Page 302 - Onboarding May 2017

APPLE SUPPLY CHAIN CO-OP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization: Apple Supply Chain Co-op, Inc. (the “Co-op”) is a Delaware corporation that was formed on
October 10, 2008. Applebee’s restaurant owners purchase stock in the Co-op to become members. The
Co-op and Pancake 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, 2015, the patronage dividends were undeclared and, accordingly, were
not recorded in the balance sheet or statement of members’ equity. The Co-op anticipates paying
approximately $2,300,000 in patronage dividends during 2016. 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
2011 for federal and the states of California, Kansas 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 had no amounts accrued for interest and penalties at December 31, 2015 and 2014, respectively.

(Continued)

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