9.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 millions, except per share amounts):

	Three Months Ended March 31,
	2016		2015
Numerator:
Net income (loss)	$	235.5	$	(16.6	)

Denominator:
Weighted average outstanding shares — basic	45.4		46.7
Effect of dilutive securities(1):
Convertible notes	0.1		—
Stock options and employee stock purchase plan	0.8		—
Warrants	2.4		—

Weighted average shares — diluted(2)	48.7		46.7

Earnings (loss) per common share:
Basic	$	5.19	$	(0.36	)
Diluted	$	4.84	$	(0.36	)

Stock options and warrants excluded from calculation(2)	4.1		5.6

(1)

Calculated using the treasury stock method.

(2)

Certain convertible notes, stock options and warrants have been 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.

Equity Incentive Plans

As of March 31, 2016, 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 in June 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. As a result of the approval of 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 three-month periods ended March 31, 2016 and March 31, 2015. During the three-months ended March 31, 2016, we granted 1.5 million stock options under the 2015 Plan. These stock options had a weighted average grant date fair value of $42.84 per option and an aggregate grant date fair value of $62.8 million. Share-based compensation expense is recorded ratably over the four-year vest period.

The table below includes the weighted-average assumptions used to measure the fair value of the stock options granted during the three-month period ended March 31, 2016:

Expected volatility	34.7	%
Risk-free interest rate	1.6	%
Expected term of awards (in years)	5.8
Expected forfeiture rate	5.5	%
Expected dividend yield	0.0	%

A summary of the activity and status of stock options under our equity incentive plans during the three-month period ended March 31, 2016 is presented below:

	Number of Options		Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2016	3,247,438		$	93.09
Granted	1,466,052		120.29
Exercised	(81,105	)	31.90
Forfeited	(6,268	)	120.26

Outstanding at March 31, 2016	4,626,117		$	102.75	7.5	$	78.5

Exercisable at March 31, 2016	2,994,083		$	90.14	6.2	$	78.5

Expected to vest as of March 31, 2016	1,550,613		$	126.12	9.9	$	—

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

	Three Months Ended March 31,
	2016		2015
Number of options exercised	81,105		251,835
Cash received	$	2.6	$	10.1

Total share-based compensation expense relating to stock options is as follows (in millions):

	Three Months Ended March 31,
	2016			2015
Cost of product sales	$	0.1		$	—
Research and development	0.1			—
Selling, general and administrative	2.9			—

Share-based compensation expense before taxes	3.1			—
Related income tax benefit	(1.1		)	—

Share-based compensation expense, net of taxes	$	2.0		$	—

As of March 31, 2016, the unrecognized compensation cost was $61.5, which includes $2.2 million related to the annual grant of stock options to non-employee members of our Board of Directors made in June 2015. Share-based compensation expense related to stock option grants to non-employee directors is recorded ratably over their one-year vesting period. As of March 31, 2015, all employee stock options were fully vested; consequently, there were no amounts of unrecognized compensation cost remaining.

Share Repurchases

In October 2015, our Board of Directors authorized the repurchase of up to $500.0 million of our common stock in open or privately negotiated transactions, at our discretion. This repurchase program is effective from January 1, 2016 through December 31, 2016. During the three months ended March 31, 2016 we acquired approximately 1.0 million shares of our common stock at an aggregate cost of $123.2 million under this repurchase program.