Income Taxes

12 Months Ended

Dec. 25, 2016

(10) Income Taxes

Income taxes attributable to earnings before income taxes are:

	2016		2015		2014
Current
United States	$	78,958		101,591		70,390
State and local		3,208		3,352		3,134
International		77,834		71,054		62,909
		160,000		175,997		136,433

Deferred
United States		11,989		(13,771)		(15,448)
State and local		411		(472)		(530)
International		(13,062)		(4,711)		6,223
		(662)		(18,954)		(9,755)

Total income taxes	$	159,338		157,043		126,678

Certain income tax (benefits) expenses, not reflected in income taxes in the consolidated statements of operations totaled $(35,722) in 2016, $(5,434) in 2015 and $(38,223) in 2014 which relate primarily to stock compensation, pensions, and hedging. In 2016, 2015 and 2014, the deferred tax portion of the total (benefit) expense was $(15,521), $8,180 and $(27,236), respectively.

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

	2016		2015		2014

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		(15.8)		(15.6)		(6.4)
Change in unrecognized tax benefits		1.7		4.3		(5.7)
Other, net		1.8		2.0		0.3
		23.0%		26.0%		23.5%

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

	2016		2015		2014

United States	$	146,013		155,120		190,769
International		546,476		448,795		349,219
Total earnings before income taxes	$	692,489		603,915		539,988

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 25, 2016 and December 27, 2015 are:

	2016		2015
Deferred tax assets:
Accounts receivable	$	32,277		23,568
Inventories		17,913		15,168
Loss and credit carryforwards		29,752		28,893
Operating expenses		48,024		43,029
Pension		35,255		48,560
Other compensation		66,220		62,882
Postretirement benefits		12,525		9,253
Interest rate hedge		10,286		10,937
Tax sharing agreement		17,339		18,379
Other		25,513		29,768
Gross deferred tax assets		295,104		290,437
Valuation allowance		(24,065)		(23,593)
Net deferred tax assets		271,039		266,844

Deferred tax liabilities:
Depreciation and amortization of long-lived assets		49,484		53,755
Equity method investment		7,056		8,205
Other		7,634		14,068
Deferred tax liabilities		64,174		76,028

Net deferred income taxes	$	206,865		190,816

Certain reclassifications have been made to prior year presentation to conform to current year presentation.

Hasbro has a valuation allowance for certain deferred tax assets at December 25, 2016 of $24,065, which is an increase of $472 from $23,593 at December 27, 2015. The valuation allowance pertains to certain U.S. state and international loss and credit carryforwards, some of which have no expiration and others that would expire beginning in 2017.

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 all of the remaining net deferred tax assets.

At December 25, 2016 and December 27, 2015, the Company's net deferred income taxes are recorded in the consolidated balance sheets as follows:

	2016		2015

Other assets		212,317		199,563
Other liabilities		(5,452)		(8,747)
Net deferred income taxes	$	206,865		190,816

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended December 25, 2016, December 27, 2015 and December 28, 2014 is as follows:

	2016		2015		2014

Balance at beginning of year	$	63,549		35,416		55,459
Gross increases in prior period tax positions		2,727		491		34,225
Gross decreases in prior period tax positions		(3,103)		(1,773)		(1,510)
Gross increases in current period tax positions		34,155		32,547		8,470
Decreases related to settlements with tax authorities		(11,662)		(355)		(58,652)
Decreases from the expiration of statute of limitations		(5,278)		(2,777)		(2,576)
Balance at end of year	$	80,388		63,549		35,416

If the $80,388 balance as of December 25, 2016 is recognized, approximately $70,000 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 and other assets.

During 2016, 2015, and 2014 the Company recognized $2,135, $1,422 and $3,134, respectively, of potential interest and penalties, which are included as a component of income taxes in the accompanying consolidated statements of operations. At December 25, 2016, December 27, 2015 and December 28, 2014, the Company had accrued potential interest and penalties of $3,966, $4,778 and $4,042, 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 2012. 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.

In the third quarter of 2016, the U.S. Internal Revenue Service commenced an examination related to the 2012 and 2013 amended 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 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, was $13,480 during the first quarter of 2014.

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 including 2013.

The cumulative amount of undistributed earnings of Hasbro's international subsidiaries held for indefinite reinvestment is approximately $2,582,000 at December 25, 2016. In the event that all international undistributed earnings were remitted to the United States under current U.S. income tax laws, the amount of incremental taxes would be approximately $641,000, however the remittance of such undistributed earnings would be limited by the Company’s available cash balance.