Earnings Per Share Of Common Stock

9 Months Ended

Sep. 30, 2020

EARNINGS PER SHARE OF COMMON STOCKBasic EPS available to common stockholders is computed using the weighted average number of common shares outstanding during the relevant period as the denominator. The denominator for diluted EPS of common stock reflects the weighted average

of common shares outstanding plus the potential additional common shares that could result if dilutive securities and other agreements to issue common stock were exercised.

During 2019, EPS was computed using the two-class method required for participating securities. The convertible preferred stock issued in January 2018 were considered participating securities since the shares participated in dividends on common stock on an “as-converted” basis. All convertible preferred stock was converted to common stock during 2019.

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 stockholders. Under the two-class method, net income attributable to common stockholders is derived by subtracting the following from income from continuing operations:

•preferred stock dividends,

•deemed dividends for the amortization of the beneficial conversion feature recognized at issuance of the preferred stock (if any), and

•an allocation of undistributed earnings between the common stock and the participating securities (convertible preferred stock) based on their respective rights to receive dividends.

Net losses were not allocated to the convertible preferred stock as they did not have a contractual obligation to share in the losses of FirstEnergy. FirstEnergy allocated undistributed earnings based upon income from continuing operations.

Diluted EPS reflects the dilutive effect of potential common shares from share-based awards and convertible shares of preferred stock. The dilutive effect of outstanding share-based awards was computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of the award would be used to purchase common stock at the average market price for the period. The dilutive effect of the convertible preferred stock was computed using the if-converted method, which assumes conversion of the convertible preferred stock at the beginning of the period, giving income recognition for the add-back of the preferred stock dividends, amortization of beneficial conversion feature, and undistributed earnings allocated to preferred stockholders.

The following table reconciles basic and diluted EPS of common stock:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Reconciliation of Basic and Diluted EPS of Common Stock	2020		2019		2020		2019

(In millions, except per share amounts)
EPS of Common Stock
Income from continuing operations	$	460	$	389	$	791	$	1,085
Less: Preferred dividends	—		—		—		(3)

Less: Undistributed earnings allocated to preferred stockholders	—		—		—		(4)
Income from continuing operations available to common stockholders	460		389		791		1,078
Discontinued operations, net of tax	(6)		2		46		(62)
Less: Undistributed earnings allocated to preferred stockholders	—		—		—		—
Income (loss) from discontinued operations available to common stockholders	(6)		2		46		(62)

Income available to common stockholders, basic	$	454	$	391	$	837	$	1,016

Income allocated to preferred shareholders, preferred dilutive	—		—		—		(7)

Income available to common stockholders, dilutive	$	454	$	391	$	837	$	1,023

Share Count information:
Weighted average number of basic shares outstanding	542		538		542		533
Assumed exercise of dilutive stock options and awards	1		2		1		2
Assumed conversion of preferred stock	—		2		—		6
Weighted average number of diluted shares outstanding	543		542		543		541

Income available to common stockholders, per common share:
Income from continuing operations, basic	$	0.85	$	0.72	$	1.46	$	2.02
Discontinued operations, basic	(0.01)		0.01		0.08		(0.12)
Income available to common stockholders, basic	$	0.84	$	0.73	$	1.54	$	1.90

Income from continuing operations, diluted	$	0.85	$	0.72	$	1.46	$	2.00
Discontinued operations, diluted	(0.01)		—		0.08		(0.11)
Income available to common stockholders, diluted	$	0.84	$	0.72	$	1.54	$	1.89

For the three months ended September 30, 2020, approximately 80 thousand shares from stock options and awards were excluded from the calculation of diluted shares outstanding, as their inclusion would be anti-dilutive. For the three and nine months ended September 30, 2019, no shares from stock options and awards were excluded from the calculation of diluted shares outstanding.