Look for upcoming discussions and further blogging on this site. Also, please look for Case Study #2 on my website. This study is illustrates the impact of making alternative allocations of patronage earnings, and of distributing 0%, 15% or 20% of the patronage earnings that are allocated with preferred stock (in this case paying a 5% annual dividend) rather than allocated equity credits paying no dividends. You can link to the power point here: https://sites.google.com/a/blackdogcooplaw.com/blackdogcooplaw2-com/case-study-you-decide-how-much-patronage-earnings-to-allocate.
Case Study #2 Bottom Line: Over twenty years, allocating 50% of patronage earnings and using preferred stock for 15% of the allocation rather than allocating 70% of the patronage earnings with no preferred stock conserves approximately $15 million for expenditures and beefing up the balance sheet. Here the Cooperative knows that it will have numerous opportunities to acquire businesses that it now competes against.
Further, if you look at where the Cooperative is in 20 years from now, the 50% allocation with 15% preferred stock results in $34 million of allocated equity to redeem in subsequent years, while the 70% allocation leaves the Cooperative with $44 million of allocated equity to redeem in subsequent years.
Bottom Bottom Line: The smaller allocation conserves $15.0 million over twenty years plus it positions the Cooperative with $10.0 million less allocated equity obligation at the end of 20 years. .
Again, Best Wishes for 2011!
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