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:



Basic	For The Years Ended December 31,
(in thousands, except per share amounts)	2015		2014		2013
Net income	$	60,484	$	61,058	$	62,686
Less: (a) Distributed earnings to common shareholders	32,690		32,125		29,366
Distributed earnings to participating securities	207		177		171
Undistributed earnings	27,587		28,756		33,149

(b) Undistributed earnings allocated to common shareholders	27,414		28,599		32,958
Undistributed earnings allocated to participating securities	173		157		191

Total income available to common shareholders, basic (a)+(b)	$	60,104	$	60,724	$	62,324

Weighted average Common Shares outstanding, basic	37,389		38,658		38,639

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

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, 2015, there were 150,606 stock options outstanding under these Plans. At December 31, 2015, there were also 243,288 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)	2015		2014		2013
Common shareholders earnings, basic	$	60,104	$	60,724	$	62,324
Undistributed earnings for dilutive stock options and restricted stock units	173		157		191
Total common shareholders earnings, diluted	$	60,277	$	60,881	$	62,515

Weighted average Common Shares outstanding, basic	37,389		38,658		38,639
Stock-based compensation (1)	225		222		230
Weighted average Common Shares outstanding, diluted	37,614		38,880		38,869

Diluted earnings per Common Share	$	1.60	$	1.57	$	1.61

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 150,606 stock options and 243,288 restricted stock units, including performance awards, at December 31, 2015 were deemed to be outstanding in accordance with accounting guidance on earnings per share.

During the years ended December 31, 2015, 2014 and 2013, AWR issued Common Shares totaling 53,612, 74,145 and 114,821, 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, 2015, 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, 2015, 2014 and 2013, AWR issued 66,458, 37,006 and 131,448 Common Shares for approximately $1,198,000, $589,000 and $2,111,000, respectively, as a result of the exercise of stock options. During 2015, 2014 and 2013, 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. 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.

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.