SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended ~~March~~June 3130, 2012

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission file number 001-14431

American States Water Company

(Exact Name of Registrant as Specified in Its Charter)

California		95-4676679
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
630 E. Foothill Blvd, San Dimas, CA		91773-1212
(Address of Principal Executive Offices)		(Zip Code)

630 E. Foothill Blvd, San Dimas, CA		91773-1212
(Address of Principal Executive Offices)		(Zip Code)

(909) 394-3600

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Commission file number 001-12008

Golden State Water Company

(Exact Name of Registrant as Specified in Its Charter)

California		95-1243678
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
630 E. Foothill Blvd, San Dimas, CA		91773-1212
(Address of Principal Executive Offices)		(Zip Code)

630 E. Foothill Blvd, San Dimas, CA		91773-1212
(Address of Principal Executive Offices)		(Zip Code)

(909) 394-3600

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

American States Water Company		Yes x No o
Golden State Water Company		Yes x No o

Indicate by check mark whether Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files).

American States Water Company		Yes x No o
Golden State Water Company		Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

American States Water Company

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Smaller reporting company o

Golden State Water Company

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

American States Water Company Yes ¨ NoNox x Golden State Water Company Yes ¨ ~~No x~~Nox

As of ~~May~~August 43, 2012, the number of Common Shares outstanding, of American States Water Company was 18,~~858~~923,~~505~~668 shares. As of ~~May~~August 43, 2012, all of the 146 outstanding Common Shares of Golden State Water Company were owned by American States Water Company.

Golden State Water Company meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form, in part, with the reduced disclosure format for Golden State Water Company.

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AMERICAN STATES WATER COMPANY

and

GOLDEN STATE WATER COMPANY

FORM 10-Q

INDEX

Part I	Financial Information
Item 1:	Financial Statements	1
	Consolidated Balance Sheets of American States Water Company as of March 31, 2012 and December 31, 2011	3
	Consolidated Balance Sheets of American States Water Company as of June 30, 2012 and December 31, 2011	3
	Consolidated Statements of Income of American States Water Company for the Three Months Ended March 31, 2012 and 2011	5
	Consolidated Statements of Income of American States Water Company for the Three Months Ended June 30, 2012 and 2011	5
	Consolidated Statements of Cash Flow of American States Water Company for the Three Months Ended March 31, 2012 and 2011	6
	Consolidated Statements of Income of American States Water Company for the Six Months Ended June 30, 2012 and 2011	6
	Balance Sheets of Golden State Water Company as of March 31, 2012 and December 31, 2011	7
	Consolidated Statements of Cash Flow of American States Water Company for the Six Months Ended June 30, 2012 and 2011	7
	Statements of Income of Golden State Water Company for the Three Months Ended March 31, 2012 and 2011	9
	Balance Sheets of Golden State Water Company as of June 30, 2012 and December 31, 2011	8
	Statements of Cash Flow of Golden State Water Company for the Three Months Ended March 31, 2012 and 2011	10
	Statements of Income of Golden State Water Company for the Three Months Ended June 30, 2012 and 2011	10
	Notes to Consolidated Financial Statements	11
	Statements of Income of Golden State Water Company for the Six Months Ended June 30, 2012 and 2011	11
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Statements of Cash Flow of Golden State Water Company for the Six Months Ended June 30, 2012 and 2011	12
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	40
	Notes to Consolidated Financial Statements	13
Item 4:	Controls and Procedures	41
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4:	Controls and Procedures	56
Part II	Other Information
Item 1:	Legal Proceedings	4257
Item 1A:	Risk Factors	4257
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4257
Item 3:	Defaults Upon Senior Securities	4257
Item 4:	Mine Safety Disclosure	4257
Item 5:	Other Information	4257
Item 6:	Exhibits	4358
	Signatures	4761

Table of Contents

PART I

Item 1. Financial Statements

General

The basic financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments consisting of normal recurring items and estimates necessary for a fair statement of results for the interim period have been made.

It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto in the latest Annual Report on Form 10-K of American States Water Company and its wholly owned subsidiary, Golden State Water Company.

Filing Format

American States Water Company (hereinafter “AWR”) is the parent company of Golden State Water Company (hereinafter “GSWC”) and American States Utility Services, Inc. (hereinafter “ASUS”) and its subsidiaries.

This quarterly report on Form 10-Q is a combined report being filed by two separate Registrants: AWR and GSWC. For more information, please see Note 1 to the Notes to Consolidated Financial Statements and the heading entitled General in Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. References in this report to “Registrant” are to AWR and GSWC collectively, unless otherwise specified. GSWC makes no representations as to the information contained in this report relating to AWR and its subsidiaries, other than GSWC.

Forward-Looking Statements

This Form 10-Q and the documents incorporated herein contain forward-looking statements intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current estimates, expectations and projections about future events and assumptions regarding these events and include statements regarding management’s goals, beliefs, plans or current expectations, taking into account the information currently available to management. Forward-looking statements are not statements of historical facts. For example, when we use words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may” and other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. We are not able to predict all the factors that may affect future results. We caution you that any forward-looking statements made by us are not guarantees of future performance and that actual results may differ materially from those in our forward-looking statements. Some of the factors that could cause future results to differ materially from those expressed or implied by our forward-looking statements, or from historical results, include, but are not limited to:

· The outcome of pending and future regulatory, legislative or other proceedings, investigations or audits, including decisions in our general rate cases and the results of independent audits of our construction contracting procurement practices

· Changes in the policies and procedures of the California Public Utilities Commission or (“CPUC”)

· Timeliness of CPUC action on rates

· Our ability to efficiently manage capital expenditures and operating and maintenance expenses within CPUC authorized levels and timely ~~recover~~recovery of our costs through rates

· Our ability to forecast the costs of maintaining ~~our~~GSWC’s aging water infrastructure

· Our ability to recover increases in permitting costs and in costs associated with negotiating and complying with the terms of our franchise agreements with cities and counties and other demands made upon us by the cities and counties in which GSWC operates

· Changes in accounting valuations and estimates, including changes resulting from changes in our assessment of anticipated recovery of regulatory assets, liabilities and revenues subject to refund or regulatory disallowances

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· Changes in environmental laws and water quality and wastewater requirements and increases in costs associated with complying with these laws and requirements

· Availability of water supplies, which may be adversely affected by changes in weather patterns, contamination and court decisions or other governmental actions restricting use of water from the Colorado River, transportation of water to ~~our~~GSWC’s service areas through the California State Water Project or pumping of groundwater

· Our ability to ~~recover~~obtain ~~the~~adequate, ~~costs~~reliable ~~associated~~and ~~with~~cost-effective ~~the~~supplies ~~contamination~~ of ~~our~~chemicals, ~~groundwater~~electricity, ~~supplies~~fuel, ~~from~~water ~~parties responsible for the contamination or through the ratemaking process~~ and ~~the~~other ~~time~~raw ~~and~~materials ~~expense~~that ~~incurred~~are byneeded usfor inour ~~obtaining~~water ~~recovery of such costs~~operations

· Our ability to recover the costs associated with the contamination of GSWC’s groundwater supplies from parties responsible for the contamination or through the ratemaking process and the time and expense incurred by us in obtaining recovery of such costs

· Adequacy of our power supplies and the extent to which we can manage and respond to the volatility of electric and natural gas prices

· Our ability to comply with the CPUC’s renewable energy procurement requirements

· Changes in GSWC customer demand due to unanticipated population growth or decline, changes in climate conditions, general economic and financial market conditions, cost increases and conservation

· Changes in accounting treatment for regulated utilities

· Changes in estimates used in ~~our~~ASUS’ revenue recognition under the percentage of completion method of accounting for our construction activities at our contracted services business

· Termination, in whole or in part, of our contracts to provide water and/or wastewater services at military bases for the convenience of the U.S. government or for default.

· Delays in obtaining redetermination of prices or equitable adjustments to our prices on our contracts to provide water and/or wastewater services at military bases

· Disallowance of costs on our contracts to provide water and/or wastewater services at military bases as a result of audits, cost review or investigations by contracting agencies

· Inaccurate assumptions used in preparing bids in our contracted services business

· Failure of the collection or sewage systems that we operate on military bases resulting in untreated wastewater or contaminants spilling into nearby properties, streams or rivers

· Failure to comply with the terms of our military privatization contracts

· Failure of any of our subcontractors to perform services for us in accordance with the terms of our military privatization contracts

· Implementation, maintenance and upgrading of our information technology systems

· General economic conditions which may impact our ability to recover revenue from customers

· Explosions, fires, accidents, mechanical breakdowns, the disruption of information technology and telecommunication systems, human error and similar events that may occur while operating and maintaining a water and electric system in California or operating and maintaining water and wastewater systems on military bases under varying geographic conditions

· The impact of storms, earthquakes, floods, mudslides, drought, wildfires, disease and similar natural disasters, or acts of terrorism or vandalism, that affect customer demand or that damage or disrupt facilities, operations or information technology systems owned by us, our customers or third parties on whom we rely

· Restrictive covenants in our debt instruments or changes to our credit ratings on current or future debt that may increase our financing costs or affect our ability to borrow or make payments on our debt

· Our ability to access capital markets and other sources of credit in a timely manner on acceptable terms

Please consider our forward-looking statements in light of these risks (which are more fully disclosed in our 2011 Annual Report on Form 10-K) as you read this Form 10-Q. We qualify all of our forward-looking statement by these cautionary statements.

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AMERICAN STATES WATER COMPANY ~~CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited)~~

(in thousands)	March 31, 2012			December 31, 2011
Property, Plant and Equipment
Regulated utility plant, at cost	$	1,312,620		$	1,302,589
Non utility property, at cost	8,235			7,747
Total	1,320,855			1,310,336
Less - Accumulated depreciation	(423,020		)	(413,836		)
Net property, plant and equipment	897,835			896,500
Other Property and Investments
Goodwill	1,116			1,116
Other property and investments	11,968			11,803
Total other property and investments	13,084			12,919
Current Assets
Cash and cash equivalents	6,558			1,315
Accounts receivable — customers (less allowance for doubtful accounts of $753 in 2012 and $715 in 2011)	18,869			20,399
Unbilled revenue	16,969			16,188
Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2012 and 2011)	12,908			7,584
Other accounts receivable (less allowance for doubtful accounts of $367 in 2012 and $333 in 2011)	10,008			12,181
Income taxes receivable	14,256			20,537
Materials and supplies, at average cost	4,797			3,070
Regulatory assets — current	36,213			36,362
Prepayments and other current assets	5,439			3,959
Costs and estimated earnings in excess of billings on uncompleted contracts	36,015			34,466
Deferred income taxes — current	9,840			9,540
Total current assets	171,872			165,601
Regulatory and Other Assets
Regulatory assets	144,470			143,595
Costs and estimated earnings in excess of billings on uncompleted contracts	411			598
Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2012 and 2011)	6,446			6,660
Deferred income taxes	11			15
Other	12,500			12,474
Total regulatory and other assets	163,838			163,342
Total Assets	$	1,246,629		$	1,238,362

CONSOLIDATED BALANCE SHEETS

ASSETS

(Unaudited)

(in thousands)	June 30, 2012			December 31, 2011
Property, Plant and Equipment
Regulated utility plant, at cost	$	1,324,583		$	1,302,589
Non utility property, at cost	8,466			7,747
Total	1,333,049			1,310,336
Less - Accumulated depreciation	(433,040		)	(413,836		)
Net property, plant and equipment	900,009			896,500

Other Property and Investments
Goodwill	1,116			1,116
Other property and investments	13,471			11,803
Total other property and investments	14,587			12,919

Current Assets
Cash and cash equivalents	25,915			1,315
Accounts receivable — customers (less allowance for doubtful accounts of $762 in 2012 and $715 in 2011)	22,212			20,399
Unbilled revenue	25,955			16,188
Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2012 and 2011)	10,091			7,584
Other accounts receivable (less allowance for doubtful accounts of $367 in 2012 and $333 in 2011)	7,640			12,181
Income taxes receivable	7,657			20,537
Materials and supplies, at average cost	4,958			3,070
Regulatory assets — current	31,814			36,362
Prepayments and other current assets	5,822			3,959
Costs and estimated earnings in excess of billings on uncompleted contracts	23,855			34,466
Deferred income taxes — current	9,935			9,540
Total current assets	175,854			165,601

Regulatory and Other Assets
Regulatory assets	143,867			143,595
Costs and estimated earnings in excess of billings on uncompleted contracts	1,477			598
Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2012 and 2011)	4,499			6,660
Deferred income taxes	11			15
Other	12,456			12,474
Total regulatory and other assets	162,310			163,342

Total Assets	$	1,252,760		$	1,238,362

The accompanying notes are an integral part of these consolidated financial statements

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AMERICAN STATES WATER COMPANY ~~CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES (Unaudited)~~

(in thousands)	March 31, 2012		December 31, 2011
Capitalization
Common shares, no par value	$	234,846	$	233,306
Earnings reinvested in the business	180,173		175,360
Total common shareholders’ equity	415,019		408,666
Long-term debt	340,374		340,395
Total capitalization	755,393		749,061
Current Liabilities
Notes payable to banks	—		2,000
Long-term debt — current	247		291
Accounts payable	38,097		37,873
Income taxes payable	1,654		332
Accrued employee expenses	10,607		8,659
Accrued interest	6,430		3,938
Unrealized loss on purchased power contracts	7,506		7,611
Billings in excess of costs and estimated earnings on uncompleted contracts	28,557		26,973
Other	14,274		16,693
Total current liabilities	107,372		104,370
Other Credits
Advances for construction	75,563		75,353
Contributions in aid of construction - net	99,763		100,037
Deferred income taxes	128,635		128,963
Unamortized investment tax credits	1,950		1,972
Accrued pension and other postretirement benefits	70,518		68,353
Billings in excess of costs and estimated earnings on uncompleted contracts	534		3,272
Other	6,901		6,981
Total other credits	383,864		384,931
Commitments and Contingencies (Note 8)	—		—
Total Capitalization and Liabilities	$	1,246,629	$	1,238,362

CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)

(in thousands)	June 30, 2012		December 31, 2011
Capitalization
Common shares, no par value	$	236,973	$	233,306
Earnings reinvested in the business	189,941		175,360
Total common shareholders’ equity	426,914		408,666
Long-term debt	341,541		340,395
Total capitalization	768,455		749,061

Current Liabilities
Notes payable to banks	—		2,000
Long-term debt — current	177		291
Accounts payable	39,089		37,873
Income taxes payable	1,129		332
Accrued employee expenses	9,248		8,659
Accrued interest	3,921		3,938
Unrealized loss on purchased power contracts	5,176		7,611
Billings in excess of costs and estimated earnings on uncompleted contracts	25,887		26,973
Other	14,988		16,693
Total current liabilities	99,615		104,370

Other Credits
Advances for construction	73,797		75,353
Contributions in aid of construction - net	100,240		100,037
Deferred income taxes	130,873		128,963
Unamortized investment tax credits	1,929		1,972
Accrued pension and other postretirement benefits	70,811		68,353
Billings in excess of costs and estimated earnings on uncompleted contracts	—		3,272
Other	7,040		6,981
Total other credits	384,690		384,931

Commitments and Contingencies (Note 8)	—		—

Total Capitalization and Liabilities	$	1,252,760	$	1,238,362

The accompanying notes are an integral part of these consolidated financial statements

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AMERICAN STATES WATER COMPANY ~~CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Unaudited)~~

	Three Months Ended March 31,
(in thousands, except per share amounts)	2012			2011
Operating Revenues
Water	$	65,957		$	64,326
Electric	10,813			10,724
Contracted services	29,878			19,257
Total operating revenues	106,648			94,307
Operating Expenses
Water purchased	9,552			8,661
Power purchased for pumping	1,556			1,536
Groundwater production assessment	3,323			2,626
Power purchased for resale	3,191			3,875
Supply cost balancing accounts	3,437			5,079
Other operation expenses	7,426			6,917
Administrative and general expenses	16,585			18,419
Depreciation and amortization	10,490			9,737
Maintenance	3,331			3,726
Property and other taxes	4,105			3,552
ASUS construction expenses	20,285			12,184
Total operating expenses	83,281			76,312
Operating Income	23,367			17,995
Other Income and Expenses
Interest expense	(6,070		)	(5,744		)
Interest income	215			137
Other	229			80
Total other income and expenses	(5,626		)	(5,527		)
Income from continuing operations before income tax expense	17,741			12,468
Income tax expense	7,626			5,513
Income from continuing operations	10,115			6,955
Income from discontinued operations, net of tax	—			634
Net Income	$	10,115		$	7,589
Basic Earnings Per Common Share
Income from continuing operations	$	0.53		$	0.37
Income from discontinued operations	—			0.03
Net Income	$	0.53		$	0.40
Fully Diluted Earnings Per Share
Income from continuing operations	$	0.53		$	0.37
Income from discontinued operations	—			0.03
Net Income	$	0.53		$	0.40
Weighted Average Number of Shares Outstanding	18,831			18,648
Weighted Average Number of Diluted Shares	18,973			18,778
Dividends Declared Per Common Share	$	0.28		$	0.26

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS

ENDED JUNE 30, 2012 AND 2011

(Unaudited)

	Three Months Ended June 30,
(in thousands, except per share amounts)	2012			2011
Operating Revenues
Water	$	80,886		$	80,151
Electric	8,373			7,710
Contracted services	25,052			21,968
Total operating revenues	114,311			109,829

Operating Expenses
Water purchased	13,831			12,924
Power purchased for pumping	2,019			2,165
Groundwater production assessment	3,982			3,886
Power purchased for resale	2,680			2,854
Supply cost balancing accounts	4,163			4,245
Other operation expenses	6,851			6,946
Administrative and general expenses	17,792			17,740
Depreciation and amortization	10,407			9,538
Maintenance	3,852			4,623
Property and other taxes	3,716			3,406
ASUS construction expenses	14,896			12,491
Net gain on sale of property	(3		)	(128		)
Total operating expenses	84,186			80,690

Operating Income	30,125			29,139

Other Income and Expenses
Interest expense	(5,720		)	(6,869		)
Interest income	495			161
Other	(13		)	(289		)
Total other income and expenses	(5,238		)	(6,997		)

Income from continuing operations before income tax expense	24,887			22,142
Income tax expense	9,809			9,414
Income from continuing operations	15,078			12,728

Income from discontinued operations, net of tax	—			3,234

Net Income	$	15,078		$	15,962

Basic Earnings Per Common Share
Income from continuing operations	$	0.79		$	0.68
Income from discontinued operations	—			0.17
Net Income	$	0.79		$	0.85

Fully Diluted Earnings Per Share
Income from continuing operations	$	0.79		$	0.68
Income from discontinued operations	—			0.17
Net Income	$	0.79		$	0.85

Weighted Average Number of Shares Outstanding	18,882			18,668
Weighted Average Number of Diluted Shares	18,945			18,738

Dividends Declared Per Common Share	$	0.28		$	0.28

The accompanying notes are an integral part of these consolidated financial statements

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AMERICAN STATES WATER COMPANY ~~CONSOLIDATED~~ ~~STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Unaudited)~~

	Three Months Ended March 31,
(in thousands)	2012			2011
Cash Flows From Operating Activities:
Net income	$	10,115		$	7,589
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,490			9,718
Provision for doubtful accounts	653			238
Deferred income taxes and investment tax credits	(2		)	(3,322		)
Stock-based compensation expense	542			402
Other — net	(140		)	(120		)
Changes in assets and liabilities:
Accounts receivable — customers	911			609
Unbilled revenue	(781		)	(1,584		)
Other accounts receivable	1,989			(1,410		)
Receivable from the U.S. government	(5,110		)	(4,734		)
Materials and supplies	(1,727		)	(281		)
Prepayments and other current assets	(1,480		)	1,086
Regulatory assets — supply cost balancing accounts	3,437			5,079
Costs and estimated earnings in excess of billings on uncompleted contracts	(1,362		)	1,442
Other assets (including other regulatory assets)	(5,120		)	(3,482		)
Accounts payable	2,745			89
Income taxes receivable/payable	7,603			5,193
Billings in excess of costs and estimated earnings on uncompleted contracts	(1,154		)	18
Accrued pension and other postretirement benefits	3,145			2,292
Other liabilities	1,836			1,937
Net cash provided	26,590			20,759
Cash Flows From Investing Activities:
Construction expenditures	(14,967		)	(17,474		)
Net cash used	(14,967		)	(17,474		)
Cash Flows From Financing Activities:
Proceeds from issuance of Common Shares and stock option exercises	1,403			455
Receipt of advances for and contributions in aid of construction	538			1,187
Refunds on advances for construction	(499		)	(921		)
Repayments of long-term debt	(65		)	(70		)
Net change in notes payable to banks	(2,000		)	—
Dividends paid	(5,277		)	(4,849		)
Other — net	(480		)	(292		)
Net cash used	(6,380		)	(4,490		)
Net increase in cash and cash equivalents	5,243			(1,205		)
Cash and cash equivalents, beginning of period	1,315			5,494
Cash and cash equivalents, end of period	6,558			4,289
Less cash and cash equivalents of discontinued operations	—			1,918
Cash and cash equivalents of continuing operations	$	6,558		$	2,371

CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS

ENDED JUNE 30, 2012 AND 2011

(Unaudited)

	Six Months Ended June 30,
(in thousands, except per share amounts)	2012			2011
Operating Revenues
Water	$	146,843		$	144,477
Electric	19,186			18,434
Contracted services	54,930			41,225
Total operating revenues	220,959			204,136

Operating Expenses
Water purchased	23,383			21,585
Power purchased for pumping	3,575			3,701
Groundwater production assessment	7,305			6,512
Power purchased for resale	5,871			6,729
Supply cost balancing accounts	7,600			9,324
Other operation expenses	14,277			13,863
Administrative and general expenses	34,377			36,159
Depreciation and amortization	20,897			19,275
Maintenance	7,183			8,349
Property and other taxes	7,821			6,958
ASUS construction expenses	35,181			24,675
Net gain on sale of property	(3		)	(128		)
Total operating expenses	167,467			157,002

Operating Income	53,492			47,134

Other Income and Expenses
Interest expense	(11,790		)	(12,613		)
Interest income	710			298
Other	216			(209		)
Total other income and expenses	(10,864		)	(12,524		)

Income from continuing operations before income tax expense	42,628			34,610
Income tax expense	17,435			14,927
Income from continuing operations	25,193			19,683

Income from discontinued operations, net of tax	—			3,868

Net Income	$	25,193		$	23,551

Basic Earnings Per Common Share
Income from continuing operations	$	1.33		$	1.05
Income from discontinued operations	—			0.20
Net Income	$	1.33		$	1.25

Fully Diluted Earnings Per Share
Income from continuing operations	$	1.32		$	1.05
Income from discontinued operations	—			0.20
Net Income	$	1.32		$	1.25

Weighted Average Number of Shares Outstanding	18,857			18,658
Weighted Average Number of Diluted Shares	18,988			18,797

Dividends Declared Per Common Share	$	0.56		$	0.54

The accompanying notes are an integral part of these consolidated financial statements

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~~GOLDEN~~AMERICAN ~~STATE~~STATES WATER COMPANY ~~BALANCE SHEETS ASSETS (Unaudited)~~

(in thousands)	March 31, 2012			December 31, 2011
Utility Plant
Utility plant, at cost	$	1,312,620		$	1,302,589
Less - Accumulated depreciation	(419,561		)	(410,644		)
Net utility plant	893,059			891,945
Other Property and Investments	9,794			9,626
Current Assets
Cash and cash equivalents	4,595			—
Accounts receivable-customers (less allowance for doubtful accounts of $753 in 2012 and $715 in 2011)	18,869			20,399
Unbilled revenue	16,969			16,188
Inter-company receivable	1,287			785
Other accounts receivable (less allowance for doubtful accounts of $290 in 2012 and 2011)	6,062			7,755
Income taxes receivable from Parent	14,154			19,914
Materials and supplies, at average cost	2,003			1,926
Regulatory assets — current	36,213			36,362
Prepayments and other current assets	4,983			3,710
Deferred income taxes — current	8,798			8,497
Total current assets	113,933			115,536
Regulatory and Other Assets
Regulatory assets	144,470			143,595
Other accounts receivable	1,988			1,838
Other	10,672			10,843
Total regulatory and other assets	157,130			156,276
Total Assets	$	1,173,916		$	1,173,383

CONSOLIDATED STATEMENTS OF CASH FLOW

~~The~~FOR ~~accompanying~~THE ~~notes~~SIX ~~are~~MONTHS anENDED ~~integral~~JUNE ~~part of~~30, ~~these~~2012 ~~financial~~AND ~~statements~~2011

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2012			2011
Cash Flows From Operating Activities:
Net income	$	25,193		$	23,551
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of CCWC, net of taxes	—			(2,454		)
Depreciation and amortization	20,897			19,275
Provision for doubtful accounts	959			577
Gain on sale of property	(3		)	(128		)
Deferred income taxes and investment tax credits	2,361			(216		)
Stock-based compensation expense	1,170			969
Other — net	(257		)	679
Changes in assets and liabilities:
Accounts receivable — customers	(2,738		)	(6,318		)
Unbilled revenue	(9,767		)	(3,484		)
Other accounts receivable	4,306			(1,159		)
Receivable from the U.S. government	(346		)	(10,718		)
Materials and supplies	(1,888		)	(326		)
Prepayments and other current assets	(1,863		)	1,030
Regulatory assets — supply cost balancing accounts	7,600			9,324
Costs and estimated earnings in excess of billings on uncompleted contracts	9,732			1,672
Other assets (including other regulatory assets)	(8,471		)	(12,224		)
Accounts payable	4,428			9,583
Income taxes receivable/payable	13,677			(2,202		)
Billings in excess of costs and estimated earnings on uncompleted contracts	(4,358		)	4,141
Accrued pension and other postretirement benefits	4,379			1,745
Other liabilities	(1,074		)	(378		)
Net cash provided	63,937			32,939

Cash Flows From Investing Activities:
Construction expenditures	(29,447		)	(37,295		)
Proceeds from the sale of CCWC	—			29,025
Other	4			(72		)
Net cash used	(29,443		)	(8,342		)

Cash Flows From Financing Activities:
Proceeds from issuance of Common Shares and stock option exercises	2,748			953
Receipt of advances for and contributions in aid of construction	2,049			3,497
Refunds on advances for construction	(2,684		)	(2,351		)
Repayments of long-term debt	(234		)	(22,279		)
Proceeds from issuance of long-term debt, net of issuance costs	1,266			61,914
Net change in notes payable to banks	(2,000		)	(48,900		)
Dividends paid	(10,559		)	(10,074		)
Other — net	(480		)	(292		)
Net cash used	(9,894		)	(17,532		)
Net increase in cash and cash equivalents	24,600			7,065
Cash and cash equivalents, beginning of period	1,315			4,197
Cash and cash equivalents of continuing operations	$	25,915		$	11,262

The accompanying notes are an integral part of these consolidated financial statements

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GOLDEN STATE WATER COMPANY ~~BALANCE SHEETS CAPITALIZATION AND LIABILITIES (Unaudited)~~

(in thousands)	March 31, 2012		December 31, 2011
Capitalization
Common shares, no par value	$	228,962	$	228,936
Earnings reinvested in the business	158,229		155,870
Total common shareholder’s equity	387,191		384,806
Long-term debt	340,374		340,395
Total capitalization	727,565		725,201
Current Liabilities
Long-term debt — current	247		291
Accounts payable	26,073		31,227
Accrued employee expenses	9,339		7,544
Accrued interest	6,430		3,938
Unrealized loss on purchased power contracts	7,506		7,611
Other	13,673		16,162
Total current liabilities	63,268		66,773
Other Credits
Advances for construction	75,563		75,353
Contributions in aid of construction — net	99,763		100,037
Deferred income taxes	128,489		128,815
Unamortized investment tax credits	1,950		1,972
Accrued pension and other postretirement benefits	70,518		68,353
Other	6,800		6,879
Total other credits	383,083		381,409
Commitments and Contingencies (Note 8)	—		—
Total Capitalization and Liabilities	$	1,173,916	$	1,173,383

BALANCE SHEETS

ASSETS

(Unaudited)

(in thousands)	June 30, 2012			December 31, 2011
Utility Plant
Utility plant, at cost	$	1,324,583		$	1,302,589
Less - Accumulated depreciation	(429,300		)	(410,644		)
Net utility plant	895,283			891,945

Other Property and Investments	11,300			9,626

Current Assets
Cash and cash equivalents	6,799			—
Accounts receivable-customers (less allowance for doubtful accounts of $762 in 2012 and $715 in 2011)	22,212			20,399
Unbilled revenue	25,955			16,188
Inter-company receivable	1,137			785
Other accounts receivable (less allowance for doubtful accounts of $290 in 2012 and 2011)	6,479			7,755
Income taxes receivable from Parent	6,315			19,914
Materials and supplies, at average cost	2,105			1,926
Regulatory assets — current	31,814			36,362
Prepayments and other current assets	5,474			3,710
Deferred income taxes — current	8,898			8,497
Total current assets	117,188			115,536

Regulatory and Other Assets
Regulatory assets	143,867			143,595
Other accounts receivable	2,039			1,838
Other	10,605			10,843
Total regulatory and other assets	156,511			156,276

Total Assets	$	1,180,282		$	1,173,383

The accompanying notes are an integral part of these financial statements

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GOLDEN STATE WATER COMPANY ~~STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Unaudited)~~

	Three Months Ended March 31,
(in thousands)	2012			2011
Operating Revenues
Water	$	65,957		$	64,326
Electric	10,813			10,724
Total operating revenues	76,770			75,050
Operating Expenses
Water purchased	9,552			8,661
Power purchased for pumping	1,556			1,536
Groundwater production assessment	3,323			2,626
Power purchased for resale	3,191			3,875
Supply cost balancing accounts	3,437			5,079
Other operating expenses	6,649			5,714
Administrative and general expenses	13,452			14,862
Depreciation and amortization	10,220			9,516
Maintenance	2,940			2,984
Property and other taxes	3,743			3,159
Total operating expenses	58,063			58,012
Operating Income	18,707			17,038
Other Income and Expenses
Interest expense	(6,009		)	(5,613		)
Interest income	210			135
Other	229			78
Total other income and expenses	(5,570		)	(5,400		)
Income from operations before income tax expense	13,137			11,638
Income tax expense	5,755			5,236
Net Income	$	7,382		$	6,402

BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)

(in thousands)	June 30, 2012		December 31, 2011
Capitalization
Common shares, no par value	$	229,734	$	228,936
Earnings reinvested in the business	164,361		155,870
Total common shareholder’s equity	394,095		384,806
Long-term debt	341,541		340,395
Total capitalization	735,636		725,201

Current Liabilities
Long-term debt — current	177		291
Accounts payable	27,990		31,227
Accrued employee expenses	8,384		7,544
Accrued interest	3,921		3,938
Unrealized loss on purchased power contracts	5,176		7,611
Other	14,565		16,162
Total current liabilities	60,213		66,773

Other Credits
Advances for construction	73,797		75,353
Contributions in aid of construction — net	100,240		100,037
Deferred income taxes	130,725		128,815
Unamortized investment tax credits	1,929		1,972
Accrued pension and other postretirement benefits	70,811		68,353
Other	6,931		6,879
Total other credits	384,433		381,409

Commitments and Contingencies (Note 8)	—		—

Total Capitalization and Liabilities	$	1,180,282	$	1,173,383

The accompanying notes are an integral part of these financial statements

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GOLDEN STATE WATER COMPANY ~~STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Unaudited)~~

	Three Months Ended March 31,
(in thousands)	2012			2011
Cash Flows From Operating Activities:
Net income	$	7,382		$	6,402
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,220			9,516
Provision for doubtful accounts	619			225
Deferred income taxes and investment tax credits	(5		)	(3,480		)
Stock-based compensation expense	341			315
Other — net	(174		)	(113		)
Changes in assets and liabilities:
Accounts receivable — customers	911			520
Unbilled revenue	(781		)	(1,526		)
Other accounts receivable	1,543			1,729
Materials and supplies	(77		)	(134		)
Prepayments and other current assets	(1,273		)	950
Regulatory assets — supply cost balancing accounts	3,437			5,079
Other assets (including other regulatory assets)	(5,038		)	(3,628		)
Accounts payable	(2,633		)	(1,516		)
Inter-company receivable/payable	(502		)	157
Income taxes receivable/payable from/to Parent	5,760			4,238
Accrued pension and other postretirement benefits	3,145			2,292
Other liabilities	1,614			1,380
Net cash provided	24,489			22,406
Cash Flows From Investing Activities:
Construction expenditures	(14,479		)	(16,822		)
Net cash used	(14,479		)	(16,822		)
Cash Flows From Financing Activities:
Receipt of advances for and contributions in aid of construction	538			1,187
Refunds on advances for construction	(499		)	(910		)
Repayments of long-term debt	(65		)	(70		)
Net change in inter-company borrowings	—			(1,000		)
Dividends paid	(5,000		)	(5,000		)
Other — net	(389		)	(237		)
Net cash used	(5,415		)	(6,030		)
Net increase in cash and cash equivalents	4,595			(446		)
Cash and cash equivalents, beginning of period	—			1,541
Cash and cash equivalents, end of period	$	4,595		$	1,095

STATEMENTS OF INCOME

FOR THE THREE MONTHS

ENDED JUNE 30, 2012 AND 2011

(Unaudited)

	Three Months Ended June 30,
(in thousands)	2012			2011
Operating Revenues
Water	$	80,886		$	80,151
Electric	8,373			7,710
Total operating revenues	89,259			87,861

Operating Expenses
Water purchased	13,831			12,924
Power purchased for pumping	2,019			2,165
Groundwater production assessment	3,982			3,886
Power purchased for resale	2,680			2,854
Supply cost balancing accounts	4,163			4,245
Other operating expenses	6,202			5,842
Administrative and general expenses	15,399			14,922
Depreciation and amortization	10,122			9,321
Maintenance	3,357			4,006
Property and other taxes	3,354			3,113
Net gain on sale of property	—			(128		)
Total operating expenses	65,109			63,150

Operating Income	24,150			24,711

Other Income and Expenses
Interest expense	(5,680		)	(6,685		)
Interest income	469			155
Other	(14		)	(477		)
Total other income and expenses	(5,225		)	(7,007		)

Income from operations before income tax expense	18,925			17,704

Income tax expense	7,567			7,699

Net Income	$	11,358		$	10,005

The accompanying notes are an integral part of these financial statements

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GOLDEN STATE WATER COMPANY

STATEMENTS OF INCOME

FOR THE SIX MONTHS

ENDED JUNE 30, 2012 AND 2011

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2012			2011
Operating Revenues
Water	$	146,843		$	144,477
Electric	19,186			18,434
Total operating revenues	166,029			162,911

Operating Expenses
Water purchased	23,383			21,585
Power purchased for pumping	3,575			3,701
Groundwater production assessment	7,305			6,512
Power purchased for resale	5,871			6,729
Supply cost balancing accounts	7,600			9,324
Other operating expenses	12,851			11,556
Administrative and general expenses	28,851			29,784
Depreciation and amortization	20,342			18,837
Maintenance	6,297			6,990
Property and other taxes	7,097			6,272
Net gain on sale of property	—			(128		)
Total operating expenses	123,172			121,162

Operating Income	42,857			41,749

Other Income and Expenses
Interest expense	(11,689		)	(12,298		)
Interest income	679			290
Other	215			(399		)
Total other income and expenses	(10,795		)	(12,407		)

Income from operations before income tax expense	32,062			29,342

Income tax expense	13,322			12,935

Net Income	$	18,740		$	16,407

The accompanying notes are an integral part of these financial statements

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GOLDEN STATE WATER COMPANY

STATEMENTS OF CASH FLOW

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2012			2011
Cash Flows From Operating Activities:
Net income	$	18,740		$	16,407
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20,342			18,837
Gain on sale of property	—			(128		)
Provision for doubtful accounts	925			498
Deferred income taxes and investment tax credits	2,351			(65		)
Stock-based compensation expense	961			853
Other — net	(323		)	704
Changes in assets and liabilities:
Accounts receivable — customers	(2,738		)	(6,318		)
Unbilled revenue	(9,767		)	(3,484		)
Other accounts receivable	1,075			673
Materials and supplies	(179		)	(102		)
Prepayments and other current assets	(1,764		)	860
Regulatory assets — supply cost balancing accounts	7,600			9,324
Other assets (including other regulatory assets)	(8,383		)	(12,127		)
Accounts payable	(25		)	10,316
Inter-company receivable/payable	(352		)	(840		)
Income taxes receivable/payable from/to Parent	13,599			(4,115		)
Accrued pension and other postretirement benefits	4,379			1,745
Other liabilities	(722		)	24
Net cash provided	45,719			33,062

Cash Flows From Investing Activities:
Construction expenditures	(28,728		)	(36,715		)
Proceeds from sale of property	—			144
Net cash used	(28,728		)	(36,571		)

Cash Flows From Financing Activities:
Receipt of advances for and contributions in aid of construction	2,049			3,497
Refunds on advances for construction	(2,684		)	(2,351		)
Proceeds from the issuance of long-term debt, net of issuance costs	1,266			61,914
Repayments of long-term debt	(234		)	(22,279		)
Net change in inter-company borrowings	—			(26,000		)
Dividends paid	(10,200		)	(10,000		)
Other — net	(389		)	(237		)
Net cash (used) provided	(10,192		)	4,544

Net increase in cash and cash equivalents	6,799			1,035
Cash and cash equivalents, beginning of period	—			1,541
Cash and cash equivalents, end of period	$	6,799		$	2,576

The accompanying notes are an integral part of these financial statements

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AMERICAN STATES WATER COMPANY AND SUBSIDIARIES

AND

GOLDEN STATE WATER COMPANY ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Summary of Significant Accounting Policies:

Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”) and American States Utility Services, Inc. (“ASUS”) (and its subsidiaries, Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”) and Old North Utility Services, Inc. (“ONUS”)). The subsidiaries of ASUS may be collectively referred to herein as the “Military Utility Privatization Subsidiaries.” AWR was also the parent company of Chaparral City Water Company (“CCWC”) until the ~~completion of the~~ sale of CCWC ~~to EPCOR Water (USA) Inc.~~ on May 31, 2011.

GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California serving approximately ~~256~~255,000 customers. GSWC also distributes electricity in several San Bernardino Mountain communities in California serving approximately 23,000 customers. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric businesses, including properties, rates, services, facilities and other matters, and transactions by GSWC with its affiliates. AWR’s assets and operating income are primarily those of GSWC.

ASUS performs water and wastewater services, including the operation, maintenance, renewal and replacement of water and/or wastewater systems on a contract basis. Through its wholly owned subsidiaries, ASUS operates and maintains the water and/or wastewater systems at various military bases pursuant to 50-year firm, fixed-price contracts, which are subject to periodic price redeterminations and modifications for changes in circumstances, and changes in laws and regulations. There is no direct regulatory oversight by the CPUC over AWR or the operation, rates or services provided by ASUS or any of its wholly owned subsidiaries.

Basis of Presentation: The consolidated financial statements and notes thereto are being presented in a combined report being filed by two separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively, unless otherwise specified. Certain prior period amounts have been reclassified to conform to the 2012 financial statement presentation.

The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries, all of which are wholly owned. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Inter-company transactions and balances have been eliminated in the AWR consolidated financial statements. The operational results of CCWC for the periods presented are reported in discontinued operations, net of transaction costs.

The consolidated financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The December 31, 2011 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal, recurring items and estimates necessary for a fair statement of the results for the interim periods, have been made. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 2011 filed with the SEC.

GSWC’s Related Party Transactions: GSWC and ~~other~~ASUS ~~subsidiaries~~ provide and receive various services to and from their parent, AWR,. Any transactions between GSWC and ~~among~~AWR ~~themselves.~~or ASUS are governed by the CPUC’s affiliate transaction rules. In addition, AWR has a $100.0 million syndicated credit facility. AWR borrows under this facility and provides funds to its subsidiaries, including GSWC, in support of their operations. Any amounts owed to AWR for borrowings under this facility are included in inter-company payables on GSWC’s balance sheet. The interest rate charged to GSWC and other affiliates is sufficient to cover AWR’s interest cost under the credit facility. GSWC also allocates certain corporate office administrative and general costs to its affiliate, ASUS, using allocation factors mandated by the CPUC. Through May 31, 2011, GSWC also allocated costs to CCWC.

1113

Table of Contents

Sales and Use Taxes: GSWC bills certain sales and use taxes levied by state or local governments to its customers. Included in these sales and use taxes are franchise fees, which GSWC pays to various municipalities (based on ordinances adopted by these municipalities) in order to use public right of way for utility purposes. GSWC bills these franchise fees to its customers based on a CPUC-authorized rate. These franchise fees, which are required to be paid regardless of GSWC’s ability to collect from the customer, are accounted for on a gross basis. GSWC’s franchise fees billed to customers and recorded as operating revenue were approximately $~~784~~850,000 and $~~700~~764,000 for the three months ended ~~March~~June 3130, 2012 and 2011, respectively, and $1,634,000 and $1,464,000 for the six months ended June 30, 2012 and 2011, respectively. When GSWC acts as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis.

Depending on the state in which the operations are conducted, ASUS and its subsidiaries are also subject to certain state non-income tax assessments generally computed on a “gross receipts” or “gross revenues” basis. These non-income tax assessments are required to be paid regardless of whether the subsidiary is reimbursed by the U.S. government for these assessments under its 50-year contracts with the U.S. government. The non-income tax assessments are accounted for on a gross basis and totaled $~~155~~186,000 and $~~194~~171,000 during the three months ended ~~March~~June 3130, 2012 and 2011, respectively, and $341,000 and $365,000 for the six months ended June 30, 2012 and 2011, respectively.

Recently Adopted Accounting Pronouncements: In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity will be required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”), which deferred the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income while the FASB further deliberates this aspect of the proposal. The adoption of the new guidance did not have any impact on Registrant’s consolidated financial statements.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”). Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the two-step impairment test is not required. The guidance does not change how an entity measures a goodwill impairment loss, and is therefore not expected to affect the information reported to users of an entity’s financial statements. The guidance also includes examples of events and circumstances that an entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of the new guidance did not have any impact on Registrant’s consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). The ASU 2011-11 amendments require companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years beginning on or after January 1, 2013, and interim periods within those annual fiscal years. Registrant does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.

Other accounting standards that have been issued ~~or proposed~~ by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on Registrant’s consolidated financial statements upon adoption.

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Note 2 — Regulatory Matters:

In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which represent probable future refunds that are to be credited to customers through the ratemaking process. At ~~March~~June 3130, 2012, Registrant had approximately $8481.32 million of regulatory assets, net of regulatory liabilities not accruing carrying costs. Of this amount, $53.90 million relates to the underfunded positions of the pension and other post-retirement obligations, $16.41 million relates to deferred income taxes representing accelerated tax benefits flowed through to customers, which will be included in rates concurrently with recognition of the associated future tax expense, and $7.5.2 million relates to a memorandum account authorized by the CPUC to track unrealized gains and losses on GSWC’s purchase power contract over the life of the contract. The remainder relates to other items that do not provide for or incur carrying costs. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:

(dollars in thousands)	~~March~~June 3130, 2012			December 31, 2011
GSWC
Electric supply cost balancing account	$	6,~~987~~472		$	8,347
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account	4038,~~561~~273			39,112
Base Revenue Requirement Adjustment Mechanism	45,~~477~~410			4,053
Costs deferred for future recovery on Aerojet case	16,~~935~~673			17,173
Pensions and other post-retirement obligations	56,~~546~~142			56,960
Derivative unrealized loss (Note 4)	75,~~506~~176			7,611
Flow-through taxes, net (Note 6)	16,~~388~~147			17,032
Electric transmission line abandonment costs	2,~~372~~315			2,428
Asset retirement obligations	2,~~794~~890			2,793
Low income rate assistance balancing accounts	7,~~017~~728			6,194
General rate case memorandum accounts	119,~~284~~290			12,922
Santa Maria adjudication memorandum accounts	3,~~689~~645			3,662
Bay Point balancing accounts	5,~~619~~475			5,752
Other regulatory assets, net	9,~~462~~878			8,409
Various refunds to customers	(109,~~954~~833		)	(12,491		)
Total	$	~~180~~175,~~683~~681		$	179,957

Regulatory matters are discussed in detail in the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 2011 filed with the SEC. The discussion below focuses on significant matters and changes since December 31, 2011. Changes in regulatory assets since December 31, 2011 were due primarily to surcharges in place during the three months ended March 31, 2012 designed to recover the costs from customers through the ratemaking process. Changes in regulatory liabilities were due primarily to refunds made to customers during the three months ended March 31, 2012 through the ratemaking process.

Alternative-Revenue Programs:

GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the Water Revenue Adjustment Mechanism (“WRAM”). GSWC also records the difference between adopted and actual expense levels for purchased water, purchased power and pump taxes, as established by the CPUC, using the Modified Cost Balancing Account (“MCBA”) accounts ~~approved by the CPUC~~. GSWC has implemented surcharges to recover its WRAM balances, net of the MCBA. For the three months ended ~~March~~June 3130, 2012 and 2011, surcharges of $3.4.2 million and $14.60 million, respectively, were billed to customers to decrease previously incurred under-collections in the WRAM, net of MCBA, accounts, and approximately $7.6 million and $5.6 million, for the six months ended June 30, 2012 and 2011, respectively. As of ~~March~~June 3130, 2012, GSWC has a net aggregated regulatory asset of $4038.63 million which is comprised of a $6261.21 million under-collection in the WRAM accounts and $2122.68 million over-collection in the MCBA accounts.

Based on CPUC guidelines, recovery periods relating to GSWC’s WRAM/MCBA balances range between 12 and 36 months, with the majority being 24 months. As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM, net of its MCBA, within 24 months following the year in which they are recorded. In September 2010, GSWC, along with other California water utilities, filed an application with the CPUC to modify the recovery period of its WRAM and MCBA to 18 months or less. In April 2012, the CPUC issued a final decision which, among other things, sets the recovery period for under-collection balances that are up to 15% of adopted annual revenues at 18 months or less. For under-collection balances greater than 15%, the recovery period is 19 to 36 months. GSWC does not currently have any balances over 15% of adopted annual revenues. In addition to adopting a new amortization schedule, the final decision sets a cap on total net WRAM/MCBA surcharges in any given calendar year of 10% of the last authorized revenue requirement. ~~The cap shall be effective following the first test year of each applicant’s pending or next general rate case.~~ For GSWC, the cap will be applied to its 2013 WRAM balances filed in early 2014. The cap requirement set forth in the final decision will not impact GSWC’s 2012 and prior year WRAM/MCBA balances. Surcharges are currently in place to recover the WRAM/MCBA balances from 2009, 2010 and 2011, totaling approximately $60 million, of which $24 million has been collected through the end of March 31, 2012.

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In ~~April~~June 2012, ~~BVES filed with~~ the CPUC approved surcharges for recovery of ~~its~~the 2011 Base Revenue Requirement Adjustment Mechanism (“BRRAM”) balance. The ~~filing~~CPUC ~~requests~~approved a 36-month surcharge, with the amounts collected through December 2013 to be applied to the 2011 BRRAM under-~~collections~~collection. ~~The~~Surcharges ~~amount~~ collected during the remainder of the 36-month period would be for recovery of a $1.6 million increase in the BVES revenue requirement representing the difference between the allocated general office costs authorized by the CPUC in its November 2010 decision on the Region II, Region III and general office rate case, and what is currently in BVES’ rates for allocated general office costs. As authorized by the CPUC, the $1.6 million ~~has~~was ~~also been~~ included in the BRRAM for recovery through the ~~requested~~ surcharge; however, these costs are not considered an alternative revenue program. ~~A decision on the BRRAM filing is expected by the end of the second quarter of 2012.~~

Other Regulatory Matters:

Cost of Capital Proceeding for Water Regions

In July 2012, the CPUC issued a final decision on GSWC’s cost of capital proceeding filed in May 2011. The decision approves the settlement agreement entered into between GSWC, along with three other California water utilities, and the Division of Ratepayer Advocates (“DRA”) in November 2011. The approved settlement authorizes a Return on Equity (“ROE”) of 9.99% and a rate-making capital structure for GSWC of 55% equity and 45% debt. The weighted cost of capital (return on rate base), with an updated embedded debt cost and the settlement ROE, is 8.64%. The new rate of return authorized by the CPUC’s final decision will be implemented into water rates retroactive to January 1, 2012. Among other things, the final decision requires GSWC to refund to customers approximately $408,000, representing the settled amount included in the interest rate balancing account. GSWC had estimated $789,000 would be refunded to customers, which had been recorded in the interest rate balancing account. As a result of the CPUC’s decision, GSWC recorded a reduction in interest expense of $381,000 in the second quarter of 2012 and discontinued the interest rate balancing account. GSWC will refund the $408,000 to customers through a one-time surcredit.

La Serena Plant Improvement Project:

In January 2008, the CPUC approved Region I’s general rate case effective for years 2008, 2009 and 2010. The rates authorized by the CPUC in the decision included the costs of the La Serena plant improvement project as part of the utility rate base. Subsequent to the issued decision, the CPUC’s Division of Ratepayer Advocates (“DRA”) requested a rehearing on whether these costs were reasonable. The CPUC granted a limited rehearing, which was consolidated into GSWC’s Region II, Region III, and general office rate case, in order to consider whether it is reasonable to include in Region I’s rate base approximately $3.5 million of costs incurred in connection with the La Serena ~~Plant~~plant ~~Improvement~~improvement ~~Project~~project. In November 2010, as part of GSWC’s Region II, Region III and general office rate case decision, the CPUC disallowed a portion of the La Serena plant improvement costs from utility customer rates. The CPUC found that the disallowed portion of the costs were attributable to providing service to new development and should have been recovered from the customers in the new development. As a result of the CPUC’s decision, in 2010 GSWC recorded a charge of $2.2 million, which included the disallowance of certain capital costs for the La Serena ~~Plant~~plant ~~Improvement~~improvement ~~Project~~project and the related revenues earned on those capital costs that will be refunded to customers.

In December 2010, DRA filed a motion for rehearing on this matter, contending that the CPUC erred in assigning a portion of the La Serena plant improvement costs to GSWC utility customers and requested that all of the capital costs related to the La Serena plant improvement project be disallowed. In July 2011, the CPUC granted DRA’s request for rehearing. The rehearing will also address deferred rate case costs and the methodology for allocation of general office costs to GSWC’s affiliate, ASUS. Hearings on these matters are expected in the third or fourth quarter of 2012. In addition to granting a rehearing, the CPUC also directed the Division of Water and Audits to undertake an audit of the La Serena project costs and to provide a confidential report to the CPUC with recommendations on whether an investigation should be conducted to determine whether any laws were broken related to the La Serena project. At this time, management cannot predict the outcome of the rehearing, DWA’s recommendations, or determine the estimated loss or range of loss, if any.

Changes in Tax Law:

The Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Tax Relief Acts”) extended 50% bonus depreciation for qualifying property through 2012 and created 100% bonus depreciation for qualifying property placed in service between September 9, 2010 and December 31, 2011.

In June 2011, the CPUC adopted a resolution that requires water utilities to file advice letters implementing a one-way memorandum account to track the revenue effects associated with the Tax Relief Acts, which may reduce revenue requirements in future rate case proceedings. The effective date of the memorandum account established by the resolution is April 14, 2011. More specifically, the memorandum account established by the resolution tracks on a CPUC-jurisdictional, revenue requirement basis: (a) decreases in each impacted utility’s revenue requirement resulting from increases in its deferred tax reserve; and (b) other direct changes in the revenue requirement resulting from taking advantage of the Tax Relief Acts. This resolution also authorizes impacted utilities to use savings from this new tax law to invest in certain additional, needed utility infrastructure, not otherwise funded in rates, within a time frame shorter than would be practicable through the formal application or advice letter processes. The establishment of a memorandum account does not change rates, nor guarantee that rates will be changed in the future. This mechanism simply allows the CPUC to determine at a future date whether rates should be changed. GSWC has evaluated the potential impact of this resolution and does not expect it to have a material impact on its consolidated financial statements in 2012.16

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In June 2011, the CPUC adopted a resolution that requires water utilities to file advice letters implementing a one-way memorandum account to track the revenue effects associated with the Tax Relief Acts. This may result in a reduction in revenue requirements in future rate case proceedings. The effective date of the memorandum account established by the resolution was April 14, 2011. More specifically, the memorandum account established by the resolution tracks on a CPUC-jurisdictional, revenue-requirement basis: (a) decreases in each impacted utility’s revenue requirement resulting from increases in its deferred tax reserve; and (b) other direct changes in the revenue requirement resulting from taking advantage of the Tax Relief Acts. This resolution also authorizes impacted utilities to use savings from this new tax law to invest in certain additional, needed utility infrastructure, not otherwise funded in rates, within a time frame shorter than would be practicable through the formal application or advice letter processes. The establishment of a memorandum account does not change rates, nor guarantee that rates will be changed in the future. This mechanism simply allows the CPUC to determine at a future date whether rates should be changed. GSWC has evaluated the potential impact of this resolution and does not expect it to have a material impact on its consolidated financial statements in 2012.

Renewables Portfolio Standard

GSWC’s BVES division has been regularly filing compliance reports with the CPUC regarding its purchases of energy from renewable energy resources (“RPS”). Previous ~~The~~ filings ~~have~~under prior RPS laws had indicated that BVES ~~has~~had not achieved ~~interim~~annual target purchase levels of renewable energy resources and thus, on its face, might be subject to a potential penalty. However, ~~BVES~~a ~~expects~~new ~~that~~RPS law went into effect in December 2011 which modified, among other things, the ~~CPUC~~prior ~~will~~RPS ~~waive~~requirement based upon annual procurement targets to multi-year procurement targets. Under the new RPS law, BVES must procure sufficient RPS-eligible resources to meet (i) any ~~potential~~RPS ~~fines~~procurement inrequirement ~~accordance~~deficit ~~with~~for any year prior to 2011, and (ii) RPS procurement requirements for the ~~CPUC’s~~2011 ~~flexible~~— 2013 compliance ~~rules~~period by no later than December ~~due~~31, to2013. BVES’ ~~its~~first ~~efforts~~RPS report under the new law was submitted to ~~procure~~the ~~renewable~~CPUC ~~resources.~~on March 1, 2012 and it did not reflect any RPS procurement deficiencies nor any potential or actual penalties. Accordingly, no provision for loss has been recorded in the financial statements as of ~~March~~June 3130, 2012.

In ~~June~~September ~~2011~~2009, GSWC’s ~~BVES~~negotiated ~~filed~~a anten-year ~~application~~contract with the ~~CPUC~~Los Angeles County Sanitation District (“LACSD”) to ~~recover~~purchase $1renewable energy created from landfill gas.2 ~~million~~In inFebruary 2011, ~~legal~~LACSD ~~and~~notified ~~outside~~GSWC ~~service~~that ~~costs~~it ~~incurred~~intended ~~during~~to shut down the ~~period~~landfill ~~September~~gas generator. In August 12011, ~~2007~~GSWC ~~through~~and ~~March 31~~LACSD negotiated a settlement to resolve a dispute between the parties regarding certain terms of the contract. Under the terms of the settlement, ~~2011~~GSWC inagreed ~~connection~~to ~~with~~waive ~~seeking~~its right to ~~procure~~a 14 month termination notice and LACSD agreed to sell renewable energy ~~resources~~credits (“RECs”) to GSWC. In ~~March~~November ~~2012~~2011, GSWC filed for approval with the CPUC ~~approved~~for the ~~application~~purchase of these RECs. ~~Accordingly~~In July 2012, athe ~~regulatory~~CPUC ~~asset~~approved the purchase of ~~$1.3~~these ~~million~~RECs, ~~including~~which ~~accrued~~BVES ~~interest,~~intends ~~was~~to ~~recorded~~apply intowards ~~March 2012~~either ~~and~~its apre-2011 12renewable energy requirements or its 2011-2013 ~~month~~requirements. ~~surcharge~~The REC’s will be ~~implemented~~purchased for approximately $325,000 during the ~~second~~third quarter of 2012 and will be recorded as a cost of purchased power and included in the electric supply cost balancing account.

In June 2011, GSWC’s BVES filed an application with the CPUC to recover $1.2 million in legal and outside service costs incurred during the period September 1, 2007 through March 31, 2011 in connection with seeking to procure renewable energy resources. In March 2012, the CPUC approved the application. Accordingly, a regulatory asset of $1.3 million, including accrued interest, was recorded in March 2012. A 12- month surcharge was implemented in May 2012 for recovery of these costs.

CPUC Subpoena

On June 27, 2011 GSWC executed a settlement agreement with the Division of Water and Audits (“DWA”) to resolve an investigation of certain work orders and charges paid to a specific contractor used previously by GSWC for numerous construction projects ~~estimated to total $24.0 million~~ over a period of 14 years. On December 15, 2011, the CPUC approved the settlement agreement. Among other things, the settlement resolves all disputes and disagreements between GSWC and DWA and generally releases GSWC from any claim, known or unknown, foreseen or unforeseen, that arose or may have arisen as a result of the CPUC staff’s investigation into GSWC’s procurement practices as they related to contracts with this specific contractor. The settlement provides for refunds to customers totaling $9.5 million to be made over a period of 12-36 months, as well as a reduction in rate-base and other rate adjustments totaling $3.0 million. ~~In addition, a penalty of $1.0 million was imposed due to GSWC’s failure to disclose the issue to the CPUC as the CPUC believes was required.~~ ~~The penalty was paid by GSWC to the CPUC on January 31, 2012. During 2010, in anticipation of this settlement agreement, GSWC recorded a $13.5 million loss contingency reserve.~~ As a result of the settlement, management does not expect future increases in the reserve related to this specific contractor. ~~The~~Refunds ~~surcredits~~totaling ~~went~~$1.0 ~~into~~million ~~effect~~and ~~on March~~ $1~~, 2012~~. ~~Refunds~~2 ~~totaling~~million ~~$147,000~~ were made to customers during the three and six months ended ~~March~~June 3130, 2012, respectively.

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Finally, as part of the settlement agreement, GSWC agreed to be subject to three separate independent audits of its procurement practices over a period of ten years from the date the settlement was approved by the CPUC. The audits will cover GSWC’s procurement practices from 1994 forward and could result in further disallowances of costs. The cost of the audits will be borne by shareholders and may not be recovered by GSWC in rates to customers. At this time, management cannot predict the outcome of these audits or determine the estimated loss or range of loss, if any, resulting from these audits.

Note 3 — Earnings per Share/Capital Stock:

In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), ~~Registrant~~AWR 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 stock options and restricted stock units that earn dividend equivalents on an equal basis with AWR’s Common Shares (the “Common Shares”) that have been issued under AWR’s 2000 Stock Incentive Plan and 2008 Stock Incentive Plan (the “2000 and 2008 Employee Plans”) and the 2003 Non-Employee Directors Plan (the “2003 Directors Plan”). In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities.

15The following is a reconciliation of AWR’s net income and weighted average Common Shares outstanding 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)			2012		2011		2012		2011
Net income from continuing operations			$	15,078	$	12,728	$	25,193	$	19,683
Net income from discontinued operations			—		3,234		—		3,868
Total net income			15,078		15,962		25,193		23,551
Less: (a)		Distributed earnings to common shareholders	5,287		5,227		10,560		10,075
		Distributed earnings to participating securities	38		36		68		64
Undistributed earnings			9,753		10,699		14,565		13,412

(b)	Undistributed earnings allocated to common shareholders		9,683		10,625		14,472		13,327
	Undistributed earnings allocated to participating securities		70		74		93		85

Total income available to common shareholders, basic (a)+(b)			$	14,970	$	15,852	$	25,032	$	23,402

Weighted average Common Shares outstanding, basic			18,882		18,668		18,857		18,658

Basic earnings per Common Share:
Income from continuing operations			$	0.79	$	0.68	$	1.33	$	1.05
Income from discontinued operations			—		0.17		—		0.20
Net Income			$	0.79	$	0.85	$	1.33	$	1.25

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 June 30, 2012 and 2011, there were 519,273 and 708,345 options outstanding, respectively, under these Plans. At June 30, 2012 and 2011, there were also 147,109 and 135,611 restricted stock units outstanding, respectively.

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The following is a reconciliation of ~~Registrant~~AWR’s net income and weighted average Common Shares outstanding for calculating ~~basic~~diluted net income per share:

Basic	For The Three Months Ended March 31,
Diluted	For The Three Months Ended June 30,				For The Six Months Ended June 30,
(in thousands, except per share amounts)	2012		2011		2012		2011
Net income from continuing operations	$	10,115	$	6,955
Common shareholders earnings, basic	$	14,970	$	15,852	$	25,032	$	23,402
Net income from discontinued operations	—		634
Undistributed earnings for dilutive stock options	—		74		93		85
Total net income	10,115		7,589
Total common shareholders earnings, diluted	$	14,970	$	15,926	$	25,125	$	23,487
Less: (a) Distributed earnings to common shareholders	5,273		4,849
Weighted average common shares outstanding, basic	18,882		18,668		18,857		18,658
Distributed earnings to participating securities	35		29
Stock-based compensation (1)	63		70		131		139
Undistributed earnings	4,807		2,711
Weighted average common shares outstanding, diluted	18,945		18,738		18,988		18,797
(b) Undistributed earnings allocated to common shareholders	4,775		2,694
Diluted earnings per Common Share:
Undistributed earnings allocated to participating securities	32		17
Income from continuing operations	$	0.79	$	0.68	$	1.32	$	1.05
Total income available to common shareholders, basic (a)+(b)	$	10,048	$	7,543
Income from discontinued operations	—		0.17		—		0.20
Weighted average Common Shares outstanding, basic	18,831		18,648
Net Income	$	0.79	$	0.85	$	1.32	$	1.25
Basic earnings per Common Share:
Income from continuing operations	$	0.53	$	0.37
Income from discontinued operations	—		0.03
Net Income	$	0.53	$	0.40

~~Diluted~~(1) In ~~EPS~~applying ~~is based upon~~ the ~~weighted~~treasury ~~average~~stock ~~number~~method of ~~Common~~reflecting ~~Shares,~~the ~~including~~dilutive ~~both~~effect of outstanding ~~shares~~stock-based ~~and~~compensation ~~shares~~in ~~potentially~~the ~~issuable~~calculation inof ~~connection~~diluted ~~with~~EPS, 410,760 and 465,824 stock options ~~granted~~at ~~under~~June 30, ~~Registrant’s~~2012 ~~2000~~ and ~~2008~~2011, ~~Employee Plans~~respectively, ~~and~~were ~~the~~deemed ~~2003~~to ~~Directors~~be ~~Plan,~~outstanding ~~and~~in ~~net~~accordance ~~income.~~with Ataccounting ~~March 31,~~guidance ~~2012~~on ~~and~~earnings ~~2011,~~per ~~there~~share. All ~~were~~of ~~566~~the 147,~~406~~109 and ~~717~~135,~~898~~611 ~~options~~restricted ~~outstanding,~~stock ~~respectively,~~units ~~under~~at ~~these Plans. At March~~June 3130, 2012 and 2011, ~~there~~respectively, were ~~also~~included ~~147,078~~in ~~and~~the ~~131,762~~calculation ~~restricted~~of ~~stock~~diluted ~~units~~EPS ~~outstanding~~for the six months ended June 30, ~~respectively~~2012 and 2011.

~~The~~Stock ~~following~~options isof a108,013 ~~reconciliation~~and of241,921 ~~Registrant’s~~were ~~net~~outstanding ~~income~~at June 30, 2012 and ~~weighted~~2011, respectively, 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 six months ended June 30, 2012 and 2011. Stock options of 500 and 600 were outstanding ~~for~~at ~~calculating~~June 30, 2012 and 2011, respectively, but not included in the computation of diluted ~~net~~EPS ~~income~~because ~~per~~they ~~share:~~were anti-dilutive.

Diluted	For The Three Months Ended March 31,
(in thousands, except per share amounts)	2012		2011
Common shareholders earnings, basic	$	10,048	$	7,543
Undistributed earnings for dilutive stock options	32		17
Total common shareholders earnings, diluted	$	10,080	$	7,560
Weighted average common shares outstanding, basic	18,831		18,648
Stock-based compensation (1)	142		130
Weighted average common shares outstanding, diluted	18,973		18,778
Diluted earnings per Common Share:
Income from continuing operations	$	0.53	$	0.37
Income from discontinued operations	—		0.03
Net Income	$	0.53	$	0.40

During the six months ended June 30, 2012 and 2011, AWR issued 131,581 and 49,456 Common Shares, for approximately $2,748,000 and $953,000, respectively, under AWR’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, the 2000 and 2008 Employee Plans, and the 2003 Directors Plan. In addition, Registrant purchased 408,962 and 159,383 Common Shares on the open market during the six months ended June 30, 2012 and 2011, respectively, under Registrant’s 401(k) Plan and the Common Share Purchase and Dividend Reinvestment Plan. The Common Shares purchased by Registrant were used to satisfy the requirements of these plans.

~~(1) In~~During ~~applying~~ the ~~treasury~~three ~~stock~~months ~~method~~ended ofJune 30, ~~reflecting~~2012 ~~the~~and ~~dilutive~~2011, ~~effect~~AWR ofpaid ~~outstanding~~quarterly ~~stock-based~~dividends ~~compensation in the calculation~~ of ~~diluted~~approximately ~~EPS,~~$5.3 ~~456~~million,~~318~~ ~~and~~or ~~290,932~~$0.28 ~~stock~~per ~~options at March 31~~share, ~~2012~~ and ~~2011,~~$5.2 ~~respectively~~million, ~~were~~or ~~deemed~~$0.28 ~~to be outstanding in accordance with accounting guidance on earnings~~ per share, respectively. ~~All~~During of the ~~147,078~~six ~~and~~months ~~131,762~~ended ~~restricted stock units at March~~June 3130, 2012 and 2011, ~~respectively,~~AWR ~~were~~paid ~~included~~quarterly individends ~~the~~to ~~calculation~~shareholders of ~~diluted~~approximately ~~EPS~~$10.6 ~~for~~million, ~~the~~or ~~three~~$0.56 ~~months~~per ~~ended~~share, ~~March 31~~and $10.1 million, ~~2012~~or ~~and~~$0.54 ~~2011~~per share.

Stock options of 110,013 and 336,625 were outstanding at March 31, 2012 and 2011, respectively, 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 and 2011. Stock options of 75 and 90,341 were outstanding at March 31, 2012 and 2011, respectively, but not included in the computation of diluted EPS because they were anti-dilutive.

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During the three months ended March 31, 2012 and 2011, Registrant issued 69,512 and 26,551 Common Shares, for approximately $1,403,000 and $455,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan, the 401(k) Plan, the 2000 and 2008 Employee Plans, and the 2003 Directors Plan. In addition, Registrant purchased 221,932 and 72,238 Common Shares on the open market during the three months ended March 31, 2012 and 2011, respectively, under Registrant’s 401(k) Plan and the Common Share Purchase and Dividend Reinvestment Plan. The Common Shares purchased by Registrant were used to satisfy the requirements of these plans.

During the three months ended March 31, 2012 and 2011, AWR paid quarterly dividends of approximately $5.3 million, or $0.28 per share, and $4.8 million, or $0.26 per share, respectively.

Note 4 — Derivative Instruments:

GSWC purchases certain power at a fixed cost depending on the amount of power and the period during which the power is purchased under a purchased power contract. The contract is subject to the accounting guidance for derivatives and requires mark-to-market derivative accounting. The CPUC has authorized GSWC to establish a regulatory asset and liability memorandum account to offset the entries required by the accounting guidance. Accordingly, all unrealized gains and losses generated from the purchased power contract are deferred on a monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the derivative throughout the term of the contract, having no impact on GSWC’s earnings. Upon expiration of the purchased power contract, the balance in this regulatory memorandum account will be zero.

As of ~~March~~June 3130, 2012 there was a $7.5.2 million cumulative unrealized loss which has been included in the memorandum account.

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On January 12, 2012, GSWC executed a new purchased power master agreement. The agreement is subject to CPUC approval. If approved, GSWC will be able to purchase 12 megawatts (“MWs”) of base load energy at a fixed price to be negotiated upon CPUC approval of the agreement. GSWC plans to file for approval of the agreement with the CPUC in 2012. GSWC also intends to request CPUC approval of a regulatory asset and liability memorandum account for the new contract to offset the entries required by the accounting guidance on derivatives.

The accounting guidance for fair value measurements applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Under the accounting guidance, GSWC makes fair value measurements that are classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability, or

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Registrant’s valuation model utilizes various inputs that include quoted market prices for energy over the duration of the contract. The market prices used to determine the fair value for this derivative instrument were estimated based on independent sources such as broker quotes and publications that are not observable in or corroborated by the market. Registrant receives one broker quote to determine the fair value of its derivative instrument. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Accordingly, the valuation of the derivative on Registrant’s purchased power contract has been classified as Level 3 for all periods presented.

The following table presents changes in the fair value of the derivative for the three and six months ended ~~March~~June 3130, 2012 and 2011.

	For the Three Months Ended March 31,
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(dollars in thousands)	2012			2011			2012			2011
Balance, at beginning of the period	$	(7,~~611~~506	)	$	(6,~~850~~874	)	$	(7,611	)	$	(6,850	)
Unrealized gain (loss) on purchased power contracts	~~105~~2,330			(24601		)	2,435			(625		)
Balance, at end of the period	$	(75,~~506~~176	)	$	(67,~~874~~475	)	$	(5,176	)	$	(7,475	)

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Note 5 — Fair Value of Financial Instruments:

For cash and cash equivalents, accounts receivable, accounts payable and short-term debt, the carrying amount is assumed to approximate fair value due to the short-term nature of the amounts. The table below estimates the fair value of long-term debt held by GSWC. Rates available to GSWC at ~~March~~June 3130, 2012 and December 31, 2011 for debt with similar terms and remaining maturities were used to estimate fair value for long-term debt. The interest rates used for the ~~March~~June 3130, 2012 valuation increased as compared to December, 31, 2011, reducing the fair value of long-term debt as of ~~March~~June 3130, 2012. Changes in the assumptions will produce differing results.

March 31, 2012

December 31, 2011

June 30, 2012

December 31, 2011

(dollars in thousands)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Financial liabilities:

Long-term debt—GSWC

~~340~~341,~~621~~718

~~395~~421,~~737~~093

340,686

437,275

As previously discussed in Note 4, the accounting guidance for fair value measurements establishes a framework for measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. The following tables set forth by level, within the fair value hierarchy, GSWC’s long-term debt measured at fair value as of ~~March~~June 3130, 2012 ~~(dollars in thousands)~~:

Level 1

Level 2

Level 3

Total

(dollars in thousands)

Level 1

Level 2

Level 3

Total

Long-term debt—GSWC

~~245~~262,~~305~~742

~~150~~158,~~432~~351

—

~~395~~421,~~737~~093

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Note 6 — Income Taxes:

As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing its income tax provision consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period. Giving effect to these temporary differences as flow-through adjustments typically results in a greater variance between the effective tax rate (“ETR”) and the statutory federal income tax rate in any given period than would otherwise exist if GSWC were not required to account for its income taxes as a regulated enterprise. The GSWC ETRs deviated from the statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items)~~, as well as nondeductible permanent items~~.

Changes in Tax Law:

The Tax Relief Acts extended bonus depreciation for qualifying property through 2012. As a result, Registrant’s current tax expense for 2011 and 2012 reflects benefits from the Tax Relief Acts. Although these law changes reduce AWR’s current taxes payable, they do not reduce its total income tax expense or ETR.

Note 7 — Employee Benefit Plans:

The components of net periodic benefit costs, before allocation to the overhead pool, for Registrant’s pension plan, postretirement plan, and Supplemental Executive Retirement Plan (“SERP”) for the three and six months ended ~~March~~June 3130, 2012 and 2011 are as follows:

	For The Three Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits						SERP
(dollars in thousands)	2012			2011			2012			2011			2012		2011
Components of Net Periodic Benefits Cost:
Service cost	$	1,~~719~~618		$	1,~~383~~429		$	112		$	107		$	183	$	150
Interest cost	1,~~676~~653			1,~~623~~639			136			153			122		116
Expected return on plan assets	(1,~~636~~635		)	(1,~~586~~588		)	(90		)	(74		)	—		—
Amortization of transition	—			—			105			105			—		—
Amortization of prior service cost (benefit)	3029			30			(50		)	(50		)	40		40
Amortization of actuarial loss	~~778~~740			~~298~~322			—			—			77		34
Net periodic pension cost under accounting standards	2,~~567~~405			1,~~748~~832			213			241			422		340
Regulatory adjustment — deferred	(566		)	(92		)	—			—			—		—
Regulatory adjustment — deferred (1)	(632		)	(161		)	—			—			—		—
Total expense recognized, before allocation to overhead pool	$	21,~~001~~773		$	1,~~656~~671		$	213		$	241		$	422	$	340

	For The Six Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits						SERP
(dollars in thousands)	2012			2011			2012			2011			2012		2011
Components of Net Periodic Benefits Cost:
Service cost	$	3,337		$	2,812		$	224		$	214		$	366	$	300
Interest cost	3,329			3,262			272			306			244		232
Expected return on plan assets	(3,271		)	(3,174		)	(180		)	(147		)	—		—
Amortization of transition	—			—			210			210			—		—
Amortization of prior service cost (benefit)	59			59			(100		)	(100		)	80		81
Amortization of actuarial loss	1,518			621			—			—			154		67
Net periodic pension cost under accounting standards	4,972			3,580			426			483			844		680
Regulatory adjustment — deferred (1)	(1,198		)	(253		)	—			—			—		—
Total expense recognized, before allocation to overhead pool	$	3,774		$	3,327		$	426		$	483		$	844	$	680

(1) Regulatory Adjustment - In November 2010, the CPUC authorized GSWC to establish a two-way balancing account, effective January 1, 2010, for all of its water regions and the general office to track differences between the forecasted annual pension expenses adopted in rates for 2010, 2011 and 2012 and the actual annual expense to be recorded by GSWC in accordance with the accounting guidance for pension costs. As of June 30, 2012, GSWC has included a $3.1 million under-collection in the two-way pension balancing account recorded as a regulatory asset (Note 2).

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Registrant expects to contribute approximately $6.1 million and $500,000 to the pension and postretirement medical plans in 2012, respectively. NoA ~~contributions~~contribution ~~were~~of $1.8 million was made to ~~these~~the ~~plans~~pension plan during the three and six months ended ~~March~~June 3130, 2012. ~~In April 2012, Registrant contributed $1.8 million to the pension plan.~~

Regulatory Adjustment:

In November 2010, the CPUC authorized GSWC to establish a two-way balancing account, effective January 1, 2010, for its three water regions and the general office to track differences between the forecasted annual pension expenses adopted in rates for 2010, 2011 and 2012 and the actual annual expense to be recorded by GSWC in accordance with the accounting guidance for pension costs. As of March 31, 2012, GSWC has included a $2.6 million under-collection in the two-way pension balancing account recorded as a regulatory asset (Note 2).

Note 8 — Contingencies:

Water Quality-Related Litigation:

Perchlorate and/or Volatile Organic Compounds (“VOC”) have been detected in certain wells servicing GSWC’s South San Gabriel System. GSWC filed suit in federal court, along with two other affected water purveyors and the San Gabriel Basin Water Quality Authority, together known as the “Water Entities”, against some of those allegedly responsible for the contamination of two of GSWC’s wells and those of the other affected water purveyors. In response to the filing of the lawsuit, the Potentially Responsible Party (“PRP”) defendants filed motions to dismiss the suit or strike certain portions of the suit. The judge issued a ruling on April 1, 2003 granting in part and denying in part the PRP’s motions. A key ruling of the court was that the water purveyors, including GSWC, by virtue of their ownership of wells contaminated with hazardous chemicals are themselves PRPs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). GSWC has amended its suit to claim certain affirmative defenses as an “innocent” party under CERCLA. GSWC is presently unable to ~~predict an~~ estimate a range of loss, if any, in the event that GSWC is deemed to be a PRP, or on GSWC’s ability to fully recover from the PRPs, past and future costs associated with the treatment of these wells. On August 29, 2003, the US Environmental Protection Agency (“EPA”) issued Unilateral Administrative Orders (“UAO”) against 41 parties deemed responsible for polluting the groundwater in portions of the San Gabriel Valley from which those impacted GSWC wells draw water. GSWC was not named as a party to the UAO. The UAO requires these parties to remediate the contamination.

On October 12, 2004, the judge in the lawsuit stayed the matter in order to allow the parties to explore settlement and appointed a special master to oversee mandatory settlement discussions between the PRPs and the Water Entities. EPA has also conducted settlement discussions with several PRPs regarding the UAO. The Water Entities and EPA have worked closely to coordinate their settlement discussions under the auspices of the special master in order to arrive at a complete resolution of all issues affecting the lawsuit and the UAO. Settlements have been reached with a majority of the PRPs.

On March 28, 2011, the Court lifted the stay and the matter has proceeded in litigation. The EPA filed a separate complaint against the remaining PRPs and ~~their~~this matter was consolidated with those filed by the Water Entities. Since October 17, 2011 several 30-day stays were granted to continue settlement discussions. During these 30-day stays, EPA and the Water Entities have successfully reached settlements with most of the remaining PRPs. On January 15, 2012, the stay was lifted and the case entered the discovery phase as settlement negotiations with the remaining few PRPs ~~are progressing~~continued. Registrant believes it will reach settlements with all the PRPs. However, Registrant is presently unable to predict the ultimate outcome of this matter.

Condemnation of Properties:

The laws of the State of California provide for the acquisition of public utility property by governmental agencies through their power of eminent domain, also known as condemnation, where doing so is necessary and in the public interest. In addition, these laws provide: (i) that the owner of utility property may contest whether the condemnation is actually necessary and in the public interest, and (ii) that the owner is entitled to receive the fair market value of its property if the property is ultimately taken.

~~Although~~The ~~the~~ City of Claremont, ~~California~~ (~~the~~ “~~City~~Claremont”) located in GSWC’s Region III, has ~~not initiated the formal condemnation process pursuant to California law, the City has~~ expressed various concerns to GSWC about rates charged by GSWC and the effectiveness of the CPUC’s rate-setting procedures. On January 5, 2012, the Claremont City council members directed staff to pursue analysis required for potential acquisition of the water system and allocated funds from its general reserve for such analysis. On June 27, 2012, Claremont notified GSWC of its intent to appraise the value of GSWC’s water system serving Claremont. GSWC serves approximately 11,000 customers in Claremont.

19The Town of Apple Valley (the “Town”) had abandoned its activities related to a potential condemnation of GSWC’s water system serving the Town in 2007. However, in January 2011, the Town Council directed staff to update the previously prepared financial feasibility study for the acquisition of GSWC’s water systems. The Town also created a Blue Ribbon Water Commission (“BRWC”) to provide recommendations on the items pending before the CPUC associated with the water companies (including GSWC) serving the Town. The BRWC recommended against acquisition at this time based on current economic conditions. The Town has not yet made a decision based on the recommendation. GSWC’s Apple Valley water systems serve approximately 2,900 customers.

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~~The~~In ~~Town~~April 2011, ofan ~~Apple~~organization ~~Valley~~called Ojai FLOW (~~the~~Friends ~~“Town”~~of Locally Owned Water) ~~abandoned~~started ~~its~~a ~~activities~~local ~~related~~campaign tofor athe ~~potential~~Casitas ~~condemnation~~Municipal ofWater District to purchase GSWC’s Ojai water system. The ~~serving~~Ojai City Council passed a resolution supporting the ~~Town~~efforts inof ~~2007.~~Ojai ~~However~~FLOW at their regular meeting on April 26, in2011. In ~~January~~May 2011, ~~the~~Ojai ~~Town~~FLOW ~~Council~~submitted ~~directed~~a ~~staff~~petition towith ~~update~~over ~~the~~1,800 ~~previously~~signatures ~~prepared~~to ~~financial~~the ~~feasibility~~Casitas ~~study~~Municipal ~~for~~Water District supporting the recommended acquisition of GSWC’s Ojai water ~~systems~~system. On ~~The~~July 25, ~~Town~~2012, ~~also~~the ~~created~~Casitas aMunicipal ~~Blue~~Water ~~Ribbon~~District ~~Water~~hired ~~Commission~~a ~~(“BRWC”)~~financial consultant to provide ~~recommendations~~consulting onservices to the ~~items~~District ~~pending~~for ~~before~~ the ~~CPUC~~establishment ~~associated~~of ~~with~~a ~~the~~Community ~~two~~Facilities ~~water~~District ~~companies~~ (~~including GSWC~~“CFD”) ~~serving~~and the ~~Town. The~~issuance ~~BRWC~~of ~~recommended~~bonds ~~against~~within ~~acquisition~~the atCFD ~~this~~to ~~time~~provide ~~based~~funding onfor ~~current~~the ~~economic~~potential ~~conditions.~~acquisition ~~The~~of ~~Town~~GSWC’s ~~has~~Ojai ~~not yet made a decision based on the recommendation~~system. GSWC’s ~~Apple~~serves ~~Valley water systems serve~~ approximately 23,~~900~~000 customers in Ojai.

In April 2011, an organization called Ojai FLOW (Friends of Locally Owned Water) started a local campaign for the Casitas Municipal Water District to purchase GSWC’s Ojai water system. The Ojai City Council passed a resolution supporting the efforts of Ojai FLOW at their regular meeting on April 26, 2011. In May 2011, Ojai FLOW submitted a petition with over 1,800 signatures to the Casitas Municipal Water District supporting the recommended acquisition of GSWC’s Ojai water system. The Casitas Municipal Water District’s Water Resources Committee is presently considering the proposal by Ojai FLOW. GSWC serves approximately 3,000 customers in Ojai.

Except for the City of Claremont, Town of Apple Valley and the City of Ojai, Registrant is currently not involved in activities related to the potential condemnation of any of its water customer service areas or in its BVES customer service area. No formal condemnation proceedings have been filed against any of the Registrant’s service areas during the past three years.

Santa Maria Groundwater Basin Adjudication:

In 1997, the Santa Maria Valley Water Conservation District (“plaintiff”) filed a lawsuit against multiple defendants, including GSWC, the City of Santa Maria, and several other public water purveyors. The plaintiff’s lawsuit sought an adjudication of the Santa Maria Groundwater Basin (the “Basin”). A stipulated settlement of the lawsuit has been reached, subject to CPUC approval. The settlement, among other things, if approved by the CPUC, would preserve GSWC’s historical pumping rights and secure supplemental water rights for use in case of drought or other reductions in the natural yield of the Basin. GSWC, under the stipulation, has a right to 10,000 acre-feet of groundwater replenishment provided by the Twitchell Project, a storage and flood control reservoir project operated by the Santa Maria Valley Conservation District. A monitoring and annual reporting program has been established to allow the parties to responsibly manage the Basin and to respond to shortage conditions. If severe water shortage conditions are found over a period of five years, the management area engineer will make findings and recommendations to alleviate such shortages. In the unlikely case that the Basin experiences severe shortage conditions, the court has the authority to limit GSWC’s groundwater production to 10,248 acre-feet per year, based on developed water in the Basin. Over the last five years, GSWC’s average groundwater production has been 10,140 acre-feet per year.

On February 11, 2008, the court issued its final judgment, which ~~approves~~approved and ~~incorporates~~incorporated the stipulation. The judgment ~~awards~~awarded GSWC prescriptive rights to groundwater against the non-stipulating parties. In addition, the judgment ~~grants~~granted GSWC the right to use the Basin for temporary storage and to recapture 45 percent of the return flows that are generated from its importation of State Water Project water. Pursuant to this judgment, the court ~~retains~~retained jurisdiction over all of the parties to make supplemental orders or to amend the judgment as necessary. On March 20, 2008, the non-stipulating parties filed notices of appeal. In August 2010, the appellants filed their opening briefs. Registrant is unable to predict the outcome of the appeal.

Aerojet Note Receivable:

Pursuant to a settlement agreement with Aerojet relating to groundwater contamination in GSWC’s Rancho Cordova system, GSWC has a note receivable which is scheduled to be paid by Aerojet in installments over five years beginning in December 2009. As of December 31, 2011, GSWC has received from Aerojet a total of $7.3 million including interest as payments under the terms of the 2004 settlement agreement. As of March 31, 2012, the unpaid portion of the note receivable is $4.1 million, comprised of $3.2 million in principal and $0.9 million in accrued interest. At this time, management believes the note receivable from Aerojet is fully collectible and has not provided a reserve for uncollectible amounts as of March 31, 2012.

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Environmental Clean-Up and Remediation:

Chadron Plant: GSWC has been involved in environmental remediation and clean-up at a plant site (“Chadron Plant”) that contained an underground storage tank which was used to store gasoline for its vehicles. This tank was removed ~~from the ground~~ in July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities at this site. Recent site assessments have been conducted which showed that there was more gasoline at higher concentrations spread over a larger area than previously measured. Remediation is estimated to take two more years, followed by at least one year of monitoring and reporting. As of ~~March~~June 3130, 2012, the total spent to clean-up and remediate GSWC’s plant facility was approximately $3.5 million, of which $1.5 million has been paid by the State of California Underground Storage Tank Fund. Amounts paid by GSWC have been included in rate-base and approved by the CPUC for recovery.

As of ~~March~~June 3130, 2012, GSWC has an accrued liability for the estimated additional cost of $1.2 million to complete the clean-up at the site. The ultimate cost may vary as there are many unknowns in remediation of underground gasoline spills and this is an estimate based on currently available information. Management also believes it is probable that the estimated additional costs will be approved in rate base by the CPUC and has recorded a corresponding regulatory asset.

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Other Litigation:

Registrant is also subject to other ordinary routine litigation incidental to its business. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against property, professional and general liability and workers’ compensation claims incurred in the ordinary course of business. Registrant is unable to predict an estimate of the loss, if any, resulting from any pending suits or administrative proceedings.

Note 9 — Discontinued Operations:

On May 31, 2011, AWR sold CCWC to EPCOR Water (USA) Inc. for a total purchase price of $35.2 million, including the assumption of approximately $5.6 million of long-term debt. AWR received approximately $29.6 million in cash, which was used primarily to pay down short-term borrowings. The completion of the sale generated a gain (net of taxes and transaction costs) of approximately $2.2 million during 2011. A summary of discontinued operations presented in the consolidated statements of income for the three and six months ended ~~March~~June 3130, 2011 are as follows ~~(dollars in thousands)~~:

	2011
(dollars in thousands)	Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
Operating revenues	$	1,~~921~~571		$	3,492
Operating expenses	~~791~~(131		)	660
Operating income	1,~~130~~702			2,832
Interest expense, net	(8359		)	(142		)
Income before income taxes	1,~~047~~643			2,690
Income tax expense	~~408~~670			1,078
Net income	639
Income from the operations, net of tax	973			1,612
Transaction costs, net of taxes	(5		)
Gain on sale of business, net of tax	2,454			2,454
Income from discontinued operations (1)	$	634
Transaction costs, net of tax	(193		)	(198		)
Net gain on sale	2,261			2,256
Income from discontinued operations (1)	$	3,234		$	3,868

(1) Corporate overhead costs allocated to CCWC, ~~totaling~~have ~~$250,000~~been ~~for~~excluded ~~the~~from ~~three~~discontinued ~~months~~operations ~~ended~~and ~~March 31, 2011,~~ have been ~~excluded~~included ~~from~~in ~~discontinued~~other ~~operations~~operating expenses and ~~included~~administrative and general expenses as part of continuing operations as they continue to be incurred, primarily at GSWC.

2124

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Note 10 — Business Segments

AWR has three reportable segments, water, electric and contracted services, whereas GSWC has two segments, water and electric. Within the segments, AWR has two continuing principal business units: water and electric service utility operations conducted through GSWC, and aone contracted services unit conducted through ASUS and its subsidiaries. All activities of GSWC are geographically located within California. The operating activities of CCWC have been included in discontinued operations as described in Note 9. All activities of CCWC were located in the state of Arizona. GSWC is, and CCWC was, a rate-regulated utility. AWR has no material assets other than its investments in its subsidiaries on a stand-alone basis.

Activities of ASUS and its subsidiaries are conducted in California, Maryland, southeast New Mexico, North Carolina, South Carolina, Texas, and Virginia. Each of ASUS’s wholly owned subsidiaries is regulated by the state in which the subsidiary primarily conducts water and/or wastewater operations. Fees charged for operation and maintenance, and renewal and replacement services are based upon the terms of the contracts with the U.S. government which have been filed with the commissions in the states in which ASUS’s subsidiaries are incorporated.

The tables below set forth information relating to GSWC’s operating segments, ASUS and its subsidiaries, and other matters. Certain assets, revenues and expenses have been allocated in the amounts set forth. The identifiable assets are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash and exclude property installed by developers and conveyed to GSWC and through May 31, 2011 for CCWC.

As Of And For The Three Months Ended March 31, 2012

As Of And For The Three Months Ended June 30, 2012

GSWC

ASUS

AWR

Consolidated

(dollars in thousands)

Water

Electric

Contracts

Parent

AWR

Operating revenues

6580,~~957~~886

108,~~813~~373

2925,~~878~~052

—

~~106,648~~

114,311

Operating income (loss)

1422,~~851~~666

31,~~856~~484

45,~~741~~989

(8114

)

~~23,367~~

30,125

Interest expense, net

54,~~406~~815

~~393~~396

5440

2(26

)

~~5,855~~

5,225

Identifiable assets

~~853~~855,~~533~~742

39,~~526~~541

4,~~776~~726

—

~~897,835~~

900,009

Depreciation and amortization expense

9,~~597~~525

~~623~~597

~~270~~285

—

~~10,490~~

10,407

Capital additions

13,~~940~~544

~~539~~705

~~488~~231

—

~~14,967~~

14,480

	As Of And For The Three Months Ended March 31, 2011
	As Of And For The Three Months Ended June 30, 2011
	GSWC				CCWC			ASUS		AWR			Consolidated
(dollars in thousands)	Water		Electric		Water			Contracts		Parent			AWR
Operating revenues	$	6480,~~326~~151	$	107,~~724~~710	$	—		$	1921,~~257~~968	$	—		$	94109,~~307~~829
Operating income (loss)	15,098		1,940		(250		)(1)	1,258		(51		)	17,995
Operating income (loss) (1)	23,470		1,241		(106		)	4,537		(3		)	29,139
Interest expense, net	56,~~101~~091		~~377~~439		—			84141		4537			56,~~607~~708
Identifiable assets	~~826~~841,~~703~~318		37,~~437~~939		—			3,~~849~~736		—			~~867~~882,~~989~~993
Depreciation and amortization expense	8,~~956~~874		~~560~~447		—			~~221~~217		—			9,~~737~~538
Net income (loss) from discontinued operations	—		—		639		(2)	—		(5		)(3)	634
Income from discontinued operations, net of tax (2)	—		—		973			—		2,261			3,234
Capital additions	1618,~~213~~873		~~609~~1,020		~~174~~—			~~478~~102		—			1719,~~474~~995

(1) Operating income (loss) includes CCWC’s allocated corporate overhead costs that are now primarily at GSWC.

	As Of And For The Six Months Ended June 30, 2012
	GSWC				ASUS		AWR			Consolidated
(dollars in thousands)	Water		Electric		Contracts		Parent			AWR
Operating revenues	$	146,843	$	19,186	$	54,930	$	—			$	220,959
Operating income (loss)	37,517		5,340		10,730		(95		)		53,492
Interest expense, net	10,221		789		94		(24		)		11,080
Identifiable assets	855,742		39,541		4,726		—				900,009
Depreciation and amortization expense	19,122		1,220		555		—				20,897
Capital additions	27,484		1,244		719		—				29,447

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	As Of And For The Six Months Ended June 30, 2011
	GSWC				CCWC			ASUS		AWR			Consolidated
(dollars in thousands)	Water		Electric		Water			Contracts		Parent			AWR
Operating revenues	$	144,477	$	18,434	$	—		$	41,225	$	—		$	204,136
Operating income (loss) (1)	38,568		3,181		(356		)	5,795		(54		)	47,134
Interest expense, net	11,192		816		—			225		82			12,315
Identifiable assets	841,318		37,939		—			3,736		—			882,993
Depreciation and amortization expense	17,830		1,007		—			438		—			19,275
Income from discontinued operations, net of tax (2)	—		—		1,612			—		2,256			3,868
Capital additions	35,086		1,629		—			580		—			37,295

(1) Operating income (loss) include CCWC’s allocated corporate overhead costs that are now primarily at GSWC.

(2) In accordance with the accounting guidance relating to assets held for sale, Registrant did not record depreciation expense for CCWC in 2011.

(3) Included in discontinued operations for the three months ended March 31, 2011 are direct transaction costs of $8,000 ($5,000 after tax) for legal and consulting services in connection with the sale of CCWC.26

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis provides information on AWR’s consolidated operations and assets and where necessary, includes specific references to AWR’s individual segments and/or other subsidiaries: GSWC, ASUS and its subsidiaries, or AWR’s former subsidiary, CCWC. Included in the following analysis is a discussion of water and electric gross margins. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these margins and related percentages as an important ~~measure~~measures in evaluating its operating results. Registrant believes ~~this~~these ~~measure~~measures isare a useful internal ~~benchmark~~benchmarks in evaluating the performance of GSWC. The discussions and tables included in the following analysis also present Registrant’s operations in terms of earnings per share by business segment. Registrant believes that the disclosure of earnings per share by business segment provides investors with clarity surrounding the performance of its differing services and information that could be indicative of future performance for each business segment. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget as approved. However, these measures, which are not presented in accordance with Generally Accepted Accounting Principles (“GAAP”), may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income or earnings per share, which are determined in accordance with GAAP. A reconciliation of water and electric gross margins to the most directly comparable GAAP measures are included in the table under the section titled “Operating Expenses: Supply Costs.” Reconciliations to AWR’s diluted earnings per share are included in the discussions under the sections titled “Summary Results by Segment.”

Overview

Registrant’s revenues, operating income and cash flows are earned primarily through delivering potable water to homes and businesses, through its contracted services business for the operation and maintenance and renewal and replacement of water and/or wastewater systems for the U.S. government at various military bases, and through the delivery of electricity in the Big Bear area of San Bernardino County, California. Rates charged to GSWC customers are determined by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on capital. Registrant plans to continue to seek additional rate increases in future years from the CPUC to recover operating and supply costs and receive reasonable returns on invested capital. Capital expenditures in future years at GSWC are expected to remain at much higher levels than depreciation expense. When necessary, Registrant obtains funds from external sources in the capital markets and through bank borrowings.

All of the current operation and maintenance contracts with the U.S. government are 50-year firm, fixed-price contracts with prospective price redeterminations. Additional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications. As a result, ASUS is subject to risks that are different than those of GSWC.

Some of the factors that affect Registrant’s financial performance are described in Item 1. Financial Statements, Forward-Looking Statements.

Summary of ~~First~~Second Quarter Results by Segment

The table below sets forth the ~~first~~second quarter diluted earnings per share by business segment from continuing operations:

	Diluted Earnings per Share
	3 Months Ended
	3/31/2012			3/31/2011		CHANGE
	6/30/2012			6/30/2011		CHANGE
Water	$	0.2856		$	0.2951	$	(0.0105	)
Electric	0.1104			0.0403		0.0701
Contracted services	0.1519			0.0414		0.1105
AWR (parent)	(0.01		)	—		(0.01		)
Totals from continuing operations, as reported	$	0.79		$	0.68	$	0.11
Totals from continuing operations, as reported	$	0.53		$	0.37	$	0.16

For the three months ended March 31, 2012, fully diluted earnings from continuing operations were $0.53 per common share, compared to $0.37 per fully diluted common share for the three months ended March 31, 2011, an increase of $0.16 per share.27

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For the three months ended ~~March~~June 3130, 2012, diluted earnings per share from water operations ~~decreased~~increased by $0.0105 to $0.2856 per share, as compared to $0.2951 per share for the ~~same~~three ~~period~~months ofended June 30, 2011. Impacting the comparability of the two periods were the following items:

· An increase in the water gross margin of approximately $~~1.8 million~~305,000, or $0.0601 per share, during the three months ended ~~March~~June 3130, 2012 as compared to the same period in 2011 ~~primarily~~ due primarily to CPUC-approved third year rate increases for Regions II and III effective January 1, 2012,. It ~~and~~is analso ~~increase~~worth innoting ~~consumption~~that by2012 ~~customers~~is ~~not~~the ~~subject~~last toyear ~~our~~of ~~conservation~~a ~~tiered~~rate ~~rates. Billed~~case ~~water~~cycle ~~consumption~~ for ~~the~~all ~~first~~of ~~quarter~~GSWC’s ofwater ~~2012~~regions, ~~increased~~since byrate ~~approximately~~increases ~~7.0%~~are astypically ~~compared~~lowest toin the ~~same~~final ~~period~~year inof ~~2011~~a rate case cycle.

· An increase in operating expenses (other than supply costs) by approximately $1.80 million, or $0.0603 per share, due primarily to increases in: (i) other operation expenses of $~~912~~306,000 due to higher labor and other employee benefits, ~~transportation~~and ~~expenses,~~ conservation costs ~~and bad debt expense~~, and (ii) depreciation expense of $~~641~~651,000 resulting from additions to utility plant.

· An overall ~~increase~~decrease in interest ~~and~~expense ~~other non-operating expenses~~ (net of interest income) of $~~153~~1.3 million,~~000,~~ or $0.0104 per share, due primarily to lower short-term bank borrowings and the ~~issuance~~recording of a $62381,000 reduction in interest expense in connection with the CPUC’s final decision on the water cost of capital proceeding, as further discussed under the Regulatory Matters section. In addition, included in the three months ended June 30, 2011 results were interest charges totaling $553,000 related to the redemption of $22.0 million inof ~~long~~GSWC’s 7.65% Medium-~~term~~Term ~~notes~~Notes, which did not recur in ~~April 2011~~2012.

~~For~~· A ~~the~~decrease ~~three months ended March 31, 2012, diluted earnings from electric operations increased by $0.07 per share as compared to the same period~~ in ~~2011 due, in large part, to~~ the ~~CPUC’s~~effective ~~approval~~tax ofrate ~~GSWC’s~~increased application to recover $1.2 million in legal and outside services costs incurred from September 2007 through March 2011 in connection with its efforts to procure renewable energy resources. As a result, in March 2012 GSWC recorded a $1.2 million, or $0.04 per share, reduction in legal and outside services costs which had previously been expensed as incurred. Excluding the impact of this item, electric earnings ~~increased~~ by approximately $0.03 per share during the ~~three~~second ~~months~~quarter ~~ended~~of ~~March 31,~~ 2012 ~~due~~ primarily ~~to:~~resulting ~~(i) an~~from ~~increase~~changes inbetween ~~the~~book ~~electric~~and ~~margin~~taxable ofincome ~~$624,000,~~that orare ~~$0.02~~treated ~~per share,~~ as ~~compared~~flow-through toadjustments ~~the~~in ~~same~~accordance ~~period~~with inregulatory ~~2011~~requirements, and ~~(ii) a~~changes ~~lower~~in ~~effective~~certain ~~income~~permanent ~~tax rate which increased earnings by $0~~items.~~01 per share.~~

For the three months ended ~~March~~June 3130, 2012, diluted earnings from ~~contracted~~electric ~~services~~operations ~~increased~~were by $0.1104 per share as compared to $0.03 per share for the same period inof 2011. ~~due~~An ~~primarily to an~~ increase in ~~construction~~the ~~activities~~electric atgross ~~Fort~~margin ~~Bragg~~of in$492,000, ~~North~~or ~~Carolina~~$0.02 ~~There~~per ~~was~~share, ~~significant~~as ~~progress~~compared ~~made~~to onthe asame ~~major~~period ~~water~~in ~~and~~2011, ~~wastewater~~was ~~pipeline~~partially ~~replacement~~offset ~~project~~by as a ~~result~~$249,000, ofor ~~better than expected weather conditions at Fort Bragg during the first three months of 2012~~$0.01 ~~This~~per ~~project~~share isincrease ~~estimated to be completed~~ in ~~2014~~operating expenses.

~~Diluted~~For the three months ended June 30, 2012, diluted earnings ~~for~~from ~~AWR~~contracted ~~(parent)~~services ~~decreased~~increased by $0.0105 per share ~~for~~as ~~the~~compared ~~three~~to ~~months~~the ~~ended~~same ~~March 31,~~period ~~2012~~in 2011 due primarily to ~~higher~~an ~~state~~increase ~~taxes~~in asconstruction ~~compared~~activities toat ~~the~~Fort ~~same~~Bragg ~~period~~ in ~~2011~~North ~~resulting~~Carolina. ~~from~~There ~~state~~was ~~unitary~~a ~~tax~~receipt ~~principles.~~of ~~AWR~~a ~~(parent)~~contract ~~records~~modification ~~the tax~~and ~~effects~~revisions ofin cost estimates during the ~~members~~second quarter of ~~the~~2012 ~~AWR~~for ~~group~~Fort ~~joining~~Bragg, which resulted in ~~filing federal~~additional ~~consolidated~~pretax ~~and~~operating ~~state~~income ~~combined~~of ~~returns~~$820,000. ~~The~~These increases were partially offset by a $2.9 million increase in ~~contracted~~pretax ~~services’~~operating income ~~resulted~~recorded induring ~~higher~~the ~~state~~second ~~taxes~~quarter of 2011 due to a change in ~~2012~~estimated ~~recorded~~costs atrelated ~~AWR~~to ~~(parent)~~a ~~under~~pipeline ~~unitary~~project ~~tax~~at ~~principles~~Fort Bragg.

The tables below set forth summaries of the ~~first~~second quarter results of continuing operations by business segment (~~amounts~~dollars in thousands):

	Operating Revenues								Pretax Operating Income
	3 Months		3 Months						3 Months			3 Months
	Ended		Ended		$		%		Ended			Ended			$			%
	3/31/2012		3/31/2011		CHANGE		CHANGE		3/31/2012			3/31/2011			CHANGE			CHANGE
	6/30/2012		6/30/2011		CHANGE		CHANGE		6/30/2012			6/30/2011			CHANGE			CHANGE
Water	$	6580,~~957~~886	$	6480,~~326~~151	$	~~1,631~~735	20.59	%	$	1422,~~851~~666		$	1423,~~848~~364		$	3(698	)	0-3.0	%
Electric	108,~~813~~373		107,~~724~~710		89663		0.8.6	%	31,~~856~~484			1,~~940~~241			~~1,916~~243			9819.86	%
Contracted services	2925,~~878~~052		1921,~~257~~968		103,~~621~~084		5514.20	%	45,~~741~~989			14,~~258~~537			31,~~483~~452			~~276~~32.90	%
AWR (parent)	—		—		—		—		(8114		)	(513		)	(3011		)	58366.87	%
Totals from operation	$	106,648	$	94,307	$	12,341	13.1	%	$	23,367		$	17,995		$	5,372		29.9	%
Totals from continuing operations	$	114,311	$	109,829	$	4,482	4.1	%	$	30,125		$	29,139		$	986		3.4	%

~~The~~Discontinued following discussion and analysis provide information on AWR’s consolidated operations and where necessary, includes specific references to AWR’s individual segments and/or other continuing subsidiariesOperations: ~~GSWC and ASUS and its subsidiaries, and the discontinued operations of CCWC.~~

24Net income from discontinued operations for the three months ended June 30, 2011 was $3.2 million, due primarily to the gain on sale of CCWC of $2.3 million, net of taxes and transaction costs, or $0.12 per share. Excluding the gain on sale, there was also net income of $0.9 million from CCWC’s operations for the two months of operations during the three months ended June 30, 2011.

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~~Consolidated~~Summary ~~Results~~ of ~~Operations~~Year-to-Date —Results ~~Three~~by ~~Months Ended March 31, 2012 and 2011 (amounts in thousands):~~Segment

	3 Months			3 Months
	Ended			Ended			$			%
	3/31/2012			3/31/2011			CHANGE			CHANGE
OPERATING REVENUES
Water	$	65,957		$	64,326		$	1,631		2.5	%
Electric	10,813			10,724			89			0.8	%
Contracted services	29,878			19,257			10,621			55.2	%
Total operating revenues	106,648			94,307			12,341			13.1	%
OPERATING EXPENSES
Water purchased	9,552			8,661			891			10.3	%
Power purchased for pumping	1,556			1,536			20			1.3	%
Groundwater production assessment	3,323			2,626			697			26.5	%
Power purchased for resale	3,191			3,875			(684		)	-17.7	%
Supply cost balancing accounts	3,437			5,079			(1,642		)	-32.3	%
Other operation expenses	7,426			6,917			509			7.4	%
Administrative and general expenses	16,585			18,419			(1,834		)	-10.0	%
Depreciation and amortization	10,490			9,737			753			7.7	%
Maintenance	3,331			3,726			(395		)	-10.6	%
Property and other taxes	4,105			3,552			553			15.6	%
ASUS construction expenses	20,285			12,184			8,101			66.5	%
Total operating expenses	83,281			76,312			6,969			9.1	%
OPERATING INCOME	23,367			17,995			5,372			29.9	%
OTHER INCOME AND EXPENSES
Interest expense	(6,070		)	(5,744		)	(326		)	5.7	%
Interest income	215			137			78			56.9	%
Other	229			80			149			186.3	%
	(5,626		)	(5,527		)	(99		)	1.8	%
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE	17,741			12,468			5,273			42.3	%
Income tax expense	7,626			5,513			2,113			38.3	%
INCOME FROM CONTINUING OPERATIONS	10,115			6,955			3,160			45.4	%
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX	—			634			(634		)	-100.0	%
NET INCOME	$	10,115		$	7,589		$	2,526		33.3	%
Basic earnings from continuing operations	$	0.53		$	0.37		$	0.16		43.2	%
Basic earnings from discontinued operations	—			0.03			(0.03		)	-100.0	%
	$	0.53		$	0.40		$	0.13		32.5	%
Diluted earnings from continuing operations	$	0.53		$	0.37		$	0.16		43.2	%
Diluted earnings from discontinued operations	—			0.03			(0.03		)	-100.0	%
	$	0.53		$	0.40		$	0.13		32.5	%

The table below sets forth the year-to-date diluted earnings per share by business segment from continuing operations, as reported:

	Diluted Earnings per Share
	6 Months Ended
	6/30/2012		6/30/2011		CHANGE

Water	$	0.83	$	0.80	$	0.03
Electric	0.15		0.07		0.08
Contracted services	0.34		0.18		0.16
Totals from continuing operations	$	1.32	$	1.05	$	0.27

For the six months ended June 30, 2012, diluted earnings per share contributed by the water segment were $0.83 per share as compared to $0.80 per share for the same period in 2011. Once again, it is worth noting that 2012 is the last year of a rate case cycle for all of GSWC’s water regions. The significant items in the water segment between the two periods were:

· An increase in the water gross margin of $2.1 million, or $0.07 per share, during the six months ended June 30, 2012 primarily as the result of CPUC-approved third year rate increases for Regions II and III effective January 1, 2012.

· An increase in operating expenses (other than supply costs) by approximately $2.8 million, or $0.09 per share, due primarily to increases in: (i) other operation expenses of $1.2 million due in large part to higher labor and other employee benefits, conservation costs and bad debt expense, and (ii) depreciation expense of $1.3 million resulting from additions to utility plant.

· An overall decrease in interest expense (net of interest income) of approximately $1.0 million, or $0.03 per share, primarily due to interest costs totaling $553,000 incurred in 2011 related to the redemption of $22.0 million of GSWC’s 7.65% Medium-Term Notes. In addition, in June 2012 GSWC recorded a reduction in interest expense totaling $381,000 to reflect the CPUC’s final decision on the water cost of capital proceeding, as further discussed under the Regulatory Matters section.

· A decrease in the effective income tax rate during the six months ended June 30, 2012 as compared to the same period in 2011, increasing earnings by approximately $0.02 per share primarily resulting from changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements, and changes in certain permanent items.

For the six months ended June 30, 2012, diluted earnings from electric operations increased by $0.08 per share as compared to the same period in 2011 due, in large part, to the CPUC’s approval of GSWC’s application to recover $1.2 million in legal and outside services costs incurred from September 2007 through March 2011 in connection with its efforts to procure renewable energy resources. As a result, in March 2012 GSWC recorded a $1.2 million, or $0.04 per share, reduction in legal and outside services costs which had previously been expensed as incurred. Excluding the impact of this item, electric earnings increased by $0.04 per share during the six months ended June 30, 2012 due primarily to an increase in the electric gross margin of $1.1 million, or $0.03 per share, as compared to the same period in 2011, and a decrease in the effective income tax rate increasing earnings by approximately $0.01 per share.

For the six months ended June 30, 2012, diluted earnings from contracted services increased by $0.16 per share as compared to the same period in 2011 due primarily to an increase in construction activities at Fort Bragg in North Carolina. There was significant progress made on a major water and wastewater pipeline replacement project as a result of better than expected weather conditions at Fort Bragg during the first several months of 2012. This project is estimated to be completed in early 2014. There was also a receipt of a contract modification and revisions in cost estimates during the second quarter of 2012 for Fort Bragg, which resulted in additional pretax operating income of $820,000. The increase in construction activities was partially offset by a $2.9 million increase in pretax operating income recorded during the second quarter of 2011 due to a change in estimated costs related to the pipeline project at Fort Bragg.

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The tables below set forth summaries of the year-to-date results by business segment of continuing operations (dollars in thousands):

	Operating Revenues								Pretax Operating Income
	6 Months		6 Months						6 Months			6 Months
	Ended		Ended		$		%		Ended			Ended			$			%
	6/30/2012		6/30/2011		CHANGE		CHANGE		6/30/2012			6/30/2011			CHANGE			CHANGE

Water	$	146,843	$	144,477	$	2,366	1.6	%	$	37,517		$	38,212		$	(695	)	-1.8	%
Electric	19,186		18,434		752		4.1	%	5,340			3,181			2,159			67.9	%
Contracted services	54,930		41,225		13,705		33.2	%	10,730			5,795			4,935			85.2	%
AWR (parent)	—		—		—		—		(95		)	(54		)	(41		)	75.9	%
Totals from continuing operations	$	220,959	$	204,136	$	16,823	8.2	%	$	53,492		$	47,134		$	6,358		13.5	%

Discontinued Operations:

Net income from discontinued operations for the six months ended June 30, 2011 was $3.9 million, due primarily to the gain on sale of CCWC of $2.3 million, net of taxes and transaction costs, or $0.12 per share. Excluding the gain on sale, there was also net income of $1.6 million from CCWC’s operations for the first five months of 2011.

The following discussion and analysis provides information on AWR’s consolidated operations and where necessary, includes specific references to AWR’s individual segments and/or other continuing subsidiaries: GSWC and ASUS and its subsidiaries, and the discontinued operations of CCWC.

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Consolidated Results of Operations — Three Months Ended June 30, 2012 and 2011 (dollars in thousands, except per share amounts):

	3 Months			3 Months
	Ended			Ended			$			%
	6/30/2012			6/30/2011			CHANGE			CHANGE
OPERATING REVENUES
Water	$	80,886		$	80,151		$	735		0.9	%
Electric	8,373			7,710			663			8.6	%
Contracted services	25,052			21,968			3,084			14.0	%
Total operating revenues	114,311			109,829			4,482			4.1	%

OPERATING EXPENSES
Water purchased	13,831			12,924			907			7.0	%
Power purchased for pumping	2,019			2,165			(146		)	-6.7	%
Groundwater production assessment	3,982			3,886			96			2.5	%
Power purchased for resale	2,680			2,854			(174		)	-6.1	%
Supply cost balancing accounts	4,163			4,245			(82		)	-1.9	%
Other operation expenses	6,851			6,946			(95		)	-1.4	%
Administrative and general expenses	17,792			17,740			52			0.3	%
Depreciation and amortization	10,407			9,538			869			9.1	%
Maintenance	3,852			4,623			(771		)	-16.7	%
Property and other taxes	3,716			3,406			310			9.1	%
ASUS construction expenses	14,896			12,491			2,405			19.3	%
Net gain on sale of property	(3		)	(128		)	125			-97.7	%
Total operating expenses	84,186			80,690			3,496			4.3	%

OPERATING INCOME	30,125			29,139			986			3.4	%

OTHER INCOME AND EXPENSES
Interest expense	(5,720		)	(6,869		)	1,149			-16.7	%
Interest income	495			161			334			207.5	%
Other	(13		)	(289		)	276			-95.5	%
	(5,238		)	(6,997		)	1,759			-25.1	%

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE	24,887			22,142			2,745			12.4	%
Income tax expense	9,809			9,414			395			4.2	%
INCOME FROM CONTINUING OPERATIONS	15,078			12,728			2,350			18.5	%

INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX	—			3,234			(3,234		)	-100.0	%
NET INCOME	$	15,078		$	15,962		$	(884	)	-5.5	%

Basic earnings from continuing operations	$	0.79		$	0.68		$	0.11		16.2	%
Basic earnings from discontinued operations	—			0.17			(0.17		)	-100.0	%
	$	0.79		$	0.85		$	(0.06	)	-7.1	%

Diluted earnings from continuing operations	$	0.79		$	0.68		$	0.11		16.2	%
Diluted earnings from discontinued operations	—			0.17			(0.17		)	-100.0	%
	$	0.79		$	0.85		$	(0.06	)	-7.1	%

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Operating Revenues

General

Registrant relies upon rate approvals by the CPUC to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plant for GSWC. ~~Registrant~~ASUS ~~relies~~files on price redeterminations and equitable adjustments bywith the U.S. government in order to recover operating expenses and provide profit margin for ~~ASUS~~contracted services. If adequate rate relief and price redeterminations and adjustments are not granted in a timely manner, operating revenues and earnings can be negatively impacted. ASUS’ earnings are also impacted by additional construction projects at each of the Military Utility Privatization Subsidiaries.

Water

For the three months ended ~~March~~June 3130, 2012, revenues from water operations increased to $6680.09 million, as compared to $6480.32 million for the three months ended ~~March~~June 3130, 2011. The increase in water revenues is primarily due to CPUC-approved third year rate increases for Regions II and III effective January 1, 2012. ~~GSWC’s billed customer water usage increased by approximately 7.0% as compared to the first quarter of 2011.~~

GSWC’s revenue requirement and volumetric revenues are adopted as part of a general rate case (“GRC”) every three years. GSWC filed a GRC for all three water regions in July of 2011 with rates expected to be effective January 2013. As further discussed in the Regulatory Matters section, in June 2012 GSWC filed a motion to adopt a settlement agreement resolving most issues between GSWC and the CPUC’s Division of Ratepayer Advocates in connection with this GRC.

GSWC’s billed customer water usage increased by approximately 5% as compared to the second quarter of 2011 but was lower than adopted consumption. Changes in consumption do not have a significant impact on earnings due to the CPUC-approved Water Revenue Adjustment Mechanism (“WRAM”) account in all three water regions. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts.

Electric

For the three months ended ~~March~~June 3130, 2012, revenues from electric operations increased ~~slightly~~ to $~~10.~~8.4 million compared to $107.7 million for the same period in 2011 due to increases in electric base rates approved by the CPUC effective January 1, 2012,. There ~~partially~~was ~~offset~~also byan aincrease ~~decrease~~ in ~~total~~ electric supply costs of $~~684~~171,000 during the three months ended ~~March~~June 3130, 2012~~. Electric~~, ~~supply~~which ~~costs~~resulted ~~reduce~~in ~~electric revenues by~~ a corresponding ~~amount,~~increase ~~but~~in ~~have no impact on the dollar margin for~~ electric ~~services~~revenues.

Billed electric usage ~~decreased~~increased by 85.6% during the three months ended ~~March~~June 3130, 2012 as compared to the three months ended ~~March~~June 3130, 2011. Due to the CPUC -approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, ~~this~~changes ~~change~~ in usage did not have a significant impact on earnings.

Contracted Services

Revenues from contracted services are composed of construction revenues (including renewals and replacements) and management fees for operating and maintaining the water and/or wastewater systems at military bases. For the three months ended ~~March~~June 3130, 2012, revenues from contracted services increased by $103.61 million, or ~~55.2~~14%, to $2925.91 million as compared to $1922.30 million for the three months ended ~~March~~June 3130, 2011, due primarily to an increase in construction activities at Fort Bragg in North Carolina ~~resulting~~related ~~from~~to ~~better~~various ~~than~~projects, ~~expected~~including ~~weather~~a ~~conditions~~major water and wastewater pipeline replacement project. InThis ~~particular,~~project ~~there~~is ~~was~~estimated ~~significant~~to ~~progress~~be ~~made~~completed onin aearly ~~major~~2014. The ~~water~~increase ~~and~~in ~~wastewater~~construction ~~pipeline~~activities ~~replacement~~was ~~project~~partially asoffset by a ~~result~~$2.9 ofmillion ~~better~~increase ~~weather~~in ~~conditions~~revenues atrecorded ~~Fort Bragg~~ during the ~~first~~second ~~three~~quarter ~~months~~ of ~~2012. This~~2011 ~~project~~due isto a change in estimated costs related to bethe ~~completed~~pipeline inproject ~~2014~~at Fort Bragg. Contracted services ~~has~~continues ~~experienced~~to anreceive ~~increase~~U.S. ingovernment awarded contract modifications ~~from~~and ~~the~~agreements ~~U.S.~~with ~~government~~third-party prime contractors for new construction projects at the ~~various~~Military ~~military~~Utility ~~bases~~Privatization ~~in which ASUS serves~~Subsidiaries. The majority of ~~this~~the current new construction activity is expected to be performed during the ~~remainder~~next oftwelve ~~2012~~months. Earnings and cash flows from amendments and modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods.

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Operating Expenses:

Supply Costs

Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and water supply cost balancing accounts. Supply costs for the electric segment consist of purchased power for resale (including the cost of natural gas used by BVES’ generating unit) and the electric supply cost balancing account. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these gross margins and related percentages as an important ~~measure~~measures in evaluating its operating results. Registrant believes ~~this~~these ~~measure~~measures isare a useful internal ~~benchmark~~benchmarks in evaluating the utility business performance within its water and electric segments. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget ~~as approved~~. However, ~~this~~these ~~measure~~measures, which isare not presented in accordance with Generally Accepted Accounting Principles (“GAAP”), may not be comparable to similarly titled measures used by other entities and should not be considered as analternatives ~~alternative~~ to operating income, which is determined in accordance with GAAP.

26Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for 31.7% and 32.3% of total operating expenses for the three months ended June 30, 2012 and 2011, respectively.

The table below provides the amount of increases (decreases), percent changes in supply costs, and gross margins during the three months ended June 30, 2012 and 2011 (dollars in thousands):

	3 Months			3 Months
	Ended			Ended			$			%
	6/30/2012			6/30/2011			CHANGE			CHANGE
WATER OPERATING REVENUES (1)	$	80,886		$	80,151		$	735		0.9	%
WATER SUPPLY COSTS:
Water purchased (1)	$	13,831		$	12,924		$	907		7.0	%
Power purchased for pumping (1)	2,019			2,165			(146		)	-6.7	%
Groundwater production assessment (1)	3,982			3,886			96			2.5	%
Water supply cost balancing accounts (1)	3,587			4,014			(427		)	-10.6	%
TOTAL WATER SUPPLY COSTS	$	23,419		$	22,989		$	430		1.9	%
WATER GROSS MARGIN (2)	$	57,467		$	57,162		$	305		0.5	%
PERCENT MARGIN - WATER	71.0		%	71.3		%

ELECTRIC OPERATING REVENUES (1)	$	8,373		$	7,710		$	663		8.6	%
ELECTRIC SUPPLY COSTS:
Power purchased for resale (1)	$	2,680		$	2,854		$	(174	)	-6.1	%
Electric supply cost balancing accounts (1)	576			231			345			149.4	%
TOTAL ELECTRIC SUPPLY COSTS	$	3,256		$	3,085		$	171		5.5	%
ELECTRIC GROSS MARGIN (2)	$	5,117		$	4,625		$	492		10.6	%
PERCENT MARGIN - ELECTRIC	61.1		%	60.0		%

(1) As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $4,163,000 and $4,245,000 for the three months ended June 30, 2012 and 2011, respectively.

(2) Water and electric margins do not include any depreciation and amortization, maintenance, administrative and general, property and other taxes, or other operation expenses.

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Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for 25.3% and 28.5% of total operating expenses for the three months ended March 31, 2012 and 2011, respectively.

The table below provides the amount of increases (decreases), percent changes in supply costs, and margins during the three months ended March 31, 2012 and 2011 (amounts in thousands):

	3 Months			3 Months
	Ended			Ended			$			%
	3/31/2012			3/31/2011			CHANGE			CHANGE
WATER OPERATING REVENUES (1)	$	65,957		$	64,326		$	1,631		2.5	%
WATER SUPPLY COSTS:
Water purchased (1)	$	9,552		$	8,661		$	891		10.3	%
Power purchased for pumping (1)	1,556			1,536			20			1.3	%
Groundwater production assessment (1)	3,323			2,626			697			26.5	%
Water supply cost balancing accounts (1)	2,018			3,809			(1,791		)	-47.0	%
TOTAL WATER SUPPLY COSTS	$	16,449		$	16,632		$	(183	)	-1.1	%
WATER MARGIN (2)	$	49,508		$	47,694		$	1,814		3.8	%
PERCENT MARGIN - WATER	75.1		%	74.1		%
ELECTRIC OPERATING REVENUES (1)	$	10,813		$	10,724		$	89		0.8	%
ELECTRIC SUPPLY COSTS:
Power purchased for resale (1)	$	3,191		$	3,875		$	(684	)	-17.7	%
Electric supply cost balancing accounts (1)	1,419			1,270			149			11.7	%
TOTAL ELECTRIC SUPPLY COSTS	$	4,610		$	5,145		$	(535	)	-10.4	%
ELECTRIC MARGIN (2)	$	6,203		$	5,579		$	624		11.2	%
PERCENT MARGIN - ELECTRIC	57.4		%	52.0		%

(1) As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $3,437,000 and $5,079,000 for the three months ended March 31, 2012 and 2011, respectively.

(2) Water and electric margins do not include any depreciation and amortization, maintenance, administrative and general, property or other tax, or other operation expenses.

Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. Under the modified cost balancing account (“MCBA”), GSWC tracks adopted and actual expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. GSWC records the variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power, and pump tax expenses. GSWC recovers from or refunds to customers the amount of such variances. GSWC tracks these variances individually for each water ratemaking area.

For the three months ended ~~March~~June 3130, 2012, 3035.40% of GSWC’s water supply mix was purchased as compared to 3235.17% purchased for the three months ended ~~March~~June 3130, 2011. However, as noted above, the implementation of the MCBA for GSWC’s water regions eliminates the effects ~~on earnings~~ of changes in the water supply mix on earnings. The overall adopted percentages of purchased water for the three months ended ~~March~~June 3130, 2012 was approximately 3842.7% as compared to overall actual purchased water of 3035.0%. The overall ~~change in actual mix compared to the mix approved by the CPUC resulted in a lower over-collection in the MCBA account. The overall~~ water margin percent was 7571.10% in the ~~first~~second quarter of 2012 as compared to 7471.13% in the same period of 2011.

27Purchased water costs for the three months ended June 30, 2012 increased to $13.8 million as compared to $12.9 million in the same period of 2011. This increase was primarily due to higher water rates charged by wholesale suppliers, an increase in the amount of water purchased in Region I, and an increase in customer water consumption.

~~Table~~For the three months ended June 30, 2012, power purchased for pumping decreased to $2.0 million as compared to $2.2 million for the second quarter of ~~Contents~~2011. This was primarily due to lower electric supply rates and improved energy efficiency at GSWC’s pumping facilities.

~~Purchased~~A decrease of $427,000 in the water ~~costs~~supply ~~for~~cost balancing account provision during the three months ended ~~March~~June 3130, 2012 ~~increased to $9.6 million~~ as compared to ~~$8.7 million in~~ the same period ofin 2011. ~~This increase~~ was primarily due to a higher ~~water~~than ~~rates~~adopted ~~charged~~purchased bywater ~~wholesale~~supply ~~suppliers~~mix ~~and an increase~~ in ~~customer~~Region ~~usage. Billed~~I, ~~customer~~creating ~~water~~a ~~usage~~decrease ~~increased~~in bythe ~~approximately~~MCBA ~~7.0%~~account as compared to the ~~first~~second quarter of 2011. In addition, certain surcharges related to supply cost balancing accounts expired in early 2012.

For the three months ended ~~March~~June 3130, 2012, the cost of power purchased for ~~pumping~~resale ~~increased~~to ~~slightly~~customers in GSWC’s BVES division decreased to $12.67 million as compared to $12.59 million for the ~~first~~same ~~quarter~~period ofin 2011. ~~There~~For ~~was~~the anthree ~~increase~~months inended ~~pumping~~June 30, ~~activity~~2012, ~~which~~BVES ~~was~~purchased ~~mostly~~seasonal ~~offset~~energy byin athe ~~decrease~~spot inmarket at an average ~~electric~~price ~~costs~~of ~~due~~$28.15 per megawatt hour (“MWh”), as compared to ~~lower~~an ~~electric~~average ~~supply~~price ~~rates~~of ~~and~~$34.28 ~~improved~~in ~~energy~~the ~~efficiency~~spot atmarket ~~GSWC’s~~for ~~pumping~~the ~~facilities~~same period of 2011. ~~Groundwater~~In ~~production~~addition ~~assessments~~to ~~increased~~the ~~$697~~spot market,~~000~~ ~~due~~BVES topurchases ~~the~~power ~~increase~~at in$67.90 ~~customer~~per ~~usage~~MWh under an existing purchased power contract. The ~~MCBA~~difference ~~tracks~~between the ~~changes~~price inof ~~pump~~purchased ~~tax~~power ~~rates~~and ~~for~~$77 ~~future~~per ~~recovery~~MWh as authorized by the CPUC is reflected in ~~rates~~the electric supply cost balancing account.

A decrease of $1.8 million in the water supply cost balancing account provision during the three months ended March 31, 2012 as compared to the same period in 2011 was primarily due to a decrease in the over-collection tracked in the MCBA account. The difference tracked in the MCBA between actual supply costs and authorized supply costs decreased as compared to the same period in 2011 due to the increase in purchased water costs and groundwater production assessments as discussed above.

For the three months ended March 31, 2012, the cost of power purchased for resale to customers in GSWC’s BVES division decreased by 17.7% to $3.2 million compared to $3.9 million for the three months ended March 31, 2011, due largely to an 8.6% decrease in customer usage and a decrease in energy prices. For the three months ended March 31, 2011, BVES purchased a seasonal energy product at $68.25 per megawatt hour (“MWh”) under a fixed price purchased power agreement, which expired in March 2011. This product was used during peak times. For the three months ended March 31, 2012, BVES purchased this seasonal energy in the spot market at an average price of $26.02 per MWh, in addition to power purchased at $67.90 per MWh under an existing purchased power contract. The difference between the price of purchased power and $77 per MWh as authorized by the CPUC is reflected in the electric supply cost balancing account.

Other Operation Expenses

The primary components of other operation expenses for GSWC include payroll, materials and supplies, chemicals and water treatment costs, and outside service costs of operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operations of district offices. Registrant’s electric and contracted services operations incur many of the same types of costs as well. For the three months ended ~~March~~June 3130, 2012 and 2011, other operation expenses by segment consisted of the following (~~amounts~~dollars in thousands):

	3 Months		3 Months
	Ended		Ended		$			%
	3/31/2012		3/31/2011		CHANGE			CHANGE
	6/30/2012		6/30/2011		CHANGE			CHANGE
Water Services	$	65,~~089~~600	$	5,~~177~~294	$	~~912~~306		175.68	%
Electric Services	~~559~~603		~~549~~556		1047			1.8.5	%
Contracted Services	~~778~~648		1,~~191~~096		(~~413~~448		)	-3440.79	%
Total other operation expenses	$	76,~~426~~851	$	6,~~917~~946	$	~~509~~(95	)	7-1.4	%

For the three months ended ~~March~~June 3130, 2012, other operation expenses for water services increased by $~~912~~306,000 due primarily to ~~increases~~an inincrease ~~labor~~of ~~and~~$202,000 ~~other~~in ~~employee~~costs related ~~benefits,~~to ~~transportation~~conservation ~~expenses,~~programs previously approved by the CPUC and ~~bad~~included ~~debt~~in ~~expense~~rates. In addition, there ~~was~~were anincreases ~~increase~~in labor and other employee related benefits of $~~225~~199,000 inand ~~outside~~water ~~services~~treatment costs ~~related~~of to$217,000. These ~~conservation~~increases ~~programs~~were ~~previously~~partially ~~approved~~offset by ~~the~~a ~~CPUC~~decrease ~~and~~in ~~included~~other inmiscellaneous ~~rates~~operation expenses.

Other operation expenses for contracted services decreased by $413,000 primarily due to an overall decrease in precontract costs during the three months ended March 31, 2012 as compared to the same period in 2011. In particular, precontract costs for ONUS were approximately $428,000 lower in the first quarter of 2012 compared to the same period in 2011 due to a decrease in bidding related activities. This decrease was partially offset by an increase in labor as a result of a shift of activities from maintenance to operations for the first quarter of 2012 as compared to the same period in 2011.34

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Other operation expenses for contracted services decreased by $448,000 primarily due to an overall decrease in precontract costs during the three months ended June 30, 2012 as compared to the same period in 2011 due to a decrease in bidding related activities, particularly at Fort Bragg in North Carolina and Fort Bliss in Texas.

Administrative and General Expenses

Administrative and general expenses include payroll related to administrative and general functions, the related employee benefits charged to expense accounts, insurance expenses, outside legal and consulting fees, regulatory utility commission expenses, expenses associated with being a public company, and general corporate expenses. For the three months ended ~~March~~June 3130, 2012 and 2011, administrative and general expenses by segment, including AWR (parent), consisted of the following (~~amounts~~dollars in thousands):

	3 Months		3 Months
	Ended		Ended		$			%
	3/31/2012		3/31/2011		CHANGE			CHANGE
	6/30/2012		6/30/2011		CHANGE			CHANGE
Water Services	$	1213,~~673~~359	$	13,~~007~~052	$	~~(334~~307	)	-2.64	%
Electric Services	~~780~~2,039		21,~~091~~971		~~(1,311~~68		)	~~-62~~3.75	%
Contracted Services	32,~~053~~378		32,~~270~~715		(~~217~~337		)	-612.64	%
AWR (parent)	7916		512		2814			54700.90	%
Total administrative and general expenses	$	1617,~~585~~792	$	1817,~~419~~740	$	~~(1,834~~52	)	~~-10.~~0.3	%

For the three months ended ~~March~~June 3130, 2012, administrative and general expenses ~~decreased~~increased by $~~334~~307,000 in water services compared to the three months ended ~~March~~June 3130, 2011 due primarily to ~~decreases~~a in$535,000 ~~legal~~increase ~~and~~in ~~other~~labor ~~administrative~~costs and ~~general~~other ~~expenses~~employee ofrelated ~~approximately $865~~benefits,~~000. These~~ ~~decreases were~~ partially offset by adecreases of $~~531~~207,000 ~~increase~~ in ~~labor~~legal and outside services costs and $21,000 of other ~~employee~~miscellaneous ~~related~~administrative ~~benefits~~and general expenses.

For the three months ended ~~March~~June 3130, 2012, administrative and general expenses for ~~electric~~contracted services decreased by $~~1.3 million as compared to the three months ended March 31~~337,000 ~~2012~~ due primarily to ~~the~~an ~~CPUC’s~~increase ~~approval~~ in ~~March 2012~~the ~~for~~allocation ~~BVES to recover $1.2 million~~ of ~~previously~~overhead ~~incurred~~expenses ~~legal~~to ~~and~~construction ~~outside service~~ costs inand ~~connection~~a ~~with~~reduced ~~its~~allocation ~~efforts~~ to ~~procure~~administrative ~~renewable~~and ~~energy~~general ~~resources. As~~expenses aas ~~result,~~compared into ~~March 2012~~the ~~BVES~~same ~~recorded~~period ~~a $1.2 million reduction~~ in ~~legal~~2011 ~~and~~as ~~outside~~a ~~services~~result ~~for~~of ~~these~~increased ~~costs~~construction ~~which~~activities ~~had~~primarily ~~previously~~at ~~been~~Fort ~~expensed~~Bragg asin ~~incurred~~North Carolina.

For the three months ended March 31, 2012, administrative and general expenses for contracted services decreased by $217,000 due primarily to an increase in allocation of overhead expenses to construction costs as compared to the same period in 2011 as a result of increased construction activities primarily at Fort Bragg in North Carolina.

Depreciation and Amortization

For the three months ended ~~March~~June 3130, 2012 and 2011 depreciation and amortization by segment consisted of the following (~~amounts~~dollars in thousands):

	3 Months		3 Months
	Ended		Ended		$		%
	3/31/2012		3/31/2011		CHANGE		CHANGE
	6/30/2012		6/30/2011		CHANGE		CHANGE
Water Services	$	9,~~597~~525	$	8,~~956~~874	$	~~641~~651	7.23	%
Electric Services	~~623~~597		~~560~~447		63150		1133.36	%
Contracted Services	~~270~~285		~~221~~217		4968		2231.23	%
Total depreciation and amortization	$	10,~~490~~407	$	9,~~737~~538	$	~~753~~869	79.71	%

29For the three months ended June 30, 2012, depreciation and amortization expense for water and electric services increased by $801,000 to $10.1 million compared to $9.3 million for the three months ended June 30, 2011 due to approximately $93.1 million of additions to utility plant during 2011. Registrant believes that depreciation expense related to property additions approved by the CPUC will be recovered through rates.

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For the three months ended March 31, 2012, depreciation and amortization expense for water and electric services increased by $704,000 to $10.2 million compared to $9.5 million for the three months ended March 31, 2011 due to approximately $93.1 million of additions to utility plant during 2011. Registrant anticipates that depreciation expense for water and electric services will continue to increase due to ongoing construction at GSWC. Registrant believes that depreciation expense related to property additions approved by the CPUC will be recovered through rates.

Maintenance

For the three months ended ~~March~~June 3130, 2012 and 2011, maintenance expense by segment consisted of the following (~~amounts~~dollars in thousands):

	3 Months		3 Months
	Ended		Ended		$			%
	3/31/2012		3/31/2011		CHANGE			CHANGE
	6/30/2012		6/30/2011		CHANGE			CHANGE
Water Services	$	23,~~805~~173	$	23,~~765~~792	$	40(619	)	1-16.43	%
Electric Services	~~136~~183		~~220~~214		(8431		)	-3814.25	%
Contracted Services	~~390~~496		~~741~~617		(~~351~~121		)	-4719.46	%
Total maintenance	$	3,~~331~~852	$	34,~~726~~623	$	(~~395~~771	)	-1016.67	%

Maintenance expense for ~~contracted~~water services decreased by $~~351~~619,000 due primarily to a decrease in ~~the~~planned ~~need~~and ~~for~~unplanned maintenance of ~~the Miliatry Utility Privatization Subsidiaries~~Registrant’s water facilities., ~~This~~particularly ~~resulted~~ in aRegion ~~shift~~II ~~in labor activities towards operations during the first quarter of 2012,~~ and aRegion ~~decrease~~III. Maintenance inexpenses ~~materials~~are ~~and~~expected ~~supplies,~~to ~~tools~~increase ~~and vehicles costs for maintenance~~ in the ~~first~~second ~~quarter~~half of 2012 aspartially ~~compared~~offsetting to the ~~same~~lower ~~period~~second ofquarter ~~2011~~costs.

Maintenance expense for contracted services decreased by $121,000 due primarily to a decrease in the need for maintenance of the Military Utility Privatization Subsidiaries’ facilities.

Property and Other Taxes

For the three months ended ~~March~~June 3130, 2012 and 2011, property and other taxes by segment consisted of the following (~~amounts~~dollars in thousands):

	3 Months		3 Months
	Ended		Ended		$			%
	3/31/2012		3/31/2011		CHANGE			CHANGE
	6/30/2012		6/30/2011		CHANGE			CHANGE
Water Services	$	3,~~495~~143	$	2,~~940~~916	$	~~555~~227		187.98	%
Electric Services	~~248~~212		~~219~~197		2915			137.26	%
Contracted Services	~~362~~361		~~393~~293		~~(31~~68		)	-723.92	%
Total property and other taxes	$	43,~~105~~716	$	3,~~552~~406	$	~~553~~310		159.61	%

Property and other taxes for water services increased by $~~555~~227,000 for the three months ended ~~March~~June 3130, 2012 due primarily to increases in ~~franchise~~property ~~fees~~ and ~~property~~payroll taxes.

ASUS Construction Expenses

For the three months ended ~~March~~June 3130, 2012, construction expenses for contracted services were $2014.39 million, increasing $82.14 million compared to the same period in 2011, due primarily to additional construction activity at Fort Bragg in North Carolina~~, which resulted from better than expected weather conditions during the first three months of 2012~~.

3036

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Interest Expense

For the three months ended ~~March~~June 3130, 2012 and 2011, interest expense by segment, including AWR (parent) consisted of the following (~~amounts~~dollars in thousands):

	3 Months		3 Months
	Ended		Ended		$			%
	3/31/2012		3/31/2011		CHANGE			CHANGE
	6/30/2012		6/30/2011		CHANGE			CHANGE
Water and Electric Services	$	6,009	$	5,613	$	396		7.1	%
Water Services	$	5,273	$	6,246	$	(973	)	-15.6	%
Contracted Services	59		85		(26		)	-30.6	%
Electric Services	407		439		(32		)	-7.3	%
AWR (parent)	2		46		(44		)	-95.7	%
Contracted Services	40		143		(103		)	-72.0	%
Total interest expense	$	6,070	$	5,744	$	326		5.7	%
AWR (parent)	—		41		(41		)	-100.0	%
Total interest expense	$	5,720	$	6,869	$	(1,149	)	-16.7	%

Overall, interest expense ~~increased~~decreased by $~~326,000~~1.1 ~~due~~million during the second quarter of 2012 as compared to the ~~issuance~~same period in ~~April~~ 2011 due to costs totaling $553,000 incurred in connection with the redemption of $6222.0 million inof 6GSWC’s 7.65% ~~long~~Medium-~~term~~Term ~~notes~~Notes during the second quarter of 2011. In addition, ~~partially~~in ~~offset~~2012 byGSWC ~~lower~~recorded ~~short-term~~a ~~bank~~$381,000 ~~loan~~reduction ~~balances~~to interest expense in connection with the CPUC’s final decision on the water cost of capital proceeding, as further discussed under the Regulatory Matters section. Average bank loan balances outstanding under ~~the~~Registrant’s revolving credit facility for the three months ended ~~March~~June 3130, 2012 were approximately $~~3.3 million~~352,000, as compared to an average of $6130.0 million during the same period of 2011. The average interest rates on short-term borrowings for the three months ended ~~March~~June 3130, 2012 and 2011 ~~was~~were approximately 1.5% and 1.4%, respectively.

Interest Income

For the three months ended ~~March~~June 3130, 2012 and 2011, interest income by segment, including AWR (parent) consisted of the following (~~amounts~~dollars in thousands):

	3 Months		3 Months
	Ended		Ended		$			%
	3/31/2012		3/31/2011		CHANGE			CHANGE
	6/30/2012		6/30/2011		CHANGE			CHANGE
Water and Electric Services	$	210	$	135	$	75		55.6	%
Water Services	$	458	$	155	$	303		195.5	%
Contracted Services	5		1		4			400.0	%
Electric Services	11		—		11			100.0	%
AWR (parent)	—		1		(1		)	-100	%
Contracted Services	—		2		(2		)	-100.0	%
Total interest income	$	215	$	137	$	78		56.9	%
AWR (parent)	26		4		22			550.0	%
Total interest income	$	495	$	161	$	334		207.5	%

~~Interest~~Overall, interest income increased by $78334,000 for the three months ended ~~March~~June 3130, 2012 due primarily to ~~increased~~changes ~~interest~~in ~~income~~the ~~related~~settlement toof ~~GSWC’s~~refund ~~regulatory~~claims ~~assets~~currently under review by the Internal Revenue Service.

31Other

For the three months ended June 30, 2011, Registrant recorded other expenses of $289,000 primarily related to a loss incurred on one of Registrant’s investments. No similar loss was incurred in 2012.

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Income Tax Expense

For the three months ended ~~March~~June 3130, 2012 and 2011, income tax expense by segment, including AWR (parent), consisted of the following (~~amounts~~dollars in thousands):

	3 Months			3 Months
	Ended			Ended			$			%
	3/31/2012			3/31/2011			CHANGE			CHANGE
	6/30/2012			6/30/2011			CHANGE			CHANGE
Water and Electric Services	$	5,755		$	5,134		$	621		12.1	%
Water Services	$	7,208		$	7,353		$	(145	)	-2.0	%
Contracted Services	1,829			453			1,376			303.8	%
Electric Services	359			303			56			18.5	%
AWR (parent)	42			(74		)	116			-156.8	%
Contracted Services	2,313			1,713			600			35.0	%
Total income tax expense	$	7,626		$	5,513		$	2,113		38.3	%
AWR (parent)	(71		)	45			(116		)	-257.8	%
Total income tax expense	$	9,809		$	9,414		$	395		4.2	%

For the three months ended ~~March~~June 3130, 2012, income tax expense for water and electric services ~~increased~~decreased to $57.86 million compared to $57.17 million for the three months ended ~~March~~June 3130, 2011 due primarily to a decrease in the effective tax rate, partially offset by an increase in pretax income. The effective tax rate (“ETR”) for GSWC was 4340.80% for the three months ended ~~March~~June 3130, 2012 as compared to 4543.05% applicable to the three months ended ~~March~~June 3130, 2011. The ETR deviates from the federal statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items), and changes in permanent items. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period.

For the three months ended ~~March~~June 3130, 2012, income tax expense for contracted services increased to $12.83 million as compared to $~~453,000~~1.7 million for the three months ended ~~March~~June 3130, 2011 due to an increase in pretax income. The ETR was 3938.09% and 3839.60% for the three months ended ~~March~~June 3130, 2012 and 2011, respectively.

Income from Discontinued Operations

Net income from discontinued operations for the three months ended ~~March~~June 3130, 2011 was $~~634~~3.2 million,~~000,~~ ~~equivalent~~due primarily to the gain on sale of CCWC of $2.3 million, net of taxes and transaction costs, or $0.0312 per ~~common~~ share, onrecorded ain ~~basic~~May 2011. Excluding ~~and~~the

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