NOTE 7

Income taxes. Income tax expense (benefit) consists of the following:


	2013			2012			2011
	($000 omitted)
Current:
Federal		2,589			(430	)		(678	)
State		2,757			1,674			1,444
Foreign		6,753			9,024			9,221
Deferred:
Federal		18,361			(35,989	)		4,450
State		(206	)		(527	)		397
Foreign		(1,773	)		(3,391	)		(5,493	)

Income tax expense (benefit)		28,481			(29,639	)		9,341

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


	2013			2012			2011
	($000 omitted)
Expected income tax expense at 35% ⁽¹⁾		32,027			27,842			4,091
Foreign tax rate differential		(422	)		(2,688	)		(764	)
State income tax expense – net of Federal benefit		1,586			1,147			884
Non-deductible expenses		2,321			2,851			2,624
Non-deductible bond conversion costs		1,900			—			—
Loss carrybacks		—			(1,442	)		(1,829	)
Adjustments to deferred tax liabilities		(2,408	)		12,381			10,781
Valuation allowance		(6,555	)		(71,106	)		(7,163	)
Other – net		32			1,376			717

Income tax expense (benefit)		28,481			(29,639	)		9,341

Effective income tax rates (%) ⁽¹⁾		31.1			(37.3	)		79.9

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

Deferred income taxes at December 31, 2013 and 2012 were as follows:


	2013			2012
	($000 omitted)
Deferred tax assets:
Accrued expenses		17,104			15,630
Allowance for uncollectible amounts		3,521			4,575
Fixed assets		6,577			4,683
Net operating loss carryforwards		3,261			3,926
Tax credit carryforwards		31,372			27,072
Title loss provisions		—			8,479
Other		1,463			484

Deferred tax assets – gross		63,298			64,849
Valuation allowance		(6,971	)		(12,136	)

Deferred tax assets – net		56,327			52,713
Deferred tax liabilities:
Amortization – goodwill and other intangibles		(30,089	)		(27,528	)
Unrealized gains on investments		(3,382	)		(7,802	)
Deferred compensation on life insurance policies		(3,147	)		(2,998	)
Foreign currency translation adjustments		(2,726	)		(5,753	)
Title loss provisions Investments		(19,449 (305	) )		(2,781 (477	) )
Fixed assets		—			(345	)
Other		(259	)		(112	)

Deferred tax liabilities – gross		(59,357	)		(47,796	)

Net deferred income tax (liabilities) assets		(3,030	)		4,917

Net deferred tax liabilities for U.S. federal tax paying components totaled approximately $2.5 million and net deferred tax liabilities for foreign tax paying components totaled approximately $0.5 million at December 31, 2013. 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 at December 31, 2012. The net change to the valuation allowance during 2013 was $5.2 million.

During 2008, the Company recorded a valuation allowance 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 a significant portion of its U.S. federal net operating loss (NOL) carry forwards and 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 estimates that it will utilize all of its remaining U.S. federal NOL carry forwards in 2013. During 2013, the Company released a $6.6 million deferred tax asset valuation allowance on foreign tax credit carry forwards that it believes will, on a more-likely-than-not basis, be utilized prior to expiration. The Company’s $30.4 million of foreign tax credit carry forwards at December 31, 2013 expire in varying amounts through calendar year 2023.

The Company’s income tax returns are routinely subject to examinations by U.S. federal, international, and state and local tax authorities. The Company is nearing the completion of an examination by the Internal Revenue Service (IRS) for calendar years 2005 through 2008. During January 2014, the Company received notification from the IRS that its calendar year 2012 U.S. federal tax return has been selected for examination. The Company also is involved in routine examinations by state and local tax jurisdictions for calendar years 2008 and 2009. The Company expects no material adjustment from any tax return examination.