Mattel 2004 Annual Report Download - page 81

A one percentage point increase/(decrease) in the assumed health care cost trend rate for each future year
would impact the postretirement benefit obligation as of year end 2004 by approximately $6 million and
$(5) million, respectively, while a one percentage point increase/(decrease) would impact the service and interest
cost recognized for 2004 by approximately $300 thousand and $(300) thousand, respectively.
The Medicare Act was signed into law on December 8, 2003. On May 19, 2004, the FASB issued
FSP 106-2, 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 actuarial 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.
During 1999, Mattel amended The Fisher-Price Pension Plan to convert it from a career-average plan to a
cash balance plan and applied for a determination letter from the IRS. In 2003, Mattel amended The Fisher-Price
Pension Plan to reflect recent changes in regulations and court cases associated with cash balance plans and
submitted a new application for a determination letter to the IRS. Mattel plans to convert The Fisher-Price
Pension Plan to a cash balance plan upon receipt of a determination letter.
Defined Contribution Retirement Plans
Domestic employees are eligible to participate in 401(k) savings plans sponsored by Mattel or its
subsidiaries, which are funded defined contribution plans satisfying ERISA requirements. Mattel makes
employer contributions in cash and allows employees to allocate both their own contributions and employer
contributions to a variety of investment funds, including a fund that is fully invested in Mattel common stock (the
“Mattel Stock Fund”). Employees are not required to allocate any funds to the Mattel Stock Fund, which allows
employees to limit or eliminate their exposure to market changes in Mattel’s stock price. Furthermore, Mattel’s
plans limit an employee’s allocation to the Mattel Stock Fund to 50% of the employee’s total account balance.
Employees may generally reallocate their account balances on a daily basis. The only limitation on the frequency
of reallocations applies to changes involving the Mattel Stock Fund by employees classified as insiders or
restricted personnel under Mattel’s insider trading policy. Pursuant to Mattel’s insider trading policy, insiders and
restricted personnel are limited to certain window periods for making allocations into or out of the Mattel Stock
Fund.
Certain non-US employees participate in defined contribution retirement plans with varying vesting and
contribution provisions.
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 2004 and 2003 was $52.3 million and $48.8 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 $59.7 million and $60.4 million as of year end
70