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 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)	2014		2013		2012
Net income	$	61,058	$	62,686	$	54,148
Less: (a) Distributed earnings to common shareholders	32,125		29,366		24,129
Distributed earnings to participating securities	177		171		171
Undistributed earnings	28,756		33,149		29,848

(b) Undistributed earnings allocated to common shareholders	28,599		32,958		29,638
Undistributed earnings allocated to participating securities	157		191		210
Total income available to common shareholders, basic (a)+(b)	$	60,724	$	62,324	$	53,767

Weighted average Common Shares outstanding, basic	38,658		38,639		37,998

Basic earnings per Common Share:	$	1.57	$	1.61	$	1.42

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, 2014, there were 222,580 stock options outstanding under these Plans. At December 31, 2014, there were also 221,302 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)	2014		2013		2012
Common shareholders earnings, basic	$	60,724	$	62,324	$	53,767
Undistributed earnings for dilutive stock options and restricted stock units	157		191		210
Total common shareholders earnings, diluted	$	60,881	$	62,515	$	53,977

Weighted average Common Shares outstanding, basic	38,658		38,639		37,998
Stock-based compensation (1)	222		230		264
Weighted average Common Shares outstanding, diluted	38,880		38,869		38,262

Diluted earnings per Common Share	$	1.57	$	1.61	$	1.41

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 222,580 stock options and 221,302 restricted stock units, including performance awards, at December 31, 2014 were deemed to be outstanding in accordance with accounting guidance on earnings per share.

During the years ended December 31, 2014, 2013 and 2012, AWR issued Common Shares totaling 74,145, 114,821 and 77,038, 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, 2014, 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, 2014, 2013 and 2012, AWR issued 37,006, 131,448 and 819,400 Common Shares for approximately $589,000, $2,111,000 and $13,295,000, respectively, as a result of the exercise of stock options. During 2014, 2013 and 2012, no cash proceeds received by AWR as a result of the exercise of stock options were distributed to any subsidiaries of AWR.

On March 27, 2014, AWR's Board of Directors approved a stock repurchase program, authorizing AWR to repurchase up to 1.25 million shares of its Common Shares from time to time through June 30, 2016. Pursuant to this program, Registrant repurchased 545,218 Common Shares on the open market during the year ended December 31, 2014. The repurchase of Common Shares is restricted by California law under the same standards which apply to dividend distributions. See Note 7 (Dividend Limitations) of Notes to Consolidated Financial Statements.

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, 2014, $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.