The accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments, consisting of only those of a normal recurring nature, considered necessary for a fair presentation of the financial position and interim results of Mattel, Inc. and its subsidiaries (“Mattel”) as of and for the periods presented have been included. As Mattel’s business is seasonal, results for interim periods are not necessarily indicative of those that may be expected for a full year.

The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the consolidated financial statements do not include all disclosures required by GAAP.

The financial information included herein should be read in conjunction with Mattel’s consolidated financial statements and related notes in its 20152016 Annual Report on Form 10-K.

Accounts receivable are net of allowances for doubtful accounts of $22.4 million, $30.9 million, $26.0 million, and $24.4$21.4 million as of September 30, 2016,2017, September 30, 2015,2016, and December 31, 2015,2016, respectively. As a result of Toys “R” Us filing for bankruptcy in September 2017, Mattel reversed gross sales and accounts receivable of approximately $47 million, and reversed net sales of approximately $43 million in the three months ended September 30, 2017.

Inventories include the following:

In the third quarter of 2017, Mattel performed its annual impairment tests and determined that goodwill was not impaired since each reporting unit's fair value exceeded its carrying value.

In connection with the acquisitions of Sproutling and substantially all of the assets of Fuhu and Sproutling,in the first quarter of 2016, as more fully described in “Note 5 to the Consolidated Financial Statements—Goodwill” of this Quarterly Report on Form 10-Q, Mattel recognized $11.2 million of amortizable identifiable intangible assets, primarily related to patents.

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 values may exceed the fair values.  During the third quarter of 2016,2017, Mattel discontinued the use of a trademark which resulted in an asset impairment charge of $9.2 million.  The asset impairment charge is recorded within other selling and administrative expenses in the consolidated statements of operations. Mattel performed its annual impairment assessmentsassessment during the third quarter of 2017 and determined that its remaining nonamortizable intangible assets wereasset was not impaired.

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. Amortizable intangible assets were determined to not be impaired during the three and nine months ended September 30, 2016.2017.

Mattel maintains and periodically amends or replaces its domestic unsecured committed revolving credit facility (“Credit Facility”) with a commercial bank group. The credit facilityCredit Facility is used as a back-up to Mattel’s commercial paper program, which is used as theMattel's primary source of financing for the seasonal working capital requirements of its domestic subsidiaries.short-term borrowing facility. The agreement governing the credit facilityCredit Facility was amended and restated on June 8, 201515, 2017 to, among other things, (i) extendincrease the maturity date of the credit facility to June 9, 2020, (ii) amend the definition ofmaximum allowed consolidated debt-to-consolidated earnings before interest, taxes, depreciation, and amortization (“Consolidatedconsolidated EBITDA”) usedratio that Mattel is required to maintain under the Credit Facility to 3.75 to 1 from 3.50 to 1 for the four consecutive quarters beginning with the second quarter of 2017. Additionally, the Credit Facility was amended on September 20, 2017 to remove the consolidated debt-to-consolidated EBITDA ratio requirement for the third fiscal quarter of 2017 and increase the consolidated debt-to-consolidated EBITDA ratio during a covenant modification period to 4.50 to 1.00 for the fourth fiscal quarter of 2017 and 4.25 to 1.00 for each fiscal quarter thereafter. The covenant modification period commenced on September 20, 2017 and continues, at a minimum, through the fourth fiscal quarter of 2017 and thereafter until such time as Mattel (i) requests the termination of the covenant modification period, and (ii) delivers financial statements and a certificate to the lenders demonstrating a consolidated debt-to-consolidated EBITDA ratio of 3.75 to 1.00 or less for the period consisting of the preceding four consecutive fiscal quarters. The amendment further amends the Credit Facility to, among other items, (i) add certain restrictive covenants during the covenant modification period that include greater restrictions against certain receivable financing facilities, as well as restrictions on certain asset dispositions, burdensome agreements, and specified restricted payments, (ii) add a guarantee and lien trigger event that occurs if Mattel’s debt rating falls below certain thresholds, (iii) add covenants that require all U.S. material subsidiaries under the Credit Facility (other than foreign subsidiary holding companies) to become guarantors upon a guarantee and lien trigger event, and (iv) provide that after a guarantee and lien trigger event and before the termination of the covenant modification period, indebtedness under the Credit Facility in calculatingan amount not to exceed 10% of Mattel’s consolidated net tangible assets will be secured by pledges from Mattel and the guarantors of 100% of the equity of all U.S. subsidiaries (other than any foreign subsidiary holding company) and 66% of the equity of all first-tier foreign subsidiaries and foreign subsidiary holdings companies. Such guarantees and pledges, as well as the additional restrictive covenants, will be eliminated upon the termination of the covenant modification period.

Although the consolidated debt-to-consolidated EBITDA ratio was removed for the third quarter, Mattel is required to meet financial ratio covenants at the end of each quarter and (iii) increasefiscal year, using the maximum allowed consolidated debt-to-Consolidated EBITDAformulae specified in the Credit Facility to calculate the ratios. Mattel was in compliance with its interest coverage ratio to 3.50 to 1. covenant at September 30, 2017.

The aggregate commitments under the credit facilityCredit Facility remain at $1.60 billion, with an “accordion feature,” which allows Mattel to increase the aggregate availability under the credit facilityCredit Facility to $1.85 billion under certain circumstances. In addition, applicable interest rate margins remain within a range of 0%0.00% to 0.75% above the applicable base rate for base rate loans and 0.88% to 1.75% above the applicable LIBOR for Eurodollar rate loans, and the commitment fees range from 0.08% to 0.25% of the unused commitments under the credit facility,Credit Facility, in each case depending on Mattel’s senior unsecured long-term debt rating.

The proportionBoth the borrowing costs incurred as a result of the amendment and the portion of unamortized debt issuance costs from the prior credit facility renewal related to creditors involved in both the prior credit facility and amended credit facility and borrowing costs incurred as a result of the amendment were deferred, and such costs will be amortized over the term of the amended credit facility.

The agreement governing the credit facilityCredit Facility is a material agreement, and failure to comply with the financial ratio covenants may result in an event of default under the terms of the credit facility.Credit Facility. If Mattel were to default under the terms of the credit facility,Credit Facility, its ability to meet its seasonal financing requirements could be adversely affected. Furthermore, Mattel’s long-term debt agreements contain cross-default provisions which would result in an event of default if Mattel, among other items, fails to comply with the financial ratio covenants under the terms of the Credit Facility with outstanding borrowings in excess of $25 million. The Credit Facility is used as a back-up to Mattel’s commercial paper program.

Other noncurrent liabilities include the following:

The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss):

Mattel’s reporting currency is the US dollar. The translation of its net investments in subsidiaries with non-US dollar functional currencies subjects Mattel to the impact of currency exchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-US dollar functional currencies are translated into US dollars at fiscal period-end exchange rates. Income, expense, and cash flow items are translated at weighted average exchange rates prevailing during the fiscal period. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Currency translation adjustments resulted in a net gain of $142.2 million for the nine months ended September 30, 2017, primarily due to the strengthening of the Euro, British pound sterling, and Mexican peso against the US dollar. Currency translation adjustments resulted in a net loss of $18.9 million for the nine months ended September 30, 2016, primarily due to the weakening of the British pound sterling and the Mexican Pesopeso against the US dollar, partially offset by the strengthening of the Euro and the Brazilian real. Currency translation adjustments resulted in a net loss of $179.8 million for the nine months ended September 30, 2015, primarily due to the weakening of the Euro, Mexican peso, and Brazilian real against the US dollar.

Mattel seeks to mitigate its exposure to foreign currency transaction risk by monitoring its foreign currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts. Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of inventory denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months. These derivative instruments have been designated as effective cash flow hedges, whereby the unsettled hedges are reported in Mattel’s consolidated balance sheets at fair value, with changes in the fair value of the hedges reflected in other comprehensive (loss) income (“OCI”). Realized gains and losses for these contracts are recorded in the consolidated statements of operations in the period in which the inventory is sold to customers. Additionally, Mattel uses foreign currency forward exchange contracts to hedge intercompany loans and advances denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel has not designated these contracts as hedging instruments, and as such, changes in fair value are recorded in the period of change in the consolidated statements of operations.

As of September 30, 2016,2017, September 30, 2015,2016, and December 31, 2015,2016, Mattel held foreign currency forward exchange contracts with notional amounts of approximately$2.46 billion, $1.15 billion, $972 million, and $931 million,$1.20 billion, respectively. The notional amounts of the foreign currency forward exchange contracts outstanding as of September 30, 2017 include foreign currency forward contracts executed on September 29, 2017 to settle contracts used to hedge intercompany loans and advances that matured on October 2, 2017.  The notional amounts also include additional foreign currency forward contracts executed on September 29, 2017 to replace the contracts used to hedge the intercompany loans and advances that matured and settled on October 2, 2017.  The increase to the notional amounts outstanding as of September 30, 2017 was primarily due to the timing of the scheduled settlements of Mattel’s intercompany loans and advances denominated in foreign currencies. As of September 30, 2016, and September 30, 2015, Mattel also held cross currency swap contracts with notional amounts of $16.9 million and $30.0 million, respectively.

The following tables present Mattel’s derivative assets and liabilities:

The following tables present the classification and amount of gains and losses, net of tax, from derivatives reported in the consolidated statements of operations:

The net losses of $9.2 million and $6.6 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three and nine months ended September 30, 2017, respectively, and the net gains of $2.2 million and $12.5 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three and nine months ended September 30, 2016, respectively, and the net gains of $19.2 million and $41.7 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three and nine months ended September 30, 2015, respectively, are offset by the changes in cash flows associated with the underlying hedged transactions.

The net gains of $13.6 million and $65.1 million recognized in the consolidated statements of operations for the three and nine months ended September 30, 2017, respectively, and the net gains of $0.7 million and $6.6 million recognized in the consolidated statements of operations for the three and nine months ended September 30, 2016, respectively, and the net losses of $7.7 million and $49.7 million recognized in the consolidated statements of operations for the three and nine months ended September 30, 2015, respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.

The following tables present information about Mattel’s assets and liabilities measured and reported in the financial statements at fair value and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. The three levels of the fair value hierarchy are as follows:

Mattel’s financial instruments include cash and equivalents, accounts receivable and payable, short-term borrowings, and accrued liabilities. The fair values of these instruments approximate their carrying values because of their short-term naturenature. Cash is classified as Level 1 and all other financial instruments are classified as Level 2 within the fair value hierarchy.

The estimated fair value of Mattel’s long-term debt, including the current portion, was $2.17 billion (compared to a carrying value of $2.15 billion) as of September 30, 2017, $2.57 billion (compared to a carrying value of $2.45 billion) as of September 30, 2016, $2.15and $2.18 billion (compared to a carrying value of $2.10 billion) as of September 30, 2015, and $2.15 billion (compared to a carrying value of $2.10 billion) as of December 31, 2015.2016. The estimated fair values have been calculated based on broker quotes or rates for the same or similar instruments and are classified as Level 2 within the fair value hierarchy.

Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. Certain of Mattel’s restricted stock units (“RSUs”) are considered participating securities because they contain nonforfeitable rights to dividend equivalents.

Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating securities. The remaining undistributed earnings are then allocated to common stock and participating securities as if all of the net income for the period had been distributed. Basic earnings per common share excludes dilution and is calculated by dividing net income allocable to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net income allocable to common shares by the weighted average number of common shares for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.

The following table reconciles earnings per common share for the three and nine months ended September 30, 20162017 and 2015:2016: