11. 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 comprised the following (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014		2013

Net (loss) income (numerator)	$	(25,237	)	$	62,685	$	224,139	$	204,874
Denominator:
Weighted average outstanding shares — basic	47,297			50,014		48,427		50,007
Effect of dilutive securities (1):
Convertible notes (2)	—			1,822		2,753		1,389
Warrants	—			397		1,715		—
Stock options and employee stock purchase plan	—			1,455		1,465		1,174
Weighted average shares — diluted	47,297			53,688		54,360		52,570
(Loss) earnings per common share:
Basic	$	(0.53	)	$	1.25	$	4.63	$	4.10
Diluted	$	(0.53	)	$	1.17	$	4.12	$	3.90

Stock options and warrants excluded from calculation (2)	15,589			10,088		9,769		10,485

(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. Under our convertible note hedge agreement, we are entitled to receive shares required to be issued to investors upon conversion of our Convertible Notes. Since related shares used to compute dilutive earnings per share would be anti-dilutive, they have been excluded from the calculation above.

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 certain assumptions that can materially impact the estimation of fair value and related compensation expense. These assumptions used to estimate fair value 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, 2014 and 2013.

A summary of the activity and status of employee stock options during the nine-month period ended September 30, 2014 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, 2014	4,749,449		$	56.06
Granted	—		—
Exercised	(1,129,797	)	33.22
Forfeited	(218	)	11.35
Outstanding and exercisable at September 30, 2014	3,619,434		$	63.20	5.7	$	236,908

Total share-based compensation expense related to employee stock options is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Selling, general and administrative	$	28,309		$	12,709		$	28,309		$	21,875
Related income tax benefit	(10,276		)	(4,258		)	(10,276		)	(7,328		)
Share-based compensation expense, net of taxes	$	18,033		$	8,451		$	18,033		$	14,547

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Number of options exercised	460,600		310,673		1,177,797		665,363
Cash received	$	17,220	$	9,799	$	39,391	$	19,896

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. 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 in September and March of each year. During the nine-month period ended September 30, 2014, we issued approximately 45,660 shares of our common stock for $3.3 million in employee contributions. Eligible employees may contribute up to 15 percent of their base salary, subject to certain annual limitations as defined in the ESPP. The purchase price of the shares is equal to the lower of 85 percent of the closing price of our common stock on either the first or last trading day of a given offering period. In addition, the ESPP provides that no eligible employee may purchase more than 4,000 shares 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.

Share-based compensation expense related to the ESPP for the three-month periods ended September 30, 2014 and 2013 was $292,700 and $204,100, respectively, and for the nine-month periods ended September 30, 2014 and 2013 was $800,200 and $594,300, respectively.

We estimate the fair value of the shares of our common stock to be purchased under the ESPP using the Black-Scholes-Merton model. Our approach in determining and estimating inputs for the ESPP is similar to the methodology we employ in valuing our STAP awards.

Share Repurchases

In February 2013, our Board of Directors authorized a share repurchase program for up to $420.0 million in aggregate repurchases of our common stock. We completed this repurchase program during the quarter ended June 30, 2014 and acquired 4.6 million shares of our common stock in the aggregate under the program.

In June 2014, our Board of Directors authorized the repurchase of up to an additional $500.0 million of our common stock in open market or privately negotiated transactions, at our discretion (the 2014 Repurchase Program). This program became effective on August 1, 2014, and will remain open for up to one year. During the quarter ended September 30, 2014, we acquired 274,236 shares of our common stock at an aggregate cost of $25.6 million under the 2014 Repurchase Program