Exhibit 99.1
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Financial Statements and Supplemental Schedules
December 31, 1999 and 1998
(With Independent Auditors' Reports Thereon)
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Table of Contents
December 31, 1999 and 1998
Page
Independent Auditors' Report 1
Financial Statements:
Statements of Net Assets Available for Plan Benefits 2
Statements of Changes in Net Assets Available for Plan Benefits 3
Notes to Financial Statements 5
Schedule
1 - Schedule of Loans in Default 10
2 - Schedule of Assets Held for Investment Purposes at End of Year 11
3 - Schedule of Reportable Transactions 12
Independent Auditors' Report
Consumers Water Company
We have audited the accompanying statements of net assets available for plan
benefits of Consumers Water Company Employees' 401(k) Savings Plan and Trust
(the Plan) as of December 31, 1999 and 1998, and the related statements of
changes in net assets available for plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 1999 and 1998, and the changes in net assets available for plan
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of loans in
default, assets held for investment purposes and reportable transactions are
presented for the purpose of additional analysis and are not a required part of
the basic financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure Under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The fund information
in the statements of changes in net assets available for plan benefits is
presented for purposes of additional analysis rather than to present the changes
in net assets available for plan benefits of each fund. The supplemental
schedules and fund information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/S/ KPMG LLP
Philadelphia, Pennsylvania
June 23, 2000
1
CONSUMERS WATER COMPANY
EMPLOYEES' 401 (k) SAVINGS PLAN AND TRUST
Statements of Net Assets Available for Plan Benefits
December 31, 1999 and 1998
1999 1998
---- ----
Investments at fair value-
Participant directed investments $16,938,763 $15,788,317
Employer common stock 7,224,170 7,652,110
Loans due from participants 1,170,174 1,025,271
----------- -----------
Total Investments $25,333,107 $24,465,698
Cash and cash equivalents 1,871 14,534
Receivables-
Employer contributions 319,908 328,959
Participants' contributions 26,924 116,314
Accrued dividend income - 78,796
----------- -----------
Net assets available for plan benefits $25,681,810 $25,004,301
=========== ===========
See accompanying notes to financial statements.
2
CONSUMERS WATER COMPANY
EMPLOYEES' 401 (k) SAVINGS PLAN AND TRUST
Statement of Changes in Net Assets Available for Plan Benefits
Year Ended December 31, 1999
Participant Directed Employer Loans Due From
Investments Common Stock Participants Total
Additions:
Investment income $ 1,481,996 $ 186,850 $ 57,722 $ 1,726,568
Realized/unrealized gain (loss) on investments 1,353,580 (417,290) - 936,290
----------- --------- -------- -----------
Total investment income 2,835,576 (230,440) 57,722 2,662,858
Contributions:
Employer - 319,908 - 319,908
Participants 1,271,405 97,088 - 1,368,493
----------- --------- -------- -----------
Total contributions 1,271,405 416,996 - 1,688,401
Net additions 4,106,981 186,556 57,722 4,351,259
Deductions:
Distribution to participants 2,805,558 844,113 20,365 3,670,036
Management fee 3,464 250 - 3,714
----------- --------- -------- -----------
Net increase (decrease) prior to interfund
transfers 1,297,959 (657,807) 37,357 677,509
Interfund transfers (251,703) 117,142 134,561 -
----------- --------- -------- -----------
Net change in plan assets 1,046,256 (540,665) 171,918 677,509
Net assets available for plan benefits:
Balance at beginning of year 15,930,204 8,084,743 989,354 25,004,301
----------- --------- --------- -----------
Balance at end of year $16,976,460 7,544,078 1,161,272 $25,681,810
=========== ========= ========= ===========
See accompanying notes to financial statements.
3
CONSUMERS WATER COMPANY
EMPLOYEES' 401 (k) SAVINGS PLAN AND TRUST
Statement of Changes in Net Assets Available for Plan Benefits
Year Ended December 31, 1998
Employer
Participant Directed Common Loans Due From
Investments Stock Participants Other Total
Additions:
Investment income $ 2,111,921 $ 309,101 $ 46,099 $ - $ 2,467,121
Realized/unrealized gain (loss)
on investments 969,854 2,831,129 - - 3,800,983
----------- ---------- -------- ------ -----------
Total investment income 3,081,775 3,140,230 46,099 - 6,268,104
Contributions
Employer - 328,959 - - 328,959
Participants 1,320,082 86,612 - - 1,406,694
----------- ---------- -------- ------ -----------
Total contributions 1,320,082 415,571 - - 1,735,653
Net additions 4,401,857 3,555,801 46,099 - 8,003,757
Deductions:
Distribution to participants 1,399,460 951,801 66,068 - 2,417,329
Management fee 2,798 516 - - 3,314
----------- ---------- -------- ------ -----------
Net increase (decrease) prior to interfund
transfers 2,999,599 2,603,484 (19,969) - 5,583,114
Interfund transfers 14,768 603,763 21,823 (640,354) -
----------- ---------- -------- ------ -----------
Net change in plan assets 3,014,367 3,207,247 1,854 (640,354) 5,583,114
Net assets available for plan benefits:
Balance at beginning of year 12,915,837 4,877,496 987,500 640,354 19,421,187
----------- ---------- -------- ------ -----------
Balance at end of year $15,930,204 $ 8,084,743 $ 989,354 $ - $25,004,301
=========== =========== ========= ======= ===========
See accompanying notes to financial statements.
4
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 1999 and 1998
(1) MERGER WITH PHILADELPHIA SUBURBAN CORPORATION
On March 10, 1999, Consumers Water Company ("the Company") completed a
merger ("the Merger") with Philadelphia Suburban Corporation ("PSC").
Pursuant to the merger agreement, PSC issued 13,014,015 shares of
common stock to the shareholders of the Company, in exchange for all of
the outstanding stock of the Company, including those shares in the
Consumers Water Company Employees' 401(k) Savings Plan and Trust ("the
Plan"). Each Consumers Water Company Shareholder received 1.432 shares
of PSC's Common Stock for each of the Company's Common shares. As a
result of the Merger, the Company became a wholly-owned subsidiary of
PSC. Subsequent to the conversion to PSC Common Stock, all employee and
employer contributions previously invested in the Company's Common
Stock is invested in PSC's Common Stock.
(2) DESCRIPTION OF PLAN
The following description of the Plan is provided for general
information purposes only. Participants should refer to the Plan
agreement for more complete information.
General
The Plan is a defined contribution plan covering substantially all
employees of the Company and its subsidiaries. An employee becomes
eligible to participate on January 1 of the year following the date on
which his or her employment commenced. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended (ERISA).
An employee may not participate in the Plan if the employee is a
participant of a union with which the Company has a collective
bargaining agreement directly or through an employee association,
unless the collective bargaining agreement between the Company and the
union involved specifically makes the Plan applicable to employees
covered under such collective bargaining agreements, provided that
benefits have been a subject of good faith bargaining between the
Company and its employees.
Contributions
Participants may elect to contribute from 1% to 15% of their pretax
compensation pursuant to a salary deferral election, up to a maximum of
$10,000 in 1999 and 1998 as determined by Internal Revenue Code
ss.402(g)(1). Participants may change the rate of their contribution or
their investment elections. They may also make transfers or suspend
their contributions at any time. Under the Plan, participants may
contribute 1% to 9% of their compensation on an after-tax basis to
their voluntary accounts. In any Plan year, a participant's aggregate
contributions to the Plan (salary deferral amounts plus after-tax
voluntary contributions) may not exceed 15% of such participant's
compensation for the applicable Plan year.
The Plan provides for the Company to contribute an amount equal to 40%
of the pretax employee contribution up to $1,040 for each participant.
The Company's contributions consisted of common stock in Consumers
Water Company, and subsequent to March 10, 1999 consist of PSC Common
Stock.
5
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 1999 and 1998
(Continued)
Participant Accounts
Each participant's account is credited with the participant's
contribution and allocations of (a) the Company's contribution and (b)
Plan earnings. Allocations are based on participant contributions or
account balances, as defined by the Plan document.
Vesting
Each participant will always be 100% vested in all employee and Company
contributions.
Payment of Benefits
In the event a participant's employment is terminated by reason of
death, disability or termination of service, a participant's interest
will be distributed in a lump-sum payment. Withdrawals will be made in
cash or shares of PSC stock, to the extent permitted by law. Under
certain circumstances, a participant may withdraw all or a portion of
the employee contributions while employed.
Loans Due from Participants
Participants may borrow funds from their account balance equal to the
lesser of $50,000 or half of their vested account balance for a period
not to exceed five years. Repayment is made by payroll deduction.
During the period covered by the report, all new and outstanding loans
were issued at 5.5%.
Investment Options
Participants can direct, at the time they enroll in the Plan, that
their salary deferral and voluntary contributions be invested entirely
in one of the funds described below or divided among the funds. Subject
to compliance with applicable state and federal securities laws, the
Plan also permits participants to acquire an interest in the PSC common
stock (Consumers Water Company common stock prior to March 10, 1999),
Participants may change their investment instructions and reinvest
their contributions in a different fund or funds. A description of each
investment option is provided below:
The Benham Preservation Fund
This fund is invested in the Benham Preservation Fund, which is managed
by SEI Trust Co. The Fund is a stable value income trust in which
principal is protected from market volatility. The fund invests
primarily in guaranteed investment contracts issued by major financial
institutions, including banks and life insurance companies. The
contracts are only guaranteed with respect to the interest rate, not
the principal. This fund was dissolved as of May 30, 1999. All amounts
were transferred from this fund to the Stable Asset Fund offered by
American Century.
The Select Investors Fund
This fund invests in the Select Investors Fund offered by American
Century. The fund's objective is primarily to provide capital growth
with some income. Stocks purchased by the fund are required to pay
dividends, but are chosen primarily for growth potential.
6
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 1999 and 1998
(Continued)
The Balanced Investors Fund
This fund invests in the Balanced Investors Fund offered by American
Century. The fund's objective is to provide for capital growth and
current income. The fund invests approximately 60% in common stock and
40% in fixed-income securities.
Employer Common Stock
This fund invests in the common shares of PSC (Consumers Water Company
Common Stock prior to March 10, 1999). The Plan purchases the common
shares on the open market or directly from PSC.
The Vista Investors Fund
This fund invests in the Vista Investors Fund offered by American
Century. The fund's objective is capital growth over time by investing
in common stocks considered to have better-than-average prospects for
appreciation. The Vista Investors Fund remains essentially fully
invested in stocks at all times.
The Value Fund
This fund invests in the Value Fund offered by American Century. The
fund's objective is long-term capital growth through investment in
equity securities of well-established companies believed to be
undervalued at the time of purchase. The fund invests primarily in
domestic equity securities, but also invests in other types of domestic
or foreign securities that help achieve the fund's objective.
The Equity Index Fund
This fund invests in the Barclays Global Investors Equity Index Fund.
The fund's objective is long-term capital appreciation through
investment in stocks to closely replicate the composition of the S&P
500 Index. On February 27, 1999 the Equity Index Fund was replaced by
the Equity Index Fund offered by American Century.
Stable Asset Fund
This fund invests in the Stable Asset Fund offered by American Century.
This fund is a collective group trust whose objective is to protect
principal from market volatility through a diversified portfolio of
high-quality investments issued by major financial institutions,
including collateralized stable value vehicles, including guaranteed
investment contracts to enhance credit quality and diversification.
Equity Index Fund
This fund invests in the Equity Index Fund offered by American Century.
The fund's objective is long-term capital growth through investment in
stocks that comprise the S&P Index, which emphasizes stocks of large
U.S. companies, by using an indexing investment approach.
Termination of the Plan
Although the Company does not intend to terminate the Plan, it may do
so at its discretion, subject to the provisions of ERISA. All interests
of the participants would be distributed to them as determined by the
Committee (as hereinafter defined) and in accordance with applicable
provisions of the Internal Revenue Code.
7
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 1999 and 1998
(Continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared using the
accrual basis.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan's management
to use estimates and assumptions that affect the accompanying financial
statements and disclosures. Actual results could differ from these
estimates.
Administration
The Plan is administered by a committee ("the Committee") consisting of
three or more individuals selected by, and who may be removed at any
time by, the Board of Directors of PSC. The Committee members may be
employees of PSC and may be participants in the Plan. The Committee
members receive no compensation from the Plan for their services in
such capacity. The Committee has extensive administrative powers in
connection with the Plan, including authority to interpret the
provisions of the Plan, to adopt rules for its administration and to
make other decisions with respect to the Plan.
The custodian for the Plan's funds invests the funds as directed by the
participants. The principal duties of the trustees are to receive all
contributions paid to the Plan and to make investments and pay benefits
as directed by the Committee. The assets of the Plan are held in the
name of the Trustees.
Substantially all of the administrative expenses of the Plan are paid
by the Company.
Cash Equivalents
All highly liquid investments with a maturity of three months or less
are considered to be cash equivalents.
Investment Valuation
Each investment fund is valued as of each valuation date on the basis
of the investment fund's fair market value. The employer stock is
valued at market value. The Benham Preservation Fund and the Stable
Asset Fund are valued at contract value, which approximates market
value. Dividend income is recognized on the date dividends are
declared. Interest income is recorded on the accrual basis. Purchases
and shares of securities are recorded on a trade-date basis. The
accounts of all participants are adjusted as of each valuation date to
reflect the effects of income, realized and unrealized gains and losses
and expenses applicable to the investment funds where such accounts are
invested.
In September, 1999, the American Institute of Certified Public
Accountants issued Statement of Position 99-3, "Accounting for and
Reporting of Certain Defined Contribution Plan Investments and Other
Disclosure Matters" "(SOP 99-3)". SOP 99-3 simplifies the disclosure
for certain investments and is effective for plan years ending after
December 15, 1999 with earlier application encourage. The Plan adopted
SOP 99-3 during the Plan year ending December 31, 1999. Accordingly,
information previously required to be disclosed about participant-
directed fund investment programs are not presented in the Plan's 1999
financial statements. The Plan's 1998 financial statements have been
reclassified to conform with the current year's presentation.
8
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 1999 and 1998
(Continued)
Reclassifications
Certain reclassifications were made to the 1998 financial statements to
conform with the 1999 presentation.
(4) INVESTMENTS
The fair market values of individual assets that represent 5% or more
of the Plan's net assets as of December 31, 1999 and 1998 are as
follows:
1999
Select Investors Fund $9,997,086
Balanced Investors Fund $2,665,259
Employer Common Stock $7,224,170
Stable Asset Fund $1,911,761
1998
Select Investors Fund $8,878,513
Balanced Investors Fund $2,999,616
Benham Preservation Fund $2,140,910
Employer Common Stock $7,652,110
(5) FEDERAL INCOME TAX CONSEQUENCES
The Internal Revenue Service issued its latest determination letter
dated May 3, 1995, which stated that the Plan and related trust, as
amended, qualified under applicable provisions of the Internal Revenue
Code (IRC) and, therefore are exempt from federal income taxes. The
Plan administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with applicable
requirements of the IRC. Therefore, no provision for income taxes has
been included in the Plan's financial statements.
9
SCHEDULE 1
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Schedule of Loans in Default
December 31, 1999
Original Amount Principal and Interest Unpaid Balances Date of Date of Interest
Identity of Obligor of Loan Received During the Year at End of Year Origin Maturity Rate
------------------- ------- ------------------------ -------------- ------ -------- ----
Participant Loan $21,000 - $13,712 10/17/1997 10/12/2002 5.50%
10
SCHEDULE 2
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Schedule of Assets Held for Investment Purposes at End of Year
December 31, 1999
Description Original
Issuer of Investment Cost Current Value
- ------ ------------- -------- -------------
American Century Select Investors Fund $9,997,086
American Century Balanced Investors Fund 2,665,259
Philadelphia Suburban Corporation Common Stock* $4,832,790 7,224,170
American Century Vista Investors Fund 766,961
American Century Value Fund 433,080
American Century Equity Index Fund 1,164,616
American Century Stable Asset Fund 1,911,761
Loans due from participants (5.5% interest rate)* $1,170,174 1,170,174
-----------
Total assets held for investment purposes $25,333,107
===========
* Represents a party-in-interest to the Plan.
11
SCHEDULE 3
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Schedule of Reportable Transactions
Year Ended December 31, 1999
Description of Purchase Selling
Issuer Investment Price Price Cost Net Gain
- ------ -------------- ---------- ---------- ---- ---------
Philadelphia Suburban Corporation Common Stock* Purchases $1,348,026 - 1,348,026 -
Sales - $1,371,338 1,009,680 361,658
*Represents a party-in-interest to the Plan
12