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CONNEXUS ENERGY
Financial statements as of and for the
Years Ended December 31, 2010 and 2009,
and Independent Auditors’ Report.
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors of
Connexus Energy
Ramsey, Minnesota
We have audited the accompanying balance sheets of Connexus Energy (the “Cooperative”) as of
December 31, 2010 and 2009, and the related statements of margins, changes in patrons’ equity and
comprehensive income, 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 audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Cooperative’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of
the Cooperative as of December 31, 2010 and 2009, 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 of
America.
March 8, 2011
CONNEXUS ENERGY
BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2009
2010 2009 2010 2009
ASSETS LIABILITIES
UTILITY PLANT (Note 1): PATRONS’ EQUITY:
Distribution system $ 248,100,713 $ 243,241,238 Patronage capital $ 139,014,900 $ 134,518,206
General plant 37,957,592 35,544,878 Appropriated margins 1,554,224 1,340,152
Construction work-in-progress 3,242,482 4,942,493
Total patrons’ equity 140,569,124 135,858,358
Utility plant 289,300,787 283,728,609
LONG-TERM DEBT — Less current
Less accumulated depreciation (95,940,145) (89,696,366) portion (Notes 4 and 9) 125,761,969 123,494,885
Total utility plant 193,360,642 194,032,243 OTHER LONG-TERM LIABILITIES (Primarily
pension obligation and deferred credits) 11,857,717 12,897,266
OTHER ASSETS:
Investment in associated organizations (Notes 3 and 9) 82,329,578 75,923,696 COMMITMENTS AND CONTINGENCIES (Note 6)
Subordinated debt investments (Notes 2 and 9) 8,648,722 8,682,228
Other investments (Note 3) 1,137,420 1,057,142 CURRENT LIABILITIES:
Notes receivable (Note 7) 270,218 547,345 Accounts payable 3,335,035 2,987,072
Other assets (Note 1) 11,475,021 10,480,894 Payable to associated organization (Note 3) 26,109,637 23,655,731
Customer deposits 865,319 705,616
Total other assets 103,860,959 96,691,305 Accrued compensation and related taxes 3,940,109 3,986,101
Accrued state and local taxes 5,127,683 4,851,416
CURRENT ASSETS: Accrued interest 1,137,695 1,146,765
Cash and cash equivalents 28,037 364,168 Patronage capital payable 2,868,641 2,637,844
Accounts receivable — less allowance for doubtful Revolving term loans payable (Note 4) 5,337,000 7,084,100
accounts of $980,964 and $1,103,037, respectively 29,069,327 27,748,742 Current portion of long-term debt (Notes 4 and 9) 2,727,902 2,683,388
Materials and supplies inventory 2,531,005 2,272,194
Prepaid expenses 665,572 851,351 Total current liabilities 51,449,021 49,738,033
Interest receivable 122,289 28,539
Total current assets 32,416,230 31,264,994
TOTAL $ 329,637,831 $ 321,988,542 TOTAL $ 329,637,831 $ 321,988,542
See notes to financial statements.
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CONNEXUS ENERGY
STATEMENTS OF MARGINS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
2010 2009
OPERATING REVENUE:
Electric revenue $ 220,781,699 $ 210,687,198
Utility services revenue 2,252,310 2,404,155
Retail services revenue 237,126 234,894
Total operating revenue 223,271,135 213,326,247
OPERATING EXPENSES:
Cost of power (Note 3) 165,990,162 154,352,680
Labor and related expenses 23,087,325 22,652,688
Electric operations expenses 2,986,185 3,131,097
Fees and services 2,992,187 3,176,558
Marketing 337,763 364,216
Operating supplies 3,745,917 3,630,426
Depreciation 9,976,016 9,424,967
Property taxes 4,072,686 3,770,518
Other 2,222,371 2,702,003
Total operating expenses 215,410,612 203,205,153
OPERATING INCOME 7,860,523 10,121,094
OTHER INCOME (EXPENSE):
Interest expense (7,142,216) (6,550,929)
Interest income 559,735 166,970
Allocation of Great River Energy income 5,944,328 6,206,793
Gain from equity investments 180,278 120,910
Other income 1,151,201 1,451,141
Total other income 693,326 1,394,885
NET MARGIN $ 8,553,849 $ 11,515,979
See notes to financial statements.
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CONNEXUS ENERGY
STATEMENTS OF CHANGES IN PATRONS’ EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
Accumulated
Other
Patronage Appropriated Comprehensive Comprehensive
Capital Margins Income Total Income
Balance — December 31, 2008 $ 126,807,717 $ 1,160,740 $ - $ 127,968,457
Net margin 11,515,979 11,515,979 $ 11,515,979
Other comprehensive income
Appropriated margin 179,412 179,412
Capital credits retired (3,805,490) (3,805,490)
Comprehensive income $ 11,515,979
Balance — December 31, 2009 134,518,206 1,340,152 - 135,858,358
Net margin 8,553,849 8,553,849 $ 8,553,849
Other comprehensive income
Appropriated margin 214,072 214,072
Capital credits retired (4,057,155) (4,057,155)
Comprehensive income $ 8,553,849
Balance — December 31, 2010 $ 139,014,900 $ 1,554,224 $ - $ 140,569,124
See notes to financial statements.
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CONNEXUS ENERGY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net margin $ 8,553,849 $ 11,515,979
Adjustments to reconcile net margin to net cash provided by operating activities:
Depreciation 9,976,016 9,424,967
Amortization of debt refinancing fees 83,026 129,973
Net gain on dispositions of property (61,537) (120,507)
Patronage allocated to Connexus Energy (937,207) (696,439)
Great River Energy patronage allocated to Connexus Energy (5,944,328) (6,206,793)
Gain from equity investments (180,278) (120,910)
(Increase) decrease in:
Accounts receivable (1,320,586) (183,577)
Materials and supplies inventory (258,811) 476,468
Other assets (1,039,276) 1,807,793
Increase (decrease) in:
Accounts payable and customer deposits 507,666 (587,949)
Payable to associated organization 2,453,906 (618,090)
Accrued liabilities 221,205 (285,044)
Other long-term liabilities (985,396) (4,542,885)
Total adjustments 2,514,400 (1,522,993)
Net cash provided by operating activities 11,068,249 9,992,986
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (net of contributions in aid of construction) (9,368,173) (10,559,720)
Proceeds received from sale of plant 125,295 254,483
Issuance of notes receivable — net of payments 277,127 (547,345)
Purchase of member capital securities (5,000,000)
Proceeds from capital term certificates, patronage capital, and equity investments 609,159 760,249
Net cash used in investing activities (8,356,592) (15,092,333)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (2,688,402) (14,976,077)
Patronage capital payments to members (3,612,286) (3,665,742)
Loan advances from National Rural Utilities Cooperative Finance Corporation 5,000,000 25,000,000
Repayments on revolving term loan agreement (1,747,100) (1,272,900)
Net cash (used in) provided by financing activities (3,047,788) 5,085,281
DECREASE IN CASH AND CASH EQUIVALENTS (336,131) (14,066)
CASH AND CASH EQUIVALENTS — Beginning of year 364,168 378,234
CASH AND CASH EQUIVALENTS — End of year $ 28,037 $ 364,168
NONCASH INVESTING AND FINANCING ACTIVITIES — Utility plant purchases
included in accounts payable $ 293,183 $ 554,075
See notes to financial statements.
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CONNEXUS ENERGY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business — Connexus Energy (the “Cooperative”) is a customer-owned organization
engaged principally in the distribution and sale of electricity to approximately 125,000 customers in
seven counties in the north suburban area of Minneapolis and St. Paul, Minnesota.
Use of Estimates — In recording transactions and balances resulting from business operations, the
Cooperative uses estimates based on the best information available. Estimates are used for such items as
plant depreciable lives, uncollectible accounts, unbilled revenues, and actuarially determined benefit
costs. As better information becomes available (or actual amounts are determinable), the recorded
estimates are revised. Consequently, operating results can be affected by revisions to prior accounting
estimates.
Utility Plant — Utility plant is recorded at cost, which includes labor, materials, contracted services,
and allocable overhead, reduced by cash contributions in aid of construction received from patrons.
Upon the sale or retirement of a utility plant asset, the cost (average cost for distribution system) of an
item is removed from the utility plant account and the net of; cost plus disposal costs, less proceeds, is
charged or credited to accumulated depreciation.
Depreciation expense is computed by applying composite rates to the monthly balance for all classes of
utility plant, except for transportation equipment and other general plant assets, which are depreciated on
a unit basis. The depreciation rate as a percentage of the average balance of depreciable property was
3.6% and 3.4% in 2010 and 2009, respectively.
Recoverability of Long-Lived Assets — The Cooperative accounts for the impairment or disposal of
long-lived assets in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets,
which requires long-lived assets, such as property and equipment, to be evaluated for impairment
whenever events or changes in circumstances indicate the carrying amount of the assets may not be
recoverable. The Cooperative determines potential impairment by comparing the carrying value of its
assets with the sum of the undiscounted cash flows expected to be provided by operating and eventually
disposing of the asset. Should the sum of the expected future net cash flows be less than the carrying
values, the Cooperative would determine whether an impairment loss should be recognized. An
impairment loss would be quantified by comparing the amount by which the carrying value exceeds the
fair value of the asset based on quoted market prices or the present value of the expected future cash
flows to be generated by the asset. To date, management has determined that no impairment of these
assets exists.
The Cooperative accounts for the impairment of equity method investments in accordance with
ASC 323-10-15-4, The Equity Method of Accounting for Investments in Common Stock, which requires
equity investments to be evaluated for impairment whenever events or changes in circumstances indicate
the carrying amount of the assets may not be recoverable. A loss in value of an investment, which is
other than a temporary decline, should be recognized. Evidence of a loss in value might include, but
would not necessarily be limited to, absence of an ability to recover the carrying amount of the
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investment or inability of the investee to sustain an earnings capacity which would justify the carrying
amount of the investment. A current fair value of an investment that is less than its carrying amount may
indicate a loss in value of the investment.
Cash and Cash Equivalents — Cash and cash equivalents include cash on hand, amounts due from
banks, and money market funds with original maturities of three months or less.
Materials and Supplies — Materials and supplies inventories are stated at the lower of average cost or
market.
Revenue Recognition — The Cooperative records electric revenue based on a calendar month, but
reads meters and bills customers on a cycle basis throughout each calendar month. Accordingly, at the
end of each month, there is energy consumed, for which consumers have not been billed. The recorded
estimate of the revenue and related accounts receivable associated with energy consumed and not billed
at December 31, 2010 and 2009, was $11,528,241 and $10,956,680, respectively.
Rates charged to consumers by the Cooperative are established solely by the Board of Directors. The
Cooperative is not regulated for rates by the Minnesota Public Utilities Commission.
Income Taxes — The Internal Revenue Service has determined that the Cooperative is exempt from
federal and state income taxes under Section 501(c)(12) of the Internal Revenue Code.
Patronage Capital — Margins realized from operations are assigned to patrons on a patronage basis.
Patronage capital is retired on a percentage basis at the discretion of the Board of Directors.
Non-Electric Operations — The Cooperative currently provides utility billing to municipalities and
refuse collectors, performs fleet repair services, and owns and maintains decentralized wastewater
systems. The operating revenues associated with the utility billing and fleet repair businesses have been
classified as utility services revenue. Operating revenues from the water treatment business are classified
as retail services revenue.
Other Investments — The Cooperative has various investments that are accounted for using the equity
method or cost method depending on the Cooperative’s ownership percentage in the investee.
Derivative Instruments and Hedging Activities — The Cooperative’s policy is to not use freestanding
derivatives and to not enter into contracts with terms that cannot be designated as normal purchases or
sales. Management has determined that the Cooperative has no freestanding or embedded derivatives.
Other Assets — Other assets consist principally of regulatory assets related to the pension plan,
deferred wholesale power costs, and costs associated with the financing or refinancing of the
Cooperative’s debt, which are amortized over the shorter of the life of the debt or refinancing period.
Other assets at December 31, 2010 and 2009, are as follows:
2010 2009
Regulatory asset pension obligation (Note 5) $ 9,112,125 $ 9,342,555
Deferred wholesale power costs 1,165,859
Other assets 1,197,037 1,138,339
Total other assets $ 11,475,021 $ 10,480,894
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Concentration of Risk — As of December 31, 2010 and 2009, approximately 30% and 31%,
respectively, of the Cooperative’s labor force is covered by a collective bargaining agreement. During
2009, the Cooperative signed a new contract that extends through December 31, 2011.
2. CAPITAL TERM CERTIFICATES AND MEMBER CAPITAL SECURITIES
Investments in Capital Term Certificates of the National Rural Utilities Cooperative Finance
Corporation (NRUCFC) totaled $3,648,722 and $3,682,228 at December 31, 2010 and 2009,
respectively. The Capital Term Certificates consist of 5% Capital Term Certificates that mature, based
upon the year of acquisition, beginning October 1, 2070 through October 1, 2080; 3% Loan Capital
Term Certificates that mature, based upon the year of acquisition, beginning October 1, 2020 through
October 1, 2030; and no-interest Loan Capital Term Certificates, which are refunded to the Cooperative
based on the outstanding principal loan balance over the term of the corresponding loans from
February 1, 2011 through February 1, 2039. In 2009, the Cooperative invested $5,000,000 in Member
Capital Securities with NRUCFC. These securities have a 7.5% interest rate and a maturity date of
December 11, 2044, with a first call date of December 11, 2014. Based on the provisions of
ASC 320-10, Accounting for Certain Investments in Debt and Equity Securities, the Capital Term
Certificates and Member Capital Securities are classified as held-to-maturity securities, as the
Cooperative has a positive intent and ability to hold the certificates to maturity and are accordingly
carried at amortized cost.
3. ASSOCIATED ORGANIZATIONS
The Cooperative is a member of Great River Energy (GRE), which is a generation and transmission
cooperative. In 2006, the Cooperative entered into an amended and restated power purchase contract
with GRE effective through December 31, 2045. Additionally, effective January 1, 2010, the
Cooperative entered into an Amended and Restated Transmission Service contract with GRE, which
expires on December 31, 2050. Under the terms of the agreements, the rates charged by GRE are subject
to periodic change.
Currently, the Cooperative purchases approximately 20% of GRE’s total power output sold to members.
The Cooperative’s investment in GRE consists primarily of capital credits for the Cooperative’s share of
GRE’s operating margins that have been allocated but not received. Operating margins and losses are
recognized based on the Cooperative’s percentage of GRE’s total power output each year, which
approximates the Cooperative’s ownership in GRE. The Cooperative’s investment in GRE, which is
recorded on the equity method, was $78,823,201 and $72,878,872 at December 31, 2010 and 2009,
respectively. During 2010 and 2009, the Cooperative recognized income of $5,944,328 and $6,206,793,
respectively, related to its portion of GRE’s margin.
The Cooperative’s power purchases from GRE were $166,325,498 and $151,542,088 during 2010 and
2009, respectively. Accounts payable to GRE were $26,109,637 and $23,655,731 at December 31, 2010
and 2009, respectively.
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A summary of the total assets, liabilities, and equity of GRE at December 31, 2010 and 2009, and the
results of its operations are as follows (unaudited) (in thousands):
2010 2009
Assets $ 3,349,947 $ 3,094,534
Liabilities (2,982,428) (2,754,750)
Equity $ 367,519 $ 339,784
Revenues $ 847,156 $ 787,781
Expenses 717,023 677,142
Net margin 27,228 29,760
The Cooperative also maintains an investment in a tree trimming business totaling $1,137,420 and
$1,057,142 at December 31, 2010 and 2009, respectively. This investment is recorded under the equity
method and is included in other investments in the balance sheets. In 2009, the Cooperative sold its
share of the electric metering equipment businesses for a net gain of $449,963. The Cooperative
recognized net operating gains from equity investments totaling $180,278 and $120,910 in 2010 and
2009, respectively.
The Cooperative has investments in other associated organizations, primarily NRUCFC capital credits,
which are recorded on the cost method. Such investments totaled $3,506,378 and $3,044,824 at
December 31, 2010 and 2009, respectively.
4. LONG-TERM DEBT AND LINE OF CREDIT AGREEMENTS
Long-term debt at December 31, 2010 and 2009, is as follows:
2010 2009
NRUCFC — bearing interest at 3.5% to 7.15% (5.75%
weighted average), due 2011 to 2044, due in quarterly
installments, including interest $ 128,489,871 $ 126,178,273
Less current portion 2,727,902 2,683,388
$ 125,761,969 $ 123,494,885
Substantially all assets of the Cooperative are pledged as collateral for the Cooperative’s long-term debt.
The mortgage note agreement with NRUCFC requires, among other provisions, that the Cooperative
maintain certain annual debt service coverage (DSC) levels, including but not limited to, the average
DSC ratio. The Cooperative’s average DSC ratio, the average of the two highest DSC ratios in the most
recent three years, was 2.70 for the year ended December 31, 2010. The Cooperative is required to
achieve a minimum of 1.25 average DSC for 2010.
Cash payments for interest during 2010 and 2009 totaled approximately $7,217,930 and $6,661,144,
respectively.
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On March 2, 2009, the Cooperative prepaid $11,389,775 of long-term debt utilizing the Cooperative’s
lines of credit with CoBank and NRUCFC. In September 2009, the Cooperative advanced $20,000,000
of new long-term debt from NRUCFC.
Annual principal maturities of existing long-term debt at December 31, 2010, are as follows:
Years Ending
December 31
2011 $ 2,727,902
2012 2,927,543
2013 2,941,763
2014 2,309,052
2015 2,136,316
Thereafter 115,447,295
$ 128,489,871
The Cooperative has a line of credit agreement for short-term financing with NRUCFC at an interest rate
determined by NRUCFC not to exceed the prime rate plus 1%, whereby the Cooperative may borrow up
to $20,000,000. As of December 31, 2010, the rate was 4.25%. There were no outstanding borrowings
on the line of credit at December 31, 2010 or 2009. The Cooperative has an additional line of credit
agreement for short-term financing with NRUCFC at an interest rate currently determined by NRUCFC
not to exceed the 7-day London InterBank Offered Rate (LIBOR), plus 2%, whereby the Cooperative
may borrow up to $15,000,000. In 2010, this agreement was amended to allow borrowing up to
$35,000,000 at a rate not to exceed the 7-day LIBOR plus 1.75%. As of December 31, 2010, the rate
was 2%. Outstanding borrowings on the line of credit at December 31, 2010 were $5,337,000. There
were no outstanding borrowings on the line of credit at December 31, 2009. The line of credit
agreements include various non-financial restrictive covenants. The Cooperative was in compliance with
all covenants as of December 31, 2010 and 2009.
The Cooperative had a revolving term loan agreement for short-term financing with CoBank at an
interest rate determined by CoBank not to exceed the 7 day LIBOR rate plus 1.4%, whereby the
Cooperative may borrow up to $22,000,000. The Cooperative allowed this agreement to expire on
May 1, 2010. Outstanding borrowings on the line at December 31, 2009 were $7,084,100.
Outstanding balances on these short-term loans are classified as current liabilities due to the ability of
the lender to subjectively accelerate repayment prior to the expiration date.
5. PENSION PLANS
The Cooperative contributes to two benefit plans: a defined-benefit pension plan and a
defined-contribution benefit plan.
In September 2006, the FASB issued ASC 715-30 Defined Benefit Plans, which requires companies to
fully recognize the funded status of each pension and other postretirement benefit plan as a liability or
asset in their balance sheets with all unrecognized amounts to be recorded in other comprehensive
income. The Cooperative applied regulatory accounting treatment, which allowed recognition of this
item as a regulatory asset rather than as a charge to accumulated other comprehensive income, as future
costs are to be included in rates.
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Defined Benefit Plan — The Cooperative sponsors a qualified defined benefit pension plan (the
“Pension Plan”). Benefits under the Pension Plan are determined under a traditional
percentage-of-final-pay formula or a cash-balance formula based on annual compensation credits and
investment credits. Benefits for all employees hired after January 1, 2000, are determined under the
cash-balance formula. The Pension Plan’s assets are invested in common stock, bonds, and money
market funds.
Information for the Pension Plan as of and for the years ended December 31, 2010 and 2009, is as
follows:
2010 2009
Accumulated benefit obligation — December 31 $ 31,602,372 $ 29,476,024
Change in benefit obligation:
Projected benefit obligation — beginning of year $ 32,060,410 $ 28,348,115
Service cost 1,056,129 994,399
Interest cost 1,732,106 1,837,152
Plan amendments 531,290 112,575
Actuarial losses 1,177,190 2,963,582
Benefits paid (2,689,642) (2,195,413)
Projected benefit obligation — end of year $ 33,867,483 $ 32,060,410
Change in plan assets:
Fair value of plan assets — beginning of year $ 25,152,088 $ 16,788,740
Actual return on assets 3,278,963 4,231,707
Employer contribution 1,697,717 6,327,054
Benefits paid (2,689,642) (2,195,413)
Fair value of plan assets — end of year $ 27,439,126 $ 25,152,088
Funded status of plan — funded status of plan as of fiscal
year end $ (6,428,357) $ (6,908,322)
Weighted-average assumptions used to determine benefit
obligations as of December 31:
Discount rate 5.15 % 5.75 %
Weighted-average rate of increase in
future compensation levels 4.25 4.25
Amounts recognized in statements of financial position
consists of — noncurrent liabilities $ (6,428,357) $ (6,908,322)
Net amount recognized as of fiscal year end $ (6,428,357) $ (6,908,322)
Amounts not yet recognized as components of
net periodic benefit cost:
Amount disclosed at beginning of year $ 9,342,555 $ 9,689,609
Net actuarial (gain) (613,847) (327,296)
Prior service cost 383,417 (19,758)
Total (Note 1) $ 9,112,125 $ 9,342,555
The amount of actuarial net (gain) loss and prior service costs expected to be amortized in 2011 are
$328,210 and $142,543, respectively.
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Components of net periodic pension costs for the Pension Plan for 2010 and 2009 are as follows:
2010 2009
Service cost $ 1,056,129 $ 994,399
Interest cost 1,732,106 1,837,152
Expected return on plan assets (1,833,350) (1,385,342)
Amortization of net loss 345,424 444,513
Amortization of prior service cost 147,873 132,333
Total net periodic pension cost $ 1,448,182 $ 2,023,055
The long-term rate of return on assets reflected in the 2010 and 2009 expense was 8%. The
Cooperative’s investment policy allows the money manager to invest up to 80% or as low as 50% of the
plan’s assets in equities. All assets in the Pension Plan are invested in Wells Fargo collective trust funds,
which are classified as Level 2 investments within the fair value hierarchy. Annually, management
reviews the actual long-term rate of return on assets and compares this return to the money manager’s
model of expected returns based on proprietary formulas as well as current market data, and adjusts
accordingly.
The weighted-average assumptions used to determine net periodic pension costs for the years ended
December 31, 2010 and 2009, were as follows:
2010 2009
Discount rate 5.75 % 6.70 %
Expected long-term rate of return on plan assets 8.00 8.00
Rate of increase in future compensation levels 4.25 4.25
Estimated future benefit payments at December 31, 2010, are as follows:
Years Ending
December 31
2011 $ 1,993,940
2012 2,440,122
2013 2,707,888
2014 2,390,857
2015 2,480,935
2016–2020 14,150,226
Expected contributions during fiscal 2011 are $1,790,000.
Percentage of fair value by category of plan assets:
2010 2009
Equity securities 78 % 81 %
Debt securities 18 16
Other 4 3
100 % 100 %
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The Cooperative’s policy is to fund the minimum required contribution under applicable laws and
regulations and any additional amounts deemed appropriate by management.
Postretirement Health Benefits — The Cooperative allows employees who retire to remain in the
group health care plan if they contribute the full actuarially determined cost of the health insurance
premium (between the ages of 55 and 65). Currently, 22 retired employees participate in the group
health care plan.
Defined Contribution Plan — The Cooperative sponsors a qualified defined contribution plan with
elective employee deferral and employer-matching provisions. The Cooperative contributes an amount
equal to 1% of employee compensation, plus an additional matching contribution equal to 50% of the
first 6% of the employee’s contribution to the plan, which covers substantially all employees.
Contributions to the plan were $681,908 and $674,402 for the years ended December 31, 2010 and
2009, respectively.
Deferred Compensation — The Cooperative has deferred compensation arrangements for certain
employees, in which assets are invested in a variety of mutual funds at the discretion of the employees.
The total value of the assets at December 31, 2010 and 2009, was $1,034,739 and $846,034,
respectively, and is included in other assets and other long-term liabilities in the balance sheets.
Effective January 1, 2011, the Cooperative modified the pension plan and the defined contribution plan
so that new employees are no longer eligible to participate in the pension plan, but will instead
participate in an enhanced defined contribution plan.
6. COMMITMENTS AND CONTINGENCIES
The Cooperative is involved in various legal actions arising in the normal course of business. It is the
opinion of management that the resolution of such actions will not have a material adverse effect on the
financial position or future results of operations of the Cooperative.
7. NOTE RECEIVABLE
On June 19, 2009, Connexus sold its stock in May Engineering and Two Sockets Two Meters to the
remaining partner for cash proceeds and a $580,000 note receivable. The note is payable in equal
monthly installments of principal and interest based on a seven-year amortization schedule with a
balloon payment of all outstanding principal and interest due and payable on July 1, 2012. As allowed in
the agreement, the buyer made a prepayment of principle of $200,000 on the note in June 2010.
8. WORKERS’ COMPENSATION
The Cooperative is a member in the Minnesota Rural Electric Workers’ Compensation Trust, a
self-insurance trust formed by some Minnesota electric cooperatives. During 2010 and 2009, the
Cooperative contributed $190,087 and $137,217, respectively, to the trust for insurance coverage.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value at December 31, 2010 and 2009:
Cash and Cash Equivalents — The carrying amount approximates fair value because of the short-term
maturity of these investments.
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Capital Term Certificates — Due to the nature of these investments, the fair value is equal to cost.
Member Capital Securities — Due to the nature of these investments, the fair value is equal to cost.
Associated Organizations — As the investments are not actively traded and there is no market value
available, the fair value is equal to cost.
Long-Term Debt — The fair value of the Cooperative’s long-term debt is estimated based on the current
rates available to the Cooperative for the issuance of debt. As of December 31, 2010, the carrying value
and the fair value of the Cooperative’s long-term debt were $128,489,871 and approximately
$92,675,227, respectively. As of December 31, 2009, the carrying value and the fair value of the
Cooperative’s long-term debt were $126,178,273 and approximately $83,293,390, respectively.
10. SUBSEQUENT EVENTS
The Cooperative has evaluated subsequent events through March 8, 2011, which is the date these
financial statements were available for issuance. There are no events subsequent to December 31, 2010,
that require disclosure.
******
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connexusenergy.com
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