Earnings per Share

Basic earnings per share is computed by dividing the Company’s net income attributable to its common stockholders by the weighted average number of shares outstanding during the reporting period. For the three and six months ended June 30, 2014 and 2013, the Company’s basic earnings per share was determined as follows:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands, except share and per share amounts)
Net Income for Basic Earnings per Share	$	2,124	$	1,266	$	3,572	$	2,435
Basic Weighted-Average Shares Outstanding	12,180,192		12,315,065		12,178,402		11,793,938
Basic Earnings per Share	$	0.17	$	0.10	$	0.29	$	0.21

Diluted earnings per share adjusts this calculation to reflect the impact of all outstanding operating company membership units, phantom Class B units, phantom Class A common stock, outstanding Class B unit options, options to purchase Class A common stock, and restricted Class A common stock, to the extent they would have a dilutive effect on net income per share for the reporting period. Net income for diluted earnings per share generally assumes all outstanding operating company membership units are converted into Company stock at the beginning of the reporting period and the resulting change to Company net income associated with its increased interest in the operating company is taxed at the Company’s effective tax rate, exclusive of adjustments associated with both the valuation allowance and the liability to selling and converting shareholders and other one-time charges.

For the three and six months ended June 30, 2014 and 2013, the Company’s diluted net income was determined as follows:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands)
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	$	12,226	$	8,715	$	23,006	$	16,829
Less: Assumed Corporate Income Taxes	5,254		3,623		9,886		6,996
Assumed After-Tax Income of Pzena Investment Management, LLC	6,972		5,092		13,120		9,833
Net Income of Pzena Investment Management, Inc.	2,124		1,266		3,572		2,435
Diluted Net Income	$	9,096	$	6,358	$	16,692	$	12,268

Under the two-class method of computing diluted earnings per share, diluted earnings per share is calculated by dividing net income for diluted earnings per share by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any potential common shares outstanding during the period using the more dilutive of the treasury method or two-class method. The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period. The Company’s net income for diluted earnings per share is reduced by the amount allocated to participating restricted Class B units for purposes of calculating earnings per share. Dividend equivalent distributions paid per share on the operating company’s unvested restricted Class B units are equal to the dividends paid per Company Class A common stock.

For the three and six months ended June 30, 2014 and 2013, the Company’s diluted earnings per share were determined as follows:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013
	(in thousands, except share and per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock	$	9,076	$	6,343	$	16,655	$	12,239
Participating Class B Units	20		15		37		29
Total Diluted Net Income Attributable to Shareholders	$	9,096	$	6,358	$	16,692	$	12,268

Basic Weighted-Average Shares Outstanding	12,180,192		12,315,065		12,178,402		11,793,938
Dilutive Effect of B Units	52,858,880		52,190,656		52,846,847		52,770,426
Dilutive Effect of Options ¹	957,348		637,208		997,984		630,821
Dilutive Effect of Phantom Class B Units & Phantom Shares of Class A Common Stock	1,815,251		1,232,905		1,812,256		1,174,261
Dilutive Effect of Restricted Shares of Class A Common Stock ²	40,671		29,663		39,727		23,494
Dilutive Weighted-Average Shares Outstanding	67,852,342		66,405,497		67,875,216		66,392,940
Add: Participating Class B Units³	145,895		157,326		145,919		157,326
Total Dilutive Weighted-Average Shares Outstanding	67,998,237		66,562,823		68,021,135		66,550,266
Diluted Earnings per Share	$	0.13	$	0.10	$	0.25	$	0.18

^{1 Represents the dilutive effect of options to purchase operating company Class B units and Company Class A common stock.}

^{2 Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.}

^{3 Unvested Class B Units granted to employees have nonforfeitable rights to dividend equivalent distributions and therefore participate fully in the results of the operating company's operations from the date they are granted. They are included in the computation of diluted earnings per share using the two-class method for participating securities.}

Approximately 0.8 million options to purchase Class B units were excluded from the calculation of diluted net income per share for each of the three and six months ended June 30, 2014, as their inclusion would have had an antidilutive effect based on current market prices. Approximately 1.2 million options to purchase Class B units and 1.0 million options to purchased Company Class A common stock were excluded from the calculation of diluted net income for each of the three and six months ended June 30, 2013, as their inclusion would have had an antidilutive effect for the respective periods based on market prices.