Page 260 - Aida Hovsepian Onboarding

PANCAKE SUPPLY CHAIN CO-OP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017 and 2016

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization: Pancake Supply Chain Co-op, Inc. (the “Co-op”) is a Delaware corporation that was formed
on October 10, 2008. IHOP restaurant owners purchase stock in the Co-op to become members. The Co-
op and Apple Supply Chain Co-op, Inc. own Centralized Supply Chain Services, LLC, a Delaware limited
liability company (“CSCS”). CSCS manages and operates the supply chain program for goods, equipment
and services for the members of the Co-op to, among other things, assure that members of the Co-op
receive the benefit of continuously available goods, equipment and services in adequate quantities at the
lowest possible sustainable delivered prices.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of
the date of financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents: The Co-op considers short-term, highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Members’ Equity: The Board of Directors is authorized, after considering the Co-op’s need for capital and
reserves, to distribute to the Co-op’s members patronage dividends based upon each member’s pro rata
purchases. As of December 31, 2017, the patronage dividends were undeclared and, accordingly, were not
recorded in the balance sheets or statements of members’ equity. The Co-op anticipates paying
approximately $1,900,000 in patronage dividends during 2018. These dividends are based on taxable
income rather than book income; therefore, the dividends will differ from book income to the extent of book
to tax differences on a year-to-year basis.

Income Taxes: The Co-op operates as a cooperative under Subchapter T to the Internal Revenue Code.
Accordingly, the Co-op distributes, as patronage dividends, substantially all patronage income earned on
the basis of business conducted with its member patrons, which are deductible for tax purposes. The Co-
op is not exempt from income taxes and, therefore, is subject to Federal and state income taxes with respect
to all non-patronage sourced income and earnings not paid to member patrons. The Co-op anticipates
paying only nominal income tax as taxable income is distributed to members in the form of patronage
dividends, which are deductible for tax purposes. Accordingly, differences between income tax reporting
and financial reporting have not been recorded as deferred tax assets or liabilities.

Under guidance issued by the Financial Accounting Standards Board with respect to accounting for
uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not" that
the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Co-op is subject to U.S. federal income tax as well as income tax of the states of California and
Missouri. The Company is subject to examination by taxing authorities for tax years ending on or after 2013
for federal and the states of California and Missouri. The Co-op does not expect the total amount of
unrecognized tax benefits to significantly change in the next 12 months.

The Co-op recognizes interest and/or penalties related to income tax matters in income tax expense. The
Co-op did not have any amounts accrued for interest and penalties at December 31, 2017 and 2016,
respectively.

(Continued)

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