The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:
Three Months Ended
Dividends and undistributed earnings allocated to participating securities(1)
Net income available to common shareholders
Weighted-average common shares outstanding for basic EPS
Dilutive effect of stock-based awards(2)
Weighted-average common and potential common shares for diluted EPS
Earnings per common share:
(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(2) Represents the effect of the assumed exercise of stock options, vesting of restricted shares, vesting of restricted stock units, and vesting of LTIP awards that have met the performance criteria, as applicable, utilizing the treasury stock method.
Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities.
Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards.
Diluted EPS is computed in a similar manner, except that first the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.
For the three months ended March 31, 2014 and 2013, options to purchase 15,250 and 53,500 shares, respectively, of common stock were not considered in the computation of potential common shares for purposes of diluted EPS, as the exercise prices of these options were greater than the average market price of the common stock for the respective periods.
The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.
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