Earnings Per Share (CenterPoint Energy)

9 Months Ended

Sep. 30, 2020

Earnings Per Share (CenterPoint Energy) [Text Block]

Earnings Per Share (CenterPoint Energy)

The Series C Preferred Stock issued in May 2020 are considered participating securities since these shares participate in dividends on Common Stock on a pari passu, pro rata, as-converted basis. See Note 19 for further information on the issuance of Series C Preferred Stock. As a result, beginning June 30, 2020, earnings per share on Common Stock is computed using the two-class method required for participating securities.

The two-class method uses an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available only to common shareholders. Under the two-class method, income (loss) available to common shareholders from continuing operations is derived by subtracting the following from income (loss) from continuing operations:

•preferred share dividend requirement;

•deemed dividends for the amortization of the beneficial conversion feature recognized at issuance of the Series C Preferred Stock; and

•an allocation of undistributed earnings to preferred shareholders of participating securities (Series C Preferred Stock) based on the securities’ right to receive dividends.

Undistributed earnings are calculated by subtracting dividends declared on Common Stock, the preferred share dividend requirement and deemed dividends for the amortization of the beneficial conversion feature from net income. Net losses are not allocated to the Series C Preferred Stock as it does not have a contractual obligation to share in the losses of CenterPoint Energy.

The Series C Preferred Stock includes conversion features at a price that is below the fair value of the Common Stock on the commitment date. This beneficial conversion feature, which was approximately $32 million, represents the difference between the fair value per share of the Common Stock as of the commitment date and the conversion price, multiplied by the number of common shares issuable upon conversion. The beneficial conversion feature is recognized as a discount to Series C Preferred Stock and will be amortized as a deemed dividend over the period from the issue date to the first allowable conversion date, which is November 6, 2020. The amount amortized during the three and nine months ended September 30, 2020 was approximately $16 million and $25 million, respectively.

Basic earnings per common share is computed by dividing income available to common shareholders from continuing operations by the basic weighted average number of common shares outstanding during the period. Participating securities are excluded from basic weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing income available to common shareholders from continuing operations by the weighted average number of common shares outstanding, including all potentially dilutive common shares, if the effect of such common shares is dilutive.

Diluted earnings per share reflects the dilutive effect of potential common shares from share-based awards and convertible preferred shares. The dilutive effect of the restricted stock, Series B Preferred Stock and Series C Preferred Stock is computed using the if-converted method, which assumes conversion of the restricted stock, Series B Preferred Stock and Series C

Preferred Stock at the beginning of the period, giving income recognition for the add-back of the preferred share dividends, amortization of beneficial conversion feature, and undistributed earnings allocated to preferred shareholders.

The following table reconciles numerators and denominators of CenterPoint Energy’s basic and diluted earnings per common share.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in millions, except per share and share amounts)
Numerator:
Income (loss) from continuing operations	$	127	$	251	$	(791)	$	545
Less: Preferred stock dividend requirement (Note 19)	36		29		102		88
Less: Amortization of beneficial conversion feature (Note 19)	16		—		25		—
Less: Undistributed earnings allocated to preferred shareholders (1)	—		—		—		—
Income (loss) available to common shareholders from continuing operations - basic and diluted	75		222		(918)		457
Income (loss) available to common shareholders from discontinued operations - basic and diluted	(6)		19		(182)		89
Income (loss) available to common shareholders - basic and diluted	$	69	$	241	$	(1,100)	$	546
Denominator:
Weighted average common shares outstanding - basic	544,811,000		502,228,000		525,160,000		501,986,000
Plus: Incremental shares from assumed conversions:
Restricted stock (4)	3,377,000		2,852,000		—		2,852,000
Series B Preferred Stock (2)	—		—		—		—
Series C Preferred Stock (3)	—		—		—		—
Weighted average common shares outstanding - diluted	548,188,000		505,080,000		525,160,000		504,838,000

Earnings (loss) per common share:
Basic earnings (loss) per common share - continuing operations	$	0.14	$	0.44	$	(1.75)	$	0.91
Basic earnings (loss) per common share - discontinued operations	(0.01)		0.04		(0.35)		0.18
Basic Earnings (Loss) Per Common Share	$	0.13	$	0.48	$	(2.10)	$	1.09
Diluted earnings (loss) per common share - continuing operations	$	0.14	$	0.44	$	(1.75)	$	0.91
Diluted earnings (loss) per common share - discontinued operations	(0.01)		0.03		(0.35)		0.17
Diluted Earnings (Loss) Per Common Share	$	0.13	$	0.47	$	(2.10)	$	1.08

(1)There were no undistributed earnings to be allocated to participating securities for the three and nine months ended September 30, 2020.

(2)The computation of diluted earnings per common share outstanding for the three and nine months ended September 30, 2020 excludes 35,940,000 and 35,923,000 potentially dilutive shares from the denominator, respectively, because the shares would be anti-dilutive. The computation of diluted earnings per common share outstanding for the three and nine months ended September 30, 2019 excludes 33,537,000 and 33,537,000 potentially dilutive shares from the denominator, respectively, because the shares would be anti-dilutive.

(3)The computation of diluted earnings per common share outstanding for the three and nine months ended September 30, 2020 excludes 47,355,000 and 25,578,000 potentially dilutive shares, respectively, of Series C Preferred Stock from the denominator because the shares would be anti-dilutive.

(4)3,377,000 incremental common shares from assumed conversions of restricted stock have not been included in the computation of diluted earnings (loss) per share for the nine months ended September 30, 2020, respectively, as their inclusion would be anti-dilutive.