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 stock options and restricted stock units that earn dividend equivalents on an equal basis with AWR’s common shares that have been issued under AWR’s 2000 and 2008 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 reflecting the two-for-one stock split effective September 3, 2013:



Basic	For The Years Ended December 31,
(in thousands, except per share amounts)	2013		2012		2011
Net income from continuing operations	$	62,686	$	54,148	$	42,010
Net income from discontinued operations	—		—		3,849
Net income	62,686		54,148		45,859
Less: (a) Distributed earnings to common shareholders	29,366		24,129		20,563
Distributed earnings to participating securities	171		171		140
Undistributed earnings	33,149		29,848		25,156

(b) Undistributed earnings allocated to common shareholders	32,958		29,638		24,985
Undistributed earnings allocated to participating securities	191		210		171
Total income available to common shareholders, basic (a)+(b)	$	62,324	$	53,767	$	45,548

Weighted average common shares outstanding, basic	38,639		37,998		37,386

Basic earnings per common share:
Income from continuing operations	$	1.61	$	1.42	$	1.12
Income from discontinued operations	—		—		0.10
Net Income	$	1.61	$	1.42	$	1.22

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 and 2008 employee plans, and the 2003 and 2013 directors plans, and net income. At December 31, 2013, there were 264,596 stock options outstanding under these Plans. At December 31, 2013, there were also 237,956 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 reflecting the two-for-one stock split effective September 3, 2013:



Diluted	For The Years Ended December 31,
(in thousands, except per share amounts)	2013		2012		2011
Common shareholders earnings, basic	$	62,324	$	53,767	$	45,548
Undistributed earnings for dilutive stock options	191		210		171
Total common shareholders earnings, diluted	$	62,515	$	53,977	$	45,719

Weighted average common shares outstanding, basic	38,639		37,998		37,386
Stock-based compensation (1)	230		264		288
Weighted average common shares outstanding, diluted	38,869		38,262		37,674
Diluted earnings per common share
Income from continuing operations	$	1.61	$	1.41	$	1.11
Income from discontinued operations	—		—		0.10
Net income	$	1.61	$	1.41	$	1.21

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 264,596 stock options and 237,956 restricted stock units, including performance awards, at December 31, 2013 were deemed to be outstanding in accordance with accounting guidance on earnings per share.

During the years ended December 31, 2013, 2012 and 2011 AWR issued common shares totaling 114,821, 77,038 and 138,868, respectively, under AWR’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 2000 and 2008 employee plans and the 2003 and 2013 directors plans. As of December 31, 2013, 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, 2013, 2012 and 2011, AWR issued 131,448, 819,400 and 177,426 common shares for approximately $2,111,000, $13,295,000 and $2,350,000, respectively, as a result of the exercise of stock options. During 2013, 2012 and 2011, no cash proceeds received by AWR as a result of the exercise of stock options were distributed to any subsidiaries of AWR.

During the years ended December 31, 2013, 2012 and 2011, AWR repurchased common shares in the open market of 598,573, 1,351,934 and 882,820, respectively, under AWR’s DRP and 401(k) Plan, which were used to satisfy the requirements of these plans and programs.

In August 2012, AWR filed a Registration Statement with the Securities and Exchange Commission (“SEC”) for the sale from time to time of debt and equity securities. As of December 31, 2013, $115 million was available for issuance of additional securities under this registration statement. This Registration Statement expires in August 2015.

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.