Earnings per Share

3 Months Ended

Aug. 31, 2011

Earnings per Share

Earnings per Share

Note 8 — Earnings per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period.  The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, shares issuable upon vesting of restricted stock awards and shares to be issued upon conversion of convertible debt.

We use the “if-converted” method in calculating the diluted earnings per share effect of the assumed conversion of our contingently convertible debt issued in fiscal 2006 because the principal for that issuance can be settled in stock, cash or a combination thereof.  Under the “if converted” method, the after-tax effect of interest expense related to the convertible securities is added back to net income, and the convertible debt is assumed to have been converted into common shares at the beginning of the period.

In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, the Company’s unvested restricted stock awards are deemed participating securities since these shares are entitled to participate in dividends declared on common shares.  During periods of net income, the calculation of earnings per share for common stock excludes  income attributable to unvested restricted stock awards from the numerator and excludes the dilutive impact of those shares from the denominator.  During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.

The following table provides a reconciliation of the computations of basic and diluted earnings per share information for the three-month periods ended August 31, 2011 and 2010.

	Three Months Ended
	August 31,
	2011			2010
Basic EPS:
Income from continuing operations	$	16,963		$	14,047
Less income attributable to participating shares	(596		)	—
Income from continuing operations available to common shareholders	16,367			14,047
Loss from discontinued operations	(314		)	(373		)
Net income attributable to AAR available to common shareholders	$	16,053		$	13,674
Basic shares:
Weighted average common shares outstanding	38,869			38,411
Earnings per share — basic:
Earnings from continuing operations	$	0.42		$	0.37
Loss from discontinued operations, net of tax	(0.01		)	(0.01		)
Earnings per share — basic	$	0.41		$	0.36
Diluted EPS:
Income from continuing operations	$	16,963		$	14,047
Less income attributable to participating shares	(548		)	—
Add after-tax interest on convertible debt	1,461			1,371
Income from continuing operations available to common shareholders	17,876			15,418
Loss from discontinued operations	(314		)	(373		)
Net income attributable to AAR available to common shareholders	$	17,562		$	15,045
Diluted shares:
Weighted average common shares outstanding	38,869			38,411
Additional shares from the assumed exercise of stock options	387			85
Additional shares from the assumed conversion of convertible debt	4,090			4,068
Weighted average common shares outstanding — diluted	43,346			42,564
Earnings per share — diluted:
Earnings from continuing operations	$	0.41		$	0.36
Loss from discontinued operations, net of tax	—			(0.01		)
Earnings per share — diluted	$	0.41		$	0.35

At August 31, 2011 and 2010, respectively, stock options to purchase 210,000 and 1,232,000 shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of each of these options was greater than the average market price of the common shares during the interim periods then ended.