Affiliated Foods, Inc. - Page 3

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          stores owned by its shareholders.  Petitioner also conducts a               
          small amount of business with stores not owned by shareholders.             
          Petitioner has 210 shareholders, and these shareholders operate             
          approximately 640 retail grocery stores (member stores).2  For              
          Federal tax purposes, petitioner is a nonexempt cooperative that            
          computes its taxable income under the provisions of Part I of               
          subchapter T (secs. 1381 to 1383, inclusive).                               
               Member stores purchase food and other consumer products from           
          petitioner.  Petitioner purchases these goods from more than                
          2,000 manufacturers and suppliers.  Petitioner purchases directly           
          from sales representatives of some manufacturers, such as Proctor           
          & Gamble (P&G) and Colgate-Palmolive (Colgate), and it purchases            
          other manufacturers' products from independent brokers, such as             
          Dejarnett Sales.  Brokers typically represented a variety of                
          manufacturers or distributors.  Unless otherwise specified, we              
          will use the term "vendor" to refer to manufacturers' sales                 
          representatives and brokers.                                                
               Petitioner maintains a single bank account with Amarillo               
          National Bank, which it uses as its general operating account               
          (Amarillo account).  Petitioner makes all of its deposits into              
          the Amarillo account, and it makes all of its payments from the             
          Amarillo account, including payroll expenditures.                           

          2    Petitioner does not own any interest in any member store.              

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Last modified: May 25, 2011