GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY
IBEW SYSTEM COUNCIL U-3
REPORT ON AUDITS OF FINANCIAL STATEMENTS
for the years ended
December 31, 2002 and 2001
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
INDEX
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Pages
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Independent Auditors' Report 1
Financial Statements:
Statements of Net Assets Available for Plan
Benefits as of December 31, 2002 and 2001 2
Statements of Changes in Net Assets Available
for Plan Benefits for the years ended
December 31, 2002 and 2001 3
Notes to Financial Statements 4-12
INDEPENDENT AUDITORS' REPORT
To the Savings Plan Committee of the
GPU Companies Employee Savings Plan
For Employees Represented by IBEW System Council U-3:
We have audited the accompanying statements of net assets available for plan
benefits of GPU Companies Employee Savings Plan for Employees Represented by
IBEW System Council U-3 (the "Plan") as of December 31, 2002 and 2001, 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 auditing standards generally accepted
in the United States of America. 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 also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe 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, 2002 and 2001, and the changes in net assets available for plan
benefits for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Milligan & Company, LLC
April 25, 2003
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
STATEMENTS OF NET ASSETS
AVAILABLE FOR PLAN BENEFITS
December 31, 2002 and 2001
-------
2002 2001
---- ----
Investment in GPU Companies
Master Savings Plan Trust
at fair value $110,646,469 $123,882,487
Participant loans receivable 3,177,051 3,211,381
------------ ------------
Net assets available for
plan benefits $113,823,520 $127,093,868
============ ============
The accompanying notes are an integral part of the financial statements.
2
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS
for the years ended December 31, 2002 and 2001
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2002 2001
---- ----
Net Asset Balances, beginning of year $127,093,868 $144,479,831
------------ ------------
Additions to net assets attributed to:
Contributions:
Participants' 6,779,317 7,038,798
Employer's 2,065,115 2,173,911
Rollovers 8,048 16,674
Interest on loans 248,194 244,663
Investment income 1,776,390 2,035,981
------------ ------------
Total additions 10,877,064 11,510,027
------------ ------------
Deductions from net assets attributed to:
Net depreciation in fair
value of investments 14,464,875 16,269,170
Transfers to affiliated
savings plans 249,808 2,527,143
Distributions and
Withdrawals 9,432,729 10,099,677
------------ ------------
Total deductions 24,147,412 28,895,990
------------ ------------
Net decrease (13,270,348) (17,385,963)
------------- ------------
Net Asset Balances, end of year $113,823,520 $127,093,868
============ ============
The accompanying notes are an integral part of the financial statements.
3
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS
--------
1. General Description of the Plan:
-------------------------------
The following description of the GPU Companies Employee Savings Plan
for Employees Represented by IBEW System Council U-3 (Plan) provides
only general information on the provisions of the Plan in effect as of
December 31, 2002. Participants should refer to the Benefits Handbook,
Plan document, and prospectus for a more complete description of the
Plan's provisions.
General:
-------
The Plan is a defined contribution plan. In general, all FirstEnergy
employees represented by IBEW System Council U-3 (Company) are eligible
to participate in the Plan if he/she is employed on a full-time basis
or if the employee has completed at least 1,000 hours of service in a
consecutive twelve-month period.
The Plan is intended to qualify as a cash or deferred profit-sharing
plan under Sections 401(a) and 401(k) of the Internal Revenue Code. It
is subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA). A participant is eligible to transfer his/her
account to an affiliated savings plan upon a change in employment
status.
The Plan contains additional employer contribution and employee savings
features. Participants may "rollover" distributions received from other
qualified plans to the Savings Plan.
Contributions:
-------------
The Plan provides two contribution options to a participant. Subject to
certain limitations set forth in the Plan, the participant may elect
(1) to have his/her base compensation reduced by an amount equal to any
whole percentage (before-tax 401(k) contributions), which is
contributed on behalf of the employee by the Company; and/or (2) to
contribute by payroll deduction any whole percentage of base
compensation (after-tax).
Matching Program:
----------------
The Company provides a matching contribution to the Plan on behalf of
each participant, except certain temporary employees as defined in the
Plan document. Effective November 1, 2001 the Company matched 80%, up
from 75% prior to November 1, 2001, of a participant's aggregate
contributions up to 4% of the participant's base compensation. There
was no change in company matching contributions during 2002.
Administration of Plan Assets:
-----------------------------
The Plan's assets, which consist principally of stocks, mutual funds
and bonds are held by the Trustee of the Plan. Employer and participant
contributions are held and managed by the Trustee, which invests cash
received, reinvests interest and dividend income, and makes
distributions to participants.
Continued
4
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Continued
--------
1. General Description of the Plan, continued:
-------------------------------
Administrative Expenses:
-----------------------
The Company absorbs a small portion of administrative expenses. The
majority of the administrative expenses, primarily Investment and
Trustee Fees, are paid out of plan assets held in the GPU System
Companies Master Trust ("Trust"). Investment gains in the Trust are
shown net of these Investment and Trustee Fees.
Investment Funds:
-----------------
The Plan provides investment options that are participant-directed,
which allows participants to choose among various investment
alternatives. Participants may change their investment option at any
time, subject to certain limitations. Participants may elect to have
their Plan accounts invested in one or more of the following investment
options:
o Fidelity Puritan Fund: This fund seeks to obtain a balance between
---------------------
capital appreciation, preservation of capital, and generation of income.
o Fidelity Independence Fund*: This fund seeks to provide the opportunity
---------------------------
for significant capital appreciation.
o Fidelity OTC Portfolio Fund: This fund seeks long-term capital
---------------------------
appreciation by investing in securities that are traded in the
over-the-counter (OTC) securities market.
o Fidelity Overseas Fund: The fund seeks long-term capital appreciation,
----------------------
primarily through investments in foreign securities.
o Interest Income Fund: The return objective of this fund is to
--------------------
provide a higher rate of return over time than the rate of return
offered by money market funds. The Interest Income Fund invests in
a diversified portfolio of investment contracts issued by only
high-quality financial institutions as well as security-backed
investment contracts supported by high quality fixed income
securities.
o Diversified Bond Fund: This fund seeks to match or exceed the
---------------------
returns of the Lehman Brothers Aggregate Index. The fund invests
primarily in government, corporate, mortgage-backed and
asset-backed securities. The fund invests in only high quality
bonds, that is, those rated at least BBB by Standard & Poor's or
Baa3 by Moody's Investors Service.
o Conservative Growth Portfolio: The investment objective of the
-----------------------------
Portfolio is to provide income from fixed income securities and
growth of principal from stock funds. The Conservative Growth
Portfolio has an asset allocation target of 35% equities and 65%
fixed income securities.
* Name changed from Fidelity Retirement Growth Fund effective January 27,
2001.
Continued
5
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Continued
--------
1. General Description of the Plan, continued:
-------------------------------
Investment Funds, continued:
----------------
o Moderate Growth Portfolio: The investment objective of this
-------------------------
portfolio is to provide growth from stock funds and income from
fixed income securities. The Moderate Growth Portfolio has an
asset allocation target of 60% equities and 40% fixed income
securities.
o Aggressive Growth Portfolio: The investment objective of this
---------------------------
portfolio is to provide growth primarily from stock funds with a
small income component. The Aggressive Growth Portfolio has an
asset allocation target of 80% equities and 20% fixed income
securities.
o S&P 500 Index Fund: This fund seeks to match the performance of
------------------
the Standard & Poor's 500 Index. The Fund invests in all 500
stocks in the S&P 500 Index in proportion to their weighting in
the Index. The Fund may also hold 2-5% of its value in futures
contracts (an agreement to buy or sell a specific security by a
specific date at an agreed upon price).
o International Equity Fund: This is an actively managed fund that
-------------------------
seeks to exceed the performance of the Morgan Stanley Capital
International Europe, Australia, and Far East (MSCI EAFE) Index
(unhedged) by investing in common stocks of companies
headquartered outside the United States.
o Small Cap Equity Fund: This is an actively managed fund that seeks
---------------------
to consistently exceed the total return performance of the Russell
2500 Stock Index while maintaining a similar level of risk. The
fund primarily invests in a portfolio of common stock of small to
medium-sized domestic companies.
o FirstEnergy Stock Fund*: This fund's goal is to provide long-term
-----------------------
growth through capital appreciation and dividend income. The
FirstEnergy Stock Fund invests almost exclusively in FirstEnergy
Corporation common stock. A small portion of assets is invested in
money market securities to meet the fund's cash flow requirements.
Dividends paid on the FirstEnergy stock held in this fund are used
to purchase additional common shares.
o Mutual Fund Window: The Mutual Fund Window (MFW) offers
------------------
approximately 3500 mutual funds from more than 200 mutual fund
families and approximately 600 no-transaction fee funds currently
offered through State Street Brokerage Services, Inc.
* GPU Stock Fund was converted to the FirstEnergy Stock Fund
effective November 7, 2001.
Continued
6
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Continued
--------
1. General Description of the Plan, continued:
-------------------------------
Employee Participation in the Plan:
----------------------------------
The number of participating employees with account balances invested in
each investment option at December 31, 2002 and 2001 was as follows:
NUMBER OF PARTICIPANTS
----------------------
FUND #/ FUND NAME 2002 2001
----------------- ---- ----
10 Interest Income 740 684
20 Diversified Bond 385 288
30 Conservative Growth 89 65
35 S&P 500 Index 875 972
40 Moderate Growth 606 682
45 Fidelity Puritan 240 243
50 Aggressive Growth 195 218
55 Fidelity Independence* 443 515
60 Small Capital Equity 247 248
65 Fidelity OTC 312 371
70 International Equity 141 140
75 Fidelity Overseas 115 127
80 FirstEnergy Stock** 304 298
85 Mutual Fund Window 55 52
The total number of participants in the Plan at December 31, 2002 and
2001 was 1,693 and 1,789, respectively. This is less than the sum of
the number of participants shown in the schedule above because many
participants are investing in more than one option.
* Name changed from Fidelity Retirement Growth Fund effective January 27,
2001.
** GPU Stock Fund was converted to the FirstEnergy Stock Fund
effective November 7, 2001.
Continued
7
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Continued
--------
1. General Description of the Plan, continued:
-------------------------------
Participant Accounts:
--------------------
Each participant's account is credited with the participant's own
contributions and with the Company's ma tching contributions. Each
account maintained for a participant reflects the number of unitized
shares and their value for each mutual fund and for the FirstEnergy
Stock Fund. Any portion of a participant's account balance invested in
the Mutual Fund Window reflects the number of shares and their value
for each mutual fund. All income, gain or loss attributable to the
investment of the balance of any account maintained for a participant
is recorded to that account.
Vesting:
-------
Participants are 100% vested at all times in their Plan accounts.
Distributions and Withdrawals:
-----------------------------
A participant's Plan account balances become distributable upon
termination of the participant's employment for any reason.
Distributions of account balances in excess of $5,000 may be deferred,
at the participant's election, up to age 70 1/2. If distribution of a
participant's account balance has not otherwise started, it must begin
by April 1st following the year in which the participant attained age
70 1/2. Distributions generally are a single lump sum payment. The Plan
permits withdrawals of account balances in the event of financial
hardship or disability as defined in the Plan. A complete description
of the Plan's terms and conditions for distributions and withdrawals
can be found in the Plan document.
Loans to Participants:
---------------------
The Plan provides that loans may be made to a participant from the
participant's account balance subject to certain conditions. The
minimum amount of each loan is $1,000 with the maximum being $50,000,
or certain lesser amounts as described in the Plan. Interest on the
loan is credited to the participant's account. The loans are secured by
the balance in the participant's account. Principal and interest are
paid ratably through monthly payroll deductions. The rate is determined
periodically by the Administrative Committee based on current
commercial rates. The interest rates for loans in excess of four years
and ten months were 6.85% for the period January 1 through June 30,
2002 and 5.79% for the period July 1 through December 31, 2002. The
interest rates for loans four years and ten months or less were 6.38%
for the period January 1 through June 30, 2002 and 5.75% for the period
July 1 through December 31, 2002.
Continued
8
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Continued
--------
1. General Description of the Plan, continued:
-------------------------------
Plan Termination:
----------------
The Company reserves the right at any time to modify, suspend, amend or
terminate the Plan. However, the Company cannot do so in such a manner that
would cause or permit any part of the Plan's assets to be used for or
diverted to purposes other than for the exclusive benefit of participants
or their beneficiaries.
2. Summary of Significant Accounting Policies:
------------------------------------------
Basis of Accounting:
-------------------
The financial statements of the plan are prepared under the accrual
method of accounting.
Valuation of Investments:
------------------------
The amounts shown herein as the investment in the GPU Companies Master
Savings Plan Trust reflect the fair value of the assets held in such
Trusts and the Plan's relative interest in the Trusts. The Plan's
participation is measured at its value at the beginning of the
valuation period plus net external cash flow (contributions,
distributions, etc.) experienced by the Plan during the valuation
period. Investment income, net realized gain (loss) on investments and
net unrealized appreciation (depreciation) of investments is allocated
to each participating plan based upon its accumulated monthly balance
for each investment option (see Note 3).
Investment income from the GPU Companies Master Savings Plan Trust for
the years ended December 31, 2002 and 2001, consists of interest and
dividend income. The net appreciation (depreciation) in the fair value
of investments consists of realized gains or losses and the unrealized
appreciation (depreciation) on those investments in the GPU Companies
Master Savings Plan Trust.
The fair market value of assets held by the Trust are determined as
follows: Stocks and bonds are valued at their closing quoted market
prices on the last business day of the year. Short-term group trust
funds (investment custodian bank) and insurance contracts are valued at
cost plus accrued interest, which approximates market.
Use of Estimates:
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the plan administrator to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results
may differ from those estimates.
Continued
9
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Continued
--------
3. Investments:
-----------
The investments reflected in the December 31, 2002 and 2001 Statements
of Net Assets Available for Plan Benefits represent the Plan's 17.34%
and 16.71% share, respectively, of total investments held in the GPU
Companies Master Savings Plan Trust at December 31, 2002 and 2001.
At December 31, 2002 and 2001, the total fair value of investments held
in the GPU Companies Master Savings Plan Trust are summarized as
follows:
2002 2001
---- ----
Aggressive Growth Portfolio $ 15,075,559 $ 19,770,358
Fidelity Independence Fund** 54,529,824* 75,069,658*
Small Capital Equity Fund 18,868,634 24,511,906
Fidelity OTC Portfolio Fund 22,411,142 34,321,061
International Equity Fund 5,502,632 7,003,697
Fidelity Overseas Fund 5,041,915 6,803,090
FirstEnergy Stock Fund*** 15,930,595 17,901,466
Mutual Fund Window 13,681,051 17,897,551
Interest Income Fund 197,678,658* 181,148,895*
Diversified Bond Fund 45,932,468* 32,978,648
Conservative Growth Portfolio 9,891,068 8,487,277
S&P 500 Index Fund 110,297,502* 160,161,418*
Moderate Growth Portfolio 91,323,742* 117,554,205*
Fidelity Puritan Fund 31,773,503 37,555,463*
------------ ------------
Total investments at fair value $637,938,293 $741,164,693
============ ============
Total investments at cost $696,561,399 $749,027,738
============ ============
* These investments represent 5% or more of the net assets available for
benefits.
** Name changed from Fidelity Retirement Growth Fund effective January 27,
2001.
*** GPU Stock Fund was converted to the FirstEnergy Stock Fund effective
November 7, 2001.
Continued
10
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Continued
--------
3. Investments:
-----------
Based on participant investment options at December 31, 2002 and 2001
the Plan's investments were allocated as follows:
2002 2001
% BY FUND % BY FUND
--------- ---------
Interest Income 29.93% 22.56%
Diversified Bond 6.85% 4.05%
Conservative Growth 0.97% 0.48%
S&P 500 Index 17.53% 22.34%
Moderate Growth 12.22% 13.69%
Fidelity Puritan 5.06% 5.27%
Aggressive Growth 2.77% 2.82%
Fidelity Independence* 12.36% 14.83%
Small Capital Equity 2.16% 2.35%
Fidelity OTC 4.06% 5.33%
International Equity 0.73% 0.72%
Fidelity Overseas 0.81% 0.87%
FirstEnergy Stock** 2.98% 3.08%
Mutual Fund Window 1.56% 1.61%
The net investment losses in the GPU Master Savings Plan Trust for the
years ended December 31, 2002 and 2001 were as follows:
2002 2001
---- ----
Dividends $ 1,318,162 $ 3,031,891
Interest income 10,719,496 11,395,260
Net depreciation in fair
value of investments (78,302,402) (86,727,994)
------------ ------------
Net investment losses $(66,264,744) $(72,300,843)
============ ============
* Name changed to Fidelity Retirement Growth Fund effective January 27,
2001.
** GPU Stock Fund was converted to the FirstEnergy Stock Fund
effective November 7, 2001.
Continued
11
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW SYSTEM COUNCIL U-3
NOTES TO FINANCIAL STATEMENTS, Concluded
--------
4. Party-In-Interest Transactions:
------------------------------
Certain Plan investments are shares of mutual funds managed by State
Street Bank. State Street Bank is the trustee as defined by the Plan.
Therefore, these transactions qualify as party-in-interest transactions.
5. Tax Status:
----------
The Plan obtained its latest determination letter on February 4, 1998,
in which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The Plan has been amended since receiving the
determination letter. However, the plan administrator and the plan's tax
counsel believes that the Plan is currently designed and being operated
in compliance with applicable requirements of the Internal Revenue Code.
Therefore, no provision for income taxes has been reflected in the
Plan's financial statements.
6. Plan Amendments:
---------------
The Plan was amended and restated in order to incorporate increased
matching contributions, effective January 1, 2001 and November 1, 2001.
The Company agreed to increase the match from 70% to 75% of an
employee's contributions up to 4% of base compensation for the period of
January 1, 2001 through October 31, 2001 and additionally, increased the
match to 80% of an employee's contributions up to 4% of base
compensation, for the period thereafter.
The Plan was further amended, effective October 1, 2001 to incorporate
FirstEnergy Merger Provisions. At the effective date of the merger
between GPU Company and FirstEnergy Corporation, all shares of GPU Stock
held in the GPU Stock Fund were automatically converted into the right
to receive the merger consideration with respect to such shares. The
merger consideration, which included both stock and cash with respect to
the GPU Stock held in the GPU Stock Fund was reinvested in shares of
FirstEnergy Corporation Stock. The effective date of the merger was
November 7, 2001.
12