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, which excludes participating securities. Legg Mason issues to employees restricted stock and restricted stock units that are deemed to be participating securities prior to vesting, because the related unvested restricted shares/units 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 unvested restricted shares, are considered antidilutive.

During the three and nine months ended December 31, 2016, Legg Mason purchased and retired 2,946 and 9,117 shares of its common stock, respectively, for $90,001 and $291,674, respectively, through open market purchases. The total repurchases reduced weighted-average shares outstanding by 7,281 and 4,611 shares for the three and nine months ended December 31, 2016, respectively. During the three and nine months ended December 31, 2015, Legg Mason purchased 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 the three and nine months ended December 31, 2015, 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,
	2016		2015			2016		2015
Basic weighted-average shares outstanding for EPS	99,403		106,432			101,897		107,741
Potential common shares:
Dilutive employee stock options	165		—			205		992
Diluted weighted-average shares outstanding for EPS	99,568		106,432			102,102		108,733

Net Income (Loss) Attributable to Legg Mason, Inc.	$	51,439	$	(138,626	)	$	151,332	$	20,241
Less: Earnings (distributed and undistributed) allocated to participating securities	1,706		565			4,874		1,675
Net Income (Loss) (Distributed and Undistributed) Allocated to Shareholders (Excluding Participating Securities)	$	49,733	$	(139,191	)	$	146,458	$	18,566

Net Income (Loss) per share Attributable to Legg Mason, Inc. Shareholders
Basic	$	0.50	$	(1.31	)	$	1.44	$	0.17
Diluted	$	0.50	$	(1.31	)	$	1.43	$	0.17

The weighted-average shares exclude weighted-average unvested restricted shares deemed to be participating securities of 3,404 and 2,812 for the three months ended December 31, 2016 and 2015, respectively, and 3,329 and 2,774 for the nine months ended December 31, 2016 and 2015, respectively.

The diluted EPS calculations for the three and nine months ended December 31, 2016 and 2015, exclude any potential common shares issuable under the 14,205 warrants issued in connection with the repurchase of 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.

Options to purchase 3,993 and 1,873 shares for the three months ended December 31, 2016 and 2015, respectively, and 3,506 and 1,750 for the nine months ended December 31, 2016 and 2015, 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. 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. Further, market- and performance-based awards are excluded from potential dilution until the designated market or performance condition is met. Unvested restricted shares for the three and nine months ended December 31, 2016 and 2015, were antidilutive and, therefore, do not further impact diluted EPS.