Mattel 2014 Annual Report Download - page 76

The change in the carrying amount of goodwill by operating segment for 2014 and 2013 is shown below.
Brand-specific goodwill held by foreign subsidiaries is allocated to the North America and American Girl
operating segments selling those brands, thereby causing a foreign currency translation impact for these
operating segments.
North America International American Girl Total
(In thousands)
Balance at December 31, 2012 ................... $546,898 $320,169 $213,731 $1,080,798
Currency exchange rate impact ................... 697 1,487 257 2,441
Balance at December 31, 2013 ................... 547,595 321,656 213,988 1,083,239
Acquisition ................................... 176,182 144,148 — 320,330
Currency exchange rate impact ................... (2,264) (6,569) (768) (9,601)
Balance at December 31, 2014 ................... $721,513 $459,235 $213,220 $1,393,968
In the third quarter of 2014, Mattel assessed its goodwill for impairment by evaluating qualitative factors for
each of its reporting units and determined that it was not more likely than not that the fair values of its reporting
units were less than the carrying amounts. As a result of this determination, the quantitative two-step goodwill
impairment test was deemed unnecessary. Mattel has not recorded any goodwill impairment charges since it
initially adopted the provisions of ASC 350-20, Goodwill.
Acquisition of MEGA Brands Inc.
On April 30, 2014, Mattel acquired MEGA Brands Inc., a corporation incorporated under the laws of
Canada (“MEGA Brands”), pursuant to the Arrangement Agreement dated as of February 27, 2014, between
MEGA Brands, Mattel Overseas Operations Ltd., a corporation incorporated under the laws of Bermuda, Mattel-
MEGA Holdings Inc., a corporation incorporated under the laws of Canada (the “Purchasing Subsidiary”), and,
with respect to certain provisions thereof, Mattel (the “Arrangement Agreement”). Pursuant to the terms set forth
in the Arrangement Agreement, Mattel indirectly acquired, through the Purchasing Subsidiary, 100% of the
issued and outstanding common shares and warrants of MEGA Brands for total cash consideration of $454.9
million, including payment for cash acquired of $31.6 million. The acquisition of MEGA Brands will build upon
Mattel’s portfolio of brands by expanding into the construction building sets and arts and crafts categories.
The total purchase consideration was allocated to the assets acquired and liabilities assumed based on their
estimated fair values. As a result of the acquisition, Mattel recognized $95.0 million of identifiable intangible assets
(primarily related to trade names and existing product lines), $39.6 million of net assets acquired (which included
$31.6 million of cash, $35.3 million of accounts receivable, $83.3 million of inventory, $32.5 million of property,
plant, and equipment, $66.6 million of accounts payable and accrued liabilities, $44.6 million of long-term debt, and
$31.9 million of other net liabilities), and $320.3 million of goodwill, which is not deductible for tax purposes. The
fair values of the identifiable intangible assets related to trade names were based on the relief from royalty method,
using Level 3 inputs within the fair value hierarchy, which included forecasted future cash flows, long-term revenue
growth rates, royalty rates, and discount rates. The fair values of the identifiable intangible assets related to existing
product lines were estimated based on the multi-period excess earnings method, using Level 3 inputs within the fair
value hierarchy, which included forecasted future cash flows, long-term revenue growth rates, and discount rates.
Goodwill relates to a number of factors built into the purchase price, including the future earnings and cash flow
potential of the business, as well as the complementary strategic fit and the resulting synergies it brings to Mattel’s
existing operations. Mattel is in the process of finalizing the valuation of the assets acquired and liabilities
assumed. The determination of the final values of assets acquired and liabilities assumed may result in adjustments
to the values presented and a corresponding adjustment to goodwill.
During 2014, Mattel recognized approximately $21 million and $7 million of integration costs and
transaction costs, respectively. Integration and transaction costs are recorded within other selling and
administrative expenses in the consolidated statements of operations. The pro forma and actual results of
operations for this acquisition have not been presented because they are not material.
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