Investment Plan for
Employees of Puget Sound Energy, Inc.
Financial Statements
and Supplemental Schedule
December 31, 2002 and
2001
Index
|
|
| |
|
| Report of independent auditors |
|
| Statements of net assets available for benefits |
|
| Statements of changes in net assets available for benefits |
|
| Notes to financial statements |
|
Supplemental schedule*
|
| Schedule H, Line 4i- |
| Schedule of Assets (Held at End of Year) |
|
| |
* |
Other
schedules required by Section 2520.103-10 of the Department of Labor Rules and Regulation
for Reporting and Disclosure under ERISA have been omitted because they are not
applicable. |
Report of Independent
Auditors
To the Compensation and
Leadership Development Committee of
Puget Sound Energy, Inc.
Bellevue, Washington
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 the Investment Plan for Employees of Puget Sound Energy, Inc.
(“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 schedule, Schedule H, Line 4i — Schedule of Assets (Held at End of Year)
is presented for the purpose of additional analysis and is not a required part of the
basic financial statements but is 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. This supplemental schedule is the responsibility
of the Plan’s management. The supplemental schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
PricewaterhouseCoopers LLP
Seattle, Washington
June 26, 2003
Investment Plan for
Employees of Puget Sound Energy, Inc.
Statements of Net Assets Available for Benefits
| |
December 31, |
|
2002 |
2001 |
| Assets |
|
|
| |
|
| |
|
| Investments, at fair value | | |
$ | 267,237,018 |
|
$ | 328,188,314 |
|
|
| |
| |
| Receivables | | |
| Employer contribution | | |
| 926,543 |
|
| 953,300 |
|
| Participant contributions | | |
| 371,969 |
|
| 374,580 |
|
|
| |
| |
| Total receivables | | |
| 1,298,512 |
|
| 1,327,880 |
|
|
| |
| |
| Total assets | | |
| 268,535,530 |
|
| 329,516,194 |
|
|
| |
| |
| Net assets available for benefits | | |
$ | 268,535,530 |
|
$ | 329,516,194 |
|
|
| |
| |
The
accompanying notes are an integral part of these financial statements.
Investment Plan for
Employees of Puget Sound Energy, Inc.
Statements of Changes in Net Assets Available
for Benefits
| |
Years ended December 31, |
| |
2002 |
2001 |
| Additions (reductions) to net assets attributed to: |
|
|
| |
|
| |
|
| Interest and dividend income | | |
$ | 9,545,543 |
|
$ | 12,651,905 |
|
| Net depreciation in value of investments | | |
| (30,370,516 |
) |
| (22,637,254 |
) |
|
| |
| |
| Net investment loss | | |
| (20,824,973 |
) |
| (9,985,349 |
) |
|
| |
| |
| Contributions | | |
| Employer | | |
| 6,025,693 |
|
| 6,979,134 |
|
| Participant | | |
| 10,677,797 |
|
| 13,070,138 |
|
|
| |
| |
| Total contributions | | |
| 16,703,490 |
|
| 20,049,272 |
|
|
| |
| |
| Total additions (reductions) to net assets | | |
| (4,121,483 |
) |
| 10,063,923 |
|
| Deductions from net assets attributed to: | | |
| Participant distributions | | |
| (56,859,181 |
) |
| (22,581,031 |
) |
|
| |
| |
| Decrease in net assets available for benefits | | |
| (60,980,664 |
) |
| (12,517,108 |
) |
| Net assets available for benefits | | |
| Beginning of year | | |
| 329,516,194 |
|
| 342,033,302 |
|
|
| |
| |
| End of year | | |
$ | 268,535,530 |
|
$ | 329,516,194 |
|
|
| |
| |
The
accompanying notes are an integral part of these financial statements.
Investment Plan for
Employees of Puget Sound Energy, Inc.
Notes to Financial Statements
December 31, 2002 and
2001
| |
The
following description of the Investment Plan for Employees of Puget Sound Energy, Inc.
(formerly Puget Sound Power & Light Company) (the “Plan”) provides only
general information. Participants should refer to the Plan document for a more complete
description of the Plan’s provisions. |
| |
The
Plan is a defined contribution plan covering all regular full-time and part-time employees
of Puget Sound Energy, Inc. (the “Company”). The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). |
| |
On
January 1, 2001, Puget Sound Energy, Inc. reorganized into a holding company structure.
This reorganization resulted in the creation of a new holding company, Puget Energy, Inc.
Puget Energy, Inc. was incorporated in the State of Washington and all its operations are
conducted through its subsidiaries. |
| |
Pursuant
to the reorganization, Puget Energy, Inc. became the owner of all of Puget Sound Energy,
Inc.’s common stock. Holders of Puget Sound Energy, Inc.’s existing common stock, including the Plan,
exchanged their Puget Sound Energy, Inc. common stock on a one-for-one basis for the common stock of Puget Energy, Inc. |
| |
Non-union represented and certain union represented participants
of the Plan may elect to make contributions of 1% to 16% of their eligible compensation,
subject to certain limits. Certain other union represented participants may elect to make contributions of 1% to 12% of their eligible
compensation, subject to certain limits. Participants may contribute to the Plan from pre-tax compensation,
after-tax compensation, or a combination of both. Effective October 1, 2002, certain participants may also elect to make
additional pre-tax contributions, or catch-up contributions, to the Plan, not to exceed the amount allowable under current
income tax regulations.
Participants are also allowed to make rollover contributions of amounts received from certain other tax-qualified
retirement plans. |
| |
Each
plan year, the Company makes a required contribution on behalf of non-union represented and certain union represented
participants equal to 1% of each such
participant’s eligible compensation. In addition to the required contribution, the
Company makes a matching contribution on behalf of non-union represented and certain union represented participants on
the last day of each pay period equal to 100% of each such
participant’s contributions up to and including 4% of such participant’s eligible compensation,
plus 50% of such participant’s contributions from 5% to 8% of such participant’s
eligible compensation,
subject to certain limits. For certain other union represented participants, the Company makes a
matching contribution on behalf of each participant equal to 55% of each such participant's
contributions up to 6% of such participant’s eligible compensation. The Company also may make a discretionary
contribution in a given year to non-union represented and certain union represented participants on the last day of the plan year.
The Company may elect to pay all or part of its contributions in common stock of Puget Energy, Inc.,
rather than in cash. During 2002 and 2001, all Company contributions were cash
contributions. |
| |
Unvested Company
contributions that are forfeited by participants are used to restore any portion of a former participant’s accounts that was previously
forfeited if such participant is reemployed by the Company or an affiliate before a five year break in service.
Any additional forfeited amounts are used to
reduce future Company contributions
required to be paid to the Plan. To the extent that forfeited amounts are insufficient to restore any such former participant’s
accounts, additional special Company contributions may be necessary. |
| |
All participant and Company contributions are invested at the
direction of each participant in any of the available investment options. |
| |
Loans
are available to non-union represented and certain union represented participants who have an account under the
Plan. Such participants may borrow up to the lesser of $50,000 or 50% of the total value of their vested
account balances. Loan amounts are
restricted to a minimum of $1,000. Loan terms are not to exceed
five years, or if the loan proceeds are used to finance the participant’s principal
residence, not to exceed 15 years. Loans may be additionally limited in accordance with Plan provisions.
At December 31, 2002, loans bear interest at a
range of 6% to 10.5%. Interest rates are based on commercial interest rates at the time
each loan is made. Interest income related to loans outstanding was $158,424 and $177,968
for 2002 and 2001, respectively. Interest income is allocated to the various funds as
directed by the participants. |
| |
Expenses
incurred for brokerage and similar services, or for investment advice and the evaluation
thereof are charged to participant accounts. Administrative and other expenses incurred by
the Plan are charged to participant accounts unless voluntarily paid by the Company. These
expenses were voluntarily paid by the Company during 2002 and 2001. |
| |
Participants
are fully vested in their participant contribution accounts at all times and become fully vested in their Company
contribution accounts under any of the following circumstances (as defined in the Plan document): termination of the Plan;
attainment of age 65 while employed by the Company; termination due to layoff, death or disability; entry into the
United States Armed Forces for more than 90 days; or, after completion of a one year period of service
for non-union represented and certain union represented employees or a three-year period of service for certain
other union represented employees. |
| |
If
a participant’s service with the Company terminates for a reason other than as
described above, the participant is entitled to receive the balance of his or her participant contribution account,
but not his or her Company contribution accounts. |
| |
Payment of benefits and withdrawals |
| |
Upon
termination of service due to retirement or death, a participant or his or her beneficiary
will generally receive a lump sum distribution equal to the value of the
participant’s vested interest in his or her accounts; provided, however that the participant or
his or her beneficiary may elect to receive whole shares
of common stock of Puget Energy, Inc. to the extent his or her accounts are deemed invested in such stock.
In some cases, in lieu of
receiving a lump sum distribution, a participant may elect installments over the shorter of ten years or the
participant’s life expectancy or a non-transferable annuity contract for a specified number of years not to
exceed the joint life expectancy of the participant and his or her spouse.
If a participant’s vested interest in his or her
account exceeds $5,000, the administrative committee of the Plan will provide a written
explanation of the optional forms of benefit under the Plan, including timing of
distribution and other relevant information. In addition to the payment of benefits, the
Plan provides for the withdrawal of a participant’s after-tax contributions and
hardship withdrawals. Such withdrawals may restrict future participation in the Plan,
pursuant to the provisions of the Plan document. |
| |
2. |
Summary
of accounting policies |
| |
The
financial statements of the Plan are prepared under the accrual method of accounting. |
| |
The
preparation of financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts in the statement of changes in net assets available for benefits during the
reporting period. Actual results could differ from those estimates. |
| |
The
Plan provides for various investment options in combinations of common stock, mutual
funds, and common and commingled trust funds. Investment securities are exposed to various
risks, such as interest rate, market and credit. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to changes in the value
of investment securities, it is at least reasonably possible that changes in risks in the
near term would materially affect participants’ account balances and the amounts
reported in the statement of net assets available for benefits and the statement of
changes in net assets available for benefits. |
| |
Investment valuation and income recognition |
| |
Investments
in Puget Energy, Inc. stock are traded on a national securities exchange. These
investments are valued at the last reported sales price on the last business day of the
year. Investments in mutual funds are valued at quoted market prices that represent the
net asset value of shares held by the Plan at year-end. |
| |
Investments
in common and commingled trust funds are valued based on information provided by the
Plan’s investment custodians. The financial statements of the common and commingled
trust funds are audited annually by independent accountants. Values for such funds are
stated at estimated fair values, which have been determined based on the unit values of
the funds. Unit values are determined by the bank sponsoring such funds by dividing the
fund’s net assets at fair value by its units outstanding at the valuation dates. |
| |
Assets
and liabilities for which the above valuation procedures are inappropriate or are deemed
not to reflect fair value are stated at fair value as determined in good faith by or under
the supervision of the Plan’s investment custodian. |
| |
Purchases
and sales of securities are reflected on a trade-date basis. Average cost or recorded cost
is used in determination of realized gain or loss on sales of securities. |
| |
Dividend
income is recorded on the ex-dividend date. Other income is recorded as earned on an
accrual basis. |
| |
Benefits are recorded when paid. |
| |
The
following presents the fair value of investments that represent 5% or more of the
Plan’s net assets available for benefits: |
| |
December 31, |
| |
2002 |
2001 |
| Common stock |
|
|
| |
|
| |
|
| Puget Energy, Inc., 1,503,066 and 1,960,989 | | |
| shares, respectively | | |
$ | 33,142,798 |
|
$ | 42,926,050 |
|
| Mutual funds | | |
| PIMCO Total Return Fund, 2,256,665 and | | |
| 560,368 shares, respectively | | |
| 24,078,614 |
|
| 5,861,453 |
|
| T. Rowe Price New Era Fund, 947,811 and | | |
| 1,097,570 shares, respectively | | |
| 19,553,340 |
|
| 24,409,956 |
|
| T. Rowe Price Small-Cap Value Fund, 1,386,551 | | |
| and 1,438,168 shares, respectively | | |
| 30,420,920 |
|
| 32,588,878 |
|
| T. Rowe Price Equity Income Fund, 2,713,630 and | | |
| 3,055,340 shares, respectively | | |
| 53,702,742 |
|
| 72,258,789 |
|
| T. Rowe Price International Stock Fund, 0 and | | |
| 1,270,180 shares, respectively | | |
| -- |
|
| 13,959,273 |
|
| Miller, Andersen and Sherrerd (MAS) Value Portfolio, | | |
| 0 and 1,161,918 shares, respectively | | |
| -- |
|
| 17,707,636 |
|
| Common and commingled trust funds | | |
| T. Rowe Price Equity Index Trust Fund, 1,059,812 | | |
| and 1,234,281 shares, respectively | | |
| 25,456,678 |
|
| 38,052,866 |
|
| T. Rowe Price Stable Value Trust Fund, 44,525,865 | | |
| and 32,666,522 shares, respectively | | |
| 44,525,865 |
|
| 32,666,522 |
|
| |
Net
depreciation in the value of investments for the years ended December 31 is summarized as
follows: |
| |
2002
|
2001
|
| Common stock |
|
|
$ | (81,502 |
) |
$ | (11,179,291 |
) |
| Mutual funds | | |
| (22,949,934 |
) |
| (7,258,412 |
) |
| Common and commingled trust funds | | |
| (7,339,080 |
) |
| (4,199,551 |
) |
|
| |
| |
| Net depreciation in value of investments | | |
$ | (30,370,516 |
) |
$ | (22,637,254 |
) |
|
| |
| |
| |
4. |
Related
party transactions |
| |
Certain
Plan investments include shares of Puget Energy, Inc. common stock and shares of mutual
funds and common and commingled trust funds managed by T. Rowe Price, who also acts as
the trustee for the Plan. Therefore, these transactions qualify as party-in-interest
transactions. Fees incurred by the Plan for trustee services were paid by the Plan
sponsor. Fees associated with the management of the funds are incorporated into the net
asset value of the funds. |
| |
The
Plan’s investment in Puget Energy, Inc. common stock represents approximately 12% and
13% of the total value of investments at December 31, 2002 and 2001, respectively. Gross
purchases of Puget Energy, Inc. common stock were $2,921,960 and $4,530,059 for 2002 and
2001, respectively. Gross sales of Puget Energy, Inc. common stock were $14,609,134 and
$6,864,404 for 2002 and 2001, respectively (including $1,805,974 and $1,455,435,
respectively of Puget Energy, Inc. stock distributed to members upon withdrawal from the
Plan). |
| |
5. |
Termination
and amendment |
| |
The
Plan is intended to continue indefinitely; however, the Board of Directors of the Company
may at any time and for any reason modify, amend or terminate the Plan. The Administrative
Committee of the Plan may modify or amend the Plan, if such modifications or amendments
are administrative in nature or are required by law or regulation to maintain the
qualified status of the Plan. |
| |
No
modification or amendment of the Plan may retroactively deprive any individual of rights
accrued under the Plan except to the extent that any change is made necessary by law or
regulation issued by the Internal Revenue Service to permit qualification or continued
qualification of the Plan as a tax exempt trust under applicable law or regulation.
Furthermore, no modification or amendment of the Plan shall cause or permit any part of
the Plan to be diverted to purposes other than for the exclusive benefit of participants
and their beneficiaries and for defraying the reasonable expenses of administering the
Plan or to revert to or become the property of the Company, unless it is first determined
by the Internal Revenue Service that the Plan with the proposed modification or amendment
will continue to be a qualified plan under Section 401 of the Internal Revenue Code of
1954, as amended, or any statute of similar import. |
| |
The
Internal Revenue Service has determined and informed the Company by letter dated
October 12, 2001, that the Plan and related trust are designed in accordance with
applicable sections of the Internal Revenue Code (IRC). Therefore, no provision for income
taxes has been included in the Plan’s financial statements. |
| |
Amendments
to the Plan have been adopted subsequent to the determination letter noted above. However,
the Plan administrator believes that the Plan is designed and is currently operating with
the applicable requirements of the IRC. |
SUPPLEMENTAL SCHEDULE
Investment Plan for
Employees of Puget Sound Energy, Inc.
Schedule H, Line 4i-
Schedule of Assets (Held
at End of Year)
December 31, 2002
Identity of issuer,
borrower, lessor or
similar party
|
Description of investment,
including maturity date, rate of
interest, collateral, par and
maturity value
|
Cost(a)
|
Current
value
|
| |
| Common stock: |
|
|
|
|
|
|
|
|
| |
|
| * Puget Energy, Inc. | | |
Common stock | | |
| | |
$ | 33,142,798 |
|
|
|
|
|
| Mutual funds: | | |
| PIMCO | | |
Total Return Fund | | |
| | |
| 24,078,614 |
|
| JANUS | | |
Growth & Income Fund | | |
| | |
| 10,721,385 |
|
| MSIF | | |
Mid-Cap Value Fund | | |
| | |
| 11,966,816 |
|
| INVESCO | | |
Small Company Growth Fund | | |
| | |
| 616,005 |
|
| PUTNAM | | |
International Growth Fund | | |
| | |
| 10,432,936 |
|
| * T. Rowe Price | | |
Balanced Fund | | |
| | |
| 694,781 |
|
| * T. Rowe Price | | |
New Era Fund | | |
| | |
| 19,553,340 |
|
| * T. Rowe Price | | |
Small-Cap Value Fund | | |
| | |
| 30,420,920 |
|
| * T. Rowe Price | | |
Equity Income Fund | | |
| | |
| 53,702,742 |
|
|
|
|
|
| Total mutual funds | | |
| | |
| | |
| 162,187,539 |
|
|
|
|
|
| Common and commingled trust funds: | | |
| * T. Rowe Price | | |
Equity Index Trust Fund | | |
| | |
| 25,456,678 |
|
| * T. Rowe Price | | |
Stable Value Trust Fund | | |
| | |
| 44,525,865 |
|
|
|
|
|
| Total common and commingled trust funds |
|
|
|
|
69,982,543 |
|
|
|
|
|
| * Participant loans |
|
|
Participant loan accounts with interest |
|
|
|
|
|
|
|
|
| |
rates ranging from 6% to 10.5% and |
|
|
|
|
|
|
|
|
| |
maturity dates ranging from 2003 |
| |
| |
|
|
to 2015 |
|
|
|
|
|
|
1,924,138 |
|
|
|
|
|
| Total investments | | |
| | |
| | |
$ | 267,237,018 |
|
|
|
|
|
| * Represents Party-in-interest to the Plan | | |
| (a) Cost has been omitted for participant directed investments. |
|
|
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
INVESTMENT PLAN COMMITTEE OF PUGET SOUND ENERGY, INC.
| |
/s/ Donald E. Gaines |
| |
|
| |
Donald E. Gaines |
| |
Chairman of the Investment Plan Committee |
| |
of Puget Sound Energy, Inc. |
| |
|
| Date: June 27, 2003 |
|
EXHIBIT INDEX
The following exhibits are filed
herewith:
| 23 |
Consent
of Independent Auditors |
| 99.1 |
Chief
Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002. |
| 99.2 |
Chief
Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002. |