Financial Highlights To Our Stockholders Our world changed in 2001. Freedom-loving people everywhere suffered a great loss on September 11 when terrorists attacked the United States of America. As individuals, we mourned; we took pride in the courage and compassion that characterized our country’s response; and we gained from the experience a renewed sense of what is important in life. As a company, we faced a need to increase security and safeguard our water supplies. We also faced challenges unrelated to the attacks, such as higher electricity costs, a tough regulatory climate, and cool, wet weather. We responded to all of these challenges by focusing on the fundamentals of our business while executing an aggressive strategy for improving our financial results in years to come. Our two biggest challenges in 2001 were lower water usage due to cool, wet weather, and decisions by the California Public Utilities Commission (CPUC) to delay our requests for rate relief. Although we can have no influence over the weather, we are continuing our efforts  to grow our business and diversify our operations to lessen its impact on our earnings. The reg- ulatory climate had an even greater impact on our business in 2001, and we brought significant resources to bear in executing a multifaceted strategy to help ensure that we receive fair regulatory treatment in the future. For example, we are a leader in the water industry’s efforts to improve communications with the CPUC and influence key decisions. Even more importantly, we have taken an aggressive approach to rate cases, filing for increases for an unprecedented 15 districts in California in 2001. We hope to receive decisions on these rate cases in the third quarter of 2002. One of the most significant developments at the CPUC in 2001 was a decision to reconsider the way water industry offset expenses are processed. For more than two decades, water utilities have been able to include increases in certain unpredictable and uncontrollable expenses in rates, including electric cost increases, without having to wait to request recovery in general rate case applications, which can only be filed every three years. The CPUC has delayed our requests to recover a large portion of our higher electricity costs until it decides upon the matter of offset expenses. Our electricity costs rose $6 million in 2001, and our unsuccessful efforts to recover all of that cost increase had a significant negative impact  on our earnings. We are participating actively in the CPUC proceeding on this issue, both  as a company and as an industry, in an effort to protect the interests of both stockholders  and customers. We expect our efforts and the efforts of the water industry to yield positive results in future years, but 2001 financial results were clearly impacted by weather and regulatory treat- ment. Our operating revenues for 2001 were $247 million, compared to $245 million in 2000. Net income was $15 million, compared to $20 million in 2000, and earnings were $0.97 per share, compared to $1.31 per share in 2000. 9 8 1982-1986 1987-1991 1992-1996 1997-2001 $1,902 Growth of $100 invested 20 years ago, assuming reinvestment of all dividends. Shown in five-year increments $1,280 $642 $453 Year Ended December 31 2001 2000 1999 1998 1997 Book value $ 12.95 $ 13.13 $ 12.89 $ 12.49 $ 12.15 Market price 25.75 27.00 30.31 31.31 29.53 Earnings per share .97 1.31 1.44 1.31 1.71 Dividends per share 1.115 1.10 1.085 1.07 1.055 Revenue (in thousands) 246,820 244,806 234,937 214,926 225,165 Net income (in thousands)  14,965 19,963 21,971 19,860 25,757