10. Earnings Per Share

Basic earnings per share attributable to Legg Mason, Inc. shareholders ("EPS") is calculated by dividing Net Income 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.

During the three and six months ended September 30, 2016, Legg Mason purchased and retired 2,696 and 6,171 shares of its common stock, respectively, for $90,000 and $201,673, respectively, through open market purchases. These total repurchases reduced weighted-average shares outstanding by 4,781 and 3,344 shares for the three and six months ended September 30, 2016, respectively. During the three and six months ended September 30, 2015, Legg Mason purchased and retired 1,933 and 3,189 shares of its common stock, respectively, for $89,978 and $157,978, respectively, through open market purchases. These total repurchases reduced weighted-average shares outstanding by 2,163 and 1,415 shares for the three and six months ended September 30, 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 September 30,				Six Months Ended September 30,
	2016		2015		2016		2015
Basic weighted-average shares outstanding for EPS	101,817		107,851		103,075		108,399
Potential common shares:
Dilutive employee stock options	240		933		226		1,104
Diluted weighted-average shares outstanding for EPS	102,057		108,784		103,301		109,503

Net Income Attributable to Legg Mason, Inc.	$	66,441	$	64,319	$	99,893	$	158,867
Less: Earnings (distributed and undistributed) allocated to participating securities	2,183		1,615		3,173		3,951
Net Income (Distributed and Undistributed) Allocated to Shareholders (Excluding Participating Securities)	$	64,258	$	62,704	$	96,720	$	154,916

Net Income per share Attributable to Legg Mason, Inc. Shareholders
Basic	$	0.63	$	0.58	$	0.94	$	1.43
Diluted	$	0.63	$	0.58	$	0.94	$	1.42

The weighted-average shares exclude weighted-average unvested restricted shares deemed to be participating securities of 3,447 and 2,772 for the three months ended September 30, 2016 and 2015, respectively, and 3,291 and 2,754 for the six months ended September 30, 2016 and 2015, respectively.

The diluted EPS calculations for the three and six months ended September 30, 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 3,280 and 1,981 shares for the three months ended September 30, 2016 and 2015, respectively, and 3,482 and 1,553 for the six months ended September 30, 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. 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 six months ended September 30, 2016 and 2015, were antidilutive and, therefore, do not further impact diluted EPS.