La Coop La democracy La society La creativity La growth La life Founded in 1922, La Coop is a provider of agricultural supplies and food products with a focus on the well-being of communities. Guided by the values and principles of the cooperative movement, La Coop evolves, innovates and grows to improve the quality of life of its members and the fair and sustainable development of our resources.
2011 Annual Report ■ Experience the value of cooperation
Experience the value of cooperation
Experience the value of cooperation
Contents 24
8
18
President’s message
Cooperative overview
Management Discussion and Analysis
44
45
46
Management report
Independent auditors’ report
Consolidated balance sheet
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Head Office La Coop fédérée 9001 de l’Acadie Blvd Suite 200 Montréal, Québec H4N 3H7 Telephone: 514 384-6450 Fax: 514 858-2025
Website www.lacoop.coop
Olymel overview
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On peut obtenir la version française de ce rapport sur le site Internet de La Coop fédérée à l’adresse www.lacoop.coop ou obtenir une copie imprimée en communiquant avec le Service des communications au 514 384-6450.
La Coop fédérée’s Creative Services
Denis Duquet Creative director
Consolidated statement of earnings and reserve
Bernard Diamant Artistic director/graphic designer Pierre Cadoret Graphic designer
48
Consolidated statement of comprehensive income
Consolidated statement of cash flows
68
69
Financial review
49
Text
Notes to consolidated financial ctatements
Ben Marc Diendéré Communications manager Guylaine Gagnon Editor Le Cooperateur agricole
Affiliated Cooperatives
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Georges O’Shaughnessy Revisor
Our locations
Mont-Roy L’Imprimeur Colour separation and printing
105347_02-12
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Martine Doyon Photographer (www.martinedoyon.com)
10%
Our organization La Coop fédérée contributes to the economic, social and environmental development of cooperative agricultural producers and its affiliated cooperatives by: Developing an integrated cooperative network owned and operated by member agricultural producers to supply
In cooperation with our communities for
professional use products and services; Operating a network of complementary businesses controlled by them that generate competitive earnings, primarily in the hardware, energy and meat processing sectors; Enabling member producers to join together in democratically
YEARS
coordinating the value added production chain they are part of; Promoting cooperative education and bringing cooperative values to life.
Cooperative enterprises build a better world
2011 Annual Report - La Coop fédérée
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In cooperation with our communities for 90 years!
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La Coop
The cooperative movement – a story worth following The International Year of Cooperatives marks nearly a hundred years of history for La Coop. We have evolved tremendously over the years and now rank among the 100 largest cooperative and mutual organizations in the world across all industries. Today more than ever, the values and principles of the cooperative movement make us a real alternative to the dominant economic model.
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2011 Annual Report - La Coop fédérée
The man with a clear conscience
“Some years ago, I received a mysterious bank draft
for $5,150. I did some research and discovered that it came from a man, who was born in 1922, the year La Coop was founded.
I had to speak to a number of people to get to the
bottom of the story. Finally I received a call from someone who said he was a representative of this man, who, 25 years ago, had helped himself to a large number of wooden pallets belonging to La Coop. He had then resold them for $1 each.
A quarter century later, torn by remorse, he decided
to settle his debt. To make his payment official, he even placed a notice in Le Journal de Montréal.
This anecdote really made me think. For this man, it was
a question of integrity. In his twilight years, he wanted a clear conscience…
I’m convinced that he was influenced by the values and
principles of the cooperative movement; he might not have done the same thing for another organization.” Louise Paradis Coordinator, Credit Collection La Coop fédérée, Montréal
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Cooperation gives expression to a multitude of voices. Democracy is born in the mind and gives substance to our projects, ambitions and dreams. It is the foundation of the cooperative movement, which exists for and through its members. A cooperative is not managed like a private company – each opinion and each point of view counts.
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2011 Annual Report - La Coop fédérée
In the nearly 30 years since he took over from his father, Mauro Lando has seen a real transformation in his role. The increasing responsibilities of a fast-growing business have meant spending more and more time in his office. He began as a vegetable producer – he is now a seasoned business manager. Over the years, La Coop’s consulting experts have contributed significantly to product development and quality. Their dedication and knowledge have provided him with technological advances and agronomy expertise. He believes that the cooperative movement gives producers better access to information and a clearer voice with the authorities. In this vein, Mauro likes the way La Coop listens to its members. When it comes to important issues, he does not hesitate to share his opinion with his peers and speak out at cooperative meetings. For Mauro Lando, there’s strength in unity!
Mauro Lando Vegetable producer Sherrington Quote: “At La Coop, they listen to the members.”
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President’s message
R
ecord results against a backdrop of economic uncertainty and price volatility
Faced with a climate of uncertainty sparked by government
producers to produce pork more closely in line with customer expectations also improved sector results.
finance crises in Europe and the U.S., La Coop fédérée
In accordance with its three-year strategic plan, La Coop
(“La Coop”) ended fiscal 2010-2011 with very satisfying results.
continued its growth outside Québec, with strategic partners
With $4.6 billion in sales and a net contribution of $79 million, up $36 million from last year, fiscal 2010-2011 has proven one of the best years in La Coop history. In general, results at Supply Operations were sharply higher. Growth leaders included crop production and grain marketing operations. Gains in the meat sector resulted from higher pork margins in local and international markets.
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The concerted effort by the Cooperative Pork Chain member
in Québec, Ontario and the Maritimes. First, with its acquisition of Agrico Ltd., a major fertilizer distributor in Eastern Ontario, La Coop positioned itself as Eastern Canada’s largest distributor of fertilizers and crop protection products. La Coop also acquired a grain marketing firm in Southwestern Ontario and entered into a major partnership with Greenfield Ethanol, which could generate synergies and attractive opportunities for its products.
2011 Annual Report - La Coop fédérée
Denis Richard
Ghislain Cloutier
Luc Forget
President and Executive Committee Member
1st Vice-president and Executive Committee Member
2nd Vice-president and Executive Committee Member
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President’s message
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La Coop – democracy In Québec, our association with Jefo Logistique inc. was also a strategic asset for the optimized use of our inputs’ rail transport capacities.
After months of delays, the Québec government finally released its bio-food policy green paper on June 7, 2011.
Finally, in the Maritimes, our association with a group of New Brunswick producers to build a poultry slaughterhouse points to advantageous and profitable developments in Eastern Québec.
Suffice it to say that this policy statement, consisting of three development pillars with a shared focus on products and consumer satisfaction, was a letdown for many, particularly since the release of the policy framework kicked off the latest
I extend my sincere thanks to Claude Lafleur, Réjean Nadeau
in a series of endless consultations, while industry players were
and their teams, who led our businesses and produced remark-
impatiently awaiting practical measures aimed at adapting
able results in tough economic times.
our agricultural policies to new market realities.
I also express my heartfelt gratitude to my colleagues on the Board of Directors for their support, drive and willingness to do things differently for the greater good of all members of La Coop’s network.
affiliated cooperatives for their commitment, openness and solidarity. La Coop’s success is closely tied to the prosperity of our affiliated cooperatives, and their support and determination to constantly adapt to their members’ needs give us great confidence in our future.
Marc A. Turcotte
Sophie Bédard
Executive Committee Member
Executive Committee Member
The green paper does provide an accurate overview of the current state of affairs in Québec’s agri-food industry. The proposed guidelines are well-founded, but it is time to pick up the pace of preparing the bill to meet the set objectives,
Lastly, warm thanks to the leaders and managers of our
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2011 highlights
particularly given that the proposed scenario does not call for a major upset of our policies and procedures. On behalf of the agricultural cooperative movement, La Coop presented the government with a brief on the subject. The proposed means of action are based on a long-term vision and are articulated around three core objectives: favouring the
Normand Marcil
Charles Proulx Audit Committee Member
2011 Annual Report - La Coop fédérée
value chain approach, improving our competitiveness through
Before even contemplating the Plan Nord, what Québec
In the Hardware Sector, Mission Performance, aimed at
structural investments and recreating a favourable business
needs is a large-scale agricultural and agri-food policy to
ramping up retail sales profitability by implementing industry
environment for investment and recruiting.
ensure the survival of its second largest industry.
best practices, is somewhat behind schedule, as key resources
In our opinion, our policies and procedures must reflect the
However, waiting for a suitable agricultural and agri-food
fact that it is now the consumer or final purchaser of food
policy must not be an excuse for inaction. Fortunately,La Coop’s
products who calls the shots. Implementation of the value
network began taking steps several years ago.
chain approach, which requires a concerted effort of all links in the chain, must be a priority. Although it is compatible with collective plans, the value chain approach does require changes in how we use marketing tools and in producers’ relationships with their cooperatives. Given how the National Assembly usually operates, we fear that at the current pace, the bill setting this reform in motion will not be tabled until a subsequent legislature. That being said, it is critical for our producers and processing industries that the government takes a clear stand in a timely fashion.
are stretched thin in the participating cooperatives. There is no doubt in my mind, given the importance of the project’s issues for network cooperatives, that its completion in the next few months will be a top priority.
Our major projects aimed at achieving tighter integration of La Coop’s network operations to improve efficiency are making good headway.
Lastly, the scale and timing of project execution for the Chrysalide project in the Crop Production Sector have been reviewed to reflect the numerous projects underway in the
The Chrysalide project, underway in the Animal Production
network. However, the project has not been discontinued, and
Sector, is on schedule and on budget. The final phase of the
a pilot project to test the various assumptions is underway
redeployment of production volumes in selected feedmills
with three cooperatives in Southwestern Québec.
should begin in the next fiscal year with completion slated for 2013. After a beneficial break, the Fidelio project is back up to speed. All cooperatives, on board with the project, are expected to benefit from this new business solution by 2013.
The current uncertainty is counterproductive and detri-
As you may have noticed, things have been very busy across La Coop’s network, and we are making great progress in modernizing our supply management tools. In my opinion, there are three new items in our network modernization project worth highlighting.
mental to industry development.
Damien Lemire
2011 Annual Report - La Coop fédérée
Françoise Mongrain
Marc Quesnel
Audit Committee Member
Audit Committee Member
Conrad Robitaille
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President’s message
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La Coop – democracy
Initially, we became officially associated with European cooperatives under the World Organization for Agriculture (WOAgri), with a view to putting in place an agri-food rating agency. After developing an economic model that factors in economic features specific to agriculture, this new stage in the WOAgri action plan is part of a commitment to designing decision-making tools better suited to agricultural realities.
The second item worth underscoring is the sustainable development approach taken by La Coop. La Coop’s commitment to transition to sustainable develop-
Cooperatives already pursue an economic and social mission; while we aren’t perfect, we must not lose sight of the fact that we are already achieving great things.
ment dates back to the consultation process of the 2007
Today, people simply expect businesses to be responsible
Commission on the future of agriculture and agri-food in
and to disclose the environmental and social footprint of their
Québec.
operations, as well as their action plans for correcting what
Since then, various actions have been taken, including the
needs improving.
creation of a Sustainable Development Department at La Coop
And if there is one area in which we must absolutely
In its prior economic analyses, WOAgri clearly emphasized
and support provided for two pilot projects with cooperatives
improve, it’s communications, both internally with employees
that freer agricultural trade without a common regulatory
in Saguenay–Lac-Saint-Jean to implement a sustainable
and members, and externally with La Coop’s stakeholders.
platform would result in unsustainable volatility in agricultural
development rating system.
markets.
The third item worthy of note is the April 21, 2011 imple-
Another milestone was passed this year with the engage-
With the implementation of new economic indicators,
ment awarded to Samson Bélair/Deloitte & Touche to carry
WOAgri strives to ensure that, in pursuing multilateral
out a diagnostic analysis of La Coop’s sustainable development
negotiations within the WTO or the multiple bilateral talks
practices.
under way, political decision-makers have a clearer snapshot of this complex world. Given the Canadian political environment and the foreseen
mentation of the Cooperative Pork Chain. Consisting at present of over 150 producers, the Cooperative Pork Chain has a mission to offer quality pork products and generate sufficient wealth to make it beneficial for the various
Honestly, I expect that, in this area as in several others, the conclusions will find a good number of our practices adequate but lacking in structure.
network players, including producers. This quasi-cooperative, created within La Coop fédérée in perfect alignment with the cooperatives of La Coop’s network,
dismantlement of the Canada Wheat Board, WOAgri provides
links the interests of network pork producers to Olymel L.P.
a complementary forum to the work carried out by GO5 to promote and defend Canada’s supply management system.
Jean Bissonnette
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Serge Boivin Audit Committee Member
2011 Annual Report - La Coop fédérée
The Pork Chain has already had a noticeably positive effect
Bolstered by a shared vision and a consensus on the guiding
The coming year should thus logically belong to coopera-
on hog sector results. Production costs have been reduced
principles for this strategic thinking exercise, the initiative will
tives, since they are a practical and tested answer to the
and the improvement in quality components sought by our
be subsequently extended to other stakeholders of La Coop,
concerns of the Occupy protestors. What’s more, 2012 has
clients resulted in maintaining or winning back market share
in order to prepare our action plan.
been declared “International Year of Cooperatives” by the UN.
in the most lucrative markets. It’s only just begun and much remains to be done in this network for everyone to experience profitability. The global agri-food industry is inexorably restructuring toward this integrated network model, and the develop-
More and more, the various components of La Coop’s
The late Steve Jobs, founder of Apple and the marvellous
network are required to work closely together, and the recent
electronic devices running at the core of the protest move-
restructuring of our policies and procedures has prompted
ment, said that “The people who are crazy enough to think
such a strategic thinking process, particularly as regards our
they can change the world are the ones who do.”
governance structures.
I often say that the cooperative movement doesn’t claim to
ment of coordinated cooperative networks appears to be an
Whatever the findings of this strategic thinking initiative
unavoidable reality to which we will have to adapt. Particularly
for La Coop’s network, I’m firmly convinced that, more than
in the meat sector.
ever, the network will need producers and managers like you,
We’re well aware that, with Chrysalide, setting up such networks shakes up the established order and prompts legitimate, well-founded questions from cooperative stakeholders. With this in mind, I can confirm that La Coop’s Board of Directors has authorized a vast strategic thinking initiative across La Coop’s entire network.
committed to your communities and capable of running our businesses in the best interest of grassroots members.
2012: International Year of Cooperatives Time Magazine, followed by the world’s main newspapers, collectively named the Occupy movement protestors the 2011 Person of the Year.
be the solution to every problem, but it is right to believe it is part of the solution. With cooperative action, we can take control of our economic, social and environmental destinies democratically, making it truly possible to envisage the future differently. Well anchored in market economy efficiency, while championing the values and aspirations of their local communities, cooperatives can and must play a larger role in societal development and governance.
This initiative will kick off next spring with a special meeting
We must strive toward development based on more
of the first owner representatives held during the Presidents’
equitable relationships, focused on human resources and com-
Forum.
munities, and that factors in social and environmental costs.
The Pork Chain has already had a noticeably positive effect on hog sector results. Production costs have been reduced and the improvement in quality components sought by our clients resulted in maintaining or winning back market Mathieu Couture
Ghislain Gervais
share in the most lucrative markets.
Audit Committee Member
2011 Annual Report - La Coop fédérée
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President’s message
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La Coop – democracy In my opinion, using the cooperative model is the easiest way to reach these objectives.
Well anchored in market economy
Today, we make up nearly one billion cooperators, joined together in some 750,000 cooperatives, who work across
efficiency, while championing the
project and has done so since its inception. Agricultural
of subsistence for nearly half the world’s population. Cooperatives are responsible for remarkable social model. The accumulated sales of the 300 largest global cooperatives, including La Coop’s network, are equivalent to
I’ve seen firsthand how, across the cooperative agricultural network, the review of our structure, policies and procedures
development and governance.
Agriculture beats at the heart of the global cooperative cooperatives still enjoy a strong presence on all continents.
the GDP of the world’s 10th largest economy: Canada.
must play a larger role in societal
participate in the emergence of a fairer, more just society.
100 million jobs.
achievements, but they’re also a high-performance economic
communities, cooperatives can and
the tangible benefits for their members, cooperatives will fully
a large cross-section of the economy, generating nearly
According to UN estimates, cooperatives produce the means
values and aspirations of their local
By expanding their operations and continuously improving
has led to more inter-cooperation between cooperative stakeholders while driving significant improvements in wealth creation for our members. To create a fairer, more just society, we must achieve the economic efficiency goal of the cooperative movement. If we really wish to serve as an alternative model in a world dominated by the capitalist and financial paradigm, we must take the lead in operational efficiency and equip ourselves with the means to achieve our ambitions. Clearly, cooperatives have a social function and reason for
And farmers have always opted for the cooperative model for very good reasons. Borne out of the need to equip themselves with quality tools and services in regions not adjacent to large urban centres, agricultural cooperatives still have a strong presence today, because this economic development model is highly compatible with agricultural values. Activities and communications are planned throughout the upcoming year to raise awareness among the general public and political decision-makers of the cooperative model as an alternative solution in many areas. These activities will lead up to the International Summit of Cooperatives in the fall, organized by Desjardins, to which the world’s major cooperatives are invited, to reflect on our collective future. I encourage you to attend and see for yourself the true strength of cooperation. In 2012, I also invite you to proudly display your membership and attachment to your cooperative and the greater global cooperative movement, because it’s high time that the world gauged the importance of the cooperative movement in day-to-day life.
being that is both broader and more complex than the mere pursuit of profit at any price. Yet cooperatives need not soft-peddle the fact that they are full-fledged economic players, and must contribute to societal growth wherever they are. Denis Richard President
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Cooperation is a matter of culture. Each cooperative evolves in tune with its community. Through its members, La Coop participates directly in the economic, social and environmental development of society. In this way, it contributes to the common good.
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2011 Annual Report - La Coop fédérée
Isabelle truly savours her role with a cheese maker. She revels in her work and is very impressed by the quality of our local cheeses. She reminds us that Québec has undergone a gastronomic revolution over the last 20 or 30 years. Cooperatives bring together the stakeholders in a community. By sharing their knowledge and know-how and giving members access to products and services, cooperatives drive successful projects. They also raise public awareness and serve as advocates for member concerns with governments. In this way, they contribute to the well-being of society. Isabelle believes the impact of Québec cooperatives shows in the quality of our local products. For Isabelle, food is one way to learn about a culture and what we eat truly is an expression of our society.
Isabelle Galiègue Assistant Manager, Fromagerie Beaubien Montréal Quote: “What we eat is an expression of our society.”
2011 Annual Report - La Coop fédérée
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Cooperative overview
La Coop fully adheres to the principles set out in the Statement of Cooperative Identity adopted by the International Cooperative Alliance and strives to integrate them in the administration and day-to-day management of its affairs.
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2011 Annual Report - La Coop fédérée
Free and open membership At year-end, La Coop fédérée brought together 103 member cooperatives, which in turn boasted some 62,000 regular members and 28,000 auxiliary or associate members, all willing partners of the extensive La Coop network.
In 2011, La Coop also declared patronage refunds to its members for a total amount of $36.5 million, bringing total patronage refunds to cooperatives to $103 million for the past five years. Last, La Coop fédérée resolved to redeem Class B shares issued to members in 1998 and 1999 for a cash consideration
Democratic member control As at October 29, 2011, 699 members elected by their peers
of $8 million.
rapidly and frequently with all its employees and network leaders; 67 issues were sent out last year. To promote information exchange, La Coop has also made several intranet sites available to different internal professional groups. Presidents, general managers and anyone interested in cooperative affairs can have access to a dedicated site. La Coop also provides training for all elected representatives to support their role within the agricultural cooperative
managed 103 La Coop-affiliated cooperatives. 84 cooperatives
Autonomy and independence
were entitled, as regular members, to appoint 328 delegates
La Coop ensures its independence from lenders by main-
part in this program. Of that number, 73 have earned
to represent them at meetings. 236 of these delegates availed
taining conservative financial ratios. La Coop promotes sound
formal designations as members (having earned 15 training
themselves of this right at La Coop’s Annual General Meeting
governance practices, most notably by separating the
credits); 46 are companions (30 credits) and 97 are commanders
in February 2011; a participation rate of 72%.
positions of president and general manager, by fostering
(45 credits or more). Académie La Coop gives employees access
directors’ independence from management and by pursuing
to 95 training courses tailored to their needs. La Coop fédérée
sustainable results.
invested $5.9 million in training during the year.
Other meetings throughout the year provided cooperative executives with opportunities to enter into open dialogue and
network. 372 elected representatives are currently taking
guide La Coop’s actions. The President’s Tour, the Presidents’
In addition, La Coop recognizes the autonomy and independ-
La Coop pursues its education and training objectives with
Forum and the semi-annual meeting were other opportunities
ence of its member cooperatives. La Coop has implemented
a number of target groups, including women and the next
for leaders of the network to meet and talk with their peers.
various initiatives to meet the needs of a minimum number of
generation of agricultural producers. La Coop also offers
La Coop ensures an additional structural link with its members
its member cooperatives, while making program participation
scholarships to students and financial support to educational
by setting up various committees on which representatives
optional for each cooperative.
establishments. Efforts are also made to educate opinion
of affiliated cooperatives are invited to serve.
leaders and the general public on the relevance of the coopera-
Education, training and information Member economic participation
La Coop communicates with all members of affiliated
tive agricultural model.
The member cooperatives hold $127.3 million in common
agricultural cooperatives through its magazine, Le Coopérateur
Cooperation among cooperatives
shares of La Coop and $349.5 million in the form of a
agricole. The magazine, published nine times a year, is La Coop’s
La Coop’s involvement in a variety of organizations and asso-
collective reserve. This reserve is used to ensure La Coop’s
main educational and informational tool. An online news
ciations enhances its member services and strengthens the
future development and to support a range of undertakings
brief, La Coop en ligne, allows La Coop to communicate
cooperative movement. These groups include the Conseil
related to the needs of affiliated cooperatives.
2011 Annual Report - La Coop fédérée
québécois de la coopération et de la mutualité, the Conseil
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Cooperative overview
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La Coop – society
canadien de la coopération et de la mutualité, the Fondation québécoise pour l’éducation à la coopération et à la mutualité, the Société de coopération pour le développement international (SOCODEVI), the Chair in management and governance of cooperatives and mutual organizations of the Institut de recherche sur les coopératives et les mutuelles de l’Université de Sherbrooke (IRECUS) as well as Co-operators Life Insurance Company, Cooperative Research Farms, Gene +, Interprovincial Co-operative and Independent Lumber Dealers Co-operative. Through secondments, La Coop also participated in several missions to help overseas cooperatives supported by SOCODEVI and promoted the Association of Cooperative Educators (ACE) by bearing the costs of translating its newsletter into French.
Commitment to the community La Coop (including Olymel) spent a total of $820,000 on donations and sponsorships to assist worthy organizations and events during the year. Promoting the farming profession, sports, health and assistance to disadvantaged groups were the main causes supported by La Coop while Olymel focused
Commitment to the community was also demonstrated by a number of initiatives to ensure the sustainable development of the local communities of La Coop network’s cooperatives. La Coop provided leadership in this respect by supporting two pilot projects within the network and by launching its own sustainable development initiative during the year.
on alleviating poverty. In addition to donations and sponsorships, half of the $540,000 awarded during the year to the young recipients of the Fonds coopératif d’aide à la relève, was borne by La Coop. Sixty-nine new young agricultural producers met the required conditions during the year, bringing the total number of recipients of the fund to 256. La Coop aims to train and ensure a strong new generation of agricultural producers for the extensive La Coop network.
Within its own network, La Coop strives to foster collaborative efforts between cooperatives to maximize the benefits of intercooperation.
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Cooperation stimulates innovation. Creativity is born of a variety of opinions and the plurality of our members’ experiences. At La Coop, this drives innovative solutions to meet tomorrow’s challenges and ensure the fair and sustainable development of our resources.
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2011 Annual Report - La Coop fédérée
According to Cyncia, creativity is possible only if we listen to the full range of customer needs. She believes that innovation in a cooperative is driven mainly by member participation. With people at the heart of its operations, La Coop is naturally focused on customer needs. Sonic’s dynamism is clearly fuelled by a continuous process of creativity. For Cyncia, Sonic innovates at several levels. No longer strictly a provider of petroleum products, it has repositioned itself as an energy supplier. Following a review of its work methods, Sonic streamlined its equipment lease agreement. By looking for sustainable development solutions, it developed new products such as wood pellets and biomass. In a nutshell, for Cyncia, creativity is a way of life.
Cyncia Côté Coordinator, Customer and Partner Services, Énergies Sonic Longueuil Quote: “Creativity is a continuous process.”
2011 Annual Report - La Coop fédérée
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Management Discussion and Analysis The fiscal year ended October 29, 2011 was historic for La Coop fédérée with record sales of $4.6 billion and $79 million in earnings before patronage refunds and income taxes, compared with $3.9 billion and $36.1 million, respectively, for fiscal 2010.
Claude Lafleur Chief Executive Officer
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2011 Annual Report - La Coop fédérée
[in thousands of dollars]
Revenues
2011
$ 4,553,437
2010
$ 3,947,871
Operating earnings
77,715
35,418
Earning before patronage refunds and income taxes
79,021
36,077
Patronage refunds
36,500
11,500
Net earnings
28,992
18,723
Accounts receivable and inventories 775,236
661,741
Current assets 801,539
688,264
Working capital 194,942
92,898
Property, plant and equipment, at cost
1,193,857 1,100,960
Property, plant and equipment, net carrying amount 491,129
454,586
Total assets 1,491,116 1,291,237 Long-term debt, including current portion 237,177
212,004
Preferred shares and equity 492,742
440,518
10,079
10,429
Number of employees
Gaétan Desroches Chief Operating Officer
2011 Annual Report - La Coop fédérée
Paul Noiseux Chief Financial Officer
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Management Discussion and Analysis
T
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La Coop – creativity
he rise in earnings before patronage refunds and income
This spectacular growth was driven in part by a $509 million
taxes resulted in part from sharp growth in earnings at
rise in sales in Supply Operations, with Grain Marketing, Sonic
Olymel L.P., mainly in the Hog Sector, where the meat margin
Energy and Crop Production sectors accounting for a major
touched a historic high in 2011 due to highly favourable global
portion of the increase. In addition, sales at our subsidiary
market conditions. The net contribution from all five major
Olymel L.P. rose $97 million year over year, owing primarily to
sectors of Supply Operations, consisting of Animal Production,
higher market prices for fresh pork.
Crop Production, Grain, Hardware and Farm Machinery, and Sonic Energy, was also higher than the previous year.
Cost of sales and selling and administrative expenses totalled $4.5 billion compared with $3.9 billion for the
La Coop’s consolidated revenues for the year ended
previous year. The increase resulted mainly from higher input
October 29, 2011 totalled $4.6 billion compared with
costs and sales growth. Financial expenses for fiscal 2011
$3.9 billion for the previous year.
amounted to $10.4 million compared with $10.1 million for the previous fiscal year.
Bertrand Gagnon Chief, Business Solutions and Information Technologies
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Sébastien Léveillé
Chief, Business Development and Communications
2011 Annual Report - La Coop fédérée
Revenues
Earnings before patronage refunds and income taxes
Patronage refunds
[in thousands of dollars]
[in thousands of dollars]
[in thousands of dollars]
2011
$ 4,553,437
2011
$ 79,021
2011
$ 36,500
2010
$ 3,947,871
2010
$ 36,077
2010
$ 11,500
2009
$ 3,919,963
2009
$ 53,346
2009
$ 15,000
2008
$ 3,606,101
2008
$ 70,992
2008
$ 30,000
2007
$ 3,286,795
2007
$ 40,587
2007
$ 10,000
Working capital [in thousands of dollars]
2011
$ 194,942
2010
$ 92,898
2009
$ 191,178
2008
$ 181,421
2007
$ 43,846
Preferred shares and equity [in thousands of dollars]
Alain Garneau Head Legal Counsel and Chief, Legal Affairs
2011 Annual Report - La Coop fédérée
2011
$ 492,742
2010
$ 440,518
2009
$ 412,482
2008
$ 383,528
2007
$ 338,754
Mario Leclerc Chief, Human Resources
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Management Discussion and Analysis
■
La Coop – creativity
La Coop seeks to set itself apart with its strong cooperative identity and focus on ethical conduct and sustainable development.
Taking into account the results of all of our operating segments, La Coop reported consolidated operating earnings of $77.7 million, up from $35.4 million in 2010. The share of results of entities subject to significant influence stood at $3.9 million compared with $2.9 million for the previous year, translating the improved performance
Segmented information Marketing activities are discussed in the Olymel overview. Segmented revenues include amounts related to intersegment transactions. Supply Operations
of most entities subject to significant influence in which
Supply Operations sales and revenues, after elimination
La Coop holds an interest. Gains on disposal of assets totalled
intersegment transactions, crossed the $2 billion mark to reach
$9.7 million, consisting primarily of a gain on the sale of a
$2.3 billion, up $502 million or 27.8% from last year’s sales of
farm supply right; in 2010, this line item stood at $650,000,
$1.8 billion.
which mainly represented a gain on the sale of property, plant and equipment. Earnings before patronage refunds and income taxes, net of the non-controlling interest, totalled $79 million compared with $36.1 million in 2010.
Half of this growth was driven by grain, fertilizer and petroleum price inflation. It is quite remarkable that the other half of growth stemmed from a rise in sales derived from business acquisitions, such as Agrico Canada Limited and Grower Direct Export, as well as
For the year ended October 29, 2011, after factoring in
substantial growth in sales of grains and fertilizers distributed
$36.5 million in declared patronage refunds and $13.5 million
by the Agronomy network in Ontario, in addition to higher
in income taxes, La Coop posted $29 million in net earnings,
Sonic Energy sales.
up from $18.7 million in fiscal 2010.
Earnings before income taxes for the year were up $16.9 million or 35% to $64.6 million from $47.7 million in the previous fiscal year. Asset sales triggered a gain on disposal of nearly $10 million.
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2011 Annual Report - La Coop fédérée
The Animal Production Sector posted sales of $299.2 million,
Consolidated sales at Agronomy totalled $352.6 million,
Once again this year, La Coop contributed to the Unimat
up $35.7 million from $263.5 million for the previous year. The
up $66.3 million or 23% from fiscal 2009-2010. Ontario retail
network’s development with over $1.8 million invested in
sales growth was fuelled in large part by inflation in animal
group Agromart made a great breakthrough this year thanks
37 retail store expansion, construction or acquisition projects.
feed input costs.
to its supply of competitively priced fertilizers.
Market share in dairy feeds’ sector was considerably higher.
Sales in the Crop Production Sector were up $26.3 million,
However, the quality of forages resulted once again in a slight
owing to the inclusion of Agrico Canada Limited for the two
decline in feed sales. Difficult economic conditions for beef
months of operations since its September 1, 2011 acquisition
farmers sparked a drop in feed sales for non-dairy ruminants.
by La Coop. This business is a major fertilizer distribution whole-
The creation of the Cooperative Pork Chain was the highlight of the year in the Animal Production Sector. Among other achievements, this pork network contributed to the substantial improvement in the quality of meat; the premium paid for
saler in Ontario and Western Canada and is co-shareholder of 10 crop production retailers in Ontario, Manitoba and Saskatchewan. Agrico is also a non-controlling shareholder of another Manitoba retailer.
Net sales of machinery and spare parts rose $1.1 million or 6.9% to $16.3 million, with machinery sales accounting for most of the growth. Sales in the Sonic Energy Sector totalled $736.7 million, up $172.5 million from $564.2 million for the previous fiscal year. Residential and commercial market sales advanced 33% to $421.7 million. This growth resulted primarily from the 27.1% increase in input costs and a 4.3% rise in sales. Price inflation of 27% and sales growth of 6% led to a 33% rise
La Coop certified pork provides direct relief from the strong
Sales in the Grain Sector amounted to $443.1 million, up
economic pressure facing La Coop’s network hog producers.
$186.4 million from $256.7 million for the previous fiscal year.
La Coop has reported a slight drop in sales in the Hog Sector,
Grain marketing operations generated $270 million in sales,
but not as much as the decline in Québec hog production.
up $108.3 million or 66% from last year. Corn production was
Propane Department sales grew 5% to $43.9 million, driven
higher and the average prices rose approximately 31% from
mainly by prices once again. However, sales were lower,
2010.
particularly in the agricultural segment, due to a shorter drying
Virtually unchanged, poultry feed sales eased slightly lower. Boosted by input price inflation of $77 per metric ton, fertilizer sales rose $12.3 million to $125.1 million from $112.8 million for the previous fiscal year. Industrial sales in the sector fell sharply due in part to the transformation of the industrial market, as well as to marketing decisions aimed at
Similarly, sales at Elite Grain surged 65% to $155.4 million. The record harvest of 2010 coupled with an early harvest in 2011 and the $56 increase in the average price per metric ton were the main reasons behind the sales growth at Elite Grain.
providing secure supply arrangements for La Coop’s network.
Lastly, the July 1, 2011 acquisition of Grower Direct Export
The sector’s agricultural sales were up nearly 8.4% this year,
contributed $17.1 million in additional sales in the Grain Sector.
while the Québec fertilizer market advanced only 3.6%.
The Mitchell, Ontario business specializes in grain marketing.
in Motorists Department sales, which rose to $271.1 million from $204.4 million for the previous fiscal year.
period. Sales at AgriEst, Coop Agricultural Centre outperformed last year’s results, rising $16.1 million to $38.9 million. Administrative Departments The net expenses of the Administrative Departments and network development, including the results of the real estate subsidiary, totalled $22.1 million compared with $18.9 million
Seed sales rose 15% to $42.2 million with market share up
Hardware and Farm Machinery Sector sales held relatively
for the previous fiscal year. Higher expenses resulted mainly
slightly. In Québec, land sown with corn was down nearly 1%
steady at $223 million compared with $225.3 million for the
from the negative returns of our real estate business after the
compared with the previous fiscal year, while land sown with
previous fiscal year, representing a slight decrease of $2.3
cancellation of the sale of the Montreal head office. In 2011,
grain also declined 11.3% to approximately 30,000 hectares.
million or 1%. Recruiting new merchants to the Unimat banner
our real estate subsidiary decided to no longer account for the
headed off the sales downturn that hit the industry during
building housing our head office as an asset held for sale as
fiscal 2010-2011. The end of government programs, tighter
initially decided in fiscal 2008. Accordingly, an amortization
access to mortgage loans and low consumer confidence in
charge was recognized in fiscal 2011 as if the building had
the economy seem to have dealt a harsh blow to this sector
been considered as an asset held and used since fiscal 2008. In
in Canada.
addition, costs were accounted for with regard to soil
Crop protection sales fell $5.1 million, but La Coop’s network market share was higher. In 2011, a rainy spring and dry summer meant lower demand for herbicides and fungicides. The release of generic products also put a damper on sales of some glyphosate-based products.
2011 Annual Report - La Coop fédérée
remediation.
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Management Discussion and Analysis
■
La Coop – creativity
The creation of the Cooperative Pork Chain was the highlight of the year in the Animal Production Sector.
Straight ahead Four major trends in management have proven successful. They are: seeking under-utilized assets, maximizing shared services and single and integrated platforms, continuous improvement practices, and establishing community relationships and all possible synergies. These major trends provide the very basis for our Chrysalide projects. Several news items warranted our attention or concern in fiscal 2010-2011, including the eventual dismantlement of the Canadian Wheat Board, unfounded attacks on supply management, the food crisis, adjustments to the stabilization programs and even the Occupy movement. We’ll be keeping
The Sonic Energy Chrysalide program is in its design phase. The network has approved the business model components, such as the assignment of cooperatives to groups, sales territories, the method of assigning clientele, the legal framework, the financial model and the value of partner contributions. The Crop Production Chrysalide program began mid-year with a comprehensive diagnostic of La Coop’s Fertilizer Sector and the benchmarking of cooperative network performance vis-à-vis other companies in the industry. A pilot project involving four cooperatives is now underway. It consists in designing and testing a new fertilizer supply strategy and sales approach on the basis of industry best practices.
a close eye on other events in 2012, such as the release of the
The Project Management Department is also supporting a
new bio-food policy, potential elections in Québec and the U.S.
first initiative in the Grain Sector: the implementation of an
presidential elections. We continue to monitor events closely.
absorbent animal litter production and distribution plant that
Business Solutions and Information Technologies Sector
uses agricultural and dedicated plant biomass. This project is in the positioning and planning phase in partnership with
The Business Solutions and Information Technologies Sector
cooperatives in the Lower St. Lawrence and Saguenay–Lac-
is responsible for managing transformation programs across
Saint-Jean regions.
La Coop’s network. In this role, the Sector positions business and governance models and designs, deploys and supports application solutions for La Coop and its cooperatives.
Fidelio deployment work started up again in three regional groups following approval of the program re-launch during the Annual General Meeting. As a result, by summer 2012,
The Chrysalide Animal Production program has made
17 cooperatives will be gradually added to the 9 cooperatives
progress, with the implementation of Pignon sur rue
currently operating with this financial system. Two upgrades
(“Storefront”) coordination committees, a production plant
were conducted, making it possible to carry several patches
pool and an input pool, as well as a steering committee.
and add features. The new tactile point-of-sale terminal is
Developing solutions for the feedmills is underway and
being designed and a new telecommunications infrastructure
transitional solutions have been deployed in the peripheral
for the Fidelio cooperatives has been implemented with a view
plants of Bic and Saint-Bruno, Québec. By developing an
to improving application performance and stability.
interface between cooperative and feedmill systems, it will be possible to automate the transfer of commands to the feedmill and invoicing to the cooperatives. Lastly, a producer relationship management application is being developed in workshops that bring network sales managers and consulting experts together.
Migration towards version 9.0 of the JD Edwards suite went off smoothly and required the involvement of some 50 contributors. From a business intelligence standpoint, delivery of the MRQ data warehouse has been completed, as it has for the data counters at the Trois-Rivières distribution centre, the Sustainable Development Department as well as the product placements of the Longueuil distribution centre.
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2011 Annual Report - La Coop fédérée
The Sonic POS terminal replacement project made some headway, with solution deployment in 98 of 104 standard service station locations. The feasibility study of modernizing Sonicarte cards has been completed. The Petroleum Distribution project is in the deployment phase: it consists in replacing the systems installed in the petroleum distribution trucks with systems running AWE technology. To date, just under a dozen of a total of 80 trucks slated for this upgrade have been modernized.
Business Development and Communications Sector La Coop strives to be a world-class agri-food cooperative organization. It seeks to set itself apart with its strong coopera-
Académie La Coop makes every effort to provide appropriate training to all network employees and administrators. Ninety-
growth with targeted acquisitions or organic expansion, while
five different courses were offered to over 2,900 employees
exercising tight control over productivity and its cost structure.
and administrators during 265 training sessions held in 2011.
Against this backdrop, a new sector has been created: Business
The percentage of payroll spent on training is close to 2% across
Development and Communications. This sector, which is still
for the network as a whole and exceeds 3% in several sectors.
analysis was performed to select a resupply solution. Work
creative and publishing operations, plus the recent additions
was also carried out on the in-house system with a view to
of sustainable development and cooperative consulting
adding certain features required under Mission Performance.
services. The synergy and cross-cutting skills provided by this
for the iSeries system (AS/400) and the satellite Wintel systems at IBM proved conclusive. The positioning of the solution for the other Wintel systems in Montréal, at the Trois-Rivières backup site has been completed. Lastly, the team carried out work to upgrade the strength and security of the computer network and increase storage infrastructure.
new entity will help raise the network’s profile and enhance communications related to the Chrysalide transformation projects. This sector’s initiatives will speak to and strengthen the sense of pride and belonging felt by young farmers and
the value of pension plans by 3.2% in 2011. Assets totalling $307 million are allocated among six investment funds and certificates of deposit, allowing plan members to benefit from a range of strategies designed to maximize their retirement income. Mandated by the member cooperatives of the group insur-
Communications Sector will kick off a project to modernize
ance purchasing group, Human Resources has reviewed the
La Coop’s Internet ecosystem and network by stepping up
overall coverage provided to network employees and has
its business and corporate presence through new media and
defined a new, more flexible plan, including greater cost
marketing.
control measures. This strategy coupled with the group’s experience will temper insurance premium increases relative
Lean initiatives in connection with Mission Performance in the
Human Resources
Hardware and Farm Machinery Sector. Practical solutions have
La Coop and its subsidiaries employed a total of 10,079 people
been identified with regard to standardizing merchandising
as at October 29, 2011 compared with 10,429 as at October 30,
equipment, synchronizing marketing material and merchandis-
2010. The difference in staffing levels reflects various labour
ing activities, depleting obsolete inventories, optimizing the
changes across our operations.
placement management.
Despite a year full of economic surprises, the Master Trust Fund of La Coop’s network pension plans succeeded in increasing
network employees. Lastly, the Business Development and
The Operational Efficiency Department has set up several
number of stock keeping units (SKUs), and improving product
mobilization, training and coaching.
development. La Coop must maintain solid and profitable
in its transition phase, is home to communications, marketing,
From an infrastructure perspective, upgrade work on the
at La Coop to support delivery of communications, resource
tive identity and focus on ethical conduct and sustainable
In the Hardware and Farm Machinery Sector, a feasibility
IT room has been completed. The disaster recovery plan tests
Change management has been integrated into all projects
to the market. On the labour relations front, a total of 15 collective bargaining agreements were negotiated during the year. All of these agreements were entered into without any labour conflicts. Each bargaining round is an opportunity to impress on
Our various strategies to win greater recognition of La Coop
employees and unions the importance of maintaining competi-
as one of the “Best Employers in Canada” have proven
tive working conditions in an ever-changing market. During
This team also makes a contribution in other sectors,
successful, as demonstrated by our improved ranking in this
the drafting of labour contracts, operational effectiveness and
particularly in conducting the kaizen study on eliminating
pan-Canadian survey. Factoring in work/life balance and
customer service were also discussed at length.
residential heating oil tanks, mapping the value chain at
commuting times is increasingly key to attracting top-flight
the Saint-Romuald feedmill, reducing inputting times for
candidates and retaining talent across the network. La Coop’s
weigh scale tape data and the profitability of crop protection
voluntary move to participate in an employment equity pro-
products.
gram is another strategy to access a deeper potential labour pool and attract the best qualified resources.
2011 Annual Report - La Coop fédérée
Drawing on a successful track record since inception and the participation of 89 members, health and safety mutual group Mutuelle de prévention saved the network approximately $1.56 million in 2011. Combining a mutual prevention group with prevention initiatives allows for a customized contribution
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Management Discussion and Analysis
■
La Coop – creativity
Liquidity and capital resources
Input price fluctuation risks
In June 2011, La Coop signed a five-year renewal of
Input prices are determined by several factors beyond
banking agreements with a syndicated group of Canadian
La Coop’s control. Extreme price volatility results from constant
financial institutions. The new revolving credit facility remains
changes in supply markets. La Coop’s economic environment
unchanged at $300 million. Drawdowns under the credit
is regulated by national and provincial policies affecting
As at October 29, 2011, La Coop’s consolidated balance sheet
facility as at October 29, 2011 totalled $119.1 million
slaughterhouse supply. As a result, changes in market policy
reflected assets totalling $1.5 billion compared with $1.3
compared with $111.2 million as at the end of fiscal 2010.
influence livestock availability and prices. La Coop strives to
rate tied directly to the frequency and seriousness of accidents; this has saved cooperatives over $17.3 million since the group’s inception in 1997.
Financial position
billion as at the end of the previous fiscal year. The growth in total assets resulted from the following three items: business acquisitions by Supply Operations; the increase in accounts receivable and inventories caused by higher selling prices and sales growth; and the rise in goodwill and other assets stemming from the acquisition of the second portion of shares in Olymel L.P. from non-controlling shareholders.
La Coop has other borrowing arrangements, including a fixed-rate credit facility with a four-year term, repayable in annual instalments that began in August 2011. Drawdowns under the term credit facility as at October 29, 2011 totalled $26.4 million compared with $30 million as at October 30, 2010. La Coop also has an unsecured fixed-rate three-year debenture with a balance of $25 million, repayable in annual
Current liabilities totalled $606.6 million as at the end of
instalments beginning in August 2012. La Coop also has a
fiscal 2011 compared with $595.4 million year over year. The
fixed-rated term note with a balance of $15.6 million as at
decrease in the current portion of long-term debt stemmed
October 29, 2011 compared with $17.5 million one year ago.
from the renewal of the credit facility in June 2011. However, La Coop recorded an increase in current liabilities, resulting primarily from the rise in short-term borrowings and accounts payable due to liabilities arising from business acquisitions. Working capital amounted to $194.9 million, up from $93 million year over year, representing ratios of 1.3 and 1.2, respectively. In 2010, the lower level of working capital resulted from the fact that the credit facility was included in the current portion of long-term debt. La Coop fédérée reported a consolidated debt ratio of 37:63 at the end of fiscal 2011 compared with 36:64 at the end of the previous fiscal year.
The credit facility, term credit facility and term note are
million as at the end of the preceding fiscal year. These items accounted for 33.1% of total assets compared with 34.1% as at the previous year-end. La Coop’s reserve as at October 29, 2011 amounted to $349.5 million, representing 70.9% of preferred shares and equity.
exposure to supply prices and costs, which are beyond its control. La Coop mitigates this risk factor by operating in a variety of sectors. Food safety risks La Coop is exposed to a number of industry-related risks, primarily in its food processing and marketing operations. La Coop must manage exposure to risks related to consumer product spoilage and contamination, and any related liability. La Coop ensures compliance with government requirements through stringent food safety controls at all its plants.
collateralized by first hypothecs on a majority of the current and future tangible and intangible assets of Olymel L.P. and
Livestock health risks
its subsidiaries.
The prospect of livestock contamination and epidemics is a
In order to reduce its borrowing requirements, La Coop
crucial risk factor for La Coop. Epidemics can have a major
manages working capital prudently and determines its
impact on production at processing plants and their access to
capacity to invest in property, plant and equipment based
raw material supply. Quality management is of utmost impor
on cash flows from each of its operating sectors. For each
tance to La Coop. Accordingly, improving internal traceability
quarter of fiscal 2011, La Coop met its financial obligations
procedures and collaborating on a national strategy with
and complied with the financial covenants set out in its
government bodies are part of sound livestock management.
financing agreements.
Preferred shares, share capital and reserve totalled $492.7 million as at year-end compared with $440.5
maintain stringent controls over production costs to offset
Risks and uncertainties La Coop is exposed to various risk factors that may influence the profitability of its Marketing and Supply Operations in the normal course of business.
Environmental risks In keeping with its commitment to social responsibility, La Coop ensures that its business practices comply with diligent environmental management principles. With its environmental policy, La Coop aims to comply with laws and regulations, implement environmental emergency plans, perform environmental assessments of businesses, operations and property it intends to acquire or start up,
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2011 Annual Report - La Coop fédérée
We are seeing a renewed and communicate its environmental goals and projects to its
Financial instrument risks
employees and managers. La Coop reports on environmen-
La Coop discloses information in the notes to consolidated
tal issues to the Board of Directors every quarter through its Committee for cooperative education and sustainable development, and through the Environment Department’s annual report. With environmental audits of 37 facilities carried out by La Coop in the past year, managers are aware of potential areas for improvement with regard to environmental management. In order to maintain regulatory compliance and sound environmental management practices, the Chief Operating Officer carried out management’s first review of the Environmental Management System (EMS) implemented at the Saint-Romuald feedmill and the phytoprotection and seed warehouse in Longueuil. With 95% of implementation objectives met at both locations and proper compliance maintained through the organized participation of personnel, the continued use of EMS at the two locations has been confirmed, as well as its implementation at six new facilities in the coming year. Supply Operations referred over one hundred mandates to the Environment Department spread throughout its various sectors. These mandates include oversight of environmental due diligence as part of the due diligence review of the Agrico
financial statements regarding its exposure to financial instrument risks, including credit risk, interest rate risk, liquidity risk, foreign exchange risk and the other price risks.
of solidarity, investment, sharing profit, and a real,
Conclusion Given the major economic uncertainty and instability in the
non-financial economy –
U.S. and Europe, it is comforting to end the year with such a solid balance sheet! And La Coop owes it all to its members, partners and employees. Throughout the year, these
which are the essence of
dedicated stakeholders played a key role in the success of our operations and, in turn, our overall performance. I extend my heartfelt thanks to all of them for their hard work and great
our own values.
accomplishments. Many had to deal with major changes, a heavy workload and, no doubt, concerns about the market. The results of La Coop and its entire network are a testament to our economic model which, with its scant exposure to financial swings, is faring better in an environment of tenacious unemployment, offshoring and the resulting social unrest. We are seeing a renewed interest in the concepts of solidarity, investment, sharing profit, and a real, non-financial
Canada transaction.
economy – which are the essence of our own values. The young
Global market risks
this spirit, as have many others who seek an economic system
La Coop’s exports are affected by a number of economic
interest in the concepts
people behind the Occupy Wall Street movement have shown that embraces solidarity and profit.
variables that influence global markets. Export volumes are
In 2012, La Coop reaches the venerable age of 90. And the
dependent on prevailing economic conditions in importing
stars must have been in perfect alignment, because 2012 has
countries and, in some cases, on trade barriers. Export
also been declared International Year of Cooperatives by the
growth and profitability are closely linked to the strength of
United Nations. A golden opportunity to show who we are,
these markets and their compliance with international trade
promote the benefits of our cooperative model and underscore
treaties and rules.
our contribution to the social and economic development of our communities. We’re people serving people, individuals working for others just like us.
2011 Annual Report - La Coop fédérée
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Management Discussion and Analysis
■
La Coop – creativity
La Coop must stay in sync with
We also have challenges to meet. La Coop must keep in sync
In closing, I’d like to offer warm thanks to my colleagues
with today’s realities and ensure its members and coopera-
on the Extended Corporate Governance Committee and
tives are always its top priority. With this in mind, if we want
leaders across our network of affiliated cooperatives and at
to help member producers and their cooperatives become
our subsidiary Olymel.
more profitable and protect—or even create—jobs, we must innovate and constantly review our methods to achieve true
today’s realities and ensure its
coordination across La Coop’s network.
I also owe a debt of gratitude to our president, Denis Richard, and to all our Board members, for their great support and trust throughout the year.
Compassion and gratitude During the year, a number of La Coop’s members, employees
members and cooperatives are
and partners had joyful moments, like the birth of child, a wedding or the successful completion of a long-term project. We share their happiness. Still others faced illness, a death in the family or hardship in their business. We hope they
always its top priority.
remember that the people in our network share a deep humanity. We have great compassion for those among us who are going through tough times.
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Claude Lafleur Chief Executive Officer
2011 Annual Report - La Coop fédérée
2011 Annual Report - La Coop fédérée
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Cooperation is measured by the level of our aspirations. All businesses must grow! Economic growth has a significant impact on the development of our activities and on the quality of life of our members. A focus on the principles of sustainable development allows La Coop to combine progress and economic growth.
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2011 Annual Report - La Coop fédérée
In business for only eight years, Fritz Leutwyler is a dynamic dairy producer who has already made a name for himself. From a purely financial point of view, he values the economic advantages of La Coop, the patronage refunds, the discounts and competitive product pricing. But equally valuable are the experience and attentive service of his cooperative’s employees. The knowledge and technical support of La Coop’s consulting experts served him well during the initial years of farming operations. La Coop has helped him to grow both his business and his expertise. Following a trip to California organized by La Coop at a time when he was planning the rebuilding of his farm, he comprehensively reworked his development strategy. Meetings and discussions during this trip led him to change his plans and rethink his operations. Today, his farm is growing fast and Fritz Leutwyler is looking to the future with optimism.
Fritz Leutwyler Dairy producer Sainte-Brigide-d’Iberville Quote: “Travel broadens the mind.”
2011 Annual Report - La Coop fédérée
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Olymel overview 2011: STAYING THE RIGHT COURSE
O
lymel ended fiscal 2011 with very encouraging results– revenues reached $2.257 billion, up significantly by
$97 million over the previous fiscal year. Against the backdrop of a global economy weakened by the European financial crisis and a slow recovery in the U.S., our solid performance resulted mainly from higher market prices and a sharp increase in the meat margin in the Fresh Pork Sector. Our exports were driven by robust demand from China and Russia and fallout from the outbreak of foot and mouth disease in Korea, among other factors.
These encouraging results reflect our disciplined response to the continued strength of the Canadian dollar. They also reflect our unwavering focus on controlling costs and improving productivity in order to maintain our capacity to compete against increasingly aggressive foreign companies.
FRESH PORK In striking contrast to the loss in fiscal 2010, the Eastern Fresh Pork Sector reported very positive results for 2011, mainly as a result of substantial improvement in the meat margin. On the downside, the quantity of hogs available decreased again.
Olymel’s sales were up sharply in both Ontario and
Further, pursuing its goal of better meeting client expectations
Western Canada. However, these higher sales in the rest of
means that Olymel can now count on the support of a dynamic
Canada were offset by a decline in Québec, primarily in the
and well-coordinated Cooperative Pork Chain, particularly
commodity products sector. Weaker demand from our
with La Coop certified pork. Other pluses are our close
distribution and retail sector clients is partly attributable to
cooperation with Agri-Marché and our more direct relationship
higher raw material costs.
with producers under the new marketing agreement.
Réjean Nadeau President and Chief Executive Officer, Olymel L.P.
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2011 Annual Report - La Coop fédérée
The Western Fresh Pork Sector generated positive results
and trim costs. Weak results in the bacon sector stem from a
the margins. During the year, the Iberville plant was shut down
for the fourth straight year, mainly driven by a combination of
combination of factors such as significantly higher pork belly
permanently, generating cost savings for Olymel. Construction
factors including the higher meat margin, a sound sales mix
prices, the temporary shutdown of our Cornwall plant and
of the Sunnymel chicken slaughterhouse and cutting plant was
of chilled products and an increase in hog weights. This ranks
fierce competition from U.S. companies for both fresh and
started last August in Clair in the Haut-Madawaska region of
the sector among the top performers in the industry.
precooked bacon. Fiscal 2012 should be a year of corrective
New Brunswick. This new plant should come on-stream in
measures, including the ongoing mechanization of processes
December 2012. While 2011 was a wait-and-see year with
to generate efficiency gains and regain lost sales.
respect to the rules governing this sector, the timing should be
PROCESSED PORK AND BACON The results of the secondary pork and bacon processing
right in 2012 for implementing the new marketing agreement and resolving interprovincial poultry trade issues.
sectors pulled back slightly compared with last year, due
FRESH POULTRY
partly to higher general expenses, stemming mainly from
Although weaker than in the last fiscal year, results in the
The turkey sector recorded a profit for the current year
the measures implemented to obtain SQF certification, and
primary poultry processing sector remained positive. However,
compared with a loss for the previous fiscal year, driven by
lower sales volume for certain products. The challenge in the
higher grain prices led to an increase in livestock prices while
slightly higher slaughter volumes, the stronger meat margin,
coming months will be to improve the client and product mix
the delay in adapting supply to demand negatively impacted
stable output, the increase in value-added products and lower inventories.
2011 Annual Report - La Coop fédérée
Denis Richard
Claude Lafleur
Paul Noiseux
President, La Coop fédérée and Chairman of the Board Olymel L.P.
Chief Executive Officer, La Coop fédérée
Chief Financial Officer, La Coop fédérée/Olymel L.P.
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Olymel overview
■
La Coop – growth
PROCESSED POULTRY Although positive, the 2011 results in the processed poultry sector fell compared with last year. The primary underlying factors were the lower meat margin and increases in selling and operating expenses. Goals for 2012 include ongoing development of national and private brands and improved profitability of sales.
ADAPTING TO A CHANGING WORLD Given the uncertain economic conditions in 2011 and our highly competitive environment, Olymel’s performance demonstrates that our employees are committed to our success. I extend my thanks to them for their efforts.
Moreover, the renewal of five collective bargaining
Last, 2012 will be a year of many celebrations. Our premium
agreements – mostly long-term – in five establishments by
Lafleur brand is 100 years old and will continue to be top of
Olymel in 2011 will no doubt help us to maintain a healthy
mind among Québec consumers, who have made the brand
work climate. This year was also marked by reduced
one of the best known in the market. Lafleur symbolizes
absenteeism and workplace injuries, a trend that should be sustained.
Olymel’s capacity to build on its heritage. Also, Olymel will actively participate in the celebrations
In 2011, we made significant investments to modernize
of La Coop fédérée’s 90th anniversary. On behalf of Olymel
our equipment. For example, a CO2 anesthetisation system
employees, I take this opportunity to wish long life to La Coop
for poultry was installed in our Saint-Jean-Baptiste plant and
fédérée and Happy Birthday to all who work in this great
we acquired a new distribution centre with a 12,000 pallet
organization and to all its executives and members. I would
capacity in Saint-Bruno. We also continued to equip our
also like to express my appreciation to the Board of Directors
establishments with the most cutting-edge environmental
and its chairman Denis Richard for their active support over the
technologies. Furthermore, our R&D and marketing services
past year and their unwavering commitment to our success.
combined their efforts to propose a number of innovations to
In 2012, our establishments should complete the process
consumers, particularly to meet their increasing expectations
undertaken in 2010 to obtain the SQF 2000 certification
regarding health. For instance, we launched a comprehensive
of the Global Food Safety Initiative (GFSI), an internationally
range of nitrate- and gluten-free and low-fat Flamingo poultry
recognized standard. This certification will enable us to surpass
deli products– this is a first!
current biosecurity standards and to better meet client needs. A key priority for us is our human resources – they are what set us apart from the competition. We will therefore continue to communicate openly with our personnel and encourage them to develop their skills. We are proud to note that our
Réjean Nadeau
Everest continuing education program won the prestigious
President and Chief Executive Officer, Olymel L.P.
Mercure prize at the Gala des Mercuriades in April 2011 in the Professional and technical training – Large corporations category.
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2011 Annual Report - La Coop fédérée
2011 Annual Report - La Coop fédérée
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Cooperation feeds the world. By definition, man is at the heart of the cooperative movement. By setting human values above material considerations and placing the individual before capital, La Coop gives a unique focus to its activities and contributes to the empowerment and well-being of all.
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2011 Annual Report - La Coop fédérée
Marcel Prud’homme works for La Coop Profidor, where he held various positions before specializing in hardware. Over 35 years, he has seen the cooperative evolve and adapt – and he has seen its impact on the community. For Marcel, more than the economic benefits, the patronage refunds and members discounts, it’s the human values of the cooperative movement that make for loyal customers. He believes the cooperative has made a real difference to his own quality of life. He loves his work, the team spirit of the cooperative, and he is particularly proud of the expertise and quality of service he can offer his customers. Although past retirement age, Marcel’s enthusiasm has not waned and he continues to work. Over the years, he has seen it all and he remains a firm believer that to progress, we must stand together.
Marcel Prud’homme Salesperson, Unimat Joliette Quote: “To progress, we must stand together.”
2011 Annual Report - La Coop fédérée
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Consolidated financial statements
Management report The consolidated financial statements and other financial information included in the Annual Report of La Coop fédérée for the year ended October 29, 2011 are management’s responsibility and have been approved by the Board of Directors. This responsibility involves the selection of appropriate accounting methods as well as the use of sound judgment in the establishment of reasonable and fair estimates according to Canadian generally accepted accounting principles and the application of regulations of the Cooperatives Act. Financial information presented elsewhere in this Annual Report is consistent with that in the consolidated financial statements. Management maintains accounting and administrative control systems designed to provide reasonable assurance regarding the accuracy, relevance and reliability of financial information, as well as the efficient and orderly conduct of La Coop’s affairs. The Internal Audit Department evaluates accounting and internal control systems on an ongoing basis and regularly reports its findings and recommendations to management and the Audit Committee. The Board of Directors ensures that management assumes its responsibilities with respect to financial reporting and review of the consolidated financial statements and Annual Report, mainly through its Audit Committee consisting of outside directors. The Audit Committee holds regular meetings with the internal and external auditors and with management representatives to discuss the application of internal controls and reviews the consolidated financial statements and other matters related to financial reporting. The Audit Committee reports and submits its recommendations to the Board of Directors. The auditors appointed by the members, Ernst & Young LLP, Chartered Accountants, have audited the consolidated financial statements and their report appearing hereinafter indicates the scope of their audit and their opinion thereon.
Claude LAFLEUR
Paul NOISEUX, CGA
Chief Executive Officer
Chief Financial Officer
Montréal, January 13, 2012
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Annual Report 2011 - La Coop fédérée
Independent auditors’ report To the members of La Coop fédérée
W
e have audited the accompanying consolidated financial statements of La Coop fédérée (“La Coop”), which comprise the consolidated balance sheet as at October 29, 2011 and the consolidated statements of earnings
and reserve, comprehensive income and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, 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. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit 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 auditors’ 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 auditors consider 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 audit is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of La Coop as at October 29, 2011 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.
Montréal, Canada January 13, 2012 1
CA auditor permit No. 08697
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Consolidated balance sheet
■
As at October 29, 2011 and October 30, 2010
2011
[in thousands of dollars] ASSETS Current assets Accounts receivable Inventories [note 7] Prepaid expenses Future income tax assets [note 6] Investments – current portion [note 8]
$
Investments [note 8] Property, plant and equipment [note 9] Employee future benefit asset [note 14] Goodwill [note 10] Other assets [note 11]
2010
380,068 395,168 19,900 2,744 3,659 801,539 36,990 491,129 20,369 93,061 48,028 $ 1,491,116
351,787 309,954 23,893 658 1,972 688,264 35,922 454,586 19,289 67,872 25,304 $ 1,291,237
$
$
$
LIABILITIES AND EQUITY Current liabilities Bank overdrafts Short-term borrowings [note 12] Accounts payable, accrued liabilities and deferred revenues Income taxes payable Derivative financial instruments [note 20] Patronage refunds payable [note 5] Redeemable preferred shares – current portion [note 15] Long-term debt – current portion [note 13] Long-term debt [note 13] Employee future benefit liability [note 14] Future income tax liabilities [note 6] Non-controlling interest [notes 3, 18] Preferred shares [note 15] Equity Share capital [note 15] Reserve Accumulated other comprehensive income [note 16]
28,147 56,258 467,857 9,144 1,781 7,300 1,559 34,551 606,597 202,626 38,393 33,406 119,572 3,073
138,598 349,512 (661 ) $ 1,491,116
22,834 31,969 396,051 1,348 2,968 2,300 3,970 133,926 595,366 78,078 34,901 23,966 123,304 4,632
111,396 320,520 (926 ) $ 1,291,237
Commitments and contingencies [note 18] The notes are an integral part of the consolidated financial statements. On behalf of the Board,
Denis RICHARD, Director
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Ghislain CLOUTIER, Director
Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Consolidated statement of earnings and reserve 2011
[in thousands of dollars] Revenues Operating expenses [note 4] Cost of sales and selling and administrative expenses Financial expenses Operating income
2010
$ 4,553,437
$ 3,947,871
4,465,356 10,366 4,475,722 77,715
3,902,370 10,083 3,912,453 35,418
Other income and expenses Share of results of entities subject to significant influence Gains on disposal of assets [note 23]
3,921 9,755 13,676
2,934 650 3,584
Earnings before non-controlling interest, patronage refunds and income taxes Non-controlling interest Earnings before patronage refunds and income taxes
91,391 12,370 79,021
39,002 2,925 36,077
Patronage refunds [note 5] Income taxes [note 6] Net earnings
36,500 13,529 28,992
11,500 5,854 18,723
Reserve, beginning of year Reserve, end of year
$
320,520 349,512
$
301,797 320,520
The notes are an integral part of the consolidated financial statements.
Years ended October 29, 2011 and October 30, 2010
■
Consolidated statement of comprehensive income 2011
[in thousands of dollars] Net earnings Other comprehensive income Change in fair value of derivative financial instruments designated as cash flow hedges Unrealized losses, net of taxes of $1,744 [$1,634 in 2010] Reclassification of gains and losses to earnings, net of taxes of $1,810 [$1,386 in 2010] Comprehensive income
2010
$
28,992
$
18,723
$
(3,581 ) 3,846 265 29,257
$
(3,473 ) 2,944 (529 ) 18,194
The notes are an integral part of the consolidated financial statements.
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Consolidated statement of cash flows
■
Years ended October 29, 2011 and October 30, 2010
2011
[in thousands of dollars]
2010
OPERATING ACTIVITIES Net earnings Non-cash items: Amortization [note 4] Gains on disposal of assets Future income taxes Loss (gain) on derivative financial instrument Change in employee future benefits Non-controlling interest Share of results of entities subject to significant influence Patronage refunds paid in common shares
$
28,992
$
18,723
61,223 (9,755 ) (2,397 ) (18 ) 2,412 12,370 (3,921 ) 29,200 118,106
56,698 (650 ) 229 61 698 2,925 (2,934 ) 9,200 84,950
Net change in non-cash working capital related to operations [note 17] Cash flows related to operating activities
(15,085 ) 103,021
(30,907 ) 54,043
(51,482 ) (38,704 ) (669 ) 975 (50,503 ) 2,292 (4,432 ) 18,981 (123,542 )
— (36,720 ) (1,410 ) 1,787 (34,453 ) 1,705 (3,790 ) 2,940 (69,941 )
Net change in short-term borrowings Proceeds from issuance of long-term debt Repayment of long-term debt Payment to non-controlling interest Proceeds from issuance of preferred shares Redemption of preferred shares Proceeds from issuance of common shares Redemption of common shares Cash flows related to financing activities
18,459 11,759 (7,872 ) (1,170 ) 4,100 (4,097 ) 73 (6,044 ) 15,208
(4,775 ) 23,541 (3,803 ) (6,274 ) 3,597 (3,501 ) 23 (6 ) 8,802
Increase in bank overdrafts Bank overdrafts, beginning of year Bank overdrafts, end of year
$
(5,313 ) (22,834 ) (28,147 )
$
(7,096 ) (15,738 ) (22,834 )
Additional disclosures Interest paid Income taxes paid
$
13,508 8,660
$
13,475 5,673
INVESTING ACTIVITIES Business acquisitions [note 2] Acquisition of non-controlling interest in subsidiary [note 3] Acquisitions of investments Dividends received from entities subject to significant influence Additions to property, plant and equipment Proceeds from disposal of property, plant and equipment Additions to other assets Proceeds on disposal of assets [note 23] Cash flows related to investing activities FINANCING ACTIVITIES
The notes are an integral part of the consolidated financial statements.
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Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
[All tabular amounts are in thousands of dollars.] BUSINESS DESCRIPTION La Coop fédérée [“La Coop”] was established under a special Act of the Province of Québec. It is active mainly in Marketing and Supply Operations. The Marketing segment focuses on the processing and sale of pork and poultry products. Supply Operations provides farmers with goods and services to support their farming operations, and distributes and sells petroleum products and services. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of La Coop have been prepared by management in accordance with Canadian generally accepted accounting principles. The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below. Basis of consolidation The consolidated financial statements include the accounts of La Coop, its wholly owned subsidiaries and majority-owned subsidiary Olymel L.P. They also include La Coop’s interest in its joint ventures, owned directly or via its subsidiary Olymel L.P., accounted for using the proportionate consolidation method. Inventories Raw materials and supply inventories are valued at the lower of cost established in accordance with the first in, first out method and net realizable value, except for grain inventories held for resale, which are measured at fair value. Goods in process and finished goods inventories are valued at the lower of cost under the first in, first out or average cost method, depending on the segment, and net realizable value. Investments Interests in entities subject to significant influence are accounted for under the equity method and other long-term investments are accounted for based on their financial asset classification. Impairment of assets Financial assets Allowance for doubtful accounts Accounts receivable carried at amortized cost are subject to continuous impairment review and are classified as impaired when, in the opinion of La Coop, there is reasonable doubt that credit related losses have occurred taking into consideration all circumstances known at the review date. Allowances for credit losses Investments in the cooperatives classified as financial assets available-for-sale are written down if analyses of cooperatives’ financial reports show they are experiencing financial difficulties.
■
Notes to consolidated financial statements
Long-lived assets Long-lived assets held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is assessed by comparing the carrying amount of an asset with its expected future net undiscounted cash flows from use together with its residual value. If such assets are considered to be impaired, the impairment charge is measured by the amount by which the carrying amount of the assets exceeds their fair value. An impairment loss is recognized and presented in the consolidated statement of earnings and the carrying amount of the asset is adjusted to its fair value. Property, plant and equipment Property, plant and equipment are stated at cost. They are depreciated over their useful life on a straight-line basis at the following rates: Pavement Buildings Machinery and equipment Automotive equipment Leasehold improvements
4% to 20% 3 1/3% to 10% 5% to 33 1/3% 6 2/3% to 33 1/3% Lease term
Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is accounted for at cost and amortized on a straight-line basis over a period generally not exceeding 20 years. At each balance sheet date, La Coop evaluates whether there has been a permanent impairment in value of the carrying amount of goodwill. In doing so, La Coop determines the recoverability of goodwill based on an estimate of the undiscounted cash flows over the remaining amortization period of each business to which the goodwill relates. The goodwill of subsidiary Olymel L.P. is tested for impairment annually or more frequently if events or changes in circumstances indicate a possible impairment. Goodwill is tested for impairment annually using a two-step test. Under the first step, the fair value of a reporting unit is compared with its carrying amount. If the fair value is greater than the carrying amount, no impairment is deemed to exist and the second step is not required. If the fair value is less than the carrying amount, the second test must be performed to estimate the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the reporting unit. Any impairment of the carrying amount in relation to the fair value is charged to consolidated earnings in the year in which the loss is incurred. Other assets Trademarks Trademarks are stated at cost. They are amortized on a straight-line basis over a period of 15 years. Client lists Client lists are stated at cost. They are amortized on a straight-line basis over periods of seven and 15 years.
Mortgage loans and notes receivable carried at amortized cost are subject to continuous impairment review and are classified as impaired when, in the opinion of La Coop, there is reasonable doubt as to the ultimate collectibility of a portion of principal and interest. An impairment is established by analyzing certain financial ratios of these entities.
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
SIGNIFICANT ACCOUNTING POLICIES [cont’d] Other assets [cont’d] Rights Rights consist of production rights and exclusive supply rights. They are accounted for at cost and amortized on a straight-line basis over a 10-year period for production rights and over a 10- or 20 year period for exclusive supply rights. Software Software and information technology development project costs are amortized on a straight-line basis over periods of three to eight years. The amortization of information technology development projects begins at project completion. Deferred charges Deferred charges include the costs related to a client supply contract and are amortized on a straight-line basis over a period of six years. Research and development Research and development costs are expensed in the consolidated statement of earnings in the year in which they are incurred. Long-lived asset retirement obligations The fair values of estimated asset retirement obligations are recorded as liabilities when the obligations are incurred pursuant to a legal obligation related to a long-lived asset retirement. The associated cost is capitalized as part of the cost of the related asset. Over time, the liabilities are accreted for the change in their present value and the initial capitalized costs are amortized over the useful lives of the related assets. The related accretion is recorded in cost of sales and selling and administrative expenses, and the amortization charge is included in amortization of property, plant and equipment. Revenue recognition Revenues are recognized when the finished products are shipped to clients and collection is reasonably assured. Foreign currency translation Transactions in foreign currencies are translated into Canadian dollars using the temporal method. Under this method, monetary items in the consolidated balance sheet are translated at the rates of exchange prevailing at year-end while nonmonetary items are translated at the rates prevailing on the transaction dates. Revenue and expense items are translated at the rates of exchange prevailing on the transaction dates. Gains and losses on translation of foreign currencies are accounted for in consolidated earnings. Employee future benefits La Coop has a number of defined benefit and defined contribution plans providing pension and post-retirement benefits to most of its employees. Defined benefit pension plans are based on either average career earnings or average final earnings. Certain pension benefits are indexed according to economic conditions. Post-retirement benefits offered by La Coop to its retired employees include health care benefits and life insurance. The cost of pension and post-retirement benefits earned by employees is determined using actuarial calculations under the projected benefit method prorated on service based on management’s best long-term assumptions of salary escalation, the retirement and termination ages of employees and estimated health care costs.
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Plan assets are measured at fair value. Accrued benefit obligations are discounted based on current market interest rates for high-quality debt securities that match the timing and amounts of the expected benefit payments. Past service costs arising from plan amendments are deferred and amortized on a straight-line basis over the average remaining service period of active employees at the amendment date. Actuarial gains or losses arise from the difference between the actual long-term rate of return on plan assets for a period and the expected rate of return on plan assets for that period, or from changes in the actuarial assumptions used to determine the accrued benefit obligation. The excess of net actuarial gains and losses over 10% of the greater of accrued benefit obligations and the fair value of plan assets is recorded in consolidated earnings over the average remaining service period of active employees. The average remaining service period of active employees covered by the seven pension plans ranges from eight years to 13 years and the average remaining service period of active employees covered by the early retirement program ranges from one year to six years. The average remaining service period of active employees covered by the other post-retirement benefit plans is between 14 and 15 years. Leases La Coop accounts for capital leases in instances when it has acquired substantially all the benefits and risks incident to ownership of the leased property. Leases that do not transfer substantially all the benefits and risks incident to ownership of the property are accounted for as operating leases. Patronage refunds The amount and terms of payment of patronage refunds are determined by the Board of Directors after year-end. Patronage refunds are calculated based on members’ purchased volumes and are accounted for in the year to which they relate. Where patronage refunds are paid in shares, such shares are considered to be issued at the year-end preceding the Board of Directors’ resolution. Financial instruments Financial instruments have been classified in one of the following asset categories: held-for-trading, available-for-sale, held-to-maturity, and loans and receivables. Liabilities have been classified under one of the two following categories: held-for-trading or other financial liabilities. Financial instruments are initially measured at fair value and subsequent measurements depend on their classification. La Coop has classified them as follows: Accounts receivable are classified under loans and receivables and are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the effective interest method. Bank overdrafts, short-term borrowings, accounts payable, accrued liabilities and deferred revenues, and patronage refunds payable are classified as other financial liabilities and are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the effective interest method. Investments in the cooperatives presented in investments are classified as available-for-sale and are measured at cost since they have no quoted market price in an active market. Investments in entities subject to significant influence accounted for under the proportionate consolidation method are excluded from the new standards. Mortgage loans and notes receivable are classified under loans and receivables and are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the effective interest method.
Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
SIGNIFICANT ACCOUNTING POLICIES [cont’d] Financial instruments [cont’d] Preferred shares and long-term debt are classified under other financial liabilities and are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the effective interest method. For La Coop, this measurement is generally equal to cost due either to the use of a floating rate for certain borrowings or because management believes that the fair value of fixed-rate borrowings does not differ greatly from their carrying value given the imminent maturity of some and the rates that could be obtained currently by La Coop for borrowings with similar conditions and maturities. Interest income and expense from financial assets and liabilities are recognized under financial expenses in the consolidated statement of earnings. Gains and losses related to financial assets and liabilities are recognized under cost of sales and selling and administrative expenses. When related to disposition, these gains and losses are recognized under gains (losses) on disposal of assets. Transaction costs Long-term debt transaction costs are capitalized and netted against the carrying value of the related financial liability. They are amortized at cost using the effective interest method. Derivative financial instruments In accordance with its risk management strategy, La Coop uses derivative financial instruments to manage foreign exchange risk, risk related to certain commodity prices and interest rate risk. The derivative financial instruments consist of foreign exchange contracts, foreign exchange swaps, commodity forward contracts and interest rate swaps. La Coop does not use derivative financial instruments for speculative purposes. Hedge accounting is used where La Coop documents its cash flow hedging relationships and risk management objectives and strategy, and demonstrates that they are sufficiently effective at hedge inception and throughout the hedge period. The derivative financial instruments that La Coop chose to designate as cash flow hedging items are classified under financial assets and liabilities available-for-sale. They are measured at fair value, which is the approximate amount that might be obtained in settlement of such instruments at prevailing market rates. Gains and losses resulting from remeasurement at year-end are reported in other comprehensive income. The ineffective portion, if any, is recognized in the consolidated statement of earnings. The amounts recognized in other comprehensive income are reclassified to the consolidated statement of earnings when the hedged item affects earnings. The gain or loss portion of a reclassified hedging item is reported as an adjustment to the revenues from or the expense of the related hedged item. Realized gains and losses on these contracts are presented in cost of sales and selling and administrative expenses. Foreign exchange contracts and currency swaps La Coop often sells and buys outside Canada, mainly in US dollars, yen and Australian dollars. To manage foreign exchange risk, La Coop uses foreign exchange contracts and currency swaps. Gains and losses on foreign exchange contracts and currency swaps entered into to hedge future transaction cash-flows are accounted for in other comprehensive income and reclassified to earnings when these transactions occur.
■
Notes to consolidated financial statements
A hedging relationship is terminated if the hedge ceases to be effective, and the unrealized gain or loss on the related derivative financial instrument is recognized in consolidated earnings along with subsequent changes in the fair value of the derivative financial instrument. Derivative financial instruments that are not designated as hedge items are classified under financial assets and liabilities held-for-trading. They are measured at fair value, which is the approximate amount that might be obtained in settlement of such instruments at prevailing market rates. Gains and losses resulting from remeasurement at year-end are reported in the statement of consolidated earnings. Commodity forward contracts La Coop often buys and sells grain to cover certain identifiable future risks on the price of these commodities. La Coop does not use hedge accounting for commodity forward contracts. Therefore, gains and losses on these contracts, realized or not, are presented in cost of sales and selling and administrative expenses. Interest rate swap La Coop also uses an interest rate swap to manage interest rate risk. La Coop does not use hedge accounting for this derivative financial instrument. Therefore, gains and losses on these contracts are recognized under financial expenses. Environmental obligations Environmental costs related to current operations are expensed or capitalized according to their nature. Current costs caused by past events that do not generate future revenues are charged to consolidated earnings in the current year. Liabilities are recorded when costs are likely to be incurred and may be reasonably estimated. Income taxes La Coop follows the liability method of accounting for income taxes. Future income tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying value and tax bases of assets and liabilities. Future income tax assets and liabilities are measured using substantively enacted income tax rates applicable in the years in which the temporary differences are expected to reverse. A valuation allowance is recorded to reduce the carrying amount of future income tax assets, when it is more likely than not that such assets will not be realized. Year-end La Coop’s year-end is the last Saturday of October. Both the year ended October 29, 2011 and that ended October 30, 2010 comprise 52 weeks. 1. CHANGE IN ACCOUNTING STANDARDS Private enterprises like La Coop may prepare their financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”) by adopting International Financial Reporting Standards applicable for publicly accountable enterprises or Canadian GAAP for private enterprises. La Coop has elected to adopt Canadian GAAP Accounting Standards for Private Enterprises as of October 30, 2011. La Coop is currently assessing the impact of adopting these standards on its consolidated financial statements.
Interest rate swap La Coop may also use interest rate swaps to manage interest rate risk. Gains and losses on interest rate swaps entered into to hedge future cash flow transactions are accounted for in other comprehensive income and reclassified to earnings when the hedged item affects earnings.
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
2. BUSINESS ACQUISITIONS During the year, La Coop acquired all the shares of several companies operating in Supply Operations for a total consideration of $51,482,000. The net asset allocation of one of our acquisitions is temporary and may be adjusted when the allocation is finalized. These acquisitions were accounted for using the purchase method and consolidated as of their respective acquisition dates. The breakdown of the total value of net assets acquired and the total consideration paid is as follows: Net assets acquired Current assets Property, plant and equipment Intangible assets Goodwill Other long-term assets Total assets acquired
$
52,308 18,000 18,110 15,284 7,814 111,516
Current liabilities Long-term debt Future income tax liabilities Total liabilities assumed
47,230 7,213 5,591 60,034
Consideration paid Cash consideration, net of cash acquired
$
51,482
Total
3. ACQUISITION OF NON-CONTROLLING INTEREST IN SUBSIDIARY On August 2, 2010, La Coop acquired from a group of shareholders a 17.6% non-controlling interest in a subsidiary. The purchase price of $146,880,000 will be paid out in four equal and consecutive annual instalments or sooner, at La Coop’s discretion, plus a consideration amounting to the non-acquired portions multiplied by the prime rate of a financial institution plus 1½%. The acquisition was accounted for as a step acquisition using the purchase method. The operating results for each of the annual portions are consolidated with those of La Coop at the time of their acquisition. The first 4.4% portion of the 17.6% interest was acquired on August 2, 2010 for a total consideration of $36,720,000. The second 4.4% portion of the 17.6% interest was acquired on August 1, 2011 for a total consideration of $38,704,000. The purchase price allocation of these portions is summarized as follows: Net assets acquired Current assets Property, plant and equipment Goodwill Other long-term assets Total assets acquired
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2011
$
11,988 24,150 11,807 4,879 52,824
$
12,721 25,444 11,781 4,923 54,869
Current liabilities Long-term debt Future income tax liabilities Other long-term liabilities Total liabilities assumed
4,540 491 4,006 5,083 14,120
6,362 1,947 4,804 5,036 18,149
Consideration paid Cash
$
38,704
$
36,720
2010
Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
4. OPERATING EXPENSES Operating expenses include the following items: 2011 2010 Cost of inventories $ 4,197,851 $ 3,664,119 Amortization of property, plant and equipment 53,675 50,144 Amortization of goodwill 2,589 2,032 Amortization of other assets 4,587 4,048 Amortization of transaction costs 372 474 Interest on short-term borrowings 1,191 875 Interest on long-term debt 11,249 11,322 Interest on preferred shares 633 646 Interest income (3,079 ) (3,236 ) Interest income and expense calculated under the effective interest method are $1,845,000 [$1,020,000 in 2010] and $13,445,000 [$13,317,000 in 2010], respectively, for financial assets and liabilities using this valuation method. 5. PATRONAGE REFUNDS In accordance with the provisions of the Act governing La Coop, at their meeting on January 13, 2012, the directors declared refunds of $36,500,000 to be paid from earnings for the year. They authorized the refunds to be paid in the following proportions: 2011 2010 Cash $ 7,300 $ 2,300 Class B-1 common shares 5,475 1,725 Class D-1 common shares 23,725 7,475 $ 36,500 $ 11,500 These consolidated financial statements reflect the directors’ resolution. 6. INCOME TAXES The significant components of the income tax expense are as follows: Current Future Income taxes
$ $
2011 15,455 (1,926 ) 13,529
$ $
2010 5,625 229 5,854
The reconciliation of income tax expense with the amount obtained from multiplying earnings after patronage refunds by the statutory income tax rates is summarized as follows: Earnings before patronage refunds and income taxes Patronage refunds Earnings for the calculation of income tax expense
$ $
79,021 36,500 42,521
$ $
36,077 11,500 24,577
Income taxes at combined federal and provincial rates of 28.51% [30.07% in 2010] Effect of non-deductible expenses for tax purposes Interests in entities subject to significant influence Other items Income taxes
$ $
12,123 1,302 (1,120 ) 1,224 13,529
$ $
7,390 856 (885 ) (1,507 ) 5,854
$ $
2,675 169 311 (411 ) 2,744
$ $
3,218 (2,722 ) 435 (273 ) 658
The significant components of future income tax assets and liabilities are as follows: Non-deductible provisions and reserves for tax purposes Inventories Taxes related to other accumulated comprehensive income Other items – net Current future income tax assets
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
6. INCOME TAXES [cont’d] Excess of carrying amount over tax basis: Property, plant and equipment Investments Other assets Employee future benefits Patronage refunds carried forward Long-term future income tax liabilities
$ $
2011 (29,873 ) (1,556 ) (5,949 ) 3,972 — (33,406 )
$ $
2010 (25,073 ) (1,920 ) (1,112 ) 3,296 843 (23,966 )
7. INVENTORIES Inventories are as follows: Marketing inventories Supply inventories
$ $
2011 151,791 243,377 395,168
$ $
2010 137,083 172,871 309,954
$
2011 24,402
$
2010 29,965
$
813 4,071 4,884 11,363 40,649 3,659 36,990
$
912 1,257 2,169 5,760 37,894 1,972 35,922
The carrying amount of inventories recognized at net realizable value is $259,376,000 [$171,286,000 in 2010]. An inventory write-down of $7,800,000 was expensed during the year [$7,432,000 in 2010]. No write-down reversals were netted against the inventory amount in 2011 [$8,656,000 in 2010]. Marketing inventories are pledged as collateral for long-term debt [note 13]. 8. INVESTMENTS Investments in entities subject to significant influence Investments in cooperatives Shares and other securities of supply cooperatives Shares and other securities of affiliated cooperatives Mortgage loans and notes receivable Investments – current portion
9. PROPERTY, PLANT AND EQUIPMENT Accumulated Net carrying 2011 Cost amortization amount Land $ 25,036 $ — $ 25,036 Pavement 13,334 9,153 4,181 Buildings 396,102 167,106 228,996 Machinery and equipment 704,034 493,213 210,821 Automotive equipment 34,785 26,657 8,128 Leasehold improvements 6,866 6,405 461 Assets under capital leases 13,700 194 13,506 $ 1,193,857 $ 702,728 $ 491,129 Accumulated Net carrying 2010 Cost amortization amount Land $ 23,681 $ — $ 23,681 Pavement 12,478 8,551 3,927 Buildings 363,702 150,100 213,602 Machinery and equipment 658,402 455,380 203,022 Automotive equipment 34,034 25,841 8,193 Leasehold improvements 8,663 6,502 2,161 $ 1,100,960 $ 646,374 $ 454,586 In fiscal 2011, La Coop decided to no longer account for the building housing the head office as an asset held for sale as initially decided in fiscal 2008. Accordingly, La Coop recognized an amortization charge of $2,853,000 in its statement of earnings in fiscal 2011. This is the amortization charge that would have been recognized had the building been considered as an asset held for use since fiscal 2008.
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Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
10. GOODWILL Accumulated Net carrying 2011 Cost amortization amount $ 115,636 $ 22,575 $ 93,061 2010 $
Accumulated Net carrying Cost amortization amount 87,858 $ 19,986 $ 67,872
11. OTHER ASSETS Other assets are as follows: Accumulated Net carrying 2011 Cost amortization amount Trademarks $ 13,565 $ 3,430 $ 10,135 Client lists 18,960 4,099 14,861 Rights 24,367 7,359 17,008 Software 13,766 7,742 6,024 Deferred charges 2,200 2,200 — $ 72,858 $ 24,830 $ 48,028 2010 Trademarks $ Client lists Rights Software Deferred charges $
Accumulated Net carrying Cost amortization amount 8,417 $ 2,462 $ 5,955 5,560 3,367 2,193 17,419 6,699 10,720 11,951 5,769 6,182 2,200 1,946 254 45,547 $ 20,243 $ 25,304
Software and information technology development projects are internally developed.
12. SHORT-TERM BORROWINGS Short-term borrowings stem from the demand credit facilities of three subsidiaries and two joint venture groups. For one of the subsidiaries, the demand credit facility, renewable annually, and drawn under bank overdrafts, advances, letters of credit and standby letters of credit, totalled $12,000,000 in 2011 and 2010, subject to a maximum of $6,000,000 under letters of credit and standby letters of credit. Bank overdrafts as at October 29, 2011 stood at $2,059,000 [$4,915,000 as at October 30, 2010], and bore interest at the prime rate, 3% as at October 29, 2011 [3% as at October 30, 2010]. La Coop is joint and several guarantor for all amounts owing under this agreement. The second subsidiary has an annually renewable demand credit facility with authorized amounts of $45,000,000 and $35,000,000, respectively, for the periods from December 1 to June 30 and from July 1 to November 30. The amount of $18,432,000 drawn as at October 29, 2011 bore interest at the prime rate plus 1.5%, representing a rate of 4.5% as at October 29, 2011. The credit facility is secured by a first rank hypothec on accounts receivable and inventories and a second rank hypothec on the other assets of this subsidiary.
La Coop’s share of the first joint venture group’s demand credit facility at fixed and floating rates, renewable annually, totalled $62,500,000, of which $34,286,000 was drawn as at October 29, 2011 [$62,500,000 as at October 30, 2010, of which $27,054,000 was drawn]. Floating interest rate advances bore interest at the prime rate plus 0.25%, representing an interest rate of 3.25% as at October 29, 2011 [3.50% as at October 30, 2010]. Fixed interest rate advances bore interest equivalent to the cost of funds plus 1.38%, representing an interest rate of 2.64% as at October 29, 2011 [2.84% as at October 30, 2010]. The joint venture credit facility is collateralized by movable hypothecs on all current assets and certain joint venture capital assets. The joint venturer is joint and several guarantor for all amounts owing under comfort letters. La Coop’s share of the second joint venture group’s demand credit facility, bearing interest at the prime rate plus between 0.25% and 2%, renewable annually, provided by various financial institutions, totalled $15,250,000, of which $806,000 was drawn as at October 29, 2011. The credit facilities are collateralized by assets held by the joint ventures.
The third subsidiary has an annually renewable demand loan facility with an authorized amount of $875,000 of which $675,000 was drawn as at October 29, 2011. The interest rate used is the prime rate plus 1%, representing a rate of 4% as at October 29, 2011. This demand loan is secured by the accounts receivable, inventories and equipment of this subsidiary.
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
13. LONG-TERM DEBT Credit facility1 drawn under margin loans at the prime rate of 3% and under bankers’ acceptances at rates ranging from 2.56% to 2.60% [2.54% to 3% in 2010], renewable in June 2016
$
119,120
$
111,170
Term credit, at a fixed rate of 6.29%, repayable in an annual principal instalment of $3,600,000, one instalment of $4,800,000 and three instalments of $7,200,000, from August 2011 through August 2015
26,400
30,000
Unsecured debenture, at a fixed rate of 6.72%, subordinated to the credit facility and repayable in an annual principal instalment of $5,000,000, one instalment of $6,000,000 and two instalments of $7,000,000, from August 2012 through August 2015
25,000
25,000
Term note, at a fixed rate of 7.75%, repayable in blended monthly instalments of $263,621, maturing on January 1, 2018
15,630
17,502
Mortgage loans of the real estate subsidiary, secured by movable and immovable hypothecs, at the fixed rate of 5.55% and a prime rate of 3% as at October 29, 2011 [fixed rate of 5.55% and prime rate of 3% in 2010], repayable in monthly principal instalments of $26,153 and $74,860 in 2011, maturing on October 31, 2011
11,045
11,826
Mortgage loan of a subsidiary, secured by a hypothec on a building and land of the subsidiary with a carrying amount of $10,889,000 as at October 29, 2011 [$10,411,000 as at October 30, 2010], at the fixed rate of 7.76% in 2011 and 2010, repayable in blended monthly instalments of $83,404, maturing in March 2023
8,667
8,981
Mortgage loans and other debts, at rates ranging from 0% to 9% [4% to 9% in 2010], maturing between November 2011 and February 2020
8,245
4,578
Share of borrowings and notes payable of joint ventures, secured by movable and immovable hypothecs of joint ventures, at rates ranging from 0% to 7.75% [0.9% to 4% in 2010], maturing between November 2011 and September 2023
11,188
3,212
Obligations under capital leases bearing interest at the fixed rate of 3% and prime plus 1%, representing a rate of 4%, repayable in blended monthly instalments of $135,005, maturing in July 2018 Transaction costs Long-term debt – current portion
$
13,508 238,803 (1,626 ) 237,177 34,551 202,626
$
2011
2010
— 212,269 (265 ) 212,004 133,926 78,078
1. La Coop has an overall revolving credit facility of $300,000,000. La Coop can use this credit facility as follows: US- and Canadian-dollar margin loans, bankers’ acceptances, LIBOR advances and letters of guarantee. The interest rate is based on a rate schedule that varies according to a financial ratio calculated quarterly on a consolidated basis.
The credit facility, the term credit and the term note, which totalled $161,150,000 as at October 29, 2011 [$158,672,000 as at October 30, 2010], are collateralized by first rank hypothecs over a majority of the tangible and intangible assets, both present and future, of the subsidiary Olymel L.P. and its subsidiaries. La Coop’s long-term debt is subject to compliance with certain financial ratios based on La Coop’s consolidated financial statements. As at October 29, 2011, La Coop was in compliance with these financial ratios. The principal repayments required over the next five years are as follows: 2012 – $33,375,000; 2013 – $17,445,000; 2014 – $18,025,000; 2015 – $18,636,000; 2016 – $123,120,000. Payments under capital leases required over the coming years are as follows: 2012 – $1,620,000; 2013 – $1,620,000; 2014 – $1,620,000; 2015 – $1,622,000; 2016 – $1,633,000; 2017 and thereafter – $7,894,000. Minimum payments under capital leases comprise interest totalling $2,501,000.
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Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
14. EMPLOYEE FUTURE BENEFITS Cash payments for employee future benefits, consisting of cash contributed by La Coop to its funded pension plans, direct cash payments to beneficiaries for its other unfunded benefit plans, and cash contributions to its defined contribution plans, totalled $12,952,000 in 2011 [$11,682,000 in 2010]. La Coop measures its accrued benefit obligations and the fair value of plan assets at each year-end. The most recent actuarial valuations of the pension funds for funding purposes were as of December 31, 2010. The actuarial valuation of the other post-retirement benefit plans was carried out as at May 31, 2011. The next required actuarial valuation will be as at December 31, 2011 for the pension plans and as at May 31, 2014 for the other post-retirement benefit plans. The total cost for La Coop’s defined contribution plans was $4,162,000 in 2011 [$4,114,000 in 2010]. Information on La Coop’s pension plans and other post-retirement benefits is as follows: Other Pension post-retirement 2011 plans benefits Accrued benefit obligations Balance, beginning of year $ 153,699 $ 22,533 $ Current service cost for the year 6,798 1,284 Interest cost 8,092 1,230 Benefits paid (7,160 ) (780 ) Actuarial gains (3,590 ) (2,915 ) Past service cost 804 — Balance, end of year 158,643 21,352
176,232 8,082 9,322 (7,940 ) (6,505 ) 804 179,995
Plan assets Fair value, beginning of year Actual return on plan assets Employer contributions Employee contributions Benefits paid Fair value, end of year
123,827 (1,940 ) 8,009 538 (7,160 ) 123,274
123,827 (1,940 ) 8,789 538 (7,940 ) 123,274
Funded status – plan deficit Unamortized net actuarial loss Unamortized past service cost Employee future benefit asset (liability)
$
(35,369 ) 35,273 3,312 3,216 $
— — 780 — (780 ) —
Total
(21,352 ) 289 (177 ) (21,240 ) $
(56,721 ) 35,562 3,135 (18,024 )
The employee future benefit asset (liability) in La Coop’s consolidated balance sheet is presented as follows: Other Pension post-retirement plans benefits Employee future benefit asset $ 20,369 $ — $ Employee future benefit liability (17,153 ) (21,240 ) Employee future benefit asset (liability) $ 3,216 $ (21,240 ) $
Total 20,369 (38,393 ) (18,024 )
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
14. EMPLOYEE FUTURE BENEFITS [cont’d] Other Pension post-retirement 2010 plans benefits Accrued benefit obligations Balance, beginning of year $ 124,716 $ 17,746 $ Current service cost for the year 5,137 974 Interest cost 8,037 1,191 Benefits paid (7,351 ) (792 ) Actuarial losses 23,160 3,414 Balance, end of year 153,699 22,533
142,462 6,111 9,228 (8,143 ) 26,574 176,232
Plan assets Fair value, beginning of year Actual return on plan assets Employer contributions Employee contributions Benefits paid Fair value, end of year
115,793 8,067 6,775 543 (7,351 ) 123,827
115,793 8,067 7,567 543 (8,143 ) 123,827
Funded status – plan deficit Unamortized net actuarial loss Unamortized past service cost Employee future benefit asset (liability) $
(29,872 ) 30,542 3,178 3,848 $
— — 792 — (792 ) —
Total
(22,533 ) 3,277 (204 ) (19,460 ) $
(52,405 ) 33,819 2,974 (15,612 )
The employee future benefit asset (liability) in La Coop’s consolidated balance sheet is presented as follows: Other Pension post-retirement plans benefits Employee future benefit asset $ 19,289 $ — $ Employee future benefit liability (15,441 ) (19,460 ) Employee future benefit asset (liability) $ 3,848 $ (19,460 ) $
Total 19,289 (34,901 ) (15,612 )
The breakdown of the fair value of La Coop’s pension plan assets is as follows: Equity securities Debt securities
2010 67 % 33 100 %
2011 66 % 34 100 %
Other post-retirement benefit plans are unfunded. The accrued benefit obligations and fair value of defined benefit plan assets, whose accrued benefit obligations exceed plan assets, amount to $121,908,000 and $84,020,000, respectively [$115,042,000 and $81,093,000 in 2010]. The significant actuarial assumptions used by La Coop are as follows: 2011 2010 Other Other Pension post-retirement Pension post-retirement (as a percentage) plans benefits plans benefits Accrued benefit obligations Discount rate 5.25 5.25 5.25 5.25 Rate of compensation increase 3.75 3.75 4.00 4.00 Cost of benefits Discount rate 5.25 5.25 6.50 6.50 Expected long-term return for plan assets 6.25 n/a 6.25 n/a Rate of compensation increase 3.75 3.75 4.00 4.00 For valuation purposes, a 7% annual growth rate in the cost of covered prescription drugs was assumed for the first year, decreasing to 3.5% over a 20-year period [7% in 2010]. The growth rate in other health care costs was assumed at 5% for the first year, decreasing to 3.5% over a 20-year period [4% in 2010].
La ........58
Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
14. EMPLOYEE FUTURE BENEFITS [cont’d] Assumed health care cost rate trends have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects for: Increase Decrease 2011 2010 2011 2010 Total of service cost and interest cost $ 284 $ 234 $ (259 ) $ (214 ) Accrued benefit obligations 1,977 2,156 (1,837 ) (1,990 ) La Coop’s net employee future benefit plan cost recognized in consolidated earnings for the year is as follows: Other Pension post-retirement 2011 plans benefits Current service cost for the year, net of employee contributions $ 6,260 $ 1,284 $ Interest cost 8,092 1,230 Actual return on plan assets 1,940 — Actuarial gains for the year (3,590 ) (2,915 ) Past service cost 804 — Elements of employee future benefit cost before adjustments to recognize the long-term nature thereof 13,506 (401 ) Adjustments to recognize the long-term nature of employee future benefit cost: Difference between expected return and actual return on plan assets for the year (9,723 ) — Difference between actuarial loss recognized for the year and actual actuarial gain on accrued benefit obligation for the year 4,992 2,988 Difference between amortization of past service cost for the year and actual plan amendments for the year (134 ) (27 ) (4,865 ) 2,961 Employee future benefit cost $ 8,641 $ 2,560 $ Other Pension post-retirement 2010 plans benefits Current service cost for the year, net of employee contributions $ 4,594 $ 974 $ Interest cost 8,037 1,191 Actual return on plan assets (8,067 ) — Actuarial losses for the year 23,160 3,414 Elements of employee future benefit cost before adjustments to recognize the long-term nature thereof 27,724 5,579 Adjustments to recognize the long-term nature of employee future benefit cost: Difference between expected return and actual return on plan assets for the year 831 — Difference between actuarial loss recognized for the year and actual actuarial loss on accrued benefit obligation for the year (23,045 ) (3,414 ) Difference between amortization of past service cost for the year and actual plan amendments for the year 617 (27 ) (21,597 ) (3,441 ) Employee future benefit cost $ 6,127 $ 2,138 $
Annual Report 2011 - La Coop fédérée
Total 7,544 9,322 1,940 (6,505 ) 804 13,105 (9,723 ) 7,980 (161 ) (1,904 ) 11,201
Total 5,568 9,228 (8,067 ) 26,574 33,303 831 (26,459 ) 590 (25,038 ) 8,265
La ........59
Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
15. SHARE CAPITAL La Coop’s share capital is variable and unlimited with regard to the number of shares issuable. The rights, restrictions and conditions relating to each type of share are determined by the Board of Directors. The share capital consists of: Preferred shares Class A preferred shares, with a par value of $1, non-voting and redeemable at their par value upon a decision of the Board of Directors. They are issued upon the conversion of common shares held by a member who does not fulfill the commitments of its contract with La Coop or if the contract commitments are not renewed. Preferred shares with a par value of $10, issued to members and employees of La Coop in accordance with the Québec Cooperative Investment Plan, bearing interest at a rate determined by the Board of Directors. These shares are redeemable at their par value upon a decision of the Board of Directors. The 2005, 2008, 2009 and 2010 issues are redeemable by La Coop only as of the fifth year following issuance. The 2006 and 2007 issues are redeemable at the option of La Coop as of the fifth year following issuance, or at the holder’s option, provided that certain conditions are met. Common shares Class A common shares, with a par value of $25. Holding such shares is an essential condition to qualify as a member and obtain voting rights. They are redeemable at their par value upon a decision of the Board of Directors.
At year-end, the issued and fully paid shares were as follows:
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Class B common shares, with a par value of $1, non-voting and redeemable at their par value upon a decision of the Board of Directors. However, the Board of Directors cannot redeem Class B common shares if there are shares outstanding other than Class B-1, D-1 common shares or Class A common shares. These shares were issued to members as partial payment of patronage refunds. Class B-1 common shares, with a par value of $1, non-voting and redeemable at their par value upon a decision of the Board of Directors, starting the day after the fifth anniversary date of the issuance. However, the Board of Directors may not redeem Class B-1 common shares if there are any outstanding Class B, D and D-1 shares. These shares were issued to members as partial payment of patronage refunds. Class D common shares, with a par value of $1, non-voting and redeemable at their par value upon a decision of the Board of Directors. These shares were issued to members as partial payment of patronage refunds. Class D-1 common shares, with a par value of $1, non-voting and redeemable at their par value upon a decision of the Board of Directors, starting the day after the fifth anniversary date of the issuance. However, the Board of Directors may not redeem Class D-1 common shares if any Class B and D shares are outstanding. These shares were issued to members as partial payment of patronage refunds. Class auxiliary members common shares, with a par value of $25, non-voting and redeemable at their par value upon a decision of the Board of Directors. Class auxiliary federation members common shares, with a par value of $25, non-voting and redeemable at their par value upon a decision of the Board of Directors.
Number 2011
2010
Amount 2011
2010
1,272
PREFERRED SHARES Class A 1,271,565 1,398,981 $ Cooperative Investment Plan 2005 series, redeemable as of 2011, 4% — 396,969 2006 series, redeemable as of 2012, 4.75% 155,853 155,853 2007 series, redeemable as of 2013, 4.75% 307,332 307,332 2008 series, redeemable as of 2014, 4.75% 231,449 231,449 2009 series, redeemable as of 2015, 4% 359,729 359,729 2010 series, redeemable as of 2016, 3.75% 410,014 — 2,735,942 2,850,313 Preferred shares recognized as a financial liability (463,185 ) (860,154 ) 2,272,757 1,990,159 $
$
1,399
— 1,559 3,073 2,314 3,597 4,100 15,915 (4,632 ) 11,283 $
3,970 1,559 3,073 2,314 3,597 — 15,912 (8,602 ) 7,310
COMMON SHARES Class A 36,648 34,368 $ Class B 36,878,946 39,971,402 Class B-1 21,256,048 15,785,154 Class D — 2,924,165 Class D-1 68,250,831 44,537,130 auxiliary members 290 180 auxiliary federation members 100 100 126,422,863 103,252,499 128,695,620 105,242,658 $
918 $ 36,879 21,256 — 68,251 8 3 127,315 138,598 $
861 39,971 15,785 2,924 44,537 5 3 104,086 111,396
Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
15. SHARE CAPITAL [cont’d] This year’s transactions related to share capital were carried out for cash considerations with the exception of patronage refunds paid in the form of shares. These transactions were as follows: Number Amount 2011 2010 2011 2010 PREFERRED SHARES Balance, beginning of year 2,850,313 2,840,724 $ 15,912 $ 15,816 Issued: Preferred shares, Cooperative Investment Plan
410,014
359,729
Redeemed: Preferred shares, Cooperative Investment Plan (396,969 ) (350,140 ) Preferred shares, Class A (127,416 ) — (524,385 ) (350,140 ) 2,735,942 2,850,313 Redeemable preferred shares, 2006 series [2005 series in 2010] – current portion (155,853 ) (396,969 ) Balance, end of year 2,580,089 2,453,344 $ COMMON SHARES Balance, beginning of year
103,252,499 94,051,951
$
4,100
3,597
(3,970 ) (127 ) (4,097 ) 15,915
(3,501 ) — (3,501 ) 15,912
(1,559 ) 14,356 $
(3,970 ) 11,942
104,086
$
94,869
Issued: Class A common shares 32,032 781 Patronage refunds paid in Class B-1 common shares 5,475,000 1,725,000 Patronage refunds paid in Class D-1 common shares 23,725,000 7,475,000 110 — Class auxiliary members common shares Class auxiliary federation members common shares — 100 29,232,142 9,200,881
70 5,475 23,725 3 — 29,273
20 1,725 7,475 — 3 9,223
Redeemed: Class A common shares (29,752 ) (254 ) Class B common shares (3,092,456 ) — Class B-1 common shares (4,106 ) (40 ) Class D common shares (2,924,165 ) — Class D-1 common shares (11,299 ) (39 ) (6,061,778 ) (333 ) Balance, end of year 126,422,863 103,252,499 $
(13 ) (3,092 ) (4 ) (2,924 ) (11 ) (6,044 ) 127,315 $
(6 ) — — — — (6 ) 104,086
On September 7, 2011, the directors authorized a preferred share issue pursuant to the Cooperative Investment Plan, 2011 series, as of November 30, 2011, under which 359,160 preferred shares were issued for a cash consideration of $3,591,000. On September 7, 2011, the directors also resolved to redeem, starting November 30, 2011, 155,853 preferred shares issued under the Cooperative Investment Plan, 2006 series, for a cash consideration of $1,559,000. In addition, on January 13, 2012, the directors resolved to redeem 7,997,283 Class B common shares issued between 1998 and 1999 for a cash consideration of $7,997,000. On September 9, 2010, the directors authorized a preferred share issue pursuant to the Cooperative Investment Plan, 2010 series, as of November 30, 2010, under which 410,014 preferred shares were issued for a cash consideration of $4,100,000. On September 9, 2010, the directors also resolved to redeem, starting November 30, 2010, 396,969 preferred shares issued under the Cooperative Investment Plan, 2005 series, for a cash consideration of $3,970,000. In addition, on January 13, 2011, the directors resolved to redeem 2,924,165 Class D common shares issued in 2005 and 3,087,321 Class B common shares issued between 1995 and 1997 for a cash consideration of $6,011,486.
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
16. ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income includes only financial instruments designated as cash flow hedges. Changes arising during the year were as follows: 2011 Balance, beginning of year $ (926 ) $ Change in fair value during the year, net of taxes amounting to $66 [$248 in 2010] 265 Balance, end of year $ (661 ) $
2010 (397 ) (529 ) (926 )
The total amount of unrealized gains and losses will be reclassified to the consolidated statement of earnings during the following fiscal year. 17. NET CHANGE IN NON-CASH WORKING CAPITAL RELATED TO OPERATIONS The net change in non-cash working capital related to operations is determined as follows: Accounts receivable Inventories Prepaid expenses Income taxes payable Accounts payable, accrued liabilities and deferred revenues Patronage refunds payable
18. COMMITMENTS AND CONTINGENCIES [a] Operating leases La Coop has entered into long-term operating leases for buildings, machinery and automotive equipment. The future minimum lease payments of La Coop under these leases total $34,728,000 and are as follows for the coming years: 2012 – $12,703,000; 2013 – $7,673,000; 2014 – $4,652,000; 2015 – $2,995,000; 2016 – $1,895,000; 2017 and thereafter – $4,810,000. [b] Repurchase of the shares of non-controlling shareholders A group of non-controlling shareholders of a subsidiary of La Coop holding 22% of the shares of said subsidiary has, commencing on October 31, 2012, the right to sell all of its shares to La Coop, which is obligated to buy them back. The sale of the shares as well as the payment of their sale price may be made in ten annual instalments according to a predetermined repurchase agreement whose terms and conditions are defined in the partnership agreement of the subsidiary, or sooner, at La Coop’s discretion. This same group of non-controlling shareholders will retain all of its rights until the transfer of the last portion of its shares. [c] Claims and lawsuits In the normal course of business, various claims and lawsuits are brought against La Coop. Legal proceedings are often subject to numerous uncertainties and it is not possible to predict the outcome of individual cases. In management’s opinion, La Coop has made adequate provision for or has adequate insurance to cover all claims and lawsuits, and their settlement should not have a significant negative impact on La Coop’s financial position. 19. GUARANTEES In the normal course of business, La Coop has entered into agreements that contain features which meet the definition of a guarantee. These agreements provide for indemnification and guarantees to counterparties in transactions such as operating leases and security contracts.
$ $
2011 (4,857 ) (59,694 ) 5,392 7,445 31,629 5,000 (15,085 )
$ $
2010 (32,281 ) (16,239 ) (12,961 ) (48 ) 31,322 (700 ) (30,907 )
and warranties, loss of or damages to property, and claims that may arise while providing services. Notes 12, 13 and 18 to the consolidated financial statements provide information relating to some of these agreements. The following constitutes additional disclosure. Operating leases La Coop and its subsidiaries have general indemnity clauses in most of their movable and immovable property leases whereby they, as lessee, agree to indemnify the lessor against liabilities related to the use of the leased property. These leases mature at various dates through February 28, 2027. The nature of the agreements varies based on the contracts and therefore prevents La Coop from estimating the total potential amount it would have to pay to lessors. Historically, La Coop has not made any significant payments under such agreements. Furthermore, La Coop and its subsidiaries have property insurance protecting them against such potential situations. Guarantee contracts La Coop is committed under letters of guarantee with financial institutions and insurance companies, in connection with obligations amounting to $27,593,000 as at October 29, 2011. As at October 29, 2011 and October 30, 2010, no amounts were recognized in respect of the above-mentioned agreements. 20. FINANCIAL INSTRUMENTS [a] Derivative financial instruments In the normal course of business, La Coop uses a number of derivative financial instruments, such as foreign exchange contracts, currency swaps, commodity forward contracts and interest rate swaps to reduce its exposure to exchange rate, commodity price and interest rate fluctuations. These instruments are used exclusively for risk management purposes.
These agreements may require La Coop to compensate third parties for costs and losses incurred as a result of various events including breaches of representations
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Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
20. FINANCIAL INSTRUMENTS [cont’d] [a] Derivative financial instruments [cont’d] Foreign exchange contracts and currency swaps The following table sets out the nominal amounts at the reporting dates with respect to foreign exchange contracts with maturities of less than one year: Type Country Nominal amount in currency [thousands] Sale United States US$44,574 [US$63,160 in 2010] Purchase United States US$53,600 [US$31,100 in 2010] Sale Japan ¥4,113,183 [¥3,055,480 in 2010] Sale Australia A$14,720 [A$20,063 in 2010] Sale New Zealand NZ$2,729 [NZ$2,903 in 2010] Put option Canada C$2,000, exercise price of 1.0417 [C$ – in 2010]
Average exchange rate 2011 2010 1.0172 1.0245 1.0040 1.0262 0.013030 0.012255 1.0251 0.9620 0.8104 0.7594 — —
No amounts have been recognized in the consolidated statement of earnings for fiscal 2011 and 2010 for ineffectiveness related to foreign exchange contracts and swaps. Interest rate swaps In 2011, drawn lines of credit totalling $10,000,000 were subject to interest rate swaps at a rate of 3.6%, maturing in May 2013 [$25,000,000 in 2010 at rates between 3.6% and 3.84%, maturing between June 2011 and May 2013]. Grain forward contracts In the normal course of business, La Coop has entered into purchase and sale contracts expiring in less than one year with its clients to set various grain prices. As at October 29, 2011, La Coop was committed to buy 57,765 net metric tonnes of grain [90,574 net metric tonnes in 2010] in the amount of $45,000 [$928,000 in 2010].
La Coop has recognized a gain of $2,677,000 [$9,527,000 in 2010] relating to grain price fluctuations in the consolidated statement of earnings. La Coop has sufficient grain in inventory to deliver on these commitments. La Coop also entered into forward contracts on the price of various grains expiring in less than one year to reduce its exposure to fluctuations in grain prices. As at October 29, 2011, La Coop was committed to sell 142,865 metric tonnes of grain [293,908 metric tonnes in 2010] in the amount of $42,669,000 [$72,362,000 in 2010]. La Coop recorded a gain of $3,065,000 [a loss of $6,657,000 in 2010] in the consolidated statement of earnings for the year ended October 29, 2011.
[b] Carrying amount and fair value of financial instruments The carrying amounts and fair values of financial instruments are as follows: 2011 Carrying amount Investments and other assets Loans and receivables Mortgage loans and notes receivable $ 11,363 $ Available-for-sale Investments in cooperatives 4,884 Derivatives designated as cash flow hedges Foreign exchange contracts and currency swaps (1,309) Interest rate swap — Derivatives classified as held-for-trading Commodity forward contracts 5,742 Interest rate swap (472 ) Long-term debt Other financial liabilities Credit facility $ 119,120 $ Term credit 26,400 Unsecured debenture 25,000 Term note 15,630 Mortgage loans of the real estate subsidiary 11,045 Mortgage loan of a subsidiary 8,667 Mortgage loans and other debts 8,245 Share of borrowings and notes payable of joint ventures 11,188 Obligations under capital leases 13,508 $ 238,803 $
Annual Report 2011 - La Coop fédérée
Fair value 11,363
$
2010 Carrying amount 5,760
$
Fair value 5,760
n/a
2,169
n/a
(1,309 ) —
(2,255 ) (225 )
(2,255 ) (225 )
5,742 (472 )
2,870 (488 )
2,870 (488 )
119,120 $ 27,170 25,749 16,406 11,434 9,550 7,921 11,188 13,418 241,956 $
111,170 $ 30,000 25,000 17,502 11,826 8,981 4,578 3,212 — 212,269 $
111,170 31,244 26,135 18,409 12,544 9,042 4,578 3,212 — 216,334
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
20. FINANCIAL INSTRUMENTS [cont’d] [b] Carrying amount and fair value of financial instruments [cont’d] Fair value measurements are classified in accordance with a hierarchy which reflects the significance of inputs to the measurement of fair value. The fair value measurement hierarchy consists of three levels. In Level 1, inputs consist of quoted prices in active markets for identical assets or liabilities. Under Level 2, inputs comprise quoted prices in active markets for similar assets or liabilities, or valuation techniques whose principal inputs are based on observable market data. In Level 3, inputs used in measuring assets or liabilities are not based on observable market data. La Coop uses a fair value hierarchy consisting of a single level: Level 2. Derivatives designated as cash flow hedges and derivatives classified as held-for-trading are recorded in Level 2 of the fair value hierarchy. The fair value of long-term debt is determined by discounting future contractual cash flows at rates that La Coop could obtain as at the balance sheet date for borrowings under similar terms and conditions and with similar maturities. The fair value of the derivative financial instruments reflects the estimated amounts La Coop would receive (or pay) to terminate open contracts at year-end. The prices obtained by La Coop’s bankers are compared with closing capital market prices. The fair value of the preferred shares cannot be established since the timing of these outflows cannot be determined at a reasonable cost. [c] Nature and extent of risks arising from financial instruments and related risk management Credit risk Credit risk corresponds to the risk of a financial loss for La Coop if one party to a financial instrument is not able to fulfill its obligations. The maximum exposure to credit risk for La Coop corresponds to the carrying amount of the following financial instruments:
Loans and receivables In the normal course of business, La Coop evaluates the financial position of its clients on a regular basis and examines the credit history of new clients. To protect itself against financial losses related to credit risk, La Coop has a policy that sets out credit conditions for various areas of operations. Specific credit limits are set for each segment and client and reviewed periodically. The allowance for doubtful accounts is based on the client’s specific credit risk and historical trends. Moreover, La Coop holds security on the assets and investments of certain clients in the event of default. La Coop believes the credit risk regarding receivables to be minimal due to the diversification of its clients and their industry segments. Derivatives Credit risk related to derivative financial instruments is limited to unrealized gains, if any. La Coop is likely to incur losses if parties fail to meet their commitments related to these instruments. However, La Coop views this risk as minimal or non-existent since it deals only with highly rated financial institutions. Liquidity risk Liquidity risk corresponds to the risk that La Coop will find it difficult to meet its obligations related to financial liabilities. La Coop manages this risk by drawing up detailed financial projections and developing a long-term acquisitions strategy. Treasury management at the consolidated level requires constant monitoring of expected cash inflows and outflows based on La Coop’s consolidated financial projections. Liquidity risk is evaluated using historical volatility, seasonal needs, current financial obligations and long-term debt obligations.
The maturities of financial liabilities as at October 29, 2011 were as follows: Less than 1 year Accounts payable, accrued liabilities and deferred revenues $ 467,857 $ Long-term debt 34,551 Derivative financial instruments 1,309 Letters of guarantee 27,593 $ 531,310 $
1 to 3 years — $ 57,882 472 — 58,354 $
4 to 10 years — $ 144,744 — — 144,744 $
Net total 467,857 237,177 1,781 27,593 734,408
1 to 3 years — $ 46,711 488 — 47,199 $
4 to 10 years — $ 31,367 — — 31,367 $
Net total 396,051 212,004 2,968 28,389 639,412
The maturities of financial liabilities as at October 30, 2010 were as follows: Less than 1 year Accounts payable, accrued liabilities and deferred revenues $ 396,051 $ Long-term debt 133,926 Derivative financial instruments 2,480 Letters of guarantee 28,389 $ 560,846 $
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Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
20. FINANCIAL INSTRUMENTS [cont’d] [c] Nature and extent of risks arising from financial instruments and related risk management [cont’d] Market risk Foreign exchange risk La Coop often makes purchases and sales abroad. La Coop’s policy is to maintain the purchase costs and selling prices of its business transactions by hedging its positions using derivative financial instruments. To manage foreign exchange risk, La Coop uses foreign exchange contracts and currency swaps. La Coop’s main foreign exchange risks are covered by a centralized treasury department. Foreign exchange risk is managed in accordance with the foreign exchange risk management policy. The policy aims to protect La Coop’s operating earnings by eliminating the exposure to currency fluctuations. The foreign exchange risk management policy prohibits speculative transactions. As at October 29, 2011, foreign exchange contracts used by La Coop for hedging cash flows had a negative fair value of $1,309,000 [negative fair value of $2,255,000 in 2010]. All of La Coop’s forward currency contracts are considered effective hedges. As a result, a 1% increase or decrease in exchange rates between currencies used in La Coop’s transactions as at October 29, 2011 would not have had a considerable impact on its consolidated net earnings. Fluctuations in exchange rates would have had an impact on the fair value of forward foreign exchange contracts reported in accumulated other comprehensive income. The sensitivity to exchange rates represents the exposure of La Coop’s financial instruments to foreign exchange risk. As at October 29, 2011 and October 30, 2010, a 1% increase or decrease in exchange rates would have the following impact on accumulated other comprehensive income presented under equity, assuming that all other variables remain unchanged: Country Increase Impact of changes in the fair value of derivatives on other comprehensive income C$/US$ C$/¥ C$/A$ C$/NZ$
Canada/United States $ Canada/Japan Canada/Australia Canada/New Zealand
2011 Decrease
497 $ (538 ) (156 ) (22 )
2010 Increase
(497 ) $ 538 156 22
Decrease
267 $ (387 ) (202 ) (23 )
(267 ) 387 202 23
Interest rate risk Interest rate risk relating to financial assets and liabilities results from changes in interest rates that La Coop may experience. La Coop believes that mortgage loans and notes receivable, bank overdrafts, short-term borrowings and variable-rate long-term debt give rise to a cash flow risk as they could have a negative impact on La Coop in the event of changes in interest rates. Centralized treasury management aims to match and bring about an appropriate combination of fixed- and variable-rate borrowings to minimize the impact of interest rate fluctuations. La Coop uses derivative financial instruments, namely interest rate swaps. La Coop held an interest rate swap in the amount of $10,000,000 in 2011 [$25,000,000 in 2010] for managing cash flows. As at October 29, 2011 and October 30, 2010, a 100 basis point increase or decrease in the interest rate curve would have had the following impact on net earnings and on accumulated other comprehensive income presented under equity, assuming that all other variables remain unchanged: Impact on net earnings of a change in interest rates on other variable-rate financial liabilities Impact on net earnings of a change in interest rates resulting in a change in the fair value of derivatives not designated as cash flow hedges Impact on other comprehensive income of a change in the fair value of derivatives designated as cash flow hedges
Annual Report 2011 - La Coop fédérée
Increase
2011 Decrease $
55
2010 Increase
Decrease
$
(55 )
130
(130 )
244
(244 )
—
—
88
(88 )
$
(46 )
$
46
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Consolidated financial statements
Notes to consolidated financial statements
■
Years ended October 29, 2011 and October 30, 2010
20. FINANCIAL INSTRUMENTS [cont’d] [c] Nature and extent of risks arising from financial instruments and related risk management [cont’d] Other price risks Input price fluctuation risks Input prices vary depending on several external factors, while extreme price volatility stems from continuous changes in supply markets. La Coop often buys and sells grain. La Coop’s policy is to maintain the purchase costs and selling prices of its business transactions by hedging its positions using derivative financial instruments. To manage exposure to changes in commodity prices, La Coop uses forward contracts. As at October 29, 2011, La Coop’s commodity forward contracts have a fair value of $5,742,000 [fair value of $2,870,000 as at October 30, 2010]. All contracts used by La Coop are considered effective hedges but are not documented for hedge accounting purposes. As a result, a 1% increase in commodity prices, assuming all other variables remain unchanged, would have decreased La Coop’s consolidated net earnings by $16,000 [$123,000 as at October 30, 2010]. Conversely, a 1% decrease in commodity prices, assuming all other variables remain unchanged, would have increased La Coop’s consolidated net earnings by $16,000 [$123,000 as at October 30, 2010]. 21. CAPITAL MANAGEMENT For financing purposes, La Coop must comply with a financial ratio related to its capital structure, namely the Funded Debt-to-Capitalization ratio. Issuance of preferred shares to employees under the Cooperative Investment Plan is one of La Coop’s financing tools to achieve its capitalization targets. During fiscal 2011 and 2010, La Coop was in compliance with this financial ratio, which has to be lower than 50% as per the agreement. The ratio is calculated quarterly in accordance with the agreement, and stood at 32.2% as at October 29, 2011 [33.1% as at October 30, 2010]. Pursuant to regulations adopted under the Cooperatives Act, La Coop must also distribute its earnings in the form of patronage refunds. Patronage refunds made to members are prorated according to the transactions carried out by each member. The amount and payment method for patronage refunds and the redemption of shares issued are authorized by La Coop every year. Furthermore, under this law with which La Coop has complied, it cannot redeem or repurchase shares if such redemption or repurchase compromises its financial stability. 22. INTEREST IN JOINT VENTURES La Coop’s consolidated financial statements include its share of the results, financial position and cash flows of its joint ventures, as follows: Consolidated statement of earnings Revenues Operating expenses Net earnings Consolidated balance sheet Current assets Long-term assets Current liabilities Long-term liabilities Consolidated statement of cash flows Cash flows related to: Operating activities Investing activities Financing activities
2011
2010
$
306,746 300,712 6,034
$
272,047 266,125 5,922
135,840 40,130 104,797 19,909
98,117 27,582 76,025 14,671
(3,174 ) (7,247 ) 4,477
13,961 (5,237 ) (9,425 )
23. GAINS ON DISPOSAL OF ASSETS During fiscal 2011, La Coop disposed of some investments and other intangible assets for a total monetary consideration of $18,981,000, generating gains on disposals of assets in the amount of $9,755,000.
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Annual Report 2011 - La Coop fédérée
Years ended October 29, 2011 and October 30, 2010
■
Notes to consolidated financial statements
24. SEGMENTED INFORMATION La Coop has two reportable segments: Marketing and Supply Operations. Shared costs and operations related to the head office building are combined under Other segments. These segments are managed separately since they require specific business strategies. All of La Coop’s assets are located in Canada. The various segments’ accounting policies are the same as those described under significant accounting policies. La Coop evaluates performance based on earnings before patronage refunds and income taxes. La Coop accounts for its intersegment revenues and transfers at the exchange amount. The geographical breakdown of revenues is based on the clients’ billing location. Marketing Supply Other 2011 Operations Operations segments REPORTABLE SEGMENTS Third-party revenues $ 2,257,051 $ 2,296,386 $ Intersegment transfers 1 10,597 Total revenues 2,257,052 2,306,983 Financial expenses 9,531 714 Amortization of property, plant and equipment and other assets 39,482 15,792 Share of results of entities subject to significant influence — 3,929 Earnings before patronage refunds and income taxes 36,498 64,602 Segment assets 701,114 744,439 Goodwill 62,088 30,973 Investments in entities subject to significant influence — 24,511 Additions to property, plant and equipment 35,020 13,521
— $ 4,553,437 — 10,598 — 4,564,035 121 10,366 5,577 60,851 (8 ) 3,921 (22,079 ) 79,021 45,563 1,491,116 — 93,061 (109 ) 24,402 1,962 50,503
Marketing Supply Other 2010 Operations Operations segments REPORTABLE SEGMENTS Third-party revenues $ 2,160,306 $ 1,787,565 $ Intersegment transfers 4 17,118 Total revenues 2,160,310 1,804,683 Financial expenses 8,992 1,063 Amortization of property, plant and equipment and other assets 38,563 15,557 Share of results of entities subject to significant influence — 2,943 Earnings before patronage refunds and income taxes 7,309 47,719 Segment assets 658,148 587,413 Goodwill 51,221 16,651 Investments in entities subject to significant influence — 30,067 Additions to property, plant and equipment 23,984 9,528 Revenues by geographical area Third-party revenues in Canada Third-party revenues outside Canada: United States Japan Russia Other Total third-party revenues
Consolidated
Consolidated
— $ 3,947,871 — 17,122 — 3,964,993 28 10,083 2,104 (9 ) (18,951 ) 45,676 — (102 ) 941
56,224 2,934 36,077 1,291,237 67,872 29,965 34,453
2011 $ 3,656,816
2010 $ 3,125,101
267,407 216,934 119,544 292,736 896,621 $ 4,553,437
298,889 205,171 62,470 256,240 822,770 $ 3,947,871
25. COMPARATIVE FIGURES Certain 2010 figures have been reclassified to conform to the presentation adopted in 2011.
Annual Report 2011 - La Coop fédérée
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Consolidated financial statements
Financial review
■
UNAUDITED
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Operations [in thousands of dollars]
Revenues $ 4,553,437 $ 3,947,871 $ 3,919,963 $ 3,606,101 $ 3,286,795 $ 3,175,705 $ 3,141,860 $ 2,908,842 $ 2,755,096 $ 2,480,291 Financial expenses 10,366 10,083 14,683 14,976 20,604 18,717 12,965 9,925 12,714 11,364 Amortization 61,223 56,698 53,710 49,403 49,522 53,197 41,969 36,165 38,100 34,521 Earnings (loss) before patronage refunds and income taxes 79,021 36,077 53,346 70,992 40,587 (21,599 ) 42,463 35,456 26,136 42,481 Patronage refunds 36,500 11,500 15,000 30,000 10,000 — 8,500 12,000 8,203 17,200 Income taxes 13,529 5,854 10,746 10,602 7,770 (11,408 ) 1,551 7,887 4,348 8,222 Net earnings (loss) 28,992 18,723 27,600 30,390 22,817 (10,191 ) 32,412 15,569 13,585 17,059 Financial position [in thousands of dollars]
Working capital $ 194,942 $ 92,898 $ 191,178 $ 181,421 $ 43,846 $ 164,721 $ 197,750 $ Property, plant and equipment, net book value 491,129 454,586 459,860 445,157 428,953 442,865 451,177 Total assets 1,491,116 1,291,237 1,221,516 1,143,503 1,014,948 1,004,006 1,058,252 Convertible debentures, preferred shares and equity** 492,742 440,518 412,482 383,528 338,754 305,890 321,928 Financial ratios Working capital ratio Interest coverage Debt/equity ratio* ** Earnings (loss) before patronage refunds and income taxes/revenues Reserve/convertible debentures, preferred shares and equity** Convertible debentures, preferred shares and equity**/total assets** Number of employees
139,486 $ 305,328 808,765 284,711
127,981 $ 309,145 762,288 261,689
1.3 8.6 37:63
1.2 4.6 36:64
1.4 4.6 36:64
1.4 5.7 33:67
1.1 3.0 41:59
1.6 (0.2 ) 49:51
1.7 4.3 47:53
1.5 4.6 40:60
1.5 3.1 45:55
1.7% 70.9%
0.9% 72.8%
1.4% 73.2%
2.0% 71.5%
1.2% 72.0%
(0.7 )% 72.2%
1.4% 71.8%
1.2% 69.8%
0.9% 70.0%
33.1%
34.1%
33.8%
33.5%
33.4%
30.5%
30.4%
35.2%
34.3%
10,079
10,429
11,336
11,175
11,072
11,895
12,287
9,587
9,644
123,742 309,477 769,788 283,163 1.5 4.7 50:50 1.7% 59.9% 36.8% 10,096
* The debt figure in the debt/equity ratio includes the convertible debentures and the equity figure includes the preferred shares. ** Accumulated other comprehensive income as well as the related financial instruments have been excluded from the ratio calculations.
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Annual Report 2011 - La Coop fédérée
2011
La Coop Agrilait Saint-Guillaume La Coop Agriscar Trois-Pistoles La Coop Agrivert Saint-Barthélemy La Coop Agrivoix La Malbaie La Coop Agrodor Thurso La Coop Alliance Saint-Éphrem-de-Beauce La Coop des Appalaches Laurierville La Coop de L’Assomption L’Assomption Coopérative agricole de la Baie des Chaleurs Caplan La Coopérative de Baie Ste-Anne Ltée Baie-Sainte-Anne (New Brunswick) La Coop des Bois-Francs Victoriaville La Coopérative de Caraquet Ltée Caraquet (New Brunswick) La Coopérative Cartier Ltée Richibucto (New Brunswick) La Coop Chambord Chambord Citadelle, coopérative de producteurs de sirop d’érable Plessisville La Coop Comax Saint-Hyacinthe La Coop Compton Compton Village La Coop des Cantons Coaticook La Coop Excel Granby La Coop Covilac Baie-du-Febvre La Coop des Frontières Sainte-Martine La Coop des deux rives Normandin La Coop Dupuy et Ste-Jeanne d’Arc Dupuy La Coop Fermes du Nord Mont-Tremblant La Coop Frampton Frampton
Annual Report 2011 - La Coop fédérée
La Coop Gracefield Gracefield La Coop Grains d’Or Métabetchouan-Lac-à-la-Croix Groupe coopératif Dynaco La Pocatière La Coop Ham Nord Ham-Nord Magasin Co-op de Havre-aux-Maisons Havre-aux-Maisons La Coop Île-aux-Grues L’Isle-aux-Grues La Coop Jonquière Jonquière Société coopérative de Lamèque Ltée Lamèque (New Brunswick) La Coop Langevin Sainte-Justine La Coop Matapédienne Amqui La Coop Lac-Mégantic Lambton Lac-Mégantic La Coop Montmagny Montmagny La Coop Nominingue Nominingue Nutrinor, coopérative agro-alimentaire du Saguenay Lac St-Jean St-Bruno-Lac-Saint-Jean La Coop Parisville Parisville La Coop La Patrie La Patrie Magasin CO-OP de Plessisville Plessisville La Coop Pré-Vert Tingwick La Coop Profid’Or Joliette La Coop Purdel Bic La Coop Rivière-du-Sud St-François-de-Montmagny La Coopérative de Rogersville Ltée Rogersville (New Brunswick) La Coop Seigneurie Saint-Narcisse-de-Beaurivage La Coop Squatec Squatec Société coopérative agricole de Saint-Adrien d’Irlande Saint-Adrien-d’Irlande
La Fromagerie coopérative St-Albert inc. St-Albert (Ontario) La Coop Saint-Alexandre-de-Kamouraska St-Alexandre-de-Kamouraska Coopérative de consommation de Saint-Alexis Saint-Alexis-de-Matapédia La Coop St-André d’Acton Acton Vale La Coop St-Côme-Linière Saint-Côme-Linière La Coop Saint-Damase Saint-Damase La Coop Ste-Catherine Sainte-Catherine-de-la-Jacques-Cartier La Coop Sainte-Hélène Sainte-Hélène-de-Bagot La Coop Sainte-Julie Sainte-Julie La Coop Ste-Justine Sainte-Justine La Coop Ste-Marthe Sainte-Marthe Magasin CO-OP de Ste-Perpétue Ste-Perpétue-de-L’Islet La Coop St-Fabien Saint-Fabien Magasin CO-OP St-Gédéon Saint-Gédéon-de-Beauce La Coop Saint-Hubert Saint-Hubert-de-Rivière-du-Loup La Coop St-Isidore d’Auckland Saint-Isidore-de Clifton La Coop St-Jacques-de-Leeds St-Jacques-de-Leeds La Coopérative de St-Louis Ltée Saint-Louis-de-Kent (New Brunswick) Magasin CO-OP de St-Ludger Saint-Ludger La Coop St-Méthode Adstock La Coop St-Pamphile Saint-Pamphile La Coop St-Patrice Saint-Patrice-de-Beaurivage Coopérative de Saint-Quentin ltée Saint-Quentin (New Brunswick) Magasin CO-OP de St-Samuel Lac-Drolet La Coop Saint-Ubald Saint-Ubalde
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Affiliated Cooperatives
Magasin CO-OP de St-Victor Saint-Victor La Coop Unicoop Sainte-Hénédine La Coop Uniforce Napierville La Coop Univert Saint-Narcisse La Coop Val-Nord La Sarre La Coop Verchères Verchères La Coop Weedon Weedon
Auxiliary Members Coopérative des producteurs de pommes de terre de Péribonka-Ste-Marguerite-Marie Péribonka Coopérative d’utilisation de machinerie agricole de la Rivière du Bic Rimouski (Le Bic) Coopérative d’utilisation de machinerie agricole de Laurierville Laurierville Coopérative d’utilisation de machinerie agricole de l’Érable Plessisville Coopérative d’utilisation de machinerie agricole de l’Or Blanc Saint-Georges-de-Windsor Coopérative d’utilisation de machinerie agricole de Saint-Fabien Saint-Fabien Coopérative d’utilisation de machinerie agricole de St-Cyprien Saint-Cyprien Coopérative d’utilisation de machinerie agricole de Ste-Croix, St-Édouard Saint-Édouard-de-Lotbinière Coopérative d’utilisation de machinerie agricole des Rivières Sainte-Anne-de-la-Pérade Coopérative d’utilisation de machinerie agricole Estrie-Mont Saint-Joachim-de-Shefford Coopérative d’utilisation de machinerie agricole et forestière du Lac Alma Coopérative d’utilisation de machinerie agricole Franco-Agri Sainte-Anne-de-Prescott (Ontario)
Coopérative d’utilisation de machinerie agricole Jeannoise Saint-Gédéon Coopérative d’utilisation de matériel agricole de la Petite-Nation et de la Lièvre Plaisance Coopérative d’utilisation de matériel agricole de Leclercville Leclercville Coopérative d’utilisation de matériel agricole de St-Sylvère Deschaillons Coopérative d’utilisation de matériel agricole des Aulnaies Saint-Jean-Port-Joli Coopérative d’utilisation de matériel agricole l’Oie Blanche Saint-Pierre Coop Atlantique Moncton (New Brunswick) Coopérative d’utilisation de machinerie agricole du Saguenay Chicoutimi Coopérative d’utilisation de matériel agricole de la région de Coaticook Coaticook
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Our locations
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2011
Supply operations La Coop fédérée 9001 de l’Acadie Blvd. Suite 200 Montréal, Québec H4N 3H7 Animal production sector Office Montréal Feedmills and warehouses Joliette Lévis New Liskeard, Ontario Saint-Hyacinthe Saint-Hyacinthe (Sainte-Rosalie) Saint-Bruno (Saguenay–Lac-Saint-Jean) Rimouski (Le Bic) Saint-Philippe-de-Néri Saint-Anselme Saint-Narcisse Victoriaville Saint-Damase Micro premix plant Lévis
Crop production sector Office Montréal Research farm Saint-Hyacinthe Distribution centres Longueuil Sainte-Catherine Québec City (Sillery) Companies and subsidiaries 6 Agrocentres (50%) SQS inc. Agronomy Company of Canada Ltd Agrico Canada Limited/Limitée Seed laboratory Longueuil Grain sector Offices Montréal Québec City (Sillery)
Sogeporc genetic hog farms Laurierville Notre-Dame-de-Lourdes Saint-Apollinaire Saint-Romain Saint-Narcisse-de-Rimouski Trinité-des-Monts La Rédemption
Joint venture enterprise Sillery Distribution Centre Inc. (50%)
Research farms Frampton (hog – 2 locations) Saint-Jean-Baptiste-de-Rouville (poultry) Mirabel (hog) Adstock (hog) Saints-Anges (hog)
Sales and customer support offices Brossard Montréal Montréal (Pointe-aux-Trembles) Rivière-du-Loup Saint-Hyacinthe Lévis (Saint-Romuald) Trois-Rivières Victoriaville 65 distribution agents 6 oil bulk stations 3 propane bulk stations 185 service stations
Hatchery Victoriaville Breeding farms (poultry) Saint-Jude Wickham Victoriaville Breeding farms (broiler breeders) Lanoraie Saint-Germain-de-Grantham Saint-Jean-Baptiste-de-Rouville Saint-Lin-Laurentides Wickham Joint venture enterprise Ferme avi-nord inc. (50%)
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Subsidiary Elite Grain Inc., Napierville Grower Direct Export, Mitchell, Ontario Sonic Energy sector
Joint venture enterprise Groupe pétrolier Norcan inc. (33%) Propane Québec inc. (51%) Jefo Logistique s.e.c. (40%)
Hardware and farm machinery sector Distribution centre Trois-Rivières Sales outlets 178 hardware and renovation centres (La Coop or Unimat) 26 garden centres 16 industrial clients 175 farm machinery and forestry dealers 200 agricultural parts dealers 36 Inov decoration centres 10 training stores Business Development and Communications Sector Office Montréal Coop agricultural centre The Coop AgriEst, St.Isidore de Prescott and St.Albert, Ontario
Marketing Operations Olymel L.P. 2200 Pratte avenue, Suite 400 Saint-Hyacinthe, Québec J2S 4B6 Sales offices Boucherville Brampton, Ontario Red Deer, Alberta Sydney, Australia Seoul, South Korea Tokyo, Japan Distribution centres Boucherville Saint-Bruno-de-Montarville Saint-Jean-sur-Richelieu Red Deer, Alberta Hog sector Slaughterhouses and cutting plants Princeville Red Deer, Alberta Saint-Esprit de Montcalm Saint-Hyacinthe Vallée-Jonction Processing plants Anjou Cornwall, Ontario Drummondville Princeville Saint-Henri (Bellechasse) Saint-Jean-sur-Richelieu Trois-Rivières Poultry sector Slaughterhouses and cutting plants Berthierville Saint-Cuthbert (Partnership) Saint-Damase Saint-Jean-Baptiste-de-Rouville (Partnership) Processing plants Saint-Hyacinthe (Sainte-Rosalie) Saint-Jean-sur-Richelieu (2 locations) Brampton, Ontario Joint venture enterprises Sunnymel GP inc. Unidindon inc. Volaille Giannone inc. Other operations Transport Transbo inc. Machinerie Olymel (1998) inc. Transbo exportation inc.
Annual Report 2011 - La Coop fédérée
Notes
Annual Report 2011 - La Coop fédérée
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Annual Report 2011 - La Coop fédérée
Contents 24
8
18
President’s message
Cooperative overview
Management Discussion and Analysis
44
45
46
Management report
Independent auditors’ report
Consolidated balance sheet
38
Head Office La Coop fédérée 9001 de l’Acadie Blvd Suite 200 Montréal, Québec H4N 3H7 Telephone: 514 384-6450 Fax: 514 858-2025
Website www.lacoop.coop
Olymel overview
47
On peut obtenir la version française de ce rapport sur le site Internet de La Coop fédérée à l’adresse www.lacoop.coop ou obtenir une copie imprimée en communiquant avec le Service des communications au 514 384-6450.
La Coop fédérée’s Creative Services
Denis Duquet Creative director
Consolidated statement of earnings and reserve
Bernard Diamant Artistic director/graphic designer Pierre Cadoret Graphic designer
48
Consolidated statement of comprehensive income
Consolidated statement of cash flows
68
69
Financial review
49
Text
Notes to consolidated financial ctatements
Ben Marc Diendéré Communications manager Guylaine Gagnon Editor Le Cooperateur agricole
Affiliated Cooperatives
70
Georges O’Shaughnessy Revisor
Our locations
Mont-Roy L’Imprimeur Colour separation and printing
105347_02-12
47
Martine Doyon Photographer (www.martinedoyon.com)
10%
La Coop La democracy La society La creativity La growth La life Founded in 1922, La Coop is a provider of agricultural supplies and food products with a focus on the well-being of communities. Guided by the values and principles of the cooperative movement, La Coop evolves, innovates and grows to improve the quality of life of its members and the fair and sustainable development of our resources.
2011 Annual Report ■ Experience the value of cooperation
Experience the value of cooperation
Experience the value of cooperation
