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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014

Net income (loss) (numerator)	$	464,425	$	(25,237	)	$	546,995	$	224,139
Denominator:
Weighted average outstanding shares — basic	45,531		47,297			46,105		48,427
Effect of dilutive securities(1):
Convertible notes(2)	479		—			1,141		2,753
Warrants	3,034		—			3,076		1,715
Stock options and employee stock purchase plan	1,195		—			1,393		1,465

Weighted average shares — diluted	50,239		47,297			51,715		54,360

Earnings (loss) per common share:
Basic	$	10.20	$	(0.53	)	$	11.86	$	4.63
Diluted	$	9.24	$	(0.53	)	$	10.58	$	4.12

Stock options, warrants, and shares of our common stock issued under our Convertible Notes excluded from calculation(2)	3,026		15,589			4,112		9,769

(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 Options

As of September 30, 2015, we have two shareholder-approved equity incentive plans: the United Therapeutics Corporation Amended and Restated Equity Incentive Plan (the 1999 Plan) and the United Therapeutics Corporation 2015 Stock Incentive Plan (the 2015 Plan). The 2015 Plan was approved by our shareholders on June 26, 2015 and provides for the issuance of up to 6,150,000 shares of our common stock pursuant to awards granted under the 2015 Plan. No further awards will be granted under the 1999 Plan.

Although the terms of the 1999 Plan and the 2015 Plan contemplate a variety of awards, to date all awards granted under these plans have been in the form of stock options. 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 price of our common stock, 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 under the 1999 Plan during the nine-month periods ended September 30, 2015 and September 30, 2014. From June 26, 2015, the date the 2015 Plan was approved, through September 30, 2015, we have granted 162,250 stock options under the 2015 Plan. There have been no exercises or forfeitures under the 2015 Plan. The stock options granted under the 2015 Plan through September 30, 2015 have a weighted average grant-date fair value of $60.77. We recorded $2.5 million in share-based compensation expense for the nine-months ended September 30, 2015 related to stock options granted under the 2015 Plan. The share-based compensation expense related to stock options granted under the 2015 Plan is reflected in selling, general and administrative within the statement of operations.

The table below includes the assumptions used to measure the fair value of the stock options granted under the 2015 Plan:

	September 30, 2015
Expected volatility	33.1	%
Risk-free interest rate	2.0	%
Expected term of awards (in years)	5.8
Expected forfeiture rate	1.0	%
Expected dividend yield	0.0	%

A summary of the activity and status of stock options under both the 1999 Plan and the 2015 Plan during the nine-month period ended September 30, 2015 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, 2015	4,054,771		$	76.83
Granted	162,250		174.57
Exercised	(806,755	)	40.90
Forfeited	—		—

Outstanding at September 30, 2015	3,410,266		$	89.99	6.5	$	147,715

Exercisable at September 30, 2015	3,248,016		$	85.76	6.4	$	147,715

Expected to vest at September 30, 2015	161,300		$	174.68	9.8	$	—

Stock option exercise data is summarized below (dollars in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Number of options exercised	210,256		460,600		807,755		1,177,797
Cash received	$	8,574	$	17,220	$	33,019	$	39,391

Share Repurchases

In June 2014, our Board of Directors authorized the repurchase of up to $500.0 million of our common stock. This program became effective on August 1, 2014, and remained open for one year. During the quarter ended September 30, 2015 we acquired approximately 337,000 shares of our common stock at an aggregate cost of $57.6 million under this repurchase program. In the aggregate, we repurchased approximately 3.3 million shares of common stock under this repurchase program for $500.0 million.

In October 2015, our Board of Directors authorized a new program for the repurchase of up to $500.0 million of our common stock in open or privately negotiated transactions, at our discretion. This program will be effective from January 1, 2016 to December 31, 2016.