Sunbeam 2003 Annual Report Download - page 57

Jarden Corporation
Notes to Consolidated Financial Statements (continued)
Through December 31, 2001, the Company had a deferred compensation plan that permitted
eligible employees to defer a specified portion of their compensation. The deferred compensation
earned rates of return as specified in the plan. Effective January 1, 2002, the deferred compensation
plan was terminated. Participants had the option to elect to keep their existing balances in the plan.
Those balances that remained in the plan in 2002, earned a rate of return equal to the average federal
funds overnight repurchase rate. As of December 31, 2002, the Company had accrued $0.7 million for its
obligations under this plan. Interest expense on this obligation was $0.2 million. In 2002, the interest
expense on this obligation was less than $0.1 million. The residual deferred compensation balance at
December 31, 2002 was paid in its entirety to participants in January 2003.
Prior to the termination of the deferred compensation plan, in order to effectively fund the
deferred compensation obligation, the Company had purchased variable rate life insurance contracts.
These insurance contracts were surrendered in June 2001.
During 2001, certain participants in the Company’s deferred compensation plans agreed to forego
balances in those plans in exchange for loans from the Company in the same amounts. The loans, which
were completed during 2001, bear interest at the applicable federal rate and require the individuals to
secure a life insurance policy having the death benefit equivalent to the amount of the loan payable to
the Company. All accrued interest and principal on the loans are payable upon the death of the
participant and their spouse. The Company recognized $4.1 million of pre-tax income during 2001
related to the discharge of the deferred compensation obligations. These amounts are included in
Special Charges and Reorganization Expenses on the Consolidated Statement of Operations.
Effective December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (Medicare Prescription Drug Act) was signed into law. This act provides for a prescription drug
benefit under Medicare (Part D) as well as a federal subsidy to sponsors of retiree health care benefits
plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Our defined benefit
postretirement health care plan provides a prescription drug benefit.
The FASB issued FSP 106-1 on January 12, 2004, which allowed companies to elect a one-time
deferral of the recognition of the effects of the Medicare Prescription Drug Act in accounting for its
plan under SFAS No. 106 and in providing disclosures related to the plan required by SFAS No. 132
(revises 2003). The FASB allowed the one-time deferral due to the accounting issues raised by the
Medicare Prescription Drug Act — in particular, the accounting for federal subsidy that is not explicitly
addressed in SFAS No. 106 — and due to the fact the uncertainties exist as to the direct effects on the
Medicare Prescription Drug Act and its ancillary effects on plan participants.
For companies electing the one-time deferral remains in effect until authoritative guidance on the
accounting for federal subsidy is issued, or until certain other events, such as a plan amendment,
settlement or curtailment occur. Currently we are evaluating the effects of the Medicare Prescription
Drug Act on our other postretirement benefit plan and its participants, and we have elected the one-
time deferral. Our accumulated postretirement obligation or net periodic postretirement benefit cost
for 2003 does not reflect the effects of the Medicare Prescription Drug Act on our defined
postretirement health care and life insurance plans. Additionally, once the specific authoritative
guidance on the accounting for the federal subsidy, such guidance could require us to update previously
reported information.
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