Capital Credits

Pioneer Communications is a not-for-profit cooperative owned by its members. Capital credits are one of the many benefits of being a member of the cooperative. At the end of each year, any excess operating margins are allocated to members who received service during that year in the form of capital credits. The amount of excess operating margins, if any, varies annually. Capital credits are usually either allocated as equity on the cooperative’s books to accounts associated with each member, or distributed as a cash patronage refund.

You start accumulating capital credits when you start receiving telecommunications services. Members receive an annual statement that outlines the status of their capital credit accounts.

Pioneer Communications sends out an annual notification to members indicating the amount allocated to them based on the amount billed for their telecommunications services and the associated gross margin for that year.

The amount of capital credits you earn in a given year is based on the amount of capital you have contributed to the cooperative through payment of your monthly bill for services and the amount of operating margins realized by the cooperative. Capital Credits are usually retired, meaning they are paid out to the member, as a percentage of certain prior year’s allocations.

No, capital credits allocations are simply a record of your proportional share of the margins. Since the capital is not held in an account and is reinvested to support the operations and growth of the business, the entire balance cannot be paid out to you at once. There is no legal obligation imposed on the Cooperative to retire capital credits or to pay out the balances in full. The method, amount, and timing of capital credit retirements are at the sole discretion of the board of directors.

Allocated capital credits remain on the books of Pioneer Communications in your name and account number until they are retired. Capital credit retirements (payments) are made years after capital credits have been allocated. Please notify Pioneer Communications of any changes to your mailing address.

Each year, the Board of Directors reviews the financial status of the cooperative to determine whether a refund is feasible, and if so, how much. Capital credits are allocated every year, but they are not automatically retired or refunded to the members every year. Pioneer Communications uses margins (i.e. capital credits) to fund the operating activities and upgrades to their infrastructure and equipment, with the intent of repaying this capital to the members in later years. The Board of Directors strives to operate in a prudent business manner so that the member-owners will continue
to have the best telecommunications services possible at the lowest cost consistent with sound economy and good management.

Margins are allocated or assigned to members who belong to the cooperative during the year in which a margin is generated. The allocation is based on the member’s proportion of service usage for that year. Each member’s portion is referred to as a “capital credit allocation.”

Allocated capital credits are amounts entered into the cooperative’s permanent financial records, representing each member’s pro rata share of annual excess operating margins. Every year, Pioneer’s Board of Directors reviews the financial health of the cooperative and determines whether any previously allocated capital credits will be paid out to members. These are referred to as retired Capital Credits.

Pioneer Communications customers who are eligible for cooperative membership must live in the service area of Pioneer Telephone Association, Inc., which includes the following communities in Kansas: Big Bow, Coolidge, Deerfield, Hugoton, Johnson, Kendall, Lakin, Manter, Moscow, Richfield, Rolla, Ryus, Satanta, Syracuse, and Ulysses, as well as rural Baca County, Colorado. To qualify for membership, customers in these areas must subscribe to telephone, Internet, or StreamTV service.

Each scenario may vary depending on the member’s situation. If a change needs to be made to the membership name, Pioneer Communications requires legal documents to support the change. Please provide original documents; these will be returned to you upon request. If you have any questions concerning your capital credit allocations, please contact us.

NPVD is an acronym for Net Present Value Differential or Discount. This is the difference between the total amount of capital credits retired and the amount actually distributed by check or applied to a Pioneer Communications account. It represents the net present value discount amount for the time value of money; in other words, this equates a dollar being retired today to the value of a dollar retired in the future, typically 20 to 25 years in the future.

This amount is not held in an account but is reinvested to support operating activities, growth, and capital investment. The discounted amount of the NPVD is tracked and accumulated annually by the Cooperative for each member. This amount, in combination with any current outstanding patronage balance, will be used to determine each member’s relative ownership percentage in the Cooperative as of the dissolution date. That percentage will then be used to determine each member’s share of the net remaining assets that will be distributed upon dissolution of the Cooperative.

The Cooperative may specially retire capital credits when it receives proper written notification that a member or former member has died. Upon request from the appropriate representative of the member and receipt of the appropriate documentation, the Cooperative will pay the estate at a discounted rate, which is the Net Present Value Discount (NPVD).

For residential service accounts, capital credits are generally not taxable. For businesses, including rentals, according to Internal Revenue Service guidelines, members receiving capital credits checks in excess of $600 are required to complete the IRS’ Form W-9.

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