Earnings per Share

9 Months Ended

Feb. 29, 2012

Earnings per Share

Earnings per Share

Note 9 — 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 exclude income attributable to unvested restricted stock awards from the numerator and exclude 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- and nine-month periods ended February 29, 2012 and February 28, 2011.

	Three Months Ended					Nine Months Ended
	February 29/28,					February 29/28,
	2012			2011		2012			2011
Basic EPS:
Net income attributable to AAR and noncontrolling interest	$	20,835		$	17,918	$	55,016		$	48,406
Less income attributable to participating shares	(805		)	—		(2,072		)	—
Less income attributable to noncontrolling interest	(172		)	—		(172		)	—
Net income attributable to AAR available to common shareholders	$	19,858		$	17,918	$	52,772		$	48,406
Basic shares:
Weighted average common shares outstanding	38,650			38,361		38,753			38,341
Earnings per share — basic	$	0.51		$	0.47	$	1.36		$	1.26
Diluted EPS:
Net income attributable to AAR and noncontrolling interest	$	20,835		$	17,918	$	55,016		$	48,406
Less income attributable to participating shares	(738		)	—		(1,905		)	—
Less income attributable to noncontrolling interest	(172		)	—		(172		)	—
Add after-tax interest on convertible debt	1,508			1,415		4,453			4,178
Net income attributable to AAR available to common shareholders	$	21,433		$	19,333	$	57,392		$	52,584
Diluted shares:
Weighted average common shares outstanding	38,650			38,361		38,753			38,341
Additional shares from the assumed exercise of stock options	208			496		259			283
Additional shares from the assumed vesting of restricted stock	—			788		—			766
Additional shares from the assumed conversion of convertible debt	4,122			4,068		4,122			4,068
Weighted average common shares outstanding — diluted	42,980			43,713		43,134			43,458
Earnings per share — diluted	$	0.50		$	0.44	$	1.33		$	1.21

At February 29, 2012 and February 28, 2011, respectively, stock options to purchase 260,000 and 278,000 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.