Earnings per Share/Capital Stock:

In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), Registrant uses the “two-class” method of computing EPS. The “two-class” method is an earnings allocation formula that determines EPS for each class of common stock and participating security. AWR has participating securities related to restricted stock units that earn dividend equivalents on an equal basis with AWR’s Common Shares that have been issued under AWR's Stock Incentive Plans for employees and the Non-Employee Directors Stock Plans. In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities.

The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding used for calculating basic net income per share:



Basic:	For The Three Months Ended March 31,
(in thousands, except per share amounts)	2017		2016
Net income	$	12,701	$	10,150
Less: (a) Distributed earnings to common shareholders	8,854		8,181
Distributed earnings to participating securities	42		45
Undistributed earnings	3,805		1,924

(b) Undistributed earnings allocated to common shareholders	3,787		1,914
Undistributed earnings allocated to participating securities	18		10

Total income available to common shareholders, basic (a)+(b)	$	12,641	$	10,095

Weighted average Common Shares outstanding, basic	36,590		36,521

Basic earnings per Common Share	$	0.35	$	0.28

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable pursuant to stock options and restricted stock units granted under AWR’s Stock Incentive Plans for employees and the Non-Employee Directors Stock Plans, and net income. At March 31, 2017 and 2016, there were 120,138 and 142,402 options outstanding, respectively, under these Plans. At March 31, 2017 and 2016, there were also 194,031 and 215,129 restricted stock units outstanding, respectively, including performance shares awarded to officers of the Registrant.

The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding for calculating diluted net income per share:



Diluted:	For The Three Months Ended March 31,
(in thousands, except per share amounts)	2017		2016
Common shareholders earnings, basic	$	12,641	$	10,095
Undistributed earnings for dilutive stock-based awards	18		10
Total common shareholders earnings, diluted	$	12,659	$	10,105

Weighted average common shares outstanding, basic	36,590		36,521
Stock-based compensation (1)	192		176
Weighted average common shares outstanding, diluted	36,782		36,697

Fully diluted earnings per Common Share	$	0.34	$	0.28

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 120,138 and 142,402 stock options at March 31, 2017 and 2016, respectively, were deemed to be outstanding in accordance with the accounting guidance on earnings per share. All the 194,031 and 215,129 restricted stock units at March 31, 2017 and 2016, respectively, were included in the calculation of diluted EPS for the three months ended March 31, 2017 and 2016.

No stock options outstanding at March 31, 2017 had an exercise price greater than the average market price of AWR’s Common Shares for the three months ended March 31, 2017. There were no stock options outstanding at March 31, 2017 or 2016 that were anti-dilutive.

During the three months ended March 31, 2017 and 2016, AWR issued 44,832 and 52,153 common shares for approximately $35,000 and $126,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, the Stock Incentive Plans for employees, and the Non-Employee Directors Stock Plans.

During the three months ended March 31, 2017 and 2016, AWR paid quarterly dividends of approximately $8.9 million, or $0.242 per share, and $8.2 million, or $0.224 per share, respectively.