Total Number of Pages - 32
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............to....................
Commission file No. 1-13883
CALIFORNIA WATER SERVICE GROUP
(Exact name of registrant as specified in its charter)
California 77-0448994
(State or other jurisdiction (I.R.S. Employer Identification No.)
of Incorporation)
1720 North First Street San Jose, California 95112
(Address of Principal Executive Offices) (Zip Code)
1-408-367-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, No Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Preferred Stock, Par Value, $25
(Title of Class)
Indicate by check mark whether the 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 the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant - $380,152,000 at February 27, 1998.
Common stock outstanding at February 27, 1998 - 12,619,140
shares.
EXHIBIT INDEX
The exhibit index to this Form 10-K is on page 28
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of Registrant's Annual Report to
Shareholders for the calendar year ended December 31, 1997 ("1997
Annual Report") are incorporated by reference in Part I (Item 1),
Part II (Items 5, 6, 7 and 8) and in Part IV (Item 14(a)(1)).
Designated portions of the Registrant's Proxy Statement of
California Water Service Group ("Proxy Statement"), dated March
11, 1998, relating to the 1998 annual meeting of shareholders are
incorporated by reference in Part III (Items 10, 11 and 12) as of
the date the Proxy Statement was filed with the Securities and
Exchange Commission. The Proxy Statement was filed under EDGAR on
March 9, 1998.
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................ 5
a. General Development of Business..... 5
Rates and Regulation.............. 6
b. Financial Information about
Industry Segments................. 9
c. Narrative Description of Business... 9
Geographical Service Areas
and Number of Customers at
year-end.......................... 10
Water Supply........................ 11
Nonregulated Operations............ 14
Utility Plant Construction Program
and Acquisitions.................. 15
Quality of Supplies................. 16
Competition and Condemnation........ 16
Environmental Matters .............. 17
Human Resources..................... 17
d. Financial Information about
Foreign and Domestic Operations
and Export Sales ................. 18
Item 2. Properties ......................... 18
Item 3. Legal Proceedings................... 18
Item 4. Submission of Matters to a Vote of
Security Holders.................. 19
Executive Officers of the Registrant......... 20
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.... 21
Item 6. Selected Financial Data............. 21
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 22
Item 8. Financial Statements and
Supplementary Data................ 22
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............. 22
PART III
Item 10. Directors and Executive Officers
of the Registrant................. 22
Item 11. Executive Compensation.............. 22
Item 12. Security Ownership of Certain
Beneficial Owners and Management.. 23
Item 13. Certain Relationships and Related
Transactions...................... 23
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K.......................... 23
Signatures........................................ 24
Independent Auditors' Report...................... 26
Schedules......................................... 27
Exhibit Index..................................... 28
PART I
Item 1 Business.
Forward Looking Statements
Certain information presented in this report contains forward
looking statements. Such statements are inherently based on
currently available information and expectations, estimates,
assumptions and projections, and management's judgment about
the California Water Service Group and subsidiaries ("Group"),
the water utility industry and general economic conditions.
Words such as expects, intends, plans, believes, estimates,
anticipates or variations of such words or similar
expressions are intended to identify forward looking
statements. The forward looking statements are not
guarantees of future performance. Actual results may vary
materially from what is contained in a forward looking
statement. Factors which may cause a result different than
expected include regulatory decisions, legislation and the
impact of weather on operating results. The Group assumes no
obligation to provide public updates of forward looking
statements.
a. General Development of Business.
California Water Service Company (the "Company") was formed
in 1926. In April 1997, shareholders of California Water
Service Company voted to approve a holding company structure.
After receiving final regulatory approval, California Water
Service Group (the "Group") was formed on December 31, 1997.
As a result of the holding company structure, the Company
became one of the Group's two wholly-owned, operating
subsidiaries. The Company will continue to operate as a
regulated utility subject to the jurisdiction of the
California Public Utilities Commission ("Commission or PUC").
Its assets and operating revenues comprise virtually all of
the Group's assets and operating revenues.
The second subsidiary, CWS Utility Services ("Utility
Services"), is a new entity that will provide nonregulated
water operations and related services. Existing nonregulated
contracts, currently performed by the Company, will be
transferred to Utility Services as the contracts are renewed
or at such time as agreed upon between the contracting
parties. New nonregulated contracts will be conducted by
Utility Services.
In conjunction with the formation of the holding company
structure, each share of Company common stock was exchanged
on a two-for-one basis for Group common stock. Per share
data has been restated where necessary to reflect the
effective two-for-one stock split. Each share of Company
preferred stock was converted into one share of Group
preferred stock. To maintain its relative voting strength,
the number of votes to which each preferred share is entitled
was doubled from eight to sixteen.
The Group's mailing address and principal executive offices
are located at 1720 North First Street, San Jose, California;
telephone number: 1-408-367-8200. The Company maintains a
web site which can be accessed via the Internet at
http://www.calwater.com.
During the year ended December 31, 1997, there were no
significant changes in the kind of products produced or
services rendered by the Group or its operating subsidiaries,
or in its markets or methods of distribution.
The Company is the largest investor-owned water company in
California and the third largest in the United States. It
was incorporated under the laws of the State of California on
December 21, 1926. It is a public water utility providing
water service to approximately 379,500 residential,
commercial and industrial customers in 57 California cities
and communities through 21 separate water systems or
districts. In the Group's 20 regulated systems, which serve
373,500 customers, rates and operations are subject to the
jurisdiction of the Commission. An additional 6,000
customers receive service through a long-term lease of the
City of Hawthorne water system, which is not subject to
Commission regulation. The Company also has contracts with
various municipalities and private entities to operate water
systems and provide billing services to 35,500 other
customers. These operations are described in more detail in
section Item 1.c., "Narrative Description of the Business -
Nonregulated Operations."
Rates and Regulations
Rates, service and other matters for the regulated business
of the Company are subject to the jurisdiction of the
Commission. The Commission's decisions and the timing of
those decisions can have an important impact on operations
and results of operations.
The Company's 20 regulated systems, each of which is within
the State of California, are operated as 20 separate
districts. The systems are not integrated with one another.
Except for allocation of general office expenses and the
determination of cost of capital, the expenses and revenues
of individual districts are not affected by operations in
other districts. Cost of capital (i.e. return on debt and
equity) is determined on a company-wide basis. Otherwise,
the Commission requires that each district be considered a
separate and distinct entity for ratemaking purposes.
The Commission requires that water rates for each operating
district be determined independently. The Company's
districts are on varying rate case cycles, each of which is
for not less than three years. General rate case
applications are filed annually for a portion of the
districts. Thus, the number of customers affected by each
filing, varies from year to year. For example, the 1995 rate
filings covered 47 percent of the customer base, while the
1996 filing were for 11 percent and the 1997 filing for 7
percent. The decision to file a general rate case
application for a particular district depends on various
factors including the time since the last general rate case
was filed, the rate of return being earned in each district,
expected future returns, estimated future expenses and the
need for plant additions.
According to the commission's rate case processing procedures for
water utilities, the Company is scheduled to make its general rate
case filings in July of each year. The Commission attempts
to issue decisions within eight months of acceptance of the
general rate case applications. Rates are set prospectively,
generally for a three-year period, with a provision for annual step
increases, which are designed to maintain the authorized rate
of return between general rate case filings. Offset rate
adjustments are allowed as required for changes in the costs
of purchased water, power and pump taxes.
1998 Rate Application Filings
In 1998, 14 districts, representing about 80% of the
regulated customer base, are eligible for general rate
filings. Earnings levels in those districts will be reviewed
and applications for additional rate consideration will be
filed as deemed appropriate. The filings are expected to be
made in July. Additionally, a rate increase will be
initiated by the Company for the City of Hawthorne system.
This application will be prepared and presented to the City
in a manner similar to that by which the Company makes its
Commission filings.
1997 Rate Application Filings
In July 1997, general rate increase applications were
filed for four districts representing 27,900 customers or 7
percent of regulated customers. The applications requested
additional first year annual revenue of $650,000 and step
rate increases of $240,000 in each year 1999 through 2001.
The Company's proposal also included continuation of the
current rate of return on common equity ("ROE") at 10.35 percent.
For the Oroville and Selma districts,
the application proposed that rate increases for the
succeeding five years be based on the increase in the
Consumer Price Index ("CPI")for water/sewerage. The CPI
based increases were requested to cover future operating
expenses and plant investments.
In January 1998, agreement was reached with the Commission
staff regarding the 1997 rate applications. The agreement
recommends retaining the ROE at the current 10.35 percent.
Assuming PUC approval, 1998 revenue is estimated to increase
$300,000 based on the agreement. Step rate increases
effective January 1, 1999 are expected to add $305,000. Rate
changes after 1998 in the Oroville and Selma districts are
expected be based on a hybrid CPI. The CPI arrangement,
which will cover increased expenses and capital improvements,
will be effective for five-years.
1996 Rate Application Filings
In July 1996, general rate cases were filed for two
districts representing 11 percent of the regulated customers.
An ROE of 12.05 percent was requested, while the Commission
staff recommended 10.1 percent. In January 1997, the Company
and Commission staff stipulated to an ROE of 10.35 percent.
In February 1997, hearings before the Commission regarding
the 1996 general rate applications were completed. The
Commission's decision was issued in April. The decision,
which authorized a 10.35 percent return on common equity, was
estimated to increase 1997 revenue by about $1.2 million.
Additionally, step rate increases will become effective in
each of the following three years.
1995 Rate Application Filings
General rate case applications, which had been filed with
the Commission during 1995 for five districts serving 47
percent of the Company's regulated customers, were finalized
by the Commission in 1996. The applications requested an
ROE of 12.1 percent and additional revenue of $26.7 million
over a three-year period. The Commission staff recommended
a rate of return of 9.9 percent, however, a stipulation
agreement was reached with the staff for a 10.3 percent ROE
in January 1996. The Commission's decision for this rate
case series was issued in June 1996. During the first full
year, the decision provided $5.4 million of added revenue,
including $1.2 million in step rate increases which were
effective at the start of 1996. Over a four-year period,
the decision is expected to provide about $10.6 million
in new revenue. The decision includes a provision to
accelerate the recovery of the utility plant
investment, resulting in an increase in the annualized
depreciation rate for these districts of 2.6 percent compared
to a 2.4 percent rate experienced in preceding years.
Second Amended Contract - Stockton East Water District
In January 1995, a consultant retained by the
Commission's Organization of Ratepayer Advocates completed a
report on the reasonableness of the Second Amended Contract.
Parties to the contract are the Company, Stockton-East Water
District, the City of Stockton and San Joaquin County. The
contract pertains to the sale and delivery of water to the
Company's Stockton District by the Stockton-East Water
District. The report alleges that the Company was required
to receive Commission approval prior to entering into the
Second Amended Contract and furthermore challenges the
reasonableness of the Second Amended Contract for ratemaking
purposes. However, the report does not include specific
ratemaking recommendations. It is difficult to assess the
potential impact on the Company if the report were to be
adopted by the Commission. If there is any adverse financial
impact as a result of the report, such impact is expected to
be prospective, affecting only future rates for the Stockton
district. Hearings have not yet been scheduled to address
the report. Following hearings at which the Company intends
to present evidence to rebut the report, the assigned
administrative law judge will render a proposed decision for
comment and eventual Commission consideration. Management
intends to vigorously defend its position that the Second
Amended Contract did not require prior Commission approval
and is reasonable for ratemaking purposes.
b. Financial Information about Industry Segments.
The Group has only one business segment.
c. Narrative Description of Business.
The Group is the sole shareholder of its two operating
subsidiaries, California Water Service Company and CWS
Utility Services.
The Group's business, which is carried on through it
operating subsidiaries, consists of the production, purchase,
storage, purification, distribution and sale of water for
domestic, industrial, public and irrigation uses, and for
fire protection. The water business fluctuates according to
the demand for water, which is partially dictated by seasonal
conditions, such as summer temperatures or the amount and
timing of precipitation during the year. Franchises and
permits are held in the cities and communities where water
service is provided to the extent judged necessary to operate
and maintain facilities in the public streets. Water is
distributed to customers in accordance with accepted water
utility methods.
The City of Hawthorne water system is operated under a 15-
year lease which commenced in February 1996. Under other
contracts, three municipally owned water systems and two
reclaimed water distribution systems are operated. Billing
services are also provided to other municipalities. These
operations are discussed in more detail in a following
section titled "Nonregulated Operations."
The Group intends to continue to explore opportunities to
expand operating and other revenue sources. The
opportunities could include system acquisitions, contracts
similar to the City of Hawthorne arrangement, operating
contracts, billing contracts and other utility related
services. The Group believes that a holding company
structure, as discussed above, will make the Company more
competitive in providing nonregulated utility services, which
would not be subject to Commission jurisdiction. The Group
will be investigating new business opportunities outside of
California. It will also assess the potential risk and
return from business opportunities in Central and South
America. There can be no assurance, however, that the Group
will be able to expand operating and other revenue sources or
that the Group will be able to consummate any transactions
arising from any such opportunities.
Geographical Service Areas and Number of Customers at Year-end
The principal markets for the Group's products are users of water
within the Company's service areas. The Group's geographical
service areas or districts for both the regulated and
nonregulated operations and the approximate number of customers
served in each district at December 31, 1997, are listed below.
SAN FRANCISCO BAY AREA
Mid-Peninsula (comprised of San Mateo and San Carlos) 35,600
South San Francisco (including Colma and Broadmoor) 15,700
Bear Gulch (serving Menlo Park, Atherton,
Woodside and Portola Valley) 17,400
Los Altos (including portions of Cupertino,
Los Altos Hills, Mountain View and Sunnyvale) 18,100
Livermore 16,000
102,800
SACRAMENTO VALLEY
Chico (including Hamilton City) 21,600
Oroville 3,500
Marysville 3,700
Dixon 2,800
Willows 2,300
33,900
SALINAS VALLEY
Salinas 24,300
King City 2,100
26,400
SAN JOAQUIN VALLEY
Bakersfield 55,300
Stockton 41,100
Visalia 27,500
Selma 5,000
128,900
LOS ANGELES AREA
East Los Angeles (including portions of
the cities of Commerce and Montebello) 26,200
Hermosa Beach and Redondo Beach (including
a portion of Torrance) 25,000
Palos Verdes (including Palos Verdes
Estates, Rancho Palos Verdes, Rolling
Hills Estates and Rolling Hills) 23,500
Westlake (a portion of Thousand Oaks) 6,800
Hawthorne (leased municipal system) 6,000
87,500
TOTAL 379,500
Water Supply
The Company's water supply for its 21 operating districts is
obtained from wells, surface runoff or diversion, and by purchase
from public agencies and other wholesale suppliers. The effects
of the six-year California drought, which ended with the 1992-93
winter, and 1996-97 winter rains are discussed below. The
Company's supply has been adequate to meet consumption demands,
however, during periods of drought, some districts have required
water rationing.
California's rainy season usually begins in November and
continues through March with December, January and February
receiving the most rainfall. During winter months reservoirs and
underground aquifers are replenished by rainfall. Snow
accumulated in the mountains provides an additional water source
when spring and summer temperatures melt the snowpack producing
runoff into streams and reservoirs, and also replenishing
underground aquifers.
During years in which precipitation is especially heavy or
extends beyond the spring into the early summer, customer demand
can decrease from historic normal levels, generally due to
reduced outdoor water usage. This was the case during 1995, when
winter rains continued well into the spring along with cooler
than normal temperatures. Likewise, an early start to the rainy
season during the fall can cause a decline in customer usage and
have a negative impact on revenue.
The Company's water business is seasonal in nature and weather
conditions can have a pronounced effect on customer usage and
thus operating revenues and net income. Customer demand for
water generally is less during the normally cooler and rainy
winter months, increasing in the spring when warmer weather
gradually returns to California and the rains end. Temperatures
are warm during the generally dry summer months, resulting in
increased demand. Water usage declines during the fall as
temperatures decrease and the rainy season approaches.
During years of less than normal rainfall, customer demand can
increase as outdoor water usage continues. When rainfall is
below average for consecutive years, drought conditions can
result and certain customers may be required to reduce
consumption to preserve existing water reserves. California
experienced a six- year drought which ended with the winter of
1992-93. During that six-year period some districts had water
rationing requirements imposed on customers. In certain
districts, penalties were collected from customers who exceeded
allotments. During past drought periods, the Commission has
allowed modifications to consumer billings which provided for
recovery of a portion of revenue that was deemed lost due to
conservation measures.
Historically, about half of the water supply is purchased from
wholesale suppliers with the balance pumped from wells. A small
portion of the supply is received from surface runoff. During
1997, 110 billion gallons were delivered to customers.
Approximately 52 percent of the supply was obtained from wells
and 48 percent was purchased from the wholesale
suppliers. The following table shows the 1997 source of supply
for each operating district.
Supply
District Purchased Wholesale Supplier
SAN FRANCISCO BAY AREA
Mid-Peninsula 100% San Francisco Water Department
South San Francisco 92% San Francisco Water Department
Bear Gulch 90% San Francisco Water Department
Los Altos 73% Santa Clara Valley Water
District
Livermore 65% Alameda County Flood Control
and Water Conservation District
SACRAMENTO VALLEY
Oroville 77% Pacific Gas and Electric Co.
4% County of Butte
SAN JOAQUIN VALLEY
Bakersfield 19% Kern County Water Agency
Stockton 63% Stockton-East Water District
LOS ANGELES AREA
East Los Angeles 80% Central Basin Municipal
Water District
Hawthorne 95% West Basin Municipal
Water District
Hermosa Beach and 97% West Basin Municipal
Redondo Beach Water District
Palos Verdes 100% West Basin Municipal
Water District
Westlake 100% Russell Valley Municipal
Water District
The balance of the required supply for the above districts was
obtained from wells, except for Bear Gulch where the balance is
obtained from surface runoff from the local watershed and
processed through the Company's treatment plant before being
delivered to the distribution system.
Historically, groundwater has yielded 10 to 15 percent of the
Hermosa-Redondo district supply and 15 to 20 percent of the South
San Francisco district supply. During 1996, wells in those two
districts, were out of service while treatment facilities were
being installed. The treatment facilities were completed and
became operational during 1997. Thus well production in those
two districts increased during 1997. During 1998, it is
anticipated that a larger portion of the supply will be provided
by wells than in 1997. Water produced from wells is generally
less expensive than water purchased from wholesale suppliers.
The Chico, Marysville, Dixon and Willows districts in the
Sacramento Valley, the Salinas and King City districts in
the Salinas Valley, and the Selma and Visalia districts in
the San Joaquin Valley obtain their entire supply from wells.
Purchases for the Los Altos, Livermore, Oroville, Stockton
and Bakersfield districts are pursuant to long-term contracts
expiring on various dates after 2011. The purchased supplies for
the East Los Angeles, Hermosa-Redondo, Palos Verdes and Westlake
districts and the City of Hawthorne system are provided by public
agencies pursuant to an obligation of continued nonpreferential
service to persons within the agencies' boundaries.
Purchases for the South San Francisco, Mid-Peninsula and Bear
Gulch districts are pursuant to long-term contracts with the San
Francisco Water Department expiring June 30, 2009.
The price of wholesale water purchases are subject to pricing
changes imposed by the various wholesale suppliers. Price
changes are generally beyond the control of the Company. During
1997, two wholesale water suppliers refunded funds which had been
overcollected from wholesale water purchasers. The Company
received $2.5 million which was credited as a reduction to
purchased water expense.
California experienced above average rainfall in the 1996-97
measurement year. Rainfall to date for the 1997-98 season has
already exceeded the annual average. Groundwater levels in
underground aquifers which provide supply to districts served by
well water improved in 1997 due to the above average rainfall.
Most regions have recorded positive changes in groundwater levels
as compared to 1996. Regional groundwater management planning
continues throughout the State as required. Existing laws
provide a mechanism for local agencies to maintain control of
their groundwater supply. The Group continually updates long
range projections and works with local wholesale suppliers to
ensure an adequate future supply to meet customer needs.
The water supply outlook for 1998 is good, however, California
faces long-term water supply challenges. The Company is
actively working to meet the challenges by continuing to educate
customers on responsible water use practices, particularly
in the districts with conservation programs approved by the
Commission.
Progress has been made by Consolidated Irrigation District
(Selma) and Kaweah Delta Water Conservation District (Visalia)
towards the implementation of a water management plan. The Group
is participating in the formulation of these plans.
On an ongoing basis, the Group is actively participating with the
Salinas Valley water users and the Monterey County Water
Resources Agency (MCWRA) to address the seawater intrusion
concern to the water supply for the Salinas district. MCWRA
started construction on the Castroville Seawater Intrusion
Project in 1995 and deliveries are expected to commence in 1998.
When completed, this project will deliver up to 20,000 acre feet
of recycled water annually to agricultural users in the nearby
Castroville area and is designed to help mitigate seawater
intrusion into the region by reducing the need to pump
groundwater.
The Group is participating with the City and County of San
Francisco, and the cities of San Bruno and Daly City to prepare a
groundwater management plan for the Westside Basin from which the
South San Francisco district pumps a portion of its supply.
Additionally, the Group is working with the City of San Francisco
in their development of a long-range water supply master plan for
the entire area to which the San Francisco Water Department is
the wholesale water supplier. In addition to the South San
Francisco district, the Mid-Peninsula and Bear Gulch districts
are included in this service area.
Nonregulated Operations
Revenue from nonregulated water system operations is generally
determined on a per customer basis. With the exception of the
City of Hawthorne water system, revenue and expenses from
nonregulated operations is accounted for in other income on a
pretax basis. Revenue and expenses for the City of Hawthorne
lease are included in operating revenue and operating expenses
because the Group is entitled to retain all customer billings and
is responsible generally for all operating expenses.
Municipally owned water systems are operated under contract for
the cities of Bakersfield, Commerce and Montebello, and four
private water company systems in the Bakersfield, Livermore and
Salinas districts. The Company also operates under contract a
wastewater collection system in Livermore. The total number of
services operated under the contracts is about 29,500. With the
exception of the 15-year Hawthorne lease discussed below, the
terms of the operating agreements range from one-year to three-
year periods with provisions for renewals. The first operating
agreement was signed with the City of Bakersfield in 1977. Upon
expiration, each agreement has been renewed.
Recycled water distribution systems located in the Los Angeles
Basin are operated for the West Basin and Central Basin municipal
water districts. Some engineering department services are also
provided for these two recycled water systems.
The Company provides meter reading, billing and customer service
for the City of Menlo Park's 4,000 water customers.
Additionally, sewer and/or refuse billing services are provided
to six municipalities.
Since February 1996, the Group has leased the City of Hawthorne's
6,000 account water system under terms of a 15-year agreement.
The system which is near the Hermosa-Redondo district serves
about half of Hawthorne's population. Terms of the lease,
required an up-front $6.5 million lease payment to the City which
is being amortized over the lease term. Additionally, annual
lease payments to the City of $100,000 indexed to changes in
water rates are required. The Group is responsible for all
aspects of system operation and capital improvements, although
title to the system and system improvements resides with the
City. At the end of the lease, the Group will be reimbursed for
the unamortized value of capital improvements. In exchange, the
Group receives all system revenues which are about $4 million
annually.
During 1997, the Group signed an agreement with the Rural North
Vacaville Water District in Solano County to design and build a
water distribution system. The new system will initially provide
water to about 400 services. The Group also expects to enter an
agreement for future operation and maintenance of the system.
Various antenna sites are leased to telecommunication companies.
Individual lease payments range from $750 to $2,200 per month.
The antennas are used in cellular phone and personal
communication applications. Other leases are being negotiated
for similar uses. Currently there are 30 such leases.
The Group also provides laboratory services to San Jose Water
Company.
Utility Plant Construction Program and Acquisitions
The Group is continually extending, enlarging and replacing its
facilities as required to meet increasing demands and to maintain
its systems. Capital expenditures, including developer financed
projects, for additional facilities and for the replacement of
existing facilities amounted to approximately $32.9 million in
1997. Financing was provided by funds from operations and short-
term bank borrowings, advances for construction, and
contributions in aid of construction as set forth in the
"Statement of Cash Flows" on pages 44 and 45 of the Group's 1997
Annual Report which is incorporated herein by reference. Group
funded expenditures were $25.5 million. Developer payments
accounted for $7.4 million. Advances for construction of main
extensions are payments or facilities received from subdivision
developers under the Commission's rules. These advances are
refundable without interest over a period of 40 years.
Contributions in aid of construction consist of nonrefundable
cash deposits or facilities received from developers, primarily
for fire protection. The amount received from developers varies
from year to year as the level of development activity varies.
It is impacted by the demand for housing and commercial
development and general business conditions, including interest
rates.
The 1998 construction budget for additions and improvements to
facilities is approximately $31 million, exclusive of additions
and improvements financed through advances for construction and
contributions in aid of construction. Financing is expected to
be from internally generated funds, short-term borrowings and
long-term debt.
Quality of Supplies
Procedures are maintained to produce potable water in accordance
with accepted water utility practice. Water entering the
distribution systems from surface sources is treated in
compliance with Safe Drinking Water Act standards. Samples of
water from each water system are analyzed regularly by the
Group's state certified water quality laboratory.
In recent years, federal and state water quality regulations have
continued to increase. Changes in the federal Safe Drinking
Water Act, which the Group believes will bring treatment costs
more in line with the actual health threat posed by contaminants,
were enacted by Congress during 1996. The Group continues to
monitor water quality and upgrade its treatment capabilities to
maintain compliance with the various regulations. These
activities include:
- - maintaining a State approved compliance monitoring program
required by the Safe Drinking Water Act
- - upgrading laboratory equipment and enhancing analytical
testing capabilities
- - installation of disinfection treatment at all well sources
- - installation of and operating several granular activated
carbon (GAC) filtration systems for removal of hydrogen
sulfide or volatile organic chemicals
- - treatment systems at two Los Angeles Basin wells and wells at
the South San Francisco well field which have elevated levels
of iron and manganese; the treatment allowed the wells to be
returned to production during 1997; thus, less costly well
water, rather than purchased water supplies became available
- - construction of a new iron and manganese treatment plant in
the leased Hawthorne system; completion of this project is
scheduled for mid 1998
- - monitoring of all sources for MTBE, the gasoline additive
widely used throughout the State
- - completion of mandatory Information Collection Rule
monitoring for specified water systems
Competition and Condemnation
The Company is a public utility regulated by the Commission. The
Company provides service within filed service areas approved by
the Commission. Under the laws of the State of California, no
privately owned public utility may compete with the Company in
any territory already served by the Company without first
obtaining a certificate of public convenience and necessity from
the PUC. Under PUC practices, such certificate will be issued
only upon showing that the Company's service in such territory is
deficient.
California law also provides that whenever a public agency
constructs facilities to extend a utility system into the service
area of a privately owned public utility, such an act constitutes
the taking of property. For such taking the public utility is to
be paid just compensation. Under the constitution and statutes
of the State of California, municipalities, water districts and
other public agencies have been authorized to engage in the
ownership and operation of water systems. Such agencies are
empowered to condemn properties already operated by privately
owned public utilities upon payment of just compensation and are
further authorized to issue bonds, including revenue bonds, for
the purpose of acquiring or constructing water systems. To the
Group's knowledge, no municipality, water district or other
public agency has any pending action to acquire or condemn any of
the Group's systems.
The water industry is experiencing competitive changes and the
potential exists for new growth. The Group has in the past
participated in public/private partnerships, such as the lease of
a water system, system operation agreements, or billing service
contracts, and anticipates future opportunities for further
participation and development. The formation of the holding
company structure is expected to enhance financing, accounting
and operation of the nonregulated business activities.
Environmental Matters
The Group is subject to environmental regulation by various
governmental authorities. Compliance with federal, state and
local provisions which have been enacted or adopted regulating
the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had, as of
the date of filing of this Form 10-K, any material effect on the
Group's capital expenditures, earnings or competitive position.
The Group is unaware of any pending environmental matters which
will have a material effect on its operations. Refer to Item 3,
Legal Proceedings, for additional information.
The environmental affairs program is designed to provide
compliance with underground storage tank regulations, hazardous
materials management plans, air quality permitting requirements,
local and toxic discharge limitations, and employee safety issues
related to hazardous materials. The Company has been actively
involved in the formulation of air quality standards related to
water utilities. Also, the Company is proactive in looking to
alternative technologies in meeting environmental regulations and
continuing the traditional practices of water quality.
Human Resources
At December 31, 1997, the Company had 649 employees, of
whom 178 were executive, administrative and supervisory
employees, and 471 were members of unions. In December 1997,
two-year collective bargaining agreements, expiring December 31,
1999, were successfully negotiated with the Utility Workers Union
of America, AFL-CIO, representing the majority of the Company's
field and clerical union employees. In January 1998, a new two-
year collective bargaining agreement was negotiated with the
International Federation of Professional and Technical Engineers,
AFL-CIO, representing certain engineering department and water
quality laboratory employees. Both agreements were ratified by
the union members in January 1998. As in the past, the
agreements were successfully renewed without a labor
interruption.
d. Financial Information about Foreign and Domestic Operations
and Export Sales.
The Group makes no export sales.
Item 2. Properties.
The Group's physical properties consist of offices and water
systems to accomplish the production, storage, purification, and
distribution of water. These properties are located in or near
the Geographic Service Areas listed above under section Item 1.c.
entitled "Narrative Description of the Business." The Group's
general office, which houses accounting, engineering, information
systems, human resources, purchasing, rate making, water quality
and executive staffs are located in San Jose, California. All
properties are maintained in good operating condition.
All principal properties are held in fee simple title, subject to
the lien of the indenture securing the Company's first mortgage
bonds, of which $119,205,000 remained outstanding at December 31,
1997.
The Group owns 525 wells and operates six leased wells. There
were 290 storage tanks with a capacity of 216 million gallons and
one reservoir located in the Bear Gulch district with a 210
million gallon capacity. There are 4,615 miles of supply and
distribution mains in the various systems. There are two
treatment plants, one in the Bear Gulch district, the other in
Oroville. Both treatment plants are designed to process six
million gallons per day. During 1997, the average daily water
production was 301 million gallons, while the maximum production
on one day was 513 million gallons. By comparison, during 1996
the average daily water production was 283 million gallons, while
the maximum production on one day was 497 million gallons. In
1995, the average daily water production was 273 million gallons
and the maximum production on one day was 493 million gallons.
The trend of increasing customer consumption reflects the impact
of weather patterns during the past three years on customer
usage.
In the leased systems or in systems which are operated under
contract for municipalities or private companies, title to the
various properties is held exclusively by the municipality or
private company.
Item 3. Legal Proceedings.
The State of California's Department of Toxic Substances Control
(DTSC) alleges that the Company is a potential responsible party
for cleanup of a toxic contamination in the Chico groundwater.
The DTSC has prepared a draft report titled "Preliminary
Nonbinding Allocation of Financial Responsibility" for the
cleanup which asserts that the Company's share should be 10
percent. The DTSC estimates the total cleanup cost to be $8.69
million. The toxic spill occurred when cleaning solvents, which
were discharged into the city's sewer system by local dry
cleaners, leaked into the underground water supply due to breaks
in sewer pipes. The DTSC contends that the Company's
responsibility stems from the Company's operation of wells in the
surrounding vicinity which caused the contamination plume to
spread. The Company denies any responsibility for the
contamination or the resulting cleanup and intends to vigorously
resist any action which may be brought against it. The Company
believes that it has insurance coverage for this claim and that
if it were ultimately held responsible for a portion of the
cleanup costs, there would not be a material adverse effect on
the Group's financial position or results of operations.
In December 1997, the Group along with the City of Stockton and
San Joaquin County ("the Contractors") filed a lawsuit against
the Stockton East Water District (SEWD). The Contractors are
SEWD's sole customers for wholesale potable water. SEWD also
serves raw water to agricultural customers. To enable SEWD to
meet its financial obligations, the Contractors agreed to
specific Base Monthly Payments which as of June 30, 1997 had
generated $5.4 million in surplus funds. The Contractors contend
that a portion of the funds paid by the Contractors have been or
will be used for purposes other than to meet SEWD's agreed
financial obligations. Presently, all parties to the lawsuit
have entered into a Stipulated Preliminary Injunction. A
favorable settlement is anticipated.
The Group is not a party to any other legal matters, other than
those which are incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders in
the fourth quarter of year 1997.
Executive Officers of the Registrant
Name Positions and Offices with the Group Age
Robert W. Foy Chairman of the Board since January 1, 1996. 61
(1) A Director since 1977. Formerly President
and Chief Executive Officer of Pacific Storage
Company, Stockton, Modesto, Sacramento and
San Jose, California, a diversified
transportation and warehousing company,
where he had been employed for 32 years.
Peter C. Nelson President and Chief Executive Officer since 50
(1) February 1, 1996. Formerly Vice President,
Division Operations (1994-1995) and Region
Vice President (1989-1994), Pacific Gas &
Electric Company, a gas and electric public
utility.
Gerald F. Feeney Vice President, Chief Financial Officer and 53
(1) Treasurer since November 1994; Controller,
Assistant Secretary and Assistant Treasurer
from 1976 to 1994. From 1970 to 1976, an audit
manager with Peat Marwick Mitchell & Co.
Calvin L. Breed Controller, Assistant Secretary and Assistant 42
(2) Treasurer since November 1994. Previously
Treasurer of TCI International, Inc.; from 1980
to 1983, a certified public accountant with
Arthur Andersen & Co.
Paul G. Ekstrom Corporate Secretary since August 1996; 45
(1) Operations Coordinator, 1993 to 1996;
District Manager, Livermore, 1988 to 1993;
previously served in various field management
positions since 1979; an employee since 1972.
(1) holds the same position with California Water Service Company
and CWS Utility Services
(2) holds the same position with California Water Service Company
Name Positions and Offices with the Company Age
Francis S. Vice President, Regulatory Matters since August 48
Ferraro 1989. Employed by the California Public
Utilities Commission for 15 years, from 1985
through 1989, as an administrative law judge.
James L. Good Vice President, Corporate Communications 34
(1) and Marketing since January 1995. Previously
Director of Congressional Relations for the
National Association of Water Companies from
1991 to 1994.
Robert R. Vice President, Engineering and Water Quality 44
Guzzetta since August 1996; Chief Engineer, 1990 to 1996;
Assistant Chief Engineer, 1988 to 1990; various
engineering department positions since 1977.
Christine L. Vice President, Human Resources since August 51
McFarlane 1996; Director of Human Resources, 1991 to 1996;
Assistant Director of Personnel, 1989 to 1991;
an employee since 1969.
Raymond H. Taylor Vice President, Operations since April 1995; 52
Vice President and Director of Water Quality,
1990 to 1995; Director of Water Quality, 1986
to 1990; prior to 1982 an employee of the United
States Environmental Protection Agency.
Raymond L. Vice President, Chief Information Officer since 58
Worrell August 1996; Director of Information Systems,
1991 to 1996; Assistant Manager of Data Processing,
1970 to 1991; Data Processing Supervisor, 1967 to
1970.
John S. Simpson Assistant Secretary, Manager of New Business 53
since 1991; Manager of New Business development
for the past thirteen years; served in various
management positions since 1967.
(1) Also, Vice President, Marketing with CWS Utility Services.
No officer or director has any family relationship to any other
executive officer or director. No executive officer is appointed
for any set term. There are no agreements or understandings
between any executive officer and any other person pursuant to
which he was selected as an executive officer, other than those
with directors or officers of the Group acting solely in their
capacities as such.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The information required by this item is contained in the
Section captioned "Quarterly Financial and Common Stock Market
Data" on pages 58 and 59 of the Group's 1997 Annual Report and is
incorporated herein by reference. The number of shareholders
listed in such section includes the Group's record shareholders
and an estimate of shareholders who hold stock in street name.
Item 6. Selected Financial Data.
The information required by this item is contained in the section
captioned "Ten Year Financial Review" on pages 26, 27 and 28 of
the Group's 1997 Annual Report and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The information required by this item is contained in the section
captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations," on pages 30 through 38 of
the Company's 1997 Annual Report and is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is contained in the sections
captioned "Consolidated Balance Sheet", "Consolidated Statement of
Income", "Consolidated Statement of Common Shareholders' Equity",
"Consolidated Statement of Cash Flows", "Notes to Consolidated
Financial Statements" and "Independent Auditors' Report" on pages
40 through 60 of the Group's 1997 Annual Report and is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item as to directors of the
Group is contained in the sections captioned "Election of
Directors", "Nominees for Directors" and "Board Committees" on
pages 5 through 8 of the 1998 Proxy Statement and is incorporated
herein by reference. Information regarding executive officers of
the Group is included in a separate item captioned "Executive
Officers of the Registrant" contained in Part I of this report.
Item 11. Executive Compensation.
The information required by this item as to directors of the Group
is included under the caption "Compensation of Non-employee
Directors" on page 9 of the 1998 Proxy Statement and is
incorporated herein by reference. The information required by
this item as to compensation of executive officers, including
officers who are directors, is included under the caption
"Compensation of Executive Officers" on page 12 through 15 of the
1998 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is contained in the sections
captioned "Beneficial Ownership of Director-Nominees" and
"Security Ownership of Management" on pages 10 and 16,
respectively, of the 1998 Proxy Statement and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) (1) Financial Statements:
Consolidated Balance Sheet as of December 31, 1997 and 1996.
Consolidated Statement of Income for the years ended
December 31, 1997, 1996, and 1995.
Consolidated Statement of Common Shareholders' Equity for the
years ended December 31, 1997, 1996, and 1995.
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996, and 1995.
Notes to Consolidated Financial Statements, December 31,
1997, 1996, and 1995
The above financial statements are contained in sections
bearing the same captions on pages 40 through 60 of the
Group's 1997 Annual Report and are incorporated herein by
reference.
(2) Financial Statement Schedule:
Schedule Number
Independent Auditors' Report dated January 23, 1998.
II Valuation and Qualifying Accounts and Reserves--years ending
December 31, 1997, 1996, and 1995.
All other schedules are omitted as the required
information is inapplicable or the information is
presented in the financial statements or related notes.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
See Exhibit Index on page 28 of this document which is
incorporated herein by reference.
The exhibits filed herewith are attached hereto (except as
noted) and those indicated on the Exhibit Index which are not
filed herewith were previously filed with the Securities and
Exchange Commission as indicated. Except where stated
otherwise, such exhibits are hereby incorporated by
reference.
(B) Report on Form 8-K.
Form 8-K filed January 2, 1998 to report a Change in Control
of Registrant pursuant to the formation on December 31, 1997
of the holding company, California Water Service Group, of
which California Water Service Company became a wholly owned
operating subsidiary. Refer to page 5 for a discussion
concerning the Group's second subsidairy. In conjunction
with the formation of the holding company, the Company common
stock was exchanged for Group common stock on a two-for-one
basis.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CALIFORNIA WATER SERVICE GROUP
Date: March 25, 1998 By /s/ Peter C. Nelson
PETER C. NELSON, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
Date: March 25, 1998 /s/ Robert W. Foy
ROBERT W. FOY, Chairman,
Board of Directors
Date: March 25, 1998 /s/ Edward D. Harris, Jr.
EDWARD D. HARRIS, JR., M.D., Member,
Board of Directors
Date: March 25, 1998 /s/ Robert K. Jaedicke
ROBERT K. JAEDICKE, Member,
Board of Directors
Date: March 25, 1998 /s/ Richard P. Magnuson
RICHARD P. MAGNUSON, Member,
Board of Directors
Date: March 25, 1998 /s/ Linda R. Meier
LINDA R. MEIER, Member,
Board of Directors
Date: March 25, 1998 /s/ Peter C. Nelson
PETER C. NELSON
President and Chief Executive Officer,
Member, Board of Directors
Date: March 25, 1998 /s/ C. H. Stump
C. H. STUMP, Member,
Board of Directors
Date: March 25, 1998
GEORGE A. VERA, Member
Board of Directors
Date: March 25, 1998 /s/ J. W. Weinhardt
J. W. WEINHARDT, Member,
Board of Directors
Date: March 25, 1998 /s/ Gerald F. Feeney
GERALD F. FEENEY,
Vice President, Chief Financial
Officer and Treasurer;
Principal Financial Officer
Date: March 25, 1998 /s/ Calvin L. Breed
CALVIN L. BREED, Controller,
Assistant Secretary and Assistant
Treasurer;
Principal Accounting Officer
Independent Auditors' Report
Shareholders and Board of Directors
California Water Service Group:
Under date of January 23, 1998, we reported on the consolidated balance
sheet of California Water Service Group as of December 31, 1997 and
1996, and the related consolidated statements of income, common
shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, as contained in the 1997
annual report to shareholders. These financial statements and our
report thereon are incorporated by reference in the annual report on
Form 10-K for the year 1997. In connection with our audits of the
aforementioned financial statements, we also audited the related
consolidated financial statement schedule as listed in the index
appearing under Item 14(a)(2). This financial statement schedule is
the responsibility of the Group's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
San Jose, California /s/ KPMG Peat Marwick LLP
January 23, 1998
<TABLE>
CALIFORNIA WATER SERVICE GROUP Schedule II
Valuation and Qualifying Accounts
Years Ended December 31, 1997, 1996 and 1995
Additions
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
<S> <C> <C> <C> <C> <C>
1997
(A) Reserves deducted in the balance sheet from assets to which they apply:
Allowance for doubtful accounts $99,550 $610,951 $70,850(3) $681,255(1) $100,096
Allowance for obsolete materials and supplies $101,077 48,000 19,884(2) 129,193
(B) Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $997,834 $668,496 $765,905(2) $900,425
Employees' group health plan $467,986 3,140,000 14,539 2,901,405(2) 721,120
Retirees' group health plan $911,998 581,000 531,375 581,000(2) 1,443,373
Workers compensation $499,651 830,313 668,135(2) 661,829
Deferred revenue - contributions in aid of construction $1,799,573 126,547 341,778(6) 1,584,342
Disability insurance $50,371 103,167 129,727(2) 23,811
$4,727,413 $5,219,809 $775,628 $5,387,950 $5,334,900
Contributions in aid of construction $43,066,585 $2,447,231(4) $1,243,733(5) $44,270,083
1996
(A) Reserves deducted in the balance sheet from assets to which they apply:
Allowance for doubtful accounts $76,197 $530,691 $65,445(3) $572,783(1) $99,550
Allowance for obsolete materials and supplies 74,675 48,000 21,598(2) 101,077
(B) Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $826,965 $740,000 $569,131(2) $997,834
Employees' group health plan 400,004 2,880,000 14,348 2,826,366(2) 467,986
Retirees' group health plan 670,998 523,000 241,000 523,000(2) 911,998
Workers compensation 260,170 835,430 595,949(2) 499,651
Deferred revenue - contributions in aid of construction 1,930,336 276,525 407,288(6) 1,799,573
Disability insurance 47,453 199,097 196,179(2) 50,371
$4,135,926 $4,978,430 $730,970 $5,117,913 $4,727,413
Contributions in aid of construction $40,113,707 $4,062,087(4) $1,109,209(5) $43,066,585
1995
(A) Reserves deducted in the balance sheet from assets to which they apply:
Allowance for doubtful accounts $50,816 $429,096 $74,170(3) $477,885(1) $76,197
Allowance for obsolete materials and supplies $3,393 95,000 23,718(2) 74,675
(B) Reserves classified as liabilities in the balance sheet:
Miscellaneous reserves:
General Liability $962,152 $339,960 $475,147(2) $826,965
Employees' group health plan $200,387 2,907,000 14,928 2,722,311(2) 400,004
Retirees' group health plan $425,998 507,000 245,000 507,000(2) 670,998
Workers compensation $107,576 879,423 726,829(2) 260,170
Deferred revenue - contributions in aid of construction $1,917,386 368,180 355,230(6) 1,930,336
Disability insurance $116,130 200,973 269,650(2) 47,453
$3,729,629 $4,633,383 $829,081 $5,056,167 $4,135,926
Contributions in aid of construction $37,866,799 $3,244,258(4) $997,350(5) $40,113,707
Notes:
(1) Accounts written off during the year. (4) Properties acquired at no cost, cash contributions and net transfer
(2) Expenditures and other charges made during the year. on non-refundable balances from advances to contributions.
(3) Recovery of amounts previously charged to reserve. (5) Depreciation of utility plant acquired by contributions charged to
a balance sheet account.
(6) Amortized to revenue.
</TABLE>
EXHIBIT INDEX
Sequential
Page Numbers
Exhibit Number in this Report
Unless filed with this Form 10-K, the documents listed
are incorporated by reference to the filings listed below.
3. Articles of Incorporation and by-laws:
3.1 Restated Articles of Incorporation of California 28
Water Service Group and By-laws of California Water
Service Group (Filed as Exhibits B and C, respectively,
of the 1997 California Water Service Company Proxy
Statement/Prospectus (Form S-4, Registration No.
333-22915).
3.2 Certificate of Determination of Preferences for 28
the Group's Series D Preferred Stock (Exhibit A
to the Shareholder Rights Plan, an agreement between
California Water Service Group and BankBoston, N.A.,
rights agent, dated January 28, 1998 file as Exhibit
1 to Form 8-A and Exhibit 1 to Form 8-K dated
February 13, 1998, File No. 0-464)
4. Instruments Defining the Rights of Security 28
Holders of including Indentures of California Water
Service Company:
4.1 Mortgage of Chattels and Trust Indenture 28
dated April 1, 1928; Eighth Supplemental Indenture
dated November 1, 1945, covering First Mortgage
3.25% Bonds, Series C; twenty-first
Supplemental Indenture dated October 1, 1972,
cover First Mortgage 7.875% Bonds, Series P;
twenty-fourth Supplemental Indenture dated
November 1, 1973, covering First Mortgage 8.50%
Bonds, Series S (Exhibits 2(b), 2(c), 2(d),
Registration Statement No. 2-53678, of which
certain exhibits are incorporated by reference
to Registration Statement Nos. 2-2187, 2-5923,
2-5923, 2-9681, 2-10517 and 2-11093.)
4.2 Thirty-third Supplemental Indenture dated as 28
of May 1, 1988, covering First Mortgage
9.48% Bonds, Series BB. (Exhibit 4 to Form 10-Q
dated September 30, 1988, File No. 0-464)
4.3 Thirty-fourth Supplemental Indenture dated as 28
of November 1, 1990, covering First Mortgage
9.86% Bonds, Series CC. (Exhibit 4 to Form 10-K
for fiscal year 1990, File No. 0-464)
4.4 Thirty-fifth Supplemental Indenture dated as of 28
November 1, 1992, covering First Mortgage 8.63%
Bonds, Series DD. (Exhibit 4 to Form 10-Q
dated September 30, 1992, File No. 0-464)
4.5 Thirty-sixth Supplemental Indenture dated as of 29
May 1, 1993, covering First Mortgage 7.90% Bonds
Series EE (Exhibit 4 to Form 10-Q dated
June 30, 1993, File No. 0-464)
4.6 Thirty-seventh Supplemental Indenture dated as 29
of September 1, 1993, covering First Mortgage
6.95% Bonds, Series FF (Exhibit 4 to Form 10-Q
dated September 30, 1993, File No. 0-464)
4.7 Thirty-eighth Supplemental Indenture dated as 29
of October 15, 1993, covering First Mortgage 6.98%
Bonds, Series GG (Exhibit 4 to Form 10-K for fiscal
year 1994, File No. 0-464)
4.8 Note Agreement dated August 15, 1995, pertaining 29
to issuance by California Water Service Company of
$20,000,000, 7.28% Series A Unsecured Senior Notes,
due November 1, 2025 (Exhibit 4 to Form 10-Q dated
September 30, 1995 File No. 0-464)
4.9 Shareholder Rights Plan; an agreement between 29
California Water Service Group and BankBoston,
N.A., rights agent, dated January 28, 1998
(Exhibit 1 for Form 8-A and Exhibit 1 to Form
8-K dated February 13, 1998)
10. Material Contracts.
10.1 Water Supply Contract between the California 29
Water Service Company ("Company") and the
County of Butte relating to the
Company's Oroville District; Water Supply
Contract between the Company and the Kern
County Water Agency relating to the
Company's Bakersfield District; Water
Supply Contract between the Company and
Stockton East Water District relating to
the Company's Stockton District.
(Exhibits 5(g), 5(h), 5(i), 5(j),
Registration Statement No. 2-53678, which
incorporates said exhibits by reference to
Form 1O-K for fiscal year 1974, File No. 0-464).
10.2 Settlement Agreement and Master Water Sales 29
Contract between the City and County of San
Francisco and Certain Suburban Purchasers
dated August 8, 1984; Supplement to
Settlement Agreement and Master Water
Sales Contract, dated August 8, 1984; Water
Supply Contract between the Company and
the City and County of San Francisco relating
to the Company's Bear Gulch District dated
August 8, 1984; Water Supply Contract
between the Company and the City and County
of San Francisco relating to the Company's
San Carlos District dated August 8, 1984;
Water Supply Contract between the Company
and the City and County of San Francisco
relating to the Company's San Mateo District
dated August 8, 1984; Water Supply Contract
between the Company and the City and County
of San Francisco relating to the Company's
South San Francisco District dated August 8,
1984. (Exhibit 10.2 to Form l0-K for fiscal
year 1984, File No. 0-464).
10.3 Water Supply Contract dated January 27, 30
1981, between the Company and the Santa
Clara Valley Water District relating to
the Company's Los Altos District
(Exhibit 10.3 to Form 10-K for fiscal
year 1992, File No. 0-464)
10.4 Amendments No. 3, 6 and 7 and Amendment 30
dated June 17, 1980, to Water Supply
Contract between the Company and the
County of Butte relating to the Company's
Oroville District. (Exhibit 10.5 to Form
10-K for fiscal year 1992, File No. 0-464)
10.5 Amendment dated May 31, 1977, to Water 30
Supply Contract between the Company and
Stockton-East Water District relating to
the Company's Stockton District.
(Exhibit 10.6 to Form 10-K for fiscal
year 1992, File No. 0-464)
10.6 Second Amended Contract dated September 25, 30
1987 among the Stockton East Water District,
the California Water Service Company, the
City of Stockton, the Lincoln Village
Maintenance District, and the Colonial Heights
Maintenance District Providing for the Sale of
Treated Water. (Exhibit 10.7 to Form 10-K for
fiscal year 1987, File No. 0-464).
10.7 Water Supply Contract dated April 19, 1927, 30
and Supplemental Agreement dated June 5,
1953, between the Company and Pacific Gas
and Electric Company relating to the
Company's Oroville District. (Exhibit 10.9
to Form 10-K for fiscal year 1992, File No.
0-464)
10.8 California Water Service Company Pension Plan 30
(Exhibit 10.10 to Form 10-K for fiscal year
1992, File No. 0-464)
10.9 California Water Service Company Supplemental 30
Executive Retirement Plan. (Exhibit 10.11 to
Form 10-K for fiscal year 1992, File No. 0-464)
10.10 Agreement between the City of Hawthorne and 31
California Water Service Company for the 15
year lease of the City's water system.
(Exhibit 10.17 to Form 10-Q dated March 31, 1996)
10.11 Water Supply Agreement dated September 25, 1996 31
between the City of Bakersfield and California
Water Service Company. (Exhibit 10.18 to Form 10-Q
dated September 30, 1996)
10.12 Agreement of Merger dated March 6, 1997 by and among 31
California Water Service Company, CWSG Merger Company
and California Water Service Group. (Filed as Exhibit
A of the 1997 California Water Service Company Proxy
Statement/Prospectus which was incorporated by
reference in the Form 10-K for 1997)
10.13 Dividend Reinvestment and Stock Purchase Plan dated 31
February 17, 1998 (Filed on Form S-3, Registration
Statement No. 333-46447)
10.14 California Water Service Company Employees Savings
Plan. (Exhibit 10.14 to Form 10-K for fiscal year
1997)
10.15 California Water Service Group Directors Deferred
Compensation Plan (Exhibit 10.15 to Form 10-K for
fiscal year 1997)
10.16 California Water Service Group Directors
Retirement Plan (Exhibit 10.16 to Form 10-K
for fiscal year 1997)
10.17 $50,000,000 Business Loan Agreements between
California Water Service Group, California Water
Service Company and CWS Utility Services and
Bank of America dated March 16, 1998, expiring
April 30, 1999 (Exhibit 10.17 to Form 10-K for
the year 1997)
13. Annual Report to Security Holders, Form 10-Q or
Quarterly Report to Security Holders:
1997 Annual Report. Certain sections of the 1997
Annual Report are incorporated by reference in this
10-K filing. This includes those sections referred
to in Part II, Item 5, Market for Registrant's
Common Equity and Related Shareholder Matters;
Part II, Item 6, Selected Financial Data; Part II,
Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations; and
Part II, Item 8, Financial Statement and Supplementary
Data.
27. Financial Data Schedule as of December 31, 1997
EXHIBIT 10.14
CALIFORNIA WATER SERVICE COMPANY
SAVINGS PLAN AND TRUST AGREEMENT
(May 1994 Revision)
CALIFORNIA WATER SERVICE COMPANY
SAVINGS PLAN AND TRUST AGREEMENT
(1994 Revision)
Background
California Water Service company initially established a
retirement savings plan in which all employees were eligible to
participate. That plan was then split into two plans: this Plan
for salaried employees and the Union Plan for the Employer's
employees who are Union members. Cash or deferred features were
added to each of those plans. Effective December 31, 1987, the
Employer terminated its PAYSOP and on January 1, 1988 transferred
to each of the savings plans, assets allocated to the accounts of
certain PAYSOP participants. Effective January 1, 1994, the Union
Plan is merged into this Plan. This 1994 revision amends and
restates the Plan to reflect changes required by the Tax Reform
Act of 1986 and other statutes and regulations and reflects the
merger of Union Plan into this Plan. This revision also
constitutes the trust agreement for Plan assets other than
Employer Stock. There is a separate trust agreement for Employer
Stock. This revision is effective on January 1, 1988 and such
other dates indicated herein and is a profit-sharing plan with a
cash or deferred feature. Capitalized terms are defined in Section 1.
Section 1. Definitions
1.1 General Rules
Section headings are for convenience only and, in case of
conflict, the text of the Plan controls. The singular includes the
plural unless the context indicates otherwise.
1.2 Definitions
Capitalized terms in this plan have the following definitions:
ALTERNATE PAYEE means a person described as such in Section
414(p) of the Internal Revenue Code and Section 206(d)(3)(B) of
ERISA.
BENEFICIARY -- See Paragraph (c) of Subsection 6.5 of
Section 6.
BOARD OF DIRECTORS means the Board of Directors of the
California Water Service Company.
COMMITTEE -- See Subsection 9.1 of Section 9.
DISABILITY means a physical or mental condition which
prevents the Participant from engaging in his or her usual
occupation and which is presumed to be permanent. Disability is
established by certification of a licensed physician appointed by
or otherwise acceptable to the Employer. The certification of the
physician is conclusive and binding on all parties.
EARNINGS means a Participant's current salary before
reduction for the amount of contribution under this Plan as listed
on the Employer's payroll records. Effective January 1, 1989 up to
and including December 31, 1993, the annual Earnings for each
Participant taken into account under the Plan for any year will
not exceed $200,000. This limitation will be adjusted by the
Commissioner of Internal Revenue at the same time and in the same
manner as under Section 415(d) of the Internal Revenue Code,
except that the dollar increase in effect on January 1 of any
calendar year is effective for Plan Years beginning in that
calendar year and the first adjustment to the $200,000 limitation
is effective January 1, 1990. In determining Earnings for a
Participant for purposes of the $200,000 limitation, the rules of
Section 414(q)(6) of the Internal Revenue Code apply, except the
term ''family'' includes only the spouse of the Participant and
any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year. If, as a result of the
application of those rules, the adjusted $200,000 limitation is
exceeded, then the limitation is prorated among the affected
individuals in proportion to each such individual's Earnings as
determined under the Plan prior to application of the $200,000
limitation. Effective January 1, 1994, the annual Earnings of each
Participant taken into account under the Plan must not exceed
$150,000, as adjusted by the Commissioner of Internal Revenue in
accordance with Section 401(a)(17)(B) of the Internal Revenue
Code. The adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Earnings are
determined (determination period) beginning in such calendar year.
If a determination period consists of fewer than 12 months, the
annual compensation limit described in the two preceding sentences
will be multiplied by a fraction the numerator of which is the
number of months in the determination period and the denominator
of which is 12.
EMPLOYEE means, up to and including December 31, 1993, any
person who is in the employ of the Employer and whose terms and
conditions of employment are neither governed by nor set forth in
a collective bargaining agreement. Effective January 1, 1994,
Employee means any person who is in the employ of the Employer.
EMPLOYEE CONTRIBUTION ACCOUNT -- See Subsection 3.1.
EMOLOYEE CONTRIBUTIONS -- See Subsection 3.1.
EMPLOYER means California Water Service Company, a
California corporation and any subsidiary of or company affiliated
with the Employer which subsidiary or affiliated company is
hereafter authorized by the Board of Directors to participate in
the Plan.
EMPLOYER CONTRIBUTION ACCOUNT -- See Subsection 3.3.
EMPLOYER CONTRIBUTIONS -- See Subsection 3.3.
EMPLOYER STOCK means the common stock of California Water
Service Company.
EMPLOYER STOCK ACCOUNT means the account established for
each Participant or Former Participant who has made an election to
invest in Employer Stock and for each Participant or Former
Participant in respect to whom a transfer was made to this Plan or
the Union Plan from the PAYSOP.
ERISA means the Employee Retirement Income Security Act of
1974.
FORMER PARTICIPANT means a Participant whose employment with
the Employer has terminated but who has an account balance under
the Plan which has not been paid in full.
FUNDS means the investment funds established by the
Committee in accordance with Paragraph (a) of Subsection 4.2.
NORMAL RETIREMENT DATE means the Participant or Former
Participant's 65th birthday.
Participant means an Employee who participates in the Plan as
described in Section 2.
PARTICIPANT ACCOUNTS means all accounts maintained under
this Plan on behalf of a Participant or Former Participant,
Beneficiary or Alternate Payee.
PAYSOP means the Payroll-Based Tax Credit Employee Stock
Ownership Plan of California Water Service Company which was
terminated effective December 31, 1987.
PLAN means, up to and including December 31, 1993, this
California Water Service Company Salaried Employees' Savings Plan;
effective January 1, 1994, the Plan is named the California Water
Service Company Savings Plan.
PLAN YEAR means the calendar year.
PRIOR PLAN means the California Water Service Company
Retirement Savings Plan, as amended and restated and in effect on
June 30, 1982.
PRIOR PLAN ACCOUNT means the account to which a
Participant's or Former Participant's account from the Prior Plan
was transferred.
QUALIFIED DOMESTIC RELATIONS ORDER means an order described
in Section 206(d)(3)(B) of ERISA and Section 414(p) of the
Internal Revenue Code.
SALARIED SAVINGS PLAN COMMITTEE -- See Subsection 9.1 of
Section 9.
TRUST FUND means the fund established in accordance with
Section 8.
UNION means the Utility Workers of America and the
International Federation of Professional and Technical Engineers,
both affiliated with the AFL-CIO.
UNION EMPLOYEE means an employee of the Employer whose terms
and conditions of employment are governed by or set forth in a
collective bargaining agreement.
UNION PLAN means the California Water Service Company Union
Employees' Savings Plan.
UNION PLAN PARTICIPANT means any participant in the Union
Plan.
UNION SAVINGS PLAN COMMITTEE -- See Subsection 9.1 of
Section 9.
YEAR means the Plan Year.
Section 2. Participation
2.1 Eligible Class of Employees
All Employees are eligible to participate in the Plan.
2.2 When an Employee Becomes a Participant - General Rule
Each Employee not described in Subsection 2.3 becomes a
Participant on the first day of the Year following the date of his
or her commencement of employment, provided he or she is an
Employee on that date. Notwithstanding the preceding sentence, no
person becomes a Participant prior to his or her proper completion
and return to the Employer of a form authorizing deferrals under
the Plan and specifying investments as provided in Subsection 4.2.
2.3 When an Employee Becomes a Participant - Special Rules
(a) Each person who was a Participant on December
31, 1987 continues to participate in the Plan as a Participant on
January 1, 1988.
(b) Each person who was a Former Participant on
December 31, 1987 continues to participate in the Plan as a Former
Participant on January 1, 1988.
(c) Each person who, on December 31, 1993, was a
participant in the Union Plan becomes a Participant in this Plan
on January 1, 1994.
(d) Each person who, on December 31, 1993, was a
former participant in the Union Plan becomes a Former Participant
in this Plan on January 1, 1994.
(e) Each person who, on December 31, 1987, (i) was
an Employee (as defined in this Plan on that date), (ii) was a
participant in the PAYSOP and (iii) was not a Participant in this
Plan, becomes a Participant on January 1, 1988.
(f) Each person who, on December 31, 1987, (i) was
not employed by the Employer, (ii) was a former participant in the
PAYSOP and (iii) was not a Participant in this Plan, becomes a
Former Participant on January 1, 1988.
2.4 Rehired Employees
(a) A Former Participant with a Participant Account
in the Plan who resumes employment as an Employee participates in
the Plan immediately upon reemployment. That Former Participant
may authorize deferrals as provided in Subsection 3.1 and by
specifying investments as provided in Subsection 4.2.
(b) A Former Participant who has received
distribution of the balance of his or her Participant Accounts in
the Plan may elect to participate in the Plan immediately after
becoming an Employee. He or she becomes a Participant by proper
completion and return to the Employer of a form authorizing
deferrals as provided in Subsection 3.1 and by specifying
investments as provided in Subsection 4.2.
(c) A former Employee who did not participate in the
Plan may elect, in writing, to participate in the Plan on the date
of his or her rehire as an Employee. He or she becomes a
Participant by proper completion and return to the Employer of a
form authorizing deferrals as provided in Subsection 3.1 and by
specifying investments as provided in Subsection 4.2.
2.5 Change in Employee Classification
(a) This section is effective only up to and
including December 31, 1993.
(b) If a person employed by the Employer becomes an
Employee eligible to participate in the Plan because his or her
terms and conditions of employment with the Employer cease to be
governed by or set forth in a collective bargaining agreement, he
or she commences participation in the Plan as of the date of the
change in his employee classification by proper completion and
return to the Employer of a form authorizing deferrals under the
Plan and specifying investments as provided in Subsection 4.2.
(c) If a person ceases to be an Employee eligible to
participate in the Plan because his or her terms and conditions of
employment with the Employer become governed by or set forth in a
collective bargaining agreement, he or she ceases participation in
the Plan as of the date of the change in his or her employee
classification. His or her Participant Account will be transferred
to the Union Plan as provided in Subsection 8.9.
Section 3. Contributions
3.1 Participant Contributions - Deferrals
(a) Each Participant (including Participants who are
at or beyond their Normal Retirement Age and still employed by the
Employer) may elect to defer one percent, or any full percent up
to and including 14%, of his or her Earnings. Effective January 1,
1994, the maximum percentage of Earnings deferred is 15%.
Deferrals begin within 15 days of receipt by the Employer of the
form authorizing deferrals under the Plan. Upon receipt of a
deferral election, but subject to Paragraph (b) of this Subsection
3.1, Subsection 3.2, and Subsection 3.5, the Employer reduces the
Earnings of the Participant by the percentage specified and
contributes that amount to an account for that Participant which
is known as his or her Employee Contribution Account, and
contributions to which are known as Employee Contributions.
(b) In addition to and not in lieu of any other
limitation contained in this Plan, the total amount deferred
pursuant to the deferral election of any Participant will not
exceed $7,000 (or such other amount as determined in applicable
Treasury Regulations) for any taxable year of the Participant.
3.2 Changes to Deferral Elections
(a) A Participant may change (i.e., increase or
decrease) his or her existing deferral election by supplying a
revised election form to the Employer at any time during a
calendar quarter, effective for the next pay period. No more than
one change may be made in any calendar quarter.
(b) A deferral election may be suspended (i.e.,
reduced to 0) at the option of the Participant by delivering a
written notice to the Employer at least 30 days prior to the
effective date of suspension and subject to the next paragraph.
This suspension provision applies only if the Participant does not
change his or her election in accordance with the provisions of
Paragraph (a) concerning quarterly changes to the deferral
election.
(c) In the event a Participant suspends deferrals
under Paragraph (b), he or she may, effective no less than 12
months after the effective date of the suspension, again elect to
make deferrals by furnishing the Employer with a completed
deferral authorization form requesting deductions to be made from
his or her Earnings.
(d) A Participant who takes a leave of absence
exceeding 30 days is prohibited from deferring any Earnings during
the period of his or her leave of absence or for a period of six
months, whichever is longer.
(e) Participants who make hardship withdrawals are
subject to suspension and limitations on making further deferrals.
See Appendix B.
(f) A Participant who makes a withdrawal from his
Prior Plan Account which is attributable to regular contributions
to the Prior Plan is prohibited from deferring any Earnings for 12
months from the date of withdrawal. A distribution is deemed
attributable to additional contributions to the Prior Plan until
such time as the Participant has withdrawn the aggregate amount of
additional contributions to the Prior Plan. Thereafter, all
distributions are deemed to be attributable to regular
contributions.
3.3 Employer Contributions
Each Year the Employer will make an Employer Contribution to
the Plan for allocation to the Employer Contribution Account of
each Participant who has made a deferral election described in
Subsection 3.1. The amount of the Employer Contribution for each
such Participant is equal to 50% of the Participant's Employee
Contribution for the Year which is not in excess of 6% of his or
her Earnings for that Year. In no event will any Employer
Contribution under this subsection be made on behalf of a
Participant while that Participant's deferrals are suspended
pursuant to Subsection 3.2. In addition, should the plan be top-
heavy, the Employer will make a minimum top-heavy contribution.
See Appendix C.
3.4 Payment of Contributions
(a) The Employer contributes Employee Contributions
to the Trust Fund no later than the earliest date by which the
deferral can be segregated from the Employer's general assets, but
in no event more than 90 days from the date on which the
Participant's deferred Earnings would have been payable to him or
her had the Participant not made a deferral election.
(b) The Employer makes all contributions other than
Employee Contributions to the Trust Fund no later than the last
day (as extended) for the filing of the Employer's federal income
tax return.
(c) The Committee will arrange to have all
contributions allocated to Participant Accounts as provided in
Section 4.
3.5 Limitation on Contributions
Deferrals under Section 3.1 and Employer Contributions under
Section 3.3 are limited as provided under the nondiscrimination
rules of Sections 401(k) and 401(m) of the Internal Revenue Code.
See Appendix A.
Section 4. Accounts
4.1 Participant Accounts
The Committee has established Participant Accounts for each
Participant or Former Participant. It has established an Employee
Contribution Account and Employer Contribution Account for each
Participant or Former Participant who has made a deferral of
Earnings. It has established a Prior Plan Account for each
Participant or Former Participant in respect to whom a transfer
was made to this Plan from the Prior Plan. It has established an
Employer Stock Account for each Participant or Former Participant
who has made an election to invest in Employer Stock and for each
Participant or Former Participant in respect to whom a transfer
was made to this Plan from the PAYSOP. The Committee will
establish similar accounts for Beneficiaries and Alternate Payees
with a segregated interest in the Plan.
4.2 Investment of Contributions
(a) The Committee will establish at least three
investment Funds which provide Participants with a broad range of
investment alternatives as described in Department of Labor
Regulations 2550.404c-1(3). The Committee may establish
additional Funds in its discretion.
(b) Employee Contribution Accounts and Prior Plan
Accounts may be invested in any of the Funds or may be divided
among those Funds, as elected by the Participant, Former
Participant, Beneficiary or Alternate Payee in accordance with
rules adopted by the Committee. The election must be delivered to
the Employer in writing. The Employer is the fiduciary designated
to receive investment instructions as described in Department of
Labor Regulations 2550.404c-l(b)(2)(A). If an individual has an
Employee Contribution Account and a Prior Plan Account, a single
election governs investment of both accounts. Under no
circumstances may an Employee Contribution Account or a Prior Plan
Account be invested in Employer Stock.
(c) Employer Contributions Accounts may be invested
entirely in Employer Stock or diversified among the Funds as
provided in Paragraph (b) of this Subsection 4.2.
(d) The Employer Stock Account may be invested only
in Employer Stock.
(e) The Plan permits an individual to direct that
future contributions be invested in and existing Participant
Accounts be transferred to or among investment Funds and, in the
case of Paragraph (c), the Employer Stock Account, provided,
however, that under no circumstances may an Employee Contribution
Account or a Prior Plan Account be invested in the Employer Stock
Account. The direction described in the preceding sentence must be
in writing, delivered to the Employer and may be made in a manner
prescribed by the Committee, but in any event, the Participant,
Former Participant or Beneficiary will be able to change
investments at least once in any three-month period. The written
election must be for a specific percentage of the account balance
or a flat dollar amount but may not be less than $1,000, unless
the entire balance in the appropriate account is less than $1,000.
4.3 Allocation to Accounts
(a) See Subsections 3.1 and 3.3 concerning
allocation of contributions to Employee Contribution Accounts and
Employer Contribution Accounts.
(b) As of the last day of the Year and at such
additional times as the Committee determines, the Participant
Accounts will be adjusted and valued to reflect gains or losses of
the investments of the funds in which invested. The gains and
losses of the investment Funds for the Year are allocated based on
the relative Participant Account values of each of the Participant
Accounts invested in that fund on the first day of that Year,
provided that the Committee may, in its discretion, establish
equitable rules to reflect contributions or withdrawals from
Participant Accounts during the year. The gains and losses in
Employer Stock are allocated to the Employer Stock Account holding
that stock.
4.4 Section 415 Limitation
(a) The Plan Year is the limitation year. During any
limitation year, no amount will be allocated to Participants'
Accounts in excess of the limitations established by Section 415
of the Internal Revenue Code and Treasury Regulations issued under
that section. That section and those regulations are incorporated
in this Plan by reference, provided that in applying the
limitations of Section 415(e), if the Plan is top-heavy as defined
in Appendix C, then Paragraphs (2)(B) and (3)(B) of Section 415(e)
will be applied by substituting "1.0" for "1.25.''
(b) In the case that the limitations in the
preceding paragraph are exceeded in respect to a Participant, the
Plan will return to the Participant his or deferrals described in
Subsection 3.1. Should that distribution fail to bring the
allocations within the limitations contained in the previous
paragraph, allocations to Participants' Accounts will be reduced
to comply with this section. The reduction of allocations is held
in an unallocated suspense account to be allocated and reallocated
to the Accounts of all Participants in succeeding Plan Years in
accordance with, and subject to, the limitations of the Plan and
the provisions of applicable Treasury Regulations. No profits or
losses will be allocated to the suspense account. Until all
amounts in the suspense account can be allocated, the Employer
will make no contributions to the Plan and amounts in the suspense
account will be used to reduce Employer contributions and will not
be distributed to Participants. Reduction in allocations under
this Plan and in allocations or benefit accruals under any other
plan maintained by any Employer in which the Participant
participates will be made in the following order:
(i) Reduction in allocation of Employer
Contributions;
(ii) Reduction in benefit accruals under the
California Water Service Pension Plan;
(iii) Reduction in allocations or benefits under any
other plan of an Employer of which the
Participant is a member.
4.5 Statement of Accounts
Each Participant, Former Participant, Beneficiary or
Alternate Payee who has an account in the Plan will receive a
statement showing the status of his or her Participant Accounts as
required by ERISA.
4.6 Vesting
All Participant Accounts are at all times 100% vested.
Section 5. Applying for Benefits
5.1 Application for Benefits
An application for Plan benefits must be in writing. The
application must be filed at the time and in the manner specified
by the Committee. Where the application is made under Subsections
5.4 or 5.5 or 5.6 and requests withdrawal of less than the balance
to the credit of the Participant or Former Participant in the
Plan, the application must specify the Fund or Funds or Employer
Stock Account from which the withdrawal is to be made. No more
than one withdrawal under Subsections 5.4, 5.5 and/or 5.6 may be
made in any 12-month period, except that a Participant who is
required to make a withdrawal under Subsection 5.4 as a condition
to making a withdrawal under Subsection 5.5 may make both such
withdrawals simultaneously.
5.2 Termination of Employment
A living Participant who terminates employment for any
reason may apply for benefits under this Plan. Benefits on
termination of employment will be in the form of a single sum of
cash, except that if the Participant has whole shares of Employer
Stock in his or her Employer Stock Account, those whole shares
will be distributed in kind.
5.3 Beneficiaries and Alternate Payees
A Beneficiary, Prior Participant or Alternate Payee may
withdraw all, but not less than all, of his or her interest in the
Plan at any time. Distribution will be in the form of a
single sum of cash, except that if the Beneficiary, Prior
Participant or Alternate Payee has whole shares of Employer Stock
in his or her Employer Stock Account, those whole shares will be
distributed in kind.
5.4 Prior Plan Account
A Participant with a Prior Plan Account may at any time
apply to withdraw from that account an amount not in excess of the
aggregate total contributions made on his or her behalf to the
Prior Plan less subsequent withdrawals. A Former Participant with
a Prior Plan Account may not withdraw from that account, except as
provided in Subsection 5.3.
5.5 Hardship Withdrawals
A Participant may make a hardship withdrawal as provided in
Appendix B. A Former Participant, Beneficiary or Alternate Payee
may not make a hardship withdrawal.
5.6 Disability Withdrawals
A Participant who is suffering from a Disability may make a
withdrawal from his or her Participant Accounts.
5.7 Excess Deferrals
If, for any taxable year of a Participant, the Participant
defers an amount which is included in income because it is in
excess of the limitation on exclusion for elective deferrals (as
provided in Section 402(g) of the Internal Revenue Code), then the
Participant may deliver to the Committee, not later than March 1
following the close of his or her taxable year, a written election
to allocate for distribution all or a portion of that amount. The
Committee may, at its discretion, cause to be distributed to the
Participant the amount subject to the election, together with the
earnings thereon.
Section 6. Benefits for Which No Application is Necessary
6.1 Form of Distribution
All distributions made under this Section 6 will be in the
form of a single sum of cash, except that if the Participant or
Former Participant has whole shares of Employer Stock in his or
her Employer Stock Account, those whole shares will be distributed
in kind.
6.2 Cash Out of Small Amounts
Where a Participant terminates employment and the balance in
his or her Participant Accounts is not and never has exceeded
$3,500, the Plan will make a distribution to him or her as soon as
possible after termination of employment of the balance in his
Participant Accounts. Notwithstanding the foregoing, if the
balance in the Participant Accounts of a Participant is or at any
time has been in excess of $3,500, no distribution will be made to
him or her before Normal Retirement Date, unless the Participant
requests distribution at an earlier time in writing.
6.3 Mandatory Distribution at Normal Retirement Date
If, upon reaching Normal Retirement Date, a Former
Participant, Beneficiary or Alternate Payee has a balance in his
or her Participant Accounts, the Plan will, as soon as possible,
distribute that balance to him or her.
6.4 Mandatory Distribution at Age 70-1/2
Notwithstanding any other provision of the Plan, if, upon
reaching age 70-1/2, a Participant has a balance in his or her
Participant Accounts, the Plan will, no later than April 1 of the
calendar year following the calendar year in which the Participant
reaches age 70-1/2, distribute to the Participant the balance to
the credit in his or her Participant Accounts. If further
contributions are thereafter made on the Participant's behalf, the
Plan will annually distribute to the Participant the contributions
and earnings thereon.
6.5 Death Benefits
(a) If a Participant, Former Participant or Alternate
Payee dies leaving a balance in his or her Participant Accounts,
his or her Beneficiary will receive benefits upon written
application filed with the Committee. The amount of such benefits
is the unpaid balance of Participant Accounts. If no application
for benefits is filed, the Committee will cause benefits to be
paid on or before the last day of the Plan Year in which occurs
the fifth anniversary of the death of the Participant, Former
Participant or Alternate Payee. Notwithstanding the foregoing, if
no application for benefits is filed and the Beneficiary is the
former spouse of the Participant or Former Participant, the
Committee will cause benefits to be paid on the date specified in
the preceding sentence or the date the Participant or Former
Participant would have attained age 70-1/2, whichever is later.
(b) If a Beneficiary dies leaving a balance in his or
her Accounts, his or her estate will receive benefits as of the
date of death. The amount of such benefits is the unpaid balance
of Participant Accounts.
(c) The Beneficiary of a Participant or Former
Participant is the spouse of the Participant or Former
Participant, provided that the Participant or Former Participant
may designate a Beneficiary other than his or her spouse in a
writing filed with the Committee. No designation or change in
designation is effective until received by the Committee, but,
once it has been so received, it takes effect as of the date the
notice was signed, subject to any payment made or other action
taken before receipt. To be valid, the designation must be
consented to by the spouse unless the Participant or Former
Participant establishes to the satisfaction of the Committee that:
(i) he or she has no spouse; (ii) his or her spouse cannot be
located; or (iii) other circumstances exist under which no consent
is required under applicable Treasury or Department of Labor
Regulations. The required spousal consent must be in writing,
must acknowledge its effect and be executed in the presence of a
notary public who is not employed by the Employer. Any designation
will be valid only with respect to the spouse who signs it. Any
designation may be changed in writing and the revised designation
requires spousal consent unless, in an earlier consent, the spouse
relinquished the right to require consent to subsequent
designations. An election may be revoked in writing without any
spousal consent.
(d) The Beneficiary of an Alternate Payee is the
person designated in a writing file , d by the Alternate Payee
with the Committee. If that person does not survive the Alternate
Payee or no person has been designated, the Beneficiary is the
Alternate Payee's estate.
6.6 Amounts Which Violate Special Anti-discrimination Rules
See Paragraph (a) of Section A-1 of Appendix A.
6.7 Excess Section 415 Allocations
See Paragraph (b) of Section 4.4.
Section 7. Statutory Distribution Rules
7.1 Internal Revenue Code Limitation on
Distributions.
(a) All distributions under this Plan will be made
in accordance with proposed Income Tax Regulations 1.401(a)(9)-l
and following sections (including the minimum distribution
incidental benefit requirement of 1.401(a)(9)-2), and the final
version of those regulations when they are issued.
(b) See Subsection 6.3 concerning mandatory
distributions at Normal Retirement Date for Former Participants,
Alternate Payees and Beneficiaries and Subsection 6.4 concerning
mandatory distributions at April 1st of the calendar year
following the calendar year in which a Participant reaches age 70-
1/2.
(c) All distributions under the Plan are made in a
single sum. Therefore if a Participant dies after distribution of
his or her interest in the Plan has begun, no distribution will be
made to the Participant's Beneficiary.
(d) If a Participant dies before distribution of his
or her interest in the Plan begins, distributions to the
Participant's Beneficiary will be made in a single payment and
will be completed by December 31 of the calendar year containing
the fifth anniversary of the Participant's death.
7.2 ERISA Distribution Limitations.
Unless a Participant or Former Participant otherwise elects,
benefits from the Plan will begin no later than the 60th day after
the latest of the close of the Plan Zear in which occurs:
i) the date on which he or she attends age
65, which is Normal Retirement Date,
ii) the 10th anniversary of the year in which
he or she commenced participation in the
Plan, or
iii) (iii) the Participant's termination of
service with any Employer.
Section 8. Plan Assets
8.1 Trust Fund
California Water Service Company has established the Trust
Fund, which is held in two separate trusts, as described in
Subsection 8.2. Contributions under the Plan and all other assets
of the Plan are held in the Trust Fund. In addition, up to and
including December 31, 1993, the assets held under this Plan may
be commingled for investment purposes only (and held in one trust
fund and/or insurance company contract or contracts) with the
assets of the Union Plan. Under these circumstances, separate
records of Participant Accounts under each of the plans will be
maintained by the respective administrative committees of each
plan. Effective January 1, 1994, the Union Plan is merged into
this Plan.
8.2 Separate Trusts
The assets of the Plan are held in two separate trusts which
collectively are called the Trust Fund. Employer Stock is held in
a trust of which Bank of America, N.T.&S.A. is the trustee. The
trust agreement of that trust is a part of the Plan and is
incorporated herein by reference. All other assets of the Plan are
held in the trust described in Subsection 8.3.
8.3 Trust Provisions
(a) This Subsection 8.3. contains the
provisions of the Plan concerning the trust which holds assets of
the Plan other than Employer Stock and constitutes the trust
agreement for that trust. The initial trustees of that trust are
Harold Ulrich, Gerald Feeney and Harold Saunders and they will
serve until they resign or are removed. The Board of Directors may
remove and appoint trustees in its discretion. Any trustee may
resign at any time upon at least 30 days' written notice to the
Board of Directors.
(b) The trustees accept and will hold and
administer the assets of the Plan held in trust that are now or
will in the future be delivered to them under the Plan.
(c) The trustees invest all Plan assets not
subject to control by the trust holding Employer Stock or by an
investment manager.
(d) The trustees value the Plan assets
which they hold at fair market value as of the last day of each
Plan Year and at such other times as determined by the Committee.
The trustees may retain one or more experts to value assets which
they hold and which are not publicly traded and the valuation of
the trustees acting on the advice of an expert is binding on all
parties having an interest in the trust.
(e) The trustees, have no responsibility to
determine whether Plan assets are sufficient to meet the
liabilities under the Plan, and, absent a breach of their
fiduciary duty, are not liable for payments or Plan liabilities in
excess of trust assets.
(f) Payments from the trust are made by the
trustees for any purpose authorized under the Plan on receipt of
directions from the Committee. Payments by the trustees are
delivered or mailed to the address supplied by the Committee and
the trustees' obligation to make those payments is satisfied on
delivery or mailing. The trustees have no obligation to determine
the identity of any person entitled to benefits or his or her
mailing address.
(g) If the trustees are employees of the
Employer, they are entitled to no compensation for their services.
A trustee or trustees not employed by the Employer is entitled to
reasonable compensation for services in accordance with the
written agreement between the trustee and the Employer. Any
trustee, whether or not employed by the Employer, is entitled to
reimbursement of reasonable expenses incurred in the
administration of the trust. A trustee's compensation and expenses
are paid by the Employer and if the Employer fails to make payment
are paid by the trust.
(h) Except to the extent that these powers
are given to an investment manager, the trustees are authorized in
their discretion as to Plan assets held in trust:
(A) To invest and reinvest Plan assets,
together with earnings, in common stock (except Employer Stock),
preferred stock, convertible preferred stock, shares of regulated
investment companies (mutual funds), bonds, debentures,
convertible debentures and bonds, mortgages, notes, time
certificates of deposit, commercial paper and other evidences of
indebtedness (including those issued by the trustee or its
affiliates, if it is a bank), other securities, annuity
contracts, options to buy or sell securities or other assets and
property (personal, real, or mixed, and tangible or intangible);
(B) To deposit or invest all or any part of
the assets of the Plan in savings accounts or certificates of
deposit or other deposits which bear a reasonable interest rate
in a bank or savings and loan association, including a trustee or
its affiliates if it is a bank or savings or loan association, if
such financial institution is supervised by the United States or
a state;
(C) To hold, manage, improve, repair and
control all property, real or personal, forming part of the Plan
assets; to sell, convey, transfer, exchange, partition, lease for
any term, even extending beyond the duration of the trust, and
otherwise dispose of the same from time to time in such manner,
for such consideration, and upon such terms and conditions as the
trustees determine;
(D) To have, respecting securities, all the
rights, powers and privileges of an owner, including the power to
give proxies, pay assessments and other sums deemed by the
trustees necessary for the protection of the trust; to vote any
corporate stock either in person or by proxy, with or without
power of substitution, for any purpose; to participate in voting
trusts, pooling agreements, foreclosures, reorganizations,
consolidations, mergers and liquidations, and in connection
therewith to deposit securities with and transfer title to any
protective or other committee under such terms as the trustees
may deem advisable; to exercise or sell stock subscriptions or
conversion rights;
(E) To hold in cash, without liability for
interest, that portion of the trust which is reasonable under the
circumstances, pending investments, or payment of expenses, or
the distribution of benefits;
(F) To take those actions as may be necessary
or desirable to protect the trust from loss due to the default on
mortgages or deeds of trust held in the trust, including the
appointment of agents or trustees in such jurisdictions as may
seem desirable, to transfer property to agents or trustees, to
grant to such agents such powers as are necessary or desirable to
protect the trust or its assets, to direct such agent or trustee,
or to delegate such power to direct, and to remove such agent or
trustee;
(G) To employ, with the prior written consent
of the Employer, such agents including custodians and counsel as
may be necessary in the trustees' discretion and to pay them
reasonable compensation; to settle, compromise or abandon all
claims and demands in favor of or against the trust assets;
(H) To invest in any common or collective
trust fund or pooled investment fund maintained by trustee, if it
is a bank, in which case the instrument creating the fund is
incorporated in this document by reference;
(I) To cause title to property of the trust to
be issued, held or registered in the individual names of the
trustees, in the name of its nominee(s) or agents in a securities
depositary, in federal reserve book-entry or bearer form or in
such form that title will pass by delivery;
(J) To exercise all of the further rights,
powers, options and privileges granted, provided for, or-vested
in trustees generally under the laws of the State of California,
so that the powers conferred upon the trustees are not in
limitation of any authority conferred by law, but are in addition
thereto; and
(K) To do all other acts necessary or
desirable for the proper administration of the trust assets, as
though the trustees were the absolute owners of those assets.
(a) Upon resignation or removal, any
trustee has the right to a settlement of his, her or its account,
which settlement may be made either by a judicial settlement in an
action instituted by the trustee or by the Committee, or by an
agreement of settlement between the trustee and the Committee.
8.4 Prohibited Investments.
(a) No investment will be made in any
security issued by the Employer, including Employer Stock (which
is held in a separate trust). No investment will be made in any
real property (or related personal property) which is leased to
the Employer.
(b) No investment will be made in any work
of art, any rug or antique, any metal or gem, any stamp or coin,
any alcoholic beverage or any other tangible personal property
designated by the Internal Revenue Service as "collectible" within
the meaning of Section 408(m) of the Internal Revenue Code.
8.5 Indicia of Ownership.
The indicia of ownership of all Plan assets will be
maintained within the jurisdiction of the District Courts of the
United States, except to the extent permitted by Department of
Labor Regulations.
8.6 Spendthrift Provision.
Benefits under the Plan may not be assigned or alienated. No
portion of the Plan's assets may be subject to levy or execution,
except a levy by the Internal Revenue Service. The provisions of
this Subsection 8.6 apply to a domestic relations order, but not
to a Qualified Domestic Relations Order.
8.7 Return of Contributions
(a) Except as provided in the Paragraphs
(b) and (c) of this Subsection 8.7, the assets of the Plan will
never revert to the Employer, and are held for the exclusive
purposes of providing benefits to Participants, Former
Participants and their Beneficiaries, and for defraying the
reasonable expenses of administering the Plan.
(b) In the case of a contribution which is
made by virtue of a mistake of fact, the contribution may be
returned to the Employer within one year after payment of the
contribution.
(c) Contributions to the Plan are
conditioned upon their deductibility under Section 404 of the
Internal Revenue Code. To the extent the deduction for
contributions is disallowed, contributions must be returned to the
Employer within one year after the disallowance of the deduction.
(d) The amount which is returned to the
Employer under Paragraph (b) or (c) is the excess of (i) the
amount contributed over (ii) the amount that would have been
contributed had there not occurred a mistake of fact or a mistake
in determining the deduction. Earnings attributable to the excess
contribution may not be returned to the Employer, but losses
attributable thereto must reduce the amount to be so returned.
(e) Notwithstanding the foregoing, in the
case of any amounts to be returned under Paragraph (b) or (c),
refunded contributions from the Participant's Employee
Contribution Account and earnings thereon will be paid by the
Employer to the Participant, less appropriate withholding for
Federal and State taxes.
8.8 Rollovers
(a) Effective January 1, 1993, a
Participant, Former Participant, Alternate Payee or Beneficiary
may direct the Committee in writing to make a direct transfer of
any distribution eligible for tax-free rollover under Section
402(c) of the Internal Revenue Code to (i) a defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code
which will accept the rollover, (ii) an individual retirement
account described in Section 408(a) of the Internal Revenue Code
or (iii) an individual retirement annuity described in Section
408(b) of the Internal Revenue Code. The Committee will make a
direct transfer described in clause (i) of .the preceding sentence
if the Participant, Former Participant, Alternate Payee or
Beneficiary provides evidence satisfactory to the Committee that
the plan is qualified under Section 401(a) and that it is willing
to accept the transfer. The Committee will make a direct transfer
described in clause (ii) or (iii) of the preceding sentence if the
Participant, Former Participant, Alternate Payee or Beneficiary
provides evidence satisfactory to the Committee that the
individual retirement arrangement is an individual retirement
account as described in Section 408(a) of the Internal Revenue
Code or is an individual retirement annuity as described in
Section 408(b) of the Internal Revenue Code, whichever is
applicable.
(b) The Committee may, in its discretion,
cause the Trust Fund to accept rollover contributions (as
described in Section 402(c) of the Internal Revenue Code) to the
Plan from a Participant or in a direct rollover in respect to the
Participant from (i) another plan qualified under Section 401(a)
of the Internal Revenue Code, or (ii) from a conduit individual
retirement account described in Section 408(a) of the Internal
Revenue Code. The Committee may require such documentation as, in
its discretion, it deems appropriate to establish that the
rollover is described in Section 402(c) of the Internal Revenue
Code. No rollover will be accepted from or in respect to a Former
Participant, Beneficiary or Alternate Payee.
8.9 Transfers on Change of Employee Classification
This Subsection applies up to and including December 31,
1993. The Participant Account of a person whose employee
classification changes from that of an Employee eligible to
participate in the Plan to that of an employee whose terms and
conditions of employment with the Employer become governed by or
set forth in a collective bargaining agreement, will be
transferred to the trust of the Union Plan by the trustees of this
Plan as soon as administratively feasible. The Trust Fund is
authorized to accept the transfer of the account balance of a
person who becomes an Employee participating hereunder as a result
of an employee classification change from the trustees of the
Union Plan.
Section 9. Plan Administration
9.1 Committee Administers Plan
(a) The Plan is administered -by a
committee which is the Plan's named fiduciary, as provided in
ERISA. The name of the committee up to and including December 31,
1993 is the Salaried Savings Plan Committee. The Salaried Savings
Plan Committee is also referred to, up to and including December
31, 1993 as the "Committee.'' The Union Plan is administered, up
to and including December 31, 1993 by the Union Savings Plan
Committee. Effective January 1, 1994, the Salaried Savings Plan
Committee and the Union Savings Plan Committee constitute the
Savings Plan Committee which administers this Plan and is a named
fiduciary. Effective January 1, 1994, the Savings Plan Committee
is also referred to as the "Committee."
(b) Up to and including December 31, 1993,
the Salaried Savings Plan Committee consists of three members
appointed by the Board of Directors. The Board of Directors may
remove those members at its discretion. Effective January 1, 1994,
the Savings Plan Committee consists of the Savings Plan Salaried
Sub-committee of three members appointed by the Board of Directors
and of the Savings Plan Union Sub-committee consisting of two
members appointed by the Board of Directors and of two members
appointed by the Utility Workers of America. The Board of
Directors may remove those members of the Committee appointed by
it at its discretion. The Utility Workers of America may remove
those members of the Committee appointed by it at its discretion.
(c) This paragraph is effective January 1,
1994. Th-, Savings Plan Union Sub-committee decides all matters
involving Participant or Former Participant whose terms and
conditions of employment are or were governed by or set forth in a
collective bargaining agreement and his or her Beneficiary or
Alternate Payee. The Savings Plan Salaried Sub-committee decides
all matters involving a Participant or Former Participant whose
terms and conditions of employment are not or were not governed by
or set forth in a collective bargaining agreement and his or her
Beneficiary or Alternate Payee. If a Participant of Former
Participant was, at various times, both a salaried Employee and an
Employee who was a member of a Union, his or her status at the
time closest to the time of Committee action governs. The
Committee as a whole, consisting of both sub-committees, decides
all matters not involving a specific individual, for example the
establishment of Plan Rules or investment Funds.
(d) The Committee, and each sub-committee,
acts by a majority of its members, unless it has less than three
members, in which case it acts unanimously. The Committee and
each sub-committee, may act by meeting, unanimous written consent,
phone meeting or unanimous consent by facsimile or wire. Each
member of the Committee or a sub-committee has one vote.
(e) No member of the Committee may vote on
any question affecting his or her specific individual benefit
under the Plan. If, for this or any other reason, there are no
members eligible to act, the functions of the Committee may be
exercised by the Board of Directors.
(f) The expenses of the members of the
Committee for attending Committee meetings are borne by the
Employer. The Committee members receive no compensation for
attending meetings or other work performed as Committee members.
9.2 Duties and Powers of the Committee
The Committee has full power to administer the Plan and to
construe and apply all of its provisions. The Plan affords the
Committee complete discretion in its actions. In amplification of
its powers and duties, but not by way of limitation, the
Committee:
(a) Is responsible for the compilation and
maintenance of all records necessary for the Plan except
those records maintained by the trustees of the Trust Fund
or Employer;
(b) Authorizes the payment of all benefits as they
become payable under the Plan, and directs the trustees of
the Trust Fund to provide those benefits;
(c) Makes rules and regulations for the
administration of the Plan not inconsistent with the Plan;
(d) Engages such legal, actuarial, accounting and
other professional services as it may deem proper, unless
those services have been provided for at the request of the
Employer;
(e) Appoints in its discretion, an investment
manager or managers (as that term is defined in Section
3(38) of ERISA), in accordance with Section 402(c)(3) of
ERISA to manage, acquire or dispose of the assets of the
Plan;
(f) Does and performs such other matters as may be
provided for in other parts of this Plan.
9.3 Reliance on Experts
The members of the Committee, the Employer and its officers
and directors are entitled to rely conclusively upon all tables,
valuations, certificates and reports furnished by any actuary or
accountant employed by the Employer or Committee and upon all
opinions of counsel or other experts and they and each of them are
to be fully protected as to any action taken by them in good faith
in reliance upon any such tables, valuations, certificates,
reports or opinions.
9.4 Plan Expenses
The Employer will pay the reasonable costs of administering
the Plan, including fees, if any, of the trustees or any
investment manager appointed by the Committee.
9.5 Procedure for Domestic Relations Orders.
(a) Any Participant, Former Participant,
Beneficiary, Alternate Payee or person claiming to be an Alternate
Payee may file a writing with the Committee designating counsel to
act on his or her behalf. The Committee will deal directly with
designated counsel and provide the designated counsel with copies
of all writings furnished to the Participant, Former Participant,
Beneficiary, Alternate Payee or person claiming to be an Alternate
Payee.
(b) The Plan encourages parties to domestic
relations cases and their attorneys to resolve issues involving
rights under the Plan without recourse to litigation. To the
extent that the parties to a domestic relations case and any
Alternate Payee under a previous Qualified Domestic Relations
Order agree to a proposed order and the Committee or its counsel
determines that the order, when entered, will be a Qualified
Domestic Relations Order, then the procedures described in this
Subsection 9.5 will not be used. If the parties do not agree or
the Committee or its counsel does not determine that the order,
when entered, will be a Qualified Domestic Relations Order, then
the remaining procedures of this Subsection 9.5 will apply.
(c) Upon receipt of any domestic relations
order by the trustees of the Trust Fund or agent for service of
process, the recipient will promptly notify the Committee in
writing. Upon receipt of any domestic relations order by the
Committee, or receipt of written notification pursuant to the
preceding sentence, the Committee will promptly give written
notification to the Participant in respect to whom the domestic
relations order is received and any Alternate Payee named in any
earlier Qualified Domestic Relations Order received by the
Committee. The notification will describe the procedures of this
Subsection 9.5 for determining the qualified status of domestic
relations orders and of the right of an Alternate Payee to
designate a representative for receipt of copies of notices that
are sent to the Alternate Payee with respect to domestic relations
orders. All recipients of the written notification and their
counsel are, within 14 days of receipt of the notice from the
Committee, entitled to file written comments with the Committee
concerning the qualified status of the domestic relations order.
(d) The Committee will, within 60 days of
receipt of the domestic relations order, either (i) make a written
determination as to whether the domestic relations order in
question is a Qualified Domestic Relations order, or (ii) submit
the issue to a court of competent jurisdiction for its decision.
The Committee will give prompt written notification to the
Participant in respect to whom the domestic relations order is
received and to any Alternate Payee named in any earlier Qualified
Domestic Relations Order received by the Committee of its
determination as to whether the domestic relations order in
question is a Qualified Domestic Relations Order or of the name
and address of the court to which the issue has been submitted for
decision.
(e) During any period in which the issue of
whether a domestic relations order is a Qualified Domestic
Relations order is being determined (by the Committee, by a court
of competent jurisdiction or otherwise), the Committee will
separately account for the amounts which would have been payable
to the Alternate Payee during such period if the order had been
determined to be a Qualified Domestic Relations Order.
(f) If within 18 months, the order (or
modification thereof) is determined to be a Qualified Domestic
Relations Order, the Committee will pay or credit the amounts
separately accounted for to the person or persons entitled
thereto. If within 18 months it is determined that the order is
not a Qualified Domestic Relations Order, or the issue as to
whether such order is a Qualified Domestic Relations Order is not
resolved, then the Committee will pay or credit the amounts
separately accounted for (and any interest or earnings thereon) to
the person or persons who would have been entitled to such amounts
if there had been no order or, if the Committee has notice that
either party to the domestic relations proceedings is attempting
to rectify the order, it may delay payment of benefits until the
end of such 18-month period. Any determination that an order is a
Qualified Domestic Relations Order which is made after the close
of the 18-month period, will be applied prospectively only. As
used in this Subsection 9.5, the 18-month period begins on the
date on which the first payment would be required to be made under
the domestic relations order.
9.6 Claims Procedure
(a) Claims for benefits under the Plan must
be submitted in writing to the Committee. The Committee will act
on the claim within 90 days of receipt, unless special
circumstances require an extension of time, in which case the
Committee will notify the claimant in writing that those
circumstances exist and act on the claim within 180 days of
receipt. If a claim for benefits is denied, in whole or in part,
the Committee will furnish the claimant with a written notice of
denial which (i) specifies the reasons for the denial, (ii) refers
to the pertinent provisions of the Plan on which the denial is
based, (iii) describes any additional material or information
necessary for the perfection of the claim and explains why such
material or information is necessary and (iv) explains the claim
review procedures of Paragraph (b) of this Subsection 9-6.
(b) The claimant may, within 60 days of
receipt of the notice of denial described in the preceding
paragraph, make a written request for review of that denial. The
written request must be in writing filed with the Committee. On
receipt of a written request for review, the Committee will permit
the claimant to review any documents in its possession or in the
possession of the Employer which are reasonably pertinent to the
claim. The claimant may submit to the Committee written comments
on the denial of his or her claim for benefits. The Committee
will act on the request for review within 60 days of receipt,
unless special circumstances require an extension of time, in
which case the Committee will notify the claimant in writing that
those circumstances exist and act on the request for review within
120 days of receipt. If the request for review is denied, in
whole or in part, the Committee will furnish the claimant with a
written notice of denial which (i) specifies the reasons for the
denial, (ii) refers to the pertinent provisions of the Plan on
which the denial is based, (iii) describes any additional material
or information necessary for the perfection of the claim and
,explains why such material or information is necessary.
9.7 Service of Process.
Harold C. Ulrich and Christine McFarlane are designated as
agents of the Plan for the service of legal process.
Section 10. Changes to the Plan
10.1 Amendments
The Plan may be amended in writing by any corporate officer
of California Water Service Company to comply with the
requirements of ERISA and/or the Internal Revenue Code. The Plan
may be amended in writing for any other purpose by any two
corporate officers of California Water Service Company. No
amendment will permit any Plan assets to be used for or diverted
to purposes other than for the exclusive benefit of Participants,
Former Participants, Beneficiaries and Alternate Payees under the
Plan, except as permitted by ERISA and the Internal Revenue Code.
No amendment may decrease an accrued benefit, eliminate or reduce
an early retirement benefit or a retirement-type subsidy, or
eliminate an optional form of benefit,
10.2 Merger, Consolidation or Transfer
In the event of any merger or consolidation with, or
transfer of assets or liabilities to, any other plan, each
Participant or Former Participant will be entitled to receive a
benefit if the Plan were to terminate immediately after the
merger, consolidation, or transfer, which is not less than the
benefit he or she would have been entitled to receive if the Plan
had terminated immediately before the merger, consolidation, or
transfer.
10.3 Termination
The Plan is adopted with the intent of maintaining it
permanently. Nevertheless, the Employer reserves the right to
terminate the Plan (totally or partially) at any time and to
discontinue or reduce contributions. In the event of a complete or
partial termination or the permanent discontinuance of
contributions, the interest of each affected Participant, Former
Participant and Beneficiary remains fully vested. Plan
termination, reduction or discontinuance of contributions is
accomplished by the -preparation of an amendment in writing. The
amendment is executed as described in Section 10.1 and the signed
amendment is filed with the Plan Records. Parties are notified in
writing as required by ERISA.
Section 11. General Provisions
11.1 Liability of Employer and Employment.
Neither the creation or maintenance of this Plan nor any
amendment to it may be construed as giving any right to any
Employee, Participant, Former Participant, Beneficiary or
Alternate Payee against the Employer, its officers or employees,
or against the trustees of the Trust Fund except as provided
herein and by ERISA, and all liabilities under this Plan must be
satisfied out of the Trust Fund. Participation in the Plan does
not give any Participant any right to be retained in the employ of
the Employer.
11.2 Employer Records.
The records of the Employer with respect to age, service,
employment history, compensation, absence, illnesses, and all
other relevant matters are conclusive for purposes of the
administration of this Plan.
SIGNATURE PAGE
IN WITNESS WHEREOF, the Employer has caused these presents
to be duly executed on the 23rd day of May 1994.
CALIFORNIA WATER SERVICE COMPANY
/s/ Harold C. Ulrich
By Harold C. Ulrich
Its V.P., C.F.O., Treasurer
Appendix A
to
California Water Service Company
Savings Plan and Trust Agreement
(1994 Revision)
Special Anti-discrimination Rules
for
Cash and Deferred Elections and Matching Contributions
Section A-1 Adjustments to Meet Limits on Cash or Deferred
Elections
(a) The provisions of this section apply
notwithstanding any contrary provision of this Plan. If, for any
Plan Year, the aggregate amount of Earnings which is paid over to
the Trust Fund pursuant to the cash or deferred election of a
Participant exceeds either Limit A or Limit B of Section A-2
below, then within 2-1/2 months after the last day of that Plan
Year the excess contributions and any income attributable thereto
will be distributed as provided in the following paragraphs. In
addition, Employer Contributions made in respect to excess
contributions which are returned are forfeited and will be used to
reduce further Employer Contributions to the Plan.
(b) The cash or deferred election of the
Highly Compensated Participants will be reduced in order of their
percentage elections (or dollar amount elections, if applicable)
beginning with those with the highest elections. For example, if
the applicable limit is 7.5% of compensation and Highly-
Compensated Participants A, B and C have elected to defer 10%, 8%
and 6% respectively, the reduction would be as follows: A's
election is first reduced to 8%, the same percentage election as B
who is the Highly-Compensated Participant next in order. Since the
applicable limit is still exceeded, A's election is further
reduced to 7.5%, as is the election of B. At this point, the
applicable limit is met.
(c) An amount equal to the excess of the
Earnings deferred under the initial election over the Earnings
deferred under the reduced election, together with the income
earned by the Plan thereon, will be returned to each Highly-
Compensated Participant whose election is reduced. In the example
in the preceding paragraph, A's election is reduced 2.5% (from 10%
to 7.5%) and B's election is reduced .5% (from 8% to 7.50-0.
Therefore, an amount equal to 2.5% of A's Earnings and .5% of B's
Earnings is distributed, together with the income on the amounts
distributed. The income on excess contributions for the Plan Year
is that portion of the income of the Participant's Employee
Contribution Account for the Plan Year in question multiplied by a
fraction the numerator of which is the excess Earnings deferred
and the denominator of which is the total balance in the
Participant's Employee Contribution Account. The income on excess
contributions for the period between the end of the Plan Year in
which an excess contribution was made and the date of return is
equal to 10% of the income for that Plan Year (as calculated under
the preceding sentence) multiplied by the number of calendar
months that have elapsed since the end of the Plan Year. For
purposes of determining the number of calendar months that have
elapsed, a distribution occurring on or before the 15th day of the
month will be treated as having been made on the last day of the
preceding month and a distribution occurring after such 15th day
will be treated as having been made on the first day of the next
month.
(d) In determining the excess deferrals of
a highly Highly-Compensated Participant who is either a 5% owner
or one of the ten most Highly-Compensated Participants and is
thereby subject to the family aggregation rules of Section
414(q)(6) of the Internal Revenue Code,
(i) if the Highly-Compensated Participant's ADP
is determined by combining the contributions and
compensation of all family members, then the ADP is
reduced to the extent required to (I) enable the Plan
to satisfy Limit A or B, or (II) cause such Highly-
Compensated Participant's ADP to equal the ratio of
the Highly-Compensated Participant with the next
highest ADP. This process is repeated until the Plan
satisfies Limit A or B; or
(ii) if the ADP determined by combining the
contributions and compensation of all eligible family
members who are highly compensated without regard to
family aggregation, the ADP is reduced in accordance
with clause (i), but not below the ADP of eligible
non-highly compensated family members; excess
deferrals are determined by taking into account the
contributions of the eligible family members who are
highly compensated without regard to family
aggregation and are allocated among such family
members in proportion to their deferrals; if further
reduction of the ADP is required, excess deferrals
resulting from this reduction are determined by taking
into account the deferrals of all eligible family
members and are allocated among such family members in
proportion to their deferrals; and
(iii) The amount of excess deferrals to be
distributed will be reduced by excess deferrals
previously distributed for the Participant's taxable
year ending in the same Plan Year and excess deferrals
to be distributed for the Plan Year beginning in the
Participant's taxable year; and
(iv) For the purposes of the foregoing, a family
member is the spouse and lineal ascendants and
descendants (and spouses of such ascendants and
descendants) of any Employee or former Employee,
taking legal adoptions into account.
Section A-2 Limits on Cash or Deferred Elections
Section 401(k)(3) of the Internal Revenue Code and the
regulations thereunder are incorporated in this Plan by reference.
The limitation contained in Section 401(k)(3)(A)(ii)(I) is
referred to in this Plan as Limit A and that contained in Section
401(k)(3)(A)(ii)(II) is referred to as Limit B. For purposes of
calculating Limit A or B, the following rules apply:
(i) The ADP of all eligible Employees will
be taken into account.
(ii) An eligible Employee is any Employee
who is directly or indirectly eligible to make a
cash or deferred election under the Plan and
includes an Employee who would be a Participant
but for the failure to make such an election, an
Employee whose right to make such an election
has been suspended because of an election (other
than certain one-time elections) not to
participate, because of receipt of a
distribution or because his or her compensation
is below a stated amount.
(iii) A cash or deferred election under
the Plan will be taken into account in
calculating the ADP for a Plan Year only if it
is allocated to the Participant's Employee
Contribution Account as of a date within the
Plan Year and only if the allocation is not
contingent on participation in the Plan or
performance of services after the date of
allocation and is actually paid to the Trust
Fund no later than 12 months after the end of
the Plan Year to which the election relates.
(iv) In the case of an Employee who is
eligible to participate in the Plan and who
makes no cash or deferred election under the
Plan, the contribution ratio that is to be
included in the ADP is zero.
(v) All cash or deferred elections which
are made under two or more plans that are
aggregated for purposes of Sections 401(a)(4)
and 410(b) (other than Section 410(b)(2)(A)(ii))
of the Internal Revenue Code are to be treated
as made under a single plan and if two or more
plans are permissively aggregated for purposes
of Section 401(k) of the Internal Revenue Code,
the aggregated plans must satisfy Sections
401(a)(4) and 410(b) of the Internal Revenue
Code as though they were a single plan.
(vi) In the case of a highly Highly-
Compensated Participant who is either a 5% owner
or one of the ten most Highly-Compensated
Participants and is thereby subject to the
family aggregation rules of Section 414(q)(6) of
the Internal Revenue Code, the ADP for the
family group (which is treated as one Highly-
Compensated Participant) is the greater of (a)
the ADP determined by combining the
contributions and compensation of all eligible
family members who are highly compensated
without regard to family aggregation or (b) the
ADP determined by combining the contributions
and compensation of all eligible family members.
Except to the extent taken into account in the
preceding sentence, the contributions and
compensation of all family members are
disregarded in determining the ADPs for the
groups of Highly-Compensated Participants and
those who are not Highly-Compensated
Participants.
Section A-3 Adjustment to Meet Limits on Employer Matching
Contributions
(a) The provisions of this section apply
notwithstanding any contrary provision of this Plan. If, for any
Plan Year, the aggregate amount of Employer Contributions which is
paid over to the Trust Fund for any Participant exceeds either
Limit C or Limit D of Section A-4 below, then within 2-1/2 months
after the last day of that Plan Year, the excess contributions and
any income attributable thereto will be distributed as provided in
the following paragraphs.
(b) The adjustment made under this Section
A-3 will be made following the adjustments, if any, made under
Section A-1. The adjustment of the aggregate amount of Employer
matching contributions of the Highly-Compensated Participants will
be made in a manner similar to the reduction of cash or deferred
elections under Section A-1.
(c) An amount equal to the excess Employer
Contributions, together with the earnings thereon, will be
returned to each Highly-Compensated Participant in respect of whom
an adjustment is made under this Section A-3. The earnings on
excess Employer Contributions for the Plan Year is that portion of
the income of the Participant's Employer Contribution Account for
the Plan Year in question multiplied by a fraction the numerator
of which is the excess Employer Contributions and the denominator
of which is the total balance in the Participant's Employer
Contribution Account. The earnings on excess contributions for the
period between the end of the Plan Year in which an excess
contribution was made and the date of return is equal to 10% of
the income for that Plan Year (as calculated under the preceding
sentence) multiplied by the number of calendar months that have
elapsed since the end of the Plan Year. For purposes of
determining the number of calendar months that have elapsed, a
distribution occurring on or before the 15th day of the month will
be treated as having been made on the last day of the preceding
month and a distribution occurring after such 15th day will be
treated as having been made on the first day of the next month.
(d) In determining excess Employer
Contributions of a Highly-Compensated Participant who is either a
5% owner or one of the ten most Highly-Compensated Participants
and is thereby subject to the family aggregation rules of Section
414(q)(6) of the Internal Revenue Code,
(i) if the Highly-Compensated Participant's ACP
is determined by combining the contributions and
compensation of all family members, then the ACP is
reduced to the extent required to (I) enable the Plan
to satisfy Limit C or D, or (II) cause such Highly-
Compensated Participant's ACP to equal the ratio of
the Highly-Compensated Participant with the next
highest ACP. This process is repeated until the Plan
satisfies Limit C or D; or
(ii) if the ACP determined by combining the
contributions and compensation of all eligible family
members who are highly compensated without regard to
family aggregation, the ACP is reduced in accordance
with clause (i), but not below the ACP of eligible non
highly compensated family members; excess aggregate
contributions are determined by taking into account
the contributions of the eligible family members who
are highly compensated without regard to family
aggregation and are allocated among such family
members in proportion to their contributions; if
further reduction of the ACP is required, excess
aggregate contributions resulting from this reduction
are determined by taking into account the
contributions of all eligible family members and are
allocated among such family members in proportion to
their contributions; and
(iii) For the purposes of the foregoing, a
family member is the spouse and lineal ascendants and
descendants (and spouses of such ascendants and
descendants) of any Employee or former Employee,
taking legal adoptions into account.
Section A-4.1 Limits on Employer Matching Contributions
Section 401(m)(2) of the Internal Revenue Code and the
regulations thereunder are incorporated in this Plan by reference.
The limitation contained in Section 401(m)(2)(A)(i) is referred to
in this Plan as Limit C and that contained in Section
401(m)(2)(A)(ii) is referred to as Limit D. For purposes of
calculating Limit C or D, the following rules apply:
(i) The ACP of all eligible Employees will be
taken into account,
(ii) An eligible Employee is any Employee who
is directly or indirectly eligible to receive an
Employer Contribution and includes an Employee who
would be a Participant or would receive an Employer
Contribution but for the failure to make a cash or
deferred election, an Employee whose right to make a
cash or deferred election has been suspended because
of an election (other than certain one-time elections)
not to participate because of receipt of a
distribution or because his or her compensation is
below a stated amount.
(iii) In the case of an Employee who is
eligible to participate in the Plan and who makes or
receives no Employer Contribution, the contribution
ratio that is to be included in the ACP is zero.
(iv) An Employer Contribution is taken into
account for a Plan ~(ear only if it is M made on
account of the Participant's cash or deferred election
for the Plan Year, II) allocated to the Participant's
Employer Contribution Account during that Plan Year
and (III) paid to the Trust Fund by the end of the
12th month following the close of the Plan Year.
(v) All Employer Contributions that are made
under two or more plans that are aggregated for
purposes of Sections 401(a)(4) and 410(b) (other than
Section 410(b)(2)(A)) of the Internal Revenue Code are
to be treated as made under a single plan and if two
or more plans are permissively aggregated for purposes
of Section 401(m) of the Internal Revenue Code, the
aggregated plans must satisfy Sections 401(a)(4) and
410(b) of the Internal Revenue Code as though they
were a single plan,
(vi) In the case of a highly Highly-Compensated
Participant who is either a 5% owner or one of the ten
most Highly-Compensated Participants and is thereby
subject to the family aggregation rules of Section
414(q)(6) of the Internal Revenue Code, the ACP for
the family group (which is treated as one Highly-
Compensated Participant) is the greater of (a) the ACP
determined by combining the contributions and
compensation of all eligible family members who are
highly compensated without regard to family
aggregation or (b) the ACP determined by combining the
contributions and compensation of all eligible family
members. Except to the extent taken into account in
the preceding sentence, the contributions and
compensation of all family members are disregarded in
determining the actual contribution percentages for
the groups of Highly-Compensated Participants and
those who are not Highly Compensated Participants.
Section A-5 Multiple Use Limitations
For purposes of Section A-4, the provisions of Income Tax
Regulations Section.401(m)-2 are incorporated herein by reference.
Section A-6 Definitions
For purposes of this Appendix A, the following words have
the meanings set next to them:
(a) ACP means actual contribution
percentage as defined in Section 401(m)(3) of the Internal Revenue
Code.
(b) ADP means actual deferral percentage as
defined in Section 401(k)(3)(B) of the Internal Revenue Code.
(c) Highly-Compensated Participant means
any Participant who performs service during the Plan Year for
which the determination is being made and who is:
(i) an employee who is a 5% owner, as defined in
Section 416(i)(1)(iii) of the Internal Revenue Code,
at any time during that or the preceding Plan Year; or
(ii) an employee who receives compensation,,
(which for all purposes of this Appendix is as defined
in Section 415(c)(3) of the Internal Revenue Code,
i.e., compensation received by the employee from the
Employer during the applicable period and also
includes, for each employee, elective or salary
reduction contributions to a cafeteria plan, cash or
deferred arrangement or tax-sheltered annuity) in
excess of $75,000 (adjusted as provided in Treasury
Regulations issued under Section 415(d) of the
Internal Revenue Code) during the preceding Plan Year;
or
(iii) an employee who receives compensation in
excess of $50,000 (adjusted as provided in Treasury
Regulations issued under Section 415(d) of the
Internal Revenue Code) during the preceding Plan Year
and is a member of the top-paid group for the
preceding Plan Year (which consists of the top 20% of
employees ranked on the basis of compensation received
during the Plan Year) and excluding employees who have
not completed six months of service, those who
normally work less than 17-1/2 hours per week, those
normally working not more than six months during any
year, those who have not attained age 21, those
employees who are included in a unit of employees
covered by an agreement which the Secretary of Labor
finds to be a collective bargaining agreement between
employee representatives and the Employer (which for
all purposes of this Appendix A includes all entities
aggregated with the Employer under Subsections (b),
(c), (m) or (o) of Section 414 of the Internal Revenue
Code), which agreement satisfies Section 7701(a)(46)
and the Treasury Regulations thereunder, and
nonresident aliens who have received no earned income
(within the meaning of Section 911(d)(2) of the
Internal Revenue Code) from the Employer which
constitutes income from sources within the United
States (within the meaning of Section 861(a)(3) of the
Internal Revenue Code); or
(iv) an employee who is an officer (but not more
than 50 employees (or, if less, the greater of three
employees or 10%, of all employees) of the Employer,
within the meaning of Section 416(i) of the Internal
Revenue Code, during the preceding Plan Year and who
receives compensation in the preceding Plan Year
greater than 50% of the dollar limitation in effect
under Section 415(b)(1)(A) of the Internal Revenue
Code for the preceding Plan Year (or if no officer has
compensation greater than that amount, the highest
paid officer); or
(v) an employee who is both (I) described in
clauses (ii), (iii) or (iv) above when those clauses
are modified to substitute the Plan Year for which the
determination is being made for the preceding Plan
Year and (II) one of the 100 employees who receive the
most compensation from the Employer during the Plan
Year for which the determination is being made; or
(vi) a former employee who, in the Plan Year he
separated from service or in any Plan Year ending on
or after his or her 55th birthday, was rendering
service to the Employer and was a Highly-Compensated
Participant as defined in this Section A-6.
(d) Non-Highly-Compensated Participant
means any Participant other than a Highly-Compensated Participant
Appendix B
to
California Water Service Company Savings Plan and Trust Agreement
(1994 Revision)
Hardship Withdrawals
1. Introduction. To assist you as a Participant in
meeting immediate and heavy financial needs, the Plan allows
withdrawals from your Participant Accounts (except earnings in
your Employee Contribution Account) because of hardship. This
Appendix describes who qualifies for hardship withdrawals and how
to apply for them. No hardship distributions are made to Former
Participants, Beneficiaries or Alternate Payees.
2. You Must Have an Immediate and Heavy Financial Need.
You have an immediate and heavy financial need only if you require
money for any of the following reasons:
Funeral expenses for a member of your family; or
Medical expenses which you, your husband or wife or
dependent incurs. A medical expense is the kind of
expense for which you can take a deduction on your
federal income tax return under Section 213(d) of the
Internal Revenue Code and a dependent is someone for
whom you are authorized to take a dependency exemption
on your federal income tax return in accordance with
Section 152 of the Internal Revenue Code; or
A downpayment when purchasing your principal 1
residence (but not mortgage payments or a downpayment
on a second or vacation home); or
Payment of tuition for the next 12 months at a
college, trade, graduate or professional school which
you, your husband or wife, child or dependent attends
after high school (but not tuition at a private
secondary school); or
A payment which is necessary to avoid eviction from
your principal residence or to avoid foreclosure on
the mortgage or deed of trust on your principal
residence.
3. The Hardship Withdrawal Must Be Necessary to Satisfy
Your Financial Need After You Have Used Up Your Other Resources.
Before making a hardship withdrawal, you must have used all of
your other financial resources which are reasonably available to
you. The amount available for a hardship withdrawal is the amount
you require to meet your immediate and heavy financial need plus
an amount necessary to pay federal and state income tax on the
distribution less any amounts available from other financial
resources, including the financial resources of your husband or
wife and your minor children to the extent that they are
reasonably available. For example, you must first use a vacation
home which is owned by you and your husband or wife as a source of
funds, although you need not use funds held for your children in
an irrevocable trust or under the Uniform Gifts to Minors Act. You
must show that you cannot meet your immediate and heavy financial
needs from any of the following sources:
Reimbursement for your financial need or compensation
from insurance or other sources (for example if you
incur medical expenses from an auto accident you must
show that payment of those expenses is not available
from insurance or from another party who is at fault);
and
Reasonable sale of your assets (and those of your
husband or wife or minor children), but only if the
sale itself would not cause an immediate and heavy
financial need (for example, you are not required to
sell your home at a substantial loss in a falling real
estate market to meet your financial need and you are
not required to sell it if you then had to rent living
accommodations at a rental which would cause you
immediate and heavy financial need); and
Borrowing from a commercial source, such as a bank,
savings and loan, credit union or loan company under
commercially reasonable terms (unless it is clear that
you cannot repay the loan); and
Stopping your before-tax (deferrals) contributions to
this Plan; and
Taking distributions, whether or not they are taxable,
which are available under this or any other plan in
which you, your husband or wife or minor child
participate; and
Taking a nontaxable loan available under any other
plan in which you, your husband or wife or minor child
participate.
4. You Must Have a Sufficient Amount Available for
Distribution. You must have a sufficient amount in the Plan which
is available for distribution. If there is not a sufficient
amount, you do not qualify for a hardship withdrawal. Here are
rules to determine whether your interest in the Plan is sufficient
for a hardship withdrawal:
You cannot obtain a distribution in excess of your
interest in the Plan;
You cannot obtain a distribution of any portion of
your interest in the Plan which is subject to a
Qualified Domestic Relations Order;
You cannot withdraw from your Employee Contribution
Account an amount in excess of the amount contributed
and not previously distributed -- in other words, you
generally cannot make a hardship withdrawal from
earnings on your before-tax contributions (deferrals).
5. How to Apply for a Hardship Withdrawal. Before making
an application for a hardship withdrawal, carefully read this
Appendix. If you have any questions, such as the amount of your
interest in the Plan which is available for a hardship withdrawal,
you may call the Human Resources Department. If you believe that
you qualify for a hardship withdrawal and have attempted to obtain
funds from other sources as described above in paragraph 3, you
may file a written application with the Committee. In your
application, explain in your own words what your immediate and
heavy financial need is, the amount of money required to meet that
need and explain how you have attempted to obtain the funds from
other sources (including each of those listed in paragraph 3) and
have been unable to do so. If you are married, your husband or
wife must consent to the hardship withdrawal on a form which you
may obtain from the Human Resources Department and your husband or
wife's signature must be witnessed by a notary public not employed
by the Employer. When the Committee has received all necessary
information, it will consider your application in an objective and
nondiscriminatory manner under the rules of this Appendix, the
Plan and applicable law and regulations. You will then be
notified whether you qualify for a hardship distribution and the
amount of that distribution. The Committee's decision is final.
6. Making a Hardship Withdrawal Will Affect Your
Participation in the Plan. If you make a hardship withdrawal, you
will be suspended from making before-tax (compensation deferral)
contributions to the Plan for 12 months after you receive the
withdrawal. The Plan provides that your before-tax contributions
for each of your taxable years (normally the calendar year) are
limited to $7,000, or a higher amount permitted by regulations
issued by the Internal Revenue Service. For your taxable year
following the year you receive a hardship withdrawal, the $7,000
(or higher) limit for contributions to the Plan is further reduced
by the amount of your before-tax contributions during the year you
made the hardship withdrawal
Appendix C
to
California Water Service Company Savings Plan and Trust Agreement
(1994 Revision)
Top-Heavy Provisions
Section C-1. Minimum Contribution.
a) For each Participant who is not a Key
Employee (whether or not a former Key Employee) and who is
employed by any Employer on the last day of the Plan Year,
his or her Employer will make a minimum contribution for any
Plan Year in which the Plan is a top-heavy. The
determination of top-heavy status is described in Section C-
2. The minimum contribution is described in paragraph (b) of
this Section C-1.
b) The minimum contribution is 3% of the
Participant's Compensation for the Plan Year, or if, less,
the highest percentage at which such contributions are made
under the Plan for the Plan Year on behalf of a Key
Employee. For purposes of this paragraph (b), all defined
contribution plans required to be included in the
Aggregation Group shall be treated as one Plan and deferrals
made under Section 3.1 are included in the Compensation of
Key Employees. In calculating the minimum contribution, any
Employee deferral and any contributions or benefits under
Chapter 21 of the Internal Revenue Code (relating to the
Federal Insurance Contributions Act), Title II of the Social
Security Act, or any other Federal or state law are not
counted toward the minimum contribution.
Section C-2. Top-Heavy Determination.
(a) If the Plan is not required to be
included in an Aggregation Group with other plans, then it is top-
heavy only if, when considered by itself, it is a top-heavy plan
and it is not included in a permissive Aggregation Group that is
not a top-heavy group.
(b) If the Plan is required to be included
in an Aggregation Group with other plans, it is top-heavy only if
the Aggregation Group, including any permissively aggregated
plans, is top-heavy.
(c) If the Plan is not top-heavy and is not
required to be included in an Aggregation Group, then it is not
top-heavy even if it is permissively aggregated in an Aggregation
Group which is a top-heavy group.
Section C-3. Calculation of Top-Heavy Ratios.
(a) For any Plan Year, the Plan is top-heavy and an
Aggregation Group is a top-heavy group if, as of the Determination
Date, the sum of the Cumulative Accrued Benefits and the
Cumulative Accounts of Employees who are Key Employees for the
Plan Year exceeds 60% of a similar sum determined for all
Employees, excluding former Key Employees.
Section C-4. Cumulative Accounts.
(a) Cumulative Account means the sum of the
amount of a Participant's accounts under the Plan or under all
defined contribution plans included in an Aggregation Group (for
aggregated plans) determined as of the Determination Date,
increased by and contributions due before the Determination Date.
(b) Cumulative Accrued Benefit means the
sum of the present value of a Participant's accrued benefits under
a defined benefit plan (for an unaggregated plan) or under all
defined benefit plans included in an Aggregation Group (for
aggregated plans), determined under the actuarial assumptions set
forth in that plan or plans, as of the most recent plan valuation
date within a 12-month period ending on the Determination Date as
if the Participant voluntarily terminated service as of such
valuation date.
(c) Accounts and benefits are calculated by
including all amounts attributable to both employer and employee
contributions.
(d) Accounts and benefits are increased by
the aggregate distributions during the five-year period ending on
the Determination Date made with respect to a Participant under
the plan or plans as the case may be, or under a terminated plan
which, if it had not been terminated, would have been required to
be included in the Aggregation Group.
Section C-5. Additional Definitions.
For purposes of this Appendix C, the following definitions
apply:
(a) Aggregation Group means a plan or group
of plans which includes all plans maintained by any Employer in
which a Key Employee is a Participant or which enables any plan in
which a Key Employee is a Participant to meet the requirements of
Section 401(a)(4) or Section 410 of the Internal Revenue Code, as
well as all other plans selected by the Employer for permissive
aggregation, the inclusion of which would not prevent the group of
plans from continuing to meet the requirements of those sections.
(b) Compensation means the employee's
wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the course of
employment with the Employer to the extent that the amounts are
includible in gross income (including, but not limited to
compensation for services on the basis of a percentage of profits,
bonuses, fringe benefits and reimbursement other expense
allowances under a nonaccountable plan (as described in Income Tax
Regulations Section 62-2(c)). Compensation also includes amounts
described in Sections 104(a)(3), 105(a), and 105(h) of the
Internal Revenue Code, but only to the extent that these amounts
are includible in gross income of the employee and amounts paid or
reimbursed by the Employer for moving expenses incurred by an
employee, but only to the extent that at the time of payment it is
reasonable to believe that these amounts are not deductible by the
Employee under Section 217 of the Internal Revenue Code.
Compensation does not include contributions made by the Employer
to a plan of deferred compensation to the extent that, before
application of the limitations contained in Section 415 of the
Internal Revenue Code, the contributions are not includible in
gross income for the employee for the taxable year in which
contributed. Notwithstanding the foregoing, Compensation for the
purpose of calculating a Participant's minimum top-heavy
contribution also includes amounts which the Participant defers
under Section 3.1 and amounts contributed by the Employer to a
cafeteria plan (as defined in Section 125 of the Internal Revenue
Code) for the Participant. Up to and including December 31, 1993,
the annual Compensation for each Participant taken into account
under this Appendix C for any year will not exceed $200,000. This
limitation will be adjusted by the Secretary of the Treasury at
the same time and in the same manner as under Section 415(d) of
the Internal Revenue Code, except that the dollar increase in
effect on January 1 of any calendar year is effective for Plan
Years beginning in that calendar year and the first adjustment to
the $200,000 limitation is effective January 1, 1990. In
determining Compensation for a Participant for purposes of the
$200,000 limitation, the rules of Section 414(q)(6) of the
Internal Revenue Code apply, except the term "family" includes
only the spouse of the Member and any lineal descendants of the
Member who have not attained age 19 before the close of the Plan
Year. If, as a result of the application of those rules, the
adjusted $200,000 limitation is exceeded, then the limitation is
prorated among the affected individuals in proportion to each such
individual's Compensation as determined under the Plan prior to
application of the $200,000 limitation. Effective January 1,
1994, the annual amount constituting Compensation for purposes of
this Appendix C must not exceed $150,000 as adjusted by the
Commissioner of Internal Revenue in accordance with Section
401(a)(17)(B) of the Internal Revenue Code. The adjustment in
effect for a calendar year applies to any period, not exceeding 12
months over which Compensation is determined (determination
period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the annual Compensation
limit described in the two preceding sentences will be multiplied
by a fraction, the numerator of which is the number of months in
the determination period and the denominator of which is 12.
(c) Determination Date means the last day
of the preceding Plan Year.
(d) Employer means any entity which
contributes to this Plan and any of the following entities of
which the Employer is a member: (i) a controlled group of
corporations (as defined in Section 414(b) of the Internal Revenue
Code), (ii) a group of trades or businesses under common control
(as defined in Section 414(c) of the Internal Revenue Code), (iii)
an affiliated service group (as defined in Section 414(m) of the
Internal Revenue Code) and (iv) an organization or arrangement
described in Income Tax Regulations issued under Section 414(o) of
Internal Revenue Code.
(e) Key Employee means any employee or
former employee (and the Beneficiaries of such employee) if,
during the Plan Year in question or any of the four preceding Plan
Years, he or she is or was:
(i) an officer of any Employer, if such
officer's compensation exceeds 50% of the dollar
limitations under Section 415(b)(1)(A) of the Internal
Revenue Code;
(ii) one of the ten employees owning (or
considered as owning within the meaning of Section 318
of the Internal Revenue Code) the largest interest in
any Employer, if such employee's compensation exceeds
100% of the dollar limitation under Section
415(c)(1)(A) of the Internal Revenue Code;
(iii) a 5% owner (as described in Section
416(i)(2)(B)(i) of the Internal Revenue Code) of any
Employer; or
(iv) a 1% or more owner (as described in
Section 416(i)(1)(B)(ii) of the Internal Revenue Code)
of any Employer having annual Compensation of more
than $150,000. For purposes of clause (i), employees
described in Section 414(q)(8) of the Internal Revenue
Code are excluded and no more than 50 (or if less, the
greater of three or 10% of the employees are treated
as officers). For purposes of clause (ii), if two
employees have the same interest in an Employer, the
employee having greater annual compensation is treated
as having a larger interest. The term Key Employee
includes a beneficiary of a Key Employee.
FIRST AMENDMENT
TO THE
CALIFORNIA WATER SERVICE COMPANY
SAVINGS PLAN AND TRUST AGREEMENT
(May 1994 Revision)
The California Water Service Company Savings Plan and Trust
Agreement (the "Plan") is amended to merge the California Water
Service Company Salaried Employees' Savings Plan into this Plan
effective December 31, 1994 in lieu of December 31, 1993.
Dated: March 30, 1995
/s/ Gerald Feeney
Gerald Feeney
Vice President, Chief Financial Officer and Treasurer
/s/ Christine L. McFarlane
Christine L. McFarlane
Director of Human Resources
Amendment No. 2 to the
California Water Service Company
Savings Plan and Trust Agreement
(May 1994 Revision)
The California Water Service Company Savings Plan and Trust
Agreement (May 1994 Revision) (the "Plan"), previously amended on
March 30, 1995, is hereby further amended as follows:
1. Effective January 1, 1996, the second sentence of
Subsection 3.3 is amended to change from 6% to 7% the percentage
of Earnings used to calculate Employer Contributions to the Plan.
Effective January 1, 1997, that sentence is further amended to
change the percentage to 8.
2. Effective January 1, 1997, Subsection 2.2 is amended
to read as follows:
An Employee may elect to become a Participant on the
date his or her employment begins or as of the first
day of any payroll period thereafter, provided the
Employee properly completes and returns such forms as
the Committee may require with respect to deferral and
investment elections.
3. Effective December 12, 1994, the following Subsection
3.6 is added to Section 3:
3.6 Military Service
Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit
with respect to qualified military service will be
provided in accordance with section 414(u) of the
Internal Revenue Code.
4. To the extent permitted under section 411 (d)(6) of
the Internal Revenue Code and IRS regulations and guidance
thereunder, effective January 1, 1997, Subsection 6.4 is amended
to read as follows:
6.4 Other Mandatory Distributions
In the case of a Participant who remains employed by
the Company after his or her Normal Retirement Date,
his or her Participant Account balance will be
distributed as soon as practicable following
termination of employment with the Company.
Notwithstanding the foregoing, the Account balance of
a participant who is a 5 percent owner of the Company
(as defined in section 416 of the Internal Revenue
Code) shall be distributed on April 1 following the
calendar year in which the Participant attains age 70-
1/2.
IN WITNESS WHEREOF, this amendment is executed by two duly
authorized officers on this 31st day of December 1996.
CALIFORNIA WATER SERVICE COMPANY
/s/ Gerald F. Feeney
By Gerald F. Feeney
Vice President, Chief Financial Officer and Treasurer
/s/ Christine L. McFarlane
By Christine L. McFarlane
Director of Human Resources
Amendment No. 3 to the
California Water Service Company
Savings Plan and Trust Agreement
(May 1994 Revision)
The California Water Service Company Savings Plan and Trust
Agreement (May 1994 Revision) (the "Plan"), previously amended on
December 31, 1996, is hereby further amended as follows in order
to clarify the meaning of certain provisions of the Plan and to
state the correct name of the trustee for the Employer Stock fund:
1. The following definition is added to Section 1.2:
Trustees means the trustees of the trust holding Plan
assets other than Employer Stock, who are appointed by
the Board of Directors.
2. The definition of "Committee" shall be deleted from
Section 1.2 and the term "Committee" is changed to "Trustees"
wherever it appears in the Plan.
3. The first two sentences of Section 6.3(c) are amended
to read as follows:
The Beneficiary of a Participant or Former Participant
is the person or persons he or she designates in
writing filed with the Trustees, provided that the
Beneficiary of a married Participant or Former
Participant will be his or her spouse on the date of
death, unless the spouse has consented to the
designation of another Beneficiary in the manner set
forth below. If an unmarried Participant or Former
Participant dies without having properly designated a
Beneficiary, the unpaid balance of his or her
Participant Accounts will be paid to his or her
estate.
4. The first sentence of Section 6.4, as amended by
Amendment No. 2, is hereby
further amended to read as follows:
The Participant Account balance of a Participant who
remains employed by the Company after his or her
Normal Retirement Date will be distributed as soon as
practicable following termination of employment,
provided that he or she may elect, at any time before
termination of employment but after he or she attains
age 70-1/2, to receive an in-service distribution of
his or her Participant Account balance as of the date
of his or her election.
5. Section 8.2 is amended by changing the term "Bank of
America, N.T.&S.A."
to "First Trust, or any successor trustee appointed by the Board
of Directors."
6. Section 9. 1 is amended in its entirety to read as
follows:
9.1 Trustees Administer Plan
(a) The Plan is administered by the Trustees.
The Trustees are the Plan's named
fiduciary within the meaning of ERISA.
The rules and procedures in this Section 9
apply to the Trustees' administration of
the Plan other than the administration and
management of Plan assets as set forth in
Section 8.3.
(b) The Trustees act by a majority, unless
there are fewer than three Trustees, in
which case they act unanimously. The
Trustees may act by meeting, unanimous
written consent, phone meeting or
unanimous consent by facsimile or wire.
Each Trustee has one vote.
(c) No Trustee may vote on any question
affecting his or her specific individual
benefit under the Plan. If, for this or
any other reason, there are no members
eligible to act, the functions of the
Trustees may be exercised by the Board of
Directors.
(d) The expenses of the Trustees for attending
meetings are borne by the Employer. The
Trustees receive no compensation for
attending meetings or other work performed
as Trustees.
IN WITNESS WHEREOF, this amendment is executed by two duly
authorized officers
on this 15th day of January, 1997.
CALIFORNIA WATER SERVICE COMPANY
/s/ Gerald F. Feeney
By Gerald F. Feeney
Vice President, Chief Financial Officer and Treasurer
/s/ Christine McFarlane
By Christine McFarlane
Vice President and Director of Human Resources
Amendment No. 4 to the
California Water Service Company
Savings Plan and Trust Agreement
(May 1994 Revision)
The California Water Service Company Savings Plan and Trust
Agreement (May 1994 Revision) (the "Plan"), previously amended on
December 31, 1996, is hereby further amended effective January 1,
1998, in order to clarify the meaning of certain provisions of the
Plan and to make changes deemed desirable:
Section 4.2 ( c) is amended to read as follows:
Employer Contribution Accounts may be invested in any
of the Funds, in Employer Stock or in a combination of
any or all of the Funds and Employer Stock in
accordance with the requirements for elections set
forth in Paragraph (b) above and with rules adopted by
the Committee.
IN WITNESS WHEREOF, this amendment is executed by two duly
authorized officers on this 11th day of February, 1998.
CALIFORNIA WATER SERVICE COMPANY
/s/ Gerald F. Feeney
By Gerald F. Feeney
Vice President, Chief Financial Officer and Treasurer
/s/ Christine McFarlane
By Christine McFarlane
Vice President and Director of Human Resources
EXHIBIT 10.15
CALIFORNIA WATER SERVICE GROUP
DIRECTORS DEFERRED COMPENSATION PLAN
January 1, 1998
TABLE OF CONTENTS
Page
A. INTRODUCTION 1
B. PARTICIPATION 1
1. Eligibility to Participate 1
2. Election to Participate by Eligible Directors 1
3. Notification of Eligible Directors 2
C. AMOUNTS OF DEFERRAL 2
1. Minimum Deferral 2
2. Maximum Deferral 2
3. Failure to Defer Minimum Amount 2
D. VESTING 2
E. PAYMENT OF DEFERRED DIRECTORS' FEES 2
1. Book Account and Earnings Credit 2
2. Length of Deferral and Time of Payment 3
3. Method of Payment 4
F. HARDSHIP DISTRIBUTIONS 4
G. BENEFITS ON DEATH 4
1. Amount, Method of Payment, and Time of Payment 4
2. Designation of Beneficiary 5
H. SOURCE OF PAYMENT 5
I. MISCELLANEOUS 6
1. No Assignment 6
2. Applicable Law; Severability 6
3. Other Benefits 6
4. Right to Serve as Director 6
J. ADMINISTRATION OF THE PLAN 7
1. In General 7
2. Elections and Notices 7
K. AMENDMENT OR TERMINATION OF THE PLAN 7
L. DEFINITIONS 8
CALIFORNIA WATER SERVICE GROUP
DIRECTORS DEFERRED COMPENSATION PLAN
A. INTRODUCTION
This Plan is established to further enhance the Company's ability to
attract and retain outside members of its Board. Capitalized words are
defined in Paragraph L.
B. PARTICIPATION
1. Eligibility to Participate
Each member of the Board who is not an employee of the Company
or a subsidiary of the Company is eligible to elect to participate in this
Plan and is an Eligible Director. If a person ceases to be an Eligible
Director, he shall, however, remain a Participant in the Plan until all
amounts credited to his Account, adjusted for any subsequent gains or
losses, are paid out under the terms of the Plan (or until death, if
earlier).
2. Election to Participate by Eligible Directors
Each Eligible Director may become a Participant in the Plan by
electing to defer Directors' Fees in accordance with the terms of this
Plan, specifying one or more Measuring Investments and specifying the
method of payment. An election to defer shall be in writing, shall be
irrevocable and shall be made at the time and in the form specified by the
Plan Administrator. On electing to defer Directors' Fees under this Plan,
the Eligible Director shall be deemed to accept all of the terms and
conditions of this Plan.
All elections to defer amounts under this Plan shall be made
pursuant to an election executed and filed with the Plan Administrator
before the amounts so deferred are earned. All such elections to defer
Directors' Fees shall be executed and filed with the Plan Administrator
prior to the first day of each Year.
3. Notification of Eligible Directors
The Plan Administrator shall annually notify each Eligible
Director that he may participate in the Plan for the next Year.
C. AMOUNTS OF DEFERRAL
1. Minimum Deferral
The minimum amount of Directors' Fees that may be deferred by a
Participant under this Plan for any Year is $5,000.
2. Maximum Deferral
The maximum amount of Directors' Fees which a Participant may
defer under this Plan for any Year is 100% of the Participant's Directors'
Fees for such Year.
3. Failure to Defer Minimum Amount
In the event a Participant does not defer at least $5,000 of
Directors' Fees in any Year for any reason, he shall be paid the portion of
his Account attributable to such Year as soon as practicable after the end
of the calendar quarter in which the Plan Administrator determines that the
minimum deferral cannot be met.
D. VESTING
A Participant shall be fully vested in the amount credited to his
Account under the Plan.
E. PAYMENT OF DEFERRED DIRECTORS' FEES
1. Book Account and Earnings Credit
Directors' Fees deferred by a Participant under the Plan shall
be credited to a separate bookkeeping Account of the Company for such
Participant. Separate Accounts or sub-Accounts may be established for each
Year for which the Participant elects to defer Directors' Fees and/or for
each Measuring Investment of the Participant. The Account or Accounts of
each Participant shall be increased or decreased as of the last day of each
month to reflect gains or losses as if each Account were invested in the
Measuring Investment specified by the Participant. The Participant may
file a new designation of Measuring Investment or Investments at any time.
In that event the Participant's Account shall be adjusted as if the
Account were invested in accordance with the new Measuring Investment or
Investments as soon as practicable after the filing of his new designation.
2. Length of Deferral and Time of Payment
a. An Eligible Director shall irrevocably elect in writing,
and file with the Plan Administrator at the same time as he makes any
election to defer Directors' Fees, the period of deferral with respect to
such election. Amounts may be deferred to January 1 of the second (2nd)
Year following the Year in which the election is filed or to any subsequent
January 1, subject to section b. below.
b. Payment from a Participant's Account shall begin no later
than the day on which he ceases to be an Eligible Director, or as soon
thereafter as is practicable. Notwithstanding the previous sentence, if a
person ceases to be an Eligible Director because he becomes an employee of
the Company, payment from his Account shall begin (i) no later than the day
on which his employment with the Company terminates, or as soon thereafter
as practicable or, if later (ii) the date to which payment is deferred
under Paragraph E-2, section a.
c. The Participant's Account shall reflect earnings and
losses through the last day of the month preceding the date of
distribution.
2. Method of Payment
All amounts payable from the Participant's Account shall be
subject to a single method of payment election which is filed with the Plan
Administrator at the time of the Participant's initial election to defer.
The method of payment election is irrevocable. Payment of the amount
credited to the Participant's Account shall be made in a single sum
distribution or in one, two, three, four or five annual installments
payable on January 1 of each Year beginning in the Year elected in
Paragraph E-2, section a. above. The amount of installment payments shall
be adjusted to reflect earnings and losses until the Participant's Account
is fully paid. If a Participant fails to file a method of payment
election, payment of the amount credited to his Account shall be made in a
single sum distribution.
B. HARDSHIP DISTRIBUTIONS
Upon application of any Participant demonstrating hardship, the Plan
Administrator may make a distribution of part or all of the amounts
credited to his Account. "Hardship" shall mean an emergency or unexpected
situation in the Participant's financial affairs, including illness or
accident involving the Participant, his dependents or other members of his
family, a financial need reasonably beyond the Participant's control, or
another significant hardship, as determined by the Plan Administrator.
C. BENEFITS ON DEATH
1. Amount, Method of Payment, and Time of Payment
If a Participant dies before all amounts credited to his
Account have been paid, the remaining amounts credited shall be paid to his
Beneficiary. Payment shall be made in accordance with the method of
payment elected in Paragraph E-3 above. If the Participant has not
commenced receiving benefits, the single sum payment or initial installment
payment shall be made as soon as practicable after the last day of the
month in which the Participant's death occurs.
2. Designation of Beneficiary
A Participant may designate any person or entity as his
Beneficiary, but may not designate more than one person or any person that
is not a natural person without the approval of the Plan Administrator.
Designation shall be in writing and shall become effective only when filed
with (and, if appropriate, approved by) the Plan Administrator. Such
filing must occur before the Participant's death. A Participant may change
the Beneficiary, from time to time, by filing a new written designation
with (and, if appropriate, approved by) the Plan Administrator. If the
Participant is married, any Beneficiary designation which does not provide
that the Participant's spouse is to receive at least one-half of the
Participant's Account shall only become effective when approved in writing
by the Participant's spouse. If no Beneficiary is designated, the value of
the Participant's Account shall be paid to his estate.
D. SOURCE OF PAYMENT
Amounts paid under this Plan shall be paid from the general funds of
the Company, and each Participant and his Beneficiaries shall be no more
than unsecured general creditors of the Company with no special or prior
right to any assets of the Company for payment of any obligations
hereunder. Nothing contained in this Plan shall be deemed to create a
trust of any kind for the benefit of any Participant or Beneficiary, or
create any fiduciary relationship between the Company and any Participant
or Beneficiary with respect to any assets of the Company. Without limiting
the generality of the foregoing, the Company may, but need not, invest in a
Measuring Investment or Measuring Investments. No Participant or
Beneficiary shall have any interest in such investment and such investment
shall not cause this Plan to be a funded plan within the meaning of the
Internal Revenue Code.
E. MISCELLANEOUS
1. No Assignment
The benefits provided under this Plan may not be alienated,
assigned, transferred, pledged, or hypothecated by any person, at any time.
These benefits shall be exempt from the claims of creditors or other
claimants and from all orders, decrees, levies, garnishments or executions.
2. Applicable Law; Severability
The Plan hereby created shall be construed, administered, and
governed in all respects in accordance with the laws of the State of
California. If any provision of this instrument shall be held by a court
of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereunder shall continue to be effective.
3. Other Benefits
No Participant, Eligible Director or Beneficiary shall have any
right to any payment or benefit hereunder except to the extent provided in
the Plan.
4. Right to Serve as Director
The rights of any person to serve as a Director of the Company
shall not be enlarged, guaranteed or affected by reason of the provisions
of the Plan.
ADMINISTRATION OF THE PLAN
1. In General
The Plan Administrator shall interpret and administer the Plan
and carry out its provisions. The Plan Administrator may delegate to one
or more officers or employees of the Company (or an affiliate) all or a
portion of its duties and authority under the Plan. The Company shall
indemnify any officer or employee to whom administrative duties and
authority are delegated against all liability arising in connection with
administration of the Plan, except that such indemnification shall not
apply to gross negligence or willful misconduct.
The Plan Administrator (or its delegate) shall adopt such rules
and regulations for carrying out the Plan as it may deem necessary or
appropriate. Decisions of the Plan Administrator shall be final and
binding on all parties who have or claim any interest in the Plan.
The Plan Administrator may employ or retain agents to perform
such clerical, accounting, and other services as it may require in carrying
out the provisions of the Plan.
2. Elections and Notices
All elections and notices made under this Plan shall be in
writing and filed with the Plan Administrator at the time and in the manner
specified by it. All elections to defer under this Plan shall be
irrevocable.
F. AMENDMENT OR TERMINATION OF THE PLAN
The Company, by action of the Board (excluding Participants and
Eligible Directors), may at any time or from time to time modify or amend
any or all of the provisions of the Plan or may at any time terminate the
Plan. Such action shall be prospective only and shall not adversely affect
the rights of any Participant or Beneficiary to any benefit previously
earned under the Plan. The Plan Administrator may change the Measuring
Investment or Investments at any time. In that case, the Accounts under
the Plan shall be adjusted in accordance with the new Measuring Investment
or Investments from the effective date of such change.
Upon termination of the Plan, Directors' Fees previously deferred,
adjusted for gains and losses to the date of termination, shall promptly be
paid in single sums to the respective Participants or Beneficiaries
entitled thereto.
G. DEFINITIONS
For purposes of the Plan, the following terms have the meanings
indicated:
1. "Account(s)" means the deferred Directors' Fees Account(s)
maintained under the Plan for a Participant in accordance with Paragraph
E-1.
2. "Beneficiary" means any person(s) or legal entity(ies)
designated by the Participant or otherwise determined in accordance with
Section G.
3. "Board" means the Board of Directors of the Company.
4. "Company" means California Water Service Group, a California
corporation.
5. "Directors' Fees" means a Participant's monthly retainer fees,
but does not include fees for attending meetings
6. "Effective Date" means January 1, 1998.
7. "Eligible Director" means a member of the Board who is eligible
to participate in the Plan.
8. "Measuring Investment(s)" means any member of one or more
families of regulated investment funds or a fixed income investment. For
the purpose of the preceding sentence, a fixed income investment bears
interest at the average effective interest cost on the long term debt of
California Water Service Company during the Year determined from its
filings with the California Public Utilities Commission for such Year, or
if there is no such filing, determined by the Company's Treasurer. The
Measuring Investment(s) is specified in Appendix "A" attached hereto and
made a part hereof.
9. "Participant" means an Eligible Director who elects to
participate in the Plan in accordance with Paragraph B-2.
10. "Plan" means this California Water Service Group Directors
Deferred Compensation Plan as embodied herein and as amended from time to
time.
11. "Plan Administrator" is the Company.
12. "Year" means the calendar year.
13. The masculine pronoun shall be deemed to include the feminine,
and a singular number shall be deemed to include the plural unless a
different meaning is plainly required by the context.
Executed effective January 1, 1998, in the City of San Jose,
County of Santa Clara, State of California.
CALIFORNIA WATER SERVICE GROUP
By: /s/ Gerald Feeney
Gerald Feeney
Chief Financial Officer
and Treasurer
CALIFORNIA WATER SERVICE COMPANY
DIRECTORS DEFERRED COMPENSATION PLAN
APPENDIX "A"
Measuring Investments
1. Fixed Income Investment as defined in Paragraph L, Section 7
of the Plan.
2. Vanguard Family of Mutual Funds.
3. Fidelity Family of Mutual Funds.
January 1998
EXHIBIT 10.16
CALIFORNIA WATER SERVICE GROUP
DIRECTORS RETIREMENT PLAN
This document summarizes the California Water Service Group ("Group")
Retirement Plan ("Plan") for members of the Board of Directors. The
Plan is effective January 1, 1998. It replaces the former California
Water Service Company Directors Retirement Plan (the "Former Plan").
The Plan is intended to recognize a director's service commitment to
the Group by providing retirement income.
1. The mandatory retirement age for directors who are employees of the
Group or its subsidiaries shall be age 70. The mandatory retirement
age for directors who are not employees of the Group or its
subsidiaries shall be age 75.
2. Each director who has served as a member of the Board of Directors
for a period of at least five years shall be eligible to participate in
the Plan. Service as a director of California Water Service Company
prior to January 1, 1998 shall be included when determining that the
five year service period requirement has been met.
3. Upon retirement from the Board, each director who has served for a
period of at least five years shall receive an annual retirement
benefit. The retirement benefit will be equal to the annual retainer
that is paid to non employee, active directors of the Group at the time
the director retires from the Board. The annual retirement benefit
will be paid for a period equal to the number of years the retiring
director served on the Board up to a maximum of 10 years or death,
whichever is earlier. The period of service will include service as a
director of California Water Service Company prior to January 1, 1998
or until the death of the director, whichever is earlier. Retirement
benefit payments will be made monthly at the same time as retainer
payments are made to active directors.
4. The Board reserves the right to adopt resolutions which alter,
amend, modify, or terminate the Plan at any time. However, future
resolutions may not, in any way, reduce the benefits to which a
director shall have become entitled prior to adoption of the
resolution.
5. In the event of a Director's death prior to retirement who has
served on the Board for a period of at least five years, the Director's
designated beneficiary will receive annual benefits to which the
director was entitled. The benefit will be determined under terms of
the Plan as if the Director had retired on the date of his
or her death. Benefit payments will be made to the beneficiary in
accordance with the provisions of Paragraph 3. Benefits will be
payable for a period equal to the number of years the Director served
on the Board, including service on the Board of California Water
Service Company prior to January 1, 1998, up to a maximum of 10 years.
Payment of the survivor benefit will commence the month following the
Director's death.
6. In the event of a Director's death following retirement, the
balance of his or her retirement benefit, if any, will be paid to the
retired Director's designated beneficiary, or in accordance with his or
her will or the laws of descent and distribution.
7. A Director may, from time to time, revoke his or her beneficiary
designation and file a new beneficiary designation with the Board.
8. Benefits earned under the former Plan and for which payment had
commenced as of the adoption date of this Plan will continue to be paid
in accordance with provisions of the former plan.
9. This Plan is a nonqualified, nonfunded plan. In the event of
bankruptcy of the Group, the participants will be general creditors of
the Group.
EXHIBIT 10.17
A logo of Bank of America with the words BA was placed in the top left
corner of this page.
Bank of America Business Loan Agreement
National Trust and Savings Association
This Agreement dated as of March 16, 1998, is among Bank of
America National Trust and Savings Association (the "Bank"), California
Water Service Group ("Borrower 1") and CWS Utility Services ("Borrower
2") (Borrower 1 and Borrower 2 are sometimes referred to collectively as
the "Borrowers" and individually as the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will
provide a line of credit to the Borrowers. The amount of the line
of credit (the "Commitment") is Twenty Five Million Dollars
($25,000,000).
(b) This is a revolving line of credit with a within line facility for
letters of credit. During the availability period, the Borrowers
may repay principal amounts and reborrow them.
(c) The Borrowers agree not to permit the outstanding principal
balance of the line of credit plus the outstanding amounts of any
letters of credit, including amounts drawn on letters of credit
and not yet reimbursed, to exceed the Commitment.
1.2 Availability Period. The line of credit is available between the
date of this Agreement and April 30, 1999 (the "Expiration Date") unless
any Borrower is in default.
1.3 Interest Rate.
(a) Unless the Borrowers elect an optional interest rate as described
below, the interest rate is the Bank's Reference Rate minus 0.5
percentage point.
(b) The Reference Rate is the rate of interest publicly announced from
time to time by the Bank in San Francisco, California, as its
Reference Rate. The Reference Rate is set by the Bank based on
various factors, including the Bank's costs and desired return,
general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans
to its customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a
change in the Bank's Reference Rate.
1.4 Repayment Terms.
(a) The Borrowers will pay interest on April 1, 1998, and then monthly
thereafter until payment in full of any principal outstanding
under this line of credit.
(b) The Borrowers will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no
later than the Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on
the Bank's Reference Rate, the Borrower may elect to have all or
portions of the line of credit (during the availability period) bear
interest at the rate(s) described below during an interest period agreed
to by the Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and, if
the interest period is longer than one month, then on the first day of
each month during the interest period. At the end of any interest
period, the interest rate will revert to the rate based on the Reference
Rate, unless the Borrower has designated another optional interest rate
for the portion. Upon the occurrence of an event of default under this
Agreement, the Bank may terminate the availability of optional interest
rates for interest periods commencing after the default occurs.
1.6 Fixed Rate. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Fixed Rate,
subject to the following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable
interest period.
(b) The interest period during which the Fixed Rate will be in effect
will be one year or less.
(c) Each Fixed Rate portion will be for an amount not less than the
following:
(i) for interest periods of 91 days or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of between 30 days and 90 days, One
Million Dollars ($1,000,000).
(iii) for interest periods of between 2 days and 29 days, an amount
which, when multiplied by the number of days in the
applicable interest period, is not less than thirty million
(30,000,000) dollar-days.
(iv) for interest periods of 1 day, Fifteen Million Dollars
($15,000,000).
(d) The Borrower may not elect a Fixed Rate with respect to any
portion of the principal balance of the line of credit which is
scheduled to be repaid before the last day of the applicable
interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Fixed Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid, and a prepayment
fee equal to the amount (if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the certificate of
deposit market for a period starting on the date on which it
was prepaid and ending on the last day of the interest period
for such portion.
1.7 LIBOR Rate. The Borrower may elect to have all or portions of the
principal balance bear interest at the LIBOR Rate plus 1.25 percentage
points
Designation of a LIBOR Rate portion is subject to the following
requirements:
(a) The interest period during which the LIBOR Rate will be in effect
will be one, two, or three weeks, or one, two, three, four, five,
six, seven, eight, nine, ten, eleven, or twelve months. The first
day of the interest period must be a day other than a Saturday or
a Sunday on which the Bank is open for business in California, New
York and London and dealing in offshore dollars (a "LIBOR Banking
Day"). The last day of the interest period and the actual number
of days during the interest period will be determined by the Bank
using the practices of the London inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than the
following:
(i) for interest periods of four months or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of one, two or three months, One Million
Dollars ($1,000,000).
(iii) for interest periods of one, two, or three weeks, an amount
which, when multiplied by the number of days in the
applicable interest period, is not less than thirty million
(30,000,000) dollar-days.
(c) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
the Bank as of the first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
divided by
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the interest rate at
which the Bank's London Branch, London, Great Britain, would
offer U.S. dollar deposits for the applicable interest period
to other major banks in the London inter-bank market at
approximately 11:00 a.m. London time two (2) London Banking
Days before the commencement of the interest period. A
"London Banking Day" is a day on which the Bank's London
Branch is open for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation
D, rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate portion no
later than 12:00 noon San Francisco time on the LIBOR Banking Day
preceding the day on which the London Inter-Bank Offered Rate will
be set, as specified above. For example, if there are no
intervening holidays or weekend days in any of the relevant
locations, the request must be made at least three days before the
LIBOR Rate takes effect.
(e) The Borrower may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last
day of the applicable interest period.
(f) Any portion of the principal balance already bearing interest at
the LIBOR Rate will not be converted to a different rate during
its interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid and a prepayment
fee as described below. A "prepayment" is a payment of an amount
on a date earlier than the scheduled payment date for such amount
as required by this Agreement. The prepayment fee shall be equal
to the amount (if any) by which:
(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market,
or other appropriate money market selected by the Bank, for a
period starting on the date on which it was prepaid and
ending on the last day of the interest period for such
portion (or the scheduled payment date for the amount
prepaid, if earlier).
(h) The Bank will have no obligation to accept an election for a LIBOR
Rate portion if any of the following described events has occurred
and is continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of a LIBOR Rate portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a
LIBOR Rate portion.
1.8 Letters of Credit. This line of credit may be used for financing
standby letters of credit with a maximum maturity of 365 days but not to
extend more than 90 days beyond the Expiration Date. The standby
letters of credit may include a provision providing that the maturity
date may be automatically extended each year for an additional year
unless the Bank gives written notice to the contrary; provided, however,
that each letter of credit shall include a final maturity date which
shall not be subject to automatic extension. The amount of the letters
of credit outstanding at any one time, (including amounts drawn on the
letters of credit and not yet reimbursed), may not exceed Ten Million
Dollars ($10,000,000).
Each Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the
Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described
elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately prepay
and make the Bank whole for any outstanding letters of credit.
(c) The issuance of any letter of credit and any amendment to a letter
of credit is subject to the Bank's written approval and must be in
form and content satisfactory to the Bank and in favor of a
beneficiary acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for Standby
Letter of Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the
Borrowers will be charged for issuing and processing letters of
credit for the Borrowers.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
2. EXPENSES
The Borrowers agree to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's
in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 Requests for Credit. Each request for an extension of credit will
be made in writing in a manner acceptable to the Bank, or by another
means acceptable to the Bank.
3.2 Disbursements and Payments. Each disbursement by the Bank and
each payment by the Borrowers will be:
(a) made at the Bank's branch (or other location) selected by the Bank
from time to time;
(b) made for the account of the Bank's branch selected by the Bank
from time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may,
at its discretion, require the Borrowers to sign one or more
promissory notes.
3.3 Telephone Authorization.
(a) The Bank may honor telephone instructions for advances or
repayments or for the designation of optional interest rates given
by any one of the individual signer(s) of this Agreement or a
person or persons authorized in writing by any one of the
signer(s) of the Agreement.
(b) Advances will be deposited in and repayments will be withdrawn
from Borrower 1's account, or such
other accounts with the Bank as designated in writing by the
Borrowers.
(c) The Borrowers indemnify and excuse the Bank (including its
officers, employees, and agents) from all liability, loss, and
costs in connection with any act resulting from telephone
instructions it reasonably believes are made by any individual
authorized by the Borrowers to give such instructions. This
indemnity and excuse will survive this Agreement's termination.
3.4 Direct Debit.
(a) The Borrowers agree that interest and any fees will be deducted
automatically on the due date from Borrower 1's checking account.
(b) The Bank will debit the account on the dates the payments become
due. If a due date does not fall on a banking day, the Bank will
debit the account on the first banking day following the due date.
(c) The Borrowers will maintain sufficient funds in the account on the
dates the Bank enters debits authorized by this Agreement. If
there are insufficient funds in the account on the date the Bank
enters any debit authorized by this Agreement, the debit will be
reversed.
3.5 Banking Days. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which the Bank
is open for business in California. All payments and disbursements
which would be due on a day which is not a banking day will be due on
the next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
3.6 Taxes. The Borrowers will not deduct any taxes from any payments
they make to the Bank. If any government authority imposes any taxes or
charges on any payments made by the Borrowers, the Borrowers will pay
the taxes or charges. Upon request by the Bank, the Borrowers will
confirm that they have paid the taxes by giving the Bank official tax
receipts (or notarized copies) within 30 days after the due date.
However, the Borrowers will not pay the Bank's net income taxes.
3.7 Additional Costs. The Borrowers will pay the Bank, on demand, for
the Bank's costs or losses arising from any statute or regulation, or
any request or requirement of a regulatory agency which is applicable to
all national banks or a class of all national banks. The costs and
losses will be allocated to the loan in a manner determined by the Bank,
using any reasonable method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
3.8 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis
of a 360-day year and the actual number of days elapsed. This results
in more interest or a higher fee than if a 365-day year is used.
3.9 Interest on Late Payments. At the Bank's sole option in each
instance, any amount not paid when due under this Agreement (including
interest) shall bear interest from the due date at the Bank's Reference
Rate minus 0.5 percentage point.. This may result in compounding of
interest.
3.10 Default Rate. Upon the occurrence and during the continuation of
any default under this Agreement, advances under this Agreement will at
the option of the Bank bear interest at a rate per annum which is 2.0
percentage points higher than the rate of interest otherwise provided
under this Agreement. This will not constitute a waiver of any event of
default.
4. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to
the Borrowers under this Agreement:
4.1 Authorizations. Evidence that the execution, delivery and
performance by each Borrower (and each guarantor) of this Agreement and
any instrument or agreement required under this Agreement have been duly
authorized.
4.2 Governing Documents. A copy of each Borrower's articles of
incorporation.
4.3 Other Items. Any other items that the Bank reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrowers sign this Agreement, and until the Bank is repaid in
full, each Borrower makes the following representations and warranties.
Each request for an extension of credit constitutes a renewed
representation:
5.1 Organization of Borrowers. Each Borrower is a corporation duly
formed and existing under the laws of the state where organized.
5.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within each Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
5.3 Enforceable Agreement. This Agreement is a legal, valid and
binding agreement of each Borrower, enforceable against each Borrower in
accordance with its terms, and any instrument or agreement required
hereunder, when executed and delivered, will be similarly legal, valid,
binding and enforceable.
5.4 Good Standing. In each state in which each Borrower does
business, it is properly licensed, in good standing, and, where
required, in compliance with fictitious name statutes.
5.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which any Borrower is bound.
5.6 Financial Information. All financial and other information that
has been or will be supplied to the Bank, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrowers' (and any guarantor's) financial condition, including
all material contingent liabilities.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
5.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending
or threatened against any Borrower, which, if lost, would impair the
Borrowers' or any Borrower's financial condition or that of any
Borrower's business, or would impair any Borrower's ability to repay the
loan, except as have been disclosed in writing to the Bank.
5.8 Permits, Franchises. Each Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name
rights necessary to enable it to conduct the business in which it is now
engaged.
5.9 Other Obligations. No Borrower is in default on any obligation
for borrowed money, any purchase money obligation or any other material
lease, commitment, contract, instrument or obligation.
5.10 Income Tax Returns. No Borrower has any knowledge of any pending
assessments or adjustments of its income tax for any year.
5.11 No Event of Default. There is no event which is, or with notice
or lapse of time or both would be, a default under this Agreement.
5.12 Location of Borrowers. Each Borrower's place of business (or, if
any Borrower has more than one place of business, its chief executive
office) is located at the address listed under the Borrowers' signature
on this Agreement.
5.13 Year 2000 Compliance.
(a) The Borrower has (i) conducted a comprehensive review and
assessment of all areas of its business that could be adversely
affected by the "year 2000 problem" (that is, the risk that
computer applications may not be able to properly perform date-
sensitive functions after December 31, 1999), (ii) developed a
detailed plan and timeline for addressing the year 2000 problem on
a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable. The Borrower reasonably
anticipates that all computer applications that are material to
its business will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1,
2000 (i.e., be "year 2000 compliant").
(b) The Borrower has made written inquiry of each of its key
suppliers, vendors, and customers with respect to the year 2000
problem and, based on that inquiry, believes that each of them
will on a timely basis be year 2000 compliant in all material
respects. For the purposes of this paragraph, "key suppliers,
vendors, and customers" refers to those suppliers, vendors and
customers of the Borrower the business failure of which would with
reasonable probability result in a material adverse change in the
Borrower's business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the
credit.
6. COVENANTS
The Borrowers agree, so long as credit is available under this Agreement
and until the Bank is repaid in full:
6.1 Use of Proceeds. To use the proceeds of the credit only for short
term operating capital and for issuing standby letters of credit.
6.2 Financial Information. To provide the following financial
information and statements and such additional information as requested
by the Bank from time to time:
(a) Within 90 days of Borrower 1's fiscal year end, Borrower 1's
annual financial statements. These financial statements must be
audited (with an opinion not qualified in any manner, including
not qualified due to possible failure to take all appropriate
steps to successfully address year 2000 system issues) by a
Certified Public Accountant ("CPA") acceptable to the Bank. The
statements shall be prepared on a consolidated basis.
(b) Within 90 days of Borrower 2's fiscal year end, Borrower 2's
annual financial statements. These financial statements may be
Borrower prepared.
(c) Within 60 days of the period's end, Borrower 1's quarterly
financial statements with supplemental schedules. These financial
statements may be Borrower prepared. The statements shall be
prepared on a consolidated and consolidating basis.
(d) Within 60 days of the period's end, Borrower 2's quarterly
financial statements. These financial statements may be Borrower
prepared.
(e) Copies of Borrower 1's Form 10-K Annual Report and Form 8-K ( if
applicable) Current Report within 90 days of Borrower 1's fiscal
year end.
(f) Copies of Borrower 1's Form 10-Q Quarterly Report within 60 days
after the end of each quarterly accounting period.
(g) By April 30, 1998, copies of Borrower 2's business plan and
statements of cash flow covering the 12 month period ending April
30, 1999.
(h) Within 90 days of its fiscal year end, the annual financial
statements of California Water Service Company. These financial
statements must be audited (with an unqualified opinion) by a CPA
acceptable to the Bank.
(i) Within 60 days of the period's end, California Water Service
Company's quarterly financial statements. These financial
statements may be company prepared.
(j) Promptly, upon sending or receipt, copies of any management
letters and correspondence relating to management letters, sent or
received by the Borrowers to or from the Borrowers' auditor.
6.3 Other Debts. Not to have outstanding or incur any direct or
contingent debts or lease obligations (other than those to the Bank), or
become liable for the debts of others without the Bank's written
consent, which will not be unreasonably withheld. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts, lines of credit and leases in existence on the date of this
Agreement disclosed in writing to the Bank.
6.4 Other Liens. Not to create, assume, or allow any security
interest or lien (including judicial liens) on property any Borrower now
or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in
writing to the Bank.
6.5 Out of Debt Period. To repay any advances in full, and not to
draw any additional advances on the Borrowers' revolving line of credit,
for a period of at least 30 consecutive days in each calendar year,
beginning with the period between the date of this Agreement and
December 31, 1998 and each calendar year thereafter.
6.6 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over One Million Dollars ($1,000,000) against any one
or more of the Borrowers in the aggregate (or any guarantor).
(b) any substantial dispute between any Borrower (or any guarantor)
and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in any Borrower's (or any guarantor's)
financial condition or operations.
(e) any change in any Borrower's name, legal structure, place of
business, or chief executive office if such Borrower has more than
one place of business.
6.7 Books and Records. To maintain adequate books and records.
6.8 Audits. To allow the Bank and its agents to inspect the
Borrowers' properties and examine, audit and make copies of books and
records at any reasonable time. If any of the Borrowers' properties,
books or records are in the possession of a third party, the Borrowers
authorize that third party to permit the Bank or its agents to have
access to perform inspections or audits and to respond to the Bank's
requests for information concerning such properties, books and records.
6. 9 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body
with authority over each Borrower's business.
6.10 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises each Borrower now has.
6.11 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep each Borrower's properties in good working
condition.
6.12 Cooperation. To take any action requested by the Bank to carry
out the intent of this Agreement.
6.13 General Business Insurance. To maintain insurance as is usual for
the business it is in.
6.14 Additional Negative Covenants. Not to, without the Bank's written
consent, which will not be unreasonably withheld:
(a) engage in any business activities substantially different from the
Borrowers' present business.
(b) liquidate or dissolve the Borrowers' business.
(c) enter into any consolidation, merger, or other combination, or
become a partner in a partnership, a member of a joint venture, or
a member of a limited liability company where any single
transaction exceeds Two Million Five Hundred Thousand Dollars
($2,500,000).
(d) sell, assign, lease, transfer or otherwise dispose of any assets
for less than fair market value, or enter into any agreement to do
so.
(e) sell, assign, lease, transfer or otherwise dispose of all or a
substantial part of the Borrowers' business or the Borrowers'
assets.
(f) enter into any sale and leaseback agreement covering any of its
fixed or capital assets.
(g) acquire or purchase a business or its assets, where any single
transaction exceeds Two Million Five Hundred Thousand Dollars
($2,500,000).
(h) convert to limited liability partnership status.
(i) with respect to Borrower 1, not to enter into any agreement that
would restrict California Water Service Company's ability to
declare and pay dividends to Borrower 1.
6.15 Bond Rating. With respect to Borrower 1, to maintain an
investment grade bond rating on their rated securities as defined by
Moody's Investors Service, Inc. and Standard and Poor's Corporation.
7. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrowers in default, stop making any additional
credit available to the Borrowers, and require the Borrowers to repay
their entire debt immediately and without prior notice. If an event of
default occurs under the paragraph entitled "Bankruptcy," below, with
respect to any Borrower, then the entire debt outstanding under this
Agreement will automatically become due immediately.
7.1 Failure to Pay. Any Borrower fails to make a payment under this
Agreement when due.
7.2 False Information. Any Borrower has given the Bank false or
misleading information or representations.
7.3 Bankruptcy. Any Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against any Borrower (or any
guarantor), or any Borrower (or any guarantor) makes a general
assignment for the benefit of creditors.
7.4 Receivers. A receiver or similar official is appointed for any
Borrower's (or any guarantor's) business, or the business is terminated.
7.5 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or
more trade creditors against any one or more of Borrowers in an
aggregate amount of One Million Dollars ($1,000,000) or more in excess
of any insurance coverage.
7.6 Judgments. Any judgments or arbitration awards are entered
against any one or more of the Borrowers (or any guarantor), or any one
or more of the Borrowers (or any guarantor) enters into any settlement
agreements with respect to any litigation or arbitration, in an
aggregate amount of One Million Dollars ($1,000,000) or more in excess
of any insurance coverage.
7.7 Government Action. Any government authority takes action that the
Bank believes materially adversely affects any Borrower's, (or any
guarantor's) financial condition or ability to repay.
7.8 Material Adverse Change. A material adverse change occurs or is
reasonably likely to occur, in any Borrower's, (or any guarantor's)
financial condition, properties or prospects, or ability to repay the
loan.
7.9 Cross-default. Any default occurs under any agreement in
connection with any credit any Borrower (or any guarantor) or California
Water Service Company has obtained from anyone else or which any
Borrower (or any guarantor) or California Water Service Company has
guaranteed if the default consists of failing to make a payment when due
or gives the other lender the right to accelerate the obligation.
7.10 Default under Related Documents. Any guaranty, subordination
agreement, security agreement, deed of trust, or other document required
by this Agreement is violated or no longer in effect.
7.11 Other Bank Agreements. Any Borrower (or any guarantor) fails to
meet the conditions of, or fails to perform any obligation under any
other agreement any Borrower (or any guarantor) has with the Bank or
any affiliate of the Bank.
7.12 Other Breach Under Agreement. Any Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of
this Agreement not specifically referred to in this Article.
8. ENFORCING THIS AGREEMENT; MISCELLANEOUS
8.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently
applied.
8.2 California Law. This Agreement is governed by California law.
8.3 Successors and Assigns. This Agreement is binding on the
Borrowers' and the Bank's successors and assignees. The Borrowers agree
that they may not assign this Agreement without the Bank's prior
consent. The Bank may sell participations in or assign this loan, and
may exchange financial information about the Borrowers with actual or
potential participants or assignees. If a participation is sold or the
loan is assigned, the purchaser will have the right of set-off against
the Borrowers.
8.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or
claims between any one or more of Borrowers and the Bank,
including but not limited to those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between any one or more of Borrowers and the Bank, including
claims for injury to persons, property or business interests
(torts).
(b) At the request of any Borrower or the Bank, any such controversies
or claims will be settled by arbitration in accordance with the
United States Arbitration Act. The United States Arbitration Act
will apply even though this Agreement provides that it is governed
by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial
rules of arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the
equivalent of the filing of a lawsuit, and any claim or
controversy which may be arbitrated under this paragraph is
subject to any applicable statute of limitations. The arbitrators
will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and
enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration,
arises from or relates to an obligation to the Bank secured by
real property located in California. In this case, both the
Borrowers and the Bank must consent to submission of the claim or
controversy to arbitration. If both parties do not consent to
arbitration, the controversy or claim will be settled as follows:
(i) The Borrowers and the Bank will designate a referee (or a
panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored
proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be
an active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or
the panel) will be entered as a judgment in the court that
appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrowers or the
Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrowers or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if
the controversy or claim arises from or relates to an obligation
to the Bank which is secured by real property located in
California at the time of the proposed submission to arbitration,
this right is limited according to the provision above requiring
the consent of both the Borrowers and the Bank to seek resolution
through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale
under the deed of trust or mortgage, or to proceed by judicial
foreclosure.
8.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank
retains all rights, even if it makes a loan after default. If the Bank
waives a default, it may enforce a later default. Any consent or waiver
under this Agreement must be in writing.
8.6 Administration Costs. The Borrowers shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering
this Agreement.
8.7 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection
with the enforcement or preservation of any rights or remedies under
this Agreement and any other documents executed in connection with this
Agreement, and including any amendment, waiver, "workout" or
restructuring under this Agreement. In the event of a lawsuit or
arbitration proceeding, the prevailing party is entitled to recover
costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or
arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any
similar or successor statute, the Bank is entitled to recover costs and
reasonable attorneys' fees incurred by the Bank related to the
preservation, protection, or enforcement of any rights of the Bank in
such a case. As used in this paragraph, "attorneys' fees" includes the
allocated costs of in-house counsel.
8.8 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and severally liable to
the Bank for the payment of all obligations arising under this
Agreement, and that such liability is independent of the
obligations of the other Borrower(s). The Bank may bring an
action against any Borrower, whether an action is brought against
the other Borrower(s).
(b) Each Borrower agrees that any release which may be given by the
Bank to the other Borrower(s) or any guarantor will not release
such Borrower from its obligations under this Agreement.
(c) Each Borrower waives any right to assert against the Bank any
defense, setoff, counterclaim, or claims which such Borrower may
have against the other Borrower(s) or any other party liable to
the Bank for the obligations of the Borrowers under this
Agreement.
(d) Each Borrower agrees that it is solely responsible for keeping
itself informed as to the financial condition of the other
Borrower(s) and of all circumstances which bear upon the risk of
nonpayment. Each Borrower waives any right it may have to require
the Bank to disclose to such Borrower any information which the
Bank may now or hereafter acquire concerning the financial
condition of the other Borrower(s).
(e) Each Borrower waives all rights to notices of default or
nonperformance by any other Borrower under this Agreement. Each
Borrower further waives all rights to notices of the existence or
the creation of new indebtedness by any other Borrower.
(f) The Borrowers represent and warrant to the Bank that each will
derive benefit, directly and indirectly, from the collective
administration and availability of credit under this Agreement.
The Borrowers agree that the Bank will not be required to inquire
as to the disposition by any Borrower of funds disbursed in
accordance with the terms of this Agreement.
(g) Each Borrower waives any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory or
otherwise), including without limitation, any claim or right of
subrogation under the Bankruptcy Code (Title 11 of the U.S. Code)
or any successor statute, which such Borrower may now or hereafter
have against any other Borrower with respect to the indebtedness
incurred under this Agreement. Each Borrower waives any right to
enforce any remedy which the Bank now has or may hereafter have
against any other Borrower, and waives any benefit of, and any
right to participate in, any security now or hereafter held by the
Bank.
8.9 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrowers concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and
the Borrowers concerning this credit; and
(c) are intended by the Bank and the Borrowers as the final, complete
and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other
agreements required by this Agreement, this Agreement will prevail.
8.10 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to
the addresses on the signature page of this Agreement, or to such other
addresses as the Bank and the Borrowers may specify from time to time in
writing.
8.11 Headings. Article and paragraph headings are for reference only
and shall not affect the interpretation or meaning of any provisions of
this Agreement.
8.12 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed
an original but all such counterparts shall constitute but one and the
same agreement.
This Agreement is executed as of the date stated at the top of the first
page.
Bank of America
National Trust and Savings
Association California Water Service Group
/s/Jeff Perkins /s/Gerald F. Feeney
By: Jeff Perkins By:Gerald F. Feeney
Title: Vice President Title: Vice President, Chief Financial
Officer and Treasurer
CWS Utility Services
/s/Gerald F. Feeney
By:Gerald F. Feeney
Title:Vice President, Chief Financial
Officer and Treasurer
Address where notices to the Bank
are to be sent:
San Jose Regional Commercial Banking Office
#1487
101 Park Center Plaza
San Jose, CA 95115
Address where notices to
the Borrowers
are to be sent:
1720 North First Street
San Jose, CA 95112
Bank of America
Amendment to Documents
AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of March 16,1998,
is between Bank of America National Trust and Savings Association
(the "Bank") and California Water Service Company (the "Borrower")
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 4, 1997 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.3 In Subparagraph 1.1(a) of the Agreement, the amount "Twenty-
Five Million Dollars ($25,000,000)" is substituted for the
amount "Fifty Million Dollars ($50,000,000)."
2.4 Paragraph 6.3 of the Agreement is amended to read in its
entirety as follows:
6.5 Financial Information. To provide the following financial
information and statements and such additional information as
requested by the Bank from time to time:
(c) Within 90 days of the Borrower's fiscal year end, the
Borrower's annual financial statements. These financial
statements must be audited (with an unqualified opinion) by a
Certified Public Accountant ("CPA") acceptable to the Bank.
(d) Within 60 days of the period's end, the Borrower's quarterly
financial statements. These financial statements may be
Borrower prepared.
(e) Within 90 days of its fiscal year end, California Water Service
Group's annual financial statements. These financial
statements must be audited (with an unqualified opinion) by a
Certified Public Account ("CPA") acceptable to the Bank. The
statements shall be prepared on a consolidated basis.
(f) Within 60 days of the period's end, the quarterly financial
statements of California Water Service Group, including
supplemental schedules. These financial statements may be
company prepared and shall be prepared on a consolidated and
consolidating basis.
(g) Within 90 days of its fiscal year end, the annual financial
statements of CWS Utility Services. These financial statements
may be company prepared.
(h) Within 60 days of the period's end, the quarterly financial
statements of CWS Utility Services. These financial statements
may be company prepared.
(i) Copies of California Water Service Group's Form 10-K Annual
Report and Form 8-K (if applicable.). Current Report within 90
days of its fiscal year end.
(j) Copies of California Water Service Group's Form 10-Q Quarterly
Report within 60 days after the end of each quarterly
accounting period.
2.3 The first sentence of Paragraph 6.4 of the Agreement is
amended to read in its entirety as follows:
6.4 Other Debts. Not to have outstanding or incur any direct or
contingent debt (other than those to the Bank), or become
liable for the debt of others without the Bank's consent, which
will not be unreasonably withheld.
2.5 Paragraph 6.15 of the Agreement is amended to read in its
entirely as follows:
6.6 Additional Negative Covenants. Not to, without the Bank's
written consent, which will not be unreasonably withheld:
(o) engage in any business activities substantially different from
the Borrower's present business.
(p) Liquidate or dissolve the Borrower's business.
(q) enter into any consolidation, merger, or other combination, or
become a partner in a partnership, a member of a joint venture,
or a member of a limited liability company where any single
transaction exceeds Two Million Five Hundred Thousand Dollars
($2,500,000).
(r) sell, assign, lease, transfer or otherwise dispose of any
assets for less than fair market value, or enter into any
agreement to do so.
(s) sell, assign, lease, transfer or otherwise dispose of all or a
substantial part of the Borrower's business or the Borrower's
assets.
(t) enter into any sale and leaseback agreement covering any of its
fixed or capital assets.
(u) acquire or purchase a business or its assets, where any single
transaction exceeds Two Million Five Hundred Thousand Dollars
($2,500,000).
(v) convert to limited liability partnership status.
2.1 Paragraph 7.9 of the Agreement is amended to read in its
entirety as follows:
7.2 Cross Default. Any default occurs under any agreement in
connection with any credit the Borrower (or any guarantor) or
CWS Utility Services has obtained from anyone else or which the
Borrower (or any guarantor) or CWS Utility Services has
guaranteed if the default consists of failing to make a payment
when due or gives the other lender the right to accelerate the
obligation.
2.3 A new Paragraph 7.13 is added to the Agreement which reads in
its entirety as follows:
7.4 Guarantor Covenants. The California Water Service Group fails
to comply with the following covenant:
(m) Bond Rating. To maintain an investment grade bond rating on
its rated securities as defined by Moody's Investors Service,
Inc., and Standard & Poors' Corporation.
1. Conditions. This Amendment will be effective when the Bank
receives the following items, in form and content acceptable to
the Bank:
3.2 A Guarantee signed by California Water Service Group in the
amount of Twenty-Five Million Dollars ($25,000,000).
3.3 Evidence that the execution, delivery and performance by the
Borrower and any guarantor of the Amendment and any instrument
or agreement required under this Amendment have been duly
authorized.
4. Effect of Amendment. Except as provided in this Amendment, all
of the terms and conditions of the Agreement shall remain in
full force and effect.
This Amendment is executed as of the date stated at the beginning
of this Agreement.
Bank of America
National Trust and Savings Association California Water Service
Company
/s/ Jeffrey Perkins /s/ Gerald F. Feeney
By: Jeffrey Perkins By: Gerald F. Feeney
Vice President Vice President, CFO
and Treasurer
<TABLE>
Ten Year Financial Review
<CAPTION>
(Dollars in thousands except common share and other data)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Operating revenue
Residential $143,327 $134,035 $119,814 $114,751 $111,526 $101,842 $87,560 $90,178 $84,295 $81,404
Business 32,916 30,924 28,230 27,023 25,247 23,670 20,759 20,910 19,870 19,480
Industrial 6,282 6,150 5,836 5,478 5,123 4,925 4,490 5,146 5,166 4,754
Public authorities 9,636 9,023 8,149 7,995 7,396 6,892 5,734 6,412 6,225 6,232
Other 3,163 2,632 3,057 2,024 2,424 2,476 8,633 1,741 1,932 1,885
Total operating revenue 195,324 182,764 165,086 157,271 151,716 139,805 127,176 124,387 117,488 113,755
Operating expenses 160,975 152,397 139,694 131,766 123,861 116,031 102,855 101,017 95,150 91,265
Interest expense, other
income and expenses, net 11,044 11,300 10,694 11,097 12,354 11,245 10,393 9,004 8,566 8,416
Net income $23,305 $19,067 $14,698 $14,408 $15,501 $12,529 $13,928 $14,366 $13,772 $14,074
COMMON SHARE DATA*
Earnings per share $1.83 $1.50 $1.16 $1.22 $1.35 $1.09 $1.21 $1.25 $1.20 $1.22
Dividends declared 1.055 1.040 1.020 0.990 0.960 0.930 0.900 0.870 0.840 0.800
Dividend payout ratio 58% 69% 88% 81% 71% 85% 74% 70% 70% 65%
Book value $13.00 $12.22 $11.72 $11.56 $10.90 $10.51 $10.35 $10.04 $9.66 $9.30
Market price at year-end 29.53 21.00 16.38 16.00 20.00 16.50 14.00 13.38 14.00 12.75
Common shares outstanding
at year-end (in thousands) 12,619 12,619 12,538 12,494 11,378 11,378 11,378 11,378 11,378 11,344
Return on average
common shareholders'
equity 14.6% 12.7% 10.2% 10.6% 12.4% 10.4% 11.7% 12.4% 12.4% 13.2%
Long-term debt
interest coverage 4.2 3.6 3.2 3.2 3.2 2.9 3.2 3.6 3.4 3.8
BALANCE SHEET DATA
Net utility plant $460,407 $443,588 $422,175 $407,895 $391,703 $374,613 $349,937 $325,409 $307,802 $289,363
Utility plant
expenditures 32,907 35,683 27,250 28,275 28,829 35,188 34,459 26,861 27,277 23,994
Total assets 531,297 512,390 497,626 462,794 446,619 403,448 393,609 369,055 339,348 313,561
Long-term debt 139,205 142,153 145,540 128,944 129,608 122,069 103,505 104,905 86,012 86,959
Capitalization
ratios:
Common shareholders
equity 53.5% 51.4% 49.7% 52.2% 48.2% 48.8% 52.4% 51.3% 55.1% 53.8%
Preferred stock 1.1% 1.2% 1.2% 1.3% 1.4% 1.4% 1.5% 1.6% 1.8% 1.8%
Long-term debt 45.4% 47.4% 49.1% 46.5% 50.4% 49.8% 46.1% 47.1% 43.1% 44.4%
OTHER DATA
Water production
(million gallons)
Wells 56,612 53,372 49,755 50,325 47,205 52,000 48,930 51,329 51,350 48,828
Purchased 53,190 51,700 49,068 49,300 48,089 40,426 36,686 45,595 45,978 48,254
Total water production 109,802 105,072 98,823 99,625 95,294 92,426 85,616 96,924 97,328 97,082
Metered customers 302,100 298,400 289,200 286,700 282,100 278,700 275,200 272,100 269,200 267,000
Flat rate customers 77,400 77,700 77,900 78,800 80,800 82,000 82,400 81,200 79,400 77,800
Customers at year-end 379,500 376,100 367,100 365,500 362,900 360,700 357,600 353,300 348,600 344,800
New customers added 3,400 9,000 1,600 2,600 2,200 3,100 4,300 4,700 3,800 7,000
Revenue per customer $515 $486 $450 $430 $418 $388 $356 $352 $337 $330
Utility plant per
customer $1,707 $1,644 $1,592 $1,530 $1,469 $1,406 $1,327 $1,251 $1,198 $1,140
Employees at year-end 649 633 630 624 614 610 593 581 565 550
* Common share data is restated to reflect the effective two-for-one stock split on December 31, 1997.
</TABLE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
In April 1997, shareholders of California Water Service Company
("Company") voted to approve a holding company structure. After
receiving final regulatory approval required to complete the process,
on December 31, 1997, California Water Service Group ("Group") was
formed. Through the holding company formation procedure, the Company
became one of the Group's two operating subsidiaries. The Company will
continue to operate as a regulated utility. Its assets and operating
revenues currently comprise virtually all of the Group's assets and
revenues. The other subsidiary, CWS Utility Services, is a new entity
that will provide non-regulated water operations and related services.
The following discussion and analysis provides information regarding
the Group, its assets and operations.
In conjunction with formation of the holding company structure, each
common share of Company stock was exchanged on a two-for-one basis for
common shares of Group. Per share data has been restated where
necessary to reflect the effective two-for-one stock split.
FORWARD LOOKING STATEMENTS
The Management's Discussion and Analysis section and other sections of
this annual report contain forward looking statements. Such statements
are inherently based on currently available information and
expectations, estimates, assumptions and projections, and management's
judgment about the Group, the water utility industry and general
economic conditions. Such words as expects, intends, plans, believes,
estimates, anticipates or variations of such words or similar
expressions are intended to identify forward looking statements. The
forward looking statements are not guarantees of future performance.
Actual results may vary materially from what is contained in a forward
looking statement. Factors which may cause a result different than
expected include regulatory decisions, legislation and the impact of
weather on operating results. The Group assumes no obligation to
provide public updates of forward looking statements.
BUSINESS
The Company is a public utility supplying water service to 379,500
customers in 57 California communities through 21 separate water
systems or districts. In the Company's 20 regulated systems, which
serve 373,500 customers as shown on the map on page 7, rates and
operations are subject to the jurisdiction of the California Public
Utilities Commission ("CPUC"). An additional 6,000 customers receive
service through a long-term lease of the City of Hawthorne water
system, which is not subject to CPUC regulations. The Company also has
contracts with various municipalities to operate water systems and
provide billing services to an additional 29,500 customers. The
Company also operates two reclaimed water systems under contract.
The CPUC requires that water rates for each regulated district be
determined independently. Rates for the City of Hawthorne system are
established in accordance with an operating agreement and are subject
to ratification by the City council. Fees for other operating
agreements are based on contracts negotiated among the parties.
RESULTS OF OPERATIONS
Earnings and Dividends. 1997 net income was $23,305,000 compared to
$19,067,000 in 1996 and $14,698,000 in 1995. Earnings per common share
were $1.83 in 1997, $1.50 in 1996 and $1.16 in 1995. 1997 revenue, net
income and earnings per share represent the highest levels ever
achieved by the Group. The weighted average number of common shares
outstanding in each of the three years was 12,619,000, 12,580,000 and
12,506,000, respectively.
At its January 1997 meeting, the Board of Directors increased the
common stock dividend rate for the 30th consecutive year. 1997 also
marked the 53rd consecutive year that a dividend had been paid on the
Company's common stock. The annual dividend rate paid in 1997 was
$1.055, an increase of 1.4% over the 1996 rate of $1.04 per share
which was an increase of 2.0% compared with the 1995 dividend of $1.02
per share. The dividend increases were based on projections that the
higher dividend could be sustained while still providing the Group
with adequate financial flexibility. Earnings not paid as dividends
are reinvested in the business. The dividend payout ratio was 58% in
1997, 69% in 1996 and 88% in 1995, an average of 72% for the three-
year period. The variation in payout ratios among the three years is
primarily attributable to earnings per share fluctuations.
Operating Revenue. Operating revenue, including revenue from City of
Hawthorne customers, was a record $195.3 million, exceeding the record
set the previous year of $182.8 million, a $12.6 million or 7%
increase. 1995 revenue was $165.1 million. General and step rate
increases contributed $6.4 million, while offset rate adjustments,
primarily for purchased water cost increases, added $0.2 million.
Increased customer usage added $3.9 million. Average revenue per
customer for each of the three years ended December 31, 1997 and was
$515, $486 and $450, respectively. The revenue changes were mainly
driven by consumption levels and rate increases. Rainfall for the
1996-97 season was concentrated in December 1996 and January 1997,
then virtually ceased. The summer months were dry and warm, resulting
in the highest average recorded consumption level for metered accounts
at 315 ccf., a 4% increase for the year. The increase in average
consumption followed a very strong consumption year in 1996. The
increase in revenue during the first half of 1997 benefited from the
June, 1996 rate case decision affecting 47% of customers. The CPUC
decision for the applications filed in 1996 became effective in April
1997, affecting 11% of the customers. The customer count increased
0.9% to 379,500. Sales to 3,352 new customers increased revenue $2.1
million. The City of Hawthorne system was operated for the full year
in 1997, while the 1996 operation was for a ten-month period.
Operating revenue in 1996 increased $17.7 million, or 11% greater than
1995's operating revenue. Offset rate adjustments, primarily for
purchased water cost increases, added $2.2 million to revenue, while
general and step rate increases contributed $7.8 million. Increased
customer usage added $3.1 million. Average billed water consumption
per metered customer was 303 ccf, a 6% increase for the year.
Following a wet first quarter, during which heavy rainfall assured an
adequate supply for the year, warm, dry spring and summer weather
caused an increase in consumption. In June, rate increases in five
districts, covering 47% of customers, became effective and added
significantly to revenue in the second half of the year. The number of
customers increased 2.4% for the year due to the addition of the 6,000
City of Hawthorne customers in March and other customers added in
existing service areas. Sales to a total of 9,000 new accounts provided
$4.6 million in additional revenue.
The 1995 revenue increase was $7.8 million, or 5% greater than 1994.
Offset rate adjustments, mainly for purchased water cost increases, added
$3.8 million while general and step rate increases contributed $2.2
million. Increased customer usage added $1.1 million. Average billed
water consumption per metered customer was 286 ccf., an increase of 1
ccf for the year. Only consumption in the fourth quarter exceeded that
of the prior year, the first three 1995 quarters recorded usage which
was less than 1994's. The consumption pattern reflects 1995's weather.
The winter was unusually wet. Rain and cool weather continued through
the spring and negatively influenced summer usage. With the exception
of August, which showed a slight increase in consumption, all months
through the third quarter recorded a sales decline from the prior
year. Lack of rain and mild weather in the fourth quarter resulted in
increased average customer usage of 14%. Sales to 1,600 new customers
during the year accounted for $0.7 million in additional revenue.
Operating and Interest Expenses. Operating expenses, including those
for the Hawthorne operation, increased $8.6 million in 1997, $12.7
million in 1996 and $7.9 million in 1995.
Well production supplied 51.2% of the water delivered to all systems
in 1997, while 48.4% was purchased from wholesale suppliers and 0.4%
came from the Company's Bear Gulch district watershed. Water
production was 110 billion gallons, up 5% from 1996's 105 billion
gallons. Production in 1995 was 99 billion gallons. The production
levels in 1997 and 1996 reflect increased customer usage. Total cost
of water production, including purchased water, purchased power and
pump taxes, was $68.9 million in 1997, $67.3 million in 1996 and $62.2
million in 1995. Purchased water expense was the largest component of
operating expense in each year. This year purchased water expense was
$52.2 million, an increase of $0.6 million. The overall purchased
water expense was reduced by $2.5 million due to refunds received from
two wholesale suppliers in May 1997. Well production, which increased
6% in 1997 because of increased demand, caused a $0.9 million increase
in pump taxes and purchased power costs. In 1996, well production was
up 8%, however, purchased power decreased $0.6 million due to the
availability of less expensive power in several districts. In 1997,
the Bear Gulch watershed yielded 0.5 billion gallons, the same
production as in 1996.
Employee payroll and benefits charged to operations and maintenance
expense was $32.9 million this past year, $31.2 million in 1996 and
$29.9 million in 1995. The increases in payroll and related benefits
are attributable to general wage increases effective at the start of
each year and additional hours worked. At year-end 1997, 1996 and
1995, there were 649, 633 and 630 employees, respectively.
Income taxes were $14.0 million in 1997, $12.2 million in 1996 and
$9.9 million in 1995. The changes in taxes are generally due to
increased taxable income.
Long-term debt interest expense decreased $0.3 million due to the
retirement of Series K bonds in November 1996 and Series L bonds in
November 1997, and annual sinking fund payments each year. Interest on
long-term debt increased $0.7 million in 1996 because of the sale, in
August, 1995, of $20 million of senior notes which were outstanding
for the full year. In 1995, bond interest expense increased $0.4
million, also because of the senior note sale.
Interest on short-term bank borrowings in 1997 was $0.3 million more
than in 1996 which was $0.2 million less than 1995's expense. The
additional interest expense this year reflects increased short-term
borrowings, especially during the latter part of the year. 1996's
expense reduction reflects a reduced requirement for short-term
borrowings due to increased water sales which resulted in improved
cash flow and funds available in 1996 from the 1995 senior note sale.
Interest on short-term bank borrowings decreased $0.3 million in 1995,
despite higher short-term rates during 1995 compared to 1994. The
reduction in the expense reflects the payoff of outstanding short-term
bank borrowings upon the issuance of senior notes and reduced short-
term borrowing needs. Due to improved earnings, interest coverage of
long-term debt before income taxes was 4.2 in 1997, 3.6 in 1996 and
3.2 in 1995.
Other Income. Other income is derived from management contracts under
which the Company operates three municipally owned water systems,
contracts for operation of five privately owned water systems,
agreements for operation of two reclaimed water systems, provides
billing services to various cities, leases certain facilities, other
nonutility sources and interest on short-term investments. Total other
income was $1.1 million in 1997, $0.8 million in 1996 and $0.9 million
in 1995. Income from the various operating and billing contracts
excluding short-term interest income was $1 million this year, $0.7
million in 1996 and 1995.
Following the August 1995 senior note issue, available funds generated
significant interest income. This source for temporary investments was
not available in 1997 or 1996. There was $14.5 million in temporary
borrowings at the end of 1997, $7.5 million at the end of 1996 and
none at the end of 1995.
RATES AND REGULATION
General rate case applications were filed for four districts
representing 7% of total accounts in July 1997. The applications
request additional revenue of about $650,000 for 1998. Future step
rate increases for two of the districts of about $110,000 for each
year 1999 through 2001 were also requested. In the other two
districts, proposed step rate increases would be based on a hybrid -
CPI each year through the year 2003.
During 1996, general rate case applications were filed with the CPUC
for two districts, Livermore and Palos Verdes, which represent about
11% of the Company's customers. In April, the CPUC granted the Company
a return on common equity (ROE) of 10.35%. Additional 1997 revenue,
including memorandum and balancing account adjustments, was $2.4
million. The decision included provisions for future step rate
increases to become effective in the next three years of $1.7 million
in 1998 and $0.1 million in 1999 and 2000. The CPUC also authorized
step rate increases for 1997 in various districts totaling $1.5
million and $1.4 million for undercollection of expense balancing
accounts.
The CPUC's decision on the Company's 1995 rate case filing was
effective in June 1996. The decision, which involved five districts
representing 47% of the Company's customers, authorized an ROE of
10.3%. It added $5.4 million of revenue during the first full year,
including $1.2 million of step rate increases effective at the start
of 1996. Over a four-year period, the decision is expected to provide
about $10.6 million in new revenue. The decision includes a provision
to accelerate recovery of the Company's utility plant investment,
resulting in an annualized depreciation rate of about 2.6% for the
five districts. Historically, the Company's annual depreciation rate
has been 2.4% of utility plant.
During 1998, 14 districts, representing about 80% of all customers,
are eligible for rate increase filings. The Company will review
earnings levels in those districts and file for additional rate
consideration as it deems appropriate. The filings are expected to be
made in July.
WATER SUPPLY
The Company's source of supply varies among its 21 operating
districts. Certain districts obtain all of their supply from wells,
some districts purchase all of their supply from wholesale suppliers
and other districts obtain their supply from both sources. The Company
operates two treatment plants which process surface water supplies. In
each of the past three years, approximately half of the total Company
supply has been pumped from Company owned wells and half purchased
from wholesale suppliers. Total water production for 1997, 1996 and
1995 was 109,802, 105,072 and 98,823 million gallons, respectively.
Generally, between mid-spring and mid-fall little precipitation falls
in the Company's service areas. Water demand is highest during the
warm, dry summer period and less in the cool, wet winter. Rain and
snow during the winter months replenish underground water basins and
fill reservoirs providing the water supply for subsequent delivery to
customers. To date, snow and rainfall accumulation during the 1997-98
winter has exceeded normal levels for the third year in a row. Water
storage in state reservoirs exceeds historic levels. The Company
believes that its source of supply from both underground aquifers and
purchased sources is adequate to meet customer demands for 1998 in all
service areas.
ENVIRONMENTAL MATTERS
The Company is subject to regulations of the United States
Environmental Protection Agency (EPA), the California Department of
Health Services and various county health departments concerning water
quality matters. It is also subject to the jurisdiction of various
state and local regulatory agencies relating to environmental matters,
including handling and disposal of hazardous materials.
The Company believes it is in compliance with all monitoring and
treatment requirements set forth by the various agencies. In the past
several years, substantially all of the Company's wells have been
equipped with chlorinators, providing disinfection of water extracted
from underground sources. The cost of the new treatment is being
recovered in customer rates as authorized by the CPUC. Water purchased
from wholesale suppliers is treated before delivery to the Company.
During 1996, Congress approved amendments to the Safe Drinking Water
Act. The revised law provides improvements in establishing regulations
for potential contaminants. Among the considerations by EPA in
determining whether to regulate a particular substance are potential
impact on public health, the likelihood of the contaminants'
occurrence and a cost/benefit analysis. The Company believes the
amended law provides a prudent approach to safeguarding potable water
supplies.
Various regulatory agencies could require increased monitoring and
possibly additional treatment of water supplies. The Company intends
to request recovery for any additional treatment costs through the
ratemaking process.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company's liquidity is provided by utilization of a
$50 million short-term bank line of credit which is split evenly
between Group and Company, and by internally generated funds. Prior to
1997, the line of credit was $30 million. The Group's $25 million
portion of the bank credit line may be drawn upon for use by the
Group, including funding operations of either of its two operating
subsidiaries. The Company's $25 million portion of the credit line may
be used solely for purposes of regulated water operations. Additional
information regarding the bank line of credit is presented in Note 4
to the financial statements. Internally generated funds come from
retention of a portion of earnings, depreciation and deferred income
taxes.
Because of the seasonal nature of the water business, the need for
short-term borrowings under the line of credit generally increases
during the first six months of the year. Due to greater summer usage,
cash flow from operations increases and bank borrowings can be repaid.
The Company believes that long-term financing is available to it
through equity and debt markets. Standard & Poor's and Moody's have
maintained their ratings of the Company's first mortgage bonds at AA-
and Aa3, respectively. Long-term financing, which includes issuance of
common stock, first mortgage bonds, senior notes and other debt
securities is used to replace short-term borrowings and fund
construction. Developer contributions in aid of construction and
refundable advances for construction are also sources of funds for
various construction projects.
Additional long-term financing was not necessary in either 1997 or
1996. Operating and capital requirements were met by borrowings under
the bank short-term line of credit and by internally generated funds.
During August, 1995, Series A, 7.28%, 30-year senior notes were
issued. The proceeds from the issue were used to repay outstanding
bank borrowings, redeem upon maturity the outstanding $2,565,000
Series J first mortgage bonds and fund the 1995 and a portion of the
1996 construction programs.
During the first quarter of 1998, the Group plans to implement a new
Dividend Reinvestment and Stock Purchase Plan (Plan). The Plan will
replace the Company's former Dividend Reinvestment Plan. Under the new
Plan, shareholders may reinvest dividends to purchase additional Group
common stock. Another feature of the Plan allows existing shareholders
and other interested investors to purchase Group common shares. Shares
required for the Plan may be purchased on the open market or newly
issued shares. Therefore, the Plan will provide the Group with an
alternative means of developing additional equity if new shares were
to be issued. Initially, the intention is to purchase shares required
for the Plan on the open market. If new shares are issued to satisfy
future Plan requirements, the impact on earnings per share could be
dilutive because of the added shares outstanding. Also, shareholders
not participating in the Plan would experience dilution of their
ownership percentage.
In 1996, under the Company's former Dividend Reinvestment Plan, 80,438
new common shares were issued to shareholders who elected to reinvest
their dividends, providing the Company with $1.4 million in additional
equity. In 1995, 44,634 new shares were issued under the Plan during
the third and fourth quarters providing equity of $0.7 million.
Reinvestment shares required for the 1995 first and second quarter
dividends were purchased on the open market and redistributed to Plan
participants. Currently, about 10% of outstanding shares participate
in the Company's dividend reinvestment program.
Capital Requirements. Capital requirements consist primarily of new
construction expenditures for expanding and replacing the Company's
utility plant facilities, and the acquisition of new water properties.
They also include refunds of advances for construction and retirement
of bonds.
During 1997, utility plant expenditures totaled $32.9 million compared
to $35.7 million in 1996. This year's expenditures included $25.5
million provided by Company funding and $7.4 million received from
developers through contributions in aid of construction and refundable
advances. Company funded expenditures were in the following areas:
wells, pumping and water treatment equipment and storage facilities,
$6.9 million; distribution systems, $9.7 million; services and meters,
$5.2 million; equipment, $3.7 million. Company projects were funded by
internally generated funds and the short-term bank line of credit. In
1996, expenditures included the $6.5 million up-front City of
Hawthorne lease payment. The system is being leased for 15 years. A
portion of the proceeds from the August 1995 senior notes issue was
also available to fund a portion of the 1996 Company construction
program.
The 1998 Company construction program has been authorized by the Board
of Directors for $31.0 million. Expenditures are expected to be in the
following areas: wells, pumping and water treatment equipment and
storage facilities, $11.9 million; distribution systems, $8.7 million;
services and meters, $5.4 million; and equipment, $5.0 million. The
funds for this program are expected to be provided by cash from
operations, bank borrowings and long-term debt financing. New
subdivision construction generally will be financed by developers'
contributions and refundable advances. Company funded construction
budgets over the next five years are projected to be $125 million.
Since 1986, proceeds received from developers for installation of new
facilities were subject to income tax. During 1996, Congress enacted
legislation which exempted from taxable income the majority of
proceeds received from developers to fund advances for construction
and contributions in aid of construction. As part of the legislation,
future water utility plant additions will generally be depreciated for
federal tax purposes on a straight-line, 25-year life basis. The
federal tax exemption of developer funds will reduce the Company's
cash flow requirement for income taxes. In 1997, California adopted
similar legislation regarding the taxability of payments received from
developers.
Capital Structure. The Company's total capitalization at December 31,
1997 and 1996 was $306.7 million and $299.9 million, respectively.
Capital ratios were:
1997 1996
Common equity 53.5% 51.4%
Preferred stock 1.1% 1.2%
Long-term debt 45.4% 47.4%
The increase in the common equity percentage from 1996 to 1997 and
the corresponding decrease in the long-term debt percentage were
primarily caused by strong 1997 earnings which contributed to
shareholders' equity. During the year, no new debt was sold or equity
issued. Also contributing to the change was the retirement of Series
L, first mortgage bonds in November 1997 along with the annual bond
sinking fund payments which were also made in November.
The 1997 return on average common equity was 14.6% compared with 12.7%
in 1996 and 10.2% in 1995. The most recent CPUC authorized rate of
return on common equity is 10.35%.
Shareholder Rights Plan. As explained in Note 3 to the Consolidated
Financial Statements, in January 1998, the Board of Directors adopted
a Shareholder Rights Plan (Plan). In connection with the Plan, a
dividend distribution of one's right to purchase preferred stock under
certain circumstances was also authorized. The Plan is designed to
protect shareholders and maximize shareholder value in the event of an
unsolicited takeover proposal by encouraging a prospective acquirer to
negotiate with the Board.
NEW ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued two
statements which will be effective for the Group in 1998. Statement
No. 130, "Reporting Comprehensive Income," requires comprehensive
income items be classified separately and the accumulated balance be
reported in the equity section of the financial statements. Statement
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes disclosure requirements concerning operating
business segments, products and services, geographic areas and major
customers. The Group, which will adopt both statements during 1998,
does not anticipate that either statement will have a material impact
on its financial position or operating results.
YEAR 2000
The Group is familiar with the concerns and technological complexities
associated with achieving Year 2000 compliance of computer based
systems. A program is in place with a goal to assure that Group's
systems achieve Year 2000 compliance by the end of 1998. In addition,
the program includes attaining comfort that our business partners will
also achieve Year 2000 compliance without a disruption of our business
processes. The Group believes that the Year 2000 transition will be
completed without a material adverse effect on its operations or
financial position.
CONSOLIDATED BALANCE SHEET
(In thousands)
December 31,
1997 1996
ASSETS
Utility plant:
Land $7,860 $7,536
Depreciable plant and equipment 627,584 600,329
Construction work in progress 4,026 3,300
Intangible assets 8,178 7,267
Total utility plant 647,648 618,432
Less depreciation and amortization 187,241 174,844
Net utility plant 460,407 443,588
Current assets:
Cash and cash equivalents 1,742 1,368
Receivables:
Customers 10,890 11,437
Other 3,972 1,528
Unbilled revenue 5,136 5,577
Materials and supplies at average cost 2,105 2,324
Taxes and other prepaid expenses 4,423 4,537
Total current assets 28,268 26,771
Other assets:
Regulatory assets 38,345 37,556
Unamortized debt premium and expense 3,748 3,943
Other 529 532
Total other assets 42,622 42,031
$531,297 $512,390
See accompanying notes to consolidated financial statements.
December 31, 1997 1996
(In thousands)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $44,941 $44,941
Retained earnings 119,124 109,285
Total common shareholders' equity 164,065 154,226
Preferred stock without mandatory
redemption provision 3,475 3,475
Long-term debt 139,205 142,153
Total capitalization 306,745 299,854
Current liabilities:
Short-term borrowings 14,500 7,500
Accounts payable 15,499 14,692
Accrued taxes 2,985 3,002
Accrued interest 1,919 1,947
Other accrued liabilities 8,241 7,653
Total current liabilities 43,144 34,794
Unamortized investment tax credits 3,006 3,086
Deferred income taxes 25,761 23,736
Regulatory liabilities 12,493 12,627
Advances for construction 95,878 95,226
Contributions in aid of construction 44,270 43,067
$531,297 $512,390
CONSOLIDATED STATEMENT OF INCOME
For the years ended December 31, 1997 1996 1995
(In thousands, except per share data)
Operating revenue $195,324 $182,764 $165,086
Operating expenses:
Operations:
Purchased water 52,155 51,514 46,370
Purchased power 12,462 12,075 12,689
Pump taxes 4,302 3,753 3,151
Administrative and general 23,521 21,664 19,989
Other 24,019 23,000 21,635
Maintenance 9,319 8,317 7,722
Depreciation and amortization 13,670 12,665 11,436
Income taxes 13,950 12,150 9,850
Property and other taxes 7,577 7,259 6,852
Total operating expenses 160,975 152,397 139,694
Net operating income 34,349 30,367 25,392
Other income and expenses, net 858 607 768
Income before interest expense 35,207 30,974 26,160
Interest expense:
Long-term debt interest 11,405 11,663 10,984
Other interest 497 244 478
Total interest expense 11,902 11,907 11,462
Net income $23,305 $19,067 $14,698
Earnings per share of common stock $1.83 $1.50 $1.16
Average number of common
shares outstanding 12,619 12,580 12,506
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Common
Shares Common Retained
Outstanding Stock Earnings Total
(In thousands, except shares)
Balance at December 31, 1994 12,494,068 $42,800 $ 101,647 $144,447
Net income 14,698 14,698
Dividends paid:
Preferred stock 153 153
Common stock 12,750 12,750
Total dividends paid 12,903 12,903
Income reinvested in business 1,795 1,795
Dividend reinvestment 44,634 707 707
Balance at December 31, 1995
12,538,702 43,507 103,442 146,949
Net income 19,067 19,067
Dividends paid:
Preferred stock 153 153
Common stock 13,071 13,071
Total dividends paid 13,224 13,224
Income reinvested in business 5,843 5,843
Dividend reinvestment 80,438 1,434 1,434
Balance at December 31, 1996
12,619,140 44,941 109,285 154,226
Net income 23,305 23,305
Dividends paid:
Preferred stock 153 153
Common stock 13,313 13,313
Total dividends paid 13,466 13,466
Income reinvested in business 9,839 9,839
Balance at December 31, 1997
12,619,140 $44,941 $119,124 $164,065
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31, 1997 1996 1995
(In thousands)
Operating activities:
Net income $23,305 $19,067 $14,698
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,670 12,665 11,436
Deferred income taxes and investment
tax credits, net 1,945 (2,169) 1,698
Regulatory assets and liabilities, net (923) 503 (1,181)
Changes in operating assets and liabilities:
Receivables (1,897) 698 (1,936)
Unbilled revenue 441 729 (314)
Accounts payable 807 (115) 2,576
Other current liabilities 543 1,579 1,560
Other changes, net 1,510 235 1,258
Net adjustments 16,096 14,125 15,097
Net cash provided by operating activities 39,401 33,192 29,795
Investing activities:
Utility plant expenditures:
Company funded (25,491) (27,631) (20,039)
Developer advances and contributions
in aid of construction (7,416) (8,052) (7,211)
Net cash used in investing activities (32,907) (35,683) (27,250)
Financing activities:
Net short-term borrowings $7,000 $7,500 $(7,000)
Proceeds from issuance of long-term debt 20,000
Proceeds from issuance of common stock 1,434 707
Advances for construction 4,536 4,998 5,368
Refunds of advances for construction (3,685) (3,631) (3,524)
Contributions in aid of construction 2,443 3,896 3,183
Retirements of first mortgage bonds
including premiums (2,948) (3,387) (3,404)
Dividends paid (13,466) (13,224) (12,903)
Net cash provided by (used in)
financing activities (6,120) (2,414) 2,427
Change in cash and cash equivalents 374 (4,905) 4,972
Cash and cash equivalents at
beginning of year 1,368 6,273 1,301
Cash and cash equivalents at end of year $1,742 $1,368 $6,273
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amounts capitalized) $11,734 $11,721 $11,050
Income taxes $14,525 $12,775 $8,258
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
In April 1997, shareholders of California Water Service Company
("Company") voted to approve a holding company structure. The
formation process was completed on December 31, 1997 at which time
California Water Service Group ("Group") became the parent company. As
a result of the holding company formation, the Company became one of
Group's two operating subsidiaries. The Company will continue to
operate as a utility regulated by the California Public Utilities
Commission (CPUC). The other subsidiary, CWS Utility Services, is a
new entity which will perform non-regulated water related services and
operations. The consolidated financial statements include the accounts
of the Company which comprise virtually all of the Group's assets and
revenues.
In conjunction with formation of the holding company structure, common
shares of Company stock were exchanged on a two-for-one basis for
common shares of Group. Prior years' share data has been restated to
reflect the effects of the exchange which is equivalent to a stock
split.
NOTE 1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of
California Water Service Group and its wholly-owned subsidiaries,
California Water Service Company and CWS Utility Services,
collectively referred to as the Group. Intercompany transactions and
balances have been eliminated.
The accounting records of the Company are maintained in accordance
with the uniform system of accounts prescribed by the CPUC. Certain
prior years' amounts have been reclassified, where necessary, to
conform to the current presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Revenue. Revenue consists of monthly cycle customer billings for
regulated water service at rates authorized by the CPUC and billings
to City of Hawthorne customers. Revenue from metered accounts includes
unbilled amounts based on the estimated usage from the latest meter
reading to the end of the accounting period. Flat rate accounts which
are billed at the beginning of the service period are included in
revenue on a pro rata basis for the portion applicable to the current
accounting period.
Utility Plant. Utility plant is carried at original cost when first
constructed or purchased, except for certain minor units of property
recorded at estimated fair values at dates of acquisition. Cost of
depreciable plant retired is eliminated from utility plant accounts
and such costs are charged against accumulated depreciation.
Maintenance of utility plant, other than transportation equipment, is
charged to operation expenses. Maintenance and depreciation of
transportation equipment are charged to a clearing account and
subsequently distributed primarily to operations. Interest is
capitalized on plant expenditures during the construction period and
amounted to $267,000 in 1997, $261,000 in 1996, and $207,000 in 1995.
Intangible assets acquired as part of water systems purchased are
stated at amounts as prescribed by the CPUC. All other intangibles
have been recorded at cost. Included in intangible assets is
$6,500,000 paid to the City of Hawthorne to lease the city's water
system and associated water rights. The lease payment is being
amortized on a straight-line basis over the 15-year life of the lease.
The Group continually evaluates the recoverability of utility plant by
assessing whether the amortization of the balance over the remaining
life can be recovered through the expected and undiscounted future
cash flows.
Long-Term Debt Premium, Discount and Expense. The discount and
expense on long-term debt is being amortized over the original lives
of the related debt issues. Premiums paid on the early redemption of
certain debt issues and unamortized original issue discount and
expense of such issues are amortized over the life of new debt issued
in conjunction with the early redemption.
Cash Equivalents. Cash equivalents include highly liquid investments,
primarily U.S. Treasury and U.S. Government agency interest bearing
securities, stated at cost with original maturities of three months or
less.
Depreciation. Depreciation of utility plant for financial statement
purposes is computed on the straight-line remaining life method at
rates based on the estimated useful lives of the assets, ranging from
5 to 65 years. The provision for depreciation expressed as a
percentage of the aggregate depreciable asset balances was 2.5% in
1997 and 1996, and 2.4% in 1995. For income tax purposes, as
applicable, the Company computes depreciation using the accelerated
methods allowed by the respective taxing authorities. Plant additions
since June 1996, are depreciated on a straight-line basis for tax
purposes.
Advances for Construction. Advances for Construction consist of
payments received from developers for installation of water production
and distribution facilities to serve new developments. Advances are
excluded from rate base. Such payments are refundable to the developer
without interest over a 20-year or 40-year period. Refund amounts
under the 20-year contracts are based on annual revenues from each
extension. Unrefunded balances at the end of the contract period are
credited to Contributions in Aid of Construction and are no longer
refundable. Refunds on contracts entered into since 1982 are made in
equal annual amounts over 40 years. At December 31, 1997, the amounts
refundable under the 20-year contracts were $9,547,000 and under the
40-year contracts $86,331,000. Estimated refunds for 1998 for all
water main extension contracts are $3,800,000.
Contributions in Aid of Construction. Contributions in Aid of
Construction represent payments received from developers, primarily
for fire protection purposes, which are not subject to refunds.
Facilities funded by contributions are included in utility plant, but
excluded from rate base. Depreciation related to contributions is
charged to Contributions in Aid of Construction.
Income Taxes. The Group accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Measurement of the
deferred tax assets and liabilities is at enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in the period that includes the enactment date.
It is anticipated that future rate action by the CPUC will reflect
revenue requirements for the tax effects of temporary differences
recognized which have previously been flowed through to customers.
The CPUC has granted the Company customer rate increases to reflect
the normalization of the tax benefits of the federal accelerated
methods and available investment tax credits (ITC) for all assets
placed in service after 1980. ITC are deferred and amortized over the
lives of the related properties.
Advances for Construction and Contributions in Aid of Construction
received from developers subsequent to 1986 were taxable for federal
income tax purposes and subsequent to 1991 subject to state income
tax. In 1996 the federal tax law, and in 1997 the state tax law,
changed and a major portion of subsequent advances and contributions
are non-taxable.
Earnings per Share. In 1997, the Group adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share", issued by
the Financial Accounting Standards Board. SFAS No. 128 changes the
standard for computing earnings per share (EPS) by replacing the
presentation of primary EPS with basic EPS for all periods presented.
Per share data is calculated using income available to common
shareholders divided by the weighted average number of shares
outstanding during the year. The adoption of SFAS No. 128 had no
effect on the Group's EPS amounts. The Group has no dilutive
securities, accordingly, diluted EPS is not shown.
NOTE 2. Preferred Stock
As of December 31, 1997 and 1996, 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 elections 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.
NOTE 3. Common Shareholders' Equity
The Group is authorized to issue 25,000,000 shares of no par value
common stock. All share data has been restated to reflect the two-for-
one stock split effective December 31, 1997. As of December 31, 1997
and 1996, 12,619,140 shares of common stock were issued and
outstanding. All shares of common stock are eligible to participate in
the Group's dividend reinvestment plan. Approximately 10% of
shareholders participate in the plan. In 1996 and 1995, 80,438 and
44,634, respectively, new shares were issued under the
reinvestment plan.
Shareholder Rights Plan. In January 1998, the Board of Directors
adopted a Shareholder Rights Plan (Rights Plan) 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. The Rights will become effective in February 1998 and expire in
February 2008. The Rights Plan is designed to provide shareholders
protection and to maximize shareholder value by encouraging a
prospective acquirer to negotiate with the Board.
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 shareholder election. The Rights
become exercisable upon occurrence of a Distribution Date. A
Distribution Date event occurs if (a) any person accumulated 15% of
the then outstanding Common Stock, (b) any person presents a tender
offer which caused the person's ownership level to exceed 15% and the
Board determined the tender offer not to be fair to Group's
shareholders, or (c) the Board determines that a shareholder
maintaining a 10% interest in the Common Stock could have an adverse
impact on the Group or could attempt to pressure Group 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 separately transferable. When a
Distribution Date occurs: (a) Group would distribute separate Rights
Certificates to Common Shareholders 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 will thereafter be
void), will 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 Group
merges into the acquiring person, transfers a significant portion of
its assets to the acquiring person or enters into any transaction that
unfairly favors the acquiring person or disfavors Group's other
shareholders, 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 which
would cause a distribution date is in the Group shareholders' best
interest. Therefore, the Board may, at its option, redeem the Rights
at a redemption price of $.001 per Right.
NOTE 4. Short-Term Borrowings
As of December 31, 1997, the Group maintained a bank line of credit
providing unsecured borrowings of up to $50,000,000 at the prime
lending rate or lower rates as quoted by the bank. Subsequent to
December 31, 1997, $25,000,000 of the bank line was transferred to
California Water Service Group, with the remaining line of $25,000,000
available solely to the Company. The agreement does not require
minimum or specific compensating balances. The following table
represents borrowings under the bank line of credit.
Dollars in Thousands
1997 1996 1995
Maximum short-term borrowings $14,500 $9,500 $13,000
Average amount outstanding 5,164 1,662 5,142
Weighted average interest rate 7.22% 6.94% 7.26%
Interest rate at December 31 7.29% 6.98%
NOTE 5. Long-Term Debt
As of December 31, 1997 and 1996 long-term debt outstanding was:
In Thousands
1997 1996
First Mortgage Bonds:
Series L 6.75% due 1997 $ $2,138
Series P 7.875% due 2002 2,625 2,640
Series S 8.50% due 2003 2,640 2,655
Series BB 9.48% due 2008 16,740 16,920
Series CC 9.86% due 2020 18,900 19,100
Series DD 8.63% due 2022 19,500 19,600
Series EE 7.90% due 2023 19,600 19,700
Series FF 6.95% due 2023 19,600 19,700
Series GG 6.98% due 2023 19,600 19,700
119,205 122,153
Senior Notes:
Series A 7.28% due 2025 20,000 20,000
Total long-term debt $139,205 $142,153
The first mortgage bonds are held by institutional investors and
secured by substantially all of the Company's utility plant. Aggregate
maturities and sinking fund requirements for each of the succeeding
five years 1998 through 2002 are $620,000, $2,240,000, $2,240,000,
$2,240,000 and $4,790,000, respectively.
The senior notes are held by institutional investors and are unsecured
and require interest only payments until maturity.
NOTE 6. Income Taxes
Income tax expense consists of the following:
In Thousands
Federal State Total
1997
Current $8,970 $2,894 $11,864
Deferred 2,280 (194) 2,086
Total $11,250 $2,700 $13,950
1996
Current $9,356 $3,274 $12,630
Deferred 444 (924) (480)
Total $9,800 $2,350 $12,150
1995
Current $6,839 $2,729 $9,568
Deferred 1,161 (879) 282
Total $8,000 $1,850 $9,850
Income tax expense computed by applying the current federal tax rate
of 35% to pretax book income differs from the amount shown in the
Consolidated Statement of Income. The difference is reconciled in the
table below:
In Thousands
1997 1996 1995
Computed "expected" tax expense $13,039 $10,926 $8,592
Increase (reduction) in taxes due to:
State income taxes net of
federal tax benefit 1,755 1,528 1,203
Investment tax credits (152) (119) (132)
Other (692) (185) 187
Total income tax $13,950 $12,150 $9,850
The components of deferred income tax expense in 1997, 1996 and 1995
were:
In Thousands
1997 1996 1995
Depreciation $2,457 $3,544 $3,854
Developer advances and contributions (334) (3,749) (3,455)
Bond redemption premiums (62) (73) (75)
Investment tax credits (93) (93) (90)
Other 118 (109) 48
Total deferred income tax expense $2,086 $(480) $282
The tax effects of differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented in the following table:
In Thousands
1997 1996
Deferred tax assets:
Developer deposits for extension agreements
and contributions in aid of construction $43,980 $45,901
Federal benefit of state tax deductions 2,998 4,177
Book plant cost reduction for future
deferred ITC amortization 1,776 1,832
Insurance loss provisions 334 286
Total deferred tax assets 49,088 52,196
Deferred tax liabilities:
Utility plant, principally due to
depreciation differences 74,029 74,407
Premium on early retirement of bonds 1,215 1,290
Other (395) 235
Total deferred tax liabilities 74,849 75,932
Net deferred tax liabilities $25,761 $23,736
A valuation allowance was not required during 1997 and 1996. Based on
historical taxable income and future taxable income projections over
the periods in which the deferred assets are deductible, management
believes it is more likely than not the Group will realize the
benefits of the deductible differences.
NOTE 7. Employee Benefit Plans
Pension Plan. The Company provides a qualified defined benefit, non-
contributory, pension plan for substantially all employees. The cost
of the plan was charged to expense and utility plant. The Company
makes annual contributions to fund the amounts accrued for pension
cost. Plan assets are invested in mutual funds, pooled equity, bond
and short-term investment accounts. The data below includes the
unfunded, non-qualified, supplemental executive retirement plan.
Net pension cost for the years ending December 31, 1997, 1996 and 1995
included the following components:
In Thousands
1997 1996 1995
Service cost-benefits earned during the year $1,545 $1,543 $1,265
Interest cost on projected obligation 2,805 2,583 2,360
Actual return on plan assets (6,023) (4,784) (5,817)
Net amortization and deferral 3,915 2,789 4,220
Net pension cost $2,242 $2,131 $2,028
The following table sets forth the plan's funded status and the plan's
accrued assets (liabilities) as of December 31, 1997 and 1996:
In Thousands
1997 1996
Accumulated benefit obligation, including vested
benefits of $31,519 in 1997 and $28,059 in 1996 $(32,242) $(28,679)
Projected benefit obligation (44,576) (39,296)
Plan assets at fair value 42,390 38,293
Projected benefit obligation in excess of
plan assets (2,186) (1,003)
Unrecognized net gain (5,203) (6,120)
Prior service cost not yet recognized
in net periodic pension cost 5,370 4,991
Remaining net transition obligation at
adoption date January 1, 1987 1,144 1,430
Accrued pension liability recognized
in the balance sheet $(875) $(702)
The projected long-term rate of return on plan assets used in
determining pension cost was 8.0% for the years 1997, 1996 and 1995. A
discount rate of 7.0% in 1997, 7.4% in 1996 and 7.0% in 1995, and
future compensation increases of 4.5% in 1997, 1996 and 1995 were used
to calculate the projected benefit obligations as of the end of the
respective years.
Savings Plan. The Company sponsors a 401(k) qualified, defined
contribution savings plan that allows participants to contribute up to
15% of pre-tax compensation. The Company matched fifty cents for each
dollar contributed by the employee up to a maximum Company match of
4.0%, 3.5% and 3.0% of the employees' compensation in 1997, 1996 and
1995, respectively. Company contributions were $1,045,000, $858,000
and $711,000 for the years 1997, 1996 and 1995, respectively.
Other Postretirement Plans. The Company provides substantially all
active employees with medical, dental and vision benefits through a
self-insured plan. Employees retiring at or after age 58 with 10 or
more years of service are offered, along with their spouses and
dependents, continued participation in the plan by payment of a
premium. Retired employees are also provided with a $5,000 life
insurance benefit.
The Company records the costs of postretirement benefits during the
employees' years of active service. The CPUC has issued a decision
which authorizes rate recovery of tax deductible funding of
postretirement benefits and permits recording of a regulatory asset
for the portion of costs that will be recoverable in future rates.
Net postretirement benefit cost for the years ending December 31,
1997, 1996 and 1995 included the following components:
In Thousands
1997 1996 1995
Service cost - benefits earned $280 $166 $131
Interest cost on accumulated
postretirement benefit obligation 549 383 391
Actual return on plan assets (424) (63) (30)
Net amortization of transition obligation 710 278 260
Net periodic postretirement benefit cost $1,115 $764 $752
Postretirement benefit expense recorded in 1997, 1996 and 1995, was
$581,000, $523,000 and $507,000, respectively. $1,441,000, which is
recoverable through future customer rates, is recorded as a regulatory
asset. The Company intends to make annual contributions to the plan up
to the amount deductible for tax purposes. Plan assets are invested in
mutual funds, short-term money market instruments and commercial
paper.
The following table sets forth the plan's funded status and the plan's
accrued assets (liabilities) as of December 31, 1997 and 1996:
In Thousands
1997 1996
Accumulated postretirement benefit obligation $(3,982) $(2,959)
Other fully eligible participants (818) (604)
Other active participants (3,430) (2,310)
Total (8,230) (5,873)
Plan assets at fair value 936 582
Accumulated postretirement benefit
obligation in excess of plan assets (7,294) (5,291)
Unrecognized net loss 2,129 407
Remaining unrecognized transition obligation 3,724 3,972
Net postretirement benefit liability
included in current liabilities $(1,441) $(912)
For 1997 measurement purposes, a 6.0% annual rate of increase in the
per capita cost of covered benefits was assumed; the rate was assumed
to decrease gradually to 5% in the year 2000 and remain at that level
thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. Increasing the assumed
health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1997, by $1,226,000 and the aggregate of the service and
interest cost components of the net periodic postretirement benefit
cost for the year ended December 31, 1997, by $144,000.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7% at December 31, 1997, 7.4% at December 31,
1996, and 7% at December 31, 1995. The long-term rate of return on
plan assets was 8% for 1997, 1996 and 1995.
NOTE 8. Fair Value of Financial Instruments
For those financial instruments for which it is practicable to
estimate a fair value the following methods and assumptions were used:
Cash Equivalents. The carrying amount of cash equivalents
approximates fair value because of the short-term maturity of the
instruments.
Long-term Debt. The fair value of the Group's long-term debt is
estimated at $155,000,000 as of December 31, 1997 and $159,000,000 as
of December 31, 1996, using a discounted cash flow analysis, based on
the current rates available to the Group for debt of similar
maturities.
Advances for Construction. The fair value of advances for
construction contracts is estimated at $21,000,000 as of December 31,
1997 and 1996, based on data provided by brokers.
NOTE 9. Quarterly Financial and Common Stock Market Data
(Unaudited)
The Group's common stock is traded on the New York Stock Exchange
under the symbol "CWT". There were approximately 11,000 common stock
shareholders at December 31, 1997. Quarterly dividends have been paid
on common stock for 212 consecutive quarters and the quarterly rate
has been increased during each year since 1968. The stock quotations
presented, adjusted for the two-for-one split, are those of the
Company which traded on the New York Stock Exchange prior to its
December 31, 1997 merger with the Group.
1997
First Second Third Fourth
(In thousands, except per share amounts)
Operating revenue $37,558 $55,083 $59,551 $43,132
Net operating income 5,712 11,788 10,540 6,309
Net income 2,921 8,878 7,860 3,646
Earnings per share .23 .70 .62 .28
Common stock market price range:
High 22.63 23.88 25.22 29.59
Low 19.50 18.63 21.13 23.44
Dividends paid .264 .264 .264 .264
1996
First Second Third Fourth
Operating revenue $32,298 $49,048 $59,230 $42,188
Net operating income 4,028 8,698 11,488 6,153
Net income 1,177 5,836 8,673 3,381
Earnings per share .09 .46 .68 .27
Common stock market price range:
High 18.63 17.81 19.13 21.88
Low 16.25 16.75 16.25 17.94
Dividends paid .26 .26 .26 .26
Independent Auditors' Report
Shareholders and Board of Directors
California Water Service Group:
We have audited the accompanying consolidated balance sheet of
California Water Service Group and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income,
common shareholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1997. 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.
We conducted our audits in accordance with generally accepted auditing
standards. 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 provide a reasonable basis for our opinion.
In our opinion, 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,
1997 and 1996, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
San Jose, California
January 23, 1998
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