Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

Income Taxes

NOTE 7. INCOME TAXES

The Company recorded income tax provisions of $1.1 million and $1.8 million in the three months ended June 30, 2011 and 2010, respectively, and $3.0 million and $3.2 million, respectively, in the six months then ended.  The effective income tax rate was 41.7% and 37.4% in the first half of 2011 and 2010, respectively.  The Company recorded a refund of $0.3 million in the first quarter of 2010 related to 2003 tax deductions.  Absent the refund, the Company's effective tax rate in the first half of 2010 was 40.3%.

As of June 30, 2011 the Company had $0.4 million of unrecognized tax benefits, of which $0.2 million would affect its effective tax rate if recognized. Accrued penalties and interest was $0.2 million at June 30, 2011 and December 31, 2010.

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.