Earnings Per Share and Equity Forward Sale Agreements

6 Months Ended

Jun. 30, 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 June 30, 2024, the Equity Forward Sale Agreements have not been settled. At June 30, 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 $726 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 June 30, 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.

In June 2024, Pinnacle West issued $525 million of 4.75% convertible senior notes that will mature on June 15, 2027. The Convertible Notes conversion options are indexed to Pinnacle West’s common stock. See Note 3.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income attributable to common shareholders	$	203,805	$	106,663	$	220,667	$	103,366

Weighted average common shares outstanding — basic	113,695		113,411		113,658		113,385
Net effect of dilutive securities:
Contingently issuable performance shares and restricted stock units	489		306		408		272
Dilutive shares related to equity forward sale agreements	1,619		—		949		—
Total contingently issuable shares	2,108		306		1,357		272

Weighted average common shares outstanding — diluted	115,803		113,717		115,015		113,657
Earnings per weighted-average common share outstanding:
Net income attributable to common shareholders — basic	$	1.79	$	0.94	$	1.94	$	0.91
Net income attributable to common shareholders — diluted	$	1.76	$	0.94	$	1.92	$	0.91

For the three and six months ended June 30, 2024, diluted weighted average common shares excludes 348,499 shares relating to the Convertible Notes. These potentially issuable shares were excluded from the calculation of diluted shares as their inclusion would have been antidilutive.