Exhibit 99.1
AQUA AMERICA, INC.
401(K) AND PROFIT SHARING PLAN
Financial Report
December 31, 2004
(With Report of Independent Registered Public Accounting Firm Thereon)
AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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TABLE OF CONTENTS
DECEMBER 31, 2004
PAGE
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FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm on the
Financial Statements and Supplementary Information 1
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
SUPPLEMENTARY SCHEDULES:
Schedule of Assets (Held at End of Year) 10
Schedule of Reportable Transactions 11
Schedule of Nonexempt Transactions 12
Schedule of Delinquent Participant Contributions 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
To the Administrators
Aqua America, Inc. 401(k) and Profit
Sharing Plan
We have audited the accompanying statements of net assets available for
benefits of the Aqua America, Inc. 401(k) and Profit Sharing Plan as of December
31, 2004 and 2003, and the related statements of changes in net assets available
for benefits for the year ended December 31, 2004 and for the period beginning
August 1, 2003 (date of inception) through December 31, 2003. 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 of the
Public Company Accounting Oversight Board (United States). 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 benefits of the
Aqua America, Inc. 401(k) and Profit Sharing Plan as of December 31, 2004 and
2003, and the changes in net assets available for benefits for the year ended
December 31, 2004 and for the period beginning August 1, 2003 (date of
inception) through December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplementary schedules of
assets (held at end of year) as of December 31, 2004, and reportable
transactions, nonexempt transactions, and delinquent participant contributions
for the year ended December 31, 2004 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 supplementary schedules are the responsibility of
the Plan's management. The supplementary schedules have been subjected to the
auditing procedures applied in the audit 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/BEARD MILLER COMPANY LLP
Reading, Pennsylvania
May 13, 2005
1
AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2004 AND 2003
2004 2003
-------- --------
ASSETS
Investments, at fair value $5,023,229 $515,995
Employer contributions receivable 284,530 81,216
---------- --------
NET ASSETS AVAILABLE FOR BENEFITS $5,307,759 $597,211
========== ========
See notes to financial statements.
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2
AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2004 AND THE PERIOD FROM
AUGUST 1, 2003 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2003
2004 2003
-------- --------
INVESTMENT INCOME
Interest and dividends $ 177,214 $ 2,540
Net appreciation in fair value of investments 294,013 21,668
----------- ----------
TOTAL INVESTMENT INCOME 471,227 24,208
----------- ----------
CONTRIBUTIONS
Employer 475,958 121,403
Participants 580,772 111,713
Participant rollovers 3,281,522 340,041
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TOTAL CONTRIBUTIONS 4,338,252 573,157
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BENEFITS PAID TO PARTICIPANTS (96,221) (4)
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ADMINISTRATIVE EXPENSES (2,710) (150)
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NET INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS 4,710,548 597,211
NET ASSETS AVAILABLE FOR BENEFITS - BEGINNING OF YEAR 597,211 0
----------- ----------
NET ASSETS AVAILABLE FOR BENEFITS - END OF YEAR $5,307,759 $597,211
=========== ==========
See notes to financial statements.
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - DESCRIPTION OF PLAN
The following description of the Aqua America, Inc. 401(k) and Profit
Sharing Plan (the "Plan") is provided for general information purposes only.
Participants should refer to the Plan document for more complete information.
GENERAL
The Plan, established August 1, 2003 (date of inception), is a
defined contribution plan sponsored by Aqua America, Inc. Direct and
indirect subsidiaries of Aqua America, Inc. that adopt the Plan are
participating employers. All participating employers are referred to
herein as the ("Company"). The Plan is designed to conform to all
the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and with the applicable provisions of the
Internal Revenue Code and the regulations thereunder. Generally,
employees of the Company who were hired on or after April 1, 2003
are eligible to participate in the Plan. Notwithstanding the
foregoing, the following are excluded: (i) bargaining unit employees
unless their union contract provides for participation in the Plan,
(ii) leased employees, (iii) nonresident aliens and (iv) persons
performing services who are classified by the Company as other
common law employees. If eligible, employees become participants in
the Plan on the January 1, April 1, July 1, or October 1 coinciding
with or next following the later of the completion of six months of
service or the date the employee becomes a member of an eligible
class of 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 $13,000 in 2004 and $12,000 in 2003, which are partially matched
by the Company. Participants may also invest from 1% to 10% of their
after-tax compensation, which is not matched by the Company.
Additionally, participants who are age 50 or who will attain age 50
prior to the end of the plan year may make an additional deferral
contribution ("Catch-Up"), provided the participant made the maximum
amount of deferral contributions permitted under the Plan. The
maximum amount of allowable catch-up contribution for 2004 and 2003
is $3,000 and $2,000, respectively. Participants may also make
transfers between funds or suspend their contributions at any time.
The Plan provides for employer contributions as follows:
Employer Matching Contributions
The Company will make a matching contribution equal to 50% of
the first 6% of a participant's compensation which is
contributed to the Plan on a pre-tax basis. Matching
contributions will be made to the Plan in the form of cash that
is used for the purchase of Aqua America, Inc. common stock.
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4
AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - DESCRIPTION OF PLAN (CONTINUED)
CONTRIBUTIONS (CONTINUED)
Discretionary Contributions
The Company may make additional discretionary contributions to
the Plan for the benefit of active participants. Discretionary
contributions will be allocated to active participant accounts
on a pro-rated basis based on each participant's compensation
compared to the compensation of all active participants. This
discretionary contribution will be made to the Plan in the form
of cash that is used for the purchase of Aqua America, Inc.
common stock. The Company did not make any discretionary
contributions for 2004 or 2003.
Employer Profit Sharing Contributions
The Company may, at its discretion, make a profit sharing
contribution to the Plan to benefit all eligible employees as of
the last date of the Plan year. The profit sharing contribution
will be made in the form of cash. The Company made profit
sharing contributions during 2004 and 2003 of $284,530 and
$81,216, respectively.
Employer Performance Contributions
The Company may, at its discretion, make an employer performance
contribution on behalf of eligible participants if certain
established performance goals are achieved. Performance
contributions are to be made to the Plan in the form of cash,
Company stock, or any combination thereof. The Company did not
make any performance contributions during 2004 and 2003.
VESTING
Each participant will always be 100% vested in their pre-tax
contribution, after-tax contribution, rollover contribution and
performance contribution accounts. Participants become 100% vested
in their matching contribution account after three years of service
and in their profit sharing contribution account after five years of
service. A "year of service" for vesting purposes means each plan
year (the calendar year) in which the participant is credited with
1,000 or more hours of service.
COMMON STOCK FUND
Matching contributions and discretionary contributions may be made
in cash or invested in Aqua America, Inc. common stock. Participants
who are 100% vested in this fund have an opportunity to elect that
any dividends with respect to Aqua America, Inc. common stock held
be paid in cash rather than being allocated to their account to be
invested in additional shares of Aqua America, Inc. common stock.
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - DESCRIPTION OF PLAN (CONTINUED)
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 mutual funds and one
common/collective trust fund. Subject to compliance with applicable
state and federal securities laws, the Plan also permits
participants to acquire an interest in Aqua America, Inc. common
stock. Participants may change their investment instructions and
reinvest their contributions in a different fund or funds at any
time.
PAYMENT OF BENEFITS
Distributions from the Plan are normally made shortly after the
participant's retirement, death or disability. If the participant's
account balance does not exceed $5,000, the participant will receive
a lump-sum distribution as soon as practicable following termination
of employment. Withdrawals will be made in cash or shares of Aqua
America, Inc. common stock, to the extent permitted by law. Under
certain circumstances, a participant may withdraw all or a portion
of the employee contributions while still employed.
LOANS DUE FROM PARTICIPANTS
Participants may borrow funds from their account balance equal to
the lesser of $50,000 or 50% of their vested account balance for a
period not to exceed five years, unless the loan is used to purchase
the participant's principal residence. Repayment is made through
payroll deductions. All new loans are issued at an interest rate of
prime plus 1%.
PLAN FORFEITURES
Forfeited non-vested accounts are used first to restore any
non-vested amounts (if a participant received a distribution and
forfeited his non-vested account and resumed employment as a covered
employee and repays the full amount of the distribution) then shall
be applied as promptly as practicable to reduce employer
contributions. Contributions made by the Company are netted against
forfeited, non-vested amounts that accumulate during the year.
Employer contributions were reduced by $1,778 and $-0- during 2004
and 2003, respectively, as a result of forfeited nonvested accounts.
The balance in the forfeiture account was $186 and $-0- as of
December 31, 2004 and 2003, respectively.
PLAN AMENDMENT OR TERMINATION
Although Aqua America, Inc. hopes to continue the Plan indefinitely,
it reserves the right to amend or terminate the Plan at its
discretion, subject to the provisions of ERISA. All interests of the
participants would be distributed to them in accordance with
applicable provisions of the Internal Revenue Code.
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
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 Aqua America, Inc. The
Committee members may be employees of Aqua America, Inc. 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 trustee are to receive
all contributions made to the Plan and to make investments and pay
benefits.
Substantially all of the administrative expenses of the Plan are
paid by the Company.
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. Common/ collective trust funds are
valued at unit value, which represents the fair value of the
underlying assets. Aqua America, Inc. stock is valued at its quoted
market price. Loans to participants, short-term investments and cash
are valued at cost, which approximates fair value.
Investments of the Plan are exposed to various risks, such as
interest rate, market, and credit. Due to the level of risk
associated with certain investments and the level of uncertainty
related to changes in the value of investments, it is at least
reasonably possible that changes in risks in the near term would
materially affect investment assets reported in the statement of net
assets available for benefits and the statements of changes in net
assets available for benefits.
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION (CONTINUED)
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 Aqua America, Inc. stock are based on average cost of
the securities sold. Purchases and sales are recorded on a trade
date basis.
NOTE 3 - INVESTMENTS
The fair market values of individual assets that represent 5% or more
of the Plan's net assets available for benefits as of December 31, 2004 and 2003
are as follows:
INVESTMENTS 2004 2003
---------------------------------------------------- --------- ---------
Mutual funds:
American Century Balanced Fund $313,012 *
American Century Diversified Bond Fund 281,165 $54,777
American Century Equity Index Fund 373,284 33,101
American Century Select Fund 407,178 *
American Century Strat. Alloc. Mod. Fund 417,056 *
American Century Value Fund 589,651 *
American Century Vista Fund 448,775 *
JP Morgan U.S. Small Company 393,158 *
Common/Collective Funds
American Century Stable Asset Fund 423,845 72,233
Stock
Aqua America, Inc. Common Stock 882,082 149,280
Loans
Loans due from participants 271,722 55,382
* Investment did not represent 5% or more of the Plan's net assets available for
benefits as of December 31, 2003.
The Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated in value during
the year ended December 31, 2004 and for the period from the date of inception
through December 31, 2003 as follows:
2004 2003
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Common stock $126,318 $14,280
Mutual funds 167,695 7,388
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TOTAL $294,013 $21,668
========== =========
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 4 - NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets available for benefits as of December
31, 2004 and 2003 and the significant components of the changes in net assets
relating to the nonparticipant-directed investments for the year ended December
31, 2004 and the period from the date of inception through December 31, 2003 is
as follows:
2004 2003
-------- --------
Net assets:
Aqua America, Inc. common stock $264,274 $39,543
Uninvested cash 0 4,330
--------- ---------
TOTAL $264,274 $43,873
========= =========
Changes in net assets:
Contributions $191,428 $40,187
Interest and dividends 2,674 85
Net appreciation 32,306 3,605
Benefits paid to participants (6,007) (4)
--------- ---------
TOTAL $220,401 $43,873
========= =========
NOTE 5 - RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by J.P.
Morgan Retirement Plan Services. J.P. Morgan Retirement Plan Services is the
trustee as defined by the Plan and, therefore, these transactions qualify as
party-in interest transactions.
NOTE 6 - TAX STATUS
The Internal Revenue Service issued a determination letter dated
September 30, 2003, which stated that the Plan and related trust 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 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.
NOTE 7 - PLAN AMENDMENT
Effective June 1, 2004, as a result of an acquisition, the Plan was
amended to allow employees of Heater Utilities to participate in the Plan. As a
result of this amendment, funds totaling $2,849,624 were rolled into the Plan
during 2004.
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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SCHEDULE OF ASSETS (HELD AT END OF YEAR)
FORM 5500 - SCHEDULE H - LINE 4I
EIN: 23-1702594
PN: 005
DECEMBER 31, 2004
DESCRIPTION OF CURRENT
(A) IDENTITY OF ISSUE (B) INVESTMENT (C) COST (D) VALUE (E)
- ----- ----------------------------------------------- -------------------------------- --------------- ------------
* American Century Balanced Fund Registered Investment Company N/A $ 313,012
* American Century Diversified Bond Fund Registered Investment Company N/A 281,165
* American Century Equity Index Fund Registered Investment Company N/A 373,284
* American Century International Growth Fund Registered Investment Company N/A 222,301
* American Century Select Fund Registered Investment Company N/A 407,178
* American Century Strategic Allocation Registered Investment Company
Moderate Fund N/A 417,056
* American Century Value Fund Registered Investment Company N/A 589,651
* American Century Vista Fund Registered Investment Company N/A 448,775
* JP Morgan U.S. Small Company Registered Investment Company N/A 393,158
* American Century Stable Asset Fund Common/Collective Fund N/A 423,845
* Aqua America, Inc. Common Stock $744,652 882,082
Participant loans Participant Loans (interest rate 4.5% to
10.0%) 0 271,722
----------
$5,023,229
==========
* Represents a party-in-interest to the Plan.
N/A Historical cost has not been presented as investment is participant
directed.
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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SCHEDULE OF REPORTABLE TRANSACTIONS
FORM 5500 - SCHEDULE H - LINE 4J
EIN: 23-1702594
PN: 005
FOR THE YEAR ENDED DECEMBER 31, 2004
CURRENT VALUE
OF ASSET ON
PURCHASE SELLING TRANSACTION
IDENTITY OF PARTY INVOLVED (A) DESCRIPTION OF ASSET (B) PRICE (C) PRICE (D) COST (G) DATE (H) NET GAIN (I)
- ------------------------------ ------------------------ ----------- --------- ---------- -------------- --------------
Aqua America, Inc.* Common stock $657,934 $ 0 $657,934 $657,934 $ 0
0 51,451 48,302 51,451 3,149
* Represents a party-in-interest to the Plan.
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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SCHEDULE OF NONEXEMPT TRANSACTIONS
FORM 5500 - SCHEDULE G - PART III
EIN: 23-1702594
PN: 005
YEAR ENDED DECEMBER 31, 2004
CURRENT NET GAIN OR LOSS
IDENTITY OF RELATIONSHIP DESCRIPTION OF COST OF ASSET VALUE OF ASSET ON EACH
PARTY INVOLVED (A) TO PLAN (B) TRANSACTIONS (C) (H) (I) TRANSACTION (J)
- ------------------ ------------ ---------------- ------------- -------------- ----------------
Aqua America, Inc. Plan Sponsor Employee contributions not
remitted timely to the Plan $25,981 $25,981 $ 0
Aqua America, Inc. Plan Sponsor Related earnings on employee
contributions not remitted
timely to the Plan 707 0 707
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AQUA AMERICA, INC. 401(K) AND PROFIT SHARING PLAN
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SCHEDULE OF DELINQUENT PARTICIPANT CONTRIBUTIONS
FORM 5500 - SCHEDULE H - LINE 4A
EIN: 23-1702594
PN: 005
YEAR ENDED DECEMBER 31, 2004
TOTAL THAT CONSTITUTE NONEXEMPT PROHIBITED TRANSACTIONS
PARTICIPANT ------------------------------------------------------------- TOTAL FULLY
CONTRIBUTIONS CONTRIBUTIONS CONTRIBUTIONS CORRECTED UNDER
TRANSFERRED LATE CONTRIBUTIONS NOT CORRECTED OUTSIDE PENDING CORRECTION VFCP AND PTE
TO THE PLAN CORRECTED VFCP IN VFCP 2002-51
- ------------------ ----------------- ----------------- ------------------ ---------------
$25,981 $ 0 $25,981 $ 0 $ 0
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