Earnings per Share

3 Months Ended

Mar. 31, 2022

The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method of transition. ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share, whereas the Company previously calculated diluted earnings per share under the treasury stock method. Basic earnings per share (EPS) is calculated using the weighted average number of common shares outstanding. Diluted EPS is calculated using the weighted average number of common shares outstanding, including the dilutive effect of the Company’s stock option grants, SARs, RSUs, employee stock purchase plan (ESPP) awards, and the 2023 Notes, as determined per the if-converted method for the three months ended March 31, 2022 in connection with the adoption of ASU 2020-06 and the treasury stock method for the three months ended March 31, 2021.

Effect of Convertible Notes and Related Convertible Note Hedges and Warrants

In connection with the issuance of the 2023 Notes, the Company entered into Convertible Note Hedge and Warrant Transactions as described further in Note 9, Convertible Senior Notes Due 2023. The expected collective impact of the Convertible Note Hedge and Warrant Transactions is to reduce the potential dilution that would occur if the price of the Company's common stock was between the conversion price of $59.33 per share and the strike price of the warrants of $80.91 per share.

Diluted EPS related to the 2023 Notes in the current year is calculated using the if-converted method. The number of dilutive shares is based on the initial conversion rate associated with the 2023 Notes. The Convertible Note Hedge and Warrant Transactions are excluded in the calculation of diluted EPS because inclusion would be anti-dilutive. Specifically, the denominator of the diluted EPS calculation excludes the additional shares related to the warrants because the average price of the Company's common stock was less than the strike price of the warrants of $80.91 per share. Prior to actual conversion, the Convertible Note Hedge Transactions are not considered in calculating diluted earnings per share, as their impact would be anti-dilutive.

In addition to the above described effect of the 2023 Notes and the related Convertible Note Hedge and Warrant Transactions, the Company also excluded the common stock equivalents of the following outstanding stock-based awards in the calculation of diluted EPS, because their inclusion would be anti-dilutive:


	Three Months ended March 31,
	2022	2021
	(unaudited)



Stock options, RSUs	1,067,231	1,419,203

As mentioned in Note 1, as a result of the adoption of ASU 06-2020 on January 1, 2022 the Company calculated diluted earnings per share using the if-converted method. The 6.8 million in dilutive shares associated with the conversion of the 2023 Notes are included in diluted weighted average shares of common stock outstanding for the purposes of calculating diluted earnings per share for the three months ended March 31, 2022. For the three months ended March 31, 2021, the Company calculated diluted earnings per share using the treasury stock method wherein the shares associated with the conversion of the 2023 Notes were excluded as the Company assumed the 2023 Notes would be settled entirely or partly in cash.

The following table sets forth the computation of basic and diluted net earnings per share for the three months ended March 31, 2022 under the if-converted method and for the three months ended March 31, 2021 under the treasury stock method (dollars in thousands, except share and per share amounts):


	Three Months ended March 31,
	2022		2021
	(unaudited)
Numerator:
Net earnings	$	25,616	$	5,694
After-tax interest expense for 2023 Notes	887		—
Numerator for dilutive earnings per share	$	26,503	$	5,694
Denominator:
Weighted average shares outstanding, basic	53,330,837		52,927,467
Effect of dilutive securities:
Stock options, RSUs and SARs	1,291,782		1,269,504
Convertible notes	6,783,936		—
Weighted average shares outstanding, diluted	61,406,555		54,196,971

Earnings per share, basic	$	0.48	$	0.11
Earnings per share, diluted	$	0.43	$	0.11