5.	Goodwill

Goodwill is allocated to various reporting units, which are at the operating segment level, for purposes of evaluating whether goodwill is impaired. Mattel’s reporting units are: (i) North America, (ii) International, and (iii) American Girl. Mattel tests its goodwill for impairment annually in the third quarter and whenever events or changes in circumstances indicate that the carrying amount may exceed its fair value.

The change in the carrying amount of goodwill by operating segment for the six months ended June 30, 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 foreign currency translation impact for these operating segments.


	December 31, 2012		Currency Exchange Rate Impact			June 30, 2013
			(In thousands)
North America	$	546,898	$	(2,406	)	$	544,492
International		320,169		(6,222	)		313,947
American Girl		213,731		(86	)		213,645

Total goodwill	$	1,080,798	$	(8,714	)	$	1,072,084

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 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 finalized the valuation of the assets acquired and liabilities assumed in the fourth quarter of 2012, which resulted in adjustments to the purchase price allocation during the measurement period. As such, Mattel has retrospectively adjusted the provisional amounts recorded in its consolidated balance sheet as of June 30, 2012 as if the valuation of the assets acquired and liabilities assumed was finalized as of the acquisition date. The retrospective adjustments resulted in an increase to the net liabilities assumed of approximately $11 million and goodwill of approximately $10 million, including a reduction to the consideration paid to acquire HIT Entertainment of approximately $1 million, which was also recognized as an increase to Mattel’s other current assets in the consolidated balance sheet. The reduction to the consideration paid also resulted in a retrospective adjustment to the consolidated statement of cash flows, which reduced cash flows used for investing activities and increased cash flows used for operating activities by approximately $1 million for the six months ended June 30, 2012. No retrospective adjustments have been made to the consolidated statements of operations for the three and six months ended June 30, 2012.

Additionally, during the three and six months ended June 30, 2013, Mattel recognized approximately $1 million and $3 million of integration costs, respectively. During the three and six months ended June 30, 2012, Mattel recognized approximately $1 million and $11 million of integration costs, respectively. Mattel also recognized approximately $6 million of transaction costs during the six months ended June 30, 2012. No transaction costs were incurred during the three months ended June 30, 2012 or during the three and six months ended June 30, 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.