Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of Earnings (loss) before income taxes, determined by tax jurisdiction, are as follows:

(In millions)	2023		2022	2021
United States	$	(356.9)	17.0	236.8
International	(1,352.2)		244.5	345.1
Total earnings (loss) before income taxes	$	(1,709.1)	261.5	581.9

Income taxes attributable to Earnings (loss) before income taxes are:

(In millions)	2023		2022	2021
Current
United States	$	(29.0)	85.9	52.3
State and local	(6.4)		18.0	15.4
International	57.6		84.7	50.1
	22.2		188.6	117.8
Deferred
United States	(36.3)		(105.7)	7.1
State and local	(3.0)		(16.6)	(0.3)
International	(204.2)		(7.8)	22.0
	(243.5)		(130.1)	28.8
Total income (benefit) taxes	$	(221.3)	58.5	146.6

A reconciliation of the statutory United States federal income tax rate to Hasbro’s effective income tax rate is as follows:

	2023		2022		2021
Statutory income tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net	0.5		1.2		1.5
Tax on international earnings	6.7		(4.0)		(1.1)
Domestic tax on foreign earnings	1.3		(6.5)		(1.7)
Change in unrecognized tax benefits	(0.3)		3.1		(3.4)
U.S. capital loss	22.0		—		—
Change in valuation allowance	(23.3)		9.7		(1.6)
Share-based compensation	(0.3)		1.4		(0.6)
Research and development tax credits	0.3		(3.5)		(1.1)
Deferred tax rate change	—		—		6.5
Officers' compensation	(0.3)		1.9		1.9
Loss on disposal of business	(3.4)		1.5		3.9
Goodwill impairments	(11.8)		—		—
Other, net	0.5		(3.4)		(0.1)
	12.9	%	22.4	%	25.2	%

Tax impact on reconciling items is opposite of the expected result due to the pretax loss in 2023.

The components of deferred income tax expense (benefit) arise from various temporary differences and relate to items included in the Consolidated Statements of Operations as well as items recognized in other comprehensive earnings. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2023 and December 25, 2022 are as follows:

(In millions)	2023		2022
Deferred tax assets:
Accounts receivable	$	31.8	28.8
Inventories	33.2		22.6
Loss and credit carryforwards	461.9		175.3
Operating leases	3.5		11.2
Operating expenses	19.1		29.9
Pension	6.9		9.1
Other compensation	46.4		50.7
Postretirement benefits	5.9		5.7
Interest rate hedge	4.8		4.5
Tax sharing agreement	0.3		0.3
Deferred revenue	0.4		4.4
Capitalized research and experimentation	100.6		81.2
Depreciation and amortization of long-lived assets	192.0		63.2
Interest expense limitation	28.7		—
Other	3.7		11.7
Gross deferred tax assets	939.2		498.6
Deferred tax liabilities:
Depreciation and amortization of long-lived assets	108.0		125.0
Equity method investment	19.0		14.9
Operating leases	1.1		9.3
Prepaid expenses	4.0		4.4
Other	22.8		15.4
Gross deferred tax liabilities	154.9		169.0
Valuation allowance	(432.0)		(189.8)
Net deferred income taxes	$	352.3	139.8

In May 2019, a public referendum held in Switzerland approved the Swiss Federal Act on Tax Reform and AHV Financing ("TRAF") proposals previously approved by the Swiss Parliament. The Swiss tax reform measures were effective on January 1, 2020. During 2023, the Company concluded its discussions with the tax authorities in Switzerland as to the application of the grandfathering rules related to TRAF. This has resulted in the recording of a deferred tax asset of $135.6 million related to tax intangibles that will be amortized over time. This treatment applies starting in 2021.

As of December 31, 2023, the Company has loss and credit carryforwards of $461.9 million, which is an increase of $286.6 million from $175.3 million at December 25, 2022. The most significant amount of the loss and credit carryforwards as of December 31, 2023 relates to U.S. capital losses of $375.6 million resulting from the sale of the eOne Film and TV business during 2023. Other significant loss and credit carryforwards relate to tax attributes of entities that have historically operated at losses in certain jurisdictions, as well as certain state tax attributes. The U.S. capital loss has a carryforward period of five years and will expire if not utilized before 2029. Some U.S. federal, state and international loss and credit carryforwards expire at various dates throughout 2024 while others have an indefinite carryforward period.

The recoverability of these future tax deductions and credits is evaluated by assessing the adequacy of future expected taxable income from all sources, including taxable income in prior carryback years, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent the Company does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is generally established. To the extent that a valuation allowance was established and it is subsequently determined that it is more likely than not that the deferred tax assets will be recovered, the change in the valuation allowance is recognized in the Consolidated Statements of Operations.

The Company has a valuation allowance for certain net deferred tax assets at December 31, 2023 of $432.0 million, which is an increase of $242.2 million from $189.8 million at December 25, 2022. The increase primarily pertains to a U.S. capital loss resulting from the sale of the Company's eOne Film and TV business, for which the Company recorded a valuation allowance of $364.8 million in 2023. The increase was offset by a decrease to the valuation allowance related to entities in certain jurisdictions which were sold as part of the sale of the eOne Film and TV business.

As of December 31, 2023 and December 25, 2022, the Company’s net deferred income taxes are recorded in the Consolidated Balance Sheets as follows:

(In millions)	2023		2022
Other assets	$	427.9	262.1
Other liabilities	(75.6)		(122.3)
Net deferred income taxes	$	352.3	139.8

We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. However, the Tax Cuts and Jobs Act (the "Tax Act") enacted on December 22, 2017 gave the Company more flexibility to manage cash globally. The Company still has significant cash needs outside the United States and continues to consistently monitor and analyze its global working capital and cash requirements. However, we intend to repatriate substantially all of our accumulated foreign earnings when appropriate. As of December 31, 2023, we have recorded $3.2 million of foreign withholding and U.S. state income tax liability. The Company has not finalized the timing of any actual cash distributions or the specific amounts and therefore we could still be subject to some additional foreign withholding taxes and U.S. state income taxes. We will record these additional tax effects, if any, in the period that we complete our analysis and are able to make a reasonable estimate.

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended 2023, 2022, and 2021 is as follows:

(In millions)	2023		2022	2021
Balance at beginning of year	$	77.8	50.6	67.8
Gross increases in prior period tax positions	11.9		0.9	0.6
Gross decrease from disposition	(10.4)		—	—
Gross decreases in prior period tax positions	(23.4)		(0.2)	(12.0)
Gross increases in current period tax positions	3.8		28.6	4.6
Decrease related to settlements with tax authorities	(8.4)		—	(2.7)
Decreases from the expiration of statute of limitations	(11.4)		(2.1)	(7.7)
Balance at end of year	$	39.9	77.8	50.6

Unrecognized tax benefits as of December 31, 2023, December 25, 2022 and December 26, 2021 were $39.9 million, $77.8 million, and $50.6 million, respectively, and are recorded within Other liabilities, Prepaid expenses and other current assets, and Other assets in the Company's Consolidated Balance Sheets. If recognized, these tax benefits may have affected our income tax provision for fiscal years 2023, 2022, and 2021 by approximately $46.0 million, $53.0 million, and $46.0 million, respectively.

During 2023, 2022, and 2021, the Company recognized $5.8 million, $2.2 million, and $2.6 million, respectively, of potential interest and penalties, which are included as a component of Income taxes in the

accompanying Consolidated Statements of Operations. As of December 31, 2023, December 25, 2022, and December 26, 2021, the Company had accrued potential interest and penalties of $6.2 million, $8.8 million, and $7.3 million, respectively.

The Company and its subsidiaries file income tax returns in the United States and various state and international jurisdictions. In the normal course of business, the Company is regularly audited by U.S. federal, state and local and international tax authorities in various tax jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before 2017. With few exceptions, the Company is no longer subject to U.S. state or local and non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2017. The Company is currently under income tax examination by the Internal Revenue Service and in several U.S. state and local and non-U.S. jurisdictions.

The Company believes it is reasonably possible that a decrease of approximately $0.0 million - $4.0 million in gross unrecognized tax benefits may be necessary within the coming year as a result of expected tax return settlements and lapse of statute of limitations.