Financial Report

By Elka Malkis, Financial Manager

While I cannot yet tell you exactly how fiscal year (July 1 to June 30, 2005) turned out, I can state with certainty that we had a very successful and profitable year. The CPA's review will be complete by mid September. We plan to send out Patronage Refund checks in November. Yes, Virginia, there is a Patronage Refund. Every year, the Co-op returns a share of the profits to its owners, just like any business.

The amount allocated to member owners is based on the percent of sales to member-owners. It is assumed that the Co-op has earned the same percent profit on each sale. Thus, the profit earned on sales to members is equal to total member sales times profitability. This profit equals the total patronage refund. The Board of Directors, who oversees the grocery store you own, decides how much of the profit from member sales to return to owners as cash, and how much to retain as a type of Class B stock, Qualified Patronage Refund Equity Certificates. The cash is yours to keep, tax-free. The Qualified Equity Certificates represent profit that stays in the business. This type of Class B stock is not refundable to you, should you decide to no longer be an owner, the way your original $80 stock purchase is.

Every year, a handful of members call and ask for clarification of Qualified Patronage Refund Equity Certificates, so I figure there are more of you out there who are a bit curious. Elizabeth, our Member Services Director, wrote a very good explanation which she has graciously allowed me to plagiarize here.

The question of the value this type of Class B non-voting stock has to a shareholder of the Wedge is perhaps best answered by another question: what is the value of the Co-op remaining financially healthy, so that is can continue to provide goods and services to the members? Without this retained profit (Class B stock), the cooperative would be forced to borrow from outside lenders for improvements.

In other words, as an owner of the cooperative who counts on this store for a reliable supply of high quality food, it is in your best interests for the organization to refund only as much cash as the store can afford without putting its financial health at risk. The Articles and Bylaws, and the laws of Minnesota, as well as the international Cooperative Principles recognize this aspect of cooperative business practice and define how health is to be maintained. The biggest tool we have is the reinvestment of our own profit-- the money that belongs to the membership as a whole.

As to the question of the Board repurchasing the outstanding qualified equity certificates, this would happen in one of three scenarios: 1) the Wedge is liquidated (highly unlikely in the foreseeable future!!); 2) the Wedge is sold (also unlikely!!); or 3) the Board of Directors determines that the cooperative has sufficient working capital to allow it to retire these certificates. In that event, a plan would be drawn up, which would determine the order of redemption (most recent first, oldest first, or some other method).

There is no requirement in law or the Bylaws that any cash patronage refund ever be given out, although the Wedge has done so in every profitable year. Some cooperatives, such as Puget of Consumer Co-op in Washington State, never give them out. Instead, they use the money to build new stores and make improvements to existing ones (last time I checked, PCC had 7 or 8 stores!).

It comes down to this: you are a part owner of this business. The owners divide up the profit. Part of the profit leaves the business, part of it stays in the business. The part that leaves is the cash portion of your patronage refund. The part that stays is the Qualified Refund Equity Certificate.