2016 Calgary Co-op Annual Report

DELIVERING EXCEPTIONAL

CUSTOMER EXPERIENCES

Jen

2016 ANNUAL REPORT CALGARY CO-OP 2016 ANNUAL REPORT

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WE COMMIT -to the-

FUTURE OF

CO-OP VISION

MISSION

VALUES

To touch the lives of our community by being respected as the best, most trusted place to shop – every day.

Through inspired team members, we will deliver exceptional customer experiences, products and services that sustain and grow our business and communities.

Service - Our customers’ needs drive us to deliver exceptional shopping experiences Caring - We are passionate about people – team members, member-owners, customers and communities Excellence - A winning attitude in all that we do

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CALGARY CO-OP 2016 ANNUAL REPORT

Jean

Jill

Brad

TABLE OF CONTENTS

PHARMACY

Ginger

Bob

Message from the Board

2

Message from the CEO

4

Board Governance

6

Report on Operations

11

Report on Co-operative Social Responsibility

24

Member Refund and Reports

26

Officers' Report

27

Independent Auditors’ Report

28

Consolidated Financial Statements

29

CALGARY CO-OP 2016 ANNUAL REPORT

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MESSAGE -from the -

BOARD This past year has been trying for our member-owners, with many people affected by the economic downturn and needing a little extra help from their community. With that environment around us, it was so very important Calgary Co-op present its core values every day to our member-owners: caring, service and excellence.

This year, with the help of our members, we showed our caring by investing over $4.1 million into local food poverty reduction programs, the focus being on supporting local food banks, nutrition and education programs, and food sustainability initiatives. Collectively, we helped people in Fort McMurray whose lives were traumatized by fire. We showed our attention to service by continuing to find ways to make differences to our member-owners - filling their fuel tanks, carrying their groceries, finding them the best home health care products and sharing expertise on pharmacy products. Our team also continuously worked to satisfy our

member-owners in both big ways and small to live up to our value of excellence.

The Board is very proud of the Calgary Co-op team. Our responsibility, as a Board, is one of active diligence over the entire organization, from its governance principles and policies to its financial results and overarching strategy implementation. From this vantage point we see our team working collaboratively to make Calgary Co-op something special in our community, and to always provide value to our member-owners. The ten year strategy, created last year, continues to be the path on which we move forward together.

“We have been customers of Rocky Ridge Pharmacy... for many years.

The staff are awesome. They care about their customers and are so pleasant and respectful. No matter what the question or problem they always explain the medications and any questions about the medication. They deserve to be commended.�* * All comments received from Calgary Co-op members via e-mail, Facebook and Twitter.

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CALGARY CO-OP 2016 ANNUAL REPORT

At last year’s Annual Meeting we bid adieu to three Board members: Myra D’Souza, Elaine Smith and Rick Smith. We are thankful for the energy and knowledge they provided to the Board. At the same time, member-owners elected Cindy Andrew, Mike Dalton and Patricia McLeod to the Board. Their skills and expertise have been strong additions to help with the Board’s oversight responsibilities.

off the pedal. We must continue to challenge ourselves to learn more about what our member-owners want and need, and ensure this is what we deliver. We can do this because we are a co-operative, because we care, and because local relevance continues to be of vital importance to us as we move into our next 60 years.

As we look to the future, we know that, to fully implement our 10 year strategy and to remain relevant and successful, we can’t take our foot

For 2016, Calgary Co-op memberowners will share $31.3 million in member refunds. This represents $7.8 million paid in share equity

The Board has been privileged to work on behalf of our member-owners to sustain a great co-operative.

and $23.5 million in cash. For a full breakdown of this year’s annual member refund, please refer to page 27 in this report.

Co-operatively yours,

Peggy LeSueur Board Chair

CALGARY CO-OP 2016 ANNUAL REPORT

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MESSAGE -from the -

CEO By now, it is no surprise to hear 2016 was a challenging year.

Unemployment reached the highest rate we have seen in 23 years.

Downtown was the hardest hit with layoffs and business closures and vacancy we haven’t seen since the 80’s, with 25% of office space, or 8 million square feet, vacant. Adding to this, weather continued to play havoc with growing conditions around the world - for a brief while, you will have noticed cauliflower was almost as valuable as gold!

The economic downturn impacted us all personally. For us in retail, it came with a worsening competitive environment: an increase in discount competitive activities, a struggling major national grocery chain and much weakening consumer confidence.

Now, where there is challenge there is also opportunity. Through the 4

CALGARY CO-OP 2016 ANNUAL REPORT

daunting environment, Calgary Co-op continued our extraordinary long-term strategic work, building our team and building our Co-op for the future. Our Co-op is resilient.

Our members are loyal. Our team is strong. In the true co-operative spirit, Calgary Co-op and our members faced the challenges of 2016 together.

We opened our freshly designed and modernized Auburn Bay food centre, gas bar and wine, spirits and beer location, creating new jobs for the community with over 50% of the positions filled by new employees.

We renewed our commitment to your health - by delivering a new contemporary look for our pharmacies, supporting them with the latest patient-focused software, renovating our Macleod Trail Home Health Care store to update its presentation, and expanding the

presence of our Natural Choice offering alongside selected pharmacies.

We brought our first “neighbourhood” wine, spirits, and beer store called Sips to the community of West Springs. We encourage you to visit this store at 8 Weston Drive SW. Where many organizations pulled back their support, our community focus was unwavering. We gave back to the community and we continued to support over 110 local producers.

We inspired every member of our team with two rounds of our Can We Talk series - store-level dialogues where every team member, across Calgary Co-op, was engaged in sharing and discussing our unique challenges, and providing their own insight into opportunities and solutions. Many of these solutions were brought to life

by our team, or put into production for future implementation.

We continued to commit every one of our team members to our strategic path: delivering exceptional customer experiences each and every time, while finding ways to become more efficient in this environment, so that we can invest in giving our members much-needed value for their dollar.

When you look at all we have accomplished in a year of challenges, you can be proud of being a Calgary Co-op Member and Owner.

As we look forward to the year ahead, we will continue to face challenges.

While the economy is expected to remain sluggish over the next couple of years, meaning sales and profitability of all businesses will be severely constrained, one fact is undoubtable - the cost of doing business in Calgary is going to rise disproportionately, with major impacts from minimum wage, and carbon tax, to name a few factors. We cannot change our economic climate.

But we can work on the opportunities to ensure the long term sustainability of our Co-op.

In 2017-18, we will enhance our membership program. Our plan is to refresh and re-energize the communication of member benefits to new and existing members, with a focus on delivering personalized savings. To take advantage of this

program, please do make sure you take the opportunity to sign up for our e-mail newsletter at calgarycoop.com, so we can communicate information and savings opportunities to you efficiently.

It is our intent to re-develop our Brentwood, Dalhousie and Oakridge locations in response to each community's needs. Our goal is to continue to contribute to each community while providing members with an unrivalled and exceptional shopping experience.

We have also launched our new World of Whisky store in the Plus 15, just outside the Petroleum Club. If you haven’t visited, it is an amazing experience we highly recommend.

And, in 2017-18, we will continue to provide our members with the caring service, exclusive products and expertise you have come to expect from Calgary Co-op.

On behalf of the entire Calgary Co-op team of 3,850, thank you for choosing to be a member. Thank you for demonstrating your commitment to the community. And thank you for continuing to support your local Calgary Co-op.

Ken Keelor CEO

2017 Executive Leadership Team

Paul Harrison

Chief Financial Officer

Jeff Ambrose

Vice President, Petroleum, Wine Spirits Beer, Home Health Care and Business Development

Danielle Bussières Vice President, Marketing and Member Relations

Doug Newstead,

Vice President, Food Centre Operations and Merchandising

Damon Tanzola,

Vice President, Facilities Development and Real Estate

Bart Willmore,

Vice President, Human Resources

CALGARY CO-OP 2016 ANNUAL REPORT

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BOARD GOVERNANCE 2015-2016 BOARD AND OFFICERS Peggy LeSueur Chair

Roy Goodall Vice Chair

Terry Geib Board Secretary

Cindy Andrew Mike Dalton Lori Ell Patricia McLeod, Q.C.

Throughout the year, the Board functioned independently from Management while ensuring the two leadership groups operated in a complementary fashion. The Board’s main focuses throughout the year were to ensure that strategic initiatives were being implemented, to monitor and review financial performance, to provide oversight on risk identification and mitigation, to provide oversight on issues relating to team engagement and to ensure clarity in the linkages between the co-operative and its member-owners.

COMMITTEES Calgary Co-op’s model of governance uses a small number of committees to undertake specifically delegated diligence work in the Board’s most time-consuming and complex areas of oversight.

The following are the committees Board members served on this past

year, with a brief explanation of what each committee achieved during the past twelve months.

AUDIT COMMITTEE The Audit Committee’s Terms of Reference, among other things, are to maintain oversight over the financial reporting, internal controls, risk, and internal and external

Bettina Pierre-Gilles Lisa Wise Ken Keelor Officer

Paul Harrison Officer

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CALGARY CO-OP 2016 ANNUAL REPORT

"Hello, I just recently moved in walking distance to Co-op and nothing could make me happier. I love the incredible diversity of products… I truly feel I am supporting more than a giant company."

ATTENDANCE The following table shows the attendance of your directors at Board and Committee meetings: Board and Committee Meeting Attendance November 1, 2015 – October 29, 2016 Director

Board Meetings

Peggy LeSueur, Chair

Audit Co-operative Governance Human Committee Relations Committee Resources Meetings Committee Meetings Committee Meetings Meetings

14

5

3

8

Roy Goodall, Vice Chair

14

3

4

7

Terry Geib, Board Secretary

14

5

2

1

4 5

Cindy Andrew

8

3

Mike Dalton

8

3

6

2

1

14

5

4

3

3

Myra D’Souza

2

Lori Ell Patricia McLeod

3

Bettina Pierre-Gilles

3 5

8 14

2 2

5

5

6

1

Rick Smith

5

1

3

Lisa Wise

13

4

7

Elaine Smith

2

2

Nominations Committee Meetings

3

3

3 1 1 5

1. Roy Goodall was also a member of the Compensation Committee which consisted of three members of the community. One Compensation Committee Meeting was held in the 2016 fiscal year.

2. Attendance for period November 2015 through April 2016. Director’s term ended April 2016. Total Board Meetings for this term was 6.

3. Attendance for period April 2016 through October 2016. Director’s term commenced April 2016. Total Board Meetings for this term was 8.

audit. For the financial year ended October 29, 2016, the committee has completed the following: •M onitored the financial integrity of the financial statements and any financial reporting by Calgary Co-op.

•R eviewed and ensured all financial reporting was in

compliance with applicable accounting principles and compliant with regulatory requirements.

• Reviewed internal controls of Calgary Co-op to ensure they are adequate and are supported by the financial control systems in place.

• Examined and oversaw the initial phase of development of an enterprise risk management system for Calgary Co-op.

• Reviewed the adequacy of Calgary Co-op’s whistle-blowing procedures, fraud prevention controls and expense reporting controls. >> CALGARY CO-OP 2016 ANNUAL REPORT

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“Nicest staff, great deals, and the best produce options.”

• Recommended the appointment of the external auditor to the Board.

• Reviewed the annual external audit plan and fees for rendering this service in a cost-effective manner.

• Oversaw the independence, qualifications and performance of the internal auditor.

CO-OP RELATIONS COMMITTEE The goals of the Co-op Relations Committee are to ensure the association understands and fulfills its responsibilities as a co-operative.

This includes ensuring our members are engaged, with timely communication between the membership, its board and the co-operative. In addition to this the committee encourages positive 8

CALGARY CO-OP 2016 ANNUAL REPORT

relationships with other co-operatives such as Federated Co-operatives Ltd. (FCL), the Co-operative Retail System (CRS), and the Alberta Community and Co-operative Association (ACCA).

Over the past Board year, the committee met five times. In addition to this, it liaised with FCL and ACCA on various initiatives, the most notable being on November 22, 2016, when co-operative businesses from across the province hosted Members of the Legislative Assembly at a special reception in Edmonton. Honourable Stephanie McLean, Minister of Service Alberta, gave the opening address to the guests in attendance, which included representatives from Calgary Co-op.

GOVERNANCE COMMITTEE The Calgary Co-op Governance Committee is mandated to ensure the Board adheres to the best practices and high standards in its processes and decisions that define the actions and powers of the Board. It assists the Board by: developing ethical guidelines, developing appropriate structures and processes to enable the Board to function independently of management, facilitating Board succession planning, reviewing Board and Committee Terms of Reference, and ensuring the Director Election and Annual Meeting of members is effective.

HUMAN RESOURCES COMMITTEE The Human Resources Committee mandate is to assist the Board in fulfilling its oversight responsibilities by providing effective oversight on behalf of the Board on Calgary Co-op’s relationship with the CEO, human resources policies and plans, including its compensation and benefits plans, and making recommendations to the Board.

The committee has completed the following activities for this fiscal year: • Reviewed and recommended to the Board: • goals and objectives relevant to the performance and compensation of the CEO, • the evaluated performance of the CEO, • the terms of Calgary Co-op’s awards proposed under any incentive plans, as well as retirement plans, deferred compensation plans and benefit plans for executive management, management, and non-union non-management employees related to Calgary Co-op’s strategic goals.

• Reviewed and monitored the: • labour relations and collective bargaining strategies to gain reasonable assurance of effective and fair labour relations, • Co-op’s health & safety program, • major human resource

BOARD REMUNERATION, EXPENSES AND ANNUAL PURCHASES To be eligible for election to the Board of Directors, each Board member must continue to maintain or surpass a $3,600 requirement for annual purchases at Calgary Co-op.

The following reflects the Board remuneration, annual purchases and expenses (including education) for the 2016 fiscal year.

Director

2016 Remuneration

2016 Annual Purchases

2016 Expenses

$80,861

$12,499

$3,236

Roy Goodall, Vice Chair

42,192

13,407

6,717

Terry Geib, Board Secretary

37,309

18,864

3,987

19,172

8,087

927

19,172

8,333

18,000

16,163

N/A

3

296

38,388

14,474

4,088

Patricia McLeod

18,608

25,034

0

Bettina Pierre-Gilles

37,070

9,494

1,307

Elaine Smith

15,918

N/A

3

798

Rick Smith

16,136

N/A

3

682

Lisa Wise

36,891

22,393

981

Peggy LeSueur, Chair

Cindy Andrew

2

Mike Dalton

2

Myra D’Souza

1

Lori Ell 2

1

1

1. Remuneration and Expenses for period November 2015 through April 2016. Director’s term ended April 2016.

2. Remuneration and expenses for period April 2016 through October 2016. Director’s term commenced April 2016.

3. The 2016 Annual Purchases are only reported for those directors currently sitting on the Board.

and compensation risk management plans, • whistle-blowing report on issues pertaining to HR. • Association’s involvement in human resource litigation, enforcement actions and contingencies facing the Association.

NOMINATIONS COMMITTEE The Nominations Committee is tasked with overseeing the Board’s nominations process on behalf of the Board and the Governance Committee. It is the goal of the Nominations Committee to attract qualified members to run for election to the Board and to identify for members those applicants who can

best fill the gaps on the Board in terms of hard and soft skills, experience and leadership. To accomplish this, the committee held five meetings in person and several phone meetings with the consultant hired to conduct the actual interviews. In addition, two candidate orientation sessions were held with interested members. >> CALGARY CO-OP 2016 ANNUAL REPORT

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AD HOC COMPENSATION COMMITTEE The Board formed this committee early in 2016, consisting of a Board Director, as a non-voting chair, and three voting member-owners. The purpose of the committee was to determine an appropriate level of compensation for Directors and present an ordinary resolution at the 2017 Annual Meeting.

Due to the economic downturn and its impact on the economy, a decision was made to disband the committee and terminate the process.

OTHER REPRESENTATION Each year, Board members and senior management participate on a number of other committees and/ or organizations on behalf of Calgary Co-op. These include: Alberta Community Co-operative Association: Roy Goodall, Director and First Delegate; Bettina Pierre-Gilles, Second Delegate Co-op Community Foundation: Cindy Andrew, Patricia McLeod, Bettina Pierre-Gilles, Danielle Bussières, Llyle Toews, Chair Co-operatives and Mutuals Canada Observers: Mike Dalton, Bettina Pierre-Gilles Federated Co-operatives Limited AGM Delegates: Lori Ell, Terry Geib, Roy Goodall, Peggy LeSueur, Bettina Pierre-Gilles Federated Co-operatives Limited Resolutions Committee: Bettina Pierre-Gilles

“@fiascogelato we always buy ours at the High River @CalgaryCoop because they actively support local farmers and business” 10

CALGARY CO-OP 2016 ANNUAL REPORT

REPORT ON FEDERATED CO-OPERATIVES LIMITED Calgary Co-op owns approximately 10% of the shares in Federated Co-operatives Limited (FCL). FCL is the major grocery and petroleum supplier for Calgary Co-op, in addition to other commodities. The Grocery People (an FCL subsidiary) and Calgary Co-op jointly own The Produce People, which is the major supplier of produce to Calgary Co-op and other co-operatives in southern Alberta. Calgary Co-op appoints delegates and observers to its annual meeting and regional fall conference.

FCL sales for its 2016 fiscal year were $8.4 billion; earnings were $515 million. This represents a decrease in sales from $9.1 billion in 2015 and a decrease in earnings which were $539 million in 2015. As reported in the financial statements in this Annual Report, Calgary Co-op received $30.5 million in patronage refunds from FCL for 2016 compared to $30.9 million in 2015.

REPORT -on-

OPERATIONS Owned by members, Calgary Co-op is one of the largest retail co-operatives in North America.

Our locations in Calgary, Airdrie, Cochrane, High River, Okotoks and Strathmore include:

24 Food Centres 24 Pharmacies 30 Gas Bars 24 Car Washes 5 Commercial Cardlocks 27 Wine Spirits Beer Locations 3 Home Health Care Centres With over 460,000 members, 3,850 employees, assets of $565 million and annual sales of $1.18 billion, Calgary Co-op is committed to delivering an exceptional customer experience through inspired team members.

CALGARY CO-OP 2016 ANNUAL REPORT

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WELCOME -to-

AUBURN BAY

In 2016, construction was completed on Calgary Co-op’s new Auburn Bay Centre featuring a 40,000 square foot food store, a 2,600 square foot gas bar and a 4,800 square foot wine, spirits and beer location.

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CALGARY CO-OP 2016 ANNUAL REPORT

This new location not only introduced a variety of new offerings for the community of Auburn Bay, but also provided new jobs for the community, with half of the open positions filled by new employees.

The food store reflects a new design with vibrant colours, natural light and energy efficiencies, including covered refrigeration units, LED lighting and smart building automation.

“Co-op's newest store in beautiful Auburn Bay is now open. And it's a show-stopper! @CalgaryCoop #yyc�

Our focus on delivering exceptional customer experiences is evident through many of the enhanced offerings including full service meat and seafood cases, a "grab and go" hot curry bar, and products from over 110 local growers and producers.

The pharmacy features a new layout providing greater access to professional services and a streamlined prescription process.

Members shopping at this location will have access to a prescribing Pharmacist, a certified Diabetes Educator, and certified Tobacco Reduction Services.

whiskies and 600 varieties of beer from around the world.

We encourage all members to stop by our new Auburn Bay Centre located at 100 Auburn Meadows Drive SE.

The gas bar offers 12 fueling stations with diesel at every pump.

Co-op Wine Spirits Beer offers a variety unparalleled in this community with 1,000 wines, 370 spirits including 170 CALGARY CO-OP 2016 ANNUAL REPORT

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Jill

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CALGARY CO-OP 2016 ANNUAL REPORT

FOOD In 2016, Calgary Co-op focused on providing our members with more value. Not just from a dollar perspective, although that did play a key role. We committed to delivering an exceptional shopping experience including the quality and selection of the products we offer, the level of service you receive and the convenient solutions that save you time, effort and money.

As a locally owned and operated co-operative, Calgary Co-op is proud to support over 110 local growers and producers. We demonstrated this support with 18 Pop-up Farmers Markets that gave members the opportunity to purchase the products directly from the families who produce them, and 12 Meet the Producers events, which provided everyone the chance to learn more about the products we sell.

We continued to offer the best in fresh, quality products with produce deliveries every single day and seafood delivery six days per week. Our bakeries introduced clean labelling using more natural ingredients that are free of chemicals and preservatives, and the Co-op Pure line of products was introduced offering clean and simple ingredients, largely produced and manufactured locally.

This past year included the launch of Co-op Pure Proteins which include: •C o-op Pure Pork – 100% vegetable fed and raised without antibiotics or added hormones in western Canada, Co-op Pure Pork is Animal Care Certified.

•C o-op Pure Chicken – Raised in British Columbia’s Fraser Valley without the use of antibiotics.

The chickens are free run, meaning they are housed in an open-concept barn without cages, and are grain fed, with no animal by-products.

Recognizing the importance of choice, Calgary Co-op makes every effort to provide members with a wide variety of options including over 150 cheeses and Calgary’s best selection of imported olives. We are also pleased to offer the best selection of organic fruits and vegetables and launched over 1,000 new International Foods products with dedicated sections at eight locations.

Understanding the value of time, we introduced new signage and décor, including “bump-outs” within the aisles to make your favourites easy to find. We are also pleased to offer time-saving solutions, including fresh cut fruit in all of our food centres, curry bars providing a hot and delicious snack or meal at any time, and even Fresh to Go

pre-packaged meals with clear cooking instructions.

We know that health is a priority for our members and have further expanded our Natural Choice offering to five additional locations for a total of 14 Calgary Co-op food centres with natural alternatives for health and wellness with reputable brands and local quality products. Our certified Natural Health Advisors will assist you in learning more about these products and how they can contribute to a healthy lifestyle with education including meal planning, healthy shopping, vitamins and supplements.

Calgary Co-op is also proud to give our members the opportunity to receive more value for their dollar every day through the Ways to Save program.

Look for the red Sale signs at your local Co-op for specials so hot that some are only available for three days or fewer. From seasonal specials to everyday items, you can trust Price Drop items to give you three weeks of savings. Value Priced Every Day items bring you the best value for your dollar on the items you purchase most often. Your savings don’t get any more local than with the Manager’s Special – brought directly to your local Co-op from the store managers themselves.

And the Co-op and Coupgon apps bring all your digital coupons to one place. Download the free Co-op App for exclusive coupon savings.

CALGARY CO-OP 2016 ANNUAL REPORT

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Bob

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CALGARY CO-OP 2016 ANNUAL REPORT

“I just wanted to tell you about the fantastic customer service I received at the High River Co-op Gas bar this evening! I had just come from dancing so I was in a dress and when I went to go get my gas, the young men insisted I stay inside where it's warm…There is a wind chill of -40 and these gentlemen went out of their way to help me out! It was very appreciated and I think I'll have to come to the Co-op gas bar more often!”

GAS BAR In addition to the opening of the new gas bar at Auburn Bay, Calgary Co-op was pleased to open a second gas bar in Strathmore in December at our Edgefield Centre and a new cardlock in Airdrie in August.

Our Edgefield Gas Bar offers 16 fueling stations with diesel at every pump along with a large convenience store. With the cardlock in Airdrie, Calgary Co-op now offers five facilities for our commercial cardlock customers in the communities we serve including Cochrane, Strathmore and two locations in Calgary. Our Airdrie Cardlock features 24 hour access to fuel for our farm and commercial customers; 300,000 litres of fuel storage; clear and marked diesel; clear and marked gasoline; and three high capacity diesel dispensers with satellite dispensers that will help vehicles

requiring larger fills (semi-tractor units) get on their way faster.

Numerous upgrades were also completed in 2016, including a car wash equipment upgrade in Okotoks; price sign replacements at Copperfield, Creekside, Montgomery, Okotoks and Rocky Ridge; and ID upgrades at Brentwood, Kingsland, Montgomery, Panorama Hills and Richmond Road.

In an effort to enhance the service we provide members, Calgary Co-op introduced a fresh pastry program at 14 locations and a “Flavour Station” at our Kingsland location featuring breakfast sandwiches, fresh salad, fruit and veggies, snack boxes, subs, sandwiches and Asian bowls. In addition, all gas bars are now offering a weekly sampling program, exclusive to Calgary Co-op.

As a member, you continue to enjoy immediate savings each time you fuel up at a Calgary Co-op gas bar through the Revved Up Rewards program. In 2016, the amount members receive through this program was adjusted to 2¢ per litre, after a re-evaluation of all programs.

Recognizing the value our members place in receiving these rewards, we chose to adjust the amount rather than remove the program, and will continue to explore new opportunities to provide great value for our members.

Calgary Co-op is pleased to have more gas bars offering full service than any other petroleum retailer in Calgary and surrounding area. Extra service at no extra cost. We also offer free air at all 30 locations, propane at 27 locations, diesel at 25 locations and touchless car washes at 24 locations.

CALGARY CO-OP 2016 ANNUAL REPORT

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Brad

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CALGARY CO-OP 2016 ANNUAL REPORT

WINE SPIRITS BEER Several key initiatives were introduced by Co-op Wine Spirits Beer in 2016. We launched our Price Drop program early in the year, which identifies more than one hundred of our top selling products and sets them at an everyday low price.

This has proven to be very popular with our members. To ensure the program continues to meet the needs of all members, this list of items is updated every few months.

Co-op Wine Spirits Beer also opened our first small format neighbourhood

liquor store in June. This store was opened under the Sips banner in the community of Weston and offers a great selection of products, along with team members offering the same great product knowledge and customer service that we have become known for. Plans are already underway to open a second location in Airdrie during the summer of 2017.

Our Experience Guide was changed to a new format so that our members can easily see at a glance all of the classes offered at our Tasting Centre

“I think the Co-op Stores are the best place to shop. Great staff in the Grocery Stores as well as [the] Gas Bars and Liquor stores. Keep it up folks”

locations throughout the year.

In October, we launched Whisky Wednesdays on Q107. This weekly program speaks to all of the whisky fans in Calgary in much the same way that our Wine Wednesdays speak to wine lovers each week on QR77.

Co-op Wine Spirits Beer also opened Canada’s first whisky-exclusive store in December. The World of Whisky is located in downtown Calgary next to the Calgary Petroleum Club on the +15 level and offers a selection of more than 700 whiskies!

And, we are pleased to announce that we have introduced a new exclusive label of wines. The Social Collection is a line of wines that simply over-delivers in quality for its price. Be sure to ask about the Social Collection the next time you visit Co-op Wine Spirits Beer.

CALGARY CO-OP 2016 ANNUAL REPORT

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PHARMACY

Ginger

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CALGARY CO-OP 2016 ANNUAL REPORT

PHARMACY Recognizing that members are busier than ever, Calgary Co-op Pharmacies were focused on enhancing the overall experience for customers.

This began with exterior sign and dĂŠcor upgrades at 17 of our locations designed to increase pharmacy visibility. We introduced an open concept pharmacy at the new Auburn Bay location, providing members with improved access to the pharmacists and an on-site till (the first of more to come.) Our software system was upgraded at all locations to streamline the prescription process and ensure all orders are filled efficiently.

Co-op Pharmacies were also pleased to offer new services to members including Sun Clinics featuring Ultraviolet (UV) Reflectance Photography – a quick photo was taken and indicated the effect of UV rays on your face. In addition, Rapid Strep Throat Testing is now being offered at four locations: Hamptons, High River, Macleod Trail and Monterey. If someone is exhibiting the potential signs of strep throat, our team can conduct a simple, reliable test that will determine in 10 minutes whether or not the patient has strep throat.

To further enhance the overall customer experience, all Calgary

Co-op pharmacists are now certified to administer medication by injection, improving accessibility to flu shots and other vaccinations such as shingles and pneumonia. An additional full time clinical pharmacist was added to the team to ensure better access for more complex needs such as diabetes and respiratory education, tobacco reduction and minor ailments prescribing.

Calgary Co-op Pharmacists now provide more services than ever with four Travel Clinics that consult, advise and provide vaccinations and prescriptions based on the area you will be travelling, and offer travel accessories for travel including first aid kits, compression socks and mosquito nets. Our pharmacies can also custom compound a variety of medications.

Whether you would prefer liquid preparation or lozenges, gummy bear chews or topical pain creams, our pharmacists will work with you to meet your unique needs. All Calgary Co-op Pharmacies offer free prescription delivery. By filling your prescription at a Co-op Pharmacy, members earn equity and cash back on the full price of prescriptions.

YOUR PHARMACY TEAM

50+

Certified Tobacco Reduction Pharmacists

40+

pharmacists with Additional Prescribing Authority

28

Certified Diabetes Educators

18

Certified Respiratory Educators

Gina Giurguis, Clinical Pharmacist at our Macleod Trail Pharmacy, received the Canadian Pharmacists Association New Practitioner Award in June 2016.

CALGARY CO-OP 2016 ANNUAL REPORT

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Jean

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CALGARY CO-OP 2016 ANNUAL REPORT

HOME HEALTH CARE Calgary Co-op Home Health Care opened our third location in September. This location is conveniently located across from the Peter Lougheed Hospital in Northeast Calgary, providing an opportunity to better meet the needs of our clients in this area.

In the spring, we completed the renovation to Macleod Trail. This included new fitting rooms, a relocation of the customer service area, a new reception area and the re-merchandising of the store, enhancing the shopping experience for all members.

In May, we introduced a new point of sale system significantly improving the management of member files, the processing of member transactions and the management of inventory.

We also introduced an online order form, allowing our ostomy customers to effectively re-order their supplies, when it is most convenient, and launched an online inquiry form to address member questions in a more efficient manner.

Co-op Home Health Care continues to concentrate on meeting the needs of members by introducing new products. Some of the key items this year include Serenity

Platform Lifts - this includes the Aliyah through the floor personal lift, which is exclusive to our locations in Southern Alberta. We offer high-end power chairs and pediatric equipment from Permobil and Snug Seat, and introduced a power chair from Pride that can raise the user, providing the opportunity to have eye level conversations. We now also carry an electric Stand Up scooter from Drive designed to provide personal transportation for everyone.

TRAVEL Due to the economic climate, and the numerous challenges facing the travel industry, Calgary Co-op divested our Travel division at the end of October, allowing an opportunity for Calgary Co-op to focus on areas where we can be most competitive. The Percy Hunt Travel Group Inc. (PHG) acquired Co-op Travel and will continue to operate under the Marlin Travel

banner. The acquisition of this division resulted in the closure of two Co-op Travel locations: Quarry Park and Village Square. As the largest Canadian franchisee for Transat Distribution Canada, PHG’s focus is solely on the travel industry, making them a strong competitor with an exceptional level of expertise and experience. Calgary Co-op

members will continue to enjoy the personalized service they have come to expect, with enhanced offerings, including an annual 2% travel credit on all travel purchases, with a minimum purchase of $500 per year, excluding taxes. Any purchases made prior to October 28, 2016, have been allocated towards the 2016 Calgary Co-op annual member refund.

CALGARY CO-OP 2016 ANNUAL REPORT

23

In 2016, through the Co-op Community Foundation and community initiatives, Calgary Co-op invested over $4.1 million into local food security programs, youth programs, education, the environment, preventative health and poverty relief.

CO-OPERATIVE

SOCIAL

RESPONSIBILITY

The 23rd Annual Charity Golf Classic raised $286,000 with funds going to Meals on Wheels, Mount Royal University, The Alex Community Centre and the YWCA.

in the 460K+ MEMBERS

COMMUNITY 4.1M

$

IN 2016 MEMBERS $ SHARED

DONATED BY CO-OP TO CHARITIES AND NON-PROFITS IN 2016

31.3M

PROUD TO SUPPORT

110+

LOCAL PRODUCERS

WE EMPLOY

3,850+

LOCAL RESIDENTS

500+ LOCALIZE PRODUCTS

2M

$

IN FOOD

DONATED TO LOCAL FOOD BANKS

REDUCED IN 2016:

13,000 BARRELS OF OIL

13,000 TONNES IN CO2 EMISSIONS

6,609 TONNES OF PLASTIC, PAPER AND ORGANICS DIVERTED FROM LANDFILLS IN 2016

Calgary Co-op was pleased to host Stuff a Bus at our food centres for our 24th straight year in partnership with Calgary Transit and XL103 FM. This year, through the generous donations of our members and our team, over $168,000 in food and cash was collected in just one day. All donations were distributed to the Calgary, Airdrie, High River and Strathmore Food Banks.

The Co-op Community Foundation is also pleased to provide members with two different opportunities to support local, charitable and not-forprofit organizations.

Through Meals that Matter, members can donate their Revved Up Rewards grocery coupons in the donation boxes at any till in our food centres.

24

CALGARY CO-OP 2016 ANNUAL REPORT

Proceeds from this initiative go to support the Calgary Food Bank.

Our Bag Reuse program provides a 3¢ incentive for each personal reusable bag you bring to pack your grocery purchase. This 3¢ credit can be applied to your purchase or donated to the Co-op Community Foundation.

PEOPLE / SOCIAL At Calgary Co-op, we have an incredible team, who we support each year with the employee scholarship program. In 2016, $100,600 in scholarships were provided to 103 team members, their spouse or children who were attending a post-secondary institution full time in 2016.

“The #Flames & @CalgaryCoop set a goal to donate 5400 lbs of food to the @CalgaryFoodBank ... the #CofRed pushed that past 48,000 lbs!”

We also continue to fund post-secondary bursaries for Mount Royal, SAIT and the University of Calgary.

ENVIRONMENT Calgary Co-op continues to dedicate efforts to reducing our environmental footprint. In 2016, thanks to our recycling efforts involving paper, cardboard, plastics and organics, we saved 63,000 mature trees and 99 million litres of water, while saving 20,000 cubic yards of landfill space, 13,000 barrels of oil and 13,000 tonnes of CO2 emissions.

CALGARY CO-OP 2016 ANNUAL REPORT

25

MEMBER

REFUND -&-

REPORTS

Member Refunds Five year comparison 2012 – 2016 ($ millions)

23.5

2016

24.3

10.8

2014

24.0

10.6

2013

23.3

10.7

2012

23.2

10.8

2015

0

2

RETAIL Member refund paid in cash and shares to members based on purchases at food centres, convenience stores, home health care centres and wine, spirits and beer locations.

2%

PHARMACY Member refund paid in cash and shares to members based on the full price of prescriptions.

1

TRAVEL Member refund paid in cash and shares to members based on travel purchases.

%

6

¢

PETROLEUM Per litre member refund paid in cash and shares to members based on petroleum purchases.

This is in addition to the 2¢ per litre grocery coupons instantly received each time you fuel up at your local Co-op gas bar through the Revved Up Rewards program.

Since 1957, $838 million has been shared with members through the annual member refund.

26

CALGARY CO-OP 2016 ANNUAL REPORT

10

Cash

This year, Calgary Co-op members received $31.3 million through the annual member refund.

Of this, $7.8 million was paid in share equity and $23.5 million was paid in cash.

%

7.8

20

30

40

Shares

Member Refund History Cumulative totals since 1957. Five year comparison 2012 – 2016 ($ millions)

838

2016

807

2015

772

2014

737

2013

703

2012 0

200

400

800

600

1000

How Earnings are Allocated ($ millions)

31.3 3.1

2016

9.5

35.1 2.9 5.6

2015

34.6 3.9

2014

11.5

2013

34.0

7.0

2012

34.0

5.1

0

10

Member Refund

20

30

Income Tax

20.8 15.7

40

50

Retained Earnings

60

OFFICERS' REPORT Preparing the accompanying financial statements and ensuring that all information in this annual report is consistent with these statements is the responsibility of Calgary Co-op management. This responsibility includes selecting appropriate accounting policies and making judgments and estimates consistent with Canadian accounting standards for private enterprises.

Management has developed and maintains an extensive system of internal controls that provide reasonable assurance that all transactions are accurately recorded, that the financial statements realistically report the Association’s operating and financial results, and that the Association’s assets are safeguarded against unauthorized use or disposition. The Audit Committee reviews and evaluates the adequacy of, and compliance with, the Association’s internal controls. It is the policy of the Association to maintain the highest ethical standard in all activities, and the Chief Executive Officer and the Chief Financial Officer have signed a Management Compliance Letter stipulating the Association’s compliance with all regulatory requirements. Management of Calgary Co-op have also signed a Letter of Representation to KPMG acknowledging that it is responsible for the fair presentation in the financial statements of the Association’s financial position and that all accounting, financial records and related data have been made available.

The Association’s Board of Directors has approved the information contained in the financial statements based on the recommendation of the Audit Committee following its detailed review with the external auditor and management.

At each Annual Meeting, the Association’s members appoint an independent auditor to provide a professional opinion on the fairness with which the financial statements are presented. The members’ auditor has full access to the Board of Directors and all of the Association’s records.

Peggy LeSueur Board Chair

Ken Keelor Chief Executive Officer

January 26, 2017

January 26, 2017 CALGARY CO-OP 2016 ANNUAL REPORT

27

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CALGARY CO-OPERATIVE ASSOCIATION LIMITED We have audited the accompanying consolidated financial statements of Calgary Co-operative Association Limited, which comprise the consolidated balance sheet as at October 29, 2016, the consolidated statements of operations and retained earnings and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITY Our responsibility is to express an opinion on these consolidated 28

CALGARY CO-OP 2016 ANNUAL REPORT

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 our 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, we 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 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 consolidated financial position of Calgary Co-operative Association Limited as at October 29, 2016, and its consolidated results of operations and its consolidated cash flows for the year then ended in accordance with Canadian accounting standards for private enterprises.

Chartered Professional Accountants January 26, 2017 Calgary, Canada

CONSOLIDATED STATEMENT OF OPERATIONS & RETAINED EARNINGS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

2016 Sales (note 12)

$

1,181,246

2015 $

1,227,654

Expenses: Cost of sales, selling and administrative (note 2)

1,148,392

1,195,521

Amortization

26,542

24,887

Patronage refund (note 20(b))

30,507

30,926

(12,185)

(11,132)

Other expenses (income):

Rental income

Rental expense

Loss on disposal and write off of property and equipment (note 6)

Gain on disposal of asset held for sale

Write-down of asset held for sale

Interest income

Interest expense

3,934

3,615

1,158

1,707

(21)

–

–

600

(252)

(281)

313

93

43,872

43,570

Current

4,257

4,159

Future

(1,143)

(1,269)

3,114

2,890

Net earnings

40,758

40,680

Retained earnings, beginning of year

212,368

204,458

Patronage returns (note 13)

(31,260)

(35,070)

2,320

2,300

Earnings before income taxes Income tax expense (reduction) (note 14):

Inactive members' shares transferred to retained earnings (note 11) Retained earnings, end of year

$

224,186

$

212,368

See accompanying notes to financial statements.

CALGARY CO-OP 2016 ANNUAL REPORT

29

CONSOLIDATED BALANCE SHEET October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

2016

2015

ASSETS Current assets:

Cash and cash equivalents

Accounts receivable

Income tax recoverable

Inventories (note 2)

Prepaid expenses and deposits

Current portion of long-term receivable (note 3)

$

$

9,142 32,278

31,107 1,018

6,203

76,989

70,264

6,040

5,943

891

-

125,519

123,830

Investments (note 5)

137,522

134,471

Property and equipment (note 6)

284,101

266,428

8,918

6,775

Goodwill (note 7) Intangible asset (note 8)

248

–

–

1,200

Long-term receivable (note 3)

3,744

–

Future income taxes (note 14)

5,046

4,016

Asset held for sale

$

30

9,474

CALGARY CO-OP 2016 ANNUAL REPORT

565,098

$

536,720

CONSOLIDATED BALANCE SHEET Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

2016

2015

LIABILITIES AND MEMBERS' EQUITY Current liabilities:

Construction facility (note 9(a))

Accounts payable and accrued liabilities (note 13)

$

10,000

$

–

109,737

116,341

Government payables (note 19)

2,620

2,389

Current portion of long-term debt (note 9(b))

5,648

1,237

Future income taxes (note 14)

8,237

8,350

136,242

128,317

Long-term debt (note 9(b))

9,653

3,217

Other liabilities (note 10)

1,986

2,154

Members’ equity:

Members' shares (note 11)

193,031

190,664

Retained earnings

224,186

212,368

417,217

403,032

Commitments and guarantees (notes 6 and 17) Subsequent events (notes 13 and 20(b)) Contingencies (notes 9 (a) and 22) $

565,098

$

536,720

See accompanying notes to financial statements.

Approved on Behalf of the Board:

Director Director

CALGARY CO-OP 2016 ANNUAL REPORT

31

CONSOLIDATED STATEMENT OF CASH FLOWS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

2016

2015

Cash provided by (used in): Operating activities:

Net earnings

Items not involving cash:

$

40,758

$

40,680 24,887

Amortization

26,542

Patronage refunds to be received in FCL shares (note 20 (b))

(5,739)

(5,719)

Future income tax reduction

(1,143)

(1,269)

Loss on disposal and write off of property and equipment (note 6)

1,158

1,707

Gain on disposal of asset held for sale

(21)

–

Write-down of asset held for sale

–

600

Lease inducement amortization

(92)

(176)

Imputed interest expense

34

–

Accrued future rents

129

155

61,626

60,865

Change in non-cash operating working capital (note 15)

(1,153)

3,777

60,473

64,642

Financing activities:

32

10,000

–

–

1,480

Repayment of long-term debt

(1,759)

(3,472)

Shares redeemed for cash

(3,150)

(2,637)

Shares issued for cash

17

19

Increase in lease inducements

220

–

Change in contract commitments (note 10)

Patronage return paid in cash

Increase in construction facility

Increase in long-term debt

CALGARY CO-OP 2016 ANNUAL REPORT

(425)

(425)

(23,440)

(24,310)

(18,537)

(29,345)

CONSOLIDATED STATEMENT OF CASH FLOWS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

2016

2015

(36,641)

(47,351)

(2,824)

–

321

–

Investing activities:

Expenditures on property and equipment

Acquisition of business assets (note 4)

Proceeds on disposal of asset held for sale

Proceeds on disposal of property and equipment

164

5,450

FCL shares redeemed for cash

2,688

2,627

Change in non-cash working capital (note 15)

(5,312)

(45)

(41,604)

(39,319)

332

(4,022)

9,142

13,164

Change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

$

9,474

$

9,142

See accompanying notes to financial statements.

CALGARY CO-OP 2016 ANNUAL REPORT

33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

The primary business of the Calgary Co-operative Association Limited (the “Association”) is operating retail food, pharmaceutical, petroleum, travel, home health care and liquor outlets in Calgary and area for the benefit of its members. As a percentage, 82% (2015– 82%) of sales are to members. The Association is incorporated under the Cooperatives Act of Alberta.

1. SUMMARY OF ACCOUNTING POLICIES: The consolidated financial statements of the Association have been prepared by management in accordance with Canadian accounting standards for private enterprises. A precise determination of many assets and liabilities is dependent upon future events and consequently, the preparation of periodic financial statements involves the use of estimates and approximations. Areas subject to estimation include valuation of accounts receivable, inventory, useful life of property and equipment, impairment of long-lived assets, future income taxes, and potential contingencies. These estimates also affect the disclosure of contingencies at the date of the financial statements and the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. (a) Basis of presentation: The consolidated financial statements include the accounts of the Association and its proportionate share (50%) of the assets, liabilities, sales and expenses of The Produce People ("TPP"). TPP is a joint venture between the Association and The Grocery People, a wholly owned subsidiary of Federated Co-operatives Limited ("FCL"). (b) Definition of financial year:

The Association's financial year ends on the Saturday closest to October 31. Accordingly, the years ended October 29, 2016 and October 31, 2015 consist of 52 weeks of operations each. (c) Financial instruments:

Financial instruments are recorded at fair value on initial recognition. Freestanding derivative instruments that are not in a qualifying hedging relationship and equity instruments that are quoted in an active market are subsequently measured at fair value. All other financial instruments are subsequently recorded at amortized cost, unless management has elected to carry the instruments at fair value. The Association has not elected to carry any such financial instruments at fair value.

Transaction costs incurred on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs, which are amortized using the straight-line method.

34

CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

(c) Financial instruments (continued):

Financial assets are assessed for impairment on an annual basis at the end of the fiscal year if there are indicators of impairment. If there is an indicator of impairment, the Association determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount the Association could realize by exercising its right to any collateral. If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value. (d) Cash and cash equivalents: Cash and cash equivalents are defined as cash and investments with an initial maturity of less than three months. (e) Inventories: Inventories are recorded at the lower of cost and net realizable value. Cost is determined using the average cost method or the retail method by discounting the retail value by normal profit margins. (f) Property and equipment: Property and equipment are stated at cost net of grant funds received from FCL. Amortization is provided over the estimated useful lives of the assets using the following methods and rates: Buildings and parking lots

Declining Balance

4 - 8%

Fixtures and equipment

Declining Balance

20 - 100%

Computer equipment

Straight Line

33%

Computer software

Straight Line

100%

Leasehold improvements and buildings on leased land are amortized on a straight line basis over the shorter of the lease term and their estimated useful lives.

Renovations to existing buildings and carwash equipment are amortized on a straight-line basis over ten years.

Management assesses the carrying value of property and equipment on a periodic basis for indications of impairment. When an indication of impairment is present, a test for impairment is carried out by comparing the carrying value of the asset to its fair value.

CALGARY CO-OP 2016 ANNUAL REPORT

35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

(g) Assets held for sale:

Long-lived assets are classified by the Association as an asset held for sale at the point in time when the asset is available for immediate sale, management has committed to a plan to sell the asset and is actively locating a buyer for the asset at a sales price that is reasonable in relation to the current fair value of the asset, and the sale is probable and expected to be completed within a one-year period.

Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The asset and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet. (h) Asset retirement obligation:

The Association recognizes a liability for an asset retirement obligation in the period in which a legal liability is incurred and records a corresponding increase in the carrying value of the related long-lived asset. The liability is based on management’s best estimate. The liability is subsequently adjusted for the passage of time, which is recognized as an accretion expense in the consolidated statement of operations and retained earnings. The liability is also adjusted due to revisions in either the timing or the amount of the original estimated cash flows associated with the liability. Actual costs incurred upon settlement of the asset retirement obligations are charged against the asset retirement obligation to the extent of the liability recorded. (i) Goodwill: Goodwill resulting from business combinations represents the portion of the purchase price that was in excess of the fair value of the net identifiable assets acquired. Goodwill is not amortized and is tested for impairment whenever changes in circumstances indicate that the carrying amount of the reporting unit to which goodwill is assigned exceeds the fair value of the reporting unit. If the carrying value of the reporting unit to which goodwill has been assigned exceeds its fair value, then, with respect to the reporting unit’s goodwill, any excess of its carrying value over its fair value is expensed. (j) Intangible assets:

Intangible assets are stated at cost less accumulated amortization. Amortization is provided over the estimated useful life of six years using the straight-line method.

36

CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

(k) Other liabilities: Deferred lease inducements: Deferred lease inducements, representing the benefit of cash inducements, are amortized over the remaining term of the related lease.

Accrued future rents: The Association uses the straight-line method of recognizing its lease expense, whereby the total of cash rents due over the term of a lease is recognized evenly over the life of the lease. The difference between the amount recognized as lease expense and cash paid is included in other liabilities. (l) Revenue recognition: Sales include revenue from member owners and other customers through stores operated by the Association.

These sales are recognized at the point-of-sale.

The Association receives rental income on properties from third party tenants. Rental income is recognized when services are provided.

Periodically, the Association will receive payments for entering into a long term commitment to do business with specific vendors. These amounts are deferred in current and other long term liabilities and are recognized over the term of the commitment when performance is achieved. (m) Store opening expenses:

Store opening costs of new stores are expensed as incurred. (n) Income taxes: The Association follows the liability method whereby income taxes reflect the expected future consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases. Future income tax assets and liabilities are determined for each temporary difference based on the tax rates which are expected to be in effect when the underlying items of income and expense are expected to be realized.

2. INVENTORIES: The cost of inventories recognized as an expense during the year ended October 29, 2016 was $919,817 (2015 $957,900). The Association recorded $nil (2015 - $nil) as an expense for the write-down of inventories where the net realizable value is less than cost as at October 29, 2016. There was no reversal of inventories that were previously written down that are no longer estimated to sell below cost.

CALGARY CO-OP 2016 ANNUAL REPORT

37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

3. LONG-TERM RECEIVABLE: 2016 During the year, the Association sold a food centre that included a three year receivable. The principal amount of $900 is due in 2019 with interest payments receivable monthly. The receivable bears interest at 3.2% per annum.

$

During the year, the Association sold a parcel of land that included a four year receivable. The principal and imputed interest amount of $4,000 is due in four equal annual payments of $1,000 starting September 1, 2017. This long-term receivable has been recorded at fair value using an imputed interest rate of 3%.

Less principal payments due within one year $

900

2015 $

–

3,735

–

4,635

–

891

–

3,744

$

–

$

891

Aggregate principal payments of long-term receivable for each of the next four years are as follows: 2017

38

2018

920

2019

1,848

2020

976

CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

4. ASSET ACQUISITIONS: (a) On August 31, 2016, the Association acquired the business assets of a private company involved in the provision of home health care products and services. The consideration given included the following: Cash

$

2,471

The acquisition has been accounted for using the acquisition method whereby the assets acquired and the liabilities assumed are recorded at their estimated fair values with any excess of the aggregate consideration over the fair value of the identifiable net assets allocated to goodwill and any shortage of the aggregate consideration relative to the fair value of the identifiable net assets recorded as a gain. Operating results of these assets have been included in the Association’s revenues and expenses since the date of acquisition.

The following summarizes the allocation of the aggregate consideration taken for assets acquired: Inventory

$

317

Property and equipment

7

Prepaid expenses

4

Goodwill

2,143 $

2,471

(b) On May 10, 2016, the Association acquired the business assets of a private company involved in the provision of liquor products and services. The consideration given included the following: Cash

$

353

The acquisition has been accounted for using the acquisition method whereby the assets acquired and the liabilities assumed are recorded at their estimated fair values. Operating results of these assets have been included in the Association’s revenues and an expense since the date of acquisition.

The following summarizes the allocation of the aggregate consideration taken for assets acquired: Inventory

$

Property and equipment

42 28

Prepaid expenses

11

Intangible asset

272 $

353

CALGARY CO-OP 2016 ANNUAL REPORT

39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

5. INVESTMENTS: 2016 Federated Co-operatives Limited

$

137,444

$

137,522

Other

2015 $

134,393

$

134,471

78

78

As there is no readily available market for the Association’s investment in FCL shares and the fair value cannot be determined, it has been measured at cost. The FCL shares are redeemable, at cost, at the option of FCL or over a maximum period of five years upon the Association terminating its membership with FCL. The Association’s investment in FCL represents 10% of the issued and outstanding shares of FCL (2015 – 10%).

6. PROPERTY AND EQUIPMENT: Accumulated amortization

Cost Land

$

Buildings and parking lots

75,214

$

–

$

2016

2015

Net book value

Net book value

75,214

$

62,080

250,091

113,426

136,665

131,997

Fixtures and equipment

161,212

112,738

48,474

52,843

Leasehold improvements

18,742

8,263

10,479

16,225

1,159

1,148

11

15

13,258

–

13,258

3,268

Joint venture leasehold improvements and equipment Assets under construction $

519,676

$

235,575

$

284,101

$

266,428

Included in fixtures and equipment are assets acquired through an asset purchase loan from FCL with an original cost of $2,700 (2015 - $2,700) and a net book value of $867 (2015 - $1,084).

As at October 29, 2016, the Association had contractual commitments to spend approximately $4,679 (2015 - $16,900) on capital expansion projects.

The loss on disposal and write-off of property and equipment of $1,158 for the year ended October 29, 2016 (2015 $1,707) comprises the disposal of equipment and the write-down of obsolete assets in renovated shopping centres, liquor stores and gas bars.

The Association disposed of an asset held for sale in 2016 resulting in a gain on disposal of $21 (2015 – $nil).

40

CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

7. GOODWILL: 2016 Balance, beginning of year

$

Goodwill acquired (note 4(a))

6,775

2015 $

6,775

2,143

Balance, end of year

$

8,918

– $

6,775

8. INTANGIBLE ASSET: Accumulated depreciation

Cost Liquor license (note 4(b))

$

272

$

24

$

2016

2015

Net book value

Net book value

248

$

–

9. DEBT (a) Credit facilities: The Association has available a $40,000 construction facility. As at October 29, 2016, the Association has drawn $10,000 on the facility. The facility is due on demand. Interest is charged at the lender's prime rate.

The Association has available a $20,000 demand line of credit. Interest is charged at the lender's prime rate. The Association has provided letters of credit in the amount of $519 (2015 - $783) to support the purchase of certain inventory and capital items. These letters of credit are charged against the $20,000 line of credit. Both the line of credit and construction facility are secured by an $84,000 demand fixed and floating charge debenture on certain shopping centres.

CALGARY CO-OP 2016 ANNUAL REPORT

41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

(b) Long-term debt: 2016 On September 1, 2016, the Association acquired land that was financed by the vendor. The long-term debt has been recorded at fair value using an imputed interest rate of 3%. Repayable with principal and imputed interest payments of $2,500 annually starting September 1, 2017 until September 1, 2019 and a final payment of $4,300 on September 1, 2020.

$

Mortgage facility bearing interest of 5.513% per annum, and is secured by a charge registered against land and a general assignment of rents against the property, repayable in monthly installments of $10 on the first of each month with a maturity date of June 1, 2017.

FCL unsecured loans are non-interest bearing. Each loan is payable in three equal annual payments with due dates to March 31, 2018.

FCL Asset purchase loan is non-interest bearing and is repayable in annual installments of $526 ending July 1, 2017.

Current portion of long-term debt $

–

1,427

1,463

2,405

1,939

526

1,052

15,301

4,454

5,648

1,237

9,653

$

3,217

$

5,648

2018

3,134

2019

2,320

2020

4,199

(c) Covenants:

The Association is required to maintain the following covenants:

42

$

Aggregate principal repayments of long-term debt for the next four financial years are as follows: 2017

(i) Minimum debt service ratio of 1:25:1

(ii) Debt to equity not to exceed 1:25:1

10,943

2015

The Association was in compliance with these covenants at October 29, 2016.

CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

10. OTHER LIABILITIES: Included in other liabilities is an amount related to contract commitments. In 2013, the Association entered into two 5 year vendor commitment contracts. At the time of signing these contracts, the Association received payments of $2,000 and $125, respectively. Should the Association terminate these contracts prior to their expiry date, the Association is required to reimburse each vendor a pro-rated portion of their initial payment based on the number of days remaining in the contract.

As at October 29, 2016, the Association has recorded deferred revenue related to these payments of $413 (2015 - $838), of which $413 (2015 - $425) is included in accounts payable and accrued liabilities and $nil (2015 - $413) is included in other liabilities.

11. MEMBERS' SHARES: The Association is authorized to issue an unlimited number of shares with a par value of $1. Upon application to the Board of Directors, the par value of the member's shares becomes payable when the member reaches age 65 or moves out of the trading area, or, at the request of the member's estate, upon the member's death.

Changes in share capital are as follows: 2016 Balance, beginning of year

$

190,664

2015 $

184,822

Shares redeemed for cash

(3,150)

(2,637)

Inactive members' shares transferred to retained earnings

(2,320)

(2,300)

17

19

185,211

179,904

Shares issued for cash Current year's patronage returns to be paid in shares (note 13) Balance, end of year

7,820 $

193,031

10,760 $

190,664

Inactive members are defined as members who have not transacted with the Association within two years.

CALGARY CO-OP 2016 ANNUAL REPORT

43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

12. SALES CATEGORIES: The Association's business operations are grouped into three business categories, the principal activities of which are as follows: (a) Food, which consists of the sale and distribution of food and pharmaceutical products; (b) Petroleum, which consists of the sale of petroleum products and convenience store items; (c) Other, which consists of the provision of travel services, liquor products and home health care products.

2016 Food

$

Petroleum Other $

677,445

2015 $

692,544

368,663

396,665

135,138

138,445

1,181,246

$ 1,227,654

13. PATRONAGE RETURNS: Subsequent to October 29, 2016, the Board of Directors approved the payment of patronage returns in the amount of $31,260 (2015 - $35,070). The portion of the patronage returns to be paid in cash in the amount of $23,440 (2015 $24,310) is included in accounts payable and accrued liabilities and the portion to be paid in shares in the amount of $7,820 (2015 - $10,760) is included in members' shares.

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CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

14. INCOME TAXES: Income tax expense differs from the expected expense at the statutory tax rate as follows: Statutory rate Earnings before tax less the patronage return to members

$

Expected expense at statutory rate Enacted tax rate increase Change in valuation allowance Permanent difference Other

2016

2015

27.00%

25.68%

12,612

$

2,183

–

302

(152)

258

78

263

(217)

Income tax expense

$

8,500

3,405

3,114

(116) $

2,890

The Association has capital losses of approximately $788 (2015 - $1,914). These losses can be carried forward indefinitely for future use against taxable capital gains. The potential tax effect of these losses has not been reflected in these financial statements.

The tax effects of temporary differences that give rise to future tax assets and future tax liabilities are presented below: 2016

2015

Future tax assets: $

Supplemental defined contribution employee retirement plan difference between accounting and tax base

91

$

149

Deferred lease inducements - difference between accounting and tax base

166

130

Accrued future rents - difference between accounting and tax base

391

356

Contract commitments - difference between accounting and tax base

112

227

Property and equipment - difference in accounting book value and undepreciated capital cost

4,392

3.412

Unrecognized capital losses

(106)

(258)

$

5,046

$

4,016

$

8,237

$

8,350

Future tax liabilities:

Patronage refund receivable

CALGARY CO-OP 2016 ANNUAL REPORT

45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

15. CHANGE IN NON-CASH WORKING CAPITAL: 2016

2015

Operating activities:

Accounts receivable

$

Inventories

Prepaid expenses and deposits

Accounts payable and accrued liabilities

Income taxes recoverable

Government payable

1,171

$

7,423

(6,366)

(2,132)

(82)

689

(1,292)

4,314

5,185

(6,455)

231

(62)

$

(1,153)

$

3,777

$

(5,312)

$

(45)

Investing activities:

Accounts payable for capital expenditures

16. PENSION PLANS: The Association participates in a multi-employer defined contribution pension plan whereby the Association and participating employees contribute equal amounts to the maximum allowed under the Income Tax Act. The Association has no unfunded liability under this plan. During the year, the Association recorded $4,385 (2015 - $4,254) of expense relating to this plan, and there were no significant changes to the rates of employer contributions.

The Association has established a supplemental defined contribution employee retirement plan. For the year ended October 29, 2016, an expense of $96 (2015 - $150) has been recorded relating to this plan. The total liability at October 29, 2016 is $335 (2015 - $550).

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CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

17. COMMITMENTS AND GUARANTEES: (a) Lease commitments: The Association is committed to minimum lease payments under operating lease agreements for buildings and equipment over the next five years and beyond, as follows: 2017

$

13,802

2018

13,760

2019

13,606

2020

11,897

2021

9,857

Subsequently

60,934 $

123,856

(b) Utility service commitment: The Association has a commitment to purchase electricity at fixed rates per KWH for fiscal 2017 and a portion of 2018. The total commitment for each year is $2,300 and $400.

The Association has a commitment to purchase natural gas at fixed rates per GJ for fiscal 2017. The total commitment is $800. (c) Product purchase commitment: Under the terms of an agreement with FCL, the Association has committed to purchase petroleum products, at market price, from FCL for gas bar operations over a ten-year period commencing from the date of gas bar completion. Failure to meet this commitment would require the Association to pay outstanding gas bar loan balances owed to FCL plus repay any gas bar grants received, as described in note 20(c), plus interest on the grants, compounded annually at 10% from the grant date. The total outstanding loan balances are disclosed in note 9(b). Total grants received over the prior ten year period amount to $28,000 (2015 - $32,400).

Effective November 1, 2014, FCL implemented an updated program related to providing grants for the construction and upgrading of retail facilities by its members. Any new projects initiated after November 1, 2014 are subject to the conditions of the new program. Under the terms of this agreement, the Association has committed to purchase petroleum and food products from FCL for gas bar and food centre operations for periods ranging from 10 to 30 years, depending on the nature of the project. Failure to meet this commitment would require the Association to repay a prorated amount of any grants received over the remaining purchase term plus interest, compounded annually at 10% on the prorated grant amount from the date of default. Total grants received on facility projects covered under this program amount to $5,100 (2015 - $nil).

CALGARY CO-OP 2016 ANNUAL REPORT

47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

18. FINANCIAL INSTRUMENTS: (a) Credit risk: The Association’s financial instruments consist of cash and cash equivalents, investments, accounts receivable, long-term receivable, construction facility, accounts payable and accrued liabilities, government payables, longterm debt and other liabilities.

The Association is exposed to credit risk resulting from the possibility that parties may default on their financial obligations. Management believes the credit risk associated with the FCL patronage refund is negligible based on the nature of the receivable.

Management believes that the credit risk relating to the remaining financial assets is normal for the business and is limited due to the following reasons:

- there is a broad base of customers, and therefore no significant concentration of credit risk exists;

- the ratio of bad debt write-offs to total revenue has been less than 0.01% for the last three years; and,

- 75% (2015 - 85%) of trade receivables are current (less than 30 days).

The Association’s credit risk exposure on cash is minimized substantially by ensuring that cash is held with credible financial institutions. (b) Liquidity risk: Liquidity risk is the risk that the Association will not be able to meet a demand for cash or fund its obligations as they come due. The Association meets its liquidity requirements by anticipating operating, investing and financing activities and ensuring there are enough funds to cover these activities.

In order to reduce liquidity risk, the Association has kept its financial leverage at low levels and maintained financial ratios that are conservative compared to the financial covenants within its credit facilities. (c) Interest rate risk: Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates. The Association’s sensitivity to fluctuations in interest rates is limited to certain of its cash and cash equivalents, long-term receivable, short-term borrowing and long-term debt. (d) Currency risk: The Association is exposed to financial risks as a result of exchange rate fluctuations and the volatility of these rates. In the normal course of business, the Association’s joint venture (note 1 (a)) purchases inventories denominated in U.S. dollars. The Association does not currently enter into forward contracts to mitigate this risk.

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CALGARY CO-OP 2016 ANNUAL REPORT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

19. GOVERNMENT PAYABLES: 2016 Payroll deductions

$

City of Calgary transit passes

1,454

2015 $

1,166 $

2,620

1,190 1,199

$

2,389

20. RELATED PARTY TRANSACTIONS: Federated Co-operatives Limited (FCL) is owned by retail co-operatives across Western Canada including the Association. FCL provides central wholesaling, manufacturing and administrative services to its owners. It is the major grocery and petroleum supplier to the Association, in addition to other commodities. The Association owns approximately 10% (2015 – 10%) of the shares in FCL. (a) Purchases: For the year ended October 29, 2016, the Association made purchases from FCL in the amount of $665,733 (2015 - $704,057). These purchases represented 72% (2015 - 74%) of the Association's total purchases and were transacted in the normal course of operations and were recorded at the exchange amount. Included in accounts payable and accrued liabilities are amounts owed to FCL of $43,243 (2015 - $45,032).

For the year ended October 29, 2016, the Association earned interest income at prime less 1.25% (2015 - prime less 1.25%) of $137 (2015 - $54) as a result of early payments on normal trade payable balances to FCL. The average early payment balance with FCL amounted to $9,503 (2015 - $3,372). (b) Patronage refund: Subsequent to October 29, 2016, the FCL Board approved the payment of a patronage refund to the Association in the amount of $30,507 (2015 - $30,926). The portion of the patronage refund to be received in cash in the amount of $24,768 (2015 - $25,207) is included in accounts receivable - $20,193 (2015 - $20,568) and income tax recoverable $4,575 (2015 - $4,639). The portion to be received in FCL shares in the amount of $5,739 (2015 - $5,719) is included in investments. (c) Capital grants and interest-free loans: The Association receives interest-free loans and capital grants from FCL to assist in the construction of gas bars and food centers. For the year ended October 29, 2016, the Association received interest-free loans of $1,662 (2015 - $2,701) and capital grants of $5,201 (2015 - $3,592) from FCL for this purpose. See also note 9(b).

CALGARY CO-OP 2016 ANNUAL REPORT

49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended October 29, 2016, with comparative information for October 31, 2015 (in thousands of dollars)

(d) Short-term investments: The Association's short-term investment with FCL earned interest revenue of $nil (2015 - $151), calculated at prime less 1.25% (2015 - prime less 1.25%). As at October 29, 2016, the balance of these investments was $nil (2015 - $nil). (e) Leases: The Association has a food centre operating lease agreement in place with FCL which requires payments of approximately $300 per year to October 2032. This commitment is disclosed as part of note 17(a). (f) Asset purchase loan: The Association has an asset purchase loan with FCL for fixtures and equipment which requires payment on July 1, 2017 in the amount of $526 (see also notes 6 and 9(b)).

21. ASSET RETIREMENT OBLIGATION: An asset retirement obligation has not been recorded in the financial statements since the Association participates in a contaminated site management program established by FCL. This program limits the Association’s liability to $25 per site as long as the Association continues to exercise due diligence. Management believes that due diligence has been exercised and that the impact of the asset retirement is not considered significant.

22. CONTINGENCY: The Association is involved in various claims and litigations arising in the normal course of business. While the outcome of these matters are uncertain and there is no assurance that such matters will be resolved in the Association’s favour, the Association does not currently believe that the outcome of adverse decisions, if any, in pending or threatened proceedings, would have a significant impact on its financial position, results of operations or liquidity. No provision for these claims and litigations have been included in these consolidated financial statements.

50

CALGARY CO-OP 2016 ANNUAL REPORT

Committed to our community, and proudly delivering exceptional customer experiences since 1956.

Bob PHARMACY

Jean

Jill

Brad

Ginger

THANK YOU FOR SUPPORTING YOUR LOCAL CO-OP!

CALGARY CO-OP 2016 ANNUAL REPORT

51

Jill

Bob

I wanted to send a note stating what great customer service I received today, at the [Co-op] gas bar in Strathmore. Erich the gas attendant was very friendly and went above and beyond to provide great service. Very friendly and a welcoming smile. Even my 13 year old child who was sitting in the car stated, "That guy, Dad, is excellent at what he does." For a teenager to lift his eyes off of his phone and see Erich's work ethic just proves that he deserves recognition and maybe my child learned something today. So Thank You Erich well done!

I'll be back for sure!”

Bob PHARMACY

Ginger

Brad

“I've been a co-op shopper most of my adult years.

A great selection of meats and produce.

They were also amongst the first to stock not-so-common items for those of us with food allergies.”

Jill

“Thank you Co-op! Your years of service and family atmosphere have been rewarding to us!”

Bob

Jean

Jill

Jean

“I'd like to pass along a compliment to Geoff, service employee at the Hamptons, Calgary Co-op.

Geoff quite often takes my groceries out to my vehicle for me which I greatly appreciate. He is always friendly, polite and professional. He is a definite asset to the Co-op team.”

Jill

“One great thing about Co-op they care about their customers and always have a smile for them unlike other big stores...Love Co-op...”

“Kudos Oakridge @CalgaryCoop!

Didn't have time to get to a natural food store. Gr8 to find what I needed in ur expanded section.”

PHARMACY

Brad

Brad

Ginger

PHARMACY

Ginger

Bob

CALGARY CO-OP 2016 ANNUAL REPORT

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CALGARY CO-OP 2016 ANNUAL REPORT