Note 3 — 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 for calculating basic net income per share:

Basic:			For The Three Months Ended March 31,
(in thousands, except per share amounts)			2013		2012
Net income			$	13,465	$	10,115
Less: (a)		Distributed earnings to common shareholders	6,839		5,273
		Distributed earnings to participating securities	107		35
Undistributed earnings			6,519		4,807

(b)	Undistributed earnings allocated to common shareholders		6,419		4,775
	Undistributed earnings allocated to participating securities		100		32
Total income available to common shareholders, basic (a)+(b)			$	13,258	$	10,048

Weighted average Common Shares outstanding, basic			19,265		18,831
Basic earnings per Common Share			$	0.69	$	0.53

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 Employee Plans, and the 2003 Directors Plan, and net income. At March 31, 2013 and 2012, there were 176,048 and 566,406 options outstanding, respectively, under these Plans. At March 31, 2013 and 2012, there were also 145,208 and 147,078 restricted stock units outstanding, respectively.

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 March 31,
(in thousands, except per share amounts)	2013		2012
Common shareholders earnings, basic	$	13,258	$	10,048
Undistributed earnings for dilutive stock options	—		32
Total common shareholders earnings, diluted	$	13,258	$	10,080

Weighted average common shares outstanding, basic	19,265		18,831
Stock-based compensation (1)	46		142
Weighted average common shares outstanding, diluted	19,311		18,973

Diluted earnings per Common Share	$	0.69	$	0.53

(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 176,048 and 456,318 stock options at March 31, 2013 and 2012, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share. All of the 145,208 and 147,078 restricted stock units at March 31, 2013 and 2012, respectively, were included in the calculation of diluted EPS for the three months ended March 31, 2013 and 2012.

No stock options outstanding as of March 31, 2013 had an exercise price greater than the average market price of AWR’s Common Shares for the three months ended March 31, 2013. As of March 31, 2012, 110,013 stock options were outstanding but not included in the computation of diluted EPS because the related option exercise price was greater than the average market price of AWR’s Common Shares for the three months ended March 31, 2012. There were 75 stock options outstanding at March 31, 2012, but not included in the computation of diluted EPS because they were anti-dilutive. There were no stock options outstanding at March 31, 2013 that were anti-dilutive.

During the three months ended March 31, 2013 and 2012, Registrant issued 46,293 and 69,512 Common Shares, for approximately $625,000 and $1,403,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 401(k) Plan, the 2000 and 2008 Employee Plans, and the 2003 Directors Plan. In addition, Registrant purchased 42,597 and 221,932 Common Shares on the open market during the three months ended March 31, 2013 and 2012, respectively, under Registrant’s 401(k) Plan and the DRP. The Common Shares purchased by Registrant were used to satisfy the requirements of these plans.

During the three months ended March 31, 2013 and 2012, AWR paid quarterly dividends of approximately $6.8 million, or $0.355 per share, and $5.3 million, or $0.28 per share, respectively.