Mattel 2012 Annual Report Download - page 77

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 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 has
finalized the valuation of the assets acquired and liabilities assumed.
During 2012, Mattel recognized approximately $18 million and $6 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.
Other Intangibles
Identifiable intangibles include the following:
December 31,
2012 2011
(In thousands)
Nonamortizable identifiable intangibles ........................................ $617,223 $122,223
Identifiable intangibles (net of amortization of $64.9 million and $55.5 million at
December 31, 2012 and 2011, respectively) ................................... 88,786 84,486
$706,009 $206,709
In connection with the acquisition of HIT Entertainment, Mattel recognized $495.0 million of
nonamortizable identifiable intangible assets and $15.7 million of amortizable identifiable intangible assets,
primarily related to intellectual property rights.
Mattel tests nonamortizable intangible assets, including trademarks and trade names, for impairment
annually in the third quarter and whenever events or changes in circumstances indicate that the carrying value
may exceed its fair value. During 2012 and 2011, Mattel performed the annual impairment tests and determined
that its nonamortizable intangible assets were not impaired. However, during 2012, for one of Mattel’s
nonamortizable intangible assets with a carrying value of approximately $113 million, the fair value did not
exceed the carrying value by a significant margin. Future changes in estimates resulting in lower than currently
anticipated future cash flows and fair value could negatively affect the valuation, which may result in Mattel
recognizing an impairment charge in the future.
Mattel also tests its amortizable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable. As a result of these
impairment tests, Mattel recorded an impairment charge of approximately $8 million during 2010, which is
reflected within other selling and administrative expenses. Amortizable intangible assets were determined to not
be impaired during 2011 and 2012.
65