Hasbro 2010 Annual Report Download - page 73

Deferred income taxes of $64,536 and $54,321 at the end of 2010 and 2009, respectively, are included as
a component of prepaid expenses and other current assets, and $57,613 and $31,537, respectively, are included
as a component of other assets. At the same dates, deferred income taxes of $2,135 and $1,456, respectively,
are included as a component of accrued liabilities, and $1,065 and $5,305, respectively, are included as a
component of other liabilities.
A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal
years ended December 26, 2010, December 27, 2009, and December 28, 2008 is as follows:
2010 2009 2008
Balance at beginning of year .............................. $97,857 79,456 58,855
Gross increases in prior period tax positions................. 706 1,430 803
Gross decreases in prior period tax positions ................ (36,010) (14,250) (2,612)
Gross increases in current period tax positions ............... 34,598 34,189 25,101
Decreases related to settlements with tax authorities ........... (5,550) (269) (1,229)
Decreases from the expiration of statute of limitations ......... (492) (2,699) (1,462)
Balance at end of year .................................. $91,109 97,857 79,456
If the $91,109 balance as of December 26, 2010 is recognized, approximately $77,000 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 2010, 2009, and 2008 the Company recognized $3,171, $3,405, and $3,357, respectively, of
potential interest and penalties, which are included as a component of income taxes in the accompanying
consolidated statements of operations. At December 26, 2010, December 27, 2009, and December 28, 2008,
the Company had accrued potential interest and penalties of $14,466, $17,938, and $13,660, 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 2006. 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.
The U.S. Internal Revenue Service commenced an examination related to the 2006 and 2007 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. The U.S. Internal Revenue Service recently completed an examination related to 2004
and 2005, including review by the Joint Committee on Taxation. During 2010, as the result of the completion
of this examination, the Company recognized $24,167 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, $7,032 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 approx-
imately $21,000 during 2010.
In connection with tax examinations in Mexico for the years 2000 to 2005, the Company has received tax
assessments totaling approximately $178,970, 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 26, 2010, bonds
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)