Hasbro 2007 Annual Report Download - page 66

The components of deferred income tax expense arise from various temporary differences and relate to
items included in the statements of operations. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 30, 2007 and December 31, 2006 are:
2007 2006
Deferred tax assets:
Accounts receivable.......................................... $ 20,524 19,287
Inventories ................................................ 24,608 17,860
Losses and tax credit carryforwards .............................. 39,094 34,405
Operating expenses .......................................... 42,759 62,392
Pension ................................................... 9,990 27,663
Deferred compensation and stock options .......................... 24,477 16,251
Postretirement benefits........................................ 13,507 14,128
Other .................................................... 37,274 26,453
Gross deferred tax assets .................................... 212,233 218,439
Valuation allowance.......................................... (36,254) (27,808)
Net deferred tax assets ...................................... 175,979 190,631
Deferred tax liabilities:
Convertible debentures ....................................... 40,185 32,149
International earnings not indefinitely reinvested .................... 20,422 —
Depreciation and amortization of long-lived assets ................... 15,833 9,658
Other .................................................... 2,408 655
Deferred tax liabilities ...................................... 78,848 42,462
Net deferred income taxes ....................................... $ 97,131 148,169
Hasbro has a valuation allowance for deferred tax assets at December 30, 2007 of $36,254, which is an
increase of $8,446 from $27,808 at December 31, 2006. The valuation allowance pertains to United States and
International loss carryforwards, some of which have no expiration and others that would expire beginning in
2008. The increase in the valuation allowance is primarily attributable to the additional deferred tax assets
related to potential capital losses. If the operating loss carryforwards are fully realized, $158 will reduce
goodwill and the balance will reduce future income tax expense.
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, it believes that it will realize the
benefit of the deferred tax assets, net of the existing valuation allowance.
Deferred income taxes of $53,040 and $83,854 at the end of 2007 and 2006, respectively, are included as
a component of prepaid expenses and other current assets, and $45,855 and $66,276, respectively, are included
as a component of other assets. At the same dates, deferred income taxes of $81 and $122, respectively, are
included as a component of accrued liabilities, and $1,683 and $1,839, respectively, are included as a
component of other liabilities.
On January 1, 2007, the Company adopted FIN 48, which applies to all tax positions accounted for under
Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a
two step process for the measurement of uncertain tax positions that have been taken or are expected to be
taken in a tax return. The first step is a determination of whether the tax position should be recognized in the
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)