EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2018

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.

For periods of net income, and when the effects are not anti-dilutive, we calculate diluted earnings per share by dividing net income available to common shareholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options, shares to be purchased under our Employee Stock Purchase Plan (“ESPP”), unvested restricted stock awards, stock purchase warrants, and any conversion gain on our Notes (Note 4), using the treasury stock method. For periods of net loss, diluted loss per share is calculated similarly to basic loss per share.

Our unvested restricted shares contain non-forfeitable rights to dividends, and therefore are considered to be participating securities; in periods of net income, the calculation of basic and diluted earnings per share excludes from the numerator net income attributable to the unvested restricted shares, and excludes the impact of those shares from the denominator.

For purposes of determining diluted earnings per share, we have elected a policy to assume that the principal portion of the Notes (Note 4) is settled in cash. As such, the principal portion of the Notes has no effect on either the numerator or denominator when determining diluted earnings per share. Any conversion gain is assumed to be settled in shares and is incorporated in diluted earnings per share using the treasury method. The warrants issued in conjunction with the issuance of the Notes (Note 4) are considered to be dilutive when they are in-the-money relative to our average stock price during the period; the bond hedge purchased in conjunction with the issuance of the Notes is always considered to be anti-dilutive.

Earnings per share for the three and nine months ended September 30, 2018 and 2017 are calculated for basic and diluted earnings per share as follows:

	Basic						Diluted						Basic						Diluted
(in thousands, except per share amounts)	Three Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Net income	$	5,037		$	4,720		$	5,037		$	4,720		$	10,064		$	8,553		$	10,064		$	8,553
Net income allocated to restricted stock		(51	)		(35	)		(51	)		(35	)		(101	)		(64	)		(101	)		(64	)
Net income allocated to common shares	$	4,986		$	4,685		$	4,986		$	4,685		$	9,963		$	8,489		$	9,963		$	8,489

Basic Weighted-Average Shares Outstanding		11,706			11,553			11,706			11,553			11,659			11,542			11,659			11,542
Dilutive effect of stock options and ESPP								98			124									108			124
Diluted Weighted-Average Shares Outstanding								11,804			11,677									11,767			11,666

Earnings Per Share	$	0.43		$	0.41		$	0.42		$	0.40		$	0.85		$	0.74		$	0.85		$	0.73

The number of anti-dilutive shares, which have been excluded from the computation of diluted earnings per share, including the shares underlying the Notes, was 4.8 million for both the three months ended September 30, 2018 and 2017 and was 4.7 million for both the nine months ended September 30, 2018 and 2017. Anti-dilutive shares consist of out-of-the-money Class C Special stock, out-of-the-money common stock options, common stock options that are anti-dilutive when calculating the impact of the potential dilutive common shares using the treasury stock method, underlying shares related to out-of-the-money bonds issued as convertible debt, and out-of-the-money warrants exercisable for common stock.