The Co-op Food Stores

Present: Don Kreis (Chair), Peter Betts, Margaret Drye, Ed Howes, Kay Litten, Diane MacDonald, Richard Schramm, Mike Yacavone
Absent: Ann MacDonald
Staff: Terry Appleby, Eugenia Braasch, Mark Langlois, Roy Raven, Tony White
Guests: Jim Godfrey, Mark Goehring, Tricia Groff, Jay Simms

Welcome and Introductory Remarks
Don Kreis called the meeting to order at 5:33 p.m. In addition to the regular guest, CDS consultant Mark Goehring, Tricia Groff introduced herself as a Board Candidate. The other guests arrived later to lead the audit discussion.

Agenda Review & Changes
There were no changes to the agenda.

Prior Month Action Items Review
· Attend the CVNC meeting on 1.26.08. (Terry, Don, and Mike – completed)
· Read M. Shuman’s book, Small-Mart Revolution. (All Board Members – in process)
· The proposed by-laws changes will be publicized through the Co-op News March issue. (Genie, Rosemary – completed)
· The proposed by-laws changes will be put to vote at the Annual Meeting. (Don – to be completed in April)
· Clarify the specific expectations for services from CBLD and sign the CBLD agreement. (Don – completed )
· Add to the task list on the Member Services/Board Calendar: Check whether a second regular meeting has taken place during the year and if not, formally cancel such a meeting at the December Board meeting. (Genie – completed)
· EL 2 Financial Condition and Performance: quarterly GM report to the Board. (Terry – completed)
· EL 7 Communication and Counsel to the Board: by acceptance of the GM’s report. (Terry – completed through personal communication)
· After the audit is completed, ask Tyler Simms to review the proposed by-laws changes (Article V Sections 2a and 4) that were discussed, but not brought before the membership this year. The Co-op Board is seeking advice about the tax implications of the potential changes to the membership. (Margaret, Don – pending)
· Contract with a legal firm to conduct a comprehensive review of the by-laws. (Margaret, Don – pending)
· Complete the nominating slate to present for Board consideration at the February 20, 2008 meeting. (Richard – completed)
· February 22, 2008: Submit Candidate statements and photographs to the Co-op News Editor. (Genie – completed)
· Proceed with the Annual Meeting planning. (Kay, Diane, Margaret – completed)
· Proceed with the Business Roundtable breakfast planning. (Don, Mike, Richard – in process)
· February 15th: Annual Report Deadline. (Terry, Don – completed)
· Complete negotiation with Michael Shuman regarding his speaking engagement(s). (Don – completed)
· Decide whether to partner with other Upper Valley organizations for the Shuman visit. (Don, Mike, Richard – in process)
· Proceed to explore and reserve the locations for the Annual Meetings (Genie – completed)
· Meet with the appropriate staff regarding the expanded programmatic tasks for Annual Meeting and explore realignment of priorities. (Terry, Rosemary, Allan, Genie – completed)
· Identify and generate the invitation list(s) for the Business Breakfast Roundtable. (Richard – in process)
· Contact the Co-op commissary to plan & order the Annual Meeting desert and beverage menu. (Rosemary, Genie – competed)
· Provide the Annual Meeting publicity. (Allan – in process)

Co-op Stories
Peter Betts, Mike Yacavone, Don Kreis shared stories about Co-op-related experiences. A documentary film about the Onion River Co-op in Burlington Vermont was shown recently at Dartmouth College and several Board members attended.

Approval of January 16, 2008 Minutes
MOTION: Ed Howes moved to accept the December 16, 2007 minutes, as amended.
Mike Yacavone seconded the motion.
VOTED: To accept the January 16, 2008 minutes as written: 8 in favor, 0 opposed, 0 abstained, 1 absent.
The motion passed unanimously.
The following change was made to the minutes on p. 4, Nominating Committee section, “The committee is considering a special membership mailing dedicated to the task of the nominating process…” [delete the word ‘membership’].

Policy Monitoring
Approval of EL 2 Financial Condition Monitoring
MOTION: Ed Howes moved to accept the report written by Terry Appleby as in compliance with EL 2 Financial Condition.
Richard Schramm seconded the motion.
VOTED: To accept the report as in compliance with EL2 Financial Condition: 8 in favor, 0 opposed, 0 abstained, 1 absent.
The motion passed unanimously.
Highlights from the EL2 report include:
· Sales trends grew and the Board recognized this as positive evidence of organizational health. The final quarter sales exceeded FY2006 by 7.95% and annual sales exceeded FY 2006 overall by 6.3%.
· Higher Gross Profit Margins were recognized throughout the year, with staff reporting increased confidence in the accounting and inventory systems that have been refined over the past two years.
· The patronage refund amount increased to $561,444., up 16.8% from FY 2006.
· Capital Investments in Property and Equipment increased during 2007.
· Solvency was measured using the debt to equity ratio. With the long-term debt completed paid, the debt to equity ratio is excellent (0%). There are also no current capital lease obligations.
· Liquidity, or the ability to meet cash needs in a timely and efficient fashion, was indicated using the current ratio (current assets/current liabilities); for 2007, this ratio was .83, improved over 2006 year end ratio of .73, and also above the goal of .70. The Co-op is very efficient in turning over inventory and generating cash. Sales per square foot of selling space are also significantly higher than industry averages ($1150/ft2 vs. $574/ft2).
· Days available cash on hand, at 15.60, is slightly down from 16.04 days during 2006.
· Accessible days cash on hand is 35.67, above both the 2006 level of 30.88, and the goal of 14. This is primarily due to increasing the available line of credit from $500K to $1MM at the beginning of the fourth quarter.
· Contracts, payroll, loans, taxes, and other financial obligations were met according to professional practice.
· Financial record keeping were kept according to generally accepted accounting practices.

The Board credited the GM and Co-op staff for the Co-op’s outstanding financial performance during FY2007 and for the clear presentation of the Co-op’s fiscal status in the EL2 report, which incorporated more operational definitions, data, and visual graphs. Discussion centered on the measures used to determine solvency and whether the Board needed to add detail in the EL2 policy to require certain measures. While useful, the metric of sales growth is only one facet of the Co-op’s triple bottom line, and does not serve as an indicator of the quality and value that a member (or non-member) shopper might attach to their Co-op experiences. Also, with the line of credit now doubled, the Co-op could potentially incur greater short-term debt. It was recommended that any debt, including equipment loans, be incorporated into the operational definition of debt.

The meeting broke for dinner at 6:17p.m.
The meeting resumed at 6:47 p.m.

Annual Audit
The auditors presented their review of the Co-op’s financial status and gave the best rating possible, an unqualified opinion according to GAAS standards. (Fewer than 5% of the firm’s clients qualify for this rating). There were no disagreements with management or deficiencies or difficulties encountered while performing the audit. The auditor commented that because the Co-op is a cash intensive enterprise, cash is a major risk area. With $66MM in sales, cash is key —“things turn quickly here”. The accounting industry has new risk assessment standards in place, that mandated additional communication requirements; a pre-audit meeting was held in January (detailed in the HCCS 1.16.08 minutes).
Highlights of the audit presentation included:
· Gross profit up 7% (FY 2006 to FY 2007).
· Income from operations up 10% (FY 2006 to FY 2007).
· Operating margin up .04% (FY 2006 to FY 2007).
· Days in inventory up, from 14.71 to 16.25 (FY 2006 to FY 2007).
· Zero debt as of December 29, 2007.
· A slight upward trend of sales/cost of goods sold.
· Sales per labor down, from $6.15 to $6.12 (FY 2006 to FY 2007), the Co-op is building infrastructure, adding employees. The trend line from FY 2003 – 2007 is positive overall.
· $569,000. increase in property and equipment (phone system, time clocks, credit card equipment).
· Anticipated $100K patronage refund from Associated Grocers.
· Investments in other Cooperatives, a $73K net increase.
· Proposed $561,444. patronage refund for FY2007 (compared to $480,652 for FY2006).
· Employee profit-sharing program, initiated in FY 2007, has been absorbed well.
· Utility costs have increased 29% (FY 2006 to FY 2007). Even with aggressive operational initiatives to control costs in this area, the cost/kilowatt hour increased dramatically.
· Lyme Road project financing (recommends segregating the financing into 5, 7, 15, 30 yr. lines).

After a detailed review of the Co-op’s financial condition, the meeting went into Executive Session from 7:40 p.m. to 8:17 p.m. in order for Board members to pose specific questions to the auditors without management present. After the Executive Session, the issue of how much cash to retain was explored, in the context of the patronage refund. The discussion focused on capitalization, adequate cash flow, the Co-op’s financial stability and safety, short-term vs. long-term. The Board decided to consider the Lyme Road project prior to concluding its discussion of the Patronage Refund.

Approval of Proposal to Proceed with the Development of the Co-op Store at 43 Lyme Road
with the attached EL 10 Appropriate Architecture Monitoring Report
MOTION: Mike Yacavone moved to accept the proposal written by Terry Appleby which authorizes management to borrow an amount not to exceed $2.5 million to finance the construction of the store at 43 Lyme Road and recognizes the project as in compliance with EL10 Appropriate Architecture.
Kay Litten seconded the motion.
VOTED: To accept the proposal written by Terry Appleby which authorizes management to borrow an amount not to exceed $2.5 million to finance the construction of the store at 43 Lyme Road and recognizes the project as in the report as in compliance with EL10 Appropriate Architecture: 8 in favor, 0 opposed, 0 abstained, 1 absent.
The motion passed unanimously.
The Town of Hanover Planning Board approved the project at its recent meeting (each Planning Board member is also a HCCS member). Next steps include obtaining a guaranteed maximum price and possibly putting the plans out for bid to general contractors. The total project cost is $2.5 million. The pro forma projection showed that, with financing the anticipated $2MM debt for the project (@6.5%), there will not be a huge drain on cash beginning in 2012 and a cash positive situation in 2012.Bridge loans will be used during construction. The impact of moving employees from the Co-op Lyme Road market while the new facility is under construction will be mitigated through placing them at the other Co-op stores as relievers for vacationing employees during the summer months. There is enthusiasm for the project concept and design, with the expectation that it will have a very positive impact in the Lyme Road neighborhood, as well as serving as a model sustainable building project for the Co-op community.

Patronage Refund
MOTION: Mike Yacavone moved to amend the GM’s patronage refund recommendation to a 50% stock and 50% cash payment of the 2007 Patronage Refund of $561,444 to the Co-op membership.
Peter Betts seconded the motion.
VOTED: Not to accept the amended GM recommendation for a 50% stock and 50% cash payment of the 2007 Patronage Refund of $561,444. to the Co-op membership: 4 in favor, 4 opposed, 0 abstained, 1 absent.
The motion did not pass.

MOTION: Peter Betts moved to accept the recommendation by Terry Appleby for a 25% stock and 75% cash payment of the 2007 Patronage Refund of $561,444 to the Co-op membership.
Ed Howes seconded the motion.
VOTED: To accept the recommendation by Terry Appleby for a 25% stock and 75% cash payment of the 2007 Patronage Refund of $561,444. to the Co-op membership: 6 in favor, 2 opposed, 0 abstained, 1 absent.
The motion passed.
$561,444. is available for the 2007 patronage refund. Usually, individual Co-op members do not receive a significant amount of money as their refund, but it has symbolic significance, and the point was made that it would send a negative signal to the Co-op membership if the refund cash amount decreased after a year when the Co-op achieved record sales. The Board discussed at length two options for the patronage refund ratios (50% cash – 50% stock vs. 25% cash – 75%stock). On the one hand, the higher stock ratio was advocated as a mechanism for increasing the amount of cash on hand, in a designated reserve fund. On the other hand, a smaller cash refund could be a disincentive for joining the Co-op as a new member. Another impact of a lower cash disbursement could be that fewer refunds would be designated to the HCCF and its beneficiaries. Ultimately, the Board decided that withholding additional cash in a reserve fund was too extreme a position for the current situation, which is financially very sound.

Annual Meeting: April 27, 2008 and Upper Valley Business Breakfast: April 28, 2008
Michael Shuman has agreed to speak about the topic of the local economy at two events.
Plans for the Sunday, April 27th Co-op Annual Meeting for Co-op members, with dessert & drinks offered via the Co-op commissary, have proceeded and the Hanover High School facilities have been booked.
On Monday, April 28th, a Breakfast Roundtable Discussion for Upper Valley leaders from the business, non-profit, and regional/community planning sectors, will be held at the Alumni Hall at the Dartmouth College Hopkins Center.
Shuman will be the featured speaker: “The Small-Mart Revolution: Creating More Competitive Business (Businesses?) in the Upper Valley.” Vital Communities and Local First VT have been approached to be co-sponsors for the business breakfast event. It is anticipated that both organizations will support this effort.

Board Administrator
The 90 day performance review of the Board Administrator will take place on February 25th. Don and Terry will conduct this assessment and asked Board members to submit their comments.

Board Retreat
The Board decided to hold a retreat in late summer. The CDS consultant will facilitate an in-depth discussion at this meeting and will help to develop the topic.

The meeting was adjourned at 9:40 p.m.

Respectfully submitted,

Eugenia F. Braasch Peter R. Betts
Board Administrator Secretary

Action Items:
1. Write a point-counterpoint article about “Members Capitalizing the Co-op” for the Co-op News (Richard, Mike, Genie, Rosemary)
2. Plan a Board retreat at the March meeting. Draft a proposal for the retreat topic & venue ( Don and Mark).
3. Present King award nominees for Board selection at March meeting (Genie)
4. Approve the proposal for HCCF recipients at the March meeting (Bob Hayes and HCCF committee members).
5. Read M. Shuman’s book, Small-Mart Revolution. (All Board Members – in process)
6. The proposed by-laws changes will be put to vote at the Annual Meeting. (Don – to be completed in April)
7. After the audit is completed, ask Tyler Simms to review the proposed by-laws changes (Article V Sections 2a and 4) that were discussed, but not brought before the membership this year. The Co-op Board is seeking advice about the tax implications of the potential changes to the membership. (Margaret, Don – pending)
8. Contract with a legal firm to conduct a comprehensive review of the by-laws. (Margaret, Don – pending)
9. Proceed with the Annual Meeting planning. (Kay, Diane, Margaret – in process)
10. Proceed with the Business Roundtable breakfast planning. (Don, Mike, Richard – in process)
11. Identify and generate the invitation list(s) for the Business Breakfast Roundtable. (Richard – in process)
12. Hold a planning conference call for the Business Breakfast (M. Shuman, 10 Upper Valley business leaders (tbd), Terry, Don, Richard, Genie)