NOTE J—INCOME TAXES

Income tax expense consisted of the following at December 31:


	2011			2010			2009
Current:
Federal	$	20,632		$	17,661		$	7,959
State		4,274			3,447			1,431
Foreign		801			627			652

		25,707			21,735			10,042
Deferred:
Federal		(3,173	)		(4,142	)		2,840
State		(630	)		(931	)		99
Foreign		(9	)		(151	)		(355	)

		(3,812	)		(5,224	)		2,584

Income Tax Expense	$	21,895		$	16,511		$	12,626

Deferred tax assets (liabilities) consisted of the following at December 31:


	2011			2010
Deferred Tax Assets
Current:
Stock option compensation	$	106		$	175
Allowance for bad debt		416			686
Accrued vacation		5,184			3,857
Accrued bonus		5,016			4,216
Foreign tax credits		81			62
Other		208			650

Total current deferred tax asset		11,011			9,646
Non-current:
Foreign net operating loss (NOL) carry forward		159			148
Stock option compensation		2,090			1,827
Deferred rent		2,361			1,028
Deferred compensation		990			668
Foreign tax credits		688			591
Other		2,045			1,241

Total non-current deferred tax assets		8,333			5,503

Total Deferred Tax Assets		19,344			15,149

Deferred Tax Liabilities
Current:
Retention		(762	)		(704	)
Section 481(a) adjustment		(674	)		(1,934	)
Prepaids		(1,229	)		(936	)
Payroll taxes		(383	)		(454	)
Amortization		—			(645	)

Total current deferred liability		(3,048	)		(4,673	)
Non-current:
Depreciation		(3,450	)		(2,438	)
Amortization		(12,841	)		(11,160	)
Section 481(a) adjustment		(674	)		(1,347	)
Other		(615	)		(626	)

Total non-current deferred tax liabilities		(17,580	)		(15,571	)

Total Deferred Tax Liabilities		(20,628	)		(20,244	)

Total Net Deferred Tax Asset (Liability)	$	(1,284	)	$	(5,095	)

The need to establish valuation allowances for deferred assets is based on a more-likely-than-not threshold that the benefit of such assets will be realized in future periods. Appropriate consideration is given to all available evidence, including historical operating results, projections of taxable income, and tax planning alternatives.

Effective January 1, 2009, the Company has made no provisions for deferred U.S. income taxes or additional foreign taxes on any unremitted earnings of our controlled foreign subsidiaries because the Company considers these earnings to be permanently invested. If these earnings were repatriated, in the form of dividends or otherwise, the Company would be subject to U.S. income tax on these earnings. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to the complexities associated with this hypothetical calculation; however, unrecognized foreign tax credit carry forwards would be available to reduce some portion of the U.S. tax liability. The Company has $0.8 million of foreign tax credits available for carry forward related to deemed dividend inclusions from its controlled foreign corporations, as well as its foreign branch operations as of December 31, 2011.

The total amount of unrecognized tax benefits as of December 31, 2011, and December 31, 2010, were $1.1 million and $0.9 million, respectively. Included in the balance at December 31, 2011, and December 31, 2010, were $0.5 million of each year, of tax positions that, if recognized, would impact the effective tax rate.

The Company does not anticipate a significant increase or decrease to the total unrecognized tax benefit during 2011. Its 2008 through 2011 tax years remain subject to examination by the Internal Revenue Service for U.S. federal tax purposes.

The unrecognized tax benefit reconciliation, excluding penalty and interest, is as follows:


Unrecognized tax benefits at January 1, 2009	$	1,240
Increase attributable to tax positions taken during a prior period		92
Increase attributable to tax positions taken during the current period		361
Decrease attributable to settlements with taxing authorities		(168	)
Decrease attributable to lapse of statute of limitations		(211	)

Unrecognized tax benefits at December 31, 2009		1,314
Decrease attributable to tax positions taken during the prior period		(15	)
Increase attributable to tax positions taken during the current period		147
Decrease attributable to settlements with taxing authorities		(83	)
Decrease attributable to lapse of statute of limitations		(419	)

Unrecognized tax benefits at December 31, 2010		944
Increase attributable to tax positions taken during a prior period		117

Unrecognized tax benefits at December 31, 2011	$	1,061

During 2008 and 2009, the Company filed federal, state, and foreign tax returns for prior years related to one of its 2007 acquisitions. The effect of these returns was to reduce our unrecognized tax benefits by a total of $1.1 million and for us to pay total net tax of $0.4 million.

The Company's policy is to not recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. The Company had approximately $0.4 million of accrued penalty and interest at December 31, 2009. During 2011, there was less than a $0.1 million change, which was adjusted through the penalty and interest expense and reflected in indirect and selling expenses and interest expense, respectively. The Company had approximately $0.5 million of accrued penalty and interest at December 31, 2011.

The Company's provision for income taxes differs from the anticipated United States federal statutory rate. Approximate differences between the statutory rate and the Company's provision are as follows:


	2011			2010			2009
Taxes at statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		4.6	%		4.6	%		4.6	%
Foreign tax rate differential and U.S. unrepatriated earnings		—	%		(0.1	)%		(0.6	)%
Other permanent differences		0.6	%		0.8	%		1.6	%
Change in valuation allowance		—	%		—	%		(0.4	)%
Prior year tax adjustments and changes in unrecognized tax benefits		(1.2	)%		(1.3	)%		(3.4	)%
Tax credits		(0.4	)%		(1.2	)%		(0.7	)%

		38.6	%		37.8	%		36.1	%