Detailed Version - UFA.com
Detailed Version - UFA.com
Detailed Version - UFA.com
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
2011 Annual Report<br />
<strong>UFA</strong><br />
Announces<br />
Turnaround<br />
Year.<br />
“ The world we operate in today is vastly different from what<br />
we knew 10, 20 or 50 years ago, creating exciting new<br />
opportunities for our co-op. “<br />
- Jim Laverick Chairman of the Board<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 1
table of contents<br />
Corporate profile.....................................................................................................................................3<br />
Financial highlights & five-year summary.........................................................................................4<br />
Chairman’s message...............................................................................................................................5<br />
President & CEO’s message..................................................................................................................7<br />
Management’s discussion & analysis.................................................................................................13<br />
Financial statements........................................................................................................................... 28<br />
Board of directors................................................................................................................................ 53<br />
Senior management............................................................................................................................ 54<br />
Contact information............................................................................................................................ 55<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 2
United Farmers of Alberta Co-operative Limited<br />
CORPORATE PROFILE<br />
Core Purpose<br />
To improve the economic and social well-being of our agricultural owners and their <strong>com</strong>munities.<br />
Vision<br />
<strong>UFA</strong> is a market leading agricultural co-operative providing quality products, services and solutions that<br />
support our owners and customers and serve the rural <strong>com</strong>munity.<br />
Mission Statement<br />
We are a co-operative with a mandate to create value for our owners and customers through our<br />
unwavering <strong>com</strong>mitment to strong financial performance; relevance to agriculture producers; and<br />
connection to the rural <strong>com</strong>munity.<br />
We excel at anticipating and responding to the changing needs of the people who live, work and play<br />
in the rural environment.<br />
We have an exceptional ability to identify, source and deliver relevant products, services and<br />
solutions at the right place and time.<br />
We champion a work environment that inspires a balance of progressive thinking, agility,<br />
collaboration and accountability for results.<br />
In doing so, we believe that <strong>UFA</strong> will be<strong>com</strong>e the preferred choice of owners, customers, business<br />
partners and top-performing employees who share our passion for this business.<br />
Core Values<br />
Accountability<br />
Agility<br />
Collaboration<br />
Integrity<br />
Performance<br />
Progressive thinking<br />
Respect<br />
2 CORPORATE PROFILE<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 3
United Farmers of Alberta Co-operative Limited<br />
FINANCIAL HIGHLIGHTS & FIVE-YEAR SUMMARY<br />
(Stated in thousands of Canadian dollars) 2011 2010 2009 2008 2007<br />
Sales 2,108,450 1,742,941 1,603,863 2,161,230 1,805,977<br />
Margin 244,961 216,306 225,697 216,412 246,395<br />
Operating expense (189,767) (215,090) (180,823) (146,028) (136,516)<br />
Earnings before patronage allocation and in<strong>com</strong>e taxes 3,390 (88,530) (4,077) 45,099 91,626<br />
Patronage allocation 7,000 – – 15,700 35,200<br />
Distribution to members<br />
Cash portion of patronage allocation – – 3,648 8,223 8,166<br />
Issuance of Class A investment shares 14,093 15,012 16,023 15,924 13,860<br />
Dividends on investment shares 2,484 1,894 1,550 2,952 3,164<br />
Retirement of equity 6,119 6,287 6,163 3,852 3,645<br />
Total Distribution to members 22,696 23,193 27,384 30,951 28,835<br />
FINANCIAL HIGHLIGHTS & FIVE- YEAR SUMMARY 1<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 4
United Farmers of Alberta Co-operative Limited<br />
CHAIRMANʼS MESSAGE<br />
It is always a humbling experience to stand in front of the delegate body and give an<br />
accounting of our stewardship as governors of your co-operative. In March 2011,<br />
having to report the worst financial results in our history was about as humbled as I<br />
ever want to feel.<br />
At that time, I said that we would need a Herculean effort from everyone – the board,<br />
management, front-line staff, support staff, agents and delegates – in order to rebuild<br />
this organization. I asked everyone to stay engaged, to recognize that we are making<br />
progress, to maintain their optimism and keep the faith.<br />
2011 was year one of our three-year rebuilding plan. Our very survival depended on<br />
turning the organization around, getting back on track and setting ourselves up<br />
for long-term sustainability. As an enterprise we went to the drawing board, broke it all down, made<br />
changes, eliminated bad habits, added new ideas, then, put it all back together and focused on execution,<br />
execution, execution.<br />
As expected, we have seen some excellent progress and even enjoyed a few big wins in the past 12 months. Our<br />
results have improved – dramatically. And perhaps even more importantly, they have improved for all the right<br />
reasons. Some businesses in Alberta are seeing better results just because the economy is better. While <strong>UFA</strong> has<br />
also benefited from a stronger economic environment, our results have improved because we took action. We<br />
started with a good plan. Our people executed those plans well. And now we are seeing better results.<br />
2011 was a year when we focused on the most pressing and urgent issues facing our co-operative. While burning<br />
platforms have consumed us through the past couple of years, we are also facing long-term challenges that can no<br />
longer be ignored or delayed. Like your business, our business – the way we operate, the needs of the customers<br />
we serve, our <strong>com</strong>petitors and the industries in which we <strong>com</strong>pete are experiencing rapid change.<br />
In the past <strong>UFA</strong> has struggled to keep pace with change. We have spent too much time, energy and resources<br />
attempting to hold on to the status quo. We have struggled with our efforts to remain relevant to the agricultural<br />
producer – and we have paid the price.<br />
A fundamental responsibility that we have, as governors and delegates, is to ensure the long-term viability and<br />
sustainability of the co-operative. The three year plan was only the first step of a long and challenging journey. The<br />
board has spent a lot of time considering the rest of that journey: where are we going and how will we get there? In<br />
considering those questions, we returned to our roots and carefully considered our mandate and core purpose “to<br />
improve the economic and social well-being of our agricultural owners and their <strong>com</strong>munities.” We do this by<br />
delivering on membersʼ expectations for <strong>UFA</strong>:<br />
1. Enable my business.<br />
2. Protect my investment.<br />
3. Champion rural sustainability.<br />
As I explained last year, we must first serve the needs our members as customers. Once members begin to build<br />
equity, they expect that it will be used wisely to invest in and grow the business. When the business is healthy and<br />
growing – dividends are paid. Our members are not only concerned about the future of the co-operative they also<br />
care about the sustainability of the agricultural industry, the environment and the rural <strong>com</strong>munities where they live<br />
and work and spend their leisure time. It used to be that the grain elevator was a symbol of a prairie townʼs<br />
prosperity and well-being. Today, a <strong>UFA</strong> farm and ranch store or petroleum agency is often that barometer of rural<br />
CHAIRMANʼ S MESSAGE 3<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 5
health and sustainability. That is a heavy responsibility to carry. It is one that we cannot take lightly. It is something<br />
that our members remind us of every day.<br />
So how does <strong>UFA</strong> stay healthy, relevant and sustainable over the long-term? How do we reclaim our place as<br />
leaders in agriculture and the rural <strong>com</strong>munity?<br />
Traditionally we have thought of ourselves as farm and ranch supply retailers with a fuel distribution network<br />
operated by independent agents. Today we must think of ourselves as investors in a diversified portfolio of<br />
business opportunities. And we must be constantly evaluating those opportunities to ensure that they align with our<br />
objectives and core purpose and create true value for our owners.<br />
The board has determined that our portfolio will focus on prudent investments in the Agribusiness, Energy and<br />
Retail sectors. We will look to businesses within each of those sectors as opportunities that will help us remain<br />
viable, relevant and sustainable to agricultural producers and their <strong>com</strong>munities. Over the next few years, you will<br />
see that strategy begin to take shape as we make investment decisions with each of our lines of business.<br />
We have had a good year. Our results are better than expected. Last year we announced a loss before patronage<br />
and in<strong>com</strong>e taxes of $88.5 million dollars. This year we managed to get back in the black and we do have surplus<br />
earnings. I am pleased to report that the board is re<strong>com</strong>mending a patronage payment of $7 million to our<br />
members. While this is less than we want to deliver in <strong>com</strong>ing years, it is a substantial improvement over last<br />
year‟s results. It represents a monumental ac<strong>com</strong>plishment and a major turning point for <strong>UFA</strong>.<br />
I want to acknowledge and thank Bob and the management team for the work they have done. Compared to<br />
where we started, considering the enormity of the task they faced, what they have done to get us refocused and<br />
moving in the right direction is nothing short of spectacular. They deserve our thanks, our gratitude and most<br />
importantly, our on-going support.<br />
I also want to thank everyone in the organization who has pulled together and contributed to our progress. Our<br />
elected officials including the board and delegates, our managers, our front line staff, our field people, the agents –<br />
literally everyone who is part of the <strong>UFA</strong> family. Thank you for your efforts, your patience and your perseverance.<br />
Today, I am more confident and more optimistic than I was last year. We are back on track. We are moving in the<br />
right direction. We are making progress. But we are not out of the woods yet. Last year, I said rebuilding teams<br />
don‟t expect to win the championship in year one. We are now in year two of the three year plan. There is still<br />
much to be done. The second year of a three year plan is very much like part two of a three part movie. You‟re not<br />
at the beginning. You‟re not at the end. You‟re somewhere in the middle. The key is to stay focused and keep<br />
moving forward.<br />
Thank you.<br />
Jim Laverick<br />
Chairman of the Board<br />
4 CHAIRMAN‟S MESSAGE<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 6
United Farmers of Alberta Co-operative Limited<br />
PRESIDENT AND CEO’S MESSAGE<br />
In September of 2011, <strong>UFA</strong> had the privilege to sponsor a benefit concert performed<br />
by Paul Brandt for the <strong>com</strong>munity of Slave Lake. It was entitled “Up from the Ashes”.<br />
In many ways, the 2011 performance of our co-operative could be described using<br />
the very same title. Coming off a very difficult period in our history, we entered 2011<br />
with a new financial platform, new business plans, and a renewed sense of optimism.<br />
The unanswered questions that remained were:<br />
Would our owners and customers support our new direction and efforts?<br />
Would our employees and agents engage in the execution of our plans?<br />
Would we have the support of our vendor <strong>com</strong>munity?<br />
Would we earn the confidence of our new financial stakeholders?<br />
I am happy to report the resounding answer to all of those questions is YES. We have delivered on our<br />
<strong>com</strong>mitments. In doing so we have earned the renewed respect of our owners and I believe, enhanced our<br />
reputation with all of our key stakeholders. 2011 was a year of New Beginnings and we are well positioned for a<br />
strong performance in 2012.<br />
As a result of exceeding our operational <strong>com</strong>mitments in 2011, we are once again in a position to pay a patronage<br />
dividend. This will amount to $7 million and will be allocated against Ag Fuels, crop inputs and livestock supply<br />
purchases made in 2011. The declaration of a dividend for 2011, albeit a modest one, signifies a dramatic turnaround<br />
for <strong>UFA</strong>.<br />
To our owners and customers I can simply say thank you. Thank you for sticking with us through the difficult times,<br />
and in helping us re-build the foundation of this proud co-operative.<br />
Alberta has one of the world‟s most productive agricultural economies, with more than 50 million acres used for<br />
crop and livestock production. This represents around 20 per cent of the value of Canada‟s total agricultural<br />
production and generates the country‟s highest cattle and second highest grains and oilseeds receipts.<br />
<strong>UFA</strong> is indelibly linked to this important sector of the Alberta economy. Our Core Purpose is to improve the<br />
economic and social well-being of our agricultural owners and their <strong>com</strong>munities. We had briefly lost our way, but<br />
in 2011 we re<strong>com</strong>mitted ourselves and as we move forward, all our business decisions will be weighed in the<br />
context of relevance to our owners and the agricultural <strong>com</strong>munities they represent.<br />
AgriBusiness<br />
<strong>UFA</strong>‟s AgriBusiness is represented by a network of 35 Farm & Ranch stores and a professional team of people<br />
supporting the provision of goods and services to Agricultural professionals in Alberta. In addition, we have three<br />
bulk fertilizer plants, Spruceland Lumber in Fort McMurray and a skilled and knowledgeable sales team interacting<br />
with our members at the farm gate.<br />
2011 represented the first year in a three year turn-around strategy for our AgriBusiness. With strong leadership<br />
and focused execution, the results in 2011 were very positive, with all financial metrics exceeding targets.<br />
Member and customer acceptance to a wide array of changes has been positive, as reflected in our sales results<br />
and an increase in booking orders for the spring of 2012.<br />
PRESIDENT AND CEO‟S MESSAGE 7<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 7
The changes executed in the business really represent the start of a transformation of our business. Key areas<br />
impacted in 2011 were:<br />
Initiated four new Ag „concept stores‟ in Consort, Vulcan, Fairview and Drayton Valley. The business model in<br />
these stores focuses on products that are core to Agricultural producers, and a more relevant in-store experience.<br />
Organized a new AgriBusiness marketing team, with focus on planning and execution of tactics in specific<br />
markets. In doing so, we have moved away from mass market tactics (flyers and general mail-outs) and<br />
moved towards local and targeted marketing tools.<br />
Consolidated the AgriBusiness logistics team into our Distribution Centre in Edmonton creating efficiencies for<br />
our business<br />
Completed planned changes to our Grain Marketing unit, which saw us execute an organized exit while<br />
honouring all contracts and <strong>com</strong>mitments that were in place<br />
Significantly changed inventory management processes to focus on overall network logic to support local<br />
needs. This was further supported by implementation of a hub & spoke system to assist in optimization.<br />
In 2011 we entered into an agreement with AGRI-TREND to strengthen our ability to provide timely and relevant<br />
agronomic information and advice to our members and customers. This expertise will be of strategic importance as<br />
the AgriBusiness continues to progress.<br />
As we move forward in 2012 we will continue to focus on executing the fundamentals of our business, and to<br />
strengthen our relationship with owners and customers in all markets. Based on the success we saw in 2011, we<br />
will transition four existing farm and ranch supply stores to the Ag Concept store model and introduce new<br />
strategic initiatives for other specific markets. We will also further develop and implement the first stages of our<br />
Crop Inputs and Livestock strategies and will develop our e-<strong>com</strong>merce capabilities as a critical element of<br />
our co-operative.<br />
Petroleum<br />
<strong>UFA</strong>‟s Petroleum division had another year of outstanding financial performance in 2011, while focused on<br />
excellence in delivering a broad range of products and services through our network of 113 locations.<br />
The year was marked by a number of supply challenges as Edmonton refiners struggled to meet anticipated<br />
production levels at various times of the year. This was especially acute in the fourth quarter, where two refineries<br />
were simultaneously impacted, leading to supply disruptions.<br />
During these times of supply disruptions, <strong>UFA</strong> is able to mitigate some of the impact as a result of having multiple<br />
agreements with domestic refiners, and a developed capability to import product. In the fourth quarter of 2011<br />
there was insufficient product available in Western Canada and the US mid-continent to meet demand. As a result,<br />
many retail and cardlock operations throughout the industry suffered run-outs or were operating on restricted<br />
hours. <strong>UFA</strong> was certainly not immune to this situation. Supply agreements were optimized to the extent possible.<br />
In addition, product was imported from off-shore through a west coast terminal and transported by rail for delivery<br />
into our Alberta network.<br />
We continue to benefit from our extensive agency network that is firmly entrenched within local <strong>com</strong>munities. Our<br />
Agents and their ongoing relationship with our members and customers, along with their passion to service their<br />
needs, are critical to maintain and grow our sales and to promote loyalty to the co-operative. 2011 saw a number<br />
of changes to our network with retirements of some of our long-term Agent partners. In each case, the retiring<br />
agent played an important role to ensure a seamless transition to the new agent, in order to ensure continued high<br />
levels of service for our members and customers.<br />
8 PRESIDENT AND CEO‟S MESSAGE<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 8
In April, we successfully transitioned the network and our customers to biofuels. A substantial effort went into<br />
ensuring the changeover to biofuels would not adversely impact fuel quality in the network or in customer owned<br />
storage tanks. Once again, this transition was managed almost seamlessly.<br />
Bar-W Petroleum and Electric Limited, a division within the Petroleum organization also had a very strong<br />
operating performance in 2011, with strong revenues and a doubling of their expected contribution.<br />
The longer term business strategy for Petroleum, put in place four years ago, continues to be robust under the<br />
current set of business premises and will be advanced in 2012. The areas of focus include:<br />
Manage the business to protect our market share of Agricultural fuels, and grow our <strong>com</strong>mercial market share<br />
within the constraints of our available supply<br />
Manage our agency network by continuing to promote excellence in all aspects of operations<br />
Develop and <strong>com</strong>mence implementation of a refreshed network plan which will focus on strategic growth and<br />
re-developments<br />
Continue the roll out of our new cardlock operating system to provide customers with fast, easy, secure and<br />
most importantly reliable cardlock operations<br />
Wholesale Sports Outdoor Outfitters<br />
Wholesale Sports (WSS) has a network of 25 stores in Canada and the U.S. Our core customers are the men and<br />
women for whom hunting, camping and fishing is more than a recreational pursuit and more than a hobby – it is<br />
their passion. We have 11 stores in western Canada and 14 in the north western United States. In 2011 we closed<br />
an underperforming store in Fargo, North Dakota.<br />
2011 was a foundational year for WSS with new leadership focused on developing and improving business<br />
operations and fundamentals. We strengthened the leadership team including adding a new Marketing Vice-<br />
President, U.S. Director of Purchasing, Director of Supply Chain and a new Director of Operations for our<br />
Canadian business.<br />
Overall financial performance improved in 2011, but fell short of budget targets. Results were impacted by lower<br />
margins. In Canada this was mainly due to one-time charges for inventory shrinkage. In the U.S., the weak<br />
economy and lower levels of discretionary spending weakened our margins. Sales were soft in Q1 and Q2,<br />
however, they did strengthen considerably in the second half of the year as initiatives including new marketing<br />
programs increased traffic through our stores.<br />
Our strategic plan for WSS includes a three phase plan to improve our business model, drive business results and<br />
increase market share.<br />
Phase 1: Improve the foundational fundamentals<br />
Leadership, capabilities and structure<br />
Operational excellence<br />
– Loss prevention and EH&S launch across the network<br />
– Implement a new store staffing model in all stores to drive efficiencies and improve customer service<br />
– Introduce store merchandising standards program<br />
Phase 2: Optimize the business<br />
Introduce new vendor buying agreements<br />
Drive purchase volumes and buying power with strategic vendors including payment terms, discounts, vendor<br />
co-op, and volume rebate agreements<br />
PRESIDENT AND CEO‟S MESSAGE 9<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 9
Roll-out “Service First” model in all stores by Q2, 2012<br />
Accelerate marketing programs on a market specific tactical basis to support the integrated marketing plan<br />
Successful <strong>com</strong>pletion of phases one and two in 2012 will afford us the opportunity to move on to phase three and<br />
create strategic options for growth in the years to <strong>com</strong>e.<br />
Centralized Services<br />
In 2011 as part of our “back to basics” approach to the business, we consciously aligned the priorities of our<br />
support groups to our business unit priorities with their focus to enable enhanced business performance.<br />
Our Finance organization made significant improvements in all key areas in 2011. Financial reporting, business<br />
planning, and credit and collections performance all exceeded plans. Our Treasury team successfully<br />
implemented the reporting requirements of our new Asset-Based Credit Agreement and managed these effectively<br />
throughout 2011.<br />
In Human Resources (HR) we focused on support to the significant AgriBusiness organizational changes that were<br />
implemented as part of our business strategy. Work was <strong>com</strong>pleted in respect to Total Rewards and performance<br />
management processes.<br />
In late 2011 we made changes to the leadership of our HR team, and have re-set our strategic direction in HR. In<br />
2012 we will continue to focus on enabling the business, while implementing process changes in the area of<br />
<strong>com</strong>pensation as a result of a <strong>com</strong>prehensive Canada Revenue Agency (CRA) audit in 2011. As our economy<br />
continues to recover, the attraction, development and retention of strong team members is of paramount<br />
importance to <strong>UFA</strong>.<br />
Our Information Technology team delivered strong operational support in 2011, with day to day systems<br />
performance metrics, all exceeding established targets. Scan gun technology was employed in our Farm & Ranch<br />
stores to enable a more efficient inventory management system, and electronic invoicing was introduced to a<br />
number of our <strong>com</strong>mercial petroleum customers. In addition, a new point of sale system was introduced to WSS<br />
Canada while our cardlock renovation project continued execution as planned.<br />
In 2012 our focus is to leverage the capabilities of our SAP system, to <strong>com</strong>plete disaster recovery and business<br />
continuity plans, and to advance our e-<strong>com</strong>merce capabilities. Strategic and tactical alignment with business<br />
objectives and requirements remains at the forefront of all priorities.<br />
In late 2010, <strong>UFA</strong> recognized the need for full-time in house legal counsel, and in 2011 Legal Services was<br />
formed. Our General Counsel serves as a member of the senior leadership team, and is the first point of contact<br />
for all internal <strong>UFA</strong> and WSS legal matters. The Legal Services team is also responsible for insurance, real estate,<br />
our corporate policy office, and management stewardship of our Enterprise Risk Committee.<br />
At the start of 2011 our Health & Safety and Environment functions were dispersed in different parts of the<br />
organization. We amalgamated this group into one EH&S team, which also en<strong>com</strong>passes asset management and<br />
maintenance. The mandate of this team is to lead <strong>UFA</strong> in our objective to undertake all business activities in such<br />
a way that we meet or exceed all legislative requirements. Our primary focus is to provide a safe workplace for all<br />
employees, agents, members, customers, contractors and visitors.<br />
Our unwavering <strong>com</strong>mitment is to create a safe working environment facilitated by an overarching “safety first”<br />
culture for the organization as a whole.<br />
10 PRESIDENT AND CEO‟S MESSAGE<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 10
In 2011 our Health & Safety performance slipped slightly, and steps were introduced in the fourth quarter of 2011<br />
to address this issue. We have refreshed and simplified our EH&S Management System, introduced specific<br />
accountabilities at all levels of the organization, and put into place a new EH&S Statement posted visibly at all of<br />
our locations. The statement reads:<br />
“The Safety and well-being of our employees, agents, members, customers and visitors is a key<br />
priority at <strong>UFA</strong>. Building a strong culture of safety begins with the expectations and programs we set<br />
as a co-operative, and lives daily in the actions we take as individuals. It requires dedication from each<br />
of us to make responsible decisions every day to create a safe environment for everyone at <strong>UFA</strong>”.<br />
This represents an important culture shift, and early 2012 results of site assessments indicate we are clearly on<br />
the right track.<br />
Customer Service Centre<br />
In 2011 our Customer Service Call Centre handled over 40,000 inquiries from our members and customers<br />
providing an effective single point of contact.<br />
Included in this number were more than 2,200 calls relative to our High Yield Member Investment Program. This<br />
program was a tremendous success and raised almost $32 million within a period of 21 weeks to reach our<br />
$40 million member loan target and is reflective of the loyalty that our members have towards their co-operative.<br />
The interaction with members we have had through the customer service call centre, as well as in the field at<br />
Farm & Ranch stores and Petroleum agencies, afforded us a unique opportunity to simply talk with our owners and<br />
share the progress being made throughout 2011.<br />
Community Investment<br />
In 2011 we executed a <strong>com</strong>munity investment program of $785,000 to promote, support, and celebrate our rural<br />
<strong>com</strong>munities, particularly in the areas of youth, family and agriculture. Highlights of our ac<strong>com</strong>plishments include:<br />
Launch of a new 4-H Loyalty program targeting youth in Agriculture<br />
Participation in Alberta Farm Safety programs which reached over 55,000 students in 2,700 classrooms<br />
Re-direction of a portion of centrally controlled funding to field management for more of a grass roots focus<br />
Sponsorship and participation in local rodeos and <strong>com</strong>munity events<br />
Sponsored Slave Lake Benefit concert<br />
Commenced preparatory work for the launch of 2012 International Year of the Co-operative<br />
Celebrated Farmer‟s Day at all our <strong>UFA</strong> Farm and Ranch Supply Stores and Petroleum Agencies, honouring<br />
our agricultural producers, families and members of rural <strong>com</strong>munities with picnics, games and music.<br />
Incremental to this investment we also successfully ran the second year of our <strong>UFA</strong> Small Town Heroes contest.<br />
This touched many <strong>com</strong>munities and met with an enthusiastic response as almost one hundred nominations were<br />
received. Throughout the duration of the contest, <strong>UFA</strong> awarded more than $13,000 cash to two grand prize<br />
winners and eight runners up to help enhance their <strong>com</strong>munities.<br />
Two private concerts with Paul Brandt were held in the respective hometowns of our grand prize winners,<br />
Jeannette Vatter of Drayton Valley, and the Slave Lake Fire Department of Slave Lake. In addition, the concert in<br />
Slave Lake raised an additional $10,000 for the Pioneer Drop In Centre, and $14,000 was raised in Drayton Valley<br />
for the Drayton Valley Community Fund.<br />
Much to the delight of Alberta fans, a few impromptu performances by Paul Brandt also took place as the tour bus<br />
visited many <strong>UFA</strong> locations in Alberta on the way to the Drayton Valley and Slave Lake.<br />
PRESIDENT AND CEO‟S MESSAGE 11<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 11
In 2012 our focus will continue to shift more to grassroots level investments. Rural <strong>com</strong>munities “are” <strong>UFA</strong> and this<br />
is where our efforts need to be expended. We will launch a scholarship program and a more expansive youth<br />
program, as well as leveraging <strong>com</strong>munications capabilities, media, and social media. This is an exciting shift<br />
for <strong>UFA</strong>.<br />
Summary<br />
It is important for us to look at our business through the lenses of our key stakeholders, and in all areas we have<br />
made significant improvements in 2011.<br />
Our Owners/Customers have rewarded us with their business and demonstrated their loyalty through<br />
investments in the High Yield Member Investment Program. Operating changes made at the field level have been<br />
well received and supported. We have improved our <strong>com</strong>munications to our membership through newsletters and<br />
improvements to our web site. Communication and engagement will be a priority for us in 2012.<br />
Our Employees/Agents are the backbone of this co-operative. Their <strong>com</strong>mitment, enthusiasm, and drive in a year<br />
of substantive change has been critical to our success. We have improved our <strong>com</strong>munications with all of our<br />
people, and the resulting alignment of objectives has translated into day to day operating improvements. Employee<br />
engagement survey results are much improved over 2010. We are re-engaging with our workforce, we are seeing<br />
success and we are moving in the right direction.<br />
Our Vendors have been supportive of our change initiatives in 2011. By focusing on strategic relationships we<br />
continue to grow our relevance to them, and theirs to us.<br />
Our Financial Stakeholders who support our Asset-Based Credit Agreement gave us very positive feedback in a<br />
meeting with them in October of 2011. At the core of this has been our demonstrated ability to deliver on our<br />
<strong>com</strong>mitments. We have earned their confidence.<br />
Throughout the latter half of 2011, we worked closely with our Board of Directors to develop a broader view of<br />
strategic growth opportunities for the years ahead. In 2012, we will continue to focus on improving our relevance to<br />
our members and customers, strengthening the fundamentals of our business and <strong>com</strong>mencing implementation of<br />
a select few growth initiatives that are in line with our core purpose as a co-operative.<br />
This cooperative has a proud tradition dating back over 100 years. We were wounded. However, we have indeed<br />
“risen from the ashes”. We are focused on the fundamentals of this business and we delivered on the<br />
<strong>com</strong>mitments that we made for 2011.<br />
As we look forward to 2012 and beyond, we see tremendous potential for this co-operative, building on our<br />
success in 2011, focused on our Core Purpose of improving the economic and social well-being of our agricultural<br />
owners and their <strong>com</strong>munities.<br />
I would like to take this opportunity to thank all of our employees and agents who have worked tirelessly to make<br />
2011 a successful year for <strong>UFA</strong>. I would also sincerely like to thank our owners and customers for your patronage<br />
and your loyalty.<br />
As a co-operative we are firmly back on track.<br />
Bob Nelson<br />
President and Chief Executive Officer<br />
12 PRESIDENT AND CEO‟S MESSAGE<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 12
United Farmers of Alberta Co-operative Limited<br />
MANAGEMENT’S DISCUSSION AND ANALYSIS<br />
The following management discussion and analysis (MD&A) provides management‟s perspective on <strong>UFA</strong>, our<br />
performance and our strategy for the future. This MD&A includes <strong>UFA</strong>‟s operating and financial results for 2011<br />
and 2010 and should be read in conjunction with our Financial Statements.<br />
Forward-looking Statements<br />
This disclosure contains statements that are forward-looking statements and include phrases such as “believe,”<br />
“expect,” “anticipate,” “intend,” “estimate,” “outlook,” “should,” “would”, “could” and other similar expressions. These<br />
forward-looking statements are based on certain assumptions and current expectations about future events.<br />
Inherent in these forward-looking statements are known and unknown risks, uncertainties and other factors beyond<br />
<strong>UFA</strong>‟s ability to control or predict. Readers are cautioned that actual results or events may differ materially from<br />
those forecasted in this disclosure because of risks and uncertainties associated with <strong>UFA</strong>‟s business and the<br />
general economic environment. Management does not intend to publicly update or revise this discussion and<br />
analysis as a result of new information, future events or otherwise.<br />
Non-GAAP Financial Measures<br />
<strong>UFA</strong> uses certain financial indicators within the MD&A that are not specifically defined by GAAP. These non-GAAP<br />
indicators may or may not be <strong>com</strong>parable to similar measures presented by other enterprises and are presented<br />
on a consistent basis within this annual report to members. <strong>UFA</strong> believes EBITDA (earnings before interest, tax,<br />
depreciation and amortization and patronage allocation) is a critical measure of its operating performance. EBITDA<br />
allows <strong>UFA</strong> to <strong>com</strong>pare its operating performance on a consistent basis year over year. EBITDA excludes certain<br />
items that depend on accounting methods or reflect financing choices.<br />
Interest bearing debt is another non-GAAP disclosure, which provides a measure of all interest bearing borrowings<br />
both short-term and long-term, less unencumbered cash balances available for funding those payments. This<br />
indicator is important to <strong>UFA</strong> as it identifies future obligations that <strong>UFA</strong> must meet in order to <strong>com</strong>ply with<br />
borrowing agreements, as well as the liquid funds available to meet those obligations. <strong>UFA</strong> also believes that the<br />
ratio of interest bearing debt to interest bearing debt and members‟ equity is an important non-GAAP measure that<br />
identifies how <strong>UFA</strong> finances its financial assets and operations, and the amount of risk <strong>UFA</strong> is willing to accept.<br />
Governance Structure<br />
The board of directors and management are unified in their belief that sound corporate governance practices are<br />
necessary for the achievement of strategic and operational goals, to the effective management and sustainability<br />
of <strong>UFA</strong>. In addition to the annual general meeting, the board meets at least five times per year with management<br />
to deal with general business and strategic matters. The board and its <strong>com</strong>mittees, as listed below, operate<br />
independently from management to protect owner interests. The existing members of the board have served<br />
between two and twelve years on the board at <strong>UFA</strong>. Board members have the right to seek independent advice<br />
should they so desire or deem necessary.<br />
The board of directors has established six standing <strong>com</strong>mittees being Audit; Enterprise Risk Management;<br />
Environmental, Health and Safety (EH&S); Governance; Human Resources Compensation; and History<br />
Committees. Each <strong>com</strong>mittee meets regularly throughout the year and provides regular updates to the Board.<br />
MANAGEMENT‟S DISCUSSION AND ANALYSIS 5<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 13
Code of Business Ethics<br />
<strong>UFA</strong> continually works to make a positive impact in the <strong>com</strong>munities we serve, ensuring daily business is<br />
conducted in a safe, fair, honest and respectful manner. Recognizing the importance of this, in 2011, the<br />
co-operative launched its Code of Business Ethics (COBE) Annual Review questionnaire.<br />
The questionnaire is intended to be an annual review of the COBE principles. It is not a sign-off of the master<br />
COBE; this was done last year and has been kept evergreen through the Human Resources new-hire process. In<br />
2011 Internal Audit introduced an interactive review, which takes between 5-10 minutes to <strong>com</strong>plete. It includes a<br />
number of scenarios for discussion and feedback.<br />
Additionally, the Internal Audit team continue to manage <strong>UFA</strong>‟s toll free Integrity Hotline (1-877-258-4605) and<br />
Integrity Hotline email address (Integrity.Hotline@ufa.<strong>com</strong>). These hotlines are feedback tools our employees,<br />
agents and elected officials can use to identify and resolve ethical issues that arise through the course of business.<br />
We will continue to <strong>com</strong>municate our message in order that all our employees and business partners maintain<br />
awareness of our Code of Business Ethics.<br />
6 MANAGEMENT‟S DISCUSSION AND ANALYSIS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 14
United Farmers of Alberta Co-operative Limited<br />
2011 SUMMARY OF OPERATIONS<br />
Consolidated In<strong>com</strong>e Statement<br />
For the period ended<br />
(Stated in thousands of Canadian dollars)<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Revenue $ 2,108,450 $ 1,742,941<br />
Cost of sales (1,863,489) (1,526,635)<br />
Gross margin 244,961 216,306<br />
Operating and administrative expenses (189,767) (215,090)<br />
Other in<strong>com</strong>e 2,012 1,629<br />
Earnings before the under noted (EBITDA) 57,206 2,845<br />
Depreciation and amortization (40,813) (42,413)<br />
Impairment of goodwill – (26,575)<br />
Interest (14,174) (21,152)<br />
Foreign currency exchange gain (loss) on advances to foreign subsidiary 1,171 (1,235)<br />
In<strong>com</strong>e (loss) before patronage and in<strong>com</strong>e taxes 3,390 (88,530)<br />
Patronage allocation (7,000) –<br />
In<strong>com</strong>e taxes recovery 3,847 23,744<br />
Net in<strong>com</strong>e (loss) $ 237 $ (64,786)<br />
Revenues were $2,108.5 million, up from $1,742.9 million in the previous year, driven primarily by volume and<br />
price increases in the Petroleum division. Volumes increased to 1,473.4 million litres, up by 106.6 million litres over<br />
2010, while average sales revenue measured in cents per litre (“cpl”) increased from 86 cpl in 2010 to 106 cpl in<br />
2011. Also contributing to the growth in consolidated revenues was the Wholesale Sports division, which saw an<br />
increase in sales of $9.6 million or 5% <strong>com</strong>pared to 2010. AgriBusiness core sales grew in 2011, although total<br />
sales were marginally lower than previous year as a result of a planned exit from the grain trading business.<br />
Gross margin on consolidated sales was $245.0 million, up from $216.3 million in 2010. Approximately half of this<br />
growth was contributed by the Petroleum division‟s higher volumes and market-driven inventory valuation gains.<br />
Margins from AgriBusiness provided a $7.2 million improvement over the prior year. Factors contributing to the<br />
AgriBusiness margin growth included improved retail management, special promotions, favourable product mix,<br />
and improved inventory management. Wholesale Sports also showed gross margin improvement of $4.0 million<br />
over prior year due to higher volumes, including full year sales from the two Canadian stores that opened in 2010.<br />
Wholesale Sports margin percentages were pressured downwards due to strategic initiatives taken to reduce slow<br />
moving inventory, but were still higher than 2010.<br />
Operating and administrative expenses were $189.8 million, a decrease of $25.3 million over the prior year. A<br />
significant part of this decrease is from reduced staffing and a reduction in bad debt expense. In addition, <strong>UFA</strong>‟s<br />
<strong>com</strong>parative costs for fiscal 2010 were adversely impacted by a one time early termination fees of $13.9 million<br />
paid to long-term note holders. The Wholesale Sports division incurred an increase of $2.4 million in operating<br />
costs due to the full year‟s effect of two new stores that opened in 2010.<br />
Other in<strong>com</strong>e at $2.0 million increased slightly by $0.4 million <strong>com</strong>pared to the prior year at $1.6 million. Other<br />
in<strong>com</strong>e in 2011 includes a gain of $3.1 million from sale of the Calgary farm store. The gain was offset by lower<br />
interest in<strong>com</strong>e and increased costs of the credit program offered by the Bank of Nova Scotia.<br />
EBITDA contribution was $57.2 million, <strong>com</strong>pared to $2.8 million in 2010.<br />
2011 SUMMARY OF OPERATIONS 13<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 15
The Petroleum Division had a strong year and contributed an additional amount of $15.0 million in EBITDA for<br />
2011 as <strong>com</strong>pared with 2010. The volume increase of 106.6 million litres was due to improved economic activity,<br />
particularly related to <strong>com</strong>mercial transport customers. Western Canada experienced a shortage of diesel fuel in<br />
late 2011. <strong>UFA</strong> was able to leverage existing relationships with refiners to secure additional product, as well as<br />
import product from off-shore, thus enabling the Co-operative to largely mitigate shortages in the agency network,<br />
while prices remained high. Inventory holding gains were $4.9 million in 2011 largely as a result of growth in<br />
<strong>com</strong>modity prices.<br />
Petroleum sales by product type in millions of litres are given below:<br />
The AgriBusiness Division went through a year of restructuring and business transformation. The supply chain<br />
model was optimized and operating costs were reduced by $4.5 million from the prior year. The sales and<br />
marketing strategy was modified and four concept stores were implemented. The trade areas were revamped and<br />
a stronger integration of store and support management was established. These initiatives were designed to bring<br />
the business closer to members. Gross margins increased by $7.2 million, through a <strong>com</strong>bination of favourable<br />
product mix, price management and lower inventory provisions. EBITDA for 2011 represented a dramatic<br />
improvement of $11.8 million over the prior year.<br />
Sales by trade area is given below:<br />
14 2011 SUMMARY OF OPERATIONS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 16
The Commercial Construction Division incurred a negative EBITDA of $4.4 million in 2011. The losses are<br />
primarily due to cost escalations on the Slave Lake and Vauxhall projects. <strong>UFA</strong> is exiting from this line of business<br />
and will have substantially <strong>com</strong>pleted the remaining projects by end of March 2012.<br />
The Wholesale Sports Division had stronger earnings in 2011. EBITDA increased by $1.6 million, driven by<br />
sales growth of $9.6 million over the prior year. Gross margin increased by $4.0 million, and was higher as a<br />
percentage of sales, <strong>com</strong>pared with 2010. Margins for the year were held back by the need to strategically<br />
manage obsolete and slow moving inventory. The 2011 results include a full 12 months of operations for two<br />
stores in Canada that opened in Regina and Langley, BC. During quarter 4, 2011, an underperforming store in<br />
Fargo, North Dakota was closed.<br />
Sales for 2011 <strong>com</strong>pared with prior year is given below:<br />
Centralized Services include core activities to support Divisions within <strong>UFA</strong>, and the consolidated enterprise as a<br />
whole. The services are provided by functional departments that include Environment Health & Safety, Corporate<br />
Strategy, Member and Customer Experience, Information Technology, Legal, Risk and Real Estate, Human<br />
Resources and Finance. As part of the Co-operative‟s three year strategy, significant efforts have been undertaken<br />
to reduce these costs. In 2011 on a <strong>com</strong>parative basis with 2010, $8.0 million in expenses were eliminated, while<br />
the quality of output increased significantly.<br />
Capital Spending and Depreciation<br />
The net book value of capital assets, including goodwill and intangible assets was $284.2 million. During 2011<br />
<strong>UFA</strong> invested $13.4 million in property, plant and equipment and intangible assets, down from $22.4 million in<br />
2010. Major projects included the continuation of cardlock renovations and Wholesale Sports technology<br />
stabilization.<br />
2011 SUMMARY OF OPERATIONS 15<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 17
A depreciation and amortization charge of $40.8 million was down from the prior year charge of $42.4 million.<br />
Capital spending for the five years ending 2011 was $204.6 million which resulted in depreciation increasing<br />
65 per cent over that period as disclosed in the following graph.<br />
Long Term Debt<br />
On December 13, 2010 <strong>UFA</strong> refinanced its debt through a new Asset-Based Credit Agreement with a syndicate of<br />
lenders. In 2011 <strong>UFA</strong> was in <strong>com</strong>pliance with all covenants under the Credit Agreement. <strong>UFA</strong> further strengthened<br />
its liquidity position throughout the year and performed in accordance with the financial <strong>com</strong>mitments made to the<br />
lending syndicate. Further, liquidity improved thereby improving availability of funds to $80.2 million (2010 –<br />
$37.1 million).<br />
Total financing costs for 2011 were $14.2 million, down from $21.2 million in 2010.<br />
Members’ Equity and Dividend Payments<br />
During 2011 <strong>UFA</strong> paid dividends of $2.5 million on the Class A Investment shares, as <strong>com</strong>pared to $1.9 million in<br />
2010. This is due to an increase in investment shares to $103.0 million on December 25, 2011 (2010 – $93.9<br />
million).<br />
Earnings before Patronage and In<strong>com</strong>e Taxes<br />
The net financial result for 2011 was a net in<strong>com</strong>e of $3.4 million before patronage allocations and in<strong>com</strong>e taxes<br />
(2010 – loss of $88.5 million). As a result of the earnings in 2011, most specifically related to <strong>UFA</strong> Co-operative<br />
Ltd., the board will be re<strong>com</strong>mending to the assembly at the Annual General Meeting, a patronage allocation in the<br />
amount of $7.0 million for 2011.<br />
16 2011 SUMMARY OF OPERATIONS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 18
United Farmers of Alberta Co-operative Limited<br />
LIQUIDITY<br />
<strong>UFA</strong> depends on its ability to generate cash from operating activities and attract adequate supplies of capital from<br />
both internal and external sources to finance business operations, fulfill its strategic plans and maintain an<br />
enduring and sustainable organization. <strong>UFA</strong>‟s liquidity needs are affected by the seasonal business environment of<br />
the markets we serve.<br />
Working capital requirements increase significantly over the spring and early summer months when <strong>UFA</strong> is<br />
building its inventory in AgriBusiness and agricultural customers are financing their supplies. <strong>UFA</strong>‟s liquidity needs<br />
have been reduced by Farm Credit Corporation‟s extended credit finance plan provided to customers which allows<br />
accounts to remain outstanding until crops are harvested.<br />
In 2008 the price of crude oil reached a high of $140 per barrel. In order to meet working capital requirements,<br />
<strong>UFA</strong> entered into an Agreement with the Bank of Nova Scotia (“BNS”) to finance customer credit on accounts. The<br />
BNS credit program does not change the way owners and customers shop at <strong>UFA</strong> or make their payments on<br />
accounts. To date, over 68,000 customers representing balances of $76.8 million are financed under the program.<br />
This includes $9.9 million associated with funding received from BNS for which <strong>UFA</strong> has maintained the credit to<br />
customer accounts. With the Bank of Nova Scotia credit program <strong>UFA</strong> reduced its exposure to credit risk and<br />
received cash from the customer purchases instead of carrying them as accounts receivable. The program was<br />
designed to be transparent to the customer as the credit and account receivable functions continued to be<br />
managed within <strong>UFA</strong>.<br />
Internal Capital<br />
Internal sources of capital are reflected in the Members‟ Equity section of the Balance Sheet as Member<br />
Entitlements, Retained Earnings and Cumulative Translation Adjustments. At year-end 2011, internal sources of<br />
capital amounted to $325.3 million.<br />
External Capital<br />
On December 13, 2010 <strong>UFA</strong> refinanced the Credit Facility and Senior Secured Notes with a new Asset-Based<br />
Credit Agreement. The proceeds of the financing were used to repay all debt obligations under Senior Notes, with<br />
an aggregate principle amount of $150.0 million plus an accrued interest of $5.6 million and early termination fees<br />
of $13.9 million, and also to fully repay the Senior Secured Term Credit Facility (“Credit Facility”).<br />
The Asset-Based Credit Agreement provides for an asset based revolving credit facility in the maximum aggregate<br />
amount of $200.0 million and also has an accordion feature which permits <strong>UFA</strong> to request an increase in the<br />
revolving credit facility up to an additional amount of $50.0 million for a total availability of $250.0 million. Any<br />
increase under the accordion is not <strong>com</strong>mitted and must first be approved by the lenders. The Asset-Based Credit<br />
Agreement also includes a fixed asset facility (“Term Loan”) made available on a one-time only basis in the<br />
amount of $50.0 million. The Term Loan is repayable in equal quarterly installments based on a ten year<br />
amortization. The first payment was made on March 31, 2011.<br />
The amount available to be drawn under the Asset-Based Credit Agreement will vary from time to time based on<br />
the level of <strong>UFA</strong>‟s inventory and accounts receivable. The advances under the Asset-Based Credit Agreement<br />
cannot exceed the revolving loans borrowing base determined according to terms under the agreement that<br />
factors <strong>UFA</strong>‟s inventory and receivables. In addition, reserves are calculated under the Asset-Based Credit<br />
Agreement to take into account such factors as priority payables, and additional collateral requirements.<br />
LIQUIDITY 17<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 19
The Asset-Based Credit Agreement has a three-year term and includes a clause for early termination fees should<br />
the Asset-Based Credit Agreement be terminated within two years of the initial date of closing. <strong>UFA</strong> can borrow<br />
under the agreement using Prime, London Interbank Offered Rate (“Libor”) and Banker‟s Acceptances and pricing<br />
is determined off a grid based on <strong>UFA</strong>‟s Fixed Charge Coverage Ratio.<br />
Another source of external capital is a voluntary member loan program (Member Loans). The Member Loan<br />
program had a balance of $8.5 million at year-end. This program allows members, employees and agents to invest<br />
in <strong>UFA</strong> and earn a rate of return equal to the bank prime rate as stated by the Royal Bank of Canada, plus 1.0%.<br />
Interest on Member Loans was $0.6 million (2010 – $0.5 million) and is included in short-term financing expense.<br />
Member Loans are unsecured and repayable on demand. The repayment of Member Loans is subject to the right<br />
of offset of any amounts owing to <strong>UFA</strong>, and is subject to <strong>UFA</strong> meeting the covenants contained under the<br />
Asset-Based Credit Agreement.<br />
In 2011 <strong>UFA</strong> introduced its High Yield Member Investment Plan (HYMIP) which helped to improve its liquidity and<br />
availability under the Asset-Based Credit Agreement. The program was rolled out as an exclusive opportunity for<br />
members, employees and agents to earn an above average interest rate and support the Co-operative‟s growth<br />
and sustainability. The investment plan was consistent with <strong>UFA</strong>‟s back-to-basics business approach, a program<br />
that was simple to understand and offered a <strong>com</strong>petitive alternative for investment dollars. <strong>UFA</strong> offered members a<br />
three year investment plan that pays a fixed rate of 7% interest per year, and matures on June 15, 2014. The plan<br />
has no early redemption options, and pays interest semi-annually on June 15th and December 15th of each year.<br />
The minimum investment allowed under the program was $5,000 and all HYMIP loans are unsecured obligations<br />
of the Co-operative. The program was fully subscribed and closed in November of 2011. As at December 25, 2011<br />
the total outstanding obligation under this program was $31.8 million.<br />
18 LIQUIDITY<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 20
Capital lease obligations at December 25, 2011 were $2.0 million with terms ranging between one and five years,<br />
with an average interest rate of approximately seven per cent. The majority of capital leases are for automotive<br />
and information technology equipment.<br />
Financial Covenants<br />
<strong>UFA</strong> is subject to certain financial and collateral covenants related to the Asset-Based Credit Agreement and was<br />
in <strong>com</strong>pliance with all financial and non-financial covenants throughout 2011. <strong>UFA</strong> is required to provide monthly<br />
<strong>com</strong>pliance reporting to its Agent under the Asset-Based Credit Agreement and also provides an annual forecast<br />
of its Fixed Charge Coverage Ratio and Availability.<br />
Cash Flow from Operations<br />
Cash flow from operations increased significantly from 2010 due mainly to the enhanced business performance.<br />
Working Capital and Debt Ratios<br />
Working capital ratio is the ability of the <strong>com</strong>pany to manage short-term financing requirements of the business.<br />
<strong>UFA</strong>‟s ratio of 2.5:1 is healthy and is an improvement over the prior year.<br />
LIQUIDITY 19<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 21
Overall inventories continued their declining trend. The reduction of $11.5 million over last year was primarily due<br />
to lower Agribusiness and Petroleum inventories. Wholesale Sports inventories were higher than previous year.<br />
Management continues to drive efficiencies in supply chain and inventory management practices.<br />
Accounts receivable declined over last year as the business continues to improve its collection and credit<br />
practices. Accounts receivable metrics such as aging and average day‟s sales outstanding improved in 2011.<br />
20 LIQUIDITY<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 22
United Farmers of Alberta Co-operative Limited<br />
MEMBER EQUITY<br />
<strong>UFA</strong>‟s equity structure is a source of capital and considerable financial strength. As a co-operative, <strong>UFA</strong> provides<br />
owners benefits by allocating a portion of its earnings to owners in the form of patronage allocation.<br />
In 2011 <strong>UFA</strong> established a Capital Structure Committee with representation from Management, the Board and the<br />
Delegate body to consider the needs of all stakeholders, as well as ensuring the capital structure would support<br />
the long-term sustainability of the co-operative. The Committee mandate focused on improving the predictability of<br />
equity redemption and encouraging capital to remain in the co-operative.<br />
Equity is regularly distributed to owners through Class A Investment shares (Investment shares) that pay dividends<br />
at a <strong>com</strong>petitive rate. In addition, all member entitlements for members who turn 65 years of age where date of<br />
birth is on record, are converted into Investment shares, with the exception of one $5 member share.<br />
Patronage allocation, member shares, Investment shares and revolving equity are considered Member<br />
Entitlements of <strong>UFA</strong>. A summary of Member Entitlements is outlined in the notes to the audited financial<br />
statements.<br />
<strong>UFA</strong> is authorized to issue an unlimited number of member shares with a par value of $5. Member shares are<br />
redeemable at par value when the member reaches age 65, moves out of the trading area, or upon a member‟s<br />
death at the request of the member‟s estate.<br />
When the co-operative has Earnings before Patronage and In<strong>com</strong>e Taxes, a patronage allocation is re<strong>com</strong>mended<br />
and may be ratified by <strong>UFA</strong>‟s elected delegates at their annual general meeting held in March following the end of<br />
the fiscal year. The assembly approves the distribution as provided for under <strong>UFA</strong>‟s by-laws. Once approved by<br />
the delegates, the patronage allocation can be distributed.<br />
Revolving equity is non-interest bearing, non-redeemable by the owner except in specific circumstances and is<br />
converted into Investment shares over a 12-year period.<br />
Investment shares have a par value of $100, are non-voting, are redeemable at par value at the option of the<br />
holder subject to board approval, are retractable at par value at the option of <strong>UFA</strong>, and provide a dividend equal to<br />
the bank prime rate less 0.5 per cent. Dividends on the Investment shares were $2.5 million in 2011 (2010 –<br />
$1.9 million) and are charged against retained earnings.<br />
Actual distributions to owners in the five years ending in 2011 totaled $133.0 million, consisting of the cash portion<br />
of the annual patronage allocation, issuance of Investment shares, dividends on investment shares and retirement<br />
of equity. Over this five year period, cash distributions were $20.0 million.<br />
MEMBER EQUITY 21<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 23
United Farmers of Alberta Co-operative Limited<br />
EMPLOYEE PENSION PLAN<br />
<strong>UFA</strong> administers a defined-benefit pension plan for employees of the parent <strong>com</strong>pany. There are no pension plans<br />
for employees of the subsidiaries. A registered pension plan, (the “RPP”) is registered in accordance with the<br />
Alberta Employment Pension Plans Act, and provides benefits for all salaried employees who choose to<br />
participate. The Plan is funded by contributions from <strong>UFA</strong> and from plan members.<br />
Pensions provided under this plan are related to the employee‟s in<strong>com</strong>e up to maximum pension limits set out by<br />
the In<strong>com</strong>e Tax Act. A provision for pensions associated with employee in<strong>com</strong>e above RPP levels, is made under<br />
a second pension plan, called the Supplemental Employee Retirement Plan (“SERP”). This plan is not governed<br />
by any regulatory body, and <strong>UFA</strong> funds its obligations under this plan only as requirements arise. The employer<br />
contribution for the RPP were made in accordance with the Report on the Actuarial Valuation for Funding purposes<br />
as at December 31, 2010, dated June 29, 2011. The next actuarial valuation for funding purposes must be as of a<br />
date no later than December 31, 2013.<br />
<strong>UFA</strong>‟s transition to the Accounting standards for private enterprises (ASPE) resulted in a transition adjustment to<br />
retained earnings. <strong>UFA</strong>‟s accounting for pension is dependent on management‟s accounting policies and<br />
assumptions used in calculating such amounts. The impact of these adjustments has been highlighted in the notes<br />
to the financial statements.<br />
<strong>UFA</strong>‟s management pension <strong>com</strong>mittee manages both plans and is <strong>com</strong>prised of representation from<br />
management and employees. The pension <strong>com</strong>mittee acts in accordance with a governance plan, which sets out<br />
roles and responsibilities regarding the administration of the plan, and a statement of investment policies and<br />
procedures which sets out limits and guidelines for investment of the pension fund assets. The pension <strong>com</strong>mittee<br />
manages these two plans on behalf of the board with ultimate responsibility resting with the board. <strong>UFA</strong>‟s current<br />
investment policy identifies the benchmark asset mix as 60% equities and 40% fixed in<strong>com</strong>e. All equities are<br />
actively managed and the bench mark equity mix is split 60% Canadian, 20% US, and 20% other international.<br />
The assets of the RPP totaled $84.2 million at December 25, 2011 (2010 – $86.8 million), while the accrued<br />
benefit obligation, excluding unfunded SERP obligation, was $93.0 million (2010 – $93.8 million). The unfunded<br />
SERP obligation at year-end was $3.1 million, <strong>com</strong>pared to $2.9 million in 2010.<br />
In 2011 <strong>UFA</strong> incurred net pension expense of $4.4 million, with $4.1 million related to current service costs. This<br />
<strong>com</strong>pares to net pension expense of $4.6 million in 2010, of which $4.0 million related to current service costs.<br />
22 EMPLOYEE PENSION PLAN<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 24
United Farmers of Alberta Co-operative Limited<br />
RISK MANAGEMENT<br />
<strong>UFA</strong> is exposed to various risks and uncertainties in the normal course of business. To mitigate these risks, <strong>UFA</strong><br />
follows an enterprise risk management process to manage the major risks it faces. Each department and operating<br />
division is responsible for identifying all major risks that they face in their businesses as well as the cause of each<br />
major risk. These risks are then prioritized based upon the potential impact of such risk on the enterprise and the<br />
likelihood of occurrence. This process allows <strong>UFA</strong> to establish a risk profile for its business and develop the<br />
appropriate strategies to mitigate such risk. We believe that acceptance of some risk is both necessary and<br />
advantageous in any business, and is necessary to achieve <strong>UFA</strong>‟s vision.<br />
Financial Risk<br />
<strong>UFA</strong> undertakes certain transactions denominated in foreign currencies and, as a result, foreign currency<br />
exposures arise, which is discussed later in this report. <strong>UFA</strong> is exposed to foreign exchange risk on financial<br />
<strong>com</strong>modity contracts, which are denominated in foreign currencies, and on its investment in the United States<br />
subsidiary. Certain financial risks may be reduced through insurance or hedging programs, while other risks are<br />
prioritized in relation to the impact on the business and strategies are developed to mitigate the risk.<br />
<strong>UFA</strong> hedges its price risks on fixed-price petroleum contracts as outlined in the notes to the financial statements<br />
for risks associated with both market prices for petroleum products and fluctuations between the Canadian and<br />
United States currencies. Although <strong>UFA</strong> maintains and utilizes a highly effective hedging program, in relation to the<br />
adoption of accounting standards for private enterprises relating to hedges, <strong>UFA</strong> has elected not to utilize hedge<br />
accounting and has elected to recognize all in<strong>com</strong>e or expense related to the hedging activity immediately in the<br />
statement of earnings.<br />
Business Cycles and Commodity Risk<br />
<strong>UFA</strong>‟s business is affected by seasonal business cycles, in particular agricultural cycles. Risk is mitigated within<br />
the agriculture industry as different segments and areas may experience offsetting<br />
business cycles. <strong>UFA</strong>‟s diversified customer base does mitigate much of the risk of being economically dependent<br />
on the core owners.<br />
Petroleum sales revenue is closely linked to crude oil pricing, wholesale “rack back” margins and local<br />
supply/demand balances which impact rack forward margins. <strong>UFA</strong> follows a number of strategies to mitigate risks<br />
associated with this volatility. One strategy is centralized control over selling prices that allows <strong>UFA</strong> to react quickly<br />
to changes in purchasing prices from suppliers. <strong>UFA</strong>‟s exposure to price risk is limited to quantities carried in<br />
inventory, which is limited to tank capacity which usually represents less than 5% of sales.<br />
<strong>UFA</strong> may offer fixed price contracts to qualifying customers. To manage risks associated with fluctuating crude oil<br />
prices and maintain its desired margin, <strong>UFA</strong> offers these contracts only to financially sound customers that meet<br />
stringent credit policies. <strong>UFA</strong> purchases crude oil and foreign exchange swap agreements from lenders in the<br />
Credit Facility. This program benefits the customer since input costs are set and established which allows for<br />
better planning, budgeting and risk management.<br />
Credit Risk<br />
During 2009 <strong>UFA</strong> entered into an agreement with the Bank of Nova Scotia, allowing the Bank of Nova Scotia to<br />
extend credit to qualifying members and customers. <strong>UFA</strong> reduced its exposure to credit risk and received cash<br />
from the customer purchases instead of carrying them as accounts receivable. The program was designed to be<br />
transparent to the customer as the credit and account receivable functions continued with the same <strong>UFA</strong> staff.<br />
RISK MANAGEMENT 23<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 25
For members and customers not moving to the Bank of Nova Scotia credit program, <strong>UFA</strong> continues to be exposed<br />
to credit risk on accounts receivable for approximately 40 to 45 days of regular sales, at any time throughout the<br />
year, as most accounts receivable are due by the end of the month following purchase. Although <strong>UFA</strong> offers an<br />
extended credit finance plan for crop inputs and grain bins whereby customers do not have to pay for these<br />
products until February 15 of the subsequent year, Farm Credit Canada provides the financing for the plan.<br />
<strong>UFA</strong> partly mitigates exposure to credit risk through the Bank of Nova Scotia credit program, diversity of its<br />
customer base and the large geographic area in which it operates. In addition, a full credit review and monitoring is<br />
conducted by an experienced credit department. <strong>UFA</strong> follows established policies regarding credit limits, payment<br />
terms and account reviews. In addition, delinquent accounts are followed up regularly, including engaging external<br />
collection and legal assistance when required.<br />
There is nominal exposure to credit risk in the subsidiaries as none offer credit programs to retail customers.<br />
Liquidity Risk<br />
<strong>UFA</strong> manages liquidity risk to ensure that it has sufficient liquidity to meet liabilities when they <strong>com</strong>e due. <strong>UFA</strong><br />
<strong>com</strong>pleted an Asset Based Credit Agreement in December 2010 to guarantee it had the financial capacity and<br />
sufficient access to cost effective financing sources to fund its capital and operating activities. This facility replaced<br />
the Bank Credit Facility and Senior Secured Notes. At December 25, 2011 <strong>UFA</strong> had current assets of<br />
$362.5 million to settle current liabilities of $145.8 million. All accounts payable, accrued liabilities and deferred<br />
revenue are subject to normal trade terms.<br />
<strong>UFA</strong> expects to be <strong>com</strong>pliant with all of its financial covenants in 2012.<br />
Interest Rate Risk<br />
To manage interest rate risk, <strong>UFA</strong> utilizes short-term floating interest rate borrowings issued under the Asset<br />
Based Credit Facility and member loans program. <strong>UFA</strong> has not hedged any of the interest rate risk associated with<br />
short-term borrowings as it considers the risk to be acceptable. <strong>UFA</strong> no longer has exposure to interest rate risk on<br />
long-term debt raised under the Senior Secured Notes as the debt has been repaid in full.<br />
Foreign Currency Risk<br />
The acquisition of fifteen outdoor adventure stores in the United States exposes <strong>UFA</strong> to the impact of changes in<br />
the US dollar to the Canadian dollar exchange rate. For accounting purposes, the US operations are considered to<br />
be a self-sustaining and, therefore, the impact of changes in the foreign currency translation of the US operations<br />
balance sheet are recognized as Cumulative Translation Adjustments in <strong>UFA</strong>‟s Consolidated Balance Sheet.<br />
Advances of funds to and cash flow from the US operations also expose <strong>UFA</strong> to fluctuations in the value of the<br />
US dollar. Changes in the Canadian dollar value of the US dollar for advances to and cash flow from the US<br />
operations are reported in the Consolidated Statement of In<strong>com</strong>e (Loss).<br />
<strong>UFA</strong> mitigates the risk of fluctuations of the Canadian dollar against the US dollar and the impact of <strong>UFA</strong>‟s financial<br />
results by hedging.<br />
24 RISK MANAGEMENT<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 26
Environmental Health and Safety (EH&S)<br />
In 2011, <strong>UFA</strong> successfully developed a new Environmental, Health and Safety team made up of Health and<br />
Safety, Environmental and Asset Management/Maintenance professionals. The mandate of the team is to lead<br />
<strong>UFA</strong> in its objective to behave and execute its activities in an environmental and safe manner. The <strong>com</strong>pany is<br />
subject to environmental and occupational health and safety regulations under a variety of Canadian, US and other<br />
Federal, Provincial, territorial, and municipal laws and regulations. Some of the higher potential risk concerns for<br />
<strong>UFA</strong> that are or may be subject to regulation include:<br />
Release of fuel, chemicals and controlled substances to the environment<br />
Issues relating to land reclamation, restoration and human and wildlife habitat protection<br />
Matters associated with human health & safety<br />
Upgrading and maintenance of <strong>UFA</strong>'s assets to current legislated requirements to minimize environmental,<br />
health & safety risk and increase network reliability.<br />
Failure to <strong>com</strong>ply with laws and regulations result in the imposition of fines and penalties, liability for cleanup costs<br />
and damages, loss of important licenses and permits which may in turn have a material adverse effect on our<br />
business, financial condition, results of operations and cash flow.<br />
In 2011 and going forward into 2012 <strong>UFA</strong> has significant focus on evolving our Environment, Health and Safety<br />
programs awareness and culture. We have a refreshed EH&S Statement and have placed emphasis on key<br />
elements, including; streamlining and embedding our Environmental Management System, increasing the<br />
effectiveness of our facility assessments, placing more focus around our Certification of Recognition (COR)<br />
program and continuing to foster our Health and Safety culture, and internal reward programs.<br />
RISK MANAGEMENT 25<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 27
United Farmers of Alberta Co-operative Limited<br />
FINANCIAL STATEMENTS<br />
Management’s Responsibility for Financial Statements<br />
The management of United Farmers of Alberta Co-operative Limited (“<strong>UFA</strong>”) is responsible for the preparation of<br />
the ac<strong>com</strong>panying financial statements. The financial statements have been prepared in accordance with<br />
Canadian generally accepted accounting principles, which recognize the necessity of relying on management’s<br />
judgement and the use of estimates. Management has determined such amounts on a reasonable basis to ensure<br />
the financial statements are presented fairly in all material respects.<br />
Management’s responsibility to ensure integrity of financial reporting is fulfilled by maintenance of a system of<br />
internal accounting controls designed to provide assurance that transactions are authorized, assets are<br />
safeguarded and proper records maintained. Controls include a <strong>com</strong>prehensive planning system and processes to<br />
ensure timely reporting of periodic financial information.<br />
Final responsibility for the financial statements and their presentation to members rests with the Board of Directors.<br />
The Board carries out this responsibility principally through its Audit Committee. The Audit Committee meets<br />
separately with management and <strong>UFA</strong>’s external auditors, to review financial statements, discuss internal controls,<br />
the financial reporting process and other financial and auditing matters; all to satisfy itself that each party is<br />
properly discharging its responsibilities. The Audit Committee reports its findings to the Board for its consideration<br />
when the Board approves the financial statements prepared by management.<br />
The financial statements have been audited by PricewaterhouseCoopers LLP, the external auditors, in accordance<br />
with Canadian generally accepted auditing standards. The external auditors have had full and free access to<br />
management, the Audit Committee and the Board of Directors.<br />
Bob Nelson<br />
Peter Melnychuk<br />
President and Chief Executive Officer<br />
Chief Financial Officer<br />
February 29, 2012 February 29, 2012<br />
FINANCIAL STATEMENTS 1<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 28
United Farmers of Alberta Co-operative Limited<br />
AUDITOR’S REPORT<br />
February 29, 2012<br />
Independent Auditor’s Report<br />
To the Delegates/Members of<br />
United Farmers of Alberta Co-operative Limited<br />
We have audited the ac<strong>com</strong>panying consolidated financial statements of United Farmers of Alberta Co-operative<br />
Limited and its subsidiaries, which <strong>com</strong>prise the consolidated balance sheets as at December 25, 2011,<br />
December 26, 2010 and December 28, 2009 and the consolidated statements of in<strong>com</strong>e/(loss), retained earnings<br />
and cash flows for the 52 week periods ended December 25, 2011 and December 26, 2010, and the related<br />
notes, which <strong>com</strong>prise a summary of significant accounting policies and other explanatory information.<br />
Management’s responsibility for the consolidated financial statements<br />
Management is responsible for the preparation and fair presentation of these consolidated financial statements in<br />
accordance with Canadian accounting standards for private enterprises, and for such internal control as<br />
management determines is necessary to enable the preparation of consolidated financial statements that are free<br />
from material misstatement, whether due to fraud or error.<br />
Auditor’s responsibility<br />
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We<br />
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards<br />
require that we <strong>com</strong>ply with ethical requirements and plan and perform the audits to obtain reasonable assurance<br />
about whether the consolidated financial statements are free from material misstatement.<br />
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the<br />
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the<br />
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud<br />
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s<br />
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that<br />
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the<br />
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the<br />
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of<br />
the consolidated financial statements.<br />
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis<br />
for our audit opinion.<br />
2 AUDITOR’S REPORT<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 29
Opinion<br />
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of<br />
United Farmers of Alberta Co-operative Limited and its subsidiaries as at December 25, 2011, December 26,<br />
2010 and December 28, 2009 and the results of their operations and their cash flows for the 52 week periods<br />
ended December 25, 2011 and December 26, 2010 in accordance with Canadian accounting standards for<br />
private enterprises.<br />
Yours truly,<br />
Chartered Accountants<br />
PricewaterhouseCoopers LLP, Chartered Accountants<br />
Suite 3100, 111 – 5th Ave S.W., Calgary, Alberta, Canada T2P 5L3<br />
T: (403) 509-7500, F : (403) 781-1825, www.pwc.<strong>com</strong>/ca<br />
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.<br />
AUDITOR’S REPORT 3<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 30
United Farmers of Alberta Co-operative Limited<br />
CONSOLIDATED BALANCE SHEET<br />
As at<br />
(Stated in thousands of Canadian dollars)<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
December 28,<br />
2009<br />
Assets<br />
Current Assets<br />
Cash and cash equivalents (note 4) $ 1,237 $ – $ –<br />
Accounts receivable (note 5) 110,629 118,164 143,739<br />
Inventories 228,339 239,852 258,023<br />
Prepaid expenses and deposits 19,808 18,808 6,002<br />
Future in<strong>com</strong>e tax asset (note 11) 2,500 – 232<br />
Property held for resale (note 6) – 833 –<br />
362,513 377,657 407,996<br />
Property held for resale (note 6) 12,687 13,165 379<br />
Investments 862 862 1,223<br />
Other long-term assets 1,328 1,328 1,008<br />
Goodwill and intangible assets (note 7) 62,909 69,822 101,143<br />
Future in<strong>com</strong>e tax asset (note 11) 16,724 11,331 –<br />
Property and equipment (note 8) 221,330 246,547 283,045<br />
Liabilities and Members’ Equity<br />
Current Liabilities<br />
$ 678,353 $ 720,712 $ 794,794<br />
Bank indebtedness (note 4) $ – $ 16 $ 2,625<br />
Accounts payable and accrued liabilities (note 20) 120,324 123,208 148,934<br />
Deferred revenue (note 9) 10,982 10,709 15,318<br />
Member loans (note 10) 8,517 15,092 17,251<br />
Future in<strong>com</strong>e tax liability (note 11) – 116 –<br />
Current portion of long-term debt (note 12) 6,012 6,418 1,685<br />
145,835 155,559 185,813<br />
Long-term debt (note 12) 134,950 193,122 151,650<br />
Member loans (note 10) 31,827 – –<br />
Asset retirement obligations (note 13) 18,944 22,171 26,207<br />
Future in<strong>com</strong>e tax liability – – 2,222<br />
Long-term liabilities (note 14) 21,538 23,668 27,204<br />
Members’ Equity<br />
353,094 394,520 393,096<br />
Member entitlements (note 16) 209,614 208,438 214,386<br />
Retained earnings 133,069 135,316 201,996<br />
Cumulative translation adjustment (17,424) (17,562) (14,684)<br />
325,259 326,192 401,698<br />
$ 678,353 $ 720,712 $ 794,794<br />
On behalf of the Board<br />
Chairman<br />
Director<br />
See ac<strong>com</strong>panying notes to consolidated financial statements<br />
4 CONSOLIDATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 31
United Farmers of Alberta Co-operative Limited<br />
CONSOLIDATED STATEMENT OF INCOME (LOSS)<br />
For the period ended<br />
(Stated in thousands of Canadian dollars)<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Revenue (note 21) $ 2,108,450 $ 1,742,941<br />
Cost of sales (1,863,489) (1,526,635)<br />
Gross margin 244,961 216,306<br />
Operating and administrative expenses (189,767) (215,090)<br />
Other in<strong>com</strong>e 2,012 1,629<br />
Earnings before the under noted 57,206 2,845<br />
Depreciation and amortization (40,813) (42,413)<br />
Impairment of goodwill (note 7) – (26,575)<br />
Interest (note 10,12) (14,174) (21,152)<br />
Foreign currency exchange gain (loss) 1,171 (1,235)<br />
In<strong>com</strong>e (loss) before patronage and in<strong>com</strong>e taxes 3,390 (88,530)<br />
Patronage allocation (note 16) (7,000) –<br />
In<strong>com</strong>e tax recovery (note 11) 3,847 23,744<br />
Net in<strong>com</strong>e (loss) $ 237 $ (64,786)<br />
CONSOLIDATED FINANCIAL STATEMENTS 5<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 32
United Farmers of Alberta Co-operative Limited<br />
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY<br />
As at<br />
(Stated in thousands of Canadian dollars)<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Member Entitlements (note 16)<br />
Beginning of period $ 208,438 $ 214,386<br />
Patronage allocation 7,000 –<br />
Redemptions / Repayments (6,119) (6,287)<br />
Less than minimum and unclaimed 295 339<br />
209,614 208,438<br />
Retained Earnings<br />
Beginning of period 135,316 201,996<br />
Net earnings 237 (64,786)<br />
Dividends on investment shares (2,484) (1,894)<br />
133,069 135,316<br />
Cumulative Translation Adjustment<br />
Beginning of period (17,562) (14,684)<br />
Revaluation of non-Canadian accounts 138 (2,878)<br />
(17,424) (17,562)<br />
Total Members’ Equity $ 325,259 $ 326,192<br />
See ac<strong>com</strong>panying notes to consolidated financial statements<br />
6 CONSOLIDATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 33
United Farmers of Alberta Co-operative Limited<br />
CONSOLIDATED STATEMENT OF CASH FLOWS<br />
For the period ended<br />
(Stated in thousands of Canadian dollars)<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Operating activities<br />
Net in<strong>com</strong>e (loss) $ 237 $ (64,786)<br />
Items not requiring an outlay of cash<br />
Patronage allocation 7,000 –<br />
Gain on disposal of property and equipment (2,884) (244)<br />
Loss on disposal of application software – 31<br />
Write down of property and equipment – 603<br />
Asset retirement obligation accretion (note 13) 1,601 1,829<br />
Future in<strong>com</strong>e tax recovery (note 11) (8,009) (13,539)<br />
Decrease in other long-term liabilities (378) (1,768)<br />
Other amortization (1,410) (1,257)<br />
Depreciation and amortization (note 7,8) 40,813 42,413<br />
Impairment of goodwill (note 7) – 26,575<br />
36,970 (10,143)<br />
Asset retirement obligations settled (note 13) (1,562) (2,323)<br />
Changes in non-cash working capital related to operations (note 22) 15,477 2,470<br />
Cash provided by (used in) operating activities 50,885 (9,996)<br />
Investing activities<br />
Additions to property and equipment (10,507) (17,084)<br />
Proceeds from disposal of property held for resale 478 –<br />
Additions to goodwill and intangibles (2,843) (5,320)<br />
Proceeds from disposal of property and equipment 5,307 1,457<br />
Increase in other long-term assets – (320)<br />
Decrease in investments – 361<br />
Changes in non-cash working capital elements of investing activities – (2,692)<br />
Cash used in investing activities (7,565) (23,598)<br />
Financing activities<br />
Long-term debt (repaid) issued (note 12) (59,026) 46,206<br />
Member loans issued (note 10) 31,827 –<br />
Repayment of revolving equity (575) (576)<br />
Dividends on investment shares (2,484) (1,894)<br />
Redemption of shares (5,234) (5,373)<br />
Net repayment of member loans (6,575) (2,160)<br />
Cash (used in) provided by financing activities (42,067) 36,203<br />
Increase in cash 1,253 2,609<br />
Bank indebtedness, beginning of period (16) (2,625)<br />
Cash and cash equivalents (bank indebtedness), end of period $ 1,237 $ (16)<br />
See ac<strong>com</strong>panying notes to consolidated financial statements<br />
CONSOLIDATED FINANCIAL STATEMENTS 7<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 34
United Farmers of Alberta Co-operative Limited<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br />
(Tabular amounts are stated in thousands of Canadian dollars except unit numbers)<br />
1. Nature of Operations<br />
United Farmers of Alberta Co-operative Limited (“<strong>UFA</strong>”) was incorporated by Special Act under the laws of Alberta<br />
and operates as three business segments distributing fuel products and construction services, farm supplies, and<br />
outdoor recreation products to its customers. As a co-operative, a significant portion of its business is with its<br />
member owners. The outdoor recreation products segment operates through two wholly owned subsidiaries which<br />
are Wholesale Sports Canada Ltd. (formerly 1406783 Alberta Ltd.) operating in western Canada and Wholesale<br />
Sports USA, Inc. (formerly <strong>UFA</strong> Holdings, Inc.) operating as Wholesale Sports in the northwest United States. <strong>UFA</strong><br />
also has a 50% interest in <strong>UFA</strong>-LIT Joint Venture (“<strong>UFA</strong>-LIT”).<br />
2. Significant Accounting Policies<br />
Effective fiscal year 2011, the consolidated financial statements of <strong>UFA</strong> have been prepared in <strong>com</strong>pliance with<br />
Canadian accounting standards for private enterprises (ASPE). Under the new standards, <strong>UFA</strong> has exercised<br />
certain elections available for transitioning <strong>com</strong>panies. The financial impact of these changes is detailed in note 3.<br />
The <strong>com</strong>parative financial statements as at December 26, 2010 and the transition date of December 28, 2009 are<br />
on a basis consistent with the current year’s presentation.<br />
<strong>UFA</strong> prepares its consolidated financial statements on a retail calendar basis. The fiscal period end reflected in the<br />
consolidated financial statements is December 25, 2011 and the <strong>com</strong>parative period is December 26, 2010.<br />
Consolidation<br />
The consolidated financial statements include the accounts of <strong>UFA</strong> and its wholly owned subsidiaries, Wholesale<br />
Sports USA, Inc., Wholesale Sports Canada Ltd., and its 50% proportionate interest in its jointly controlled<br />
operations/assets of <strong>UFA</strong>-LIT Joint Venture. Transactions between <strong>UFA</strong>, its wholly owned subsidiaries and the<br />
proportionately consolidated entity are eliminated on consolidation.<br />
These consolidated financial statements are expressed in Canadian dollars.<br />
Revenue Recognition<br />
<strong>UFA</strong> recognizes revenue when products, goods and services are delivered to the customer or when the risks and<br />
rewards associated with ownership are transferred to the customer. Revenue related to building and intensive<br />
livestock construction projects is recognized using the percentage of <strong>com</strong>pletion basis. Under the percentage of<br />
<strong>com</strong>pletion method of accounting, the actual costs incurred and the budgeted costs to <strong>com</strong>plete the project are<br />
used to measure progress on each contract. Revenue and cost estimates are revised periodically based on<br />
changes in circumstances. Revenue invoiced but not yet earned is recorded as deferred revenue.<br />
Cash and Cash Equivalents, and Bank Indebtedness<br />
Cash and cash equivalents and bank indebtedness consists of cash on account and bank indebtedness.<br />
8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 35
Inventories<br />
Inventories are valued at the lower of cost and net realizable value, with cost being determined using the weighted<br />
average cost method. The cost of inventories includes the cost of purchase and other costs incurred in bringing the<br />
inventories to their present location and condition. Costs such as storage costs, and administrative overheads that<br />
do not contribute to bringing the inventories to their present location and condition, and selling costs are<br />
specifically excluded from the cost of inventories and are expensed in the period incurred. The amount of inventory<br />
recognized as an expense in the current period was $1,816.0 million (2010 – $1,483.7 million).<br />
Investments<br />
Investments are primarily held in other co-operative enterprises that are not publicly traded. For financial<br />
instrument purposes, these investments are measured at amortized cost. Provisions are made for impairments<br />
that are considered to be other than temporary.<br />
Property and Equipment<br />
Property and equipment are recorded at cost. Depreciation is recorded on a straight-line basis over the estimated<br />
useful lives of the assets at the rates indicated below <strong>com</strong>mencing the month that the assets are placed into<br />
service. Capital leases which transfer significant ownership rights to <strong>UFA</strong> are recorded as property and equipment.<br />
Buildings, fences and yards<br />
15 to 25 years<br />
Equipment<br />
5 to 8 years<br />
Computer equipment and system software<br />
3 to 5 years<br />
Automotive equipment<br />
5 years<br />
Leased assets<br />
3 to 15 years<br />
Property and equipment classified as “In progress” is expected to be placed into productive use within 12 months<br />
and represents work <strong>com</strong>menced but not <strong>com</strong>pleted on major projects. Depreciation will <strong>com</strong>mence once these<br />
assets are put into service.<br />
Property Held for Resale<br />
Property held for resale is recorded at the lower of cost or fair value less selling costs.<br />
Goodwill and Intangible Assets<br />
<strong>UFA</strong> records as goodwill the excess amount of the purchase price of entities acquired over the fair value of the<br />
identifiable net assets acquired, including intangible assets, at the date of acquisition. Goodwill is not amortized but<br />
is tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the<br />
reporting unit to which the goodwill is assigned may exceed the fair value of the reporting unit. In the event of<br />
impairment, the excess of the carrying amount (including goodwill) of a reporting unit over its fair value would be<br />
charged to earnings. Intangible assets are amortized on a straight-line basis over the estimate useful life of the<br />
assets identified.<br />
Application software<br />
Trademarks/Trade names<br />
Lease/Licenses<br />
Non-<strong>com</strong>petition agreements<br />
Customer relationships<br />
3 to 5 years<br />
10 years<br />
10 years<br />
4 years<br />
3 years<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 36
In<strong>com</strong>e Taxes<br />
<strong>UFA</strong> follows the liability method of tax allocation in accounting for in<strong>com</strong>e taxes. Under this method, in<strong>com</strong>e taxes<br />
are recognized for the differences between financial statement carrying values and the respective in<strong>com</strong>e tax basis<br />
of assets and liabilities (temporary differences), and for the carry-forward of unused tax losses and in<strong>com</strong>e tax<br />
reductions. Future in<strong>com</strong>e tax assets and liabilities are measured using in<strong>com</strong>e tax rates expected to apply in the<br />
periods in which temporary differences are expected to be recovered or settled. The effect on future in<strong>com</strong>e tax<br />
assets and liabilities of a change in tax rates is included in in<strong>com</strong>e in the period that the change is substantively<br />
enacted. Future in<strong>com</strong>e tax assets are evaluated and recorded as required in the consolidated financial<br />
statements if realization is considered more likely than not.<br />
Asset Retirement Obligations<br />
<strong>UFA</strong> recognizes the current best estimate of the expenditure required to settle the asset retirement obligation for<br />
all long-lived assets in the period when the liability is incurred or the period when it can be reasonably estimated,<br />
whichever is earlier. The liability is adjusted due to revisions in the associated estimated timing and amount of<br />
costs. Estimates are determined using management’s best judgment supplemented by historical experience,<br />
market information and in some cases, a review of engineering data. <strong>UFA</strong> also recognizes a corresponding<br />
increase in the carrying cost of the asset. The carrying cost of the asset is depreciated on a straight-line basis,<br />
similar to the underlying assets for which the liability is recognized.<br />
Employee Future Benefits<br />
<strong>UFA</strong> operates a defined benefit pension plan for its regular employees along with an unfunded supplemental<br />
retirement plan for those employees affected by the Canada Revenue Agency maximum pension and contribution<br />
limits. The obligations of the plans are determined using the projected benefit method pro-rated on service and<br />
<strong>UFA</strong>’s best estimate of expected return on assets, salary growth and demographic changes. Experience gains and<br />
losses and changes in assumptions are amortized, using the corridor method, over the average remaining service<br />
period of the employee groups. Under the corridor method, amortization is recorded only if the accumulated net<br />
actuarial gains or losses exceed 10% of the greater of the accrued benefit obligation and the value of the plan<br />
assets. The market value of plan assets is used for all calculations.<br />
Foreign Currency Translation<br />
Wholesale Sports USA Inc. is considered to be a self-sustaining foreign operation.<br />
Assets and liabilities of self-sustaining foreign operations are translated into Canadian dollars at the rate of<br />
exchange in effect at the balance sheet date and revenues and expenses are translated at the average monthly<br />
rates of exchange during the period. Gains or losses on translation of self-sustaining foreign operations are<br />
included in cumulative translation adjustment in Members’ Equity.<br />
<strong>UFA</strong> translates foreign currency assets and liabilities into Canadian dollars at the period-end exchange rate for<br />
monetary items and at the historical exchange rate for non-monetary items. Foreign currency revenues and<br />
expenses are translated at the exchange rate in effect on the dates of the related transactions. Foreign currency<br />
gains and losses are included in in<strong>com</strong>e immediately.<br />
Financial Instruments<br />
Section 3856 Financial Instruments provides the disclosure and presentation requirements for privately owned<br />
organizations. It deals with the classification of financial instruments, from the perspective of the issuer, between<br />
liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in<br />
which financial assets and financial liabilities are offset.<br />
10 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 37
Financial assets and financial liabilities will be recognized on the balance sheet when <strong>UFA</strong> be<strong>com</strong>es party to the<br />
contractual provisions of the financial instrument. <strong>UFA</strong> classifies financial assets and liabilities according to their<br />
characteristics and management’s choices and intentions related thereto for the purposes of ongoing<br />
measurement.<br />
All financial instruments are measured at fair value upon initial recognition. Subsequent measurement is at<br />
amortized cost, with the exception of cash and cash equivalents which are held at fair value.<br />
Use of Estimates<br />
The preparation of the consolidated financial statements in conformity with Canadian accounting standards for<br />
private enterprises requires management to make estimates and assumptions that affect the amounts reported in<br />
the consolidated financial statements and ac<strong>com</strong>panying notes. These estimates are based on management’s<br />
best knowledge of current events and actions that <strong>UFA</strong> may undertake in the future. Management believes that the<br />
estimates are reasonable; however, actual results could differ from those estimates. Estimates are used when<br />
accounting for such items as inventory provisions, depreciation, pension obligation, in<strong>com</strong>e and other taxes, asset<br />
retirement obligations and testing goodwill and long-lived assets for impairment. Information presented and<br />
estimates used in the financial statements do not reflect anticipated resolutions to uncertainties by management.<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 38
3. Impact of the Change in the Basis of Accounting<br />
The financial statements for the period ended December 25, 2011 are the first set of statements for which the<br />
entity has applied the Canadian accounting standards for private enterprises. Certain elections available to entities<br />
adopting ASPE were adopted, in accordance with the provisions set out in First-time Adoption, Section 1500 of<br />
Part II of the CICA Handbook.<br />
The impact of adopting these standards and the elections that were exercised were adjusted in retained earnings<br />
as at the transition date of December 28, 2009.<br />
(Stated in thousands of Canadian dollars)<br />
Balance Sheet as at<br />
December 27, 2009<br />
based on previous<br />
financial statements<br />
Changes in<br />
Retained Earnings<br />
Balance Sheet as at<br />
December 28, 2009<br />
based on ASPE<br />
Assets<br />
Current Assets<br />
Accounts receivable $ 143,739 $ – $ 143,739<br />
Inventories 258,023 – 258,023<br />
Prepaid expenses and deposits 6,002 – 6,002<br />
Future in<strong>com</strong>e taxes 232 – 232<br />
407,996 – 407,996<br />
Property held for resale 379 – 379<br />
Investments 1,223 – 1,223<br />
Other long-term assets 1,008 – 1,008<br />
Goodwill and intangible assets 101,143 – 101,143<br />
Property and equipment (note 3a) 263,711 19,334 283,045<br />
$ 775,460 $ 19,334 $ 794,794<br />
Liabilities and Members’ Equity<br />
Current Liabilities<br />
Bank indebtedness $ 2,625 $ – $ 2,625<br />
Accounts payable and accrued liabilities 148,934 – 148,934<br />
Deferred revenue 15,318 – 15,318<br />
Member loans 17,251 – 17,251<br />
Current portion of long-term debt 1,685 – 1,685<br />
185,813 – 185,813<br />
Long-term debt 151,650 – 151,650<br />
Asset retirement obligations 26,207 – 26,207<br />
Future in<strong>com</strong>e tax liability (note 3c) 1,300 922 2,222<br />
Long-term liabilities (note 3b) 21,222 5,982 27,204<br />
386,192 6,904 393,096<br />
Members’ Equity<br />
Member entitlements 214,386 – 214,386<br />
Retained earnings 189,566 12,430 201,996<br />
Cumulative translation adjustment (14,684) – (14,684)<br />
389,268 12,430 401,698<br />
$ 775,460 $ 19,334 $ 794,794<br />
12 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 39
(a) Fair Value of Property and Equipment<br />
<strong>UFA</strong> has elected the exemption in Section 1500, paragraph 12 and revalued certain parcels of its land to fair value<br />
as at the date of transition.<br />
(Stated in thousands of Canadian dollars)<br />
Balance Sheet as at<br />
December 27, 2009<br />
based on previous<br />
financial statements<br />
Changes in<br />
Retained Earnings<br />
Balance Sheet as at<br />
December 28, 2009<br />
based on ASPE<br />
Property and equipment at deemed cost<br />
Land $ 36,237 $ 19,334 $ 55,571<br />
Property and equipment at cost less accumulated depreciation<br />
Buildings, fences and yards $ 107,634 $ – $ 107,634<br />
Equipment 59,979 – 59,979<br />
Computer equipment and system software 14,529 – 14,529<br />
Automotive equipment 2,593 – 2,593<br />
Leased assets 35,681 – 35,681<br />
In progress 7,058 – 7,058<br />
$ 227,474 $ – $ 227,474<br />
$ 263,711 $ 19,334 $ 283,045<br />
(b) Unamortized Actuarial Losses for Employee Future Benefits<br />
<strong>UFA</strong> has elected the exemption in Section 1500, paragraph 14 and has recognized all cumulative actuarial losses<br />
in opening retained earnings at the date of transition. The <strong>com</strong>pany therefore revalued its accrued pension liability<br />
at the date of transition.<br />
(Stated in thousands of Canadian dollars)<br />
Balance Sheet as at<br />
December 27, 2009<br />
based on previous<br />
financial statements<br />
Changes in<br />
Retained Earnings<br />
Balance Sheet as at<br />
December 28, 2009<br />
based on ASPE<br />
Accrued benefit obligation, end of year $ 85,383 $ – $ 85,383<br />
Market value of plan assets, end of year 77,449 – 77,449<br />
Deficit of plan at end of year (7,934) – (7,934)<br />
Unamortized net actuarial loss 5,982 (5,982) –<br />
Accrued liability $ (1,952) $ (5,982) $ (7,934)<br />
(c) Future In<strong>com</strong>e Tax Liability<br />
The ASPE elections relating to revaluation of land and recognition of unamortized actuarial losses resulted in a net<br />
future in<strong>com</strong>e tax liability of $ 0.922 million.<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 40
4. Cash and Cash Equivalents (Bank Indebtedness)<br />
The <strong>com</strong>ponents of cash and cash equivalents are:<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Cash and cash equivalents $ 1,237 $ –<br />
Bank indebtedness – 16<br />
Cash (Bank indebtedness) $ 1,237 $ (16)<br />
Rates paid on cash balances during the period January to December 2011 ranged from 0% to 1.0% (2010 – 0% to<br />
1.0%). As at December 26, 2010, the balance representing banking transactions in clearing were classified as<br />
bank indebtedness.<br />
5. Accounts Receivable<br />
Accounts receivable is <strong>com</strong>prised of customer and member receivables of $99.2 million (2010 – $91.1 million)<br />
extended under <strong>com</strong>mercial terms, trade receivables and other miscellaneous receivables of $11.4 million (2010 –<br />
$27.0 million). The customer and member receivables are net of an allowance of $2.6 million (2010 – $3.0 million).<br />
During the period, <strong>UFA</strong> recorded $1.8 million in bad debts (2010 – $6.5 million).<br />
Other miscellaneous receivables consist of vendor rebates, in<strong>com</strong>e tax, Alberta Farm Fuel Benefits and other<br />
related receivables from the normal course of business.<br />
During 2009, <strong>UFA</strong> entered into an arrangement with the Bank of Nova Scotia (“BNS”) to transfer the rights to<br />
certain <strong>UFA</strong>’s trade receivables in exchange for cash. <strong>UFA</strong> will continue to service their customers for BNS. During<br />
the period the total funds received from BNS was $545.5 million (2010 – $475.9 million), and total funds returned<br />
to BNS on payments received from customers was $548.4 million (2010 – $445.1 million). The total balance of<br />
customer accounts outstanding with BNS as at December 25, 2011 was $66.9 million (2010 – $69.8 million) net of<br />
$9.9 million (2010 – $19.1 million) associated with funding received from BNS for which <strong>UFA</strong> has provided<br />
an indemnification.<br />
6. Property Held for Resale<br />
2011 2010<br />
Land $ 11,531 $ 11,821<br />
Buildings and equipment – 544<br />
Relocation properties 1,156 1,633<br />
$ 12,687 $ 13,998<br />
Less current portion – (833)<br />
Long-term portion $ 12,687 $ 13,165<br />
The balance of property held for resale represents assets which management have evaluated as not integral to<br />
business operations. The assets include purchases of employee homes to facilitate their relocation, with the<br />
intention of selling these properties as soon as possible.<br />
14 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 41
7. Goodwill and Intangible Assets<br />
Cost<br />
2011<br />
Accumulated<br />
Depreciation,<br />
Amortization Impairment Net Book Value<br />
Application software $ 57,453 $ 41,447 $ – $ 16,006<br />
Goodwill 35,245 – – 35,245<br />
Trademark/Trade names 9,276 3,132 – 6,144<br />
Leases/Licenses 7,994 2,803 – 5,191<br />
Non-<strong>com</strong>petition agreements 3,113 2,790 – 323<br />
Customer relationships 100 100 – –<br />
$ 113,181 $ 50,272 $ – $ 62,909<br />
Cost<br />
2010<br />
Accumulated<br />
Depreciation,<br />
Amortization Impairment Net Book Value<br />
Application software $ 55,644 $ 34,804 $ – $ 20,840<br />
Goodwill 61,737 – 26,575 35,162<br />
Trademark/Trade names 9,276 2,237 – 7,039<br />
Leases/Licenses 7,994 2,001 – 5,993<br />
Non-<strong>com</strong>petition agreements 3,113 2,325 – 788<br />
Customer relationships 100 100 – –<br />
$ 137,864 $ 41,467 $ 26,575 $ 69,822<br />
Goodwill balance in 2011 is after impairment write down from prior years.<br />
Goodwill includes amounts recognized at the time of the transaction and associated cumulative translation<br />
adjustment.<br />
Wholesale Sports USA, Inc. was tested for impairment at the end of the 2010 fiscal year and an impairment charge<br />
of $26.6 million to goodwill was recognized. Effective 2011 and onwards, goodwill will be tested for impairment<br />
whenever events or changes in circumstances indicate that the carrying amount of the reporting unit may exceed<br />
its fair value.<br />
8. Property and Equipment<br />
Cost<br />
2011<br />
Accumulated<br />
Depreciation,<br />
Amortization<br />
Net Book Value<br />
Land $ 46,636 $ – $ 46,636<br />
Buildings, fences and yards 152,995 67,347 85,648<br />
Equipment 131,474 89,267 42,207<br />
Computer equipment and system software 31,864 24,290 7,574<br />
Automotive equipment 18,171 16,798 1,373<br />
Leased assets 44,324 16,171 28,153<br />
In progress 9,739 – 9,739<br />
$ 435,203 $ 213,873 $ 221,330<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 42
Cost<br />
2010<br />
Accumulated<br />
Depreciation,<br />
Amortization<br />
Net Book Value<br />
Land $ 46,782 $ – $ 46,782<br />
Buildings, fences and yards 155,516 59,810 95,706<br />
Equipment 129,149 79,312 49,837<br />
Computer equipment and system software 29,886 18,339 11,547<br />
Automotive equipment 17,710 16,014 1,696<br />
Leased assets 46,416 12,736 33,680<br />
In progress 7,299 – 7,299<br />
$ 432,758 $ 186,211 $ 246,547<br />
The balance of In progress at December 25, 2011 is expected to be placed into productive use during fiscal 2012<br />
and represents work <strong>com</strong>menced but not <strong>com</strong>pleted on buildings, equipment, <strong>com</strong>puter equipment and software.<br />
Depreciation and amortization will <strong>com</strong>mence once these assets are put into service.<br />
9. Deferred Revenue<br />
Deferred revenue includes deposits and prepayments on future sales and gift certificates sold.<br />
10. Member Loans<br />
<strong>UFA</strong> has two different voluntary member loan programs (the on demand “Member Loan” program and the “High<br />
Yield Member Investment Plan” program or “HYMIP”) both of which provide members, employees, and agents the<br />
opportunity to invest in <strong>UFA</strong> and earn a return on their investment.<br />
The on demand Member Loans are unsecured, and earn a rate of return on the investment at bank prime, as<br />
stated by the Royal Bank of Canada, plus 1% (prior to September 1, 2010 – bank prime less 0.5%). The balance<br />
of Member Loans as at December 25, 2011 was $8.5 million (2010 – $15.1 million), and the interest of $0.6 million<br />
(2010 – $0.5 million) was included in interest expense.<br />
<strong>UFA</strong> introduced the HYMIP program to members on June 15, 2011. The program is a 3 year investment that pays<br />
a fixed rate of 7% interest per year and matures on June 15, 2014. The plan has no early redemption options, and<br />
pays interest semi-annually on June 15th and December 15th of each year. The minimum investment allowed<br />
under the program was $5,000 and all HYMIP loans are unsecured. The program was fully subscribed and closed<br />
in November of 2011.<br />
The HYMIP balance as at December 25, 2011 was $31.8 million (2010 – $Nil), and the interest of $0.8 million<br />
(2010 – $Nil) was included in interest expense.<br />
The repayment of member loans is subject to the right of offset of any amounts owing to <strong>UFA</strong>, and is subject to<br />
<strong>UFA</strong> meeting the covenants contained under the Asset-Based Credit Agreement (see note 12).<br />
16 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 43
11. In<strong>com</strong>e Taxes<br />
In<strong>com</strong>e tax expense (recovery) differs from the amount that would be <strong>com</strong>puted by applying the Canadian Federal<br />
and Provincial statutory in<strong>com</strong>e tax rates to earnings before in<strong>com</strong>e taxes as set out below:<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
In<strong>com</strong>e (loss) before patronage and in<strong>com</strong>e taxes $ 3,390 $ (88,530)<br />
Patronage allocation (7,000) –<br />
Net loss earnings before in<strong>com</strong>e taxes $ (3,610) $ (88,530)<br />
Statutory in<strong>com</strong>e tax rate 26.51% 28.02%<br />
Expected in<strong>com</strong>e tax recovery $ (957) $ (24,806)<br />
Non-deductible items and other (325) 475<br />
Rate adjustment including US rate impact (1,009) (2,637)<br />
True ups and other (1,556) 3,224<br />
In<strong>com</strong>e tax expense $ (3,847) $ (23,744)<br />
In<strong>com</strong>e taxes consists of:<br />
Current in<strong>com</strong>e tax expense (recovery) 4,162 (10,207)<br />
Future in<strong>com</strong>e tax recovery (8,009) (13,537)<br />
$ (3,847) $ (23,744)<br />
The net future in<strong>com</strong>e tax asset (liability) at the fiscal period end is <strong>com</strong>prised of the tax effect of the following<br />
temporary differences:<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Current future in<strong>com</strong>e tax asset (liability):<br />
Warranty and other $ 2,500 $ (116)<br />
Long-term future in<strong>com</strong>e tax asset (liability):<br />
Deferred <strong>com</strong>pensation 2,268 877<br />
Asset retirement obligation 4,738 5,738<br />
Tax loss/Other 8,633 6,903<br />
Property and equipment and other 1,085 (2,187)<br />
$ 16,724 $ 11,331<br />
12. Long-Term Debt<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Asset-Based Credit Agreement – Revolving loans $ 93,946 $ 147,778<br />
Asset-Based Credit Agreement – Term loan 46,250 50,000<br />
Obligations under capital leases 1,804 3,130<br />
Deferred financing charges (1,038) (1,368)<br />
140,962 199,540<br />
Less: current portion (6,012) (6,418)<br />
$ 134,950 $ 193,122<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 44
Asset-Based Credit Agreement<br />
<strong>UFA</strong> entered into an Asset-Based Credit Agreement (“Credit Agreement”) on December 13, 2010 that provides for<br />
an Asset-Based revolving credit facility in the maximum aggregate amount of $200.0 million and a fixed asset<br />
facility (Term loan) initially available on a one-draw only basis in the amount of $50.0 million. The Credit<br />
Agreement also has an accordion feature which permits <strong>UFA</strong> to request an increase in the revolving credit facility<br />
up to an additional amount of $50.0 million for a total availability of $250.0 million. Any increase under the<br />
accordion is not <strong>com</strong>mitted and must first be approved by the lenders. In 2011 <strong>UFA</strong> repaid $3.75M under the Term<br />
Loan facility as required, and did not request any increase in credit under the accordion feature of the revolving<br />
credit facility.<br />
Borrowing Base<br />
The amount available to be drawn under the Credit Agreement will vary from time to time based on <strong>UFA</strong>’s<br />
inventory and accounts receivable balances. The advances under the credit agreement cannot exceed the<br />
revolving loans borrowing base determined according to terms under the agreement that factors <strong>UFA</strong>’s inventory<br />
and receivables. In addition, reserves are calculated under the Agreement to take into account such factors as<br />
priority payables, and additional collateral requirement.<br />
At December 25, 2011, under the Credit Agreement the borrowing bases for accounts receivable and inventory<br />
were margined at $66.0 million (2010 – $52.8 million) and $139.0 million (2010 – $152.3 million) respectively. The<br />
total amount of reserves which were deducted from the borrowing bases was approximately $16.3 million (2010 –<br />
$15.2 million). At December 25, 2011, $80.2 million (2010 – $37.1 million) of credit was available to fund<br />
operations and working capital requirement.<br />
As at December 25, 2011, <strong>UFA</strong>’s balance in revolving loans under the Asset-Based Credit Agreement included<br />
$107.0 million (2010 – $161.0 million) drawn in Canadian dollars and $6.6 million (2010 – $1.2 million) advanced in<br />
US dollars. The Canadian dollar borrowings consisted of $100.0 million of 30 day Banker’s Acceptances and<br />
$7.0 million of Prime loans (2010 – $Nil), the US total was all Prime loans (2010 – $Nil)<br />
The total drawn by <strong>UFA</strong> under the Credit Agreement was offset by $17.6 million (2010 – $12.0 million) residing in<br />
bank balances held in deposit accounts.<br />
Term<br />
The Credit Agreement has a 3 year term ending December 13, 2013 including a clause for termination fees should<br />
the Credit Agreement be terminated within the two years of the date of closing. <strong>UFA</strong> can borrow under the<br />
agreement using Prime, Libor or Banker’s Acceptances and pricing is determined off a grid based on <strong>UFA</strong> Fixed<br />
Charge Coverage Ratio. During the term of the Asset-Based revolving credit facility, there are no fixed terms of<br />
repayment. The initial one-time advance of Term Loan for $50.0 million is repayable in equal quarterly installments<br />
based on a ten year amortization. As at December 25, 2011, <strong>UFA</strong>’s term loan balance was $46.3 million (2010 –<br />
$50.0 million) including the $5.0 million current portion scheduled for repayment over the next year. Banker’s<br />
Acceptances accounted for $30.0 million (2010 – $Nil) of the total outstanding balance, with the remainder in<br />
Prime loans.<br />
Security<br />
The Credit Agreement grants a security interest in all of <strong>UFA</strong>’s personal property and all of its real property is<br />
mortgaged in favour of the lenders under the agreement.<br />
Covenants<br />
<strong>UFA</strong> is subject to certain financial and collateral covenants related to the Asset-Based Credit Agreement. The<br />
Asset-Based Credit Agreement requires ongoing <strong>com</strong>pliance with an Adjusted Fixed Charge Coverage Ratio as<br />
calculated on a 12-month rolling basis at the end of each month of not less than 1.1:1. <strong>UFA</strong> was in <strong>com</strong>pliance with<br />
all financial covenants during the year and as at December 25, 2011.<br />
18 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 45
Capital Lease Obligations<br />
The assets under capital leases are the security for the respective obligations. Scheduled minimum lease<br />
payments for the next five periods total $2.0 million, including $0.2 million in financing expenses. The lease terms<br />
range from 1 to 5 periods at interest rates between 4.2% and 18.1% for 2011 (2010 – 4.2% and 17.9%).<br />
Principal Interest Total<br />
2012 $ 1,010 $ 84 $ 1,094<br />
2013 529 32 561<br />
2014 159 12 171<br />
2015 106 103 209<br />
2016 – – –<br />
$ 1,804 $ 231 $ 2,035<br />
13. Asset Retirement Obligations<br />
2011 2010<br />
Balance, beginning of year $ 22,171 $ 26,207<br />
Accretion expense 1,601 1,829<br />
Revisions in estimated cash flows (3,266) (3,542)<br />
Liabilities settled (1,562) (2,323)<br />
Balance, end of year $ 18,944 $ 22,171<br />
Estimated undiscounted future cash flows, adjusted for inflation, are $46.1 million (2010 – $48.5 million) and are<br />
expected to be incurred up to and including fiscal 2060. The present value or discounted fair value of the<br />
obligations was determined using a 7.7% discount rate and a 2.2% inflation rate (2010 – 7.7% and 2.2%<br />
respectively). The estimates used in determining <strong>UFA</strong>'s asset retirement obligations could change due to changes<br />
in regulations and the timing, nature and extent of environmental remediation required. Changes in estimates are<br />
accounted for prospectively in the period that the estimate is revised.<br />
14. Long-Term Liabilities<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Accrued pension benefit liability (note 18) $ 7,494 $ 8,367<br />
Intangible lease liability 8,767 10,990<br />
Other long-term liabilities 5,277 4,311<br />
$ 21,538 $ 23,668<br />
The intangible lease liability represents the remaining unamortized fair value of lease <strong>com</strong>mitments acquired in the<br />
acquisition of 15 Sportsman’s Warehouse stores.<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 46
15. Commitments, Contingencies and Guarantees<br />
Future minimum payments under operating leases for certain facilities and equipment are due as listed:<br />
2012 $ 18,730<br />
2013 18,960<br />
2014 19,273<br />
2015 19,192<br />
2016 18,271<br />
After 2016 70,853<br />
$ 165,279<br />
<strong>UFA</strong>’s by-laws provide indemnification to its current and former directors, officers and employees to the extent<br />
permitted by law, against liabilities arising from their service to <strong>UFA</strong>. The broad nature of these indemnification bylaws<br />
does not permit a reasonable estimate of the maximum potential amount of any liability. No amount has been<br />
accrued in the consolidated financial statements in this respect.<br />
16. Member Entitlements<br />
Member entitlements consist of member shares, the current period’s patronage allocation, revolving equity and<br />
investment shares. All member entitlements for members that turn 65 years of age (“Senior Members”), is<br />
converted into Class A Investment shares, with the exception of one $5.00 member share.<br />
Details of member entitlements are as follows:<br />
2011 2010<br />
Member shares $ 29,017 $ 29,845<br />
Patronage allocation 7,000 –<br />
Revolving equity 70,577 84,661<br />
Class A Investment shares 103,020 93,932<br />
Member entitlements, end of period $ 209,614 $ 208,438<br />
The repayment and redemption of equity and the payment of patronage and dividends are subject to the right of<br />
offset of any amounts owing to <strong>UFA</strong>, and are subject to <strong>UFA</strong> meeting the covenants contained under the Asset-<br />
Based Credit Agreement (see note 12).<br />
Member Shares<br />
<strong>UFA</strong> is authorized to issue an unlimited number of member shares with a par value of $5.00. Member shares are<br />
redeemable at the option of the holder at par value when the member reaches age 65, moves out of the trading<br />
area or, at the request of the member’s estate, upon the member’s death.<br />
2011 2010<br />
Ordinary shares issued: Number Amount Number Amount<br />
Balance, beginning of period 5,970 $ 29,845 6,146 $ 30,729<br />
Conversion to Class A Investment shares (119) (596) (132) (662)<br />
Redemption (46) (232) (44) (222)<br />
Balance, end of period 5,805 $ 29,017 5,970 $ 29,845<br />
20 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 47
Patronage Allocation<br />
<strong>UFA</strong> distributes a portion of its current fiscal period earnings to its members in the form of a patronage allocation.<br />
The allocation must be ratified by <strong>UFA</strong>’s elected delegates at their annual meeting held in March of the following<br />
period. As part of the ratification of the patronage allocation and as provided for under <strong>UFA</strong>’s by-laws, the<br />
delegates also approve the distribution of the current period allocation to member shares, non-interest bearing<br />
revolving equity, Class A Investment shares and the amount to be paid in cash.<br />
2011 2010<br />
Balance, beginning of period $ – $ –<br />
Current period allocation 7,000 –<br />
Balance, end of period $ 7,000 $ –<br />
Revolving Equity<br />
Revolving equity is non-interest bearing, non-redeemable by the member except in specific circumstances and is<br />
converted into Class A Investment shares on a straight-line basis over a 12 year period.<br />
2011 2010<br />
Balance, beginning of period $ 84,661 $ 99,587<br />
Conversion to Class A Investment shares (12,222) (12,644)<br />
Senior Members conversion to Class A Investment shares (1,288) (1,706)<br />
Repayment (574) (576)<br />
Balance, end of period $ 70,577 $ 84,661<br />
Class A Investment Shares<br />
Class A Investment shares are non-voting, have a par value of $100.00 and are redeemable at par value at the<br />
option of the holder subject to Board approval. The Board has the authority to restrict redemptions in any given<br />
year, even in situations where such redemptions are not unfavorable to <strong>UFA</strong>.<br />
Class A Investment shares are retractable at par value at the option of <strong>UFA</strong> and provide a dividend at bank prime<br />
rate less 0.5%. Dividends of $2.5 million (2010 – $1.9 million) on the investment shares are charged against<br />
retained earnings. The minimum required for a dividend cheque to be issued is $50 per member and the amount<br />
owing is held in investment shares until the minimum is met.<br />
2011 2010<br />
Investment shares issued: Number Amount Number Amount<br />
Balance, beginning of period $ 93,932 $ 84,070<br />
Conversion from revolving equity 122 12,209 126 12,644<br />
Senior Members conversion from revolving equity 13 1,288 17 1,706<br />
Senior Members conversion from member shares 6 596 7 662<br />
Redemption (53) (5,300) (55) (5,489)<br />
Less than minimum and unclaimed 295 339<br />
Balance, end of period $ 103,020 $ 93,932<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 48
17. Financial Instruments<br />
<strong>UFA</strong>’s risk exposures and the impact on <strong>UFA</strong>’s financial instruments are summarized below:<br />
Credit Risk<br />
Credit risk is the risk of loss associated with a counter-party’s inability to fulfill its payment obligations. <strong>UFA</strong> is<br />
exposed to the credit risk on its accounts receivable from members and customers. The accounts receivable are<br />
net of applicable allowances for doubtful accounts, which are established based on the specific credit risks<br />
associated with individual members and customers and other relevant information. Concentration of credit risk with<br />
respect to receivables is limited, due to the large number of members and customers.<br />
Liquidity Risk<br />
<strong>UFA</strong>’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when<br />
they <strong>com</strong>e due. At December 25, 2011, <strong>UFA</strong> had current assets of $362.5 million (2010 – $377.7 million) to settle<br />
current liabilities of $145.8 million (2010 – $155.6 million). All of <strong>UFA</strong>’s accounts payable, accrued liabilities and<br />
deferred revenue are subject to normal trade terms. (See notes 10 and 12 for information on payment terms of<br />
member loans and current and long-term debt.)<br />
Market Risk<br />
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign<br />
exchange rates, and <strong>com</strong>modity prices. These fluctuations may be significant.<br />
Interest Rate Risk<br />
<strong>UFA</strong> is exposed to interest rate risk under the Asset-Based Credit Agreement as the rate is based on its Fixed<br />
Charge Coverage Ratio. As of December 25, 2011, the interest rates paid on Canadian dollar advances and<br />
US dollar advances were Canadian Prime Rate or US Prime Rate plus 0.75% (2010 – Canadian or US Prime Rate<br />
plus 2.75%). For Banker’s Acceptances the interest rate was BA’s plus 2.25% (2010 – no Banker’s Acceptances<br />
existed). Further, the amortized transaction costs impacted the interest rate by 0.3% (2010 – 0.2%) making the<br />
effective interest rate to be 3.82%. A 1% change in the Prime Rate may have an annual before in<strong>com</strong>e taxes<br />
impact of approximately $2.0 million. <strong>UFA</strong> is not exposed to interest rate risk on capital lease obligations as the<br />
rates are fixed.<br />
Foreign Currency Risk<br />
<strong>UFA</strong> is exposed to foreign currency risk on exchange fluctuations related to its US dollar borrowings through the<br />
<strong>com</strong>pany’s Asset-Based Credit Agreement (see note 12) for funds advanced to its US-based subsidiary,<br />
Wholesale Sports USA, Inc., and short-term payables related to foreign suppliers. The foreign currency risk is<br />
considered minimal as these assets and liabilities are not of significant value, and all transactions are with trade<br />
vendors with typical payment terms. In 2011, <strong>UFA</strong> incurred a gain $1.2 million (2010 – loss of $1.2 million) due to<br />
changes in the value of the US-CDN exchange rate.<br />
<strong>UFA</strong> is also exposed to foreign currency risk in the operations of its US-based subsidiary, Wholesale Sports USA,<br />
Inc. However, since Wholesale Sports USA, Inc. is a self-sustaining subsidiary, revenues are generated in<br />
US dollars, which exceeds the natural hedge provided by the purchases of goods and services which are<br />
denominated in US dollars. US dollar exchange differences on the investment in Wholesale Sports USA, Inc. will<br />
be unrealized until the investment is disposed of. Exchange differences that occur during the period are recorded<br />
in the cumulative translation adjustment account in members’ equity.<br />
22 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 49
18. Employee Future Benefits<br />
<strong>UFA</strong> administers two defined benefit pension plans: a funded registered plan (“RPP”) for all employees and an<br />
unfunded supplemental retirement plan (“SERP”) for those employees whose earnings exceed the maximum<br />
allowable under government guidelines for the RPP. <strong>UFA</strong> funds the RPP in accordance with current pension<br />
legislation. <strong>UFA</strong> does not fund the SERP but has the obligation to pay SERP benefits out of general revenue in the<br />
period payments are made. Pension benefits are provided to qualified employees and are based, in general, on<br />
years of service and <strong>com</strong>pensation near retirement.<br />
<strong>UFA</strong> measures its accrued benefit obligation and the fair value of plan assets of its pension plans for accounting<br />
purposes as at the end of each fiscal period. The most recent actuarial valuation of the RPP for funding purposes<br />
was as of December 31, 2010.<br />
Information regarding <strong>UFA</strong>’s defined benefit plans is as follows:<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Accrued benefit obligation, end of year $ 96,062 $ 96,685<br />
Market value of plan assets, end of year 84,200 86,768<br />
Deficit of plan at end of year (11,862) (9,917)<br />
Employer contributions subsequent to fiscal year end (496) (380)<br />
Unamortized net actuarial loss 4,864 1,930<br />
Accrued liability $ (7,494) $ (8,367)<br />
Included in the accrued benefit obligation is $3.1 million related to the SERP (2010 – $2.9 million).<br />
<strong>UFA</strong>’s accrued liability of $7.5 million differs from its funded status deficit of $11.9 million due to $4.9 million in<br />
unamortized net actuarial losses and $0.5 million in employer contributions that occurred subsequent to the fiscal<br />
year end date of December 25, 2011. Unamortized actuarial losses arise from differences between the expected<br />
and actual long-term rate of return on plan assets and from differences between actuary assumptions used to<br />
calculate <strong>UFA</strong>’s accrued benefit obligation and <strong>UFA</strong>’s actual experience.<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 50
19. Joint Venture<br />
The consolidated statements include on a proportionate basis <strong>UFA</strong>’s interest in <strong>UFA</strong>-LIT Joint Venture.<br />
During 2010, <strong>UFA</strong>-LIT <strong>com</strong>pleted construction of a crop nutrition facility, a jointly controlled asset that began<br />
in 2009.<br />
A summary of the Company’s interest in the jointly controlled operation at December 25, 2011 is as follows before<br />
elimination of <strong>UFA</strong>’s contribution:<br />
Statement of Earnings 2011 2010<br />
Revenue $ 1,734 $ 1,159<br />
Cost of sales (1,650) (1,084)<br />
Operating and administrative expenses (112) (67)<br />
Depreciation and amortization (69) (44)<br />
Net earnings $ (97) $ (36)<br />
Balance Sheet 2011 2010<br />
Current assets $ 19 $ 51<br />
Property and equipment 758 823<br />
$ 777 $ 874<br />
Current liabilities $ 15 $ 16<br />
<strong>UFA</strong>’s contribution in equity 859 894<br />
Current earnings from Company’s interest in Joint Venture (97) (36)<br />
$ 777 $ 874<br />
The consolidated statements include <strong>UFA</strong>’s interest in this asset at $0.8 million (2010 – $0.8 million). <strong>UFA</strong> charges<br />
depreciation and amortization in accordance with its policy on Property, Plant & Equipment and Goodwill &<br />
Intangible Assets on its portion of interest held.<br />
Cost<br />
2011<br />
Accumulated<br />
Depreciation<br />
Net Book Value<br />
Property and Equipment<br />
Land $ 74 $ – $ 74<br />
Building 293 20 273<br />
Equipment 478 86 392<br />
Computer hardware 15 4 11<br />
$ 860 $ 110 $ 750<br />
Intangible Assets<br />
Application software $ 11 $ 3 $ 8<br />
$ 11 $ 3 $ 8<br />
20. Government Remittances<br />
Accounts payable and accrued liabilities as at December 25, 2011 include $7.9 million (2010 – $7.7 million) in<br />
respect of government remittances other than in<strong>com</strong>e taxes. Included in this total are federal and provincial sales<br />
and excise taxes, payroll related taxes, and environmental levies.<br />
24 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 51
21. Revenue Segmentation<br />
<strong>UFA</strong> derives a significant portion of its revenue by providing products and services to its members. The <strong>com</strong>pany’s<br />
business reflects three distinct categories of activity, including fuel products and construction, farm supplies, and<br />
outdoor recreation merchandise.<br />
Category Fiscal 2011 % Fiscal 2010 %<br />
Petroleum (including construction) $ 1,569,117 74.5 $ 1,202,501 69.0<br />
Agribusiness 327,709 15.5 338,445 19.4<br />
Outdoor recreation 211,624 10.0 201,995 11.6<br />
$ 2,108,450 $ 1,742,941<br />
22. Changes in non-cash working capital related to operations<br />
Non-cash working capital relating to operations generated cash flows of $15.5 million in fiscal year 2011 (2010 -<br />
$2.5 million).<br />
For the fifty-two weeks ended<br />
December 25,<br />
2011<br />
December 26,<br />
2010<br />
Accounts receivable $ 7,535 $ 25,575<br />
Inventory 11,513 18,171<br />
Prepaid expenses (999) (12,806)<br />
Accounts payable and accrued liabilities (2,885) (22,070)<br />
Deferred revenue and other 287 (4,513)<br />
Change related to cumulative translation adjustments 26 (1,887)<br />
$ 15,477 $ 2,470<br />
23. Interest and in<strong>com</strong>e taxes paid<br />
Interest paid in fiscal year 2011 is $12.8 million (2010 – $19.5 million). In<strong>com</strong>e taxes recovered in fiscal year 2011<br />
was $11.2 million (2010 – $2.8 million).<br />
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 52
Board of Directors 2011<br />
Debbie Adolphson<br />
Tim Bancroft<br />
Bob Chisholm<br />
Bill Dobson<br />
Valleyview<br />
Calgary<br />
Calgary<br />
Paradise Valley<br />
Duane Glimsdale<br />
Jim Laverick<br />
Bill Lee<br />
Jacob Middelkamp<br />
Claresholm<br />
Chairman of the Board<br />
Calgary<br />
Camp Creek<br />
Gibbons<br />
Cornie Teichroeb<br />
Mic Thiessen<br />
Barry Webster<br />
La Crete<br />
Lethbridge<br />
Mountain View<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 53
senior management 2011<br />
Bob Nelson<br />
Glenn Bingley<br />
Dave Irvine<br />
Sherry Ewert<br />
President & CEO<br />
Chief Operating Officer<br />
Wholesale Sports<br />
Vice President,<br />
Human Resources<br />
Director,<br />
Internal Audit<br />
Jimm Holland<br />
Rahul Kohli<br />
Peter Melnychuk<br />
Ed McCoy<br />
Managing Director, Brand Strategy<br />
& Integrated Marketing<br />
Chief Information Officer<br />
Executive Vice President &<br />
Chief Financial Officer<br />
Vice President,<br />
Petroleum<br />
Bruce Nysetvold<br />
Ron Schinnour<br />
Jim Watt<br />
General Counsel<br />
Vice President,<br />
AgriBusiness<br />
Chief Governance Officer<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 54
Contact information<br />
<strong>UFA</strong> 2011 Unabridged Annual Report 55