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.

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 nine months ended September 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 nine months ended September 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 10.2 million contingently issuable shares have been excluded).

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. The calculation of diluted net income per common share for the three months ended September 30, 2015 includes the effect of approximately 0.8 million common shares related to the conversion spread of the Convertible Notes prior to settlement.

The computation of diluted net income per common share for the nine months ended September 30, 2015 reflects the application of the “if converted” method for the first quarter of 2015 and the “cash settlement” method for the second and third quarters of 2015 given the demonstrated and asserted redemption for the outstanding debt. For the nine months ended September 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 5.2 million contingently issuable shares have been excluded). The Company completed the settlement of all of its Convertible Notes during the third quarter of 2015 as described in Note 10, “Debt.”

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Numerator:
Net income	$	79,510	$	77,993	$	102,218	$	112,247

Denominator:
Weighted-average common shares, basic		162,390		154,112		159,198		153,258
Dilutive effect of common stock equivalents		5,680		8,334		5,256		8,190

Weighted-average common shares, diluted		168,070		162,446		164,454		161,448