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 September 30,				For The Nine Months Ended September 30,
(in thousands, except per share amounts)	2017		2016		2017		2016
Net income	$	21,006	$	21,639	56,499		48,531
Less: (a) Distributed earnings to common shareholders	9,349		8,189		27,064		24,558
Distributed earnings to participating securities	50		48		139		141
Undistributed earnings	11,607		13,402		29,296		23,832

(b) Undistributed earnings allocated to common shareholders	11,546		13,323		29,147		23,696
Undistributed earnings allocated to participating securities	61		79		149		136

Total income available to common shareholders, basic (a)+(b)	$	20,895	$	21,512	$	56,211	$	48,254

Weighted average Common Shares outstanding, basic	36,659		36,561		36,625		36,546

Basic earnings per Common Share	$	0.57	$	0.59	$	1.53	$	1.32

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 September 30, 2017 and 2016, there were 70,702 and 138,060 options outstanding, respectively, under these Plans. At September 30, 2017 and 2016, there were also 195,457 and 216,733 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 September 30,				For The Nine Months Ended September 30,
(in thousands, except per share amounts)	2017		2016		2017		2016
Common shareholders earnings, basic	$	20,895	$	21,512	$	56,211	$	48,254
Undistributed earnings for dilutive stock-based awards	61		79		149		136
Total common shareholders earnings, diluted	$	20,956	$	21,591	$	56,360	$	48,390

Weighted average common shares outstanding, basic	36,659		36,561		36,625		36,546
Stock-based compensation (1)	197		201		188		197
Weighted average common shares outstanding, diluted	36,856		36,762		36,813		36,743

Diluted earnings per Common Share	$	0.57	$	0.59	$	1.53	$	1.32

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 70,702 and 138,060 stock options at September 30, 2017 and 2016, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share. All of the 195,457 and 216,733 restricted stock units at September 30, 2017 and 2016, respectively, were included in the calculation of diluted EPS for the three and nine months ended September 30, 2017 and 2016.

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

During the nine months ended September 30, 2017 and 2016, AWR issued 107,815 and 67,832 common shares, for approximately $884,000 and $210,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, the 2000, 2008 and 2016 Stock Incentive Plans, and the 2003 and 2013 Non-Employee Directors Stock Plans.

During the three months ended September 30, 2017 and 2016, AWR paid quarterly dividends of approximately $9.3 million, or $0.255 per share, and $8.2 million, or $0.224 per share, respectively. During the nine months ended September 30, 2017 and 2016, AWR paid quarterly dividends to shareholders of approximately $27.1 million, or $0.739 per share, and $24.6 million, or $0.672 per share, respectively.