13. Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740. Under ASC Topic 740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections and the overall prospects of the Company's business. Based upon management's assessment of all available evidence, including the Company's completed transition into a licensing business, estimates of future profitability based on projected royalty revenues from its licensees, and the overall prospects of the Company's business, management is of the opinion that the Company will be able to utilize the deferred tax assets in the foreseeable future, and as such do not anticipate requiring a further valuation allowance. At December 31, 2011, the Company has a valuation allowance of approximately $12.3 million to offset state and local tax net operating loss carryforwards (“NOL”) which the Company believes are unlikely to be utilized in the foreseeable future. The valuation allowance decreased by $4.8 million during 2011 for the State NOLs.

At December 31, 2011 the Company had utilized all available federal NOL’s. As of December 31, 2011, the Company has approximately $173.7 million in state NOL's and approximately $140.8 million in local NOL's.

The income tax provision (benefit) for federal, and state and local income taxes in the consolidated income statements consists of the following:

(000's omitted)	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
Current:
Federal	$	40,315		$	37,745		$	23,650
State and local		512			(256	)		100
Foreign		2,722			1,472			338
Total current		43,549			38,961			24,088

Deferred:
Federal		28,066			13,703			17,372
State and local		(329	)		(315	)		(235	)
Foreign		-			60			-
Total deferred		27,737			13,448			17,137

Total provision	$	71,286		$	52,409		$	41,225

The significant components of net deferred tax assets of the Company consist of the following:

	December 31,
(000's omitted)	2011			2010
State net operating loss carryforwards	$	12,337		$	17,108
Receivable reserves		2,247			1,901
Hedging transaction		20,874			8,057
Intangibles		2,570			2,854
Capital loss		-			4,550
Equity compensation		12,193			8,875
Accrued compensation and other		363			1,206
Total deferred tax assets		50,584			44,551
Valuation allowance		(12,337	)		(17,108	)
Net deferred tax assets		38,247			27,443

Trademarks, goodwill and other intangibles		(130,255	)		(98,037	)
Depreciation		(3,308	)		(3,031	)
Difference in cost basis of acquired intangibles		(49,000	)		(49,000	)
Convertible notes		(22,616	)		(9,875	)
Investment in joint ventures		(5,192	)		(4,334	)
Total deferred tax liabilities		(210,371	)		(164,277	)
Total net deferred tax assets (liabilities)	$	(172,124	)	$	(136,834	)

Balance Sheet detail on total net deferred tax assets (liabilities):
Current portion of net deferred tax assets	$	2,114		$	1,743
Non-current portion of net deferred tax assets (liabilities)	$	(174,238	)	$	(138,577	)

The following is a rate reconciliation between the amount of income tax provision at the Federal rate of 35% and provision for (benefit from) taxes on operating profit (loss):

	Year ended December, 31
(000's omitted)	2011			2010			2009
Income tax provision computed at the federal rate of 35%	$	74,384		$	57,014		$	40,714
Increase (reduction) in income taxes resulting from:
State and local income taxes (benefit), net of federal income tax		113			(1,626	)		(4,013	)
Increase in valuation allowance		-			1,282			3,843
Non-controlling interest		(5,048	)		(3,987	)		-
Non-deductable executive compensation		1,855			-			-
Other, net		(18	)		(274	)		681
Total	$	71,286		$	52,409		$	41,225

The Company is not responsible for the income taxes related to the non-controlling interest’s share of the joint venture’s earnings. Therefore, the tax liability associated with the non-controlling interest share of the joint venture’s earnings is not reported in our income tax expense, even though the joint venture’s entire income is consolidated in our reported income before income tax expense. As such, the joint venture earnings have the effect of lowering our effective tax rate. This effect is more pronounced in periods in which joint venture earnings are higher relative to our other earnings.

Effective January 1, 2007, the Company adopted guidance under ASC Topic 740-10 which clarifies the accounting and disclosure for uncertainty in income taxes. The adoption of this interpretation did not have a material impact on our financial statements.

The Company files income tax returns in the U.S. federal and various state and local jurisdictions. For federal income tax purposes, the 2008 through 2011 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. For state tax purposes, our 2008 through 2011 tax years remain open for examination by the tax authorities under a four year statute of limitations.

At December 31, 2011, the total unrecognized tax benefit was approximately $1.2 million. However, the liability is not recognized for accounting purposes because the related deferred tax asset has been fully reserved in prior years. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

(000’s omitted)	FY 2011		FY 2010		FY 2009
Uncertain tax positions at January 1	$	1,180	$	1,180	$	1,180
Increases during the year		-		-		-
Decreases during the year		-		-		-
Uncertain tax positions at December 31	$	1,180	$	1,180	$	1,180

The Company is continuing its practice of recognizing interest and penalties to income tax matters in income tax expense. There was no accrual for interest and penalties related to uncertain tax positions for FY 2011, FY 2010 and FY 2009. The Company does not believe that there will be a material change in its unrecognized tax positions over the next twelve months. All of the unrecognized tax benefits, if recognized, would be offset by the valuation allowance.