Income per Share

The Company applies the two-class method for calculating and presenting income per common share. The two-class method is an earnings allocation formula that determines earnings per share for each class of stock participation rights in undistributed earnings. Under the two class method:


(i)	Net income attributable to Select Medical Holdings Corporation is reduced by any contractual amount of dividends in the current period for each class of stock. There were no contractual dividends for the years ended December 31, 2015, 2016, and 2017.


(ii)	The remaining income is allocated to common stock and unvested restricted stock, to the extent that each security may participate in income, as if all of the earnings for the period had been distributed. The total income allocated to each security is determined by adding together the amount allocated for dividends in (i) above and the amount allocated for participation features.


(iii)	The income allocated to common stock is then divided by the weighted average number of outstanding shares for the period to which the earnings are allocated to determine the income per share for common stock.

In applying the two-class method, the Company determined that undistributed earnings should be allocated equally on a per share basis between common stock and unvested restricted stock due to the equal participation rights of common stock and unvested restricted stock (i.e., the voting conversion rights).

The following table sets forth the calculation of income per share in the Company’s consolidated statements of operations and comprehensive income and the differences between basic weighted average shares outstanding and diluted weighted average shares outstanding used to compute basic and diluted earnings per share, respectively:



	For the Year Ended December 31,
	2015		2016		2017
	(in thousands, except per share amounts)
Numerator:
Net income attributable to Select Medical Holdings Corporation	$	130,736	$	115,411	$	177,184
Less: Earnings allocated to unvested restricted stockholders	3,830		3,521		5,758
Net income available to common stockholders	$	126,906	$	111,890	$	171,426
Denominator:
Weighted average shares—basic	127,478		127,813		128,955
Effect of dilutive securities:
Stock options	274		155		171
Weighted average shares—diluted	127,752		127,968		129,126
Basic income per common share:	$	1.00	$	0.88	$	1.33
Diluted income per common share:	$	0.99	$	0.87	$	1.33