About the cover – The cover photo for this year’s annual report is of the “Communitas Award” presented to Sumter Electric Cooperative. This international platinum award, the Leadership in Community Service & Corporate Social Responsibility award, was presented to SECO for its overall commitment to the communities it serves, the co-op’s employee support for the many humanitarian needs in our various counties, SECO’s support and participation in our local chambers and economic development organizations, the SECO Angel Fund activities, and much, much more. SECO also won a gold award a special community service project conducted at Camp Boggy Creek in Lake County. The judges were obviously very impressed with the depth and consistency of SECO’s efforts on behalf of the people living in its service territory. Communitas is Latin for people coming together for the good of the community. These awards are sponsored by the Association of Marketing and Communications Professionals and recognize exceptional businesses, organizations and individuals that are unselfishly giving of themselves and their resources and those that are changing how they do business to benefit their communities.
Cooperative Highlights Operating Revenue $329,999,283 Net Margins $15,439,528 Total Assets $584,378,175 Patronage Capital Distributed $3,007,441 Kilowatt-Hours Sold 2,764,711,289 Miles of Energized Line 11,586 New Services 3,639 Number of Members 174,949 Full-Time Employees 399
Community Service in Action
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This year’s annual report to the members focuses on the myriad of ways SECO interacts with our many communities and the people living in our service territory. While most businesses have a stated corporate mission, at SECO we did away with mission statements long ago. We decided it simply wasn’t enough to have a mission. We examined our corporate culture and the culture of our service territory and asked ourselves what was our real purpose for existing. After much thoughtful discussion we adopted a purpose statement. It is “to provide exceptional service to our customers, co-workers and communities.” We strive to fulfill that purpose each and every day. We view our 2,000 square mile service territory as one large community. Without that sense of community we’d be isolated and introspective and we wouldn’t see the needs of those around us and our own spirits would suffer as a consequence. That’s why community involvement, volunteerism and customer service are so important here at SECO. At a not-for-profit electric cooperative it isn’t about the drive to make as much money as possible. It surely isn’t about looking at customers as mere numbers in an accounting ledger. It’s not about insulating the
decision makers in ivory towers. And, it’s not about providing only minimal communication to the people to whom you provide electricity. In the co-op world it is about providing the best care possible to each co-op member/customer. That’s why we have kept our five customer service centers open so that members can come in and interact with real SECO employees one-on-one. We think direct personal contact with the members is important and, while many other utilities have shut their service centers down, we are committed to keeping ours open. For the same personal contact reason, we have our own employees staff our call center which is located at the Sumterville headquarters building. While it might be easier to farm the whole thing out to some impersonal contract call center overseas, talking to a real person who knows our policies and procedures provides far better customer service. With the cost of just about everything consumers must purchase going up, SECO has put together a very aggressive program to help its members cut down on their energy costs at home. In 2011, SECO energy services
specialists did a record breaking 231 community presentations that reached audiences totaling 75,000 people. These presentations helped members of service clubs, church groups, home owner associations and others find practical ways to cut their electricity usage and lower their bills. Along with the presentations, the energy services group performed over 10,000 home visits to assist members with individual issues they had during the year. They included in-home energy inspections so home owners could see exactly where energy was being wasted and get suggestions for corrective action. Our engineering and reliability/ operations departments know that electricity is an essential commodity for all of us, so they strive to make sure that you have the best electric service possible. Millions of dollars are spent each year to maintain our existing system and to build new facilities. When the power does occasionally go out, SECO crews have some of the fastest response times in the industry. The proof is in the pudding; on average SECO members had access to their power 99.98 percent of the time in 2011. That, too, is a form of true commitment to community.
However, the involvement of our employees in our communities goes well beyond the normal business day. The spirit of volunteerism extends to evenings and weekends, when SECO employees can be found fulfilling many community needs. If you look closely, you’ll see SECO employees taking part in walkathons to raise money for local cancer victims, coaching ball teams of all kinds, assisting in civic organizations, serving their churches, furnishing Christmas gifts for children in need, taking on leadership roles in our local chambers of commerce and economic development councils, participating in United Way Day of Caring events, and much, much more. Not only do our employees expend their time, talent and sweat on community projects and causes across SECO’s service territory, they also donate very significant amounts of their hard-earned money to many humanitarian organizations. The American Heart Association, American Cancer Society, United Way, Alzheimer’s research groups, Hospice and many others have benefitted from that generosity. It’s all about community and customer service. We are committed to “walking the walk.” SERVICE IN ACTION | 3 |
It all began when the National Rural Electric Cooperative Association (NRECA) and Touchstone Energy contacted SECO advising us of their 2011 Annual Meeting to be held in nearby Orlando, Florida. In addition to their upcoming meeting, the associations had allocated money for a community service project to be done in Central Florida. They were willing to provide some funding but needed a local cooperative to identify a worthy project, handle all the logistics, and complete it in one day in conjunction with their meeting. SECO accepted the challenge of taking charge of this project and began identifying needs within the local community. This was a grueling task as the depressed economy exposed numerous opportunities for assistance. However, one of those opportunities was the epitome of everything we wanted to accomplish and more. It captured our attention
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but more importantly, the recipient, Camp Boggy Creek, captured our hearts. Camp Boggy Creek located in Eustis, Florida is a non-profit, stateof-the-art medical camp whose founders included Paul Newman and General Norman Schwarzkopf. The camp’s mission is to enrich the lives of children who have chronic or life-threatening illnesses by creating medically-supervised camping experiences which allow them to take their minds off their afflictions and just be carefree kids. There is no charge to attend the camp’s week–long summer sessions or family weekends so it relies on the financial support of individuals, corporations and others to fund its’ programs. However, the economic downturn in 2010 and 2011 meant the camp could use a helping hand. After meeting with camp personnel, we determined significant and continuous savings could be
Boggy Creek Service Project realized by weatherizing and making their sixteen camper cabins and two staff cabins more energy efficient. There was also a dire need to replace the camp pool’s expensive propane heating system. Although originally the camp pool was heated economically by solar, over the course of time the system began to fail and ceased to function. The high costs associated with repairing the solar system prompted the move to propane heating, resulting in very high operating costs. Realizing the economic impact that weatherizing the cabins and replacing the solar system would have on the camp led SECO to pursue both projects, even though the cost of a new 32-panel solar system alone greatly exceeded the entire amount allocated for the project. However, what transpired over the next few months transformed what began as an ordinary project into an extraordinary project through a
spirit of volunteerism, the generosity of vendors and a lot of planning and hard work. The one day event was a huge success with 18 camper cabins completely weatherized. This included insulating water heaters, caulking windows, cracks and crevices, replacing weather-stripping, resealing ductwork and upgrading to more efficient lighting. Even the new 32-panel solar water heating system was completed in less than the allotted 8-hour timeframe. The bottom line was the project would result in substantial savings over the years, allowing the Camp to expand services to a greater number of chronically and terminally ill children in Florida. According to Camp Boggy Creek personnel, prior to our project the cost associated with heating the pool with propane had become so expensive the Camp was forced to limit swim time for the children. This
is because specific, much warmer than normal temperatures must be continuously maintained for certain illnesses to prevent serious health related concerns. However, the addition of the solar water heating system changed all of that and Camp officials have contacted us to let us know that the pool is being used more than ever before. In the final analysis, Camp officials estimated the value of materials and labor for the one day at well over $100,000. The intangible value was the humanitarian benefit this project will provide to thousands of seriously ill children from all over Florida for years to come. SECO was proud to lead the charge on this unique community service project. Our co-op takes a leadership role in our communitiesat-large every day of the year, but the Camp Boggy Creek project was special indeed.
SERVICE IN ACTION | 5 |
Board of Trustees working on behalf of the members The spirit of community also extends to the cooperative’s governing body, the SECO Board of Trustees. Board members of for-profit businesses can come from anywhere and are primarily concerned with stockholder profits. That is not the case at a not-for-profit co-op like SECO. SECO board members live in SECO’s service territory and are elected to the board by their fellow SECO member/customers. For that reason they understand our area and the needs of the people who call this part of Florida home.
That’s why they authorized the creation of the SECO Angel Fund in 1998. They felt there should be some funding mechanism to help SECO members who were experiencing hard times through no fault of their own. Since 1998, the Angel Fund has provided comfort and relief for literally thousands upon thousands of SECO members. Monies for the Angel Fund come from the Pennies from Heaven program which allows members to round their electric bill up to the next dollar amount. The extra pennies go into the Fund as do revenues from
Ray F. Vick President District 5
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SECO’s recycling program, the sale of SECO collectibles and surplus equipment sales. All administrative costs are handled by the co-op. Sharing any excess margins with our member/customers has also been a board priority. Each year, the board assesses the fiscal stability of the co-op. Once that is done the board then determines how much we can then return to the members in the form of capital credits on electric statements in November. In 2011 the board authorized a return of $3 million to the members which was certainly helpful in this economic
Jerry D. Hatfield Vice President District 9
Barry R. Evans Secretary-Treasurer District 3
climate and coming right around the holidays. Over the past fifteen years the board has directed that over $22 million be returned to the members. Concern for our young people has also been a focus for the Board of Trustees. This has led to board authorization each year of SECO’s Scholarship Program for graduating high school seniors so they can get some assistance with their higher education. For the same reason, the board authorizes SECO’s participation in the Youth Livestock Sales at our local county fairs for
youngsters whose future plans may include a career in farming or ranching. All of us at SECO are singularly focused on doing what is best for our member/customers and the communities in which they live. Perhaps that is why the members rank us so highly in our annual surveys of customer satisfaction with the co-op. We are an integral part of the community and that is important to us. It’s what good corporate citizenship is all about.
Rob Henion District 7
Dillard B. Boyatt District 2 Donald W. Santee District 1
Earl Muffett District 6
Bill James District 8 James D. Holtz District 4
SERVICE IN ACTION | 7 |
Chief Executive I N DE PE N DE N T AU DI TOR S’ R E PORT James Duncan CEO & General Manager
Nora Brown Sr. Executive Assistant
Senior Staff Barry Bowman Director of Corporate Communications & Energy Services Ben Brickhouse Director of Engineering & Information Technology
John LaSelva Director of Reliability & Operations Alex Markley Director of Human Resources & Corporate Services
Ted Purser
Board of Directors Sumter Electric Cooperative, Inc. Sumterville, Florida We have audited the accompanying balance sheets of Sumter Electric Cooperative, Inc. (the Cooperative), as of December 31, 2011 and 2010, and the related statements of revenues and patronage capital and cash flows for the years then ended. These financial statements are the responsibility of the Cooperative’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative, as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. In accordance with Government Auditing Standards, we have also issued our report dated, February 15, 2012, on our consideration of the Cooperative’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance, and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and important for assessing the results of our audits.
Purvis, Gray and Company, LLP February 15, 2012 Ocala, Florida
Director of Accounting & Finance
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Balance Sheets
December 31, 2011 & 2010 ASSETS 2011
2010
Electric Plant Distribution and Transmission Plant
$
Construction Work in Progress
610,454,568 $
580,933,068
18,233,049
14,622,601
628,687,617
595,555,669
(133,665,031)
(124,969,768)
495,022,586
470,585,901
49,647,064
43,844,314
6,476,813
665,266
9,712,323
15,708,168
905,023
1,328,724
9,042,369
15,320,858
11,961,095
11,730,031
1,285,586
2,463,604
39,383,209
47,216,651
325,316
191,763
584,378,175
561,838,629
761,634
748,604
180,743,216
168,308,033
2,632,933
2,632,933
184,137,783
171,689,570
340,579,894
328,139,389
374,178
263,257
340,954,072
328,402,646
9,995,959
9,633,143
Accounts Payable
23,417,903
31,512,746
Consumer Deposits
12,212,786
11,398,315
Total Electric Plant (Accumulated Provision for Depreciation and Amortization) Total Electric Plant - Cost Less Depreciation and Amortization Investments Investments in Associated Organizations and Other Special Funds Current Assets Cash and Cash Equivalents Accounts Receivable - Consumers (Less Provision for Doubtful Accounts 2011 — $1,054,565 2010 — $1,001,379) Other Receivables Unbilled Electric Revenues Inventories Prepayments and Other Current Assets Total Current Assets Deferred Charges Total Assets EQUITIES AND LIABILITIES Equities Memberships Patronage Capital Other Equities Total Equities Noncurrent Liabilities Long-term Debt Deferred Compensation Liability Total Noncurrent Liabilities Current Liabilities Long-term Debt - Portion Due Within One Year (Less Cushion of Credit 2011 - $1,280,097; 2010 - $0)
Other Current or Accrued Liabilities Total Current Liabilities Deferred Credits Total Equities and Liabilities
See accompanying notes.
$
7,870,133
7,417,443
53,496,781
59,961,647
5,789,539
1,784,766
584,378,175 $
561,838,629
SERVICE IN ACTION | 9 |
Statements of Revenues and Patronage Capital for the years ended December 31, 2011 & 2010 2011 329,999,283 $
364,290,234
228,015,257
257,435,019
188,284
192,017
Distribution Expense - Operations
14,387,277
13,551,716
Distribution Expense - Maintenance
21,428,766
19,657,710
Consumer Accounts Expense
10,512,172
10,183,160
1,612,793
1,504,558
Administrative, General, and Other Expense
11,881,069
11,411,294
Depreciation Expense
19,042,403
19,152,611
Taxes - Expense
56,204
68,744
Other Expense
266,978
757,839
Operating Revenues
$
2010
Operating Expenses Cost of Power Transmission Expense
Customer Service and Informational Expense
(Total Operating Expenses) Operating Margins Before Fixed Charges
(307,391,203)
(333,914,668)
22,608,080
30,375,566
(13,813,829)
(13,806,941)
Fixed Charges Interest on Long-term Debt
8,794,251
16,568,625
G&T Cooperative Capital Credits
5,068,962
11,188,729
Other Capital Credits and Margins
1,151,602
1,332,111
Total Other Margins
6,220,564
12,520,840
15,014,815
29,089,465
Interest Income
291,318
116,742
Other Nonoperating Income
133,395
74,236
Total Nonoperating Margins
424,713
190,978
15,439,528
29,280,443
168,308,033
142,401,596
Operating Margins After Fixed Charges Other Margins
Net Operating Margins Nonoperating Margins
Net Margins Patronage Capital, Beginning of Year
(3,004,345)
(Retirement of Capital Credits) Patronage Capital, End of Year
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$
180,743,216 $
(3,374,006) 168,308,033
See accompanying notes.
Statements of Cash Flows
for the years ended December 31, 2011 & 2010 2011
2010
Cash Flows from Operating Activities Net Margins
$
15,439,528 $
29,280,443
Adjustments to Reconcile Net Margins to Net Cash Provided by (Used in) Operations: Capital Credits and Patronage Dividend Certificates Assigned
(6,220,564)
(12,520,840)
Depreciation
20,880,794
21,126,592
480,000
659,700
12,218,035
(7,988,206)
Provision for Uncollectible Accounts Changes in Assets - Decrease (Increase) and Liabilities - Increase (Decrease): Accounts Receivable Prepayments and Other Current Assets
1,178,018
(30,810)
Deferred Charges
(133,553)
193,937
Accounts Payable
(8,094,843)
5,485,624
814,471
738,365
Other Current Liabilities
452,690
529,014
Deferred Compensation Liability
110,921
Consumer Deposits
Deferred Credits
(7,194)
4,004,773
876,588
Total Adjustments
25,690,742
9,062,770
Net Cash Provided by (Used in) Operating Activities
41,130,270
38,343,213
Cash Flows from Investing Activities Change in Inventory - Net of Salvage
(231,064)
Contributions in Aid of Construction Received Proceeds from Disposition of Property
1,016,482
9,922,954
8,908,565
132,853
0
485,418
490,959
43,318
697,574
Proceeds from Redemption of Patronage Capital Certificate Proceeds from Redemption of Other Investments Purchase of Other Investments
(110,922)
Extension and Replacement of Plant Plant Removal Cost Net Cash Provided by (Used in) Investing Activities
7,236
(52,352,202)
(36,493,176)
(3,021,084)
(2,618,030)
(45,130,729)
(27,990,390)
Cash Flows from Financing Activities Line of Credit (Net)
(28,060,440)
Proceeds on Long-term Debt
68,500,000
Payments on Long-term Debt
(26,356,142)
Cushion of Credit
265,082 0 (9,347,374)
(1,280,097)
Membership Fees
13,030
Retirement of Capital Credits
(3,004,345)
14,415 (3,374,006)
Net Cash Provided by (Used in) Financing Activities
9,812,006
(12,441,883)
Net Increase (Decrease) in Cash and Cash Equivalents
5,811,547
(2,089,060)
665,266
Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year
See accompanying notes.
$
6,476,813 $
2,754,326 665,266
SERVICE IN ACTION | 11 |
Statements of Cash Flows (concluded)
for the years ended December 31, 2011 & 2010 2011
2010
Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest
$
13,871,590 $
13,799,536
$
11,152,476 $
10,022,020
Supplemental Schedule of Noncash Investing and Financing Activities The Cooperative Retired Certain Assets from its Plant Records as Follows: Cost of Assets Retired Plant Removal Costs
3,021,084
2,618,030
Material Salvaged
(1,572,043)
(1,392,780)
Net Reduction in Accumulated Depreciation
$
12,601,517 $
11,247,270
$
13,610,000 $
0
(13,610,000)
0
The Cooperative Refinanced Certain Debt with CoBank: Amounts Not Included in Proceeds on Long-term Debt Amounts Not Included in Payments on Long-term Debt Net Change in Long-term Debt
$
0 $
0
See accompanying notes.
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Notes to Financial Statements
December 31, 2011
Note 1 – Summary of Significant Accounting Policies Sumter Electric Cooperative, Inc. (the Cooperative) is a nonprofit rural electric distribution cooperative organized under the Statutes of the State of Florida. The primary purpose of the Cooperative is to provide electricity to its members located in central Florida through wholesale purchase and subsequent distribution. The accounting policies of the Cooperative conform to generally accepted accounting principles as applied to utility cooperatives and are in accordance with the accounting requirements of the Rural Utilities Service (RUS). Receivables Receivables are shown at anticipated realizable value. Bad debts are recognized by use of the allowance method. Receivables consist primarily of uncollateralized amounts due from the sale of energy to commercial and residential members of the Cooperative and other related items. Receivables may be considered delinquent after thirty days and are written off after approximately one hundred twenty days past due. Revenue Recognition and Cost of Power Electric revenues are recognized when billed and are adjusted for unbilled usage through year-end. Power costs are metered and recognized during the period of use. The Cooperative’s retail rates provide for recovery of all power costs incurred. Utility Plant Electric plant is recorded at original cost with maintenance and repairs charged to expense as incurred. Additions to plant include costs of materials, labor, and certain overhead expenses. Depreciable plant replaced or retired is removed from the appropriate asset at average cost; cost being determined by a moving average for identifiable units of property. Such costs, plus removal costs less any salvage values, are charged to accumulated depreciation when normal retirements are made. Depreciation Provision for depreciation of utility plant in service is based on straight-line composite rates. Depreciation rates are applied by primary account within the plant accounts. Depreciation on general plant assets is based on straight-line rates for specific assets as outlined by RUS ranging from three to fifteen years. No provision for depreciation is made for construction work in progress until the construction has been completed and the plant is placed into service. Materials and Supplies Materials and supplies inventories are stated at weighted average cost. Cash and Cash Equivalents For purposes of the statements of cash flows, the Cooperative considers all cash and highly liquid investments as cash and cash equivalents. Such investments generally have maturities of three months or less. The Cooperative maintains accounts with several banks in central Florida. As of December 31, 2011 and 2010, accounts at each bank are fully insured by the FDIC through December 31, 2012, in accordance with Section 343 of the Dodd-Frank Act. Investments Investments in capital term certificates are carried at cost, with cost determined by specific identification. Investments in associated cooperatives are accounted for at original cost plus patronage capital assigned less capital credits received. Patronage Capital Accumulated net margins are credited to patronage capital. The net margins are assigned to individual cooperative members’ capital credit accounts based upon their contribution to total patronage capital for the year. Such amounts are assignable to members at year-end; the assignment of capital accounts takes place in subsequent years. Capital credits are returned to members in accordance with the Cooperative’s policies and by-laws. Income Taxes The Cooperative is a nonprofit organization exempt from income taxes under the provisions of Internal Revenue Code Section 501(c)(12). Accordingly, there is no provision for income taxes in the financial statements. For the year ended December 31, 2010, the Cooperative adopted Accounting Standards Codification (ASC) 740, Accounting for Uncertainty in Income Taxes. The implementation of this standard had no impact on the Cooperative’s financial statements. The Cooperative does not believe it has taken any uncertain tax positions that would have a material effect on the financial statements. The Cooperative’s Form 990’s for the past three years are open to examination by the Internal Revenue Service. For the years ended December 31, 2011 and 2010, the Cooperative filed Form 990T for unrelated rental income on communication towers. The amount paid or accrued was $2,352 and $4,993, respectively.
SERVICE IN ACTION | 13 |
Notes to Financial Statements
December 31, 2011
Compensated Absences Vacation is accrued monthly as it is earned and sick pay is expensed as it is taken. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 of revenues and expenses during the reported period. Actual results could differ from those estimates. Collective Bargaining Approximately 42% of the Cooperative’s work force is covered by a collective bargaining agreement that expires in September 2015. Subsequent Events Management has evaluated subsequent events through February 15, 2012, the date the financial statements were available to be issued. Note 2 – Electric Plant and Depreciation Rates The following is a summary of the major classes of electric plant and depreciation rates as of December 31, 2011 and 2010: 2011
2010
Depreciation Rates
Transmission Plant
$
Distribution Plant
10,529,673 $
9,620,711
2.75%
527,372,557
503,451,588
3.20%
347,022
346,899
72,205,316
67,513,870
610,454,568
580,933,068
18,233,049
14,622,601
Intangible Plant General Plant Total Electric Plant in Service Construction Work in Progress Total Electric Plant — at Cost
$
628,687,617 $
N/A 2%-33.33%
595,555,669
Depreciation expense of $19,042,403 (2011) and $19,152,611 (2010) is net of $1,838,391 (2011) and $1,973,981 (2010) charged to clearing accounts, some of which is capitalized. Note 3 – Investments in Associated Organizations and Other Special Funds Investments in associated organizations and other special funds consist of the following: 2011
2010
Seminole Electric Cooperative, Inc. Patronage Capital Assigned
$
37,647,400 $
32,578,438
National Rural Utilities Cooperative Finance Corporation (CFC): Patronage Capital Certificates
1,775,749
1,671,250
Capital Term Certificates
3,585,301
3,628,619
GRESCO Utility Supply, Inc.
5,372,194
5,068,052
Investments in Other Associated Organizations
892,242
634,698
Special Funds
374,178
263,257
Total Investments in Associated Organizations and Other Special Funds
| 14 | 2011 SUMTER ELECTRIC COOPERATIVE ANNUAL REPORT
$
49,647,064 $
43,844,314
Notes to Financial Statements
December 31, 2011
CFC Capital Term Certificates are purchased as a condition of the mortgage agreements with CFC. At December 31, 2011 and 2010, they consist of the following: 2011 Certificates, 5% (Maturing 2070 to 2080)
$
1,902,011 $
Certificates, 3% (Maturing 2020 to 2030) Certificates, 0% (Maturing at Variable Dates) Total
$
2010 1,902,011
471,400
471,400
1,211,890
1,255,208
3,585,301 $
3,628,619
The patronage capital assigned by Seminole Electric Cooperative, Inc. and the patronage capital certificates with CFC are excluded from ASC 320, Investments—Debt and Equity Securities, as an investment accounted for under the equity method of accounting. Capital term certificates are held to maturity under ASC 320 and are excluded from ASC 820, Fair Value Measurements and Disclosures. Investments in Other Associated Organizations includes memberships with related and trade organizations, and are accounted for under the equity method of accounting. ASC 820, among other things, requires the Cooperative to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the company’s market assumptions. ASC 820 defines the following fair value hierarchy based on these three types of inputs: Level 1 – Quoted prices for identical instruments in active markets. Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3 – Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. There were no assets recorded at fair value on a recurring basis at December 31, 2011 or December 31, 2010. Note 4 – Account Receivables All of the Cooperative’s consumer account receivables are due from consumers in the central Florida area. Each new consumer pays a membership fee and may make a deposit when becoming a consumer. The membership fees and deposits can be retained by the Cooperative in the event of nonpayment of a billing for services. Once a residential consumer establishes a satisfactory credit history, the Cooperative may return the member’s deposit. Other receivables at December 31, 2011 and 2010, include approximately $307,091 and $237,607, respectively, relating to pole rentals due from other utility companies. Note 5 – Return of Capital Under provisions of the long-term debt agreements, unlimited patronage capital distributions to members are allowed provided equities and margins equal or exceed 30% of total assets after distribution. Effective with the 1991 year, the Cooperative suspended for five years the general capital credit retirements. During 1995, the suspension was lifted and the Cooperative began making general retirements of patronage capital. The equities and margins of the Cooperative represent 31.51% and 30.56% of the total assets at December 31, 2011 and 2010, respectively. Capital credit retirements in the amount of $3,007,441 and $3,374,006 were paid in 2011 and 2010, respectively. The capital credit retirements for 2011 included a $3,096 adjustment to be used for any outstanding estate retirements from before 2002. The Cooperative stopped retiring patronage capital to estates as of October 1, 2001. The net of the capital credit retirements and adjustment for 2011 was $3,004,345. Note 6 – Detail of Patronage Capital 2011 Assignable
$
Assigned (Retired/Adjusted in Current Year) (Cumulative Amount Retired in Previous Years) Total Patronage Capital
$
15,439,528 $
2010 29,280,443
198,750,908
169,470,465
214,190,436
198,750,908
(3,004,345)
(3,374,006)
(30,442,875)
(27,068,869)
180,743,216 $
168,308,033
SERVICE IN ACTION | 15 |
Notes to Financial Statements
December 31, 2011
Note 7 – Detail of Other Equities 2011 Operating Margins (Prior to 1957)
$
2010 32,092
$
32,092
Nonoperating Margins (Prior to 1964)
19,371
19,371
Capital Gains and Losses (Prior to 1964)
10,533
10,533
626
626
Donated Capital Discount on Retired Capital Credits Total Other Equities
2,570,311 $
2,632,933
2,570,311 $
2,632,933
Note 8 – Noncurrent Liabilities The Cooperative has the following unsecured lines of credit: 2011
2010
CoBank, ACB, Credit Line of $50,000,000, Variable Interest, 3.05% and 3.07% at December 31, 2011 and 2010, Respectively
$
0 $
26,936,368
Bank of America, Credit Line of $3,000,000 Variable Interest, 1.97%, and 2.01% at December 31, 2011 and 2010, Respectively, Payable on Demand Total
0 $
0
1,124,072 $
28,060,440
The Cooperative also has an available line of credit with CFC of $12,000,000 in 2011 and 2010. The Cooperative also had approved, but undrawn long-term loan funds available in the amount of $30,000,000 as of December 31, 2011. In accordance with ASC 470, Debt, the line of credit for 2010 was classified as long-term debt in an amount not exceeding the undrawn loan funds during 2010. The amount, if any, in excess of undrawn loan funds is classified as a current liability. The following is a summary of the Cooperative’s long-term debt payable to RUS, FFB, CFC, and, CoBank: 2011
2010
RUS Mortgage Notes 0.875% Notes
$
1,672,384
$
1,681,871
1.625% Notes
3,574,785
0
2.000% Notes
5,788,755
5,969,041
2.125% Notes
910,705
946,718
2.250% Notes
2,653,062
2,762,934
2.375% Notes
1,627,582
1,680,166
2.550% Notes
24,657,846
25,188,662
2.625% Notes
9,679,453
3,441,165
2.750% Notes
1,663,359
6,555,411
3.000% Notes
7,149,720
7,345,423
3.125% Notes
4,806,309
6,665,346
3.250% Notes
2,379,458
2,441,724
3.500% Notes
12,241,396
12,523,495
3.625% Notes
8,990,891
12,837,419
3.750% Notes
22,446,458
22,967,650
4.000% Notes
3,203,704
3,295,756
4.125% Notes
31,445,114
32,065,030
| 16 | 2011 SUMTER ELECTRIC COOPERATIVE ANNUAL REPORT
Notes to Financial Statements
December 31, 2011 2011
RUS Mortgage Notes (concluded)
2010
5.000% Notes
0
30,342,685
5.070% Notes
42,574,361
43,151,080
5.500% Notes
4,659,137
4,802,559
192,124,479
226,664,135
(4,367,584)
(5,996,267)
Total RUS Mortgage Notes (Current Portion) $
187,756,895 $
220,667,868
$
7,272,727 $
0
3.337% Notes
7,272,727
0
3.813% Notes
7,272,727
0
3.909% Notes
37,907,692
0
7,272,727
0
66,998,600
0
Long-term Portion FFB Mortgage Notes - RUS Guaranteed 2.480% Notes
4.019% Notes Total FFB Mortgage Notes - RUS Guaranteed (Current Portion) Long-term Portion
(2,093,706)
0
$
64,904,894 $
0
$
0 $
131,624
CFC Mortgage Notes 4.550% Notes 4.950% Notes
424,472
651,111
5.150% Notes
1,298,126
1,604,240
5.250% Notes
1,035,549
1,178,773
5.300% Notes
6,882,617
7,458,121
6.028% Notes
19,908,757
20,177,055
6.198% Notes
296,221
402,018
6.250% Notes
23,285,270
24,515,429
Total CFC Mortgage Notes
53,131,012
56,118,371
(Current Portion)
(2,952,552)
(2,987,359)
$
50,178,460 $
53,131,012
$
26,280,068 $
26,929,585
Long-term Portion CoBank Mortgage Notes 1.650% Notes 3.260% Notes
13,321,791
0
Total CoBank Mortgage Notes
39,601,859
26,929,585
(Current Portion) Long-term Portion
(1,862,214) $
37,739,645 $
(649,517) 26,280,068
RUS mortgage notes are payable to the United States of America for thirty-five year periods each. Principal and interest are due in monthly installments. Certain notes have provisions for interest rate changes at future dates. FFB mortgage notes are guaranteed by RUS and are payable quarterly to the United States of America with a maximum of up thirtyfive year periods each. Certain notes have provisions for interest rate changes at future dates. CFC mortgage notes are payable to the National Rural Utilities Cooperative Finance Corporation for thirty-five year periods each. Principal and interest are due in quarterly installments. Certain notes have provisions for interest rate changes at future dates. Certain notes included above are serviced by CFC but have been sold to Farmer MAC. The Farmer MAC loans are payable semiannually. At December 31, 2011 and 2010, the balance of these notes was $20,204,977 and $20,579,074, respectively. There were no unadvanced CFC loan funds available to the Cooperative as of December 31, 2011 and 2010, respectively.
SERVICE IN ACTION | 17 |
Notes to Financial Statements
December 31, 2011
One CoBank mortgage note is fixed at a 3.26% interest rate for the 35-year life of the loan. The remaining CoBank mortgage notes are payable monthly to CoBank, ACB, for thirty-five year periods each. Principal and interest are due in quarterly or monthly installments. Interest is calculated based on variable rates that change weekly. Interest on long-term debt, all of which was charged to expense, follows: 2011 Lines of Credit
$
RUS Mortgage Notes
2010 113,956 $
776,761
8,059,349
9,007,256
FFB Mortgage Notes - RUS Guaranteed
1,911,185
0
CFC Mortgage Notes
3,195,777
3,698,369
533,562
324,555
CoBank Mortgage Notes $
Totals
13,813,829 $
13,806,941
Long-term debt maturing within each of the five years subsequent to December 31, 2011, is as follows: Mortgage Notes December 31 2012
RUS $
CFC
CoBank
FFB
Total
4,367,584 $
2,952,552 $
1,862,214 $
2,093,706 $
11,276,056
2013
4,525,948
3,126,591
1,935,768
2,093,706
11,682,013
2014
4,689,315
2,920,043
2,012,249
2,093,706
11,715,313
2015
4,827,136
2,948,673
2,091,887
2,093,706
11,961,402
2016
4,988,412
2,677,813
2,174,819
2,093,706
11,934,750
168,726,084
38,505,340
Thereafter Total
$
192,124,479 $
53,131,012 $
29,524,922
56,530,070
293,286,416
39,601,859 $
66,998,600 $
351,855,950
The RUS mortgage notes above exclude a $1,280,097 cushion of credit for prepaid principal payments made by the Cooperative during the 2011 fiscal year. Management anticipates that this cushion of credit will be applied to principal payments during the 2012 fiscal year. Substantially all assets and revenues of the Cooperative are pledged as collateral for these notes. RUS debt covenants require the Cooperative to maintain certain ratios including a Times Interest Earned Ratio (TIER) of 1.25, a Debt Service Coverage (DSC) Ratio of 1.25 in two out of the last three years, and Equity to Total Assets Ratio of not less than .225 to 1.0. As of December 31, 2011 and 2010, the Cooperative achieved a Times Interest Earned Ratio of 2.13 and 3.25, respectively, a Debt Service Coverage Ratio of 1.99 and 2.75, respectively, and a Equity to Total Assets Ratio of .315 and .306, respectively. Note 9 – Employee Benefit Plan The group pension plan for employees was merged into the Retirement and Security Program of the National Rural Electric Cooperative Association (NRECA) effective July 1, 2003. The Retirement and Security Program administered by the NRECA is a defined benefit, multi-employer plan qualified under Section 401 of the Internal Revenue Code and exempt from federal income tax under Section 501(a) of the Internal Revenue Code. The Cooperative incurred pension expense totaling $4,893,279 and $3,903,878 related to the NRECA Plan during 2011 and 2010, respectively. All employees of the Cooperative meeting age and service requirements can elect to participate in a 401(k) savings plan (the Plan) of the National Rural Electric Cooperative Association. Employees may make contributions to the Plan up to the maximum percentage outlined in the Plan and the Cooperative will match the employee contributions up to 4.0% of the employee’s salary. Both employee and employer contributions to the Plan are funded biweekly. The Cooperative’s contributions to the Plan were $950,179 and $839,561 in 2011 and 2010, respectively. Effective January 2006, the Cooperative adopted an executive compensation plan that allows eligible participants to defer compensation under Internal Revenue Code Section 457. There is no matching employer contribution. This plan is administered by the Cooperative and plan assets are subject to the Cooperative’s creditors in the event of bankruptcy or insolvency. Plan assets totaled $374,178 and $263,257 at December 31, 2011 and 2010, respectively. Self-insured Medical Benefits The Cooperative provides a self-insured medical benefits plan for active and retired employees, trustees, and their dependents. Active employees that select dependent or additional coverage are required to pay a premium to cover part of the cost of the
| 18 | 2011 SUMTER ELECTRIC COOPERATIVE ANNUAL REPORT
Notes to Financial Statements
December 31, 2011
coverage they select. Retired employees and trustees are required to pay a premium to cover the full cost of the coverage they select. In connection with the plan, the Cooperative maintains specific excess insurance for claims that exceed $175,000 for any covered individual up to the maximum lifetime reimbursement of $1,825,000 and $1,000,000 aggregate excess insurance for claims that exceed $3,984,933 in the plan year. Based upon the results of a prior actuarial review the Cooperative does not have a liability related to its coverage of retired employees. The Cooperative’s IBNR liability for active employees and part of the employees’ coverage for their dependents as of December 31, 2011 and 2010 is as follows: 2011 Beginning Balance
$
2010 383,887 $
Claims Incurred
3,696,002
Claims Paid
(3,558,155)
Ending Balance
$
349,034 2,825,177 (2,790,324)
521,734 $
383,887
Note 10 – Related Party Transactions The Cooperative is one of ten members of Seminole Electric Cooperative, Inc., an electric generating and transmission cooperative. Seminole Electric Cooperative, Inc. is the sole supplier of electricity to the Cooperative and has entered into an agreement to supply power to the Cooperative through 2045. Seminole Electric Cooperative, Inc. has pledged the power supply agreement of its members to secure certain of its notes and mortgages. The following is a summary of all significant transactions between the Cooperative and Seminole Electric Cooperative, Inc.: 2011
2010
Purchased Power Cost
$
228,015,257 $
257,435,019
Accounts Payable - Power Cost, December 31
$
17,689,068 $
26,318,772
Patronage Capital Assigned
$
5,068,962 $
11,188,729
Patronage Capital, December 31
$
37,647,400 $
32,578,438
Note 11 – Deferred Charges and Credits A schedule of deferred charges and credits are as follows: 2011
2010
Deferred Charges Unamortized: Dues
$
Deposits on Sales and Use Tax Other Total Deferred Charges
$
75,615 $
0
202,314
174,305
47,387
17,458
325,316
$
191,763
1,898,861 $
1,435,399
Deferred Credits Unclaimed Capital Credits
$
Customer Advances for Construction
3,538,401
0
Other Deferred Amounts
232,332
227,750
Customer Benevolent Fund
119,945
121,617
Total Deferred Credits
$
5,789,539 $
1,784,766
Amortization Deferred charges are amortized over periods of one or more years.
SERVICE IN ACTION | 19 |
Notes to Financial Statements (concluded)
December 31, 2011
Note 12 – Financial Instruments In accordance with ASC 825, Financial Instruments, the following is a summary of the book and current values of the Cooperative’s financial instruments: Financial Instruments RUS Long-term Debt
Book Value $
Current Value
192,124,478 $
223,235,393
FFB Long-term Debt
66,998,601
122,592,396
CFC Long-term Debt
53,131,012
55,521,194
CoBank Long-term Debt
39,601,859
32,603,131
2,373,411
2,085,853
CFC Loan Capital Term Certificates
911,900
564,842
CFC Member Capital Security
100,000
189,964
0
0
CFC Subscription Capital Term Certificates and Interest-bearing Loan Capital Term Certificates
Lines of Credit Discount Rates RUS Loans:
The RUS variable rate loans are discounted at the RUS insured loan rates as of January 1, 2012, for the corresponding maturity date. The maturity dates range from 1 to 30 years and the rates range from 0.25% to 3.75%. FFB Loans: The FFB loans are discounted at the Treasury rates as of January 1, 2012 for the corresponding maturity dates. The maturity dates range from 6 to 31 years and the rates range from 1.15% to 2.98%. CFC Loans: The CFC loans are fixed rate loans discounted at December 31, 2011, CFC fixed rate using corresponding maturity dates for each loan. The maturity dates range from 2 to 28 years and the rates range from 2.95% to 5.60%. CoBank Loans: The CoBank loans are variable rate loans discounted at the variable rate as of December 31, 2011. The maturity dates range from 9 to 27 years and the variable rate was 3.05%. CFC Capital Term Certificates (CTC’s): The CTC loans are discounted based on the corresponding maturity dates of the CFC long-term fixed rates. The rates range from 4.30% to 5.60%. The subscription CTC’s were discounted using the corresponding interest rates for the years remaining on the CTC ranging from 3.90% to 5.55%. CFC Member Capital Security: The CFC member capital security is discounted at the 30 year Treasury bond rate of 3.125%. Note 13 – Contingency The Cooperative has been identified as a potentially responsible party in a transformer superfund site. While it is not possible to predict the outcome of this matter, its resolution is not expected to have a material effect on the accompanying financial statements.
| 20 | 2011 SUMTER ELECTRIC COOPERATIVE ANNUAL REPORT
“While earning your daily bread, be sure you share a slice with those less fortunate.” – H. Jackson Brown, Jr.
“Snowf lakes, leaves, humans, plants, raindrops, stars, molecules, microscopic entities all come in communities. The singular cannot in reality exist.” – Paula Gunn Allen “Volunteers do not necessarily have the time; they just have the heart.” – Elizabeth Andrew “For a community to be whole and healthy, it must be based on people’s love and concern for each other.” – Millard Fuller “Teamwork is the ability to work together toward a common vision; the ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to attain uncommon results.” – Andrew Carnegie
“I’ve learned that you shouldn’t go through life with a catchers mitt on both hands. You need to be able to throw something back.” – Maya Angelou “In every community there is work to be done. In every nation there are wounds to heal. In every heart there is the power to do it.” – Marianne Williamson “The best way to find yourself is to lose yourself in the service of others.” – Ghandi
“Without community service, we would not have a strong quality of life. It’s important to the person who serves as well as the recipient. It’s the way in which we ourselves grow and develop.” – Dr. Dorothy
Eustis 50 West Ardice Avenue (352) 357-5600 Groveland 850 North Howey Road (352) 429-2195 Inverness 610 South US Highway 41 (352) 726-3944 Ocala 4872 SW 60th Avenue (352) 237-4107 Sumterville 330 South US Highway 301 (352) 793-3801 www.secoenergy.com