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 its stock-based awards that earn dividend equivalents on an equal basis with AWR’s Common Shares (the “Common Shares”). 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)	2014		2013		2014		2013
Net income	$	15,354	$	16,602	$	26,375	$	30,067
Less: (a) Distributed earnings to common shareholders	7,853		6,854		15,699		13,693
Distributed earnings to participating securities	47		95		87		181
Undistributed earnings	7,454		9,653		10,589		16,193

(b) Undistributed earnings allocated to common shareholders	7,411		9,522		10,530		15,982
Undistributed earnings allocated to participating securities	43		131		59		211

Total income available to common shareholders, basic (a)+(b)	$	15,264	$	16,376	$	26,229	$	29,675

Weighted average Common Shares outstanding, basic	38,781		38,612		38,764		38,570

Basic earnings per Common Share	$	0.39	$	0.43	$	0.68	$	0.77

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 granted under Registrant’s 2000 and 2008 Stock Incentive Plans, the 2003 Non-Employee Directors Plan, and net income. At June 30, 2014 and 2013, there were 245,784 and 281,668 options outstanding, respectively, under these Plans. At June 30, 2014 and 2013, there were also 239,226 and 260,906 restricted stock units outstanding, respectively, under these plans and the 2013 Non-Employee Directors Plan.

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)	2014		2013		2014		2013
Common shareholders earnings, basic	$	15,264	$	16,376	$	26,229	$	29,675
Undistributed earnings for dilutive stock options	43		—		59		—
Total common shareholders earnings, diluted	$	15,307	$	16,376	$	26,288	$	29,675

Weighted average common shares outstanding, basic	38,781		38,612		38,764		38,570
Stock-based compensation (1)	220		80		210		78
Weighted average common shares outstanding, diluted	39,001		38,692		38,974		38,648

Diluted earnings per Common Share	$	0.39	$	0.43	$	0.67	$	0.77

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 245,784 and 281,668 stock options at June 30, 2014 and 2013, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share. All of the 239,226 and 260,906 restricted stock units at June 30, 2014 and 2013, respectively, were included in the calculation of diluted EPS for the six months ended June 30, 2014 and 2013.

No stock options outstanding at June 30, 2014 had an exercise price greater than the average market price of AWR’s Common Shares for the six months ended June 30, 2014. There were no stock options outstanding at June 30, 2014 or 2013 that were anti-dilutive.

During the six months ended June 30, 2014 and 2013, Registrant issued 70,573 and 208,986 Common Shares, for approximately $219,000 and $1,832,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 401(k) Plan, the 2000 and 2008 Stock Incentive Plans, and the 2003 and 2013 Non-Employee Directors Stock Plans. In addition, Registrant purchased 192,188 and 481,224 common shares on the open market during the six months ended June 30, 2014 and 2013, respectively, under Registrant’s 401(k) Plan and the DRP. On March 27, 2014, AWR's Board of Directors approved a stock repurchase program, authorizing the Company to repurchase up to 1.25 million shares of the Company's common shares from time to time through June 30, 2016. Pursuant to this program, Registrant repurchased an additional 9,300 common shares on the open market in the second quarter of 2014.

During the three months ended June 30, 2014 and 2013, AWR paid quarterly dividends of approximately $7.9 million, or $0.2025 per share, and $6.8 million, or $0.1775 per share, respectively. During the six months ended June 30, 2014 and 2013 AWR paid quarterly dividends to shareholders of approximately $15.7 million, or $0.405 per share, and $13.7 million, or $0.355 per share, respectively.

On May 19, 2014, AWR's Board of Directors declared and approved a 5.2% increase in AWR's third quarter cash dividend from $0.2025 to $0.2130 per share on the common shares of the Company. Dividends on the common shares will be payable on September 2, 2014 to shareholders of record at the close of business on August 15, 2014.