(10) Income Taxes

Income taxes attributable to earnings before income taxes are:

	2014			2013			2012

Current
United States	$	70,390			12,760			64,076
State and local		3,134			1,677			1,587
International		62,909			72,640			67,826
		136,433			87,077			133,489

Deferred
United States		(15,448	)		(10,751	)		(8,832	)
State and local		(530	)		(368	)		(303	)
International		6,223			(8,064	)		(6,951	)
		(9,755	)		(19,183	)		(16,086	)

Total income taxes	$	126,678			67,894			117,403

Certain income tax (benefits) expenses, not reflected in income taxes in the consolidated statements of operations totaled $(38,223) in 2014, $6,733 in 2013 and $(31,682) in 2012 which relate primarily to stock options and pensions. In 2014, 2013 and 2012, the deferred tax portion of the total (benefit) expense was $(27,236), $29,033 and $(17,210), respectively.

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

	2014	2013	2012

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	(8.1)	(11.4)	(9.4)
Exam settlements and statute expirations	(5.2)	(7.4)	(7.0)
Other, net	1.5	2.8	7.0
	23.5%	19.3%	25.9%

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

	2014		2013		2012

United States	$	190,769		54,424		113,893
International		349,219		297,398		339,509
Total earnings before income taxes	$	539,988		351,822		453,402

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 28, 2014 and December 29, 2013 are:

	2014			2013
Deferred tax assets:
Accounts receivable	$	20,874			20,853
Inventories		14,698			16,272
Loss carryforwards		32,393			27,870
Operating expenses		48,998			54,255
Pension		53,789			31,533
Other compensation		48,498			46,206
Postretirement benefits		10,092			12,873
Interest rate hedge		11,638			-
Tax sharing agreement		18,840			24,835
Other		27,817			30,338
Gross deferred tax assets		287,637			265,035
Valuation allowance		(26,319	)		(21,474	)
Net deferred tax assets		261,318			243,561

Deferred tax liabilities:
Depreciation and amortization of long-lived assets		59,895			66,856
Equity method investment		2,001			18,571
Other		13,447			5,455
Deferred tax liabilities		75,343			90,882

Net deferred income taxes	$	185,975			152,679

Hasbro has a valuation allowance for certain deferred tax assets at December 28, 2014 of $26,319, which is an increase of $4,845 from $21,474 at December 29, 2013. The valuation allowance pertains to certain U.S. state and international loss and credt 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 28, 2014 and December 29, 2013, the Company's net deferred income taxes are recorded in the consolidated balance sheets as follows:

	2014			2013

Prepaid expenses and other current assets	$	75,595			86,634
Other assets		118,280			67,773
Accrued liabilities		(3,250	)		(183	)
Other liabilities		(4,650	)		(1,545	)
Net deferred income taxes	$	185,975			152,679

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended December 28, 2014, December 29, 2013 and December 30, 2012 is as follows:

	2014			2013			2012

Balance at beginning of year	$	55,459			103,067			83,814
Gross increases in prior period tax positions		34,225			8,677			3,089
Gross decreases in prior period tax positions		(1,510	)		(33,181	)		(10,856	)
Gross increases in current period tax positions		8,470			10,353			30,008
Decreases related to settlements with tax authorities		(58,652	)		-			0
Decreases from the expiration of statute of limitations		(2,576	)		(1,979	)		(2,988	)
Balance at end of year	$	35,416			55,459			103,067

If the $35,416 balance as of December 28, 2014 is recognized, approximately $35,000 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 $3,134, $4,634 and $3,110, respectively, of potential interest and penalties, which are included as a component of income taxes in the accompanying consolidated statements of operations. At December 28, 2014, December 29, 2013 and December 30, 2012, the Company had accrued potential interest and penalties of $4,042, $24,547 and $20,377, 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 2013. 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 2009.

During 2014, as a result of amending 2010 through 2012 U.S. federal income tax returns and making similar adjustments identified in the completion of the 2008 and 2009 U.S. Internal Revenue Service examinations, the Company recognized $12,159 of previously accrued unrecognized tax benefits including the reversal of related accrued interest, primarily related to the deductibility of certain expenses. Of this amount, $324 was recorded as a reduction of deferred tax assets and the remainder as a reduction to income tax expense. The total income tax benefit from the amended returns, including other adjustments, totaled $13,480 during the first quarter of 2014. The Company is currently under income tax examination in several U.S. state and local and non-U.S. jurisdictions.

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 had outstanding tax assessments in Mexico for the years 2000 to 2007 and for 2009 based on transfer pricing issues between the Company's subsidiaries with respect to the Company's operations in Mexico. During the fourth quarter of 2014, the Company and the Mexican tax authorities resolved these disputes which resulted in a cash payment of approximately $65,000 by the Company to the Mexican tax authorities. During 2014, the income tax charge related to this resolution totaled $4,533. This settlement agreement resolved all of the outstanding tax assessments and also closed all other completed tax years through and included 2013.

In order to defend its position in court, 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. Bonds had been provided to the Mexican government related to the 2000 through 2004 assessments, allowing the Company to defend its positions. Due to the timing of the settlement, these bonds were still outstanding at December 28, 2014 and totaled $146,410 (at year end 2014 exchange rates).

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 $3,000, substantially all of which would be recorded as a tax benefit if not paid, in the consolidated statements of operations. In addition, approximately $600 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 $2,023,000 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 $513,000.