NOTE 5. NET INCOME PER COMMON SHARE

The computation of basic net income per common share is based on the weighted-average number of common shares outstanding during each period. The computation of diluted net income per common 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, restricted stock units, stock appreciation rights, ESPP shares, warrants, and shares issuable upon conversion of convertible debt.

At June 30, 2015, the Company had $167.8 million aggregate principal amount of the Convertible Notes outstanding, for which the Company controls the settlement method. During the second quarter of 2015, the Company asserted its intent and ability to settle the outstanding Convertible Notes for a combination of cash and common stock. Under the “cash settlement” method, interest is not added back to the numerator, and only the contingently issuable shares related to the conversion spread are included in the denominator, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company’s common stock during the period exceeds the conversion price of approximately $51.24 per share of common stock. The calculation of diluted net income per common share for the three months ended June 30, 2015 includes the effect of approximately 2.4 million common shares related to the conversion spread of the Convertible Notes.

The Company used the “if-converted” method to compute the dilutive effect of the Convertible Notes for the calculation of diluted net income per common share for the three and six months ended June 30, 2014. Under the “if-converted” method, interest expense, net of tax, related to the Convertible Notes, is added back to net income, and the Convertible Notes are assumed to have been converted into common shares at the beginning of the period during periods in which there would have been a dilutive effect. For the three and six months ended June 30, 2014, the impact of the Convertible Notes has been excluded from the calculation of diluted net income per common share because the effect of their inclusion would have been anti-dilutive (approximately 5.1 million contingently issuable shares have been excluded).

The computation of diluted net income per common share for the six months ended June 30, 2015 reflects the application of the “if converted” method for the first quarter of 2015 and the “cash settlement” method for the second quarter of 2015 given the demonstrated and asserted redemption for the outstanding debt. For the six months ended June 30, 2015, the impact of the Convertible Notes has been excluded from the calculation of diluted net income per common share because the effect of their inclusion would have been anti-dilutive (approximately 3.7 million contingently issuable shares have been excluded).

The Company completed the settlement of $167.8 million aggregate principal amount of the Convertible Notes for $167.8 million in cash and 1,769,609 shares of its common stock during the third quarter of 2015 as discussed further in Note 15, “Subsequent Events.”

The following table reconciles the numerator and denominator used to calculate diluted net income per common share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Numerator:
Net income	$	25,826	$	47,919	$	22,708	$	34,254

Denominator:
Weighted-average common shares, basic		79,252		76,577		78,788		76,411
Dilutive effect of common stock equivalents		5,093		3,914		2,710		4,076

Weighted-average common shares, diluted		84,345		80,491		81,498		80,487

Net income per common share:
Basic net income per common share	$	0.33	$	0.63	$	0.29	$	0.45

Diluted net income per common share	$	0.31	$	0.60	$	0.28	$	0.43