Mattel 2014 Annual Report Download - page 77

Acquisition of HIT Entertainment
On February 1, 2012, Mattel acquired Helium Holdings 1A Ltd, a private limited company existing under
the laws of Jersey (“HIT Entertainment”), pursuant to the Stock Purchase Agreement dated as of October 23,
2011, between Mattel’s wholly-owned subsidiary, Mattel Entertainment Holdings Limited, a private limited
company existing under the laws of England and Wales (the “Purchasing Sub”), HIT Entertainment’s parent
company, HIT Entertainment Scottish Limited Partnership, a limited partnership existing under the laws of
Scotland and majority-owned by a consortium of funds led by Apax Partners, LLP and its affiliates (the “Selling
Stockholder”) and, with respect to certain provisions thereof, Mattel (the “Purchase Agreement”). Pursuant to the
terms set forth in the Purchase Agreement, Mattel indirectly acquired, through the Purchasing Sub, 100% of the
issued and outstanding shares of HIT Entertainment from the Selling Stockholder for total cash consideration of
$713.5 million, including payment for acquired cash, subject to customary adjustments. HIT Entertainment owns
and licenses a diverse portfolio of pre-school entertainment brands, including Thomas & Friends.
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 $510.7 million of identifiable intangible
assets (primarily related to intellectual property rights), $49.4 million of net liabilities assumed (primarily related
to deferred tax liabilities), and $252.2 million of goodwill, which is not deductible for tax purposes. The fair
values of the identifiable intangible assets 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 the weighted average cost of capital. 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 recognized approximately $5 million and $18 million of integration costs during 2013 and 2012,
respectively. During 2012, Mattel recognized approximately $6 million of transaction costs. No integration costs
were incurred during 2014, and no transaction costs were incurred during 2014 or 2013. 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.
Other Intangibles
Identifiable intangibles include the following:
December 31,
2014 2013
(In thousands)
Nonamortizable identifiable intangibles ........................................ $498,517 $504,241
Identifiable intangibles (net of amortization of $103.6 million and $68.3 million at
December 31, 2014 and 2013, respectively) ................................... 240,227 176,579
$738,744 $680,820
In connection with the acquisition of MEGA Brands during 2014, Mattel recognized $95.0 million of
amortizable identifiable intangible assets, primarily related to trade names and existing product lines.
During the second quarter of 2013, Mattel changed its brand strategy for Polly Pocket®, which includes a
more focused allocation of resources to support the Polly Pocket brand in specific markets, resulting in a
reduction of the forecasted future cash flows of the brand. As a result of the change, Mattel tested the Polly
Pocket trade name for impairment. The Polly Pocket trade name, which had a carrying value of approximately
$113 million, was previously determined to be a nonamortizable intangible asset. Its fair value was determined to
be approximately $99 million based on a discounted cash flow analysis using the multi-period excess earnings
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