Hasbro 2009 Annual Report Download - page 75

classification, potential interest and penalties, accounting in interim periods and disclosure. The adoption of
the revised standard resulted in a decrease of $88,798 to current liabilities, an increase of $85,773 to long-term
liabilities, an increase of $5,333 to the long-term deferred tax assets and an increase of $8,358 to retained
earnings.
A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal
years ended December 27, 2009, December 28, 2008 and December 30, 2007 is as follows:
2009 2008 2007
Balance at beginning of year .............................. $79,456 58,855 72,878
Gross increases in prior period tax positions................. 1,430 803 1,980
Gross decreases in prior period tax positions ................ (14,250) (2,612) (889)
Gross increases in current period tax positions ............... 34,189 25,101 12,840
Decreases related to settlements with tax authorities ........... (269) (1,229) (633)
Decreases from the expiration of statute of limitations ......... (2,699) (1,462) (27,321)
Balance at end of year .................................. $97,857 79,456 58,855
If the $97,857 balance as of December 27, 2009 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 assets.
During 2009, 2008 and 2007 the Company recognized $3,405, $3,357 and $4,628, respectively, of
potential interest and penalties, which are included as a component of income taxes in the accompanying
consolidated statement of operations. At December 27, 2009, December 28, 2008 and December 30, 2007, the
Company had accrued potential interest and penalties of $17,938, $13,660 and $12,020, 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 2004. 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 2004.
The U.S. Internal Revenue Service has commenced an examination related to the 2006 and 2007
U.S. federal income tax returns. The U.S. Internal Revenue Service has recently completed an examination
related to the 2004 and 2005 U.S. federal income tax returns at the field agent level, subject to review by the
Joint Committee on Taxation. The Company is also under income tax examination in several U.S. state and
local and non-U.S. jurisdictions.
In connection with the Mexican tax examinations for the years 2000 to 2004, the Company has received
tax assessments totaling approximately $130,000, which include 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 2003, as is usual and customary in Mexico with respect to these matters. Accordingly, as of
December 27, 2009, bonds totaling approximately $105,000 (at year-end 2009 exchange rates) have been
provided to the Mexican government related to the 2000 to 2003 assessments, allowing the Company to defend
its positions. The Company currently does not expect to be required to guarantee the amount of the 2004
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 periods subsequent to 2004.
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)