Mattel 2012 Annual Report Download - page 95

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
2012 2011 2010
(In thousands, except per share amounts)
Basic:
Net income ..................................................... $776,464 $768,508 $684,863
Less net income allocable to participating RSUs ........................ (7,730) (8,821) (7,912)
Net income available for basic common shares ......................... $768,734 $759,687 $676,951
Weighted average common shares outstanding ......................... 341,665 344,669 360,615
Basic net income per common share ................................. $ 2.25 $ 2.20 $ 1.88
Diluted:
Net income ..................................................... $776,464 $768,508 $684,863
Less net income allocable to participating RSUs ........................ (7,682) (8,765) (7,863)
Net income available for diluted common shares ....................... $768,782 $759,743 $677,000
Weighted average common shares outstanding ......................... 341,665 344,669 360,615
Weighted average common equivalent shares arising from:
Dilutive stock options and non-participating RSUs .................. 4,493 3,755 3,955
Weighted average number of common and potential common shares ....... 346,158 348,424 364,570
Diluted net income per common share ................................ $ 2.22 $ 2.18 $ 1.86
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 0.7 million shares, 1.0 million shares, and 1.6 million shares were
excluded from the calculation of diluted net income per common share for 2012, 2011, and 2010, 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, 2012 and 2011, Mattel held foreign
currency forward exchange contracts with notional amounts of $1.36 billion and $1.14 billion, respectively.
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