Earnings Per Share and Capital Stock

12 Months Ended

Dec. 31, 2019

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 2016 employee plans and the 2003 and 2013 directors' 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 for calculating basic net income per share:



Basic:	For The Years Ended December 31,
(in thousands, except per share amounts)	2019		2018		2017
Net income	$	84,342	$	63,871	$	69,367
Less: (a) Distributed earnings to common shareholders	42,702		38,937		36,417
Distributed earnings to participating securities	180		204		197
Undistributed earnings	41,460		24,730		32,753

(b) Undistributed earnings allocated to common shareholders	41,285		24,601		32,577
Undistributed earnings allocated to participating securities	175		129		176
Total income available to common shareholders, basic (a)+(b)	$	83,987	$	63,538	$	68,994

Weighted average Common Shares outstanding, basic	36,814		36,733		36,638

Basic earnings per Common Share	$	2.28	$	1.73	$	1.88

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with restricted stock units granted under AWR’s 2016 employee plans, and the 2003 and 2013 directors' plans, and net income. At December 31, 2019, there were also 159,720 restricted stock units outstanding 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 Years Ended December 31,
(in thousands, except per share amounts)	2019		2018		2017
Common shareholders earnings, basic	$	83,987	$	63,538	$	68,994
Undistributed earnings for dilutive stock options and restricted stock units	175		129		176
Total common shareholders earnings, diluted	$	84,162	$	63,667	$	69,170

Weighted average Common Shares outstanding, basic	36,814		36,733		36,638
Stock-based compensation (1)	150		203		206
Weighted average Common Shares outstanding, diluted	36,964		36,936		36,844

Diluted earnings per Common Share	$	2.28	$	1.72	$	1.88

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 159,720 restricted stock units, including performance awards, at December 31, 2019 were deemed to be outstanding in accordance with accounting guidance on earnings per share.

During the years ended December 31, 2019, 2018 and 2017, AWR issued Common Shares totaling 88,772, 44,906 and 56,498, respectively, under AWR's employee stock incentive plans and the non-employee directors' plans. In addition, during the years ended December 31, 2019, 2018 and 2017, AWR issued 30,998, 32,142 and 52,936 Common Shares for approximately $519,000, $546,000 and $909,000, respectively, as a result of the exercise of stock options. During 2019, 2018 and 2017, no cash proceeds received by AWR as a result of the exercise of stock options were distributed to any of AWR's subsidiaries. AWR has not issued any Common Shares during 2019, 2018 and 2017 under AWR's Common Share Purchase and Dividend Reinvestment Plan ("DRP") and the 401(k) Plan. Shares reserved for the 401(k) Plan are in relation to AWR’s matching contributions and investment by participants. As of December 31, 2019, there were 1,055,948 and 387,300 Common Shares authorized for issuance directly by AWR but unissued under the DRP and the 401(k) Plan, respectively.

During the years ended December 31, 2019, 2018 and 2017, AWR and GSWC made payments to taxing authorities on employees' behalf for shares withheld related to net share settlements. These payments are included in the stock-based compensation caption of the statements of equity. GSWC’s outstanding Common Shares are owned entirely by its parent, AWR. To the extent GSWC does not reimburse AWR for stock-based compensation awarded under various stock compensation plans, such amounts increase the value of GSWC’s common shareholder’s equity.