NOTE 7

Income taxes. The income tax provision consists of the following:


	2012			2011			2010
	($000 omitted)
Current:
Federal		(430	)		(678	)		(4,305	)
State		1,674			1,444			1,188
Foreign		9,024			9,221			337
Deferred:
Federal		(35,989	)		4,450			(1,197	)
State		(527	)		397			—
Foreign		(3,391	)		(5,493	)		12,052

Income tax (benefit) expense		(29,639	)		9,341			8,075

The following reconciles federal income taxes computed at the statutory rate with income taxes as reported.


	2012			2011			2010
	($000 omitted)
Expected income tax expense (benefit) at 35% ⁽¹⁾		27,842			4,091			(1,577	)
Foreign tax rate differential		(2,688	)		(764	)		613
Taxable income (non-consolidated subsidiaries for tax)		768			946			832
Intercompany dividends		921			572			738
Research and development credit		—			(74	)		(1,223	)
State income tax expense (benefit) – net of taxes		1,147			884			(178	)
Tax-exempt interest		(216	)		(342	)		(561	)
Non-deductible expenses		5,861			2,624			2,261
Loss carrybacks		(1,442	)		(1,829	)		—
Adjustments to deferred tax liabilities		9,371			10,781			8,716
Dividends received deductions on investments		(634	)		(500	)		(656	)
Valuation allowance		(71,106	)		(7,163	)		(1,146	)
Other – net		537			115			256

Income tax (benefit) expense		(29,639	)		9,341			8,075

Effective income tax rates (%) ⁽¹⁾		(37.3	)		79.9			(179.2	)

⁽¹⁾	Calculated using income (loss) before taxes and after noncontrolling interests.

Deferred income taxes at December 31, 2012 and 2011 were as follows:


	2012			2011
	($000 omitted)
Deferred tax assets:
Accrued expenses		15,630			12,684
Allowance for uncollectible amounts		4,575			5,784
Fixed assets		4,683			7,502
Investments		—			10,390
Net operating loss carryforwards		3,926			32,122
Tax credit carryforwards		27,072			18,727
Title loss provisions		8,479			11,235
Other		484			4,195

		64,849			102,639
Valuation allowance		(12,136	)		(84,771	)

		52,713			17,868
Deferred tax liabilities:
Amortization – goodwill and other intangibles		(27,528	)		(23,701	)
Unrealized gains on investments		(7,802	)		(4,003	)
Cash surrender value of insurance policies		(2,998	)		(4,431	)
Foreign currency translation adjustments		(5,753	)		(4,999	)
Accrued expenses Investments		(2,781 (477	) )		(6,592 —	)
Fixed assets		(345	)		(139	)
Other		(112	)		(1,452	)

		(47,796	)		(45,317	)

Net deferred income taxes		4,917			(27,449	)

Net deferred tax assets for U.S. federal tax paying components totaled approximately $7.6 million and net deferred tax liabilities for foreign tax paying components totaled approximately $2.7 million.

During 2008, the Company recorded valuation allowances against U.S. deferred tax assets, net of definite-lived deferred tax liabilities, for which realization could not be assured based on a more-likely-than-not standard. The Company retained that valuation allowance for all subsequent periods through December 31, 2011 principally due to the Company’s cumulative three-year operating loss history as of the end of each period. The Company routinely evaluates the extent to which the valuation allowance may be reversed. During 2012, the Company utilized approximately $87.2 million of U.S. federal net operating loss carry forwards (NOL). Remaining NOLs will begin to expire in 2030, if not utilized. During 2012, the Company released approximately $72.6 million of its valuation allowance, $36.6 million of which is included in the Company’s deferred tax benefit.

The Company is routinely subject to income tax examinations by U.S. federal, international and state and local tax authorities. The Company is currently under examination by the Internal Revenue Service for calendar years 2005 through 2008. The Company also is involved in routine examinations by state and local tax jurisdictions for calendar years 2007 and 2008. The Company expects no material adjustment from any examination.