Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

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Commitments and Contingencies
 12 Months Ended
Dec. 31, 2011
Commitments and Contingencies [Abstract]  
Commitments and Contingencies
(11)  Commitments and Contingencies

(a)  Leases, Related Party Transactions and Other Commitments

We are the tenant under capital leases on four building facilities with an aggregate obligation of approximately $6.6 million as of December 31, 2011.  We lease two of the facilities from a Limited Liability Corporation (“LLC”) in which the chief executive officer of our subsidiary WBI has a 25% ownership interest. Other employees or their direct relatives have the remaining ownership in this LLC and full ownership in the partnership from which we lease the two other facilities.  The leases were entered into in June 2011 in connection with our acquisition of WBI and each have terms of 15 years with two seven-year renewal options. The annual combined base rent amount is approximately $854 thousand and the leases contain escalation provisions for future years. Beginning in year five, the rent amount will increase by the greater of the Consumer Price Index (“CPI”) increase during the first four year period or 12%.  For each successive lease year, the rent will increase based on any increase in the CPI for the previous lease year. The leases provide us with an option to purchase three of the facilities for an aggregate amount of approximately $9 million and an option to purchase the fourth facility for approximately $650 thousand. The closing for these purchase options must occur before December 1, 2025.  Depreciation and interest expense for 2011 was approximately $266 thousand and $484 thousand, respectively.
 
In addition to the capital leases above, we have various non-cancelable operating leases for facilities, equipment, and software with terms between two and fifteen years. The terms of the facilities leases typically provide for certain minimum payments as well as increases in lease payments based upon the operating cost of the facility and the consumer price index.  Rent expense is recognized on a straight-line basis for rent agreements having escalating rent terms.  Lease expense for the years ended December 31, 2011, 2010 and 2009 were as follows (in thousands):

   
Operating
Lease
Expense
    
Sublease
Income
    
Net
Expense
  
                   
2011
   $ 11,787     $ 770     $ 11,017  
2010
   $ 13,209     $ 808     $ 12,401  
2009
   $ 12,546     $ 782     $ 11,764  
                             
Future minimum annual non-cancelable commitments as of December 31, 2011 are as follows (in thousands):

   
Capital
Leases
    
Operating Leases
  
   
Lease
Commitments
    
Lease
Commitments
    
Sublease
Income
    
Net
Commitments
  
2012
   $ 854     $ 8,638     $ 1,334     $ 7,304  
2013
     854       7,480       1,028       6,452  
2014
     854       5,640       859       4,781  
2015
     914       1,910       215       1,695  
2016
     957       2,117       -       2,117  
Thereafter
     9,012       -       -       -  
   Total
   $ 13,445     $ 25,785     $ 3,436     $ 22,349  
Less amounts representing interest
   $ (6,851 )                        
Present value of future minimum capital lease payments
   $ 6,594                          

We signed a 15-year lease commitment on November 9, 2009 to lease a new building with approximately 95,000 square feet of office space in Springfield, Virginia that will serve as our executive and administrative headquarters beginning in May 2012.  We issued a letter of credit under the lease agreement.  The letter of credit is held by the landlord as security for our performance of obligations under the lease agreement. Under the lease agreement, the landlord has the ability to draw upon the letter of credit during the construction period under certain conditions that are not within our control.  Amounts drawn on the letter of credit are not required to be maintained by the landlord in a separate bank account, which could lead to the comingling of letter of credit proceeds with other funds of the landlord. Due to the lease agreement terms regarding the potential of the landlord drawing on the letter of credit, we have concluded that we are involved in the construction of the building for accounting purposes and, therefore, we are considered the owner of the building during the construction period.  We have recorded a construction asset and corresponding long-term liability of approximately $26.4 million and $19.2 million, respectively, on the accompanying December 31, 2011 and 2010 consolidated balance sheets in connection with this lease, which represents the construction costs incurred by the landlord as of the respective balance sheet dates.
 
Future minimum annual non-cancelable commitments under our new headquarters lease as of December 31, 2011 are as follows (in thousands):

   
Lease Commitments
  
2012
   $ 2,451  
2013
     3,751  
2014
     3,863  
2015
     3,980  
2016
     4,139  
Thereafter
     49,354  
   Total
   $ 67,538  

(b)  Contingencies

We entered into an agreement with a subcontractor in March 2011 to satisfy certain work share requirements (the “Agreement”).  Under the terms of the Agreement, we are required to provide the subcontractor with certain levels of subcontracted work over two specified nine-month periods. The first period began March 1, 2011 and ended November 30, 2011. The second period began December 1, 2011 and ends August 31, 2012. If the work share requirements are not fulfilled, then we are required to make a cash payment to the subcontractor of up to $750 thousand for each period.  If a cash payment is made after the first nine- month period and we are able to provide a level of work during the second nine- month period that satisfies all or a portion of the work requirements for the combined eighteen months, we are entitled to a return of all or a portion of the cash payment. Under the terms of the Agreement, we placed $1.5 million in an escrow account to ensure cash payments to the subcontractor if the work share requirements are not satisfied. The remaining escrowed funds are classified as other current assets on our December 31, 2011 financial statements.

Due to delays in contract awards and protests of contracts awarded to us, we were not able to provide any of the first period required work to the subcontractor by November 30, 2011. Accordingly, we have recorded an expense of $750 thousand on our financial statements as of December 31, 2011.

We have, in the normal course of business, certain claims against us and against other parties.  In our opinion, the resolution of these claims will not have a material adverse effect on our results of operations or financial position. However, the results of any legal proceedings cannot be predicted with certainty.