14.

Earnings Per Share

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, 2015 and 2014:


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
	(In thousands, except per share amounts)
Basic:
Net income	$	223,784		$	331,836		$	154,256		$	348,943
Less: net income allocable to participating RSUs (a)		(1,036	)		(2,338	)		(2,393	)		(2,521	)

Net income available for basic common shares	$	222,748		$	329,498		$	151,863		$	346,422

Weighted average common shares outstanding		339,420			338,728			338,954			339,216

Basic net income per common share	$	0.66		$	0.97		$	0.45		$	1.02

Diluted:
Net income	$	223,784		$	331,836		$	154,256		$	348,943
Less: net income allocable to participating RSUs (a)		(1,035	)		(2,330	)		(2,393	)		(2,523	)

Net income available for diluted common shares	$	222,749		$	329,506		$	151,863		$	346,420
Weighted average common shares outstanding		339,420			338,728			338,954			339,216
Weighted average common equivalent shares arising from:
Dilutive stock options and non-participating RSUs		370			1,601			590			1,951

Weighted average number of common and potential common shares		339,790			340,329			339,544			341,167

Diluted net income per common share	$	0.66		$	0.97		$	0.45		$	1.02

(a)

During the three and nine months ended September 30, 2015 and 2014, Mattel allocated a proportionate share of both dividends and undistributed earnings to participating RSUs.

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 14.9 million and 8.6 million shares were excluded from the calculation of diluted net income per common share for the three and nine months ended September 30, 2015, respectively, because they were antidilutive. Nonqualified stock options and non-participating RSUs totaling 3.6 million and 2.2 million shares were excluded from the calculation of diluted net income per common share for the three and nine months ended September 30, 2014, respectively, because they were antidilutive.