4.	Earnings Per Share

ASC

260

requires a company that has participating security holders (for example, holders of unvested restricted stock that have non-forfeitable dividend rights) to utilize the

two

-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS. The

two

-class method is an allocation of earnings/(loss) between the holders of common stock and a company’s participating security holders. Under the

two

-class method, earnings/(loss) for the reporting period are allocated between common shareholders and other security holders based on their respective rights to receive distributed earnings (i.e., dividends) and undistributed earnings (i.e., net income/(loss)). Our common shares outstanding are comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding, excluding participating shares in accordance with ASC

260.

To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options outstanding. The table below shows our basic and diluted EPS calculations.

	Three Months Ended
	March 31,
	2018			2017
	(Dollars in thousands, except per share amounts)
Numerator
Net income	$	38,764		$	22,249
Less: distributed earnings allocated to participating securities		(105	)		(68	)
Less: undistributed earnings allocated to participating securities		(124	)		(43	)
Net income attributable to common stockholders (numerator for basic earnings per share)		38,535			22,138
Add back: undistributed earnings allocated to participating securities		124			43
Less: undistributed earnings reallocated to participating securities		(122	)		(43	)
Numerator for diluted earnings per share under two class method	$	38,537		$	22,138

Denominator
Weighted-average common shares outstanding		55,871,087			55,448,161
Add: dilutive effect of stock options		1,024,805			269,057
Denominator for diluted earnings per share under two class method		56,895,892			55,717,218

Basic Earnings Per Common Share	$	0.69		$	0.40
Diluted Earnings Per Common Share	$	0.68		$	0.40

Diluted EPS for the

three

months ended

March 31, 2018

and

2017

excluded options to purchase approximately

0.1

and

4.2

million shares of common stock, respectively, because the effect of their inclusion would be anti-dilutive. The year-over-year decreases in anti-dilutive shares and the year-over-year increases in dilutive shares were primarily the result of year-over-year increases in the average price of MDC stock.