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 six months ended June 30, 2014 and 2013:


	For the Three Months Ended						For the Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(In thousands, except per share amounts)
Basic:
Net income	$	28,325		$	73,348		$	17,107		$	111,859
Less: net income allocable to participating RSUs (a)		(265	)		(725	)		(199	)		(1,131	)

Net income available for basic common shares	$	28,060		$	72,623		$	16,908		$	110,728

Weighted average common shares outstanding		338,709			346,614			339,463			345,453

Basic net income per common share	$	0.08		$	0.21		$	0.05		$	0.32

Diluted:
Net income	$	28,325		$	73,348		$	17,107		$	111,859
Less: net income allocable to participating RSUs (a)		(270	)		(730	)		(212	)		(1,147	)

Net income available for diluted common shares	$	28,055		$	72,618		$	16,895		$	110,712

Weighted average common shares outstanding		338,709			346,614			339,463			345,453
Weighted average common equivalent shares arising from:
Dilutive stock options and non-participating RSUs		1,935			3,810			2,131			4,050

Weighted average number of common and potential common shares		340,644			350,424			341,594			349,503

Diluted net income per common share	$	0.08		$	0.21		$	0.05		$	0.32

(a)

During the three and six months ended June 30, 2014 and 2013, 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 1.5 million and 0.1 million shares were excluded from the calculation of diluted net income per common share for the three months ended June 30, 2014 and 2013, respectively, because they were antidilutive. Nonqualified stock options and non-participating RSUs totaling 1.4 million and 0.1 million shares were excluded from the calculation of diluted net income per common share for the six months ended June 30, 2014 and 2013, respectively, because they were antidilutive.