Last week, Wolverine retired $3 million in patronage capital to its members. Sounds great, right? But what in the world is patronage capital? So…here goes my attempt to simplify one of the mysteries of the cooperative world!

As I’ve discussed in previous blogs, Wolverine is a non-profit corporation. We exist to serve our members, not create financial returns for stockholders, like ordinary for-profit corporations do. It would seem to follow, then, that we don’t make a profit, right? Wrong! We normally do take in more revenue than expense, and we should. We call these extra revenues, “Margins.” At the end of each year, margins are assigned to the members and recorded as patronage capital. Hmmmm.

Last year, Wolverine made about $17 million in margins. These margins are assigned to each member according to their “Patronage,” defined by Merriam-Webster as, “Support that is given to a business by buying its goods or using its services.” So in the simplest terms, Wolverine’s members get assigned a share of Wolverine’s margins in proportion to how much business they do with Wolverine.

Here’s where it gets a little weird. Patronage capital is not cash. Think of it more as a promise to pay back cash in future years. When we pay it back, we call it “Retiring” patronage capital. Sometimes people confuse retirements with stock dividends. Retirements are not dividends. Dividends are a return “on” the capital a stockholder has placed in a company. A patronage capital retirement is a return “of” the capital the members have invested in Wolverine. Last week, Wolverine retired $3 million of patronage capital to its seven members. We paid $2.4 million for patronage earned in the year 2000, and $0.6 million for patronage earned in 2014.

The speed with which a cooperative pays back patronage capital varies widely among cooperatives. Wolverine is unique in that its oldest patronage capital on the books is only 15 years old (some cooperatives take decades to pay back patronage). As Wolverine continues to benefit from strong financial support from its member cooperatives, which translates to strong margins and solid equity, we can continue to sustain a strong pace of patronage capital retirements.