Earnings Per Share

3 Months Ended

Mar. 31, 2021

Basic earnings per share (“basic EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding resulting from employee stock options, restricted stock units, performance share units and stock appreciation rights ("SARs") as well as the Notes and related hedge transactions during the period.

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021		2020
Net income	$	9,860	$	5,927

Basic – weighted average shares outstanding	28,972		28,478

Effect of dilutive potential securities	2,406		1,229

Diluted – weighted average shares outstanding	31,378		29,707

Net income (per share)
Basic	$	0.34	$	0.21
Diluted	0.31		0.20

The shares used in the calculation of diluted EPS exclude options and SARs to purchase shares where the exercise price was greater than the average market price of common shares for the period and the effect of the inclusion would be anti-dilutive. Such shares aggregated approximately 0.3 million and 1.1 million for the three months ended March 31, 2021 and 2020, respectively. Our 2.625% convertible notes due in 2024 (the “Notes”) are convertible under certain circumstances, as defined in the indenture, into a combination of cash and CONMED common stock.

The following is intended to describe the impact of the Notes and related hedge transactions on the calculation of diluted EPS. Additional shares to be issued pursuant to the terms of the Notes and related hedge transactions, if any, would occur at maturity.

The calculation of diluted EPS includes potential diluted shares upon conversion of the Notes when the average market price per share of our common stock for the period is greater than the conversion price of the Notes of $88.80. We intend to settle in cash the principal outstanding and use the treasury stock method when calculating their potential dilutive effect, if any.

During the three months ended March 31, 2021 and 2020, our average share price exceeded the conversion price of the Notes and we included in our diluted share count 1.0 million and 0.1 million shares, respectively, assumed to be issued if the Notes were converted.

We previously entered into convertible notes hedge transactions to increase the effective conversion price of the Notes to $114.92. However, our convertible notes hedges are not included when calculating potential dilutive shares since their effect is always anti-dilutive.

Concurrently with entering into the hedge transactions, we also previously entered into warrant transactions under which we agreed to sell shares of our common stock at $114.92.

The calculation of diluted EPS also includes potential diluted shares to be issued under the warrants when the average market price per share of our common stock for the period is greater than $114.92. During the three months ended March 31, 2021, our average share price exceeded $114.92 and we therefore included in our diluted share count an additional 0.2 million shares assumed to be issued under the warrants.