Mattel 2004 Annual Report Download - page 73

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.
Note 2—Goodwill
The change in the carrying amount of goodwill by reporting unit for the years ended 2004 and 2003 is
shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the US reporting units selling
those brands, thereby causing foreign currency translation impact to the US reporting units.
Mattel
Brands US
Girls Division
Mattel
Brands US
Boys Division
Fisher-Price
Brands US
American Girl
Brands Int’l Total
(In thousands)
Balance at year end 2002 ...... $ 31,969 $ 53,969 $ 215,931 $ 207,571 $193,713 $703,153
Impact of currency exchange rate
changes .................. 3,172 253 747 — 14,924 19,096
Balance at year end 2003 ...... 35,141 54,222 216,678 207,571 208,637 722,249
Impact of currency exchange rate
changes .................. 2,425 189 474 — 10,343 13,431
Balance at year end 2004 ...... $ 37,566 $ 54,411 $ 217,152 $ 207,571 $218,980 $735,680
As a result of implementing SFAS No. 142, Mattel recorded a transition adjustment in 2002 of
$252.2 million, net of tax, as the cumulative effect of a change in accounting principle resulting from the
transitional impairment test of the American Girl Brands reporting unit goodwill. In 2004, Mattel performed the
62