Mattel 2003 Annual Report Download - page 77

The assumptions used in determining net postretirement benefit plan cost are as follows:
For the Year Ended
2003 2002 2001
Discount rate ............................................................ 6.5% 7.0% 7.5%
Rate of future compensation increases ........................................ 4.0% 4.0% 4.0%
Health care cost trend rate: .................................................
Pre-65 ............................................................. 9.0% 10.0% 6.5%
Post-65 ............................................................ 10.5% 12.0% 6.5%
Ultimate cost trend rate (pre-and post-65) ..................................... 5.5% 5.5% 5.5%
Year that the rate reaches the ultimate cost trend rate ............................ 2007 2007 2004
Aone percentage point increase/(decrease) in the assumed health care cost trend rate for each future year
would impact the accumulated postretirement benefit obligation as of year end 2003 by approximately $6 million
and $(5) million, respectively, while a one percentage point increase/(decrease) would impact the service and
interest cost recognized for 2003 by approximately $400 thousand and $(300) thousand, respectively.
On December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the
“Act”) was signed into law. The Act will provide plan sponsors a federal subsidy for certain qualifying
prescription drug benefits covered under the sponsor’s post retirement health care plans. Under FASB Staff
Position 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (“FSP 106-1”) issued on January 12, 2004, Mattel has elected to
defer accounting for the effects of the Act. As a result, the reported postretirement benefit obligations and the net
postretirement benefit plan cost as of and for the year ended 2003 do not reflect the effects of the Act on Mattel’s
postretirement benefit plans. The election to defer will expire when specific authoritative guidance on the
accounting for the federal subsidy is issued or a significant event occurs that would require the remeasurement of
Mattel’s postretirement benefit plans’ obligations.
Deferred Compensation and Excess Benefit Plans
Mattel provides a deferred compensation plan that permits certain officers and key employees to elect to
defer portions of their compensation. The deferred compensation plan, together with certain contributions made
by Mattel and participating employees to an excess benefit plan, earn various rates of return. The liability for
these plans as of year end 2003 and 2002 was $48.8 million and $36.1 million, respectively, and is included in
other long-term liabilities in the consolidated balance sheets.
Mattel has purchased group trust-owned life insurance contracts designed to assist in funding these
programs. The cash surrender value of these policies, valued at $60.4 million and $59.3 million as of year end
2003 and 2002, respectively, are held in an irrevocable grantor trust, the assets of which are subject to the claims
of Mattel’s creditors and are included in other assets in the consolidated balance sheets.
Incentive Compensation Plans
Mattel has annual incentive compensation plans under which officers and key employees may earn incentive
compensation based on Mattel’s performance and subject to certain approvals of the Compensation Committee of
the board of directors. For 2003, 2002 and 2001, $33.3 million, $73.5 million and $36.2 million, respectively,
were charged to operating expense for awards under these plans.
In May 2003, Mattel’s stockholders approved the Mattel, Inc. 2003 Long-Term Incentive Plan (the “Plan”).
The Plan is intended to motivate and retain key executives of Mattel who regularly and directly make or
influence decisions that affect the medium- and long-term success of Mattel. The Plan replaces the Long-Term
Incentive Plan approved in November 2000 and is effective as of January 1, 2003. Awards are based upon the
financial performance of Mattel during the performance period and are settled in cash or unrestricted or restricted
common stock of Mattel. For 2003, no expense was recorded related to the Plan.
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