(10) Income Taxes

Income taxes attributable to earnings before income taxes are:

	2013			2012			2011

Current
United States	$	12,760			64,076			49,233
State and local		1,677			1,587			2,538
International		72,640			67,826			52,176
		87,077			133,489			103,947

Deferred
United States		(10,751	)		(8,832	)		(1,973	)
State and local		(368	)		(303	)		(68	)
International		(8,064	)		(6,951	)		(880	)
		(19,183	)		(16,086	)		(2,921	)

Total income taxes	$	67,894			117,403			101,026

Certain income tax (benefits) expenses, not reflected in income taxes in the consolidated statements of operations totaled $6,733 in 2013, $(31,682) in 2012 and $(18,266) in 2011 which relate primarily to stock options. In 2013, 2012 and 2011, the deferred tax portion of the total (benefit) expense was $29,033, $(17,210) and $(8,581), respectively.

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

	2013			2012			2011

Statutory income tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net		0.3			0.3			0.3
Tax on international earnings		(11.4	)		(9.4	)		(11.4	)
Exam settlements and statute expirations		(7.4	)		(7.0	)		(4.6	)
Other, net		2.8			7.0			1.5
		19.3	%		25.9	%		20.8	%

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

	2013		2012		2011

United States	$	54,424		113,893		132,255
International		297,398		339,509		354,138
Total earnings before income taxes	$	351,822		453,402		486,393

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 29, 2013 and December 30, 2012 are:

	2013			2012
Deferred tax assets:
Accounts receivable	$	20,853			21,410
Inventories		16,272			15,472
Loss carryforwards		27,870			25,083
Operating expenses		54,255			46,879
Pension		31,533			49,159
Other compensation		46,206			53,611
Postretirement benefits		12,873			16,447
Tax sharing agreement		24,835			25,510
Other		30,338			31,038
Gross deferred tax assets		265,035			284,609
Valuation allowance		(21,474	)		(17,145	)
Net deferred tax assets		243,561			267,464

Deferred tax liabilities:
Depreciation and amortization of long-lived assets		66,856			76,365
Equity method investment		18,571			19,967
Other		5,455			7,655
Deferred tax liabilities		90,882			103,987

Net deferred income taxes	$	152,679			163,477

Hasbro has a valuation allowance for certain deferred tax assets at December 29, 2013 of $21,474, which is an increase of $4,329 from $17,145 at December 30, 2012. 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 29, 2013 and December 30, 2012, the Company's net deferred income taxes are recorded in the consolidated balance sheets as follows:

	2013			2012

Prepaid expenses and other current assets	$	86,634			85,429
Other assets		67,773			79,746
Accrued liabilities		(183	)		(641	)
Other liabilities		(1,545	)		(1,057	)
Net deferred income taxes	$	152,679			163,477

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended December 29, 2013, December 30, 2012 and December 25, 2011 is as follows:

	2013			2012			2011

Balance at beginning of year	$	103,067			83,814			91,109
Gross increases in prior period tax positions		8,677			3,089			811
Gross decreases in prior period tax positions		(33,181	)		(10,856	)		(33,501	)
Gross increases in current period tax positions		10,353			30,008			27,910
Decreases related to settlements with tax authorities		(31,478	)		-			(792	)
Decreases from the expiration of statute of limitations		(1,979	)		(2,988	)		(1,723	)
Balance at end of year	$	55,459			103,067			83,814

If the $55,459 balance as of December 29, 2013 is recognized, approximately $54,000 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 2013, 2012, and 2011 the Company recognized $4,634, $3,110 and $3,100, respectively, of potential interest and penalties, which are included as a component of income taxes in the accompanying consolidated statements of operations. At December 29, 2013, December 30, 2012 and December 25, 2011, the Company had accrued potential interest and penalties of $24,547, $20,377 and $13,847, 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 2010. 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.

During 2013, the U.S. Internal Revenue Service completed an examination related to the 2008 and 2009 U.S. federal income tax returns. As the result of the completion of this examination, unrecognized tax benefits, which are included as a component of other liabilities in the consolidated balance sheets, decreased $67,174. Of this amount, $29,970 was recorded as an increase to current liabilities, $14,112 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 $23,637 during 2013. The Company is currently under income tax examination in several U.S. state and local and non-U.S. jurisdictions.

During 2011, as a 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.

In connection with tax examinations in Mexico for the years 2000 to 2007, the Company has received tax assessments totaling approximately $248,760, 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 29, 2013, bonds totaling approximately $187,130 (at year-end 2013 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 through 2007 assessments. 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 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 $5,500, substantially all of which would be recorded as a tax benefit in the consolidated statements of operations. In addition, approximately $800 of potential interest and penalties related to these amounts would also be recorded as a tax benefit in the consolidated statements of operations.

The cumulative amount of undistributed earnings of Hasbro's international subsidiaries held for indefinite reinvestment is approximately $1,861,000 at December 29, 2013. In the event that all international undistributed earnings were remitted to the United States, the amount of incremental taxes would be approximately $492,000.