Detailed Version - UFA.com

ufa.com

Detailed Version - UFA.com

2011 Annual Report

UFA

Announces

Turnaround

Year.

“ The world we operate in today is vastly different from what

we knew 10, 20 or 50 years ago, creating exciting new

opportunities for our co-op. “

- Jim Laverick Chairman of the Board

UFA 2011 Unabridged Annual Report 1


table of contents

Corporate profile.....................................................................................................................................3

Financial highlights & five-year summary.........................................................................................4

Chairman’s message...............................................................................................................................5

President & CEO’s message..................................................................................................................7

Management’s discussion & analysis.................................................................................................13

Financial statements........................................................................................................................... 28

Board of directors................................................................................................................................ 53

Senior management............................................................................................................................ 54

Contact information............................................................................................................................ 55

UFA 2011 Unabridged Annual Report 2


United Farmers of Alberta Co-operative Limited

CORPORATE PROFILE

Core Purpose

To improve the economic and social well-being of our agricultural owners and their communities.

Vision

UFA is a market leading agricultural co-operative providing quality products, services and solutions that

support our owners and customers and serve the rural community.

Mission Statement

We are a co-operative with a mandate to create value for our owners and customers through our

unwavering commitment to strong financial performance; relevance to agriculture producers; and

connection to the rural community.

We excel at anticipating and responding to the changing needs of the people who live, work and play

in the rural environment.

We have an exceptional ability to identify, source and deliver relevant products, services and

solutions at the right place and time.

We champion a work environment that inspires a balance of progressive thinking, agility,

collaboration and accountability for results.

In doing so, we believe that UFA will become the preferred choice of owners, customers, business

partners and top-performing employees who share our passion for this business.

Core Values

Accountability

Agility

Collaboration

Integrity

Performance

Progressive thinking

Respect

2 CORPORATE PROFILE

UFA 2011 Unabridged Annual Report 3


United Farmers of Alberta Co-operative Limited

FINANCIAL HIGHLIGHTS & FIVE-YEAR SUMMARY

(Stated in thousands of Canadian dollars) 2011 2010 2009 2008 2007

Sales 2,108,450 1,742,941 1,603,863 2,161,230 1,805,977

Margin 244,961 216,306 225,697 216,412 246,395

Operating expense (189,767) (215,090) (180,823) (146,028) (136,516)

Earnings before patronage allocation and income taxes 3,390 (88,530) (4,077) 45,099 91,626

Patronage allocation 7,000 – – 15,700 35,200

Distribution to members

Cash portion of patronage allocation – – 3,648 8,223 8,166

Issuance of Class A investment shares 14,093 15,012 16,023 15,924 13,860

Dividends on investment shares 2,484 1,894 1,550 2,952 3,164

Retirement of equity 6,119 6,287 6,163 3,852 3,645

Total Distribution to members 22,696 23,193 27,384 30,951 28,835

FINANCIAL HIGHLIGHTS & FIVE- YEAR SUMMARY 1

UFA 2011 Unabridged Annual Report 4


United Farmers of Alberta Co-operative Limited

CHAIRMANʼS MESSAGE

It is always a humbling experience to stand in front of the delegate body and give an

accounting of our stewardship as governors of your co-operative. In March 2011,

having to report the worst financial results in our history was about as humbled as I

ever want to feel.

At that time, I said that we would need a Herculean effort from everyone – the board,

management, front-line staff, support staff, agents and delegates – in order to rebuild

this organization. I asked everyone to stay engaged, to recognize that we are making

progress, to maintain their optimism and keep the faith.

2011 was year one of our three-year rebuilding plan. Our very survival depended on

turning the organization around, getting back on track and setting ourselves up

for long-term sustainability. As an enterprise we went to the drawing board, broke it all down, made

changes, eliminated bad habits, added new ideas, then, put it all back together and focused on execution,

execution, execution.

As expected, we have seen some excellent progress and even enjoyed a few big wins in the past 12 months. Our

results have improved – dramatically. And perhaps even more importantly, they have improved for all the right

reasons. Some businesses in Alberta are seeing better results just because the economy is better. While UFA has

also benefited from a stronger economic environment, our results have improved because we took action. We

started with a good plan. Our people executed those plans well. And now we are seeing better results.

2011 was a year when we focused on the most pressing and urgent issues facing our co-operative. While burning

platforms have consumed us through the past couple of years, we are also facing long-term challenges that can no

longer be ignored or delayed. Like your business, our business – the way we operate, the needs of the customers

we serve, our competitors and the industries in which we compete are experiencing rapid change.

In the past UFA has struggled to keep pace with change. We have spent too much time, energy and resources

attempting to hold on to the status quo. We have struggled with our efforts to remain relevant to the agricultural

producer – and we have paid the price.

A fundamental responsibility that we have, as governors and delegates, is to ensure the long-term viability and

sustainability of the co-operative. The three year plan was only the first step of a long and challenging journey. The

board has spent a lot of time considering the rest of that journey: where are we going and how will we get there? In

considering those questions, we returned to our roots and carefully considered our mandate and core purpose “to

improve the economic and social well-being of our agricultural owners and their communities.” We do this by

delivering on membersʼ expectations for UFA:

1. Enable my business.

2. Protect my investment.

3. Champion rural sustainability.

As I explained last year, we must first serve the needs our members as customers. Once members begin to build

equity, they expect that it will be used wisely to invest in and grow the business. When the business is healthy and

growing – dividends are paid. Our members are not only concerned about the future of the co-operative they also

care about the sustainability of the agricultural industry, the environment and the rural communities where they live

and work and spend their leisure time. It used to be that the grain elevator was a symbol of a prairie townʼs

prosperity and well-being. Today, a UFA farm and ranch store or petroleum agency is often that barometer of rural

CHAIRMANʼ S MESSAGE 3

UFA 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

that our members remind us of every day.

So how does UFA stay healthy, relevant and sustainable over the long-term? How do we reclaim our place as

leaders in agriculture and the rural community?

Traditionally we have thought of ourselves as farm and ranch supply retailers with a fuel distribution network

operated by independent agents. Today we must think of ourselves as investors in a diversified portfolio of

business opportunities. And we must be constantly evaluating those opportunities to ensure that they align with our

objectives and core purpose and create true value for our owners.

The board has determined that our portfolio will focus on prudent investments in the Agribusiness, Energy and

Retail sectors. We will look to businesses within each of those sectors as opportunities that will help us remain

viable, relevant and sustainable to agricultural producers and their communities. Over the next few years, you will

see that strategy begin to take shape as we make investment decisions with each of our lines of business.

We have had a good year. Our results are better than expected. Last year we announced a loss before patronage

and income taxes of $88.5 million dollars. This year we managed to get back in the black and we do have surplus

earnings. I am pleased to report that the board is recommending a patronage payment of $7 million to our

members. While this is less than we want to deliver in coming years, it is a substantial improvement over last

year‟s results. It represents a monumental accomplishment and a major turning point for UFA.

I want to acknowledge and thank Bob and the management team for the work they have done. Compared to

where we started, considering the enormity of the task they faced, what they have done to get us refocused and

moving in the right direction is nothing short of spectacular. They deserve our thanks, our gratitude and most

importantly, our on-going support.

I also want to thank everyone in the organization who has pulled together and contributed to our progress. Our

elected officials including the board and delegates, our managers, our front line staff, our field people, the agents –

literally everyone who is part of the UFA family. Thank you for your efforts, your patience and your perseverance.

Today, I am more confident and more optimistic than I was last year. We are back on track. We are moving in the

right direction. We are making progress. But we are not out of the woods yet. Last year, I said rebuilding teams

don‟t expect to win the championship in year one. We are now in year two of the three year plan. There is still

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

at the beginning. You‟re not at the end. You‟re somewhere in the middle. The key is to stay focused and keep

moving forward.

Thank you.

Jim Laverick

Chairman of the Board

4 CHAIRMAN‟S MESSAGE

UFA 2011 Unabridged Annual Report 6


United Farmers of Alberta Co-operative Limited

PRESIDENT AND CEO’S MESSAGE

In September of 2011, UFA had the privilege to sponsor a benefit concert performed

by Paul Brandt for the community of Slave Lake. It was entitled “Up from the Ashes”.

In many ways, the 2011 performance of our co-operative could be described using

the very same title. Coming off a very difficult period in our history, we entered 2011

with a new financial platform, new business plans, and a renewed sense of optimism.

The unanswered questions that remained were:

Would our owners and customers support our new direction and efforts?

Would our employees and agents engage in the execution of our plans?

Would we have the support of our vendor community?

Would we earn the confidence of our new financial stakeholders?

I am happy to report the resounding answer to all of those questions is YES. We have delivered on our

commitments. In doing so we have earned the renewed respect of our owners and I believe, enhanced our

reputation with all of our key stakeholders. 2011 was a year of New Beginnings and we are well positioned for a

strong performance in 2012.

As a result of exceeding our operational commitments in 2011, we are once again in a position to pay a patronage

dividend. This will amount to $7 million and will be allocated against Ag Fuels, crop inputs and livestock supply

purchases made in 2011. The declaration of a dividend for 2011, albeit a modest one, signifies a dramatic turnaround

for UFA.

To our owners and customers I can simply say thank you. Thank you for sticking with us through the difficult times,

and in helping us re-build the foundation of this proud co-operative.

Alberta has one of the world‟s most productive agricultural economies, with more than 50 million acres used for

crop and livestock production. This represents around 20 per cent of the value of Canada‟s total agricultural

production and generates the country‟s highest cattle and second highest grains and oilseeds receipts.

UFA is indelibly linked to this important sector of the Alberta economy. Our Core Purpose is to improve the

economic and social well-being of our agricultural owners and their communities. We had briefly lost our way, but

in 2011 we recommitted ourselves and as we move forward, all our business decisions will be weighed in the

context of relevance to our owners and the agricultural communities they represent.

AgriBusiness

UFA‟s AgriBusiness is represented by a network of 35 Farm & Ranch stores and a professional team of people

supporting the provision of goods and services to Agricultural professionals in Alberta. In addition, we have three

bulk fertilizer plants, Spruceland Lumber in Fort McMurray and a skilled and knowledgeable sales team interacting

with our members at the farm gate.

2011 represented the first year in a three year turn-around strategy for our AgriBusiness. With strong leadership

and focused execution, the results in 2011 were very positive, with all financial metrics exceeding targets.

Member and customer acceptance to a wide array of changes has been positive, as reflected in our sales results

and an increase in booking orders for the spring of 2012.

PRESIDENT AND CEO‟S MESSAGE 7

UFA 2011 Unabridged Annual Report 7


The changes executed in the business really represent the start of a transformation of our business. Key areas

impacted in 2011 were:

Initiated four new Ag „concept stores‟ in Consort, Vulcan, Fairview and Drayton Valley. The business model in

these stores focuses on products that are core to Agricultural producers, and a more relevant in-store experience.

Organized a new AgriBusiness marketing team, with focus on planning and execution of tactics in specific

markets. In doing so, we have moved away from mass market tactics (flyers and general mail-outs) and

moved towards local and targeted marketing tools.

Consolidated the AgriBusiness logistics team into our Distribution Centre in Edmonton creating efficiencies for

our business

Completed planned changes to our Grain Marketing unit, which saw us execute an organized exit while

honouring all contracts and commitments that were in place

Significantly changed inventory management processes to focus on overall network logic to support local

needs. This was further supported by implementation of a hub & spoke system to assist in optimization.

In 2011 we entered into an agreement with AGRI-TREND to strengthen our ability to provide timely and relevant

agronomic information and advice to our members and customers. This expertise will be of strategic importance as

the AgriBusiness continues to progress.

As we move forward in 2012 we will continue to focus on executing the fundamentals of our business, and to

strengthen our relationship with owners and customers in all markets. Based on the success we saw in 2011, we

will transition four existing farm and ranch supply stores to the Ag Concept store model and introduce new

strategic initiatives for other specific markets. We will also further develop and implement the first stages of our

Crop Inputs and Livestock strategies and will develop our e-commerce capabilities as a critical element of

our co-operative.

Petroleum

UFA‟s Petroleum division had another year of outstanding financial performance in 2011, while focused on

excellence in delivering a broad range of products and services through our network of 113 locations.

The year was marked by a number of supply challenges as Edmonton refiners struggled to meet anticipated

production levels at various times of the year. This was especially acute in the fourth quarter, where two refineries

were simultaneously impacted, leading to supply disruptions.

During these times of supply disruptions, UFA is able to mitigate some of the impact as a result of having multiple

agreements with domestic refiners, and a developed capability to import product. In the fourth quarter of 2011

there was insufficient product available in Western Canada and the US mid-continent to meet demand. As a result,

many retail and cardlock operations throughout the industry suffered run-outs or were operating on restricted

hours. UFA was certainly not immune to this situation. Supply agreements were optimized to the extent possible.

In addition, product was imported from off-shore through a west coast terminal and transported by rail for delivery

into our Alberta network.

We continue to benefit from our extensive agency network that is firmly entrenched within local communities. Our

Agents and their ongoing relationship with our members and customers, along with their passion to service their

needs, are critical to maintain and grow our sales and to promote loyalty to the co-operative. 2011 saw a number

of changes to our network with retirements of some of our long-term Agent partners. In each case, the retiring

agent played an important role to ensure a seamless transition to the new agent, in order to ensure continued high

levels of service for our members and customers.

8 PRESIDENT AND CEO‟S MESSAGE

UFA 2011 Unabridged Annual Report 8


In April, we successfully transitioned the network and our customers to biofuels. A substantial effort went into

ensuring the changeover to biofuels would not adversely impact fuel quality in the network or in customer owned

storage tanks. Once again, this transition was managed almost seamlessly.

Bar-W Petroleum and Electric Limited, a division within the Petroleum organization also had a very strong

operating performance in 2011, with strong revenues and a doubling of their expected contribution.

The longer term business strategy for Petroleum, put in place four years ago, continues to be robust under the

current set of business premises and will be advanced in 2012. The areas of focus include:

Manage the business to protect our market share of Agricultural fuels, and grow our commercial market share

within the constraints of our available supply

Manage our agency network by continuing to promote excellence in all aspects of operations

Develop and commence implementation of a refreshed network plan which will focus on strategic growth and

re-developments

Continue the roll out of our new cardlock operating system to provide customers with fast, easy, secure and

most importantly reliable cardlock operations

Wholesale Sports Outdoor Outfitters

Wholesale Sports (WSS) has a network of 25 stores in Canada and the U.S. Our core customers are the men and

women for whom hunting, camping and fishing is more than a recreational pursuit and more than a hobby – it is

their passion. We have 11 stores in western Canada and 14 in the north western United States. In 2011 we closed

an underperforming store in Fargo, North Dakota.

2011 was a foundational year for WSS with new leadership focused on developing and improving business

operations and fundamentals. We strengthened the leadership team including adding a new Marketing Vice-

President, U.S. Director of Purchasing, Director of Supply Chain and a new Director of Operations for our

Canadian business.

Overall financial performance improved in 2011, but fell short of budget targets. Results were impacted by lower

margins. In Canada this was mainly due to one-time charges for inventory shrinkage. In the U.S., the weak

economy and lower levels of discretionary spending weakened our margins. Sales were soft in Q1 and Q2,

however, they did strengthen considerably in the second half of the year as initiatives including new marketing

programs increased traffic through our stores.

Our strategic plan for WSS includes a three phase plan to improve our business model, drive business results and

increase market share.

Phase 1: Improve the foundational fundamentals

Leadership, capabilities and structure

Operational excellence

– Loss prevention and EH&S launch across the network

– Implement a new store staffing model in all stores to drive efficiencies and improve customer service

– Introduce store merchandising standards program

Phase 2: Optimize the business

Introduce new vendor buying agreements

Drive purchase volumes and buying power with strategic vendors including payment terms, discounts, vendor

co-op, and volume rebate agreements

PRESIDENT AND CEO‟S MESSAGE 9

UFA 2011 Unabridged Annual Report 9


Roll-out “Service First” model in all stores by Q2, 2012

Accelerate marketing programs on a market specific tactical basis to support the integrated marketing plan

Successful completion of phases one and two in 2012 will afford us the opportunity to move on to phase three and

create strategic options for growth in the years to come.

Centralized Services

In 2011 as part of our “back to basics” approach to the business, we consciously aligned the priorities of our

support groups to our business unit priorities with their focus to enable enhanced business performance.

Our Finance organization made significant improvements in all key areas in 2011. Financial reporting, business

planning, and credit and collections performance all exceeded plans. Our Treasury team successfully

implemented the reporting requirements of our new Asset-Based Credit Agreement and managed these effectively

throughout 2011.

In Human Resources (HR) we focused on support to the significant AgriBusiness organizational changes that were

implemented as part of our business strategy. Work was completed in respect to Total Rewards and performance

management processes.

In late 2011 we made changes to the leadership of our HR team, and have re-set our strategic direction in HR. In

2012 we will continue to focus on enabling the business, while implementing process changes in the area of

compensation as a result of a comprehensive Canada Revenue Agency (CRA) audit in 2011. As our economy

continues to recover, the attraction, development and retention of strong team members is of paramount

importance to UFA.

Our Information Technology team delivered strong operational support in 2011, with day to day systems

performance metrics, all exceeding established targets. Scan gun technology was employed in our Farm & Ranch

stores to enable a more efficient inventory management system, and electronic invoicing was introduced to a

number of our commercial petroleum customers. In addition, a new point of sale system was introduced to WSS

Canada while our cardlock renovation project continued execution as planned.

In 2012 our focus is to leverage the capabilities of our SAP system, to complete disaster recovery and business

continuity plans, and to advance our e-commerce capabilities. Strategic and tactical alignment with business

objectives and requirements remains at the forefront of all priorities.

In late 2010, UFA recognized the need for full-time in house legal counsel, and in 2011 Legal Services was

formed. Our General Counsel serves as a member of the senior leadership team, and is the first point of contact

for all internal UFA and WSS legal matters. The Legal Services team is also responsible for insurance, real estate,

our corporate policy office, and management stewardship of our Enterprise Risk Committee.

At the start of 2011 our Health & Safety and Environment functions were dispersed in different parts of the

organization. We amalgamated this group into one EH&S team, which also encompasses asset management and

maintenance. The mandate of this team is to lead UFA in our objective to undertake all business activities in such

a way that we meet or exceed all legislative requirements. Our primary focus is to provide a safe workplace for all

employees, agents, members, customers, contractors and visitors.

Our unwavering commitment is to create a safe working environment facilitated by an overarching “safety first”

culture for the organization as a whole.

10 PRESIDENT AND CEO‟S MESSAGE

UFA 2011 Unabridged Annual Report 10


In 2011 our Health & Safety performance slipped slightly, and steps were introduced in the fourth quarter of 2011

to address this issue. We have refreshed and simplified our EH&S Management System, introduced specific

accountabilities at all levels of the organization, and put into place a new EH&S Statement posted visibly at all of

our locations. The statement reads:

“The Safety and well-being of our employees, agents, members, customers and visitors is a key

priority at UFA. Building a strong culture of safety begins with the expectations and programs we set

as a co-operative, and lives daily in the actions we take as individuals. It requires dedication from each

of us to make responsible decisions every day to create a safe environment for everyone at UFA”.

This represents an important culture shift, and early 2012 results of site assessments indicate we are clearly on

the right track.

Customer Service Centre

In 2011 our Customer Service Call Centre handled over 40,000 inquiries from our members and customers

providing an effective single point of contact.

Included in this number were more than 2,200 calls relative to our High Yield Member Investment Program. This

program was a tremendous success and raised almost $32 million within a period of 21 weeks to reach our

$40 million member loan target and is reflective of the loyalty that our members have towards their co-operative.

The interaction with members we have had through the customer service call centre, as well as in the field at

Farm & Ranch stores and Petroleum agencies, afforded us a unique opportunity to simply talk with our owners and

share the progress being made throughout 2011.

Community Investment

In 2011 we executed a community investment program of $785,000 to promote, support, and celebrate our rural

communities, particularly in the areas of youth, family and agriculture. Highlights of our accomplishments include:

Launch of a new 4-H Loyalty program targeting youth in Agriculture

Participation in Alberta Farm Safety programs which reached over 55,000 students in 2,700 classrooms

Re-direction of a portion of centrally controlled funding to field management for more of a grass roots focus

Sponsorship and participation in local rodeos and community events

Sponsored Slave Lake Benefit concert

Commenced preparatory work for the launch of 2012 International Year of the Co-operative

Celebrated Farmer‟s Day at all our UFA Farm and Ranch Supply Stores and Petroleum Agencies, honouring

our agricultural producers, families and members of rural communities with picnics, games and music.

Incremental to this investment we also successfully ran the second year of our UFA Small Town Heroes contest.

This touched many communities and met with an enthusiastic response as almost one hundred nominations were

received. Throughout the duration of the contest, UFA awarded more than $13,000 cash to two grand prize

winners and eight runners up to help enhance their communities.

Two private concerts with Paul Brandt were held in the respective hometowns of our grand prize winners,

Jeannette Vatter of Drayton Valley, and the Slave Lake Fire Department of Slave Lake. In addition, the concert in

Slave Lake raised an additional $10,000 for the Pioneer Drop In Centre, and $14,000 was raised in Drayton Valley

for the Drayton Valley Community Fund.

Much to the delight of Alberta fans, a few impromptu performances by Paul Brandt also took place as the tour bus

visited many UFA locations in Alberta on the way to the Drayton Valley and Slave Lake.

PRESIDENT AND CEO‟S MESSAGE 11

UFA 2011 Unabridged Annual Report 11


In 2012 our focus will continue to shift more to grassroots level investments. Rural communities “are” UFA and this

is where our efforts need to be expended. We will launch a scholarship program and a more expansive youth

program, as well as leveraging communications capabilities, media, and social media. This is an exciting shift

for UFA.

Summary

It is important for us to look at our business through the lenses of our key stakeholders, and in all areas we have

made significant improvements in 2011.

Our Owners/Customers have rewarded us with their business and demonstrated their loyalty through

investments in the High Yield Member Investment Program. Operating changes made at the field level have been

well received and supported. We have improved our communications to our membership through newsletters and

improvements to our web site. Communication and engagement will be a priority for us in 2012.

Our Employees/Agents are the backbone of this co-operative. Their commitment, enthusiasm, and drive in a year

of substantive change has been critical to our success. We have improved our communications with all of our

people, and the resulting alignment of objectives has translated into day to day operating improvements. Employee

engagement survey results are much improved over 2010. We are re-engaging with our workforce, we are seeing

success and we are moving in the right direction.

Our Vendors have been supportive of our change initiatives in 2011. By focusing on strategic relationships we

continue to grow our relevance to them, and theirs to us.

Our Financial Stakeholders who support our Asset-Based Credit Agreement gave us very positive feedback in a

meeting with them in October of 2011. At the core of this has been our demonstrated ability to deliver on our

commitments. We have earned their confidence.

Throughout the latter half of 2011, we worked closely with our Board of Directors to develop a broader view of

strategic growth opportunities for the years ahead. In 2012, we will continue to focus on improving our relevance to

our members and customers, strengthening the fundamentals of our business and commencing implementation of

a select few growth initiatives that are in line with our core purpose as a co-operative.

This cooperative has a proud tradition dating back over 100 years. We were wounded. However, we have indeed

“risen from the ashes”. We are focused on the fundamentals of this business and we delivered on the

commitments that we made for 2011.

As we look forward to 2012 and beyond, we see tremendous potential for this co-operative, building on our

success in 2011, focused on our Core Purpose of improving the economic and social well-being of our agricultural

owners and their communities.

I would like to take this opportunity to thank all of our employees and agents who have worked tirelessly to make

2011 a successful year for UFA. I would also sincerely like to thank our owners and customers for your patronage

and your loyalty.

As a co-operative we are firmly back on track.

Bob Nelson

President and Chief Executive Officer

12 PRESIDENT AND CEO‟S MESSAGE

UFA 2011 Unabridged Annual Report 12


United Farmers of Alberta Co-operative Limited

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following management discussion and analysis (MD&A) provides management‟s perspective on UFA, our

performance and our strategy for the future. This MD&A includes UFA‟s operating and financial results for 2011

and 2010 and should be read in conjunction with our Financial Statements.

Forward-looking Statements

This disclosure contains statements that are forward-looking statements and include phrases such as “believe,”

“expect,” “anticipate,” “intend,” “estimate,” “outlook,” “should,” “would”, “could” and other similar expressions. These

forward-looking statements are based on certain assumptions and current expectations about future events.

Inherent in these forward-looking statements are known and unknown risks, uncertainties and other factors beyond

UFA‟s ability to control or predict. Readers are cautioned that actual results or events may differ materially from

those forecasted in this disclosure because of risks and uncertainties associated with UFA‟s business and the

general economic environment. Management does not intend to publicly update or revise this discussion and

analysis as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

UFA uses certain financial indicators within the MD&A that are not specifically defined by GAAP. These non-GAAP

indicators may or may not be comparable to similar measures presented by other enterprises and are presented

on a consistent basis within this annual report to members. UFA believes EBITDA (earnings before interest, tax,

depreciation and amortization and patronage allocation) is a critical measure of its operating performance. EBITDA

allows UFA to compare its operating performance on a consistent basis year over year. EBITDA excludes certain

items that depend on accounting methods or reflect financing choices.

Interest bearing debt is another non-GAAP disclosure, which provides a measure of all interest bearing borrowings

both short-term and long-term, less unencumbered cash balances available for funding those payments. This

indicator is important to UFA as it identifies future obligations that UFA must meet in order to comply with

borrowing agreements, as well as the liquid funds available to meet those obligations. UFA also believes that the

ratio of interest bearing debt to interest bearing debt and members‟ equity is an important non-GAAP measure that

identifies how UFA finances its financial assets and operations, and the amount of risk UFA is willing to accept.

Governance Structure

The board of directors and management are unified in their belief that sound corporate governance practices are

necessary for the achievement of strategic and operational goals, to the effective management and sustainability

of UFA. In addition to the annual general meeting, the board meets at least five times per year with management

to deal with general business and strategic matters. The board and its committees, as listed below, operate

independently from management to protect owner interests. The existing members of the board have served

between two and twelve years on the board at UFA. Board members have the right to seek independent advice

should they so desire or deem necessary.

The board of directors has established six standing committees being Audit; Enterprise Risk Management;

Environmental, Health and Safety (EH&S); Governance; Human Resources Compensation; and History

Committees. Each committee meets regularly throughout the year and provides regular updates to the Board.

MANAGEMENT‟S DISCUSSION AND ANALYSIS 5

UFA 2011 Unabridged Annual Report 13


Code of Business Ethics

UFA continually works to make a positive impact in the communities we serve, ensuring daily business is

conducted in a safe, fair, honest and respectful manner. Recognizing the importance of this, in 2011, the

co-operative launched its Code of Business Ethics (COBE) Annual Review questionnaire.

The questionnaire is intended to be an annual review of the COBE principles. It is not a sign-off of the master

COBE; this was done last year and has been kept evergreen through the Human Resources new-hire process. In

2011 Internal Audit introduced an interactive review, which takes between 5-10 minutes to complete. It includes a

number of scenarios for discussion and feedback.

Additionally, the Internal Audit team continue to manage UFA‟s toll free Integrity Hotline (1-877-258-4605) and

Integrity Hotline email address (Integrity.Hotline@ufa.com). These hotlines are feedback tools our employees,

agents and elected officials can use to identify and resolve ethical issues that arise through the course of business.

We will continue to communicate our message in order that all our employees and business partners maintain

awareness of our Code of Business Ethics.

6 MANAGEMENT‟S DISCUSSION AND ANALYSIS

UFA 2011 Unabridged Annual Report 14


United Farmers of Alberta Co-operative Limited

2011 SUMMARY OF OPERATIONS

Consolidated Income Statement

For the period ended

(Stated in thousands of Canadian dollars)

December 25,

2011

December 26,

2010

Revenue $ 2,108,450 $ 1,742,941

Cost of sales (1,863,489) (1,526,635)

Gross margin 244,961 216,306

Operating and administrative expenses (189,767) (215,090)

Other income 2,012 1,629

Earnings before the under noted (EBITDA) 57,206 2,845

Depreciation and amortization (40,813) (42,413)

Impairment of goodwill – (26,575)

Interest (14,174) (21,152)

Foreign currency exchange gain (loss) on advances to foreign subsidiary 1,171 (1,235)

Income (loss) before patronage and income taxes 3,390 (88,530)

Patronage allocation (7,000) –

Income taxes recovery 3,847 23,744

Net income (loss) $ 237 $ (64,786)

Revenues were $2,108.5 million, up from $1,742.9 million in the previous year, driven primarily by volume and

price increases in the Petroleum division. Volumes increased to 1,473.4 million litres, up by 106.6 million litres over

2010, while average sales revenue measured in cents per litre (“cpl”) increased from 86 cpl in 2010 to 106 cpl in

2011. Also contributing to the growth in consolidated revenues was the Wholesale Sports division, which saw an

increase in sales of $9.6 million or 5% compared to 2010. AgriBusiness core sales grew in 2011, although total

sales were marginally lower than previous year as a result of a planned exit from the grain trading business.

Gross margin on consolidated sales was $245.0 million, up from $216.3 million in 2010. Approximately half of this

growth was contributed by the Petroleum division‟s higher volumes and market-driven inventory valuation gains.

Margins from AgriBusiness provided a $7.2 million improvement over the prior year. Factors contributing to the

AgriBusiness margin growth included improved retail management, special promotions, favourable product mix,

and improved inventory management. Wholesale Sports also showed gross margin improvement of $4.0 million

over prior year due to higher volumes, including full year sales from the two Canadian stores that opened in 2010.

Wholesale Sports margin percentages were pressured downwards due to strategic initiatives taken to reduce slow

moving inventory, but were still higher than 2010.

Operating and administrative expenses were $189.8 million, a decrease of $25.3 million over the prior year. A

significant part of this decrease is from reduced staffing and a reduction in bad debt expense. In addition, UFA‟s

comparative costs for fiscal 2010 were adversely impacted by a one time early termination fees of $13.9 million

paid to long-term note holders. The Wholesale Sports division incurred an increase of $2.4 million in operating

costs due to the full year‟s effect of two new stores that opened in 2010.

Other income at $2.0 million increased slightly by $0.4 million compared to the prior year at $1.6 million. Other

income in 2011 includes a gain of $3.1 million from sale of the Calgary farm store. The gain was offset by lower

interest income and increased costs of the credit program offered by the Bank of Nova Scotia.

EBITDA contribution was $57.2 million, compared to $2.8 million in 2010.

2011 SUMMARY OF OPERATIONS 13

UFA 2011 Unabridged Annual Report 15


The Petroleum Division had a strong year and contributed an additional amount of $15.0 million in EBITDA for

2011 as compared with 2010. The volume increase of 106.6 million litres was due to improved economic activity,

particularly related to commercial transport customers. Western Canada experienced a shortage of diesel fuel in

late 2011. UFA was able to leverage existing relationships with refiners to secure additional product, as well as

import product from off-shore, thus enabling the Co-operative to largely mitigate shortages in the agency network,

while prices remained high. Inventory holding gains were $4.9 million in 2011 largely as a result of growth in

commodity prices.

Petroleum sales by product type in millions of litres are given below:

The AgriBusiness Division went through a year of restructuring and business transformation. The supply chain

model was optimized and operating costs were reduced by $4.5 million from the prior year. The sales and

marketing strategy was modified and four concept stores were implemented. The trade areas were revamped and

a stronger integration of store and support management was established. These initiatives were designed to bring

the business closer to members. Gross margins increased by $7.2 million, through a combination of favourable

product mix, price management and lower inventory provisions. EBITDA for 2011 represented a dramatic

improvement of $11.8 million over the prior year.

Sales by trade area is given below:

14 2011 SUMMARY OF OPERATIONS

UFA 2011 Unabridged Annual Report 16


The Commercial Construction Division incurred a negative EBITDA of $4.4 million in 2011. The losses are

primarily due to cost escalations on the Slave Lake and Vauxhall projects. UFA is exiting from this line of business

and will have substantially completed the remaining projects by end of March 2012.

The Wholesale Sports Division had stronger earnings in 2011. EBITDA increased by $1.6 million, driven by

sales growth of $9.6 million over the prior year. Gross margin increased by $4.0 million, and was higher as a

percentage of sales, compared with 2010. Margins for the year were held back by the need to strategically

manage obsolete and slow moving inventory. The 2011 results include a full 12 months of operations for two

stores in Canada that opened in Regina and Langley, BC. During quarter 4, 2011, an underperforming store in

Fargo, North Dakota was closed.

Sales for 2011 compared with prior year is given below:

Centralized Services include core activities to support Divisions within UFA, and the consolidated enterprise as a

whole. The services are provided by functional departments that include Environment Health & Safety, Corporate

Strategy, Member and Customer Experience, Information Technology, Legal, Risk and Real Estate, Human

Resources and Finance. As part of the Co-operative‟s three year strategy, significant efforts have been undertaken

to reduce these costs. In 2011 on a comparative basis with 2010, $8.0 million in expenses were eliminated, while

the quality of output increased significantly.

Capital Spending and Depreciation

The net book value of capital assets, including goodwill and intangible assets was $284.2 million. During 2011

UFA invested $13.4 million in property, plant and equipment and intangible assets, down from $22.4 million in

2010. Major projects included the continuation of cardlock renovations and Wholesale Sports technology

stabilization.

2011 SUMMARY OF OPERATIONS 15

UFA 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.

Capital spending for the five years ending 2011 was $204.6 million which resulted in depreciation increasing

65 per cent over that period as disclosed in the following graph.

Long Term Debt

On December 13, 2010 UFA refinanced its debt through a new Asset-Based Credit Agreement with a syndicate of

lenders. In 2011 UFA was in compliance with all covenants under the Credit Agreement. UFA further strengthened

its liquidity position throughout the year and performed in accordance with the financial commitments made to the

lending syndicate. Further, liquidity improved thereby improving availability of funds to $80.2 million (2010 –

$37.1 million).

Total financing costs for 2011 were $14.2 million, down from $21.2 million in 2010.

Members’ Equity and Dividend Payments

During 2011 UFA paid dividends of $2.5 million on the Class A Investment shares, as compared to $1.9 million in

2010. This is due to an increase in investment shares to $103.0 million on December 25, 2011 (2010 – $93.9

million).

Earnings before Patronage and Income Taxes

The net financial result for 2011 was a net income of $3.4 million before patronage allocations and income taxes

(2010 – loss of $88.5 million). As a result of the earnings in 2011, most specifically related to UFA Co-operative

Ltd., the board will be recommending to the assembly at the Annual General Meeting, a patronage allocation in the

amount of $7.0 million for 2011.

16 2011 SUMMARY OF OPERATIONS

UFA 2011 Unabridged Annual Report 18


United Farmers of Alberta Co-operative Limited

LIQUIDITY

UFA depends on its ability to generate cash from operating activities and attract adequate supplies of capital from

both internal and external sources to finance business operations, fulfill its strategic plans and maintain an

enduring and sustainable organization. UFA‟s liquidity needs are affected by the seasonal business environment of

the markets we serve.

Working capital requirements increase significantly over the spring and early summer months when UFA is

building its inventory in AgriBusiness and agricultural customers are financing their supplies. UFA‟s liquidity needs

have been reduced by Farm Credit Corporation‟s extended credit finance plan provided to customers which allows

accounts to remain outstanding until crops are harvested.

In 2008 the price of crude oil reached a high of $140 per barrel. In order to meet working capital requirements,

UFA entered into an Agreement with the Bank of Nova Scotia (“BNS”) to finance customer credit on accounts. The

BNS credit program does not change the way owners and customers shop at UFA or make their payments on

accounts. To date, over 68,000 customers representing balances of $76.8 million are financed under the program.

This includes $9.9 million associated with funding received from BNS for which UFA has maintained the credit to

customer accounts. With the Bank of Nova Scotia credit program UFA reduced its exposure to credit risk and

received cash from the customer purchases instead of carrying them as accounts receivable. The program was

designed to be transparent to the customer as the credit and account receivable functions continued to be

managed within UFA.

Internal Capital

Internal sources of capital are reflected in the Members‟ Equity section of the Balance Sheet as Member

Entitlements, Retained Earnings and Cumulative Translation Adjustments. At year-end 2011, internal sources of

capital amounted to $325.3 million.

External Capital

On December 13, 2010 UFA refinanced the Credit Facility and Senior Secured Notes with a new Asset-Based

Credit Agreement. The proceeds of the financing were used to repay all debt obligations under Senior Notes, with

an aggregate principle amount of $150.0 million plus an accrued interest of $5.6 million and early termination fees

of $13.9 million, and also to fully repay the Senior Secured Term Credit Facility (“Credit Facility”).

The Asset-Based Credit Agreement provides for an asset based revolving credit facility in the maximum aggregate

amount of $200.0 million and also has an accordion feature which permits UFA to request an increase in the

revolving credit facility up to an additional amount of $50.0 million for a total availability of $250.0 million. Any

increase under the accordion is not committed and must first be approved by the lenders. The Asset-Based Credit

Agreement also includes a fixed asset facility (“Term Loan”) made available on a one-time only basis in the

amount of $50.0 million. The Term Loan is repayable in equal quarterly installments based on a ten year

amortization. The first payment was made on March 31, 2011.

The amount available to be drawn under the Asset-Based Credit Agreement will vary from time to time based on

the level of UFA‟s inventory and accounts receivable. The advances under the Asset-Based Credit Agreement

cannot exceed the revolving loans borrowing base determined according to terms under the agreement that

factors UFA‟s inventory and receivables. In addition, reserves are calculated under the Asset-Based Credit

Agreement to take into account such factors as priority payables, and additional collateral requirements.

LIQUIDITY 17

UFA 2011 Unabridged Annual Report 19


The Asset-Based Credit Agreement has a three-year term and includes a clause for early termination fees should

the Asset-Based Credit Agreement be terminated within two years of the initial date of closing. UFA can borrow

under the agreement using Prime, London Interbank Offered Rate (“Libor”) and Banker‟s Acceptances and pricing

is determined off a grid based on UFA‟s Fixed Charge Coverage Ratio.

Another source of external capital is a voluntary member loan program (Member Loans). The Member Loan

program had a balance of $8.5 million at year-end. This program allows members, employees and agents to invest

in UFA and earn a rate of return equal to the bank prime rate as stated by the Royal Bank of Canada, plus 1.0%.

Interest on Member Loans was $0.6 million (2010 – $0.5 million) and is included in short-term financing expense.

Member Loans are unsecured and repayable on demand. The repayment of Member Loans is subject to the right

of offset of any amounts owing to UFA, and is subject to UFA meeting the covenants contained under the

Asset-Based Credit Agreement.

In 2011 UFA introduced its High Yield Member Investment Plan (HYMIP) which helped to improve its liquidity and

availability under the Asset-Based Credit Agreement. The program was rolled out as an exclusive opportunity for

members, employees and agents to earn an above average interest rate and support the Co-operative‟s growth

and sustainability. The investment plan was consistent with UFA‟s back-to-basics business approach, a program

that was simple to understand and offered a competitive alternative for investment dollars. UFA offered members a

three year investment plan that pays a fixed rate of 7% interest per year, and matures on June 15, 2014. The plan

has no early redemption options, and pays interest semi-annually on June 15th and December 15th of each year.

The minimum investment allowed under the program was $5,000 and all HYMIP loans are unsecured obligations

of the Co-operative. The program was fully subscribed and closed in November of 2011. As at December 25, 2011

the total outstanding obligation under this program was $31.8 million.

18 LIQUIDITY

UFA 2011 Unabridged Annual Report 20


Capital lease obligations at December 25, 2011 were $2.0 million with terms ranging between one and five years,

with an average interest rate of approximately seven per cent. The majority of capital leases are for automotive

and information technology equipment.

Financial Covenants

UFA is subject to certain financial and collateral covenants related to the Asset-Based Credit Agreement and was

in compliance with all financial and non-financial covenants throughout 2011. UFA is required to provide monthly

compliance reporting to its Agent under the Asset-Based Credit Agreement and also provides an annual forecast

of its Fixed Charge Coverage Ratio and Availability.

Cash Flow from Operations

Cash flow from operations increased significantly from 2010 due mainly to the enhanced business performance.

Working Capital and Debt Ratios

Working capital ratio is the ability of the company to manage short-term financing requirements of the business.

UFA‟s ratio of 2.5:1 is healthy and is an improvement over the prior year.

LIQUIDITY 19

UFA 2011 Unabridged Annual Report 21


Overall inventories continued their declining trend. The reduction of $11.5 million over last year was primarily due

to lower Agribusiness and Petroleum inventories. Wholesale Sports inventories were higher than previous year.

Management continues to drive efficiencies in supply chain and inventory management practices.

Accounts receivable declined over last year as the business continues to improve its collection and credit

practices. Accounts receivable metrics such as aging and average day‟s sales outstanding improved in 2011.

20 LIQUIDITY

UFA 2011 Unabridged Annual Report 22


United Farmers of Alberta Co-operative Limited

MEMBER EQUITY

UFA‟s equity structure is a source of capital and considerable financial strength. As a co-operative, UFA provides

owners benefits by allocating a portion of its earnings to owners in the form of patronage allocation.

In 2011 UFA established a Capital Structure Committee with representation from Management, the Board and the

Delegate body to consider the needs of all stakeholders, as well as ensuring the capital structure would support

the long-term sustainability of the co-operative. The Committee mandate focused on improving the predictability of

equity redemption and encouraging capital to remain in the co-operative.

Equity is regularly distributed to owners through Class A Investment shares (Investment shares) that pay dividends

at a competitive rate. In addition, all member entitlements for members who turn 65 years of age where date of

birth is on record, are converted into Investment shares, with the exception of one $5 member share.

Patronage allocation, member shares, Investment shares and revolving equity are considered Member

Entitlements of UFA. A summary of Member Entitlements is outlined in the notes to the audited financial

statements.

UFA is authorized to issue an unlimited number of member shares with a par value of $5. Member shares are

redeemable at par value when the member reaches age 65, moves out of the trading area, or upon a member‟s

death at the request of the member‟s estate.

When the co-operative has Earnings before Patronage and Income Taxes, a patronage allocation is recommended

and may be ratified by UFA‟s elected delegates at their annual general meeting held in March following the end of

the fiscal year. The assembly approves the distribution as provided for under UFA‟s by-laws. Once approved by

the delegates, the patronage allocation can be distributed.

Revolving equity is non-interest bearing, non-redeemable by the owner except in specific circumstances and is

converted into Investment shares over a 12-year period.

Investment shares have a par value of $100, are non-voting, are redeemable at par value at the option of the

holder subject to board approval, are retractable at par value at the option of UFA, and provide a dividend equal to

the bank prime rate less 0.5 per cent. Dividends on the Investment shares were $2.5 million in 2011 (2010 –

$1.9 million) and are charged against retained earnings.

Actual distributions to owners in the five years ending in 2011 totaled $133.0 million, consisting of the cash portion

of the annual patronage allocation, issuance of Investment shares, dividends on investment shares and retirement

of equity. Over this five year period, cash distributions were $20.0 million.

MEMBER EQUITY 21

UFA 2011 Unabridged Annual Report 23


United Farmers of Alberta Co-operative Limited

EMPLOYEE PENSION PLAN

UFA administers a defined-benefit pension plan for employees of the parent company. There are no pension plans

for employees of the subsidiaries. A registered pension plan, (the “RPP”) is registered in accordance with the

Alberta Employment Pension Plans Act, and provides benefits for all salaried employees who choose to

participate. The Plan is funded by contributions from UFA and from plan members.

Pensions provided under this plan are related to the employee‟s income up to maximum pension limits set out by

the Income Tax Act. A provision for pensions associated with employee income above RPP levels, is made under

a second pension plan, called the Supplemental Employee Retirement Plan (“SERP”). This plan is not governed

by any regulatory body, and UFA funds its obligations under this plan only as requirements arise. The employer

contribution for the RPP were made in accordance with the Report on the Actuarial Valuation for Funding purposes

as at December 31, 2010, dated June 29, 2011. The next actuarial valuation for funding purposes must be as of a

date no later than December 31, 2013.

UFA‟s transition to the Accounting standards for private enterprises (ASPE) resulted in a transition adjustment to

retained earnings. UFA‟s accounting for pension is dependent on management‟s accounting policies and

assumptions used in calculating such amounts. The impact of these adjustments has been highlighted in the notes

to the financial statements.

UFA‟s management pension committee manages both plans and is comprised of representation from

management and employees. The pension committee acts in accordance with a governance plan, which sets out

roles and responsibilities regarding the administration of the plan, and a statement of investment policies and

procedures which sets out limits and guidelines for investment of the pension fund assets. The pension committee

manages these two plans on behalf of the board with ultimate responsibility resting with the board. UFA‟s current

investment policy identifies the benchmark asset mix as 60% equities and 40% fixed income. All equities are

actively managed and the bench mark equity mix is split 60% Canadian, 20% US, and 20% other international.

The assets of the RPP totaled $84.2 million at December 25, 2011 (2010 – $86.8 million), while the accrued

benefit obligation, excluding unfunded SERP obligation, was $93.0 million (2010 – $93.8 million). The unfunded

SERP obligation at year-end was $3.1 million, compared to $2.9 million in 2010.

In 2011 UFA incurred net pension expense of $4.4 million, with $4.1 million related to current service costs. This

compares to net pension expense of $4.6 million in 2010, of which $4.0 million related to current service costs.

22 EMPLOYEE PENSION PLAN

UFA 2011 Unabridged Annual Report 24


United Farmers of Alberta Co-operative Limited

RISK MANAGEMENT

UFA is exposed to various risks and uncertainties in the normal course of business. To mitigate these risks, UFA

follows an enterprise risk management process to manage the major risks it faces. Each department and operating

division is responsible for identifying all major risks that they face in their businesses as well as the cause of each

major risk. These risks are then prioritized based upon the potential impact of such risk on the enterprise and the

likelihood of occurrence. This process allows UFA to establish a risk profile for its business and develop the

appropriate strategies to mitigate such risk. We believe that acceptance of some risk is both necessary and

advantageous in any business, and is necessary to achieve UFA‟s vision.

Financial Risk

UFA undertakes certain transactions denominated in foreign currencies and, as a result, foreign currency

exposures arise, which is discussed later in this report. UFA is exposed to foreign exchange risk on financial

commodity contracts, which are denominated in foreign currencies, and on its investment in the United States

subsidiary. Certain financial risks may be reduced through insurance or hedging programs, while other risks are

prioritized in relation to the impact on the business and strategies are developed to mitigate the risk.

UFA hedges its price risks on fixed-price petroleum contracts as outlined in the notes to the financial statements

for risks associated with both market prices for petroleum products and fluctuations between the Canadian and

United States currencies. Although UFA maintains and utilizes a highly effective hedging program, in relation to the

adoption of accounting standards for private enterprises relating to hedges, UFA has elected not to utilize hedge

accounting and has elected to recognize all income or expense related to the hedging activity immediately in the

statement of earnings.

Business Cycles and Commodity Risk

UFA‟s business is affected by seasonal business cycles, in particular agricultural cycles. Risk is mitigated within

the agriculture industry as different segments and areas may experience offsetting

business cycles. UFA‟s diversified customer base does mitigate much of the risk of being economically dependent

on the core owners.

Petroleum sales revenue is closely linked to crude oil pricing, wholesale “rack back” margins and local

supply/demand balances which impact rack forward margins. UFA follows a number of strategies to mitigate risks

associated with this volatility. One strategy is centralized control over selling prices that allows UFA to react quickly

to changes in purchasing prices from suppliers. UFA‟s exposure to price risk is limited to quantities carried in

inventory, which is limited to tank capacity which usually represents less than 5% of sales.

UFA may offer fixed price contracts to qualifying customers. To manage risks associated with fluctuating crude oil

prices and maintain its desired margin, UFA offers these contracts only to financially sound customers that meet

stringent credit policies. UFA purchases crude oil and foreign exchange swap agreements from lenders in the

Credit Facility. This program benefits the customer since input costs are set and established which allows for

better planning, budgeting and risk management.

Credit Risk

During 2009 UFA entered into an agreement with the Bank of Nova Scotia, allowing the Bank of Nova Scotia to

extend credit to qualifying members and customers. UFA reduced its exposure to credit risk and received cash

from the customer purchases instead of carrying them as accounts receivable. The program was designed to be

transparent to the customer as the credit and account receivable functions continued with the same UFA staff.

RISK MANAGEMENT 23

UFA 2011 Unabridged Annual Report 25


For members and customers not moving to the Bank of Nova Scotia credit program, UFA continues to be exposed

to credit risk on accounts receivable for approximately 40 to 45 days of regular sales, at any time throughout the

year, as most accounts receivable are due by the end of the month following purchase. Although UFA offers an

extended credit finance plan for crop inputs and grain bins whereby customers do not have to pay for these

products until February 15 of the subsequent year, Farm Credit Canada provides the financing for the plan.

UFA partly mitigates exposure to credit risk through the Bank of Nova Scotia credit program, diversity of its

customer base and the large geographic area in which it operates. In addition, a full credit review and monitoring is

conducted by an experienced credit department. UFA follows established policies regarding credit limits, payment

terms and account reviews. In addition, delinquent accounts are followed up regularly, including engaging external

collection and legal assistance when required.

There is nominal exposure to credit risk in the subsidiaries as none offer credit programs to retail customers.

Liquidity Risk

UFA manages liquidity risk to ensure that it has sufficient liquidity to meet liabilities when they come due. UFA

completed an Asset Based Credit Agreement in December 2010 to guarantee it had the financial capacity and

sufficient access to cost effective financing sources to fund its capital and operating activities. This facility replaced

the Bank Credit Facility and Senior Secured Notes. At December 25, 2011 UFA had current assets of

$362.5 million to settle current liabilities of $145.8 million. All accounts payable, accrued liabilities and deferred

revenue are subject to normal trade terms.

UFA expects to be compliant with all of its financial covenants in 2012.

Interest Rate Risk

To manage interest rate risk, UFA utilizes short-term floating interest rate borrowings issued under the Asset

Based Credit Facility and member loans program. UFA has not hedged any of the interest rate risk associated with

short-term borrowings as it considers the risk to be acceptable. UFA no longer has exposure to interest rate risk on

long-term debt raised under the Senior Secured Notes as the debt has been repaid in full.

Foreign Currency Risk

The acquisition of fifteen outdoor adventure stores in the United States exposes UFA to the impact of changes in

the US dollar to the Canadian dollar exchange rate. For accounting purposes, the US operations are considered to

be a self-sustaining and, therefore, the impact of changes in the foreign currency translation of the US operations

balance sheet are recognized as Cumulative Translation Adjustments in UFA‟s Consolidated Balance Sheet.

Advances of funds to and cash flow from the US operations also expose UFA to fluctuations in the value of the

US dollar. Changes in the Canadian dollar value of the US dollar for advances to and cash flow from the US

operations are reported in the Consolidated Statement of Income (Loss).

UFA mitigates the risk of fluctuations of the Canadian dollar against the US dollar and the impact of UFA‟s financial

results by hedging.

24 RISK MANAGEMENT

UFA 2011 Unabridged Annual Report 26


Environmental Health and Safety (EH&S)

In 2011, UFA successfully developed a new Environmental, Health and Safety team made up of Health and

Safety, Environmental and Asset Management/Maintenance professionals. The mandate of the team is to lead

UFA in its objective to behave and execute its activities in an environmental and safe manner. The company is

subject to environmental and occupational health and safety regulations under a variety of Canadian, US and other

Federal, Provincial, territorial, and municipal laws and regulations. Some of the higher potential risk concerns for

UFA that are or may be subject to regulation include:

Release of fuel, chemicals and controlled substances to the environment

Issues relating to land reclamation, restoration and human and wildlife habitat protection

Matters associated with human health & safety

Upgrading and maintenance of UFA's assets to current legislated requirements to minimize environmental,

health & safety risk and increase network reliability.

Failure to comply with laws and regulations result in the imposition of fines and penalties, liability for cleanup costs

and damages, loss of important licenses and permits which may in turn have a material adverse effect on our

business, financial condition, results of operations and cash flow.

In 2011 and going forward into 2012 UFA has significant focus on evolving our Environment, Health and Safety

programs awareness and culture. We have a refreshed EH&S Statement and have placed emphasis on key

elements, including; streamlining and embedding our Environmental Management System, increasing the

effectiveness of our facility assessments, placing more focus around our Certification of Recognition (COR)

program and continuing to foster our Health and Safety culture, and internal reward programs.

RISK MANAGEMENT 25

UFA 2011 Unabridged Annual Report 27


United Farmers of Alberta Co-operative Limited

FINANCIAL STATEMENTS

Management’s Responsibility for Financial Statements

The management of United Farmers of Alberta Co-operative Limited (“UFA”) is responsible for the preparation of

the accompanying financial statements. The financial statements have been prepared in accordance with

Canadian generally accepted accounting principles, which recognize the necessity of relying on management’s

judgement and the use of estimates. Management has determined such amounts on a reasonable basis to ensure

the financial statements are presented fairly in all material respects.

Management’s responsibility to ensure integrity of financial reporting is fulfilled by maintenance of a system of

internal accounting controls designed to provide assurance that transactions are authorized, assets are

safeguarded and proper records maintained. Controls include a comprehensive planning system and processes to

ensure timely reporting of periodic financial information.

Final responsibility for the financial statements and their presentation to members rests with the Board of Directors.

The Board carries out this responsibility principally through its Audit Committee. The Audit Committee meets

separately with management and UFA’s external auditors, to review financial statements, discuss internal controls,

the financial reporting process and other financial and auditing matters; all to satisfy itself that each party is

properly discharging its responsibilities. The Audit Committee reports its findings to the Board for its consideration

when the Board approves the financial statements prepared by management.

The financial statements have been audited by PricewaterhouseCoopers LLP, the external auditors, in accordance

with Canadian generally accepted auditing standards. The external auditors have had full and free access to

management, the Audit Committee and the Board of Directors.

Bob Nelson

Peter Melnychuk

President and Chief Executive Officer

Chief Financial Officer

February 29, 2012 February 29, 2012

FINANCIAL STATEMENTS 1

UFA 2011 Unabridged Annual Report 28


United Farmers of Alberta Co-operative Limited

AUDITOR’S REPORT

February 29, 2012

Independent Auditor’s Report

To the Delegates/Members of

United Farmers of Alberta Co-operative Limited

We have audited the accompanying consolidated financial statements of United Farmers of Alberta Co-operative

Limited and its subsidiaries, which comprise the consolidated balance sheets as at December 25, 2011,

December 26, 2010 and December 28, 2009 and the consolidated statements of income/(loss), retained earnings

and cash flows for the 52 week periods ended December 25, 2011 and December 26, 2010, and the related

notes, which comprise a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in

accordance with Canadian accounting standards for private enterprises, and for such internal control as

management determines is necessary to enable the preparation of consolidated financial statements that are free

from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We

conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards

require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance

about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the

assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud

or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the consolidated financial statements in order to design audit procedures that

are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of

the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis

for our audit opinion.

2 AUDITOR’S REPORT

UFA 2011 Unabridged Annual Report 29


Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of

United Farmers of Alberta Co-operative Limited and its subsidiaries as at December 25, 2011, December 26,

2010 and December 28, 2009 and the results of their operations and their cash flows for the 52 week periods

ended December 25, 2011 and December 26, 2010 in accordance with Canadian accounting standards for

private enterprises.

Yours truly,

Chartered Accountants

PricewaterhouseCoopers LLP, Chartered Accountants

Suite 3100, 111 – 5th Ave S.W., Calgary, Alberta, Canada T2P 5L3

T: (403) 509-7500, F : (403) 781-1825, www.pwc.com/ca

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

AUDITOR’S REPORT 3

UFA 2011 Unabridged Annual Report 30


United Farmers of Alberta Co-operative Limited

CONSOLIDATED BALANCE SHEET

As at

(Stated in thousands of Canadian dollars)

December 25,

2011

December 26,

2010

December 28,

2009

Assets

Current Assets

Cash and cash equivalents (note 4) $ 1,237 $ – $ –

Accounts receivable (note 5) 110,629 118,164 143,739

Inventories 228,339 239,852 258,023

Prepaid expenses and deposits 19,808 18,808 6,002

Future income tax asset (note 11) 2,500 – 232

Property held for resale (note 6) – 833 –

362,513 377,657 407,996

Property held for resale (note 6) 12,687 13,165 379

Investments 862 862 1,223

Other long-term assets 1,328 1,328 1,008

Goodwill and intangible assets (note 7) 62,909 69,822 101,143

Future income tax asset (note 11) 16,724 11,331 –

Property and equipment (note 8) 221,330 246,547 283,045

Liabilities and Members’ Equity

Current Liabilities

$ 678,353 $ 720,712 $ 794,794

Bank indebtedness (note 4) $ – $ 16 $ 2,625

Accounts payable and accrued liabilities (note 20) 120,324 123,208 148,934

Deferred revenue (note 9) 10,982 10,709 15,318

Member loans (note 10) 8,517 15,092 17,251

Future income tax liability (note 11) – 116 –

Current portion of long-term debt (note 12) 6,012 6,418 1,685

145,835 155,559 185,813

Long-term debt (note 12) 134,950 193,122 151,650

Member loans (note 10) 31,827 – –

Asset retirement obligations (note 13) 18,944 22,171 26,207

Future income tax liability – – 2,222

Long-term liabilities (note 14) 21,538 23,668 27,204

Members’ Equity

353,094 394,520 393,096

Member entitlements (note 16) 209,614 208,438 214,386

Retained earnings 133,069 135,316 201,996

Cumulative translation adjustment (17,424) (17,562) (14,684)

325,259 326,192 401,698

$ 678,353 $ 720,712 $ 794,794

On behalf of the Board

Chairman

Director

See accompanying notes to consolidated financial statements

4 CONSOLIDATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 31


United Farmers of Alberta Co-operative Limited

CONSOLIDATED STATEMENT OF INCOME (LOSS)

For the period ended

(Stated in thousands of Canadian dollars)

December 25,

2011

December 26,

2010

Revenue (note 21) $ 2,108,450 $ 1,742,941

Cost of sales (1,863,489) (1,526,635)

Gross margin 244,961 216,306

Operating and administrative expenses (189,767) (215,090)

Other income 2,012 1,629

Earnings before the under noted 57,206 2,845

Depreciation and amortization (40,813) (42,413)

Impairment of goodwill (note 7) – (26,575)

Interest (note 10,12) (14,174) (21,152)

Foreign currency exchange gain (loss) 1,171 (1,235)

Income (loss) before patronage and income taxes 3,390 (88,530)

Patronage allocation (note 16) (7,000) –

Income tax recovery (note 11) 3,847 23,744

Net income (loss) $ 237 $ (64,786)

CONSOLIDATED FINANCIAL STATEMENTS 5

UFA 2011 Unabridged Annual Report 32


United Farmers of Alberta Co-operative Limited

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

As at

(Stated in thousands of Canadian dollars)

December 25,

2011

December 26,

2010

Member Entitlements (note 16)

Beginning of period $ 208,438 $ 214,386

Patronage allocation 7,000 –

Redemptions / Repayments (6,119) (6,287)

Less than minimum and unclaimed 295 339

209,614 208,438

Retained Earnings

Beginning of period 135,316 201,996

Net earnings 237 (64,786)

Dividends on investment shares (2,484) (1,894)

133,069 135,316

Cumulative Translation Adjustment

Beginning of period (17,562) (14,684)

Revaluation of non-Canadian accounts 138 (2,878)

(17,424) (17,562)

Total Members’ Equity $ 325,259 $ 326,192

See accompanying notes to consolidated financial statements

6 CONSOLIDATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 33


United Farmers of Alberta Co-operative Limited

CONSOLIDATED STATEMENT OF CASH FLOWS

For the period ended

(Stated in thousands of Canadian dollars)

December 25,

2011

December 26,

2010

Operating activities

Net income (loss) $ 237 $ (64,786)

Items not requiring an outlay of cash

Patronage allocation 7,000 –

Gain on disposal of property and equipment (2,884) (244)

Loss on disposal of application software – 31

Write down of property and equipment – 603

Asset retirement obligation accretion (note 13) 1,601 1,829

Future income tax recovery (note 11) (8,009) (13,539)

Decrease in other long-term liabilities (378) (1,768)

Other amortization (1,410) (1,257)

Depreciation and amortization (note 7,8) 40,813 42,413

Impairment of goodwill (note 7) – 26,575

36,970 (10,143)

Asset retirement obligations settled (note 13) (1,562) (2,323)

Changes in non-cash working capital related to operations (note 22) 15,477 2,470

Cash provided by (used in) operating activities 50,885 (9,996)

Investing activities

Additions to property and equipment (10,507) (17,084)

Proceeds from disposal of property held for resale 478 –

Additions to goodwill and intangibles (2,843) (5,320)

Proceeds from disposal of property and equipment 5,307 1,457

Increase in other long-term assets – (320)

Decrease in investments – 361

Changes in non-cash working capital elements of investing activities – (2,692)

Cash used in investing activities (7,565) (23,598)

Financing activities

Long-term debt (repaid) issued (note 12) (59,026) 46,206

Member loans issued (note 10) 31,827 –

Repayment of revolving equity (575) (576)

Dividends on investment shares (2,484) (1,894)

Redemption of shares (5,234) (5,373)

Net repayment of member loans (6,575) (2,160)

Cash (used in) provided by financing activities (42,067) 36,203

Increase in cash 1,253 2,609

Bank indebtedness, beginning of period (16) (2,625)

Cash and cash equivalents (bank indebtedness), end of period $ 1,237 $ (16)

See accompanying notes to consolidated financial statements

CONSOLIDATED FINANCIAL STATEMENTS 7

UFA 2011 Unabridged Annual Report 34


United Farmers of Alberta Co-operative Limited

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts are stated in thousands of Canadian dollars except unit numbers)

1. Nature of Operations

United Farmers of Alberta Co-operative Limited (“UFA”) was incorporated by Special Act under the laws of Alberta

and operates as three business segments distributing fuel products and construction services, farm supplies, and

outdoor recreation products to its customers. As a co-operative, a significant portion of its business is with its

member owners. The outdoor recreation products segment operates through two wholly owned subsidiaries which

are Wholesale Sports Canada Ltd. (formerly 1406783 Alberta Ltd.) operating in western Canada and Wholesale

Sports USA, Inc. (formerly UFA Holdings, Inc.) operating as Wholesale Sports in the northwest United States. UFA

also has a 50% interest in UFA-LIT Joint Venture (“UFA-LIT”).

2. Significant Accounting Policies

Effective fiscal year 2011, the consolidated financial statements of UFA have been prepared in compliance with

Canadian accounting standards for private enterprises (ASPE). Under the new standards, UFA has exercised

certain elections available for transitioning companies. The financial impact of these changes is detailed in note 3.

The comparative financial statements as at December 26, 2010 and the transition date of December 28, 2009 are

on a basis consistent with the current year’s presentation.

UFA prepares its consolidated financial statements on a retail calendar basis. The fiscal period end reflected in the

consolidated financial statements is December 25, 2011 and the comparative period is December 26, 2010.

Consolidation

The consolidated financial statements include the accounts of UFA and its wholly owned subsidiaries, Wholesale

Sports USA, Inc., Wholesale Sports Canada Ltd., and its 50% proportionate interest in its jointly controlled

operations/assets of UFA-LIT Joint Venture. Transactions between UFA, its wholly owned subsidiaries and the

proportionately consolidated entity are eliminated on consolidation.

These consolidated financial statements are expressed in Canadian dollars.

Revenue Recognition

UFA recognizes revenue when products, goods and services are delivered to the customer or when the risks and

rewards associated with ownership are transferred to the customer. Revenue related to building and intensive

livestock construction projects is recognized using the percentage of completion basis. Under the percentage of

completion method of accounting, the actual costs incurred and the budgeted costs to complete the project are

used to measure progress on each contract. Revenue and cost estimates are revised periodically based on

changes in circumstances. Revenue invoiced but not yet earned is recorded as deferred revenue.

Cash and Cash Equivalents, and Bank Indebtedness

Cash and cash equivalents and bank indebtedness consists of cash on account and bank indebtedness.

8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 35


Inventories

Inventories are valued at the lower of cost and net realizable value, with cost being determined using the weighted

average cost method. The cost of inventories includes the cost of purchase and other costs incurred in bringing the

inventories to their present location and condition. Costs such as storage costs, and administrative overheads that

do not contribute to bringing the inventories to their present location and condition, and selling costs are

specifically excluded from the cost of inventories and are expensed in the period incurred. The amount of inventory

recognized as an expense in the current period was $1,816.0 million (2010 – $1,483.7 million).

Investments

Investments are primarily held in other co-operative enterprises that are not publicly traded. For financial

instrument purposes, these investments are measured at amortized cost. Provisions are made for impairments

that are considered to be other than temporary.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is recorded on a straight-line basis over the estimated

useful lives of the assets at the rates indicated below commencing the month that the assets are placed into

service. Capital leases which transfer significant ownership rights to UFA are recorded as property and equipment.

Buildings, fences and yards

15 to 25 years

Equipment

5 to 8 years

Computer equipment and system software

3 to 5 years

Automotive equipment

5 years

Leased assets

3 to 15 years

Property and equipment classified as “In progress” is expected to be placed into productive use within 12 months

and represents work commenced but not completed on major projects. Depreciation will commence once these

assets are put into service.

Property Held for Resale

Property held for resale is recorded at the lower of cost or fair value less selling costs.

Goodwill and Intangible Assets

UFA records as goodwill the excess amount of the purchase price of entities acquired over the fair value of the

identifiable net assets acquired, including intangible assets, at the date of acquisition. Goodwill is not amortized but

is tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the

reporting unit to which the goodwill is assigned may exceed the fair value of the reporting unit. In the event of

impairment, the excess of the carrying amount (including goodwill) of a reporting unit over its fair value would be

charged to earnings. Intangible assets are amortized on a straight-line basis over the estimate useful life of the

assets identified.

Application software

Trademarks/Trade names

Lease/Licenses

Non-competition agreements

Customer relationships

3 to 5 years

10 years

10 years

4 years

3 years

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9

UFA 2011 Unabridged Annual Report 36


Income Taxes

UFA follows the liability method of tax allocation in accounting for income taxes. Under this method, income taxes

are recognized for the differences between financial statement carrying values and the respective income tax basis

of assets and liabilities (temporary differences), and for the carry-forward of unused tax losses and income tax

reductions. Future income tax assets and liabilities are measured using income tax rates expected to apply in the

periods in which temporary differences are expected to be recovered or settled. The effect on future income tax

assets and liabilities of a change in tax rates is included in income in the period that the change is substantively

enacted. Future income tax assets are evaluated and recorded as required in the consolidated financial

statements if realization is considered more likely than not.

Asset Retirement Obligations

UFA recognizes the current best estimate of the expenditure required to settle the asset retirement obligation for

all long-lived assets in the period when the liability is incurred or the period when it can be reasonably estimated,

whichever is earlier. The liability is adjusted due to revisions in the associated estimated timing and amount of

costs. Estimates are determined using management’s best judgment supplemented by historical experience,

market information and in some cases, a review of engineering data. UFA also recognizes a corresponding

increase in the carrying cost of the asset. The carrying cost of the asset is depreciated on a straight-line basis,

similar to the underlying assets for which the liability is recognized.

Employee Future Benefits

UFA operates a defined benefit pension plan for its regular employees along with an unfunded supplemental

retirement plan for those employees affected by the Canada Revenue Agency maximum pension and contribution

limits. The obligations of the plans are determined using the projected benefit method pro-rated on service and

UFA’s best estimate of expected return on assets, salary growth and demographic changes. Experience gains and

losses and changes in assumptions are amortized, using the corridor method, over the average remaining service

period of the employee groups. Under the corridor method, amortization is recorded only if the accumulated net

actuarial gains or losses exceed 10% of the greater of the accrued benefit obligation and the value of the plan

assets. The market value of plan assets is used for all calculations.

Foreign Currency Translation

Wholesale Sports USA Inc. is considered to be a self-sustaining foreign operation.

Assets and liabilities of self-sustaining foreign operations are translated into Canadian dollars at the rate of

exchange in effect at the balance sheet date and revenues and expenses are translated at the average monthly

rates of exchange during the period. Gains or losses on translation of self-sustaining foreign operations are

included in cumulative translation adjustment in Members’ Equity.

UFA translates foreign currency assets and liabilities into Canadian dollars at the period-end exchange rate for

monetary items and at the historical exchange rate for non-monetary items. Foreign currency revenues and

expenses are translated at the exchange rate in effect on the dates of the related transactions. Foreign currency

gains and losses are included in income immediately.

Financial Instruments

Section 3856 Financial Instruments provides the disclosure and presentation requirements for privately owned

organizations. It deals with the classification of financial instruments, from the perspective of the issuer, between

liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in

which financial assets and financial liabilities are offset.

10 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 37


Financial assets and financial liabilities will be recognized on the balance sheet when UFA becomes party to the

contractual provisions of the financial instrument. UFA classifies financial assets and liabilities according to their

characteristics and management’s choices and intentions related thereto for the purposes of ongoing

measurement.

All financial instruments are measured at fair value upon initial recognition. Subsequent measurement is at

amortized cost, with the exception of cash and cash equivalents which are held at fair value.

Use of Estimates

The preparation of the consolidated financial statements in conformity with Canadian accounting standards for

private enterprises requires management to make estimates and assumptions that affect the amounts reported in

the consolidated financial statements and accompanying notes. These estimates are based on management’s

best knowledge of current events and actions that UFA may undertake in the future. Management believes that the

estimates are reasonable; however, actual results could differ from those estimates. Estimates are used when

accounting for such items as inventory provisions, depreciation, pension obligation, income and other taxes, asset

retirement obligations and testing goodwill and long-lived assets for impairment. Information presented and

estimates used in the financial statements do not reflect anticipated resolutions to uncertainties by management.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11

UFA 2011 Unabridged Annual Report 38


3. Impact of the Change in the Basis of Accounting

The financial statements for the period ended December 25, 2011 are the first set of statements for which the

entity has applied the Canadian accounting standards for private enterprises. Certain elections available to entities

adopting ASPE were adopted, in accordance with the provisions set out in First-time Adoption, Section 1500 of

Part II of the CICA Handbook.

The impact of adopting these standards and the elections that were exercised were adjusted in retained earnings

as at the transition date of December 28, 2009.

(Stated in thousands of Canadian dollars)

Balance Sheet as at

December 27, 2009

based on previous

financial statements

Changes in

Retained Earnings

Balance Sheet as at

December 28, 2009

based on ASPE

Assets

Current Assets

Accounts receivable $ 143,739 $ – $ 143,739

Inventories 258,023 – 258,023

Prepaid expenses and deposits 6,002 – 6,002

Future income taxes 232 – 232

407,996 – 407,996

Property held for resale 379 – 379

Investments 1,223 – 1,223

Other long-term assets 1,008 – 1,008

Goodwill and intangible assets 101,143 – 101,143

Property and equipment (note 3a) 263,711 19,334 283,045

$ 775,460 $ 19,334 $ 794,794

Liabilities and Members’ Equity

Current Liabilities

Bank indebtedness $ 2,625 $ – $ 2,625

Accounts payable and accrued liabilities 148,934 – 148,934

Deferred revenue 15,318 – 15,318

Member loans 17,251 – 17,251

Current portion of long-term debt 1,685 – 1,685

185,813 – 185,813

Long-term debt 151,650 – 151,650

Asset retirement obligations 26,207 – 26,207

Future income tax liability (note 3c) 1,300 922 2,222

Long-term liabilities (note 3b) 21,222 5,982 27,204

386,192 6,904 393,096

Members’ Equity

Member entitlements 214,386 – 214,386

Retained earnings 189,566 12,430 201,996

Cumulative translation adjustment (14,684) – (14,684)

389,268 12,430 401,698

$ 775,460 $ 19,334 $ 794,794

12 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 39


(a) Fair Value of Property and Equipment

UFA has elected the exemption in Section 1500, paragraph 12 and revalued certain parcels of its land to fair value

as at the date of transition.

(Stated in thousands of Canadian dollars)

Balance Sheet as at

December 27, 2009

based on previous

financial statements

Changes in

Retained Earnings

Balance Sheet as at

December 28, 2009

based on ASPE

Property and equipment at deemed cost

Land $ 36,237 $ 19,334 $ 55,571

Property and equipment at cost less accumulated depreciation

Buildings, fences and yards $ 107,634 $ – $ 107,634

Equipment 59,979 – 59,979

Computer equipment and system software 14,529 – 14,529

Automotive equipment 2,593 – 2,593

Leased assets 35,681 – 35,681

In progress 7,058 – 7,058

$ 227,474 $ – $ 227,474

$ 263,711 $ 19,334 $ 283,045

(b) Unamortized Actuarial Losses for Employee Future Benefits

UFA has elected the exemption in Section 1500, paragraph 14 and has recognized all cumulative actuarial losses

in opening retained earnings at the date of transition. The company therefore revalued its accrued pension liability

at the date of transition.

(Stated in thousands of Canadian dollars)

Balance Sheet as at

December 27, 2009

based on previous

financial statements

Changes in

Retained Earnings

Balance Sheet as at

December 28, 2009

based on ASPE

Accrued benefit obligation, end of year $ 85,383 $ – $ 85,383

Market value of plan assets, end of year 77,449 – 77,449

Deficit of plan at end of year (7,934) – (7,934)

Unamortized net actuarial loss 5,982 (5,982) –

Accrued liability $ (1,952) $ (5,982) $ (7,934)

(c) Future Income Tax Liability

The ASPE elections relating to revaluation of land and recognition of unamortized actuarial losses resulted in a net

future income tax liability of $ 0.922 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13

UFA 2011 Unabridged Annual Report 40


4. Cash and Cash Equivalents (Bank Indebtedness)

The components of cash and cash equivalents are:

December 25,

2011

December 26,

2010

Cash and cash equivalents $ 1,237 $ –

Bank indebtedness – 16

Cash (Bank indebtedness) $ 1,237 $ (16)

Rates paid on cash balances during the period January to December 2011 ranged from 0% to 1.0% (2010 – 0% to

1.0%). As at December 26, 2010, the balance representing banking transactions in clearing were classified as

bank indebtedness.

5. Accounts Receivable

Accounts receivable is comprised of customer and member receivables of $99.2 million (2010 – $91.1 million)

extended under commercial terms, trade receivables and other miscellaneous receivables of $11.4 million (2010 –

$27.0 million). The customer and member receivables are net of an allowance of $2.6 million (2010 – $3.0 million).

During the period, UFA recorded $1.8 million in bad debts (2010 – $6.5 million).

Other miscellaneous receivables consist of vendor rebates, income tax, Alberta Farm Fuel Benefits and other

related receivables from the normal course of business.

During 2009, UFA entered into an arrangement with the Bank of Nova Scotia (“BNS”) to transfer the rights to

certain UFA’s trade receivables in exchange for cash. UFA will continue to service their customers for BNS. During

the period the total funds received from BNS was $545.5 million (2010 – $475.9 million), and total funds returned

to BNS on payments received from customers was $548.4 million (2010 – $445.1 million). The total balance of

customer accounts outstanding with BNS as at December 25, 2011 was $66.9 million (2010 – $69.8 million) net of

$9.9 million (2010 – $19.1 million) associated with funding received from BNS for which UFA has provided

an indemnification.

6. Property Held for Resale

2011 2010

Land $ 11,531 $ 11,821

Buildings and equipment – 544

Relocation properties 1,156 1,633

$ 12,687 $ 13,998

Less current portion – (833)

Long-term portion $ 12,687 $ 13,165

The balance of property held for resale represents assets which management have evaluated as not integral to

business operations. The assets include purchases of employee homes to facilitate their relocation, with the

intention of selling these properties as soon as possible.

14 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 41


7. Goodwill and Intangible Assets

Cost

2011

Accumulated

Depreciation,

Amortization Impairment Net Book Value

Application software $ 57,453 $ 41,447 $ – $ 16,006

Goodwill 35,245 – – 35,245

Trademark/Trade names 9,276 3,132 – 6,144

Leases/Licenses 7,994 2,803 – 5,191

Non-competition agreements 3,113 2,790 – 323

Customer relationships 100 100 – –

$ 113,181 $ 50,272 $ – $ 62,909

Cost

2010

Accumulated

Depreciation,

Amortization Impairment Net Book Value

Application software $ 55,644 $ 34,804 $ – $ 20,840

Goodwill 61,737 – 26,575 35,162

Trademark/Trade names 9,276 2,237 – 7,039

Leases/Licenses 7,994 2,001 – 5,993

Non-competition agreements 3,113 2,325 – 788

Customer relationships 100 100 – –

$ 137,864 $ 41,467 $ 26,575 $ 69,822

Goodwill balance in 2011 is after impairment write down from prior years.

Goodwill includes amounts recognized at the time of the transaction and associated cumulative translation

adjustment.

Wholesale Sports USA, Inc. was tested for impairment at the end of the 2010 fiscal year and an impairment charge

of $26.6 million to goodwill was recognized. Effective 2011 and onwards, goodwill will be tested for impairment

whenever events or changes in circumstances indicate that the carrying amount of the reporting unit may exceed

its fair value.

8. Property and Equipment

Cost

2011

Accumulated

Depreciation,

Amortization

Net Book Value

Land $ 46,636 $ – $ 46,636

Buildings, fences and yards 152,995 67,347 85,648

Equipment 131,474 89,267 42,207

Computer equipment and system software 31,864 24,290 7,574

Automotive equipment 18,171 16,798 1,373

Leased assets 44,324 16,171 28,153

In progress 9,739 – 9,739

$ 435,203 $ 213,873 $ 221,330

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15

UFA 2011 Unabridged Annual Report 42


Cost

2010

Accumulated

Depreciation,

Amortization

Net Book Value

Land $ 46,782 $ – $ 46,782

Buildings, fences and yards 155,516 59,810 95,706

Equipment 129,149 79,312 49,837

Computer equipment and system software 29,886 18,339 11,547

Automotive equipment 17,710 16,014 1,696

Leased assets 46,416 12,736 33,680

In progress 7,299 – 7,299

$ 432,758 $ 186,211 $ 246,547

The balance of In progress at December 25, 2011 is expected to be placed into productive use during fiscal 2012

and represents work commenced but not completed on buildings, equipment, computer equipment and software.

Depreciation and amortization will commence once these assets are put into service.

9. Deferred Revenue

Deferred revenue includes deposits and prepayments on future sales and gift certificates sold.

10. Member Loans

UFA has two different voluntary member loan programs (the on demand “Member Loan” program and the “High

Yield Member Investment Plan” program or “HYMIP”) both of which provide members, employees, and agents the

opportunity to invest in UFA and earn a return on their investment.

The on demand Member Loans are unsecured, and earn a rate of return on the investment at bank prime, as

stated by the Royal Bank of Canada, plus 1% (prior to September 1, 2010 – bank prime less 0.5%). The balance

of Member Loans as at December 25, 2011 was $8.5 million (2010 – $15.1 million), and the interest of $0.6 million

(2010 – $0.5 million) was included in interest expense.

UFA introduced the HYMIP program to members on June 15, 2011. The program is a 3 year investment that pays

a fixed rate of 7% interest per year and matures on June 15, 2014. The plan has no early redemption options, and

pays interest semi-annually on June 15th and December 15th of each year. The minimum investment allowed

under the program was $5,000 and all HYMIP loans are unsecured. The program was fully subscribed and closed

in November of 2011.

The HYMIP balance as at December 25, 2011 was $31.8 million (2010 – $Nil), and the interest of $0.8 million

(2010 – $Nil) was included in interest expense.

The repayment of member loans is subject to the right of offset of any amounts owing to UFA, and is subject to

UFA meeting the covenants contained under the Asset-Based Credit Agreement (see note 12).

16 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 43


11. Income Taxes

Income tax expense (recovery) differs from the amount that would be computed by applying the Canadian Federal

and Provincial statutory income tax rates to earnings before income taxes as set out below:

December 25,

2011

December 26,

2010

Income (loss) before patronage and income taxes $ 3,390 $ (88,530)

Patronage allocation (7,000) –

Net loss earnings before income taxes $ (3,610) $ (88,530)

Statutory income tax rate 26.51% 28.02%

Expected income tax recovery $ (957) $ (24,806)

Non-deductible items and other (325) 475

Rate adjustment including US rate impact (1,009) (2,637)

True ups and other (1,556) 3,224

Income tax expense $ (3,847) $ (23,744)

Income taxes consists of:

Current income tax expense (recovery) 4,162 (10,207)

Future income tax recovery (8,009) (13,537)

$ (3,847) $ (23,744)

The net future income tax asset (liability) at the fiscal period end is comprised of the tax effect of the following

temporary differences:

December 25,

2011

December 26,

2010

Current future income tax asset (liability):

Warranty and other $ 2,500 $ (116)

Long-term future income tax asset (liability):

Deferred compensation 2,268 877

Asset retirement obligation 4,738 5,738

Tax loss/Other 8,633 6,903

Property and equipment and other 1,085 (2,187)

$ 16,724 $ 11,331

12. Long-Term Debt

December 25,

2011

December 26,

2010

Asset-Based Credit Agreement – Revolving loans $ 93,946 $ 147,778

Asset-Based Credit Agreement – Term loan 46,250 50,000

Obligations under capital leases 1,804 3,130

Deferred financing charges (1,038) (1,368)

140,962 199,540

Less: current portion (6,012) (6,418)

$ 134,950 $ 193,122

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17

UFA 2011 Unabridged Annual Report 44


Asset-Based Credit Agreement

UFA entered into an Asset-Based Credit Agreement (“Credit Agreement”) on December 13, 2010 that provides for

an Asset-Based revolving credit facility in the maximum aggregate amount of $200.0 million and a fixed asset

facility (Term loan) initially available on a one-draw only basis in the amount of $50.0 million. The Credit

Agreement also has an accordion feature which permits UFA to request an increase in the revolving credit facility

up to an additional amount of $50.0 million for a total availability of $250.0 million. Any increase under the

accordion is not committed and must first be approved by the lenders. In 2011 UFA repaid $3.75M under the Term

Loan facility as required, and did not request any increase in credit under the accordion feature of the revolving

credit facility.

Borrowing Base

The amount available to be drawn under the Credit Agreement will vary from time to time based on UFA’s

inventory and accounts receivable balances. The advances under the credit agreement cannot exceed the

revolving loans borrowing base determined according to terms under the agreement that factors UFA’s inventory

and receivables. In addition, reserves are calculated under the Agreement to take into account such factors as

priority payables, and additional collateral requirement.

At December 25, 2011, under the Credit Agreement the borrowing bases for accounts receivable and inventory

were margined at $66.0 million (2010 – $52.8 million) and $139.0 million (2010 – $152.3 million) respectively. The

total amount of reserves which were deducted from the borrowing bases was approximately $16.3 million (2010 –

$15.2 million). At December 25, 2011, $80.2 million (2010 – $37.1 million) of credit was available to fund

operations and working capital requirement.

As at December 25, 2011, UFA’s balance in revolving loans under the Asset-Based Credit Agreement included

$107.0 million (2010 – $161.0 million) drawn in Canadian dollars and $6.6 million (2010 – $1.2 million) advanced in

US dollars. The Canadian dollar borrowings consisted of $100.0 million of 30 day Banker’s Acceptances and

$7.0 million of Prime loans (2010 – $Nil), the US total was all Prime loans (2010 – $Nil)

The total drawn by UFA under the Credit Agreement was offset by $17.6 million (2010 – $12.0 million) residing in

bank balances held in deposit accounts.

Term

The Credit Agreement has a 3 year term ending December 13, 2013 including a clause for termination fees should

the Credit Agreement be terminated within the two years of the date of closing. UFA can borrow under the

agreement using Prime, Libor or Banker’s Acceptances and pricing is determined off a grid based on UFA Fixed

Charge Coverage Ratio. During the term of the Asset-Based revolving credit facility, there are no fixed terms of

repayment. The initial one-time advance of Term Loan for $50.0 million is repayable in equal quarterly installments

based on a ten year amortization. As at December 25, 2011, UFA’s term loan balance was $46.3 million (2010 –

$50.0 million) including the $5.0 million current portion scheduled for repayment over the next year. Banker’s

Acceptances accounted for $30.0 million (2010 – $Nil) of the total outstanding balance, with the remainder in

Prime loans.

Security

The Credit Agreement grants a security interest in all of UFA’s personal property and all of its real property is

mortgaged in favour of the lenders under the agreement.

Covenants

UFA is subject to certain financial and collateral covenants related to the Asset-Based Credit Agreement. The

Asset-Based Credit Agreement requires ongoing compliance with an Adjusted Fixed Charge Coverage Ratio as

calculated on a 12-month rolling basis at the end of each month of not less than 1.1:1. UFA was in compliance with

all financial covenants during the year and as at December 25, 2011.

18 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 45


Capital Lease Obligations

The assets under capital leases are the security for the respective obligations. Scheduled minimum lease

payments for the next five periods total $2.0 million, including $0.2 million in financing expenses. The lease terms

range from 1 to 5 periods at interest rates between 4.2% and 18.1% for 2011 (2010 – 4.2% and 17.9%).

Principal Interest Total

2012 $ 1,010 $ 84 $ 1,094

2013 529 32 561

2014 159 12 171

2015 106 103 209

2016 – – –

$ 1,804 $ 231 $ 2,035

13. Asset Retirement Obligations

2011 2010

Balance, beginning of year $ 22,171 $ 26,207

Accretion expense 1,601 1,829

Revisions in estimated cash flows (3,266) (3,542)

Liabilities settled (1,562) (2,323)

Balance, end of year $ 18,944 $ 22,171

Estimated undiscounted future cash flows, adjusted for inflation, are $46.1 million (2010 – $48.5 million) and are

expected to be incurred up to and including fiscal 2060. The present value or discounted fair value of the

obligations was determined using a 7.7% discount rate and a 2.2% inflation rate (2010 – 7.7% and 2.2%

respectively). The estimates used in determining UFA's asset retirement obligations could change due to changes

in regulations and the timing, nature and extent of environmental remediation required. Changes in estimates are

accounted for prospectively in the period that the estimate is revised.

14. Long-Term Liabilities

December 25,

2011

December 26,

2010

Accrued pension benefit liability (note 18) $ 7,494 $ 8,367

Intangible lease liability 8,767 10,990

Other long-term liabilities 5,277 4,311

$ 21,538 $ 23,668

The intangible lease liability represents the remaining unamortized fair value of lease commitments acquired in the

acquisition of 15 Sportsman’s Warehouse stores.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19

UFA 2011 Unabridged Annual Report 46


15. Commitments, Contingencies and Guarantees

Future minimum payments under operating leases for certain facilities and equipment are due as listed:

2012 $ 18,730

2013 18,960

2014 19,273

2015 19,192

2016 18,271

After 2016 70,853

$ 165,279

UFA’s by-laws provide indemnification to its current and former directors, officers and employees to the extent

permitted by law, against liabilities arising from their service to UFA. The broad nature of these indemnification bylaws

does not permit a reasonable estimate of the maximum potential amount of any liability. No amount has been

accrued in the consolidated financial statements in this respect.

16. Member Entitlements

Member entitlements consist of member shares, the current period’s patronage allocation, revolving equity and

investment shares. All member entitlements for members that turn 65 years of age (“Senior Members”), is

converted into Class A Investment shares, with the exception of one $5.00 member share.

Details of member entitlements are as follows:

2011 2010

Member shares $ 29,017 $ 29,845

Patronage allocation 7,000 –

Revolving equity 70,577 84,661

Class A Investment shares 103,020 93,932

Member entitlements, end of period $ 209,614 $ 208,438

The repayment and redemption of equity and the payment of patronage and dividends are subject to the right of

offset of any amounts owing to UFA, and are subject to UFA meeting the covenants contained under the Asset-

Based Credit Agreement (see note 12).

Member Shares

UFA is authorized to issue an unlimited number of member shares with a par value of $5.00. Member shares are

redeemable at the option of the holder at par value when the member reaches age 65, moves out of the trading

area or, at the request of the member’s estate, upon the member’s death.

2011 2010

Ordinary shares issued: Number Amount Number Amount

Balance, beginning of period 5,970 $ 29,845 6,146 $ 30,729

Conversion to Class A Investment shares (119) (596) (132) (662)

Redemption (46) (232) (44) (222)

Balance, end of period 5,805 $ 29,017 5,970 $ 29,845

20 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 47


Patronage Allocation

UFA distributes a portion of its current fiscal period earnings to its members in the form of a patronage allocation.

The allocation must be ratified by UFA’s elected delegates at their annual meeting held in March of the following

period. As part of the ratification of the patronage allocation and as provided for under UFA’s by-laws, the

delegates also approve the distribution of the current period allocation to member shares, non-interest bearing

revolving equity, Class A Investment shares and the amount to be paid in cash.

2011 2010

Balance, beginning of period $ – $ –

Current period allocation 7,000 –

Balance, end of period $ 7,000 $ –

Revolving Equity

Revolving equity is non-interest bearing, non-redeemable by the member except in specific circumstances and is

converted into Class A Investment shares on a straight-line basis over a 12 year period.

2011 2010

Balance, beginning of period $ 84,661 $ 99,587

Conversion to Class A Investment shares (12,222) (12,644)

Senior Members conversion to Class A Investment shares (1,288) (1,706)

Repayment (574) (576)

Balance, end of period $ 70,577 $ 84,661

Class A Investment Shares

Class A Investment shares are non-voting, have a par value of $100.00 and are redeemable at par value at the

option of the holder subject to Board approval. The Board has the authority to restrict redemptions in any given

year, even in situations where such redemptions are not unfavorable to UFA.

Class A Investment shares are retractable at par value at the option of UFA and provide a dividend at bank prime

rate less 0.5%. Dividends of $2.5 million (2010 – $1.9 million) on the investment shares are charged against

retained earnings. The minimum required for a dividend cheque to be issued is $50 per member and the amount

owing is held in investment shares until the minimum is met.

2011 2010

Investment shares issued: Number Amount Number Amount

Balance, beginning of period $ 93,932 $ 84,070

Conversion from revolving equity 122 12,209 126 12,644

Senior Members conversion from revolving equity 13 1,288 17 1,706

Senior Members conversion from member shares 6 596 7 662

Redemption (53) (5,300) (55) (5,489)

Less than minimum and unclaimed 295 339

Balance, end of period $ 103,020 $ 93,932

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21

UFA 2011 Unabridged Annual Report 48


17. Financial Instruments

UFA’s risk exposures and the impact on UFA’s financial instruments are summarized below:

Credit Risk

Credit risk is the risk of loss associated with a counter-party’s inability to fulfill its payment obligations. UFA is

exposed to the credit risk on its accounts receivable from members and customers. The accounts receivable are

net of applicable allowances for doubtful accounts, which are established based on the specific credit risks

associated with individual members and customers and other relevant information. Concentration of credit risk with

respect to receivables is limited, due to the large number of members and customers.

Liquidity Risk

UFA’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when

they come due. At December 25, 2011, UFA had current assets of $362.5 million (2010 – $377.7 million) to settle

current liabilities of $145.8 million (2010 – $155.6 million). All of UFA’s accounts payable, accrued liabilities and

deferred revenue are subject to normal trade terms. (See notes 10 and 12 for information on payment terms of

member loans and current and long-term debt.)

Market Risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign

exchange rates, and commodity prices. These fluctuations may be significant.

Interest Rate Risk

UFA is exposed to interest rate risk under the Asset-Based Credit Agreement as the rate is based on its Fixed

Charge Coverage Ratio. As of December 25, 2011, the interest rates paid on Canadian dollar advances and

US dollar advances were Canadian Prime Rate or US Prime Rate plus 0.75% (2010 – Canadian or US Prime Rate

plus 2.75%). For Banker’s Acceptances the interest rate was BA’s plus 2.25% (2010 – no Banker’s Acceptances

existed). Further, the amortized transaction costs impacted the interest rate by 0.3% (2010 – 0.2%) making the

effective interest rate to be 3.82%. A 1% change in the Prime Rate may have an annual before income taxes

impact of approximately $2.0 million. UFA is not exposed to interest rate risk on capital lease obligations as the

rates are fixed.

Foreign Currency Risk

UFA is exposed to foreign currency risk on exchange fluctuations related to its US dollar borrowings through the

company’s Asset-Based Credit Agreement (see note 12) for funds advanced to its US-based subsidiary,

Wholesale Sports USA, Inc., and short-term payables related to foreign suppliers. The foreign currency risk is

considered minimal as these assets and liabilities are not of significant value, and all transactions are with trade

vendors with typical payment terms. In 2011, UFA incurred a gain $1.2 million (2010 – loss of $1.2 million) due to

changes in the value of the US-CDN exchange rate.

UFA is also exposed to foreign currency risk in the operations of its US-based subsidiary, Wholesale Sports USA,

Inc. However, since Wholesale Sports USA, Inc. is a self-sustaining subsidiary, revenues are generated in

US dollars, which exceeds the natural hedge provided by the purchases of goods and services which are

denominated in US dollars. US dollar exchange differences on the investment in Wholesale Sports USA, Inc. will

be unrealized until the investment is disposed of. Exchange differences that occur during the period are recorded

in the cumulative translation adjustment account in members’ equity.

22 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 49


18. Employee Future Benefits

UFA administers two defined benefit pension plans: a funded registered plan (“RPP”) for all employees and an

unfunded supplemental retirement plan (“SERP”) for those employees whose earnings exceed the maximum

allowable under government guidelines for the RPP. UFA funds the RPP in accordance with current pension

legislation. UFA does not fund the SERP but has the obligation to pay SERP benefits out of general revenue in the

period payments are made. Pension benefits are provided to qualified employees and are based, in general, on

years of service and compensation near retirement.

UFA measures its accrued benefit obligation and the fair value of plan assets of its pension plans for accounting

purposes as at the end of each fiscal period. The most recent actuarial valuation of the RPP for funding purposes

was as of December 31, 2010.

Information regarding UFA’s defined benefit plans is as follows:

December 25,

2011

December 26,

2010

Accrued benefit obligation, end of year $ 96,062 $ 96,685

Market value of plan assets, end of year 84,200 86,768

Deficit of plan at end of year (11,862) (9,917)

Employer contributions subsequent to fiscal year end (496) (380)

Unamortized net actuarial loss 4,864 1,930

Accrued liability $ (7,494) $ (8,367)

Included in the accrued benefit obligation is $3.1 million related to the SERP (2010 – $2.9 million).

UFA’s accrued liability of $7.5 million differs from its funded status deficit of $11.9 million due to $4.9 million in

unamortized net actuarial losses and $0.5 million in employer contributions that occurred subsequent to the fiscal

year end date of December 25, 2011. Unamortized actuarial losses arise from differences between the expected

and actual long-term rate of return on plan assets and from differences between actuary assumptions used to

calculate UFA’s accrued benefit obligation and UFA’s actual experience.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23

UFA 2011 Unabridged Annual Report 50


19. Joint Venture

The consolidated statements include on a proportionate basis UFA’s interest in UFA-LIT Joint Venture.

During 2010, UFA-LIT completed construction of a crop nutrition facility, a jointly controlled asset that began

in 2009.

A summary of the Company’s interest in the jointly controlled operation at December 25, 2011 is as follows before

elimination of UFA’s contribution:

Statement of Earnings 2011 2010

Revenue $ 1,734 $ 1,159

Cost of sales (1,650) (1,084)

Operating and administrative expenses (112) (67)

Depreciation and amortization (69) (44)

Net earnings $ (97) $ (36)

Balance Sheet 2011 2010

Current assets $ 19 $ 51

Property and equipment 758 823

$ 777 $ 874

Current liabilities $ 15 $ 16

UFA’s contribution in equity 859 894

Current earnings from Company’s interest in Joint Venture (97) (36)

$ 777 $ 874

The consolidated statements include UFA’s interest in this asset at $0.8 million (2010 – $0.8 million). UFA charges

depreciation and amortization in accordance with its policy on Property, Plant & Equipment and Goodwill &

Intangible Assets on its portion of interest held.

Cost

2011

Accumulated

Depreciation

Net Book Value

Property and Equipment

Land $ 74 $ – $ 74

Building 293 20 273

Equipment 478 86 392

Computer hardware 15 4 11

$ 860 $ 110 $ 750

Intangible Assets

Application software $ 11 $ 3 $ 8

$ 11 $ 3 $ 8

20. Government Remittances

Accounts payable and accrued liabilities as at December 25, 2011 include $7.9 million (2010 – $7.7 million) in

respect of government remittances other than income taxes. Included in this total are federal and provincial sales

and excise taxes, payroll related taxes, and environmental levies.

24 NOTES TO CONSOLODIATED FINANCIAL STATEMENTS

UFA 2011 Unabridged Annual Report 51


21. Revenue Segmentation

UFA derives a significant portion of its revenue by providing products and services to its members. The company’s

business reflects three distinct categories of activity, including fuel products and construction, farm supplies, and

outdoor recreation merchandise.

Category Fiscal 2011 % Fiscal 2010 %

Petroleum (including construction) $ 1,569,117 74.5 $ 1,202,501 69.0

Agribusiness 327,709 15.5 338,445 19.4

Outdoor recreation 211,624 10.0 201,995 11.6

$ 2,108,450 $ 1,742,941

22. Changes in non-cash working capital related to operations

Non-cash working capital relating to operations generated cash flows of $15.5 million in fiscal year 2011 (2010 -

$2.5 million).

For the fifty-two weeks ended

December 25,

2011

December 26,

2010

Accounts receivable $ 7,535 $ 25,575

Inventory 11,513 18,171

Prepaid expenses (999) (12,806)

Accounts payable and accrued liabilities (2,885) (22,070)

Deferred revenue and other 287 (4,513)

Change related to cumulative translation adjustments 26 (1,887)

$ 15,477 $ 2,470

23. Interest and income taxes paid

Interest paid in fiscal year 2011 is $12.8 million (2010 – $19.5 million). Income taxes recovered in fiscal year 2011

was $11.2 million (2010 – $2.8 million).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25

UFA 2011 Unabridged Annual Report 52


Board of Directors 2011

Debbie Adolphson

Tim Bancroft

Bob Chisholm

Bill Dobson

Valleyview

Calgary

Calgary

Paradise Valley

Duane Glimsdale

Jim Laverick

Bill Lee

Jacob Middelkamp

Claresholm

Chairman of the Board

Calgary

Camp Creek

Gibbons

Cornie Teichroeb

Mic Thiessen

Barry Webster

La Crete

Lethbridge

Mountain View

UFA 2011 Unabridged Annual Report 53


senior management 2011

Bob Nelson

Glenn Bingley

Dave Irvine

Sherry Ewert

President & CEO

Chief Operating Officer

Wholesale Sports

Vice President,

Human Resources

Director,

Internal Audit

Jimm Holland

Rahul Kohli

Peter Melnychuk

Ed McCoy

Managing Director, Brand Strategy

& Integrated Marketing

Chief Information Officer

Executive Vice President &

Chief Financial Officer

Vice President,

Petroleum

Bruce Nysetvold

Ron Schinnour

Jim Watt

General Counsel

Vice President,

AgriBusiness

Chief Governance Officer

UFA 2011 Unabridged Annual Report 54


Contact information

UFA 2011 Unabridged Annual Report 55

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