Mountain Equipment Co-op - Canadian Co-operative Association

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Community Investment Through its Community Involvement Program, MEC invests in grants and partnerships to support organizations working on conservation and access to outdoor recreation, which together help support Canada’s outdoor community. In 2011, community contributions totaled $2.76 million. Of this, 64% was directed at projects or partnerships that support access to outdoor recreation or outdoor activities themselves. Since 2001, MEC has directed more than $16.6 million to community investments. Green Buildings MEC builds and operates some of the most energy-efficient retail buildings in Canada. The Ottawa store was the first retail store in Canada to comply with the (now defunct) C2000 Green Building Certification, while MEC Montreal was the first store in Quebec to achieve the designation. Likewise, MEC’s Winnipeg, Burlington, Longueuil, Barrie, and North Vancouver stores have all been purpose-built to high green building standards, while other stores in the network have been retrofitted to accomplish similar objectives. MEC personnel have acquired in-depth knowledge and understanding of green buildings – and how green buildings can be tailored to support MEC’s brand and its sustainability objectives. In that light, MEC stores embody innovation, reducing the co-op’s ecological footprint while contributing community benefits, positive customer experiences, and healthy workplaces at the same time. Product Sustainability MEC is committed to advancing product sustainability efforts– inside and outside the organization. Internally, MEC employs a ‘lifecycle’ approach that is geared to choosing lower-impact materials and production techniques to build better products for members and reduce our ecological footprint. While work on this front has only been underway for a few years, it is yielding positive results: in 2011, 644 products were made with environmentally preferred materials (such as recycled polyester and organic cotton), while 39% of textiles came from facilities with environmental management systems. Formal targets have been set to increase both on an annual basis. Industry Collaboration Notwithstanding efforts within MEC, a collaborative industry-wide effort is needed if product sustainability is to be fully realized. That’s why MEC has taken a leadership position in developing and advancing the Eco-Index, a decision-making tool created by member companies of the Outdoor Industry Association that promises to transform product design and development. Technical assistance from the US Environmental Protection Agency has validated the effort and extended its reach into the wider apparel and footwear sectors. Proof of such reach is the Sustainable Apparel Coalition (SAC), of which MEC is a founding member. The SAC is a collaborative effort of retailers, brands, and other organizations that aim to reduce the environmental and social impacts of apparel and footwear products sold around the world. Collectively, members of the SAC represent over one-third of global retail purchasing power. MEC Submission To The Special Committee On Co-operatives 4
Capitalization MEC makes investment decisions based on its financial outlook at a given point in time. Federal tax law enables MEC’s growth and its short- and long-term financial health by facilitating its ability to retain members’ capital to fund day-to-day working capital and store and product investments for members. The Canada Revenue Agency summarizes the applicable provisions (Section 135, Patronage Dividends) of the Income Tax Act as follows: “In computing income for a taxation year, a taxpayer is allowed to deduct patronage dividend payments made to customers. While the taxpayer involved is usually a cooperative corporation, sole proprietors, partnerships and ordinary corporations may also qualify for the deduction.” (Source: CRA Income tax Interpretation Bulletin IT-362R) In turn, this provision of the Income Tax Act corresponds to Section 5 of MEC’s Rules of Co-operation, Allocation of Surplus, which reads in part: 5.02 Subject to Rule 5.01, the Co-operative may apportion surpluses from its business to any or all of the following: a) declaring patronage returns, and distributing them to the members as set out in Rule 5.03, b) declaring dividends and paying them to the members at a rate not to exceed 8% yearly, c) retaining all or part of the residue for the purposes of the Co-operative, d) donating all or part of the residue for charitable or educational purposes. Member Equity Members’ total equity in the co-op represents the slow and steady accumulation of subscription shares and patronage shares – minus redemptions paid – over the course of 40 years in business. Pooling members’ shares for mutual benefit helps MEC maintain solid financial health. In other words, members’ equity is retained in MEC to finance our operations and improve our ability to serve members by investing in inventory, new stores, and infrastructure. The amount of patronage shares each individual member accumulates is small, but is significant when it is pooled with those of all other members. Indeed, at the end of 2011, members’ combined equity in MEC totaled $160 million, an increase of $7.6 million from 2010. Recommendation Owing in part to its incorporation in BC, MEC has few direct dealings with the federal government. However, to the extent that MEC is both a retailer and a manufacturer, it is best aligned with the mandate and purview of Industry Canada. For this reason, MEC supports the Canadian Co-operative Association’s recommendation to see Industry Canada as the federal ministry that would be responsible for the co-operative sector. Beyond that, MEC encourages the Special Committee to recognize co-operatives as an important sector of the economy deserving of a policy and legislative framework that enables them to grow and thrive. Generally speaking, MEC has employed provisions a, b, and c above to build members’ equity through patronage returns, and to underwrite capital investments. It is important to emphasize that MEC’s capital structure is ‘lowgeared’ – that is, total borrowings are low relative to total equity (see below). This conservative approach is a function of MEC’s lower surplus targets as well as MEC’s limited access to funding, which is generally confined to bank borrowing rather than alternatives available to other private or publicly traded companies. From 2001 to 2011, MEC’s capital investments (mainly store developments and infrastructure) totalled $132.5 million. MEC Submission To The Special Committee On Co-operatives 5
Page 1 and 2: Submission To The Special Committee
Page 3: Returns and Redemptions MEC has two

Mountain Equipment Co-op - Canadian Co-operative Association

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