Earnings Per Share and 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 2000, 2008 and 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)	2016		2015		2014
Net income	$	59,743	$	60,484	$	61,058
Less: (a) Distributed earnings to common shareholders	33,408		32,690		32,125
Distributed earnings to participating securities	187		207		177
Undistributed earnings	26,148		27,587		28,756

(b) Undistributed earnings allocated to common shareholders	26,003		27,414		28,599
Undistributed earnings allocated to participating securities	145		173		157

Total income available to common shareholders, basic (a)+(b)	$	59,411	$	60,104	$	60,724

Weighted average Common Shares outstanding, basic	36,552		37,389		38,658

Basic earnings per Common Share	$	1.63	$	1.61	$	1.57

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 2000, 2008 and 2016 employee plans, and the 2003 and 2013 directors' plans, and net income. At December 31, 2016, there were 136,560 stock options outstanding under these plans. At December 31, 2016, there were also 209,932 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)	2016		2015		2014
Common shareholders earnings, basic	$	59,411	$	60,104	$	60,724
Undistributed earnings for dilutive stock options and restricted stock units	145		173		157
Total common shareholders earnings, diluted	$	59,556	$	60,277	$	60,881

Weighted average Common Shares outstanding, basic	36,552		37,389		38,658
Stock-based compensation (1)	198		225		222
Weighted average Common Shares outstanding, diluted	36,750		37,614		38,880

Diluted earnings per Common Share	$	1.62	$	1.60	$	1.57

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 136,560 stock options and 209,932 restricted stock units, including performance awards, at December 31, 2016 were deemed to be outstanding in accordance with accounting guidance on earnings per share.

During the years ended December 31, 2016, 2015 and 2014, AWR issued Common Shares totaling 56,900, 53,612 and 74,145, respectively, under AWR’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 2000, 2008 and 2016 employee plans, and the 2003 and 2013 directors' plans. As of December 31, 2016, there are 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. Shares reserved for the 401(k) Plan are in relation to AWR’s matching contributions and investment by participants. In addition, during the years ended December 31, 2016, 2015 and 2014, AWR issued 12,546, 66,458 and 37,006 Common Shares for approximately $235,000, $1,198,000 and $589,000, respectively, as a result of the exercise of stock options. During 2016, 2015 and 2014, no cash proceeds received by AWR as a result of the exercise of stock options were distributed to any subsidiaries of AWR.

In 2014 and 2015, AWR's Board of Directors approved two stock repurchase programs, authorizing AWR to repurchase up to 2.45 million shares of its Common Shares. Both programs were completed during 2015. Under these programs, Registrant repurchased 1,905,000 and 545,000 Common Shares on the open market during 2015 and 2014, respectively.

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.