(in $mn unless noted otherwise)

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Total revenue

737.6

739.5

802.2

834.0

787.3

789.1

791.4

802.8

200.8

202.6

192.8

191.2

189.9

197.1

211.5

190.6

0.3%

8.5%

4.0%

-5.6%

0.2%

0.0%

0.3%

1.4%

Direct Contract Costs Direct labor costs

245.8

248.4

272.1

272.0

255.4

260.4

261.2

264.9

62.6

67.5

64.6

60.8

61.3

66.1

64.5

68.5

Material and subcontract costs

295.1

317.0

348.4

330.4

331.2

332.2

336.9

88.7

87.5

81.2

73.1

80.4

84.3

100.5

66.0

Other direct costs Total Direct Contract Costs

21.3

22.9

26.6

17.5

17.6

17.7

17.9

4.2

0.0

13.3

4.6

0.0

13.0

562.1

566.4

615.7

638.0

603.5

609.3

611.0

619.8

155.5

155.0

145.7

147.2

146.3

150.4

165.0

147.4

Indirect contract expense

44.0

40.1

35.5

40.0

40.4

40.5

40.6

41.2

General and administrative

63.1

60.5

61.5

71.7

65.5

65.6

65.8

66.7

Rental and occupancy expense Total Indirect Costs

32.4

30.9

33.0

31.2

31.3

31.4

31.5

31.9

139.5

131.4

130.0

142.9

137.1

137.4

137.8

139.8

As % of revenue Direct labor costs

33.3%

33.6%

33.9%

32.6%

32.4%

33.0%

31.2%

33.3%

33.5%

31.8%

32.3%

33.6%

30.5%

35.9%

Material and subcontract costs

40.0%

39.9%

39.5%

41.8%

42.0%

44.2%

43.2%

42.1%

38.2%

42.4%

42.8%

47.5%

34.6%

Other direct costs Total Direct Contract Costs

2.9%

3.1%

3.3%

2.1%

2.2%

2.1%

0.0%

7.0%

2.4%

0.0%

6.8%

76.2%

76.6%

76.7%

76.5%

76.7%

77.2%

77.5%

76.5%

75.6%

77.0%

77.1%

76.3%

78.0%

77.3%

Indirect contract expense

6.0%

5.4%

4.4%

4.8%

5.1%

General and administrative

8.6%

8.2%

7.7%

8.6%

8.3%

4.4%

4.2%

4.1%

3.7%

4.0%

Total Indirect Costs

Rental and occupancy expense

18.9%

17.8%

16.2%

17.1%

17.4%

Gross Margin

23.8%

23.4%

23.3%

23.5%

23.3%

22.8%

22.5%

23.5%

24.4%

23.0%

22.9%

23.7%

22.0%

22.7%

4.9%

5.6%

7.0%

6.4%

5.9%

5.4%

5.8%

6.6%

5.8%

5.5%

5.6%

6.6%

6.8%

2.3%

Account Receivable Turnover

4.0x

4.4x

4.5x

4.8x

4.4x

4.5x

4.6x

4.5x

4.4x

4.2x

4.1x

4.3x

Days of Accounts Receivable

187

168

180

174

180

176

177

180

174

178

174

180

183

196

176

EBITDA Margin

Key Working Capital Ratios

Accounts Receivable

Accounts Payable Turnover

9.7x

Days of Accounts Payable

Accounts Payable

Accrued Liabilities As % of Total Expenses Accrued Payroll and Related Liabilities As % of Total Expenses Total Expenses

12.2x

9.9x

10.1x

14.3x

11.5x

13.4x

12.3x

17.3x

11.2x

9.4x

12.0x

11.1x

9.4x

4.7%

5.6%

6.1%

5.5%

6.5%

8.5%

5.9%

5.5%

6.2%

6.7%

6.8%

6.1%

6.3%

8.5%

6.2%

6.0%

5.8%

5.2%

5.4%

6.7%

4.4%

4.7%

5.2%

5.5%

5.1%

5.0%

4.9%

6.7%

702

698

746

781

741

747

749

760

189

182

181

179

184

197

186

7.9

55.5

56.9

64.5

45.9

41.2

58.3

55.3

7.9

% of sales

9.6%

4.9%

4.3%

6.2%

5.8%

1.0%

6.9%

7.0%

8.4%

6.0%

5.4%

7.4%

6.5%

1.0%

Current Ratio

1.6x

1.3x

1.2x

1.4x

1.3x

1.0x

1.4x

1.3x

1.2x

1.3x

1.2x

Working Capital

70.6

36.3

34.7

51.3

45.9

Property, Plant and Equipment Opening Balance

19.6

18.6

14.5

10.8

10.4

11.1

9.7

8.9

9.8

9.2

9.1

10.4

11.3

11.8

Add Capex

10.7

5.0

2.2

6.3

3.2

0.3

0.4

0.9

4.7

0.7

0.8

0.9

0.8

Less D&A

(5.7)

(6.2)

(6.4)

(5.7)

(4.4)

(4.2)

(4.5)

(4.0)

(3.6)

(1.2)

(1.1)

(1.0)

(1.1)

(0.9)

(1.0)

(1.3)

0.1

(0.0)

9.8

9.2

9.1

11.2%

10.8%

12.1%

9.1%

0.2%

0.4%

2.4%

0.4%

Others Net PPE Check

19.6 -

Dep as % of Opening Balance of PPE

0.3

0.1

18.6

14.5

(0.2) 10.8

(2.3) 10.4

1.8 11.1

9.7

8.9

8.5

(2.3) 10.4

1.2

0.7

11.3

11.8

(0.1) 11.6

11.6

11.1

8.7%

8.5%

11.2%

0.4%

31.7%

34.4%

39.4%

40.7%

1.4%

0.7%

0.3%

0.8%

0.4%

Amortization Expenses

16.1

14.5

12.6

11.0

7.0

6.8

3.5

1.1

0.7

1.8

1.7

1.8

1.7

1.9

1.1

Amortization / Sales

2.2%

2.0%

1.6%

1.3%

0.9%

0.4%

0.1%

0.9%

0.8%

0.9%

1.0%

0.9%

0.6%

Capex / Sales

0.2%

Intangible Assets

Alion Science & Technology Corporation (in $mn unless noted otherwise)

COVENANTS

12% First Lien Senior Secured PIK Notes due 2014

10.25% Senior Unsecured Notes due 2015

Issuer

ALION SCIENCE AND TECHNOLOGY CORPORATION

Coupon

12% (includes 10% payable in cash 2% increases the principal, i.e. PIK)

10.250%

Issue date

03/22/10

02/08/07

Maturity date

11/01/14

02/01/15

Ranking

First Lien Secured (Intercreditor agreement effectively makes it second lien)

Senior Unsecured

Cross Default

YES

Yes

Source Document (s) with Date

Indenture (424B3 dated 07/30/2010)

Indenture (424B3 dated 05/10/2007)

Supplemental Documents

Limitation on Indebtedness

Alion and its Restricted Subsidiaries may not issue, incur, assume, guarantee, or otherwise become liable for any debt unless Adjusted EBITDA to Consolidated Interest Expense ratio is greater than 2.0 to 1.0

Carveouts:

(1) Indebtedness incurred under First Lien Secured Credit Facility due 2014 upto $35 Million

(1) Secured Indebtedness upto $360 Million

(2) Permitted inter-company debt

(3) Debt pre-dating the 12% First Lien Senior Secured PIK Notes due 2014

(3) Debt pre-dating the 10.25% Senior Unsecured Notes due 2015

(4) Permitted debt of acquired subsidiaries

(5) Permitted refinancing debt

(6) Hedging agreement debt

(7) Performance, bid, appeal and surety bonds and completion guarantees

(8) Ordinary course insufficient funds coverage

(9) Permitted refinancing debt guarantees

(10) Working capital debt of non-U.S. subsidiaries

(11) Debt for capital expenditures up to $25 Million in the aggregate and 2.5% of Alion’s Total Assets

(12) Debt for capital & synthetic leases up to $25 Million in the aggregate and 2.5% of Alion’s Total Assets

(13) Permitted subordinated debt of Alion or any Restricted Subsidiary to finance a permitted acquisition, certain permitted (13) 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 ESOP transactions and refinancing debt of acquired non-U.S. subsidiaries up to $35 Million in the aggregate

Limitation on Restricted Payments

(14) Letter of credit reimbursement obligations

(15) Certain agreements in connection with a business disposition provided liabilities incurred in connection therewith do not exceed the cash and non-cash proceeds received and are not reflected on Alion’s balance sheet

(16) Certain deferred compensation agreements

(17) General carveout not to exceed $20 Million

(17) General carveout not to exceed $35 Million

Alion and its Restricted Subsidiaries will not make any Restricted Payments unless: (a) No Event of Default; and

(b) Issuer can incur an additional $1 of Indebtedness pursuant to Adjusted EBITDA to Consolidated Interest Expense ratio as described above in the Limitation on Indebtedness

(c) Aggregate amount of all RPs made subsequent to the Issue Date shall not exceed the sum of: (c) Aggregate amount of all RPs made subsequent to the Issue Date shall not exceed the sum of: (i) 50% of Consolidated Net Income from 06/01/2010 to the most recent ended fiscal quarter (i) 50% of Consolidated Net Income from 04/01/2007 to the most recent ended fiscal quarter (ii) 100% of the cash proceeds from the issuance or sale of capital stock (ii) 100% of the cash proceeds from the issuance or sale of capital stock (iii) 100% of the proceeds (cash or property) from the conversion of debt into equity (iii) 100% of the proceeds (cash or property) from the conversion of debt into equity (iv) 100% of the cash proceeds from a sale or disposition of any Restricted Investment or the sale of stock of an Unrestricted (iv) 100% of the cash proceeds from a sale or disposition of any Restricted Investment or the sale of stock of an Unrestricted Subsidiary Subsidiary (v) FMV of an Unrestricted Subsidiary that is redesignated to be a Restricted Subsidiary (v) FMV of an Unrestricted Subsidiary that is redesignated to be a Restricted Subsidiary

Carveouts:

(1) Such payments out of substantially concurrent contributions of equity and substantially concurrent incurrence of permitted debt

(2) Certain limited and permitted dividends

(3) Certain repurchases of the Company’s equity securities deemed to occur upon exercise of stock options or warrants

(4) 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 our equity securities

(5) The required premium payable on the notes in a change of control

(6) Certain permitted inter-company subordinated obligations

(7) Certain repurchases and redemptions of subordination obligations of the Company or a Subsidiary Guarantor from net available cash

(8) Repurchases of subordinated obligations in connection with an asset sale

(9) Certain permitted ESOP transactions

(9) Repurchase of common stock from former Alion Joint Spectrum Center employees

(10) Long-term incentive plan payments to our directors, officers and employees, subject to a $3 Million annual cap that may increase annually

(10) Certain permitted ESOP transactions not exceeding $25 Million

(11) Any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of the Unsecured Notes, up to an aggregate amount of $10 Million

(11) General carveout not to exceed $30 Million

(12) General carveout not to exceed $10 Million

Events of Default

(1) Payment default on interest obligations, whether cash or PIK when due and continuing for 30 days

(2) Payment default on principal at maturity

(3) Uncured covenant breaches

(4) Default under an acceleration of certain other debt exceeding $30 Million

(5) Bankruptcy and certain insolvency events

(6) Judgment for payment in excess of $30 Million entered against Alion or any material subsidiary that remains outstanding (6) 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 for a period of 60 days and is not discharged, waived or stayed

Limitation on Asset Sales

Limitation on Affiliate Transactions

(7) Failure of any Secured Note guarantee to be in effect or any subsidiary guarantor’s denial or disaffirmation of its guaranty obligations

Alion and its Restricted Subsidiaries will not make any Asset Disposition unless:

(1) At FMV (as determined by the board of directors) (2) At least 75% of the consideration is in cash or Additional Assets or a combination thereof; and (3) Net Available Cash from such Asset Disposition is applied by the Issuer or such Restricted Subsidiary to any of the following: (a) to the extent the Issuer or any Restricted Subsidiary elects, to repay Senior Obligations secured by a Lien on Property of the Company or any Restricted Subsidiary of the Company (b) to the extent the Issuer or such Restricted Subsidiary elects, to invest in Additional Assets (c) to make an offer to the secured notes & pari passu indebtedness

(1) At FMV (as determined by the board of directors) (2) At least 75% of the consideration is in cash or Additional Assets or a combination thereof; and (3) Net Available Cash from such Asset Disposition is applied by the Issuer or such Restricted Subsidiary to any of the following: (a) to the extent the Issuer or any Restricted Subsidiary elects, to repay Senior Obligations (b) to the extent the Issuer or such Restricted Subsidiary elects, to invest in Additional Assets (c) to make an offer to the senior indebtedness

Carveouts:

(1) Asset sales that result in net available cash of $7.5 Million or less

Alion and its Restricted Subsidiaries will enter into or permit to exist any transaction with, or for the benefit of, any Affiliate of the Company, unless:

(1) Such transaction is at Arms length (2) In excess of $10 Million, approval by a majority of the members of the board of directors of the Issuer and by a majority of the members of such board having no personal stake in such transaction; and (3) In excess of $20 Million, opinion from an independent investment banking firm of internationally recognized standing

Carveouts:

(1) Permitted under Limitation on Restricted Payments clauses

(2) Employee stock options or related awards as approved by the Board

(3) Loans or advances to employees not exceeding $1 Million in aggregate outstanding at any one time

(4) Reasonable fees payable to the independent Directors

(5) Any transaction with the Company, a Restricted Subsidiary or joint venture or similar entity which would constitute an (5) Any transaction with the Company, a Restricted Subsidiary or joint venture or similar entity which would constitute an Affiliate Transaction solely because the Company or a Restricted Subsidiary owns an equity interest in or otherwise controls Affiliate Transaction solely because the Company or a Restricted Subsidiary owns an equity interest in or otherwise controls such Restricted Subsidiary, joint venture or similar entity such Restricted Subsidiary, joint venture or similar entity

Limitation on Liens

(6) Issuance of capital stock

(7) Earn out payments in connection with acquisition

(8) Agreements pre-dating the 12% First Lien Senior Secured PIK Notes due 2014

(8) Agreements pre-dating the 10.25% Senior Unsecured Notes due 2015

Alion will not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any Lien of any nature whatsoever on any of its properties (including Capital Stock of a Restricted Subsidiary)

Carveouts:

(1) Liens securing Indebtedness Incurred to finance the construction, purchase or lease of, or repairs, improvements or additions to PP&E

(2) Liens pre-dating the 12% First Lien Senior Secured PIK Notes due 2014

(2) Liens pre-dating the 10.25% Senior Unsecured Notes due 2015

(3) Liens secured hedging obligations

(4) Liens securing banker's acceptances

(5) Liens securing indebtedness of Foreign subsidiaries provided such liens related only assets and properties of only Foreign (5) Liens securing indebtedness of Foreign subsidiaries provided such liens related only assets and properties of only Foreign subsidiaries subsidiaries

Sale/Leaseback Transactions

(6) Liens incurred in ordinary course of business and related to (i) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances (ii) licenses, leases or subleases granted (iii) deposits to secure the performance of bids, trade contracts (iv) judicial proceedings not exceeding $30 Million (v) taxation (vi) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s obligations (vii) workmen’s compensation, unemployment insurance and other social security laws or regulations

(7) General carveout to permitted liens not to exceed $5 Million

Issuer and its Restricted Subsidiaries will not enter into any Sale and Leaseback Transaction with respect to any Property unless:

(1) Incur Debt with respect to such Sale and Leaseback Transaction permitted under carveouts to Limitation on Indebtedness

(2) the net proceeds received are at least equal to FMV of the asset in relation to sale/leaseback transaction

(3) Sale and Leaseback Transaction is in compliance with Limitation on Asset Sales

Alion Science & Technology Corporation (in $mn unless noted otherwise)

COVENANTS

First Lien Senior Secured Credit Facility due 2014

Issuer

ALION SCIENCE AND TECHNOLOGY CORPORATION

Coupon

L+6% with Libor floor of 2.5%

Issue date

03/11/11

Maturity date

08/22/14

Ranking

First Lien Senior Secured (Intercreditor Agreement effectively makes it Senior to the pari passu 12% First Lien Senior Secured PIK Notes due 2014)

Source Document (s) with Date

Restated and Amended Credit Agreement (03/11/11)

Supplemental Documents

Amendment No. 3 to CA (08/02/11); Amendment No. 2 to CA (03/11/11);

Limitation on Indebtedness

Alion will not, nor will it cause or permit any Subsidiary to incur, create, assume or permit to exist any Indebtedness Carveouts: (1) Debt pre-dating the Restated and Amended Credit Agreement (03/11/11) (2) Permitted inter-company debt (3) Permitted refinancing debt (4) Indebtedness incurred to finance the acquisition, construction or improvement of any fixed or capital assets and Capital Lease Obligations & Synthetic Lease Obligations in an aggregate amount not exceeding $20 Million (5) Hedging agreement debt (6) Permitted debt of acquired subsidiaries not exceeding $7.5 Million (7) Indebtedness incurred in the ordinary course of business with respect to worker's compensation claims, day-to-day banking, endorsements for collection, deposit or negotiation and warranties of products or services, settlement with outgoing employees (8) Indebtedness as represented by 12% First Lien Senior Secured PIK Notes due 2014 and 10.25% Senior Unsecured Notes due 2015 (9) Indebtedness at Foreign Subsidiary not exceeding $2.5 Million (10) Indebtedness with respect to Borrower's deferred compensation agreements (11) General carveout not to exceed $10 Million (12) Notwithstanding any of the above, with the prior consent of syndicate lenders that extended more than 50% of the aggregate amount of all Credit Agreement loans then outstanding, the borrower can incur indebtedness beyond the carveout stated above

Limitation on Liens

The Borrower and its any subsidiary will not create, incur, assume or permit to exist any Lien Carveouts: (1) Liens pre-dating the Restated and Amended Credit Agreement (03/11/11) (2) Liens created under the First Lien Senior Secured Credit Facility due 2014 (3) Any Lien existing on any property or asset prior to the acquisition of such asset

(4) Liens incurred in ordinary course of business and related to (i) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances (ii) licenses, leases or subleases granted (iii) deposits to secure the performance of bids, trade contracts (iv) judicial proceedings not exceeding $5 Million (v) taxation (vi) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s obligations (vii) workmen’s compensation, unemployment insurance and other social security laws or regulations (viii) customs or revenue authorities (ix) government authority in respect of environmental liability not exceeding $1 Million (5) Purchase money security interests in real property, improvements thereto or equipment and other personal property (6) General carveout to permitted liens not to exceed $2.5 Million (7) Notwithstanding any of the above, with the prior consent of syndicate lenders that extended more than 50% of the aggregate amount of all Credit Agreement loans then outstanding, the borrower can grant liens even beyond the carveouts stated under the Limitation on Liens

Sale/Leaseback Transactions

Issuer and its Restricted Subsidiaries will not enter into any Sale and Leaseback Transaction with respect to any Property unless: (1) Incur Debt with respect to such Sale and Leaseback Transaction permitted under carveouts to Limitation on Indebtedness (2) Sale and Leaseback Transaction is in compliance with Limitation on Asset Sales

(3) Notwithstanding any of the above, with the prior consent of syndicate lenders that extended more than 50% of the aggregate amount of all Credit Agreement loans then outstanding, the borrower can enter into sale/leaseback transactions beyond the provisions mentioned hereunder the sale/leaseback transactions clause

Investments, Loans and Advances

The Borrower and its any subsidiary will not purchase, hold or acquire any Equity Interests, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest Carveouts: (1) Permitted Investments and/or Permitted Acquisitions (2) Investments by the Borrower or any of the Subsidiaries in other subsidiaries not exceeding $2.5 Million (3) Investment received in lieu of settlement with counterparties (4) Advances to employees, officers, directors not exceeding in an aggregate amount of $1 Million (5) Non-speculative hedging agreements (6) Non-cash sales proceeds received from the buyer of the assets (7) General carveout not to exceed $15 Million (8) Notwithstanding any of the above, with the prior consent of syndicate lenders that extended more than 50% of the aggregate amount of all Credit Agreement loans then outstanding, the borrower can make investments, loans and advances beyond the provisions mentioned above

Limitation on Asset Sales

The Borrower and its any subsidiary will not make any Asset Disposition unless: (1) At FMV (2) At least 75% of the consideration is in cash (3) The FMV of all assets sold, transferred, leased or disposed of shall not exceed (A) $10 Million in any fiscal year or (B) $20 Million in the aggregate (4) Notwithstanding any of the above, with the prior consent of syndicate lenders that extended more than 50% of the aggregate amount of all Credit Agreement loans then outstanding, the borrower can enter into merger, consolidate, substantial sale of assets beyond the provisions mentioned above in the Limitation on Asset Sales

Restricted Payments

The Borrower and its any subsidiary will not make any Restricted Payments unless: (1) No Event of Default shall have occurred and be continuing or would result therefrom (2) There would be at least $10 Million of unused and available Revolving Credit Commitments. (3) Other customary restricted payment clauses (4) Notwithstanding any of the above, with the prior consent of syndicate lenders that extended more than 50% of the aggregate amount of all Credit Agreement loans then outstanding, the borrower can make Restricted Payments beyond the provisions mentioned above

Events of Default

(1) False or misleading Representations & Warranties (2) Payment default on interest obligations, whether cash or PIK when due and continuing for 3 days (3) Payment default on principal, fees with respect to loans, Letters of credit and continuing for 10 days (4) Uncured covenant breaches (5) Bankruptcy and certain insolvency events (6) Judgment for payment in excess of $5 Million entered against Alion or any material subsidiary that remains outstanding for a period of 60 days and is not discharged, waived or stayed (7) Erisa liabilities exceeding $5 Million (8) Failure of any Secured Note guarantee to be in effect or any subsidiary guarantorâ&#x20AC;&#x2122;s denial or disaffirmation of its guaranty obligations (9) A Change in Control event has taken place (10) Default on a material contract exceeding $5 Million (11) Barred from contracting with government agencies (12) Material Adverse affect due to finding, holding, ruling or other determination not subject to cure made by any court or Governmental authority (13) IRS disqualifying the ESOP (14) Intercreditor agreement ceases to remain in effect

Maximum Capital Expenditure

Upto $8 Million in any fiscal year (Unused amount can be carried forward only to next fiscal year) Notwithstanding any of the above, with the prior consent of syndicate lenders that extended more than 50% of the aggregate amount of all Credit Agreement loans then outstanding, the borrower can exceed the capital expenditure limit beyond $8 Million in a fiscal year

Minimum Consolidated EBITDA

Period - Amount 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 Thereafter - $65.5 Million

Below is a formatted version of the data displayed in the chart. Fiscal Years 1985 to 2015 GDP-US Population-US

Military Defense -fed $ billion million Recent Defense Spending nominal percent GDP 1985 4217.5 237.369 5.99 a 1986 4460.1 239.595 6.13 a 1987 4736.4 241.842 5.95 a 1988 5100.4 244.11 5.69 a 1989 5482.1 246.399 5.54 a 1990 5800.5 248.71 5.16 a 1991 5992.1 251.802 4.56 a 1992 6342.3 254.933 4.7 a 1993 6667.4 258.103 4.37 a 1994 7085.2 261.312 3.98 a 1995 7414.7 264.561 3.67 a 1996 7838.5 267.85 3.39 a 8332.4 271.18 3.25 a 1997 8793.5 274.552 3.05 a 1998 1999 9353.5 277.966 2.94 a 2000 9951.5 282.172 2.96 a 2001 10286.2 285.082 2.96 a 2002 10642.3 287.804 3.27 a 2003 11142.2 290.326 3.63 a 2004 11853.3 293.046 3.85 a 2005 12623 295.507 3.92 a 2006 13377.2 298.109 3.9 a 2007 14028.7 300.733 3.93 a 2008 14369.1 303.38 4.29 a 2009 13939 306.051 4.74 a 2010 14508.2 308.746 4.78 a 2011 14958.6 311.592 4.72 a 2012B 15601.5 314.123 4.59 b 2013B 16335 316.847 4.3 b 2014B 17155.6 319.594 3.49 b 2015B 18177.8 322.366 3.15 b Legend: a - actual reported i - interpolated between actual reported values g - 'guesstimated' projection by usgovernmentspending.com b - budgeted estimate in US fy13 budget Data Sources for 1985: GDP: Measuring Worth - US GDP Federal: US Gov. Budget: Hist. Tables 3.2 and 7.1 State and Local: Statistical Abstract of the United States Data Sources for 2015: GDP: US Gov. Budget: Hist. Table 10.1 Federal: US Gov. Budget: Hist. Tables 3.2 and 7.1 State and Local: State and Local Gov. Finances â&#x20AC;&#x153;Guesstimatedâ&#x20AC;? by projecting the latest change in reported spending forward to future years

8.2% 3.1% 3.0% 4.7% -1.4% -8.7% 9.1% -2.3% -3.2% -3.5% -2.3% 1.9% -1.0% 2.5% 7.1% 3.4% 14.3% 16.2% 12.8% 8.4% 5.4% 5.7% 11.8% 7.2% 5.0% 1.8% 1.4% -1.9% -14.8% -4.4%

252.62825 273.40413 281.8158 290.21276 303.70834 299.3058 273.23976 298.0881 291.36538 281.99096 272.11949 265.72515 270.803 268.20175 274.9929 294.5644 304.47152 348.00321 404.46186 456.35205 494.8216 521.7108 551.32791 616.43439 660.7086 693.49196 706.04592 716.10885 702.405 598.73044 572.6007