Earnings Per Share

3 Months Ended

Mar. 31, 2022

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 compensation as well as the 2.625% convertible notes due in 2024 (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, 2022 and 2021:


	Three Months Ended March 31, 2022
	Basic EPS		Adjustments		Diluted EPS
Net income	$	14,975	$	1,715	$	16,690

Weighted average shares outstanding	29,428		—		29,428

Employee stock compensation	—		1,158		1,158

Warrants	—		684		684

Convertible notes	—		3,885		3,885

	29,428		5,727		35,155

EPS	$	0.51			$	0.47


	Three Months Ended March 31, 2021
	Basic EPS		Adjustments		Diluted EPS
Net income	$	9,860	$	—	$	9,860

Weighted average shares outstanding	28,972		—		28,972

Employee stock compensation	—		1,221		1,221

Warrants	—		170		170

Convertible notes	—		1,015		1,015

	28,972		2,406		31,378

EPS	$	0.34			$	0.31

The shares used in the calculation of diluted EPS exclude employee stock options and stock appreciation rights 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.

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.

Effective with our adoption of ASU 2020-06 on January 1, 2022 (refer to Note 3 for further detail), the Company began using the if-converted method to compute diluted EPS. Under the if-converted method, in the calculation of diluted EPS, the numerator is adjusted for interest expense applicable to the convertible notes (net of tax) and the denominator is adjusted to include additional common shares assuming the principal portion of the Notes and the conversion premium are settled in common shares.

For periods prior to adoption of ASU 2020-06, the calculation of diluted EPS includes potential diluted shares upon conversion of the Notes only 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 and only for the conversion premium with the principal portion of the Notes assumed to be settled in cash.

We previously entered into convertible notes hedge transactions to increase the effective conversion price of the Notes from $88.80 to $114.92. However, our convertible notes hedges are not included when calculating potential dilutive shares since their effect is always anti-dilutive. Concurrent with entering into the hedge transactions, we entered into warrant transactions under which we agreed to sell shares of our common stock at $114.92. The calculation of diluted EPS 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, calculated under the treasury stock method.