Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Stockholders' Equity

Stockholders' Equity

10. Stockholders’ Equity

Earnings Per Common Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, adjusted for the potential dilutive effect of other securities if such securities were converted or exercised.

The components of basic and diluted earnings per common share comprise the following (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Numerator:
Income from continuing operations	$	78,111	$	80,615	$	221,187	$	174,054
Income from discontinued operations	—		3,783		—		625
Net income	$	78,111	$	84,398	$	221,187	$	174,679
Denominator:
Weighted average outstanding shares — basic	51,514		58,321		52,626		58,087
Effect of dilutive securities (1):
Convertible notes	662		1,489		136		2,444
Warrants	—		—		—		—
Stock options	1,414		1,400		1,087		1,531
Weighted average shares — diluted	53,590		61,210		53,849		62,062
Earnings per common share:
Basic
Continuing operations	$	1.52	$	1.38	$	4.20	$	3.00
Discontinued operations	0.00		0.07		0.00		0.01
Net income per basic common share	$	1.52	$	1.45	$	4.20	$	3.01
Diluted
Continuing operations	$	1.46	$	1.32	$	4.11	$	2.80
Discontinued operations	0.00		0.06		0.00		0.01
Net income per diluted common share	$	1.46	$	1.38	$	4.11	$	2.81
Stock options and warrants excluded from calculation (2)	11,026		7,922		11,761		6,446

(1)Calculated using the treasury stock method.

(2)Certain stock options and warrants were excluded from the computation of diluted earnings per share because their impact would be anti-dilutive.

Stock Option Plan

We may grant stock options to employees and non-employees under our equity incentive plan. We estimate the fair value of stock options using the Black-Scholes-Merton valuation model, which requires us to make assumptions that can materially impact the estimation of fair value and related compensation expense. These assumptions include the expected volatility of our common stock, the risk-free interest rate, the expected term of stock option awards and the expected dividend yield. We did not grant any stock options during the three- and nine-month periods ended September 30, 2012 and 2011.

A summary of the activity and status of employee stock options during the nine-month period ended September 30, 2012 is presented below:

	Number of Options		Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2012	4,923,377		$	36.98
Granted	—		—
Exercised	(373,457	)	25.31
Forfeited	(3,858	)	6.95
Outstanding and exercisable at September 30, 2012	4,546,062		$	37.96	5.2	$	85,436

Total share-based compensation expense (benefit) related to employee stock options for the three- and nine-month periods ended September 30, 2012 and 2011, is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Research and development	$	—		$	3		$	—		$	196
Selling, general and administrative	4,042			5			6,371			315
Share-based compensation expense before taxes	4,042			8			6,371			511
Related income tax benefit	(1,480		)	(3		)	(2,333		)	(189		)
Share-based compensation expense net of taxes	$	2,562		$	5		$	4,038		$	322
Share-based compensation capitalized as part of inventory	$	—		$	—		$	—		$	15

Employee and non-employee stock option exercise data is summarized below (dollars in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Number of options exercised	246,401		20,135		386,515		820,572
Cash received	$	6,575	$	224	$	9,689	$	23,948

Employee Stock Purchase Plan

In June 2012, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan (ESPP), which has been structured to comply with Section 423 of the Internal Revenue Code (Section 423). The ESPP provides eligible employees the right to purchase shares of our common stock at a discount through elective accumulated payroll deductions at the end of each offering period. Offering periods occur in consecutive six-month periods commencing on September 5th and March 5th of each year. The initial six-month offering period began on September 5, 2012. Eligible employees may contribute up to 15 percent of their base salary, subject to certain annual limitations as defined in the ESPP, to purchase shares of our common stock. The purchase price of the shares is equal to 85 percent of the closing price of our common stock on either the first or last trading day of a given offering period, whichever is lower. In addition, the ESPP provides that no eligible employee may purchase more than 4,000 shares of our common stock during any offering period. The ESPP has a 20 year term and limits the aggregate number of shares that can be issued to 3.0 million.

Related share-based compensation expense for the each of the three- and nine-month periods ended September 30, 2012 was $60,000. We recognized no share-based compensation expense related to the ESPP for the three- and nine-month periods ended September 30, 2011. We estimate the fair value of the shares of our common stock to be purchased under the ESPP using the Black-Scholes-Merton model, which requires us to make subjective judgments in developing inputs that could materially impact share-based compensation expense.

The weighted average assumptions used to estimate the fair value of the shares to be purchased under our ESPP are as follows:

	Initial Offering Period beginning September 5, 2012
Expected volatility	29.0	%
Risk-free interest rate	0.1	%
Expected term (in years)	0.5
Expected dividend yield	0.0	%
Expected forfeiture rate	4.6	%

Share Repurchases

In October 2011, our Board of Directors approved a share repurchase program authorizing up to $300.0 million in aggregate repurchases of our common stock at our discretion, over a two-year period ending in October 2013 (Repurchase Program). In connection with the Repurchase Program, we paid $212.0 million for an accelerated share repurchase agreement (ASR) entered into with DB London in October 2011, under which we repurchased approximately 4.7 million shares of our common stock in October 2011. In May 2012, we completed the Repurchase Program by acquiring approximately 2.0 million shares of our common stock at an aggregate cost of $88.0 million.

In June 2012, our Board of Directors authorized the repurchase of up to an additional $100.0 million of our common stock. This repurchase program became effective July 31, 2012 and will remain open for up to one year. Under this program, we repurchased 788,288 shares of our common stock at an aggregate cost of $42.9 million during the quarter ended September 30, 2012.