(12) EQUITY AND EARNINGS PER SHARE

Basic and Diluted Earnings Per Share

PHI's basic and diluted earnings per share (EPS) calculations are shown below:


	Three Months Ended March 31,
	2012		2011
	(millions of dollars, except per share data)
Income (Numerator):
Net income from continuing operations	$	68	$	62
Net income from discontinued operations		—		2

Net income	$	68	$	64

Shares (Denominator) (in millions):
Weighted average shares outstanding for basic computation:
Average shares outstanding		228		225
Adjustment to shares outstanding		—		—

Weighted Average Shares Outstanding for Computation of Basic Earnings Per Share of Common Stock		228		225
Net effect of potentially dilutive shares (a)		—		—

Weighted Average Shares Outstanding for Computation of Diluted Earnings Per Share of Common Stock		228		225

Basic and Diluted Earnings per Share
Earnings per share of common stock from continuing operations	$	0.30	$	0.27
Earnings per share of common stock from discontinued operations		—		0.01

Basic and diluted earnings per share	$	0.30	$	0.28

(a)	The number of options to purchase shares of common stock that were excluded from the calculation of diluted EPS because they were anti-dilutive was 3,000 and 133,066 for the three months ended March 31, 2012 and 2011, respectively.

Equity Forward Transaction

On March 5, 2012, PHI entered into an equity forward transaction in connection with a public offering of 17,922,077 shares of PHI common stock. The use of an equity forward transaction substantially eliminates future equity market price risk by fixing a common equity offering sales price under the then existing market conditions, while mitigating immediate share dilution resulting from the offering by postponing the actual issuance of common stock until funds are needed in accordance with PHI's capital investment and regulatory plans.

Pursuant to the terms of this transaction, a forward counterparty borrowed 17,922,077 shares of PHI's common stock from third parties and sold them to a group of underwriters for $19.25 per share, less an underwriting discount equal to $0.67375 per share. Under the terms of the equity forward transaction, to the extent that the transaction is physically settled, PHI would be required to issue and deliver shares of PHI common stock to the forward counterparty at the then applicable forward sale price. The forward sale price was initially determined to be $18.57625 per share at the time the equity forward transaction was entered into, and the amount of cash to be received by PHI upon physical settlement of the equity forward is subject to certain adjustments in accordance with the terms of the equity forward transaction. The equity forward transaction must be settled fully within 12 months of the transaction date. Except in specified circumstances or events that would require physical settlement, PHI is able to elect to settle the equity forward transaction by means of physical, cash or net share settlement, and in whole or in part, at any time on or prior to March 5, 2013.

The equity forward transaction has no initial fair value since it was entered into at the then market price of the common stock. PHI will not receive any proceeds from the sale of common stock until the equity forward transaction is settled, and at that time PHI will record the proceeds, if any, in equity. PHI concluded that the equity forward transaction was an equity instrument based on the accounting guidance in ASC 480 and ASC 815 and that it qualified for an exception from derivative accounting under ASC 815 because the forward sale transaction was indexed to its own stock. Currently, PHI anticipates settling the equity forward transaction through physical settlement.

At March 31, 2012, the equity forward transaction could have been settled with physical delivery of the shares to the forward counterparty in exchange for cash of $328 million. At March 31, 2012, the equity forward transaction could also have been cash settled, with delivery of cash of approximately $14 million to the forward counterparty, or net share settled with delivery of approximately 740,000 shares of common stock to the forward counterparty.

Prior to its settlement, the equity forward transaction will be reflected in PHI's diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of PHI's common stock used in calculating diluted earnings per share for a reporting period is deemed to be increased by the excess, if any, of the number of shares that would be issued upon physical settlement of the equity forward transaction less the number of shares that could be purchased by PHI in the market (based on the average market price during that reporting period) using the proceeds receivable upon settlement (based on the adjusted forward sale price at the end of that reporting period). The excess number of shares is weighted for the portion of the reporting period in which the equity forward transaction is outstanding.

Accordingly, before physical or net share settlement of the equity forward transaction, and subject to the occurrence of certain events, PHI anticipates that the forward sale agreement will have a dilutive effect on PHI's earnings per share only during periods when the applicable average market price per share of PHI's common stock is above the per share adjusted forward sale price, as described above. However, if PHI decides to physically or net share settle the forward sale agreement, any delivery by PHI of shares upon settlement could result in dilution to PHI's earnings per share.

For the three months ended March 31, 2012, the equity forward transaction did not have a material dilutive effect on PHI's earnings per share.