Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9.  Commitments and Contingencies

Leases

Aggregate minimum commitments under non-cancelable operating leases, primarily for office space and equipment rentals, at December 31, 2011 were as follows (in thousands):

2012	$	18,589
2013		16,908
2014		15,165
2015		15,059
2016		15,285
Thereafter		71,717
	$	152,723

Rent expense for 2011, 2010 and 2009 was $19.3 million, $21.4 million and $17.4 million, respectively.

U.S. Government Contracts

The accuracy and appropriateness of costs charged to U.S. Government contracts are subject to regulation, audit and possible disallowance by the Defense Contract Audit Agency or other government agencies.  Accordingly, costs billed or billable to U.S. Government customers are subject to potential adjustment upon audit by such agencies.

Most of the company’s U.S. Government contracts are funded incrementally on a year-to-year basis.  Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially adversely affect the company’s financial condition or results of operations.  Furthermore, contracts with the U.S. Government may be terminated or suspended by the U.S. Government at any time, with or without cause.  Such contract suspensions or terminations could result in unreimbursable expenses or charges or otherwise adversely affect the company’s financial condition and/or results of operations.

Research and Development Expenses

The company believes that a majority of the company’s research and development expenses are recoverable and billable under contracts with the U.S. Government, from which the majority of the company’s revenues are derived.  Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices.  The company believes that research and development costs incurred in connection with the company’s Antares development program (see Note 1) are allowable, although the U.S. Government has not yet made a final determination.  During 2011, 2010 and 2009, the company incurred $34.3 million, $43.2 million and $41.3 million, respectively, of such expenses that have been recorded as allowable costs.  Since the inception of the Antares program through December 31, 2011, the company has incurred $153.5 million of such costs.  If such costs were determined to be unallowable, the company could be required to record revenue and profit reductions in future periods.

Terminated Contracts

The Orion Launch Abort System contract and a Taurus XL rocket contract were terminated for convenience by the customer in 2010 and in early 2012, respectively.  The company has recognized its best estimates of the revenues and profit that will ultimately be realized in the final termination settlements.

In April 2011, the company negotiated a settlement with its customer with respect to fees earned on the Kinetic Energy Interceptor contract that had been terminated in 2009.  The resolution of this matter did not have a material impact on the company’s financial statements.

Litigation

From time to time the company is party to certain litigation or other legal proceedings arising in the ordinary course of business.  Because of the uncertainties inherent in litigation, the company cannot predict the outcome of such litigation or other legal proceedings; however, the company believes that none of these matters will have a material adverse effect on the company’s results of operations or financial condition.

Discussions with U.S. Securities and Exchange Commission

In December 2011, the company received a comment letter from the staff of the U.S. Securities and Exchange Commission (“SEC”) in connection with a routine review of the company’s Annual Report on Form 10-K for the year ended December 31, 2010 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.  The SEC comment letter included, among other things, a request for supplemental information on certain of the company’s accounting policies and disclosures related to the timing of revenue recognition, including for the company’s Commercial Resupply Services "CRS" contract with NASA to resupply cargo to the International Space Station.  The company responded to the SEC comment letter in January 2012.  The company is currently engaged in discussions with the SEC staff regarding the company’s assumptions relating primarily to the timing of the recognition of launch and delivery milestones under the CRS contract.  The launch and delivery milestones comprise approximately 25% of total CRS contract value.  Total CRS contract revenue recognized through December 31, 2011 is approximately $628 million.  The company’s consolidated results contained in this Annual Report on Form 10-K were prepared in accordance with our existing accounting policies and using assumptions which the company believes are appropriate based on current facts and circumstances, all of which are consistent with those applied in prior audited periods.  Until these discussions are resolved, the company cannot determine if it will be required to supplement its disclosures or restate or make other changes to its historicalconsolidated financial statements, including the financial information contained in this Annual Report on Form 10-K.