Hasbro 2011 Annual Report Download - page 43

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offset by lower stock compensation and bonus provisions in 2011 due to the Company’s underperformance in
relation to its financial targets. Selling, distribution and administration expenses decreased to $781,192 or 19.5%
of net revenues in 2010, compared $793,558 or 19.5% of net revenues in 2009. The 2009 amount includes
approximately $7,200 of transaction costs related to the Company’s purchase of a 50% interest in THE HUB.
The remaining decrease relates to lower management incentive and other compensation expenses in 2010
partially offset by higher marketing and sales costs related to emerging markets and television initiatives.
Interest Expense
Interest expense increased to $89,022 in 2011 from $82,112 in 2010 and $61,603 in 2009. The increases in
both 2011 and 2010 are primarily due to the issuance of long-term debt during 2010 and 2009, respectively. In
March 2010, the Company issued $500,000 of long-term debt which bears interest at a rate of 6.35%. The impact
on interest expense of this issuance was partially offset by the conversion and redemption of the contingent
convertible debentures during March and April 2010, which bore interest at the rate of 2.75%. In May 2009, the
Company issued $425,000 of long-term debt which bears interest at a rate of 6.125%. A portion of these proceeds
were used to purchase a 50% interest in THE HUB. The 2009 interest expense amount includes approximately
$4,000 in costs related to a short-term borrowing facility commitment the Company entered into in April 2009 in
connection with the Company’s anticipated investment in THE HUB.
Interest Income
Interest income was $6,834 in 2011 compared to $5,649 in 2010. The increase primarily reflects interest
received from the U.S. Internal Revenue Service related to prior years. Interest income was $5,649 in 2010
compared to $2,858 in 2009. The increase primarily reflects higher invested cash balances during 2010.
Other (Income) Expense, Net
Other (income) expense, net of $25,400 in 2011 compares to $3,676 in 2010 and $156 in 2009. The increase
in other (income) expense, net in 2011 is primarily due to losses on foreign currency transactions and investment
losses in 2011 compared to gains in 2010. Further, the 2010 amount includes a gain of $(4,950) on the sale of a
product line.
Foreign currency exchange losses of $8,343 in 2011 compared to foreign currency exchange gains of $(725)
in 2010. The loss in 2011 includes $3,700 related to derivative instruments which no longer qualified for hedge
accounting. Investment losses of $4,617 in 2011 compared to investment gains of $(3,822) in 2010, primarily
reflecting the decrease in value of warrants to purchase common stock of an unrelated company. Other (income)
expense, net in 2011, 2010 and 2009 includes $7,290, $9,323 and $(3,856) respectively, relating to the
Company’s 50% share in the loss (earnings) of THE HUB.
Income Taxes
Income tax expense totaled 20.8% of pretax earnings in 2011 compared with 21.7% in 2010 and 29.2% in
2009. Income tax expense for 2011 is net of a benefit of approximately $29,600 from discrete tax events,
primarily related to the settlement of various tax examinations or expirations of statutes in multiple jurisdictions,
including the United States. Income tax expense for 2010 is net of a benefit of approximately $22,300 from
discrete tax events, primarily related to the settlement of various tax examinations in multiple jurisdictions,
including the United States. Income tax expense for 2009 is net of a benefit of approximately $2,300 related to
discrete tax events, primarily related to the expiration of state statutes and settlement of various tax examinations
in multiple jurisdictions. Absent these items and potential interest and penalties related to uncertain tax positions
in 2011, 2010 and 2009, the effective tax rates would have been 26.2%, 25.4% and 29.0%, respectively. The
decrease in the adjusted tax rate in 2011 and 2010 compared to 2009 is primarily due to higher earnings from
international operations in jurisdictions that have lower income tax rates than the U.S.
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