2. Net Income per Share



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Net Income per Basic and Diluted Share:	2015		2014		2015		2014
(in thousands except per share amounts)
Numerator
Net income used to compute net income per basic and diluted share	$	69,459	$	102,235	$	232,221	$	267,173

Denominator
Weighted average shares used to compute net income per basic share	163,560		160,268		163,314		157,274
Restricted stock outstanding	167		96		131		113
Effect of dilutive stock options	15		22		18		22
Assumed conversion of Series 2012 Notes	—		2,247		33		3,301
Assumed conversion of warrants	—		—		403		—
Assumed conversion of May 2015 Notes	—		4,261		—		4,431
Weighted average shares used to compute net income per diluted share	163,742		166,894		163,899		165,141

Net income per share - basic	$	0.42	$	0.64	$	1.42	$	1.70
Net income per share - diluted	$	0.42	$	0.61	$	1.42	$	1.62

We compute diluted net income per share using the sum of the weighted average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted net income per share include shares that may be issued under our stock options and restricted stock awards, our February 2018 Notes, our Series 2012 Notes and our May 2015 Notes on a weighted average basis for the period that the notes were outstanding, including the effect of adding back interest expense and the underlying shares using the if-converted method. In the third quarter of 2013, $1.0 million aggregate principal of our February 2015 Notes was exchanged for our Series 2012 Notes and the February 2015 Notes were retired, in the first quarter of 2014, $131.7 million aggregate principal of our Series 2012 Notes was retired in a privately negotiated exchange and purchase agreements, in the fourth quarter of 2014, the Company entered into a privately negotiated exchange agreement by which it retired approximately $26.0 million in principal of the outstanding Series 2012 Notes, and, in the first quarter of 2015, the Company completed the retirement of the remaining $22.3 million of aggregate principal of its Series 2012 Notes.

In the second quarter of 2015, the Company completed the retirement of the remaining $155.1 million of aggregate principal of its May 2015 Notes. Concurrently with the retirement of the May 2015 Notes, we exercised our purchased call options and received 5.2 million of PDL's common shares, which was the amount equal to the number of shares required to be delivered by us to the note holders for the excess conversion value (see Note 9).

In May 2011, we issued our May 2015 Notes, in January and February 2012, we issued our Series 2012 Notes, and in February 2014, we issued our February 2018 Notes. The Series 2012 Notes and May 2015 Notes were net share settled, with the principal amount settled in cash and the excess settled in our common stock. The weighted average share adjustments related to our Series 2012 Notes, May 2015 Notes and February 2018 Notes, shown in the table above, include the shares issuable in respect of such excess.

May 2015 Notes Purchased Call Option and Warrant Potential Dilution

The warrants are dilutive for the three and nine months ended September 30, 2015, as the exercise price of the warrants was lower than the average market price of our common stock. We excluded from our calculations of net income per diluted share 18.1 million and 22.2 million shares for the three months ended September 30, 2015 and 2014, respectively, and zero and 22.2 million shares for the nine months ended September 30, 2015 and 2014, respectively, for warrants issued in 2011, because the exercise price of the warrants was higher than the average market price of our common stock and thus, for the three and nine months ended September 30, 2014, no stock was issuable upon conversion. Our purchased call options, issued in 2011, will always be anti-dilutive and therefore zero and 26.1 million shares were excluded from our calculations of net income per diluted share for the three months ended September 30, 2015 and 2014, respectively, and zero and 26.1 million shares were excluded from our calculation of diluted net income per share for the nine months ended September 30, 2015 and 2014, respectively, because they have no effect on diluted net income per share. For information related to the conversion rates on our convertible debt, see Note 9.

February 2018 Notes Purchased Call Option and Warrant Potential Dilution

We excluded from our calculation of net income per diluted share 29.0 million shares for the three and nine months ended September 30, 2015 and 2014, for warrants issued in February 2014, because the exercise price of the warrants exceeded the VWAP of our common stock and conversion of the underlying February 2018 Notes is not assumed, therefore no stock would be issuable upon conversion. These securities could be dilutive in future periods. Our purchased call options, issued in February 2014, will always be anti-dilutive and therefore 32.7 million shares were excluded from our calculation of net income per diluted share for the three and nine months ended September 30, 2015 and 2014, because they have no effect on diluted net income per share. For information related to the conversion rates on our convertible debt, see Note 9.

Anti-Dilutive Effect of Stock Options and Restricted Stock Awards

For the three months ended September 30, 2015 and 2014, we excluded approximately 42,000 and 4,000 shares underlying outstanding stock options, respectively, and for the nine months ended September 30, 2015 and 2014, we excluded approximately 39,000 and 4,000 shares underlying outstanding stock options, respectively. For the three months ended September 30, 2015 and 2014, we excluded approximately 475,000 and zero shares underlying restricted stock awards, respectively, and for the nine months ended September 30, 2015 and 2014, we excluded approximately 437,000 and zero shares underlying restricted stock awards, respectively, calculated on a weighted average basis, from our net income per diluted share calculations because their effect was anti-dilutive.