Exhibit 99.1
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Financial Statements and Supplemental Schedules
December 31, 2002 and 2001
(With Independent Accountants' Reports Thereon)
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Page
Independent Accountants' Report of PricewaterhouseCoopers LLP 1
Financial Statements:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
Supplemental Schedules
1 - Schedule of Assets (Held at End of Year) 9
2 - Schedule of Reportable Transactions 10
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Report of Independent Accountants
To the Participants and Administrator of
Consumers Water Company Employees' 401(k) Savings Plan and Trust
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of Consumers Water Company Employees' 401(k) Savings Plan and Trust (the "Plan")
at December 31, 2002 and 2001, and the changes in net assets available for
benefits for the years then ended in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets
(Held at End of Year) 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 supplemental schedules 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.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 6, 2003
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CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
Investments at fair value $28,163,913 $30,231,000
Cash and cash equivalents 6,253 6,138
Receivables:
Employer contributions - 487
Participants' contributions - 8,793
----------- -----------
Net assets available for benefits $28,170,166 $30,246,418
=========== ===========
See accompanying notes to financial statements.
2
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Statements of Changes in Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
Additions:
Investment income:
Interest & Dividends $ 664,854 $ 635,324
Net depreciation
in fair value of investments (3,704,814) (390,353)
------------ ------------
Total investment (loss) income (3,039,960) 244,971
Contributions:
Employer 315,695 304,858
Participants 1,563,528 1,350,521
------------ ------------
Total contributions 1,879,223 1,655,379
Total additions (1,160,737) 1,900,350
Deductions:
Benefits paid to participants 912,474 1,361,356
Administrative expenses 3,041 2,230
------------ ------------
Net (decrease) increase (2,076,252) 536,764
Net assets available for benefits:
Beginning of year 30,246,418 29,709,654
------------ ------------
End of year $ 28,170,166 $ 30,246,418
============ ============
See accompanying notes to financial statements.
3
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 2002 and 2001
(1) DESCRIPTION OF PLAN
The following description of the Consumers Water Company Employee's
401(k) Savings Plan and Trust ("the Plan") is provided for general
information purposes only. Participants should refer to the Plan
document for more complete information.
General
The Plan is a defined contribution plan covering substantially all
employees of the Consumers Water Company (the "Company"), employees of
certain divisions of Pennsylvania Suburban Water Company and all
employees of Hydraulics, LTD, wholly owned subsidiaries of Philadelphia
Suburban Corporation ("PSC"). 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 member
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 25% of their pretax
compensation pursuant to a salary deferral election, up to a maximum of
$11,000 in 2002 and $10,500 in 2001 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 10% 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 35% 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 consist of common stock in PSC.
Participant Accounts
Each participant's account is credited with the participant's
contribution and allocations of (a) the Company's contribution, (b)
Plan earnings and (c) administrative expenses. 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.
4
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 2002 and 2001
(Continued)
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 loans issued after
January 1, 2000 were issued at the prime rate of interest and prior to
this loans were issued at 5.5%. The interest rate on loans outstanding
as of December 31, 2002 ranged from 4.25% to 9.5%.
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 offered by the Plan or divided among the funds. The
Plan currently offers nine (9) mutual funds and one (1)
common/collective trust fund. Subject to compliance with applicable
state and federal securities laws, the Plan also permits participants
to acquire an interest in PSC common stock. Participants may change
their investment instructions and reinvest their contributions in a
different fund or funds.
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.
(2) 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
accounting principles generally accepted in the United States of
America 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 trustee 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.
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CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 2002 and 2001
(Continued)
Investment Valuation
The Plan's investments are stated at fair value. Mutual funds are
valued at quoted market prices which represents the net asset value of
shares held by the Plan at year-end. Common/collective trust funds are
valued at unit value, which represents the fair value of the underlying
assets as reported by the applicable custodian. PSC stock is valued at
its quoted market price at year-end. Loans to participants, short-term
investments and cash are valued at cost, which approximates fair value.
Dividend income is recorded on the ex-dividend date and interest income
is recorded when earned. Realized gains and losses on the sale of the
PSC stock are based on average cost of the securities sold. Purchases
and sales are recorded on a trade date basis.
(3) INVESTMENTS
The fair market values of individual assets that represent 5% or more
of the Plan's net assets as of December 31, 2002 and 2001 are as
follows:
2002
Mutual Funds
Select Fund, 192,117 shares $ 5,475,339
Balanced Fund, 177,099 shares $ 2,309,370
Common/Collective Funds
Stable Assets, 3,069,650 shares $ 3,069,650
Stock
PSC Common Stock, 633,067 shares* $13,041,184
* Nonparticipant-directed balance 465,682 shares and $9,654,425.
2001
Mutual Funds
Select Fund, 191,606 shares $ 7,089,438
Balanced Fund, 166,185 shares $ 2,452,885
Common/Collective Funds
Stable Assets, 2,622,951 shares $ 2,622,951
Stock
PSC Common Stock, 627,146 shares** $14,142,142
** Nonparticipant-directed balance 456,051 shares and $10,287,197.
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CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 2002 and 2001
(Continued)
The Plan's investments (including gains and losses on investments
brought and sold, as well as held during the year) appreciated
(depreciated) in value as follows:
2002 2001
Common Stock $ (1,175,078) $ 1,816,743
Mutual Funds (2,529,736) (2,207,096)
------------ ------------
Total $ (3,704,814) $ (390,353)
============ ============
(4) NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to the nonparticipant-directed
investments is as follows:
2002 2001
Net Assets:
PSC Common Stock $ 9,654,425 $ 10,287,197
------------ ------------
Total $ 9,654,425 $ 10,287,197
============ ============
2002 2001
Changes in Net Assets:
Contributions 315,695 304,858
Interest & Dividends 246,917 228,996
Net (Depreciation) Appreciation (874,676) 1,336,943
Benefits paid to participants (320,708) (465,574)
------------ ------------
Total $ (632,772) $ 1,405,223
============ ============
(5) RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by J.P.
Morgan/American Century Retirement Plan Services. J.P. Morgan/American
Century Retirement Plan Services is the trustee as defined by the Plan
and, therefore, these transactions qualify as party-in interest
transactions.
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CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Notes to Financial Statements
December 31, 2002 and 2001
(Continued)
(6) TAX STATUS
The Internal Revenue Service issued its latest determination letter
dated December 16, 2002, 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 has been amended since receiving the determination letter. The
Plan administrator and the Plan's 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.
(7) SUBSEQUENT EVENT
All non-union employees hired after April 1, 2003 are not eligible to
participate in this Plan. Union employees hired after April 1, 2003 are
eligible to participate in this Plan unless the collective bargaining
agreement between the Company and the union involved specifically makes
the Plan not applicable to employees covered under such collective
bargaining agreements.
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SCHEDULE 1
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Schedule of Assets (Held at End of Year)
December 31, 2002
Description
Identity of Issuer of Investment Cost Current Value
- ------------------ ------------- ---- -------------
American Century International Growth* Registered Investment Company $ 92,300
American Century Select Fund* Registered Investment Company $ 5,475,339
American Century Balanced Fund* Registered Investment Company $ 2,309,370
American Century Vista Fund* Registered Investment Company $ 707,324
American Century Value Fund* Registered Investment Company $ 1,139,668
American Century Strategic Allocation Moderate* Registered Investment Company $ 69,642
JP Morgan U.S. Small Company* Registered Investment Company $ 140,889
American Century Diversified Bond* Registered Investment Company $ 244,557
American Century Equity Index* Registered Investment Company $ 842,109
SEI Trust Stable Assets Common/Collective Fund $ 3,069,650
Philadelphia Suburban Corporation* Common Stock, 633,067 shares $ 7,003,451 $ 13,041,184
Loans* Loans due from participants (interest rate 4.25% to 9.5%
& maturity date January 1, 2003 to December 18, 2007) $ 1,031,881 $ 1,031,881
------------
Total Assets (Held at End of Year) $ 28,163,913
------------
* Represents a party-in-interest to the Plan.
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SCHEDULE 2
CONSUMERS WATER COMPANY
EMPLOYEES' 401(k) SAVINGS PLAN AND TRUST
Schedule of Reportable Transactions
Year Ended December 31, 2002
Description of Purchase Selling
Identity of Issuer Investment Price Price Cost Net Gain
- ------------------ ---------- ----- ----- ---- --------
Philadelphia Suburban Corporation Common Stock* Purchases $950,039 $ - $ 950,039 $ -
Sales $ - $736,292 $ 509,315 $ 226,977
*Represents a party-in-interest to the Plan
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