INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 7. INCOME TAXES

Total income tax expense was allocated as follows:

	Year Ended December 31,
	2011			2010			2009
Income from operations	$	8,106		$	7,871		$	6,262
Gain (loss) from discontinued operations		-			261			(173	)
Deficiency (benefit) from stock plan transactions		(590	)		(143	)		127
Other comprehensive income (loss)		(3,770	)		(778	)		1,158
	$	3,746		$	7,211		$	7,374

The components of the provision for federal and state income taxes from operations were as follows:

	Year Ended December 31,
	2011		2010			2009
Current
Federal	$	2,492	$	7,368		$	(2,997	)
State		757		686			(103	)
Total current		3,249		8,054			(3,100	)
Deferred
Federal		4,005		(984	)		8,367
State		852		801			995
Total deferred		4,857		(183	)		9,362
Provision for income taxes	$	8,106	$	7,871		$	6,262

The major items contributing to the difference between the statutory U.S. federal income tax rate and the Company’s effective tax rate on income from continuing operations were as follows:

	Year Ended December 31,
	2011					2010					2009
Provision at statutory rate	$	6,847		35.0	%	$	7,065		35.0	%	$	5,801		35.0	%
State income taxes, net of federal tax benefit		1,097		5.6			989		4.9			752		4.5
Permanent differences, net		136		0.7			(2	)	0.0			(35	)	(0.2	)
Stock based compensation		30		0.2			16		0.1			-		-
Other, net		(4	)	(0.0	)		(197	)	(1.0	)		(256	)	(1.5	)
Provision for income taxes (1)	$	8,106		41.4	%	$	7,871		39.0	%	$	6,262		37.8	%

(1) Percentage may not add due to rounding.

The tax effects of significant temporary differences that comprise deferred tax assets and liabilities are as follows:

	December 31,
	2011			2010
Pension liability	$	17,985		$	14,027
Accrued expenses		4,312			3,596
Accrued vacation		1,465			1,174
Deferred gain on sale of building		1,236			1,545
Receivables reserves		338			207
Employee share-based compensation		164			521
Other		-			330
Deferred tax assets	$	25,500		$	21,400
Fixed assets and intangibles	$	(12,180	)	$	(8,957	)
Pension funding		(8,891	)		(7,408	)
Unbilled receivables		(4,759	)		(4,106	)
Domestic International Sales Corporation		(1,978	)		(2,198	)
Other		(578	)		(564	)
Deferred tax liability		(28,386	)		(23,233	)
Deferred tax liability, net	$	(2,886	)	$	(1,833	)

Management believes that it is more likely than not that these deferred tax assets will be realized.

The Internal Revenue Service (“IRS”) had challenged the deferral of income for tax reporting purposes related to unbilled receivables including the applicability of a Letter Ruling issued by the IRS to the Company in January 1976 which granted to the Company deferred tax treatment of the unbilled receivables.  This issue was elevated to the IRS National Office for determination.  On October 23, 2008, the Company received a notification of ruling from the IRS National Office.  This ruling provided clarification regarding the IRS position relating to revenue recognition for tax purposes regarding its unbilled receivables.  During September 2009, the IRS completed its examination of the Company’s tax returns for 2004 through 2007 and issued a Revenue Agent Report (“RAR”), which reduced the deferral of income for tax reporting purposes.  As a result the Company reclassified approximately $1.0 million from deferred to current taxes payable.  The RAR also included an assessment of interest of $0.5 million. The Company has filed a protest letter with the IRS to appeal the assessment.  The Company believes the appeal will be successful and has made no provision for the interest associated with the assessment.  The IRS has also initiated an exam of the 2009 tax year which is in the information gathering stage.

The change in the unrecognized tax benefits was as follows:

Balance at December 31, 2008	$	430
Additions for current year tax positions		132
Lapses of applicable statute of limitations		(153	)
Balance at December 31, 2009		409
Reductions for current year tax positions		(31	)
Balance at December 31, 2010		378
Reductions for current year tax positions		(63	)
Balance at December 31, 2011	$	315

At December 31, 2011, the Company’s unrecognized tax benefits, which if recognized in future periods, could favorably impact the effective tax rate by approximately $0.3 million.  The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $0.2 million at December 31, 2011 and 2010.

The Company files income tax returns in the U.S. federal jurisdiction and numerous state jurisdictions.  State tax returns for all years after 2006 are subject to future examination.  Although the IRS has completed its examination of tax years 2004 through 2007 the statutes are still open for those years until the appeals process is finalized.