Saskatoon Co-op 2017 Annual Report

Annual Report The Saskatoon Co-operative Association Limited The Saskatoon Co-operative Association Limited 201 - 503 Wellman Crescent Phone: 306-933-3801 Saskatoon, SK Canada S7T 0J1 Email: admin@saskatooncoop.ca www.saskatooncoop.ca

President’s Report . . . . . . . . . . . . . . . . . . 1 Our Guiding Statements . . . . . . . . . . . . . . 3 Management Report . . . . . . . . . . . . . . . . 4 Sustainable Growth, Facilities and Environment . . . . . . . . . . . . . . . . . 6 Finance and Audit . . . . . . . . . . . . . . . . . . 8 Policy & Governance . . . . . . . . . . . . . . . . 9 Member Relations . . . . . . . . . . . . . . . . . 10 Human Resources . . . . . . . . . . . . . . . . . 12 Locations . . . . . . . . . . . . . . . . . . . . . . . 14

FINANCE Management’s Responsibility . . . . . . . . . . 15 Independent Auditors’ Report . . . . . . . . . . 16 Financial Statements . . . . . . . . . . . . . . . 17 Notes to the Financial Statements . . . . . . 20

ADDITIONAL Statement on the Co-operative Identity . . . 32 Our Values . . . . . . . . . . . . Inside back cover

2017 in review

1

PRESIDENT’S REPORT the east side of Saskatoon in the Meadows Market development of Rosewood.

Saskatoon Co-op continues its involvement with Federated Co-operatives Limited’s Community Spaces Program, supporting the Optimist Hill Campaign with a donation of $125,000. The newly constructed Merlis Belsher Place sports facility at the University of Saskatchewan also received a donation. In-kind donations to the Saskatoon Food Bank, Friendship Inn and CHEP Program equalled $298,000. Also, donations by cash or gift-card fundraising programs in 2017 totalled $275,000.

Exciting events in 2017 included the proposed amalgamations of Hepburn Co-op and Watrous Co-op.

These Co-ops approached Saskatoon to join as one to provide long-term and high-quality service and products to its members. The Board has agreed that is a win-win situation for all.

Saskatoon and district has faced some tougher economic times in the last year. Despite these dark clouds, Saskatoon Co-op has experienced modest growth. This success comes from supplying the right products and services to a committed membership.

Saskatoon Co-op achieved a net savings of $12.9 million on sales of $439.8 million. These are very good results in such challenging economic times. Though not all divisions had a net savings, the balance of goods and services allows Saskatoon Co-op to succeed.

The Democratic Review Project undertaken by the Centre for the Study of Co-operatives has almost completed its mandate. With the proposed amalgamations, it was decided to broaden the study to include the regional nature of Saskatoon Co-op. The study has therefore been extended by six months. The project is defining the paths that Saskatoon Co-op could take in the future.

Saskatoon Co-op can attribute its success in 2017 to its excellent employees, a dedicated management team and the strong support of our membership.

Saskatoon Co-op has expanded its agricultural product line with the new Hepburn fertilizer facility. The Colonsay store is open with remarkable success and the new Greystone Home Centre on 8th Street is complete.

Construction is underway on a second liquor store on

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

Grant Whitmore, Board President

2017 in review

2

DIRECTORS

Grant Whitmore

Ron Moffatt

Norm Bemis

Mike Puckett

Term expires 2018

Term expires 2019

Term expires 2020

Term expires 2019

President

Vice President

Treasurer

Secretary

David Thieme

Gord Bedient

Nathan Holowaty

Denis Gilbertson

Term expires 2020

Term expires 2018

Term expires 2019

Term expires 2018

Director

Director

Director

Graham Addley Director

Term expires 2020

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

Director

2017 in review

3

OUR GUIDING STATEMENTS Vision

To set the standard for excellence in co-operative retailing

Mission

To provide top-quality retail products and exceptional service to our members and customers, delivered by a knowledgeable, engaged team within a sustainable, co-operative model

Aspirational Statements People We maintain a diverse, skilled and engaged workforce, and we are recognized as a desired place to build a career.

Market We consistently provide excellent consumer experiences and actively demonstrate our Co-op brand values - Lifetime Membership Benefits, Locally Invested and Community-Minded.

Operations We achieve efficiencies in all aspects of our business by using effective processes and technologies, while maintaining an injury-free workplace environment.

Financial We achieve financial goals while maintaining controls, managing risk and pursuing viable opportunities for growth.

Sustainability We are recognized as a leading contributor to our community, and we practice sustainable environmental stewardship.

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

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MANAGEMENT REPORT

Grant Wicks

Chief Executive Officer

Brad Weigel

Operations Manager

Financials The 2017 fiscal year was characterized by increased competitive forces and significant start-up expenses for new projects. This resulted in our first local loss in over 10 years.

Our 2017 sales were $439.8 million, which was a 5 per cent increase from 2016. Sales increased in all divisions other than Home Centres, where the economy continues to struggle and competition has further intensified. The same goes for travel, which was strategically exited in early 2016. Gas Bars had the largest dollar increase in sales; however, our litres were relatively flat. Food sales also increased significantly, but this was because 2017 was being the first full year of operations for the Martensville Food Store.

The remaining Food Stores struggled because of a significant renovation at the Food Store in the Centre Mall in Saskatoon, as well as increased competitive pressures. Our Agro division had another strong year, which encouraged us as we enter the fertilizer blending business in 2018 with a new facility near Hepburn.

Liquor also saw increases, with increased commercial and consumer sales.

Despite the large sales dollar increase, our gross margin dollars were only $78.5 million, which is down slightly from the 2016 total of $78.6 million. The increased price at the pump skews our margin percentage, as

Harley McClughan Operations Manager

Jason Ryden

Operations Manager

competitive and market factors actually decreased the cents per litre margin. Our margins decreased across the Association as we kept pace with competitors while they lowered prices in some areas and in others passed less of their cost increases on to customers.

The increase in expenses from $76.0 million in 2016 to $81.2 million in 2017 is attributed almost entirely by new projects. The first full year of operations at the Martensville Food Store resulted in 12 months of expenses rather than three. Although most of the direct costs of the renovation at Centre Mall Food Store were capitalized, many indirect costs were incurred that increased expenses. Colonsay sustained significant start-up costs at the new hybrid site that opened in the summer of 2017, with additional shut-down costs of the old site. Similar to Colonsay, Greystone Home Centre suffered additional costs as the site became operational and the old 8th Street Home Centre was decommissioned.

The lower gross margin dollars and the higher expenses led to the local loss of $2.7 million.

Together with approximately 180 other independent retail Co-ops across Western Canada, Saskatoon Co-op owns Federated Co-operatives Limited (FCL), which is our wholesaler and the provider of many other valueadded services. In this co-operative ownership model,

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

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we earned patronage of $15.6 million in 2017 based on our purchases through FCL, which was an increase of $1.1 million over our 2016 allocation. The increase was due to a growth in our volume of purchases as well as FCL’s earnings improvement, primarily resulting from favourable market conditions in the energy sector.

This led to net savings before income taxes of $12.9 million compared to $17.1 million in 2016.

Despite the lower net savings and large capital expenditures, our balance sheet has remained strong, and our long-term financial planning and continuous due diligence forecast that it will remain strong into the future.

2017

2016

Gas Bar Fuel, Bulk Petroleum

5.15%

6.55%

Food

1.0%

1.0%

Home Centres, Agro Hardware

1.0%

1.5%

Crop Inputs

3.0%

3.0%

Prescriptions

1.5%

2.0%

Liquor

1.0%

1.0%

Feed, Agro Equipment

1.0%

1.5%

nil

1.0%

10.0%

10.0%

N/A

nil

Car Washes Oil and Lubes

Equity and Cash Back The total dollar amount of patronage we declare is decided upon by balancing our Co-op’s need to remain financially sustainable for the long-term with the need to repay our members who support the Co-op through their purchases.

This year your Board of Directors approved $9.0 million to be allocated to members’ share accounts following the 2017 fiscal year. Although this amount is less than the 2016 allocation of $10.5 million, a greater proportion of net savings is being allocated to patronage as opposed to reserves. This is a strategic decision made with reference to our financial goalposts and long-range financial forecasts. It is balanced by a higher proportion of net savings being allocated to reserves in strong earnings years.

On a cash basis, we expect repayments of equity and the general cash repayment to result in approximately $6.0 million being paid out during 2018.

Patronage will be allocated to members’ share accounts at the following rates, based on each member’s purchases as per the chart on this page.

Travel

compared to $8.5 million in 2016. As mentioned above, major projects completed during the year included the renovation of the Centre Mall Food Store, the replacement and relocation of the 8th Street Home Centre to the Greystone Home Centre and the replacement and relocation of the Colonsay location to a hybrid store on Highway 16.

Significant capital was spent on a new fertilizer site located near Hepburn. This site was completed after year-end and is open for business for the 2018 season.

We also completed and opened our first stand-alone pharmacy in Warman after year-end.

During 2018, we plan to open a new liquor store in the Meadows Market development of Saskatoon’s Rosewood neighbourhood during 2018. Pending membership approval, we also intend to amalgamate with the Watrous and Hepburn Co-ops during the year, which we are confident will create incremental longterm value for all parties. Renovations and equipment replacements at various sites are also planned.

Growth

Grant Wicks,

This was a significant year for long-term growth, as we incurred $27.5 million of capital expenditures

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

Chief Executive Officer

2017 in review

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SUSTAINABLE GROWTH, FACILITIES AND ENVIRONMENT

PURPOSE The purpose of Sustainable Growth, Facilities and Environment is to work with management in identifying new markets and business opportunities and assessing the Co-operative’s property needs. It is also responsible for reviewing the Co-operative’s environmental practices. Board members actively participate in the Corporate Performance Management process by reviewing our vision, mission and values, which assists in identifying opportunities for Saskatoon Co-op.

Projects that were completed since the last Annual General Meeting:

• Construction of a new store in Colonsay, which includes food, hardware, liquor, fuel and agro services along with a cardlock • A complete interior renovation and modernization of

the Co-op Food Store at The Centre Mall on 8th Street in Saskatoon • Demolition of the old Greystone Food Store on 8th Street • Construction of a new Greystone Home Centre on 8th street, which includes 35,000 square feet with an additional 25,000 square feet of covered lumber storage • Construction of a new fertilizer site near Hepburn • Opening a new stand-alone pharmacy in Warman

Ongoing projects:

• A newly constructed Wine, Spirits and Beer store in Meadows Market in Saskatoon

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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FINANCE AND AUDIT

PURPOSE The Committee advises the Board on financial administration and recommends policies to the Board regarding the financial affairs of The Saskatoon Co-operative Association Limited.

It advises the Board on issues pertaining to management, the external auditors, Internal Audit Department, Board and our membership.

The Committee also evaluates and reviews the patronage distribution and makes recommendations.

With the Co-operative’s continued growth, the Committee has placed significant emphasis on assessment of the Co-operative’s long-range financial projections and fixed asset plan. These long-range plans ensure that our decisions make good financial sense and that we continue to manage the growth responsibly. We thus ensure that we do not place our members’ equity and Co-operative in jeopardy.

The Committee’s members are independent and all have, as a minimum, a basic understanding of financial statements and general financial knowledge. Committee and Board members continue to advance their education and are encouraged to participate in courses to improve their skills and knowledge of financial aspects for the Co-operative Retailing System (CRS).

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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POLICY & GOVERNANCE

PURPOSE The purpose of Policy & Governance is to assist the Saskatoon Co-op Board of Directors in the implementation of Co-op’s mission and objectives through developing and maintaining effective board governance strategies and policies.

The Board of Directors of Saskatoon Co-op actively works with guidance from the Centre for the Study of Co-operatives from the University of Saskatchewan.

It’s recommendations will determine future options for the Board to take to the membership regarding various voting procedures and director nominations.

We aim to determine what kind of policy and governance structure is best suited for Saskatoon Co-op, while keeping in line with current legislation governing co-operatives in Saskatchewan.

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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MEMBER RELATIONS PURPOSE Member Relations assists the Board in its role of maintaining and improving the viability of the Cooperative through programs aimed at increasing the interest, understanding and committment of members, recruitment of new members, and developing a positive feeling towards the cooperative in the community.

Saskatoon Co-op owes its success to the members of our community who purchase our products and services. As such, we are committed to giving back to our community as a meaningful contributor.

Each year our Member Relations Committee identifies key areas of giving based on the needs of our population base and other social issues. Our goal is to strengthen our communities and support initiatives in several areas, including health sciences, youth programs, educational programs, the arts, environmental projects and community sports and recreation.

The 2017 cash donation total of just over $275,000 was invested in worthy non-profit community initiatives where Saskatoon Co-op members work, live and play.

Our in-kind investments to our local food banks and community food service programs totalled just over $271,300.

The United Way received support from two Co-op programs this year: Fuel Good Day on September 19 and our employees’ giving campaign. In 2017, our team donated $12,668 and our members/customers donated $21,909 through Fuel Good Day’s accumulation of 10 cents per litre from each fill. With our matching donation, we raised a total of $69,194 for the United Way. Also celebrating our team’s commitment to our community, the Employee Community Involvement Program had nine recipients. Each group received a $500 donation from Saskatoon Co-op in recognition of the time our team members invest outside of their work day.

We were proud to be part of the Communities In Full Colour (CMFC) program again this year. Locally, Habitat for Humanity Saskatoon, Elmwood Manor, Quint Development Corporation and Cheshire Homes were four of the seven recipients in the Co-op 2017 CMFC program and were awarded CO-OP® IMAGINE paint to maintain and enhance their spaces. Later in 2018, we will be providing a Day of Caring for another recipient of the CMFC program. We are pleased to lend a hand towards projects and partnerships that are doing good things close to home.

Philanthropic investments have been made to the new Merlis Belsher Place at the University of Saskatchewan and the new development at the Gordie Howe Sports Complex, strengthening our commitment to local amateur athletes.

A $150,000 boost from Co-op Community Spaces will help develop Optimist Hill. As a winter recreation area, Optimist Hill will offer a full range of activities for children and adults. The central location and affordable equipment rentals will make outside play easy and accessible for everyone in our community. When it is time to warm up, the Lifestyle Activity Centre will offer healthy concession treats, meeting spaces and other services.

Our membership has grown to over 111,000, and as we continue to open new locations, we anticipate that this number will continue to grow. To stay up-todate with what is happening at your local Co-op, visit saskatooncoop.ca under “What’s New” on the home page. You can also follow us on Facebook at facebook.com/yxeCoop, on Twitter @yxeCoop and on Instagram @saskatoon_co-op. You can also subscribe to our YouTube channel at yxeCoop.

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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HUMAN RESOURCES Diversity

Employee Relations

Saskatoon Co-op continued to strengthen its bond with the community in 2017. The partnerships with Partners in Employment, Quint Development Corporation and International Women of Saskatoon have grown this year through work placement and other employment opportunities. Saskatoon Co-op’s major achievement was receiving the Long-Term Employer Partner Award at the Open Door Society’s Annual Diversity Award Gala.

Saskatoon Co-op was given this honour to recognize our longstanding relationships with organizations in the community. Along with these partnerships, Saskatoon Co-op also makes an effort every year to support workplacement programs at local high schools by having students work at different Co-op locations to gain experience towards their future careers.

Saskatoon Co-op continued to grow in 2017, with the new Colonsay store opening in July and the new Greystone Home Centre opening in September. These locations created exciting new employment and growth opportunities for current and new employees.

The Saskatoon Co-op employee website continued in 2017 and has proven to be an effective tool in sharing information with employees. The website is continually updated with organizational news, upcoming events, employee documents and stories of personal accomplishments. The Eco Bus Pass Program continued in 2017, making it possible for all staff to access affordable bus passes easily. Employee Service Milestones were celebrated during May and November coffee parties, when employees were given gifts to honour their years of dedication and service.

United Way Saskatoon Co-op is grateful to work continually with the United Way each year. Last year Saskatoon Co-op employees donated $12,668 towards the United Way, which was matched by Saskatoon Co-op to equal $25,335.90. The partnership with the United Way strengthens every year, and Saskatoon Co-op will continue to build on this into 2018.

Health & Safety In May 2016, Saskatoon Co-op signed on with WorkSafe Saskatchewan and Mission: Zero. Since the program’s implementation and with the training and support of all our employees, we have successfully decreased our injury rate by 20 per cent from the previous year. We will continue to strive for zero incidents and injuries to our employees. Through training, education and team effort, we will achieve this goal. Whether at home, work or play, safety is our priority.

Training In 2017, training opportunities continued to be offered to employees through courses and online training modules. Management is going above and beyond, ensuring that all employees have the right training and tools in order to excel in their roles. E-learning modules – on topics such as the Co-op Brand and Health and Safety – ensure that staff are representing the core values of Co-op. Employees can further their careers through a wide range of personal development and technical classroom courses. It is essential to Saskatoon Co-op that it continues to grow and develop its employees’ skills through various training opportunities.

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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LOCATIONS Saskatoon Co-op Head Office Administration Member Relations Department Human Resources Department Credit Department Board of Directors

Wine, Spirits and Beer Store • Blairmore

Convenience Stores/Gas Bars • Fairhaven • Stonebridge • Blairmore

• Greystone • 22nd Street • Colonsay

• Attridge • 51st Street • Martensville

• Westview • Avenue C • Warman

• The Centre • Preston Crossing

• Attridge • Avenue C

• Stonebridge • Blairmore

• Preston Crossing

• Tamke Road

• Martensville

• Colonsay

• Stonebridge • The Centre • Colonsay • Martensville

• Westview

Car Washes • Greystone • 51st Street

Cardlocks • 51st Street

Food Stores • Attridge • Warman

Pharmacies (located in Food Stores) • Attridge

• Stonebridge

• The Centre

• Westview

Home Centres • Avenue C

• Greystone

Agro Centre • Highway 16

• Colonsay

• Hepburn

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

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Management's Responsibility

To the Members of The Saskatoon Co-operative Association Limited: Management is responsible for the preparation and presentation of the accompanying financial statements, including responsibility for significant accounting judgments and estimates in accordance with Canadian accounting standards for private enterprises. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements.

The Board of Directors and Audit Committee are composed entirely of Directors who are neither management nor employees of the Cooperative. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities, and for approving the financial information included in the annual report. The Board fulfils these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management, internal auditors, and external auditors. The Board is also responsible for recommending the appointment of the Co-operative's external auditors.

MNP LLP is appointed by the members to audit the financial statements and report directly to them; their report follows. The external auditors have full and free access to, and meet periodically and separately with, both the Board and management to discuss their audit findings.

March 26, 2018

Chief Executive Officer

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

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Independent Auditors’ Report

To the Members of The Saskatoon Co-operative Association Limited:

We have audited the accompanying financial statements of The Saskatoon Co-operative Association Limited, which comprise the balance sheet as at January 31, 2018, and the statements of net savings and retained savings, 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 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 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 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 financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the 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 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 financial statements present fairly, in all material respects, the financial position of The Saskatoon Co-operative Association Limited as at January 31, 2018 and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for private enterprises.

Other Matter The financial statements for the year ended January 31, 2017 were audited by another auditor who expressed an unmodified opinion on those financial statements on March 27, 2017.

Report on Other Legal and Regulatory Requirements As required by paragraph 11 of the Co-operatives Regulations, 1998, we report that, in our opinion, Canadian accounting standards for private enterprises have been applied on a basis consistent with that of the preceding year.

Saskatoon, Saskatchewan March 26, 2018

Chartered Professional Accountants

119 4th Ave South, Suite 800, Saskatoon, Saskatchewan, S7K 5X2, Phone: (306) 665-6766, 1 (877) 500-0778

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

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The Saskatoon Co-operative Association Limited

BALANCE SHEET

Balance Sheet As at January 31, 2018

As at January 31, 2018 (in Canadian dollars except as noted)

2018 The Saskatoon Co-operative Association Limited Current assets Balance Sheet $ Cash and cash equivalents 440,103 As at January 31, 2018 Accounts receivable (Note 4) 5,779,253 Income taxes recoverable 1,888,276 Inventories 30,457,360 2018 Prepaidassets expenses 1,403,387 Current 39,968,379 Cash and cash equivalents $ 440,103 Accounts receivable (Note 4) 5,779,253 Investments Income taxes recoverable 1,888,276 Federated 46,008,521 InventoriesCo-operatives Limited (Note 5(a)) 30,457,360 Prepaid expenses 1,403,387 Property, plant and equipment (Note 6) 145,887,147 39,968,379 Goodwill (Note 7) 11,930,111 Intangible asset (Note 8) 2,262,063 Investments Total assets $ 246,056,221 Federated Co-operatives Limited (Note 5(a)) 46,008,521 Property, plant and equipment (Note 6) Current liabilities Goodwill (Note 7) and trust liabilities (Note 10) Accounts payable Intangible asset (Note 8) Customer prepaid accounts Total assets Current portion of long-term debt (Note 11) Current liabilities Long-term (Note Accounts debt payable and11) trust liabilities (Note 10) Total liabilities Customer prepaid accounts Current portion of long-term debt (Note 11) Members' equity Share capital (Note 12) Reserves and savings (Note 13) Long-term debtretained (Note 11) Total liabilities Total liabilities and members' equity Members' equity Share capital(Notes (Note 12) Commitments 5(c) and 20) Reserves and retained (Note 13) Subsequent events (Notesavings 21)

$ $

145,887,147 11,930,111 49,420,084 2,262,063 1,512,047 246,056,221 393,619 51,325,750

$

13,643,617 49,420,084 64,969,367 1,512,047 393,619 51,325,750 90,998,019 90,088,835 13,643,617 181,086,854 64,969,367 246,056,221

Total liabilities and members' equity Approved on behalf of the Board of Directors Commitments (Notes 5(c) and 20) Subsequent events (Note 21)

$

90,998,019 90,088,835 181,086,854 246,056,221

Director on behalf of the Board of Directors Approved

Director

Director

$

2017 $

$

$ $ $

1,655,043 10,837,469 1,135,392 26,349,473 2017 2,182,812 42,160,189 1,655,043 10,837,469 1,135,392 44,449,971 26,349,473 2,182,812 127,729,889 42,160,189 11,930,111 2,387,733 228,657,893 44,449,971 127,729,889 11,930,111 37,718,442 2,387,733 1,710,713 228,657,893 1,277,204 40,706,359

$

12,912,410 37,718,442 53,618,769 1,710,713 1,277,204 40,706,359 88,139,743 86,899,381 12,912,410 175,039,124 53,618,769 228,657,893

$

88,139,743 86,899,381 175,039,124 228,657,893

$

Director

The accompanying notes are an integral part of these financial statements

1 The accompanying notes are an integral part of these financial statements

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

18

2017 in review

The Saskatoon Co-operative Association Limited

Balance Sheet STATEMENTThe OFSaskatoon SAVINGS AND As at January 31,Association 2018RETAINED Co-operative Limited SAVINGS Net Savings and Statement of Retained Savings As at January 31, 2018 (in CanadianStatement dollars except of as noted)

Current assets Cash and cash equivalents Accounts receivable (Note 4) Sales (Note 14) recoverable Income taxes Inventories Cost of goods sold Prepaid expenses

2018 For the Year Ended January 31, 2018 $ 2018

Gross margin Investments Expenses Federated Co-operatives Limited (Note 5(a))

440,103 % 5,779,253 $ 439,838,488 1,888,276 100.0 30,457,360 361,342,109 1,403,387 82.2 39,968,379 78,496,379 17.8

Current liabilities Savings (loss) fromand operations Accounts payable trust liabilities (Note 10) Customer prepaid accounts Patronage refunds (Note 5(a)) Current portion of long-term debt (Note 11) Savings before income taxes

$

Total liabilities and members' equity Retained savings, beginning of year

45,552,829 10.9 127,729,889 29,943,818 11,930,1117.2 537,511 2,387,7330.1 $ 228,657,893 76,034,158 18.2

(2,717,887) (0.6) $ 49,420,084 1,512,047 15,585,504 393,619 3.5 51,325,750 12,867,617 2.9

2,601,291 $ 37,718,4420.6 1,710,713 14,461,982 1,277,2043.5 40,706,359 17,063,273 4.1

13,643,617 755,441 64,969,367 0.1

12,912,410 1,380,726 53,618,7690.3

Retained savings, end of year (Note 13)

12,112,176

2.8

90,998,019 90,088,835 181,086,854 $ 246,056,221 786,345

$

Commitments (Notes 5(c) and 20) Net savings Subsequent events (Note 21) Transfer to statutory reserve (Note 13) Transfer to general reserve (Note 13) Patronage allocation to members (Note 21(a)) Approved on behalf of the Board of Directors

44,449,971

48,877,188145,887,147 11.1 31,973,049 11,930,111 7.2 364,029 2,262,063 0.1 $ 246,056,221 81,214,266 18.4

Long-term debt (Note 11) Income taxes (Note 18) Total liabilities Net savings Members' equity Share capital (Note 12) Reserves and retained savings (Note 13)

$2017 1,655,043 % 10,837,469 1,135,392 $ 417,674,212 100.0 26,349,473 339,038,763 81.2 2,182,812 42,160,189 78,635,449 18.8

46,008,521

Staff Property, plant and equipment (Note 6) Operating(Note and administration Goodwill 7) Net interest (Note(Note 16) 8) Intangible asset Total assets

2017

$

$

12,112,176 (643,381) (3,205,655) (9,049,485) $

Director

-

15,682,547

3.8

88,139,743 86,899,381 175,039,124 $ 228,657,893 748,825 15,682,547 (852,000) (4,295,999) (10,497,028)

$

786,345

Director

The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements

1 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2

2017 in review

19

The The Saskatoon Saskatoon Co-operative Co-operative Association Association Limited Limited

STATEMENT OF CASH FLOWS Balance Sheet Statement of Cash Flows As at January 31, 2018 For the Year Ended January 31, 2018

As at January 31, 2018 (in Canadian dollars except as noted)

Current assets Operating Cash and activities cash equivalents Net savings Accounts receivable (Note 4) Adjustments Income taxes for: recoverable Depreciation Inventories Amortization Prepaid expenses of intangible asset FCL patronage refund Gain on the disposal of property, plant and equipment Investments Changes in non-cash operating working capital: Federated Co-operatives Limited (Note 5(a)) Accounts receivable Income taxes recoverable Property, plant and equipment (Note 6) Inventories Goodwill (Note 7) Prepaid expenses Intangible asset (Note 8) Accounts payable and trust liabilities Total assets Customer prepaid accounts

2018 $

2017 2017

2018

440,103 $ 1,655,043 $ 12,112,176 $ 10,837,469 15,682,547 5,779,253 1,888,276 1,135,392 9,313,627 9,259,615 30,457,360 26,349,473 125,670 1,403,387125,670 2,182,812 (15,585,504) (14,461,982) 39,968,379 42,160,189 (519) (39,253) 46,008,521 5,058,216 (752,884) 145,887,147 (4,107,887) 11,930,111 779,425 2,262,063 11,701,642 246,056,221 $ (198,666)

44,449,971 (6,799,602) (921,546) 127,729,889 2,244,836 11,930,111 (1,625,006) 2,387,733 7,340,020 228,657,893 158,407

Current liabilities Cash provided by operating activities Accounts payable and trust liabilities (Note 10) $ Investing Customeractivities prepaid accounts Redemption sharesdebt (Note 11) Current portionofofFCL long-term Additions to property, plant and equipment Proceeds from the disposal of property, plant and equipment

18,445,296 49,420,084 $ 1,512,047 14,026,954 393,619 (27,497,146) 51,325,750 26,780

10,963,706 37,718,442 1,710,713 13,015,797 1,277,204 (8,478,310) 40,706,359 95,835

Long-term debt (Note 11) Cash provided by (used for) investing activities Total liabilities Financing activities Members' equity Increase in long-term debt Share capital 12) Repayment (Note of long-term debt Reserves and retained Share capital issued savings (Note 13) GST on allocation Total liabilities and members' Redemption of share capital equity

13,643,617 (13,443,412) 64,969,367

12,912,410 4,633,322 53,618,769

1,421,591 90,998,019 (1,573,969) 90,088,835 46,780 181,086,854359,946 246,056,221 (6,471,172) $

249,193 88,139,743 (11,165,636) 86,899,381 50,480 175,039,124 346,762 228,657,893 (5,716,580)

$

$

Cash used for (Notes financing activities Commitments 5(c) and 20) Subsequent events (Note 21) Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of year

Approved behalf of the Board of of Directors Cash andon cash equivalents, end year

Director

$

(6,216,824)

(16,235,781)

(1,214,940) 1,655,043

(638,753) 2,293,796

440,103

$

1,655,043

Director

The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements

1 3 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

20

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted) the Year Ended January 31, 2018

1. Incorporation and operations The Saskatoon Co-operative Association Limited ("the Co-operative") was incorporated under the Co-operatives Act of Saskatchewan on January 2, 1936. The primary business of the Co-operative is operating retail petroleum, food, home centre, agricultural and liquor outlets in Saskatoon, Saskatchewan and area.

2. Significant accounting policies These financial statements 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 these 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, goodwill, intangibles, income taxes, accrued liabilities 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.

These financial statements have been prepared to reflect the following significant accounting policies: (a) Definition of financial year The Co-operative's financial year ends on the Saturday closest to January 31. (b) Cash and cash equivalents Cash and cash equivalents are defined as cash and investments with an initial maturity of less than three months. (c) Inventories Inventories are valued using a weighted average formula, first-in first-out method, and the retail method.

Inventories are stated at the lower of cost and net realizable value.

The Co-operative estimates net realizable value as the amount that inventories are expected to be sold for, taking into consideration fluctuations of retail price due to seasonality less estimated costs necessary to make the sale.

Inventories are written down to net realizable value when the cost of inventories is determined to be not recoverable due to obsolescence, damage or permanent declines in selling prices. (d) Investments The Co-operative's investments are accounted for using the cost method. Accordingly, the investments are recorded at acquisition cost, less any provisions for permanent impairment or adjustments for patronage refunds or share redemptions. All transactions with FCL are disclosed in Note 5.

4 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

21

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

the Year Ended January 31, 2018 As at January 31, 2018 (in Canadian dollars except as For noted) 2. Significant accounting policies - (continued) (e) Financial instruments Financial instruments are recorded at fair value on initial recognition and are subsequently recorded at amortized cost, unless management has elected to carry the instruments at fair value. The Co-operative has not elected to carry any such financial instruments at fair value. Financial instruments, which are subsequently measured at amortized cost, are adjusted by transaction and financing costs incurred on acquisition.

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 Co-operative 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 Co-operative 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. (f) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation is taken over the estimated useful lives of the assets using the following methods and rates: Buildings Leasehold improvements Tanks Furniture & equipment Computer equipment Pavement Vehicles Parking lot equipment

Straight-line & declining balance Straight-line Declining balance Declining balance Straight-line Declining balance Declining balance Declining balance

25 years or 4% - 10% 5 - 22 years 10% - 20% 20% - 55% 3 years 8% 30% 10%

In the year of acquisition, depreciation is taken at half the annual rate.

Expenditures for maintenance and repairs are charged to operating expenses as incurred. Significant expenditures for improvements are capitalized. Gains or losses realized on the disposal of property, plant and equipment are reflected in operations in the year of disposition.

Claims for assistance under various FCL programs are recorded as a reduction of the cost of related assets in the period in which eligible expenditures are incurred, with any depreciation calculated on the net amount.

An impairment loss is recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. No such impairment loss was recorded during the year.

5 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

22

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

2. Significant accounting policies - (continued) (g) Asset retirement obligation The Co-operative has a liability for an asset retirement obligation in the period in which a legal liability is incurred.

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 statement of net savings. 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. (h) Share capital The Co-operative approves an allocation to members subsequent to year end. The amount is recorded as an addition to share capital and a reduction in retained savings. The Co-operative records the redemption of shares that is to be paid to members at the time it has been approved by the Board of Directors. (i) Revenue recognition The Co-operative recognizes revenue when evidence of an arrangement exists, delivery or change of ownership has occurred, the price has been determined, and collection is reasonably assured. (j) Income taxes The Co-operative follows the taxes payable method whereby only current income tax assets and liabilities are recognized to the extent they remain unpaid or are recoverable. In addition, the benefit relating to a tax loss incurred in the current period and carried back to prior periods is recognized as a current asset. Current income tax assets and liabilities are measured using substantively enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized. (k) 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. Impairment losses relating to goodwill cannot be reversed in future years. (l) Intangible assets Intangible assets are carried at cost, less accumulated amortization and accumulated impairment losses, if any.

Finite life intangible assets are tested for impairment when events or circumstances indicate the carrying value may not be recoverable. When the recoverable amount is less than the carrying value, an impairment loss is recognized in net savings for the year. Intangible assets, once functional, are amortized on a straight-line basis over their useful lives.

6 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

23

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

3. Financial instruments and risk management The significant financial risks to which the Co-operative is exposed are credit risk, interest rate risk, liquidity risk and commodity price risk. (a) Credit risk The Co-operative is exposed to credit risk on accounts receivable from its customers. The Co-operative manages credit risk through an active credit management program. The Co-operative does not have a significant exposure to any individual customer. (b) Interest rate risk Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. Changes in market interest rates may have an effect on cash flows associated with some financial assets and liabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk. The Co-operative's sensitivity to fluctuations in interest rates is limited to its cash and debt. The Cooperative manages its exposure to interest rate risk through floating rate deposits and borrowings. (c) Liquidity risk Liquidity risk is the risk that the Co-operative will encounter difficulty in meeting obligations associated with financial liabilities. The Co-operative is exposed to liquidity risk arising primarily from the long-term debt. The Cooperative's ability to meet obligations depends on funds generated by its operations. (d) Commodity price risk The Co-operative enters into transactions to purchase crop production products, for which market prices fluctuate.

The nature of the Co-operative’s activities exposes it to risk of changes in commodity prices related to crop inputs that may occur between the time products are received from the supplier and actual date of sale to customers. To mitigate a portion of this risk, the Co-operative enters into contracts with the supplier to purchase the product at specified prices.

4. Accounts receivable

2018

Customer accounts receivable Other receivables Allowance for doubtful accounts

2017

$

6,388,919 390,334 (1,000,000)

$

$

5,779,253

$

7,139,699 4,447,770 (750,000) 10,837,469

7 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

24

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as noted) For the Year Ended January 31, 2018

5. Transactions with Federated Co-operatives Limited (FCL) (a) Patronage refund The Co-operative, along with other Co-operatives in Western Canada, own FCL. At the end of each year, FCL divides a substantial portion of its net savings among these retail Co-operatives in proportion to the business done by each with FCL. During FCL's fiscal year ended October 31, 2017, the Co-operative purchased goods amounting to $286,991,648 (2017 - $266,460,854) from FCL in the normal course of operations.

These purchases resulted in a patronage refund from FCL which was received as non-cash consideration in the form of additional shares in FCL. FCL, based on its available cash flow, redeemed an amount of FCL shares held by the Co-operative. The amounts of the patronage refund and shares redeemed are as follows: 2018

2017

Opening investment balance Patronage refund Share redemptions

$

44,449,971 15,585,504 (14,026,954)

$

43,003,786 14,461,982 (13,015,797)

Closing investment balance

$

46,008,521

$

44,449,971

(b) Asset retirement obligation The Co-operative participates in a contaminated site management program established by FCL to manage its asset retirement obligations. This program limits the Co-operative’s liability to $25,000 per site as long as the Cooperative continues to exercise due diligence. The Co-operative has 17 sites under this program. Management believes that due diligence has been exercised and that the impact of the asset retirement obligation to the Cooperative's financial statements is not significant. (c) Purchase commitments (i) Under the terms of the agreement with FCL, the Co-operative has committed to purchase petroleum products, at market price, from FCL for its gas bar and cardlock operations over a ten year period commencing from February 2008. Failure to meet this commitment would require the Co-operative to immediately pay outstanding gas bar and cardlock loan balances owed to FCL, plus repay any gas bar and cardlock grants received, including interest on the grants compounded annually at 10% from the grant date. Total grants received during this period amounted to approximately $28,100,000 (2017 - $28,500,000). (ii) Under the terms of the agreement with FCL, the Co-operative has committed to purchase petroleum products, at market price, from the FCL corporate bulk plant over a ten year period commencing from March 2009. Failure to meet this commitment would require the Co-operative to pay a portion of the capital costs of the bulk plant to FCL determined by a formula based upon usage. (iii) Under the terms of various agreements with FCL, the Co-operative has committed to purchase food, pharmacy, and food-related products from FCL and continue to operate certain food stores over periods of ten to thirty years depending on the specific contract. Failure to meet this commitment without FCL approval would require the Co-operative to repay the assistance received on a prorated basis. Total assistance that would be repayable if commitments were not met without FCL approval as at January 31, 2018 amounted to $8,400,000 (2017 - $4,500,000).

8 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

25

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

5. Transactions with Federated Co-operatives Limited (FCL) - (continued) (iv) Under the terms of the agreement with FCL, the Co-operative has committed to purchase fertilizer products, at market price, from FCL over a five year period commencing from July 2016. Failure to meet this commitment would require the Co-operative to pay a termination charge to FCL determined by a formula based on purchases and years remaining in the contract.

Management intends to fulfill all existing contracts with FCL. (d) Management agreement The Co-operative has a five year management agreement with FCL expiring on January 31, 2022. The agreement provides for the provision of management services, including business and financial planning and operational assistance, by FCL to the Co-operative. The cost to the Co-operative with respect to this agreement was $383,112 (2017 - $648,273).

6. Property, plant and equipment Accumulated Depreciation

Original Cost Land Buildings Leasehold improvements Tanks Furniture & equipment Computer equipment Pavement Vehicles Parking lot equipment Under construction

2018 Book Value

$

32,824,272 94,875,910 8,077,519 4,142,478 45,323,816 3,042,480 8,433,787 3,456,411 183,388 11,573,746

$

24,961,356 1,531,992 2,599,230 28,808,165 2,362,352 3,093,120 2,595,628 94,817 -

$

32,824,272 69,914,554 6,545,527 1,543,248 16,515,651 680,128 5,340,667 860,783 88,571 11,573,746

$

211,933,807

$

66,046,660

$ 145,887,147

2017 Book Value $

32,751,612 69,654,232 3,492,035 1,145,142 15,073,821 73,790 4,367,415 1,009,606 64,296 97,940

$ 127,729,889

Depreciation for the current year included in operating and administration expense was $9,313,627 (2017 $9,259,615).

7. Goodwill

2018

Balance, beginning of year Impairment losses Balance, end of year

$ $

11,930,111 11,930,111

2017 $ $

11,930,111 11,930,111

9 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

26

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

8. Intangible asset

Accumulated Amortization

Original Cost $

Market lease

2,764,743

$

502,680

2018 Book Value $

2,262,063

2017 Book Value $

2,387,733

Intangible asset with a definite life is amortized on a straight line basis over 22 years. Amortization for the current year end, included in operating and administration expenses was $125,670 (2017 - $125,670).

9. Line of credit The Co-operative has a $1,000,000 line of credit of which no amount has been drawn as at January 31, 2018 (2017 - $nil). The line of credit is secured by a General Security Agreement covering all present and after acquired property. Interest on the line of credit is at the prime rate of 3.45% (2017 - 2.7%).

10. Accounts payable and trust liabilities

2018

FCL payables Other payables Trust liabilities: Payroll deductions Provincial sales tax Goods and services tax Liquor consumption tax

$

40,097,066 8,735,260

2017 $

437 501,540 85,781 $

49,420,084

29,805,009 7,263,134 387,132 164,091 29,126 69,950

$

37,718,442

11. Long-term debt Total FCL (1) FCL (2) FCL (3) FCL (4) FCL (5) FCL (6)

2018 Current Portion

2018 Deferred Portion

2017 Current Portion

2017 Deferred Portion

$ 13,250,000 593,529 193,707

$

296,765 96,854

$

13,250,000 296,764 96,853

$

588,787 671,513 16,904 -

$

12,912,410 -

$ 14,037,236

$

393,619

$

13,643,617

$

1,277,204

$

12,912,410

10 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

27

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

11. Long-term debt - (continued) (1)

Warman Food, Centre Food, Westview Food and Martensville Food Store loans bear interest at the prime rate of 3.45% (2017 - 2.7%) and are repayable via an annual reduction in available credit. The loans are subject to certain non-financial covenants. The Co-operative believes it is in compliance with these covenants as at year end and have been in compliance since the loan start dates. The loans are unsecured. The available credit per year is as follows: Warman Food Store 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

$ 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 -

Centre Food Store $

13,398,000 11,484,000 9,570,000 7,656,000 5,742,000 3,828,000 1,914,000 -

Westview Food Martensville Food Store Store $

20,000,000 17,500,000 15,000,000 12,500,000 10,000,000 7,500,000 5,000,000 2,500,000 -

$

10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000

Total $

50,398,000 43,984,000 37,570,000 31,156,000 24,742,000 18,328,000 11,914,000 5,500,000 2,000,000 1,000,000

(2)

Federated Co-operatives Limited Westview gas bar loan bore no interest and was repayable at $588,787 per year, with the remaining balance paid in 2017. Security for this loan was a first security interest in the equipment purchased.

(3)

Federated Co-operatives Limited Warman gas bar loan bore no interest and was repayable at $671,513 per year, with the remaining balance paid in 2017. Security for this loan was a first security interest in the equipment purchased.

(4)

Federated Co-operatives Limited Dundurn gas bar loan bore no interest and was repayable at $16,904 per year, with the remaining balance paid in 2017. Security for this loan was a first security interest in the equipment purchased.

(5)

Federated Co-operatives Limited Colonsay gas bar loan is repayable in annual instalments at $296,765 without interest. The remaining balance is due in 2020. Security for this loan is a first security interest in the equipment purchased with a net book value of $1,458,844.

(6)

Federated Co-operatives Limited Warman gas bar loan is repayable in annual instalments at $96,853 without interest. The remaining balance is due in 2020. Security for this loan is a first security interest in the equipment purchased with a net book value of $632,632.

The scheduled principal repayments on the long-term debt for the next five years and subsequent are as follows: 2019 2020 2021 2022 2023 Subsequent payments

$

393,619 393,617 13,250,000

$

14,037,236 11 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

28

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

12. Share capital Authorized, unlimited @ $1

2018

Balance, beginning of year Allocation to members Cash from new members GST on allocation Shares transferred from reserves

$

General repayment Shares transferred to reserves Withdrawals and retirements Withholding tax

2017

88,139,743 9,049,485 46,780 359,946 10,724 97,606,678

$

3,934,143 137,487 1,735,890 801,139 6,608,659

Balance, end of year

$

90,998,019

83,112,994 10,497,028 50,480 346,762 8,092 94,015,356 3,265,201 159,033 1,695,050 756,329 5,875,613

$

88,139,743

13. Reserves and retained savings Statutory Reserve Balance, beginning of year

$ 16,644,775

General Reserve $

Retained Savings

69,468,261

$

2018

786,345

$

2017

86,899,381

$

81,562,921

Net savings distributed to retained savings

-

-

12,112,176

12,112,176

15,682,547

Patronage allocation

-

-

(9,049,485)

(9,049,485)

(10,497,028)

Shares transferred

126,763

Reserve transfers

643,381

Balance, end of year

$ 17,414,919

-

-

3,205,655 $

72,673,916

126,763

(3,849,036) $

-

150,941

$

90,088,835

$

86,899,381

12 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

29

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

14. Sales Gas Bars Food Stores Ag and Petroleum Home Centres Liquor Other

2018

2017

$ 184,982,943 147,037,564 56,090,112 28,474,357 19,097,990 4,155,522

$ 177,005,575 141,260,865 51,890,773 30,078,249 14,393,272 3,045,478

$ 439,838,488

$ 417,674,212

The Co-operative's business operations consist of six segments. All sales are to external customers and no single customer accounts for more than 10% of sales.

15. Pension plan The Co-operative participates in a multi-employer defined contribution plan whereby the Co-operative and participating employees contribute equal amounts up to the maximum allowed under the Income Tax Act. The Cooperative has no unfunded liability under this plan. During the year, the Co-operative recorded $1,916,118 (2017 $1,823,128) of expense relating to the plan. There were no significant changes to the rate of employer contributions during the year.

16. Net interest

2018

Interest expense on - Short-term debt - Long-term debt Interest revenue

2017

$

1,755 749,081 (386,807)

$

24,048 816,700 (303,237)

$

364,029

$

537,511

17. Lease to others The Co-operative leases property, plant and equipment to others. The leases are classified as operating leases and rental revenues are included in operating and administration expenses. The cost of the property, plant and equipment held for leasing purposes is $10,080,037 (2017 - $10,020,631) and the accumulated depreciation is $3,517,547 (2017 - $3,173,778). Revenue generated from operating leases is $1,846,469 (2017 - $1,564,208).

13 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

30

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

18. Income taxes The Co-operative accounts for income taxes using the taxes payable method. As a result, the Co-operative's income tax expense varies from the amount that would otherwise result from the application of the statutory income tax rates as set out below: 2018 2017 Savings before income taxes

$

Expected income tax expense at the combined tax rate of 26.75% (2017 - 27%) net of the general rate rededuction Increase (decrease) in income tax expense resulting from: Non-taxable income and non-deductible expense Patronage allocation to members of $9,049,485 (2017 - $10,497,028) Income or expenses claimed in different periods for income tax purposes: Capital cost allowance in excess of depreciation Reserves for accounting purposes Other items that impact income taxes: Manufacturing and Processing Investment Tax Credit Prior year tax adjustment Income tax expense

$

12,867,617

$

17,063,273

3,442,088

4,607,084

(2,080) (2,420,737)

13,663 (2,834,198)

(254,377) 8,000

(297,072) (121,550)

(17,453) -

(8,594) 21,393

755,441

$

1,380,726

19. Operating leases The Co-operative has entered into contracts for the leasing of the Greystone Gas Bar and Greystone Home Centre, the land at the Preston Crossing Gas Bar, the Maintenance building on Millar Avenue, Warman Pharmacy and The Centre Food Store and Gas Bar. Future committed minimum lease payments including anticipated lease payments on leases expected to be renewed, over the next five years amount to: January 31, 2019 2020 2021 2022 2023

$

2,052,056 2,055,475 2,058,941 2,062,005 2,061,961

Occupancy costs are in addition to the future committed minimum lease payments.

The Greystone Gas Bar and Home Centre lease expires in October 2037 with the option to renew for one more term of five years.

The Preston Crossing Gas Bar land lease expires in December 2025 with the option to renew for four terms of five years each.

The Maintenance building lease expires in April 2018.

The Warman Pharmacy lease expires in December 2023 with the option to renew for three more terms of five years.

The Centre Food Store and Gas Bar lease expires in October 2020 with the option to renew for three more terms of five years.

14 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

31

Saskatoon Co-operative Association Limited NOTES TOTheTHE FINANCIAL STATEMENTS Notes to the Financial Statements

As at January 31, 2018 (in Canadian dollars except as For noted)the Year Ended January 31, 2018

20. Commitments (a) The Co-operative is committed to the completion of a fertilizer plant near Hepburn, Saskatchewan. The estimated total cost of the project is $4,636,200 of which $4,533,254 has been set up as construction in progress.

This project will be financed from internally generated cash flows. (b) The Co-operative is committed to the completion of a liquor store in Saskatoon, Saskatchewan. The estimated total cost of the project is $1,750,000 of which $11,282 has been set up as construction in progress. This project will be financed from internally generated cash flows. (c) The Co-operative is committed to the completion of a building renovation in Saskatoon, Saskatchewan. The total cost of the project is unknown at January 31, 2018 however $6,751,345 of expenditures has been set up as construction in progress. This project will be financed from internally generated cash flows. (d) The Co-operative is committed to the completion of a pharmacy in Warman, Saskatchewan. The estimated total cost of the project is $651,330 of which $275,049 has been set up as construction in progress. This project will be financed from internally generated cash flows.

21. Subsequent events (a) Patronage allocation to members Subsequent to January 31, 2018 the Board of Directors approved a patronage allocation to members in the amount of $9,049,485 (2017 - $10,497,028). (b) Share redemption Subsequent to January 31, 2018 the Board of Directors approved a redemption of shares in the amount of $4,249,808 (2017 - $4,713,171). (c) Construction projects The Co-operative completed a fertilizer plant near Hepburn, Saskatchewan which commenced operations in February 2018. A pharmacy in Warman, Saskatchewan was completed and opened in March 2018.

22. Comparative figures Certain comparative figures have been reclassified to conform to current year financial statement presentation.

This did not affect prior year earnings.

15 THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

2017 in review

32

International Co-operative Alliance STATEMENT ON THE CO-OPERATIVE IDENTITY Definition

Values

Principles

4. Autonomy and Independence

A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

The co-operative principles are guidelines by which co-operatives put their values into practice.

1. Voluntary and Open Membership Co-operatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership.

In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organized in a democratic manner.

3. Member Economic Participation Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.

Co-operatives are based on the values of self-help, selfresponsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.

Co-operatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.

5. Education, Training and Information Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public – particularly young people and opinion leaders – about the nature and benefits of co-operation.

6. Co-operation Among Co-operatives Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.

7. Concern for Community Co-operatives work for the sustainable development of their communities through policies approved by their members.

THE SASKATOON CO-OPERATIVE ASSOCIATION LIMITED

Manchester, United Kingdom, September 23, 1995

INTEGRITY

Present an open and ethical company • Bring a reliable and honest approach to business • Treat people with respect • Be accountable for all decisions • Deliver sustainable returns and growth

DEVELOP PEOPLE

Dedication to healthy work environments • Provide valuable employment • Work co-operatively as a team • Sustain high morale • Facilitate employee achievement and development

COMMUNITY

Strengthen our community • Care for our environment • Support our neighbourhoods • Contribute positively to our local economy

The Saskatoon Co-operative Association Limited 201 - 503 Wellman Crescent Phone: 306-933-3801 Saskatoon, SK Canada S7T 0J1 Email: admin@saskatooncoop.ca www.saskatooncoop.ca ÂŽCO-OP and design trademark are registered trademarks of TMC Distributing Ltd., Saskatoon S7K 3M9.