18. Earnings per Share

The following table provides a reconciliation of net income from continuing operations 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 Year Ended December 31,
	2016		2015		2014
Basic Earnings
Continuing Operations:
Income from continuing operations attributable to STWD common stockholders	$	365,186	$	450,697	$	496,572
Less: Income attributable to participating shares		(2,053)		(3,434)		(5,579)
Basic — Income from continuing operations	$	363,133	$	447,263	$	490,993

Discontinued Operations:
Loss from discontinued operations	$	—	$	—	$	(1,551)
Basic — Net income attributable to STWD common stockholders after allocation to participating shares	$	363,133	$	447,263	$	489,442

Diluted Earnings
Continuing Operations:
Basic — Income from continuing operations attributable to STWD common stockholders	$	365,186	$	450,697	$	496,572
Less: Income attributable to participating shares		(2,053)		(3,434)		(5,579)
Add: Undistributed earnings to participating shares		—		—		918
Less: Undistributed earnings reallocated to participating shares		—		—		(902)
Diluted — Income from continuing operations	$	363,133	$	447,263	$	491,009

Discontinued Operations:
Basic — Loss from discontinued operations	$	—	$	—	$	(1,551)
Diluted — Net income attributable to STWD common stockholders after allocation to participating shares	$	363,133	$	447,263	$	489,458

Number of Shares:
Basic — Average shares outstanding		238,529		233,419		214,945
Effect of dilutive securities — Convertible Notes		2,697		97		3,432
Effect of dilutive securities — Contingently issuable shares		473		524		404
Effect of dilutive securities — Unvested non-participating shares		95		102		—
Diluted — Average shares outstanding		241,794		234,142		218,781

Earnings Per Share Attributable to STWD Common Stockholders:
Basic:
Income from continuing operations	$	1.52	$	1.92	$	2.29
Loss from discontinued operations		—		—		(0.01)
Net income	$	1.52	$	1.92	$	2.28

Diluted:
Income from continuing operations	$	1.50	$	1.91	$	2.25
Loss from discontinued operations		—		—		(0.01)
Net income	$	1.50	$	1.91	$	2.24

As of December 31, 2016, 2015 and 2014, participating shares of 0.6 million, 1.5 million and 2.0 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 December 31, 2016, there were 62.6 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 59.9 million shares at December 31, 2016, was not included in the computation of diluted EPS. However, as discussed in Note 11, the conversion options associated with the 2018 Notes and 2019 Notes are “in-the-money” as the if-converted values exceeded their principal amounts by $22.7 million and $33.1 million, respectively, at December 31, 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 2.7 million shares for the year ended December 31, 2016. The conversion option associated with the 2017 Notes is “out-of-the-money” because the if-converted value was less than its principal amount by $34.6 million at December 31, 2016; therefore, there was no dilutive effect to EPS for the 2017 Notes.