Earnings Per Share and Equity Forward Sale Agreements

3 Months Ended

Mar. 31, 2024

Earnings Per Share and Equity Forward Sale Agreements

On February 28, 2024, Pinnacle West executed the Equity Forward Sale Agreements, which allow Pinnacle West to issue a fixed number of Pinnacle West common shares to be settled in the future. The Equity Forward Sale Agreements relate to an aggregate of 11,240,601 shares of Pinnacle West common stock that may be settled at our discretion no later than September 4, 2025. The forward sale price was initially $64.51 per share and is subject to certain adjustments in accordance with the terms of the Equity Forward Sale Agreements through the date of settlements. On a settlement date, Pinnacle West will issue shares of common stock and receive cash at the then-applicable forward sale price.

As of March 31, 2024, the Equity Forward Sale Agreements have not been settled. At March 31, 2024, Pinnacle West could have settled the Equity Forward Sale Agreements with the issuance of 11,240,601 shares of common stock in exchange for cash of $728 million. We will not receive any proceeds from the Equity Forward Sale Agreements until the settlement with shares occurs, and upon settlement, we will record the proceeds, if any, in equity. The terms of the Equity Forward Sale Agreements also allow Pinnacle West, at our option, to settle the Equity Forward Sale Agreements with the counterparties by delivering cash, in lieu of shares.

We have classified the Equity Forward Sale Agreements as an equity transaction. As a result, no amounts have been recorded on the Condensed Consolidated Balance Sheets relating to the Equity Forward Sale Agreements as of March 31, 2024. Delivery of shares to settle the Equity Forward Sale Agreements will eventually result in dilution to basic earnings per share (“EPS”) upon settlement. Prior to settlement, the potentially issuable shares are reflected in our diluted EPS calculations using the treasury stock method. Under this method, the number of shares of Pinnacle West common stock used in calculating diluted EPS for a reporting period is increased by the number of shares, if any, that would be issued upon settlement less that number of shares that could be purchased by Pinnacle West in the market with the proceeds received from issuance (based on the average market price during that reporting period). Share dilution occurs when the average market price of our stock during the reporting period is higher than the adjusted forward sale price as of the end of the reporting period.

The following table presents the calculation of Pinnacle West’s basic and diluted EPS (in thousands, except per share amounts):


	Three Months Ended March 31,
	2024		2023
Net income (loss) attributable to common shareholders	$	16,862	$	(3,297)

Weighted average common shares outstanding — basic	113,621		113,358
Net effect of dilutive securities:
Contingently issuable performance shares and restricted stock units	327		239
Dilutive shares related to equity forward sale agreements	279		—
Total contingently issuable shares	606		239

Weighted average common shares outstanding — diluted	114,227		113,597
Earnings per weighted-average common share outstanding:
Net income (loss) attributable to common shareholders — basic	$	0.15	$	(0.03)
Net income (loss) attributable to common shareholders — diluted	$	0.15	$	(0.03)

For the three months ended March 31, 2023, 239,000 shares were excluded from the calculation of diluted weighted average common shares outstanding, as their inclusion would have been antidilutive. The net income attributable to common shareholders was calculated using the weighted average number of common shares outstanding of 113,537,689. For the three months ended March 31, 2024, no shares were excluded from the calculation of diluted weighted average common shares outstanding.