2. Net Income per Share



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Net Income per Basic and Diluted Share:	2017		2016		2017		2016
(in thousands except per share amounts)
Numerator
Income attributable to PDL’s shareholders used to compute net income per basic and diluted share	$	20,732	$	13,907	$	88,412	$	73,942

Denominator
Total weighted average shares used to compute net income attributable to PDL’s shareholders, per basic share	151,146		163,856		156,802		163,771
Restricted stock outstanding	1,171		429		727		304
Shares used to compute net income attributable to PDL’s shareholders, per diluted share	152,317		164,285		157,529		164,075

Net income attributable to PDL’s shareholders per share - basic	$	0.14	$	0.08	$	0.56	$	0.45
Net income attributable to PDL’s shareholders per share - diluted	$	0.14	$	0.08	$	0.56	$	0.45

The Company computes net income per diluted share using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of net income per diluted share include shares that may be issued pursuant to outstanding stock options and restricted stock awards, the 4.0% Convertible Senior Notes due February 1, 2018 (the “February 2018 Notes”) and the 2.75% Convertible Senior Notes due December 1, 2021 (the “December 2021 Notes”), in each case, 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.

February 2018 Notes Purchased Call Option and Warrant Potential Dilution

The Company excluded from its calculation of net income per diluted share 12.2 million and 23.8 million shares for the three and nine months ended September 30, 2017 and 2016, respectively, for warrants issued in February 2014, because the exercise price of the warrants exceeded the volume-weighted average share price (“VWAP”) of the Company’s common stock and conversion of the underlying February 2018 Notes is not assumed, therefore no stock would be issuable upon conversion; however, these securities could be dilutive in future periods. The purchased call options issued in February 2014 will always be anti-dilutive; therefore 13.8 million and 26.9 million shares were excluded from the calculation of net income per diluted share for the three and nine months ended September 30, 2017 and 2016, respectively, and were excluded from the calculation of net income per diluted share. For information related to the conversion rates on the Company’s convertible debt, see Note 12.

December 2021 Notes Capped Call Potential Dilution

In November 2016, the Company issued $150.0 million in aggregate principal of the December 2021 Notes, which provide in certain situations for the conversion of the outstanding principal amount of the December 2021 Notes into shares of the Company’s common stock at a predefined conversion rate. For additional information on the conversion rates on the Company’s convertible debt, see Note 12. In conjunction with the issuance of the December 2021 Notes, the Company entered into a capped call transaction with a hedge counterparty. The capped call transaction is expected generally to reduce the potential dilution, and/or offset, to an extent, the cash payments the Company may choose to make in excess of the principal amount, upon conversion of the December 2021 Notes. The Company has excluded the capped call transaction from the diluted EPS computation as such securities would have an antidilutive effect and those securities should be considered separately rather than in the aggregate in determining whether their effect on diluted EPS would be dilutive or antidilutive. For additional information regarding the capped call transaction related to the Company’s December 2021 Notes, see Note 12.

Anti-Dilutive Effect of Restricted Stock Awards and Stock Options

For the three months ended September 30, 2017 and 2016, the Company excluded approximately 1.8 million and 1.2 million shares underlying restricted stock awards, respectively, and for the nine months ended September 30, 2017 and 2016, the Company excluded approximately 1.9 million and 1.1 million shares underlying restricted stock awards, respectively, calculated on a weighted average basis, from its net income per diluted share calculations because their effect was anti-dilutive.

For the three months ended September 30, 2017 and 2016, the Company excluded approximately 126,000 and zero shares underlying outstanding stock options, respectively, and for the nine months ended September 30, 2017 and 2016, the Company excluded approximately 59,000 and zero shares underlying outstanding stock options, respectively, calculated on a weighted average basis, its our net income per diluted share calculations because their effect was anti-dilutive.