THE NORTH POUDRE

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G•MrOI ArflJ lrrlgo+.d und•r Norttt Poud~ lrrigotiOtt s,.~.

- B-6 - B-5

THE NORTH POUDRE

IRRIGATION~iCOMPANY

1987

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DIRECTORS

Robert L. Stieben ... Wellington, Colorado Manuel Pineda ... Fort Collins, Colorado Arthur Meyer ... Wellington, Colorado Carl J. Judson, Jr ... Livermore, Colorado John C. Mattingly ... Fort Collins, Colorado

OFFICERS

Robert L. Stieben ... President Manuel Pineda ... Vice-President Ben Dumler ... Secretary-Manager Vi Proctor ... Treasurer and Assistant Secretary

ORDER OF BUSINESS

According to the By-Laws, the order of business of the stockholders meeting shall be as follows:

1. Meeting called to order by the chairman at 10:00 A.M.

2. Appointment of three stockholders of the company as a credentials committee

3. Registration of proxies with credentials committee 4. Report of credentials committee

5. Annual report

6. Nomination of directors

7. Opening of polls for election of directors 8. Old business

9. New business

(A) Vote on assessment for the year.

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For the past several years, the water supplies in the Poudre basin have been very adequate. However, in 1987 the runoff from the snow pack was less than fifty per cent of normal. This coupled with a very hot and dry summer, placed a premium on stored water. Those companies that had storage available to provide a substantial part of their water needs were able to deliver an adequate amount of water to their stockholders. The page in this annual, titled "Source of Water", dramati- cally illustrates the importance of reservoirs to the stockholders of North Poudre Irrigation Company. The allotment contract for 40,000 units of CBT water is also a very valuable asset to the company. At this time we can only speculate as to what the water supply might be for 1988.

The renovation of Clark Lake is still planned for the fall and winter of 1988 and the spring of 1989. The work of designing this project could be underway soon. Some delays have been caused by the difficulty geotechnical engineers have in obtaining adequate professional liability insurance at affordable prices.

North Poudre and Halligan Resources Company entered into an agreement in December of 1985, whereby the parties agreed to jointly file an application for a conditional water storage right for Halligan Reservoir and to negotiate with each other to see if they could reach an agreement for the construction, operation, maintenance, and financing of a Halligan Reservoir enlargement. If the parties were unable to reach an agreement by December 31, 1988, North Poudre would become the sole owner of any water decree or water right acquired for the expansion of Halligan Reservoir and all rights and duties of the parties would end.

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In 1987, the City of Fort Collins inquired of Halligan Resources Company and North Poudre about the possibility of the City becoming a party to the 1985 agreement by replacing Halligan Resources Company.

The City also asked to extend the agreement for at least one year. North Poudre believes that pursuing the Halligan project with the City can be beneficial to both entities in the future, so it agreed to have the City take the place of Halligan Resources Company in the agreement and to extend the agreement to December 31' 1989.

As we entered 1987, there were several major items of business pending that would require an extraordinary amount of your president's time, including the Geier- Loban lawsuit, Anheuser-Bush Augmentation plan, and because of litigation, a continuing effort to work out an operating agreement requested by the Northern Colora- do Water Conservancy District. Because I had to be available on an as needed basis, it did not seem that it would be possible to continue full-time employment and also give Company matters the attention that would be necessary. Therefore, the Board decided to pay me

$1 ,500/mo. for one year on a trial basis to attend to these and other North Poudre matters that may arise. I have spent an average of 145 hours per month on company business in 1987.

Our company history should reflect that on Septem- ber 4, 1987, Mrs. Gladys Munroe passed away at her home north of Fort Collins. Mrs. Munroe was the widow of E. F. Munroe who served as a director, and many years as president of North Poudre Irrigation Company.

Mrs. Munroe took an active interest in the affairs of this company.

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The depressed farm economy did not show notice- able improvement in 1987. The board of directors believes that it is important to continue the capital improvements program that was undertaken several years ago, however taking more time than originally planned to complete renovation of Clark Lake and No. 2 Reservoir seems to be an acceptable way of completing the projects and offering some relief in the form of slightly lower assessments. Therefore the board is recommending the assessments for 1988 be set at

$70.00 per share.

The commitment of resources the stockholders have made for the improvements to company facilities is outstanding and deeply appreciated by your board of directors.

Your attendance and participation at the annual meeting is encouraged.

Respectfully submitted, Robert L. Stieben, President

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RECOMMENDED BUDGET FOR 1988 Items per Share

$ 8.00 for water assessment 17.00 for loan retirement

10.00 for reservoir rehabi I itation

35.00 for operation, maintenance and weed control

$70.00

$40.00 per share due and payable April1, 1988, interest at 1 V2 °/o per month charged after May 1, 1988.

$30.00 per share due and payable October 1, 1988, interest at 1 V2 °/o per month charged after November 1, 1988.

Accounts past due over 1 year will be charged 25°/o interest.

Total amount owed must be paid prior to water delivery.

Total assessments of $70.00 per share are due April 1, 1988 on two shares or less.

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ANNUAL PRECIPITATION IN INCHES

Year Wellington Cactus Buckeye Livermore

1950 13.89 8.08 9.39

1951 21.59 15.83 15.02

1952 11.87 14.01 8.82

1953 12.10 7.79 13.11

1954 8.30 7.10 7.90

1955 12.84 13.48 10.20

1956 15.84 9.44 13.41

1957 19.48 12.90 16.67

1958 17.99 15.70 14.21

1959 14.58 12.61 12.61

1960 8.84 9.61 7.67

1961 24.95 19.38 18.51

1962 13.90 9.67 13.18

1963 12.10 9.70 11.84

1964 5.64 4.51 5.21

1965 16.50 11.55 15.46

1966 8.21 4.74 8.10

1967 22.52 18.28

1968 10.26 9.18 8.49 4.80

1969 15.39 15.80 14.83 15.82

1970 11.48 14.22 9.61 13.71

1971 13.27 13.04 10.57 12.45

1972 13.50 15.02 10.87 11.22

1973 10.90 15.11 11.10 14.64

1974 8.84 10.65 9.56

1975 11.13 11.90 7.48

1976 10.39 7.00 10.77

1977 10.35 9.72 13.88

1978 10.25 12.87 11.70 15.03

1979 19.59 20.78 16.27 21.50

1980 13.51 12.58 14.61 17.61

1981 12.93 12.01 15.48 14.56

1982 19.07 17.63 18.36 16.64

1983 16.68 18.73 17.67 20.73

1984 13.44 13.51 16.26 20.86

1985 12.73 10.19 10.30 12.06

1986 11.41 8.15 11.24 9.50

1987 9.87 9.40 10.58 14.93

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Source of Water

Storage to January 1, 1987 Storage to Apri I 1, 1987 Storage after Apri I 1, 1987

Direct Flow

C.B.T (Horsetooth)

Distribution

North Poudre Stockholders Fossi I Creek Stockholders Carry Over

Rental (Fossi I Creek)

Loss in storage & distribution

Dividends Apri I 8, 1987 May 6, 1987 June 9, 1987 July 15, 1987

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Acre Feet Percentage 30,257 41.28

5,248 7.16 7,454 10.17 42,959 58.61

2,329 3.18 28,000 38.21 73,288 100.00

40,330 55.03 3,420 4.67 15,133 20.65 2,292 3.13 12,113 16.52 73,288 100.00

Acre Feet per Share

2.0 3.0 2.0 0.5 7.5

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In March we started the first filing on #15 Reservoir after the rehabilitation. This sort of fillin·g takes considerably more time than the ordinary filling, but we managed to get it filled by irrigation season, and it checked out alright.

The evening of May 13, we started to get an excess of water into the Upper #10 Lateral from the Waverly Main.

We soon realized the gate structure was being under- mined by the water in the Main, and approximately 250 cubic feet per second was going down the Upper #10 Lateral, which normally carries around 50 c.f.s. We shut the system down as rapidly as possible, however, at that location that meant about twelve hours. We were, however able to collect all the water in #2 Reservoir.

We began reconstruction on Thursday morning, May 14, and had the system running again on Sunday, May 17. When the structure was built (the one we lost) a concrete foundation, instead of a cut-off footer, was placed about two feet below the bottom of the canal, then a non-reinforced wall was placed on the footer. I'm surprised it lasted through the first year, instead of more than thirty.

After irrigation season we checked out the structure at the #2 Reservoir inlet, and found it in dire need of repair. It appeared this structure had been rebuilt approximately the same time as the aforementioned Upper# 10 structure on the Main. It was rebu i It, as was a drop structure on the Buckeye Main; and the inlet structure to Indian Creek Reservoir was also repaired.

Two photographs of the Waverly Main repair in May and two of #2 Reservoir repair are included in the annual.

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Early in July our Lakes Ditch Rider, Kenneth "Hooks"

Kingsley, suffered a heart attack, which proved fatal July 23rd. He was a faithful, dependable, well-liked employee.

With the amount of carry over water we had in store after the 1986 season, we were able to have a fairly good irrigation season, even though the snow shed storage was poor, and the river flow was poor. Again, the amount of snowpack at this time is low (December 21), and hopefully it will show good improvement by spring.

1986 Reservoir Lease Income Fossil Creek

Hinkley Park Creek Reservoir #2 Reservoir #5

Reservoir #4, and Smith Reservoir #3

Reservoir #15

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$10,500.00 1,200.00 14,500.00 4,400.00 5,000.00 5,000.00 5,000.00 10,000.00 55,600.00

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Year Assmt Ac Ft Cost Per Yearly Interest Acre Foot Average

1909 $ 5.00 $ 22,029.05

1910 5.00 26,533.46

1911 4.00 21,351.13

1912 5.00 3.09 1.618 21,137.50

1913 6.00 2.87 2.091 26,683.07

1914 7.00 3.44 2.035 35,698.51

1915 7.00 3.09 2.265 2.00 39,715.38

1916 7.00 2.29 3.057 2.36 37,843.74

1917 7.00 3.15 2.222 2.39 33,341.79

1918 7.00 2.41 2.905 2.61 39,510.20

1919 8.00 1.14 7.018 3.80 38,383.15

1920 11.00 2.98 3.691 3.96 37,483.88

1921 8.00 3.74 2.139 3.94 36,672.49

1922 6.50 1.83 3.552 4.10 37,269.08

1923 6.50 4.31 1.508 2.72 38,713.11

1924 9.50 4.59 2.070 2.32 42,899.56

1925 12.00 2.52 4.762 2.97 42,232.10

1926 5.00 4.63 1.080 2.35 40,525.92

1927 8.00 3.92 2.041 2.49 41,175.17

1928 8.50 4.59 1.852 2.43 37,054.95

1929 8.25 4.43 1.862 1.71 33,242.45

1930 8.25 3.09 2.670 2.11 31,879.06

1931 7.50 2.60 2.885 2.32 30,510.11

1932 7.00 1.37 5.109 3.13 29,314.38

1933 4.50 2.87 1.568 3.06 28,702.10

1934 5.00 1.37 3.650 3.30 28,773.75

1935 4.25 3.16 1.345 2.92 28,716.25

1936 6.00 2.07 2.899 2.37 28,863.61

1937 5.75 1.22 4.713 3.15 23,692.80

1938 6.75 3.21 2.103 2.76 23,626.89

1939 7.75 2.61 2.969 3.17 25,655.98

1940 7.25 0.75 9.667 4.86 21,808.42

1941 4.00 2.00 2.000 4.18 19,102.96

1942 6.25 3.90 1.603 4.06 18,030.56

1943 8.00 4.19 1.909 3.79 17,423.15

1944 7.25 3.07 2.362 1.97 16,208.69

1945 7.25 2.10 3.452 2.33 14,149.96

1946 7.25 2.00 3.625 2.84 12,668.32

1947 9.00 3.30 2.727 3.04 11,266.32

1948 13.00 2.16 6.019 3.96 11,420.83

1949 12.00 3.00 4.000 4.09 8,956.62

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Year Assmt Ac Ft Cost Per Yearly Interest Acre Foot Average

1950 $ 12.00 1.80 6.667 4.85 $ 8,735.23

1951 12.00 2.62 4.580 5.32 6,457.13

1952 12.00 3.20 3.750 4.75 5,077.05

1953 14.40 4.51 3.193 4.55 4,366.54

1954 18.60 3.40 5.471 4.25 2,860.71

1955 18.00 3.20 5.62 54.5 11,950.61

1956 16.00 3.40 4.706 4.75 1,564.16

1957 9.00 6.50 1.385 4.30 116.10

1958 15.00 6.00 2.500 3.55

1959 14.50 5.80 2.500 2.77

1960 14.50 5.30 2.736 2.28

1961 14.50 6.00 2.417 2.54

1962 14.50 7.00 2.071 2.43

1963 14.50 5.50 2.636 2.47

1964 15.00 5.30 2.830 2.49

1965 16.00 5.00 3.200 2.68 96.66

1966 16.50 5.00 3.300 2.99 172.51

1967 17.00 4.50 3.778 3.28 216.81

1968 20.00 6.30 3.175 3.36 120.81

1969 20.00 5.50 3.636 3.47 1 '164.37

1970 20.00 7.00 2.857 3.36 273.78

1971 20.00 8.00 2.500 3.04

1972 21.00 5.00 4.200 3.30 2,667.00

1973 21.00 6.00 3.500 3.26 2,877.00

1974 22.00 7.00 3.143 3.34

1975 26.00 7.00 3.714 3.64

1976 35.00 6.00 5.833 4.05 5,262.00

1977 45.00 4.80 9.375 5.52 8,267.00

1978 45.00 6.35 7.087 6.50 8,161.00

1979 45.00 6.70 6.716 7.25 13,852.00

1980 55.00 4.70 11.702 8.72 21,917.00

1981 80.00 6.75 11.852 9.34 12,057.00

1982 80.00 6.50 12.308 10.64 18,676.00

1983 100.00 10.50 9.524 11.35 25,097.00 1984 100.00 15.00 6.667 10.09 14,333.84

1985 100.00 9.00 11.111 9.50 9,157.20

1986 75.00 11.50 6.522 8.46 3,391.86

1987 75.00 7.50 10.000 8.57 156,421.00

Total Interest Paid $1,495,575.82

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HILL, HILL & Manges, P.C.

Attorneys at Law A Professional Corporation Fort Collins, Colorado 80522

December 22, 1987

We have now represented The North Poudre Irrigation Company for over 20 years. It has been a pleasant association through all these years.

This is a report of some of the activities on behalf of the Company in 1987.

In 1987, we spent at least 397 hours of time on North Poudre matters compared with at least 350 hours in 1986.

The action North Poudre brought to resolve a dispute between George Geier, Jr, Gregory Geier, and Edgar F.

Loban, Lucille M. Loban and Garrell E. Loban over a right of way was resolved by District Judge William F.

Dressel. It was decided after there was a trial to the Court. Geier's request to use rights in a certain ditch were resisted by Lobans and the Lobans' position was upheld. There had been a counterclaim for damages filed by Geiers against North Poudre for refusing to deliver water. The counterclaim was denied. There was no appeal of the Trial Court's decision.

Litigation remained pending through the year between North Poudre and The Northern Colorado Water Conservancy District. This was Civil Action 86 CV 964 in the District Court of Larimer County. There was a delay in pursuing discovery while we met to see if differences could be ironed out. The District wanted an expanded operating agreement for the Munroe Canal. After many drafts and many discussions, a written Operating

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Agreement was reached with the District. We believe the Operating Agreement addressed the District's conc- erns on maintenance matters and non-agricultural use of water but did not give up any rights under the Petition and Order approved over 40 years ago. The lawsuit was dismissed without prejudice.

Stockholders should take the time to regularly follow the activities and expenditures of The Northern Colora- do Water Conservancy District. This District, its actions and expenditures affect us all and residents have very little effective input in the selection of directors because they are not elected by residents of the District.

They are appointed by District Judges who are no longer elected.

The uncertainty of the insurance market, the problem of astronomical increases in the cost of liability insurance and the difficulty in getting coverage for irrigation companies continues to be a major problem. At this writing we think limited coverage will be available for North Poudre in 1988. There are not any signs of solutions which make more coverage available at a reasonable cost.

The Notice of Final Settlement was published with regard to the repair of Reservoir #15 and that project was completed without any problems developing. The contractor was Ames Construction, Inc.

Time has been spent trying to get engineering contracts in place to go forward on the repairs of Clark Lake. Difficulties in obtaining professional liability insurance from the standpoint of the engineering firms and changes in the members of the engineering firms North Poudre has dealt with have caused delays. This project should be moving ahead in the early part of 1988 and actual repairs may begin late in that year.

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The North Poudre Irrigation Company, with coopera- tion with Halligan Resources Company, was able to obtain a conditional water decree for an expansion of

Halligan Reservoir. The City of Fort Collins is interested ] in exploring an expansion. Of course for any project to

come about, there would be negotiation and agreement between The City and North Poudre.

The lease between North Poudre and Anheuser Busch for some augmentation water did not work out.

Anheuser elected to make other arrangements. It still may be possible for some benefits to come to the stockholders of this Company through an option ar- rangement as Anheuser evaluates what augmentation water it may need in the years ahead.

There were the usual activities in the nature of subdivision or exemption requests. The Company regularly receives notices of some activity, either along a ditch or reservoir, where comments or appearances need to be made to see that property rights are protected. The Cherry Heights Subdivision, which would surround Reservoir #10 north of Fort Collins with homes, is still alive but moving slowly because of the economic conditions in the country. We've noticed the developers have a "For Sale" sign on the property.

There have been some recent contacts trying to finish up an agreement with North Poudre on matters that would have to be addressed if there is development around this Reservoir.

The City of Thornton's acquisition of stock in the Water Supply and Storage Company will raise many questions. We suspect there will be prolonged legal battles before we find out what will happen and how it will work. The Board is watching the situation.

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]

There is still sewage effluent being received into Fossil Creek Reservoir without North Poudre approval from Mountain Range Shadow Subdivision located to the south. Mountain Range Shadow is still working with South Fort Collins Sanitation District. It still seems possible that the subdivision might tie into the sewer system. These kinds of problems take more time and cost more money than can be imagined.

There are the usual legal matters which continue to arise, involving such things as easements crossing ditches, an occasional oil and gas lease, and questions related to recreational leases. Occasional bankruptcy notices create a need to file claim for unpaid assessments. The bankruptcy court is swamped, reflecting the times.

The proper documentation for stock transfers and lost stock certificates are recurring problems to stockholders and The North Poudre office. Please be sure you know where your certificate is located. A lost instrument bond is expensive.

From our standpoint, we haven't noticed an improvement in the dire financial situation of many farmers and ranchers and it is of concern to all connected with North Poudre. It will take patience and understanding and all the help each of us can contribute to make 1988 a better year.

Hill, Hill, & Manges, P.C.

Alden T. Hill Alden V. Hill

Richard B. Manges

Gerald W. Laska, Associate Attorneys at Law

160 West Mountain Avenue Fort Collins, Colorado

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Board of Directors

North Poudre Irrigation Company Wellington, Colorado

November 19, 1987

We have examined the balance sheet of North Poudre Irrigation Company as of October 31, 1987 and 1986, and the related statements of operations and changes in financial position for the years then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the accompanying balance sheet presents fairly the financial position of North Poudre Irrigation Company at October 31, 1987 and 1986, and the results of operations and changes in financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

Respectfully submitted,

~,

^/V,aKh.r

l/M-mh.

Brock, Watkins, & Schommer Certified Public Accountants

MEMBERS OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

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North Poudre Irrigation Company Wellington, Colorado

Balance Sheet October 31, 1987 and 1986

Current Assets Cash in Bank

Investments (Note 1) Assessments Receivable Notes Receivable (Note 2) Prepaid Expense

Total Current Assets Property Assets (Note 1)

Land

Construction in Progress

ASSETS

Priorities, Water Rights & Easements Ditches and Reservoirs

Buildings and Improvements Radio and Office Equipment Machinery and Equipment Transportation Equipment

Total

Less Accumulated Depreciation Total Property Assets

Other Assets

Stock of Other Companies (Note 1) Notes Receivable (Note 2)

Total Other Assets Total Assets

1987

173,730 48,161

2,204 5,983 230,078

266,260 56,496 673,804 9,249,518 112,689 39,444 167,089 51,580 10,616,880 (2,038, 733) 8,578,147

17,941 24,327 42,268 8,850,493

The accompanying notes are an integral part of these financial statements.

Exhibit A

1986

40,084 439,556 82,340 1,995 2,746 566,721

266,260 1,807,534 672,935 6,937,687 112,689 39,338 167,089 51,580 10,055,112 (1 ,933,541) 8,121,571

17,941 26,531 44,472 8,732,764

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LIABILITIES

Current Liabilities 1987

Notes Payable (Note 3) 42,685

Accounts Payable- Trade 19,554 Accounts Payable-

Water Purchase (Note 5) 60,000

Accrued Interest 62,146

Accrued Payroll Taxes 340

Accrued Wages 8,200

Total Current Liabilities 192,925 Long- Term Liabilities (Note 3)

Notes Payable 3,085,478

Total Liabilities 3,278,403

STOCKHOLDERS' EQUITY Paid In Capital

Common Stock (10,000 Shares Authorized,

$50 Par Value, 10,000 Shares Issued,

9,996 Outstanding) 500,000

Additional Paid In Capital 3,450 Total Paid In Capital

Retained Earnings Beginning Balance

Net Income Per Statement of Operations

Ending Balance Total Paid In Capital

and Retained Earnings Less: Treasury Shares at Cost Total Stockholders' Equity Total Liabilities

and Stockholders' Equity

Exhibit A 19

503,450

4,871,319 197,468 5,068,787

5,572,237 (147) 5,572,090

8,850,493

1986 32,057 211 '158 60,000 33,894 342 8,167 345,618

3,012,524 3,358,142

500,000 3,450 503,450

4,555,939 315,380 4,871,319

5,374,769 (147) 5,374,622

8,732,764

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Statement of Operations October 31, 1987 and 1986

1987 Operating Revenues

Assessments 750,296

Leases-Boating, Pasture, Etc. (Note 4) 66,272

Stock Transfer Fees 5,040

Option and Other Income (Note 6) 116,075

Reimbursements 6,499

Total Operating Revenue Operating Expense

Repairs and Maintenance, Buildings Ditches, Reservoirs, and Equipment Machine Hire

Gas and Oil Weed Control

Water Purchased and Assessments Engineering Fees

Salaries and Wages Payroll Taxes

Ditch Rider's Expense Insurance

Office and Other Expense Vehicle and Other Taxes Directors' Fees and Expense Utilities and Telephone Mileage

Legal Fees Accounting Fees Employee Benefits Depreciation

Total Operating Expenses Income From Operations

944,182

46,088 924 8,295 17,277 71 '153 1,033 185,564 18,167 10,804 45,593 10,841 1,925 22,961 11,518 7,404 34,743 2,600 15,533 105,192 617,615 326,567

The accompanylng notes are an integral part of these financial statements.

Exhibit B

1986 750,484 42,612 4,600 103,747 10,290 911,733

64,394 2,857 11,151 17,921 71,283 4,757 196,558 18,906 11,951 27,183 13,416 1,922 17,627 10,744 5,903 29,676 2,625 15,193 83,563 607,630 304,103

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Statement of Operations October 31, 1987 and 1986

(concluded)

Other Income Interest Income Oi I and Gas Royalties Gain on Sale of Assets Total Other Income Other Expense-Interest Net Income

1987

11,469 15,853

27,322 (156,421) 197,468

Exhibit B

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1986

48,142 19,313 14,374 81,829 (70,552) 315,380

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Statement of Changes in Financial Position October 31, 1987 and 1986

1987 1986

FINANCIAL RESOURCES WERE PROVIDED BY Net Income Per Statement

of Operations 197,468 315,380

Add-Expense Not Requiring Outlay of Working Capital in the Current

Period Depreciation 105,192 83,563

Resources Provided by Operations 302,660 398,943 Construction Loan Advances 114,554 1,026,947 Net Decrease in Other Assets 2,204 7,036

Book Value of Treas. Shares Sold 265,626

Net Decrease in Working Capital

-Below 183,950 138,036

Total Financial Resources Provided 603,368 1,836,588

FINANCIAL RESOURCES WERE APPLIED TO

Payment on Long-Term Debt 41,600 32,057

Purchase of Additional

Property Assets 561,768 1,804,531

Total Financial Resources Applied 603,368 1,836,588 Statement of Changes in Components of Working Capital

Increase (Decrease) Cash

Assessments Receivable Accrued Interest Receivable Notes Receivable

Prepaid Expenses Notes Payable Accounts Payable Accrued Expenses Net Increase (Decrease)

in Working Capital

(305,910) 42,126

(34, 179) (6,983) 209

3,237 (10,628) 191,604 (28,283) (183,950)

(9,364) 667 (4,151) 10,346 (170,434) (243) (138,036)

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Notes to Financial Statements October 31, 1987 and 1986

Note 1 -Significant Accounting Policies

Property Assets - Property assets are recorded at cost.

Depreciation is being taken by the straight-line method over the following useful lives.

Item

Ditches and Reservoirs Buildings and Improvements Radio and Office Equipment Machinery and Equipment Transportation Equipment

Life 100 years

20 years 10 years 10 years 4-5 years

Investments - Investments consist of a Money Market Account stated at cost.

Income Taxes - The Company is incorporated under the laws of the State of Colorado as a tax exempt corporation;

therefore, no provision for income taxes has been made.

Stock of Other Companies - Investments in the stock of other irrigation companies is stated at cost.

Note 2- Note Receivable Detail Source

Smelker, Gerald & Lela, 10°/o interest, due in monthly payments of $396, principal due in full October 11, 1995, secured by 1st deed of trust

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Current Long- Term

2,204 24,327

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Note 3- Note Payable Detail Source

US Department of Interior, 3.25°/o interest on excess acres, principal calculated annually, due in annual payments of

$19,900 plus interest until paid in full.

Current Long- Term

Collateralized by company property 19,900 656,235 Colorado Department of Natural Resourc-

es (Colorado Water Conservation Board), 5°/o interest, payable in 40 annual install- ments of $77,612 beginning May 1, 1985.

Collateralized by an undivided one half interest in the Fossil Creek dam structure.

Source

Colorado Department of Natural Resourc- es (Colorado Water Conservation Board), 5°/o interest, payable in 40 annual install- ments of $67,192 beginning May 1, 1987.

Collateralized by an undivided one half interest in the No. 15 dam structure.

Colorado Department of Natural Resourc- es (Colorado Water Conservation Board), 5°/o interest, payable in 10 annual install- ments of $1,518 beginning January 1 of the year that construction of the project is

12,765 1 ,284,178

10,020 1,133,345

completed. 11,720

Total 42,685 3,085,4 78

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Note 4- Lease Income

Lease income is derived from the lease of reservoirs and land to various organizations for recreational and agriculture uses. All leases are normally annually renewable over a 5 year period with the exception of the following:

1) Luther Harris, lease of Fossil Creek Reservoir through 11/8/91 at $10,500 per year.

2) Ski and Camp Club, lease of No 15 Reservoir through 11/1/91 at $10,000 per year.

3) Carey Construction Co., lease of Hinkley Reservoir through 3/31/88 at

$1200 per year.

Note 5- Water Allotment Agreement

The Company entered into an agreement December 5, 1945, with the Northern Colorado Water Conservancy District for the annual purchase of 40,000 acre feet of water, or any such portion that may be delivered, at $1.50 per unit. Payment is due May 1 of every year and is secured by an irrevocable levy of assessment on the capital stock of the Company. Payments shall continue until the delivery system is paid for and thereafter for operating and maintenance charges.

Note 6- Anheuser-Busch Agreement

The Company entered into an option agreement January, 1986, to provide augmentation water to Anheuser-Busch Company beginning January 15, 1988. The Company received $80,000 February, 1986, and received an additional $60,000 February, 1987, for the companies option agreement. The Company agrees to provide augmentation water to Anheuser-Busch of not less than 1,250 acre feet and not more than 3,500 acre feet for 30 years beginning January 15, 1988. The initial cost per acre foot will be

$24.51. The cost per acre foot shall be reviewed every 3 years and adjusted based on the operating costs of the Company.

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Note 7- Legal and Asserted Claims

The Company is currently involved in a lawsuit. Legal actions have not progressed to a point where liability to the Company can be determined.

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Upper N10 Inlet on Waverly Main. East of Co. Road 15 and South of Co. Road 70.

Upper #10 Inlet on Waverly Main. East of Co. Road 15 and South of Co. Road 70.

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Inlet to #2 Reservoir