Earnings Per Share and Capital Stock

12 Months Ended

Dec. 31, 2020

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 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)	2020		2019		2018
Net income	$	86,425	$	84,342	$	63,871
Less: (a) Distributed earnings to common shareholders	47,206		42,702		38,937
Distributed earnings to participating securities	158		180		204
Undistributed earnings	39,061		41,460		24,730

(b) Undistributed earnings allocated to common shareholders	38,930		41,285		24,601
Undistributed earnings allocated to participating securities	131		175		129
Total income available to common shareholders, basic (a)+(b)	$	86,136	$	83,987	$	63,538

Weighted average Common Shares outstanding, basic	36,880		36,814		36,733

Basic earnings per Common Share	$	2.34	$	2.28	$	1.73

Diluted EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with restricted stock units granted under AWR’s 2016 employee plans, and the 2003

and 2013 directors' plans, and net income. At December 31, 2020, there were also 127,298 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)	2020		2019		2018
Common shareholders earnings, basic	$	86,136	$	83,987	$	63,538
Undistributed earnings for dilutive stock options and restricted stock units	131		175		129
Total common shareholders earnings, diluted	$	86,267	$	84,162	$	63,667

Weighted average Common Shares outstanding, basic	36,880		36,814		36,733
Stock-based compensation (1)	115		150		203
Weighted average Common Shares outstanding, diluted	36,995		36,964		36,936

Diluted earnings per Common Share	$	2.33	$	2.28	$	1.72

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 127,298 restricted stock units, including performance awards, at December 31, 2020 were deemed to be outstanding in accordance with accounting guidance on earnings per share.

During the years ended December 31, 2020, 2019 and 2018, AWR issued Common Shares totaling 42,489, 88,772 and 44,906, respectively, under AWR's employee stock incentive plans and the non-employee directors' plans. In addition, during the years ended December 31, 2020, 2019 and 2018, AWR issued 1,800, 30,998 and 32,142 Common Shares for approximately $30,000, $519,000 and $546,000, respectively, as a result of the exercise of stock options. During 2020, 2019 and 2018, no cash proceeds received by AWR as a result of the exercise of stock options were distributed to any of AWR's subsidiaries. AWR has not issued any Common Shares during 2020, 2019 and 2018 under AWR's Common Share Purchase and Dividend Reinvestment Plan ("DRP") and the 401(k) Plan. Shares reserved for the 401(k) Plan are in relation to AWR’s matching contributions and investment by participants. As of December 31, 2020, there were 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.

During the years ended December 31, 2020 and 2018, GSWC issued five and nineteen additional Common Shares to AWR for $60 million and 47.5 million, respectively. The majority of the proceeds from these stock issuances were used by GSWC to pay down its intercompany borrowings from AWR. The CPUC requires GSWC to pay down all intercompany borrowings from AWR within a 24-month period. No shares were issued by GSWC during 2019.

During the years ended December 31, 2020, 2019 and 2018, AWR and GSWC made payments to taxing authorities on employees' behalf for shares withheld related to net share settlements. These payments are included in the stock-based compensation caption of the statements of equity. 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.