Notes (continued) The Merger was accounted for as a pooling of interests. There were no intercompany transactions as a result of the Merger. Certain reclassifications were made to the historic financial statements of the companies to conform presentation. For the periods indicated below, the Company and Dominguez reported the following items: No adjustments were made to the Dominguez net assets in applying the accounting practices of the Company. Dominguez previously reported common stock of $1,542,000 that was reclassified by the Company  to “Paid-in-Capital” in accordance with the Company’s financial statement presentation. The Company and Dominguez each had December 31 year-ends; therefore no adjustment was required to retained earnings due to  a change in fiscal year-ends. In 2001, the Company acquired four companies operating in the Company’s Visalia district. The companies serve 1,100 customers. The acquisitions were completed in February 2001, in exchange for 36,180 shares of Company common stock worth $899,000 and assumed debt of $218,000. The acquisitions were accounted for under the pooling of interests method; however, due to the results from operations not being material to the Company’s consolidated results from operations, prior periods were not restated. The net equity acquired was recorded as an increase to retained earnings at the beginning of the year. In addition, the Company purchased the assets of seven Washington water systems for cash of $701,000. The acquired companies serve approxi- mately 700 customers and produce annual revenue of about $270,000. The acquisitions were accounted for under purchase accounting. During 2000, the Company purchased the assets of Mirrormount Water Services and Lacamas Farmsteads Water Company for $639,000 in cash and assumed debt. Together the companies serve almost 800 customers and produce annual revenue of about $250,000. To provide in-house engineering, Washington Water also purchased the assets of Robischon Engineers, Inc. in April 2000 for $70,000 in cash. The acquisitions were accounted for under purchase accounting. During 1999, the Company acquired all of the outstanding stock of Harbor Water Company and South Sound Utility Company, which form the operations of Washington Water, serving 14,900 regulated and non- regulated customers. The acquisitions were accounted for under the pooling of interests method in exchange for 316,472 shares of Company stock and assumption of long-term debt of $2,959,000. The results of operations previously reported by the separate entities are included in the accompanying consolidated financial state- ments. Two other water company asset acquisitions were completed in 1999. The acquired companies served 288 customers. The acquisitions were accounted for under purchase accounting. During 1998, the Company agreed to purchase the assets of Lucerne Water Company, Rancho del Paradiso Water Company and Armstrong Valley Water Company. These investor-owned systems serve 1,624 accounts. The acquisitions were completed effective January 1, 1999, in exchange for the equivalent of 75,164 shares of Company common stock. The acquisitions were accounted for under purchase accounting. The pur- chases were completed on a non-cash basis in which the Company issued common stock valued at $922,000  and assumed debt obligations of $1,108,000. New Mexico Water has agreed to acquire the Rio Grande Utility Corporation, which serves 2,300 water and 1,600 wastewater customers, for $2.3 million in cash and assumed debt of $3.1 million. The acquisi- tion is expected to be completed in the second quarter of 2002 after approval of the state’s regulatory authority is received. As of December 31, 2001 and 2000, 380,000 shares of preferred stock were authorized. Dividends on outstanding shares are payable quarterly at a fixed rate before any dividends can be paid on common stock. Preferred shares are entitled to sixteen votes, each with the right to cumulative votes at any election of directors. The outstanding 139,000 shares of $25 par value cumulative, 4.4% Series C preferred shares are not convertible to common stock. A premium of $243,250 would be due upon voluntary liquidation of Series C. There is no premium in the event of an involuntary liquidation. The Company is authorized to issue 25,000,000 shares of $.01 par value common stock. As of December 31, 2001 and 2000, 15,182,046 and 15,145,866 shares of common stock were issued and outstanding, respectively. All shares of common stock are eligible to participate in the Company’s dividend reinvestment plan. Approximately 10% of the outstanding shares participate in the plan. Stockholder Rights Plan The Company’s Stockholder Rights Plan (Plan) is designed to provide stockholders protection and to maximize stockholder value by encouraging a prospective acquirer to negotiate with the Board. The Plan was adopted in 1998 and authorized a dividend distribution of one right (Right) to purchase 1/100th share of Series D Preferred Stock for each outstanding share of Common Stock in certain circum- stances. The Rights are for a ten-year period that expires in February 2008. Each Right represents a right to purchase 1/100th share of Series D Preferred Stock at the price of $120, subject to adjustment (the Purchase Price). Each share of Series D Preferred Stock is entitled to receive a dividend equal to 100 times any dividend paid on common stock and 100 votes per share in any stockholder election. The Rights become exercisable upon occurrence of a Distribution Date. A Distribution Date event occurs if (a) any person accumulates 15% of the then outstanding Common Stock, (b) any person presents a tender offer which causes the person’s ownership level to exceed 15% and the Board determines the tender offer not to be fair to the Company’s stockholders, or (c) the Board determines that a stockholder maintaining a 10% interest in the Common Stock could have an adverse impact on the Company or could attempt to pressure the Company to repurchase the holder’s shares at a premium. Until the occurrence of a Distribution Date, each Right trades with the Common Stock and is not sep- arately transferable. When a Distribution Date occurs: (a) the Company would distribute separate Rights Certificates to Common Stockholders and the Rights would subsequently trade separate from the Common Stock; and (b) each holder of a Right, other than the acquiring person (whose Rights would thereafter be void), would have the right to receive upon exercise at its then current Purchase Price that number of shares of Common Stock having a market value of two times the Purchase Price of the Right. If the Company merges into the acquiring person or enters into any transaction that unfairly favors the acquiring person  or disfavors the Company’s other stockholders, the Right becomes a right to purchase Common Stock of the acquiring person having a market value of two times the Purchase Price. The Board may determine that in certain circumstances a proposal that would cause a Distribution Date is in the Company stockholders’ best interest. Therefore, the Board may, at its option, redeem the Rights at a redemption price of $.001 per Right. 35 CALIFORNIA WATER SERVICE GROUP 34 CALIFORNIA WATER SERVICE GROUP NOTE 4. OTHER ACQUISITIONS NOTE 5. PREFERRED STOCK NOTE 6. COMMON STOCKHOLDERS’ EQUITY 6 Months Year Ended Ended Unaudited – In thousands 6-30-00 12-31-99 Revenue: Company $ 98,428 $206,440 Dominguez 14,232 28,497 $112,660 $234,937 Net income: Company $ 6,139 $ 19,919 Dominguez 1,147 2,052 $ 7,286 $ 21,971