Capital Credits

At the end of a year, Hardy Telecommunications reviews how much money, if any, is left over after revenues related to the furnishing of telecommunications and information services are compared with related operating costs and expenses. It then calculates a percentage of that amount to distribute to a member based on that member’s revenue contributed to the cooperative during the year – this is called capital credit allocation. The amount varies each year depending on the available margin to the company and the member’s revenue contributed to the cooperative that year. If no margin is left over at the end of a year, no capital credits are allocated for that year.

Capital credit allocation also is partially determined by our status as a borrower from the U.S. Dept. of Agriculture’s Rural Utilities Service (RUS). Hardy Telecommunications has borrowed funds from RUS for many years to construct and operate its current network and services. That gives RUS a say in our finances and any capital credit allocations we can make each year.

The money is not distributed right away. The amount allocated is assigned to the member’s patronage account specifically for that purpose, so records are kept over time.

Hardy Telecommunications needs those funds for various business reasons, such as a source of equity and money for running and improving the company’s network and services, and as a reserve. The board of directors reviews the company’s financial condition each year and determines when all or part of the capital credit allocations for any given year can be paid out, or “retired.” It is typically several years between the allocation of capital credits for a specific year and the actual paying out, or retirement, of that year’s allocation.

As mentioned earlier, RUS has a stake in Hardy’s finances, so we also must follow RUS regulations when determining any capital credit retirements each year.

This often leads to confusion among members because they may receive two letters concerning capital credits in a short period of time if the company’s finances allow and depending on the capital credit retirement schedule. One letter typically informs the member about any capital credit allocation to their account for the immediately preceding year, if the company had sufficient margins. The other letter typically includes a check and is the retirement of the allocated capital credits for a previous year, usually a year well in the past. The amounts will be different because one letter is notifying the member about capital credits they will be paid well in the future, while the other letter and check are notifying the member about the retirement of capital credits they are receiving for a year long past.

The member also might receive only one or neither of these capital credit letters in any year. One year might involve the allocation of capital credits to a member for the immediately preceding year, but there are no retired capital credits to be distributed to the member for a previous year. Another year might have no capital credit allocation to a member for the immediately preceding year, but that member might receive a check for a previous year’s capital credit retirement. The key thing to remember is that there are many years between the allocation of capital credits for a specific year and the actual paying out to members of that year’s allocation.

In the event of a death of a member, that member’s patronage account might be paid early to the deceased member’s estate. As mentioned before, a member’s patronage account listing any eligible capital credit allocations is kept current over the years, so it is always known how much money the member has waiting in capital credits.