2012-10-24T13:58:04-05:00 2011-12-31 750882037 BOLINGER SEGARS GILBERT AND MOSS LLP 8215 NASHVILLE AVENUE LUBBOCK TX 79423 990 2011-01-01 740779023 MEDINA ELECTRIC COOPERATIVE INC MEDI 8307414384 PO BOX 370 HONDO TX 78861 MARK ROLLANS 8307414384 2012-10-16 1 Matt R Willis P00419741 8067473806 2012-10-16 2011 2016-02-24 21:20:13Z MARK ROLLANS PO BOX 370 HONDO TX 78861 68051389 0 X WWW.MEDINAEC.ORG X 1938 TX TO PROVIDE QUALITY AND RELIABLE ELECTRIC SERVICE TO MEMBERS OF THE COOPERATIVE. 9 8 132 0 333833 132350 0 0 63224930 67050943 -315744 298613 524825 437923 63434011 67787479 27952 19405 4931991 5639519 8934028 8836117 0 0 0 49882915 53317297 63776886 67812338 -342875 -24859 128750112 135576891 85179825 84467531 43570287 51109360 THE COOPERATIVE'S RESPONSIBILITY AND AIM IS TO PROVIDE PRODUCTS AND SERVICES THAT ENHANCE THE QUALITY OF LIFE FOR MEMBER-OWNERS AND THE COMMUNITY THROUGH LEADERSHIP AND INNOVATION. 0 0 PROVIDING ELECTRIC ENERGY TO OUR MEMBERS - 29,346 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 1 0 1 0 1 0 1 1 1 0 0 0 0 0 0 0 0 0 0 1 0 1 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 53 0 132 1 1 1 0 0 0 0 73278219 709057 0 X 9 8 0 0 0 0 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 0 X MARK ROLLANS 8307414384 2308 18TH STREET HONDO TX 78861 GLENN SCHWEERS 6.00 X X 15100 0 0 KENNETH G WHITE 8.00 X X 14800 0 0 RICHARD SAATHOFF 6.00 X X 14700 0 0 LARRY HUESSER 6.00 X X 13800 0 0 ALBERT LOWRY 6.00 X 11650 0 0 ANNETTE SORRELLS 6.00 X 13750 0 0 CHRIS SURLES 7.00 X 3900 0 0 FRED LANCASTER JR 9.00 X 12950 0 0 CESAR GONZALEZ 4.00 X 11300 0 0 MURRAY MCKINLEY 5.00 X 2850 0 0 JAMES RAINES 8.00 X 3900 0 0 MARK ROLLANS 60.00 X 155558 0 94963 MIKE WADE 40.00 X 112810 0 47493 387068 0 142456 2 0 1 0 PIKE ELECTRIC INC PO BOX 1000 DEPT 517 MEMPHIS TN 38148 CONSTRUCTION CONTRACTOR 2147637 JAMES POWER LINE CONSTRUCTION INC 39350 IH 10 W STE 1 BOERNE TX 78006 CONSTRUCTION CONTRACTOR 2038792 QPI & M INC PO BOX 4378 VICTORIA TX 77903 POLE TREATMENT 488399 SCHNEIDER ENGINEERING 191 MENGER SPRINGS PKWY BOERNE TX 78006 ENGINEERING 475907 ASPLUNDH TREE EXPERT 708 BLAIR MILL ROAD WILLOW GROVE PA 19090 TREE TRIMMING 419210 5 ELECTRICITY SALES 221000 64401402 64401402 PATRONAGE DIVIDENDS 221000 2649537 2624385 25152 ELECTRIC WHEELING 221000 4 4 67050943 210750 210750 111914 267 0 -267 111914 111647 900 -267 111014 334405 246542 87863 87863 87863 34066 17101 16965 16965 INTERNET REVENUE 519100 308948 308948 FOWLERTON WATER INCOME 221000 363 363 309311 67787479 67043656 333833 409990 X 19405 5639519 369221 5176154 1156614 1719990 414138 2599410 3953426 PURCHASED POWER 39988822 DISTRIBUTION EXPENSE 3699095 ADMIN & GENERAL EXP 2165318 CUSTOMER SERVICE 634002 277224 67812338 3947996 2900769 1641537 2071777 543939 202354 193154 160516 136148038 28655082 102421207 107492956 16551539 19042755 3450740 3705764 128750112 135576891 5155187 5863893 581543 570546 69784453 71532819 9658642 6500273 85179825 84467531 X 82800 83680 0 0 43487487 51025680 43570287 51109360 128750112 135576891 X -24859 7563932 X X 0 1 1 X 0 0 1 231435 231435 5256799 1617016 3639783 130659804 27038066 103621738 107492956 PATRONAGE CAPITAL - SAN MIGUEL ELECTRIC COOPERATAIVE 2495338 C PATRONAGE CAPITAL - COBANK 252167 C PATRONAGE CAPITAL - TEXAS ELECTRIC COOPERATIVE,INC 911507 C PATRONAGE CAPITAL - SOUTH TEXAS ELECTRIC COOPERATIVE, INC. 8321104 C CONTRIBUTED CAPITAL - SOUTH TEXAS ELECTRIC COOPERATIVE, INC. 5659516 C CAPITAL TERM CERTIFICATES - CFC 1273032 C OTHER INVESTMENTS 11581 C PATRONAGE CAPITAL - NRTC 118510 C 19042755 CONSUMER DEPOSITS 1387424 PROVISION FOR POST RETIREMENT HEALTH BENEFITS 3514751 ACCRUED TAXES 138416 ACCRUED COMPENSATED ABSENCES 703223 ACCRUED INTEREST 599148 OTHER CURRENT AND ACCRUED LIABILITIES 157311 6500273 67787479 67812338 -24859 7563932 7563932 7539073 67602002 0 67602002 185477 185477 67787479 61987342 0 61987342 5824996 5824996 67812338 Part IV, Line 2b: PURSUANT TO SECTION 74.3013 OF THE TEXAS PROPERTY CODE, THE COOPERATIVE HAS ESTABLISHED A RURAL SCHOLARSHIP FUND WITH RETIREMENTS OF PATRONAGE CAPITAL, WHICH HAVE REMAINED UNCLAIMED FOR A PERIOD OF THREE YEARS. THE AMOUNTS DEPOSITED INTO THE RURAL SCHOLARSHIP FUND ARE APPROVED BY THE STATE OF TEXAS AND CAN ONLY BE USED FOR SCHOLARSHIPS TO ENABLE STUDENTS FROM RURAL AREAS TO ATTEND COLLEGE, TECHNICAL SCHOOL OR OTHER POST SECONDARY EDUCATION INSTITUTION. ANY AMOUNTS SO DEPOSITED INTO THE RURAL SCHOLARSHIP FUND ARE STILL PAYABLE TO THE PERSON TO WHOM THE ORIGINAL PAYMENT WAS MADE BUT UNCLAIMED. ALSO PURSUANT TO SECTION 74.3013 OF THE TEXAS PROPERTY CODE, THE COOPERATIVE HAS ESTABLISHED AN ECONOMIC DEVELOPMENT FUND WITH RETIREMENTS OF PATRONAGE CAPITAL, WHICH HAVE REMAINED UNCLAIMED FOR A PERIOD OF THREE YEARS. THE AMOUNTS DEPOSITED INTO THE ECONOMIC DEVELOPMENT FUND ARE APPROVED BY THE STATE OF TEXAS AND CAN ONLY BE USED FOR THE STIMULATION AND IMPROVEMENT OF BUSINESS AND COMMERCIAL ACTIVITY FOR ECONOMIC DEVELOPMENT IN RURAL COMMUNITIES. ANY AMOUNTS SO DEPOSITED INTO THE ECONOMIC DEVELOPMENT FUND ARE STILL PAYABLE TO THE PERSON TO WHOM THE ORIGINAL PAYMENT WAS MADE BUT UNCLAIMED. ALSO PURSUANT TO SECTION 74.3013 OF THE TEXAS PROPERTY CODE, THE COOPERATIVE HAS ESTABLISHED AN ENERGY EFFICIENCY ASSISTANCE FUND WITH RETIREMENTS OF PATRONAGE CAPITAL, WHICH HAVE REMAINED UNCLAIMED FOR A PERIOD OF THREE YEARS. THE AMOUNTS DEPOSITED INTO THE ENERGY EFFICIENCY ASSISTANCE FUND ARE APPROVED BY THE STATE OF TEXAS AND CAN ONLY BE USED TO ASSIST MEMBERS OF AN ELECTRIC COOPERATIVE IN REDUCING THEIR ENERGY CONSUMPTION AND ELECTRICITY BILLS. ANY AMOUNTS SO DEPOSITED INTO THE ENERGY EFFICIENCY ASSISTANCE FUND ARE STILL PAYABLE TO THE PERSON TO WHOM THE ORIGINAL PAYMENT WAS MADE BUT UNCLAIMED. Description of Uncertain Tax Positions Under FIN 48: Part X: ON JANUARY 1, 2009, THE COOPERATIVE 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 ITS TAX POSITION WILL BE SUSTAINED UPON EXAMINATION BY THE INTERNAL REVENUE SERVICE, AND THAT ALL TAX BENEFITS ARE LIKELY TO BE REALIZED UPON SETTLEMENT WITH TAXING AUTHORITIES. Part XI, Line 8 - Other Adjustments: NET CHANGE IN MEMBERSHIPS 880. PATRONAGE CAPITAL RETIRED -1,079,510. GAIN ON RETIRED ESTATE CAPITAL CREDITS 37,643. OTHER COMPREHENSIVE INCOME - ADJUSTMENT FOR POSTRETIREMENT BENEFITS 2,965,400. PATRONAGE CAPITAL ASSIGNABLE 5,639,519. Total to Schedule D, Part XI, Line 8: 7,563,932. Part XII, Line 4b - Other Adjustments: EXPENSES RECORDED IN NON-OPERATING MARGINS RECLASSED TO EXPENSES 185,477. Part XIII, Line 4b - Other Adjustments: EXPENSES RECORDED IN NON-OPERATING MARGINS RECLASSED TO EXPENSES 185,477. PATRONAGE CAPITAL ASSIGNABLE 5,639,519. Part IX: THE AMOUNT OF OTHER ASSETS ON FORM 990, PAGE 11, PART X, LINE 15 DOES NOT EQUAL OR EXCEED 5 PERCENT 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. PATRONAGE CAPITAL ASSIGNABLE - $5,639,519. Part XIII, Line 4B FOR THE AUDITED FINANCIAL STATEMENTS, THE AMOUNT OF PATRONAGE DIVIDENDS PAID OR ALLOCATED TO THE MEMBERS 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. 0 X ALL GRANTS, SPONSORSHIPS AND DONATIONS ARE MADE TO NON-PROFIT AND CIVIC ORGANIZATIONS THAT ARE LOCATED IN TEH COOPERATIVE'S SERVICE AREA. ALL DONATIONS ARE INTENDED TO IMPROVE THE COMMUNITIES IN WHICH OUR MEMBERS RESIDE. X X X 0 0 0 MARK ROLLANS 154303 0 510 0 745 0 78694 0 16269 0 250521 0 0 0 MIKE WADE 112810 0 0 0 0 0 34154 0 13339 0 160303 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. 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 CONTRIBUTION TO THE PLAN IN LIEU OF THE ACTUARIAL INCREASE ARE EXPENSED IN THE FINANCIAL STATEMENTS. MARK ROLLANS ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN $ 73,939 401(K) EMPLOYER MATCH 4,755 TOTAL COLUMN C: 78,694 LESS: ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN: (73,939) ADD: CASH CONTRIBUTION TO DEFINED BENEFIT PLAN: 39,141 TOTAL COOPERATIVE CASH CONTRIBUTION $ 43,896 MIKE WADE ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN $ 30,682 401(K) EMPLOYER MATCH 3,472 TOTAL COLUMN C: 34,154 LESS: ACTUARIAL INCREASE IN DEFINED BENEFIT PLAN: (30,682) ADD: CASH CONTRIBUTION TO DEFINED BENEFIT PLAN: 28,335 TOTAL COOPERATIVE CASH CONTRIBUTION $ 31,807 WILLIAM MOFFETT MR. MOFFETT IS THE BROTHER-IN-LAW OF A BOARD MEMBER. 58410 MR. MOFFETT IS EMPLOYED BY THE COOPERATIVE. 0 BENEFITS PAID TO MEMBERS FORM 990, PART I, LINE 14 THE INSTRUCTIONS FOR THE 2011 FORM 990 CLARIFY THAT "BENEFITS PAID TO MEMBERS" SHOULD INCLUDE THE AMOUNT OF PATRONAGE DIVIDENDS PAID TO THE MEMBERS (HEREINAFTER REFERRED TO AS PATRONS) OF SECTION 501(C)(12) COOPERATIVES. CONSISTENT WITH THIS CLARIFICATION IN THE INSTRUCTIONS, THE COOPERATIVE HAS REPORTED ON PART I, LINE 14 FOR THE CURRENT YEAR THE AMOUNT OF PATRONAGE DIVIDENDS PAID AND/OR ALLOCATED TO THE COOPERATIVE'S PATRONS FOR THE 2011 CALENDAR YEAR. SINCE PART I SUMMARIZES BOTH PRIOR AND CURRENT YEAR DATA, THE COOPERATIVE HAS CHOSEN TO ALSO REPORT ON PART I, LINE 14 FOR THE PRIOR YEAR THE AMOUNT OF PATRONAGE DIVIDENDS PAID TO THE PATRONS FOR THE 2010 CALENDAR YEAR. BECAUSE THE INSTRUCTIONS FOR THE 2010 FORM 990 DID NOT PROVIDE FOR SUCH A CLARIFICATION, THE 2010 FORM 990 WAS NOT PREPARED IN THIS MANNER. HOWEVER, SINCE THE COOPERATIVE DID IN FACT ALLOCATE PATRONAGE DIVIDENDS TO ITS PATRONS FOR THE 2010 CALENDAR YEAR, IT BELIEVES THAT BOTH THE PRIOR YEAR AND CURRENT YEAR COLUMNS OF PART I SHOULD BE PREPARED CONSISTENTLY IN ORDER TO REFLECT THAT THE COOPERATIVE HAS A PRE-EXISTING OBLIGATION TO ALLOCATE, AND DOES ALLOCATE, PATRONAGE DIVIDENDS TO ITS PATRONS FOR EACH YEAR THAT IT OPERATES FOR THE BENEFIT OF THE PATRONS. REVENUE LESS EXPENSES Form 990, Part I, Line 19 THE LOSS REPORTED ON PAGE 1, PART I, LINE 19 DIFFERS FROM THE TOTAL NET MARGINS REPORTED ON THE COOPERATIVE'S AUDITED FINANCIAL STATEMENTS. THE DIFFERENCE IS RELATED TO HOW THE COOPERATIVE ALLOCATES ITS NET MARGINS TO MEMBERS THROUGH PATRONAGE DIVIDENDS. FIRST, LOSSES IN EXCESS OF NON-OPERATING INCOME ARE NOT ALLOCATED AND ARE CARRIED FORWARD TO OFFSET NON-OPERATING INCOME IN A SUBSEQUENT YEAR. FOR 2010, THE COOPERATIVE HAD A NON-OPERATING LOSS, WHICH WAS NOT ALLOCATED. FOR 2011, THE COOPERATIVE WAS ABLE TO FULLY OFFSET AGAINST NON-OPERATING INCOME ALL UNALLOCATED LOSSES FROM THE PRIOR YEAR. SECOND, THE GAAP BASIS FINANCIAL STATEMENTS INCLUDE AN ACCRUAL FOR UNBILLED REVENUE. BECAUSE THE COOPERATIVE'S BILLING CYCLE DOES NOT END ON THE LAST DAY OF THE MONTH, IT HAS REVENUE IN DECEMBER OF EACH YEAR THAT IT HAS EARNED BUT WILL NOT BILL UNTIL THE FIRST BILLING CYCLE OF THE FOLLOWING YEAR. THE COOPERATIVE ESTIMATES THIS REVENUE AND RECORDS IT AS ACCRUED UNBILLED REVENUE IN ORDER TO MATCH THE REVENUE WITH THE YEAR EARNED. HOWEVER, THE COOPERATIVE ALLOCATES THE REVENUE TO MEMBERS IN THE YEAR IT IS BILLED, AND NOT WHEN ACCRUED AND RECORDED, IN ORDER TO MATCH THE BILLING RECORDS WITH THE PATRONAGE DIVIDENDS BEING ALLOCATED. THIS IS FAIR AND EQUITABLE BECAUSE IT MATCHES THE PATRONAGE DIVIDEND BEING ALLOCATED WITH THE MEMBER BEING BILLED FOR THE ELECTRICITY. THE FOLLOWING SCHDULE IS PROVIDED TO FURTHER EXPLAIN THE PATRONAGE DIVIDEND: PRIOR YEAR CURRENT YEAR NET MARGINS - AUDITED FINANCIAL STATEMENTS $4,589,114 $5,614,662 NON-OPERATING (INCOME)/LOSS NOT ALLOCATED 168,617 (199,706) CHANGE IN ACCRUED UNBILLED REVENUE 174,260 224,563 BENEFITS PAID TO MEMBERS (PAGE 1 LINE 14) $4,931,991 $5,639,519 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. 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. Form 990, Part VI, Section B, line 11 MANAGEMENT PRESENTED A COPY OF THE FORM 990 TO THE BOARD FOR DISCUSSION, REVIEW AND APPROVAL PRIOR TO FILING. THE DISCUSSION AND REVIEW WAS PERFORMED AT THE BOARD MEETING IMMEDIATELY BEFORE FILING THE FORM 990. Form 990, Part VI, Section B, line 12c BOARD MEMBERS AND OFFICERS ARE REQUIRED TO ANNUALLY REVIEW AND BE FAMILIAR WITH THE POLICIES OUTLINED IN THE COOPERATIVE'S CONFLICT OF INTEREST POLICY. BOARD MEMBERS 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. Form 990, Part VI, Section B, line 15 IN GENERAL, THE BOARD OF DIRECTORS ANNUALLY APPROVE A MARKET BASED, PERFORMANCE DRIVEN COMPENSATION SCALE FOR THE CEO. SPECIFICALLY, THE BOARD OF DIRECTORS USE AN INDEPENDENT COMPENSATION CONSULTANT AND A COMPENSATION SURVEY WHEN DETERMINING THE COMPENSATION OF THE CEO. THE SURVEY SHOWS COMPARATIVE SALARIES FOR GENERAL MANAGERS FROM COOPERATIVES LOCATED IN TEXAS AND THE NATION. IN GENERAL, THE BOARD OF DIRECTORS ANNUALLY APPROVE A MARKET BASED, PERFORMANCE DRIVEN COMPENSATION SCALE FOR THE COOPERATIVE'S OTHER OFFICERS AND KEY EMPLOYEES, IF ANY. SPECIFICALLY, THE CEO USES AN INDEPENDENT COMPENSATION CONSULTANT AND A COMPENSATION SURVEY WHEN DETERMINING THE COMPENSATION OF THE ORGANIZATION'S OTHER OFFICERS OR KEY EMPLOYEES, IF ANY. THE SURVEY INCLUDES SALARIES FROM SIMILAR COOPERATIVES THROUGHOUT TEXAS AND THE NATION. Form 990, Part VI, Section C, line 19 THE COOPERATIVE PROVIDES A SUMMARIZED COPY OF THE AUDITED FINANCIAL STATEMENTS TO THE MEMBERS OF THE COOPERATIVE AT THE ANNUAL MEETING. THE COOPERATIVES BY-LAWS CAN BE FOUND ON ITS WEBSITE (WWW.MEDINAEC.ORG) THE COOPERATIVE WILL PROVIDE A COMPLETE COPY OF THE AUDITED FINANCIAL STATEMENTS, CONFLICT OF INTEREST POLICY, OR GOVERNING DOCUMENTS TO ANY MEMBER WHO REQUESTS A COPY. BENEFITS PAID TO MEMBERS FORM 990, PART IX, LINE 4 THE FORM 990 INSTRUCTIONS FOR THE CURRENT YEAR CLARIFIES THAT THE AMOUNT OF PATRONAGE DIVIDENDS PAID TO THE MEMBERS (HEREINAFTER REFERRED TO AS PATRONS) SHOULD BE REPORTED ON PART IX, LINE 4 AS "BENEFITS PAID TO MEMBERS". 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 PATRONS. 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 RECEIVABLE 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 2011 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 2011 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. Changes in Net Assets or Fund Balances: Form 990, Part XI, line 5: NET CHANGE IN MEMBERSHIPS 880. PATRONAGE CAPITAL RETIRED -1,079,510. GAIN ON RETIRED ESTATE CAPITAL CREDITS 37,643. OTHER COMPREHENSIVE INCOME - ADJUSTMENT FOR POSTRETIREMENT BENEFITS 2,965,400. PATRONAGE CAPITAL ASSIGNABLE 5,639,519. Total to Form 990, Part XI, Line 5: 7,563,932. AUDIT COMMITTEE Form 990, Part XII, Line 2C THE BOARD OF DIRECTORS HAVE ASSIGNED MEMBERS TO AN AUDIT COMMITTEE (FINANCE COMMITTEE) FOR OVERSEEING THE FINANCIAL STATEMENT AUDIT AND SELECTING THE INDEPENDENT AUDITOR. TO PROVIDE DETAIL REGARDING OFFICER'S OTHER COMPENSATION 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. AS PART OF THE PLAN DOCUMENT, THE COOPERATIVE PROVIDES A MATCHING CONTRIBUTION UP TO 3% OF A PARTICIPATING EMPLOYEE'S SALARY. 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 COOPERATIVE ALSO PROVIDES HEALTH, DENTAL, VISION 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 COOPERATIVE ALSO PROVIDES POST-RETIREMENT HEALTH INSURANCE BENEFITS THROUGH AN UNFUNDED WELFARE BENEFIT PLAN. THE VALUE OF THESE BENEFITS HAS NOT BEEN ESTIMATED. INDEPENDENT DIRECTORS Form 990, Part VI, Section A, Line 1B LARRY HUESSER PER IRS FORM 990 INSTRUCTIONS IS NOT AN INDEPENDENT DIRECTOR BECAUSE HIS BROTHER-IN-LAW IS EMPLOYED BY THE COOPERATIVE. IDENTIFICATION OF CEO AS BOTH CHIEF ADMINISTRATIVE AND FINANCIAL OFFICIAL Form 990 Part VII THE BOARD OF DIRECTORS VIEWS THE CEO AS HAVING ULTIMATE RESPONSIBILITY FOR THE FINANCES OF THE COOPERATIVE. ACCORDINGLY, THE CEO FUNCTIONS AS BOTH THE CHIEF ADMINISTRATIVE AND FINANCIAL OFFICIALS. 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 COOPERATIVE 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 $5,545,375 LESS DIRECTORS FEES REPORTED ON 1099-MISC (118,700) PLUS SALARIES AND WAGES ALLOCATED TO ASSET ACCOUNTS 1,557,735 LESS EMPLOYEE OFFICER BENEFITS REPORTED ON LINE 5 (94,963) RECONCILIATION TO W-3 $6,889,447 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 SUPPLIES AND EXPENSE $226,633 OUTSIDE SERVICES EMPLOYED 279,371 INSURANCE 259,185 INSTITUTIONAL & GOODWILL ADVERTISING 183,550 DUES TO ASSOCIATED ORGANIZATIONS 64,828 ANNUAL MEETING EXPENSE 84,142 MEETING EXPENSES 19,093 MAINTENANCE OF GENERAL PLANT 538,509 REGULATORY COMMISSION EXPENSE 159,124 MISCELLANEOUS GENERAL EXPENSE 350,883 TOTAL ADMINISTRATIVE AND GENERAL EXPENSE PER 990 $2,165,318