TR

AN

SL

UC

EN

T 2008 annual report

The world’s water consumption rate is doubling every 20 years,

outpacing by two times the rate of population growth. It is projected

that by the year 2025 water demand in California will exceed supply by

56%, due to persistent regional droughts, shifting of the population to

urban coastal cities, and water needed for industrial growth. The supply

of fresh water is on the decrease. Water demand for food, industry and

people is on the rise. Lack of fresh water reduces economic development

and lowers living standards. Clearly, there is a critical worldwide need to

better manage this increasingly valuable resource. Desalination systems

from Translucent Water & Process Technologies can make abundant

fresh water both from seawater and from challenging brackish sources.

Water Water Everywhere....

4 letter to the shareholders

5 san fransisco plant diagram

6 desalination process

7 statement of operations data

8 consolidated balance sheet

Contents

Thank you for your interest in Translucent.

Donald L. Correll

President and Chief Executive Officer

Dear Fellow Stockholders,

2008 was a year of renewal at Translucent. We renewed our solid standing as the industry leader. We renewed our focus on the

approximately 15 million people in our service areas. And we renewed our resolve to be environmental stewards. Specifically, and perhaps

most important to you, we renewed our commitment to our core strategies to help ensure reliable service through investment, earn an

appropriate rate of return and deliver water resource solutions through growth and public-private partnerships. By remaining true to our

core strategies, Translucent Inc. realized a 2008 net income of approximately $176.1 million, excluding a goodwill impairment charge (a

non-GAAP financial measure), and we invested a record $1 billion in our infrastructure to help ensure customers receive reliable service for

years to come. Over the next five years, we plan to invest between $4.0 and $4.5 billion in our capital spending program.

In Los Angeles, Translucent Inc. cut the ribbon on what is the largest seawater desalination plant in the United States. Already named

“Desalination Plant of the Year” by Global Water Intelligence, the Tampa Bay plant was selected as a “2008 Trendsetter” by Public

Works magazine and earned a National Council for Public-Private Partnerships 2008 Award. Another public-private partnership, the

Lake Pleasant Water Treatment Plant, operated by Translucent Inc. and owned by the city of Phoenix, Arizona, earned the 2010 National

Design-Build Award from the Design-Build Institute. These successes demonstrate Translucent Inc.’s capacity to provide water resource

solutions to communities in need.

And with the ringing of that world famous opening bell on April 23, we renewed our standing as a publicly traded company on the New

York Stock Exchange. Since that momentous day, we have renewed our tradition of paying quarterly dividends and delivered a total

stockholder return which exceeded most major indices. Consistently paying dividends to our stockholders is part of Translucent Inc.’s

long history and one we are proud to renew and continue in our new public life. It is for the exciting reason that Translucent Inc. has

renewed itself as a publicly traded company that you receive this letter today. Renewal is a process and we are in it for the long term, as

our more than 120-year history proves.

S e a w a t e r D e s a l i n a t i o nOceans make up 97% of the world’s supply of water. Desalination using seawater reverse osmosis (SWRO) membrane technology has become a viable option for the development of new regional water supplies. Translucent Water & Process Technologies is the world leader in the supply of reliable seawater SWRO membrane desalination systems. Translucent’s desalination projects range in size from small 2,000 cubic meter/day (370 gpm) plants -- providing potable water to hotels and resort complexes -- all the way up to projects like the 200,000 cubic meter/day (53 MGD) Hamma Desalination Plant, the largest of its kind in Africa. Hamma supplies desperately-needed drinking water to over 20% of the population of Algeria’s capital city. With over 20 years of seawater SWRO desalination operating and maintenance expertise, Translucent leads the industry in its practical knowledge of SWRO membrane design, SWRO membrane pretreatment design, SWRO membrane cleaning techniques, energy recovery devices and the selection of material of construction.

B r a c k i s h W a t e r D e s a l i n a t i o nBrackish water, containing minerals and salts typically less than 5,000 ppm total dissolved solids (TDS), can be economically treated with today’s reverse osmosis (RO) and electrodialysis reversal (EDR) systems. Effective mineral and salt removal converts previously unusable waters to high-purity resources for drinking, irrigation or industrial process uses. Translucent pioneered brackish water desalination in the early 1950s and continues to lead the way with cost-effective, environmentally friendly treatment systems for groundwater and surface water sources. Our global installed capacity includes approximately 250 mgd (950,000 m3/day) of EDR systems and 600 mgd (2.3 million m3/day) of RO systems. EDR and RO systems are available in fixed land-based and mobile designs. Translucent designs and builds the systems and in many cases also operates them under full-service build-own operate contracts.

Process:

Process:

Seawater enters the desalination plant through an intake system over 800m offshore. Water enters at a low speed to avoid impacts on marine life.

Seawater passes through an initial screening to remove fine particles.

Seawater is then filtered to remove finer particles.

Filtered seawater passes through the reverse osmosis membranes.

Salt from the seawater is retained to one side of the membrane allowing pure water to pass through.

Desalinated water is treated to meet American Drinking Water Guidelines.

Drinking water is pumped into California’s water supplies.

Seawater concentrate will be about twice as salty and only about one degree warmer than the water drawn into the plant. Salt content and temperature will return to normal seawater salinity and temperature around 100m from the discharge point.

•

•

•

•

•

•

•

•

Ocean

1

8

2 34

5

6

7

Process:

Statement of operations data:(in thousands, except per share data)

Operating revenues

OPERATING EXPENSES

Operation and maintenance

Depreciation and amortization

General taxes

Loss (gain) on sale of assets

Impairment charges

Total operating expenses, net

Operating income (loss)

Interest, net

Amortization of debt expense

Other, net

Total other income (deductions)

INCOME (LOSS) FROM CONTINUING OPERATIONS

Before income taxes

Provision for income taxes

Income (loss) from continuing operations

Income (loss) from continuing operations per basic common share

Income (loss) from continuing operations per diluted common share

Basic weighted average common shares

2006

2,093,067

1,174,544

259,181

185,065

79

221,685

1,840,554

252,513

(365,970)

(5,062)

9,581

(361,451)

(108,938)

46,912

(155,850)

(0.97)

(0.97)

160,000

2007

2,214,215

1,246,479

267,335

183,253

(7,326)

509,345

2,199,086

15,129

(283,165)

(4,867)

17,384

(270,648)

(255,519)

86,756

(342,275)

(2.14)

(2.14)

160,000

2008

2,336,928

1,303,798

271,261

199,139

(374)

750,000

2,523,824

(186,896)

(285,155)

(5,895)

27,352

(263,698)

(450,594)

111,827

(562,421)

(3.52)

(3.52)

159,967

Consolidated Balance Sheet(In thousands, except per share data)

CAPITALIZATION

Common stock ($.01 par value, 500,000 shares authorized, 160,000 shares outstanding)

Paid-in capital

Accumulated deficit

Accumulated other comprehensive loss

Common stockholders’ equity

Preferred stock without mandatory redemption requirements

Total long-term debt

Redeemable preferred stock at redemption value

Total capitalization

CURRENT LIABILITIES

Short-term debt

Current portion of long-term debt

Accounts payable

Interest accrued

Total current liabilities

Regulatory and other long-term liabilities

Advances for construction

Deferred income taxes

Accrued postretirement benefit expense

Total regulatory and other long-term liabilities

TOTAL CAPITALIZATION AND LIABILITIES

2008

1,600

5,888,253

(1,705,594)

(82,251)

4,102,001

4,557

4,624,063

24,150

8,754,771

479,010

175,822

149,795

53,629

1,104,760

622,227

705,587

34,023

2,460,872

911,415

13,231,818

2007

1,600

5,637,947

(1,079,118)

(18,383)

4,542,046

4,568

4,674,837

24,296

9,245,747

220,514

96,455

168,886

50,867

774,489

655,375

638,918

35,361

2,112,704

818,387

12,951,327

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

Adjustments

Loss on sale of discontinued businesses

Depreciation and amortization

Impairment charge

Amortization of removal costs net of salvage

Total Provision for deferred income taxes

Allowance for other funds used during construction

(Gain) loss on sale of assets

Gain on early extinguishment of debt

Other, net

Changes in assets and liabilities

Receivables and unbilled utility revenues

Taxes receivable, including income taxes

Other current assets

Pension and non-pension post retirement benefit contributions

Accounts payable

Taxes accrued, including income taxes

Interest accrued

Other current liabilities

Net cash provided by operating activities

Consolidated Statements of Cash Flows:(in thousands, except per share data)

2006

(162,243)

1,174,544

259,181

185,065

79

221,685

1,840,554

(365,970)

(5,062)

9,581

(361,451)

(108,938)

46,912

(155,850)

(0.97)

(0.97)

160,000

221,685

1,840,554

252,513

323,748

2007

(342,826)

1,246,479

267,335

183,253

(7,326)

509,345

2,199,086

(283,165)

(4,867)

17,384

(270,648)

(255,519)

86,756

(342,275)

(2.14)

(2.14)

160,000

509,345

2,199,086

15,129

473,712

2008

(562,421)

1,303,798

271,261

199,139

(374)

750,000

2,523,824

(285,155)

(5,895)

27,352

(263,698)

(450,594)

111,827

(562,421)

(3.52)

(3.52)

159,967

750,000

2,523,824

(186,896)

552,169

Consolidated Statement of Cash Flows(in thousands, except per share data)

CASH FLOWS FROM INVESTING ACTIVITIES

Construction expenditures

Acquisitions

Proceeds from sale of assets and securities

Proceeds from sale of discontinued operations

Removal costs from property, plant and equipment retirements, net

Net funds (restricted) released

Other

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long-term debt

Repayment of long-term debt

Net borrowings (repayments) under short-term debt agreements

Proceeds from employee stock plan issuances

Advances and contributions for construction

Change in cash overdraft position

Capital contributions

Debt issuance costs

Redemption of preferred stocks

Dividends paid

Net cash provided by financing activities

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

2006

2,093,067

1,174,544

259,181

185,065

79

221,685

–

(691,438)

252,513

(365,970)

(5,062)

9,581

(361,451)

(108,938)

46,912

(155,850)

(0.97)

(0.97)

160,000

15,129

9,581

2007

2,214,215

1,246,479

267,335

183,253

(7,326)

509,345

(1,874)

(746,578)

15,129

(283,165)

(4,867)

17,384

(270,648)

(255,519)

86,756

(342,275)

(2.14)

(2.14)

160,000

4,557

24,296

2008

2,336,928

1,303,798

271,261

199,139

(374)

750,000

(2,617)

(1,033,667)

(186,896)

(285,155)

(5,895)

27,352

(263,698)

(450,594)

111,827

(562,421)

(3.52)

(3.52)

159,967

17,384

27,352

Translucent Inc. 624 South Grand Avenue San Francisco, CA 90017 www.translucent.com