(10) Income Taxes

Income taxes attributable to earnings before income taxes are:

	2012			2011			2010

Current
United States	$	64,076			49,233			35,232
State and local		1,587			2,538			1,931
International		67,826			52,176			47,633
		133,489			103,947			84,796

Deferred
United States		(8,832	)		(1,973	)		26,269
State and local		(303	)		(68	)		901
International		(6,951	)		(880	)		(1,998	)
		(16,086	)		(2,921	)		25,172

Total income taxes	$	117,403			101,026			109,968

Certain income tax benefits, not reflected in income taxes in the consolidated statements of operations totaled $31,682 in 2012, $18,266 in 2011 and $87,367 in 2010. In 2012 and 2011 these income tax benefits relate primarily to pension amounts recorded in AOCE and stock options. In 2010 these income tax benefits relate primarily to the reversal through additional paid in capital of deferred tax liabilities relating to the Company's contingent convertible debentures upon the conversion of these debentures. In 2012, 2011 and 2010, the deferred tax portion of the total benefit was $17,213, $8,579 and $64,700, respectively.

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

	2012			2011			2010

Statutory income tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net		0.3			0.3			0.4
Tax on international earnings		(9.4	)		(11.4	)		(11.2	)
Exam settlements and statute expirations		(0.7	)		(4.6	)		(4.4	)
Other, net		0.7			1.5			1.9
		25.9	%		20.8	%		21.7	%

The components of earnings before income taxes, determined by tax jurisdiction, are as follows:

	2012		2011		2010

United States	$	113,893		132,255		168,436
International		339,509		354,138		339,284
Total earnings before income taxes	$	453,402		486,393		507,720

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 at December 30, 2012 and December 25, 2011 are:

	2012			2011
Deferred tax assets:
Accounts receivable	$	21,410			22,007
Inventories		15,472			18,398
Loss carryforwards		25,083			27,943
Operating expenses		46,879			39,623
Pension		49,159			35,969
Other compensation		53,611			49,780
Postretirement benefits		16,447			15,723
Tax sharing agreement		25,510			25,991
Other		31,038			17,749
Gross deferred tax assets		284,609			253,183
Valuation allowance		(17,145	)		(18,145	)
Net deferred tax assets		267,464			235,038

Deferred tax liabilities:
International earnings not indefinitely reinvested		1,919			7,846
Depreciation and amortization of long-lived assets		76,365			73,301
Equity method investment		19,967			21,396
Other		5,736			3,075
Deferred tax liabilities		103,987			105,618

Net deferred income taxes	$	163,477			129,420

Hasbro has a valuation allowance for certain deferred tax assets at December 30, 2012 of $17,145, which is a decrease of $1,000 from $18,145 at December 25, 2011. The valuation allowance pertains to certain U.S. State and International loss carryforwards, some of which have no expiration and others that would expire beginning in 2015.

Based on Hasbro's history of taxable income and the anticipation of sufficient taxable income in years when the temporary differences are expected to become tax deductions, the Company believes that it will realize the benefit of the deferred tax assets, net of the existing valuation allowance.

At December 30, 2012 and December 25, 2011, the Company's net deferred income taxes are recorded in the consolidated balance sheets as follows:

	2012			2011

Prepaid expenses and other current assets	$	85,429			68,774
Other assets		79,746			62,574
Accrued liabilities		(641	)		(731	)
Other liabilities		(1,057	)		(1,197	)
Net deferred income taxes	$	163,477			129,420

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended December 30, 2012, December 25, 2011, and December 26, 2010 is as follows:

	2012			2011			2010

Balance at beginning of year	$	83,814			91,109			97,857
Gross increases in prior period tax positions		3,089			811			706
Gross decreases in prior period tax positions		(10,856	)		(33,501	)		(36,010	)
Gross increases in current period tax positions		30,008			27,910			34,598
Decreases related to settlements with tax authorities		-			(792	)		(5,550	)
Decreases from the expiration of statute of limitations		(2,988	)		(1,723	)		(492	)
Balance at end of year	$	103,067			83,814			91,109

If the $103,067 balance as of December 30, 2012 is recognized, approximately $90,000 would decrease the effective tax rate in the period in which each of the benefits is recognized. The remaining amount would be offset by the reversal of related deferred tax assets.

During 2012, 2011, and 2010 the Company recognized $3,110, $3,100 and $3,171, respectively, of potential interest and penalties, which are included as a component of income taxes in the accompanying consolidated statements of operations. At December 30, 2012, December 25, 2011 and December 26, 2010, the Company had accrued potential interest and penalties of $20,377, $13,847 and $14,466, 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 2008. 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 2006.

The U.S. Internal Revenue Service is conducting an examination related to the Company's 2008 and 2009 U.S. federal income tax returns. The Company is also under income tax examination in several U.S. state and local and non-U.S. jurisdictions.

During 2011, as the result of the completion of an examination related to the 2006 and 2007 U.S. federal income tax returns by the U.S. Internal Revenue Service, the Company recognized $22,101 of previously accrued unrecognized tax benefits, including the reversal of related accrued interest, primarily related to the deductibility of certain expenses, as well as the tax treatment of certain subsidiary and other transactions. Of this amount, $1,482 was recorded as a reduction of deferred tax assets and the remainder as a reduction of income tax expense. The total income tax benefit resulting from the completion of the examination, including other adjustments, totaled $20,477 during 2011.

During 2010, as a result of the completion of an examination related to the 2004 and 2005 U.S. federal income tax returns by the U.S. Internal Revenue Service, the Company recognized approximately $24,200 of previously accrued unrecognized tax benefits, including the reversal of related accrued interest, primarily related to the deductibility of certain expenses, as well as the tax treatment of certain subsidiary and other transactions. Of this amount, $7,032 was recorded as a reduction of deferred tax assets and the remainder as a reduction of income tax expense. The total income tax benefit resulting from the completion of the examination, including other adjustments, totaled approximately $21,000 during 2010.

In connection with tax examinations in Mexico for the years 2000 to 2005 and 2007, the Company has received tax assessments totaling approximately $205,720, which includes interest, penalties and inflation updates, related to transfer pricing which the Company is vigorously defending. In order to continue the process of defending its position, the Company was required to guarantee the amount of the assessments for the years 2000 to 2004, as is usual and customary in Mexico with respect to these matters. Accordingly, as of December 30, 2012, bonds totaling approximately $174,870 (at year-end 2012 exchange rates) have been provided to the Mexican government related to the 2000 through 2004 assessments, allowing the Company to defend its positions. The Company is not currently required to guarantee the amount of the 2005 and 2007 assessment. The Company expects to be successful in sustaining its position with respect to these assessments as well as similar positions that may be taken by the Mexican tax authorities for 2006 and periods subsequent to 2007.

The Company believes it is reasonably possible that certain tax examinations and statutes of limitations may be concluded and will expire within the next 12 months, and that unrecognized tax benefits, excluding potential interest and penalties, may decrease by up to approximately $7,000, substantially all of which would be recorded as a tax benefit in the statement of operations. In addition, approximately $1,200 of potential interest and penalties related to these amounts would also be recorded as a tax benefit in the consolidated statement of operations.

The cumulative amount of undistributed earnings of Hasbro's international subsidiaries held for indefinite reinvestment is approximately $1,583,000 at December 30, 2012. In the event that all international undistributed earnings were remitted to the United States, the amount of incremental taxes would be approximately $393,000.