Income Taxes

12 Months Ended

Dec. 25, 2011

Income Taxes [Abstract]

Income Taxes

(10)           Income Taxes

Income taxes attributable to earnings before income taxes are:

	2011	2010	2009
	-------	-------	-------
Current
United States	$ 49,233	35,232	87,053
State and local	2,538	1,931	4,142
International	52,176	47,633	44,436
	----------	----------	----------
	103,947	84,796	135,631
	----------	----------	----------
Deferred
United States	(1,973)	26,269	17,387
State and local	(68)	901	993
International	(880)	(1,998)	756
	----------	----------	----------
	(2,921)	25,172	19,136
	-----------	-----------	-----------
Total income taxes	$101,026	109,968	154,767
	=======	=======	=======

Certain income tax benefits, not reflected in income taxes in the consolidated statements of operations totaled $18,266 in 2011, $87,367 in 2010 and $2,905 in 2009. In 2011 and 2009 these income tax benefits relate primarily to pension amounts recorded in AOCE and stock options.  In 2010 these income tax benefits relate primarily to the reversal through additional paid in capital of deferred tax liabilities relating to the Company’s contingent convertible debentures upon the conversion of these debentures.  In 2011, 2010 and 2009, the deferred tax portion of the total benefit was $8,579, $64,700 and $1,041, respectively.

A reconciliation of the statutory United States federal income tax rate to Hasbro's effective income tax rate is as follows:

	2011	2010	2009
	-------	-------	-------
Statutory income tax rate	35.0%	35.0%	35.0%
State and local income taxes, net	0.3	0.4	0.7
Tax on international earnings	(11.4)	(11.2)	(7.5)
Exam settlements and statute expirations	(4.6)	(4.4)	(0.5)
Other, net	1.5	1.9	1.5
	-------	-------	-------
	20.8%	21.7%	29.2%
	====	====	====

The components of earnings before income taxes, determined by tax jurisdiction, are as follows:

	2011	2010	2009
	-------	-------	-------
United States	$132,255	168,436	248,654
International	354,138	339,284	281,043
	----------	----------	----------
Total earnings before income taxes	$486,393	507,720	529,697
	======	======	======

The components of deferred income tax expense (benefit) arise from various temporary differences and relate to items included in the consolidated statements of operations as well as items recognized in other comprehensive earnings. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 25, 2011 and December 26, 2010 are:

	2011	2010
Deferred tax assets:	-------	-------
Accounts receivable	$ 22,007	21,095
Inventories	18,398	18,723
Loss carryforwards	27,943	29,348
Operating expenses	39,623	40,835
Pension	35,969	29,823
Other compensation	49,780	50,619
Postretirement benefits	15,723	15,435
Tax sharing agreement	25,991	26,276
Other	17,749	20,033
	----------	----------
Gross deferred tax assets	253,183	252,187
Valuation allowance	(18,145)	(17,729)
	----------	----------
Net deferred tax assets	235,038	234,458
	----------	----------
Deferred tax liabilities:
International earnings not indefinitely reinvested	7,846	25,903
Depreciation and amortization of long-lived      assets	73,301	61,274
Equity method investment	21,396	23,617
Other	3,075	4,715
	----------	----------
Deferred tax liabilities	105,618	115,509
	----------	----------
Net deferred income taxes	$ 129,420	118,949
	======	======

Hasbro has a valuation allowance for certain deferred tax assets at December 25, 2011 of $18,145, which is an increase of $416 from $17,729 at December 26, 2010. The valuation allowance pertains to certain U.S. State and International loss carryforwards, some of which have no expiration and others that would expire beginning in 2014.

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, the Company believes that it will realize the benefit of the deferred tax assets, net of the existing valuation allowance.

At December 25, 2011 and December 26, 2010, the Company’s net deferred income taxes are recorded in the consolidated balance sheets as follows:

	2011	2010
	-------	-------
Prepaid expenses and other current assets	$   68,774	64,536
Other assets	62,574	57,613
Accrued liabilities	(731)	(2,135)
Other liabilities	(1,197)	(1,065)
	----------	----------
Net deferred income taxes	$ 129,420	118,949
	======	======

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended December 25, 2011, December 26, 2010, and December 27, 2009 is as follows:

	2011	2010	2009
	-------	-------	-------
Balance at beginning of year	$91,109	97,857	79,456
Gross increases in prior period tax positions	811	706	1,430
Gross decreases in prior period tax positions	(33,501)	(36,010)	(14,250)
Gross increases in current period tax positions	27,910	34,598	34,189
Decreases related to settlements with tax        authorities	(792)	(5,550)	(269)
Decreases from the expiration of statute of      limitations	(1,723)	(492)	(2,699)
	---------	---------	---------
Balance at end of year	$83,814	91,109	97,857
	=====	=====	=====

If the $83,814 balance as of December 25, 2011 is recognized, approximately $72,000 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 2011, 2010 and 2009 the Company recognized $3,100, $3,171 and $3,405, respectively, of potential interest and penalties, which are included as a component of income taxes in the accompanying consolidated statements of operations.  At December 25, 2011, December 26, 2010 and December 27, 2009, the Company had accrued potential interest and penalties of $13,847, $14,466 and $17,938, 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 2008. 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 2008 and 2009 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 2006 and 2007.  During 2011, as the result of the completion of this examination, the Company recognized $22,101 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, $1,482 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 $20,477 during 2011.

During 2010, as a result of the completion of an examination related to the 2004 and 2005 U.S. federal income tax returns by the U.S. Internal Revenue Service, the Company recognized approximately $24,200 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 approximately $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 $177,430, which includes 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 2004, as is usual and customary in Mexico with respect to these matters. Accordingly, as of December 25, 2011, bonds totaling approximately $150,840 (at year-end 2011 exchange rates) have been provided to the Mexican government related to the 2000 through 2004 assessments, allowing the Company to defend its positions. The Company is not currently required to guarantee the amount of the 2005 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 2005.

The Company believes it is reasonably possible that certain tax examinations and statutes of limitations may be concluded and will expire within the next 12 months, and that unrecognized tax benefits, excluding potential interest and penalties, may decrease by up to approximately $3,100, substantially all of which would be recorded as a tax benefit in the statement of operations. In addition, approximately $600 of potential interest and penalties related to these amounts would also be recorded as a tax benefit in the consolidated statement of operations.

The cumulative amount of undistributed earnings of Hasbro's international subsidiaries held for indefinite reinvestment is approximately $1,391,000 at December 25, 2011. In the event that all international undistributed earnings were remitted to the United States, the amount of incremental taxes would be approximately $337,000.