Our ability to operate effectively could be impaired by the risks and costs associated with the efforts to grow our business through acquisitions.

Efforts to grow our distribution business may include acquisitions. Acquisitions entail various risks such as identifying suitable candidates, effecting acquisitions at acceptable rates of return, obtaining adequate financing and acceptable terms and conditions. Successful integration of new operations will depend on our ability to manage those operations, fully assimilate the operations into our distribution network, realize opportunities for revenue growth presented by strengthened product offerings and expanded geographic market coverage, maintain the customer base and eliminate redundant and excess costs. We may not realize the anticipated benefits or savings from an acquisition to the extent or in the time frame anticipated, if at all, or such benefits and savings may include higher costs than anticipated.

We may not be able to achieve the expected benefits from the implementation of new marketing initiatives.

We are taking action to improve our competitive performance through a series of strategic marketing initiatives. The goal of this effort is to develop and implement a comprehensive and competitive business strategy, addressing the special needs of the

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convenience industry environment, increase our market position within the industry and ultimately create increased shareholder value.

We may not be able to successfully execute our new marketing initiatives to realize the intended synergies, business opportunities and growth prospects. Many of the risk factors previously mentioned, such as increased competition, may limit our ability to capitalize on business opportunities and expand our business. Our efforts to capitalize on business opportunities may not bring the intended result. Assumptions underlying estimates of expected revenue growth or overall cost savings may not be met or economic conditions may deteriorate. Customer acceptance of new distribution formats developed may not be as anticipated, hampering our ability to attract new customers or maintain our existing customer base. Additionally, our management may have its attention diverted from other important activities while trying to execute new marketing initiatives. If these or other factors limit our ability to execute our strategic initiatives, our expectations of future results of operations, including expected revenue growth and cost savings, may not be met.

Our information technology systems may be subject to failure or disruptions, which could seriously harm our business.

Our business is highly dependent on ~~our Distribution Center Management System, or~~ DCMS. The convenience retail industry does not have a standard information technology ~~or IT,~~("IT") platform. Therefore, actively integrating our customers into our IT platform is a priority, and our DCMS platform provides our distribution centers with the flexibility to adapt to our ~~customers’~~customers' IT requirements. We also rely on DCMS and our internal information technology staff to maintain the information required to operate our distribution centers and to provide our customers with fast, efficient and reliable deliveries. ~~While we~~We have taken steps to increase redundancy in our IT systems and have disaster recovery plans in place to mitigate unforeseen events that could disrupt our systems' service. However, if our DCMS fails or is not reliable, we may suffer disruptions in service to our customers and our results of operations could suffer.

We depend on our senior management.

We substantially depend on the continued services and performance of our senior executive officers as named in our Proxy Statement. We do not maintain key person life insurance policies on these individuals, and we do not have employment agreements with any of them. The loss of the services of any of our senior executive officers could harm our business.

We operate in a competitive labor market and a portion of our employees are covered by collective bargaining agreements.

Our continued success will depend partly on our ability to attract and retain qualified personnel. We compete with other businesses in each of our markets with respect to attracting and retaining qualified employees. While current market conditions have provided us with a surplus of qualified employee candidates, in the future, a shortage of qualified employees could require us to enhance our wage and benefit packages in order to compete effectively in the hiring and retention of qualified employees or to hire more expensive temporary employees. In addition, at December 31, ~~2009, 220,~~2010, 213, or ~~5.2%~~4.8%, of our employees were covered by collective bargaining agreements with labor organizations, which expire at various times.

We cannot assure you that we will be able to renew our respective collective bargaining agreements on favorable terms, that employees at other facilities will not unionize, that our labor costs will not increase, that we will be able to recover any increases in labor costs through increased prices charged to customers or that we will not suffer business interruptions as a result of strikes or other work stoppages. If we fail to attract and retain qualified employees, to control our labor costs, or to recover any increased labor costs through increased prices charged to our customers or offsets by productivity gains, our results of operations could be materially adversely affected.

Risks Related to the Distribution of Cigarettes

Our sales volume is largely dependent upon the distribution of cigarette products, sales of which are declining.

The distribution of cigarette and other tobacco products is currently a significant portion of our business. In ~~2009,~~2010, approximately ~~70.3%~~70.5% of our revenues came from the distribution of cigarettes and ~~35.4%~~31.0% of our gross profit was generated from cigarettes. Due to increases in the prices of cigarettes and other tobacco products, restrictions on marketing and promotions by cigarette manufacturers, increases in cigarette regulation and excise taxes, health concerns, increased pressure from anti-tobacco groups and other factors, the U.S. and Canadian cigarette and tobacco market has generally been declining since 1980 and is expected to continue to decline.

Prior to 2007 our cigarette sales had ~~benefitted~~benefited from a shift in sales to the convenience retail segment, and as a result of this shift, convenience store cigarette sales had not declined in proportion to the decline in overall consumption. However, our cigarette carton sales began to decline in 2007, ~~and this decline continued~~experienced further declines in 2008 and ~~2009.~~2009 and increased modestly in 2010. We expect consumption trends of legal cigarette and tobacco products will continue to be negatively impacted by rising prices, diminishing social acceptance and legislative and regulatory actions that create limitations on where a consumer can smoke, and how products can be promoted and produced. In addition, we expect rising prices will stimulate a higher percentage of consumers to purchase from illicit markets to fulfill consumer demand. We believe this may adversely impact our cigarette carton volume, primarily in

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the U.S., in future periods.

Legislation and other matters are negatively affecting the cigarette and tobacco industry.

The tobacco industry is subject to a wide range of laws and regulations regarding the marketing, sale, taxation and use of tobacco products imposed by local, state, federal and foreign governments. Various state and provincial governments have adopted or are considering legislation and regulations restricting displays and marketing of tobacco products, establishing fire safety standards for cigarettes, raising the minimum age to possess or purchase tobacco products, requiring the disclosure of ingredients used in the manufacture of tobacco products, imposing restrictions on public smoking, restricting the sale of tobacco products directly to consumers or other recipients over the ~~Internet~~internet and other tobacco product regulation. For example, the U.S. Supreme Court has recently determined that lawsuits may proceed against tobacco manufacturers based on alleged deceptive advertising in the marketing of so-called “light” cigarettes. In June 2009, the Family Smoking Prevention and Tobacco Control Act was signed into law, which granted the ~~U.S. federal Food & Drug Administration (“FDA”)~~FDA the authority to regulate the production and marketing of tobacco products in the U.S. The new legislation establishes a new FDA office that will regulate changes to nicotine yields and the chemicals and flavors used in tobacco products, require ingredient listings be displayed on tobacco products, prohibit the use of certain terms which may attract youth or mislead users as to the risks involved with using tobacco products, as well as limit or otherwise impact the marketing ~~and marketing~~ of tobacco products by requiring additional labels or warnings as well as pre-approval of the FDA. This new FDA office is to be financed through user fees paid by tobacco companies prorated based on market share. This new legislation and related regulation could adversely impact the market for tobacco products and, accordingly, our sales of such products. In ~~British Columbia,~~ Canada, many provincial legislatures have enacted legislation ~~was adopted~~ authorizing and facilitating the ~~provincial government to seek~~ recovery of tobacco-related health care costs from the tobacco industry ~~and a lawsuit under such legislation is underway.~~by way of lawsuit. The Supreme Court of Canada ~~unanimously~~has upheld the ~~Province’s~~constitutionality of such legislation and a province's right to sue the tobacco industry ~~and concluded the Tobacco Damages and Health Care Costs Recovery Act is constitutional.~~pursuant to such legislation. British Columbia, Ontario, Quebec, Alberta, New Brunswick, and Newfoundland and Labrador have all enacted similar statutes in this regard. British Columbia, New Brunswick, Quebec and Ontario have ~~joined British Columbia~~also initiated lawsuits to recover health care costs and in ~~passing~~Alberta, the government has promised that a lawsuit is being prepared for filing. All Canadian provinces have legislation that ~~would allow them to file lawsuits against~~controls the usage and sale of tobacco ~~manufacturers. Other states~~products and ~~provinces may adopt similar legislation and initiate similar lawsuits. Furthermore, in Alberta, Canada, the Tobacco Reduction Act was passed in 2008 to prohibit~~typically these restrict or prevent the sale of ~~all~~ cigarette and tobacco products from ~~all health-care~~health care facilities, public post-secondary campuses and certain public use facilities. Some of these laws also prohibit sales from pharmacies and stores containing a ~~pharmacy effective January 1, 2009.~~pharmacy.

Cigarettes and other tobacco products are subject to substantial excise taxes and, if these taxes are increased, our sales of cigarettes and other tobacco products could decline.

Cigarettes and tobacco products are subject to substantial excise taxes in the U.S. and Canada. Significant increases in cigarette-related taxes and/or fees have been proposed or enacted and are likely to continue to be proposed or enacted within the U.S. and Canada. States continue to pass ballot measures that may result in increasing excise taxes on cigarettes and other tobacco products. In February 2009, U.S. legislation was signed into law which funds the SCHIP program by raising the federal cigarette excise tax from 39¢ to $1.01 per pack. This legislation was effective April 1, 2009.

These tax increases are expected to continue to have an adverse impact on sales of cigarettes due to lower consumption levels and a shift in sales from the premium to the non-premium or discount cigarette segments or to sales outside of legitimate channels. In addition, state and local governments may require us to prepay for excise tax stamps placed on packages of cigarettes and other tobacco products that we sell. If these excise taxes are substantially increased, it could have a negative impact on our liquidity. Accordingly, we may be required to obtain additional debt financing, which we may not be able to obtain on satisfactory terms or at all. Our inability to prepay the excise taxes may prevent or delay our purchase of cigarettes and other tobacco products, which could materially adversely affect our ability to supply our customers.

In the U.S. we purchase cigarettes primarily from manufacturers covered by the tobacco ~~industry’s~~industry's Master Settlement Agreement (“MSA”), which results in our facing certain potential liabilities and financial risks including competition from lower priced sales of cigarettes produced by manufacturers who do not participate in the MSA.

In June 1994, the Mississippi attorney general brought an action against various tobacco industry members on behalf of the state to recover state funds paid for ~~health-care~~health care costs related to tobacco use. Most other states sued the major U.S. cigarette manufacturers based on similar theories. The cigarette manufacturer defendants settled the first four of these cases with Mississippi, Florida, Texas and Minnesota by separate agreements. These states are referred to as non-MSA states. In November 1998, the major U.S. tobacco product manufacturers entered into the MSA with 46 states, the District of Columbia and certain U.S. territories. The MSA and the other state settlement agreements settled ~~health-care~~health care cost recovery actions and monetary claims relating to future conduct arising out of the use of, or exposure to, tobacco products, imposed a stream of future payment obligations on major U.S. cigarette manufacturers and placed significant restrictions on the ability to market and sell cigarettes. The payments required under the MSA result in the products sold by the participating manufacturers to be priced at higher levels than non-MSA manufacturers.

In order to limit our potential tobacco related liabilities, we try to limit our purchases of cigarettes from non-MSA manufacturers for sale in MSA states. The benefits of liability limitations and indemnities we are entitled to under the MSA do

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not apply to sales of cigarettes manufactured by non-MSA manufacturers. From time to time, however, we find it necessary to purchase a limited amount of cigarettes from non-MSA manufacturers. For example, during a transition period while integrating distribution operations from an acquisition we may need to purchase and distribute cigarettes manufactured by non-MSA manufacturers to satisfy the demands of customers of the acquired business. With respect to sales of such non-MSA cigarettes, we could be subject to litigation that could expose us to liabilities for which we would not be indemnified.

If the tobacco ~~industry’s Master Settlement Agreement~~industry's MSA is invalidated, or tobacco manufacturers cannot meet their obligations to indemnify us, we could be subject to substantial litigation liability.

In connection with the MSA, we are indemnified by most of the tobacco product manufacturers from which we purchase cigarettes and other tobacco products for liabilities arising from our sale of the tobacco products that they supply to us. To date, litigation challenging the validity of the MSA, including claims that the MSA violates antitrust laws, has not been successful. However, if such litigation were to be successful and the MSA is invalidated, we could be subject to substantial litigation due to our sales of cigarettes and other tobacco products, and we may not be indemnified for such costs by the tobacco product manufacturers in the future. In addition, even if we continue to be indemnified by cigarette manufacturers that are parties to the MSA, future litigation awards against such cigarette manufacturers and our ~~company~~Company could be so large as to eliminate the ability of the manufacturers to satisfy their indemnification obligations.

We face competition from sales of ~~deep-discount~~discount brands and illicit and other low priced sales of cigarettes.

~~As a result of purchasing~~In the U.S., we purchase cigarettes for sale in MSA states primarily from manufacturers that are parties to the ~~MSA,~~MSA. As a result, we are adversely impacted by sales of brands from non-MSA manufacturers and ~~deep-discount~~discount brands manufactured by small manufacturers that are not ~~original~~ participants to the MSA. The cigarettes subject to the MSA that we sell have been burdened by MSA related payments and are thus negatively impacted by widening price gaps between those brands and ~~deep-discount~~discount brands for the past several years. Growth in market share of ~~deep-discount~~discount brands since the MSA was signed in 1998 has had an adverse impact on the volume of the cigarettes that we sell.

We also face competition from the diversion into the U.S. market of cigarettes intended for sale outside the U.S., ~~the sale of counterfeit cigarettes by third parties,~~ the sale of cigarettes in non-taxable jurisdictions, inter-state and international smuggling of cigarettes, increased imports of foreign low priced brands, the sale of cigarettes by third parties over the internet and by other means designed to avoid collection of applicable taxes. The competitive environment has been characterized by a continued influx of cheap products that challenge sales of higher priced and taxed cigarettes manufactured by parties to the MSA. In Canada, we face competitive pressures as well, primarily from discount brands and the sale of counterfeit cigarettes by third parties. Increased sales of counterfeit cigarettes, sales by third parties over the internet, or sales by means to avoid the collection of applicable taxes, could have an adverse effect on our total results of operations.

Risks Related to Foreign Exchange and Financing

Currency exchange rate fluctuations could have an adverse effect on our revenues and financial results.

We generate a significant portion of our revenues in Canadian dollars, approximately 16% in 2010 and 15% in ~~both~~ 2009 ~~and 2008.~~. We also incur a significant portion of our expenses in Canadian dollars. To the extent that we are unable to match revenues received in Canadian dollars with costs paid in the same currency, exchange rate fluctuations in Canadian dollars could have an adverse effect on our revenues and financial results. During times of a strengthening U.S. dollar, our reported sales and earnings from our Canadian operations will be reduced because the Canadian currency will be translated into fewer U.S. dollars. Conversely, during times of a weakening U.S. dollar, our reported sales and earnings from our Canadian operations will be increased because the Canadian currency will be translated into more U.S. dollars. Accounting principles generally accepted in the ~~U.S.~~United States of America (“U.S. GAAP”) require that foreign currency transaction gains or losses on short-term intercompany transactions be recorded currently as gains or losses within the income statement. To the extent we incur losses on such transactions, our net income and earnings per share will be reduced.

We may not be able to borrow additional capital to provide us with sufficient liquidity and capital resources necessary to meet our future financial obligations.

During the current economic downturn, some companies had experienced difficulties in drawing on lines of credit, issuing debt and raising capital generally, which had a material adverse effect on their liquidity. In addition, if banks from which companies expect to receive financing fail or become insolvent, the borrowing capacity of those companies may be reduced. We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under our $200 million ~~credit facility.~~Credit Facility. While we believe our sources of liquidity are adequate, we cannot assure you that these sources will be available or continue to provide us with sufficient liquidity and capital resources required to meet our future financial obligations, or to provide funds for our working capital, capital expenditures and other needs. As such, additional equity or debt financing may be necessary, but we may not be able to expand our existing Credit Facility or obtain new financing on terms satisfactory to us, or at all.

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Our operating flexibility is limited in significant respects by the restrictive covenants in our Credit Facility.

Our ~~credit facility~~Credit Facility imposes restrictions on us that could increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our business and industry. Specifically, these restrictions limit our ability, among other things, to: incur additional indebtedness, pay dividends and make distributions, issue stock of subsidiaries, make investments, repurchase stock, create liens, enter into transactions with affiliates, merge or consolidate, or transfer and sell our assets. In addition, under our ~~credit facility,~~Credit Facility, under certain circumstances we are required to meet a fixed charge coverage ratio. Our ability to comply with this covenant may be affected by factors beyond our control and a breach of the covenant could result in an event of default under our ~~credit facility,~~Credit Facility, which would permit the lenders to declare all amounts incurred thereunder to be immediately due and payable and terminate their commitments to make further extensions of credit.

Risks Related to Government Regulation and Environment

If we are unable to comply with governmental regulations that affect our business or if there are substantial changes in these regulations, our business could be adversely affected.

As a distributor of food products, we are subject to regulation by the ~~U.S. Food and Drug Administration,~~FDA, Health Canada and similar regulatory authorities at the state, provincial and local levels. In addition, our employees operate tractor trailers, trucks, forklifts and various other powered material handling equipment and we are therefore subject to regulation by the U.S. and Canadian Departments of Transportation.

Our operations are also subject to regulation by the Occupational Safety and Health Administration, the Drug Enforcement Agency and other federal, state, provincial and local agencies. Each of these regulatory authorities has broad administrative powers with respect to our operations. If we fail to adequately comply with government regulations or regulations become more stringent, we could experience increased inspections, regulatory authorities could take remedial action including imposing fines or shutting down our operations or we could be subject to increased compliance costs. If any of these events were to occur, our results of operations would be adversely affected.

Earthquake and natural disaster damage could have a material adverse ~~affect~~effect on our business.

Our headquarters and operations in California, as well as one of our data centers located in Richmond, British Columbia, Canada, are located in or near high hazard earthquake zones. In addition, one of our data centers is located in Plano, Texas, which is susceptible to wind storms. We also have operations in areas that have been affected by natural disasters such as hurricanes, tornados, flooding, ice and snow storms. While we maintain insurance to ~~indemnify~~cover us for ~~losses due to~~ such ~~occurrences,~~potential losses, our insurance may not be sufficient in the event of a significant natural disaster or payments under our policies may not be received timely enough to prevent adverse impacts on our business. Our customers could also be affected by like events, which could adversely impact our sales.

Tax legislation could impact future cash flows.

The 2012 U.S. budget proposal ~~currently being discussed includes~~that was released in February 2011includes potential changes to current tax law, including the repeal of the LIFO (Last-In, First-Out) method of inventory accounting. As currently drafted, LIFO would be repealed for tax years beginning after ~~2011~~2012 and LIFO reserves existing at that time would be taxed ratably over ~~an eight~~a ten year period. Should LIFO be repealed, the payment of income taxes, and any future tax deferral prior to the date of repeal, over the ~~eight~~ten year period, would reduce the amount of money that we have for our operations, working capital, capital expenditures, expansions, acquisitions or general corporate or other business activities, which could materially and adversely affect our business, financial condition and results of operations.

New accounting standards could result in changes to our methods of quantifying and recording accounting transactions, and could affect our financial results and financial position.

Changes to U.S. GAAP arise from new and revised standards, interpretations and other guidance issued by the Financial Accounting Standards Board, the SEC and others. In addition, the SEC is considering a potential requirement for U.S. issuers to report future financial results in accordance with International Financial Reporting Standards ~~(“IFRS”~~("IFRS") rather than U.S. GAAP. The U.S. Government may also issue new or revised Cost Accounting Standards or Cost Principles. The effects of such changes may include prescribing an accounting method where none had been previously specified, prescribing a single acceptable method of accounting from among several acceptable methods that currently exist or revoking the acceptability of a current method and replacing it with an entirely different method, among others. Such changes could result in unanticipated effects on our results of operations, financial position and other financial ~~measures.~~measures, including significant additional costs to implement and maintain the new accounting standards.

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~~ITEM 1.B.~~		~~UNRESOLVED STAFF COMMENTS~~

ITEM 1. B.UNRESOLVED STAFF COMMENTS

None.


~~ITEM 2.~~		~~PROPERTIES~~

ITEM 2.PROPERTIES

Our headquarters are located in South San Francisco, California, and consist of approximately 26,000 square feet of leased office space. We also lease approximately 13,000 square feet for use by our information technology and tax personnel in Richmond, British Columbia and approximately 6,000 square feet for use by our information technology personnel in Plano, Texas. We lease approximately ~~2.7~~2.8 million square feet and own approximately 0.4 million square feet of distribution space.

~~Distribution Center Facilities by City and State of Location~~⁽¹⁾


		Distribution Center Facilities by City and State of Location⁽¹⁾
Albuquerque, New Mexico	Las Vegas, Nevada		Whitinsville, Massachusetts
Atlanta, Georgia	Los Angeles, California		Wilkes-Barre, Pennsylvania
Bakersfield, California	Leitchfield, Kentucky		Calgary, Alberta
Corona, California⁽²⁾	Minneapolis, Minnesota		Toronto, Ontario
Denver, Colorado	Portland, Oregon		Vancouver, British Columbia
Fort Worth, Texas	Sacramento, California⁽³⁾		Winnipeg, Manitoba
Grants Pass, Oregon	Salt Lake City, Utah
Hayward, California	Spokane, Washington

(1) Excluding outside storage facilities or depots and two facilities that we operate as third party logistics provider. Depots are defined as a secondary location for a division which may include any combination of sales offices, operational departments and/or storage. We own distribution center facilities located in Leitchfield, Kentucky and Wilkes-Barre, Pennsylvania. All other facilities listed are leased. The facilities we own are subject to encumbrances under our principal credit facility.

(2) This facility includes a distribution center and our Allied Merchandising Industry consolidating warehouse.


~~(1)~~		Excluding outside storage facilities or depots and two facilities that we operate as third party logistics provider. Depots are defined as a secondary location for a division which may include any combination of sales offices, operational departments and/or storage. We own distribution center facilities located in Leitchfield, Kentucky and Wilkes-Barre, Pennsylvania. All other facilities listed are leased. The facilities we own are subject to encumbrances under our principal credit facility.

~~(2)~~		~~This facility includes a distribution center and our Allied Merchandising Industry consolidating warehouse.~~

~~(3)~~		~~This facility includes a distribution center and our Artic Cascade consolidating warehouse.~~

(3) This facility includes a distribution center and our Artic Cascade consolidating warehouse.

We also operate distribution centers on behalf of two of our major customers, one in Phoenix, Arizona for Alimentation Couche-Tard Inc., and one in San Antonio, Texas for Valero Energy Corporation. Each facility is leased by the specific customer solely for their use and operated by Core-Mark.

ITEM 3.LEGAL PROCEEDINGS


~~ITEM 3.~~		~~LEGAL PROCEEDINGS~~

As of December 31, ~~2009,~~2010, we were not involved in any material legal proceedings.

ITEM 4. (REMOVED AND RESERVED)

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PART II


~~ITEM 4.~~		~~(REMOVED AND RESERVED)~~

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS


~~ITEM 5.~~		~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS~~ AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NASDAQ Global Market under the symbol “CORE.” According to the records of our transfer agent, we had ~~3,174~~3,019 stockholders of record as of February ~~26, 2010.~~28, 2011.

The following table provides the range of high and low sales prices of our common stock as reported by the NASDAQ Global Market for the periods indicated:

Low High
Price Price
Fiscal 2009
4th Quarter $ 25.93 $ 33.20
3rd Quarter 24.73 30.12
2nd Quarter 17.55 27.35
1st Quarter 15.60 22.01

Low High
Price Price
Fiscal 2008
4th Quarter $ 14.81 $ 24.94
3rd Quarter 24.65 30.74
2nd Quarter 25.53 30.03
1st Quarter 22.59 29.95


	Low Price		High Price
Fiscal 2010
4th Quarter	$	30.14	$	37.19
3rd Quarter	25.61		31.85
2nd Quarter	26.25		31.88
1st Quarter	29.21		34.51

	Low Price		High Price
Fiscal 2009
4th Quarter	$	25.93	$	33.20
3rd Quarter	24.73		30.12
2nd Quarter	17.55		27.35
1st Quarter	15.60		22.01

We have not declared or paid any cash dividends on our common stock. The credit agreement for our Credit Facility places limitations on our ability to pay cash dividends on our common stock. The payment of any future dividends will be determined by our board of directors in light of then existing conditions, including our earnings, financial condition and capital requirements, strategic alternatives, restrictions in financing agreements, business conditions and other factors.

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PERFORMANCE COMPARISON

The graph below presents a comparison of cumulative total return to stockholders for the period Core-Mark had securities trading on the ~~Pink Sheets or on the~~ NASDAQ Global Market, ~~and~~as well as the cumulative total ~~return~~returns of the NASDAQ Non-Financial Stock Index, the Russell 2000 Index and a peer group of companies (“the Performance Peer Group”).

Cumulative total return to stockholders is measured by ~~per~~the change in the share price ~~change~~ for the period, plus any dividends, divided by the share price at the beginning of the measurement period. ~~Core-Mark’s~~Core-Mark's cumulative stockholder return is based on an investment of $100 on ~~November 7,~~December 30, 2005, and is compared to the total return of the NASDAQ Non-Financial Stock Index, the Russell 2000 Index, and the weighted-average performance of the Performance Peer Group over the same period with a like amount invested, including the assumption that any dividends have been reinvested. We regularly compare our performance to the Russell 2000 Index since it includes primarily companies with relatively small market capitalization similar to us.

The companies composing the Performance Peer Group are Sysco Corp. (SYY), Nash Finch Company (NAFC), United Natural Foods, Inc. (UNFI) and AMCON Distributing Co. (DIT).

COMPARISON OF CUMULATIVE TOTAL RETURN

AMONG CORE-MARK, NASDAQ NON-FINANCIAL STOCK AND RUSSELL 2000 INDEXES,

AND THE PERFORMANCE PEER GROUP

Investment Value at
11/7/05 12/30/05 3/31/06 6/30/06 9/29/06 12/29/06 3/30/07 6/29/07 9/28/07 12/31/07

CORE
$ 100.00 $ 101.27 $ 121.46 $ 113.65 $ 99.49 $ 106.19 $ 113.27 $ 114.22 $ 111.84 $ 91.17
NASDAQ Index
$ 100.00 $ 101.56 $ 107.91 $ 99.68 $ 103.71 $ 111.38 $ 112.39 $ 121.93 $ 127.83 $ 126.36
Russell 2000 Index
$ 100.00 $ 102.04 $ 116.27 $ 110.42 $ 110.91 $ 120.78 $ 123.13 $ 128.57 $ 124.59 $ 118.89
Performance Peer Group
$ 100.00 $ 101.47 $ 107.08 $ 102.10 $ 111.38 $ 123.46 $ 114.34 $ 112.48 $ 120.86 $ 108.20

3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09

CORE
$ 91.24 $ 83.17 $ 79.33 $ 68.32 $ 57.84 $ 82.73 $ 90.89 $ 104.63
NASDAQ Index
$ 108.28 $ 110.64 $ 98.85 $ 57.94 $ 57.39 $ 69.63 $ 81.04 $ 87.34
Russell 2000 Index
$ 107.12 $ 107.75 $ 106.55 $ 78.72 $ 66.95 $ 80.80 $ 96.38 $ 100.11
Performance Peer Group
$ 99.25 $ 95.28 $ 108.50 $ 82.18 $ 81.58 $ 82.77 $ 91.20 $ 103.81

Investment Value at
12/30/05 03/31/06 06/30/06 09/29/06 12/29/06 03/30/07 06/29/07 09/28/07 12/31/07 03/31/08 06/30/08
CORE $ 100.00 $ 119.94 $ 112.23 $ 98.24 $ 104.86 $ 111.85 $ 112.79 $ 110.44 $ 90.03 $ 90.09 $ 82.13
NASDAQ Index $ 100.00 $ 106.25 $ 98.14 $ 102.11 $ 109.66 $ 110.66 $ 120.05 $ 125.84 $ 124.39 $ 106.45 $ 108.77
Russell 2000 $ 100.00 $ 113.94 $ 108.21 $ 108.69 $ 118.37 $ 120.67 $ 126.00 $ 122.10 $ 116.51 $ 104.98 $ 105.59
Performance Peer Group $ 100.00 $ 105.72 $ 100.69 $ 109.74 $ 121.70 $ 112.81 $ 111.16 $ 119.19 $ 106.87 $ 97.84 $ 93.99

09/30/08 12/31/08 03/31/09 06/30/09 09/30/09 12/31/09 03/31/10 06/30/10 09/30/10 12/31/10
CORE $ 78.34 $ 67.46 $ 57.12 $ 81.69 $ 89.75 $ 103.32 $ 95.96 $ 85.89 $ 97.05 $ 111.57
NASDAQ Index $ 97.16 $ 56.94 $ 56.42 $ 68.45 $ 79.67 $ 85.86 $ 90.74 $ 80.06 $ 90.83 $ 101.80
Russell 2000 $ 104.42 $ 77.15 $ 65.61 $ 79.18 $ 94.45 $ 98.11 $ 106.79 $ 96.20 $ 107.06 $ 124.46
Performance Peer Group $ 107.15 $ 81.34 $ 80.50 $ 81.81 $ 90.01 $ 102.54 $ 108.65 $ 106.72 $ 108.81 $ 113.52

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Sales of Unregistered Securities

Common Stock and Warrants Issued Pursuant to the Plan of Reorganization in 2004

Pursuant to the plan of reorganization (May 2004) described in Exhibit 2.1 and incorporated by reference (see Part IV, Item 15, Exhibit Index of this Form 10-K), herein referred to as ~~“Fleming’s~~“Fleming's bankruptcy” or “plan of reorganization,” on August 23, 2004 we issued an aggregate of 9,800,000 shares of our common stock and warrants to purchase an aggregate of 990,616 shares of our common stock to the Class 6(B) creditors of ~~Fleming.~~Fleming (our former parent company). We refer to the warrants we issued to the Class 6(B) creditors as the Class 6(B) ~~Warrants.~~warrants. We received no cash consideration ~~for~~at the ~~issuance of common stock and~~time we issued the Class 6(B) ~~Warrants.~~warrants. The Class 6(B) ~~Warrants~~warrants have an exercise price of $20.93 per ~~share and may be exercised at the election of the holder at any time prior to August 23, 2011, at which time any outstanding warrants will be net issued.~~share. The shares of common stock and the Class 6(B) ~~Warrants~~warrants were issued pursuant to an exemption from registration under Section 1145(a) of the Bankruptcy Code. We also issued warrants to purchase an aggregate of 247,654 shares of our common stock to the holders of our Tranche B ~~Notes.~~Notes, which we refer to as the Tranche B warrants. The Tranche B ~~Warrants~~warrants have an exercise price of $15.50 per share. Shares of our common stock issued upon exercise of the Tranche B ~~Warrants~~warrants are issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. Both the Class 6(B) and Tranche B warrants may be exercised at the election of the holder at any time prior to August 23, 2011, at which time any outstanding warrants will be net issued. Instructions for exercising warrants can be found in the “Investor Relations” section of our website at www.core-mark.com.

During ~~2009, 15,822~~2010, 246,912 of the Class 6(B) warrants were exercised ~~and issued~~ in cash and cashless transactions, and a total of ~~37,810~~233,380 shares of common stock have been issued since inception pursuant to exercises of Class 6(B) warrants. The exercise of such warrants was also done pursuant to an exemption from registration under Section 1145(a) of the Bankruptcy Code. During ~~2009,~~2010, there were no Tranche B warrants exercised ~~and issued~~ in cash or cashless transactions, and the total number of shares of common stock issued since inception pursuant to Tranche B warrants as of December 31, ~~2009~~2010 remained at 73,507 shares.

Issuer Purchases of Equity Securities

There were no repurchases of our common stock ~~shares~~ during the three months ended December 31, ~~2009.~~2010.

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~~ITEM 6.~~		~~SELECTED FINANCIAL DATA~~

ITEM 6.SELECTED FINANCIAL DATA

Core-Mark Holding Company, Inc., or Core-Mark, is the ultimate parent holding company for Core-Mark International, Inc. and our wholly-owned subsidiaries.

Basis of Presentation

The selected consolidated financial data for the years 2010, 2009, 2008, 2007 ~~2006~~ and ~~2005~~2006 are derived from ~~Core-Mark’s~~Core-Mark's audited consolidated financial statements included in our Annual Reports on Form 10-K. The following financial data should be read in conjunction with the consolidated financial statements and notes thereto and withItem 7, ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations.

SELECTED CONSOLIDATED FINANCIAL DATA


	Core-Mark Holding Company, Inc. and Subsidiaries										Core-Mark Holding Company, Inc. and Subsidiaries
	Year Ended December 31,										Year Ended December 31,
(in millions except per share amounts)	2009^(a)		2008^(b)		2007		2006^(c)		2005		2010^(a)		2009^(b)		2008^(c)		2007		2006^(d)
Statement of Operations Data:
Net sales	$	6,531.6	$	6,044.9	$	5,560.9	$	5,314.4	$	4,891.1	$	7,266.8	$	6,531.6	$	6,044.9	$	5,560.9	$	5,314.4
Gross profit^(d)(e)		401.6		359.1		332.6		297.7		271.0	385.3		401.6		359.1		332.6		297.7
Warehousing and distribution expenses^(d)(e)		197.3		197.6		174.1		151.1		135.7	211.8		197.3		197.6		174.1		151.1
Selling, general and administrative expenses		137.3		129.4		119.0		106.6		90.0	142.5		137.3		129.4		119.0		106.6
Income from operations		65.0		30.1		37.7		38.5		44.0	28.9		65.0		30.1		37.7		38.5
Interest expense, net^(e)(f)		1.4		1.2		1.0		4.2		11.0	2.2		1.4		1.2		1.0		4.2
Net income		47.3		17.9		24.1		20.6		14.3	17.7		47.3		17.9		24.1		20.6
Per share data:
Basic income per common share	$	4.53	$	1.71	$	2.30	$	2.05	$	1.46
Diluted income per common share	$	4.35	$	1.64	$	2.15	$	1.87	$	1.37
Basic net income per common share											$	1.64	$	4.53	$	1.71	$	2.30	$	2.05
Diluted net income per common share											$	1.55	$	4.35	$	1.64	$	2.15	$	1.87
Shares used to compute net income per share:
Basic		10.5		10.5		10.5		10.0		9.8	10.8		10.5		10.5		10.5		10.0
Diluted		10.9		10.9		11.2		11.0		10.5	11.4		10.9		10.9		11.2		11.0
Other Financial Data:
Excise taxes^(f)(g)	$	1,516.0	$	1,474.4	$	1,349.4	$	1,313.3	$	1,195.0	$	1,756.5	$	1,516.0	$	1,474.4	$	1,349.4	$	1,313.3
Cigarette inventory holding profits/FET^(g)(h)		25.2		3.1		7.3		4.1		5.7	6.1		25.2		3.1		7.3		4.1
OTP tax refunds^(h)		0.6		1.4		13.3		—		—
OTP tax items ⁽ⁱ⁾											0.6		0.6		1.4		13.3		—
LIFO expense		6.7		11.0		13.1		2.9		7.5	16.6		6.7		11.0		13.1		2.9
Depreciation and amortization^(i)(j)		18.7		17.4		14.9		13.2		12.5	19.7		18.7		17.4		14.9		13.2
Stock-based compensation		5.1		3.9		5.3		4.4		4.0	4.8		5.1		3.9		5.3		4.4
Capital expenditures		21.1		19.9		20.8		12.8		7.8	13.9		21.1		19.9		20.8		12.8

	December 31,										December 31,
	2009		2008		2007		2006		2005		2010		2009		2008		2007		2006
Balance Sheet Data:
Total assets	$	677.9	$	612.6	$	577.1	$	555.6	$	510.4	$	708.8	$	677.9	$	612.6	$	577.1	$	555.6
Total debt, including current maturities		20.0		30.8		29.7		78.0		59.6	1.0		20.0		30.8		29.7		78.0

(a) The selected consolidated financial data for 2010 includes approximately $105.9 million of incremental sales related to increased cigarette prices by manufacturers in response to the increase in federal excise taxes mandated by the SCHIP legislation. The 2010 data also includes the results of operations of FDI, which was acquired in August 2010.

(b) The selected consolidated financial data for 2009 includes approximately $534.0 million of incremental sales related to increased cigarette prices by manufacturers in response to the increase in federal excise taxes mandated by the SCHIP

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legislation and $36.7 million of related cigarette inventory holding profits, offset by $11.5 million of net floor stock tax.

(c) The selected consolidated financial data for 2008 includes the results of operations of the Toronto division, which started operations in late January 2008, and also the New England division following its acquisition in June 2008.

(d) The selected consolidated financial data for 2006 includes the results of operations of the Pennsylvania division following its acquisition in June 2006.

(e) Gross margins may not be comparable to those of other entities because warehousing and distribution expenses are not included as a component of our cost of goods sold.

(f) Interest expense, net, is reported net of interest income and includes amortization of debt issuance costs.

(g) State, local and provincial excise taxes (predominantly cigarettes and tobacco) paid by the Company are included in net sales and cost of goods sold.

(h) Cigarette inventory holding profits represent income related to cigarette and excise tax stamp inventories on hand at the time either cigarette manufacturers increase their prices or states increase their excise taxes, for which the Company is able to pass such increases on to its customers. This income is recorded as an offset to cost of goods sold and recognized as the inventory is sold. This income is not predictable and is dependent on inventory levels and the timing of manufacturer price increases or state excise tax increases. In 2009, we realized significant cigarette inventory holding profits due to the price increases in response to the federal excise taxes ("FET") levied on manufacturers by the SCHIP legislation.

(i) We received an OTP (Other Tobacco Products) tax gain resulting from a state tax method change in the amount of $0.6 million in 2010. We received OTP tax refunds of $0.6 million in 2009, $1.4 million in 2008 and $13.3 million in 2007.

(j) Depreciation and amortization includes depreciation on property and equipment and amortization of purchased intangibles.


~~(a)~~		The selected consolidated financial data for 2009 includes approximately $534.0 million of incremental sales related to increased cigarette prices by manufacturers in response to the increase in federal excise taxes mandated by the SCHIP legislation and $36.7 million of related cigarette inventory holding profits, offset by $11.5 million of a net floor stock tax.

~~(b)~~		The selected consolidated financial data for 2008 includes the results of operations of the Toronto division, which started operations in late January 2008, and also the New England division following its acquisition in June 2008.

~~(c)~~		~~The selected consolidated financial data for 2006 includes the results of operations of the Pennsylvania division following its acquisition in June 2006.~~

~~(d)~~		~~Gross margins may not be comparable to those of other entities because warehouse and distribution expenses are not included as a component of our cost of goods sold.~~

~~(e)~~		~~Interest expense, net, is reported net of interest income and includes amortization of debt issuance costs.~~

~~(f)~~		~~State and provincial excise taxes (predominantly cigarettes and tobacco) paid by the Company are included in net sales and cost of goods sold.~~

~~(g)~~		Cigarette inventory holding profits represent income related to cigarette and excise tax stamp inventories on hand at the time either cigarette manufacturers increase their prices or states increase their excise taxes, for which the Company is able to pass such increases on to its customers. This income is recorded as an offset to cost of goods sold and recognized as the inventory is sold. This income is not predictable and is dependent on inventory levels and the timing of manufacturer price increases or state excise tax increases. In 2009, we realized significant cigarette inventory holding profits due to the price increases in response to the federal excise taxes levied on manufacturers by the SCHIP legislation.

~~(h)~~		We received OTP (Other Tobacco Products) tax refunds from the State of Florida of $0.6 million in 2009, from the State of Texas of $1.4 million in 2008 and from the State of Washington of $13.3 million in 2007.

~~(i)~~		~~Depreciation and amortization includes depreciation on property and equipment and amortization of purchased intangibles.~~

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~~ITEM 7.~~		~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with the accompanying audited consolidated financial statements and notes thereto that are included under Part II, Item 8, of thisForm ~~10-K~~.10-K. Also refer to “Special Note Regarding Forward-Looking Statements,” which is included after Table of Contents in thisForm ~~10-K~~.10-K.

Our Business

Core-Mark is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. We offer a full range of products, marketing programs and technology solutions to approximately ~~24,000~~26,000 customer locations in the U.S. and Canada. Our customers include traditional convenience stores, grocery stores, drug stores, liquor stores and other specialty and small format stores that carry convenience products. Our product offering includes cigarettes, tobacco, candy, snacks, fast food, groceries, fresh products, dairy, bread, non-alcoholic beverages, general merchandise and health and beauty care products. We operate a network of 2624 distribution centers ~~(including~~ (excluding two distribution facilities we operate as a third party logistics provider) in the U.S. and Canada.

We derive our net sales primarily from sales to convenience store customers. Our gross profit is derived primarily by applying a markup to the cost of the product at the time of the sale and from cost reductions derived from vendor credit term discounts received and other vendor incentive programs. Our operating expenses are comprised primarily of sales personnel costs; warehouse personnel costs related to receiving, stocking and selecting product for delivery; delivery costs such as delivery personnel, truck leases and fuel; costs relating to the rental and maintenance of our facilities; and other general and administrative costs.

Overview of ~~2009~~2010 Results

Net sales for ~~2009~~2010 increased ~~8.1%~~11.3% to ~~$6.53~~$7.27 billion compared to ~~$6.04~~$6.53 billion in ~~2008.~~2009, driven by an 11.6% increase in our cigarette sales and a 10.5% increase in our food/non-food sales. Sales in both categories benefited from favorable foreign exchange rates and the acquisition of ~~cigarettes~~Finkle Distributors, Inc. ("FDI"), which we acquired in the third quarter of 2010.

The increase in food/non-food net sales was led by our food and other tobacco products ~~increased in absolute dollars, primarily as~~(“OTP”) categories. This increase was a result of ~~price increases by U.S. cigarette manufacturers in response~~deeper sales to ~~the federal excise taxes levied on manufacturers~~existing customers driven by the SCHIP legislation that became effective April 1, 2009. We believe these significant price increases contributed to the drop in our average daily U.S. cigarette carton sales which declined 9.9% during the year, excluding our New England division which we acquired in June 2008. This decrease was partially offset by a 14.4% increase in average daily Canadian carton sales, driven by market share gains in Toronto and other partssuccess of Ontario. We expect consumption trends of legal cigarette and tobacco products will continue to be negatively impacted by rising prices, diminishing social acceptance and legislative and regulatory actions that create limitations on where a consumer can smoke and how products can be promoted and produced. In addition, we expect rising prices will stimulate a higher percentage of consumers to purchase from illicit markets to fulfill consumer demand. We believe this may adversely impact our cigarette carton volume, primarily in the U.S., in future periods.

Sales of our food/non-food products for 2009 increased slightly to $1.94 billion compared with $1.92 billion for 2008. We believe the ongoing general weakness in the economy negatively impacted our overall sales in this category as consumers curtailed discretionary spending on certain products. Additionally, sales in our beverages category declined in 2009 due to distribution and marketing changes by some of the retail beverage manufacturers and sales in our dairy category were negatively impacted by significant price deflation during the year. Despite these challenging times, we did benefit from price increases related to the SCHIP legislation in some of the other tobacco product lines and we experienced sales growth from our marketing initiatives that focus on fresh foods and vendor ~~consolidation.~~consolidation (“VCI”). We added over 2,000 stores to our “Fresh and Local” food program during 2010, which drove a 38% increase in our fresh product, dairy and bread line items within our food category. In addition, we benefited from new customers, favorable foreign exchange rates and the FDI acquisition previously mentioned.

Cigarette net sales for 2010 increased due to price and excise tax inflation and a 3.0% increase in carton volume including FDI, or a 1.8% increase without. During 2010, carton sales in the U.S. increased 1.1% excluding FDI, driven primarily by market share gains. Carton sales in Canada increased 7.5%, led by customer growth in our Toronto division. Longer term, we continue to expect that overall cigarette consumption may be negatively impacted by rising prices, legislative actions, diminishing social acceptance and sales through illicit markets. However, we expect to offset the majority of the impact from these declines through market share expansion, growth in our non-cigarette categories and incremental gross profitthat resultsfrom cigarette manufacturer price increases. We expect cigarette manufacturers will raise prices as carton sales decline in order to maintain or enhance their overall profitability.

Despite the growth in our sales during 2010, we continue to monitor current macroeconomic conditions, including consumer confidence, spending, employment, fuel costs, and inflation/~~deflation. If consumer spending declines further~~deflation levels. We believe these macroeconomic factors may have put pressure on other wholesalers and influenced the competitive landscape which ultimately impacted our margins. A significant change in macroeconomic conditions could materially impact our operating results.

Our remaining gross profit¹ increased $12.7 million, or 3.3%, to $395.2 million during 2010 from $382.5 million last year. Remaining gross profit margin¹decreased 42 basis points from 5.86% last year to 5.44% this year. The net decline was due primarily to competitive pricing pressures which were most severe earlier this year. Remaining gross profit margins did improve somewhat in the second half of the year, and we expect to make continued progress toward growing margins over time. We believe the margins in the fresh food line items will continue to improve and were not significantly impacted by the competitive pricing pressures affecting the more traditional categories. A return of meaningful product inflation and/or manufacturer promotions, coupled with market share expansion and deeper selling into existing accounts, is expected to help improve margins in the ~~current decline persists for~~future. The convenience retail industry continues to move towards fresh foods, a ~~prolonged period~~more efficient supply chain and flexibility of ~~time, our sales and associated~~service. We believe we are in a strong position to capitalize on these market trends.

1 Remaining gross profit ~~could be negatively impacted in future quarters. Conversely, if consumer confidence~~ and ~~employment conditions improve, our results could benefit.~~remaining gross profit margin are non-GAAP financial measures which we provide to segregate the effects of LIFO expense, cigarette inventory holding profits and other major non-recurring items that significantly affect the comparability of gross profit and related margins.

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Operating income for ~~2009 increased by $34.9~~2010 was $28.9 million compared to $65.0 million from $30.1 million in 2008. This increase included a $33.6 million increase in cigarette holding profits, offset by $11.5 million of federal excise floor taxes, and a $4.3 million reduction in LIFO expense resulting primarily from lack of inflation in our food/non-food categories. Excluding these items from both periods, operating income for 2009 increased by $8.5 million, or 22.4%, to $46.5 million as compared to $38.0 million in 2008. This increase in operating incomelast year. The decline was due primarily to a ~~$16.9~~$19.1 million reduction in cigarette holding gains, net of federal excise taxes ("FET"), a $9.9 million increase in ~~remaining gross profit offset by an increase~~LIFO expense, a $5.3 million reduction in income earned primarily from manufacturer price increases, and approximately $5.5 million of ~~$7.6 million in~~additional operating ~~expenses. Higher cigarette gross profit was partially offset by a decrease~~expenses which are more fully discussed in our ~~food/non-food remaining gross profit resulting primarily from~~MD&A. In addition, competitive pressures on margins previously discussed were offset in part by operating expense leverage of approximately 25 basis points. Improved health care and workers' compensation costs helped to offset a decline in floor stock income which we typically recognize as our vendors increase their prices. Our gross profit can be positively or negatively impacted on a comparable basis depending on the relative level of price inflation or deflation period over period.

~~The~~$4.6 million increase in our operating expenses resulted primarily from incremental expenses from our New England and Toronto divisions added during 2008, salary merit increases, higher incentive based compensation, increases in healthcare costs and a decrease in cooperative marketing reimbursements from vendors. These were partially offset by lower net fuel costs ~~increased operating efficiencies at certain divisions~~during the year, along with improved productivity and ~~cost saving~~leverage in our other ~~areas. Inflation~~labor costs. Increases or decreases in future fuel costs or ~~reductions~~ in the fuel surcharges we pass on to our customers may materially impact our financial results depending on the extent and timing of these changes.

Business and Supply Expansion

We continue to expand our presence eastward, expand our fresh product delivery and drive our vendor consolidation initiative. Some of our ~~recent~~expansion activities include:

In 2009, as part of our strategy of selling “fresh” product, we enrolled almost 2,000 new stores in our program of delivering fresh sandwiches, bakery items, fruits and vegetables, dairy products and other fresh items multiple times per week. This program was in addition to our other sales and marketing initiatives focused on increasing sales of fresh products.

•

In 2010, as part of our selling strategy of providing “fresh” product to our retailers to meet consumer demand, we grew the number of stores participating in our proprietary “Fresh and Local” program by over 2,000 locations, increasing total participation to approximately 4,100 stores. A main component of the program is to assist independent convenience store operators in obtaining equipment solutions to properly implement a “fresh” program. Once the equipment solution is in place, we turn our focus to providing fresh product solutions to the convenience retailer, and we also add additional deliveries in order for them to stock the freshest possible product including fresh sandwiches, fresh bakery items, fruits, salads, vegetables and dairy products. We have partnered with local bakeries and commissaries to further enable us to deliver the freshest product possible aligned with geographical preferences. This program was in addition to our other sales and marketing initiatives focused on increasing sales for fresh products.

•

On August 2, 2010, we acquired substantially all of the assets of FDI, located in Johnstown, New York, for approximately $36.0 million. FDI is a regional, convenience wholesaler servicing customers in New York, Pennsylvania and the surrounding states. The acquired assets consist primarily of accounts receivable, inventory and fixed assets. Results of operations have been included in our consolidated statements of operations since the date of acquisition. Upon completion of the acquisition, we transitioned warehouse operations to our New England and Pennsylvania divisions. As a result of the acquisition, we expect to bring our industry leading Vendor Consolidation and Fresh initiatives to a larger population of convenience retailers primarily in the Northeast (see Note 3 -- Acquisitions to our consolidated financial statements).

•

We entered into a five-year contract with BP Products North America in February 2010 to provide all of the ~~ampm~~^®ampm® proprietary products to its 1,200 stores nationwide. This agreement expands our existing relationship with BP Products North America from a focus in western states to a national basis. In addition, Core-Mark is now designated as the approved supplier for traditional nonproprietary products, in a move designed to further advance ~~ampm~~^®’sampm®'s ongoing progress in supply chain efficiencies, marketing program effectiveness and consistency of offerings.

We signed a non-binding memorandum of intent with Jamba, Inc. (“Jamba”) in February 2010 to establish a relationship to offer and deliver health-oriented Jamba-branded food and beverage consumer products to Core-Mark serviced convenience retail locations. The proposed three-year relationship would us the generally exclusive distribution rights of the Jamba-branded products to the convenience store retail channel.

•

During the latter part of 2010, Core-Mark began marketing and distributing Jamba Juice's proprietary line of fresh deli wraps, salads and sandwiches. This "Grab 'n Go" line placed a face on fresh items which typically are marketed and sold without the benefit of brand recognition from the consumer within the convenience store channel. Over 150 convenience stores accepted this Core-Mark exclusive marketing opportunity and began merchandising and selling the product. In 2011 Core-Mark expects to expand the number of stores participating in the fresh Jamba Juice "Grab 'n Go" offering and also expects to considerably expand on the breadth of the Jamba Juice labeled product in areas such as fruit cups, yogurts, trail mix, nuts and others. The co-developed items will provide health-oriented food items for the convenience channel.

•

~~We acquired in~~In June 2008, we acquired substantially all of the assets of Auburn Merchandise Distributors, Inc. (“AMD”), located in Whitinsville, Massachusetts, a ~~wholly-owed~~wholly-owned subsidiary of Warren Equities, Inc., for approximately $28.7 ~~million, including transaction costs.~~million. The assets purchased ~~include~~included primarily accounts receivable, inventory and fixed assets. The AMD acquisition expanded our presence and infrastructure in the Northeastern region of the U.S., as its facility and the majority of its customers are located there(see Note ~~3—Acquisitions)~~3 -- Acquisitions to our consolidated financial statements).


•	We opened a distribution facility near Toronto, Ontario, in January 2008, to expand our existing market geography in Canada, and we signed a long-term supply agreement with Couche-Tard, a Canadian retailer that operates over 600 stores in the province of Ontario.

We opened a distribution facility near Toronto, Ontario, in January 2008, to expand our existing market geography in Canada, and we signed a long-term supply agreement with Couche-Tard, a Canadian retailer that operates over 600 stores in the province of Ontario.

Other Business Developments

Impact of the Passage of Family Smoking Prevention and Tobacco Control Act

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In June 2009, the Family Smoking Prevention and Tobacco Control Act was signed into law, which granted the ~~U.S. federal Food & Drug Administration (“FDA”)~~FDA the authority to regulate the production and marketing of tobacco products in the U.S. The new legislation ~~establishes~~established a new FDA office that ~~will~~has the authority to regulate changes to nicotine yields and the chemicals and flavors used in tobacco products, ~~requires~~require ingredient listings be displayed on tobacco products, ~~prohibits~~prohibit the use of certain terms which may attract youth or mislead users as to the risks involved with using tobacco products, and ~~limits~~limit or otherwise impact the advertising and marketing of tobacco ~~products.~~products by requiring additional labels or warnings, as well as pre-approval by the FDA. This new FDA office is to be financed through user fees paid by tobacco companies prorated based on market share. To date, this legislation and its associated regulations have not had a material impact on our business.

Federal Excise Tax Liability Impact for the State ~~Children’s~~Children's Health Insurance Program

In February 2009, ~~SCHIP~~the State Children's Health Insurance Program (“SCHIP”) was signed into law, which increased federal cigarette excise taxes levied on manufacturers of cigarettes from 39¢ to $1.01 per pack effective April 1, 2009. In March 2009, most U.S. manufacturers increased their list prices ~~that~~which resulted in an increase of approximately ~~28.0%~~28% on ~~Core-Mark’s~~Core-Mark's product ~~purchases. We believe these price increases were~~purchases in response to the passage of the SCHIP ~~legislation~~legislation. Net cigarette sales for 2010 and 2009 include approximately $105.9 million and $534.0 million, respectively, of increased sales ~~by approximately $534.0~~from these price increases. Cigarette inventory holding profits were $6.1 million ~~in 2009. These price increases resulted in~~for 2010 compared to cigarette inventory holding profits of $36.7 million, partially offset by a net federal floor stock tax of ~~Federal Excise Taxes (“FET”) associated with~~$11.5 million, for the same period in 2009. The significant cigarette inventory holding profits in 2009 were due primarily to increases in cigarette prices by manufacturers in response to the anticipated increase in federal excise taxes mandated by the SCHIP ~~legislation of $25.2 million for 2009.~~legislation. We paid approximately $12.7 million of federal excise floor taxes and received $1.2 million in reimbursements from cigarette and tobacco manufacturers for a net floor stock tax amount of $11.5 million, which was reflected as an increase to our cost of goods sold ~~for the second quarter of~~in 2009. ~~We earn a cash discount of approximately 2% (or approximately 14¢ incremental gross profit per carton) on purchases from cigarette manufacturers.~~

~~Tobacco Tax Refunds Settlement Agreements~~

In November 2008, we entered into a settlement agreement with the State of Texas Comptroller of Public Accounts related to a technical interpretation of the State of Texas’ Other Tobacco Products Tax Law, which resulted in a net refund of $1.4 million. This refund, which was received in January 2009, was recorded in the fourth quarter of 2008 as a reduction to cost of goods sold.

In April 2007, we entered into a settlement agreement with the State of Washington Department of Revenue related to a refund of Other Tobacco Product (“OTP”) tax of approximately $13.3 million, representing 25% of the State of Washington OTP tax we paid for the periods of December 1991 through December 1996 and May 1998 through June 2005. This refund, which was received in July 2007, was recorded in the second quarter of 2007 as a reduction to cost of goods sold.

Share Repurchase Program

~~In March 2008, our Board of Directors authorized a share repurchase program of up to $30 million to repurchase~~During the year ended December 31, 2010, no shares of ~~our~~ common stock ~~in the open market or in privately negotiated transactions subject to market conditions. The number of shares to be~~were repurchased ~~and the timing of the purchases will be based on market conditions,~~under our cash and liquidity requirements, relevant securities laws and other factors. The share repurchase program may be discontinued or amended at any time. We funded repurchases under the program, and plan to fund any future repurchases, from available cash. Our Credit Facility was amended in 2008 to allow us to execute the share repurchase program. ~~As of~~During the year ended December 31, 2009 there was $16.8 million available for future share repurchases under the program. Our available funds for future share repurchases were re-established at $30 million under the February 2010 amendment to our Credit Facility~~(see Note 7—Long-Term Debt)~~.

~~During 2009,~~, we repurchased 98,646 shares of common stock ~~under the share repurchase program~~ at an average price of $22.77 per share for a total cost of $2.2 million. During the year ended December 31, 2008, we repurchased 396,716 shares of common stock ~~under the share repurchase program~~ at an average price of $27.66 per share for a total cost of $11.0 million.

As of December 31, 2010 there was $16.8 million available for future share repurchases under our share repurchase program. Our available funds for future share repurchases were re-established at $30 million under the February 2010 amendment to our Credit Facility (see Note 7 -- Long-Term Debt to our consolidated financial statements).

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Results of Operations

Comparison of ~~2009~~2010 and ~~2008~~2009⁽¹⁾

2009 2009 2008
Increase % of Net % of Net
(Decrease) Amounts % of Net sales, less Amounts % of Net sales, less
(in millions) (in millions) sales excise taxes (in millions) sales excise taxes
Net sales $ 486.7 $ 6,531.6 100.0 — $ 6,044.9 100.0 —
Net sales— Cigarettes 464.3 4,589.1 70.3 64.0 4,124.8 68.2 60.7
Net sales— Food/Non-food 22.4 1,942.5 29.7 36.0 1,920.1 31.8 39.3
Net sales, less excise taxes⁽²⁾
445.1 5,015.6 76.8 100.0 4,570.5 75.6 100.0
Gross profit⁽³⁾
42.5 401.6 6.1 8.0 359.1 5.9 7.9
Warehousing and distribution expenses (0.3 ) 197.3 3.0 3.9 197.6 3.3 4.3
Selling, general and administrative expenses 7.9 137.3 2.1 2.7 129.4 2.1 2.8
Income from operations 34.9 65.0 1.0 1.3 30.1 0.5 0.7
Interest expense (0.5 ) 1.7 — — 2.2 — 0.1
Interest income (0.7 ) (0.3 ) — — (1.0 ) — —
Foreign currency transaction (gains) losses, net (8.5 ) (2.2 ) — — 6.3 0.1 0.1
Income before taxes 43.2 65.8 1.0 1.3 22.6 0.4 0.5
Net income 29.4 47.3 0.7 0.9 17.9 0.3 0.4


~~(1)~~		~~Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.~~

~~(2)~~		Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in state and provincial excise taxes which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the taxes on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage may decrease as a result of increases in excise taxes since gross profit dollars generally remain the same (*~~see—Comparison of Sales and Gross Profit by Product Category, page 30~~*).

~~(3)~~		~~Gross margins may not be comparable to those of other entities because warehouse and distribution expenses are not included as a component of our cost of goods sold.~~

2010 2009
2010 Amounts (in millions) % of Net sales % of Net sales, less excise taxes Amounts (in millions) % of Net sales % of Net sales, less excise taxes
Increase (Decrease) (in millions)
Net sales $ 735.2 $ 7,266.8 100.0 % — % $ 6,531.6 100.0 % — %
Net sales — Cigarettes 530.6 5,119.7 70.5 64.0 4,589.1 70.3 64.0
Net sales — Food/non-food 204.6 2,147.1 29.5 36.0 1,942.5 29.7 36.0
Net sales, less excise taxes ⁽²⁾
494.7 5,510.3 75.8 100.0 5,015.6 76.8 100.0
Gross profit ⁽³⁾
(16.3 ) 385.3 5.3 7.0 401.6 6.1 8.0
Warehousing and
    distribution expenses 14.5 211.8 2.9 3.8 197.3 3.0 3.9
Selling, general and
    administrative expenses 5.2 142.5 2.0 2.6 137.3 2.1 2.7
Income from operations (36.1 ) 28.9 0.4 0.5 65.0 1.0 1.3
Interest expense 0.9 (2.6 ) — — (1.7 ) — —
Interest income 0.1 0.4 — — 0.3 — —
Foreign currency transaction
    gains (losses), net (1.7 ) 0.5 — — 2.2 — —
Income before taxes (38.6 ) 27.2 0.4 0.5 65.8 1.0 1.3
Net income ⁽⁴⁾
(29.6 ) 17.7 0.2 0.3 47.3 0.7 0.9

(1) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

(2) Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in state, local and provincial excise taxes which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the taxes on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage may decrease as a result of increases in excise taxes since gross profit dollars generally remain the same (see Comparison of Sales and Gross Profit by Product Category, page 32).

(3) Gross margins may not be comparable to those of other entities because warehousing and distribution expenses are not included as a component of our cost of goods sold.

(4) The decrease in net income compared to 2009 was due primarily to a $19.1 million reduction in cigarette holding gains, a $5.3 million reduction in income earned primarily from manufacturer price increases, an increase in LIFO expense of $9.9 million and $5.5 million of additional expenses in 2010.

Consolidated Net Sales. Net sales for 2010 increased by $735.2 million, or 11.3%, to $7,266.8 million from $6,531.6 million in 2009. Excluding the effects of foreign currency fluctuations, sales from the FDI acquisition and approximately $105.9 million of incremental sales resulting from manufacturers' cigarette price increases in response to the SCHIP legislation, net sales increased by 6.1% in 2010 compared to 2009. This increase was the result of sales gains from new and existing customers and inflation of cigarette prices and excise taxes.

Net Sales of Cigarettes. Net sales of cigarettes for 2010 increased by $530.6 million, or 11.6%, to $5,119.7 million from $4,589.1 million in 2009. Net cigarette sales for 2010 increased 10.0%, excluding the effects of foreign currency fluctuations. The increase in net cigarette sales in 2010 was driven by an 8.3% increase in the average sales price per carton, due primarily to manufacturer price and excise tax increases, and an overall increase in carton sales of 3.0%, or 1.8% excluding sales from the FDI acquisition. Our carton sales in 2010 increased 1.1% in the U.S., excluding FDI, and increased 7.5% in Canada, attributable primarily to market share gains in our Toronto division. Total net cigarette sales as a percentage of total net sales were 70.5% in 2010 compared to 70.3% in 2009.

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Net Sales of Food/Non-food Products. Net sales of food and non-food products for 2010 increased $204.6 million, or 10.5%, to $2,147.1 million from $1,942.5 million in 2009. The following table provides net sales by product category for our food/non-food products (in millions)⁽¹⁾:


	2010		2009		Increase / (Decrease)
Product Category	Net Sales		Net Sales		Dollars			Percentage
Food	$	840.9	$	738.0	$	102.9		13.9	%
Candy	426.0		405.0		21.0			5.2	%
Other tobacco products	503.6		434.0		69.6			16.0	%
Health, beauty & general	220.6		209.5		11.1			5.3	%
Non-alcoholic beverages	152.0		151.7		0.3			0.1	%
Equipment/other	4.0		4.3		(0.3		)	(5.5	)%

Total Food/Non-food Products	$	2,147.1	$	1,942.5	$	204.6		10.5	%

(1) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

Excluding the effects of foreign currency fluctuations, net sales of food/non-food products increased 9.0% in 2010 compared to 2009. The increase, primarily in our food and other tobacco products categories, was driven by our sales and marketing initiatives, sales gains from new customers and sales from the FDI acquisition. Total net sales of food and non-food products as a percentage of total net sales was 29.5% for 2010 compared to 29.7% for 2009.

Gross Profit. Gross profit represents the portion of sales remaining after deducting the cost of goods sold during the period. Vendor incentives, cigarette holding profits, federal floor stock taxes and changes in LIFO reserves are classified as elements of cost of goods sold. Gross profit for 2010 decreased by $16.3 million, or 4.1%, to $385.3 million from $401.6 million in 2009. This decrease in gross profit was due primarily to realizing $19.1 million more of cigarette inventory holding profits, net of floor stock tax, during 2009 largely related to the increase in federal excise tax mandated by the SCHIP legislation. In addition, LIFO expense increased by $9.9 million compared to the prior year, due primarily to the cigarette category, which reflected multiple price increases during the year.

The following table provides the components comprising the change in gross profit as a percentage of net sales for 2010 and 2009⁽¹⁾:


	2010							2009
	Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes		Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes
Net sales	$	7,266.8		100.0	%	—		$	6,531.6		100.0	%	—
Net sales, less excise taxes ⁽²⁾	5,510.3			75.8		100.0	%	5,015.6			76.8		100.0	%
Components of gross profit:
Cigarette inventory holding profits	$	6.1		0.08	%	0.11	%	$	36.7		0.56	%	0.73	%
Net federal floor stock tax ⁽³⁾	—			—		—		(11.5		)	(0.18	)	(0.23	)
OTP tax items ⁽⁴⁾	0.6			0.01		0.01		0.6			0.01		0.01
LIFO expense	(16.6		)	(0.23	)	(0.30	)	(6.7		)	(0.10	)	(0.13	)
Remaining gross profit ⁽⁵⁾	395.2			5.44		7.17		382.5			5.86		7.63
Gross profit	$	385.3		5.30	%	6.99	%	$	401.6		6.15	%	8.01	%

(1) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

(2) Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in state, local and provincial excise taxes which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the tax on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage may decrease since gross profit dollars generally remain the same (see Comparison of Sales and Gross Profit by Product Category, page 32).

(3) In February 2009, SCHIP was signed into law and imposed a floor stock tax on tobacco products held for sale on April 1,

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2009. The net floor stock tax was recorded as an increase to our cost of goods sold in the second quarter of 2009.

(4) We recognized a $0.6 million Other Tobacco Products ("OTP ") tax gain resulting from a state tax method change in 2010. We recognized an OTP tax refund of $0.6 million in 2009.

(5) Remaining gross profit is a non-GAAP financial measure which we provide to segregate the effects of LIFO expense, cigarette inventory holding profits, FET associated with the SCHIP legislation and other major non-recurring items that significantly affect the comparability of gross profit.

Our remaining gross profit was 5.44% of total net sales for 2010 compared with 5.86% in 2009. The incremental sales related to the cigarette price increases associated with SCHIP reduced our remaining gross profit margins by approximately eight basis points in 2010.

Cigarette remaining gross profit decreased approximately 1.6% on a cents per carton basis in 2010 compared with 2009 due primarily to the effect of competitive pricing pressures. Remaining gross profit for our food/non-food category decreased approximately 76 basis points in 2010 to 12.60% compared to 13.36% in 2009. The decrease in total remaining gross profit was attributable primarily to contract renewals, competitive pricing pressures and a net reduction of $5.3 million related to income earned primarily from manufacturer price increases. In 2010, our remaining gross profit for food/non-food products increased to approximately 68.5% of our total remaining gross profit compared to 67.9% in 2009.

Operating Expenses. Our operating expenses include costs related to warehousing, distribution, and selling, general and administrative activities. In 2010, operating expenses increased $19.8 million, or 5.9%, to $356.4 million from $336.6 million in 2009. As a percentage of net sales, total operating expenses declined to 4.9% in 2010 compared to 5.2% in 2009. Our operating expenses in 2010 included $5.5 million of additional expenses consisting of $2.8 million of integration expenses associated with the FDI acquisition, $1.6 million of costs related to the settlement of insurance claims we inherited from Fleming, our former parent, and $1.1 million of expenses for advisory and due diligence activities necessary to analyze multiple offers from potential acquirers. Operating expenses also included $7.1 million of expenses related to the operations of FDI. Our operating expenses in 2009 included $0.9 million of costs to convert our New England division onto our information systems platform. Excluding the items above, operating expenses in 2010 increased $8.1 million, or 2.4%, to $343.8 million.

Warehousing and Distribution Expenses. Warehousing and distribution expenses increased $14.5 million, or 7.3%, to $211.8 million in 2010 from $197.3 million in 2009. Included in warehousing and distribution expenses for 2010 were $4.3 million of incremental net fuel costs, excluding FDI, and $4.0 million of expenses related to the operations of FDI which we acquired this year. The increase in net fuel costs was due primarily to higher fuel prices and an increase in mileage due primarily to market share expansion. As a percentage of net sales, warehousing and distribution expenses were 2.9% for 2010 compared with 3.0% for 2009.

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses increased $5.2 million, or 3.8%, in 2010 to $142.5 million from $137.3 million in 2009. SG&A expenses in 2010 included $3.1 million related to the operations of FDI, $2.8 million of integration expenses associated with the FDI acquisition, $1.6 million of costs related to the settlement of insurance claims we inherited from Fleming, our former parent, and $1.1 million of expenses for advisory and due diligence activities necessary to analyze multiple offers from potential acquirers. SG&A expenses for 2009 included $0.9 million of costs related to the integration of our New England division onto our information systems platform. Excluding the items above, SG&A expenses decreased $2.5 million, or 1.8%, to $133.9 million. The decrease is due primarily to reductions in health care and workers' compensation costs and cost savings initiatives. As a percentage of net sales, SG&A expenses declined to 2.0% for 2010 compared with 2.1% for the same period in 2009.

Interest Expense. Interest expense includes both debt interest and fees related to borrowings. Interest expense was $2.6 million for 2010 compared to $1.7 million for the same period in 2009. The increase was due primarily to higher unused facility and letter of credit participation fees that resulted from increased rates with the extension of our revolving Credit Facility in February 2010, partially offset by a reduction in average borrowings in the current period versus the prior year period. Average borrowings for 2010 were $3.1 million with an average interest rate of 2.9%, compared to average borrowings of $8.2 million and an average interest rate of 2.0% for the same period in 2009.

Interest Income. In 2010, interest income was $0.4 million compared to $0.3 million for 2009. Our interest income was derived primarily from earnings on cash balances kept in trust, checking accounts and overnight deposits.

Foreign Currency Transaction Gains (Losses), Net. We realized foreign currency transaction gains of $0.5 million for 2010 compared to gains of $2.2 million in 2009. The fluctuation was due primarily to the level of investment in our Canadian operations and to changes in the Canadian/U.S. exchange rate.

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Income Taxes. Our effective tax rate was 34.9% for 2010 compared to 28.1% for 2009 (seeNote 9 -- Income Taxes to our consolidated financial statements for a reconciliation of the differences between the federal statutory tax rate and the effective tax rate). Included in the provision for income taxes for 2010 was a $0.7 million net benefit, including $0.1 million of interest recovery, compared to a net benefit of $6.7 million, including $2.1 million of interest recovery, for the same period in 2009. The net benefits related primarily to the expiration of the statute of limitations for uncertain tax positions and revisions to prior year estimates based upon the finalization of our tax returns.

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Results of Operations

Comparison of 2009 and 2008⁽¹⁾


				2009							2008
	2009			Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes		Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes
	Increase (Decrease) (in millions)			Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes		Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes
Net sales	$	486.7		$	6,531.6		100.0	%	—	%	$	6,044.9		100.0	%	—	%
Net sales — Cigarettes	464.3			4,589.1			70.3		64.0		4,124.8			68.2		60.7
Net sales — Food/non-food	22.4			1,942.5			29.7		36.0		1,920.1			31.8		39.3
Net sales, less excise taxes ⁽²⁾	445.1			5,015.6			76.8		100.0		4,570.5			75.6		100.0
Gross profit ⁽³⁾	42.5			401.6			6.1		8.0		359.1			5.9		7.9
Warehousing and
distribution expenses	(0.3		)	197.3			3.0		3.9		197.6			3.3		4.3
Selling, general and
administrative expenses	7.9			137.3			2.1		2.7		129.4			2.1		2.8
Income from operations	34.9			65.0			1.0		1.3		30.1			0.5		0.7
Interest expense	(0.5		)	(1.7		)	—		—		(2.2		)	—		(0.1	)
Interest income	(0.7		)	0.3			—		—		1.0			—		—
Foreign currency transaction
gains (losses), net	8.5			2.2			—		—		(6.3		)	(0.1	)	(0.1	)
Income before taxes	43.2			65.8			1.0		1.3		22.6			0.4		0.5
Net income	29.4			47.3			0.7		0.9		17.9			0.3		0.4

(1) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

(3) Gross margins may not be comparable to those of other entities because warehousing and distribution expenses are not included as a component of our cost of goods sold.

Consolidated Net Sales.Net sales increased by ~~$486.7~~$486.7 million, or 8.1%, to ~~$6,531.6~~$6,531.6 million for 2009 from ~~$6,044.9~~$6,044.9 million in ~~2008.~~2008. Excluding the effects of foreign currency fluctuations, net sales increased by 9.1% in 2009 compared to ~~2008.~~2008. The increase in net sales was attributable primarily to approximately $534.0 million from manufacturer price increases in response to the SCHIP legislation and incremental sales of $136.9 million from our New England and Toronto divisions, which were acquired or became operational in 2008, partially offset by a reduction in the volume of cigarette carton sales and one less selling day in 2009 compared to 2008. The significant cigarette price increasesand the resulting increase in our net sales impact certain year over year comparisons on a percent of net sales basis.

Net Sales of Cigarettes.Net sales of cigarettes for 2009 increased by ~~$464.3~~$464.3 million, or 11.3%, to ~~$4,589.1~~$4,589.1 million from ~~$4,124.8~~$4,124.8 million in ~~2008.~~2008. Net cigarette sales for 2009 increased 12.4%, excluding the effects of foreign currency fluctuations. The increase in net cigarette sales in 2009 was driven by a 19.1% increase in the average sales price per carton due primarily to manufacturer price increases and incremental sales of $115.5 million from our New England and Toronto divisions, partially offset by a decline in average daily carton sales in the U.S. of 9.9%, excluding the New England division. We believe the decline in average daily carton sales in the U.S. is due in part to the significant price increases during 2009 which led to reduced carton sales. Average daily carton sales in Canada increased 14.4% primarily through market share gains. Total net cigarette sales as a percentage of total net sales increased to 70.3% in 2009 compared to 68.2% in 2008.This increase was due primarily to the significant price increases from the manufacturers in response to the SCHIP legislation.

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Net Sales of Food/Non-food Products.Net sales of food and non-food products for 2009 increased ~~$22.4~~$22.4 million, or 1.2%, to ~~$1,942.5~~$1,942.5 million from ~~$1,920.1~~$1,920.1 million in ~~2008.~~2008. The following table provides ~~the increases in~~ net sales by product category for our ~~Food/Non-food Products~~food/non-food products (in millions)⁽¹⁾:

2009 2008 Increase / (Decrease)
Product Category Net Sales Net Sales Dollars Percentage

Food 738.0 710.1 27.9 3.9 %
Candy 405.0 401.3 3.7 0.9 %
Other tobacco products 434.0 402.7 31.3 7.8 %
Health, beauty & general 209.5 220.1 (10.6 ) -4.8 %
Non-alcoholic beverages 151.7 180.9 (29.2 ) -16.1 %
Equipment/other 4.3 5.0 (0.7 ) -14.0 %

Total Food/Non-food Products 1,942.5 1,920.1 22.4 1.2 %


	2009		2008		Increase / (Decrease)
Product Category	Net Sales		Net Sales		Dollars			Percentage
Food	$	738.0	$	710.1	$	27.9		3.9	%
Candy	405.0		401.3		3.7			0.9	%
Other tobacco products	434.0		402.7		31.3			7.8	%
Health, beauty & general	209.5		220.1		(10.6		)	(4.8	)%
Non-alcoholic beverages	151.7		180.9		(29.2		)	(16.1	)%
Equipment/other	4.3		5.0		(0.7		)	(14.0	)%

Total Food/Non-food Products	$	1,942.5	$	1,920.1	$	22.4		1.2	%

(1) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

Excluding the effects of foreign currency fluctuations, net sales of food and non-food products increased 2.2% in 2009 compared to ~~2008.~~2008. The increase in net food/non-food sales was attributable to incremental sales of $21.4 million from our New England and Toronto divisions, our sales and marketing initiatives, impacting primarily the food category, and price inflation in the Other Tobacco Products category related primarily to SCHIP. The increase was offset partially by a reduction in non-alcoholic beverages resulting from a change in the marketing and distribution methods of some beverage manufacturers. Total net sales of food and non-food products as a percentage of total net sales were 29.7% for 2009 compared to 31.8% for ~~2008.~~2008.

Gross Profit.Gross profit represents the portion of sales remaining after deducting the cost of goods sold during the period. Vendor incentives, cigarette holding profits, the federal floor stock tax and changes in LIFO reserves are classified as elements of cost of goods sold. Gross profit for 2009 increased by ~~$42.5~~$42.5 million, or 11.8%, to ~~$401.6~~$401.6 million from ~~$359.1~~$359.1 million in ~~2008.~~2008. Gross profit for 2009 was significantly higher compared to 2008 as we realized $36.7 million of cigarette inventory holding profits due primarily to increased cigarette prices by manufacturers in response to the increase in federal excise taxes mandated by the SCHIP legislation, partially offset by $11.5 million of a FET ~~tax~~ related to SCHIP.

The following table provides the components comprising the change in gross profit as a percentage of net sales for 2009 and 2008⁽¹⁾:


	2009							2008
	Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes		Amounts (in millions)			% of Net sales		% of Net sales, less excise taxes
Net sales	$	6,531.6		100.0	%	—		$	6,044.9		100.0	%	—
Net sales, less excise taxes ⁽²⁾	5,015.6			76.8		100.0	%	4,570.5			75.6		100.0	%
Components of gross profit:
Cigarette inventory holding profits	$	36.7		0.56	%	0.73	%	$	3.1		0.05	%	0.07	%
Net federal floor stock tax ⁽³⁾	(11.5		)	(0.18	)	(0.23	)	—			—		—
OTP tax items ⁽⁴⁾	0.6			0.01		0.01		1.4			0.02		0.03
LIFO expense	(6.7		)	(0.10	)	(0.13	)	(11.0		)	(0.18	)	(0.24	)
Remaining gross profit ⁽⁵⁾	382.5			5.86		7.63		365.6			6.05		8.00
Gross profit	$	401.6		6.15	%	8.01	%	$	359.1		5.94	%	7.86	%

(1) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

(2) Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in state, local and provincial excise taxes which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the tax on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage may decrease since gross profit dollars generally remain the same (see Comparison of Sales and Gross Profit by Product Category, page 32).

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(3) In February 2009, SCHIP was signed into law and imposed a floor stock tax on tobacco products held for sale on April 1, 2009. The net floor stock tax was recorded as an increase to our cost of goods sold in the second quarter of 2009.

(4) We received OTP (Other Tobacco Products) tax refunds of $0.6 million and $1.4 million in 2009 and 2008,⁽¹⁾: respectively.

2009 2008
% of Net % of Net
Amounts % of Net sales, less Amounts % of Net sales, less
(in millions) sales excise taxes (in millions) sales excise taxes
Net sales $ 6,531.6 100.0 — $ 6,044.9 100.0 —
Net sales, less excise taxes⁽²⁾
5,015.6 76.8 100.0 % 4,570.5 75.6 100.0 %
Components of gross profit:

Cigarette inventory holding profits 36.7 0.56 0.73 3.1 0.05 0.07
Net federal floor stock tax⁽³⁾
(11.5 ) (0.18 ) (0.23 ) — — —
OTP tax refunds⁽⁴⁾
0.6 0.01 0.01 1.4 0.02 0.03
LIFO expense (6.7 ) (0.10 ) (0.13 ) (11.0 ) (0.18 ) (0.24 )
Remaining gross profit⁽⁵⁾
382.5 5.86 7.63 365.6 6.05 8.00

Gross profit
$ 401.6 6.15 8.01 % $ 359.1 5.94 7.86 %

(5) Remaining gross profit is a non-GAAP financial measure which we provide to segregate the effects of LIFO expense, cigarette inventory holding profits, FET associated with the SCHIP legislation and other major non-recurring items that significantly affect the comparability of gross profit.


~~(1)~~		~~Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.~~

~~(2)~~		Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in state and provincial excise taxes which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the tax on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage may decrease since gross profit dollars generally remain the same (*~~see—Comparison of Sales and Gross Profit by Product Category, page 30~~*).

~~(3)~~		In February 2009, SCHIP was signed into law and imposed a floor stock tax on tobacco products held for sale on April 1, 2009. The net floor stock tax was recorded as an increase to our cost of goods sold in the second quarter of 2009.

~~(4)~~		~~We received OTP (Other Tobacco Products) tax refunds of $0.6 million from the State of Florida in 2009 and $1.4 million from the State of Texas in 2008.~~

~~(5)~~		Remaining gross profit is a non-GAAP financial measure which we provide to segregate the effects of LIFO expense, cigarette inventory holding profits, FET associated with the SCHIP legislation and other major non-recurring items that significantly affect the comparability of gross profit.

Our remaining gross profit was 5.86% of total net sales for 2009 compared with 6.05% in ~~2008.~~2008. The cigarette price increases associated with SCHIP that increased our total net sales also reduced our remaining gross profit margins by approximately 52 basis points in 2009.

Cigarette remaining gross profit increased approximately 24.5% on a cents per carton basis in 2009 compared with 2008 due primarily to increased margins as a result of the ~~manufacturers’~~manufacturers' price increases. We believe cigarette margins may revert closer to normal historical margins over time. Remaining gross profit for our food/non-food categories decreased approximately 17 basis points in 2009 to 13.36% compared to 13.53% in 2008, due primarily to an $8.1 million reduction in floor stock income earned from manufacturer price increases. In 2009, our remaining gross profit for food/non-food products declined to approximately 67.9% of our total remaining gross profit compared to 71.1% in ~~2008.~~2008. The decline was due primarily to the impact of SCHIP which resulted in higher cigarette remaining gross profit in 2009.

Operating Expenses.Our operating expenses include costs related to warehousing, distribution, and selling, general and administrative activities. In 2009, operating expenses increased ~~$7.6~~$7.6 million, or 2.3%, to ~~$336.6~~$336.6 million from ~~$329.0~~$329.0 million in ~~2008.~~2008. The increase in operating expenses was driven by a 6.1% increase in selling, general and administrative expenses. As a percentage of net sales, total operating expenses were 5.2% in 2009 compared to 5.4% in ~~2008.~~2008. Operating expenses, as a percent to total net sales, were favorably impacted by approximately 46 basis points due to the SCHIP related cigarette price increases which increased our total net sales.

Warehousing and Distribution Expenses.Warehousing and distribution expenses decreased by ~~$0.3~~$0.3 million, or 0.2%, to ~~$197.3~~$197.3 million in 2009 from ~~$197.6~~$197.6 million in ~~2008.~~2008. The decrease in warehousing and distribution expenses was due primarily to a decrease in net fuel costs of $4.5 million and increases in warehousing efficiencies at certain divisions offset by incremental expenses of $3.4 million from our New England division, acquired in June 2008, and an increase in ~~healthcare~~health care and ~~workers’~~workers' compensation costs of $3.6 million. The increase in ~~healthcare~~health care and ~~workers’~~workers' compensation costs for 2009 was due primarily to higher overall medical costs and an increase in the severity of certain claims. As a percentage of net sales, warehousing and distribution expenses were 3.0% for 2009 compared with 3.3% for ~~2008.~~2008. The impact of SCHIP related cigarette price increases on total net sales favorably impacted warehousing and distribution expenses as a percent of sales by approximately 27 basis points.

Selling, General and Administrative (“SG&A”) Expenses.SG&A expenses increased ~~$7.9~~$7.9 million, or 6.1%, in 2009 to ~~$137.3~~$137.3 million from ~~$129.4~~$129.4 million in ~~2008.~~2008. The increase in SG&A expenses for 2009 was due primarily to $3.6 million of incremental expenses from our New England and Toronto divisions, salary merit increases of $2.0 million and an increase in employee incentives consisting of $1.3 million and $1.2 million of bonus and stock compensation, respectively. As a percentage of net sales, SG&A expenses were 2.1% for both 2009 and ~~2008.~~2008. The impact of price increases associated with SCHIP favorably impacted SG&A expenses as a percent to total net sales by approximately 19 basis points.

Interest Expense.Interest expense includes both debt interest and amortization of fees related to borrowings. Interest expense was ~~$1.7~~$1.7 million for 2009 compared to ~~$2.2~~$2.2 million in ~~2008.~~2008. Average borrowings for 2009 were $8.2 million compared to $21.1 million for ~~2008.~~2008. During 2009, the weighted-average interest rate on borrowings from our revolving credit facility was 2.0% compared to 3.8% in ~~2008.~~2008. The decline in interest rates was the result of general decreases in both bank prime and LIBOR borrowing rates. Interest expense declined period over period due to lower average interest rates and lower average borrowings.

Interest Income.In 2009, interest income was ~~$0.3~~$0.3 million compared to ~~$1.0~~$1.0 million for ~~2008.~~2008. Our interest income was derived primarily from earnings on cash balances kept in trust, checking accounts and overnight deposits. Interest income was lower in 2009 due primarily to a reduction in prevailing interest rates.

Foreign Currency Transaction ~~(Gains) Losses,~~Gains (Losses), Net.We incurred foreign currency transaction gains of ~~$2.2~~$2.2 million for 2009 compared to losses of ~~$6.3~~$6.3 million in ~~2008.~~2008. The fluctuation was due primarily to the level of investment in our Canadian operations and to changes in the Canadian/U.S. exchange rate.

Income Taxes.Our effective tax rate was 28.1% for 2009 compared to 20.8% for 2008(seeNote 9—9 -- Income Taxesto our consolidated financial statements for a reconciliation of the differences between the federal statutory tax rate and the effective tax rate). Included in the provision for income taxes for 2009 was a $6.7 million net benefit, inclusive of a net interest recovery of $2.1 million related to unrecognized tax benefits, compared to a net benefit of $3.2 million, inclusive of net interest expense of $0.1 million, for 2008. The net benefits related primarily to the expiration of the statute of limitations for uncertain tax positions, ~~changes~~revisions to prior year estimates based upon finalization of tax returns and state tax credits claimed for prior years.

~~Comparison~~31

Table of ~~2008 and 2007~~⁽¹⁾

2008 2008 2007
Increase % of Net % of Net
(Decrease) Amounts % of Net sales, less Amounts % of Net sales, less
(in millions) (in millions) sales excise taxes (in millions) sales excise taxes
Net sales $ 484.0 $ 6,044.9 100.0 — $ 5,560.9 100.0 —
Net sales—Cigarettes 261.7 4,124.8 68.2 60.7 3,863.1 69.5 62.4
Net sales—Food/Non-food 222.3 1,920.1 31.8 39.3 1,697.8 30.5 37.6
Net sales, less excise taxes⁽²⁾
359.0 4,570.5 75.6 100.0 4,211.5 75.7 100.0
Gross profit 26.5 359.1 5.9 7.9 332.6 6.0 7.9
Warehousing and distribution expenses⁽³⁾
23.5 197.6 3.3 4.3 174.1 3.1 4.1
Selling, general and administrative expenses 10.4 129.4 2.1 2.8 119.0 2.1 2.8
Income from operations (7.6 ) 30.1 0.5 0.7 37.7 0.7 0.9
Interest expense (0.2 ) 2.2 — 0.1 2.4 — 0.1
Interest income (0.4 ) (1.0 ) — — (1.4 ) — —
Foreign currency transaction losses (gains), net 7.2 6.3 0.1 0.1 (0.9 ) — —
Income before income taxes (15.0 ) 22.6 0.4 0.5 37.6 0.7 0.9
Net income (6.2 ) 17.9 0.3 0.4 24.1 0.4 0.6

Contents


~~(1)~~		~~Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.~~

~~(2)~~		~~Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in excise taxes (~~*~~see—Comparison of Sales and Gross Profit by Product Line, page 30~~*). Increases in cigarette-related taxes and/or fees, excise taxes, drive prices higher on the cigarette products we sell which result in higher net sales without increasing gross profit dollars. Increases in excise taxes result in a decline in overall gross profit percentage since net sales increase and gross profit dollars remain the same.

~~(3)~~		~~Gross margins may not be comparable to those of other entities because warehouse and distribution expenses are not included as a component of cost of goods sold.~~

~~Consolidated Net Sales.~~Net sales increased by $484.0 million, or 8.7%, to $6,044.9 million for 2008 from $5,560.9 million in 2007. The increase includes excise taxes of $124.9 million. Excluding our new distribution facility in Toronto and the recently acquired New England division, net sales increased $227.6 million, or 4.1%, driven by net sales increases from existing and new customers.

~~Net Sales of Cigarettes.~~Net sales of cigarettes for 2008 increased $261.7 million, or 6.8%, to $4,124.8 million from $3,863.1 million in 2007. The increase in net cigarette sales was driven by a 4.5% increase in the average sales price per carton due primarily to manufacturer price and state excise tax increases and sales from our new distribution facilities in Toronto and New England, which also contributed to an approximate 2.2% increase in overall carton sales compared with 2007. Carton sales declined approximately 1.7% in the U.S., excluding sales from our New England division, due primarily to overall lower consumer demand. Carton sales in Canada increased 19.6%, or 8.3%, excluding sales from our new Toronto division. The increase in carton sales in Canada was attributable primarily to market share gains and sales of additional product lines. Total net cigarette sales as a percentage of total net sales was 68.2% for 2008 and 69.5% for 2007.

~~Net Sales of Food/Non-food Products.~~Net sales of food and non-food products for 2008 increased $222.3 million, or 13.1%, to $1,920.1 million from $1,697.8 million for 2007. The increase was due primarily to increases in our food, candy and other tobacco product categories driven by the Company’s sales and marketing initiatives and the addition of our new Toronto and New England divisions. Total net sales of food and non-food products as a percentage of total net sales was 31.8% for 2008 compared to 30.5% for 2007.

~~Gross Profit.~~Gross profit represents the portion of sales remaining after deducting the cost of goods sold during the period. Vendor incentives, cigarette holding profits and changes in LIFO reserves are classified as elements of cost of goods sold. Gross profit in 2008 increased by $26.5 million, or 8.0%, to $359.1 million from $332.6 million in 2007.

~~The following table provides the components comprising the change in gross profit as a percentage of net sales for 2008 and 2007~~⁽¹⁾:

2008 2007
% of Net % of Net
Amounts % of Net sales, less Amounts % of Net sales, less
(in millions) sales excise taxes (in millions) sales excise taxes
Net sales $ 6,044.9 100.0 % — $ 5,560.9 100.0 % —
Net sales, less excise taxes⁽²⁾
4,570.5 75.6 100.0 % 4,211.5 75.7 100.0 %
Components of gross profit:

OTP tax refunds⁽³⁾
1.4 0.02 0.03 13.3 0.24 0.32
LIFO expense (11.0 ) (0.18 ) (0.24 ) (13.1 ) (0.24 ) (0.31 )
Cigarette inventory holding profits 3.1 0.05 0.07 7.3 0.13 0.17
Remaining gross profit 365.6 6.05 8.00 325.1 5.85 7.72

Gross profit
$ 359.1 5.94 % 7.86 % $ 332.6 5.98 % 7.90 %


~~(1)~~		~~Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.~~

~~(2)~~		~~Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in excise taxes (~~*~~see—Comparison of Sales and Gross Profit by Product Line, page 30~~*). Increases in cigarette-related taxes and/or fees, excise taxes, drive prices higher on the cigarette products we sell which result in higher net sales generally without increasing gross profit dollars. Increases in excise taxes result in a decline in overall gross profit percentage since net sales increase and gross profit dollars remain the same.

~~(3)~~		~~We received OTP (Other Tobacco Products) tax refunds from the State of Texas of $1.4 million in 2008 and from the State of Washington of $13.3 million in 2007.~~

As a percentage of net sales, our remaining gross profit improved to 6.05% for 2008 compared to 5.85% for 2007. Our remaining gross profit percentage for cigarettes declined approximately 5 basis points for 2008 to 2.56% compared with 2.61% in 2007. This decline was due primarily to inflation in product cost from increases in excise taxes. Our remaining cigarette gross profit increased 2.4% on a cents per carton basis. Remaining gross profit related to our food/non-food category increased approximately 32 basis points for 2008 to 13.53% compared with 13.21% in 2007. Excluding our new divisions, Toronto and New England, remaining gross profit for food/non-food category increased 47 basis points to 13.68% in 2008 compared with 2007. The increase in remaining gross profit percentage was due primarily to a higher percentage of sales from higher margin food/non-food products combined with an increase in inventory holding gains related to candy, somewhat offset by an increase in inventory shrinkage and the addition of national chain store customers.

~~In 2008, approximately 71.0% of gross profit was derived from food/non-food products compared to 69.5% in 2007, including the impact of the OTP tax refunds.~~

~~Operating Expenses~~.Our operating expenses include costs related to warehousing, distribution, and selling, general and administrative activities. In 2008, operating expenses increased $34.1 million, or 11.6%, to $329.0 million from $294.9 million in 2007. Included in operating expenses for 2007 was a bad debt charge of $5.9 million related to two customers and a workers’ compensation benefit of $3.1 million related to favorable claims experience prior to 2007. Excluding these two items, operating expenses increased $36.9 million, or 12.6%, for 2008. This increase in operating expenses was driven primarily by a 13.5% increase in warehouse and distribution expenses and an 8.7% increase in selling, general and administrative expenses. As a percentage of sales, total operating expenses were 5.4% in 2008 compared with 5.3% in 2007.

~~Warehousing and Distribution Expenses~~.Warehousing and distribution expenses increased $23.5 million, or 13.5%, to $197.6 million in 2008 from $174.1 million in 2007. The increase in warehousing and distribution expenses was due primarily to increases in sales volume, the addition of our Toronto and New England divisions which represented 48.9% of the increase, sales growth and related operational inefficiencies at two of our divisions which accounted for 24.8% of the increase, higher fuel costs, net of surcharges, which represented 7.0% of the increase, and an increase in facility and truck rental expense due primarily to investment in additional capacity in certain locations to support our growth in key markets. As a percentage of sales, warehousing and distribution expenses were 3.3% for 2008 as compared to 3.1% for 2007.

~~Selling, General and Administrative (“SG&A”) Expenses.~~SG&A expenses increased $10.4 million, or 8.7%, to $129.4 million in 2008 from $119.0 million in 2007. SG&A expenses were impacted in 2007 by a $5.9 million bad debt charge related to two customers that filed for bankruptcy protection and a workers’ compensation benefit of $3.1 million related to favorable claims experience prior to 2007. Excluding these two items, SG&A expenses increased by $13.2 million, or 11.4%, in 2008. The increase for 2008 is due primarily to higher employee benefit costs driven by increases in healthcare and workers’ compensation costs due to a higher wage base, increased medical costs, as well as an increase in the severity of certain claims, the addition of the Toronto and New England divisions, and lower bonus last year as a result of fewer employees qualifying. As a percentage of net sales, SG&A expenses were 2.1% for both 2008 and 2007.

~~Interest Expense.~~Interest expense includes both debt interest and amortization of fees related to borrowings. For 2008, interest expense decreased by $0.2 million, or 8.3%, to $2.2 million from $2.4 million in 2007. The decrease in interest expense was due primarily to lower interest rates during 2008 compared to 2007. Average borrowings for 2008 were $21.1 million compared to $19.8 million for 2007. During 2008, the weighted-average interest rate on the revolving credit facility was 3.8% compared to 6.7% in 2007. The decline in interest rates is the result of general decreases in rates charged to us on both prime and LIBOR borrowings.

~~Interest Income.~~In 2008 interest income was $1.0 million compared to $1.4 million for 2007. Interest income is derived from our earnings on cash balances kept in trust, checking accounts and overnight deposits. The interest income was lower for 2008 due primarily to a reduction in prevailing interest rates.

~~Foreign Currency Transaction (Gains) Losses, Net~~.We incurred foreign currency transaction losses of $6.3 million in 2008 compared to $0.9 million in gains in 2007. The fluctuation was due primarily to the depreciation of the Canadian foreign exchange rate against the US dollar over the last six months of 2008 on transactions between our Canadian and U.S. operations. For 2008 the average Canadian/U.S. exchange rate was $1.0676 compared to $1.0735 for 2007.

~~Income Taxes.~~~~Our effective tax rate was 20.8% for 2008 compared to 35.9% for 2007~~~~(see Note 9—Income Taxes~~for a reconciliation of the differences between the federal statutory tax rate and the effective tax rate). Included in the provision for income taxes for 2008 was a $3.2 million net benefit related primarily to the expiration of the statute of limitations for uncertain tax positions and changes to prior year’s estimates, and $0.1 million of penalties net of after-tax interest credit related to unrecognized tax benefits recorded under generally accepted accounting principles.

Comparison of Sales and Gross Profit by Product Category

The following table summarizes our cigarette and ~~other~~food/non-food product sales, LIFO expense, gross profit and other relevant financial data for 2010, 2009 ~~2008~~ and ~~2007~~2008 (dollars in millions)⁽¹⁾:

2009 2008 2007
Cigarettes

Net sales⁽²⁾
$ 4,589.1 $ 4,124.8 $ 3,863.1
Excise taxes in sales⁽³⁾
$ 1,381.0 $ 1,350.9 $ 1,237.2
Net sales, less excise taxes⁽⁴⁾
$ 3,208.1 $ 2,773.9 $ 2,625.9
LIFO expense $ 6.6 $ 4.7 $ 6.7
Gross profit⁽⁶⁾
$ 142.4 $ 104.1 $ 101.5
Gross profit % 3.10 % 2.52 % 2.63 %
Gross profit % less excise taxes 4.44 % 3.75 % 3.87 %
Remaining gross profit⁽⁵⁾
$ 122.9 $ 105.7 $ 100.9
Remaining gross profit % 2.68 % 2.56 % 2.61 %
Remaining gross profit % less excise taxes 3.83 % 3.81 % 3.85 %

Food/Non-food Products

Net sales $ 1,942.5 $ 1,920.1 $ 1,697.8
Excise taxes in sales⁽³⁾
$ 135.0 $ 123.5 $ 112.2
Net sales, less excise taxes⁽⁴⁾
$ 1,807.5 $ 1,796.6 $ 1,585.6
LIFO expense $ 0.1 $ 6.3 $ 6.4
Gross profit⁽⁷⁾
$ 259.2 $ 255.0 $ 231.1
Gross profit % 13.34 % 13.28 % 13.61 %
Gross profit % less excise taxes 14.34 % 14.19 % 14.57 %
Remaining gross profit⁽⁵⁾
$ 259.6 $ 259.9 $ 224.2
Remaining gross profit % 13.36 % 13.53 % 13.21 %
Remaining gross profit % less excise taxes 14.36 % 14.46 % 14.14 %

Totals

Net sales⁽²⁾
$ 6,531.6 $ 6,044.9 $ 5,560.9
Excise taxes in sales⁽³⁾
$ 1,516.0 $ 1,474.4 $ 1,349.4
Net sales, less excise taxes⁽⁴⁾
$ 5,015.6 $ 4,570.5 $ 4,211.5
LIFO expense $ 6.7 $ 11.0 $ 13.1
Gross profit^(6),(7)
$ 401.6 $ 359.1 $ 332.6
Gross profit % 6.15 % 5.94 % 5.98 %
Gross profit % less excise taxes 8.01 % 7.86 % 7.90 %
Remaining gross profit⁽⁵⁾
$ 382.5 $ 365.6 $ 325.1
Remaining gross profit % 5.86 % 6.05 % 5.85 %
Remaining gross profit % less excise taxes 7.63 % 8.00 % 7.72 %


~~(1)~~		~~Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.~~

~~(2)~~		Cigarette net sales for the year ended December 31, 2009 includes $534.0 million of price increases primarily associated with the implementation of SCHIP, which did not impact cigarette net sales for the years ended December 31, 2008 and 2007, as SCHIP was not signed into law until February 2009. Our gross profit percentage for the year ended December 31, 2009 was negatively impacted by SCHIP price increases.

~~(3)~~		Excise taxes included in our net sales consist of state and provincial excise taxes which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the tax on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage will decrease since gross profit dollars generally remain the same.

~~(4)~~		~~Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in excise taxes.~~

~~(5)~~		Remaining gross profit is a non-GAAP financial measure which we provide to segregate the effects of LIFO expense, cigarette inventory holding profits and other major non-recurring items, such as FET associated with the SCHIP legislation and OTP tax refunds, that significantly affect the comparability of gross profit.

~~(6)~~		Cigarette gross profit includes (i) cigarette holding profits related to manufacturer price increases and increases in state and provincial excise taxes, (ii) federal excise floor taxes and (iii) LIFO effects. Cigarette holding profits for the years 2009, 2008 and 2007 were $36.7 million, $3.1 million and $7.3 million, respectively. The increase in cigarette inventory holding profits for the year ended December 31, 2009 was due primarily to increases in cigarette prices by manufacturers in response to the increases in federal excise taxes mandated by the SCHIP legislation. Cigarette gross profit for the year ended December 31, 2009 was negatively impacted by the $11.5 million of federal excise floor tax net of manufacturer reimbursements related to SCHIP.


	2010			2009			2008
Cigarettes
Net sales ⁽²⁾	$	5,119.7		$	4,589.1		$	4,124.8
Excise taxes in sales ⁽³⁾	$	1,594.2		$	1,381.0		$	1,350.9
Net sales, less excise taxes ⁽⁴⁾	$	3,525.5		$	3,208.1		$	2,773.9
LIFO expense	$	11.3		$	6.6		$	4.7
Gross profit ⁽⁵⁾	$	119.4		$	142.4		$	104.1
Gross profit %	2.33		%	3.10		%	2.52		%
Gross profit % less excise taxes	3.39		%	4.44		%	3.75		%
Remaining gross profit ⁽⁶⁾	$	124.6		$	122.9		$	105.7
Remaining gross profit %	2.43		%	2.68		%	2.56		%
Remaining gross profit % less excise taxes	3.53		%	3.83		%	3.81		%

Food/Non-food Products
Net sales	$	2,147.1		$	1,942.5		$	1,920.1
Excise taxes in sales ⁽³⁾	$	162.3		$	135.0		$	123.5
Net sales, less excise taxes ⁽⁴⁾	$	1,984.8		$	1,807.5		$	1,796.6
LIFO expense	$	5.3		$	0.1		$	6.3
Gross profit ⁽⁷⁾	$	265.9		$	259.2		$	255.0
Gross profit %	12.38		%	13.34		%	13.28		%
Gross profit % less excise taxes	13.40		%	14.34		%	14.19		%
Remaining gross profit ⁽⁶⁾	$	270.6		$	259.6		$	259.9
Remaining gross profit %	12.60		%	13.36		%	13.53		%
Remaining gross profit % less excise taxes	13.63		%	14.36		%	14.46		%

Totals
Net sales ⁽²⁾	$	7,266.8		$	6,531.6		$	6,044.9
Excise taxes in sales ⁽³⁾	$	1,756.5		$	1,516.0		$	1,474.4
Net sales, less excise taxes ⁽⁴⁾	$	5,510.3		$	5,015.6		$	4,570.5
LIFO expense	$	16.6		$	6.7		$	11.0
Gross profit ^(5),(7)	$	385.3		$	401.6		$	359.1
Gross profit %	5.30		%	6.15		%	5.94		%
Gross profit % less excise taxes	6.99		%	8.01		%	7.86		%
Remaining gross profit ⁽⁶⁾	$	395.2		$	382.5		$	365.6
Remaining gross profit %	5.44		%	5.86		%	6.05		%
Remaining gross profit % less excise taxes	7.17		%	7.63		%	8.00		%


~~(7)~~		Food/Non-food gross profit includes (i) holding profits related to manufacturer price increases, (ii) increases in state and provincial excise taxes, (iii) federal excise floor taxes and (iv) LIFO effects. Included in food/non-food gross profit for the year ended December 31, 2009 is $0.9 million of federal excise floor taxes related to SCHIP. In addition, included in food/non-food gross profit for 2009, 2008 and 2007 is the State of Florida OTP tax refund of $0.6 million, the State of Texas OTP net tax refund of $1.4 million, and the State of Washington OTP tax refund of $13.3 million, respectively, all of which were recorded as a reduction to our costs of goods sold in the applicable year.

(1) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

(2) Cigarette net sales include $105.9 million and $534.0 million of incremental sales for 2010 and 2009, respectively, from price increases primarily associated with the implementation of SCHIP, which was signed into law in February 2009. Our gross profit percentage for the year ended December 31, 2009 was negatively impacted by SCHIP price increases.

(3) Excise taxes included in our net sales consist of state, local and provincial excise taxes which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the tax on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage may decrease since gross profit dollars generally remain the same.

32
Table of Contents

(4)    Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales due to actual sales growth and increases in excise taxes.
(5)    Cigarette gross profit includes (i) cigarette holding profits related to manufacturer price increases and increases in state, local and provincial excise taxes, (ii) federal excise floor taxes and (iii) LIFO effects. Cigarette holding profits for the years 2010, 2009 and 2008 were $6.1 million, $36.7 million and $3.1 million, respectively. The increase in cigarette inventory holding profits for the year ended December 31, 2009 was due primarily to increases in cigarette prices by manufacturers in response to the increases in federal excise taxes mandated by the SCHIP legislation. Cigarette gross profit for the year ended December 31, 2009 was negatively impacted by $10.6 million of federal excise floor tax net of manufacturer reimbursements related to SCHIP.
(6)    Remaining gross profit is a non-GAAP financial measure which we provide to segregate the effects of LIFO expense, cigarette inventory holding profits and other major non-recurring items, such as FET associated with the SCHIP legislation and OTP tax items, that significantly affect the comparability of gross profit.
(7)    Food/non-food gross profit includes (i) holding profits related to manufacturer price increases, (ii) increases in state, local and provincial excise taxes, (iii) federal excise floor taxes and (iv) LIFO effects. Included in food/non-food gross profit for the year ended December 31, 2009 is $0.9 million of federal excise floor taxes related to SCHIP. In addition, included in food/non-food gross profit for 2010, 2009 and 2008 is an OTP tax gain of $0.6 million resulting from a state tax method change and OTP tax refunds of $0.6 million and $1.4 million, respectively, all of which were recorded as a reduction to our costs of goods sold in the applicable year.

Liquidity and Capital Resources

Our cash and cash equivalents as of December 31, ~~2009~~2010 were ~~$17.7~~$16.1 million compared to ~~$15.7~~$17.7 million as of December 31, ~~2008.~~2009. Our restricted cash as of December 31, ~~2009~~2010 was ~~$12.4~~$12.8 million compared to ~~$11.4~~$12.4 million as of December 31, ~~2008.~~2009. Restricted cash primarily represents funds that have been set aside in trust as required by one of the Canadian provincial taxing authorities to secure amounts payable for cigarette and tobacco excise taxes.

Our liquidity requirements arise primarily from the funding of our working capital, capital expenditures and debt service requirements of our credit facilities. We have historically funded our liquidity requirements through our current operations and external borrowings. For the year ended December 31, ~~2009,~~2010, our cash flows from operating activities provided ~~$33.1~~$74.9 million and we had ~~$196.9~~$161.4 million of borrowing capacity available in our revolving credit facility as of December 31, 2009. In February 2010, we entered into a third amendment to our Credit Facility (the “Third Amendment”), which extended our credit facility for four years, to February 2014, and decreased the lenders’ revolving loan commitments by $50 million to $200 million, at our request.2010.

Based on our anticipated cash needs, availability under our revolving credit facility and the scheduled maturity of our debt, we expect that our current liquidity will be sufficient to meet all of our anticipated operating needs during the next twelve months.

Cash flows from operating activities

Year ended December 31, 2010

Net cash provided by operating activities increased by $41.8 million to $74.9 million for the year ended December 31, 2010 compared to $33.1 million for the same period in 2009. The increase in cash provided by operating activities was due primarily to a $68.6 million increase in cash provided by working capital.

A significant use of cash occurred in 2009 as a result of the SCHIP legislation which increased accounts receivable, prepayments and inventory by approximately $35 million, and did not recur in 2010. This was partially offset by an increase in cash used to buy inventory at the end of 2010 in order to maintain appropriate LIFO levels. In addition, prepayments decreased due to the timing of purchases and cigarette and tobacco taxes payable increased due primarily to the FDI acquisition and the establishment of credit terms in one additional state earlier this year.

The increase in cash provided by working capital was offset by a $26.8 million decrease in net income adjusted for non-cash items due primarily to a $19.1 million reduction in cigarette holding profits included in prior year net income related to the SCHIP legislation and a $5.3 million reduction in income earned primarily from manufacturer price increases.

Year ended December 31, 2009

Net cash provided by operating activities decreased by $22.5 million to $33.1 million for the year ended December 31, 2009 compared with $55.6 million for the same period in 2008. The decrease in cash provided by operating activities was due primarily to a $61.6 million net decrease in working capital, driven by the timing of vendor prepayments and increased cigarette prices resulting from the SCHIP legislation, which resulted in higher accounts receivable and inventory balances. This decrease in working capital was partially offset by a $39.1 million increase in net income plus adjustments for non-cash items such as depreciation, amortization and LIFO expense, which was driven primarily by income from cigarette price increases related to the SCHIP legislation.

~~Year ended December 31, 2008~~

Net cash provided by operating activities decreased by $11.0 million to $55.6 million for 2008 compared with $66.6 million for 2007. The decrease in net cash flows provided by operations was due primarily to a $7.0 million decrease in net income adjusted for non-cash activity such as depreciation, amortization, LIFO expense and foreign currency transaction losses, coupled with a $4.0 million decrease in working capital due primarily to the addition

Table of ~~our Toronto and New England divisions and higher cigarette inventories to capitalize on buying opportunities.~~Contents

Cash flows from investing activities

Year ended December 31, 2010

Net cash used in investing activities increased by $29.9 million to $50.5 million for the year ended December 31, 2010 compared with $20.6 million for the same period 2009. This increase was due primarily to the acquisition of FDI. We paid approximately $35.9 million, net of cash received, for the acquired assets, which consisted primarily of purchased accounts receivable, inventory and fixed assets. Capital expenditures decreased by $7.2 million to $13.9 million in 2010 compared with $21.1 million for 2009. Capital expenditures during 2010 consisted primarily of additions to our trucking fleet and warehouse equipment. We estimate that fiscal 2011 capital expenditures will not exceed $24 million.

Year ended December 31, 2009

Net cash used in investing activities decreased by $28.5 million to $20.6 million for the year ended December 31, 2009 compared with $49.1 million for the same period 2008. In June 2008, we acquired AMD and paid approximately $28.0 million which consisted primarily of purchased accounts receivable, inventory and fixed assets, offset by approximately $1.6 million of cash received in the acquisition. Capital expenditures increased by $1.2 million to $21.1 million in 2009 compared with $19.9 million for 2008. ~~We estimate that fiscal 2010 capital expenditures will not exceed $20 million.~~

Cash flows from financing activities

Year ended December 31, ~~2008~~2010

Net cash used in ~~investing~~financing activities increased by ~~$25.8~~$16.1 million to ~~$49.1~~$25.3 million for ~~2008 from $23.3~~2010 compared with $9.2 million for 2009. The increase in net cash used in financing activities was due primarily to a $14.5 million decrease in book overdrafts and an increase of $8.5 million in ~~2007. This~~net repayments under our revolving credit facility, partially offset by a $6.1 million increase in proceeds received from the exercise of stock options and warrants. The decrease in book overdrafts was due primarily to the ~~acquisition of AMD. We paid approximately $28.0 million which consisted primarily of purchased accounts receivable, inventory and fixed assets, offset by approximately $1.6 million~~level of cash ~~received in the acquisition. Capital expenditures were $19.9 million in 2008~~on hand and timing of vendor payments compared ~~with $20.8 million for 2007. Capital expenditures for 2008 related primarily~~ to the ~~completion of our new Toronto distribution facility and expenditures for refrigerated delivery and warehouse equipment.~~same period in 2009.

~~Cash flows from financing activities~~

Year ended December 31, 2009

Net cash used in financing activities decreased by $1.8 million to $9.2 million for 2009 compared with $11.0 million for 2008. We had net repayments on our revolving line of credit of $10.7 million during 2009 compared to $0.1 million of borrowings during 2008. Additionally, cash payments to repurchase our common stock pursuant to our share repurchase program decreased from $11.0 million in 2008 to $2.2 million in 2009. The decrease in net cash used in financing activities was also offset by an increase in book overdrafts due to the timing of excise tax payments.

~~Year ended December 31, 2008~~

Net cash used in financing activities decreased by $28.5 million to $11.0 million in 2008 compared with $39.5 million in 2007. The decrease was due primarily to higher repayments on our revolving line of credit made in 2007 as compared to 2008, offset by approximately $11.0 million of cash payments to repurchase our common stock and a decrease in book overdrafts.

Our Credit Facility

In October 2005, we entered into a five-year revolving credit facility (“Credit Facility”) with a capacity of $250 million and an expiration date of October 2010.

In February 2010, we entered into a third amendment to our Credit Facility (the “Third Amendment”), which extended our credit facility for four years, to February 2014, and decreased the ~~lenders’~~lenders' revolving loan commitments by $50 million to $200 million, at our request. The Third Amendment also provides for up to an additional $100 million of lenders' revolving commitments (formerly $75 million), subject to certain provisions contained therein. Pricing under the new facility increased as a result of generally higher prices in the bank loan market. The basis points added to LIBOR increased to a range of 275 to 350 basis points, up from a range of 100 to 175 basis points, tied to achieving certain operating results as defined in the Credit Facility. Additionally, unused facility fees and letter of credit participation fees increased. The Third Amendment also increased our basket for permitted acquisitions following the date of the Third Amendment to $125 million and re-established our basket for permitted stock repurchases at $30 million. At the date of signing the Amendment, we incurred fees of approximately ~~$2.0~~$1.8 million, which will be amortized over the term of the amendment.

All obligations under the Credit Facility are secured by first priority liens upon substantially all of our present and future assets. The terms of the Credit Facility permit prepayment without penalty at any time (subject to customary breakage costs with respect to LIBOR- or CDOR-based loans prepaid prior to the end of an interest period).

~~Amounts borrowed, outstanding letters of credit and amounts available to borrow under the Credit Facility were as follows (in millions):~~

December 31, December 31,
2009 2008
Amounts borrowed $ 19.2 $ 30.0

Outstanding letters of credit $ 26.1 $ 24.4

Amounts available to borrow (prior to Third Amendment) $ 196.9 $ 186.0

Since the total amount of the Credit Facility was reduced by $50 million in February 2010, the maximum amount available to borrow is subject to the lower ceiling of $200 million permitted by the Third Amendment.

The Credit Facility contains restrictive covenants, including among others, limitations on dividends and other restricted payments, other indebtedness, liens, investments and acquisitions and certain asset sales. We were in compliance with all of the covenants under the Credit Facility as of December 31, ~~2009.~~2010.

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Amounts borrowed, outstanding letters of credit and amounts available to borrow under the Credit Facility were as follows (in millions):


	December 31, 2010		December 31, 2009
Amounts borrowed	$	—	$	19.2
Outstanding letters of credit	$	26.2	$	26.1
Amounts available to borrow	$	161.4	$	196.9

The decrease in amounts available to borrow is primarily the result of the Credit Facility having been reduced by $50 million in February 2010. The maximum amount available to borrow at December 31, 2010 is subject to the lower ceiling of $200 million permitted by the Third Amendment. The Third Amendment also provides for up to an additional $100 million of lenders' revolving commitments (formerly $75 million), subject to certain provisions contained therein.

Average borrowings during the year ended December 31, 2010 were $3.1 million, with amounts borrowed ranging from zero to a high of $34.8 million. For the same period in 2009, average borrowings were $8.2 million, with amounts borrowed ranging from zero to a high of $61.1 million.

Our weighted-average interest rate was calculated based on our daily cost of borrowing which was computed on a blend of prime and LIBOR rates. The weighted-average interest rate on our revolving credit facility for the years ended December 31, ~~2009~~2010 and ~~2008~~2009 was ~~2.0%~~2.9% and ~~3.8%~~2.0%, respectively. We paid total unused facility fees and letter of ~~$0.5~~credit participation fees, which are included in interest expense, of $1.8 million and $0.8 million for ~~both 2009~~2010 and ~~2008.~~2009. Unamortized debt issuance costs were ~~$0.4~~$1.7 million as of December 31, ~~2009~~2010 and ~~$1.0~~$0.4 million atas of December 31, ~~2008.~~2009.

Contractual Obligations and Commitments

Contractual Obligations.The following table presents information regarding our contractual obligations that existed as of December 31, ~~2009:~~

2015 and
(in millions) Total 2010 2011 2012 2013 2014 Thereafter
Long-term debt⁽¹⁾
$ 19.2 $ — $ — $ — $ — $ 19.2 $ —
Purchase obligations⁽²⁾
0.2 0.2 — — — — —
Letters of credit 26.1 26.1 — — — — —
Operating leases 176.0 28.5 26.1 21.9 16.7 12.7 70.1
Capitalized leases⁽³⁾
0.8 — 0.1 0.1 0.1 0.1 0.4

Total contractual obligations^(4)(5)(6)
$ 222.3 $ 54.8 $ 26.2 $ 22.0 $ 16.8 $ 32.0 $ 70.5

2010 (in millions):


	Total		2011		2012		2013		2014		2015		2016 and Thereafter
Credit Facility ⁽¹⁾	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Purchase obligations ⁽²⁾	—		—		—		—		—		—		—
Letters of credit	26.2		26.2		—		—		—		—		—
Operating leases	173.2		29.3		25.7		20.5		15.8		13.5		68.4
Capitalized leases ⁽³⁾	1.0		0.2		0.1		0.1		0.1		0.1		0.4
Total contractual obligation ^(4)(5)(6)	$	200.4	$	55.7	$	25.8	$	20.6	$	15.9	$	13.6	$	68.8


(1)		Does not include interest costs associated with the ~~Revolving~~ Credit Facility which had a weighted-average interest rate of ~~2.0%~~2.9% for the year ended December 31, ~~2009.~~

~~(2)~~		Purchase orders for the purchase of inventory and other services are not included in the table above because purchase orders represent authorizations to purchase rather than binding agreements. For the purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions, and the approximate timing of the transaction. Our purchase orders are based on our current inventory needs and are fulfilled by our suppliers within short time periods. We also enter into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty. As of December 31, 2009, $0.2 million represents estimated transportation equipment purchase commitments.

~~(3)~~		~~Represents refrigeration equipment.~~

~~(4)~~		We have not included in the table above Claims Liabilities of $32.6 million, net of current portion, which includes health and welfare, workers’ compensation and general and auto liabilities because it does not have a definite payout by year. They are included in a separate line in the Consolidated Balance Sheet and discussed in Note 2 to our Consolidated Financial Statements in Item 8.

~~(5)~~		As discussed in Note 12 to our Consolidated Financial Statements included in Item 8, we have an $11.6 million long-term obligation arising from an underfunded pension plan. Future minimum pension funding requirements are not included in the schedule above as they are not available for all periods presented.

~~(6)~~		~~The table excludes unrecognized tax liabilities of $1.5 million because a reasonable and reliable estimate of the timing of future tax payments or settlements, if any, cannot be determined~~*~~(see Note 9—Income Taxes)~~*2010.

(2) Purchase orders for the purchase of inventory and other services are not included in the table above because purchase orders represent authorizations to purchase rather than binding agreements. For the purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions, and the approximate timing of the transaction. Our purchase orders are based on our current inventory needs and are fulfilled by our suppliers within short time periods. We also enter into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.

(3) Represents refrigeration and other equipment. Current maturities of capital leases are included in accrued liabilities, and non-current maturities are included in long-term debt.

(4) We have not included in the table above Claims Liabilities of $30.6 million, net of current portion, which includes health and welfare, workers' compensation and general and auto liabilities because it does not have a definite payout by year. They are included in a separate line in the Consolidated Balance Sheet and discussed in Note 2 -- Summary of Significant Accounting Policies to our consolidated financial statements.

(5) As discussed in Note 12 -- Employee Benefit Plans to our consolidated financial statements, we have an $8.5 million long-term obligation arising from an underfunded pension plan. Future minimum pension funding requirements are not included in the schedule above as they are not available for all periods presented.

(6) The table excludes unrecognized tax liabilities of $1.2 million because a reasonable and reliable estimate of the timing of

35
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future tax payments or settlements, if any, cannot be determined (see Note 9 -- Income Taxes to our consolidated financial statements).

Off-Balance Sheet Arrangements

Letter of Credit Commitments.As of December 31, ~~2009,~~2010, our standby letters of credit issued under our Credit Facility were ~~$26.1~~$26.2 million related primarily to casualty insurance and tax obligations. The majority of the standby letters of credit ~~expire~~mature in ~~2010.~~one year. However, in the ordinary course of our business, we will continue to renew or modify the terms of the letters of credit to support business requirements. The liabilities underlying the letters of credit are reflected on our consolidated balance sheets.

Operating Leases.The majority of our sales offices, warehouse facilities and trucks are subject to lease agreements which expire at various dates through 2022, ~~(excluding~~excluding renewal ~~options).~~options. These leases generally require us to maintain, insure and pay any related taxes. In most instances, we expect the leases that expire will be renewed or replaced in the normal course of our business.

Third Party Distribution Centers.We currently manage two regional distribution centers for third party convenience store operators who engage in self-distribution. Under the agreement relating to one of these facilities, the third party has a “put” right under which it may require us to acquire the facility. If the put right is exercised, we will be required to (1) purchase the inventory in the facilities at cost, (2) purchase the physical assets of the facilities at fully depreciated cost and (3) assume the obligations of the third party as lessees under the leases related to those facilities. While we believe the likelihood that this put option will be exercised is remote, if it were exercised, we would be required to make aggregate capital expenditures of approximately ~~$4.9~~$4.0 million based on current estimates. The amount of capital expenditures would vary depending on the timing of any exercise of such put right and does not include an estimate of the cost to purchase inventory because such purchases would simply replace other planned inventory purchases and would not represent an incremental cost.

Critical Accounting Policies and Estimates

~~Management’s~~Management's Discussion and Analysis of our Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. The critical accounting polices used in the preparation of the consolidated financial statements are those that are important both to the presentation of financial condition and results of operations and require significant judgments with regards to estimates. We base our estimates on historical experience and on various assumptions we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We believe the current assumptions and other considerations used to estimate amounts reflected in our financial statements are appropriate; however, actual results could differ from these estimates.

We believe that the following represent the more critical accounting policies, which are subject to estimates and assumptions used in the preparation of our financial statements.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for losses we estimate will arise from our trade ~~customers’~~customers' inability to make required payments. We evaluate the collectability of accounts receivable and determine the appropriate allowance for doubtful accounts based on historical experience and a review of specific customer accounts. In determining the adequacy of allowances for customer receivables, we analyze factors such as the value of any collateral, customer financial statements, historical collection experience, aging of receivables, general economic conditions and other factors. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the collectability based on information considered and further deterioration of accounts. If circumstances change (i.e., further evidence of material adverse creditworthiness, additional accounts become credit risks, store closures or deterioration in general economic conditions), our estimates of the recoverability of amounts due us could be reduced by a material ~~amount, including to zero.~~amount.

The allowance for doubtful accounts at December 31, 2010, 2009 ~~2008~~ and ~~2007~~2008 amounted to ~~5.6%~~4.8%, ~~6.0%~~5.6% and ~~6.9%~~6.0%, respectively, of net trade accounts receivable.

Bad debt expense associated with our trade customer receivables was $1.4 million for 2010, $1.8 million for 2009 and $1.6 million for 2008 ~~and $6.9 million for 2007. Bad debt expense for 2007 included a charge of $5.9 million related to two customers who declared bankruptcy in the fourth quarter of 2007.~~. As a percentage of sales, our bad debt expense was less than 0.1% for ~~both~~ 2010, 2009 and 2008 ~~and 0.1% for 2007.~~.

~~Inventories~~

~~Our U.S. inventories are valued at the lower~~

Table of cost or market. Cost of goods sold is determined on a last-in, first-out (“LIFO”) basis using producer price indices (“PPIs”) as published by the U.S. Department of Labor. PPIs are updated by the Department of Labor on a lag basis for manufacturer price increases or decreases implemented after the initial PPI has been published for a given month. When we are aware of material price increases or decreases from manufacturers, we will estimate the PPI for the respective period in order to more accurately reflect inflation rates. The PPIs are applied to inventory which is grouped by merchandise having similar characteristics. Under the LIFO method, current costs of goods sold are matched against current sales. During periods of rising prices, the LIFO method of costing inventories generally results in higher costs being charged against income (LIFO expense), while lower costs are retained in inventories. To the extent inventories or prices decline significantly at the end of any period where there have been increasing prices in prior periods, under LIFO some older and potentially lower priced inventory is considered as having been sold, resulting in a lower cost of goods sold compared to current prices, and increased current gross profit (LIFO income).Contents

Vendor and Sales Incentives

~~Vendors’~~Vendors' Discounts, Rebates and ~~Allowances—~~Allowances -- Periodic payments from vendors in various forms including volume or other purchase discounts are reflected in the carrying value of the related inventory when earned and as cost of goods sold as the related merchandise is sold. Up-front consideration received from vendors linked to purchase or other commitments is initially deferred and amortized ratably to cost of goods sold or as the performance of the activities specified by the vendor to earn the fee is completed. Cooperative marketing incentives from suppliers are recorded as reductions to cost of goods sold to the extent the vendor considerations exceed the costs relating to the programs. These amounts are recorded in the period the related promotional or merchandising programs were provided. Some of the vendor incentive promotions require that we make assumptions and judgments regarding, for example, the likelihood of achieving market share levels or attaining specified levels of purchases. Vendor incentives are at the discretion of our vendors and can fluctuate due to changes in vendor strategies and market requirements.

~~Customers’~~Customers' Sales ~~Incentives—~~Incentives -- We also provide sales rebates or discounts to our customers on a regular basis. The ~~customers’~~customers' sales incentives are recorded as a reduction to sales revenue as the “sales incentive” is earned by the customer. Additionally, we may provide racking ~~and slotting~~ allowances for the ~~customers’~~customers' commitments to continue using us as the supplier of their products. These allowances may be paid at the inception of the contract or on a periodic basis. Allowances paid at the inception of the contract are capitalized and amortized over the period of the distribution agreement as a reduction to sales.

~~Income Taxes~~

Income taxes are accounted for under U.S. GAAP using the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when management does not consider it more likely than not that some portion or all of the deferred tax assets will be realized. In assessing the need for a valuation allowance, our management evaluates all significant available positive and negative evidence, including historical operating results, estimates of future taxable income and the existence of prudent and feasible tax planning strategies. As of December 31, 2009, we had a valuation allowance of $0.1 million with respect to 100% of the deferred tax asset related to foreign tax credits. We believe that it is more likely than not we will be unable to utilize the foreign tax credits, which will expire at various times from 2014 to 2016, due primarily to the relatively lower taxable income generated in Canada compared with the U.S. Changes in the expectations regarding the realization of deferred tax assets could materially impact income tax expense in future periods.

According to U.S. GAAP, a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. We have established an estimated liability for income tax exposures that arise and meet the criteria for accrual under U.S. GAAP. We prepare and file tax returns based on our interpretation of tax laws and regulations and record estimates based on these judgments and interpretations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law resulting from legislation, regulation and/or as concluded through the various jurisdictions’ tax court systems. We classify interest and penalties related to income taxes as income tax expense.

Claims Liabilities and Insurance Recoverables

We maintain reserves related to ~~workers’~~workers' compensation, general and auto liability and health and welfare programs that are principally self-insured. Our ~~workers’~~workers' compensation, general and auto liability insurance policies currently include a deductible of $500,000 per occurrence and we maintain excess loss insurance that covers any health and welfare costs in excess of $200,000 per person per year.

Our reserves for ~~workers’~~workers' compensation, general and auto insurance liabilities are estimated based on applying an actuarially derived loss development factor to our incurred losses, including losses for claims incurred but not yet reported. Actuarial projections of losses concerning ~~workers’~~workers' compensation, general and auto insurance liabilities are subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, health care costs, litigation trends, legal interpretations, legislative reforms, benefit level changes and claim settlement patterns. Our reserve for health and welfare claims includes an estimate of claims incurred but not yet reported which is derived primarily from historical experience.

Our claim liabilities and the related recoverables from insurance carriers for estimated claims in excess of deductible amounts and other insured events are presented in their gross amounts because there is no right of offset. The following is a summary of our net reserves as of December 31, ~~2009~~2010 and December 31, ~~2008:~~2009 (in millions):

2009 2008
Long- Long-
Current Term Total Current Term Total
Gross claims liabilities:
Workers’ compensation liability $ 5.8 $ 31.3 $ 37.1 $ 5.7 $ 29.2 $ 34.9
Auto & general liability 0.9 1.0 1.9 1.3 1.8 3.1
Health & welfare liability 1.7 0.3 2.0 2.3 0.3 2.6

Total gross claims liabilities 8.4 32.6 41.0 9.3 31.3 40.6

Insurance recoverables (2.7 ) (21.0 ) (23.7 ) (2.9 ) (19.8 ) (22.7 )

Reserves (net):
Workers’ compensation liability $ 3.5 $ 10.8 $ 14.3 $ 3.2 $ 10.3 $ 13.5
Auto & general liability 0.5 0.5 1.0 0.9 0.9 1.8
Health & welfare liability 1.7 0.3 2.0 2.3 0.3 2.6

Reserves (net): $ 5.7 $ 11.6 $ 17.3 $ 6.4 $ 11.5 $ 17.9


	2010									2009
	Current			Long-Term			Total			Current			Long-Term			Total
Gross claims liabilities:
Workers' compensation liability	$	5.5		$	29.4		$	34.9		$	5.8		$	31.3		$	37.1
Auto & general liability	0.9			0.9			1.8			0.9			1.0			1.9
Health & welfare liability	2.3			0.3			2.6			1.7			0.3			2.0
Total gross claims liabilities	$	8.7		$	30.6		$	39.3		$	8.4		$	32.6		$	41.0

Insurance recoverables	$	(2.5	)	$	(19.5	)	$	(22.0	)	$	(2.7	)	$	(21.0	)	$	(23.7	)

Reserves (net):
Workers' compensation liability	$	3.3		$	10.3		$	13.6		$	3.5		$	10.8		$	14.3
Auto & general liability	0.6			0.5			1.1			0.5			0.5			1.0
Health & welfare liability	2.3			0.3			2.6			1.7			0.3			2.0
Reserves (net):	$	6.2		$	11.1		$	17.3		$	5.7		$	11.6		$	17.3

The decrease in these reserves for ~~2009~~2010 is due primarily to ~~a decrease in our auto and general liability due to favorable~~better workers compensation claims experience and ~~a decrease in our health and welfare liability due to an increase in the contribution percentage~~settlement of ~~the employee portion of health premiums during 2009, offset by an increase in workers’ compensation liability due to the severity of certain~~several large dollar claims.

A 10% change in our incurred but not reported estimates would increase or decrease the estimated reserves for our ~~workers’~~workers' compensation liability, general and auto insurance liability and health and welfare liability as of December 31, ~~2009~~2010 by $0.8 million, $0.1 million and $0.2 million, respectively.

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Pension Liabilities

We sponsored a qualified defined-benefit pension plan and a post-retirement benefit plan (collectively, "the Pension Plans") for employees hired before September 1986. As discussed in Note 12 -- Employee Benefit Plans to our consolidated financial statements, our qualified defined-benefit pension plan was underfunded by $8.5 million and $11.6 million at December 31, 2010 and 2009, respectively. There have been no new entrants to the pension or non-pension post-retirement benefit plans after those benefit plans were frozen on September 30, 1989. Pursuant to the plan of reorganization (May 2004) described in Exhibit 2.1 and incorporated by reference (see Part IV, Item 15, Exhibit Index of this Form 10-K), we were assigned the obligations for three former Fleming defined-benefit pension ~~plans.~~plans, and these plans were merged into our defined benefit pension plan effective December 2007. All of the pension and post-retirement benefit plans are collectively referred to as the “Pension Plans.”

The determination of the obligation and expense associated with our Pension Plans are dependent, in part, on our selection of certain assumptions used by our independent actuaries in calculating these amounts. These assumptions are disclosed in Note 12 to the consolidated financial statements and include, among other things, the weighted-average discount rate, the expected weighted-average long-term rate of return on plan assets and the rate of compensation increases. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors. In accordance with U.S. GAAP, actual results that differ from the actuarial assumptions are accumulated and amortized over future periods and, therefore, affect recognized expense and recorded obligation in such future periods. While we believe our assumptions are appropriate, significant differences in actual results or changes in our assumptions may materially affect our pension and other post-retirement obligations and the future expense.

We select the weighted-average discount rates for each benefit plan as the rate at which the benefits could be effectively settled as of the measurement date. In selecting an appropriate weighted-average discount rate we use a yield curve methodology, matching the expected benefits at each duration to the available high quality yields at that duration and calculating an equivalent yield, which is the ultimate discount rate used. The weighted-average discount rate used to determine ~~2009~~ pension expense was 5.73% and 6.26%. in 2010 and 2009, respectively. A lower weighted-average discount rate increases the present value of benefit obligations and increases pension expense. Expected return on pension plan assets is based on historical experience of our portfolio and the review of projected returns by asset class on broad, publicly traded equity and fixed-income indices, as well as target asset allocation. Our target asset allocation mix is designed to meet our long-term pension and post-retirement benefit plan requirements. ~~For 2009 our~~Our assumed weighted-average rate of return on our assets was 7.35% ~~on our assets.~~for both 2010 and 2009.

Sensitivity to changes in the major assumptions for our pension plans as of December 31, ~~2009~~2010 is as follows (dollars in millions):

Percentage

Point

Change

Projected Benefit Obligation Decrease (Increase)

~~Projected~~

~~Benefit~~

~~Percentage~~

~~Obligation~~

Expense

~~Point~~

Decrease

~~Decrease~~

~~Change~~

(Increase)

~~(Increase)~~

Expected return on plan assets

+/- .25 pt

$0.0 /(0.0)

$0.1 / (0.1)

Discount rate -- Pension

+/- .25 pt

~~0.0 /(0.0~~

)0.8 /(0.8)

~~0.1~~0.0 / ~~(0.1~~

)(0.0)

Discount ~~rate—Pension~~

rate -- Post-retirement

+/- .25 pt

~~0.8 /(0.8~~

)0.1 /(0.1)

0.0 / ~~(0.0~~

)

~~Discount rate—Post-retirement~~

~~+/- .25 pt~~

~~0.1 /(0.1~~

)

~~0.0 / (0.0~~

)(0.0)

Stock-Based Compensation

We account for stock-based compensation expense by estimating the fair values of awards at their grant dates and expensing the fair values, net of estimated forfeitures, using the straight-line amortization method for awards with vesting based on service and ratably for awards based on performance conditions. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected life of share awards and forfeiture rates. We develop our estimates based on historical data and market information which can change significantly over time. Currently we use the Black-Scholes option valuation model to value stock option awards.If we were to use alternative valuation methodologies, the amount we expense for stock-based payments could be significantly different (see Note ~~11—~~11 -- Stock-Based Compensation Plans)to our consolidated financial statements).

Recent Accounting Pronouncements

~~Employers’~~ Disclosures about ~~Post-retirement Benefit Plan Assets~~Fair Value Measurements

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on nature and risk for the different types of financial instruments. For the reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and settlements should be presented separately. This ASU is effective for ~~our fiscal~~annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year ~~beginning January 1, 2010.~~the disclosures are required. We ~~do not expect the adoption of ASC 715 to~~ have ~~a material impact on~~incorporated ASU 2010-06 into the disclosures that accompany our consolidated financial statements.

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Forward-Looking Trend and Other Information

Cigarette Industry Trends

Cigarette Consumption

Aggregate cigarette consumption in North America has declined steadily since 1980. Prior to 2007, our cigarette sales had ~~benefitted~~benefited from a shift in sales to the convenience retail segment, and as a result of this shift, our carton sales had not declined in proportion to the decline in overall consumption. However, our cigarette carton sales started declining in 2007, ~~and have~~ experienced further declines in 2008 and ~~2009.~~2009 and increased modestly in 2010. We believe ~~this trend is driven principally by an increasing decline in~~ overall cigarette consumption will continue to decline due to factors such as increasing legislative controls which regulate cigarette sales and where consumers may or may not smoke, the acceleration in the frequency and amount of excise tax increases which reduces demand, manufacturer price increases and health concerns on the part of consumers. The shift in cigarette carton sales from other channels to the convenience retail segment may no longer be adequate to compensate for consumption declines. However, we expect to offset the majority of the impact from these declines through market share expansion, growth in our non-cigarette categories and incremental gross profitthat resultsfrom cigarette manufacturer price increases. We expect cigarette manufacturers will raise prices as carton sales decline in order to maintain or enhance their overall profitability.

Cigarette Regulation

In June 2009, the Family Smoking Prevention and Tobacco Control Act was signed into law, which granted the ~~FDA~~U.S. Food & Drug Administration (“FDA”) the authority to regulate the production and marketing of tobacco products in the U.S. The new legislation ~~establishes~~established a new FDA office that ~~will~~has the authority to regulate changes to nicotine yields and the chemicals and flavors used in tobacco products, require ingredient listings be displayed on tobacco products, prohibit the use of certain terms which may attract youth or mislead users as to the risks involved with using tobacco products, ~~as well as~~and limit or otherwise impact the advertising and marketing of tobacco products by requiring additional labels or warnings, as well as pre-approval by the FDA. This new FDA office is to be financed through user fees paid by tobacco companies prorated based on market share. To date, this legislation and its associated regulations have not had a material impact on our business.

Excise Taxes

Cigarette and tobacco products are subject to substantial excise taxes in the U.S. and Canada. Significant increases in cigarette-related taxes and/or fees have been levied by the taxing authorities in the past and are likely to continue to be levied in the ~~future.~~future especially as these governmental jurisdictions come under additional pressure to raise revenues. Federal excise taxes are levied on the cigarette manufacturer, whereas state, provincial and local excise taxes are levied on the wholesaler. We increase cigarette prices as state, provincial and local excise tax increases are assessed on cigarette products that we sell. As a result, generally, increases in excise taxes do not increase overall gross profit dollars in the same proportion, but increases ~~will~~may result in a decline in overall gross profit percentage. In February 2009, SCHIP was signed into law and increased federal cigarette excise taxes levied on manufacturers from 39¢ to $1.01 per pack of cigarettes effective and after April 1, 2009. This substantial increase in excise taxes we believe caused the manufacturers to increase their prices to us, which in turn increased our working capital requirements. We also believe it has contributed to a further decline in consumer cigarette consumption which has adversely impacted our cigarette carton sales and ~~could result in a decrease of~~decreased our gross profit as a percentage of sales.

Cigarette Inventory Holding Profits

Distributors such as Core-Mark, from time to time, may earn higher gross profits on cigarette inventory and excise tax stamp quantities on hand either at the time cigarette manufacturers increase their prices or when states, localities or provinces increase their excise taxes and allow us to recognize inventory holding profits. These profits are recorded as an offset to cost of goods sold as the inventory is sold. Our cigarette holding profits prior to 2009 averaged approximately $5.1 million per year from 2005 to 2008 and represent a normal historical trend. For the year ended December 31, 2009 our cigarette inventory holding profits, net of FET ~~taxes~~ associated with the SCHIP legislation, were $25.2 million, or 6.3%, of our gross profit, as compared to $3.1 million, or 0.9%, of our gross profit for the same period in 2008. The significant holding profits in 2009 were attributable to an average increase of approximately 28% of our cigarette manufacturer list prices, one of the largest increases we have seen in recent history. We believe these price increases were in response to the passage of the SCHIP legislation, and we have not included them in our average trends since they distort an average that we believe is more indicative of future trends. For the year ended December 31, 2010, our cigarette inventory holding profits were $6.1 million, or 1.6%, of our gross profit.

Food and Non-food Product Trends

We focus our marketing efforts primarily on growing our food/non-food product sales. These products typically earn higher profit margins than cigarettes and our goal is to continue to increase food/non-food product sales in the future to offset the potential

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decline in cigarette carton sales and the associated gross profits.

Since the end of 2008, manufacturer pricing trends have reflected a lack of inflation and in some cases deflation for the cost of non-tobaccoproducts. As a result, we experienced below average floor stock income during 2010 and 2009 compared to prior periods. Some indications suggest inflation trends are changing, but it is unknown at what pace prices will return to more normal levels of inflation.

We believe over the long term the convenience industry is moving toward a more heavily weighted offering of fresh and healthier foods. These products tend to earn somewhat higher margins than most other food/non-food products we distribute. Ultimately, the consumer will determine what products are sold in the convenience store, but trends indicate that perishable foods will serve a more dominant role in the convenience retail channel in the future.

General Economic Trends

Uncertain Economic Conditions

~~Uncertain~~While somewhat recently improved, the global financial economic ~~conditions, including changes~~downturn that began in 2008 continues to negatively affect consumer confidence and spending. Economic pressures in the U.S. and Canada, including reduced access to credit, high levels and fear of unemployment, increases in energy and fuel costs, and housing markets leading to the 2008 financial and credit crisis, rising unemployment and underemployment rates, significant declines in the personal net worth of many individuals and uncertainty regarding future federal tax and economic policiesmarket volatility, have resulted in ~~reduced~~curtailed consumer ~~confidence and curtailed~~ retail spending. ~~As a result, convenience store operators~~Reduced sales and liquidity concerns due to such factors may continue to experience a reduction in same store sales in subsequent quarters, which will adversely affect demand for our products and may result in reduced sales unless offset by other factors (such as an increase in the number or size of our customers’ stores, penetration of product offerings into existing stores serviced, or increases in our market share). These economic and market conditions, combined with continuing difficulties in the credit markets and the resulting pressures on liquidity may also place a number of our convenience store owners under financial stress, which ~~will~~may increase our credit risk and potential bad debt exposure. ~~If the~~Should economic conditions in our key markets ~~further deteriorate or do~~ not show continued improvement, ~~we may experience material adverse impacts to~~ our business, financial condition and operating ~~results.~~

~~Inflation~~results could be negatively impacted.

Inflation

Historically, we have ~~not experienced a significant adverse impact~~generally benefited from manufacturer price increases, both as a result of ~~price increases from~~inventory floor stock gains and our ~~suppliers as we have been able to adjust our selling prices in order to maintain our overall gross profit dollars.~~cost plus pricing structure. However, significant increases in cigarette product costs and cigarette excise taxes adversely impact our gross profit as a percentage of ~~net~~ sales, because for cigarettes we are paid on a cents per carton basis. ~~While we have historically been able to maintain or slightly increase gross profit dollars related to such increases,~~As a result, cigarette gross profit percentages typically decline ~~as a result~~from marked increases in the underlying product costs or excise tax increases, regardless of the ~~impact~~fact that absolute gross profit dollars on a cents per carton basis may have increased. This is due to the disparity in the absolute dollars of ~~significant price or~~the underlying product costs and excise tax ~~increases on net cigarette sales.~~compared to the cents per carton that we make in gross profit. Inversely, we ~~have~~ generally ~~benefitted~~benefit from food/non-food price increases ~~on the net sales of food/non-food~~, because for these categories, ~~because~~ we ~~generally~~mostly mark up product costs using a percentage of cost of ~~goods~~good sold.

Inflation can also result in increases in LIFO expense, adversely impacting our gross profit percentage(seeNote 2—2 --Summary of Significant Accounting ~~Policies)~~Policies to our consolidated financial statements).


~~ITEM 7.A.~~		~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 7. A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our major exposure to market risk comes from changes in short-term interest rates on our ~~variable rate debt. At December 31, 2009, all amounts borrowed under our Credit Facility represented~~ variable rate debt. Depending upon the borrowing option chosen, the interest charged is generally based upon the prime rate or LIBOR plus an applicable margin. If interest rates increased ~~32.5~~32.9 basis points (which approximates 10% of the weighted-average interest rate on our average borrowings during the year ~~end outstanding balance)~~ended December 31, 2010), our results from operations and cash flows would not be materially affected.

We are exposed to foreign currency risk, primarily through our operations in Canada which conduct business in ~~Canada primarily in~~ Canadian dollars. ToWe record gains and losses within our shareholders' equity due to the ~~extent that funds are moved~~translation of the Canadian branches' financial statements into U.S. dollars. A 10% unfavorable change in the weighted average Canadian/U.S. dollar exchange rate for 2010 would have negatively impacted our net sales for 2010 by 1.6% and would not have materially impacted our operating income. Additionally, we incur foreign currency transaction gains and losses related to ~~or from Canada, we would be exposed to fluctuations~~the level of activity between the U.S. and Canada. A 10% unfavorable change in the Canadian/U.S. ~~exchange rate. The Canadian/U.S.~~dollar noon exchange rate ~~based~~ on ~~the noon rate used for balance sheet translation was $1.0466, $1.2246 and $0.9881 as of~~ December 31, ~~2009, 2008 and 2007, respectively.~~2010 would have resulted in a $2.6 million increase in foreign currency transaction losses for 2010 which are included in our Consolidated Statements of Operations. We did not engage in hedging transactions during ~~2007, 2008~~2010, 2009 or ~~2009.~~2008.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


~~ITEM 8.~~		~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~


	Page
(a) Financial Statements filed as part of this Annual Report on Form 10-K

1. Financial Statements

A. Audited Financial Statements

•Report of Independent Registered Public Accounting Firm		41	43

•Consolidated Balance ~~Sheets—~~Sheets -- at December 31, ~~2009~~2010 and ~~2008~~ 2009		42	44

•Consolidated Statements of ~~Operations—~~Operations -- for the Years ended December 31, 2010, 2009 ~~2008~~ and ~~2007~~ 2008		43	45

•Consolidated Statements of ~~Stockholders’~~Stockholders' Equity and Comprehensive ~~Income—~~Income -- for the Years ended December 31, 2010, 2009 ~~2008~~ and ~~2007~~ 2008		44	46

•Consolidated Statements of Cash ~~Flows—~~Flows -- for the Years ended December 31, 2010, 2009 ~~2008~~ and ~~2007~~ 2008		45	47

•Notes to Consolidated Financial Statements		46	48

2. Financial Statement Schedule

•Schedule II Valuation and Qualifying Accounts		80

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Core-Mark Holding Company, Inc.:

We have audited the accompanying consolidated balance sheets of Core-Mark Holding Company, Inc. and subsidiaries (the “Company”) as of December 31, ~~2009~~2010 and ~~2008,~~2009, and the related consolidated statements of operations, ~~stockholders’~~stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, ~~2009.~~2010. Our audits also included the financial statement schedule listed in the Index at Item 8(a)(2). We also have audited the ~~Company’s~~Company's internal control over financial reporting as of December 31, ~~2009,~~2010, based on criteria established inInternal ~~Control—Integrated~~Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The ~~Company’s~~Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ~~Management’s~~Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the ~~Company’s~~Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A ~~company’s~~company's internal control over financial reporting is a process designed by, or under the supervision of, the ~~company’s~~company's principal executive and principal financial officers, or persons performing similar functions, and effected by the ~~company’s~~company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A ~~company’s~~company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the ~~company’s~~company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, ~~2009~~2010 and ~~2008,~~2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2009,~~2010, 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. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2009,~~2010, based on the criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

~~/s/ Deloitte & Touche LLP~~

/s/ Deloitte & Touche LLP

San Francisco, California

March 15, 2011

~~March 12, 2010~~

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CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

December 31, December 31,
2009 2008
Assets

Current assets:
Cash and cash equivalents $ 17.7 $ 15.7
Restricted cash 12.4 11.4
Accounts receivable, net of allowance for doubtful accounts of $9.1 and $8.8, respectively (Note 4) 161.1 146.9
Other receivables, net (Note 4) 39.6 34.1
Inventories, net (Note 5) 275.5 238.4
Deposits and prepayments (Note 4) 42.2 26.5
Deferred income taxes (Note 9) 3.6 12.2

Total current assets 552.1 485.2

Property and equipment, net (Note 6) 83.8 74.2
Deferred income taxes (Note 9) 5.3 12.1
Goodwill 3.7 3.7
Other non-current assets, net (Note 4) 33.0 37.4

Total assets $ 677.9 $ 612.6

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable $ 63.2 $ 66.0
Book overdrafts 19.4 17.8
Cigarette and tobacco taxes payable 132.3 103.2
Accrued liabilities (Note 4) 59.6 58.1
Deferred income taxes (Note 9) 0.6 1.6

Total current liabilities 275.1 246.7

Long-term debt, net (Note 7) 20.0 30.8
Other long-term liabilities 4.3 11.1
Claims liabilities, net of current portion 32.6 31.3
Pension liabilities 15.7 19.1

Total liabilities 347.7 339.0

Commitments and Contingencies (Note 8)
Stockholders’ equity:
Common stock; $0.01 par value (50,000,000 shares authorized, 11,001,632 and 10,746,416 shares issued; 10,506,270 and 10,349,700 shares outstanding at December 31, 2009 and 2008, respectively) 0.1 0.1
Additional paid-in capital 216.2 209.3
Treasury stock at cost (495,362 and 396,716 shares of common stock at December 31, 2009 and 2008, respectively) (13.2 ) (11.0 )
Retained earnings 129.6 82.3
Accumulated other comprehensive loss (2.5 ) (7.1 )

Total stockholders’ equity 330.2 273.6

Total liabilities and stockholders’ equity $ 677.9 $ 612.6


	December 31,			December 31,
	2010			2009
Assets
Current assets:
Cash and cash equivalents	$	16.1		$	17.7
Restricted cash	12.8			12.4
Accounts receivable, net of allowance for doubtful accounts of $8.7 and $9.1,
respectively (Note 4)	179.3			161.1
Other receivables, net (Note 4)	43.5			39.6
Inventories, net (Note 5)	290.7			275.5
Deposits and prepayments (Note 4)	42.2			42.2
Deferred income taxes (Note 9)	3.6			3.6
Total current assets	588.2			552.1
Property and equipment, net (Note 6)	84.7			83.8
Deferred income taxes (Note 9)	—			5.3
Goodwill	4.6			3.7
Other non-current assets, net (Note 4)	31.3			33.0
Total assets	$	708.8		$	677.9
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	57.3		$	63.2
Book overdrafts	6.5			19.4
Cigarette and tobacco taxes payable	166.8			132.3
Accrued liabilities (Note 4)	66.8			59.6
Deferred income taxes (Note 9)	0.3			0.6
Total current liabilities	297.7			275.1
Long-term debt (Note 7)	0.8			20.0
Other long-term liabilities	4.7			4.3
Claims liabilities, net (Note 2)	30.6			32.6
Pension liabilities	12.3			15.7
Total liabilities	346.1			347.7
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock; $0.01 par value (50,000,000 shares authorized, 11,613,525 and
11,001,632 shares issued; 11,118,163 and 10,506,270 shares outstanding at
December 31, 2010 and 2009, respectively)	0.1			0.1
Additional paid-in capital	229.6			216.2
Treasury stock at cost (495,362 shares of common stock at December 31, 2010 and 2009)	(13.2		)	(13.2		)
Retained earnings	147.3			129.6
Accumulated other comprehensive loss	(1.1		)	(2.5		)
Total stockholders’ equity	362.7			330.2
Total liabilities and stockholders’ equity	$	708.8		$	677.9

The accompanying notes are an integral part of these consolidated financial statements.

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CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)


	Year Ended December 31,
	2010			2009			2008
Net sales	$	7,266.8		$	6,531.6		$	6,044.9
Cost of goods sold	6,881.5			6,130.0			5,685.8
Gross profit	385.3			401.6			359.1
Warehousing and distribution expenses	211.8			197.3			197.6
Selling, general and administrative expenses	142.5			137.3			129.4
Amortization of intangible assets	2.1			2.0			2.0
Total operating expenses	356.4			336.6			329.0
Income from operations	28.9			65.0			30.1
Interest expense	(2.6		)	(1.7		)	(2.2		)
Interest income	0.4			0.3			1.0
Foreign currency transaction gains (losses), net	0.5			2.2			(6.3		)
Income before income taxes	27.2			65.8			22.6
Provision for income taxes (Note 9)	(9.5		)	(18.5		)	(4.7		)
Net income	$	17.7		$	47.3		$	17.9

Basic net income per common share (Note 10)	$	1.64		$	4.53		$	1.71
Diluted net income per common share (Note 10)	$	1.55		$	4.35		$	1.64

Basic weighted-average shares (Note 10)	10.8			10.5			10.5
Diluted weighted-average shares (Note 10)	11.4			10.9			10.9

The accompanying notes are an integral part of these consolidated financial statements.

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CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

AND COMPREHENSIVE INCOME

(In millions)


					Additional								Accumulated Other			Total			Total
	Common Stock				Paid-In			Treasury			Retained		Comprehensive			Stockholders'			Comprehensive
	Shares		Amount		Capital			Stock			Earnings		Income (Loss)			Equity			Income (Loss)
Balance, December 31, 2007	10.4		$	0.1	$	202.6		$	—		$	64.4	$	(0.6	)	$	266.5
Net income	—		—		—			—			17.9		—			17.9			$	17.9
Amortization of stock-based compensation	—		—		3.9			—			—		—			3.9			—
Cash proceeds from exercise of common
stock options	—		—		2.5			—			—		—			2.5			—
Minimum pension liability adjustment, net
of taxes of $3.8	—		—		—			—			—		(5.9		)	(5.9		)	(5.9		)
Excess tax deductions associated with
stock-based compensation	—		—		0.3			—			—		—			0.3			—
Issuance of stock based instruments	0.7		—		—			—			—		—			—			—
Repurchases of common stock	(0.4	)	—		—			(11.0		)	—		—			(11.0		)	—
Foreign currency translation adjustment	—		—		—			—			—		(0.6		)	(0.6		)	(0.6		)
Total comprehensive income																			$	11.4
Balance, December 31, 2008	10.7		0.1		209.3			(11.0		)	82.3		(7.1		)	273.6
Net income	—		—		—			—			47.3		—			47.3			$	47.3
Amortization of stock-based compensation	—		—		5.1			—			—		—			5.1			—
Cash proceeds from exercise of common
stock options and warrants	—		—		2.2			—			—		—			2.2			—
Minimum pension liability adjustment, net
of taxes of $(1.5)	—		—		—			—			—		2.4			2.4			2.4
Excess tax deductions associated with
stock-based compensation	—		—		0.1			—			—		—			0.1			—
Issuance of stock based instruments, net of
shares withheld for employee taxes	0.4		—		(0.5		)	—			—		—			(0.5		)	—
Repurchases of common stock	(0.1	)	—		—			(2.2		)	—		—			(2.2		)	—
Foreign currency translation adjustment	—		—		—			—			—		2.2			2.2			2.2
Total comprehensive income																			$	51.9
Balance, December 31, 2009	11.0		0.1		216.2			(13.2		)	129.6		(2.5		)	330.2
Net income	—		—		—			—			17.7		—			17.7			$	17.7
Amortization of stock-based compensation	—		—		4.8			—			—		—			4.8			—
Cash proceeds from exercise of common
stock options and warrants	0.5		—		8.3			—			—		—			8.3			—
Minimum pension liability adjustment, net
of taxes of $(0.1)	—		—		—			—			—		0.2			0.2			0.2
Excess tax deductions associated with
stock-based compensation	—		—		2.0			—			—		—			2.0			—
Issuance of stock based instruments, net of
shares withheld for employee taxes	0.1		—		(1.7		)	—			—		—			(1.7		)	—
Foreign currency translation adjustment	—		—		—			—			—		1.2			1.2			1.2
Total comprehensive income																			$	19.1
Balance, December 31, 2010	11.6		$	0.1	$	229.6		$	(13.2	)	$	147.3	$	(1.1	)	$	362.7

The accompanying notes are an integral part of these consolidated financial statements.

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CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CASH FLOWS

(In ~~millions, except per share data)~~millions)

Year Ended December 31,
2009 2008 2007
Net sales $ 6,531.6 $ 6,044.9 $ 5,560.9
Cost of goods sold 6,130.0 5,685.8 5,228.3

Gross profit 401.6 359.1 332.6

Warehousing and distribution expenses 197.3 197.6 174.1
Selling, general and administrative expenses 137.3 129.4 119.0
Amortization of intangible assets 2.0 2.0 1.8

Total operating expenses 336.6 329.0 294.9

Income from operations 65.0 30.1 37.7
Interest expense 1.7 2.2 2.4
Interest income (0.3 ) (1.0 ) (1.4 )
Foreign currency transaction (gains) losses, net (2.2 ) 6.3 (0.9 )

Income before income taxes 65.8 22.6 37.6
Provision for income taxes (Note 9) 18.5 4.7 13.5

Net income $ 47.3 $ 17.9 $ 24.1

Basic income per common share (Note 10) $ 4.53 $ 1.71 $ 2.30
Diluted income per common share (Note 10) $ 4.35 $ 1.64 $ 2.15

Basic weighted-average shares (Note 10) 10.5 10.5 10.5
Diluted weighted-average shares (Note 10) 10.9 10.9 11.2


	Year Ended December 31,
	2010			2009			2008
Cash flows from operating activities:
Net income	$	17.7		$	47.3		$	17.9
Adjustments to reconcile net income to net cash provided by operating activities:
LIFO and inventory provisions	16.5			7.1			11.0
Amortization of debt issuance costs	0.5			0.5			0.5
Amortization of stock-based compensation	4.8			5.1			3.9
Bad debt expense, net	1.4			1.8			1.6
Loss on disposals	0.7			—			—
Depreciation and amortization	19.7			18.7			17.4
Foreign currency transaction (gains) losses, net	(0.5		)	(2.2		)	6.3
Deferred income taxes	5.2			14.5			(4.9		)
Changes in operating assets and liabilities:
Accounts receivable	2.5			(13.8		)	(2.9		)
Other receivables	(3.5		)	(4.3		)	(4.2		)
Inventories	(18.8		)	(36.7		)	(31.9		)
Deposits, prepayments and other non-current assets	2.3			(16.7		)	4.4
Accounts payable	(6.4		)	(4.4		)	13.8
Cigarette and tobacco taxes payable	32.1			22.8			16.2
Pension, claims and other accrued liabilities	0.6			(6.6		)	6.2
Income taxes payable	0.1			—			0.3
Net cash provided by operating activities	74.9			33.1			55.6
Cash flows from investing activities:
Acquisition of business, net of cash acquired	(35.9		)	—			(26.4		)
Restricted cash	0.2			0.7			(2.2		)
Additions to property and equipment, net	(13.9		)	(21.1		)	(19.9		)
Capitalization of software	(1.0		)	(0.3		)	(0.7		)
Proceeds from sale of fixed assets	0.1			0.1			0.1
Net cash used in investing activities	(50.5		)	(20.6		)	(49.1		)
Cash flows from financing activities:
(Repayments) borrowings under revolving credit facility, net	(19.2		)	(10.7		)	0.1
Payments of financing costs	(1.8		)	—			—
Repurchases of common stock (treasury stock)	—			(2.2		)	(11.0		)
Proceeds from exercise of common stock options and warrants	8.3			2.2			2.5
Tax withholdings related to net share settlements of restricted stock units	(1.7		)	(0.5		)	—
Excess tax deductions associated with stock-based compensation	2.0			0.4			0.6
(Decrease) increase in book overdrafts	(12.9		)	1.6			(3.2		)
Net cash used in financing activities	(25.3		)	(9.2		)	(11.0		)
Effects of changes in foreign exchange rates	(0.7		)	(1.3		)	(1.1		)
(Decrease) increase in cash and cash equivalents	(1.6		)	2.0			(5.6		)
Cash and cash equivalents, beginning of period	17.7			15.7			21.3
Cash and cash equivalents, end of period	$	16.1		$	17.7		$	15.7
Supplemental disclosures:
Cash paid during the period for:
Income taxes, net of refunds	$	10.6		$	11.7		$	7.5
Interest	1.7			1.0			1.7
Non-cash investing activities:
Contingent consideration related to acquisition of business	$	1.0		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

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CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~AND COMPREHENSIVE INCOME~~

~~(In millions)~~

Accumulated
Additional Other Total Total
Common Stock Paid-In Treasury Retained Comprehensive Stockholders’ Comprehensive
Shares Amount Capital Stock Earnings Income (Loss) Equity Income (Loss)
Balance, December 31, 2006
10.2 $ 0.1 $ 175.5 $ — $ 40.2 $ (0.1 ) $ 215.7 —
Net income — — — — 24.1 — 24.1 $ 24.1
Amortization of stock-based compensation — — 5.3 — — — 5.3 —
Cash proceeds from exercise of common stock options — — 2.2 — — — 2.2 —
Adoption of new income tax accounting guidance — — 18.5 — 0.1 — 18.6 —
Minimum pension liability adjustment, net of taxes of $0.7 — — — — — (1.0 ) (1.0 ) (1.0 )
Excess tax deductions associated with stock-based compensation — — 1.1 — — — 1.1 —
Issuance of stock based instruments 0.2 — — — — — — —
Foreign currency translation adjustment — — — — — 0.5 0.5 0.5

Total comprehensive income
$ 23.6

Balance, December 31, 2007
10.4 0.1 202.6 — 64.4 (0.6 ) 266.5 —
Net income — — — — 17.9 — 17.9 $ 17.9
Amortization of stock-based compensation — — 3.9 — — — 3.9 —
Cash proceeds from exercise of common stock options — — 2.5 — — — 2.5 —
Minimum pension liability adjustment, net of taxes of $3.8 — — — — — (5.9 ) (5.9 ) (5.9 )
Excess tax deductions associated with stock-based compensation — — 0.3 — — — 0.3 —
Issuance of stock based instruments 0.7 — — — — — — —
Repurchases of common stock (0.4 ) — — (11.0 ) — — (11.0 ) —
Foreign currency translation adjustment — — — — — (0.6 ) (0.6 ) (0.6 )

Total comprehensive income
$ 11.4

Balance, December 31, 2008
10.7 0.1 209.3 (11.0 ) 82.3 (7.1 ) 273.6 —
Net income — — — — 47.3 — 47.3 $ 47.3
Amortization of stock-based compensation — — 5.1 — — — 5.1 —
Cash proceeds from exercise of common stock options and warrants — — 2.2 — — — 2.2 —
Minimum pension liability adjustment, net of taxes of $(1.5) — — — — — 2.4 2.4 2.4
Excess tax deductions associated with stock-based compensation — — 0.1 — — — 0.1 —
Issuance of stock based instruments, net of shares withheld for employee taxes 0.4 — (0.5 ) — — — (0.5 ) —
Repurchases of common stock (0.1 ) — — (2.2 ) — — (2.2 ) —
Foreign currency translation adjustment — — — — — 2.2 2.2 2.2

Total comprehensive income
$ 51.9

Balance, December 31, 2009
11.0 $ 0.1 $ 216.2 $ (13.2 ) $ 129.6 $ (2.5 ) $ 330.2

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In millions)~~

Year Ended December 31,
2009 2008 2007
Cash flows from operating activities:
Net income $ 47.3 $ 17.9 $ 24.1
Adjustments to reconcile net income to net cash provided by operating activities:
LIFO and inventory provisions 7.1 11.0 14.5
Amortization of debt issuance costs 0.5 0.5 0.4
Amortization of deferred stock-based compensation 5.1 3.9 5.3
Bad debt expense, net 1.8 1.6 6.9
Depreciation and amortization 18.7 17.4 14.9
Foreign currency transaction (gains) losses, net (2.2 ) 6.3 (0.9 )
Deferred income taxes 14.5 (4.9 ) (4.5 )
Changes in operating assets and liabilities:
Accounts receivable (13.8 ) (2.9 ) 9.2
Other receivables (4.3 ) (4.2 ) 6.0
Inventories (36.7 ) (31.9 ) (7.1 )
Deposits, prepayments and other non-current assets (16.7 ) 4.4 (8.5 )
Accounts payable (4.4 ) 13.8 2.3
Cigarette and tobacco taxes payable 22.8 16.2 22.7
Pension, claims and other accrued liabilities (6.6 ) 6.2 (15.3 )
Income taxes payable — 0.3 (3.4 )

Net cash provided by operating activities 33.1 55.6 66.6

Cash flows from investing activities:
Restricted cash 0.7 (2.2 ) (0.6 )
Acquisition of business, net of cash acquired — (26.4 ) —
Additions to property and equipment, net (21.1 ) (19.9 ) (20.8 )
Capitalization of software (0.3 ) (0.7 ) (2.0 )
Proceeds from sale of fixed assets 0.1 0.1 0.1

Net cash used in investing activities (20.6 ) (49.1 ) (23.3 )

Cash flows from financing activities:
(Repayments) borrowings under revolving credit facility, net (10.7 ) 0.1 (48.4 )
Repurchases of common stock (treasury stock) (2.2 ) (11.0 ) —
Proceeds from exercise of common stock options and warrants 2.2 2.5 2.2
Tax withholdings related to net share settlements of restricted stock units (0.5 ) — —
Excess tax deductions associated with stock-based compensation 0.4 0.6 1.1
Increase (decrease) in book overdrafts 1.6 (3.2 ) 5.6

Net cash used in financing activities (9.2 ) (11.0 ) (39.5 )

Effects of changes in foreign exchange rates (1.3 ) (1.1 ) (2.4 )

Increase (decrease) in cash and cash equivalents 2.0 (5.6 ) 1.4
Cash and cash equivalents, beginning of period 15.7 21.3 19.9

Cash and cash equivalents, end of period $ 17.7 $ 15.7 $ 21.3

Supplemental disclosures:
Cash paid during the period for:
Income taxes, net of refunds $ 11.7 $ 7.5 $ 28.1
Interest $ 1.0 $ 1.7 $ 2.5

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Summary of Company Information

Business

Core-Mark Holding Company, Inc. and subsidiaries (referred herein as “we,” ~~“us”~~“us,” “our,” “the Company” or “Core-Mark”) is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. We offer a full range of products, marketing programs and technology solutions to approximately ~~24,000~~26,000 customer locations in the U.S. and Canada. Our customers include traditional convenience stores, grocery stores, drug stores, liquor stores and other specialty and small format stores that carry convenience products. Our product offering includes cigarettes, tobacco, candy, snacks, fast food, groceries, fresh products, dairy, non-alcoholic beverages, general merchandise and health and beauty care products. We operate a network of 2624 distribution centers ~~(including~~ (excluding two distribution facilities we operate as a third party logistics provider) in the U.S. and Canada.

2.Summary of Significant Accounting Policies

Basis of Consolidation and Presentation

The consolidated financial statements include Core-Mark and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

Use of Estimates

These financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the U.S. This requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. We consider the allowance for doubtful accounts, inventory reserves, LIFO valuation, recoverability of goodwill and other long-lived assets, stock-based compensation expense, the realizability of deferred income taxes, uncertain tax positions, pension benefits and self-insurance reserves to be those estimates which involve a higher degree of judgment and complexity. Actual results could differ from those estimates.

Revenue Recognition

We recognize revenue at the point at which the product is delivered and title passes to the customer. Revenues are reported net of customer incentives, discounts and returns, including an allowance for estimated returns. The allowance for sales returns is calculated based on our returns experience which has historically not been significant. We also earn management service fee revenue from operating third party distribution centers belonging to certain customers. ~~The service fee revenue was approximately $2.9 million in 2009, $3.0 million in 2008 and $2.8 million in 2007.~~ These revenues represented less than 1% of our total revenues for each of those years. ~~The service~~Service fee revenue is recognized as earned on a monthly basis in accordance with the terms of the management service fee contracts and is included in net sales on the accompanying consolidated statements of operations.

Vendor and Sales Incentives

~~Vendors’~~Vendors' Discounts, Rebates and ~~Allowances—~~Allowances -- Periodic payments from vendors in various forms including volume or other purchase discounts are reflected in the carrying value of the related inventory when earned and as cost of goods sold as the related merchandise is sold. Up-front consideration received from vendors linked to purchase or other commitments is initially deferred and amortized ratably to cost of goods sold or as the performance of the activities specified by the vendor to earn the fee is completed. Cooperative marketing incentives from suppliers are recorded as reductions to cost of goods sold to the extent the vendor considerations ~~exceeds~~exceed the costs relating to the programs. These amounts are recorded in the period the related promotional or merchandising programs were provided. Some of the vendor incentive promotions require that we make assumptions and judgments regarding, for example, the likelihood of achieving market share levels or attaining specified levels of purchases. Vendor incentives are at the discretion of our vendors and can fluctuate due to changes in vendor strategies and market requirements.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Customers’~~Customers' Sales ~~Incentives—~~Incentives -- We also provide sales rebates or discounts to our customers on a regular basis. These ~~customers’~~customers' sales incentives are recorded as a reduction to sales revenue as the sales incentive is earned by the customer. Additionally, we may provide racking ~~and slotting~~ allowances for the ~~customer’s~~customer's commitment to continue using us as the supplier of their products. These allowances may be paid at the inception of the contract or on a periodic basis. Allowances paid at the inception of the contract are capitalized and amortized over the period of the distribution agreement as a reduction to sales.

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Excise Taxes

Excise taxes on cigarettes and other tobacco products are a significant component of our net sales and our cost of sales. In 2010, 2009 ~~2008~~ and ~~2007,~~2008, approximately ~~23%~~24%, ~~24%~~23% and 24% of our net sales, and approximately ~~25%~~26%, ~~26%~~25% and 26% of our cost of goods sold, respectively, represented excise taxes. Excise taxes are included in our net sales and cost of sales as we are responsible for collecting and remitting such state, local and provincial taxes on the applicable sales.

Foreign Currency Translation

The operating assets and liabilities of our Canadian operations, whose functional currency is the Canadian dollar, are translated to U.S. dollars at exchange rates in effect at period-end. Adjustments resulting from such translation are presented as foreign currency translation adjustments, net of applicable income taxes, and are included in other comprehensive income. The statements of operations, including income and expenses, of our Canadian operations are translated to U.S. dollars at average exchange rates for the period for financial reporting purposes. We also recognize the gain or loss on foreign currency exchange transactions between our Canadian and U.S. operations, net of applicable income taxes, in the consolidated statements of operations.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash, money market funds and all highly liquid investments with original maturities of three months or less. Restricted cash represents funds collected and set aside in trust as required by Canadian provincial taxing authorities. As of December 31, ~~2009,~~2010, we had cash book overdrafts of ~~$19.4~~$6.5 million compared to ~~$17.8~~$19.4 million as of December 31, ~~2008,~~2009, reflecting issued checks that have not cleared through our banking system in the ordinary course of business for accounts payable. Our policy has been to fund these outstanding checks as they clear with cash held on deposit with other financial institutions or with borrowings under our line of credit.

Fair Value Measurements

The carrying amount for our cash, cash equivalents, restricted cash, trade accounts receivable, other receivables, trade accounts payable, cigarette and tobacco taxes payable and other accrued liabilities approximates fair value because of the short maturity of these financial instruments. The carrying amount of our variable rate debt approximates fair value.

We calculate the fair value of our pension plan assets based on assumptions that market participants would use in pricing the assets or liabilities. We use a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and give precedence to observable inputs in determining fair value. An ~~instrument’s~~instrument's level within the hierarchy is based on the lowest level of any significant input to the fair value measurement. The following levels were established for each input:

Level 1 —- Quoted prices in active markets for identical assets or liabilities.

Level 2 —- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 —- Unobservable inputs for the asset or liability, which reflect the ~~Company’s~~Company's own assumptions about what market participants would assume when pricing the asset or liability.

(See Note ~~12—~~12 -- Employee Benefit Plans.)

Risks and Concentrations

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash investments, accounts receivable and other receivables. We place our cash and cash equivalents in short-term instruments with high quality financial institutions and limit the amount of credit exposure in any one financial instrument. We pursue amounts and incentives due from vendors in the normal course of business and are often allowed to deduct these amounts and incentives from payments made to our vendors.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

A credit review is completed for new customers and ongoing credit evaluations of each ~~customer’s~~customer's financial condition are performed and prepayment or other guarantees are required whenever deemed necessary. Credit limits given to customers are based on a risk assessment of their ability to pay and other factors. We do not have individual customers that account for more than 10% of our total sales or for more than 10% of total accounts receivable. However, some of our distribution centers are dependent on relationships with a single customer or a few large customers.

We have two significant suppliers: Philip Morris USA, Inc. and R.J. Reynolds Tobacco Company. Product purchases from Philip Morris USA, Inc. represented approximately 28% of our total product purchases for each of the years 2010 and 2009 and 27% for 2008 ~~and 25% for 2007.~~. Product purchases from R.J. Reynolds Tobacco Company were approximately 13% for 2010 and 14% for each of the years 2009 ~~2008~~ and ~~2007.~~2008.

Cigarette sales represented approximately ~~70.3%~~70.5%, ~~68.2%~~70.3% and ~~69.5%~~68.2% of our revenues and contributed approximately 31.0%,

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35.4%~~, 29.0%~~ and ~~30.5%~~29.0% of our gross profit in 2010, 2009 ~~2008~~ and ~~2007,~~2008, respectively. The increase in the percentage of our revenues and gross profit attributable to cigarettes beginning in 2009 was due primarily to manufacturer price increases in response to the enactment of the State ~~Children’s~~Children's Health Insurance Program (“SCHIP”), which increased the federal cigarette excise tax from 39¢ to $1.01 per pack. U.S. cigarette consumption has declined since 1980. If cigarette consumption continues to decline and we do not make up for lost cigarette carton sales through cigarette price increases or by increasing our food/non-food sales, our results of operations could be materially and adversely affected.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consists of trade receivables from customers. We evaluate the collectability of accounts receivable and determine the appropriate allowance for doubtful accounts based on historical experience and a review of specific customer accounts. Account balances are charged off against the allowance when collection efforts have been exhausted and the receivable is deemed worthless(see Note 4—4 --Other Consolidated Balance Sheet Accounts ~~Detail)~~Detail).

Other Receivables

Other receivables consist primarily of amounts due from vendors for promotional and other incentives, which are accrued as earned. We evaluate the collectability of amounts due from vendors and determine the appropriate allowance for doubtful accounts due from vendors based on historical experience and on a review of specific amounts outstanding. While we believe that such allowances are adequate, these estimates could change in the future depending upon our ability to collect these vendor receivables.

~~Inventories~~

Inventories

Inventories consist of finished goods, including cigarettes and other tobacco products, food and other products and related consumable products held for re-sale, and are valued at the lower of cost or market. In the U.S., cost is primarily determined on a last-in, first-out (“LIFO”) basis using producer price indices as determined by the Department of Labor, adjusted based on more current information if necessary. When we are aware of material price increases or decreases from manufacturers, we will estimate the producer price index for the respective period in order to more accurately reflect inflation rates. Under the LIFO method, current costs of goods sold are matched against current sales. Inventories in Canada are valued on a first-in, first-out ~~(FIFO)~~("FIFO") basis, as LIFO is not a permitted inventory valuation method in Canada. Approximately ~~82%~~81% and ~~85%~~82% of our FIFO inventory was valued on a LIFO basis at December 31, ~~2009~~2010 and ~~2008,~~2009, respectively.

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. Conversely, during periods of decreasing prices, the LIFO method of costing inventories generally results in lower current costs being charged against income and higher stated inventories. Liquidations of inventory may also result in the sale of low-cost inventory and a decrease of cost of goods sold. We reduce inventory value for spoiled, aged and unrecoverable inventory based on amounts ~~on hand~~on-hand and historical experience. We had a decrement in our LIFO layer of $3.7 million in 2010 and $5.1 million in 2009 ~~and an insignificant LIFO layer decrement in 2008.~~.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization on new purchases are computed using the straight-line method over ~~their~~the assets' estimated useful lives. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the property or the term of the lease including available renewal option terms if it is reasonably assured that those terms will be exercised. Upon retirement or sale, the cost and related accumulated depreciation of the assets are removed ~~from the accounts~~ and any related gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

We have determined the following useful lives for our fixed assets:


	Useful ~~life~~ Life in
	~~years~~		Years
Office furniture and equipment		3 to 10
Delivery equipment		4 to 10
Warehouse equipment		3 to 15
Leasehold improvements		3 to 25
Buildings		25

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Impairment of Long-lived Assets

We review our intangible and long-lived assets for potential impairment at least ~~annually, based on projected undiscounted cash flows associated with these assets.~~annually. Long-lived and intangible assets may also be included in impairment testing when events and circumstances exist that indicate the carrying amounts of those assets may not be recoverable. ~~Measurement of impairment losses for long-lived assets that we expect to hold and use is based on the estimated fair value of those assets.~~

Long-lived assets consist primarily of land, buildings, furniture, fixtures and equipment, leasehold improvements and intangible assets. An impairment of long-lived assets exists when ~~future~~the carrying amount of a long lived asset, or asset group, exceeds its fair value. Impairment losses are only recorded when the carrying amount of the impaired asset is not recoverable. Recoverability is determined by comparing the carrying amount of the asset (or asset group) to the undiscounted cash flows which are ~~less than an asset group’s~~expected to be generated from its use. An asset's carrying value ~~over~~can exceed its fair value, thus being impaired; however an impairment loss is not required to be recorded if the ~~estimated remaining useful life of the primary assets. Impairment is measured as the difference between~~ carrying value ~~and fair value. Fair value~~ is ~~based on appraised value or estimated sales value, similar assets in recent transactions or discounted~~recoverable from expected future cash ~~flows.~~flows from its use. Assets to be disposed of are reported at the lower of carrying amount or fair value less the cost to sell such assets. During 2010, 2009 ~~2008~~ and ~~2007,~~2008, we did not have impairment ~~costs~~losses related to long-lived assets or assets identified for abandonment as a result of facility closures or facility relocation.

Goodwill and Intangible Assets

We review goodwill for impairment on an annual basis or whenever significant events or changes occur in our business. The reviews are performed at the operating division level, which comprise our reporting units. The implied fair value of the reporting ~~unit’s~~unit's goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting ~~unit’s~~unit's goodwill exceeds its implied fair value, an impairment loss equal to the difference will be recorded. Based on the impairment tests performed as of December 31, ~~2009~~2010 and ~~November 30, 2008,~~December 31, 2009, there was no impairment of goodwill in ~~2009~~2010 or ~~2008.~~2009. There can be no assurance that future goodwill tests will not result in a charge to earnings. We do not amortize those intangible assets that have been determined to have indefinite useful lives(seeNote 4—4 -- Other Consolidated Balance Sheet Accounts ~~Detail)~~Detail).

Computer Software Developed or Obtained for Internal Use

We account for proprietary computer software systems, namely our Distribution Center Management System (“DCMS”), using certain criteria under which costs associated with this software are either expensed or capitalized and amortized over periods from ~~one~~three to eight years. During 2010, 2009 ~~2008~~ and ~~2007,~~2008, we capitalized approximately ~~$0.3~~$1.0 million, ~~$0.7~~$0.3 million and ~~$2.0~~$0.7 million, respectively, primarily for enhancements to DCMS ~~enhancements, as well as~~and other non-proprietary systems.

Debt Issuance Costs

Debt issuance costs have been deferred and are being amortized as interest expense over the term of the related debt agreement ~~using the effective interest method.~~on a straight-line basis. Debt issuance costs are included in other non-current assets, net, on the accompanying consolidated balance sheets. Unamortized debt issuance costs were $1.7 million as of December 31, 2010 and $0.4 million as of December 31, 2009.

Claims Liabilities and Insurance Recoverables

We maintain reserves related to health and welfare, workers' compensation, auto and general liability programs that are principally self-insured. We currently have a per-claim ceiling of $500,000 for our workers' compensation, general and auto liability self-insurance programs and a per-claim limit of $200,000 for our health and welfare program. We purchase insurance to cover the claims that exceed the ceiling up to policy limits. Self-insured reserves are for pending or future claims that fall outside the policy and reserves include an estimate of expected settlements on pending claims and a provision for claims incurred but not reported. Estimates for workers' compensation, auto and general liability insurance are based on our assessment of potential liability using an annual actuarial analysis of available information with respect to pending claims, historical experience and current cost trends. Reserves for claims under these programs are included in accrued liabilities (current portion) and claims liabilities, net of current portion.

Claims liabilities and the related recoverables from insurance carriers for estimated claims in excess of deductible amounts and other insured events are presented in their gross amounts on the accompanying consolidated balance sheets because there is no right of offset. The carrying values of claims liabilities and insurance recoverables are not discounted. Insurance recoverables are included in other receivables, net and other non-current assets, net. We had gross liabilities for ~~workers’~~health and welfare, workers' compensation, auto and general liability related to both Core-Mark and Fleming (former owner of Core-Mark, related to emergence from bankruptcy in 2004) self-insurance obligations at December 31, ~~2009~~2010 and ~~2008~~2009 in the amounts of $30.6 million long-term and $8.7 million short-term, and $32.6 million long-term and $8.4 million short-term, respectively. Our liabilities net of insurance recoverables at December 31, 2010 and ~~$31.3~~2009 were $11.1 million long-term and ~~$9.3~~$6.2 million short-term, ~~respectively.~~

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~and $11.6 million long-term and $5.7 million short-term, respectively

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

We maintain reserves related to health and welfare, workers’ compensation, auto and general liability programs that are principally self-insured. We have a per-claim ceiling of $500,000 for our workers’ compensation, auto and general liability self-insurance programs and a per-claim limit of $200,000 for our health and welfare program. We purchase insurance to cover the claims that exceed the ceiling up to policy limits. Self-insured reserves are for pending or future claims that fall outside the policy and reserves include an estimate of expected settlements on pending claims and a provision for claims incurred but not reported. Estimates for workers’ compensation, auto and general liability insurance are based on our assessment of potential liability using an annual actuarial analysis of available information with respect to pending claims, historical experience and current cost trends. Reserves for claims under these programs are included in accrued liabilities (current portion) and claims liabilities, net of current portion.

Pension Costs and Other Post-retirement Benefit Costs

Pension costs and other post-retirement benefit costs charged to operations are estimated on the basis of annual valuations by an independent actuary. Adjustments arising from plan amendments, changes in assumptions and experience gains and losses

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are amortized over the expected average remaining service life of the employee group. We recognize in the consolidated balance sheets an asset for a ~~plan’s~~plan's overfunded status or a liability for a ~~plan’s~~plan's underfunded status as of the end of each fiscal year. We determine the ~~plan’s~~plan's funded status by measuring its assets and its obligations, and we recognize changes in the funded status of our defined benefit post-retirement plan in the year in which the change occurred(see Note ~~12—~~12 -- Employee Benefit ~~Plans)~~Plans).

Income Taxes

Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when we do not consider it more likely than not that some portion or all of the deferred tax assets will be realized.

A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. We have established an estimated liability for income tax exposures that arise and meet the criteria for accrual. We prepare and file tax returns based on our interpretation of tax laws and regulations and record estimates based on these judgments and interpretations. In the normal course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law resulting from legislation, regulation and/or as concluded through the various ~~jurisdictions’~~jurisdictions' tax court systems. We classify interest and penalties related to income taxes as income tax ~~expense.~~expense (see Note 9 -- Income Taxes).

Stock-Based Compensation

We account for stock-based compensation expense by estimating the fair values of awards at their grant dates and amortizing these amounts as expense using a straight-line method for awards with vesting based on service and ratably for awards based on performance conditions. Currently, we use the Black-Scholes option valuation model to value the stock awards (see Note ~~11—~~11 -- Stock-Based Compensation Plans).

Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected life of share awards and forfeiture rates. We develop our estimates based on historical data and market information which can change significantly over time.

Total Comprehensive Income

Total comprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are recorded directly as an element of ~~stockholders’~~stockholders' equity, but are excluded from net income. Other comprehensive income is comprised of ~~adjustments to~~ minimum pension liability and currency translation adjustments relating to our foreign operations in Canada whose functional currency is not the U.S. dollar(see ~~consolidated statements~~Consolidated Statements of ~~stockholders’ equity~~Stockholders' Equity and ~~comprehensive income)~~Comprehensive Income).

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Segment Information

We report our segment information using established standards for reporting by public enterprises on information about product lines, geographical areas and major customers. The method of determining what information to report is based on the way we are organized for operational decisions and assessment of financial performance. From the perspective of our chief operating decision makers, we are engaged in the business of distributing packaged consumer products to convenience retail stores in the U.S. and Canada. Therefore, we have determined that we have two reportable segments based on geographical area —-- U.S. and Canada. We present our segment reporting information based on business operations and by major product category for each of the two geographic segments(see Note ~~15—~~15 -- Segment ~~Information)~~Information).

Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during each period, excluding unvested restricted stock. Diluted earnings per share assumes the exercise of stock options and common stock warrants and the impact of restricted stock, when dilutive, using the treasury stock method(see Note ~~10—~~10 -- Earnings Per ~~Share)~~Share).

52
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Recent Accounting Pronouncements

In ~~December 2008,~~January 2010, the Financial Accounting Standards Board issuedAccounting Standards ~~Codification~~Update (“~~ASC”~~ASU”) ~~715(formerly~~~~FSP SFAS~~ No. ~~132(R)-1,~~~~Employer’s~~2010-06,Improving Disclosures about ~~Post-retirement Benefit Plan Assets), Compensation — Retirement Benefits~~~~, which amended Statement of Financial Accounting Standards No. 132(R). ASC 715 enhances required~~Fair Value Measurements. ASU 2010-06 requires additional disclosures about ~~employers’ plan assets,~~fair value measurements, including ~~employers’ investment strategies, major categories~~transfers in and out of ~~plan assets, concentrations of risk within plan assets and valuation techniques used to measure~~ the fair value hierarchy Levels 1 and 2 and a higher level of ~~plan assets. The ASC~~disaggregation based on nature and risk for the different types of financial instruments. For the reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and settlements should be presented separately. This ASU is effective for ~~our fiscal~~annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year ~~beginning January 1, 2010.~~the disclosures are required. We ~~do not expect the adoption of ASC 715 to~~ have ~~a material impact on~~incorporated ASU 2010-06 into the disclosures that accompany our consolidated financial statements.

3. Acquisitions

On August 2, 2010, we acquired substantially all of the assets of Finkle Distributors, Inc. (“FDI”), a regional convenience

wholesaler servicing customers in New York, Pennsylvania and the surrounding states, for cash consideration of approximately $36.0 million. The FDI operations were integrated into two of our existing distribution centers and are providing us opportunities to expand our market share.

The purchase price allocation of the acquired assets and liabilities assumed, based on their estimated fair values at the acquisition date, was as follows (in millions):


Cash	$	0.1
Accounts receivable	21.1
Inventory	9.9
Prepaid expenses	0.3
Property, plant and equipment	2.4
Intangible assets	3.6
Liabilities	(1.4		)
Cash paid at closing	$	36.0
Contingent payments	1.0
Total consideration	$	37.0

We do not expect any future changes in the fair value analysis of the assets to be material.

Intangible assets include $2.0 million for customer relationships which will be amortized over ten years, $0.9 million of non-amortizing goodwill and $0.7 million for the non-competition agreement which will be amortized over five years. Goodwill is measured as the difference between the purchase price and the fair value of assets acquired and liabilities assumed. The intangible assets, including goodwill, are expected to be deductible for tax purposes. The contingent payments relate primarily to a non-competition agreement with a former owner and were recorded at the present value of contractual payments. Results of operations of FDI have been included in Core-Mark’s consolidated statement of operations since the date of acquisition to December 31, 2010.

Pro forma results of the acquired business have not been presented as the results were not material to our consolidated financial statements for all periods presented and would not have been material had the acquisition occurred at the beginning of

the year.

On June 23, 2008, we acquired substantially all of the assets of Auburn Merchandise Distributors, Inc. (“AMD”), located in Whitinsville, Massachusetts, a wholly-owned subsidiary of Warren Equities, Inc., for approximately $28.7 ~~million, including transaction costs.~~million. The assets purchased include primarily accounts receivable, inventory, fixed assets and other intangibles, with no significant liabilities. AMD conducts business primarily in the Northeastern region of the U.S. The purchase price exceeded the estimated fair value of net assets acquired by approximately $0.9 million, which has been recorded as goodwill. AMD conducts operations as the “New England” division of Core-Mark. Results of operations of AMD are included in ~~Core-Mark’s~~Core-Mark's consolidated statements of operations since the date of ~~acquisition to December 31, 2009.~~acquisition.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~53

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

4.Other Consolidated Balance Sheet Accounts Detail

Allowance for Doubtful Accounts, Accounts Receivable

The changes in the allowance for doubtful accounts due from customers consist of the following (in millions):

2009 2008
Balance, beginning of period $ 8.8 $ 9.3
Net additions charged to operations 1.8 1.6
Less: Write-offs and adjustments (1.5 ) (2.1 )

Balance, end of period $ 9.1 $ 8.8


	2010			2009
Balance, beginning of period	$	9.1		$	8.8
Net additions charged to operations	1.4			1.8
Less: Write-offs and adjustments	(1.8		)	(1.5		)
Balance, end of period	$	8.7		$	9.1

The ~~increase in~~net additions to the allowance for doubtful accounts was recognized in our selling, general and administrative expenses which is included in our operating expenses. We continually assess our collection risks and make appropriate adjustments, as deemed necessary, to the allowance for doubtful accounts to ensure that reserves for accounts receivable are adequate.

Other Receivables, Net

Other receivables, net consist of the following (in millions):

December 31, December 31,
2009 2008
Vendor receivables, net $ 30.4 $ 25.9
Insurance recoverables, current 2.7 2.9
Other 6.5 5.3

Total $ 39.6 $ 34.1


	December 31, 2010		December 31, 2009
Vendor receivables, net	$	31.1	$	30.4
Insurance recoverables, current	2.5		2.7
Other	9.9		6.5
Total	$	43.5	$	39.6

The allowance for doubtful accounts due from vendors was $0.1 million ~~and $0.2 million~~ as of December 31, ~~2009~~2010 and ~~2008,~~2009, respectively.

Deposits and Prepayments

Deposits and prepayments consist of the following (in millions):

December 31, December 31,
2009 2008
Deposits $ 3.3 $ 3.6
Prepayments 38.9 22.9

Total $ 42.2 $ 26.5


	December 31, 2010		December 31, 2009
Deposits	$	4.4	$	3.3
Prepayments	37.8		38.9
Total	$	42.2	$	42.2

Our deposits and prepayments include deposits related to ~~workers’~~workers' compensation claims, prepayments relating primarily to product purchases, as well as insurance policies, income taxes, ~~product purchases,~~ prepaid rent and rental deposits and up-front consideration to customers.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Other Non-Current Assets, Net

Other non-current assets, net consist of the following (in millions):

December 31, December 31,
2009 2008
Internally developed and other purchased software, net $ 3.3 $ 4.7
Insurance recoverables, net of current portion 21.0 19.8
Debt issuance costs, net of current portion 0.3 1.0
Insurance deposits, net of current portion 4.5 5.1
Other amortizable intangibles 2.2 3.8
Other customer receivables — 1.9
Other assets 1.7 1.1

Total $ 33.0 $ 37.4


	December 31, 2010		December 31, 2009
Internally developed and other purchased software, net	$	2.6	$	3.3
Insurance recoverables, net of current portion	19.5		21.0
Debt issuance costs, net of current portion	1.2		0.3
Insurance deposits, net of current portion	2.7		4.5
Other amortizable intangibles	4.5		2.2
Other assets	0.8		1.7
Total	$	31.3	$	33.0

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The amortization of intangible assets, inclusive of non-compete agreements and ~~customers’~~customers' lists, recorded in the consolidated statement of operations was $2.1 million for 2010 and $2.0 million for both 2009 and 2008 ~~and $1.8 million for 2007.~~.

Accrued Liabilities

Accrued liabilities consist of the following (in millions):

December 31, December 31,
2009 2008
Accrued payroll, retirement and other benefits $ 21.1 $ 17.5
Claims liabilities, current 8.4 9.3
Other accrued expenses 20.4 20.9
Accrued customer incentives payable 9.7 10.4

Total $ 59.6 $ 58.1


	December 31, 2010		December 31, 2009
Accrued payroll, retirement and other benefits	$	22.2	$	21.1
Claims liabilities, current	8.7		8.4
Other accrued expenses	24.8		20.4
Accrued customer incentives payable	11.1		9.7
Total	$	66.8	$	59.6

Our accrued payroll, retirement and other benefits include accruals for vacation, bonus, wages, 401(k) benefit matching and the current portion of pension and post-retirement benefit obligations. Our other accrued expenses include ~~Canadian~~ goods and services taxes, legal expenses, interest and other miscellaneous accruals.

5.Inventories

Inventories consist of the following (in millions):

December 31, December 31,
2009 2008
Inventories at FIFO, net of reserves $ 318.5 $ 274.7
Less: LIFO reserve (43.0 ) (36.3 )

Inventories at LIFO $ 275.5 $ 238.4

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~


	December 31, 2010			December 31, 2009
Inventories at FIFO, net of reserves	$	350.4		$	318.5
Less: LIFO reserve	(59.7		)	(43.0		)
Total inventories at LIFO, net of reserves	$	290.7		$	275.5

6. Property and Equipment

Property and equipment consist of the following (in millions):

December 31, December 31,
2009 2008
Delivery, warehouse and office equipment $ 109.0 $ 94.0
Equipment under capital leases 1.0 1.0
Leasehold improvements 17.4 9.1
Land and buildings 12.7 12.5

140.1 116.6
Accumulated depreciation and amortization (56.3 ) (42.4 )

Total $ 83.8 $ 74.2


	December 31, 2010			December 31, 2009
Delivery, warehouse and office equipment	$	118.5		$	109.0
Equipment under capital leases	1.2			1.0
Leasehold improvements	20.4			17.4
Land and buildings	12.8			12.7
	152.9			140.1
Less: Accumulated depreciation and amortization	(68.2		)	(56.3		)
Total	$	84.7		$	83.8

For 2010, 2009 ~~2008~~ and ~~2007,~~2008, depreciation and amortization expenses related to property and equipment were $15.0 million, $14.2 million ~~$12.8 million~~ and ~~$10.8~~$12.8 million, respectively. Property and equipment includes accruals for construction in progress of $0.5 million in 2010 and $0.7 million in 2009 ~~and 2008 and $3.3 million in 2007.~~.

7. Long-Term Debt

Total long-term debt ~~as presented in the consolidated balance sheets~~ consists of the following (in millions):

December 31, December 31,
2009 2008
Amounts borrowed (Credit Facility) $ 19.2 $ 30.0
Obligations under capital leases 0.8 0.8

Total long-term debt, net $ 20.0 $ 30.8


	December 31, 2010		December 31, 2009
Amounts borrowed (Credit Facility)	$	—	$	19.2
Obligations under capital leases	0.8		0.8
Total	$	0.8	$	20.0

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In October 2005, we entered into a five-year revolving credit facility (“Credit Facility”) with a capacity of $250 million and an expiration date of October 2010. In February 2010, we entered into a third amendment to our Credit Facility (the “Third Amendment”), which extended our credit facility for four years, to February 2014, and decreased the ~~lenders’~~lenders' revolving loan commitments by $50 million to $200 million, at our request. The Third Amendment also provides for up to an additional $100 million of lenders' revolving commitments (formerly $75 million), subject to certain provisions contained therein. Pricing under the new facility increased as a result of generally higher prices in the bank loan market. The basis points added to LIBOR increased to a range of 275 to 350 basis points, up from a range of 100 to 175 basis points, tied to achieving certain operating results as defined in the Credit Facility. Additionally, unused facility fees and letter of credit participation fees increased. The Third Amendment also increased our basket for permitted acquisitions following the date of the Third Amendment to $125 million and re-established our basket for permitted stock repurchases at $30 million. At the date of signing the Amendment, we incurred fees of approximately ~~$2.0~~$1.8 million, which ~~will be~~are being amortized over the term of the ~~agreement.~~ amendment.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Amounts borrowed, outstanding letters of credit and amounts available to borrow under the Credit Facility were as follows (in millions):~~

December 31, December 31,
2009 2008
Amounts borrowed $ 19.2 $ 30.0

Outstanding letters of credit $ 26.1 $ 24.4

Amounts available to borrow (prior to Third Amendment) $ 196.9 $ 186.0

The Credit Facility contains restrictive covenants, including among others, limitations on dividends and other restricted payments, other indebtedness, liens, investments and acquisitions and certain asset sales. WeAs of December 31, 2010, we were in compliance with all of the covenants under the Credit Facility.

Amounts borrowed, outstanding letters of credit and amounts available to borrow under the Credit Facility were as offollows (in millions):


	December 31, 2010		December 31, 2009
Amounts borrowed	$	—	$	19.2
Outstanding letters of credit	$	26.2	$	26.1
Amounts available to borrow	$	161.4	$	196.9

Average borrowings during the year ended December 31, ~~2009.~~2010 were $3.1 million, with amounts borrowed ranging from zero to a high of $34.8 million. For the same period in 2009, average borrowings were $8.2 million, with amounts borrowed ranging from zero to a high of $61.1 million.

Our weighted-average interest rate was calculated based on our daily cost of borrowing, which was computed on a blend of prime and LIBOR rates. The weighted-average interest rate on our revolving credit facility for the years ended December 31, 2010 and 2009 was 2.9%and ~~2008 was~~ 2.0% ~~and 3.8%~~, respectively. We paid total unused facility fees and letter of ~~$0.5~~credit participation fees, which are included in interest expense, of $1.8 million for ~~both 2009 and 2008.~~2010 compared to $0.8 million for 2009. Unamortized debt issuance costs were ~~$0.4~~$1.7 as of December 31, 2010 and $0.4 million as of December 31, ~~2009 and $1.0 million at December 31, 2008.~~2009.

8.Commitments and Contingencies

Purchase Commitments

We enter into purchase commitments in the ordinary course of business related to transportation equipment.

Operating Leases

We lease nearly all of our sales and warehouse facilities as well as tractors, trucks, vans and certain equipment under operating lease agreements expiring at various dates through 2022, excluding renewal options. Rent expense is recorded on a straight-line basis over the term of the lease, including available renewal option terms, if it is reasonably assured that the renewal options will be exercised. The operating leases generally require us to pay taxes, maintenance and insurance. In most instances, we expect the operating leases that expire will be renewed or replaced in the normal course of business.

Future minimum rental payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year and excluding contracted vehicle maintenance costs) were as follows as of December 31, ~~2009:~~2010 (in millions):

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Year Ending December 31,	(in millions)
2010	$	28.5
2011		26.1	$	29.3
2012		21.9	25.7
2013		16.7	20.5
2014		12.7	15.8
Thereafter		70.1
2015			13.5
2016 and Thereafter			68.4
			$	173.2
	$	176.0

For 2010, 2009 ~~2008~~ and ~~2007,~~2008, rental expenses for operating and month-to-month leases, including contracted vehicle maintenance costs, were $35.8 million, $34.7 million and $33.8 million, ~~and $29.1 million,~~ respectively.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Capital Leases

As of December 31, ~~2009~~2010 and ~~2008,~~2009, we had approximately $1.0 million and $0.8 million, respectively, of refrigeration and other equipment leased under a capital ~~lease.~~leases, including current maturities.

Contingencies

Litigation

We are subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of our business. We make a provision for a liability when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. At December 31, ~~2009,~~2010, we were not involved in any material litigation.

9.Income Taxes

Our income tax provision consists of the following (in millions):

Year Ended December 31,
2009 2008 2007
Current:
Federal $ 7.6 $ 6.8 $ 13.5
State (1.9 ) 0.6 3.4
Foreign — (0.1 ) 0.4

Total current tax provision $ 5.7 $ 7.3 $ 17.3

Deferred:
Federal 11.6 (1.6 ) (2.3 )
State 2.3 (1.0 ) (0.4 )
Foreign (1.1 ) — (1.1 )

Total deferred tax (benefit) provision $ 12.8 $ (2.6 ) $ (3.8 )

Total income tax provision $ 18.5 $ 4.7 $ 13.5

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~


	Year Ended December 31,
	2010			2009			2008
Current:
Federal	$	3.8		$	7.6		$	6.8
State	0.5			(1.9		)	0.6
Foreign	—			—			(0.1		)
Total current tax provision	$	4.3		$	5.7		$	7.3

Deferred:
Federal	5.1			11.6			(1.6		)
State	0.9			2.3			(1.0		)
Foreign	(0.8		)	(1.1		)	—
Total deferred tax (benefit) provision	$	5.2		$	12.8		$	(2.6	)

Total income tax provision	$	9.5		$	18.5		$	4.7

A reconciliation of the statutory federal income tax rate to our effective income tax rate and income tax provision follows (in millions):

Year Ended December 31,
2009 2008 2007
Federal income tax provision at the statutory rate $ 23.0 35.0 % $ 7.9 35.0 % $ 13.2 35.0 %
Increase (decrease) resulting from:
State income taxes, net of federal benefit 2.9 4.4 1.0 4.4 1.9 5.1
Decrease in unrecognized tax benefits (inclusive of related interest and penalty) (6.0 ) (9.1 ) (2.5 ) (11.1 ) (0.8 ) (2.1 )
Effect of foreign operations (1.1 ) (1.7 ) (0.1 ) (0.4 ) (0.8 ) (2.1 )
Change in valuation allowances — — (1.6 ) (7.1 ) — —
Other, net (0.3 ) (0.5 ) — — — —

Income tax provision $ 18.5 28.1 % $ 4.7 20.8 % $ 13.5 35.9 %

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	Year Ended December 31,
	2010					2009					2008
Federal income tax provision at the statutory rate	$	9.5		35.0	%	$	23.0		35.0	%	$	7.9		35.0	%
Increase (decrease) resulting from:
State income taxes, net of federal benefit	1.2			4.4		2.9			4.4		1.0			4.4
Decrease in unrecognized tax benefits (inclusive of
related interest and penalty)	(0.5		)	(1.8	)	(6.0		)	(9.1	)	(2.5		)	(11.1	)
Effect of foreign operations	(0.8		)	(2.9	)	(1.1		)	(1.7	)	(0.1		)	(0.4	)
Change in valuation allowances	—			—		—			—		(1.6		)	(7.1	)
Other, net	0.1			0.2		(0.3		)	(0.5	)	—			—
Income tax provision	$	9.5		34.9	%	$	18.5		28.1	%	$	4.7		20.8	%

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 (in millions):

December 31, December 31,
2009 2008
Deferred tax assets:

Employee benefits, including post-retirement benefits $ 16.8 $ 22.3
Trade and other receivables 3.6 3.4
Inventories — 2.5
Goodwill and intangibles 1.3 1.1
Self-insurance reserves 0.6 1.7
State taxes — 0.8
Other 2.2 2.0

Subtotal 24.5 33.8
Less: valuation allowance (0.1 ) (0.1 )

Net deferred tax assets $ 24.4 $ 33.7

Deferred tax liabilities:

Inventories $ 5.1 $ —
Property and equipment 10.0 9.3
Prepaid and deposits 0.5 —
Deferred income 0.6 1.5
Other 1.7 1.7

Total deferred tax liabilities $ 17.9 $ 12.5

Total net deferred tax assets $ 6.5 $ 21.2
Net current deferred tax assets 3.0 10.7

Net non-current deferred tax assets $ 3.5 $ 10.5


	December 31, 2010			December 31, 2009
Deferred tax assets:
Employee benefits, including post-retirement benefits	$	15.5		$	16.8
Trade and other receivables	3.4			3.6
Goodwill and intangibles	1.7			1.3
Self-insurance reserves	0.6			0.6
Minimum tax credits	2.1			—
Other	2.9			2.2
Subtotal	26.2			24.5
Less: valuation allowance	(0.1		)	(0.1		)
Net deferred tax assets	$	26.1		$	24.4
Deferred tax liabilities:
Inventories	$	7.1		$	5.1
Property and equipment	14.8			10.0
Prepaid and deposits	0.5			0.5
Deferred income	0.3			0.6
Other	2.3			1.7
Total deferred tax liabilities	$	25.0		$	17.9

Total net deferred tax assets	$	1.1		$	6.5
Net current deferred tax assets	3.3			3.0
Net non-current deferred tax (liabilities) assets	$	(2.2	)	$	3.5

At each balance sheet date, a valuation allowance was established against the deferred tax assets based on ~~management’s~~management's assessment of whether it is more likely than not that these deferred tax assets would not be realized. We had a valuation allowance of $0.1 million at December 31, ~~2009~~2010 and ~~2008~~2009 related to foreign tax credits, which will expire at various times between 2014 and 2016.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

At December 31, ~~2009,~~2010, the total gross amount of unrecognized tax benefits, which was included in other tax liabilities related to federal, state and foreign taxes, was approximately ~~$1.5 million. The total amount~~$1.2 million, all of ~~net unrecognized tax benefits that~~which would impact the effective tax rate, if ~~recognized, would be $1.5 million as of December 31, 2009.~~recognized. The expiration of the statute of limitations for certain tax positions ~~in future years~~ could impact the total gross amount of unrecognized tax benefits ~~by $0.4~~

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in future years, including $0.2 million through December 31, ~~2010.~~2011. A reconciliation of the beginning and ending amounts of unrecognized tax benefits for 2010, 2009 ~~2008~~ and ~~2007~~2008 follows (in millions):

2009 2008 2007
Balance at beginning of year $ 6.1 $ 10.2 $ 10.5
Lapse of statute of limitations (4.7 ) (3.4 ) (0.9 )
Other 0.1 (0.7 ) 0.6

Balance at end of year $ 1.5 $ 6.1 $ 10.2


	2010			2009			2008
Balance at beginning of year	$	1.5		$	6.1		$	10.2
Lapse of statute of limitations	(0.4		)	(4.7		)	(3.4		)
Other	0.1			0.1			(0.7		)
Balance at end of year	$	1.2		$	1.5		$	6.1

We file U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The ~~2006~~2007 to ~~2009~~

2010 tax years remain subject to examination by federal and state tax authorities. The ~~2005~~2006 tax year is still open for certain state tax authorities. The ~~2002~~2003 to ~~2009~~2010 tax years remain subject to examination by the tax authorities in certain foreign jurisdictions. ~~In 2007, the Canada Revenue Agency initiated an examination of our Canadian tax returns for 2003 and 2004. The examination was finalized in 2009 and resulted in no significant adjustments.~~

We recognize interest and penalties on income taxes in income tax expense. ~~As of~~At December 31, ~~2009,~~2010, we ~~recorded~~have a liability of ~~$0.8~~$0.7 million for estimated interest and penalties related to unrecognized tax benefits, consisting of ~~$0.5~~$0.4 million for interest and $0.3 million of penalties.

10.Earnings Per Share

The following table sets forth the computation of basic and diluted net earnings per share (in millions, except per share amounts):

Year Ended December 31,
2009 2008 2007
Net Net Net
Weighted- Income Weighted- Income Weighted- Income
Average Per Average Per Average Per
Shares Common Net Shares Common Net Shares Common
Net Income Outstanding Share Income Outstanding Share Income Outstanding Share
Basic EPS
$ 47.3 10.5 $ 4.53 $ 17.9 10.5 $ 1.71 $ 24.1 10.5 $ 2.30
Effect of dilutive common share equivalents:

Unvested restricted stock units
— (0.02 ) — — — —
Stock options
0.2 (0.07 ) 0.2 (0.03 ) 0.3 (0.06 )
Warrants
0.2 (0.08 ) 0.2 (0.04 ) 0.4 (0.09 )
Performance shares
— (0.01 ) — — — —

Diluted EPS
$ 47.3 10.9 $ 4.35 $ 17.9 10.9 $ 1.64 $ 24.1 11.2 $ 2.15


	Year Ended December 31,
	2010						2009						2008
	Net Income		Weighted-Average Shares Outstanding	Net Income Per Common Share			Net Income		Weighted-Average Shares Outstanding	Net Income Per Common Share			Net Income		Weighted-Average Shares Outstanding	Net Income Per Common Share
Basic EPS	$	17.7	10.8	$	1.64		$	47.3	10.5	$	4.53		$	17.9	10.5	$	1.71
Effect of dilutive
common share
equivalents:
Unvested restricted
stock units			0.1	(0.01		)			—	(0.02		)			—	—
Stock options			0.2	(0.03		)			0.2	(0.07		)			0.2	(0.03		)
Warrants			0.3	(0.05		)			0.2	(0.08		)			0.2	(0.04		)
Performance shares			—	—					—	(0.01		)			—	—
Diluted EPS	$	17.7	11.4	$	1.55		$	47.3	10.9	$	4.35		$	17.9	10.9	$	1.64

Note: Basic and diluted earnings per share are calculated based on unrounded actual amounts.


~~Note:~~		~~Basic and diluted earnings per share are calculated based on unrounded actual amounts.~~

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Certain options and warrants to purchase common stock were outstanding but were not included in the computation of diluted earnings per share because the effect would be anti-dilutive. For 2010, 2009 ~~2008~~ and ~~2007~~2008 there were 104,020, 259,777 ~~249,453~~ and ~~121,475~~249,453 anti-dilutive options, respectively. There were no anti-dilutive warrants in 2010, 2009 ~~2008~~ or ~~2007.~~2008.

In ~~May~~ 2004, we issued an aggregate of 9,800,000 shares of our common stock and warrants to purchase an aggregate of 990,616 shares of our common stock to the Class 6(B) creditors of Fleming ~~Inc.~~ (our former parent company) pursuant to its plan of reorganization. We refer to the warrants we issued to the Class 6(B) creditors as the Class 6(B) warrants. We received no cash consideration ~~for~~at the ~~issuance of common stock and~~time we issued the Class 6(B) warrants. The Class 6(B) warrants have an exercise price of $20.93 per ~~share and may be exercised at the election of the holder at any time prior to August 23, 2011, at which time any outstanding warrants will be net issued.~~share. The shares of common stock and the Class 6(B) warrants were issued pursuant to an exemption from registration under Section 1145(a) of the Bankruptcy Code. We also issued warrants to purchase an aggregate of 247,654 shares of our common stock to the holders of our Tranche B Notes, which we refer to as Tranche B warrants. The Tranche B warrants have an exercise price of $15.50 per share. Both the Class 6(B) and Tranche B warrants may be exercised at the election of the holder at any time prior to August 23, 2011, at which time any outstanding warrants will be net issued.

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The number of Class 6(B) warrants outstanding was 705,894 at the end of 2010, 952,806 at the end of 2009 and 968,628 at the end of ~~both~~ 2008 ~~and 2007.~~. The number of Tranche B warrants outstanding was 126,716 at the end of 2010, 2009 ~~2008~~ and ~~2007.~~2008. The Class 6(B) warrants and the Tranche B warrants have been classified as permanent equity. We use the treasury stock method to determine the shares of common stock due to conversion of outstanding warrants as of December 31, ~~2009.~~2010.

11.Stock-Based Compensation Plans

Total stock-based compensation cost recognized in the consolidated statements of operations for 2010, 2009 ~~2008~~ and ~~2007~~2008 was ~~$5.1~~$4.8 million, ~~$3.9~~$5.1 million and ~~$5.3~~$3.9 million, respectively. Total unrecognized compensation cost related to non-vested share-based compensation arrangements was ~~$4.5~~$4.2 million at December 31, ~~2009.~~2010. This balance is expected to be recognized over a weighted-average period of ~~1.5~~1.7 years.

Employee stock-based compensation expense recognized in ~~2009~~2010 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Our forfeiture experience since inception of our plans has been approximately 4% of the total grants. The historical rate of forfeiture is a component of the basis for predicting the future rate of forfeitures, which are also dependent on the remaining service period related to grants and on the limited number of approximately 7982 plan participants that have been awarded grants since the inception of our plans. We issue new shares to satisfy stock option exercises.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~We maintain~~Historically, we have maintained five stock-based compensation plans: the 2004 Long-Term Incentive Plan, the 2004 ~~Directors’~~Directors' Equity Incentive Plan, the 2005 Long-Term Incentive Plan, the 2005 ~~Directors’~~Directors' Equity Incentive Plan and the 2007 Long-Term Incentive Plan.

Number of securities
remaining available for
Number of securities to future issuance under
be issued upon exercise of equity compensation
outstanding options, plans (excluding
warrants and securities reflected in
rights column 1)
2004 Long-Term Incentive Plan—Restricted stock units and options 492,196 1,000
2005 Long-Term Incentive Plan—Restricted stock units 22,111 —
2004 Directors’ Equity Incentive Plan 30,000 —
2005 Directors’ Equity Incentive Plan 15,000 —
2007 Long-Term Incentive Plan⁽¹⁾
605,734 336,933
During 2010, the 2010 Long-Term Incentive Plan was established.All shares available for issuance under our historical five plans have been transferred to the 2010 Long-Term Incentive Plan, from which all future awards will be made.


~~(1)~~		~~Includes non-qualified stock options, restricted stock units and performance shares.~~

Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1)
2004 Long-Term Incentive Plan
-Restricted stock units and options 219,476 $ 20.32 —
2005 Long-Term Incentive Plan
-Restricted stock units 15,772 $ 0.01 —
2004 Directors' Equity Incentive Plan 30,000 $ 15.50 —
2005 Directors' Equity Incentive Plan 15,000 $ 27.03 —
2007 Long-Term Incentive Plan⁽¹⁾
559,186 $ 13.96 —
2010 Long-Term Incentive Plan ⁽¹⁾
— $ — 660,952

(1) Includes non-qualified stock options, restricted stock units and performance shares.

2004 Long-Term Incentive Plan

The 2004 Long-Term Incentive Plan (“2004 LTIP”) provides for issuance of up to 1,314,444 shares of non-qualified stock options and restricted stock ~~units.~~units to officers and key employees. For option grants, the exercise price equals the fair value of the ~~Company’s~~Company's common stock on the date of grant. For restricted stock grants, the exercise price is fixed at $0.01. Options and restricted stock units vest over a three-year period; one-third of the options and restricted stock units cliff-vest on the first anniversary of the vesting commencement date and the remaining options and restricted stock units vest in equal monthly and quarterly installments, respectively, over the two-year period following the first anniversary of the vesting commencement date. Stock options expire seven years after the date of grant. Restricted stock units do not have an expiration date. ~~Restricted stock units are available for grant to officers and key employees.~~ Stock-based compensation is being recognized ratably over the three-year vesting period of the stock options or restricted stock units using the straight-line method. No further grants will be made under the 2004 LTIP.

2004 ~~Directors’~~Directors' Equity Incentive Plan

The 2004 ~~Directors’~~Directors' Equity Incentive Plan (“2004 ~~Directors’~~Directors' Plan”) consists of 30,000 non-qualified stock options that have been granted to non-employee Directors of the Company. This plan has terms and vesting requirements similar to those of the 2004 LTIP, except options vest quarterly after the first anniversary of the vesting commencement date. No stock options are

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available for future issuance.

2005 Long-Term Incentive Plan

The 2005 Long-Term Incentive Plan (“2005 LTIP”) provides for the granting of restricted stock units to officers and key employees. The majority of restricted stock units issued under the 2005 LTIP generally vest over three years: one-third of the restricted stock units cliff vest on the first anniversary of the vesting commencement date and the remaining restricted stock units vest in equal quarterly installments over the two-year period following the first anniversary of the vesting commencement date. Restricted stock units do not have an expiration date. No ~~restricted stock units are available for future issuance.~~further grants will be made under the 2005 LTIP.

2005 ~~Directors’~~Directors' Equity Incentive Plan

The 2005 ~~Directors’~~Directors' Equity Incentive Plan (“2005 ~~Directors’~~Directors' Plan”) consists of 15,000 non-qualified stock options that have been granted to non-employee Directors of the Company. The terms of the 2005 ~~Directors’~~Directors' Plan are similar to the 2004 ~~Directors’~~Directors' Plan. No stock options are available for future issuance.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

2007 Long-Term Incentive Plan

The 2007 Long-Term Incentive Plan (“2007 LTIP”) provides for the granting of stock options, restricted stock units and performance share awards of up to 1,202,350 shares of our common stock (including treasury shares) to officers, employees and non-employee directors. The majority of awards issued under the 2007 LTIP generally vest over three years: one-third of the restricted stock units cliff vest on the first anniversary of the vesting commencement date and the remaining restricted stock units vest in equal quarterly installments over the two-year period following the first anniversary of the vesting commencement date. Stock options expire seven years after the date of grant. Restricted stock units do not have an expiration date. No further grants will be made under the 2007 LTIP.

2010 Long-Term Incentive Plan

The 2010 Long-Term Incentive Plan (“2010 LTIP”) provides for the granting of awards of up to 1,115,952 shares of our common stock to officers, employees and non-employee directors. The 2010 LTIP became effective on ~~July~~April 1, ~~2007.~~2010. Awards may be made under the ~~2007~~2010 LTIP through ~~June 30, 2017,~~March 31, 2020, which is 10 years from the effective date of the ~~2007~~2010 LTIP.

The available awards under the ~~2007~~2010 LTIP include: stock options, stock appreciation rights, restricted stock units, other stock-based awards and performance shares. The annual award limits of the ~~2007~~2010 LTIP provide for ~~options~~awards which are limited in any one plan year to 100,000 shares to any one participant, and performance shares which are also limited to 100,000 to any one participant in any one plan year. Restricted stock units, or RSUs, are awards that will be subject to certain restrictions and subject to a risk of forfeiture upon certain kinds of employment terminations. A RSU represents a right to receive a share of our common stock at the end of a specified period. Unless a grant agreement provides otherwise, a holder of a RSU has the right to receive accumulated dividends or distributions on the corresponding shares underlying the RSU on the date the RSU vests and thereafter until the underlying shares are issued. Performance shares may include (i) specific dollar-value target awards, (ii) performance units, the value of each unit being determined by the Compensation Committee at the time of issuance and/or (iii) performance shares, the value of each such share being equal to the fair market value of a share of our common stock.

~~If any grant of shares under the 2007 LTIP expires or is forfeited by the grantee (whether due to failure to satisfy vesting requirement or otherwise), then such forfeited shares will be withdrawn~~participant. There were no issuances from the ~~pool~~2010 LTIP as of ~~shares available for grant under the 2007 LTIP.~~December 31, 2010.

Assumptions Used for Fair Value

We use the Black-Scholes option-pricing model to determine the grant date fair value for each stock option. Option-pricing models require the input of assumptions that are estimated at the date of grant.

The following table presents the assumptions used in the Black-Scholes option-pricing model to value the stock options granted during ~~the period 2007 through~~2008 and 2009. There were no stock options granted in 2010. Restricted stock units and performance shares were valued at the fair market value of our stock at date of grant.

Year Ended December 31,
2009 2008 2007
Expected life (years) 4.0 4.0 4.0
Risk-free interest rate 1.12 % 2.55 % 4.50%-5.00 %
Volatility 44 % 35 % 30 %
Dividend yield — — —
Weighted-average fair value per share of grants:
Stock options $ 7.14 $ 8.45 $ 11.39
Restricted stock units $ 19.18 $ 25.80 $ 35.41
Performance shares $ 19.18 $ 25.80 $ 36.95


	Year Ended December 31,
	2010		2009			2008
Expected life (years)	—		4.0			4.0
Risk-free interest rate	—		1.12		%	2.55		%
Volatility	—		44		%	35		%
Dividend yield	—		—			—
Weighted-average fair value per share of grants:
Stock options	$	—	$	7.14		$	8.45
Restricted stock units	$	31.57	$	19.18		$	25.80
Performance shares	$	—	$	19.18		$	25.80

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The expected volatility of our stock is based on the implied volatilities of publicly traded options to buy our stock. Through 2007, our expected volatility was based on a variety of factors including the volatility measures of other companies in relatively similar industries and the measures of companies which have also emerged from bankruptcy. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of options granted represents the period of time we estimate that options granted are expected to be outstanding.

The following table summarizes the activity for all stock options, restricted stock units and performance shares under all of the plans for the year ended December 31, ~~2009:~~2010:

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		December 31, 2007				December 31, 2008				Activity during 2009														December 31, 2009									December 31, 2009			Activity during 2010											December 31, 2010
		Outstanding				Outstanding				Granted				Exercised					Canceled/Reclass					Outstanding				Exercisable					Outstanding			Granted			Exercised				Canceled/Reclass				Outstanding			Exercisable
Plans	Securities	Number		Price		Number		Price		Number		Price		Number			Price		Number			Price		Number		Price		Number		Price		Securities	Number	Price		Number	Price		Number		Price		Number		Price		Number	Price		Number	Price
2004 LTIP	RSUs		74,627	$	0.01		41,978	$	0.01		—	$	—		(30,049	)	$	0.01		—		$	—		11,929	$	0.01		10,671	$	0.01	RSUs	11,929	$	0.01	—	$	—	(10,708	)	$	0.01	—		$	—	1,221	$	0.01	1,221	$	0.01
	Options		753,546		16.99		593,291		17.39		2,543		19.19		(114,567	)		15.50		(1,000	)		36.03		480,267		17.81		472,097		17.61	Options	480,267	17.81		—	—		(261,012	)	15.54		(1,000	)	36.03		218,255	20.44		217,404	20.44
2004 Directors’ Plan	Options		30,000		15.50		30,000		15.50		—		—		—			—		—			—		30,000		15.50		30,000		15.50	Options	30,000	15.50		—	—		—		—		—		—		30,000	15.50		30,000	15.50
2005 LTIP	RSUs		90,976		0.01		38,472		0.01		134		0.01		(16,495	)		0.01		—			—		22,111		0.01		20,438		0.01	RSUs	22,111	0.01		—	—		(6,339	)	0.01		—		—		15,772	0.01		15,727	0.01
2005 Directors’ Plan	Options		15,000		27.03		15,000		27.03		—		—		—			—		—			—		15,000		27.03		15,000		27.03	Options	15,000	27.03		—	—		—		—		—		—		15,000	27.03		15,000	27.03
2007 LTIP (1)	RSUs		59,871		0.01		146,994		0.01		126,465		0.01		(81,295	)		0.01		—			—		192,164		0.01		20,949		0.01	RSUs	192,164	0.01		148,586	0.01		(119,965	)	0.01		(2,836	)	0.01		217,949	0.01		30,421	0.01
	Options		66,838		36.96		199,145		29.39		143,634		19.19		(2,709	)		25.81		(7,165	)		29.48		332,905		25.01		141,177		29.95	Options	332,905	25.01		—	—		(21,057	)	21.30		(3,065	)	24.10		308,783	25.28		266,113	26.25
	Performance shares		19,979		0.01		27,500		0.01		83,025		0.01		(18,735	)		0.01		(11,125	)		0.01		80,665		0.01		—		—	Perf. shares	80,665	0.01		—	—		(48,211	)	0.01		—		—		32,454	0.01		8,456	0.01

Total			1,110,837				1,092,380				355,801				(263,850	)				(19,290	)				1,165,041				710,332				1,165,041			148,586			(467,292	)			(6,901	)			839,434			584,342

Note: Price is weighted-average price per share.


~~Note:~~		~~Price is weighted-average price per share.~~

(1)		The 2007 LTIP is for officers, employees and non-employee directors.

The aggregate intrinsic value of stock options exercised in 2010, 2009 and 2008 was approximately $4.7 million, $1.4 million and $2.1 million, ~~in 2008 and $2.5 million in 2007.~~respectively. The aggregate intrinsic value of restricted stock units exercised in 2010, 2009 and 2008 was approximately $4.2 million, $2.9 million and $3.1 million, ~~in 2008 and $3.2 million in 2007.~~respectively. The aggregate intrinsic value of performance shares exercised in 2010, 2009 and 2008 was approximately $1.5 million, $0.4 million and less than $0.1 million, ~~in 2008 and $0.5 million in 2007.~~

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~respectively.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The following ~~tables summarize~~table summarizes stock options, restricted stock units and performance shares that have vested and are expected to vest as of December 31, ~~2009:~~

December 31, 2009
Weighted-Average Remaining Aggregate Intrinsic Value⁽¹⁾
Outstanding Contractual Term (years) (in thousands)
Plans Securities Vested Expected to vest⁽²⁾ Vested Expected to vest⁽²⁾ Vested Expected to vest⁽²⁾
2004 LTIP
RSUs 10,671 1,210 — — $ 352 $ 40
Options 472,097 7,856 1.9 4.9 7,390 43
2004 Directors’ Plan
Options 30,000 — 1.6 — 524 —
2005 LTIP
RSUs 20,438 1,609 — — 673 53
2005 Directors’ Plan
Options 15,000 — 2.6 — 89 —
2007 LTIP
RSUs 20,949 164,640 — — 690 5,425
Options 141,177 184,366 4.9 5.8 635 2,170
Performance shares — 77,567 — — — 2,556

Total
710,332 437,248 10,353 10,287

2010:


~~(1)~~		Aggregate intrinsic value is calculated based upon the difference between the exercise prices of options or restricted stock units and our closing common stock price on December 31, 2009 of $32.96, multiplied by the number of instruments that are vested or expected to vest. Options and restricted stock units having exercise prices greater than the closing stock price noted above are excluded from this calculation.

~~(2)~~		~~Options and restricted stock units that are expected to vest are net of estimated future forfeitures.~~


		December 31, 2010
		Outstanding		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value⁽¹⁾ (in thousands)
Plans	Securities	Vested	Expected to vest⁽²⁾	Vested	Expected to vest⁽²⁾	Vested		Expected to vest⁽²⁾
2004 LTIP	RSUs	1,221	—	—	—	$	43	$	—
	Options	217,404	820	1.3	5.1	3,315		13
2004 Directors’ Plan	Options	30,000	—	0.6	—	603		—
2005 LTIP	RSUs	15,727	43	—	—	560		2
2005 Directors’ Plan	Options	15,000	—	1.6	—	128		—
2007 LTIP	RSUs	30,421	180,702	—	—	1,082		6,429
	Options	266,113	41,117	4.3	5.1	2,569		674
	Perf. shares	8,456	23,124	—	—	301		823
Total		584,342	245,806			$	8,601	$	7,941

(1) Aggregate intrinsic value is calculated based upon the difference between the exercise prices of options or restricted stock units and our closing common stock price on December 31, 2010 of $35.59, multiplied by the number of instruments that are vested or expected to vest. Options and restricted stock units having exercise prices greater than the closing stock price noted above are excluded from this calculation.

(2) Options and restricted stock units that are expected to vest are net of estimated future forfeitures.

The aggregate fair ~~values~~value of options vested in 2010, 2009 ~~2008~~ and ~~2007 were~~2008 was approximately $5.5 million, $4.3 million ~~$1.6 million~~ and ~~$6.7~~$1.6 million, respectively. The aggregate fair value of restricted stock units vested in 2010, 2009 ~~2008~~ and ~~2007~~2008 was approximately $4.7 million, $3.6 million ~~$1.4 million~~ and ~~$2.7~~$1.4 million, respectively. The aggregate fair value of performance shares vested in 2010, 2009 ~~2008~~ and ~~2007~~2008 was approximately $2.0 million, $0.6 million and $0.1 million, ~~and $0.6 million,~~ respectively.

12.Employee Benefit Plans

Pension Plans

We sponsored a qualified defined-benefit pension plan and a post-retirement benefit plan (collectively, "the Pension Plans") for employees hired before September 1986. There have been no new entrants to the ~~pension or non-pension post-retirement benefit plans~~Pension Plans after those benefit plans were frozen on September 30, 1989.

Our defined-benefit pension plan is subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). Under ERISA, the Pension Benefit Guaranty Corporation (“PBGC”) has the authority to terminate an underfunded pension plan under

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limited circumstances. In the event our pension plan is terminated for any reason while it is underfunded, we will incur a liability to the PBGC that may be equal to the entire amount of the underfunding. Our post-retirement benefit plan is not subject to ERISA. As a result, the post-retirement benefit plan is not required to be pre-funded, and, accordingly, has no plan assets.

Pension costs and other post-retirement benefit costs charged to operations are estimated on the basis of annual valuations with the assistance of an independent actuary. Adjustments arising from plan amendments, changes in assumptions and experience gains and losses, are amortized over the average future life expectancy of inactive participants for the ~~defined benefit~~defined-benefit plan, and expected average remaining service life of active participants for the post-retirement benefit plan.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The following tables provide a reconciliation of the changes in the Pension ~~Plans’~~Plans' benefit obligation and fair value of assets over the two-year period ending December 31, ~~2009~~2010 and a statement of the funded status for the year ended December 31, ~~2009~~2010 and ~~2008~~2009 (in millions):

Other Post-retirement
Pension Benefits Benefits
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
Change in Benefit Obligation:

Obligation at beginning of period $ 34.9 $ 35.3 $ 6.6 $ 6.0
Interest cost 2.0 2.2 0.5 0.4
Actuarial loss 1.5 0.1 1.2 0.5
Benefit payments (3.2 ) (2.7 ) (0.1 ) (0.3 )
Change in plan provision — — (0.4 ) —
Curtailment gain — — (3.4 ) —

Benefit obligation at end of period $ 35.2 $ 34.9 $ 4.4 $ 6.6

Change in Pension Plan Assets:

Fair value of pension plan assets at beginning of period $ 22.1 $ 31.3 $ — $ —
Actual return on plan assets 4.5 (6.9 ) — —
Employer contributions 0.2 0.4 0.1 0.3
Benefit payments (3.2 ) (2.7 ) (0.1 ) (0.3 )

Fair value of pension plan assets at end of period $ 23.6 $ 22.1 $ — $ —

Funded Status:

Funded status $ (11.6 ) $ (12.8 ) $ (4.4 ) $ (6.6 )


	Pension Benefits						Other Post-retirement Benefits
	December 31, 2010			December 31, 2009			December 31, 2010			December 31, 2009
Change in Benefit Obligation:
Obligation at beginning of period	$	35.2		$	34.9		$	4.4		$	6.6
Interest cost	1.9			2.0			0.2			0.5
Actuarial loss (gain)	0.3			1.5			(0.2		)	1.2
Benefit payments	(2.3		)	(3.2		)	(0.3		)	(0.1		)
Change in plan provision	0.3			—			—			(0.4		)
Curtailment gain	—			—			—			(3.4		)
Benefit obligation at end of period	$	35.4		$	35.2		$	4.1		$	4.4

Change in Pension Plan Assets:
Fair value of pension plan assets at beginning of period	$	23.6		$	22.1		$	—		$	—
Actual return on plan assets	2.2			4.5			—			—
Employer contributions	3.4			0.2			0.3			0.1
Benefit payments	(2.3		)	(3.2		)	(0.3		)	(0.1		)
Fair value of pension plan assets at end of period	$	26.9		$	23.6		$	—		$	—

Funded Status:
Funded status	$	(8.5	)	$	(11.6	)	$	(4.1	)	$	(4.4	)

During ~~2009,~~2010, the ~~actual return on investments was above expectations,~~Company made contributions of $3.4 million to the defined-benefit pension plan, which was the primary reason for the decrease in the underfunded status of the ~~defined-benefit~~ pension plan from ~~2008~~2009 to ~~2009. The expected~~2010. In addition, the actual return on our pension plan assets ~~for 2009~~ was ~~a gain of $1.5 million compared with a realized gain of $4.5~~$2.2 million in ~~2009.~~2010, which exceeded the $1.7 million expected return. In ~~2008,~~2009, the expected return on pension plan assets was a gain of ~~$2.3~~$1.5 million compared to a realized ~~loss~~gain of ~~$6.9~~$4.5 million due primarily to an improvement in the financial markets following the economic recession ~~which led to a significant decline~~ in ~~the market value of invested plan assets.~~2008.

In addition, during 2009 the Company implemented changes to medical benefits in the post-retirement benefit plan. The most significant change to the plan was the removal of the ~~Company’s~~Company's subsidy of medical premiums for future retirees which curtailed future benefits for those participants. As a result of this change, the future obligations related to the plan were reduced by $3.4 million and we recorded a net curtailment gain of $0.8 million in 2009.

The following table provides information for Pension Plans with an accumulated benefit obligation in excess of plan assets (in millions):

December 31, December 31,
2009 2008
Projected benefit obligation $ 35.2 $ 34.9
Accumulated benefit obligation 35.2 34.9
Fair value of pension plan assets 23.6 22.1


	December 31, 2010		December 31, 2009
Projected benefit obligation	$	35.4	$	35.2
Accumulated benefit obligation	35.4		35.2
Fair value of pension plan assets	26.9		23.6

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~63

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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The following table provides components of the net periodic pension cost (in millions):

2009 2008 2007
Interest cost $ 2.0 $ 2.2 $ 2.1
Expected return on plan assets (1.5 ) (2.3 ) (2.3 )
Amortization of net actuarial loss 0.3 — —

Net periodic benefit cost $ 0.8 $ (0.1 ) $ (0.2 )


	2010			2009			2008
Interest cost	$	1.9		$	2.0		$	2.2
Expected return on plan assets	(1.7		)	(1.5		)	(2.3		)
Amortization of net actuarial loss	0.2			0.3			—
Net periodic benefit cost	$	0.4		$	0.8		$	(0.1	)

The following table provides components of the net periodic other benefit cost (in millions):

2009 2008 2007
Interest cost $ 0.5 $ 0.4 $ 0.4
Amortization of net actuarial loss 0.3 0.1 0.2
Curtailment gain, net (0.8 ) — —

Net periodic other benefit cost $ — $ 0.5 $ 0.6


	2010			2009			2008
Interest cost	$	0.2		$	0.5		$	0.4
Amortization of net actuarial loss	—			0.3			0.1
Amortization of prior service cost	(0.1		)	—			—
Curtailment gain, net	—			(0.8		)	—
Net periodic other benefit cost	$	0.1		$	—		$	0.5

The prior-service costs, which include interest, are amortized on a straight-line basis over the average future life expectancy of inactive 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 future life expectancy of inactive participants. Our measurement date was on December 31, ~~2009.~~2010. We estimated that average future life expectancy is ~~24.6~~23.3 years for the pension benefit plan and remaining service life of active participants is ~~7.5~~6.0 years for the post-retirement benefit plan.

Assumptions Used:

The following ~~tables show~~table shows the weighted-average assumptions used in the measurement of:

~~Benefit Obligations:~~

Pension Benefits Other Post-retirement Benefits
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
Discount rate 5.58 % 6.26 % 5.88 % 6.07 %


	Pension Benefits				Other Post-retirement Benefits
	December 31, 2010		December 31, 2009		December 31, 2010		December 31, 2009
Benefit Obligations:
Discount rate	5.04	%	5.58	%	5.08	%	5.88	%

Net Periodic Benefit Costs:
Discount rate	5.73	%	6.26	%	5.88	%	6.07	%
Expected return on assets	7.35	%	7.35	%	—	%	—	%

~~Net Periodic Benefit Costs:~~

Pension Benefits Other Post-retirement Benefits
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
Discount rate 6.26 % 6.35 % 6.07 % 6.43 %
Expected return on assets 7.35 % 7.50 % — —

~~Assumed health care trend rates for the post-retirement benefit plans are as follows:~~

December 31, December 31,
2009 2008
Assumed current trend rate for next year 7.00 % 8.00 %
Ultimate year trend rate 5.00 % 5.00 %
Year that ultimate trend rate is reached 2011 2011

The weighted-average discount rates used to determine ~~pension and post-retirement benefit plan~~the Pension Plan's obligations and ~~expense~~expenses are based on a yield curve methodology which matches the expected benefits at each duration to the available high quality yields at that duration and calculating an equivalent yield. At December 31, ~~2009,~~2010, our discount rates were ~~5.58%~~5.04% and ~~5.88%~~5.08% related to our pension and post-retirement plan benefit obligations, respectively, compared with ~~6.26%~~5.58% and ~~6.07%~~5.88%, respectively, at December 31, ~~2008.~~2009. The decrease in the discount rate for ~~2009~~2010 was due primarily to lower bond yields.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Assumed health care cost trend rates have an effect on the amounts reported for the post-retirement health care plans. A 1% change in assumed health care cost trend rates would have the following effects (in millions):

1% Increase 1% Decrease
Effect on total of service and interest cost components of net periodic post-retirement health care benefit cost $ — $ —
Effect on the health care component of the accumulated post-retirement benefit obligation $ 0.5 $ (0.4 )

We use a building block approach in determining the overall expected long-term return on assets. Under this approach, a weighted-average expected rate of return is developed based on historical returns for each major asset class and the proportion of assets of the class held by the Pension Plans. We then review the results and may make adjustments in subsequent years to reflect expectations of future rates of return that may differ from those experienced in the past.

Assumed health care cost trend rates have an effect on the amounts reported for the post-retirement health care plans. The health care cost trend rates assumed for the post-retirement benefit plans are as follows:

64
Table of Contents

December 31, 2010 December 31, 2009
Assumed current trend rate for next year 6.50 % 7.00 %
Ultimate year trend rate 5.00 % 5.00 %
Year that ultimate trend rate is reached 2014 2011
A 1% change in assumed health care cost trend rates would have the following effects (in millions):
1% Increase 1% Decrease
Effect on total of service and interest cost components of net periodic post-retirement
health care benefit cost $ — $ —
Effect on the health care component of the accumulated post-retirement benefit
obligation $ 0.4 $ (0.3 )

Plan Assets:

The ~~company’s~~Company's overall investment strategy is to produce a total investment return which will satisfy future annual cash benefit payments to participants, while minimizing future contributions from the Company. Additionally, our asset allocation strategy is intended to diversify plan assets to minimize ~~nonsystematic~~non-systematic risk and provide reasonable assurance that no single security or class of security will have a disproportionate impact on the Pension Plans.

Our investment guidelines allocation ranges are: 0-20% cash, 50-70% equity and 30-50% fixed income. Our investment guidelines also set forth the requirement for diversification within asset class, types and classes for ~~investment~~investments prohibited and permitted, specific indices to be used for benchmark in investment decisions and criteria for individual security.

The fair value measurements of the Pension ~~Plan’s~~Plans' assets by asset category at December 31, ~~2009~~2010 are as follows (in millions):

Quoted Prices in
Active Markets for Significant Significant
Identical Assets Observable Inputs Unobservable Inputs
Asset Category Total (Level 1) (Level 2) (Level 3)
Cash $ 1.3 $ 1.3 $ — $ —
Equity securities 13.8 13.8 — —
Government securities 2.5 2.5 — —
Corporate bonds 2.6 2.6 — —
Group annuity contract 3.4 — 3.4 —

Total
$ 23.6 $ 20.2 $ 3.4 $ —


Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	3.1	$	3.1	$	—	$	—
Equity securities
Mutual funds	6.5		6.5		—		—
Other equity securities, primarily U.S. companies	8.5		8.5		—		—
Government securities	2.4		2.4		—		—
Corporate and muni bonds
Other bonds	2.5		2.5		—		—
Mutual funds	0.5		0.5		—		—
Group annuity contract	3.4		—		3.4		—
Total	$	26.9	$	23.5	$	3.4	$	—

Debt and equity securities are recorded at their fair market value each year-end as determined by quoted closing market prices on national securities exchanges or other markets, as applicable. The group annuity consists primarily of investment grade fixed income securities. The participating annuity contract is valued based on discounted cash flows of current yields of similar securities with comparable duration based on the underlying fixed income investments.

We expect to contribute at least ~~$1.4~~$1.2 million and $0.3 million to our pension plan and post-retirements benefits plan, respectively, in ~~2010.~~2011.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~65

Table of Contents

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Estimated future benefit payments reflecting future service are as follows (in millions):

Other
Year ended December 31, Pension Post-retirement
2010 $ 2.5 $ 0.3
2011 2.5 0.3
2012 2.8 0.3
2013 2.5 0.3
2014 2.9 0.4
2015 through 2019 13.9 1.8


Year ended December 31,	Pension		Other Post-retirement
2011	$	2.6	$	0.3
2012	2.8		0.3
2013	2.6		0.3
2014	2.8		0.3
2015	2.6		0.3
2016 through 2020	14.1		1.5

Amounts recognized in the consolidated statements of ~~stockholders’~~stockholders' equity and comprehensive income (in millions):

Other
Post-retirement
Pension Benefits
After Tax After Tax
Net loss during 2007 $ 0.7 $ 0.3
Net loss during 2008 5.6 0.2
Net loss during 2009 1.1 1.3


	Pension After Tax			Other Post-retirement Benefits After Tax
Net (loss) during 2008	$	(5.6	)	$	(0.2	)
Net gain during 2009	1.1			1.3
Net gain during 2010	0.2			—

Amounts recognized in the consolidated balance sheets (in millions):

Other
Year ended December 31, 2008 Pension Post-retirement
Current liabilities — (0.3 )
Non-current liabilities (12.8 ) (6.3 )

Accumulated other comprehensive loss $ (12.8 ) $ (6.6 )


				Other
Year ended December 31, 2009	Pension			Post-retirement			Pension			Other Post-retirement
Current liabilities		—			(0.3	)	$	—		$	(0.3	)
Non-current liabilities		(11.6	)		(4.1	)	(11.6		)	(4.1		)

Accumulated other comprehensive loss	$	(11.6	)	$	(4.4	)

Total							$	(11.6	)	$	(4.4	)


Year ended December 31, 2010	Pension			Other Post-retirement
Current liabilities	$	—		$	(0.3	)
Non-current liabilities	(8.5		)	(3.8		)
Total	$	(8.5	)	$	(4.1	)

Expected amortizations for the year ending December 31, ~~2010~~2011 (in millions):

Other
Pension Post-retirement
Expected amortization of net loss $ 0.2 $ —

Pension

Other
Post-retirement
Expected amortization of net loss $ 0.2 $ —
Expected amortization of prior service cost (credit) — (0.1 )
Total expected amortizations for the year ending December 31, 2011 $ 0.2 $ (0.1 )

Savings Plans

We maintain ~~defined contribution~~defined-contribution plans in the U.S., subject to Section 401(k) of the Internal Revenue Code, and in Canada, subject to the ~~Department of National Revenue Taxation~~ Income Tax Act. For the fiscal year ended December 31, ~~2009,~~2010, eligible U.S. employees could elect to contribute, on a tax-deferred basis, from 1% to 75%, of their compensation to a maximum of $16,500. Eligible U.S. employees over 50 years of age could also contribute an additional $5,500 on a tax-deferred basis. In Canada, employees could elect to contribute up to a maximum of ~~$21,000~~$22,000 Canadian dollars. Under the 401(k) plan, we match 100% of U.S. employee contributions up to 2% of base salary and match 25% of employee contributions from 2% to 6% of base salary. For Canadian employees,we match 50% of employee contributions up to 6%3% of base salary. For the year ended December 31, ~~2009,~~2010, we made matching payments of approximately ~~$2.2~~$2.3 million.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~66

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Table of Contents

13.Repurchase of Common Stock

In March 2008, our Board of Directors authorized a share repurchase program of up to $30 million to repurchase shares of our common stock in the open market or in privately negotiated transactions subject to market conditions. The number of shares to be repurchased and the timing of the purchases will be based on market conditions, our cash and liquidity requirements, relevant securities laws and other factors. The share repurchase program may be discontinued or amended at any time. We funded repurchases under the program and plan to fund any future repurchases, from available cash. ~~Our Credit Facility was amended in March 2008 to increase our basket for permitted stock repurchases to $30 million to allow us to execute the share repurchase program.~~ As of December 31, ~~2009~~2010, there was $16.8 million available for future share repurchases under the program. Upon execution of the Third Amendment to our Credit Facility in February 2010, our ~~available funds~~limit for future share repurchases ~~were~~was re-established at $30 million.

During the year ended December 31, 2010, no shares of common stock were repurchased. During the year ended December 31, 2009, we repurchased 98,646 shares of common stock under the share repurchase program at an average price of $22.77 per share for a total cost of $2.2 million. During the year ended December 31, 2008, we repurchased 396,716 shares of common stock under the share repurchase program at an average price of $27.66 per share for a total cost of $11.0 million.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~67

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Table of Contents

14.Quarterly Financial Data (Unaudited)

The tables below provide our unaudited consolidated results of operations for each of the four quarters in ~~2009~~2010 and ~~2008:~~

Three Months Ended
(unaudited)
(in millions, except per share data)
December 31, September 30, June 30, March 31,
2009 2009 2009 2009
Net sales⁽⁸⁾
$ 1,651.9 $ 1,776.1 $ 1,711.8 $ 1,391.8
Net sales — Cigarettes⁽⁸⁾
1,173.7 1,250.1 1,209.1 956.2
Net sales — Food/Non-food⁽⁸⁾
478.2 526.0 502.7 435.6
Cigarette inventory holding profits (losses)⁽¹⁾
1.5 (0.1 ) 0.4 34.9 ⁽²⁾
Gross profit 94.1 101.9 ⁽⁴⁾ 87.5 ⁽³⁾ 118.1
Warehousing and distribution expenses⁽⁷⁾
51.0 51.1 50.2 45.0
Selling, general and administrative expenses 34.0 34.2 32.1 37.0
Income from operations 8.7 16.1 4.7 35.5
Interest expense⁽⁵⁾
0.4 0.4 0.4 0.5
Interest income (0.1 ) — (0.1 ) (0.1 )
Foreign currency (gains) losses, net (0.2 ) (0.4 ) (2.4 ) 0.8
Net income 8.5 11.3 4.2 ⁽³⁾ 23.3 ⁽²⁾
Basic net income per share⁽⁶⁾
$ 0.82 $ 1.08 $ 0.40 ⁽³⁾ $ 2.22 ⁽²⁾
Diluted net income per share⁽⁶⁾
$ 0.76 $ 1.02 $ 0.39 ⁽³⁾ $ 2.20 ⁽²⁾
Shares used in computing basic net income per share 10.5 10.5 10.5 10.5
Shares used in computing diluted net income per share 11.1 11.0 10.8 10.6
Depreciation and amortization $ 5.1 $ 4.5 $ 4.6 $ 4.5
Excise taxes⁽⁸⁾
$ 390.2 $ 412.1 $ 385.8 $ 327.9
LIFO expense $ 1.4 $ 0.2 $ 2.1 $ 3.0
Stock-based compensation $ 1.2 $ 1.4 $ 1.3 $ 1.2
Capital expenditures $ 7.6 $ 5.2 $ 3.5 $ 4.8
2009:


~~(1)~~		~~Cigarette inventory holding profits relate to increases in manufacturer prices and excise taxes.~~

~~(2)~~		We realized significant cigarette holding profits in the first quarter ended March 31, 2009, due primarily to increases in cigarette prices by manufacturers in response to the anticipated increase in federal tax mandated by the SCHIP legislation.

~~(3)~~		~~Gross profit for the second quarter ended June 30, 2009 was negatively impacted by $11.5 million of federal excise floor tax net of manufacturer reimbursements related to SCHIP.~~

~~(4)~~		~~Includes a $0.6 million State of Florida OTP net tax refund which was recorded as a reduction of cost of goods sold during the third quarter of 2009.~~

~~(5)~~		~~Includes amortization of debt issuance cost, of approximately $0.1 million for each quarter in 2009.~~

~~(6)~~		~~Totals may not agree with full year amounts due to rounding and separate calculations for each quarter.~~

~~(7)~~		~~Warehousing and distribution expenses are not included as a component of the Company’s cost of goods sold which presentation may differ from that of other registrants.~~

~~(8)~~		~~Excise taxes are included as a component of net sales.~~


	Three Months Ended
	(unaudited)
	(in millions, except per share data)
	December 31,				September 30,				June 30,				March 31,
	2010				2010				2010				2010
Net sales — Cigarettes ⁽¹⁾	$	1,321.5			$	1,400.9			$	1,283.5			$	1,113.8
Net sales — Food/non-food ⁽¹⁾	535.3				592.7				550.8				468.3
Net sales ⁽¹⁾	1,856.8				1,993.6				1,834.3				1,582.1
Cost of goods sold	1,762.5				1,887.5				1,737.2				1,494.3
Gross profit	94.3				106.1			⁽²⁾	97.1				87.8			⁽³⁾
Warehousing and distribution expenses ⁽⁴⁾	54.8				55.8				52.1				49.1
Selling, general and administrative expenses ⁽⁵⁾	38.7			⁽⁵⁾	36.2			⁽⁵⁾	32.2			⁽⁵⁾	35.4
Amortization of intangible assets	0.6				0.5				0.5				0.5
Total operating expenses	94.1				92.5				84.8				85.0
Income from operations	0.2				13.6				12.3				2.8
Interest expense ⁽⁶⁾	(0.7		)		(0.8		)		(0.5		)		(0.6		)
Interest income	0.1				0.2				0.1				—
Foreign currency gains (losses), net	0.7				0.4				(0.8		)		0.2
Income before income taxes	0.3				13.4				11.1				2.4
Income tax (provision) benefit	0.6				(4.7		)		(4.4		)		(1.0		)
Net income	0.9				8.7				6.7				1.4
Basic net income per share ⁽⁷⁾	$	0.08			$	0.81			$	0.62			$	0.13
Diluted net income per share ⁽⁷⁾	$	0.08			$	0.78			$	0.59			$	0.12
Shares used to compute basic net income
per share	11.0				10.8				10.8				10.7
Shares used to compute diluted net income
per share	11.7				11.3				11.3				11.4

Excise taxes ⁽¹⁾	$	464.8			$	492.7			$	429.4			$	369.6
Cigarette inventory holding profits ⁽⁸⁾	3.1				—				2.4				0.6
LIFO expense	8.8				2.9				3.6				1.3
Depreciation and amortization	5.3				4.9				4.8				4.7
Stock-based compensation	1.1				1.1				1.2				1.4
Capital expenditures	4.6				3.8				2.5				3.0

(1) Excise taxes are included as a component of net sales.

(2) Includes an out of period adjustment of $1.1 million related to the recognition of deferred vendor income, of which $0.7 million related to prior years. The adjustment is immaterial to any prior period.

(3) Includes a $0.6 million OTP tax gain resulting from a state tax method change which was recorded as a reduction of cost of goods sold during the first quarter of 2010.

(4) Warehousing and distribution expenses are not included as a component of the Company's cost of goods sold which presentation may differ from that of other registrants.

(5) SG&A expenses include integration costs related to the acquisition of FDI, consisting of $1.5 million in Q4, $1.2 million in Q3 and $0.1 million in Q2. SG&A expenses also include costs related to the settlement of Fleming legacy insurance claims of $0.6 million in Q4 and $1.0 million in Q2, as well as $0.3 million and $0.8 million of expenses for advisory and due diligence activities necessary to analyze multiple offers from potential acquirers in Q3 and Q4, respectively.

(6) Includes amortization of debt issuance costs, of approximately $0.1 million for each quarter in 2010.

(7) Totals may not agree with full year amounts due to rounding and separate calculations for each quarter.

(8) Cigarette inventory holding profits relate to increases in manufacturer prices.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~68

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Table of Contents

Three Months Ended
(unaudited)
(in millions, except per share data)
December 31, September 30, June 30, March 31,
2008 2008 2008 2008
Net sales⁽⁸⁾
$ 1,492.2 $ 1,672.7 $ 1,534.6 $ 1,345.4
Net sales — Cigarettes⁽⁸⁾
1,028.5 1,144.9 1,032.4 919.0
Net sales — Food/Non-food⁽⁸⁾
463.7 527.8 502.2 426.4
Cigarette inventory holding profits⁽¹⁾
1.5 0.2 1.3 0.1
Gross profit 92.9 ⁽²⁾ 93.9 91.1 81.2
Warehousing and distribution expenses⁽⁷⁾
46.4 54.3 51.0 ⁽³⁾ 45.9
Selling, general and administrative expenses 33.9 ⁽⁴⁾ 30.5 30.9 ⁽⁴⁾ 34.1
Income from operations 12.1 8.6 8.7 0.7
Interest expense⁽⁵⁾
0.6 0.7 0.4 0.5
Interest income (0.1 ) (0.2 ) (0.4 ) (0.3 )
Foreign currency losses, net 3.7 1.5 0.1 1.0
Net income (loss) 7.4 5.3 5.7 (0.5 )
Basic net income (loss) per share⁽⁶⁾
$ 0.71 $ 0.51 $ 0.54 $ (0.05 )
Diluted net income (loss) per share⁽⁶⁾
$ 0.70 $ 0.49 $ 0.51 $ (0.05 )
Shares used in computing basic net income per share 10.4 10.4 10.5 10.6
Shares used in computing diluted net income per share 10.5 10.9 11.0 10.6
Depreciation and amortization $ 4.5 $ 4.5 $ 4.0 $ 4.4
Excise taxes⁽⁸⁾
$ 370.6 $ 414.9 $ 364.0 $ 324.9
LIFO expense $ 0.3 $ 6.0 $ 3.0 $ 1.7
Stock-based compensation $ 1.1 $ 0.9 $ 0.9 $ 1.0
Capital expenditures $ 6.0 $ 6.0 $ 1.9 $ 6.0


~~(1)~~		~~Cigarette inventory holding profits relate to increases in manufacturer prices and excise taxes.~~

~~(2)~~		~~Includes a $1.4 million State of Texas OTP net tax refund which was recorded as a reduction to cost of goods sold during the fourth quarter of 2008.~~

~~(3)~~		~~Includes start up costs of $0.3 million for first quarter of 2008 and $0.1 million for the second quarter of 2008 related to the Toronto division.~~

~~(4)~~		Includes start up costs of $0.4 million for first quarter of 2008, $0.1 million for the second quarter of 2008 and $0.1 million in the third and fourth quarters combined related to the Toronto division.

~~(5)~~		~~Includes amortization of debt issuance costs, of approximately $0.1 million for each quarter in 2008.~~

~~(6)~~		~~Totals may not agree with full year amounts due to rounding and separate calculations for each quarter.~~

~~(7)~~		~~Warehousing and distribution expenses are not included as a component of the Company’s cost of goods sold which presentation may differ from that of other registrants.~~

~~(8)~~		~~Excise taxes are a component of net sales.~~


	Three Months Ended
	(unaudited)
	(in millions, except per share data)
	December 31,			September 30,				June 30,				March 31,
	2009			2009				2009				2009
Net sales — Cigarettes ⁽¹⁾	$	1,173.7		$	1,250.1			$	1,209.1			$	956.2
Net sales — Food/non-food ⁽¹⁾	478.2			526.0				502.7				435.6
Net sales ⁽¹⁾	1,651.9			1,776.1				1,711.8				1,391.8
Cost of goods sold	1,557.8			1,674.2				1,624.3				1,273.7
Gross profit	94.1			101.9			⁽²⁾	87.5			⁽³⁾	118.1
Warehousing and distribution expenses ⁽⁴⁾	51.0			51.1				50.2				45.0
Selling, general and administrative expenses ⁽⁵⁾	34.0			34.2				32.1			⁽⁵⁾	37.0			⁽⁵⁾
Amortization of intangible assets	0.4			0.5				0.5				0.6
Total operating expenses	85.4			85.8				82.8				82.6
Income from operations	8.7			16.1				4.7				35.5
Interest expense ⁽⁶⁾	(0.4		)	(0.4		)		(0.4		)		(0.5		)
Interest income	0.1			—				0.1				0.1
Foreign currency gains (losses), net	0.2			0.4				2.4				(0.8		)
Income before income taxes	8.6			16.1				6.8				34.3
Income tax provision	(0.1		)	(4.8		)		(2.6		)		(11.0		)
Net income	8.5			11.3				4.2			⁽³⁾	23.3			⁽⁷⁾
Basic net income per share ⁽⁸⁾	$	0.82		$	1.08			$	0.40		⁽³⁾	$	2.22		⁽⁷⁾
Diluted net income per share ⁽⁸⁾	$	0.76		$	1.02			$	0.39		⁽³⁾	$	2.20		⁽⁷⁾
Shares used to compute basic net income
per share	10.5			10.5				10.5				10.5
Shares used to compute diluted net income
per share	11.1			11.0				10.8				10.6

Excise taxes ⁽¹⁾	$	390.2		$	412.1			$	385.8			$	327.9
Cigarette inventory holding profits (losses) ⁽⁹⁾	1.5			(0.1		)		0.4				34.9			⁽⁷⁾
LIFO expense	1.4			0.2				2.1				3.0
Depreciation and amortization	5.1			4.5				4.6				4.5
Stock-based compensation	1.2			1.4				1.3				1.2
Capital expenditures	7.6			5.2				3.5				4.8

(1) Excise taxes are included as a component of net sales.

(2) Includes a $0.6 million OTP net tax refund which was recorded as a reduction of cost of goods sold during the third quarter of 2009.

(3) Gross profit for the second quarter ended June 30, 2009 was negatively impacted by $11.5 million of federal excise floor tax net of manufacturer reimbursements related to SCHIP.

(4) Warehousing and distribution expenses are not included as a component of the Company's cost of goods sold which presentation may differ from that of other registrants.

(5) SG&A expenses include $0.8 million and $0.1 million of costs related to the integration of our New England division onto our information systems platform in Q1 and Q2, respectively.

(6) Includes amortization of debt issuance costs, of approximately $0.1 million for each quarter in 2009.

(7) We realized significant cigarette holding profits in the first quarter ended March 31, 2009, due primarily to increases in cigarette prices by manufacturers in response to the anticipated increase in federal tax mandated by the SCHIP legislation.

(8) Totals may not agree with full year amounts due to rounding and separate calculations for each quarter.

(9) Cigarette inventory holding profits relate to increases in manufacturer prices and excise taxes.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~69

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Table of Contents

15.Segment Information

We are one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. We offer a full range of products, marketing programs and technology solutions to approximately ~~24,000~~26,000 customer locations in the U.S. and Canada. Our customers include traditional convenience stores, grocery stores, drug stores, liquor stores and other specialty and small format stores that carry convenience products. Our product offering includes cigarettes, tobacco, candy, snacks, fast food, groceries, fresh products, dairy, non-alcoholic beverages, general merchandise and health and beauty care products.

As of December 31, ~~2009,~~2010, we operated 24 distribution centers (excluding two distribution facilities we ~~operated~~operate as a third party logistics provider) which support our wholesale distribution business. ~~Twenty-two~~Twenty of our distribution centers are located in the U.S. and four are located in Canada. Two of the facilities we operate in the U.S. are consolidating warehouses which buy products from our suppliers in bulk quantities and then distribute the products to our other distribution centers.

All of our distribution centers (operating divisions) have similar historical economic characteristics and are expected to have similar economic characteristics in the future. The principal measures and factors we considered in determining whether the economic characteristics are similar are sales, net sales income (which is comparable to our reported gross profit adjusted for LIFO expense), operating expenses and pre-tax net profit. In addition, each operating division carries similar products, which they sell to similar customers by using similar operating procedures. Therefore, in our judgment, our 24 operating divisions aggregate into one reportable segment.

Corporate adjustments and eliminations include the net results after intercompany eliminations for our consolidating warehouses, service fee revenue, LIFO and reclassifying adjustments, corporate allocations and elimination of intercompany interest charges. Accounting policies for measuring segment assets and earnings before income taxes are substantially consistent with those described inNote 2—2 -- Summary of Significant Accounting Policies. Inter-segment revenues are not significant and no single customer accounted for 10% or more of our total revenues.

~~CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES~~70

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Table of Contents

Information about our business operations based on the two geographic reporting segments is as follows (in millions):

Year Ended December 31,
2009 2008 2007
Net sales:
United States⁽¹⁾
$ 5,519.2 $ 5,082.3 $ 4,771.3
Canada 992.9 935.8 768.2
Corporate adjustments and eliminations 19.5 26.8 21.4

Total $ 6,531.6 $ 6,044.9 $ 5,560.9

Income (loss) before income taxes:
United States⁽²⁾
$ 70.0 $ 34.9 $ 18.1
Canada (3.2 ) (5.6 ) (1.0 )
Corporate adjustments and eliminations (1.0 ) (6.7 ) 20.5

Total $ 65.8 $ 22.6 $ 37.6

Interest expense:
United States $ 20.9 $ 20.6 $ 20.6
Canada 0.8 0.9 —
Corporate adjustments and eliminations (20.0 ) (19.3 ) (18.2 )

Total $ 1.7 $ 2.2 $ 2.4

Interest income:
United States $ 0.1 $ 0.1 $ 0.2
Canada 0.1 0.1 0.1
Corporate adjustments and eliminations 0.1 0.8 1.1

Total $ 0.3 $ 1.0 $ 1.4

Depreciation and amortization:
United States $ 13.3 $ 12.4 $ 11.2
Canada 2.4 2.0 1.0
Corporate adjustments and eliminations 3.0 3.0 2.7

Total $ 18.7 $ 17.4 $ 14.9


	Year Ended December 31,
	2010			2009			2008
Net sales:
United States ⁽¹⁾	$	6,086.3		$	5,519.2		$	5,082.3
Canada	1,158.0			992.9			935.8
Corporate adjustments and eliminations	22.5			19.5			26.8
Total	$	7,266.8		$	6,531.6		$	6,044.9

Income (loss) before income taxes:
United States ⁽²⁾	$	35.6		$	70.0		$	34.9
Canada	(4.7		)	(3.2		)	(5.6		)
Corporate adjustments and eliminations	(3.7		)	(1.0		)	(6.7		)
Total	$	27.2		$	65.8		$	22.6

Interest expense:
United States	$	24.3		$	20.9		$	20.6
Canada	0.9			0.8			0.9
Corporate adjustments and eliminations	(22.6		)	(20.0		)	(19.3		)
Total	$	2.6		$	1.7		$	2.2

Interest income:
United States	$	0.1		$	0.1		$	0.1
Canada	0.1			0.1			0.1
Corporate adjustments and eliminations	0.2			0.1			0.8
Total	$	0.4		$	0.3		$	1.0

Depreciation and amortization:
United States	$	13.9		$	13.3		$	12.4
Canada	2.7			2.4			2.0
Corporate adjustments and eliminations	3.1			3.0			3.0
Total	$	19.7		$	18.7		$	17.4

(1) Net cigarette sales for 2010 include approximately $105.9 million of increased sales resulting from manufacturers' cigarette price increases in response to SCHIP legislation, compared to the same period in 2009. Net cigarette sales for 2009 include approximately $534.0 million of increased sales related to SCHIP legislation, compared to the same period in 2008.

(2) Includes $25.2 million of income for 2009, consisting of $36.7 million of cigarette holding profits due primarily to

manufacturers' price increases in response to the SCHIP legislation, less $11.5 million of federal excise floor taxes.


~~(1)~~		~~Net cigarette sales for 2009 include approximately $534.0 million of increased sales resulting from manufacturers’ cigarette price increases in response to SCHIP legislation.~~

~~(2)~~		Includes $25.2 million of income for 2009, consisting of $36.7 million of cigarette holding profits due primarily to manufacturers’ price increases in response to the SCHIP legislation less $11.5 million of federal excise floor taxes.


Delaware		20-1489747
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

395 Oyster Point Boulevard, Suite 415
South San Francisco, California 94080		(650) 589-9445
(Address of Principal Executive Offices, including Zip Code)		(~~Registrant’s~~Registrant's Telephone Number, including Area Code)


Title of each class		Name of each exchange on which ~~registered:~~
		registered
Common Stock, par value $0.01 per share		NASDAQ Global Market


Large accelerated filero		Accelerated filerþx
	Non-accelerated filero		Smaller reporting companyo
				(Do not check if a smaller reporting company)


	U.S.		Canada		Total
Management, Administration, Finance and Purchasing		489		108		597
Sales and Marketing		1,044		64		1,108
Warehousing and Distribution		2,290		272		2,562

Total Categories		3,823		444		4,267


þ		~~Annual Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934~~


o		~~Transition Report Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934~~


		Page
PART I
ITEM 1.	BUSINESS		1

ITEM 1.A.	RISK FACTORS		9

ITEM 1.B.	UNRESOLVED STAFF COMMENTS		16

ITEM 2.	PROPERTIES		16

ITEM 3.	LEGAL PROCEEDINGS		17	16

ITEM 4. ~~(REMOVED~~	(REMOVED AND RESERVED)		17	16

		PART II
~~PART II~~

ITEM 5.	MARKET FOR ~~REGISTRANT’S~~REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		17

ITEM 6.	SELECTED FINANCIAL DATA		19	20

ITEM 7. ~~MANAGEMENT’S~~	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21	22

ITEM 7.A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		39	41

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		40	42

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		74	72

ITEM 9.A.	CONTROLS AND PROCEDURES		74	72

ITEM 9.B.	OTHER INFORMATION		74	72

		PART III
~~PART III~~

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		75	73

ITEM 11.	EXECUTIVE COMPENSATION		75	73

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		75	73

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		75	73

ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		75	73

		PART IV
~~PART IV~~

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	74
		76

		Exhibit 21.1
~~Exhibit 10.18~~
~~Exhibit 10.21~~
~~Exhibit 21.1~~
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


	Low		High
	Price		Price
Fiscal 2009
4th Quarter	$	25.93	$	33.20
3rd Quarter		24.73		30.12
2nd Quarter		17.55		27.35
1st Quarter		15.60		22.01


	Investment Value at
	11/7/05		12/30/05		3/31/06		6/30/06		9/29/06		12/29/06		3/30/07		6/29/07		9/28/07		12/31/07

CORE	$	100.00	$	101.27	$	121.46	$	113.65	$	99.49	$	106.19	$	113.27	$	114.22	$	111.84	$	91.17
NASDAQ Index	$	100.00	$	101.56	$	107.91	$	99.68	$	103.71	$	111.38	$	112.39	$	121.93	$	127.83	$	126.36
Russell 2000 Index	$	100.00	$	102.04	$	116.27	$	110.42	$	110.91	$	120.78	$	123.13	$	128.57	$	124.59	$	118.89
Performance Peer Group	$	100.00	$	101.47	$	107.08	$	102.10	$	111.38	$	123.46	$	114.34	$	112.48	$	120.86	$	108.20

	3/31/08		6/30/08		9/30/08		12/31/08		3/31/09		6/30/09		9/30/09		12/31/09

CORE	$	91.24	$	83.17	$	79.33	$	68.32	$	57.84	$	82.73	$	90.89	$	104.63
NASDAQ Index	$	108.28	$	110.64	$	98.85	$	57.94	$	57.39	$	69.63	$	81.04	$	87.34
Russell 2000 Index	$	107.12	$	107.75	$	106.55	$	78.72	$	66.95	$	80.80	$	96.38	$	100.11
Performance Peer Group	$	99.25	$	95.28	$	108.50	$	82.18	$	81.58	$	82.77	$	91.20	$	103.81


	Investment Value at
	12/30/05		03/31/06		06/30/06		09/29/06		12/29/06		03/30/07		06/29/07		09/28/07		12/31/07		03/31/08		06/30/08
CORE	$	100.00	$	119.94	$	112.23	$	98.24	$	104.86	$	111.85	$	112.79	$	110.44	$	90.03	$	90.09	$	82.13
NASDAQ Index	$	100.00	$	106.25	$	98.14	$	102.11	$	109.66	$	110.66	$	120.05	$	125.84	$	124.39	$	106.45	$	108.77
Russell 2000	$	100.00	$	113.94	$	108.21	$	108.69	$	118.37	$	120.67	$	126.00	$	122.10	$	116.51	$	104.98	$	105.59
Performance Peer Group	$	100.00	$	105.72	$	100.69	$	109.74	$	121.70	$	112.81	$	111.16	$	119.19	$	106.87	$	97.84	$	93.99

	09/30/08		12/31/08		03/31/09		06/30/09		09/30/09		12/31/09		03/31/10		06/30/10		09/30/10		12/31/10
CORE	$	78.34	$	67.46	$	57.12	$	81.69	$	89.75	$	103.32	$	95.96	$	85.89	$	97.05	$	111.57
NASDAQ Index	$	97.16	$	56.94	$	56.42	$	68.45	$	79.67	$	85.86	$	90.74	$	80.06	$	90.83	$	101.80
Russell 2000	$	104.42	$	77.15	$	65.61	$	79.18	$	94.45	$	98.11	$	106.79	$	96.20	$	107.06	$	124.46
Performance Peer Group	$	107.15	$	81.34	$	80.50	$	81.81	$	90.01	$	102.54	$	108.65	$	106.72	$	108.81	$	113.52


	2009									2008
							% of Net									% of Net
	Amounts			% of Net			sales, less			Amounts			% of Net			sales, less
	(in millions)			sales			excise taxes			(in millions)			sales			excise taxes
Net sales	$	6,531.6			100.0			—		$	6,044.9			100.0			—
Net sales, less excise taxes⁽²⁾		5,015.6			76.8			100.0	%		4,570.5			75.6			100.0	%
Components of gross profit:
Cigarette inventory holding profits		36.7			0.56			0.73			3.1			0.05			0.07
Net federal floor stock tax⁽³⁾		(11.5	)		(0.18	)		(0.23	)		—			—			—
OTP tax refunds⁽⁴⁾		0.6			0.01			0.01			1.4			0.02			0.03
LIFO expense		(6.7	)		(0.10	)		(0.13	)		(11.0	)		(0.18	)		(0.24	)
Remaining gross profit⁽⁵⁾		382.5			5.86			7.63			365.6			6.05			8.00

Gross profit	$	401.6			6.15			8.01	%	$	359.1			5.94			7.86	%



	*2008*			2008							2007
	*Increase*								% of Net							% of Net
	*(Decrease)*			Amounts			% of Net		sales, less		Amounts			% of Net		sales, less
	*(in millions)*			(in millions)			sales		excise taxes		(in millions)			sales		excise taxes
Net sales	$	484.0		$	6,044.9			100.0		—	$	5,560.9			100.0		—
Net sales—Cigarettes		261.7			4,124.8			68.2		60.7		3,863.1			69.5		62.4
Net sales—Food/Non-food		222.3			1,920.1			31.8		39.3		1,697.8			30.5		37.6
Net sales, less excise taxes⁽²⁾		359.0			4,570.5			75.6		100.0		4,211.5			75.7		100.0
Gross profit		26.5			359.1			5.9		7.9		332.6			6.0		7.9
Warehousing and distribution expenses⁽³⁾		23.5			197.6			3.3		4.3		174.1			3.1		4.1
Selling, general and administrative expenses		10.4			129.4			2.1		2.8		119.0			2.1		2.8
Income from operations		(7.6	)		30.1			0.5		0.7		37.7			0.7		0.9
Interest expense		(0.2	)		2.2			—		0.1		2.4			—		0.1
Interest income		(0.4	)		(1.0	)		—		—		(1.4	)		—		—
Foreign currency transaction losses (gains), net		7.2			6.3			0.1		0.1		(0.9	)		—		—
Income before income taxes		(15.0	)		22.6			0.4		0.5		37.6			0.7		0.9
Net income		(6.2	)		17.9			0.3		0.4		24.1			0.4		0.6


													2015 and
(in millions)	Total		2010		2011		2012		2013		2014		Thereafter
Long-term debt⁽¹⁾	$	19.2	$	—	$	—	$	—	$	—	$	19.2	$	—
Purchase obligations⁽²⁾		0.2		0.2		—		—		—		—		—
Letters of credit		26.1		26.1		—		—		—		—		—
Operating leases		176.0		28.5		26.1		21.9		16.7		12.7		70.1
Capitalized leases⁽³⁾		0.8		—		0.1		0.1		0.1		0.1		0.4

Total contractual obligations^(4)(5)(6)	$	222.3	$	54.8	$	26.2	$	22.0	$	16.8	$	32.0	$	70.5


	2009									2008
				Long-									Long-
	Current			Term			Total			Current			Term			Total
Gross claims liabilities:
Workers’ compensation liability	$	5.8		$	31.3		$	37.1		$	5.7		$	29.2		$	34.9
Auto & general liability		0.9			1.0			1.9			1.3			1.8			3.1
Health & welfare liability		1.7			0.3			2.0			2.3			0.3			2.6


Total gross claims liabilities		8.4			32.6			41.0			9.3			31.3			40.6


Insurance recoverables		(2.7	)		(21.0	)		(23.7	)		(2.9	)		(19.8	)		(22.7	)


Reserves (net):
Workers’ compensation liability	$	3.5		$	10.8		$	14.3		$	3.2		$	10.3		$	13.5
Auto & general liability		0.5			0.5			1.0			0.9			0.9			1.8
Health & welfare liability		1.7			0.3			2.0			2.3			0.3			2.6


Reserves (net):	$	5.7		$	11.6		$	17.3		$	6.4		$	11.5		$	17.9


~~ITEM 1.~~		~~BUSINESS~~


~~ITEM 1.A.~~		ITEM 1. A. RISK FACTORS


														Accumulated
						Additional								Other			Total			Total
	Common Stock					Paid-In			Treasury			Retained		Comprehensive			Stockholders’			Comprehensive
	Shares			Amount		Capital			Stock			Earnings		Income (Loss)			Equity			Income (Loss)
Balance, December 31, 2006		10.2		$	0.1	$	175.5		$	—		$	40.2	$	(0.1	)	$	215.7			—
Net income		—			—		—			—			24.1		—			24.1		$	24.1
Amortization of stock-based compensation		—			—		5.3			—			—		—			5.3			—
Cash proceeds from exercise of common stock options		—			—		2.2			—			—		—			2.2			—
Adoption of new income tax accounting guidance		—			—		18.5			—			0.1		—			18.6			—
Minimum pension liability adjustment, net of taxes of $0.7		—			—		—			—			—		(1.0	)		(1.0	)		(1.0	)
Excess tax deductions associated with stock-based compensation		—			—		1.1			—			—		—			1.1			—
Issuance of stock based instruments		0.2			—		—			—			—		—			—			—
Foreign currency translation adjustment		—			—		—			—			—		0.5			0.5			0.5


Total comprehensive income																				$	23.6


Balance, December 31, 2007		10.4			0.1		202.6			—			64.4		(0.6	)		266.5			—
Net income		—			—		—			—			17.9		—			17.9		$	17.9
Amortization of stock-based compensation		—			—		3.9			—			—		—			3.9			—
Cash proceeds from exercise of common stock options		—			—		2.5			—			—		—			2.5			—
Minimum pension liability adjustment, net of taxes of $3.8		—			—		—			—			—		(5.9	)		(5.9	)		(5.9	)
Excess tax deductions associated with stock-based compensation		—			—		0.3			—			—		—			0.3			—
Issuance of stock based instruments		0.7			—		—			—			—		—			—			—
Repurchases of common stock		(0.4	)		—		—			(11.0	)		—		—			(11.0	)		—
Foreign currency translation adjustment		—			—		—			—			—		(0.6	)		(0.6	)		(0.6	)


Total comprehensive income																				$	11.4


Balance, December 31, 2008		10.7			0.1		209.3			(11.0	)		82.3		(7.1	)		273.6			—
Net income		—			—		—			—			47.3		—			47.3		$	47.3
Amortization of stock-based compensation		—			—		5.1			—			—		—			5.1			—
Cash proceeds from exercise of common stock options and warrants		—			—		2.2			—			—		—			2.2			—
Minimum pension liability adjustment, net of taxes of $(1.5)		—			—		—			—			—		2.4			2.4			2.4
Excess tax deductions associated with stock-based compensation		—			—		0.1			—			—		—			0.1			—
Issuance of stock based instruments, net of shares withheld for employee taxes		0.4			—		(0.5	)		—			—		—			(0.5	)		—
Repurchases of common stock		(0.1	)		—		—			(2.2	)		—		—			(2.2	)		—
Foreign currency translation adjustment		—			—		—			—			—		2.2			2.2			2.2


Total comprehensive income																				$	51.9


Balance, December 31, 2009		11.0		$	0.1	$	216.2		$	(13.2	)	$	129.6	$	(2.5	)	$	330.2


			Number of securities
			remaining available for
	Number of securities to		future issuance under
	be issued upon exercise of		equity compensation
	outstanding options,		plans (excluding
	warrants and		securities reflected in
	rights		column 1)
2004 Long-Term Incentive Plan—Restricted stock units and options		492,196		1,000
2005 Long-Term Incentive Plan—Restricted stock units		22,111		—
2004 Directors’ Equity Incentive Plan		30,000		—
2005 Directors’ Equity Incentive Plan		15,000		—
2007 Long-Term Incentive Plan⁽¹⁾		605,734		336,933


	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1)
2004 Long-Term Incentive Plan
-Restricted stock units and options	219,476	$	20.32	—
2005 Long-Term Incentive Plan
-Restricted stock units	15,772	$	0.01	—
2004 Directors' Equity Incentive Plan	30,000	$	15.50	—
2005 Directors' Equity Incentive Plan	15,000	$	27.03	—
2007 Long-Term Incentive Plan⁽¹⁾	559,186	$	13.96	—
2010 Long-Term Incentive Plan ⁽¹⁾	—	$	—	660,952


		December 31, 2009
						Weighted-Average Remaining				Aggregate Intrinsic Value⁽¹⁾
		Outstanding				Contractual Term (years)				(in thousands)
Plans	Securities	Vested		Expected to vest⁽²⁾		Vested		Expected to vest⁽²⁾		Vested		Expected to vest⁽²⁾
2004 LTIP	RSUs		10,671		1,210		—		—	$	352	$	40
	Options		472,097		7,856		1.9		4.9		7,390		43
2004 Directors’ Plan	Options		30,000		—		1.6		—		524		—
2005 LTIP	RSUs		20,438		1,609		—		—		673		53
2005 Directors’ Plan	Options		15,000		—		2.6		—		89		—
2007 LTIP	RSUs		20,949		164,640		—		—		690		5,425
	Options		141,177		184,366		4.9		5.8		635		2,170
	Performance shares		—		77,567		—		—		—		2,556

Total			710,332		437,248						10,353		10,287


							Other Post-retirement
	Pension Benefits						Benefits
	December 31,			December 31,			December 31,			December 31,
	2009			2008			2009			2008
*Change in Benefit Obligation:*
Obligation at beginning of period	$	34.9		$	35.3		$	6.6		$	6.0
Interest cost		2.0			2.2			0.5			0.4
Actuarial loss		1.5			0.1			1.2			0.5
Benefit payments		(3.2	)		(2.7	)		(0.1	)		(0.3	)
Change in plan provision		—			—			(0.4	)		—
Curtailment gain		—			—			(3.4	)		—

Benefit obligation at end of period	$	35.2		$	34.9		$	4.4		$	6.6

*Change in Pension Plan Assets:*
Fair value of pension plan assets at beginning of period	$	22.1		$	31.3		$	—		$	—
Actual return on plan assets		4.5			(6.9	)		—			—
Employer contributions		0.2			0.4			0.1			0.3
Benefit payments		(3.2	)		(2.7	)		(0.1	)		(0.3	)

Fair value of pension plan assets at end of period	$	23.6		$	22.1		$	—		$	—

*Funded Status:*
Funded status	$	(11.6	)	$	(12.8	)	$	(4.4	)	$	(6.6	)


	1% Increase		1% Decrease
Effect on total of service and interest cost components of net periodic post-retirement health care benefit cost	$	—	$	—
Effect on the health care component of the accumulated post-retirement benefit obligation	$	0.5	$	(0.4	)


	December 31, 2010		December 31, 2009
Assumed current trend rate for next year	6.50	%	7.00	%
Ultimate year trend rate	5.00	%	5.00	%
Year that ultimate trend rate is reached	2014		2011


			Quoted Prices in
			Active Markets for		Significant		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)
Cash	$	1.3	$	1.3	$	—	$	—
Equity securities		13.8		13.8		—		—
Government securities		2.5		2.5		—		—
Corporate bonds		2.6		2.6		—		—
Group annuity contract		3.4		—		3.4		—

Total	$	23.6	$	20.2	$	3.4	$	—


				Other
Year ended December 31, 2008	Pension			Post-retirement
Current liabilities		—			(0.3	)
Non-current liabilities		(12.8	)		(6.3	)

Accumulated other comprehensive loss	$	(12.8	)	$	(6.6	)


	Pension		Other Post-retirement
Expected amortization of net loss	$	0.2	$	—
Expected amortization of prior service cost (credit)	—		(0.1		)
Total expected amortizations for the year ending December 31, 2011	$	0.2	$	(0.1	)


	December 31, 2010		December 31, 2009
Identifiable assets:
United States	$	590.2	$	575.8
Canada	118.6		102.1
Total	$	708.8	$	677.9


~~ITEM 9.~~		~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.~~


~~ITEM 10.~~		~~DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~


~~ITEM 12.~~		~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND~~ RELATED STOCKHOLDER MATTERS


~~ITEM 13.~~		~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR~~ INDEPENDENCE


Exhibit
No.			Description
	2.1		Third Amended and Revised Joint Plan of Reorganization of Fleming Companies, Inc. and its Subsidiaries Under Chapter 11 of the Bankruptcy Code, dated May 25, 2004 (incorporated by reference to Exhibit 2.1 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	3.1		Certificate of Incorporation of Core-Mark Holding Company, Inc. (incorporated by reference to Exhibit 3.1 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	3.2		Second Amended and Restated Bylaws of Core-Mark Holding Company, Inc. (incorporated by reference to Exhibit 3.2 of the ~~Company’s~~Company's Current Report on Form 8-K filed on August 18, 2008).

	4.1		Form of Class 6(B) Warrant (incorporated by reference to Exhibit 4.1 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	10.1		2004 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	10.2		2004 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	10.3		2005 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	10.4		2005 Directors Equity Incentive Plan (incorporated by reference to Exhibit 10.4 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	10.5		2007 Long-Term Incentive Plan (incorporated by reference to Annex A of the ~~Company’s~~Company's Proxy Statement on Schedule 14A filed on April 23, 2007).

	10.6		Statement of Policy Regarding 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 of the ~~Company’s~~Company's Current Report on Form 8-K filed on May 9, 2007).

10.7	2010 Long-Term Incentive Plan (incorporated by reference to Annex A of the Company's Proxy Statement on Schedule 14A filed on April 13, 2010).

	~~10.7~~	10.8	Form of Management Option Award Agreement for Awards under the Core-Mark Holding Company, Inc. 2004 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 of the ~~Company’s~~Company's Annual Report on Form 10-K filed on March 12, 2009).

10.9	~~10.8~~		Form of Management ~~Restricted Stock Unit~~Option Award Agreement for Awards under the Core-Mark Holding Company, Inc. ~~2004 Long-Term Incentive Plan and 2005~~ 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit ~~10.8~~10.3 of the ~~Company’s Annual~~ Company's Current Report on Form ~~10-K~~8-K filed on ~~March 12, 2009)~~July 6, 2007).

	~~10.9~~	10.10	Form of Management Option Award Agreement for January 2009 Awards under the Core-Mark Holding Company, Inc. 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q filed on May 8, 2009).

10.11	Form of Management Performance Share Award Agreement for January 2009 Awards under the Core-Mark Holding Company, Inc. 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 of the ~~Company’s Current~~Company's Quarterly Report on Form ~~8-K~~10-Q filed on ~~July 6, 2007)~~May 8, 2009).

	~~10.10~~	10.12	Form of Management Restricted Stock Unit Award Agreement for ~~July 2007~~January 2009 and 2010 Awards under the Core-Mark Holding Company, Inc. 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 of the ~~Company’s Current~~Company's Quarterly Report on Form ~~8-K~~10-Q filed on ~~July 6, 2007)~~May 8, 2009).


Exhibit No.	~~10.11~~ Description
	10.13	Form of Management ~~Performance Share~~Option Award Agreement for ~~July 2007~~ Awards under the Core-Mark Holding Company, Inc. ~~2007~~2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 of the ~~Company’s~~Company's Current Report on Form 8-K filed on ~~July 6, 2007)~~January 25, 2011).


10.14	Form of Management Performance Share Award Agreement for Awards under the Core-Mark Holding Company, Inc. 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K filed on January 25, 2011).

~~No.~~		~~Description~~
	~~10.12~~		10.15	Form of Management Restricted Stock Unit Award Agreement for ~~January 2008~~ Awards under the Core-Mark Holding Company, Inc. ~~2007~~2010 Long-Term Incentive Plan (incorporated by reference to Exhibit ~~10.12~~10.2 of the ~~Company’s Annual Report on Form 10-K filed on March 12, 2009).~~

	~~10.13~~			Form of Management Performance Share Award Agreement for January 2008 Awards under the Core-Mark Holding Company, Inc. 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company’sCompany's Current Report on Form 8-K filed on ~~February 14, 2008)~~January 25, 2011).

	~~10.14~~			Form of First Amendment to Management Performance Share Award Agreement for January 2008 Awards under the Core-Mark Holding Company, Inc. 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K filed on March 12, 2009).

	~~10.15~~		10.16	Form of Indemnification Agreement for Officers and Directors (incorporated by reference to Exhibit 10.5 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	~~10.16~~		10.17	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.12 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	~~10.17~~		10.18	Registration Rights Agreement, dated August 20, 2004, among Core-Mark Holding Company, Inc. and the parties listed on Schedule I attached thereto (incorporated by reference to Exhibit 10.10 of the ~~Company’s~~Company's Registration Statement on Form 10 filed on September 6, 2005).

	~~10.18~~		10.19	Credit Agreement, dated October 12, 2005, among Core-Mark Holding Company, Inc., Core-Mark International, Inc., Core-Mark Holdings I, Inc., Core-Mark Holdings II, Inc., Core-Mark Holdings III, Inc., Core-Mark Midcontinent, Inc., Core-Mark Interrelated Companies, Inc., Head Distributing Company and Minter-Weisman Co., as Borrowers, the Lenders Signatory Thereto as Lenders, JPMorgan Chase Bank, N.A., as Administrative Agent, General Electric Capital Corporation and Wachovia Capital Finance Corporation (Western), as Co-Syndication Agents and Bank of America, N.A. and Wells Fargo Foothill, LLC, as Co-Documentation ~~Agents.~~Agents (incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form 10 filed on October 21, 2005).

	~~10.19~~		10.20	First Amendment to Credit Agreement, dated December 4, 2007, among Core-Mark Holding Company, Inc., Core-Mark International, Inc., Core-Mark Holdings I, Inc., Core-Mark Holdings II, Inc., Core-Mark Holdings III, Inc., Core-Mark Midcontinent, Inc., Core-Mark Interrelated Companies, Inc., Head Distributing Company and Minter-Weisman Co., as Borrowers, the Lenders Signatory Thereto as Lenders and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.19 of the ~~Company’s~~Company's Annual Report on Form 10-K filed on March 12, 2009).

	~~10.20~~		10.21	Second Amendment to Credit Agreement, dated March 12, 2008, among Core-Mark Holding Company, Inc., Core-Mark International, Inc., Core-Mark Holdings I, Inc., Core-Mark Holdings II, Inc., Core-Mark Holdings III, Inc., Core-Mark Midcontinent, Inc., Core-Mark Interrelated Companies, Inc., Head Distributing Company and Minter-Weisman Co., as Borrowers, the Lenders Signatory Thereto as Lenders and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the ~~Company’s~~Company's Current Report on Form 8-K filed on March 18, 2008).

	~~10.21~~			Pledge and Security Agreement, dated October 12, 2005, among Core-Mark Holding Company, Inc., Core-Mark Holdings I, Inc., Core-Mark Holdings II, Inc., Core-Mark Holdings III, Inc., Core-Mark International, Inc., Core-Mark Midcontinent, Inc., Core-Mark Interrelated Companies, Inc., Head Distributing Company, Inc. and Minter-Weisman Co., Inc., as Grantors and JPMorgan Chase Bank, N.A., as Administrative Agent.

	10.22			~~Waiver Letter, dated March 29, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on April 3, 2006).~~

	~~10.23~~			Third Amendment to Credit Agreement, dated February 2, 2010, among Core-Mark Holding Company, Inc., Core-Mark International, Inc., Core-Mark Holdings I, Inc., Core-Mark Holdings II, Inc., Core-Mark Holdings III, Inc., Core-Mark Midcontinent, Inc., Core-Mark Interrelated Companies, Inc., Head Distributing Company and Minter-Weisman Co., as Borrowers, the Lenders Signatory Thereto as Lenders and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the ~~Company’s~~Company's Current Report on Form 8-K filed on February 5, 2010).

10.23	Pledge and Security Agreement, dated October 12, 2005, among Core-Mark Holding Company, Inc., Core-Mark Holdings I, Inc., Core-Mark Holdings II, Inc., Core-Mark Holdings III, Inc., Core-Mark International, Inc., Core-Mark Midcontinent, Inc., Core-Mark Interrelated Companies, Inc., Head Distributing Company, Inc. and Minter-Weisman Co., Inc., as Grantors and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form 10 filed on October 21, 2005).

10.24	~~11.1~~Waiver Letter, dated March 29, 2006 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on April 3, 2006).

11.1	Statement of Computation of Earnings Per Share (required information contained within this Annual Report on Form 10-K).



		CORE-MARK HOLDING COMPANY, INC.

Date: March ~~12, 2010~~15, 2011	By:	/s/ J. MICHAEL WALSH
		J. Michael Walsh
		President, Chief Executive Officer and Director


SIGNATURE	TITLE
~~SIGNATURE~~	~~TITLE~~	DATE

/s/S/ J. MICHAEL WALSH ~~J. Michael Walsh~~	President, Chief Executive Officer and	March 15, 2011
J. Michael Walsh	Director (Principal Executive Officer)	~~March 12, 2010~~

/s/S/ STACY LORETZ-CONGDON ~~Stacy Loretz-Congdon~~	Chief Financial Officer (Principal	March 15, 2011
Stacy Loretz-Congdon	Financial Officer)	~~March 12, 2010~~

/s/S/ CHRISTOPHER MILLER ~~Christopher Miller~~	Vice President, Chief Accounting Officer ~~(Principal~~	March 15, 2011
Christopher Miller	(Principal Accounting Officer)	~~March 12, 2010~~

/s/S/ RANDOLPH I. THORNTON	Chairman of the Board of Directors	March ~~12, 2010~~15, 2011
Randolph I. Thornton

/s/S/ ROBERT A. ALLEN ~~Robert A. Allen~~	Director	March ~~12, 2010~~15, 2011
Robert A. Allen

/s/S/ STUART W. BOOTH ~~Stuart W. Booth~~	Director	March ~~12, 2010~~15, 2011
Stuart W. Booth

/s/S/ GARY F. COLTER ~~Gary F. Colter~~	Director	March ~~12, 2010~~15, 2011
Gary F. Colter

/s/S/ L. WILLIAM KRAUSE ~~L. William Krause~~	Director	March ~~12, 2010~~15, 2011
L. William Krause

/s/S/ HARVEY L. TEPNER ~~Harvey L. Tepner~~	Director	March ~~12, 2010~~15, 2011
Harvey L. Tepner