NOTE

—INCOME TAXES

The domestic and foreign components of income before provision for income taxes are as follows (in thousands) for the years ended

December

31:

	2016		2015		2014
Domestic	$	69,159	$	54,150	$	53,597
Foreign		5,348		9,450		10,553
Income before income taxes	$	74,507	$	63,600	$	64,150

Income tax expense consisted of the following

for the years ended

December

31:

	2016			2015		2014
Current:
Federal	$	12,979		$	14,797	$	13,383
State		3,514			2,669		3,151
Foreign		1,932			1,475		3,563
Total current		18,425			18,941		20,097
Deferred:
Federal		8,872			4,562		3,264
State		1,222			512		399
Foreign		(596	)		216		360
Total deferred		9,498			5,290		4,023
Income Tax Expense	$	27,923		$	24,231	$	24,120

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes.

Deferred tax assets (liabilities) consisted of the following at

December

31:

	2016			2015
Deferred Tax Assets
Allowance for bad debt	$	1,008		$	831
Accrued paid time off		2,592			2,416
Accrued bonus		55			149
Foreign net operating loss (NOL) carry forward		1,371			933
Federal/state net operating loss (NOL) carry forward		3,010			6,458
Stock option compensation		4,292			4,792
Deferred rent		5,423			5,376
Deferred compensation		3,662			2,908
Foreign tax credits		2,631			1,914
State tax credits		1,784			1,339
Federal tax credits		225			225
Foreign exchange		5,349			1,879
Accrued liabilities and other		3,378			2,643
		34,780			31,863
Less: Valuation Allowance		(1,131	)		(933	)
Total Deferred Tax Assets		33,649			30,930

Deferred Tax Liabilities
Retention		(1,684	)		(1,860	)
Prepaid expenses		(1,654	)		(1,040	)
Payroll taxes		(617	)		(502	)
Unbilled revenue		(8,728	)		(8,093	)
Depreciation		(6,664	)		(7,186	)
Amortization		(51,842	)		(44,867	)
Deferred gain and o ther		(1,574	)		(708	)
Total Deferred Tax Liabilities		(72,763	)		(64,256	)
Total Net Deferred Tax Liability	$	(39,114	)	$	(33,326	)

At both

December

31,

2016

and

2015,

the Company had net operating loss (“NOL”) carry-forwards for foreign income taxes of approximately

$4.1

million and

$6.9

million, respectively, all of which

may

be carried forward indefinitely

December

31,

2016

, the Company had NOL carry-forwards for federal and state income tax purposes of approximately

$5.2

million, which expire in

2034.

The Company also had federal tax credits totaling

$0.2

million, all of which

may

be carried forward indefinitely. The Company acquired these NOLs and credits as a result of its purchase of Olson in

November

2014.

Internal Revenue Code Section

382

imposes an annual limitation on the use of a corporation’s NOLs, tax credits and other carryovers after an “ownership change” occurs.

Section

382

imposes an annual limitation on the amount of post-ownership change taxable income a corporation

may

offset with pre-ownership change NOLs and credits. In general, the annual limitation is determined by multiplying the value of the corporation’s stock immediately before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Any unused portion of the annual limitation is available for use in future years until such NOLs are scheduled to expire (in general, NOLs

may

be carried forward

years). The Company presently estimates that it will be able to fully utilize the acquired NOLs and credits prior to their expiration.

December

31,

2016,

the Company had gross state income tax credit carry-forwards of approximately

$2.9

million, which expire between

2017

and

2025.

A deferred tax asset of approximately

$1.8

million (net of federal benefit) has been established related to these state income tax credit carry-forwards as of

December

31,

2016.

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 has been given to all available evidence, including historical operating results, projections of taxable income, and tax planning alternatives. The Company concluded that a valuation allowance of approximately

$1.1

million and

$0.9

million was required for tax attributes related to specified foreign jurisdictions as of

December

31,

2016

and

2015,

respectively.

The net change in the total valuation allowance for

2016

was an increase of approximately

$0.2

million compared to

2015.

The

$0.2

million increase is comprised primarily of additional valuation allowance recorded against net operating losses incurred in foreign jurisdictions where

the Company is winding down operations. This increase is offset partially by the release of a valuation allowance in another foreign jurisdiction where the Company has ongoing operations to reflect the benefit realized from the utilization of net operating loss and other deduction carryforwards related to the reorganization of a business unit in that jurisdiction.

he Company made no provisions for deferred U.S. income taxes or additional foreign taxes on any unremitted earnings of its 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 related U.S. tax liability. The Company has

$2.6

million of foreign tax credits available for carry forward related to its foreign branch operations as of

December

31,

2016.

The total amount of unrecognized tax benefits as of

December

31,

2016

and

2015,

was

$1.2

million and

$0.4

million, respectively. Included in the balance as of

December

31,

2016

and

2015,

were

$1.0

million and

$0.3

million, respectively, of tax positions that, if recognized, would impact the effective tax rate.

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

Unrecognized tax benefits at January 1, 2014	$	702
Increase (decrease) in unrecognized tax benefits		—
Unrecognized tax benefits at December 31, 2014		702
Decrease attributable to settlements		(174	)
Increase attributable to tax positions taken during a prior period		12
Decrease attributable to lapse of statute of limitations		(140	)
Unrecognized tax benefits at December 31, 2015		400
Increase attributable to tax positions taken during a prior period		925
Decrease attributable to lapse of statute of limitations		(140	)
Unrecognized tax benefits at December 31, 2016	$	1,185

The Company

’s policy is not to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. The Company had approximately

$0.2

million and

$0.1

million of accrued penalty and interest at

December

31,

2016,

and

2015,

respectively.

The Company

’s

2013

through

2016

tax years remain subject to examination by the Internal Revenue Service for federal tax purposes. Certain significant state and foreign tax jurisdictions are also either currently under examination or remain open under the statute of limitations and subject to examination for the tax years from

2012

2016.

Although the Company believes it has adequately provided for all uncertain tax positions, amounts asserted by taxing authorities could be greater than the Company

’s accrued position. Accordingly, additional provisions on federal, state and foreign income tax related matters could be recorded in the future as revised estimates are made or the underlying matters are effectively settled or otherwise resolved. Conversely, the Company could settle positions with the tax authorities for amounts lower than have been accrued. The Company believes it is reasonably possible that, during the next

months, the Company’s liability for uncertain tax positions

may

decrease by approximately

$0.4

million.

The Company

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

	2016			2015			2014
Taxes at statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		3.9	%		3.9	%		4.2	%
Foreign tax rate differential		(0.1	)%		(0.3	)%		(0.6	)%
Other permanent differences		0.8	%		1.9	%		2.0	%
Prior year tax adjustments		(1.0	) %		(1.9	)%		(2.3	)%
Unrecognized tax benefits		1.0	%		—			—
Valuation Allowance Release		(0.3	) %		—			—
Equity-based Compensation		(1.0	) %		—			—
Tax credits		(0.8	)%		(0.5	)%		(0.7	)%
Taxes at effective rate		37.5	%		38.1	%		37.6	%