Exhibit 99.1
AQUA AMERICA, INC.
EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
Financial Report
December 31, 2004
(With Report of Independent Registered Public Accounting Firm)
AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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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) 9
Schedule of Nonexempt Transactions 10
Schedule of Delinquent Participant Contributions 11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
To the Administrators
Aqua America, Inc. Employees 401(k) Savings Plan and Trust
We have audited the accompanying statements of net assets available for
benefits of the Aqua America, Inc. Employees 401(k) Savings Plan and Trust as of
December 31, 2004 and 2003, and the related statements of changes in its net
assets available for 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 the 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. Employees 401(k) Savings Plan and Trust as of December 31,
2004 and 2003, and the changes in its net assets available for benefits for the
years then ended 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 schedule of
assets (held at end of year) as of December 31, 2004 and 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. The 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
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2004 AND 2003
2004 2003
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ASSETS
Investments, at fair value $39,210,796 $35,617,809
Cash and cash equivalents 0 6,317
Receivables:
Employer contributions 0 2,902
Participants' contributions 0 51,177
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NET ASSETS AVAILABLE FOR BENEFITS $39,210,796 $35,678,205
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See notes to financial statements.
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
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INVESTMENT INCOME
Interest and dividends $ 935,680 $ 647,568
Net appreciation in fair value of investments 2,845,350 7,091,086
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TOTAL INVESTMENT INCOME 3,781,030 7,738,654
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CONTRIBUTIONS
Employer 300,618 309,096
Participants 1,548,000 1,520,600
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TOTAL CONTRIBUTIONS 1,848,618 1,829,696
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BENEFITS PAID TO PARTICIPANTS (2,094,200) (2,057,548)
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ADMINISTRATIVE EXPENSES (2,857) (2,763)
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NET INCREASE IN NET ASSETS AVAILABLE FOR BENEFITS 3,532,591 7,508,039
NET ASSETS AVAILABLE FOR BENEFITS - BEGINNING OF YEAR 35,678,205 28,170,166
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NET ASSETS AVAILABLE FOR BENEFITS - END OF YEAR $39,210,796 $35,678,205
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See notes to financial statements.
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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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. Employees 401
(k) Savings Plan and Trust (the "Plan") is provided for general
information purposes only. Participants should refer to the Plan
document for more complete information.
GENERAL
The Plan is a defined contribution plan covering substantially
all non-bargaining unit employees with hire dates prior to
April 1, 2003 of Aqua Illinois Inc., Aqua Ohio, Inc., Aqua New
Jersey, Inc., Aqua Maine, Inc., Aqua North Carolina, Inc.
(formerly Hydraulics, Ltd.), employees of certain divisions of
Aqua Pennsylvania, Inc. and some employees of other
subsidiaries of Aqua America, Inc. (the "Company"). Employees
became eligible to participate on January 1 of the year
following the date on which his or her employment commenced.
The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA).
Employees covered under collective bargaining agreements are
permitted to participate in the Plan if the collective
bargaining agreement provides for participation.
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 employer. Participants may also
contribute 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 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. They may also make
transfers or suspend their contributions at any time. In any
Plan year, a participant's aggregate contributions to the Plan
(salary deferral amounts plus after-tax voluntary
contributions) may not exceed 35% of such participant's
compensation for the applicable Plan year.
The Plan provides for the Company to contribute an amount
equal to 40% of the pretax employee contribution up to $1,040
for each participant. The Company's contributions consist of
common stock in Aqua America, Inc.
PARTICIPANTS' ACCOUNTS
Each participant's account is credited with the participant's
contribution and allocations of the Company's contribution and
Plan earnings. Allocations are based on participant
contributions or account balances, as defined by the Plan
document.
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - DESCRIPTION OF PLAN (CONTINUED)
VESTING
Each participant will always be 100% vested in all employee
and Company contributions.
COMMON STOCK FUND
Matching contributions may be made in cash or invested in Aqua
America, Inc. common stock. Participants 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.
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
Upon retirement, disability, or death, distributions will be
paid as soon as administratively possible in a lump sum or as
an annuity. Upon termination of service other than by
retirement, disability, or death, a participant will receive a
lump sum payment if the total of their employer matching and
profit sharing contribution accounts does not exceed $5,000.
If the account balances exceed $5,000, the assets will
generally be held in a trust until the participant's normal or
early retirement date.
Withdrawals will be made in cash or shares of Aqua America,
Inc. 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 AMENDMENT OR TERMINATION
Although the Company does not intend to terminate the Plan, it
may do so at its discretion, subject to the provisions of
ERISA. All interests of the participants would be distributed
to them as determined in accordance with applicable provisions
of the Internal Revenue Code.
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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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 plan trustee invests funds as directed by the
participants. The principal duties of the trustees are to
receive all contributions paid to the Plan and to make
investments and pay benefits.
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 at year end.
Common/collective trust funds are valued at unit value, which
represents the fair value of the underlying assets. Aqua
America stock is valued at its quoted market price at
year-end. Loans to participants, short-term investments and
cash are valued at cost, which approximates fair value.
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. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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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. 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
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Mutual funds:
American Century Select Fund $ 7,599,820 $ 7,182,293
American Century Balanced Fund 3,046,178 2,808,862
Common/Collective Funds
American Century Stable Asset Fund 3,266,620 2,875,007
Common Stock
Aqua America, Inc. Common Stock 18,658,772 16,973,688
The Plan's investments (including gains and losses on investments
brought and sold, as well as held during the year) appreciated in value
during the years ended December 31, 2004 and 2003 as follows:
2004 2003
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Common stock $1,863,366 $4,334,240
Mutual funds 981,984 2,756,846
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TOTAL $2,845,350 $7,091,086
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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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 years ended December 31, 2004 and 2003 is as
follows:
2004 2003
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Net assets:
Aqua America common stock $14,126,809 $12,791,911
Employer contribution receivable 0 2,902
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$14,126,809 $12,794,813
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Changes in net assets:
Contributions $ 300,618 $ 309,096
Interest and dividends 284,252 265,239
Net appreciation 1,414,390 3,261,058
Benefits paid to participants (667,264) (695,005)
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TOTAL $1,331,996 $3,140,388
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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 its latest determination
letter dated October 8, 2003, which stated that the Plan and related
trust, as amended, qualified under applicable provisions of the
Internal Revenue Code (IRC) and, therefore, are exempt from federal
income taxes. The Plan has been amended since receiving the
determination letter. The Plan administrator and the Plan's counsel
believe that the Plan is designed and is currently being operated in
compliance with applicable requirements of the IRC. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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SCHEDULE OF ASSETS (HELD AT END OF YEAR)
FORM 5500 - SCHEDULE H - LINE 4I
EIN: 01-0049450
PN: 003
DECEMBER 31, 2004
CURRENT
(A) IDENTITY OF ISSUE (B) DESCRIPTION OF INVESTMENT (C) COST (D) VALUE (E)
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* American Century Balanced Fund Registered Investment Company N/A $ 3,046,178
* American Century Diversified Bond Fund Registered Investment Company N/A 384,092
* American Century Equity Index Fund Registered Investment Company N/A 1,139,567
* American Century International Growth Fund Registered Investment Company N/A 362,319
* American Century Select Fund Registered Investment Company N/A 7,599,820
* American Century Strategic Allocation Registered Investment Company
Moderate Fund N/A 138,767
* American Century Value Fund Registered Investment Company N/A 1,887,828
* American Century Vista Fund Registered Investment Company N/A 1,327,178
* JP Morgan U.S. Small Company Registered Investment Company N/A 395,961
* American Century Stable Asset Fund Common/Collective Fund N/A 3,266,620
* Aqua America, Inc. Common Stock $7,671,579 18,658,772
Participant loans Participant Loans (interest rate 4.0%
to 9.5%) 0 1,003,694
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$39,210,796
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* 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. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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SCHEDULE OF NONEXEMPT TRANSACTIONS
FORM 5500 - SCHEDULE G - PART III
EIN: 01-0049450
PN: 003
YEAR ENDED DECEMBER 31, 2004
NET GAIN OR LOSS
IDENTITY OF PARTY RELATIONSHIP TO DESCRIPTION OF COST OF CURRENT VALUE ON EACH
INVOLVED (A) PLAN (B) TRANSACTIONS (C) ASSET (H) OF ASSET (I) TRANSACTION (J)
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Aqua America, Inc. Plan Sponsor Employee contributions not
remitted timely to the Plan $117,426 $117,426 $ 0
Aqua America, Inc. Plan Sponsor Related earnings on employee
contributions not remitted
timely to the Plan 1,054 0 1,054
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AQUA AMERICA, INC. EMPLOYEES 401(K) SAVINGS PLAN AND TRUST
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SCHEDULE OF DELINQUENT PARTICIPANT CONTRIBUTIONS
FORM 5500 - SCHEDULE H - LINE 4A
EIN: 01-0049450
PN: 003
YEAR ENDED DECEMBER 31, 2004
TOTAL THAT CONSTITUTE NONEXEMPT PROHIBITED TRANSACTIONS
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PARTICIPANT TOTAL FULLY
CONTRIBUTIONS CONTRIBUTIONS CORRECTED UNDER
TRANSFERRED LATE CONTRIBUTIONS NOT CORRECTED OUTSIDE CONTRIBUTIONS PENDING VFCP AND PTE
TO THE PLAN CORRECTED VFCP CORRECTION IN VFCP 2002-51
- -------------------------- ------------------ ----------------- --------------------- ------------------
$117,426 $ 0 $117,426 $ 0 $ 0
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