issuable upon the exercise of stock options. Unvested performance share units are included in the computation of diluted earnings per share using the treasury stock method to the extent that the profitability targets inherent in such awards are met as of the balance sheet date. Incremental common shares issuable upon the exercise of stock options are included in the computation of diluted earnings per share using the treasury stock method in quarterly periods when the average price of Sotheby's Common Stock exceeds the exercise price of the stock options.


•	Deferred stock units issued pursuant to the Sotheby's Stock Compensation Plan for Non-Employee Directors.


•	In reporting periods during which the average price of Sotheby's Common Stock exceeds the $34 per share conversion price of its 3.125% Convertible Notes (the “Convertible Notes”), the net shares that would be delivered to settle the conversion premium assuming all of the Convertible Notes are redeemed.


•	In reporting periods during which the average price of Sotheby's Common Stock exceeds the $44.905 per share exercise price of the warrants that were sold in conjunction with the issuance of the Convertible Notes (the “Warrants”), the net shares that would be delivered to settle the Warrants as calculated under the treasury stock method.

During each of the first three quarters of 2011 and the fourth quarter of 2010, the average price of Sotheby's Common Stock exceeded the $34 per share conversion price of the Convertible Notes. As a result, for the years ended December 31, 2011 and 2010, 0.9 million and 0.3 million shares of Sotheby’s Common Stock, respectively, were included in the calculation of weighted average diluted shares outstanding. In the fourth quarter of 2011 and during each of the quarterly reporting periods prior to the fourth quarter of 2010, the average price of Sotheby’s Common Stock did not exceed the $34 per share conversion price of the Convertible Notes. Accordingly, the Convertible Notes did not have an impact on the calculation of weighted average diluted shares outstanding during those periods. (See Note K for additional information related to the Convertible Notes.)

During the first quarter of 2011, the average price of Sotheby’s Common Stock exceeded the $44.905 per share exercise price of the Warrants. As a result, for the year ended December 31, 2011, 15,000 shares of Sotheby’s Common Stock were included in the calculation of weighted average diluted shares outstanding related to the Warrants. Prior to the first quarter of 2011 and during each of the subsequent quarterly reporting periods, the average price of Sotheby’s Common Stock did not exceed the $44.905 exercise price of the Warrants. Accordingly, the Warrants did not have an impact on the calculation of weighted average diluted shares outstanding during those periods. (See Note K for additional information related to the Warrants.)

In 2011, 0.5 million potential common shares 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 met as of the balance sheet date. In 2010, no potential common shares were excluded from the computation of diluted earnings per share. In 2009, 3.4 million shares of potentially dilutive common shares were excluded from the computation of diluted earnings per share because Sotheby's reported a net loss and their inclusion would have been anti-dilutive.

The table below summarizes the computation of basic and diluted earnings (loss) per share for 2011, 2010 and 2009 (in thousands of dollars, except per share amounts):



	2011		2010		2009
Basic:
Numerator:
Net income (loss) attributable to Sotheby’s	$	171,416	$	160,950	$	(6,528	)
Less: Net income attributable to participating securities	1,988		3,779		N/A
Net income (loss) attributable to Sotheby’s common shareholders	$	169,428	$	157,171	$	(6,528	)
Denominator:
Weighted average common shares outstanding	67,282		66,318		65,208
Basic earnings (loss) per share - Sotheby’s common shareholders	$	2.52	$	2.37	$	(0.10	)
Diluted:
Numerator:
Net income (loss) attributable to Sotheby’s	$	171,416	$	160,950	$	(6,528	)
Less: Net income attributable to participating securities	1,949		3,729		N/A
Net income (loss) attributable to Sotheby’s common shareholders	$	169,467	$	157,221	$	(6,528	)
Denominator:
Weighted average common shares outstanding	67,282		66,318		65,208
Weighted average effect of Sotheby's dilutive potential common shares:
Convertible Notes	858		285		N/A
Performance share units	436		363		N/A
Non-employee director share deferrals	157		137		N/A
Stock options	102		219		N/A
Warrants	15		—		N/A
Weighted average dilutive potential common shares outstanding	1,568		1,004		N/A
Denominator for calculation of diluted earnings (loss) per share	68,850		67,322		65,208
Diluted earnings (loss) per share - Sotheby’s common shareholders	$	2.46	$	2.34	$	(0.10	)