2016 annual report & notice of annual meeting · 2016-12-01 · 3 harriston durham hanover...

2016Annual Report& Notice ofAnnual Meeting1944 - 2016

Bringing you what’s next.™

A Brief History of North Wellington Co-op

1944 Established May 9, 1944 as Harriston Co-operative Association. Purchased a feed mill on Margaret St., Harriston, Ontario from Mr. Walkey.1956 Entered into the bulk fuels business.1958 Entered into the propane business.1960 Merged with Mount Forest District Co-operative Co. Ltd. (June 1) and formed North Wellington Co-operative Services Inc.1968 Entered into bulk fertilizer and bulk blend fertilizer.1970 Built a new store for Mount Forest location.1973 Built a new store for Harriston location.1993 Purchased Hanover and Durham co-op stores from UCO.1998 Built a new store and garden centre greenhouse in Hanover.2000 Construction of a 60’ x 200’ warehouse at Harriston.2002 Built a 36’ x 48’ greenhouse at Harriston.2004 Built a new greenhouse in Mount Forest, records storage building in Harriston, a propane bulk plant in Hanover.2006 Grand opening of the Durham greenhouse.2007 Grand opening of Harriston cardlock. Put in service a new fuel truck for Harriston.2009 Demolished mill at Harriston and built a 4000 square foot warehouse.2010 Purchased a new spray coupe, two spreaders and a new area spreader. Upgraded overhead fertilizer bins in Harriston.2011 Put in a new fertilizer blender in Harriston. Put in service a new petroleum truck and a new propane truck. Replaced roof on store and renovated lunch room at Mount Forest location.2012 Put in service a new propane truck. Purchased a new SpraCoupe, a 1942 Ford stake truck, a new tender box and a new fertilizer spreader.2013 Purchased a new energy service truck, a new bulk feed truck, a new fertilizer spreader, and North Wellington Co-op’s first electronic road sign in Mount Forest.2014 Put in service a new petroleum truck, updated computer system to AgTrax. Purchased a high clearance spinner truck, fertilizer spreader, and a new delivery truck for Hanover. Purchased a new propane filler plant for Durham.

2015 Put in service a third propane truck, purchased a new Hardi sprayer, a new tender truck and a new fertilizer spreader. Renovated the offices in Harriston.

2016 Purchased a new propane truck. Purchased a 4-wheeler, an 8 tonne fertilizer spreader, and a yard truck for Harriston. Purchased an energy sales pick up truck.

For a more in depth version of our history, pick up a copy of our History book - Our First 70 Years: A History of North Wellington Co-operative Services Inc. by William G. Chamberlain, edited by Catherine L. Chamberlain.

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HARRISTON ▪ DURHAM ▪ HANOVER ▪ MOUNT FOREST

72nd Annual Meetingfor the year ending September 30, 2016.Thursday November 24, 2016.at the Neustadt Community Hall, 183 Enoch St., Neustadt at 7:00 P.M. sharp.

2016 DirectorsName Elected Years Re-Elected Years Term Re-ElectionMark Burgess November 2005 3 November 2014 3 4Jon Eckhardt November 2006 3 November 2015 3 4John Flanagan November 2004 3 November 2013 3 4 RetiringJeff Koehler November 2014 3 1Michael Oberle November 2012 3 November 2015 3 2Norm Stewart November 2014 3 1Ron Ross November 2011 3 November 2014 3 2Bruce Shannon November 2012 3 November 2015 3 2Gord South November 2007 3 November 2013 3 3 Eligible for re-electionTim Summers November 2011 3 November 2014 3 2

For the purpose of:1. Receiving the Report of the Board of Directors,2. Receiving the Financial Reports of the Co-operative for the year ending

September 30, 2016,3. Receiving the Report of the General Manager,4. Electing two (2) directors:

1 director for three years - Harriston Zone 1 director for three years - at large

5. Appointing the auditors for the ensuing year and6. To deal with any other business that may properly arise.

Michael OberleSecretary

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President’s Report

Thanks for joining us for our 72nd Annual Meeting for the North Wellington Co-operative.

It seems Mother Nature always keeps everyone on their toes. With hardly any snow and the winter being mild the Co-op saw heating sales drop, but on a positive note, costs were down too. Wheat and hay ground survived the winter quite well. Then spring hit, crops went in the ground in good shape, then everyone waited for rain and waited and waited. This year turned out really dry. Crops didn’t do so well on the lighter soils, but lower spots did really well.

The new propane plant and fertilizer facility are progressing slower than we anticipated but slower is better than regretting that we didn’t make some changes. Having good members, customers and a hard working staff enabled us to turn a profit again this year so we are able to pay out some patronage again.

Thank you very much to the members, customers and staff for making our Co-op a place people want to come to. Thanks to the board and general manager Kelly Boyle for all the time we spend at the board meetings trying to make our Co-op a better company.

Hopefully next year at this time we will have the new propane and fertilizer facilities up and running.

As always, Anne and I wish everyone a very successful 2017. Merry Christmas and a Happy New Year.

Yours truly,

Gord SouthPresidentNorth Wellington Co-operative Services Inc.

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General Manager’s Report

North Wellington Co-op has completed another consistent year of operations. We completed $877,000.00 in capital improvements and repaid all long term debt. Member business remains strong at 77% of sales. Profits have increased the general reserve to $6.77 million. $403,000 has been returned to member-owners in the communities we serve.

North Wellington’s true strength and the future lay in the support of the membership and continued hard work and dedication of directors, management and staff. I personally would like to thank our team! A special thank you from me to our staff for all the little things they do every day. The things that usually go unnoticed, and un-thanked, but make everyone’s job easier and provide the service our members expect.

We made a lot of progress in 2016 including the removal of the tanks and piping from the decommissioned gas bar at our Durham location. Construction of the retail propane filler plant and installation of 2 DEF dispensers at the card lock in Harriston should be complete by the time you read this message. We are working diligently on other projects for 2017 which include a propane service building and a new fertilizer blending and storage facility. None of this would be possible without your continued support.

In closing, thank you for your business and the honour of serving you in the years to come. Have a joyful Christmas and a great New Year!

Co-operatively yours,

Kelly BoyleGeneral Manager

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Full Time & Part Time Employees

HARRISTONKELLY BOYLE - GENERAL MANAGERRILEY ALLANLUCY ANDRADETIM BINGHAMLINA CALVERTMICHAEL COTTERNICK DROOGBRENT GERRIEDWAYNE GILKESADAM HAMILTONLUKE HARTUNGJEFF KIEFFERKELSEY LANGRIDGEJAY LENNOXJUSTINE LENNOXMOLLIE LOUGHRANJOEL MARTINJOHN MAZEREEUWMURRAY MCCULLOCHWESLEY MILLERBRAD MOORECORRIE NOBLELEONARD NOBLEALLAN PENTLANDCATHY PULTZWILLIAM REININKJUDIE RICHARDSONIRENE STEENBERGENJIM STEWARTJEFF STROEDERBRENT TROYERALLAN WILLIAMSONDAVE WILLIAMSONBRENT ZEINSTRAJACKIE ZIEGLER

DURHAMJOHN DEJONGPAMELA AMESNEIL ATTERSOLLDEANNE CALLAHANKIM POPPLETONMARV SACHS

MOUNT FORESTSAREL SMITJANINE ACHESONDORIS AITKENKEVIN AITKENCODY BELLRANDALL BRIDENMELISSA HARRISONNICHOLE HURMANTERESA IRELANDPAULA LAROCQUEMARYLYNN LAWRENCEKRYSTAL LICHTYANDY MACDONALD

HANOVERPAUL MENGERSRICHARD AHRENSDEAN ATCHISONSHELDON BECKERDARYL BRAITHWAITEALEXANDER DUNNROBERT EDWARDSJEREMIAH ELBERTJORDAN GODINCURTIS GOETZDYLAN GOODEKASSIDY HOLLOWAYJENNIFER MAGWOODLISA PAYNESHEILA PETTYJENNY RICKETTSMELISSA SCHNURRELIZABETH SIMPSONDON STEVENSONPATRICK YOUNG

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Tel: 519 323 2351Fax: 519 323 3661 www.bdo.ca

BDO Canada LLP 191 Main Street South PO Box 418 Mount Forest, Ontario N0G 2L0 Canada

Independent Auditor's Report

To the Members of North Wellington Co-operative Services Inc.

We have audited the accompanying consolidated financial statements of North Wellington Co-operative Services Inc., which comprise the consolidated balance sheet as at 30th September2016 and the consolidated statement of operations and consolidated statement of generalreserve and consolidated statement of cash flows for the year then ended, and a summary ofsignificant 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 consolidatedfinancial statements in accordance with Canadian accounting standards for private enterprises,and for such internal control as management determines is necessary to enable the preparationof consolidated financial statements that are free from material misstatement, whether due tofraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based onour audit. We conducted our audit in accordance with Canadian generally accepted auditingstandards. Those standards require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance about whether the consolidated financialstatements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated financial statements. The procedures selected depend on theauditors' judgment, including the assessment of the risks of material misstatement of theconsolidated financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparation and fairpresentation of the consolidated financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimatesmade by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.

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Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of North Wellington Co-operative Services Inc. as at 30th September 2016 andthe results of its operations and its cash flows for the year then ended in accordance withCanadian accounting standards for private enterprises.

Other Matters

As required by the Co-operative Corporations Act (Ontario), we report that, in our opinion, theseprinciples have been applied on a basis consistent with that of the preceding year.

"BDO CANADA LLP"Chartered Professional Accountants, Licensed Public Accountants

Mount Forest, Ontario16th November 2016

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North Wellington Co-operative Services Inc.Consolidated Balance Sheet

As at 30th September 2016 2015

AssetsCurrent

Cash $ 612,168 $ 790,260Accounts receivable (Note 3) 2,882,429 2,580,251Income taxes recoverable - 9Inventory (Note 4) 2,973,718 3,004,970Prepaid expenses 518,262 620,673

6,986,577 6,996,163

Property, plant and equipment (Note 5) 4,422,123 4,327,961

Other assets (Note 6) 1,628,013 1,547,784

$ 13,036,713 $ 12,871,908

Liabilities and Members' EquityCurrent

Accounts payable and accrued liabilities (Note 8) $ 1,933,811 $ 2,589,146Income taxes payable 21,616 -Future income taxes 29,000 65,700Member demand loans (Note 10) 362,441 385,707Current portion of long-term debt (Note 9) 200,000 111,360Current portion of member loans (Note 10) 889,225 576,720

3,436,093 3,728,633

Long-term debt (Note 9) - 43,750Future income taxes - non-current 100,000 107,500

3,536,093 3,879,883Member loans and debentures

Member loans (Note 10) 2,723,935 2,653,383

6,260,028 6,533,266Members' equity

General reserve 6,776,685 6,338,642

$ 13,036,713 $ 12,871,908

On behalf of the Board:

Director

Director

The accompanying notes are an integral part of these consolidated financial statements.4



AssetsCurrent


6,986,577 6,996,163



$ 13,036,713 $ 12,871,908



3,436,093 3,728,633




6,260,028 6,533,266Members' equity


$ 13,036,713 $ 12,871,908


Director

Director




AssetsCurrent


6,986,577 6,996,163



$ 13,036,713 $ 12,871,908



3,436,093 3,728,633




6,260,028 6,533,266Members' equity


$ 13,036,713 $ 12,871,908


Director

Director


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North Wellington Co-operative Services Inc.Consolidated Statement of General Reserve

For the year ended 30th September 2016 2015

Balance, beginning of year $ 6,338,642 $ 5,882,653

Add: Net income for the year 435,253 453,309Membership fees received 2,790 2,680

438,043 455,989

Balance, end of year $ 6,776,685 $ 6,338,642


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North Wellington Co-operative Services Inc.Consolidated Statement of Operations


Sales $ 26,136,167 100.0 % $ 27,379,566 100.0 %

Cost of sales 21,103,760 80.7 22,311,383 81.5

Gross margin 5,032,407 19.3 5,068,183 18.5

Service revenue and commissions 884,106 3.4 795,477 2.9

Total gross income 5,916,513 22.7 5,863,660 21.4

Operating expenses (Note 2)Salaries, wages and benefits 3,033,135 11.6 3,054,921 11.2Facility and equipment 1,831,652 7.0 1,868,840 6.8Administrative 492,486 1.9 491,764 1.8

5,357,273 20.5 5,415,525 19.8

Operating income 559,240 2.2 448,135 1.6

Other income (Note 18) 370,003 1.4 583,108 2.1

929,243 3.6 1,031,243 3.7

Interest expense 204,830 0.7 207,980 0.7

724,413 2.9 823,263 3.0

Patronage allocation (Note 13) 201,760 0.8 269,342 1.0

Income before income taxes 522,653 2.1 553,921 2.0

Income taxes (Note 12) 87,400 0.3 98,047 0.4

Income before discontinued operations 435,253 1.8 455,874 1.6

Discontinued operations (loss) (Note 17) - - (2,565) -

Net income for the year $ 435,253 1.8 % $ 453,309 1.6 %


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North Wellington Co-operative Services Inc.Consolidated Statement of Cash Flows


Cash provided by (used in)

Operating activitiesNet income for the year $ 435,253 $ 453,309Items not involving cash

Amortization 661,560 658,146Gain on disposal of property, plant and equipment (5,240) (67,734)Future income taxes (44,200) (3,300)

1,047,373 1,040,421Changes in non-cash working capitalDecrease (increase) in accounts receivable (302,178) 234,557Decrease (increase) in inventory 31,252 79,818Decrease (increase) in prepaid expenses 102,411 219,317Increase (decrease) in accounts payable and accrued liabilities (655,335) (229,490)Increase (decrease) in income taxes payable (recoverable) 21,625 55,641

245,148 1,400,264

Investing activitiesPurchase of property, plant and equipment (877,635) (1,014,000)Proceeds on disposal of property, plant and equipment 127,153 166,956Acquisition of other assets (net) (80,229) (127,601)

(830,711) (974,645)

Financing activitiesAdditions to long-term debt 200,000 -Reductions of long-term debt (155,110) (151,579)Issue of membership and patronage loans 477,258 393,214Redemption of membership and patronage loans (94,201) (211,963)Proceeds from membership fees 2,790 2,680Additions (reductions) to member demand loans (23,266) (45,413)

407,471 (13,061)

Increase (decrease) in cash during the year (178,092) 412,558

Cash, beginning of year 790,260 377,702

Cash, end of year $ 612,168 $ 790,260


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North Wellington Co-operative Services Inc.Notes to Consolidated Financial Statements

30th September 2016

1. Summary of Significant Accounting Policies

Nature of Business North Wellington Co-operative Services Inc. (the "Co-operative") isincorporated without share capital under the Co-operative CorporationsAct in the province of Ontario and is engaged in marketing of grain, retailsales of agricultural products, petroleum and related services.A significant amount of merchandise for resale is purchased fromGrowmark Inc. and UPI Inc. in accordance with supply agreements.Growmark Inc. is an agricultural Co-operative corporation and awholesale supplier of agricultural products in Ontario and the midwesternUnited States. UPI Inc. supplies petroleum products.

Basis of Consolidation The consolidated financial statements reflect the accounts of the Co-operative and the Co-operative’s proportionate share of revenues,expenses, assets and liabilities of unincorporated joint ventures. Allsignificant intercompany transactions and balances have beeneliminated on consolidation.

The significant investments and their percentage ownership is as follows:

Petroleum joint venture with UPI Inc. - 55% owned

Basis of Accounting These consolidated financial statements have been prepared usingCanadian generally accepted accounting principles for privateenterprises.

Financial Instruments Financial Instruments are recorded at fair value at initial recognition. Insubsequent periods, equities traded in an active market and derivativesare reported at fair value, with any change in fair value reported inincome. All other financial instruments are reported at cost or amortizedcost less impairment. Transaction costs on the acquisition, sale or issueof financial instruments are expensed for those items measured at fairvalue and charged to the financial instrument for those measured atamortized cost.Financial assets are tested for impairment when indicators of impairmentexist. When a significant change in the expected timing or amount of thefuture cash flows of the financial asset is identified, the carrying amountof the financial asset is reduced and the amount of the write-down isrecognized in net income. A previously recognized impairment loss maybe reversed to the extent of the improvement, provided it is not greaterthan the amount that would have been reported at the date of thereversal had the impairment not been recognized previously, and theamount of the reversal is recognized in net income.

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30th September 2016

1. Summary of Significant Accounting Policies (continued)

Inventory Inventory is stated at the lower of cost and net realizable value. Cost isdetermined on the first-in, first-out basis.

Property, Plant and Property, plant and equipment is recorded at cost less accumulatedEquipment amortization. Amortization is based on the estimated useful life of the

asset and is calculated as follows:

Paved area - 8% diminishing balance basisBuildings - 4, 5 and 10% diminishing balance basisEquipment - 20 and 30% diminishing balance basisPropane tanks - 10% diminishing balance basisAutomotive - 30% diminishing balance basis

Impairment of In the event that facts and circumstances indicate that the Co-operative'sLong Lived Assets long-lived assets may be impaired, an evaluation of recoverability would

be performed. Such an evaluation entails comparing the estimated futureundiscounted cash flows associated with the asset to the asset'scarrying amount to determine if a write down to market value ordiscounted cash flow value is required. The Co-operative considers thatno circumstances exist that would require such an evaluation.

Income Taxes Income taxes are accounted for by the asset and liability method. Underthis method, future income taxes are recognized for the future incometax consequences attributable to differences between the financialstatement carrying values and their respective income tax basis(temporary differences). Future income tax assets and liabilities aremeasured using enacted rates expected to apply to taxable income inthe years in which the temporary differences are expected to berecovered or settled. The effect on future income tax assets andliabilities due to a change in tax rates is included in income in the periodin which the change occurs.

Accrued Patronage Patronage dividends that are declared by the Board of Directors to theDividends members for business conducted with the Co-operative may be payable

by a combination of cash and patronage loans. Liabilities for cashpayments are recorded as a current liability and the amount representingpatronage loans is recorded as a component of members' entitlement onthe balance sheet.

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30th September 2016

1. Summary of Significant Accounting Policies (continued)

Revenue Recognition Revenue is recognized when the price is fixed or determinable,collectability is reasonably assured and services are rendered orproducts are delivered to customers. Growmark Patronage isrecognized in the period to which it relates. Interest revenue isrecognized as it is charged on overdue accounts.

Foreign Currency Transactions and balances involving foreign currencies are recordedTranslation using the temporal method. At the transaction date, each asset, liability,

revenue and expense is translated into Canadian dollars using theexchange rate in effect at that date. At the year end date, monetaryassets and liabilities are translated into Canadian dollars using theexchange rate in effect at the year end date. The resulting foreignexchange gains and losses are included in income in the current period.

Use of Estimates The preparation of consolidated financial statements in accordance withaccounting standards for private enterprises requires management tomake estimates that affect the reported amounts of assets and liabilitiesat the date of the consolidated financial statements, and the reportedamounts of revenues and expenses during the reporting period. Actualresults could differ from management's best estimates as additionalinformation becomes available in the future. The use of estimates isprimarily related to the allowance for doubtful accounts, accountspayable and amortization.

2. Information included in the Statement of Operations (Page 11)

2016 2015

Amortization $ 661,560 $ 658,146Directors' fees 20,720 22,204Interest on short-term borrowing - 3,248Interest on long-term debt 2,922 10,054Interest on member loans - short-term 9,326 11,930Interest on member loans - long-term 192,582 182,748Gain on disposal of capital assets 5,240 67,734

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30th September 2016

3. Accounts Receivable

2016 2015

Trade accounts $ 2,965,203 $ 2,561,854Less allowance for doubtful accounts 156,428 154,218

2,808,775 2,407,636Growmark Inc. patronage receivable 73,654 172,615

$ 2,882,429 $ 2,580,251

The allowance for doubtful accounts of $156,428 is based on prior years’ bad debtexperience. The establishment of the allowance relies on the judgment of management, onhistorical precedent and expectations as to future developments. The process of determiningthe allowance for doubtful accounts involves risks that the actual results will deviate, perhapsmaterially, from the best estimates made.

4. Inventory

2016 2015

General merchandise $ 2,192,848 $ 2,087,509Chemical 340,184 393,192Feed 159,318 156,640Fertilizer 103,622 151,544Fuel 102,819 129,796Seed 74,927 86,289

$ 2,973,718 $ 3,004,970

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30th September 2016

5. Property, Plant and Equipment

2016 2015Accumulated Accumulated

Cost Amortization Cost Amortization

Land $ 482,127 $ - $ 548,977 $ -Paved area 278,580 119,216 238,625 107,096Buildings 2,482,537 1,174,997 2,397,978 1,116,318Equipment 3,134,978 2,464,780 3,039,540 2,304,248Propane tanks 1,952,668 1,090,054 1,810,084 1,081,651Automotive 2,817,419 1,877,139 2,469,247 1,567,177

$ 11,148,309 $ 6,726,186 $ 10,504,451 $ 6,176,490

Net book value $ 4,422,123 $ 4,327,961

6. Other Assets

2016 2015

InvestmentsGrowmark Inc.- 13,510 Class D preferred shares (2015 - 12,445) - 1 common share $ 1,511,802 $ 1,371,836

Agris Solar Co-operative Inc.- 5 membership shares 500 500- 149 preferred shares (2015 - 190) 14,900 19,000

G Raby Bursary Fund (interest rate at Royal Bank prime) 15,883 16,482

Growmark Inc. patronage receivable 84,928 139,966

$ 1,628,013 $ 1,547,784

Fair values of the above shares are not practicable to determine in the absence of publishedmarket quotations.

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30th September 2016

7. Bank Indebtedness

The Co-operative's available operating line of credit is $1,500,000 for the period October 1 toMarch 31 and $2,500,000 for the period April 1 to September 30 for each year. The line ofcredit is also restricted to: 75% of good accounts receivable plus 50% of net realizable valueof unencumbered inventory. The interest rate for the line of credit is Royal Bank prime rateplus 0.5%. The balance outstanding as at 30th September 2016 is $Nil.

Bank loans are secured by a general security agreement, collateral mortgage in the amount of$465,000 and $1,785,000 on real estate and chattel mortgages on equipment, and anassignment of fire and other perils insurance.

The agreement governing the credit facilities contains covenants regarding maintaining a ratioof total liabilities to tangible net worth of not greater than 2 to 1 and maintaining a current ratioof not less than 1.25 to 1.

The Co-operative has posted a $100,000 bank letter of credit in favour of 7594828 CanadaInc. (on behalf of Tru-Serv Canada Inc.).

8. Accounts Payable and Accrued Liabilities

Included in accounts payable and accrued liabilities on the consolidated balance sheet aregovernment remittances payable at 30th September 2016 of $69,822 (2015 - $68,612).

9. Long-Term Debt

2016 2015Royal Bank of Canada, 3.72%, payable in monthly instalmentsof $3,656 principal and interest, due on demand $ 200,000 $ -

Royal Bank of Canada, 4.27%, payable in monthly instalmentsof $7,292 principal plus interest, due March 2017 - 131,250

Royal Bank of Canada, 4.11%, payable in monthly instalmentsof $5,540 principal and interest, due February 2017 - 23,860

200,000 155,110

Less current portion 200,000 111,360$ - $ 43,750

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30th September 2016

9. Long-Term Debt (continued)

Long-term debt is subject to the same agreement which governs the Co-operative's operatingline of credit and is therefore subject to the same security and covenants as disclosed inNote 7 - Bank Indebtedness.

The scheduled loan payments due in the next five fiscal years according to the loanagreements entered into by the Co-operative are as follows:

2017 $ 37,0852018 38,4882019 39,9452020 41,4562021 43,026

10. Member Loans

2016 2015

Member loans, 3.2% - 10% interest $ 3,975,601 $ 3,615,810

Less amounts past due and due within one yearincluded in current liabilities 1,251,666 962,427

$ 2,723,935 $ 2,653,383

The due dates for these loans are as follows:

Demand loans $ 362,4412017 889,2252018 593,1172019 835,8732020 336,7642021 339,243Thereafter 618,938

$ 3,975,601

Member demand loans in the amount of $362,441 (2015 - $385,707) receive interest at theRoyal Bank prime rate. For long-term member loans, the weighted average interest rate at30th September 2016 was 5.63% (2015 - 5.82%).

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30th September 2016

11. Employee Future Benefits Obligation

Full-time employees and eligible part-time employees of the Co-operative are members of theNorth Wellington Co-operative Services Inc. Pension Plan, which is a defined contributionplan. Contributions to the plan made during the year in the amount of $108,415 (2015-$101,934) by the Co-operative on behalf of its employees are included in the consolidatedstatement of operations.

12. Income Taxes

The Co-operative's income tax expense for the years ended 30th September consist of thefollowing:

2016 2015

Current income tax expense $ 131,600 $ 101,347Future income tax expense (recovery) - current (36,700) (2,300)Future income tax expense (recovery) - non-current (7,500) (1,000)

87,400 98,047Income tax on discontinued operations - (470)

$ 87,400 $ 97,577

The long term future income tax liability of $100,000 (2015 - $107,500) arises from thetemporary differences between the carrying amounts of capital assets for financial statementpurposes and their tax amounts. The current future income tax liability of $29,000 (2015 -$65,700) arises from the temporary difference in recording patronage income for financialstatement purposes and tax purposes.

13. Accrued Patronage Dividends

The Board of Directors declared a patronage dividend of approximately $201,597 (2015 -$267,000) to members of record as at 30th September 2016. The dividend is payable in cashand is recorded as patronage allocation in the statement of operations. Patronage isallocated to members based on seed, fertilizer, chemical, furnace oil, dyed diesel, andpropane purchases from the Co-operative.

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30th September 2016

14. Related Party Transactions

The Co-operative conducts a substantial portion of its business activities with related parties,consisting primarily of members of the Co-operative. The Co-operative makes a significantamount of its purchases of goods for resale from Growmark Inc. (a related Co-operative).Growmark Inc. is an agricultural Co-operative corporation and a wholesale supplier ofagricultural products in Ontario and the midwestern United States. The Co-operative ownsshares in Growmark Inc. as disclosed in Note 6 - Other Assets. These transactions are in thenormal course of operations and are transacted using the same terms as are available toarms-length individuals.

2016 2015

Revenue (includes UPI's share of joint venture revenues)- sales to members of the Co-operative $ 21,903,832 $ 23,282,593- sales to directors of the Co-operative 552,782 565,396

Purchases- from Growmark Inc. 15,898,618 17,241,855

At the end of the year, the amounts due from relatedparties are as follows:

- members of the Co-operative 2,783,457 2,371,015- directors of the Co-operative 31,240 21,508

At the end of the year, the amounts due to related partiesare as follows:

- Growmark Inc. 870,657 1,213,354

These balances are payable on demand and have arisen from the sale of product andprovision of services referred to above.

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30th September 2016

15. Statutory Information

During the year, member business was estimated to be 77.0% of the total sales volume(2015 - 78.0%).

16. Joint Venture Transactions

The Co-operative is party to a joint venture agreement with UPI Inc. The joint venture has asupply agreement with UPI Inc. to supply bulk petroleum products to the Co-operative'scustomers.

The consolidated financial statements include the Co-operative's proportionate interest in thejoint venture as follows:

2016 2015

Sales $ 2,723,232 $ 3,291,536Cost of sales 2,288,267 2,831,601

434,965 459,935

ExpensesSalaries wages and benefits 116,846 101,767Facility 106,211 111,819Administrative 49,738 52,579

272,795 266,165

Operating income $ 162,170 $ 193,770

The accounts receivable and inventory related to the bulk petroleum business are pledged assecurity under the joint venture agreement.

The Co-operative manages the bulk petroleum business at the expense of the joint venture.The Co-operative holds the assets and is responsible for the liabilities of the joint venture.

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30th September 2016

17. Discontinued Operations

The Co-operative has discontinued its Durham Gas Bar operations effective 29th September2014. The income from discontinued operations has been reported separately in theconsolidated financial statements and consists of the following:

2016 2015

Sales $ - $ -Cost of sales - (165)

Gross margin - 165Direct expenses - 3,200

Income (loss) before taxes - (3,035)Income taxes - 470

Net income (loss) $ - $ (2,565)

18. Other Income2016 2015

Interest on accounts receivable $ 151,955 $ 135,762Growmark Inc. patronage 157,091 315,640Other income 60,957 131,706

$ 370,003 $ 583,108

19. Financial Instruments Risks

Currency RiskCurrency risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in foreign exchange rates. The Co-operative is exposed toforeign currency risk on its investment in Growmark Inc. Class D preferred shares that aredenominated in US dollars (Note 6).

The Co-operative considers this risk to be acceptable and therefore does not hedge its foreignexchange rate risks.

There have not been any changes in the risk from the prior year.

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30th September 2016

19. Financial Instruments Risks (continued)

Credit RiskCredit risk is the risk that one party to a financial instrument will cause a financial loss for theother party by failing to discharge an obligation. The Co-operative is exposed to credit riskresulting from the possibility that a customer or counterparty to a financial instrument defaultson their financial obligations; if there is a concentration of transactions carried out with thesame counterparty; or of financial obligations which have similar economic characteristicssuch that they could be similarly affected by changes in economic conditions. The Co-operative's financial instruments that are exposed to concentrations of credit risk relateprimarily to the accounts receivable and prepaid expenses. A significant portion of the Co-operative's trade accounts receivable are to individuals in the agricultural industry and, assuch, the Co-operative is exposed to all the risks of that industry.

The Co-operative is also exposed to credit risk arising from its bank balance being held at onefinancial institution and deposits only insured up to $100,000.

The organization mitigates credit risk on its receivables through diversification of its customerbase and limiting its exposure to any one customer.


Liquidity RiskLiquidity risk is the risk that the Co-operative encounters difficulty in meeting its obligationsassociated with financial liabilities. Liquidity risk includes the risk that, as a result ofoperational liquidity requirements, the Co-operative will not have sufficient funds to settle atransaction on the due date; will be forced to sell financial assets at a value, which is less thanwhat they are worth; or may be unable to settle or recover a financial asset. Liquidity riskarises from bank indebtedness, accounts payable, long-term debt, member loans andcommitments.

The Co-operative’s approach to managing liquidity is to ensure, as far as possible, that it willalways have sufficient cash flows to fund its operations and to meet its liabilities when due,under both normal and stressed conditions. The Co-operative maintains certain creditfacilities, which can be drawn upon as needed (Note 7).


Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in market interest rates. The Co-operative is exposed to this riskthrough its operating line of credit (Note 7). The Co-operative has an available operating lineof credit with a variable interest rate which involves risks of default on interest and principaldue to, without limitation, such factors as interest rates and general economic conditions.

The Co-operative structures its finances so as to stagger the maturities of debt, therebyminimizing exposure to interest rate fluctuations.


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Notes

It’s been our legacy year after year.

TM

We’re proud of our heritage.Since 1944, our focus has been on responding to our member-owners’ needs by providing quality products and services in our communities. Year after year we’ve been committed to pointing the way forward and ensuring each of our member-owners are ready for what’s next.

26

Notes

It’s been our legacy year after year.

TM

We’re proud of our heritage.Since 1944, our focus has been on responding to our member-owners’ needs by providing quality products and services in our communities. Year after year we’ve been committed to pointing the way forward and ensuring each of our member-owners are ready for what’s next.

Neustadt

Ayton

Drew

Clifford

Fordwich

Kurtzville Rothsay

Palmerston

to Mildmay

to Dundalk

Varney

Arthur

Kenilworth

Riverstown

Conn

Holstein

Priceville

Elmwood

HanoverDurham

Mount Forest

Harriston

DURHAM / HANOVER ZONE

MOUNT FOREST ZONE

HARRISTON ZONE

Electoral Zones for North Wellington Co-op

John Flanagan, SouthgatePast President, Director at large

Gord South, MintoPresident, Director - Harriston Zone

Jon Eckhardt, West Grey1st Vice President, Director - Hanover/Durham Zone

Michael Oberle, South Bruce2nd Vice President & Secretary, Director at large

Mark Burgess, North HuronDirector - Harriston Zone

Jeff Koehler, West GreyDirector - Mount Forest Zone

Ron Ross, MintoDirector at large

Bruce Shannon, MintoDirector at large

Norm Stewart, SouthgateDirector - Mount Forest Zone

Tim Summers, ChatsworthDirector - Hanover/Durham Zone

Kelly BoyleGeneral Manager

2016 Board of Directors

Bringing you what’s next.™

2016 annual report & notice of annual meeting · 2016-12-01 · 3 harriston durham hanover...

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