Earnings per Share

6 Months Ended

Jun. 30, 2016

17. Earnings per Share

The following table provides a reconciliation of net income and the number of shares of common stock used in the computation of basic EPS and diluted EPS (amounts in thousands, except per share amounts):


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Basic Earnings
Income attributable to STWD common stockholders	$	111,473	$	117,148	$	138,130	$	237,511
Less: Income attributable to participating shares		(580)		(1,207)		(1,287)		(2,183)
Basic earnings	$	110,893	$	115,941	$	136,843	$	235,328

Diluted Earnings
Basic — Income attributable to STWD common stockholders	$	111,473	$	117,148	$	138,130	$	237,511
Less: Income attributable to participating shares		(580)		(1,207)		(1,287)		(2,183)
Add: Undistributed earnings to participating shares		—		15		—		126
Less: Undistributed earnings reallocated to participating shares		—		(15)		—		(126)
Diluted earnings	$	110,893	$	115,941	$	136,843	$	235,328

Number of Shares:
Basic — Average shares outstanding		237,060		235,087		236,808		229,346
Effect of dilutive securities — Convertible Notes		441		649		456		644
Effect of dilutive securities — Contingently issuable shares		70		95		70		95
Effect of dilutive securities — Unvested non-participating shares		26		—		33		—
Diluted — Average shares outstanding		237,597		235,831		237,367		230,085

Earnings Per Share Attributable to STWD Common Stockholders:
Basic	$	0.47	$	0.49		0.58		1.03
Diluted	$	0.47	$	0.49		0.58		1.02

As of June 30, 2016 and 2015, participating shares of 1.2 million and 2.5 million, respectively, were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above.

Also as of June 30, 2016, there were 62.9 million potential shares of common stock contingently issuable upon the conversion of the Convertible Notes. The Company has asserted its intent and ability to settle the principal amount of the Convertible Notes in cash. As a result, this principal amount, representing 62.5 million shares at June 30, 2016, was not included in the computation of diluted EPS. However, as discussed in Note 10, the conversion options associated with the 2019 Notes are “in-the-money” as the if-converted value of the 2019 Notes exceeded their principal amount by $8.8 million at June 30, 2016. The dilutive effect to EPS is determined by dividing this “conversion spread value” by the average share price. The “conversion spread value” is the value that would be delivered to investors in shares based on the terms of the Convertible Notes, upon an assumed conversion. In calculating the dilutive effect of these shares, the treasury stock method was used and resulted in a dilution of 0.4 million shares and 0.5 million shares for the three and six months ended June 30, 2016, respectively. The conversion option associated with the 2017 Notes and 2018 Notes are “out-of-the-money” because the if-converted values of the 2017 Notes and 2018 Notes were less than their principal amounts by $58.3 million and $18.8 million, respectively, at June 30, 2016. Therefore, there was no dilutive effect to EPS for the 2017 Notes or 2018 Notes for the three and six months ended June 30, 2016.