Mattel 2015 Annual Report Download - page 82

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method. Certain of Mattel’s 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 Year
2015 2014 2013
(In thousands, except per share amounts)
Basic:
Net income $ 369,416 $ 498,874 $ 903,944
Less: Net income allocable to participating RSUs (3,179)(4,028)(8,335)
Net income available for basic common shares $ 366,237 $ 494,846 $ 895,609
Weighted average common shares outstanding 339,172 339,016 343,394
Basic net income per common share $ 1.08 $ 1.46 $ 2.61
Diluted:
Net income $ 369,416 $ 498,874 $ 903,944
Less: Net income allocable to participating RSUs (3,179)(4,028)(8,291)
Net income available for diluted common shares $ 366,237 $ 494,846 $ 895,653
Weighted average common shares outstanding 339,172 339,016 343,394
Weighted average common equivalent shares arising from:
Dilutive stock options and non-participating RSUs 576 1,752 4,065
Weighted average number of common and potential common
shares 339,748 340,768 347,459
Diluted net income per common share $ 1.08 $ 1.45 $ 2.58
The calculation of potential common shares assumes the exercise of dilutive stock options and vesting of non-
participating RSUs, net of assumed treasury share repurchases at average market prices. Nonqualified stock options and non-
participating RSUs totaling 9.6 million shares, 2.8 million shares, and 0.6 million shares were excluded from the calculation of
diluted net income per common share for 2015, 2014, and 2013, respectively, because they were antidilutive.
Note 9—Derivative Instruments
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 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 does not use hedge accounting for these contracts, and as such, changes in fair value are recorded in the period of
change in the consolidated statements of operations. As of December 31, 2015 and 2014, Mattel held foreign currency forward
exchange contracts with notional amounts of $930.8 million and $1.19 billion, respectively.