Earnings Per Share

Basic earnings per share—Basic earnings per share attributable to Sotheby's common shareholders is computed under the two-class method using the weighted average number of common shares outstanding during the period. The two-class method requires that the amount of net income attributable to participating securities be deducted from consolidated net income in the computation of basic earnings per share. In periods with a net loss, the net loss attributable to participating securities is not deducted from consolidated net loss in the computation of basic loss per share as the impact would be anti-dilutive. Sotheby's only participating securities are unvested restricted stock units, which have non-forfeitable rights to dividends.

Diluted earnings per share—Diluted earnings per share attributable to Sotheby's common shareholders is computed in a similar manner to basic earnings per share under the two-class method, using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential common shares outstanding during the period. Sotheby's potential common shares currently include unvested performance share units held by employees, incremental common shares issuable upon the assumed exercise of employee stock options, and deferred stock units held by members of the Board of Directors. In 2013 and 2012, Sotheby's potential common shares also included the net shares that would have been delivered to settle the premium upon assumed conversion of then-outstanding convertible debt, as well as the net shares that would have been issued upon the assumed exercise of then-outstanding common stock warrants. (See Note 9 for information on Sotheby's 3.125% Convertible Notes, which were settled in June 2013, and the related common stock warrants that were settled in the fourth quarter of 2013. See Note 14 for information on Sotheby's share-based payment programs.)

In 2014, 2013, and 2012, 1.1 million, 1 million, and 1 million potential common shares, respectively, related to unvested performance share units were excluded from the computation of diluted earnings per share as the profitability targets inherent in such awards were not achieved as of the respective balance sheet dates.

The table below summarizes the computation of basic and diluted earnings per share for 2014, 2013, and 2012 (in thousands of dollars, except per share amounts):



	2014		2013		2012
Basic:
Numerator:
Net income attributable to Sotheby’s	$	117,795	$	130,006	$	108,292
Less: Net income attributable to participating securities	1,047		60		450
Net income attributable to Sotheby’s common shareholders	$	116,748	$	129,946	$	107,842
Denominator:
Weighted average common shares outstanding	69,016		68,374		67,691
Basic earnings per share - Sotheby’s common shareholders	$	1.69	$	1.90	$	1.59
Diluted:
Numerator:
Net income attributable to Sotheby’s	$	117,795	$	130,006	$	108,292
Less: Net income attributable to participating securities	1,047		60		446
Net income attributable to Sotheby’s common shareholders	$	116,748	$	129,946	$	107,846
Denominator:
Weighted average common shares outstanding	69,016		68,374		67,691
Weighted average effect of Sotheby's dilutive potential common shares:
Convertible Notes	—		97		92
Performance share units	407		428		486
Deferred stock units	162		150		163
Stock options	21		77		95
Warrants	—		49		—
Weighted average dilutive potential common shares outstanding	590		801		836
Weighted average diluted shares outstanding	69,606		69,175		68,527
Diluted earnings per share - Sotheby’s common shareholders	$	1.68	$	1.88	$	1.57