Westpac Pacific Foods - Page 9




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          Westpac with $1 million worth of free products upon execution of            
          the agreement.  McCormick further agreed to make the following              
          “incentive payments” as Westpac achieved various volume purchase            
          targets:                                                                    

                  Volume Level    Cash Payment      Free Product                      
                  $10,000,000      $3,000,000         $750,000                        
                  20,000,000       2,000,000          750,000                         
                  30,000,000       2,000,000          750,000                         
                  40,000,000       1,000,000          750,000                         
          The contract obligated Westpac “to repay any unearned prepaid               
          allowances on a pro rata basis” in the event Westpac failed to              
          satisfy the entire $50 million volume purchase commitment.                  
          Westpac's Financial and Tax Reporting                                       
               Westpac recorded the upfront cash payments which it received           
          from GTE Sylvania, Ambassador, American Greetings, and McCormick            
          as liabilities in favor of the manufacturers.  For financial and            
          tax accounting purposes, Westpac would treat a portion of the               
          payment which it considered earned (that is, the amount of the              
          total payment received multiplied by the percentage of the volume           
          purchase commitment satisfied during the year in issue) as either           
          an item of “other income” or as a reduction to its cost of goods            
          sold.  Specifically, on its 1990 tax return, Westpac reported               
          what it considered to be the earned portions of the upfront cash            
          payments received on the Ambassador and GTE Sylvania contracts as           
          other income because Westpac had no cost of goods sold during               






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Last modified: May 25, 2011