Notes (continued) Independent Auditors’ Report The Company leases office facilities in many of its operating districts. The total paid and charged to operations for such leases was $720,000 in 2001, $760,000 in 2000, and $663,000 in 1999. Payments under the lease com- mitments over the succeeding five years 2002 through 2006 are estimated to be $750,000, $780,000, $830,000, $867,000 and $911,000. Over the 20-year period through 2022, payments under lease commitments, assuming renewal of existing or replacement leases, is estimated to be $21,000,000. The Company has long-term contracts with two wholesale water suppliers that require the Company to purchase minimum annual water quantities. Purchases are priced at the suppliers’ then current wholesale water rate. The Company operates to purchase sufficient water to equal or exceed the minimum quantities under both contracts. The total paid under the contracts was $6,208,000 in 2001, $5,400,000 in 2000 and $4,766,000 in 1999. The estimated payments under the contracts for the five years 2002 through 2006 are esti- mated to be $7,000,000, $7,280,000, $7,571,000, $7,874,000 and $8,190,000. The water supply contract with Stockton East Water District (SEWD) requires a fixed, annual pay- ment and does not vary with the quantity of water delivered by the district. Because of the fixed price arrangement, the Company operates to receive as much water as possible from SEWD in order to minimize  the cost of operating wells to supplement SEWD deliveries. The total paid under the contract was $3,496,000 in 2001, $3,269,000 in 2000 and $3,086,000 in 1999. Pricing under the contract varies annually. For 2002, the estimated payment is $3,198,000. The Company has committed $7.6 million of its $10 million bank credit line to a contractor for con- struction of a new operation facility. At December 31, 2001, $6.3 million had been drawn to acquire land and construct the facility. The amount drawn on the credit line is an obligation of the contractor, but guaranteed by the Company. The new facility is pledged to the Company as security for the guarantee. The Company occupied the new facility in January 2002 on a month-to-month rent basis. The Company expects to exchange surplus real property for the new facility on a tax-free basis after mid-year 2002 at which time the contractor will repay the construction loan and the Company’s commitment would be extinguished. The Company’s common stock is traded on the New York Stock Exchange under the symbol “CWT.” Quarterly dividends have been paid on common stock for 228 consecutive quarters and the quarterly rate has been increased each year since 1968. We have audited the accompanying consolidated balance sheet of California Water Service Group and sub- sidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, common stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based  on our audits. The consolidated financial statements of California Water Service Group for the year ended December 31, 1999, have been restated to reflect the pooling-of-interests transaction with Dominguez Services Corporation and subsidiaries as described in Note 3 to the consolidated financial statements. We did not audit the consoli- dated financial statements of Dominguez Services Corporation and subsidiaries, which financial statements reflect total revenue constituting 12.1 percent of the related consolidated total as of December 31, 1999. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Dominguez Services Corporation and subsidiaries for the year ended December 31, 1999, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of California Water Service Group and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with account- ing principles generally accepted in the United States of America. Mountain View, California January 30, 2002 43 CALIFORNIA WATER SERVICE GROUP THE BOARD OF DIRECTORS CALIFORNIA WATER SERVICE GROUP: NOTE 13. COMMITMENTS NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED) 2001 – in thousands except per share amounts First Second Third Fourth Operating revenue $47,008 $66,958 $76,310 $56,544 Net operating income  3,792 8,050 9,517 3,792 Net income 221 5,764 5,920 3,060 Diluted earnings per share .01 .37 .39 .20 Common stock market price range: High 28.60 27.70 27.00 27.50 Low 23.38 24.10 23.77 24.00 Dividends paid .27875 .27875 .27875 .27875 2000 – in thousands except per share amounts First Second Third Fourth Operating revenue $46,694 $65,966 $76,580 $55,566 Net operating income  4,902 8,977 12,782 6,535 Net income 1,533 5,753 9,205 3,472 Diluted earnings per share .10 .38 .60 .23 Common stock market price range: High 31.38 26.75 26.88 27.81 Low 22.25 21.50 22.50 24.88 Dividends paid .275 .275 .275 .275 42 CALIFORNIA WATER SERVICE GROUP