NOTE 16 — COMMON EQUITY

We had the following changes to issued common stock during the three months ended March 31, 2013:



Common stock at December 31, 2012		78,287,906
Shares issued
Stock Investment Plan		114,365
Stock-based compensation		317,677
Rabbi trust shares		90,000
Common stock at March 31, 2013		78,809,948

The following table provides a summary of common stock activity to meet the requirements of our Stock Investment Plan and certain stock-based employee benefit and compensation plans:



Period		Method of meeting requirements
Beginning 02/05/2013		Issuing new shares ^*
01/01/2012 – 02/04/2013		Purchased shares on the open market

^* These stock issuances increased equity $22.3 million in 2013.

The following table reconciles common shares issued and outstanding:



	March 31, 2013			December 31, 2012
	Shares	Average Cost *		Shares	Average Cost *
Common stock issued	78,809,948			78,287,906
Less:
Deferred compensation rabbi trust	456,852	$	48.23	385,439	$	46.03
Total common shares outstanding	78,353,096			77,902,467

* Based on our stock price on the day the shares entered the deferred compensation rabbi trust. Shares paid out of the trust are valued at the average cost of shares in the trust.

Earnings Per Share

Basic earnings per share is computed by dividing net income attributed to common shareholders by the weighted average number of common shares outstanding during the period, adjusted for shares we are obligated to issue under the deferred compensation and restricted share unit plans. Diluted earnings per share is computed in a similar manner, but includes the exercise and/or conversion of all potentially dilutive securities. Such dilutive items include in-the-money stock options, performance stock rights, restricted share units, and certain shares issuable under the deferred compensation plan. The calculations of diluted earnings per share for the three months ended March 31, 2013, and 2012, excluded 0.2 million and 0.8 million, respectively, out-of-the-money stock options that had an anti-dilutive effect. The following table reconciles our computation of basic and diluted earnings per share:



	Three Months Ended March 31
(Millions, except per share amounts)	2013			2012
Numerator:
Net income from continuing operations	$	182.2		$	98.8
Discontinued operations, net of tax	6.1			0.9
Preferred stock dividends of subsidiary	(0.8		)	(0.8		)
Net income attributed to common shareholders	$	187.5		$	98.9

Denominator:
Average shares of common stock — basic	78.7			78.6
Effect of dilutive securities
Stock-based compensation	0.4			0.4
Deferred compensation	0.2			0.2
Average shares of common stock — diluted	79.3			79.2

Earnings per common share
Basic	$	2.38		$	1.26
Diluted	2.37			1.25

Dividend Restrictions

Our ability as a holding company to pay dividends is largely dependent upon the availability of funds from our subsidiaries. Various laws, regulations, and financial covenants impose restrictions on the ability of certain of our regulated utility subsidiaries to transfer funds to us in the form of dividends. Our regulated utility subsidiaries, with the exception of MGU, are prohibited from loaning funds to us, either directly or indirectly.

The PSCW allows WPS to pay dividends on its common stock of no more than 103% of the previous year’s common stock dividend. WPS may return capital to us if its average financial common equity ratio is at least 51% on a calendar-year basis. WPS must obtain PSCW approval if a return of capital would cause its average financial common equity ratio to fall below this level. Our right to receive dividends on the common stock of WPS is also subject to the prior rights of WPS’s preferred shareholders and to provisions in WPS’s restated articles of incorporation, which limit the amount of common stock dividends that WPS may pay if its common stock and common stock surplus accounts constitute less than 25% of its total capitalization.

NSG’s long-term debt obligations contain provisions and covenants restricting the payment of cash dividends and the purchase or redemption of its capital stock.

PGL and WPS have short-term debt obligations containing financial and other covenants, including but not limited to, a requirement to maintain a debt to total capitalization ratio not to exceed 65%. Failure to comply with these covenants could result in an event of default which could result in the acceleration of their outstanding debt obligations.

We also have short-term and long-term debt obligations that contain financial and other covenants, including but not limited to, a requirement to maintain a debt to total capitalization ratio not to exceed 65%. Failure to comply with these covenants could result in an event of default which could result in the acceleration of outstanding debt obligations. At March 31, 2013, these covenants did not restrict the payment of any dividends beyond the amount restricted under our subsidiary requirements described above.

As of March 31, 2013, total restricted net assets were $1,676.0 million. Our equity in undistributed earnings of 50% or less owned investees accounted for by the equity method was $129.4 million at March 31, 2013.

We have the option to defer interest payments on our outstanding Junior Subordinated Notes, from time to time, for one or more periods of up to ten consecutive years per period. During any period in which we defer interest payments, we may not declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment on, any of our capital stock.

Except for the restrictions described above and subject to applicable law, we do not have any other significant dividend restrictions.

Capital Transactions with Subsidiaries

During the three months ended March 31, 2013, capital transactions with subsidiaries were as follows (in millions):



Subsidiary	Dividends To Parent		Return Of Capital To Parent		Equity Contributions From Parent
ITF ⁽¹⁾	$	—	$	—	$	11.7
MERC	—		21.0		—
WPS	27.1		—		200.0
WPS Investments, LLC ⁽²⁾	17.3		—		1.7
Total	$	44.4	$	21.0	$	213.4


⁽¹⁾	ITF is a direct wholly owned subsidiary of PELLC. As a result, it makes distributions to PELLC, and receives equity contributions from PELLC. Subject to applicable law, PELLC does not have any dividend restrictions or limitations on distributions to us.

⁽²⁾

WPS Investments, LLC is a consolidated subsidiary that is jointly owned by us, WPS, and UPPCO. At March 31, 2013, we had an 85.86% ownership interest, while WPS and UPPCO had an 11.66% and 2.48% ownership interest, respectively. Distributions from WPS Investments, LLC are made to the owners based on their respective ownership percentages. During 2013, all equity contributions to WPS Investments, LLC were made solely by us.