Mattel 2004 Annual Report Download - page 53

unremitted foreign earnings for the purposes of applying SFAS No. 109. As of December 31, 2004, management
had not decided on whether, or to what extent, Mattel may repatriate foreign earnings under the Jobs Act.
Therefore, Mattel’s 2004 consolidated financial statements do not include any provision for income taxes on the
$3.1 billion cumulative balance of unremitted foreign earnings as of year end 2004. Based on the analysis to date,
Mattel may repatriate up to approximately $2.4 billion in foreign earnings with a corresponding tax liability of up
to approximately $160 million. The computation of the tax liability does not include the potential favorable
effects of the Tax Technical Corrections Act of 2004, which was introduced to the US Congress on
November 22, 2004. It is anticipated that this bill will become law in 2005 and, when enacted, would change
Mattel’s computation of the tax liability associated with the repatriation of foreign earnings under the Jobs Act.
Management expects to finalize its assessment related to the Jobs Act in the first half of 2005.
The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Medicare Act”) was
signed into law on December 8, 2003. On May 19, 2004, the FASB issued FSP 106-2, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003, which provides guidance as to how employers who sponsor post-65 prescription drug benefits should
recognize the impact of the Medicare Act. Applying the guidance in FSP 106-2, Mattel, with the assistance of its
outside actuaries, determined that the prescription drug benefits provided to certain retirees under one of its
postretirement benefit plans are actuarially equivalent to the benefits provided under Medicare Part D, and that
Mattel will be eligible to receive a federal subsidy beginning in 2006. On July 1, 2004, Mattel adopted the
provisions of FSP 106-2 and reduced its accumulated postretirement benefit obligation by $7.6 million in
recognition of the actuarial impact of the subsidy on benefits attributed to prior service. Mattel’s net periodic
benefit cost for 2004 was reduced by $1.0 million in the areas of interest cost ($0.5 million) and amortization of
unrecognized net loss ($0.5 million). On January 21, 2005, the Centers for Medicare and Medicaid Services
released final regulations implementing the Medicare Act. Mattel believes the final regulations will not have a
material impact on its results of operations or financial position for the year ending December 31, 2005.
In March 2004, the Emerging Issues Task Force (“EITF”) reached final consensus on EITF Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The EITF
requires a company to apply a three-step model to determine whether an impairment of an investment, within the
scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, is other-than-
temporary. EITF Issue No. 03-1 was to be applied prospectively to all current and future investments, in interim
or annual reporting periods beginning after June 15, 2004. However, in October 2004, the FASB issued
FSP 03-1-1, which delayed the effective date for the recognition and measurement guidance of EITF Issue
No. 03-1 until certain implementation issues are addressed and a final FSP providing implementation guidance is
issued. Mattel believes the adoption of EITF Issue No. 03-1 will not have a material impact on its results of
operations or financial position.
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