10. Earnings Per Share

Basic earnings per share attributable to Legg Mason, Inc. shareholders ("EPS") is calculated by dividing Net Income (Loss) Attributable to Legg Mason, Inc. (adjusted by earnings allocated to participating securities) by the weighted-average number of shares outstanding. Legg Mason issues to employees restricted stock that are deemed to be participating securities prior to vesting, because the unvested restricted shares entitle their holder to nonforfeitable dividend rights. In this circumstance, accounting guidance requires a “two-class method” for EPS calculations that excludes earnings (potentially both distributed and undistributed) allocated to participating securities.

Diluted EPS is similar to basic EPS, but adjusts for the effect of potential common shares unless they are antidilutive. For periods with a net loss, potential common shares other than potentially unvested restricted shares, are considered antidilutive.

During the three and nine months ended December 31, 2015, Legg Mason repurchased and retired 572 and 3,761 shares of its common stock, respectively, for $25,000 and $182,978, respectively, through open market purchases. These total repurchases reduced weighted-average shares outstanding by 3,646 and 2,161 shares for three and nine months ended December 31, 2015, respectively. During the three and nine months ended December 31, 2014, Legg Mason repurchased and retired 1,619 and 5,329 shares of its common stock, respectively, for $86,500 and $266,522, respectively, through open market purchases. These total repurchases reduced weighted-average shares outstanding by 4,419 and 2,715 shares for three and nine months ended December 31, 2014, respectively.

The par value of the shares repurchased is charged to common stock, with the excess of the purchase price over par first charged against additional paid-in capital, with the remaining balance, if any, charged against retained earnings.

The following table presents the computations of basic and diluted EPS:



	Three Months Ended December 31,					Nine Months Ended December 31,
	2015			2014		2015		2014
Basic weighted-average shares outstanding for EPS	106,432			111,345		107,741		112,712
Potential common shares:
Dilutive employee stock options	—			1,253		992		1,169
Diluted weighted-average shares outstanding for EPS	106,432			112,598		108,733		113,881

Net Income (Loss) Attributable to Legg Mason, Inc.	$	(138,626	)	$	77,036	$	20,241	$	154,121
Less: Earnings (distributed and undistributed) allocated to participating securities	565			2,078		1,675		4,112
Net Income (Loss) (Distributed and Undistributed) Allocated to Shareholders (Excluding Participating Securities)	$	(139,191	)	$	74,958	$	18,566	$	150,009

Net Income (Loss) per share Attributable to Legg Mason, Inc. Shareholders
Basic	$	(1.31	)	$	0.67	$	0.17	$	1.33
Diluted	$	(1.31	)	$	0.67	$	0.17	$	1.32

The weighted-average shares exclude weighted-average unvested restricted shares deemed to be participating securities of 2,812 and 3,094 for the three months ended December 31, 2015 and 2014, respectively, and 2,774 and 3,071 for the nine months ended December 31, 2015 and 2014, respectively.

The diluted EPS calculations for the three and nine months ended December 31, 2015 and 2014, exclude any potential common shares issuable under the 14,205 warrants issued in connection with the repurchase of the Convertible Notes in May 2012 because the market price of Legg Mason common stock did not exceed the exercise price, and therefore, the warrants would be antidilutive.

The diluted EPS calculation for the three months ended December 31, 2015, excludes 780 potential common shares that are antidilutive due to the net loss in the quarter. Options to purchase 1,873 and 1,284 shares for the three months ended December 31, 2015 and 2014, respectively, and 1,750 and 1,338 shares for the nine months ended December 31, 2015 and 2014, respectively, were not included in the computation of diluted EPS because the presumed proceeds from exercising such options, including the related income tax benefits, exceed the average price of the common shares for the period and therefore, the options are deemed antidilutive. Further, market- and performance-based awards are excluded from potential dilution until the designated market or performance condition is met.