Non-controlling Interests

9 Months Ended

Sep. 30, 2013

Non-controlling Interests [Abstract]

Note 2. Non-controlling Interests

On April 11, 2007, Telos ID was formed as a limited liability company under the Delaware Limited Liability Company Act. We contributed substantially all of the assets of our Identity Management business line and assigned our rights to perform under our U.S. Government contract with the Defense Manpower Data Center ("DMDC") to Telos ID at their stated book values. The net book value of assets we contributed totaled $17,000. Until April 19, 2007, we owned 99.999% of the membership interests of Telos ID and certain private equity investors ("Investors") owned 0.001% of the membership interests of Telos ID. On April 20, 2007, we sold an additional 39.999% of the membership interests to the Investors in exchange for $6 million in cash consideration. In accordance with ASC 505-10, "Equity-Overall," we recognized a gain of $5.8 million. As a result, we own 60% of Telos ID, and therefore continue to account for the investment in Telos ID using the consolidation method.

The Amended and Restated Operating Agreement of Telos ID ("Operating Agreement") provides for a Board of Directors comprised of five members. Pursuant to the Operating Agreement, John B. Wood, Chairman and CEO of Telos, has been designated as the Chairman of the Board of Telos ID. The Operating Agreement also provides for two subclasses of membership units: Class A, held by us and Class B, held by the Investors. The Class A membership unit owns 60% of Telos ID, as mentioned above, and as such is allocated 60% of the profits, which was $0.6 million and $2.0 million for the three and nine months ended September 30, 2013, respectively, and $1.1 million and $2.4 million for the three and nine months ended September 30, 2012, respectively, and is entitled to appoint three members of the Board of Directors. The Class B membership unit owns 40% of Telos ID, and as such is allocated 40% of the profits, which was $0.4 million and $1.4 million for the three and nine months ended September 30, 2013, respectively, and $0.7 million and $1.6 million for the three and nine months ended September 30, 2012, respectively, and is entitled to appoint two members of the Board of Directors. The Class B membership unit is the non-controlling interest.

Distributions are made to the members only when and to the extent determined by the Telos ID's Board of Directors, in accordance with the Operating Agreement. The Class B members received a total of $0.6 million and $1.4 million for the three and nine months ended September 30, 2013, respectively, and $0.7 million and $1.2 million for the three and nine months ended September 30, 2012, respectively, of such distributions.

The following table details the changes in non-controlling interest for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Non-controlling interest, beginning of period	$	623		$	683		$	468		$	381
Net income		400			725			1,360			1,599
Distributions		(616	)		(677	)		(1,421	)		(1,249	)
Non-controlling interest, end of period	$	407		$	731		$	407		$	731

- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

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