2013-05-14T11:14:53-05:00 2012-12-31 750882037 BOLINGER SEGARS GILBERT AND MOSS LLP 8215 NASHVILLE AVENUE LUBBOCK TX 79423 990 2012-01-01 730375825 NORTHWESTERN ELECTRIC COOPERATIVE INC NORT 5802567425 PO BOX 2707 WOODWARD OK 73802 TYSON LITTAU 5802567425 2013-05-11 1 WILLIAM M MILLER P00439459 8067473806 2013-05-11 X 2012 2016-02-24 21:20:13Z TYSON LITTAU PO BOX 2707 WOODWARD OK 73802 30335493 0 X WWW.NWECOK.COOP X 1940 OK TO PROVIDE ELECTRIC POWER TO RURAL AREAS AT COST ON A COOPERATIVE BASIS. 9 8 66 0 71810 -8076 0 0 29517447 30049168 107736 107127 113517 93347 29738700 30249642 14926 15404 1362103 2031599 3826502 4021005 0 0 0 24535169 24181634 29738700 30249642 0 0 62701471 65855044 39645266 41747679 23056205 24107365 THE COOPERATIVE'S RESPONSIBILITY AND AIM IS TO PROVIDE EXCELLENT AND INNOVATIVE CUSTOMER SERVICE AS REFLECTED IN TOP QUALITY ELECTRIC SERVICE RELIABILITY, AFFORDABLE RATES, EMPLOYEE TEAMWORK AND THE HIGHEST DEGREE OF INTEGRITY IN ALL COOPERATIVE ENDEAVORS. 0 0 PROVIDING ELECTRIC ENERGY TO OUR MEMBERS - 11,627 ACTIVE SERVICES AT YEAR END WERE PROVIDED ELECTRICITY ON A COOPERATIVE BASIS THROUGH THE ALLOCATION OF PATRONAGE CAPITAL. 0 0 0 0 0 0 0 0 0 1 0 1 0 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 0 0 0 1 0 0 0 0 0 0 0 0 1 40 0 66 1 1 1 0 0 0 0 30325485 339593 0 X 9 8 0 0 0 0 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 0 OK X TYSON LITTAU 5802567425 2925 WILLIAMS AVENUE WOODWARD OK 73801 X KENNETH KNOWLES 6.80 0.00 X X 19673 0 0 RAY SMITH 3.40 0.00 X X 17773 0 0 JOHN BRUCE JR 7.30 0.00 X X 20747 0 0 GILBERT PERKINS 5.00 0.00 X 18673 0 0 LEE R HUCKABY 3.50 0.00 X 4100 0 0 DUANE HENDERSON 3.10 0.00 X 16547 0 0 CLAIR CRAIGHEAD 6.00 0.00 X 19073 0 0 DEAN STONE 4.40 0.00 X 12075 0 0 WAYNE HALL 4.30 0.00 X 5226 0 0 TYSON LITTAU 40.00 0.00 X 132866 0 64231 MONTY GOODMAN 40.00 0.00 X 103405 0 95710 370158 0 159941 2 0 1 0 CUSTOM POWERLINE CONSTRUCTION INC PO BOX 2287 WOODWARD OK 73802 CONSTRUCTION 609685 RIGGS TREE SERVICE PO BOX 453225 GROVE OK 74345 TREE SERVICE 563495 2 X ELECTRIC ENERGY 221000 29231739 29231739 PATRONAGE DIVIDENDS 221000 642089 642089 CONNECT AND OTHER FEES 221000 105464 105464 DISTRIBUTION LINE LEASE 221000 69876 69876 30049168 97335 97335 1366 1366 12499 0 12499 12499 2661 9838 55014 1048 44174 -1048 10840 9792 9792 43482 40629 2853 2853 BILLING REVENUE 561499 71810 71810 MISCELLANEOUS 221000 4819 4819 76629 30249642 30059501 71810 118331 X 15404 2031599 330984 2211333 463081 843533 172074 1527517 1996514 PURCHASED POWER 17192152 DISTRIBUTION EXPENSE 1457023 ADMIN AND GENERAL 781771 OPERATING TAXES 672057 554600 30249642 3421606 2594840 2927301 3153241 319517 638302 634501 842225 544050 464108 72419465 23680761 46022724 48738704 8823522 9415374 8250 8250 62701471 65855044 1879755 2317672 36481340 37833464 1284171 1596543 39645266 41747679 X 63200 0 2224846 2401179 20768159 21706186 23056205 24107365 62701471 65855044 X 0 1051160 X X 0 1 X 0 0 242287 242287 1658413 778694 879719 70387046 22902067 47484979 131719 131719 48738704 PATRONAGE CAPITAL - WESTERN FARMERS ELECTRIC COOPERATIVE, INC. 8401202 C PATRONAGE CAPITAL - NRUCFC 38671 C PATRONAGE CAPITAL - ARKANSAS ELECTRIC COOPERATIVE, INC. 54553 C PATRONAGE CAPITAL - SEDC 71621 C PATRONAGE CAPITAL - COBANK 163425 C MEMBERSHIPS & OTHER 21142 C CAPITAL TERM CERTIFICANTS - CFC 664760 C 9415374 CONSUMER DEPOSITS 109535 ACCRUED PAYROLL AND COMPENSATED ABSENCES 245918 OTHER CURRENT ACCRUED LIABILITIES 4410 PATRONAGE CAPITAL PAYABLE 47489 ACCRUED INTEREST PAYABLE 8313 ACCUMULATED PROVISION FOR PENSIONS & BENEFITS 906814 DEFERRED CREDITS 274064 1596543 X 30175917 0 30175917 73725 73725 30249642 28144318 0 28144318 2105324 2105324 30249642 Description of Uncertain Tax Positions Under FIN 48: Part X, Line 2: THE COOPERATIVE HAS ADOPTED THE UNCERTAIN TAX POSITIONS PROVISIONS OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. THE PRIMARY TAX POSITION OF THE COOPERATIVE IS ITS FILING STATUS AS A TAX EXEMPT ENTITY. THE COOPERATIVE DETERMINED THAT IT IS MORE LIKELY THAN NOT THAT THEIR TAX POSITION WILL BE SUSTAINED UPON EXAMINATION BY THE INTERNAL REVENUE SERVICE, OR OTHER STATE TAXING AUTHORITY AND THAT ALL TAX BENEFITS ARE LIKELY TO BE REALIZED UPON SETTLEMENT WITH TAXING AUTHORITIES. Part XI, Line 4b - Other Adjustments: RECLASSIFIED EXPENSES FROM NONOPERATING MARGINS 73,725. Part XII, Line 4b - Other Adjustments: RECLASSIFIED EXPENSES FROM NONOPERATING MARGINS 73,725. PATRONAGE CAPITAL ASSIGNABLE 2,031,599. Part IX: THE AMOUNT OF OTHER ASSETS ON FORM 990, PAGE 11, PART X, LINE 15 DOES NOT EQUAL OR EXCEED 5% OF THE TOTAL ASSETS ON FORM 990, PAGE 11, PART X, LINE 16, COLUMN B. CONSEQUENTLY, IN ACCORDANCE WITH IRS INSTRUCTIONS SCHEDULE D, PART IX HAS BEEN LEFT BLANK. PART XII, LINE 4B PATRONAGE CAPITAL ASSIGNABLE FOR CURRENT YEAR - $2,031,599 FOR THE AUDITED FINANCIAL STATEMENTS, THE AMOUNT OF PATRONAGE CAPITAL ASSIGNABLE (HEREINAFTER REFERRED TO AS PATRONAGE DIVIDENDS PAID OR ALLOCATED) TO THE PATRONS IS REPORTED AS AN INCREASE IN EQUITY AND NOT AS AN EXPENSE. THEREFORE, NET INCOME PER THE AUDITED FINANCIAL STATEMENTS IS REPORTED GROSS OF THE AMOUNT OF PATRONAGE DIVIDENDS THAT ARE EITHER ALLOCATED OR TO BE ALLOCATED AT THE TIME THE AUDITED FINANCIAL STATEMENTS ARE PREPARED. HOWEVER, BECAUSE THE ALLOCATION OF PATRONAGE DIVIDENDS IS ONE ASPECT OF HOW THE COOPERATIVE FULFILLS ITS TAX EXEMPT PURPOSE OF OPERATING ON A COOPERATIVE BASIS, THE AMOUNT OF PATRONAGE DIVIDENDS EITHER ALLOCATED OR TO BE ALLOCATED TO THE MEMBERS IS REPORTED ON FORM 990, PART IX, LINE 4 AS "BENEFITS PAID TO MEMBERS". PATRONAGE DIVIDENDS ARE ALLOCATED ON A PATRONAGE BASIS AND DONE SO PURSUANT TO A PRE-EXISTING OBLIGATION AS PROVIDED FOR IN THE "NON-PROFIT OPERATION" ARTICLE OF THE COOPERATIVE'S BYLAWS. X X 1 1 X X X 0 0 0 TYSON LITTAU 119353 0 2550 0 10963 0 38552 0 25679 0 197097 0 0 0 MONTY GOODMAN 77678 0 2600 0 23127 0 74340 0 21370 0 199115 0 0 0 Supplemental Information Part III Part II, Column C INCLUDED IN THIS AMOUNT IS THE INCREASE IN ACTUARIAL VALUE OF BENEFITS PAYABLE UNDER A DEFINED BENEFIT RETIREMENT PLAN. THE CONTRIBUTION RATE FOR PARTICIPANTS IN THE NRECA R&S DEFINED BENEFIT PENSION PLAN ARE THE SAME FOR ALL INDIVIDUALS IN THIS MULTI-EMPLOYER PLAN. THE CHANGE IN ACTUARIAL VALUE FOR EACH PARTICIPANT, HOWEVER, VARIES WITH AGE, YEARS OF SERVICE AND THE CURRENT INTEREST RATE ENVIRONMENT. IN OTHER WORDS, THE OLDER A PLAN PARTICIPANT IS, THE GREATER THE INCREASE IN THAT INDIVIDUAL'S CHANGE IN ACTUARIAL VALUE, ALL OTHER THINGS BEING EQUAL. BECAUSE THIS RELATES TO A MULTI-EMPLOYER PLAN, CASH CONTRIBUTIONS TO THE PLAN IN LIEU OF THE ACTUARIAL INCREASE ARE EXPENSED IN THE FINANCIAL STATEMENTS AND REPRESENT THE TRUE COST TO THE COOPERATIVE. TYSON LITTAU ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN $35,824 401(K) EMPLOYER MATCH 2,728 TOTAL COLUMN C: 38,552 LESS: ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN: (35,824) ADD: CASH CONTRIBUTION TO DEFINED BENEFIT PLAN: 38,246 TOTAL COOPERATIVE CASH CONTRIBUTION $40,973 MONTY GOODMAN ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN $72,508 401(K) EMPLOYER MATCH 1,832 TOTAL COLUMN C: 74,340 LESS: ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN: (72,508) ADD: CASH CONTRIBUTION TO DEFINED BENEFIT PLAN: 25,782 TOTAL COOPERATIVE CASH CONTRIBUTION $27,614 TYSON LITTAU CEO COMPUTER PURCHASE PER ESTABLISHED POLICY COVERING ALL EMPLOYEES X 867 723 0 1 1 723 WESTERN FARMERS ELECTRIC COOPERATIVE A BOARD MEMBER OF THE COOPERATIVE SERVES ON THE BOARD OF WESTERN FARMERS 17192152 COOPERATIVE PURCHASES ELECTRICITY FROM WESTERN FARMERS. 0 Form 990, Part VI, Section A, line 6 THE COOPERATIVE WAS FORMED BY THE MEMBERS TO PROVIDE ELECTRIC SERVICE AT COST ON A COOPERATIVE BASIS. Form 990, Part VI, Section A, line 7a THE MEMBERS OF THE COOPERATIVE VOTE ON THE BOARD OF DIRECTORS. ELECTIONS ARE DONE ON A ONE MEMBER ONE VOTE BASIS BY VOTING DISTRICT. Form 990, Part VI, Section A, line 7b THE FOLLOWING ACTS REQUIRE APPROVAL OF THE MEMBERS OF THE COOPERATIVE. 1.DISSOLUTION/LIQUIDATION OF THE COOPERATIVE; 2.MERGER OR CONSOLIDATION OF THE COOPERATIVE WITH ANOTHER ORGANIZATION; 3.THE DISPOSAL OF A SUBSTANTIAL PORTION OF THE COOPERATIVE'S ASSETS; AND 4.AMENDMENTS TO THE COOPERATIVE'S BYLAWS. Form 990, Part VI, Section B, line 11 MANAGEMENT E-MAILED A COPY OF THE FORM 990 TO THE BOARD PRIOR TO FILING. MANAGEMENT PRESENTS THE FORM 990 TO THE BOARD FOR DISCUSSION AND APPROVAL AT THE MEETING SUBSEQUENT TO FILING. Form 990, Part VI, Section B, line 12c THE BOARD OF DIRECTORS AND OFFICERS ARE REQUIRED TO REVIEW AND BE FAMILIAR WITH THE POLICIES OUTLINED IN THE COOPERATIVE'S CONFLICT OF INTEREST POLICY. THE BOARD OF DIRECTORS AND OFFICERS ARE REQUIRED TO DISCLOSE ANY ACTION OR SITUATION THAT MIGHT VIOLATE THE POLICY TO THE FULL BOARD OF DIRECTORS AS SOON AS POSSIBLE. THE CONFLICT OF INTEREST POLICY IS REVIEWED AND REDISTRIBUTED TO EACH EMPLOYEE, OFFICER AND DIRECTOR AT LEAST ONCE EVERY OTHER YEAR. Form 990, Part VI, Section B, line 15 THE BOARD OF DIRECTORS USE A COMPENSATION SURVEY AND THE EXPERTISE OF AN INDEPENDENT COMPENSATION CONSULTANT WHEN DETERMINING THE COMPENSATION OF THE CEO. THE SURVEY SHOWS COMPARATIVE SALARIES FOR GENERAL MANAGERS FROM SIMILARLY SITUATED COOPERATIVES LOCATED IN OKLAHOMA AND THE NATION. THE CEO AND AN INDEPENDENT COMPENSATION COMMITTEE USE A COMPENSATION SURVEY WHEN DETERMINING THE COMPENSATION OF THE COOPERATIVE'S OTHER EMPLOYEES MEETING THE DEFINITION OF OFFICER AND KEY EMPLOYEES, IF ANY. THE SURVEY INCLUDES SALARIES FROM SIMILARLY SITUATED COOPERATIVES THROUGHOUT OKLAHOMA AND THE NATION. Form 990, Part VI, Section C, line 19 THE COOPERATIVE WILL PROVIDE A COMPLETE COPY OF ITS GOVERNING DOCUMENTS, EXTERNAL POLICIES, AND AUDITED FINANCIAL STATEMENTS TO ANY MEMBER WHO REQUESTS A COPY OF ANY SUCH DOCUMENT. ANNUALLY THE COOPERATIVE PROVIDES THE YEAR END BALANCE SHEET AND INCOME STATEMENT TO THE MEMBERS OF THE COOPERATIVE WITH THE ANNUAL MEETING NOTICE AND ANNUAL REPORT. A SUMMARIZED OPERATING REPORT IS ALSO PROVIDED TO THE MEMBERS VIA MONTHLY NEWSLETTER. INDEPENDENT DIRECTORS Form 990, Part VI, Line 1b RAY SMITH PER IRS FORM 990 INSTRUCTIONS IS NOT AN INDEPENDENT DIRECTOR BECAUSE HE IS ON THE BOARD OF WESTERN FARMERS COOPERATIVE, INC. THE COOPERATIVE PURCHASES ITS ELECTRIC ENERGY FROM WESTERN FARMERS AND IS ALSO A MEMBER OF WESTERN FARMERS. AS SUCH, MR. SMITH IS THE COOPERATIVE'S REPRESENTATIVE ON WESTERN FARMERS BOARD. MR. SMITH HAS NO OWNERSHIP INTEREST IN WESTERN FARMERS AND RECEIVES NO DIRECT OR INDIRECT BENEFIT FROM THE COOPERATIVE DOING BUSINESS WITH WESTERN FARMERS. TO PROVIDE DETAIL REGARDING THE OFFICER BENEFITS Form 990, Part VII, Column F IN ORDER TO PROVIDE RETIREMENT BENEFITS TO ITS EMPLOYEES, THE COOPERATIVE HAS ESTABLISHED A DEFINED CONTRIBUTION PLAN UNDER SECTION 401(K) OF THE INTERNAL REVENUE CODE. ADDITIONALLY, THE COOPERATIVE PARTICIPATES IN A MULTI-EMPLOYER DEFINED BENEFIT PLAN. CONTRIBUTIONS TO THIS PLAN ARE BASED ON THE FULL FUNDING LIMITATION OF SUCH PLAN. EMPLOYER CONTRIBUTIONS FOR BOTH PLANS ARE AVAILABLE TO PARTICIPATING EMPLOYEES, INCLUDING OFFICERS, MEETING THE ELIGIBILITY REQUIREMENTS OF SUCH PLANS. THE ORGANIZATION ALSO PROVIDES HEALTH AND LIFE INSURANCE TO ALL EMPLOYEES, INCLUDING OFFICERS, THROUGH A QUALIFIED PLAN. THE AMOUNTS REPORTED ON PART VII, COLUMN (F) FOR THE OFFICER IS COMPRISED OF THE ACTUARIAL INCREASE IN THE DEFINED BENEFIT PLAN FOR THE OFFICER, THE TOTAL AMOUNT CONTRIBUTED TO THE 401(K) PENSION PLAN AND THE INSURANCE PREMIUMS PAID FOR THE BENEFIT OF THE OFFICER. IN ADDITION TO THE ABOVE PENSION PLANS, THE ORGANIZATION ALSO PROVIDES POST-RETIREMENT HEALTH INSURANCE BENEFITS THROUGH AN UNFUNDED WELFARE BENEFIT PLAN. THE VALUE OF THESE BENEFITS HAS NOT BEEN ESTIMATED. CEO RESPONSIBILITIES Form 990, Part VII, Section A THE BOARD OF DIRECTORS CONSIDERS THE CEO TO BE BOTH THE TOP MANAGEMENT OFFICIAL AND THE TOP FINANCIAL OFFICIAL. THEREFORE, ONLY THE CEO IS LISTED AS AN EMPLOYEE OFFICER. PATRONAGE DIVIDENDS Form 990, Part VIII, Line 2 PATRONAGE DIVIDENDS RESULT FROM THE PURCHASE OF WHOLESALE POWER FROM A GENERATION & TRANSMISSION COOPERATIVE. PATRONAGE DIVIDENDS ALSO RESULT FROM THE PAYMENT OF INTEREST FROM COOPERATIVE BANKS AND THE PURCHASE OF SUPPLIES AND SERVICES FROM OTHER COOPERATIVE ORGANIZATIONS. THE EXPENSES ASSOCIATED WITH PURCHASES FROM AND PAYMENTS TO SUCH COOPERATIVE ORGANIZATIONS ARE A DIRECT COMPONENT OF COST OF THE ELECTRIC SERVICE PROVIDED BY THE ORGANIZATION TO ITS MEMBERS. ACCOUNTING SYSTEM Form 990, Part IX THE ACCOUNTING RECORDS OF THE COOPERATIVE ARE MAINTAINED IN ACCORDANCE WITH THE UNIFORM SYSTEM OF ACCOUNTS AS PRESCRIBED BY THE FEDERAL ENERGY REGULATORY COMMISSION FOR CLASS A AND B ELECTRIC UTILITIES MODIFIED FOR ELECTRIC BORROWERS OF THE RURAL UTILITIES SERVICE(RUS). THE UNIFORM SYSTEM OF ACCOUNTING DOES NOT RECORD EXPENSES IN THE GENERAL EXPENSE CATEGORIES PROVIDED ON PART IX LINES 1 - 23. THE COOPERATIVE WILL BREAK OUT SALARIES AND WAGES, EMPLOYEE BENEFITS AND PAYROLL TAXES THAT ARE ALLOCATED IN ACCORDANCE WITH THEIR ACCOUNTING SYSTEM, BUT OTHER EXPENSES THAT ARE DESCRIBED IN LINES 1 - 23 WILL BE REPORTED ON LINE 24 UNDER THE EXPENSE CATEGORIES REQUIRED BY THE UNIFORM SYSTEM OF ACCOUNTS. RECONCILIATION OF WAGES PER RETURN TO FORM W-3 Form 990, Part IX, Lines 5-7 SALARIES AND WAGES ARE ALLOCATED TO ASSET, LIABILITY, AND EXPENSE ACCOUNTS BASED ON THE ACCOUNTING SYSTEM DESCRIBED ABOVE. IN AN EFFORT TO EXPLAIN WHY THE AMOUNTS REPORTED ON LINES 5-7 DO NOT AGREE TO THE W-3 THE FOLLOWING RECONCILIATION IS PROVIDED. TOTAL PER LINES 5-7 $ 2,542,317 LESS DIRECTORS FEES REPORTED ON 1099-MISC (133,887) LESS BENEFITS INCLUDED IN OFFICER COMPENSATION (64,231) PLUS SALARIES AND WAGES ALLOCATED TO ASSET ACCOUNTS 1,013,593 RECONCILIATION TO W-3 $ 3,357,792 BREAKDOWN OF EXPENSES INCLUDED IN ADMINISTRATIVE AND GENERAL Form 990, Part IX, Line 24 THE FOLLOWING IS A BREAKDOWN OF THE EXPENSES REPORTED AS ADMINISTRATIVE AND GENERAL EXPENSE ON FORM 990, PART IX, LINE 24 OFFICE AND SUPPLIES $ 213,690 EMPLOYEE EXPENSE 52,097 OUTSIDE SERVICES EMPLOYED 86,784 TRUSTEE EXPENSE 64,235 PROPERTY & GENERAL LIABILITY INSURANCE 68,661 INJURIES AND DAMAGES 34,968 DUES TO ASSOCIATED ORGANIZATIONS 99,554 ANNUAL AND DISTRICT MEETINGS 74,484 MAINTENANCE OF GENERAL PLANT 27,129 MISCELLANEOUS GENERAL EXPENSE 60,169 TOTAL ADMINISTRATIVE AND GENERAL EXPENSE PER 990 $ 781,771 BENEFITS PAID TO MEMBERS FORM 990, PART IX, LINE 4 THE FORM 990 INSTRUCTIONS SPECIFICALLY STATE THAT THE AMOUNT OF PATRONAGE DIVIDENDS PAID TO THE MEMBERS SHOULD BE REPORTED ON PART IX, LINE 4. THE PHRASE "PATRONAGE DIVIDENDS PAID" REFERS TO THE PROCESS, SUBSEQUENT TO YEAR-END, BY WHICH THE COOPERATIVE ALLOCATES PATRONAGE CAPITAL TO AND, THEREFORE, OPERATES AT COST WITH ITS MEMBERS. THE COOPERATIVE'S TAX EXEMPT PURPOSE IS TO PROVIDE ELECTRICITY TO ITS PATRONS AND TO DO SO ON A COOPERATIVE BASIS. TAX LAW DEFINES "OPERATING ON A COOPERATIVE BASIS" AS SUBORDINATION OF CAPITAL, DEMOCRATIC CONTROL, AND OPERATION AT COST. THE COOPERATIVE OPERATES AT COST THROUGH THE ALLOCATION OF TRUE PATRONAGE DIVIDENDS (ALSO REFERRED TO AS ALLOCATIONS OF PATRONAGE CAPITAL) TO ITS PATRONS. PATRONAGE DIVIDENDS ARE CONSIDERED PAID IF THE ALLOCATION IS MADE (1) PURSUANT TO A PRE-EXISTING OBLIGATION, (2) FROM THE MARGINS PRODUCED FROM THE TRANSACTIONS DONE WITH OR FOR PATRONS, AND (3) IN A FAIR AND EQUITABLE BASIS ON THE BASIS OF PATRONAGE (I.E. PURCHASES). ADDITIONALLY, THE ALLOCATION OF PATRONAGE DIVIDENDS SHOULD BE MADE WITHIN A REASONABLE TIME PERIOD AFTER THE CLOSE OF THE COOPERATIVE'S YEAR-END OF DECEMBER 31. EACH ONE OF THESE REQUIREMENTS FOR A TRUE PATRONAGE DIVIDEND IS PROVIDED FOR IN THE NON-PROFIT OPERATION ARTICLE OF THE COOPERATIVE'S BYLAWS AND IS SUMMARIZED AS FOLLOWS: (A) IN ORDER TO INDUCE PATRONAGE AND TO ASSURE THAT THE COOPERATIVE WILL OPERATE ON A NONPROFIT BASIS, THE COOPERATIVE IS OBLIGATED TO ACCOUNT ON A PATRONAGE BASIS TO ALL ITS PATRONS FOR ALL AMOUNTS RECEIVED AND RECEIVALBE FROM THE FURNISHING OF ELECTRIC POWER AND ENERGY IN EXCESS OF OPERATING COSTS AND EXPENSES PROPERLY CHARGEABLE AGAINST SUCH SERVICES (I.E. MARGINS FROM THE PROVISION OF ELECTRIC POWER AND ENERGY). (B) THE MARGINS FROM THE PROVISION OF ELECTRIC POWER AND ENERGY ARE RECEIVED WITH THE UNDERSTANDING THAT THEY ARE FURNISHED BY THE PATRONS AS CAPITAL. (C) THE COOPERATIVE IS OBLIGATED TO PAY BY CREDITS TO A CAPITAL ACCOUNT FOR EACH PATRON FOR ALL SUCH MARGINS. AND (D) ALL SUCH AMOUNTS CREDITED TO THE CAPITAL ACCOUNT OF ANY PATRONS SHALL HAVE THE SAME STATUS AS THOUGH THEY HAD BEEN PAID TO THE PATRON IN CASH IN PURSUANCE OF A LEGAL OBLIGATION TO DO SO AND THE PATRON HAD THEN FURNISHED TO THE COOPERATIVE CORRESPONDING AMOUNTS OF CAPITAL. THE AMOUNT REPORTED ON PART IX, LINE 4 REPRESENTS THE AMOUNT OF PATRONAGE CAPITAL THAT IS EITHER ALLOCATED OR TO BE ALLOCATED TO THE PATRONS RESULTING FROM THEIR PURCHASE OF ELECTRICITY FROM THE COOPERATIVE FOR THE 2012 CALENDAR YEAR. AS NOTED ABOVE, SUCH AMOUNTS ARE ALLOCATED SUBSEQUENT TO YEAR-END IN A FAIR AND EQUITABLE MANNER ON THE BASIS OF PATRONAGE (I.E. PURCHASES). THE AMOUNTS ALLOCATED ARE REPRESENTATIVE OF THE MARGINS FROM THE PROVISION OF ELECTRIC POWER AND ENERGY TO THE PATRONS AND ARE DONE PURSUANT TO THE OLBIGATION THAT EXISTED IN THE BYLAWS PRIOR TO THE COOPERATIVE PROVIDING ELECTRICITY TO ITS PATRONS. THEREFORE, THESE AMOUNTS MEET THE DEFINITION OF THE TERM "PATRONAGE DIVIDENDS PAID". PLEASE NOTE, HOWEVER, THAT BECAUSE PATRONAGE DIVIDENDS IS THE PROCESS BY WHICH THE COOPERATIVE OPERATES AT COST WITH ITS PATRONS AND THEREBY A KEY COMPONENT TO ACCOMPLISHING ITS EXEMPT PURPOSE, THE COOPERATIVE HAS REPORTED THE AMOUNT OF ITS 2012 MARGIN THAT HAS BEEN OR IS TO BE ALLOCATED TO THE PATRONS SUBSEQUENT TO YEAR-END. SUCH AMOUNTS ARE AN EXPENSE FOR FORM 990 REPORTING AND IS NOT AN EXPENSE FOR FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. AS A RESULT, THE DIFFERENCE BETWEEN THE COOPERATIVE'S GAAP BASIS FINANCIAL STATEMENTS AND THE REVENUE LESS EXPENSES REPORTED ON PART I, LINE 19 IS THE AMOUNT OF PATRONAGE DIVIDENDS REPORTED AS BENEFITS PAID TO MEMBERS. TO PROVIDE DETAIL REGARDING OTHER EXPENSES Form 990, Part IX, Line 24e THE FOLLOWING IS A BREAKDOWN OF THE EXPENSES REPORTED AS OTHER EXPENSES ON FORM 990, PART IX, LINE 24e CUSTOMER SERVICE $ 480,875 OTHER DEDUCTIONS 73,725 TOTAL OTHER EXPENSES PER FORM 990, LINE 24e $554,600 Changes in Net Assets or Fund Balances: Form 990, Part XI, line 9: PATRONAGE CAPITAL ASSIGNABLE 2,031,599. PATRONAGE CAPITAL RETIRED - TOTAL -816,602. PATRONAGE CAPITAL RETIRED - DISCOUNT 30,384. UNCLAIMED PATRONAGE CAPITAL RETIREMENT CHECKS 83,099. DONATED CAPITAL RECEIVED 62,850. NET DECREASE IN MEMBERSHIPS -63,200. OTHER COMPREHENSIVE INCOME - PROVISION FOR PENSION & BENEFITS -276,970. AUDIT COMMITTEE Form 990, Part XI, Line 2C THE BOARD AS A WHOLE IS RESPONSIBLE FOR OVERSEEING THE FINANCIAL STATEMENT AUDIT AND SELECTING THE INDEPENDENT FINANCIAL STATEMENT AUDITOR.