11—EARNINGS PER SHARE

All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders and, therefore, are included in computing earnings per share under the two-class method. Under the two-class method, net earnings are reduced by the amount of dividends declared in the period for each class of common stock and participating security. The remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends. Restricted stock awards granted to certain employees and directors under the Company’s 2006 Incentive Plan, which contain non-forfeitable rights to dividends at the same rate as common stock, are considered participating securities.

Basic earnings per share reflect only the weighted-average common shares outstanding during the period. Diluted earnings per share reflect weighted-average common shares outstanding and the effect of any dilutive common stock equivalent shares. Diluted earnings per share is calculated by dividing net income by the average common shares outstanding plus additional common shares that would have been outstanding assuming the exercise of in-the-money stock options, using the treasury stock method. The following table presents the reconciliation of income from operations to income from operations applicable to common shares and the computation of diluted weighted-average shares outstanding:

 

		Three Months Ended May 31,								Nine Months Ended May 31,
(In thousands)		2014				2013				2014				2013
Numerator:
Net income		$	3,071			$	2,058			$	4,798			$	4,956
Less: Allocation to participating securities			(16	)			(4	)			(14	)			(15	)
Net income applicable to common shares		$	3,055			$	2,054			$	4,784			$	4,941
Denominator:
Weighted average common shares outstanding, basic			12,532				12,395				12,502				12,349
Dilutive stock options and awards			343				275				345				199
Weighted average common shares outstanding, diluted			12,875				12,670				12,847				12,548

 

Weighted-average stock options to purchase 613,462 and 614,125 shares of common stock for the three and nine months ended May 31, 2014, respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive. Weighted-average stock options to purchase 916,463 and 967,820 shares of common stock for the three and nine months ended May 31, 2013, respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive.