Hasbro 2008 Annual Report Download - page 69

included as a component of accrued liabilities, and $6,054 and $1,683, 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
financial statements. The second step determines the measurement of the tax position. FIN 48 also provides
guidance on derecognition of such tax positions, classification, potential interest and penalties, accounting in
interim periods and disclosure. The adoption of FIN 48 resulted in a $88,798 decrease in current liabilities, a
$85,773 increase in long-term liabilities, a $5,333 increase to the long-term deferred tax assets and a $8,358
increase to retained earnings.
A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal
years ended December 28, 2008 and December 30, 2007 is as follows:
2008 2007
Balance at beginning of year ...................................... $58,855 72,878
Gross increases in prior period tax positions ......................... 803 1,980
Gross decreases in prior period tax positions......................... (2,612) (889)
Gross increases in current period tax positions ....................... 25,101 12,840
Decreases related to settlements with tax authorities ................... (1,229) (633)
Decreases from the expiration of statute of limitations ................. (1,462) (27,321)
Balance at end of year ........................................... $79,456 58,855
If the $79,456 is recognized, approximately $54,300 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 2008 and 2007 the Company recognized $3,357 and $4,628, respectively, of potential interest and
penalties, which are included as a component of income tax in the accompanying statement of operations. At
December 28, 2008 and December 30, 2007, the Company had accrued potential interest and penalties of
$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 2003.
The U.S. Internal Revenue Service has commenced an examination related to the 2004 and 2005
U.S. federal income tax returns. The Company is also under income tax examination in Mexico and in several
other state and foreign jurisdictions. The ultimate resolution of the U.S. and Mexican examinations, including
matters that may be resolved within the next twelve months, is not yet determinable. In connection with the
Mexican tax examinations for the years 2000 to 2003, the Company has received tax assessments, 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, as is usual and customary in Mexico with respect to these matters. Accordingly,
as of December 28, 2008, bonds totaling $67,696 (at year-end 2008 exchange rates) have been provided to the
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)