UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to_______
Commission file number 333-14217
============
Core-Mark International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 91-1295550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
395 Oyster Point Boulevard, Suite 415
South San Francisco, CA 94080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 589-9445
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _x_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x ]
As of February 28, 2002, all of the Registrant's voting stock was held by
affiliates of the Registrant. (See Item 12.)
Registrant's Common Stock outstanding at February 28, 2002 was 5,500,000
shares.
FORWARD-LOOKING STATEMENTS OR INFORMATION
Certain statements contained in this annual report on Form 10-K under the
captions "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere herein and in the documents
incorporated herein by reference are not statements of historical fact but are
future-looking or forward-looking statements that may constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of such forward-looking
terminology as the words "believes," "expects," "may," "will," "should," or
"anticipates" (or the negative of such terms) or other variations thereon or
comparable terminology, or because they involve discussions of Core-Mark
International, Inc.'s strategy. Such forward-looking statements are based upon a
number of assumptions concerning future conditions that may ultimately prove to
be inaccurate. The ability of Core-Mark International, Inc. (the "Company") to
achieve the results anticipated in such statements is subject to various risks
and uncertainties and other factors which may cause the actual results, level of
activity, performance or achievements of the Company or the industry in which it
operates to be materially different from any future results, level of activity,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the general state of the economy
and business conditions in the United States and Canada; adverse changes in
consumer spending; the ability of the Company to implement its business
strategy, including the ability to integrate recently acquired businesses into
the Company; the ability of the Company to obtain financing; competition; the
level of retail sales of cigarettes and other tobacco products; possible effects
of legal proceedings against manufacturers and sellers of tobacco products; and
the effect of government regulations affecting such products. As a result of the
foregoing and other factors affecting the Company's business beyond the
Company's control, no assurance can be given as to future results, levels of
activity, performance or achievements and neither the Company nor any other
person assumes responsibility for the accuracy and completeness of these
statements.
PART I
ITEM 1. BUSINESS
GENERAL
The Company, with net sales of over $3.4 billion in 2001, is one of the
largest broad-line, full-service wholesale distributors of packaged consumer
products to the convenience retail industry in western North America. The
Company's principal customers include traditional and petroleum convenience
stores, grocery stores, drug stores, mass merchandisers and liquor stores. The
Company offers its customers a wide variety of products including cigarettes,
candy, snacks, fast food, groceries, health and beauty care products and other
general merchandise.
The Company's principal markets include the western United States and
western Canada. The Company services its United States customers from 15 primary
distribution facilities, seven of which are located in California. In Canada,
the Company services its customers from four distribution facilities. In
addition, the Company operates a significant facility for one of its customers,
which is 100% dedicated to servicing that customers' convenience retail
locations.
HISTORY
The Company's origins date back to 1888, when Glaser Bros., a
family-owned-and-operated candy and tobacco distribution business, was founded.
In August 1996, the Company completed a recapitalization. The Company's equity
is now held 75% by Jupiter Partners, L.P. ("Jupiter") and 25% by senior
management.
INDUSTRY OVERVIEW
Wholesale distributors provide valuable services to both manufacturers of
consumer products and convenience retailers. Manufacturers benefit from
wholesale distributors' broad retail coverage, inventory management and
efficient processing of small orders. Wholesale distributors provide convenience
retailers access to a broad product line, the ability to place small quantity
orders, inventory management and access to trade credit. In addition, large
full-service wholesale distributors such as the Company offer retailers the
ability to participate in manufacturer-sponsored marketing programs,
merchandising and category management services and systems focused on minimizing
customers' investment in inventory.
-1-
The wholesale distribution industry is highly fragmented and historically
has consisted of a large number of small, privately-owned businesses and a small
number of large, full-service wholesale distributors serving multiple geographic
regions. Relative to smaller competitors, large distributors such as the Company
benefit from several competitive advantages, including purchasing power, the
ability to service chain accounts, economies of scale in sales and operations,
the ability to spread fixed corporate costs over a larger revenue base and the
resources to invest in information technology ("IT") and other productivity
enhancing technology. These factors have led to a consolidation of the wholesale
distribution industry as companies either exit the industry or are acquired by
large distributors seeking to further leverage their existing operations.
BUSINESS STRATEGY
The Company's business strategy is to increase net sales and improve
operating margins. To achieve these goals, the Company intends to: (i) increase
sales to existing customers, particularly of higher gross margin, non-cigarette
products; (ii) add new customer locations in existing markets, particularly
along existing routes; (iii) continue to implement distribution productivity
enhancement programs; and (iv) make selective acquisitions.
INCREASE SALES TO EXISTING CUSTOMERS. Because the Company generally carries
many products that its typical retail store customer purchases from other
suppliers, a primary element of its growth strategy is to increase sales to
existing customers. The Company's typical customer purchases its products from
the Company, from manufacturers who distribute directly to retailers, and from a
variety of smaller local distributors or jobbers. The Company is particularly
focused on becoming the retail customer's primary supplier. The Company attempts
to do this by implementing programs designed to eliminate the need for
deliveries provided by local distributors and jobbers. Such programs are
centered on increasing non-cigarette sales that provide higher gross margins
than those associated with the distribution of cigarettes. As part of the
effort, the Company provides compensation incentives to its sales force as well
as a number of value-added services and marketing programs to its customers.
These programs include: (i) Smart Sets (which helps ensure that retailers
display the right product in the right place); (ii) SmartStock(R) (which
provides state of the art category management for key, high-volume, high-impulse
convenience retail categories); and (iii) Promo Power (a Company publication
which offers manufacturer promotions).
ADD NEW CUSTOMER LOCATIONS IN EXISTING MARKETS. The Company also seeks to
leverage its existing distribution network by securing additional customers
within existing routes. The Company believes it has many opportunities to add
additional customers at low marginal distribution costs. The Company continues
to market to a wide variety of trade channels, including hotel gift shops,
military bases, correctional facilities, college bookstores and video rental
stores. The Company believes that there is significant opportunity to increase
net sales and profitability by adding new customers and maximizing economies of
scale.
PRODUCTIVITY ENHANCEMENT PROGRAMS. The Company derives significant cost
reductions from a variety of productivity enhancement programs. These
productivity enhancement programs include: (i) BOSS, a batch order selection
system that increases the efficiency and reduces the cost of full-case order
fulfillment; (ii) Pick-to-Light, a paperless picking system that reduces the
travel time for the selection of less-than-full-case order fulfillment; (iii)
Radio Frequency, a hand-held wireless computer technology that eliminates
paperwork and updates receiving inventory levels and stocking requirements on a
real-time basis; (iv) Checker Automation, an on-line order verification system
that has significantly reduced labor costs by automating inspection of order
accuracy; and (v) fleet management tools such as on board computers and
Roadshow, a software program that optimizes the routing of customer deliveries.
The Company intends to continue to pursue cost reductions by completing the
roll-out of some of these and other programs.
SELECTIVE ACQUISITIONS. The wholesale distribution industry is highly
fragmented and comprised mainly of a large number of small, privately-held
businesses. Management believes that the consolidation that has taken place in
recent years will continue and that numerous attractive acquisition
opportunities will arise. Given the current utilization rates of many of the
Company's existing warehouse and distribution facilities as well as the quality
of the Company's in-house IT capability, management believes that a significant
amount of incremental sales can be selectively integrated into the Company's
operations without significant additions to fixed costs.
-2-
PRODUCTS DISTRIBUTED
The products distributed by the Company include cigarettes, food products
such as candy, fast food, snacks, groceries and non-alcoholic beverages, and
non-food products such as film, batteries and other sundries, health and beauty
care products and tobacco products other than cigarettes. Cigarette net sales
constituted approximately 72% of the Company's total net sales in 2001.
CIGARETTE PRODUCTS
The Company offers substantially all brands of cigarettes from all of the
major manufacturers, including national premium labels such as Marlboro, Winston
and Player; discount labels such as Viceroy, Basic, GPC and Doral; and deep
discount labels such as the Company's private label brand, Best Buy(R), as well
as Best Value and Monarch.
FOOD AND NON-FOOD PRODUCTS
The Company offers its customers a wide variety of food and non-food
products (approximately 31,000 stock keeping units (SKU's)), including candy,
snacks, fast food, groceries, non-alcoholic beverages, health and beauty care
products and general merchandise. The Company's strategy is to offer its
convenience retail store customers a variety of food and non-food products at
reasonable prices in flexible quantities.
FOOD PRODUCTS. The Company's candy products include such brand name items
as Snickers, Hershey Kisses, M&M's, Lifesavers and Dentyne. The Company also
offers its own private label Cable Car(R) candy line. The Company's snack
products include brand names such as Keebler, Nabisco and Planters.
The Company's grocery products include national brand name items ranging
from canned vegetables, soups, cereals, baby food, frozen foods, soaps and paper
products to pet foods from such manufacturers as Del Monte, Carnation, Kellogg's
and Purina. The Company offers a variety of non-alcoholic beverages, including
juices, bottled water and sports drinks under brand names such as Tropicana,
Veryfine and Gatorade.
The Company's fast food products include prepared sandwiches, hot deli
foods, slush drinks, hot beverages, pastries and pizza, as well as packaged
supplies and paper goods, including brand name items such as Superior Coffee,
Tyson chicken, Oscar Mayer meats and Kraft and Heinz condiments. The Company
targets the hot beverage (coffee and hot chocolate) and frozen food product
categories, which present significant growth opportunities as sales in these
product categories are among the fastest growing product offerings of the
convenience store industry.
NON-FOOD PRODUCTS. General merchandise products range from film, tape,
batteries, cigarette lighters and glue to automotive products and include brand
names such as Fuji, Kodak, Scotch and Mead Envelope. Health and beauty care
products include analgesics, hair care, cosmetics, hosiery, dental products and
lotions, from manufacturers of brand names such as Crest, Tylenol, Johnson &
Johnson Band-Aid, Vicks, Gillette and Jergens. The Company's broad assortment of
tobacco products includes imported and domestic cigars, smokeless tobacco
(snuff), chewing tobacco, smoking tobacco and smoking accessories.
CUSTOMERS
The Company's current customer base is comprised of a wide range of
retailers, including traditional and petroleum convenience stores, grocery
stores, drug stores, mass-merchandisers and liquor stores. The Company also
provides services to hotel gift shops, military bases, correctional facilities,
college bookstores and video rental stores. In 2001, the Company's largest
customer accounted for 5.6% of net sales, and the Company's ten largest
customers accounted for approximately 29% of net sales. As a result of its size
and geographic coverage, the Company supplies a number of regional and national
chain corporations and, therefore, is able to distribute products to all or
substantially all of such customers' individual store locations in the Company's
market area.
The Company strives to offer its customers greater flexibility, service and
value than other distributors. The Company's willingness to work with retailers
to arrive at a suitable delivery time, thereby allowing the store owner to
schedule its labor requirements effectively, is an important facet of this
flexibility. The Company believes that its ability to provide fully integrated
technological services (electronic data interchange (EDI) services, store
automation integration, consultative services, retail price management systems
and UPC control), bar-coded shelf labels to assist in effective shelf space
management, timely communication of manufacturer price change information,
seasonal and holiday special product/promotional offerings and salesperson
assistance in order preparation are also important to the retailer in its
selection of the Company as its supplier.
-3-
SUPPLIERS AND MANUFACTURERS
The Company purchases products for resale to its customers from
approximately 2,000 suppliers and manufacturers located throughout the United
States and Canada. Although the Company purchases cigarette and tobacco products
from all major United States and Canadian manufacturers, approximately 37%, 15%,
8% and 6% of the Company's net sales in 2001 were derived from products
purchased by the Company from Philip Morris, R.J. Reynolds, Imperial Tobacco and
Brown & Williamson, respectively. No other supplier's products represented more
than 10% of net sales. In addition, Philip Morris manufactures the Company's
private label Best Buy(R) cigarettes. The loss of or a major change in the
Company's relationships with any of these manufacturers or in any of their
structured incentive programs (see Cigarette Products, below) could have a
material adverse effect on the Company's financial position or results of
operations.
The Company has no long-term purchase agreements and buys substantially all
its products as needed.
CIGARETTE PRODUCTS
The Company controls major purchases of cigarettes centrally in order to
minimize inventory levels. Daily replenishment of cigarette inventory and brand
selection is controlled by the local division based on demands of the local
market. The U.S. cigarette manufacturers charge all wholesale customers the same
price for national brand cigarettes regardless of volume purchased. However,
cigarette manufacturers do offer certain structured incentive programs
(including Philip Morris' Leaders Program and R.J. Reynolds' Partners Program)
to wholesalers instead of the routine allowances associated with non-cigarette
products. These programs are based upon, among other things, manufacturers'
share of sales, and often include performance-based criteria related to the
quality of the Company's efforts to keep certain brands and volumes of
cigarettes on the retail shelves.
FOOD PRODUCTS
Food products (other than frozen foods) are purchased directly from
manufacturers by buyers in each of the Company's geographic regions. Management
believes that decentralized purchasing of food products results in higher
service levels, improved product availability tailored to individual markets and
reduced inventory investment. Although each region has individual buyers, the
Company negotiates corporate pricing where possible to maximize purchasing
power.
The Company's Artic Cascade division, a consolidated frozen warehouse,
purchases frozen foods for all of the Company's United States divisions. By
consolidating the frozen food purchases, the Company is able to obtain such
products at lower cost. Buying in one location also allows the Company to reduce
total inventory and offer a wide selection of quality products to retailers at
more competitive prices.
NON-FOOD PRODUCTS
The majority of the Company's non-food products, other than cigarettes and
tobacco products (primarily health and beauty care products and general
merchandise), are purchased by Allied Merchandising Industry ("AMI"), one of the
Company's operating divisions that specializes in these categories. This
specialization seeks to ensure a better selection and more competitive wholesale
costs and enables the Company to reduce its overall general merchandise and
health and beauty care inventory levels. Tobacco products, other than
cigarettes, are purchased directly from the manufacturers by each of the
divisions.
DISTRIBUTION
The Company maintains 19 primary distribution facilities, of which 15 are
located in the western United States and four are located in western Canada.
These distribution facilities include two consolidating warehouse operations,
AMI and Artic Cascade. In addition, the Company operates a significant facility
for one of its customers, which is 100% dedicated to servicing that customers'
convenience retail locations. Each distribution facility is outfitted with
modern equipment (including freezers and coolers as required) for receiving,
stocking, order selection and loading a large volume of customer orders on
trucks for delivery. Each facility provides warehouse, distribution, sales and
support functions for its geographic area under the supervision of a division
manager. In addition, the Company believes that the majority of its distribution
facilities have the capacity to absorb significant future growth in net sales.
-4-
The Company's trucking system includes straight trucks and tractors
(primarily leased by the Company) and trailers (primarily owned by the Company).
The Company's standard is to maintain its transportation fleet to an average age
of five years or less. The Company employs a state-of-the-art, computerized
truck routing system to efficiently construct delivery routes.
COMPETITION
The convenience retail distribution business is comprised of one national
distributor in the United States (McLane, a subsidiary of Wal-Mart), a number of
large, multi-regional competitors in the United States (participants with a
presence in several contiguous regional markets), one multi-regional competitor
in Canada and a large number of smaller distributors that compete in one or two
markets. Multi-regionals in the United States include the Company in the west,
GSC Enterprises in the south and southeast, H.T. Hackney in the southeast, and
Eby-Brown Company in the midwest and east. Multi-regionals in Canada include the
Company in the west and Wallace and Carey in the west and midwest. Relative to
smaller competitors, multi-regional distributors such as the Company benefit
from several competitive advantages including greater purchasing power, the
ability to service chain accounts, scale cost advantages in sales and warehouse
operations, the ability to spread fixed corporate costs over a larger revenue
base and the resources to invest in both IT and productivity enhancing
technology. These factors have led to a consolidation of the industry as small
competitors exit the industry and some larger convenience retail distributors
seek acquisitions to increase the utilization of their existing operations.
The Company also competes with wholesale clubs and certain retail stores
whose sales are primarily cigarettes, characterized by high volumes and very
aggressive pricing. These competitors have become a factor in the industry
within recent years, particularly in California markets. The wholesale clubs
have been aggressive in their pricing of cigarettes and candy, and wholesalers
have been forced to reduce margins to compete in densely populated markets with
a large number of wholesale clubs. Wholesale clubs generally require the
convenience store owner to take the time to travel, to shop at their location,
pay cash and choose from a very limited selection. They also provide none of the
merchandising support that the Company routinely offers. Consequently, national
chains do not routinely purchase product at the wholesale clubs.
The principal competitive factors in the Company's business include price,
customer order fill rates, trade credit and the level and quality of value-added
services offered. Management believes the Company competes effectively by
offering a full product line, flexible delivery schedules, competitive prices,
high levels of customer service and an efficient distribution network.
EMPLOYEES
As of December 31, 2001, the Company had 2,916 employees.
The Company is a party to local collective bargaining agreements with the
International Brotherhood of Teamsters covering clerical, warehouse and
transportation personnel at its facilities in Hayward, California, which expires
on January 15, 2003, and covering warehouse and transportation personnel in Las
Vegas, Nevada, which expires on March 31, 2002. The Company is party to a
collective bargaining agreement with United Food Commercial Workers covering
warehouse and transportation personnel in Calgary, Alberta, which expires on
August 31, 2005. The Company is a party to a collective bargaining agreement
with Industrial Wood and Allied Workers of Canada covering warehouse personnel
in Victoria, British Columbia, which expires April 5, 2002. The Company is
currently in negotiations with both the unions in Las Vegas and Victoria,
British Columbia. Based upon the current level of discussions, the Company does
not anticipate any disruptions to our business at those facilities. These
agreements cover an aggregate of less than 9% of the Company's employees.
Management believes that the Company's relations with its employees are
good.
ITEM 2. PROPERTIES
The Company does not own any real property. The principal executive offices
of the Company are located in South San Francisco, California, and consist of
approximately 22,000 square feet of leased office space. In addition, the
Company leases approximately 13,000 square feet in Vancouver, British Columbia
for its tax and information technology departments and 8 small offices for use
by sales personnel in certain parts of the United States and Canada. The Company
also leases its 19 primary distribution facilities, 15 of which are located in
the western United States and four in western Canada. Each distribution facility
is equipped with modern equipment (including freezers and coolers at 18
facilities) for receiving, stocking, order selection and shipping a large volume
of customer orders. The Company believes that it currently has sufficient
capacity at its distribution facilities to meet its anticipated needs and that
its facilities are in satisfactory condition.
-5-
The Company's leases expire on various dates between 2002 and 2011, and in
many instances give the Company renewal options. The aggregate rent paid in
connection with the Company's distribution facilities, regional sales offices
and corporate and administrative offices was approximately $8.0 million in 2000
and $8.4 million in 2001. The Company's distribution facilities range from
22,000 to 194,000 square feet and account for approximately 1.9 million square
feet in aggregate. Management believes that the Company's current utilization of
warehouse facilities is approximately 70% to 80% in the aggregate.
ITEM 3. LEGAL PROCEEDINGS
REGULATORY AND LEGISLATIVE MATTERS
Manufacturers and distributors of cigarettes and other tobacco products are
currently facing a number of significant issues that affect the business
environment in which they operate including: proposed additional governmental
regulation; actual and proposed excise tax increases (see Item 7. "Management's
Discussion and Analysis Of Financial Condition and Results of Operations -
Impact of Tobacco Taxes"); increased litigation involving health and other
effects of cigarette smoking and other uses of tobacco; and litigation by the
U.S. Department of Justice to recover federal Medicare costs allegedly connected
to smoking. The tobacco industry is also currently subject to significant
regulatory restrictions, such as the requirement that product packages display
warning labels, a prohibition on television and radio advertising and
prohibitions on sales to minors.
On March 21, 2000, the U.S. Supreme Court ruled that the United States Food
and Drug Administration (the "FDA") does not have jurisdiction over cigarettes
and smokeless tobacco products. Subsequent to this ruling, legislation has been
introduced in Congress that would grant the FDA authority to regulate tobacco
products. Although no such legislation passed during the year 2001, the
prospects for similar legislation in the future are uncertain. If such
legislation is passed, there could be no assurance that the FDA would not
promulgate regulations that would result in a material reduction in the
consumption of tobacco products in the United States, or would otherwise have a
material adverse effect on the Company's business and financial position.
In November 1998, 46 states, five territories and the District of Columbia
entered into a settlement of approximately $250 billion with four major tobacco
companies to resolve litigation over smoking-related costs incurred by state
Medicaid programs. The settlement - which takes effect in each settling
jurisdiction when the courts in each such jurisdiction enter a final consent
decree and any appeals of such decree are disposed of or become time-barred -
allows for payment of the agreed sum by the cigarette manufacturers over 25
years, settles the state and territory health-care claims against the tobacco
industry and imposes a number of new marketing, advertising, sales and other
restrictions on tobacco products.
Included in the terms of the settlement are conditions that tobacco
companies participating in the settlement may not: target youth in the
advertising, promotion or marketing of tobacco products (including the use of
cartoons in such promotion); use tobacco brand names to sponsor concerts,
athletic events or other events in which a significant percentage of the
audience is under 18 years of age; advertise products in conspicuous places
outdoors (such as billboards) or on transit vehicles; merchandise a tobacco
brand name through the marketing, distribution or sale of apparel or other
merchandise; provide free samples of tobacco products in any area except an
adults-only facility; distribute or sell cigarettes in pack sizes of less than
20; or lobby state legislatures on certain anti-tobacco initiatives (such as
limitations on youth access to vending machines). These provisions took effect
by April 23, 1999.
Over the past decade, various state and local governments have imposed
significant regulatory restrictions on tobacco products, including sampling and
advertising bans or restrictions, packaging regulations and prohibitions on
smoking in restaurants, office buildings and public places. With a limited
number of exceptions, the state Medicaid litigation settlement prohibits the
participating tobacco manufacturers from challenging any restriction relating to
tobacco control enacted prior to June 1, 1998. Additional state and local
legislative and regulatory actions - including substantial increases in excise
taxes - are being considered and are likely to be promulgated in the future. The
Company is unable to assess the future effects that these various proposals may
have on the sale of the Company's products. Nonetheless, the Company does
anticipate that any increase in cigarette prices, whether as a result of an
increase in excise taxes or some other regulatory initiative, may cause a
reduction of the consumption of tobacco products in the relevant jurisdiction.
-6-
In addition, proposals have been made in Congress in recent years to
require additional warning notices on tobacco products, to disallow advertising
and promotional expenses as deductions under federal tax law and to further
regulate the production and distribution of cigarettes and smokeless tobacco.
While neither the state Medicaid litigation settlement nor recent legislation
would impose restrictions on the sale of cigarettes and smokeless tobacco
products to adults, there can be no assurance that such restrictions will not be
proposed in the future or that any such proposed legislation or regulations
would not result in a material reduction of the consumption of tobacco products
in the United States or would not have a material adverse effect on the
Company's business and financial position.
The Company is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and the presence of hazardous substances in the
workplace and establish standards for vehicle and employee safety and for the
handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Air Act, the Hazardous Materials
Transportation Act and the Occupational Safety and Health Act. Future
developments, such as stricter environmental or employee health and safety laws
and regulations thereunder, could affect the Company's operations. The Company
does not currently anticipate that the cost of its compliance with or of any
foreseeable liabilities under environmental and employee health and safety laws
and regulations will have a material adverse effect on its business and
financial condition.
LEGAL MATTERS
On September 22, 1999, the U.S. Department of Justice filed "an action to
recover health care costs paid for and furnished...by the federal government for
lung cancer, heart disease, emphysema and other tobacco-related illnesses caused
by the fraudulent and tortious conduct of..." the major tobacco manufacturers.
On September 28, 2000, the U.S. District Court for the District of Columbia
dismissed some of the government's claims but allowed the case to proceed on two
"civil RICO" grounds, on which all parties have filed procedural motions that
the court continues to review. If the Justice Department prevails in the
litigation, or if the litigation is settled, there can be no assurance that the
litigation will not result in increased cigarette prices and/or a material
reduction of the consumption of tobacco products in the United States; such
circumstances could have a material adverse affect on the Company's business and
financial position.
On July 14, 2000, a Florida state court jury awarded a class of Florida
smokers $145 billion in punitive damages against the major U.S. tobacco
companies. The tobacco companies moved to set aside the award and remove the
case to federal court; such motions were denied, as was the tobacco companies'
request for a new trial. The tobacco companies appealed the judgment. The appeal
is pending in the Third District Court of Appeals in Miami, Florida. If the
class of Florida smokers prevails in the litigation, or if the litigation is
settled, there can be no assurance that the litigation will not result in
increased cigarette prices and/or a material reduction of the consumption of
tobacco products in the United States; such circumstances could have a material
adverse affect on the Company's business and financial position.
In November 1999, the Company was named as a defendant in two separate
lawsuits filed in state court in New Mexico by two individual plaintiffs. The
other defendants include the principal U.S. tobacco manufacturers, as well as
other distributors. The complaints seek compensatory and punitive damages for
injuries allegedly caused by the use of tobacco products. During 2001, the
Company was dismissed from both of the New Mexico cases.
In addition, the Company is a party to other lawsuits incurred in the
ordinary course of its business. The Company believes it is adequately insured
with respect to such lawsuits or that such lawsuits will not result in losses
material to its consolidated financial position or results of operations.
-7-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected historical consolidated financial
and other data for the Company. The historical financial data as of the end of
and for each year in the five year period ended December 31, 2001 have been
derived from the Company's audited consolidated financial statements. The
consolidated financial data set forth below should be read in conjunction with
the historical consolidated financial statements of the Company and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," all contained elsewhere in this Form 10-K.
-8-
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA
Year Ended December 31,
(in thousands)
--------------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
Statement of Income Data:
Net sales........................... $2,395,867 $2,476,376 $2,838,107 $3,035,379 $3,425,024
Costs of goods sold (a)............. 2,216,162 2,295,659 2,643,069 2,840,334 3,211,160
---------- ---------- ---------- ---------- ----------
Gross profit (a).................... 179,705 180,717 195,038 195,045 213,864
Operating and administrative
expenses........................ 148,902 150,977 155,128 160,143 169,691
---------- ---------- ---------- ---------- ----------
Operating income (a)................ 30,803 29,740 39,910 34,902 44,173
Interest expense, net............... 18,181 15,402 12,696 12,852 11,121
Amortization of debt
refinancing costs (b)........ 1,498 2,204 1,274 1,274 1,274
---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 11,124 12,134 25,940 20,776 31,778
Income tax expense (c).............. 4,834 4,925 5,740 9,721 14,268
---------- ---------- ---------- ---------- ----------
Net income (a)...................... $ 6,290 $ 7,209 $ 20,200 $ 11,055 $ 17,510
========== ========== ========== ========== ==========
Other Data:
EBITDAL (d)......................... $ 41,597 $ 56,419 $ 53,493 $ 50,129 $ 59,446
Cash provided by (used in):
Operating activities............ 17,547 5,933 40,781 (1,925) 28,211
Investing activities............ (30,739) (5,311) (6,575) (7,620) (7,916)
Financing activities............ 3,549 9,533 (42,789) 21,282 (23,150)
Depreciation and amortization (e)... 7,528 8,065 7,912 8,911 9,678
LIFO expense (a).................... 3,266 18,614 5,671 6,316 5,595
Capital expenditures................ 9,378 5,311 6,575 7,620 7,916
As of December 31,
(in thousands)
--------------------------------------------------------------
1997 1998 1999 2000 2001
--------- --------- -------- ---------- ----------
Balance Sheet Data:
Total assets....................... $ 336,580 $ 359,390 $ 350,068 $ 374,876 $ 390,141
Total debt, including current
maturities..................... 197,012 208,124 165,335 186,617 163,467
See Notes to Selected Historical Consolidated Financial and Other Data.
-9-
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OTHER DATA
(a) The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis.
During periods of rising prices, the LIFO method of costing inventories
generally results in higher costs being charged against income compared to
the FIFO method ("LIFO expense") while lower costs are retained in
inventories. Conversely, during periods of declining prices or a decrease
of the Company's inventory quantities, the LIFO method of costing
inventories generally results in lower costs being charged against income
compared to the FIFO method ("LIFO income"). During the year ended December
31, 1998, the Company recognized LIFO expense of $18.6 million, primarily
due to several very large increases in domestic cigarette wholesale prices
during 1998. However, the LIFO expense in 1998 was more than offset by
profits resulting from such price increases. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for more
information on the impact of the LIFO inventory valuation method on other
accounting periods.
(b) Amortization of debt refinancing costs reflects the amortization of all
costs associated with issuing, restructuring and refinancing debt.
(c) Prior to 1999, the Company had a significant valuation allowance that
reduced certain deferred tax assets, based upon management's assessment
that it was more likely than not that these deferred tax assets would not
be realized. However, as a result of the Company's strong earnings history,
in 1999 management concluded that the tax benefits related to future
deductions, including net operating loss carryforwards, were more likely
than not to be realized. Therefore, in 1999, the Company recorded a $6.2
million decrease in its valuation allowance, which resulted in a one-time
reduction of its tax rate of approximately 24%.
(d) EBITDAL represents operating income before depreciation, amortization and
LIFO expense, each as defined herein. EBITDAL should not be considered in
isolation or as a substitute for net income, operating income, cash flows
or other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. EBITDAL is included because it is one measure
used by certain investors to determine a company's ability to service its
indebtedness.
(e) Depreciation and amortization includes depreciation on property and
equipment, amortization of goodwill and other non-cash charges, and
excludes amortization of debt refinancing costs.
-10-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical Consolidated Financial and Other Data" and the consolidated financial
statements of Core-Mark International, Inc. (the "Company") and notes thereto
included elsewhere in this Form 10-K.
GENERAL
The Company is one of the largest broad-line, full-service wholesale
distributors of packaged consumer products to the convenience retail industry in
western North America. The products distributed by the Company include
cigarettes, food products such as candy, fast food, snacks, groceries and
non-alcoholic beverages, and non-food products such as film, batteries and other
sundries, health and beauty care products and tobacco products other than
cigarettes. In the year ended December 31, 2001, approximately 72%, 19% and 9%,
of the Company's net sales were derived from cigarettes, food products and
non-food products, respectively.
See Item 3. "Legal Proceedings - Regulatory and Legislative Matters" and
"Impact of Tobacco Taxes" for information on the current business and legal
environment in the tobacco industry.
The Company's business strategy has included, and continues to include,
increasing sales of higher margin, non-tobacco products, a strategy which is
intended to lessen the impact of potential future declines in unit sales and
profitability of its tobacco distribution business.
During the most recent five-year period, the Company's sales of cigarettes
were (in thousands):
FOR THE YEAR ENDED
DECEMBER 31, NET SALES CARTONS
------------------ --------- -------
1997 $1,603,362 92,368
1998 1,671,860 87,951
1999 1,989,890 78,972
2000 2,174,700 80,468
2001 2,473,124 86,710
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Core-Mark International's discussion and analysis of its financial
condition and results of operations are based on the Company's consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or economic conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The Company estimates its allowance based
on both specific identification and historical experience. If the financial
condition of the Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
INVENTORY VALUATION. The Company provides inventory valuation adjustments
for estimated spoiled, aged, and unrecoverable inventory based on historical
shrinkage and sales experience. If actual recovery rates differ from the
estimates, additions to the inventory valuation adjustments may be required.
-11-
GOODWILL. The Company assesses the recoverability of long-lived assets,
primarily goodwill, by determining whether the amortization of such assets over
the remaining life can be recovered through undiscounted future operating cash
flows of the related operations. The Company estimates future cash flows based
on its experience and knowledge of the markets in which it operates. However,
these estimates project cash flows several years into the future and are
affected by future economic conditions. In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets". The Company is required to adopt
SFAS No. 142 on January 1, 2002 at which time goodwill will no longer be
amortized but will be required to be tested for impairment at least annually at
the reporting unit level based upon an estimate of implied fair value, as
defined.
SELF-INSURANCE RESERVES. The Company records estimates related to health
and welfare, and workers' compensation costs that are principally self-insured
programs. Should the number or severity of claims change from what was
estimated, or costs of health care increase beyond what was anticipated,
adjustments to the reserves may be required.
IMPACT OF LIFO INVENTORY VALUATION METHOD
The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis using
Producer Price Indices as determined by the U.S. Department of Labor Statistics.
The Company's Canadian inventories are valued on a first-in, first-out (FIFO)
basis.
During periods of price inflation in the Company's product lines, the LIFO
methodology generally results in higher expenses being charged to cost of goods
sold ("LIFO expense") while lower costs are retained in inventories.
Historically, increases in the Company's cost of cigarettes resulted from a
combination of cost increases by cigarette manufacturers and increases in
federal and state excise taxes. In 1999, 2000, and 2001 LIFO expense of $5.7
million, $6.3 million and $5.6 million, respectively, is primarily the result of
increases in cigarette prices.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
NET SALES. Net sales for 2001 were $3,425.0 million, an increase of $389.6
million or 12.8% over 2000. The increase in net sales was due to higher net
sales in both cigarettes and food and non-food products.
Net sales of cigarettes for 2001 were $2,473.1 million, an increase of
$298.4 million or 13.7% over 2000. The Company's total cigarette unit sales for
2001 were 86.7 million cartons, an increase of 6.2 million cartons or 7.7% from
2000. The increase in net sales dollars of cigarettes was due to an increase in
carton sales and increases in manufacturers' list prices, which have been passed
on to the Company's customers in the form of higher prices. The increase in the
Company's carton sales was attributable to an increase in the U.S. of 5.9
million cartons or 8.8%, and an increase in Canada of 0.3 million cartons or
2.3%. The increase in carton sales was primarily due to new customer volume.
Net sales of food and non-food products in 2001 were $951.9 million, an
increase of $91.2 million or 10.6% over 2000. The increase occurred primarily in
fast food sales, which increased $24.5 million, or 20.8%, primarily due to new
customer volume; general merchandise, which increased $15.4 million or 21.2%,
due to increases in new and existing customer volume; snacks, which increased
$13.8 million or 19.8%, due to increases in new and existing customer volume,
and retail beverages, which increased $10.3 million or 11.8%, due primarily to
new customer volume.
GROSS PROFIT. Gross profit for 2001 was $213.9 million, an increase of
$18.8 million or 9.6% over 2000. The gross profit margin in 2001 decreased
slightly to 6.2% of net sales as compared to 6.4% of net sales in 2000. The
decline in overall gross profit margin was principally due to an increase in the
wholesale cost of cigarettes over the past year. Gross profit margins on
cigarettes are significantly lower than the margins on food and non-food
products, and the faster growth in cigarette revenues caused the overall
reduction in margins. In addition gross profit margins on food and non-food
products declined slightly.
The Company recognized LIFO expense of $5.6 million in 2001, as compared to
$6.3 million in 2000. The majority of the Company's LIFO expense is the result
of price increases in the domestic cigarette categories. In 2001, in the U.S.,
the wholesale price of cigarettes increased by $1.90 per carton, as compared to
an increase of $3.30 per carton in 2000. The impact of LIFO expense on the
financial statements in 2001 and 2000, which was primarily caused by the
increase in the price of cigarettes, was largely offset by profits resulting
from such price increases.
-12-
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 2001 were $169.7 million, an increase of $9.5 million or 6.0% over
2000. However, such expenses in 2001 decreased to 5.0% of net sales as compared
to 5.3% for 2000. The decline in operating expenses as a percent of net sales is
the result of the Company continuing to exert tight control over expenses.
OPERATING INCOME. As a result of the foregoing factors, operating income
for 2001 was $44.2 million, an increase of $9.3 million or 26.6% compared to
2000. As a percentage of net sales, operating income for 2001 was 1.3%, as
compared to 1.1% in 2000.
NET INTEREST EXPENSE. Net interest expense for 2001 was $11.1 million, a
decrease of $1.7 million or 13.5% from 2000. This was the result of a decrease
in the Company's average debt levels and a decrease in average borrowing rates.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
NET SALES. Net sales for 2000 were $3,035.4 million, an increase of $197.3
million or 7.0% over 1999. The increase in net sales was due to higher net sales
in both cigarettes and food and non-food products.
Net sales of cigarettes for 2000 were $2,174.7 million, an increase of
$184.8 million or 9.3% over 1999. The Company's total cigarette unit sales for
2000 were 80.5 million cartons, an increase of 1.5 million cartons or 1.9% from
1999. The increase in net sales dollars of cigarettes was principally due to
increases in manufacturers' list prices, which have been passed on to the
Company's customers in the form of higher prices, and an increase in carton
sales. The increase in the Company's carton sales was attributable to an
increase in the U.S. of 1.9 million cartons or 2.8%, offset by a decrease in
Canada of 0.4 million cartons or 2.6%. The Company believes the increase in U.S.
carton sales was attributable both to increased volume with new and existing
customers and a reduction in cigarette distribution among grey market suppliers
(resellers of cigarettes intended for international markets but sold in the
United States) as a result of the passage of California bill SB702. This bill,
passed in October 1999 made it illegal to affix state tax stamps to grey market
cigarettes.
Net sales of food and non-food products in 2000 were $860.7 million, an
increase of $12.5 million or 1.5% over 1999. The increase occurred primarily in
retail beverage sales, which increased $7.1 million or 8.8% and fast food sales,
which increased $6.5 million or 5.9%, offset by a decrease in cigar and
non-cigarette tobacco sales of $8.0 million or 5.4%.
GROSS PROFIT. Gross profit for 2000 was $195.0 million, the same as 1999.
The gross profit margin in 2000 decreased slightly to 6.4% of net sales as
compared to 6.9% of net sales in 1999. The decline in overall gross profit
margin was primarily due to an increase in the wholesale cost of cigarettes over
the past year. Gross profit margins on cigarettes are significantly lower than
the margins on food and non-food products, and the much faster growth in
cigarette revenues caused the overall reduction in margins. In addition gross
profit margins on food and non-food products declined slightly.
The Company recognized LIFO expense of $6.3 million in 2000, as compared to
$5.7 million in 1999. The majority of the Company's LIFO expense is the result
of price increases in the domestic cigarette categories. In 2000, in the U.S.,
the wholesale price of cigarettes increased by $3.30 per carton, as compared to
an increase of $1.80 per carton in 1999. The impact of LIFO expense on the
financial statements in 2000 and 1999, which was primarily caused by the
increase in the price of cigarettes, was largely offset by profits resulting
from such price increases.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 2000 were $160.1 million, an increase of $5.0 million or 3.2% over
1999. However, such expenses in 2000 decreased to 5.3% of net sales as compared
to 5.5% for 1999. The decline in operating expenses as a percent of net sales is
the result of the Company continuing to exert tight control over expenses.
OPERATING INCOME. As a result of the foregoing factors, operating income
for 2000 was $34.9 million, a decrease of $5.0 million or 12.5% compared to
1999. As a percentage of net sales, operating income for 2000 was 1.1%, as
compared to 1.4% in 1999.
NET INTEREST EXPENSE. Net interest expense for 2000 was $12.9 million, an
increase of $0.2 million or 1.2% from 1999. This was the result of an increase
in interest rates, offset by a decrease in the Company's average debt levels.
-13-
INCOME TAXES. The tax rate on income increased to 46.8% in 2000 from 22.1%
in 1999. The increase in 2000 was primarily due to a lower than normal tax rate
on income in 1999. In fiscal 1999 the low tax rate was primarily attributable to
a $6.2 million reduction in the Company's income tax valuation allowance
recorded during the year due to changes in factors affecting the realizability
of the Company's deferred tax assets. Prior to 1999, the Company had a
significant valuation allowance that reduced certain deferred tax assets, based
upon management's assessment that it was more likely than not that these
deferred tax assets would not be realized. However, as a result of the Company's
strong earnings history, in 1999 management concluded that the tax benefits
related to future deductions, including net operating loss carryforwards, were
more likely than not to be realized. Therefore, in 1999, the Company recorded a
$6.2 million decrease in its valuation allowance, which resulted in a one-time
reduction of its tax rate of approximately 24%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from the funding of
its working capital needs, capital expenditure programs and debt service
requirements with respect to its credit facilities. The Company has no mandatory
reductions of principal on its Revolving Credit Facility, its Accounts
Receivable Facility or its $75 million Senior Subordinated Notes prior to their
final maturities in 2003. The Company has historically financed its operations
through internally generated funds and borrowings under its credit facilities.
On April 1, 1998, the Company entered into a transaction to securitize its
U.S. trade accounts receivable portfolio ("Accounts Receivable Facility"). In
connection with this transaction, the Company formed a wholly-owned special
purpose bankruptcy-remote subsidiary (the "Special Purpose Company" or "SPC"),
to which the U.S. trade accounts receivable originated by the Company are sold
or contributed, without recourse, pursuant to a receivables sale agreement. The
receivables have been assigned, with a call option by the SPC, to a trust formed
pursuant to a pooling agreement. On April 1, 1998, the SPC issued two classes of
term certificates with an aggregate principal value of $55 million, and variable
certificates of up to $30 million representing fractional undivided interests in
the receivables and the proceeds thereof. The SPC is included in the Company's
consolidated financial position and results of operations, and therefore all
assets and liabilities of the SPC are reflected on the consolidated balance
sheet of the Company.
On a daily basis, collections related to sold receivables are administered
by the Company acting as servicer, pursuant to a servicing agreement. Pursuant
to supplements to the pooling agreement, certificate holders' accrued interest
expense and other securitization expenses are reserved out of daily collections,
before such remaining collections are returned to the Company by the SPC to pay
for the SPC's purchase of newly originated receivables from the Company. The
revolving period of the securitization expires in January 2003, or earlier if an
early amortization event, as defined in the pooling agreement, occurs. The
interest rate on the fixed term certificates is 0.28% (Class A) and 0.65% (Class
B) above the Eurodollar Rate, which was 1.87% as of December 31, 2001. The
interest rate on the variable certificates is 0.25% above the commercial paper
rate (as defined in the securitization agreement), which was 1.78% as of
December 31, 2001.
In connection with the securitization of accounts receivable, the Company
amended its Revolving Credit Facility. The amendment reduced the available
credit facility from $175 million to $120 million, reduced its interest rates
from 1.5% to 1.0% above the Prime Rate, and from 2.5% to 2.0% above the
Eurodollar Rate, as defined in the amendment, and extended the maturity through
April, 2003. As a result of this modification, the Company wrote off $0.9
million of unamortized refinancing costs relating to the Revolving Credit
Facility in the second quarter of 1998. Based on certain criteria in the
Revolving Credit Facility, the Company further reduced its interest rates
effective October 1, 1998 to 0.75% above the Prime Rate and 1.75% above the
Eurodollar Rate and again effective March 16, 1999, to 0.25% above the Prime
Rate, and 1.25% above the Eurodollar Rate, which are the rates in effect at
December 31, 2001. The bank's Prime Rate and Eurodollar Rate was 4.75% and
1.87%, respectively, at December 31, 2001.
The net result of the (i) securitization of the Company's U.S. trade
accounts receivable portfolio and (ii) the modification of the Revolving Credit
Facility was to lower the Company's cost of borrowings, and to increase its
variable-rate borrowing capacity from $175 million to $205 million. The Company
incurred approximately $1.6 million for legal, professional and other costs
related to the transactions described above. These costs were capitalized and
classified as other assets and are being amortized over the term of these
agreements.
-14-
The Company's debt obligations totaled $163.5 million at December 31, 2001,
a decrease of $23.2 million or 12.4% from $186.6 million at December 31, 2000.
As of December 31, 2001, the amount outstanding under the Revolving Credit
Facility was $12.0 million, with a sufficient borrowing base to draw an
additional $108.0 million, the limit under this facility. In addition, the
amount outstanding under the Accounts Receivable Facility was $76.5 million as
of December 31, 2001. At December 31, 2001, the Company had sufficient
collateral, with respect to this facility, to issue up to its limit of this
facility, of an additional $8.5 million. The net decrease in outstanding debt is
due primarily to an increase in net cash provided from operating activities in
2001. Debt requirements are generally the highest at December 31 when the
Company historically carries higher inventory.
The following table summarizes the Company's significant contractual
commitments at December 31, 2001 (in thousands):
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY YEAR
- ----------------------- --------------------
Total 2002 2003 2004 2005 Thereafter
--------- --------- --------- --------- --------- ---------
Long term debt.....................
Accounts Receivable facility $ 76,500 $ 0 $ 76,500 $ 0 $ 0 $ 0
Revolving Credit facility..... 11,967 0 11,967 0 0 0
Senior Subordinated notes..... 75,000 0 75,000 0 0 0
Operating Leases................... 54,716 12,242 10,409 8,908 7,473 15,684
--------- --------- --------- --------- --------- ---------
Total.............................. $ 218,183 $ 12,242 $ 173,876 $ 8,908 $ 7,473 $ 15,684
========= ========= ========= ========= ========= =========
The revolving period of the Accounts Receivable Facility expires in January
2003. This facility is structured such that, upon expiration, the subsequent
collections of U.S. trade receivables are used to pay the outstanding balance
until it is paid in full. The Revolving Credit Facility expires on April 30,
2003. The Senior Subordinated notes mature on September 15, 2003. The Company
intends to refinance all outstanding long-term debt prior to their maturities
and is currently exploring alternatives. These alternatives include arrangements
similar to existing arrangements such as a new accounts receivable
securitization, a revolving facility, new senior subordinated notes, as well as
other financing vehicles. Depending on the market conditions at the time of the
refinancing, the terms obtained by the Company may, or may not be as favorable
as the current terms.
Under the Revolving Credit Facility, the Company must maintain certain
financial covenants as prescribed in the credit agreement, including, but not
limited to, current ratio, net worth, debt leverage and interest coverage, and
operating income before certain non-cash items. At December 31, 2001, the
Company was solidly in compliance with all financial covenants of all debt
facilities.
The Company's principal sources of liquidity are net cash provided by
operating activities and its credit facilities. In 2001 net cash provided by
operating activities was $28.2 million as compared to net cash used in operating
activities of $1.9 million in 2000. The increase in operating cash flow in 2001,
as compared to 2000, was the result of an increase in net income in 2001, and an
improvement in net working capital. In both 2001 and 2000, inventory and
accounts receivable increased primarily due to the increase in U.S. wholesale
cigarette prices. In 2001, the increase in inventory was significantly offset by
a corresponding increase in trade accounts payable.
The Company made capital expenditures of $7.9 million in 2001. In 2002, the
Company estimates it will spend approximately $6-7 million for capital
requirements, principally consisting of warehouse and delivery equipment.
In November 1998, the four largest U.S. cigarette manufacturers and the
state attorneys general of almost all of the fifty states, agreed to a
multi-billion dollar settlement over public health costs connected to smoking
(see Item 3. "Legal Proceedings - Regulatory and Legislative Matters"). As a
direct result of this settlement, the cigarette manufacturers raised the
wholesale price of cigarettes by $4.50 per carton, effective November 24, 1998,
in order to cover initial costs of the settlement, bringing the total per-carton
price increase in the U.S. in 1998 to $6.35. In addition, the U.S. cigarette
manufacturers have raised the wholesale price of cigarettes by $1.80 per carton
-15-
in 1999, $3.30 per carton in 2000, and $1.90 per carton in 2001. These
manufacturer price increases resulted in an increase in inventories and trade
accounts receivable for the Company, and correspondingly higher debt and
interest levels. At current levels of business activity, the Company has
substantial excess borrowing capacity under its current credit facilities.
However, if manufacturers' price increases or federal excise tax increases (over
and above currently enacted increases) continue to sharply escalate, or if
payment terms for state and provincial taxes were adversely changed (see "Impact
of Tobacco Taxes"), the Company might be required to seek additional financing
in order to meet such higher working capital requirements.
The Company believes that price and tax increases of the magnitude recently
experienced, as well as increases which occur in the future (see "Impact of
Tobacco Taxes"), will have a negative impact on overall industry unit sales and
will negatively affect the Company's sales of tobacco products. The Company is
not able to quantify the impact of these higher prices and taxes on future sales
of cigarettes and other tobacco products.
IMPACT OF TOBACCO TAXES
State and Canadian provincial tobacco taxes represent a significant portion
of the Company's net sales and cost of goods sold attributable to cigarettes and
other tobacco products. During 2001, such taxes on cigarettes represented
approximately 22% of cigarette net sales in the U.S. and 43% in Canada. In
general, such taxes have been increasing, and many states and Canadian provinces
are currently weighing proposals for higher excise taxes on cigarettes and other
tobacco products.
Under current law, almost all state and Canadian provincial taxes are
payable by the Company under credit terms which, on the average, are more
favorable than the credit terms the Company has approved for its customers to
pay for products which include such taxes. This practice has benefited the
Company's cash flow. If the Company were required to pay such taxes at the time
such obligation was incurred without the benefit of credit terms, the Company
would incur a substantial permanent increase in its working capital requirements
and might be required to seek additional financing in order to meet such higher
working capital requirements. Consistent with industry practices, the Company
has secured a bond to guarantee its tax obligations to those states and
provinces requiring such a surety (a majority of states in the Company's
operating areas).
As of January 1, 2002, the U.S. federal excise tax on cigarettes is $3.90
per carton of cigarettes, which includes a $.50 per carton increase that took
effect on January 1, 2002. Unlike the state and provincial taxes described
above, U.S. federal excise taxes on cigarettes are paid by the cigarette
manufacturers and passed through to the Company as a component of the cost of
cigarettes. Increases in U.S. federal excise taxes raise the Company's working
capital requirements by increasing the balances of its inventories and accounts
receivable. While the Company is unaware of any pending legislation that might
further increase the federal excise tax on cigarettes, there can be no assurance
that similar proposals will not be considered in the future.
INFLATION
In response to increases or decreases in manufacturers' prices with respect
to any of the Company's products, the Company historically has adjusted its
selling price in order to maintain its gross profit dollars. Therefore,
inflation and deflation generally do not have a material impact on the Company's
gross profit. As described in "Liquidity and Capital Resources", significant
increases in manufacturers' prices of cigarettes have occurred, due to the
settlement of a number of legal issues facing the industry. The Company has been
able to pass along to its customers all of the price increases that have
occurred to date, and, based upon the past experience of the Company, would
expect to pass along any future price or tax increases.
During the past several years, low levels of overall inflation have
resulted in historically low interest rates, which have benefited the Company's
results of operations because of the Company's high degree of leverage. If
interest rates were to increase, as a result of increased inflation or
otherwise, the Company could be adversely affected.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 "Summary of Significant Accounting Policies" included in the
Notes to the Consolidated Financial Statements contained elsewhere in this Form
10-K.
-16-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is changes in short-term interest
rates on its domestic variable rate debt. At December 31, 2001, variable rate
debt represented 54% of the Company's total debt. However, on average during
2001, variable rate debt represented 44% of the Company's total debt. Depending
upon the borrowing option chosen, the variable rate debt is based upon either
the bank's Prime Rate, the Eurodollar Rate, or the Commercial Paper rate, plus
an applicable margin over one of these base rates. If interest rates on existing
variable rate debt rose 22 basis points (which approximates 10%), the Company's
results from operations and cash flows would not be materially affected.
The Company conducts business in Canada. However, changes in the
U.S./Canadian exchange rate had no material impact on the overall results of the
Canadian operation, as virtually all revenues and expenses of such operations
are Canadian dollar based.
ITEM 8. FINANCIAL STATEMENTS
Page
Independent Auditors' Report................................................ 18
Consolidated Balance Sheets as of December 31, 2000 and 2001................ 19
Consolidated Statements of Income for the years ended December 31,
1999, 2000 and 2001......................................................... 20
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 2000 and 2001............................................ 21
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 2000 and 2001......................................................... 22
Notes to Consolidated Financial Statements.................................. 23
-17-
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
CORE-MARK INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of Core-Mark
International, Inc. and subsidiaries as of December 31, 2000 and 2001, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. Our audits
also included the financial statement schedule of the Company listed in Item
14(a)2. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Core-Mark International, Inc. and
subsidiaries as of December 31, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
SAN FRANCISCO, CALIFORNIA
FEBRUARY 22, 2002
-18-
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001
(IN THOUSANDS OF DOLLARS)
2000 2001
-------- --------
ASSETS
- ------
Current assets:
Cash.................................................................. $ 28,129 $ 24,230
Receivables:
Trade accounts, less allowance for doubtful
accounts of $2,660 and $3,798, respectively.................. 109,594 112,166
Other............................................................. 17,055 20,002
Inventories, net of LIFO allowance of $46,319 and
$51,914, respectively............................................. 111,983 128,168
Prepaid expenses and other............................................ 7,694 8,547
-------- --------
Total current assets.............................................. 274,455 293,113
Property and equipment:
Equipment............................................................. 61,816 66,589
Leasehold improvements................................................ 11,138 11,438
-------- --------
72,954 78,027
Less accumulated depreciation and amortization........................ (41,888) (45,180)
-------- --------
Net property and equipment........................................ 31,066 32,847
Other assets............................................................... 9,588 6,497
Goodwill, net of accumulated amortization of
$23,540 and $25,623, respectively..................................... 59,767 57,684
-------- --------
Total assets............................................................... $374,876 $390,141
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable................................................ $ 51,791 $ 63,364
Cigarette and tobacco taxes payable................................... 52,933 53,771
Income taxes payable.................................................. 3,476 4,067
Deferred income taxes................................................. 3,759 4,879
Other accrued liabilities............................................. 31,851 37,620
-------- --------
Total current liabilities......................................... 143,810 163,701
Long-term debt............................................................. 186,617 163,467
Other accrued liabilities and deferred income taxes........................ 8,591 12,345
-------- --------
Total liabilities..................................................... 339,018 339,513
Commitments and contingencies
Shareholders' equity:
Common stock; $.01 par value; 10,000,000 shares authorized;
5,500,000 shares issued and outstanding........................... 55 55
Additional paid-in capital............................................ 26,121 26,121
Retained earnings..................................................... 16,178 33,688
Accumulated comprehensive loss:
Cumulative currency translation adjustments....................... (3,836) (5,408)
Additional minimum pension liability.............................. (2,660) (3,828)
-------- --------
Total shareholders' equity............................................ 35,858 50,628
-------- --------
Total liabilities and shareholders' equity............................ $374,876 $390,141
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
-19-
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS OF DOLLARS)
1999 2000 2001
---------- ---------- ----------
Net sales............................................ $2,838,107 $3,035,379 $3,425,024
Cost of goods sold................................... 2,643,069 2,840,334 3,211,160
---------- ---------- ----------
Gross profit................................... 195,038 195,045 213,864
Operating and administrative expenses................ 155,128 160,143 169,691
---------- ---------- ----------
Operating income............................... 39,910 34,902 44,173
Interest expense, net................................ 12,696 12,852 11,121
Amortization of debt refinancing costs............... 1,274 1,274 1,274
---------- ---------- ----------
Income before income taxes..................... 25,940 20,776 31,778
Income tax expense................................... 5,740 9,721 14,268
---------- ---------- ----------
Net income........................................... $ 20,200 $ 11,055 $ 17,510
========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
-20-
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
RETAINED ACCUMULATED
ADDITIONAL EARNINGS OTHER TOTAL
COMMON STOCK PAID-IN (ACCUMULATED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) EQUITY INCOME
--------- ------ ------- -------- ------------- ------ ------
Balance, December 31, 1998............... 5,500,000 $55 $26,121 $(15,077) $(7,237) $ 3,862
Net income............................... -- -- -- 20,200 -- 20,200 $20,200
Additional minimum pension liability..... -- -- -- -- 612 612 612
Foreign currency translation adjustments. -- -- -- -- 1,276 1,276 1,276
--------- -- ------ ----- ----- ------ -------
Balance, December 31, 1999............... 5,500,000 55 26,121 5,123 (5,349) 25,950 $22,088
=======
Net income............................... -- -- -- 11,055 -- 11,055 $11,055
Additional minimum pension liability..... -- -- -- -- (260) (260) (260)
Foreign currency translation adjustments. -- -- -- -- (887) (887) (887)
--------- -- ------ ---- -- ----- ------ -------
Balance, December 31, 2000............... 5,500,000 55 26,121 16,178 (6,496) 35,858 $ 9,908
=======
Net income............................... -- -- -- 17,510 -- 17,510 $17,510
Additional minimum pension liability..... -- -- -- -- (1,168) (1,168) (1,168)
Foreign currency translation adjustments. -- -- -- -- (1,572) (1,572) (1,572)
--------- --- ------- -------- ------- ------- -------
Balance, December 31, 2001............... 5,500,000 $55 $26,121 $ 33,688 $(9,236) $50,628 $14,770
========= === ======= ======== ======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
-21-
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS OF DOLLARS)
1999 2000 2001
-------- -------- --------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income............................................................. $ 20,200 $ 11,055 $ 17,510
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
LIFO expense.................................................. 5,671 6,316 5,595
Amortization of goodwill...................................... 2,083 2,082 2,083
Depreciation and amortization................................. 5,829 6,829 7,595
Amortization of debt refinancing fees......................... 1,274 1,274 1,274
Deferred income taxes......................................... (2,828) (916) 3,338
Other......................................................... (683) 1,170 1,451
Changes in operating assets and liabilities:
Increase in trade accounts receivable......................... (260) (5,537) (4,544)
Increase in other receivables................................. (2,554) (1,886) (3,137)
Increase in inventories....................................... (1,131) (10,010) (22,976)
(Increase) decrease in prepaid expenses and other............. 319 (8,112) (737)
Increase in trade accounts payable............................ 1,554 1,221 12,412
Increase (decrease) in cigarette and tobacco taxes payable.... 13,931 (6,389) 1,633
Increase (decrease) in other accrued
liabilities and income taxes payable.................... (2,624) 978 6,714
-------- -------- --------
Net cash provided by (used in) operating activities.................... 40,781 (1,925) 28,211
-------- -------- --------
INVESTING ACTIVITIES:
Additions to property and equipment................................ (6,575) (7,620) (7,916)
-------- -------- --------
Net cash used in investing activities.................................. (6,575) (7,620) (7,916)
-------- -------- --------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit agreement......... (48,789) 16,282 (14,650)
Net borrowings (payments) under accounts receivable facility....... 6,000 5,000 (8,500)
-------- -------- --------
Net cash provided by (used in) financing activities................ (42,789) 21,282 (23,150)
-------- -------- --------
Effects of changes in foreign exchange rates........................... 1,276 (887) (1,044)
-------- -------- --------
Increase (decrease) in cash............................................ (7,307) 10,850 (3,899)
Cash, beginning of year................................................ 24,586 17,279 28,129
-------- -------- --------
CASH, END OF YEAR $ 17,279 $ 28,129 $ 24,230
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the year for:
Interest......................................................... $ 12,451 $ 12,354 $ 11,221
Income taxes..................................................... 7,305 11,159 10,410
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
-22-
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
1. ORGANIZATION AND FORM OF BUSINESS
Core-Mark International, Inc. and subsidiaries (the "Company") is a
full-service wholesale distributor of tobacco, food and other consumer products
to convenience stores, grocery stores, mass merchandisers and liquor and drug
stores in western North America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
These financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America. This requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Management
considers the allowance for doubtful accounts, inventory reserves,
recoverability of goodwill, and self-insurance obligations to be those estimates
which involve a higher degree of judgments, estimates, and complexity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and all of its
wholly-owned subsidiaries including a Special Purpose Company (SPC) used to
securitize its receivables. All significant intercompany balances and
transactions are eliminated.
FOREIGN CURRENCY
Assets and liabilities of the Company's Canadian operations are translated
at exchange rates in effect at year-end. Income and expenses are translated at
average rates for the year. Adjustments resulting from such translation are
included in cumulative currency translation adjustments in other comprehensive
income (loss), a separate component of shareholders' equity.
EXCISE TAXES
State and provincial excise taxes paid by the Company on cigarettes were
$583.5 million, $597.5 million and $626.5 million, for the years ended December
31, 1999, 2000 and 2001, respectively, and are included in net sales and cost of
goods sold.
INVENTORIES
Inventories are valued at the lower of cost or market. In the United
States, cost is determined on a last-in, first-out (LIFO) basis using Producer
Price Indices as determined by the Department of Labor and Statistics. Under
LIFO, current costs of goods sold are matched against current sales. Inventories
in Canada amount to $18.6 million and $21.7 million at December 31, 2000 and
2001, respectively, and are valued on a first-in, first-out (FIFO) basis.
During periods of rising prices, the LIFO method of costing inventories
generally results in higher current costs being charged against income while
lower costs are retained in inventories. An increase in cost of goods sold and a
decrease in inventories of $5.7 million, $6.3 million and $5.6 million resulted
from using the LIFO method for the years ended December 31, 1999, 2000 and 2001,
respectively.
The Company provides inventory valuation adjustments for estimated spoiled,
aged, and unrecoverable inventory based on historical shrinkage and sales
experience.
COST OF GOODS SOLD
Cost of goods sold includes costs of inventory sold during the period,
including product costs net of vendor payment discounts. Vendor allowances and
credits that relate to the Company's buying and merchandising activities are
recognized as a reduction of cost of goods sold as earned.
-23-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided on the
straight-line method over the estimated useful lives of owned assets. The
estimated useful lives for equipment are principally 5 to 15 years. Leasehold
improvements are amortized over the estimated useful life of the property or
over the term of the lease, whichever is shorter.
GOODWILL
Goodwill is amortized on a straight-line basis over a forty-year period.
Amortization expense for each of the years ended December 31, 1999, 2000 and
2001 was $2.1 million.
The Company assesses the recoverability of long-lived assets, including
goodwill, by determining whether the amortization of such assets over the
remaining life can be recovered through undiscounted future operating cash flows
of the related operations. Based on this calculation, the Company is of the
opinion that there is no impairment of long-lived assets as of December 31,
2001.
REVENUE RECOGNITION
The Company recognizes revenue at the time the product is shipped, or the
services are provided to the customer. Promotional incentives and discounts
provided to the Companies' customers are recorded as a reduction of net sales as
they are earned.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments.
SHIPPING AND HANDLING CHARGES
As a wholesale distributor, the Company classifies the costs of shipping
and handling product to its customers as operating and administrative expenses.
The Company's net sales to its customers include markups, which are designed to
cover these costs.
STOCK-BASED COMPENSATION PLAN
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"). The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation."
PENSION COSTS AND OTHER POSTRETIREMENT BENEFIT COSTS
Pension costs and other postretirement benefit costs charged to earnings
are determined on the basis of annual valuations by an independent actuary.
Adjustments arising from plan amendments, changes in assumptions and experience
gains and losses are amortized over the expected average remaining service life
of the employee group.
INCOME TAXES
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", see note 6.
SELF-INSURANCE RESERVES
The Company maintains reserves related to health and welfare and workers
compensation programs that are principally self-insured programs.
-24-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,"
which revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires entities that have
securitized financial assets to provide specific disclosures. SFAS No. 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The Company adopted the standard
effective April 1, 2001, as required. The adoption of SFAS No. 140 did not have
an impact on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be accounted for under
the purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangibles assets
acquired outside of a business combination and the recognition and measurement
of goodwill and other intangibles assets subsequent to their acquisition. The
Company is required to adopt SFAS No. 142 on January 1, 2002 at which time
goodwill will no longer be amortized but will be required to be tested for
impairment at least annually. Intangible assets with definitive useful lives
will be amortized over their useful life and intangible assets with an
indefinite useful life are not amortized, but will rather be tested at least
annually for impairment. The Company is evaluating the impact that the adoption
SFAS No. 142 will have on its financial position, results of operations and cash
flows. Upon implementation of SFAS No. 142, the Company will cease to record
amortization expense, which totaled $2.1 million for the fiscal year ended
December 31, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." While SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", it retains many of the fundamental provisions of that
Statement. SFAS No. 144 also supersedes the accounting and reporting provision
of APB No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequently Occurring Events and Transactions" for the disposal of a business.
It retains, however, the requirement in APB No. 30 to report separately
discontinued operations, and extends that reporting to a component of an entity
that either has been disposed of or is classified as held for sale. SFAS No. 144
is effective for the Company on January 1, 2002. The Company is currently
evaluating the impact that the adoption of SFAS No. 144 will have on its
financial position, results of operations and cash flows.
Effective January 1, 2002, EITF No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products,"
requires that consideration paid to a distributor or retailer to promote the
vendor's products, such as slotting fees or buydowns, generally be characterized
as a reduction of revenue when recognized in the vendor's income statement. The
Company adopted EITF No. 00-25 in 2001 and classified the applicable costs as a
reduction of net sales rather than as selling, general and administrative
expense. The adoption of EITF No. 00-25 did not materially impact the Company's
consolidated financial position, results of operations and cash flows.
3. FINANCING
Long-term debt consisted of the following at December 31 (in thousands):
2000 2001
-------- --------
Accounts receivable facility.................... $ 85,000 $ 76,500
Revolving credit facility....................... 26,617 11,967
Senior subordinated notes....................... 75,000 75,000
-------- --------
Long-term debt......................... $186,617 $163,467
======== ========
-25-
3. FINANCING (CONT.)
ACCOUNTS RECEIVABLE FACILITY
On April 1, 1998, the Company entered into a transaction to securitize its
U.S. trade accounts receivable portfolio ("Accounts Receivable Facility"). In
connection with this transaction, the Company formed a wholly-owned special
purpose, bankruptcy-remote subsidiary (the "Special Purpose Company" or "SPC"),
to which the U.S. trade accounts receivable originated by the Company are sold
or contributed, without recourse, pursuant to a receivables sale agreement. The
receivables have been assigned, with a call option by the SPC, to a trust formed
pursuant to a pooling agreement. On April 1, 1998, the SPC issued two classes of
term certificates with an aggregate principal value of $55 million, and variable
certificates of up to $30 million representing fractional undivided interests in
the receivables and the proceeds thereof. The SPC is included in the Company's
consolidated financial position and results of operations, and therefore all
assets and liabilities of the SPC are reflected on the consolidated balance
sheet of the Company.
On a daily basis, collections related to sold receivables are administered
by the Company acting as servicer, pursuant to a servicing agreement. Pursuant
to supplements to the pooling agreement, certificate holders' accrued interest
expense and other securitization expenses are reserved out of daily collections,
before such remaining collections are returned to the Company by the SPC to pay
for the SPC's purchase of newly originated receivables from the Company. The
revolving period of the securitization expires in January 2003, or earlier if an
early amortization event, as defined in the pooling agreement, occurs.
The interest rate on the fixed term certificates is 0.28% (Class A) and
0.65% (Class B) above the Eurodollar Rate which was 1.87% as of December 31,
2001. The interest rate on the variable certificates is 0.25% above the
commercial paper rate (as defined in the securitization agreement), which was
1.78% as of December 31, 2001. There is a commitment fee and facility fee of
0.375% and 0.1%, respectively, on the total value of available variable
certificates. As of December 31, 2001, the amount outstanding under the Accounts
Receivable Facility was $76.5 million, with sufficient collateral to borrow an
additional $8.5 million, the limit under this facility.
REVOLVING CREDIT FACILITY
In connection with the securitization of accounts receivable, on April 1,
1998, the Company amended its Revolving Credit Facility. The amendment reduced
the Revolving Credit Facility from $175 million to $120 million, extended the
maturity from June 30, 2001 through April 1, 2003, and reduced interest rates.
The Revolving Credit Facility initially provided for aggregate borrowings of up
to $210.0 million, consisting of: (i) a $35.0 million term loan, which was
repaid in 1996, and (ii) a revolving credit facility (the "Revolving Credit
Facility") under which borrowings in the amount of up to $175.0 million were
available for working capital and general corporate purposes. Borrowings under
this facility remain subject to borrowing base limitations based upon levels of
eligible inventories, accounts receivable, other receivables and cash. Included
in this facility are letters of credit up to a maximum of $40.0 million.
Under the Revolving Credit Facility, the Company must maintain certain
financial covenants as prescribed in the credit agreement, including, but not
limited to, current ratio, net worth, leverage and interest coverage, and
operating income before certain non-cash items. The Revolving Credit Facility
limits certain activities of the Company, including, but not limited to,
indebtedness, creation of liens, acquisitions and dispositions, capital
expenditures, investments and dividends.
Under the Revolving Credit Facility the Company has the option to borrow
under: (i) Revolving Credit Loans, which prior to the amendment, bore interest
at 1.5% above the bank's Prime Rate; or (ii) Eurodollar Loans, which prior to
the amendment, bore interest at 2.5% above the bank's Eurodollar Rate. The
amendment reduced interest rates to 1.0% above the Prime Rate, and to 2.0% above
the Eurodollar Rate, as defined in the amendment. The Company has the ability to
further reduce interest rates based on certain leverage ratio criteria as
defined in the amendment. Based on this criteria, the Company reduced its
interest rates, effective October 1, 1998, to 0.75% above the Prime Rate and
1.75% above the Eurodollar Rate and again effective March 16, 1999, to 0.25%
above the Prime Rate and 1.25% above the Eurodollar Rate, which are the rates in
effect at December 31, 2001. The bank's Prime Rate and Eurodollar Rate was 4.75%
and 1.87%, respectively, at December 31, 2001.
-26-
3. FINANCING (CONT.)
As of December 31, 2001, the amount outstanding under the Revolving Credit
Facility was $12.0 million, with a sufficient borrowing base to draw an
additional $108.0 million, the limit under this facility. There is a commitment
fee of 0.325% on the unused portion of the Revolving Credit Facility. The
obligations are secured by all assets of the Company, with the exception of U.S.
trade accounts receivable, which are utilized to support the Accounts Receivable
Facility.
The Company had letters of credit of $3.4 million and $5.3 million
outstanding at December 31, 2000 and 2001, respectively. The letters of credit
are issued primarily to secure the Company's bond and insurance programs. The
Company pays fees of 1.25% per annum on the outstanding portion of letters of
credit. Prior to the amendment these fees were 2.50% per annum.
The net result of the (i) securitization of the Company's U.S. trade
accounts receivable portfolio and (ii) the modification of the Revolving Credit
Facility was to lower the Company's cost of borrowings, and to increase its
variable-rate borrowing capacity from $175 million to $205 million. The Company
incurred approximately $1.6 million for legal, professional and other costs
related to the transactions described above. These costs were capitalized and
classified as other assets and are being amortized over the term of these
facilities.
SENIOR SUBORDINATED NOTES
On September 27, 1996, the Company issued $75.0 million of 11 3/8% Senior
Subordinated Notes (the "Notes") which mature on September 15, 2003. Interest on
the Notes is payable semi-annually on March 15 and September 15 of each year.
The Notes limit certain activities of the Company, including, but not limited
to, changes in control, incurrence of indebtedness, creation of liens,
acquisitions and dispositions, investments and dividends.
MATURITY OF LONG-TERM DEBT IN 2003
The revolving period of the Accounts Receivable Facility expires in January
2003. This facility is structured such that, upon expiration, the subsequent
collections of U.S. trade receivables are used to pay the outstanding balance
until it is paid in full. The Revolving Credit Facility expires on April 30,
2003. The Senior Subordinated notes mature on September 15, 2003. The Company
intends to refinance all outstanding long-term debt prior to their maturities
and is currently exploring alternatives. These alternatives include arrangements
similar to existing arrangements such as a new accounts receivable
securitization, a revolving facility, new senior subordinated notes, as well as
other financing vehicles. Depending on the market conditions at the time of the
refinancing, the terms obtained by the Company may, or may not be as favorable
as the current terms.
4. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases the majority of its sales and warehouse distribution
facilities, automobiles and trucks under lease agreements expiring at various
dates through 2011, excluding renewal options. The leases generally require the
Company to pay taxes, maintenance and insurance. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.
Future minimum rental payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) were as follows as of
December 31, 2001 (in thousands):
2002 ......................................................... $12,242
2003 ......................................................... 10,409
2004 ......................................................... 8,908
2005 ......................................................... 7,473
2006 ......................................................... 6,420
Thereafter.................................................... 9,264
-------
Total minimum lease payments............................. $54,716
=======
Rental expense for operating leases was $14.4 million, $15.3 million and
$16.1 million for the years ended December 31, 1999, 2000 and 2001,
respectively.
-27-
4. COMMITMENTS AND CONTINGENCIES (CONT.)
CLAIMS AND ASSESSMENTS
The Company is a defendant to claims arising in the ordinary course of
business. Management believes that the disposition of these matters will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
5. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company sponsors a qualified pension plan and a non-pension
postretirement benefit plan for employees hired before September 1986. The
following tables provide a reconciliation of the changes in the plans' benefit
obligations and fair value of assets over the two-year period ending December
31, 2001, and a statement of the December 31 funded status for both years (in
thousands):
Pension Benefits Other Benefits
--------------------- ---------------------
2000 2001 2000 2001
-------- -------- -------- --------
BENEFIT OBLIGATION RECONCILIATION
January 1 obligation $ 14,512 $ 14,936 $ 1,927 $ 2,201
Service cost - - 35 39
Interest cost 1,123 1,140 161 164
Participant contributions - - 40 37
Actuarial loss 433 1,123 221 83
Benefit payments (1,132) (1,182) (183) (132)
-------- -------- -------- --------
December 31 obligation $ 14,936 $ 16,017 $ 2,201 $ 2,392
======== ======== ======== ========
Pension Benefits Other Benefits
---------------------- ---------------------
2000 2001 2000 2001
--------- -------- -------- --------
FAIR VALUE OF PLAN ASSETS RECONCILIATION
January 1 fair value of plan assets $ 13,730 $ 13,462 $ - $ -
Actual return on plan assets 864 6 - -
Employer contributions - 722 143 95
Participant contributions - - 40 37
Benefit payments (1,132) (1,182) (183) (132)
-------- -------- -------- --------
December 31 fair value of plan assets $ 13,462 $ 13,008 $ - $ -
======== ======== ======== ========
FUNDED STATUS
December 31 funded status $ (1,474) $ (3,009) $ (2,201) $ (2,392)
Unrecognized:
Unamortized prior service cost - - (134) (117)
Actuarial loss 2,833 4,764 770 788
-------- -------- -------- --------
Net amount recognized $ 1,359 $ 1,755 $ (1,565) $ (1,721)
======== ======== ======== ========
-28-
5. EMPLOYEE BENEFIT PLANS (CONT.)
The following table provides the amounts recognized in the Company's
consolidated balance sheets as of December 31 (in thousands):
Pension Benefits Other Benefits
--------------------- ---------------------
2000 2001 2000 2001
-------- -------- -------- --------
Accrued benefit liability $ (1,474) $ (3,009) $ (1,565) $ (1,721)
Additional minimum pension
liability 2,833 4,764 - -
-------- -------- -------- --------
Net amount recognized $ 1,359 $ 1,755 $ (1,565) $ (1,721)
======== ======== ======== ========
The following table provides components of the net periodic pension and other
benefit cost for fiscal years 1999, 2000 and 2001 (in thousands):
Pension Benefits Other Benefits
---------------------------------- ---------------------------------
1999 2000 2001 1999 2000 2001
-------- -------- -------- -------- -------- --------
Service cost $ - $ - $ - $ 26 $ 35 $ 39
Interest cost 1,093 1,123 1,140 140 161 164
Expected return on plan assets (1,078) (988) (989) - - -
Amortization of:
Prior service cost - - - (17) (17) (17)
Net actuarial loss 141 124 176 58 83 64
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 156 $ 259 $ 327 $ 207 $ 262 $ 250
======== ======== ======== ======== ======== ========
The amount included within accumulated other comprehensive income (loss) in
the Company's consolidated statement of shareholders' equity was $3,828,000 at
December 31, 2001 and $2,660,000 at December 31, 2000, which is net of income
taxes.
The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and market-related value
of assets are amortized over the average remaining service period of active
participants.
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table:
Pension Benefits Other Benefits
------------------------- ----------------------
1999 2000 2001 1999 2000 2001
---- ---- ---- ---- ---- ----
December 31 weighted-average assumptions:
Discount rate 8.00% 7.75% 7.25% 8.00% 7.75% 7.25%
Expected return on plan assets 7.50 7.50 7.50 N/A N/A N/A
Rate of compensation increase N/A N/A N/A N/A N/A N/A
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999, 8% for 2000 and 7%
for 2001. The rate was assumed to decrease gradually each year to a rate of 6%
for 2002 and remain at that level thereafter.
-29-
5. EMPLOYEE BENEFIT PLANS (CONT.)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plans. A 1% change in
assumed health care cost trend rates would have the following effects (dollars
in thousands):
1%
-------------------------
Increase Decrease
-------- --------
Effect on total of service and interest cost components of net periodic
postretirement health care benefit cost $ 27 $(22)
Effect on the health care component of the accumulated postretirement benefit
obligation 480 (380)
SAVINGS PLANS
The Company maintains defined contribution plans in the United States,
subject to Section 401(k) of the Internal Revenue Code, and in Canada, subject
to the Department of National Revenue Taxation Income Tax Act. Eligible
employees may elect to contribute on a tax-deferred basis from 1% to 22%, and
from 1% to 18% of their compensation in the U.S. and Canada, respectively. A
contribution of up to 6% is considered to be a "basic contribution" and the
Company makes a matching contribution of $0.50 for each dollar of a
participant's basic contribution. The Company's contributions to the plans were
$1,145,000, $1,203,000 and $1,241,000 for 1999, 2000 and 2001, respectively.
STOCK-BASED COMPENSATION PLAN
During 1997, the Company adopted a Stock Option Plan ("Option Plan") for
its key employees, which provides for equity-based incentive awards. Upon
adoption of the Option Plan, the Company had 300,000 options available for
granting. Granted options vest over five years and become exercisable after
eight years, with certain exercise acceleration provisions, including a change
of control of the Company or an initial public stock offering. The Company
issues options to employees with a grant price equal to the fair value.
Accordingly, no compensation expense has been recognized on the Company's Option
Plan.
A summary of the Company's option activity and related information is as
follows:
1999 2000 2001
------- ------- -------
Options outstanding, beginning of the year.................... 215,000 239,700 238,700
Granted.................................................. 33,000 8,000 24,000
Forfeitures.............................................. (8,300) (9,000) (1,200)
------- ------- -------
Options outstanding, end of year.............................. 239,700 238,700 261,500
======= ======= =======
Options exercisable at end of year............................ -- -- --
Options available for grant at end of year.................... 60,300 61,300 38,500
The weighted-average exercise price of the Company's granted options for
each of the years ended December 31, 1999, 2000 and 2001 was $13.18, $14.00 and
$16.00, respectively. The Company's options outstanding at December 31, 2001
range in exercise price from $10.00 to $16.00, with a weighted-average exercise
price of $11.06 and a weighted-average remaining contractual life of 3.8 years.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had recorded compensation cost based on the
fair value of the awards at the grant dates. The fair value for the options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions: risk free interest rate of 6.46% for 1999, 5.29% for
2000 and 4.57% for 2001; volatility of 0.00%; dividend yield of 0.00%; and an
expected life of the option of 4 years for 1999, 3 years for 2000 and 2 years
for 2001. The weighted-average estimated fair value per option granted in 1999,
2000 and 2001, was $2.96, $2.03 and $1.38, respectively. For the purpose of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting period. Based on these assumptions, pro forma
net income for 1999, 2000 and 2001 would have been $20,074,000, $10,928,000 and
$17,367,000, respectively.
-30-
6. INCOME TAXES
The Company's income tax expense consists of the following for the years
ended December 31 (in thousands):
1999 2000 2001
-------- -------- --------
Current:
Federal.................................................. $ 6,313 $ 8,380 $ 8,333
State.................................................... 1,804 1,801 2,048
Foreign.................................................. 451 417 549
-------- -------- --------
8,568 10,598 10,930
Deferred:
Federal.................................................. 3,193 (375) 2,860
State.................................................... 63 (396) 243
Foreign.................................................. 155 155 194
-------- -------- --------
3,411 (616) 3,297
Increase (decrease) in valuation allowance.................... (6,239) (261) 41
-------- -------- --------
Income tax expense $ 5,740 $ 9,721 $ 14,268
======== ======== ========
A reconciliation between the Company's income tax expense and income taxes
computed by applying the statutory federal income tax rate to income before
income taxes is as follows for the years ended December 31 (in thousands):
1999 2000 2001
-------- -------- --------
Expected federal income tax expense at the statutory rate..... $ 9,079 $ 7,272 $ 11,122
Increase (decrease) in taxes resulting from:
Goodwill amortization.................................... 692 692 692
State income tax expense, net of federal tax benefit..... 1,214 913 1,489
Change in valuation allowances........................... (6,239) (261) 41
Other, net.................................................... 994 1,105 924
-------- -------- --------
Income tax expense............................................ $ 5,740 $ 9,721 $ 14,268
======== ======== ========
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The tax effects of
significant temporary differences which comprise deferred tax assets and
liabilities are as follows at December 31 (in thousands):
2000 2001
-------- --------
Deferred tax assets:
Net operating loss carryforwards...................................... $ 6,220 $ 5,237
Employee benefits, including postretirement benefits.................. 3,814 5,118
Other................................................................. 4,512 4,301
-------- --------
Total deferred tax assets......................................... 14,546 14,656
Less valuation allowance.............................................. (653) (694)
-------- --------
Net deferred tax assets........................................... 13,893 13,962
-------- --------
Deferred tax liabilities:
Inventories........................................................... 6,350 7,951
Property & equipment.................................................. 3,898 4,441
Other................................................................. 8,878 9,309
-------- --------
Total deferred tax liabilities.................................... 19,126 21,701
-------- --------
Net deferred tax liabilities...................................... $ 5,233 $ 7,739
======== ========
-31-
6. INCOME TAXES (CONT.)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. At each balance sheet date, a valuation allowance
has been established against the deferred tax assets based on management's
assessment. Prior to 1999, the Company had a significant valuation allowance
that reduced certain deferred tax assets, based upon management's assessment
that it was more likely than not that these deferred tax assets would not be
realized. However, as a result of the Company's strong earnings history,
management concluded in 1999 that the tax benefits related to future deductions,
including net operating loss carryforwards, were more likely than not to be
realized, and therefore reduced the valuation allowance by $6.2 million. At
December 31, 2001, the Company had $0.7 million of valuation allowance remaining
on its balance sheet.
At December 31, 2001, the Company has available for U.S. federal income tax
return purposes net operating losses totaling approximately $15.2 million,
subject to certain limitations, which will expire between the years 2005 and
2007. The Company also has available for U.S. income tax return purposes
alternative minimum tax credits totaling $1.1 million, which have an indefinite
utilization period.
7. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for the Company's cash, trade accounts receivable,
other receivables, trade accounts payable, cigarette and tobacco taxes payable
and other accrued liabilities approximates fair market value because of the
short maturity of these financial instruments.
The carrying amount of the Revolving Credit Facility and Accounts
Receivable Facility, which are variable rate instruments, approximates fair
market value. The rate of interest, which is tied to either the bank's Prime
Rate or Eurodollar Rate or the commercial paper rate, fluctuates with market
conditions. The fair value of the Notes, calculated based on quoted market
prices, was $71,250,000 and $72,000,000 at December 31, 2000 and 2001,
respectively. The Company's Notes are very thinly traded, and the prices used to
determine the fair value of the Notes, while based on actual transactions, may
or may not be indicative of prices received for larger dollar transactions.
8. SEGMENT INFORMATION
The Company is a broad-line, full service wholesale distributor of packaged
consumer products to the convenience retail industry in western North America,
with revenues generated from the sale of cigarettes, tobacco products, candy,
food, health and beauty aids and general merchandise. The Company's principal
customers include traditional and petroleum convenience stores, grocery stores,
drug stores, mass merchandisers and liquor stores. Management has determined
that the only reportable segment of the Company is its wholesale distribution
segment, based on the level at which executive management reviews the results of
operations in order to make decisions regarding performance assessment and
resource allocation. Wholesale distribution segment information as of and for
the years ended December 31 is set forth below (dollars in thousands):
1999 2000 2001
---------- ---------- ----------
Net sales from external customers............................. $2,838,107 $3,035,379 $3,425,024
Segment depreciation and amortization expense (1)............. 5,647 6,544 7,299
Segment interest expense..................................... 12,980 13,816 16,623
Segment pre-tax operating income (2).......................... 29,195 23,454 29,928
Capital expenditures.......................................... 6,575 7,620 7,916
Segment assets................................................ 338,038 362,593 382,015
-----------------
(1) Represents depreciation of property and equipment, and
amortization of certain deferred assets that are shown as an
expense in arriving at segment pre-tax operating income.
(2) Represents operating income, including allocated interest
expense, but excluding amortization of goodwill and debt
refinancing costs, and income taxes.
-32-
8. SEGMENT INFORMATION (CONT.)
A reconciliation of certain of the segment information reported above, to
the applicable items in the consolidated financial statements are as follows (in
thousands):
INCOME BEFORE INCOME TAXES
--------------------------
1999 2000 2001
-------- -------- --------
Segment information........................................... $ 29,195 $ 23,454 $ 29,928
Less: Goodwill and other unallocated amortization............. 2,265 2,368 2,378
Interest expense: unallocated and other.................... (284) (964) (5,502)
Amortization of debt refinancing costs..................... 1,274 1,274 1,274
-------- -------- --------
Consolidated total............................................ $ 25,940 $ 20,776 $ 31,778
======== ======== ========
INTEREST EXPENSE
----------------
1999 2000 2001
-------- -------- --------
Segment information........................................... $ 12,980 $ 13,816 $ 16,623
Add: Unallocated and other.................................... (284) (964) (5,502)
-------- -------- --------
Consolidated total............................................ $ 12,696 $ 12,852 $ 11,121
======== ======== ========
DEPRECIATION AND AMORTIZATION
-----------------------------
1999 2000 2001
-------- -------- --------
Segment information........................................... $ 5,647 $ 6,544 $ 7,299
Add: Unallocated and other.................................... 182 285 296
-------- -------- --------
Consolidated total............................................ $ 5,829 $ 6,829 $ 7,595
======== ======== ========
ASSETS
------
2000 2001
-------- --------
Segment information........................................... $362,593 $382,015
Add: Corporate assets......................................... 12,283 8,126
-------- --------
Consolidated total............................................ $374,876 $390,141
======== ========
-33-
8. SEGMENT INFORMATION (CONT.)
The Company operates in the United States and Canada. Foreign and
domestic net sales and identifiable assets are as follows as of and for the
years ended December 31, (in thousands):
1999 2000 2001
---------- ---------- ----------
Net Sales:
United States................................................. $2,371,252 $2,565,330 $2,932,500
Canada........................................................ 466,855 470,049 492,524
---------- ---------- ----------
Total......................................................... $2,838,107 $3,035,379 $3,425,024
========== ========== ==========
Identifiable Assets:
United States................................................. $ 323,733 $ 339,665
Canada........................................................ 38,860 42,350
Corporate..................................................... 12,283 8,126
---------- ----------
Total......................................................... $ 374,876 $ 390,141
========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-34-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows (as of
December 31, 2001):
Name Age Position
---- --- --------
Gary L. Walsh............ 60 Chairman and Director
Robert A. Allen.......... 52 President, Chief Executive Officer and Director
Leo F. Korman............ 54 Senior Vice President, Chief Financial Officer
and Secretary
Basil P. Prokop.......... 58 President, Canada Division
J. Michael Walsh......... 53 Executive Vice President, Sales
Gerald J. Bolduc......... 56 Chief Information Officer, Vice President,
Information Technology
Henry J. Hautau.......... 59 Vice President, Employee and Corporate Services
Todd L. Stevens.......... 40 Senior Vice President, Distribution
Thomas A. Berglund....... 41 Director
Terry J. Blumer.......... 43 Director
John F. Klein............ 38 Director
John A. Sprague.......... 49 Director
Gary L. Walsh has been Chairman and a director of the Company since 1990.
He served as Chief Executive Officer of the Company from 1990 through 1997.
Effective January 1, 1998, Mr. Walsh retired from his position as Chief
Executive Officer. Mr. Walsh served as President from 1990 until 1996.
Robert A. Allen has been Chief Executive Officer of the Company since
January 1998 and President since January 1996. He served as Chief Operating
Officer of the Company from January 1996 to December 1997. Prior to 1996, he
served as Senior Vice President, Distribution from 1992 through 1995. He has
been a director of the Company since 1994.
Leo F. Korman has been Senior Vice President and Chief Financial Officer of
the Company since January 1994 and served as Vice President and Chief Financial
Officer from 1991 to 1994.
Basil P. Prokop has been President of the Canada Division since 1992. Mr.
Prokop joined the Company in 1984.
J. Michael Walsh has been Executive Vice President, Sales since October
1999. He served as Senior Vice President, Distribution from January 1996 to
September 1999. Prior thereto, he served as Senior Vice President, Operations
since 1992.
Gerald J. Bolduc has been Chief Information Officer of the Company since
December 1997 and Vice President, Information Technology since May 1985.
Henry J. Hautau has been Vice President, Employee and Corporate Services of
the Company since May 1992.
Todd L. Stevens has been Senior Vice President, Distribution since October
1999. He served as Division Manager of the Denver division from August 1996 to
September 1999 and the Spokane division from September 1992 to July 1996.
Thomas A. Berglund has been a director of the Company since August 1996. He
is a Partner at Jupiter and has been associated with the firm since 1994. Prior
to that he served for three years as an employee of the Invus Group, a privately
funded buy-out group specializing in food-related companies.
Terry J. Blumer has been a director of the Company since August 1996. Prior
to co-founding Jupiter in 1994, Mr. Blumer was associated with Goldman, Sachs &
Co. for over eight years, most recently as an Executive Director.
John F. Klein has been a director of the Company since August 1996. He is a
Partner at Jupiter and has been associated with the firm since 1995. Prior to
that, he served for three years as a consultant at Bain & Company, a management
consulting firm.
John A. Sprague has been a director of the Company since August 1996. Prior
to co-founding Jupiter in 1994, Mr. Sprague was associated with Forstmann Little
& Co. for eleven years, most recently as a partner.
-35-
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT.)
Directors are elected for one year terms and hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. The only family relationship between any
of the executive officers or directors is between Gary L. Walsh and J. Michael
Walsh, who are brothers.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of the Company do not receive compensation for service as
directors other than reimbursement for reasonable expenses incurred in
connection with attending the meetings.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's chief
executive officer and its four other most highly compensated executive officers
for the years ended December 31, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
OTHER ALL
ANNUAL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
Name and Principal Position YEAR ($) ($) ($)(1) ($)(2)(3)(4)
- --------------------------- ------ ------ ----- ------------ ------------
Robert A. Allen.............. 2001 $336,960 $320,000 $7,810
President and Chief 2000 $324,000 $145,800 $7,997
Executive Officer 1999 $311,538 $300,000 $7,992
J. Michael Walsh............. 2001 $215,765 $150,000 $7,083
Executive Vice President, 2000 $214,785 $ 82,500 $7,289
Sales 1999 $206,524 $127,500 $7,135
Leo F. Korman................ 2001 $232,311 $150,000 $7,182
Senior Vice President and 2000 $223,376 $ 87,500 $7,344
Chief Financial Officer 1999 $214,785 $145,000 $7,203
Todd L. Stevens.............. 2001 $192,115 $100,000 $6,941
Senior Vice President, 2000 $185,000 $ 46,666 $7,096
Distribution 1999 $130,384 $ 56,200 $203,455 $5,031
Basil P. Prokop.............. 2001 $174,338 $103,299 $4,640
President, Canada Division 2000 $176,621 $ 0 $4,970
1999 $170,100 $ 60,578 $4,618
- -----------
(1) Consists of relocation costs.
(2) These figures for 2001 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts: Mr.
Allen, $5,100; Mr. J.M. Walsh, $5,100; Mr. Korman, $5,100; and Mr. Stevens,
$5,100; (ii) Company matching contributions to the Registered Retirement Savings
Plan (defined below) for Mr. Prokop, $2,905; (iii) life and other insurance
premiums in the following amounts: Mr. Allen, $2,710; Mr. J.M. Walsh, $1,983;
Mr. Korman, $2,082; Mr. Stevens, $1,841; and Mr. Prokop $1,735.
-36-
ITEM 11. EXECUTIVE COMPENSATION (CONT.)
(3) These figures for 2000 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts: Mr.
Allen, $5,100; Mr. J.M. Walsh, $5,100; Mr. Korman, $5,100; and Mr. Stevens,
$5,100; (ii) Company matching contributions to the Registered Retirement Savings
Plan (defined below) for Mr. Prokop, $3,028; (iii) life and other insurance
premiums in the following amounts: Mr. Allen, $2,897; Mr. J.M. Walsh, $2,189;
Mr. Korman, $2,244; Mr. Stevens, $1,996; and Mr. Prokop $1,942.
(4) These figures for 1999 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts: Mr.
Allen, $4,800; Mr. J.M. Walsh, $4,800; Mr. Korman, $4,800; and Mr. Stevens,
$4,069; (ii) Company matching contributions to the Registered Retirement Savings
Plan (defined below) for Mr. Prokop, $2,580; (iii) life and other insurance
premiums in the following amounts: Mr. Allen, $3,192; Mr. J.M. Walsh, $2,335;
Mr. Korman, $2,403; Mr. Stevens, $962; and Mr. Prokop $2,038.
STOCK OPTIONS
During the year ended December 31, 2001 there were no stock options granted
to the Company's chief executive officer or its four other most highly
compensated executive officers.
The following table summarizes information with respect to the Company's
chief executive officer and its four other most highly compensated executive
officers concerning the exercise of options during 2001 and unexercised options
held on December 31, 2001. The only executive officer holding options at
December 31, 2001 is Todd L. Stevens.
AGGREGATED OPTION EXERCISES IN 2001 AND FISCAL YEAR END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
-------------------------- --------------------
SHARES ACQUIRED
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE
- ---- --------------- ------------------ ----------- ------------- -------------- -------------
Todd L Stevens............... 0 $ 0 0 29,000 $ 0 N/A (1)
(1) Because the Company does not have publicly traded stock this column has been
deemed not applicable.
CERTAIN AGREEMENTS WITH MANAGEMENT
Each of the following named executive officers; Mr. Robert A. Allen, Mr. J.
Michael Walsh, Mr. Leo F. Korman, and Mr. Basil P. Prokop has entered into an
agreement with the Company which provides that if the employment of such officer
party thereto is terminated other than for Cause (as defined therein) or as a
result of such officer's resignation for Good Reason (as defined therein), the
Company may, in its sole discretion, continue to pay to such officer, for a
period of up to one year following such termination, such officer's base salary
as in effect on the effective date of such termination. Under these agreements
each of such officers has agreed not to engage in activities that compete with
those of the Company (i) while such officer is an employee of the Company and
(ii) if the Company makes the severance payments described above to such
officer, for an additional period of one year after such employment terminates.
INDEMNIFICATION AGREEMENTS
Each of the Company's directors and Mr. Leo F. Korman, the Company's Chief
Financial Officer, and certain other officers of the Company (collectively, the
"Indemnitees"), is party to an identical indemnification agreement with the
Company. Pursuant to such agreements, the Company has agreed generally to
indemnify and hold harmless each Indemnitee against any losses incurred in
connection with any suit, arbitration or proceeding resulting from such
Indemnitee's service as an officer, agent, employee or director of the Company,
provided that the Company will generally not be required to indemnify an
Indemnitee in connection with losses arising out of the Indemnitee's own
fraudulent or willful misconduct. Each indemnification agreement terminates upon
the occurrence of a Change of Control (as defined in the agreements) of the
Company, provided that the Company's obligations to indemnify for events
occurring prior to such Change of Control continue.
-37-
ITEM 11. EXECUTIVE COMPENSATION (CONT.)
THE SAVINGS PLAN
The Company maintains the Core-Mark International, Inc. Nest Egg Savings
Plan (the "Savings Plan"), which is a defined contribution plan with a cash or
deferred arrangement (as described under Section 401(k) of the Internal Revenue
Code of 1986, as amended). All non-union U.S. employees of the Company and its
affiliates (unless a bargaining agreement expressly provides for participation)
are eligible to participate in the Savings Plan after completing one year of
service.
Eligible employees may elect to contribute on a tax-deferred basis from 1%
to 22% of their compensation (as defined in the Savings Plan), subject to
statutory limitations. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution (all of which may be subject to
certain statutory limitations).
Each participant has a fully vested (nonforfeitable) interest in all
contributions made by the individual and all earnings thereon. Each participant
must be employed at the end of each quarter to receive an allocation of matching
contribution for the most recent calendar quarter.
The amount of Company matching contributions that the following officers
have accrued in the Savings Plan as of December 31, 2001 is as follows: Robert
A. Allen, $43,756; J. Michael Walsh, $43,639; Leo F. Korman, $43,013; and Todd
L. Stevens, $35,226.
THE REGISTERED RETIREMENT SAVINGS PLAN (CANADA)
The Company maintains the Core-Mark International, Inc. Group Retirement
Savings Plan (Canada) (the "Registered Retirement Savings Plan" or "RRSP"),
which is a defined contribution plan with a cash or deferred arrangement (as
described under the Department of National Revenue Taxation Income Tax Act). All
non-union Canadian employees of the Company and its affiliates (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Registered Retirement Savings Plan after completing one year
of service.
Eligible employees may elect to contribute on a tax-deferred basis from 1%
to 18% of their compensation (as defined in the RRSP), subject to statutory
limitations. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution (all of which may be subject to
certain statutory limitations).
Basil P. Prokop has $36,325 of Company matching contributions in the
Registered Retirement Savings Plan as of December 31, 2001.
-38-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 2001, certain information
regarding the beneficial ownership of the common stock of the Company (i) by
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares of common stock of the Company, (ii) by each of the Company's
directors and executive officers and (iii) by all directors and executive
officers as a group. The Company believes that the beneficial owners of the
securities listed below, based on information furnished by such owners, have
sole investment and voting power with respect to all the shares of common stock
of the Company shown as being beneficially owned by them.
Number of
Shares of
Common Stock of Percentage of
the Company Total shares of
Name and Address of Beneficially Common Stock of
Beneficial Owners (a) Owned the Company
--------------------- ----- -----------
Jupiter....................................... 4,125,000 75.0%
Robert A. Allen............................... 281,875 5.1
Leo F. Korman................................. 213,125 3.9
Basil P. Prokop............................... 164,999 3.0
Gary L. Walsh................................. 343,751 6.2
J. Michael Walsh.............................. 213,125 3.9
Thomas A. Berglund............................ 4,125,000 (b) 75.0
Terry J. Blumer............................... 4,125,000 (b) 75.0
John F. Klein................................. 4,125,000 (b) 75.0
John A. Sprague............................... 4,125,000 (b) 75.0
All directors and executive officers
as a group (9 persons) (b)................ 5,341,875 97.1%
- -----------
(a) The address for Jupiter, Mr. Berglund, Mr. Blumer, Mr. Klein and Mr. Sprague
is 30 Rockefeller Plaza, Suite 4525, New York, New York 10112. The address for
Gary L. Walsh, Mr. Allen, Mr. Korman, Mr. Prokop and J. Michael Walsh is 395
Oyster Point Boulevard, Suite 415, South San Francisco, California 94080.
(b) Represents the shares owned by Jupiter. Messrs. Sprague, Blumer, Berglund
and Klein exercise investment and voting power over the shares owned by Jupiter
and accordingly are deemed to "beneficially own" such shares in accordance with
Rule 13d-3 promulgated under the Exchange Act. Each of Messrs. Sprague, Blumer,
Berglund and Klein disclaim beneficial ownership of all shares of the Company
owned by Jupiter, except to the extent of their respective ownership interests
in such partnership.
STOCKHOLDERS AGREEMENT
On August 7, 1996, the Company entered into a Stockholders Agreement (the
"Stockholders Agreement") with Jupiter and certain executive officers
(individually, a "Management Stockholder" and collectively, the "Management
Stockholders"), which parties constitute all of the Company's common
stockholders. The Stockholders Agreement (a) places significant restrictions on
the ability of a Management Stockholder to transfer, pledge or otherwise dispose
of 60% of his shares of common stock of the Company (the "Restricted Shares")
prior to the Company's initial public offering of common stock, and limits the
amount of Restricted Shares that may be sold by such Management Stockholder
after such initial public offering, (b) restricts the ability of a Management
Stockholder to pledge his shares of common stock that do not constitute
Restricted Shares, (c) grants "tag-along" rights (i.e., rights to participate in
a sale on a pro rata basis) to each stockholder in connection with the sale (i)
by Jupiter of any of its common stock of the Company and (ii) by a Management
Stockholder of any of his Restricted Shares, and (d) grants to Jupiter
"drag-along" rights (i.e., the right to require Management Stockholders to
participate on a pro rata basis in a sale by Jupiter) with respect to shares of
common stock held by the Management Stockholders, whether or not Restricted
Shares, in connection with a sale by Jupiter of common stock constituting at
least 1% of the Company's common stock. The Stockholders Agreement also grants
to the Company, first, and Jupiter, second, certain call rights with respect to
the purchase of Restricted Shares held by a Management Stockholder in the event
that, prior to the fifth anniversary of the date of the Stockholders Agreement,
such Management Stockholder's employment with the Company is terminated (other
than as a result of death, disability or resignation for Good Reason (as defined
therein)). The call provision also applies in the event such Management
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Stockholder breaches his obligations under the Severance and Non-Competition
Agreement described under "Certain Agreements with Management". The purchase
price with respect to such call rights under the Stockholders Agreement is the
lower of $10 per share and a specified formula described therein (the
"Repurchase Formula"), in the event the call right arises as a result of such
Management Stockholder's termination for Cause (as defined therein), his
resignation other than for Good Reason or a breach of his obligations under the
Severance and Non-Competition Agreement to which he is a party. The purchase
price with respect to a call right arising as a result of any other employment
termination is the Repurchase Formula.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement, dated as of August 7, 1996
(the "Registration Rights Agreement"), the Company granted certain demand
registration rights to Jupiter and certain "piggy-back" registration rights to
Jupiter and the Management Stockholders with respect to the sale of common stock
of the Company held by them. In addition to customary priority cut-back
provisions relating to underwritten offerings, the Registration Rights Agreement
imposes limitations on the number of shares of common stock of the Company that
may be included in a "piggy-back" registration by a Management Stockholder.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements, schedules and exhibits are filed as part
of this report or are incorporated herein as indicated.
1. Financial Statements
The consolidated financial statements listed in Item 8. Financial
Statements, which appear on page 17, are included herein.
2. Financial Statement Schedule
The following financial statement schedule of Core-Mark International, Inc.
for the fiscal years ended December 31, 1999, 2000, and 2001 is filed as part of
this Report and should be read in conjunction with the Consolidated Financial
Statements of Core-Mark International, Inc. and subsidiaries.
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits
The following Exhibits are filed as part of, or incorporated by reference
into, this Report:
EXHIBIT
NUMBER EXHIBIT
2.1 Stock Subscription Agreement, dated June 17, 1996, by and among
Jupiter Partners, L.P., as amended, incorporated herein by
reference from Exhibit 2.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
2.2 Stock Purchase Agreement, dated June 17, 1996, by and between
Core-Mark L.L.C. and the Company, as amended, incorporated herein
by reference from Exhibit 2.2 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
3.1.1 Articles of Incorporation of the Company, incorporated herein by
reference from Exhibit 3.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
3.1.2 Restated Articles of Incorporation of the Company dated August
18, 1998, incorporated herein by reference from exhibit 3.1.2 of
Core-Mark International, Inc. Annual Report on Form 10-K filed
March 19, 1999 (Registration No. 333-14217).
3.2 Amended By-laws of the Company, incorporated herein by reference
from exhibit 3.2 of Core-Mark International, Inc. Annual Report
on Form 10-K filed March 19, 1999 (Registration No. 333-14217).
4.1 Indenture, dated as of September 27, 1996, between the Company
and Bankers Trust Company as Trustee, incorporated herein by
reference from Exhibit 4.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
4.2 Form of Face of Exchange Security, incorporated herein by
reference from Exhibit 4.4 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
10.1 Manufacturing Rights Agreement by and among Famous Value Brands,
Core-Mark International Inc., Core-Mark Interrelated Companies,
Inc. and C/M Products, Inc., incorporated herein by reference
from Exhibit 10.1 to Core-Mark International, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-14217).
*10.1.1 Amendment dated December 31, 1997 to Manufacturing Rights
Agreement by and among Famous Value Brands, Core-Mark
International Inc., Core-Mark Interrelated Companies, Inc. and
C/M Products, Inc., incorporated herein by reference from exhibit
10.11 to Core-Mark International Inc.'s Annual Report on Form
10-K filed March 20, 1998 (Registration No. 333-14217).
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10.2 Manufacturing Agreement for "Best Buy" Cigarettes by and between
Famous Value Brands and C/M Products, Inc., incorporated herein
by reference from Exhibit 10.2 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
*10.2.1 Amendment dated December 31, 1997 to Manufacturing Agreement
for "Best Buy" Cigarettes by and between Famous Value Brands and
C/M Products, Inc., incorporated herein by reference from exhibit
10.12 to Core-Mark International Inc.'s Annual Report on Form
10-K filed March 20, 1998 (Registration No. 333-14217).
10.3 Trademark License Agreement by and between Famous Value Brands
and Core-Mark Interrelated Companies, Inc., incorporated herein
by reference from Exhibit 10.3 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
10.3.1 Amendment dated December 31, 1997 to Trademark License
Agreement by and between Famous Value Brands and Core-Mark
Interrelated Companies, Inc., incorporated herein by reference
from exhibit 10.13 to Core-Mark International Inc.'s Annual
Report on Form 10-K filed March 20, 1998 (Registration No.
333-14217).
10.4 Stockholders Agreement dated as of August 7, 1996, by and among
the Company and all of the holders of its Common Stock,
incorporated herein by reference from Exhibit 10.5 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).
10.5.1 Severance and Noncompetition Agreement, dated August 7, 1996,
between the Company and Gary L. Walsh, incorporated herein by
reference from Exhibit 10.6.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
10.5.2 Schedule of Severance and Non Competition Agreements omitted
pursuant to Instruction no. 2 to Item 601 of Regulation S-K,
incorporated herein by reference from Exhibit 10.6.2 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).
10.6 Letter, dated August 7, 1996, from Jupiter Partners LP to Gary L.
Walsh, incorporated herein by reference from Exhibit 10.7 to
Core-Mark International, Inc.'s Registration Statement on Form
S-4 (Registration No. 333-14217).
10.7 Purchase Agreement, dated September 24, 1996, between the
Company, Chase Securities Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, incorporated herein by reference from
Exhibit 10.8 to Core-Mark International, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-14217).
10.8.1 Indemnification Agreement, dated November 12, 1996, between the
Company and John F. Klein, incorporated herein by reference from
Exhibit 10.9.1 to Core-Mark International, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-14217).
10.8.2 Schedule of Indemnification Agreements omitted pursuant to
Instruction No. 2 to Item 601 of Regulation S-K, incorporated
herein by reference from Exhibit 10.9.2 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).
10.9 Purchase Agreement dated January 31, 1997 between the Company and
Melvin Sosnick Company and Capital Cigar Company, incorporated
herein by reference from Exhibit (i) to Core-Mark International,
Inc.'s Current Report on Form 8-K filed February 18, 1997
(Registration No. 333-14217).
10.10 $120,000,000 Amended and Restated Credit Agreement dated as of
April 1, 1998, among Core-Mark International, Inc., the Several
Lenders from time to time Parties Hereto and The Chase Manhattan
Bank, as Administrative Agent, incorporated herein by reference
from exhibit 10.14 to Core-Mark International Inc. Quarterly
Report on Form 10-Q filed August 14, 1998 (Registration No.
333-14217).
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10.11 Amended and Restated Security Agreement dated as of April 1,
1998, among Core-Mark International, Inc., C/M Products, Inc.,
Core-Mark Interrelated Companies, Inc., and Core-Mark
Midcontinent, Inc., in favor of The Chase Manhattan Bank, as
Administrative Agent, incorporated herein by reference from
exhibit 10.16 to Core-Mark International Inc. Quarterly Report on
Form 10-Q filed August 14, 1998 (Registration No. 333-14217).
10.12 Amendment to Borrower Stock Pledge Agreement dated as of April
1, 1998, between Core-Mark International, Inc., and The Chase
Manhattan Bank, as Administrative Agent, incorporated herein by
reference from exhibit 10.17 to Core-Mark International, Inc.
Quarterly Report on Form 10-Q filed August 14, 1998 (Registration
No. 333-14217).
10.13 Pooling Agreement, dated as of April 1, 1998, among Core-Mark
Capital Corporation, Core-Mark International, Inc., as Servicer,
and The Chase Manhattan Bank, as Trustee, incorporated herein by
reference from exhibit 10.18 to Core-Mark International, Inc.
Quarterly Report on Form 10-Q filed August 14, 1998 (Registration
No. 333-14217).
10.14 Series 1998-1 Supplement to the Pooling Agreement, dated as of
April 1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., as Servicer, and The Chase Manhattan Bank,
incorporated herein by reference from exhibit 10.19 to Core-Mark
International, Inc. Quarterly Report on Form 10-Q filed August
14, 1998 (Registration No. 333-14217).
10.15 Series 1998-2 Supplement to the Pooling Agreement, dated as of
April 1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., as Servicer, and The Chase Manhattan Bank,
incorporated herein by reference from exhibit 10.20 to Core-Mark
International, Inc. Quarterly Report on Form 10-Q filed August
14, 1998 (Registration No. 333-14217).
10.16 Servicing Agreement, dated as of April 1, 1998, among Core-Mark
Capital Corporation, Core-Mark International, Inc., as Servicer,
Subsidiaries of Core-Mark International, Inc., as Subservicers,
and The Chase Manhattan Bank, incorporated herein by reference
from exhibit 10.21 to Core-Mark International, Inc. Quarterly
Report on Form 10-Q filed August 14, 1998 (Registration No.
333-14217).
10.17 Receivables Sale and Contribution Agreement, dated as of April
1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., Core-Mark Midcontinent, Inc., and Core-Mark
Interrelated Companies, Inc., as Sellers, incorporated herein by
reference from exhibit 10.22 to Core-Mark International, Inc.
Quarterly Report on Form 10-Q filed August 14, 1998 (Registration
No. 333-14217).
21 List of Subsidiaries of the Company, incorporated herein by
reference from Exhibit 21 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).
* Portions of these exhibits have been omitted pursuant to an Order
Granting Confidential Treatment Under the Securities Exchange Act
of 1934 by the Company with the Commission pursuant to Rule
24b-2, under the Securities Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
None.
-43-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of South
San Francisco, California, on March 29, 2002.
CORE-MARK INTERNATIONAL, INC.
By /s/ Leo F. Korman
-----------------------------------
Leo F. Korman, Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gary L. Walsh
-------------------------
Gary L. Walsh Chairman and Director March 29, 2002
/s/ Robert A. Allen
-------------------------
Robert A. Allen President, Chief Executive
Officer and Director March 29, 2002
/s/ Leo F. Korman
-------------------------
Leo F. Korman Senior Vice President,
Chief Financial Officer and March 29, 2002
Principal Accounting Officer
/s/ Thomas A. Berglund
-------------------------
Thomas A. Berglund Director March 29, 2002
/s/ Terry J. Blumer
-------------------------
Terry J. Blumer Director March 29, 2002
/s/ John F. Klein
-------------------------
John F. Klein Director March 29, 2002
/s/ John A. Sprague
-------------------------
John A. Sprague Director March 29, 2002
-44-
SCHEDULE II
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 2000 and 2001
(in thousands)
Column A Column B Column C Column D Column E
Additions
-------- ---------- ------------------------- ---------- ----------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
----------- ---------- ---------- ---------- ---------- ----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31,
1999......................... $ 2,761 $ 308 $ _ $ (749)(a) $ 2,320
2000......................... 2,320 969 _ (629)(a) 2,660
2001......................... 2,660 2,031 _ (893)(a) 3,798
(a) Deductions consist of accounts determined to be uncollectible and charged
against reserves, net of collections on accounts previously charged off.
-45-