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 June 30,				For The Six Months Ended June 30,
(in thousands, except per share amounts)	2017		2016		2017		2016
Net income	$	22,792	$	16,742	35,493		26,892
Less: (a) Distributed earnings to common shareholders	8,861		8,188		17,715		16,369
Distributed earnings to participating securities	48		50		91		94
Undistributed earnings	13,883		8,504		17,687		10,429

(b) Undistributed earnings allocated to common shareholders	13,807		8,453		17,597		10,369
Undistributed earnings allocated to participating securities	76		51		90		60

Total income available to common shareholders, basic (a)+(b)	$	22,668	$	16,641	$	35,312	$	26,738

Weighted average Common Shares outstanding, basic	36,624		36,554		36,607		36,538

Basic earnings per Common Share	$	0.62	$	0.46	$	0.96	$	0.73

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with 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 June 30, 2017 and 2016, there were 91,634 and 142,402 options outstanding, respectively, under these Plans. At June 30, 2017 and 2016, there were also 208,059 and 227,364 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 June 30,				For The Six Months Ended June 30,
(in thousands, except per share amounts)	2017		2016		2017		2016
Common shareholders earnings, basic	$	22,668	$	16,641	$	35,312	$	26,738
Undistributed earnings for dilutive stock-based awards	76		51		90		60
Total common shareholders earnings, diluted	$	22,744	$	16,692	$	35,402	$	26,798

Weighted average common shares outstanding, basic	36,624		36,554		36,607		36,538
Stock-based compensation (1)	201		198		192		192
Weighted average common shares outstanding, diluted	36,825		36,752		36,799		36,730

Diluted earnings per Common Share	$	0.62	$	0.45	$	0.96	$	0.73

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 91,634 and 142,402 stock options at June 30, 2017 and 2016, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share. All of the 208,059 and 227,364 restricted stock units at June 30, 2017 and 2016, respectively, were included in the calculation of diluted EPS for the three and six months ended June 30, 2017 and 2016.

No stock options outstanding at June 30, 2017 had an exercise price greater than the average market price of AWR’s Common Shares for the three and six months ended June 30, 2017. There were no stock options outstanding at June 30, 2017 or 2016 that were anti-dilutive.

During the six months ended June 30, 2017 and 2016, AWR issued 73,398 and 52,212 common shares, for approximately $524,000 and $126,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, the 2000 and 2008 Stock Incentive Plans and the 2003 and 2013 Non-Employee Directors Stock Plans.

During the three months ended June 30, 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. During the six months ended June 30, 2017 and 2016, AWR paid quarterly dividends to shareholders of approximately $17.7 million, or $0.484 per share, and $16.4 million, or $0.448 per share, respectively.