Annual Report 2014

>Continuing to navigatethrough the maze ofindustry change

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BRIGHTFUTURE

62nd ANNUAL MEMBERSHIP MEETING Thursday, May 21 , 2015 | 7 :00 p .m. CSTFerdinand Community Center, Ferdinand, IN

PERRY-SPENCER RURAL TELEPHONE COOPERATIVE, INC.

62nd Annual Membership Meeting 2

C O N T E N T S

A LETTER

Minutes of 2014 PSC Annual Meeting 42015 Board Candidates 5

Financial Statements 2013/2014 6 PSC Board of Directors 7

to Our Cooperative Members

On behalf of PSC’s Board of Directors and employees, we are pleased to present to you PSC’s Annual Report and extend an invitation to join us at our annual meeting on May 21st at the Ferdinand Community Center.

As you will see in the enclosed financials, 2014 continued the trend of strong performance by your cooperative. Both the income statement and balance sheet results are encouraging, and give us a solid foundation to continue our growth strategies.

This past year PSC completed its St. Marks exchange fiber optic build and we are in the process of transitioning members over to our new fiber network. In addition, we commenced the St. Meinrad exchange fiber build in late 2014 and hope to have the mainline construction completed this sum-

mer, with customer installations beginning later this year. Next up, is our Bandon exchange fiber build scheduled to begin late summer, with those customers being switched over to the fiber network sometime next year. Our carefully planned and engineered $29 million deployment of fiber optics within our cooperative territory is entering its later stages. The finish line is in sight!

In addition to the cooperative fiber projects, 2014 also saw rapid growth and acceptance of our fiber deployment in Tell City. In just a little over a year, PSC has been able to subscribe

over 25% of the community to at least one of our services. This is encouraging knowing we have not aggressively marketed our products and services in a manner we are accustomed. With the fiber mainline build in Tell City now complete, we will focus on marketing to the remainder of the city residents in 2015 with high expectations of our service being widely accepted by all.

Also in 2015, PSC will be constructing fiber optics from central Spencer County to southern Spencer County to prepare for future growth in that area. Once completed, PSC will be well on its way to having our region blanketed with

fiber optics and living up to our vision of being the region’s premier provider of high-speed broadband communication services.

We are very pleased with the success of our growth strategies and the acceptance of our product line and services. Beginning with the Telecommunications Act of 1996, PSC has spent the last two decades growing and diversifying its product and service offerings, as well as expanding its customer base. For our long term surviv-ability, this was important! We are capitalizing on this growth by investing it back into the cooperative. This investment is helping us offset the ongoing harmful

Richard RoosChairman of the Board

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3 62nd Annual Membership Meeting

Thursday, May 21, 2015 | Ferdinand Community CenterTimes listed are Central Time

5:00 - 7:00 p.m. Refreshments & Registration of Members

5:15 - 6:45 p.m. Entertainment by Stan LaGrange

7:00 p.m. Meeting Begins

Declaration of Quorum & Call to Order by Richard Roos, Chairman of Board

Invocation by Pastor Ben Hartwig First Baptist Church of St. Meinrad

Pledge of Allegiance by Richard Roos

Notice of Mailing by Chris Goffinet, Cooperative Attorney

2014 Annual Meeting Minutes by Lynn Kahle, Secretary/Treasurer

Introduction of Candidates by Chris Goffinet

Director Election - District 2 by Chris Goffinet

President/CEO’s Report by Jim Dauby

Attendance Prize Drawings by Jim Dauby

Closing Remarks and Adjournment by Jim Dauby

government reforms on PSC’s regulated operations, which continue to erode the revenues we have depended on for so many years. Gone are the days in which Universal Service Funds (USF) and other regulated cost recovery mechanisms would have covered all our plant infrastructure in-vestments. With USF now being capped and our other lines of regulated revenues being reduced, there are too few cooperative customers to pass along the cost of any additional debt burden.

Due to the success of our growth outside the cooperative serving area and, so far, keeping our debt in check with our current cooperative fiber project, our focus and attention turns to those coop members who were not to be connected to the cooperative fiber network. As we have noted in the past, the $29M fiber network was constructed to reach only 70% of our cooperative members. To reach the remaining 30% came at a tre-mendous cost. Beginning this year, however, PSC will carefully engineer areas outside the planned 70% build and “chip away” at deploying our fiber network to all members. Even in this industry regulation maze

of uncertainty we still find ourselves, we must reach each-and-every-one of our cooperative members with our high-speed, fiber broadband network. Broadband has been coined “the electricity of the 21st century” due to its importance of everyday living. Our members deserve to have access to these networks of tomorrow, just like any other American. It’s our job, our mission, to make sure you do!

Our commitment to this cooperative remains as strong as ever and is why we exist. Our industry has changed dramatically, and with it so must we. Although we have grown outside our regulated cooperative territory, expanded our product offerings and even established ownership in other organizations, we have done it for the good of this cooperative. Never forget that.

We invite you to come to the annual meeting and learn more about how your cooperative continues to plan for a bright future for all of us!

James M. DaubyPresident & CEO

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ANNUAL MEMBERSHIP MEETING

The 61st Annual Meeting of the membership of PSC was held May 15, 2014 at 7:00 PM CT at the Ferdinand Community Center, Ferdinand, Indiana.

Chairman Richard Roos called the meeting to order and announced that a quorum was present. Chairman Roos thanked the Paradise Band for providing the pre-meeting entertainment and then called on Reverend Dr. Elmer Shelby to give the invocation. Following the invocation, the Pledge of Allegiance was recited by the membership.

Chairman Richard Roos called on Attorney Chris Goffinet for the reading of the “Notice of Mailing”. Attorney Goffinet read the Notice of Mailing and acknowledged proper and due notice was given to PSC’s membership.

The next item of business was approving the minutes of the 60th Annual Membership Meeting (May 16, 2013). Secretary/Treasurer Lynn Kahle entertained a motion to dispense with the reading of the minutes if the membership found the minutes to be acceptable as mailed. A motion was made by Ed Hagedorn and seconded by Louis Schwoeppe to dispense with the reading of the minutes and approve as mailed. Motion carried by voice acclamation.

Attorney Chris Goffinet introduced the following candidates vying for the 2014-2015 directors seat to serve on the Board for the 3-year term (2014-2017): District #1 – Bandon, Hubert Harpenau; District #5 – Holland, Lynn Kahle; and District # 6 – Santa Claus, Richard Roos.

President/CEO Dauby welcomed everyone to the 61st annual meeting. He con-gratulated Richard Roos, Hubert Harpeanu, and

Lynn Kahle and thanked them for their continued commitment to PSC.

President/CEO Dauby discussed the 2013 Financial Statements which were included in the Annual Meeting program. President/CEO Dauby stated that our balance sheet has been solid for some time and continued to grow in 2013. Cash and Investments grew by $4.6 million mainly due to the receipt of RUS loan proceeds for the FTTH projects. Property and equipment In Service and Under Construction increased over $7.2 million during the year, primarily due to the FTTH con-struction in Holland and Tell City. Total Assets increased from $36.7 million in 2012 to $45.3 million in 2013. Regarding liabilities, he noted Mortgage Notes Payable increased approximately $7.4 million due to PSC’s first draw of a RUS loan. This loan was used partially to pay off PSC’s Line of Credit which we periodically borrow from for projects. In the Member’s Equity section, PSC grew by over $8.6 million and at the end of 2013 we had Liabilities and Members Equity of $45,308,257. Discussing the Statement of Opera-tions, he noted 2013’s Net Margin was $2,092,585 compared to 2012’s Net Margin of $1,903,257. Operating Revenues increased from $14.5 million to $15.5 million, primarily due to the increase in Network Access services of over $780,417. This increase was due to increases in USF funds and cost recovery dollars PSC received to help pay for PSC’s cooperative FTTH projects already completed, in addition to income from prior period special circuit adjustments. He mentioned that 2013 operating expenses increased from $12.9 million in 2012 to $13.8 million in 2013 mainly due to plant operations and depreciation expense due to FTTH and new plant and equipment installed over the past few years. President/CEO Dauby stated that 2013 was a very positive year, and was also one of the best bottom lines in PSC’s history. A motion was made by Linda Hubert and seconded by Bill Wiesehan to approve the Balance

Sheet and Statement of Operations as presented. Motion carried unani-

mously.

President/CEO Dauby recognized Martha Niehaus, Director of Public Affairs, for 25 years of

service with the Cooperative. He commented that faithful employees like Martha have helped make PSC what it is today and thanked her for her 25 years of service.

President/CEO Dauby gave his annual presenta-tion, with this year’s theme being “One Company”. He mentioned that fiber optic deployment plans in 2014 will include finishing mainline construction and customer drops in the St Marks exchange, beginning mainline construction and customer drops in the St Meinrad exchange, and continu-ing mainline construction, customer drops, and customer installations in Tell City. In 2015, the plans are to complete customer installations in the St Marks exchange, begin customer installations in the St Meinrad exchange, begin mainline construc-tion and customer drops in the Bandon exchange, and continue mainline construction drops, and customer drops and installations in Tell City.

President/CEO Dauby mentioned the cooperative challenges that PSC faces are continued federal government reforms with Universal Service Funds (USF) being capped, which are dollars the cooper-ative receives to help pay for FTTH construction, cost recovery dollars planned to decrease and the elimination of access charges. Local challenges the cooperative faces are the high cost of fiber deploy-ment, with the cost to construct 70% of FTTH within the cooperative being $29 million and the cost to cover the remaining 30% of the cooperative escalating well over $50M. He also mentioned that according to an NTCA survey, nearly 60 % of companies have chose to suspend FTTH construc-tion due to federal government reforms, but PSC chose to continue with their cooperative project. Another local challenge PSC faces is competition with cellular and satellite companies, in addition to the loss of access lines within the cooperative. A slide showing the loss of landlines from 2001 with the access line count being 7,095 to the current access line count being 4,630 was shown to the membership. The main driver of landline loss is due to cellular competition and customers moving out of the cooperative serving area. When PSC loses a landline, we lose the USF dollars attached to the access line.

President/CEO Dauby mentioned to the mem-bership PSC’s vision statement “PSC will build upon our regional presence and become the areas

MINUTESMinutes of the 2014 Perry-Spencer Rural Telephone Cooperative, Inc. d/b/a PSC

preeminent telecommunications provider offering a full array of services, including, voice, high speed Internet and video. We will always be mindful of our commitment to our communities, our members and customers, and our employees.” He stressed that PSC will continue to focus on growth of the company and will continue to be proactive with the number of products and services it offers. PSC can no longer rely on regulated revenues but must focus on other areas of revenues. He shared a slide showing the changes in revenues from 1995 to current with network access revenue decreasing from 64% in 1995 to 41% today and local service revenue decreasing from 24% in 1995 to 10% today. Internet/data revenues, along with other sources of non regulated revenues are helping to replace some of the regulated revenues today.

He shared with the membership plans and options for being able to deploy fiber optics to the remain-ing 30% of cooperative members. In the interim, PSC will assess how current fiber/copper plant can be maximized to see if speed can be enhanced, con-

tinue to fight against federal government reform, seek additional government funding, if and when, available, continue to leverage growth outside the cooperative serving area and assess the debt level at the end of the current cooperative FTTH build-out and consider additional areas to deploy. He mentioned that he hears concerns from cooper-ative members that PSC no longer is focused on the cooperative, but this is not the case. Everything PSC builds is for long term growth and success for the cooperative members. All the wireless, RNET, Ferdinand, and Tell City construction is owned by the cooperative members.

President/CEO Dauby ended his presentation with the comment, PSC is One Company, your company and everything we do is on behalf of the cooperative and is owned by the cooperative. He stressed that cooperative members should be proud of this company and that PSC has a very bright future.

The next item on the agenda was the drawing of

attendance prizes. President/CEO Dauby, along with Board of Director assistance, announced and presented the winners with their prizes.

President/CEO Dauby concluded the Annual Meeting at 8:05 PM CT by thanking the mem-bership for attending the annual meeting and also extended a thank you to the board and employees for their continued dedication to this cooperative.

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2 0 1 5 C A N D I D A T E S

Lynn Kahle, Secretary-Treasurer

Richard Roos, Chairman of the Board

RANDALL DENNINGDistrict 2 St. Meinrad Exchange Randall Denning is the in-cumbent running for Director representing District 2, St.

Meinrad exchange. He and his wife, Janice, have been married for 28 years and live on Monte Casino Road. They have two children: Holly and Nathan. Holly is a Doctor of Physical Therapy and works for Paragon Rehabilitation at Oakwood in Tell City. Nathan is going into his last year of graduate school at IUPUI in Indianapolis. He also is going for a Doctorate of Physical Therapy.

Randy is a farmer of both grain and beef cattle. He is also a pumper for Brookston Resources of Newburgh and is responsible for the Abbey Waterflood Unit for this oil company. Randy is a lifetime member of St. Meinrad Catholic Church, volunteers at his church pic-nics, is a member of the St. Meinrad K of C and was a St. Meinrad Volunteer Fireman for seven years. Randy was involved in youth baseball, softball and basketball, where he coached and helped with St. Meinrad Park activities and work sessions.

Randy enjoys hunting, fishing and spending time with his family and friends.

NICK DILGER District 2 | St. Meinrad Exchange Nick Dilger is running for Director representing District 2, St. Meinrad exchange. He and his wife, Jean, have been married for 42 years and reside on the family farm, settled in 1848, on Dilger Road in Spencer County. They have 3 children: Angie Ruxer of St. Meinrad is a teacher and is married to Todd Ruxer. They have three children, Aubrey, Abby and Tyler. Amy Dilger of Santa Claus is the Benefits and Wellness Administrator at Best Home Furnishings. Richard Brad Dilger lives in Bloomington and is in Sales for Hilti Equipment.

Nick has been a lifelong farmer, operating dairy for 40 years and now does beef and grain. He graduated from St. Ferdinand High School and went on to complete a Science degree from Vincennes University/Purdue. He also served 6 years with the 152nd Infantry Division of the Indiana National Guard. Nick has served on the St. Meinrad Community Center Board, was a member of the St. Meinrad Fire Department, retiring after 26 years, and is a 30 year member of the St. Meinrad Knights of Columbus. He has been a Director/Agent for the Ferdinand Farmer Mutual Insurance Company for 39 years and was Treasurer for 35 of those years. Nick previously served 12 years on the Perry-Spencer Rural Telephone Cooperative Board. Nick enjoys collecting Barlow Knives, spending time with his family and friends, as well as cheering on his three grandchildren in all their activities.

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FINANCIAL STATEMENTS 2013/2014

A S S E T S

L I A B I L I T I E S A N D M E M B E R S ’ E Q U I T Y

CURRENT ASSETS Cash and Cash Equivalents $ 793,276 $ 3,706,523 Investments in Marketable Securities 134,750 141,567 Accounts Receivable 601,685 721,460 Materials and Supplies 474,007 377,868 Income Taxes Receivable 42,840 3,458 Other Current Assets 89,665 129,158 TOTAL CURRENT ASSETS 2,136,223 5,080,034 NONCURRENT ASSETS Investments in Marketable Securities 6,200,191 6,406,614 Other Investments 1,836,863 1,694,932 Deferred Income Taxes 1,564,693 1,720,918 TOTAL NONCURRENT ASSETS 9,601,747 9,822,464 PROPERTY AND EQUIPMENT In Service 63,188,424 55,573,453 Under Construction 4,797,513 4,195,431 67,985,937 59,768,884 Less Accumulated Depreciation (32,343,977) (29,363,125) TOTAL PROPERTY AND EQUIPMENT 35,641,960 30,405,759

TOTAL ASSETS $ 47,379,930 $ 45,308,257

CURRENT LIABILITIES Current Portion of Long-Term Debt $ 358,040 $ 349,731 Accounts Payable 1,325,518 1,138,712 Customer Deposits 61,219 45,244 Other Accrued Taxes 449,124 395,741 Accrued Wages 164,544 141,336 Accrued Expenses 321,506 317,265 Unearned Revenue 544,620 634,679 Post-retirement benefits 19,620 22,694 Patronage Capital Credits Payable 112,450 111,898 TOTAL CURRENT LIABILITIES 3,356,641 3,157,300 LONG-TERM LIABILITIES Mortgage Notes Payable 7,034,654 7,392,693 Post-Retirement Benefits 604,061 594,121 TOTAL LONG-TERM LIABILITIES 7,638,715 7,986,814 MEMBERS’ EQUITY Memberships 54,370 54,370 Patronage Capital 29,496,365 27,126,567 Retained Earnings 6,807,582 6,762,998 Accumulated Other Comprehensive Income 26,257 220,208 TOTAL MEMBERS’ EQUITY 36,384,574 34,164,143 TOTAL LIABILITIES & MEMBERS’ EQUITY $ 47,379,930 $ 45,308,257

DECEMBER 31, 2014 DECEMBER 31, 2013

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S T A T E M E N T O F O P E R A T I O N SOPERATING REVENUE Local Network Services $ 1,904,911 $ 1,843,317 Network Access Services 8,048,539 7,267,306 Video Services 1,530,181 1,259,188 Internet and Data Access Services 4,089,177 3,906,086 Long Distance Services 660,388 682,425 Rent 269,943 240,345 Billing and Collection Services 5,539 5,149 Directory 230,769 234,311 Miscellaneous Revenues 345,689 177,525 Uncollectibles (3,500) (36,902) TOTAL OPERATING REVENUES 17,081,636 15,578,750 OPERATING EXPENSES Plant Specific Operations 6,392,017 5,734,693 Plant Nonspecific Operations 1,146,036 970,147 Depreciation and Amortization 3,285,373 3,116,330 Customer Operations 1,729,210 1,563,183 Corporate Operations 2,069,057 2,031,467 Operating Taxes 440,265 393,789 TOTAL OPERATING EXPENSES 15,061,958 13,809,609 OPERATING MARGIN 2,019,678 1,769,141 OTHER MARGINS Interest and Dividends 275,221 264,875 Gain (Loss) on Sale of Investments 143,548 115,279 Other 146,943 120,984 MARGIN BEFORE INTEREST AND INCOME TAX 2,585,390 2,270,279 INTEREST ON LONG-TERM DEBT 90,520 125,018 MARGIN BEFORE INCOME TAX 2,494,870 2,145,261 INCOME TAX (3,603) 52,676 NET MARGIN $ 2,498,473 $ 2,092,585

2014 2013

PSC BOARD OF DIRECTORS

Back row: Lynn Kahle, Holland Exchange; Randy Denning, St. Meinrad Exchange;

Tim Denu, St. Marks Exchange; Alan Polster, Lamar Exchange

Front row: Hubert Harpenau, Bandon Exchange; Marvin Rogier, District At-Large;

Richard Roos, Chairman

YOU ARE INVITED TO ATTEND PSC’s62nd ANNUAL MEETING OF THE MEMBERS

"Clip out and bring this with you on May 21st to register and be eligible for prizes

A variety of attendance prizes will be given away. To be eligible, you must be a member or spouse on record, properly registered for the meeting, and in attendance. Each of the first 400 members

that register will receive an automatic $20 credit on their account (1 per membership).

The 62nd Annual Meeting of the members of the Perry-Spencer Rural Telephone Cooperative, Inc. d/b/a PSC will be held at the Ferdinand Community Center located in Ferdinand, Indiana on Thursday, May 21, 2015, at 7:00 p.m. Central Time.

TO TAKE ACTION ON THE FOLLOWING MATTERS:

PRIZES INCLUDING

3 TVS!

PRSRT STDUS POSTAGE

PAIDST MEINRAD IN

47577PERMIT NO 33

PO Box 12611877 E State Road 62Saint Meinrad, IN 47577-0126Main Local: 812-357-2123Alternate Local:812-843-5951, 812-536-3344Toll Free: 1-800-511-4899www.psci.net

1. Report of officers, directors, and committees;

2. The election of one (1) director of said cooperative to fill the vacancy for the member of said Board of Directors whose term expires during the year; and

3. Any other business that may come before the meeting on any adjournment or adjournments thereof.

A MEMBER MUST BE PRESENT TO VOTE. The clip-mailing address

on this report will be used for registration; be sure to present it at the

registration desk. The Board of Directors encourages your attendance and

participation at the 62nd Annual Meeting.

Perry-Spencer RTC, Inc. d/b/a PSC w Lynn Kahle, Secretary/Treasurer

+You could take home more than knowledge from our Annual Meeting. You might walk away with a great prize. To be eligible, you must be a member or spouse on record, properly registered for the meeting, and in attendance.

Each of the first 400 members that register will also receive an automatic $20 credit on their PSC account (one per membership).

Top Prizes: Head of Household ages 41-59 1st Flat Screen HDTV 2nd Kindle Fire 3rd Fitness Activity Tracker

Top Prizes: Head of Household ages 40 or under 1st Flat Screen HDTV 2nd 4 Holiday World Tickets 3rd Wii

Top Prizes: Head of Household ages 60+ 1st Flat Screen HDTV 2nd Kindle Fire 3rd WindchimesTop Prizes: Business/Organization 1st $100 credit 2nd $75 credit 3rd $50 credit

FREE YMCA PROGRAM FOR KIDS 5-12

Drop your children off at the Tri-County YMCA, located next door to the Ferdinand Community Center, before joining us at the Annual Meeting. They will enjoy snacks and activities such as crafts, Parachute Games, Climbing Rock Wall, Air Hockey, Gym Sports and more.

Children must be signed in at the door, and they will be walked back to the Community Center by the end of the meeting. To schedule your child(ren) for this program, please call 812-357-2123 by Noon on May 15th, 2015.

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