Farmers Mutual Telephone Company

Frequently Asked Question about Capital Credits

What are capital credits?
FMTC was formed as a cooperative. A cooperative is different from a stock corporation, a partnership or other forms of legal ownership in that it is owned only by its membership. FMTC members have the right to elect a board of directors. This form of ownership also has the advantage of being exempt from federal and state income taxes, per the Internal Revenue Service.

Telecommunication utilities are a capital intensive industry, requiring a large investment in plant and equipment. A large amount of cash is needed to keep up with construction during periods of fast growth, such as that experienced in Payette County in recent years. Since cooperatives do not have stock that is traded on a stock exchange like many corporations, we cannot sell additional stock to meet cash needs. Instead, we have two other options: borrowing from our bank or from our members. A bank will not lend 100% of the cash that a company or individual needs. They need to see that others have invested, too. Payment of any allocations is dependent upon FMTC meeting the loan agreement requirements and meeting its operating requirements, which include capital improvements.

This is where capital credits come into the picture for a cooperative like FMTC. Capital credits (also called margins or equity) are the members' ownership in FMTC. Capital credits represent the difference between total revenue received and operating expenses for each year. After the books are closed at the end of each year, this difference is allocated to each member according to the amount of phone service they purchased. The more services purchased from FMTC, the larger the share of profit allocated.

Do I earn interest on capital credits?
FMTC does not pay interest on capital credit balances because this money would have to be collected from our members to be paid to our members. This would amount to paying interest to you while making our phone service rates higher than they need to be. In a cooperative like FMTC, the profit goes back to the members because they are also the owners. So, although it may take a long time for FMTC to return your capital credits, you do get this profit back!

When will I be paid for my capital credits?
Each year the board of directors, which is elected by our members, reviews our financial position and our debt covenants and determines the most financially prudent amount of capital credits to pay out. Since our goal is to keep telephone service rates as low as possible, there is usually a very small margin or profit left after expenses are paid each year.

Since it is prudent to increase the owner investment in FMTC as we continue to build our distribution system to serve the growing Fruitland/NuAcres area, our profit is not cash in the bank. Instead, it is invested in the switch, remote facilities, calling features, etc. needed to run the business. While we could borrow cash to pay capital credits, this would not be considered good financial management because paying interest expense to the bank would ultimately add to the cost of providing your phone service.

Returning capital credits to FMTC's members is our goal and our commitment and is required by the Internal Revenue Service. However, FMTC will only return capital credits when it is financially prudent for the long-term health of the cooperative. The majority of members, when asked if they prefer low rates or a capital credit check for a few dollars, choose low rates.

Is it legal for FMTC to keep my capital credits?
It is legal for FMTC to keep capital credits until the board of directors declares a pay out. As a cooperative, this complies with the laws of the State of Idaho and the Internal Revenue Service. A decision about whether or not to pay capital credits is made year by year based on the financial position of FMTC at that time, therefore we cannot estimate a date when capital credits will be paid.

What is the capital credit statement?
After the books are closed at the end of each year, we allocate each member a portion of any profit FMTC had. The capital credit statement shows your portion of the profit and your total capital credit balance accumulated to date for that membership account. This allocation of profit is required by cooperative Idaho state law and the Internal Revenue Service.

Why don't I receive a capital credit statement every year?
If you have left our service area, you will not automatically receive a capital credit statement because you have not accumulated any additional capital credits, but you may request account information at any time.

If FMTC does not make a profit in any one year no money is allocated and no statements are sent.

For information about your capital credit account balance, please call 208-452-4241

Why can't I apply my capital credit allocation to my bill?
The board of directors has not declared this amount payable yet. It is your share of FMTC's profit, but it is not cash. This amount will be paid to you when the board of directors has determined it is fiscally prudent and in the best interest of all members to do so.

I am no longer a FMTC member; when will I get my capital credits?
The board of directors, when they have decided that it is fiscally prudent to make a pay out of capital credits, determines the method, basis, priority and order of retirement of capital credit account balances.

What happens if FMTC no longer has my current address when they try to pay my capital credits?
FMTC requests that former members keep us up to date with their current address. If we attempt to send you a capital credit check and it is returned by the post office due to an outdated address, we must follow Idaho state laws. This includes advertising on our web site, etc. in an attempt to find the rightful owner of the money. We continue to carry unclaimed capital credit amounts on our books.