PDL BioPharma Just Filed Its Annual Report: 3. Net Income per Sh...

3. Net Income per Share

 
Year Ended December 31,
(In thousands, except per share amounts)
2016
 
2015
 
2014
Numerator
 
 
 
 
 
Income attributable to the Company’s shareholders used to compute net income per diluted share
$
63,606

 
$
332,795

 
$
322,244

 
 
 
 
 
 
Denominator
 
 
 
 
 
Total weighted-average shares used to compute net income per basic share
163,805

 
163,386

 
158,224

Effect of dilutive stock options

 
16

 
21

Restricted stock awards
387

 
152

 
126

Assumed conversion of Series 2012 Notes

 

 
3,532

Assumed conversion of warrants

 

 
5,510

Assumed conversion of May 2015 Notes

 

 
5,697

Shares used to compute net income per diluted share
164,192

 
163,554

 
173,110

 
 
 
 
 
 
Net income per basic share
$
0.39

 
$
2.04

 
$
2.04

Net income per diluted share
$
0.39

 
$
2.03

 
$
1.86



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 Series 2012 Notes and the May 2015 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. In the first quarter of 2012, $179.0 million aggregate principal of the 2.875% Convertible Senior Notes due February 15, 2015 (“February 2015 Notes”) was exchanged for the Series 2012 Notes, and in the third quarter of 2013, $1.0 million aggregate principal of the February 2015 Notes was exchanged for the Series 2012 Notes and the February 2015 Notes were retired. In the first quarter of 2014, $131.7 million aggregate principal of the Series 2012 Notes was retired in a privately negotiated exchange and purchase agreement, and in the fourth quarter of 2014, the Company entered into a privately negotiated exchange agreement under which it retired approximately $26.0 million in principal of the outstanding Series 2012 Notes. In the first quarter of 2015, the Company retired the remaining $22.3 million of aggregate principal of its Series 2012 Notes.

In May 2011, the Company issued the May 2015 Notes, and in January and February 2012, the Company issued the Series 2012 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 shares of the Company’s common stock. The weighted-average share adjustments related to the Series 2012 Notes and May 2015 Notes, as shown in the table above, include the shares issuable in respect of such excess.

In the second quarter of 2015, the Company retired the remaining $155.1 million of aggregate principal of its May 2015 Notes. Concurrently with the retirement of the May 2015 Notes, the Company exercised its purchased call options and received 5.2 million shares of the Company’s common stock from the hedge counterparties, which was the number of shares required to be delivered by the Company to the note holders for the excess conversion value.

May 2015 Notes Purchase Call Option and Warrant Potential Dilution

The Company excluded from its calculation of net income per diluted share zero, three million and 0.0 million shares for the years ended December 31, 2016, 2015 and 2014, for warrants issued in 2011, 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 May 2015 Notes is not assumed, therefore no stock would be issuable upon conversion. The Company’s purchased call options, issued in 2011, will always be anti-dilutive and therefore zero, zero and 26.6 million shares were excluded from the Company’s calculations of net income per diluted share for the years ended December 31, 2016, 2015 and 2014, respectively, because they have no effect on diluted net income per share. For information related to the conversion rates on the Company’s convertible debt, see Note 13.

February 2018 Notes Purchase Call Option and Warrant Potential Dilution

The Company excluded from its calculation of net income per diluted share 12.2 million, 23.8 million and 29.0 million shares for the years ended December 31, 2016, 2015 and 2014, for warrants issued in February 2014, because the exercise price of the warrants exceeded the 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, 26.9 million and 32.7 million shares were excluded from the Company’s calculation of net income per diluted share for the years ended December 31, 2016, 2015 and 2014. For information related to the conversion rates on the Company’s convertible debt, see Note 13.

December 2021 Notes Capped Call Potential Dilution

In November 2016, the Company issued $150.0 million in aggregate principal of 2.75% Convertible Senior Notes due December 1, 2021 (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. See Note 13, “Convertible Notes and Term Loans”, for additional information. In conjunction with the issuance of the December 2021 Notes, the Company entered into capped call transaction, with certain counterparties. 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. We have 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, see Note 13.

Anti-Dilutive Effect of Stock Options and Restricted Stock Awards

For the years ended December 31, 2016, 2015 and 2014, the Company excluded approximately zero, 41,000 and 35,000 shares underlying outstanding stock options, respectively, calculated on a weighted-average basis, from the Company’s net income per diluted share calculations because their effect was anti-dilutive. For the years ended December 31, 2016, 2015 and 2014, the Company excluded approximately 1,107,000, 450,000, and zero shares, respectively, underlying restricted stock awards, calculated on a weighted-average basis, from the Company’s net income per diluted share calculations because their effect was anti-dilutive.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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