GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY
IBEW LOCAL 777
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 LOCAL 777
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 Local 777:
We have audited the accompanying statements of net assets available for plan
benefits of GPU Companies Employee Savings Plan for Employees Represented by
IBEW Local 777 (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 LOCAL 777
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 $48,518,384 $55,159,873
Participant loans receivable 663,943 725,649
----------- -----------
Net assets available for plan
benefits $49,182,327 $55,885,522
=========== ===========
The accompanying notes are an integral
part of the financial statements.
2
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW LOCAL 777
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS
for the years ended December 31, 2002 and 2001
-------
2002 2001
---- ----
Net Asset Balances, beginning of year $55,885,522 $ 65,910,928
----------- ------------
Additions to net assets attributed to:
Contributions:
Participants' 2,391,345 2,490,071
Employer's 805,136 756,133
Rollovers 3,361 --
Interest on loans 53,839 59,362
Investment income 827,269 958,537
----------- ------------
Total additions 4,080,950 4,264,103
----------- ------------
Deductions from net assets attributed to:
Net depreciation in fair
value of investments 5,996,943 5,970,638
Distributions and
withdrawals 4,786,455 8,191,403
Transfers to affiliated
savings plans 747 127,468
Total deductions 10,784,145 14,289,509
----------- ------------
Net decrease (6,703,195) (10,025,406)
----------- ------------
Net Asset Balances, end of year $49,182,327 $ 55,885,522
=========== ============
The accompanying notes are an integral
part of the financial statements.
3
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW LOCAL 777
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 Local 777 (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 GPU employees
represented by IBEW Local 777 (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 May 1, 2002 the Company matched 80%, up from
75% prior to May 1, 2002, of a participant's aggregate contributions up
to 4% of the participant's base compensation.
Continued
4
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW LOCAL 777
NOTES TO FINANCIAL STATEMENTS, Continued
-------
1. General Description of the Plan, continued:
-------------------------------
Administration of Plan Assets:
-----------------------------
The Plan's assets, which consist principally of stocks 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.
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 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.
* Name changed from Fidelity Retirement Growth Fund effective January 27,
2001.
Continued
5
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW LOCAL 777
NOTES TO FINANCIAL STATEMENTS, Continued
-------
1. General Description of the Plan, continued:
-------------------------------
Investment Funds, continued:
----------------
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.
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.
Continued
6
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW LOCAL 777
NOTES TO FINANCIAL STATEMENTS, Continued
-------
1. General Description of the Plan, continued:
-------------------------------
Investment Funds, continued:
----------------
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.
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:
FUND #/ FUND NAME NUMBER OF PARTICIPANTS
----------------- ----------------------
2002 2001
----- ----
10 Interest Income 328 321
20 Diversified Bond 158 110
30 Conservative Growth 49 39
35 S&P 500 Index 350 378
40 Moderate Growth 278 293
45 Fidelity Puritan 96 94
50 Aggressive Growth 100 104
55 Fidelity Independence* 147 159
60 Small Capital Equity 120 111
65 Fidelity OTC 116 132
70 International Equity 65 68
75 Fidelity Overseas 51 49
80 FirstEnergy Stock** 130 123
85 Mutual Fund Window 21 19
The total number of participants in the Plan at December 31, 2002 and
2001 was 717 and 745, 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 LOCAL 777
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 matching 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. 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 the age 70 1/2. Distributions
generally are in the form of 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 LOCAL 777
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
Trust 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 are 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
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 LOCAL 777
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 7.61% and
7.44% 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 Cap. 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
Novmeber 7, 2001.
Continued
10
GPU COMPANIES EMPLOYEE SAVINGS PLAN
FOR EMPLOYEES REPRESENTED BY IBEW LOCAL 777
NOTES TO FINANCIAL STATEMENTS, Continued
-------
3. Investments, continued:
-----------
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 28.12% 23.34%
Diversified Bond 7.58% 4.24%
Conservative Growth 2.19% 1.24%
S&P 500 Index 18.99% 23.73%
Moderate Growth 15.78% 16.81%
Fidelity Puritan 5.90% 5.62%
Aggressive Growth 1.99% 2.34%
Fidelity Independence* 7.44% 9.32%
Small Capital Equity 3.42% 3.51%
Fidelity OTC 2.56% 3.32%
International Equity 1.01% 1.37%
Fidelity Overseas 0.80% 0.83%
FirstEnergy Stock** 3.58% 3.61%
Mutual Fund Window 0.64% 0.72%
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 from 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 LOCAL 777
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:
---------------
Effective May 1, 2002, the Plan was amended and restated in order to
incorporate an increased matching contribution. The Company agreed to
increase the match from 75% to 80% of an employee's contributions up
to 4% of base compensation.
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