5. Earnings Per Share

The Company reports earnings per share in accordance with ASC Topic 260, “Earnings Per Share,” which establishes standards for computing and presenting earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Potential common share equivalents consist of restricted stock awards and the incremental common shares issuable upon the exercise of stock options. Under the treasury stock method, unexercised “in-the-money” stock options and warrants are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase common shares at the average market price during the period. Share-based payment awards that entitle their holders to receive non-forfeitable dividends before vesting are considered participating securities and are considered in the calculation of basic and diluted earnings per share. There were no such participating securities outstanding during the three- and nine-month periods ended September 30, 2017 and 2016.

Basic and diluted weighted average shares outstanding were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Weighted average common shares		41,236,554		33,779,141		36,435,591		33,485,448
Dilutive common stock options and restricted stock units		484,242		533,746		454,340		526,086
Dilutive effect of senior convertible notes		842,206		—		496,402		—

Weighted average common shares, assuming dilution		42,563,002		34,312,887		37,386,333		34,011,534

At September 30, 2017, there were outstanding options to purchase 749,669 shares of the Company’s common stock at a weighted average exercise price of $20.84 per share and 515,468 restricted stock units. For the three- and nine-month periods ended September 30, 2017, 162,544 and 326,572 options to purchase shares of the Company’s common stock, respectively, were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and were therefore anti-dilutive. As provided by the terms of the indenture underlying the Company’s 2.125% Convertible Senior Notes due 2021 (the “Notes”), the Company has a choice to settle the conversion obligation for the Notes in cash, shares or any combination of the two. The Company currently intends to settle the face value of the Notes in cash and any excess conversion premium in shares. During the third quarter of 2017, the closing price of the Company’s common stock exceeded 130% of the conversion price of the Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the Notes are convertible at the option of the holders of the Notes during the fourth quarter of 2017; however, no holders have elected to convert any of their Notes as of the date of this filing. The Company applies the provisions of ASC 260, Earnings Per Share, Subsection 10-45-44, to determine the diluted weighted average shares outstanding as it relates to the conversion spread on the Notes. Accordingly, the face value of the Notes is not included in the calculation of diluted income per share, but the dilutive effect of the conversion premium is considered in the calculation of diluted net income per share using the treasury stock method. The share figures in the table above represent the estimated incremental shares that would be issued related to the conversion premium, assuming conversion of all the outstanding Notes as of September 30, 2017.

At September 30, 2016, there were outstanding options to purchase 1,198,673 shares of the Company’s common stock at a weighted average exercise price of $12.03 per share. For the three- and nine-month periods ended September 30, 2016, 253,754 and 348,608 options to purchase shares of the Company’s common stock, respectively, were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and were therefore anti-dilutive. The Company applies the provisions of ASC 260, Earnings Per Share, Subsection 10-45-44, to determine the diluted weighted average shares outstanding as it relates to the conversion spread on the Notes. Accordingly, the face value of the Notes is not included in the calculation of diluted income per share. There is no dilutive effect of the conversion premium on the Notes for the three- and nine-month periods ended September 30, 2016, as the weighted average price of the Company’s common stock was less than the conversion price of the Notes