UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-51515

Core-Mark Holding Company, Inc.

(Exact name of registrant as specified in its charter)



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

1500 Solana Boulevard, Suite 3400		76262
Westlake,	Texas
(Address of principal executive offices)		(Zip Code)

(940) 293-8600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CORE	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of ~~November 2, 2020, 44,921,547~~May 3, 2021, 45,163,705 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2020~~MARCH 31, 2021

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION		1

ITEM 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets as of ~~September~~M arch ~~30, 2020~~3 1 , 202 1 and December 31, ~~2019~~20 20	1

	Condensed Consolidated Statements of Operations for the Three ~~and~~ ~~Nine~~Months Ended ~~Months Ended~~ ~~September~~March 3 1 , 202 1 ~~30, 2020~~ and ~~2019~~20 20	2

	Condensed Consolidated Statements of Comprehensive Income for the Three ~~and~~ ~~Nine~~Months Ended ~~Months Ended~~ ~~September~~March 3 1 , 202 1 ~~30, 2020~~ and ~~2019~~20 20	3

	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~March ~~30, 2020~~3 1 , 202 1 and ~~2019~~20 20	4

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September~~March ~~30, 2020~~3 1 , 202 1 and ~~2019~~20 20	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3228

ITEM 4.	Controls and Procedures	3228

PART II. OTHER INFORMATION		3329

ITEM 1.	Legal Proceedings	3329

ITEM 1A.	Risk Factors	3329

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3329

ITEM 6.	Exhibits	3430

SIGNATURES		3531

Table of of ~~Content~~sContents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

(Unaudited)


		September 30,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	11.7	$	14.1	Cash and cash equivalents	$	43.5	$	22.8

Accounts receivable, net of allowance for credit losses of $15.2 and $14.5 as of September 30, 2020 and December 31, 2019, respectively		387.3		402.9
Accounts receivable, net of allowance for credit losses of $15.7 and $16.5 as of March 31, 2021 and December 31, 2020, respectively						Accounts receivable, net of allowance for credit losses of $15.7 and $16.5 as of March 31, 2021 and December 31, 2020, respectively	377.9		362.6
Other receivables, net	Other receivables, net	110.1		96.2		Other receivables, net	94.8		105.5
Inventories, net (Note 3)	Inventories, net (Note 3)	832.2		670.9		Inventories, net (Note 3)	756.5		758.5
Deposits and prepayments	Deposits and prepayments	86.4		116.0		Deposits and prepayments	86.8		87.8

Total current assets	Total current assets	1,427.7		1,300.1		Total current assets	1,359.5		1,337.2
Property and equipment, net	Property and equipment, net	269.1		249.9		Property and equipment, net	280.8		276.0
Operating lease right-of-use assets	Operating lease right-of-use assets	174.7		199.8		Operating lease right-of-use assets	202.7		203.6
Goodwill	Goodwill	72.8		72.8		Goodwill	72.8		72.8
Other intangible assets, net	Other intangible assets, net	42.4		47.2		Other intangible assets, net	38.5		40.7
Other non-current assets, net	Other non-current assets, net	25.3		28.6		Other non-current assets, net	27.8		24.4
Total assets	Total assets	$	2,012.0	$	1,898.4	Total assets	$	1,982.1	$	1,954.7
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	242.7	$	192.2	Accounts payable	$	250.0	$	190.9
Book overdrafts	Book overdrafts	43.3		23.9		Book overdrafts	33.0		31.1
Cigarette and tobacco taxes payable	Cigarette and tobacco taxes payable	225.2		280.1		Cigarette and tobacco taxes payable	257.5		302.9
Operating lease liabilities	Operating lease liabilities	33.3		39.5		Operating lease liabilities	33.2		32.9
Accrued liabilities	Accrued liabilities	176.6		151.0		Accrued liabilities	174.5		188.0

Total current liabilities	Total current liabilities	721.1		686.7		Total current liabilities	748.2		745.8
Long-term debt (Note 4)	Long-term debt (Note 4)	444.7		382.1		Long-term debt (Note 4)	352.9		344.5
Deferred income taxes	Deferred income taxes	22.9		22.6		Deferred income taxes	18.1		2.1
Long-term operating lease liabilities	Long-term operating lease liabilities	151.4		173.4		Long-term operating lease liabilities	179.7		179.7
Other long-term liabilities	Other long-term liabilities	15.9		5.6		Other long-term liabilities	11.8		12.5
Claims liabilities	Claims liabilities	37.4		36.1		Claims liabilities	38.6		38.2

Total liabilities	Total liabilities	1,393.4		1,306.5		Total liabilities	1,349.3		1,322.8
Contingencies (Note 5)	Contingencies (Note 5)					Contingencies (Note 5)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.01 par value (150,000,000 shares authorized; 52,916,459 and 52,702,551 shares issued; 45,092,286 and 45,113,722 shares outstanding at September 30, 2020 and December 31, 2019, respectively)		0.5		0.5
Common stock, $0.01 par value (150,000,000 shares authorized; 53,160,505 and 52,918,347 shares issued; 45,163,705 and 44,921,547 shares outstanding at March 31, 2021 and December 31, 2020, respectively)						Common stock, $0.01 par value (150,000,000 shares authorized; 53,160,505 and 52,918,347 shares issued; 45,163,705 and 44,921,547 shares outstanding at March 31, 2021 and December 31, 2020, respectively)	0.5		0.5
Additional paid-in capital	Additional paid-in capital	294.8		290.6		Additional paid-in capital	296.6		298.3
Treasury stock at cost (7,824,173 and 7,588,829 shares of common stock at September 30, 2020 and December 31, 2019, respectively)		(118.0)		(112.6)
Treasury stock at cost (7,996,800 shares of common stock at each of March 31, 2021 and December 31, 2020, respectively)						Treasury stock at cost (7,996,800 shares of common stock at each of March 31, 2021 and December 31, 2020, respectively)	(123.0)		(123.0)
Retained earnings	Retained earnings	446.6		418.5		Retained earnings	461.9		459.7
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(5.3)		(5.1)		Accumulated other comprehensive loss	(3.2)		(3.6)
Total stockholders’ equity	Total stockholders’ equity	618.6		591.9		Total stockholders’ equity	632.8		631.9
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,012.0	$	1,898.4	Total liabilities and stockholders’ equity	$	1,982.1	$	1,954.7

See accompanying notes to condensed consolidated financial statements.

Table of of ~~Content~~sContents

CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Net sales	Net sales	$	4,502.6	$	4,422.6	$	12,705.8	$	12,515.7	Net sales	$	3,932.2	$	3,939.3
Cost of goods sold	Cost of goods sold	4,267.6		4,176.0		12,039.3		11,822.0		Cost of goods sold	3,714.8		3,720.9
Gross profit	Gross profit	235.0		246.6		666.5		693.7		Gross profit	217.4		218.4
Warehousing and distribution expenses	Warehousing and distribution expenses	140.4		148.6		408.3		426.0		Warehousing and distribution expenses	137.3		142.4
Selling, general and administrative expenses	Selling, general and administrative expenses	57.3		61.8		181.0		192.3		Selling, general and administrative expenses	63.4		63.9
Amortization of intangible assets	Amortization of intangible assets	2.5		2.3		7.2		7.7		Amortization of intangible assets	2.7		2.3
Total operating expenses	Total operating expenses	200.2		212.7		596.5		626.0		Total operating expenses	203.4		208.6
Income from operations	Income from operations	34.8		33.9		70.0		67.7		Income from operations	14.0		9.8
Interest expense, net	Interest expense, net	(2.1)		(4.2)		(8.4)		(10.8)		Interest expense, net	(3.1)		(3.5)

Foreign currency transaction (losses) gains, net		(0.5)		0.9		(0.7)		(0.3)
Foreign currency transaction gains (losses), net										Foreign currency transaction gains (losses), net	0.2		(0.2)
Income before income taxes	Income before income taxes	32.2		30.6		60.9		56.6		Income before income taxes	11.1		6.1
Provision for income taxes	Provision for income taxes	(9.2)		(8.1)		(16.7)		(15.1)		Provision for income taxes	(2.6)		(1.8)
Net income	Net income	$	23.0	$	22.5	$	44.2	$	41.5	Net income	$	8.5	$	4.3

Basic earnings per share (Note 6)	Basic earnings per share (Note 6)	$	0.51	$	0.49	$	0.98	$	0.91	Basic earnings per share (Note 6)	$	0.19	$	0.09

Diluted earnings per share (Note 6)	Diluted earnings per share (Note 6)	$	0.51	$	0.49	$	0.98	$	0.90	Diluted earnings per share (Note 6)	$	0.19	$	0.09

Basic weighted-average shares (Note 6)	Basic weighted-average shares (Note 6)	45.1		45.8		45.1		45.8		Basic weighted-average shares (Note 6)	45.2		45.3

Diluted weighted-average shares (Note 6)	Diluted weighted-average shares (Note 6)	45.4		46.1		45.3		46.1		Diluted weighted-average shares (Note 6)	45.4		45.4

See accompanying notes to condensed consolidated financial statements.

Table of of ~~Content~~sContents

CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Net income	Net income	$	23.0	$	22.5	$	44.2	$	41.5	Net income	$	8.5	$	4.3

Foreign currency translation gains (losses), net	Foreign currency translation gains (losses), net	1.2		(1.5)		(0.2)		1.5		Foreign currency translation gains (losses), net	0.4		(2.7)

Comprehensive income	Comprehensive income	$	24.2	$	21.0	$	44.0	$	43.0	Comprehensive income	$	8.9	$	1.6

See accompanying notes to condensed consolidated financial statements.

Table of of ~~Content~~sContents

CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per share amounts)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Total stockholders’ equity, beginning balances	Total stockholders’ equity, beginning balances	$	597.0	$	580.8	$	591.9	$	567.0	Total stockholders’ equity, beginning balances	$	631.9	$	591.9

Common stock:	Common stock:									Common stock:
Beginning and ending balances	Beginning and ending balances	$	0.5	$	0.5	$	0.5	$	0.5	Beginning and ending balances	$	0.5	$	0.5

Additional paid-in capital:	Additional paid-in capital:									Additional paid-in capital:
Beginning balances	Beginning balances	$	292.3	$	285.3	$	290.6	$	283.3	Beginning balances	$	298.3	$	290.6
Common stock issued, net of shares withheld for employee taxes	Common stock issued, net of shares withheld for employee taxes	(0.1)		(0.1)		(2.5)		(2.2)		Common stock issued, net of shares withheld for employee taxes	(4.1)		(2.4)
Stock-based compensation expense	Stock-based compensation expense	2.6		3.1		6.7		7.2		Stock-based compensation expense	2.4		2.0
Ending balances	Ending balances	$	294.8	$	288.3	$	294.8	$	288.3	Ending balances	$	296.6	$	290.2

Treasury stock:	Treasury stock:									Treasury stock:
Beginning balances	Beginning balances	$	(118.0)	$	(90.6)	$	(112.6)	$	(90.6)	Beginning balances	$	(123.0)	$	(112.6)
Repurchase of common stock	Repurchase of common stock	0		(8.1)		(5.4)		(8.1)		Repurchase of common stock	0		(5.4)
Ending balances	Ending balances	$	(118.0)	$	(98.7)	$	(118.0)	$	(98.7)	Ending balances	$	(123.0)	$	(118.0)

Retained earnings:	Retained earnings:									Retained earnings:
Beginning balances	Beginning balances	$	428.7	$	390.4	$	418.5	$	381.6	Beginning balances	$	459.7	$	418.5
Net income	Net income	23.0		22.5		44.2		41.5		Net income	8.5		4.3
Dividends declared	Dividends declared	(5.1)		(5.1)		(16.1)		(15.3)		Dividends declared	(6.3)		(5.5)
Ending balances	Ending balances	$	446.6	$	407.8	$	446.6	$	407.8	Ending balances	$	461.9	$	417.3

Accumulated other comprehensive loss:	Accumulated other comprehensive loss:									Accumulated other comprehensive loss:
Beginning balances	Beginning balances	$	(6.5)	$	(4.8)	$	(5.1)	$	(7.8)	Beginning balances	$	(3.6)	$	(5.1)
Other comprehensive gains (losses)	Other comprehensive gains (losses)	1.2		(1.5)		(0.2)		1.5		Other comprehensive gains (losses)	0.4		(2.7)
Ending balances	Ending balances	$	(5.3)	$	(6.3)	$	(5.3)	$	(6.3)	Ending balances	$	(3.2)	$	(7.8)

Total stockholders’ equity, ending balances	Total stockholders’ equity, ending balances	$	618.6	$	591.6	$	618.6	$	591.6	Total stockholders’ equity, ending balances	$	632.8	$	582.2

Common stock shares:	Common stock shares:									Common stock shares:
Beginning share balance	Beginning share balance	52.9		52.7		52.7		52.5		Beginning share balance	52.9		52.7
Common stock issued, net of shares withheld for employee taxes	Common stock issued, net of shares withheld for employee taxes	0		0		0.2		0.2		Common stock issued, net of shares withheld for employee taxes	0.3		0.2
Ending share balance	Ending share balance	52.9		52.7		52.9		52.7		Ending share balance	53.2		52.9

Treasury stock shares:	Treasury stock shares:									Treasury stock shares:
Beginning share balance	Beginning share balance	(7.8)		(6.8)		(7.6)		(6.8)		Beginning share balance	(8.0)		(7.6)
Repurchase of common stock	Repurchase of common stock	0		(0.3)		(0.2)		(0.3)		Repurchase of common stock	0		(0.2)
Ending share balance	Ending share balance	(7.8)		(7.1)		(7.8)		(7.1)		Ending share balance	(8.0)		(7.8)

Total shares outstanding	Total shares outstanding	45.1		45.6		45.1		45.6		Total shares outstanding	45.2		45.1

Dividends declared per share	Dividends declared per share	$	0.12	$	0.11	$	0.36	$	0.33	Dividends declared per share	$	0.13	$	0.12

See accompanying notes to condensed consolidated financial statements.

Table of of ~~Content~~sContents

CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	44.2	$	41.5	Net income	$	8.5	$	4.3
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
LIFO and inventory provisions	LIFO and inventory provisions	21.6		21.4		LIFO and inventory provisions	10.3		8.0
Amortization of debt issuance costs	Amortization of debt issuance costs	0.6		0.6		Amortization of debt issuance costs	0.3		0.2
Stock-based compensation expense	Stock-based compensation expense	6.7		7.2		Stock-based compensation expense	2.4		2.0
Credit loss expense, net	Credit loss expense, net	5.7		5.4		Credit loss expense, net	0.6		1.8
Impairment charge and other	Impairment charge and other	0.3		0		Impairment charge and other	0.1		0.3
Loss on disposals		0.1		0.1

Depreciation and amortization	Depreciation and amortization	48.9		45.8		Depreciation and amortization	17.4		15.7
Foreign currency losses, net		0.7		0.3
Foreign currency transaction (gains) losses, net						Foreign currency transaction (gains) losses, net	(0.2)		0.2
Deferred income taxes	Deferred income taxes	0.3		0.5		Deferred income taxes	16.0		0.8

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	9.1		(29.9)		Accounts receivable, net	(15.7)		12.0
Other receivables, net	Other receivables, net	(14.1)		(21.6)		Other receivables, net	10.9		(5.5)
Inventories, net	Inventories, net	(185.4)		(199.5)		Inventories, net	(7.3)		(102.4)
Deposits, prepayments and other non-current assets	Deposits, prepayments and other non-current assets	23.3		(22.9)		Deposits, prepayments and other non-current assets	(0.7)		31.8
Accounts payable	Accounts payable	51.2		74.2		Accounts payable	58.9		79.5
Cigarette and tobacco taxes payable	Cigarette and tobacco taxes payable	(53.6)		(61.3)		Cigarette and tobacco taxes payable	(46.0)		(17.9)
Claims, accrued and other long-term liabilities	Claims, accrued and other long-term liabilities	32.7		27.1		Claims, accrued and other long-term liabilities	(14.1)		1.7
Net cash used in operating activities		(7.7)		(111.1)
Net cash provided by operating activities						Net cash provided by operating activities	41.4		32.5
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:

Acquisition of business		0		(2.5)

Additions to property and equipment, net	Additions to property and equipment, net	(17.9)		(15.3)		Additions to property and equipment, net	(4.9)		(5.0)
Capitalization of software and related development costs	Capitalization of software and related development costs	(2.7)		(3.3)		Capitalization of software and related development costs	(0.4)		(0.8)
Proceeds from sale of property and equipment, net		0		0.2
Proceeds from sale of other non-current assets		1.1		0

Net cash used in investing activities	Net cash used in investing activities	(19.5)		(20.9)		Net cash used in investing activities	(5.3)		(5.8)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings under the Credit Facility		1,424.5		1,334.6
Repayments under the Credit Facility		(1,386.3)		(1,166.6)

Borrowings under revolving credit facility						Borrowings under revolving credit facility	497.4		489.7
Repayments under revolving credit facility						Repayments under revolving credit facility	(496.4)		(501.5)
Payments of financing costs						Payments of financing costs	(2.8)		0
Payments on finance leases	Payments on finance leases	(8.9)		(3.6)		Payments on finance leases	(5.3)		(2.4)
Dividends paid	Dividends paid	(16.5)		(15.2)		Dividends paid	(6.2)		(5.6)
Repurchases of common stock	Repurchases of common stock	(5.4)		(8.1)		Repurchases of common stock	0		(5.4)

Tax withholdings related to net share settlements of restricted stock units	Tax withholdings related to net share settlements of restricted stock units	(2.5)		(2.2)		Tax withholdings related to net share settlements of restricted stock units	(4.1)		(2.4)
Increase (decrease) in book overdrafts		19.4		(7.7)
Net cash provided by financing activities		24.3		131.2
Increase in book overdrafts						Increase in book overdrafts	1.9		12.4
Net cash used in financing activities						Net cash used in financing activities	(15.5)		(15.2)
Effects of changes in foreign exchange rates	Effects of changes in foreign exchange rates	0.5		(0.5)		Effects of changes in foreign exchange rates	0.1		0.4
Change in cash and cash equivalents	Change in cash and cash equivalents	(2.4)		(1.3)		Change in cash and cash equivalents	20.7		11.9
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	14.1		27.3		Cash and cash equivalents, beginning of period	22.8		14.1
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	11.7	$	26.0	Cash and cash equivalents, end of period	$	43.5	$	26.0
Supplemental disclosures:	Supplemental disclosures:					Supplemental disclosures:
Cash (paid) received during the period for:
Cash paid during the period for:						Cash paid during the period for:
Income taxes, net	Income taxes, net	$	(22.3)	$	(13.6)	Income taxes, net	$	(4.7)	$	(3.2)
Interest	Interest	$	(8.2)	$	(9.1)	Interest	$	(1.1)	$	(2.6)
Operating lease liabilities arising from obtaining new right-of-use assets	Operating lease liabilities arising from obtaining new right-of-use assets	$	5.2	$	7.0	Operating lease liabilities arising from obtaining new right-of-use assets	$	11.0	$	6.3

Finance lease liabilities arising from obtaining new right-of-use assets	Finance lease liabilities arising from obtaining new right-of-use assets	$	36.9	$	29.3	Finance lease liabilities arising from obtaining new right-of-use assets	$	12.8	$	10.5
Non-cash transactions between other non-current assets and other long-term liabilities		$	0	$	4.7

See accompanying notes to condensed consolidated financial statements.

Table of of ~~Content~~sContents

CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Company Information and Basis of Presentation

Business

Core-Mark Holding Company, Inc., and its subsidiaries (collectively referred to herein as the “Company” or “Core-Mark”), are one of the largest marketers of fresh, food and broad-line supply solutions to the convenience retail industry in North America. The Company offers a full range of products, marketing programs and technology solutions to approximately ~~41,000~~40,000 customer locations in the United States (“U.S.”) and Canada. The Company’s customers include traditional convenience stores, drug stores, mass merchants, grocery stores, liquor stores and other specialty and small format stores that carry convenience products. The Company’s product offering includes cigarettes, other tobacco products (“OTP”), alternative nicotine products, candy, snacks, ~~fast~~ food, ~~groceries,~~including fresh products, groceries, dairy, bread, beverages, general merchandise and health and beauty care products. The Company operates a network of NaN distribution centers in the U.S. and Canada (excluding 2 distribution facilities it operates as a third-party logistics provider). NaN distribution centers are located in the U.S. and 5 are located in Canada.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated balance sheet as of ~~September 30, 2020,~~March 31, 2021, the unaudited condensed consolidated statements of operations and comprehensive income, the unaudited condensed consolidated statements of stockholders’ equity, ~~for the three and nine months ended September 30, 2020 and 2019,~~ and the unaudited condensed consolidated statements of cash flows, each for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, certain footnotes and other financial information that are normally required by generally accepted accounting principles in the U.S. (“GAAP”) have been condensed or omitted. The condensed consolidated balance sheet as of December 31, ~~2019~~2020 has been derived from the Company’s audited financial statements, which are included in its ~~2019~~2020 Annual Report on Form 10-K, filed with the SEC on March ~~2, 2020.~~1, 2021.

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.

The unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements in its Annual Report on Form 10-K, for the year ended December 31, ~~2019.~~2020.

The unaudited condensed consolidated interim financial statements include all adjustments necessary for the fair presentation of the Company’s consolidated results of operations, financial position, comprehensive income, changes in stockholders’ equity and cash flows. Results for the interim periods are not necessarily indicative of results to be expected for the full year or any other future periods.

2. Summary of Significant Accounting Policies

Adoption of Accounting Pronouncements

On ~~June 16, 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses(Topic 326): Measurement of Credit Losses on Financial Instruments~~ (“ASU 2016-13”). The Company adopted this pronouncement on a modified retrospective basis effective January 1, 2020. The new guidance replaces the incurred loss impairment approach with a methodology that incorporates all expected credit loss estimates, resulting in more timely recognition of losses. The adoption of ASU 2016-13 and all subsequent amendments did not have a material impact on the Company’s consolidated financial statements.

~~On January 26, 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ (“ASU 2017-04”). The Company adopted this pronouncement on a prospective basis effective January 1, 2020. The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. Accordingly, the Company has amended its methodology for determining any goodwill impairment calculations. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.

~~Table~~of ~~Content~~s

~~Recent Accounting Standards or Updates Not Yet Effective~~

On August 28, 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans -General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The Company adopted this pronouncement on a retrospective basis effective January 1, 2021. The new guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant for defined benefit pension and other post-retirement benefit plans. The adoption of ASU 2018-14 ~~requires retrospective application and is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The Company has determined that ASU 2018-14 will~~did not have a material impact on ~~its~~the Company’s consolidated financial statements.

On December 18, 2019 the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The new guidance enhances and simplifies various aspects of the income tax accounting guidance, including requirements pertaining to hybrid tax regimes, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The Company adopted this pronouncement effective January 1, 2021. The adoption of ASU 2019-12 ~~is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The Company has determined that ASU 2019-12 will~~did not have a material impact on ~~its~~the Company’s consolidated financial statements.

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Concentration of Credit Risks

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash investments, accounts receivable and other receivables. The Company places its cash and cash equivalents in short-term instruments with high-quality financial institutions and limits the amount of credit exposure in any one financial instrument.

A credit review is completed for new customers and ongoing credit evaluations of each customer’s financial condition are performed periodically, with an allowance recognized for expected credit losses. Credit limits given to customers are based on a risk assessment of their ability to pay and other factors. Accounts receivable are typically not collateralized, but the Company may require prepayments or other guarantees whenever deemed necessary.

Murphy U.S.A., the Company’s largest customer, accounted for approximately ~~13% and~~ 14% of the Company’s net sales for each of the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 and ~~approximately 13% of the Company’s net sales for the three and nine months ended September 30, 2019.~~March 31, 2020. No other customer individually accounted for more than 10% of sales for these periods. No sisin~~ngle~~gle customer individually accounted for 10% or more of the Company’s accounts receivable as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

3. Inventories, Net

Inventories consist of the following (in millions):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Inventories at FIFO, net of reserves	Inventories at FIFO, net of reserves	$	1,058.4	$	875.6	Inventories at FIFO, net of reserves	$	1,002.4	$	993.9
Less: LIFO reserve	Less: LIFO reserve	(226.2)		(204.7)		Less: LIFO reserve	(245.9)		(235.4)
Total inventories, net of reserves	Total inventories, net of reserves	$	832.2	$	670.9	Total inventories, net of reserves	$	756.5	$	758.5

Cost of goods sold reflects the application of the last-in, first-out (“LIFO”) method of valuing inventories in the U.S. based upon estimated annual producer price indexes. Inventories in Canada are valued on a first-in, first-out (“FIFO”) basis, as LIFO is not a permitted inventory valuation method in Canada. 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. If the FIFO method had been used for valuing inventories in the U.S., inventories would have been approximately ~~$226.2~~$245.9 million and ~~$204.7~~$235.4 million higher as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The Company recorded LIFO expense of ~~$5.4~~$10.5 million and ~~$7.3~~$7.8 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, respectively. During the first quarter of 2021, the Company concluded that it qualifies for and ~~2019, respectively,~~intends to file a change to the tax method of determining the LIFO reserve which increased deferred tax liabilities and ~~$21.5 million and $21.7 million for the nine months ended September 30, 2020 and 2019, respectively.~~decreased taxes payable by approximately $16 million.

~~Table~~of ~~Content~~s

4. Long-Term Debt

Long-term debt consists of the following (in millions):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Amounts borrowed (Credit Facility)	Amounts borrowed (Credit Facility)	$	363.0	$	324.8	Amounts borrowed (Credit Facility)	$	259.0	$	258.0
Obligations under finance leases	Obligations under finance leases	81.7		57.3		Obligations under finance leases	93.9		86.5
Total long-term debt	Total long-term debt	$	444.7	$	382.1	Total long-term debt	$	352.9	$	344.5

The Company has a revolving credit facility (the “Credit Facility”) with a capacity of $750.0 million and expansion feature of $200.0 million as of ~~September 30, 2020,~~March 31, 2021, limited by a borrowing base consisting of eligible accounts ~~receivables~~receivable and inventories. ~~The~~On February 26, 2021, the Company entered into an eleventh amendment to its Credit Facility ~~expires in~~(the “Eleventh Amendment”), which primarily extends the maturity date from March 28, 2022 to February 26, 2026. With the Eleventh Amendment, the size and ~~has an~~ expansion feature ~~which permits an increase~~ of ~~$200.0 million, subject to borrowing base requirements.~~the Credit Facility remain unchanged and certain threshold amounts for reporting and notices as well as the size of certain baskets were increased. The Eleventh Amendment also added certain additional covenant baskets and incorporated customary language regarding London Interbank Offered Rate (“LIBOR”) replacement, defaulting lenders, electronic execution, bail-in acknowledgement and letters of credit. All obligations under the Credit Facility are secured by first-priority liens on substantially all of the Company’s 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 London Interbank Offered Rate (“LIBOR”)~~LIBOR or Canadian Dollar Offered Rate (“CDOR”) based loans prepaid prior to the end of an interest period).

The Company incurred fees of approximately $2.8 million in connection with the Eleventh Amendment.

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Amounts related to the Credit Facility are as follows (in millions, except interest rate data):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Amounts borrowed, net	Amounts borrowed, net	$	363.0	$	324.8	Amounts borrowed, net	$	259.0	$	258.0
Outstanding letters of credit	Outstanding letters of credit	19.4		16.7		Outstanding letters of credit	43.6		19.5
Amounts available to borrow(1)	Amounts available to borrow(1)	352.1		341.7		Amounts available to borrow(1)	406.9		402.4
Unamortized debt issuance costs	Unamortized debt issuance costs	1.1		1.7		Unamortized debt issuance costs	3.4		0.9

(1) Subject to borrowing base limitations, and excluding expansion feature of $200.0 million.


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,						September 30,							March 31,
		2020			2019			2020			2019				2021			2020
Average borrowings	Average borrowings	$	163.4		$	371.1		$	284.2		$	295.0		Average borrowings	$	202.5		$	336.4
Range of borrowings	Range of borrowings	69.0 - 401.0			252.8 - 489.0			69.0 - 499.3			141.7 - 489.0			Range of borrowings	142.5 - 301.0			151.5 - 499.3
Unused Credit Facility and letter of credit participation fees(1)	Unused Credit Facility and letter of credit participation fees(1)	0.4			0.3			1.0			0.9			Unused Credit Facility and letter of credit participation fees(1)	0.4			0.3
Amortization of debt issuance costs(1)	Amortization of debt issuance costs(1)	0.2			0.2			0.6			0.6			Amortization of debt issuance costs(1)	0.3			0.2
Weighted-average interest rate(2)	Weighted-average interest rate(2)	1.4		%	3.5		%	1.9		%	3.6		%	Weighted-average interest rate(2)	1.4		%	2.7		%

(1) Included in interest expense, net.

(2) Calculated based on the daily cost of borrowing, reflecting a blend of prime and LIBOR rates.

5. Contingencies

Litigation

The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is 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. In the opinion of management, the outcome of pending litigation is not expected to have a material effect on the Company’s results of operations, financial condition or liquidity.

~~Table~~of ~~Content~~s

On October 2, 2019, the United States Judicial Panel on Multidistrict Litigation transferred and consolidated all then-pending personal injury cases against Juul Labs, Inc. (“JLI”) involving the distribution and sale of JUUL products to the Northern District of California (the “JUUL MDL”). Subsequently, on March 11, 2020, the plaintiffs in the JUUL MDL filed a Personal Injury Consolidated Master Complaint against JLI, Philip Morris and various Altria Group entities, JLI co-founders, early JLI investors and board members, certain e-liquid manufacturers, and numerous distributors and retailers of JUUL products, including ~~Core Mark.~~Core-Mark. Consequently, Core-Mark has been added as a defendant in a number of these personal injury suits. The JLI MDL litigation is currently in an early stage, and the personal injury plaintiffs have not made a monetary demand to the defendants. JLI is indemnifying Core-Mark ~~believes~~in connection with the JUUL MDL and similar litigation.

On September 25, 2020, Core-Mark filed a petition with the Ontario Superior Court of Justice to appeal a decision with respect to the results of a tax audit for the period of December 2014 through January 2018 pertaining to taxes on sales of other tobacco products to First Nations Consumers. The Ontario Ministry of Finance (the “Ministry”) questions whether the amount of cigars Core-Mark sold to First Nations consumers was a reasonable amount and as a result whether taxes should have been assessed. The position of the Ontario Ministry is based on an undefined standard of what constitutes a reasonable quantum of sales. While the Company remains confident in the validity of its appeal, Core-Mark has decided, based on a recent ruling by the Ontario Divisional Court in a similar matter and that this matter could potentially be resolved between the parties, to record a reserve of approximately 50%, or $3.8 million, against the total tax audit claim. In contrast to rulings by the Ontario Divisional Court, Core-Mark will have the automatic right to appeal to the Ontario Court of Appeal in the event of an unfavorable ruling by the Ontario Superior Court of Justice. Additionally, the Ministry claims Core-Mark sold tobacco to First Nations consumers without a valid permit. The Company is confident that it ~~is entitled~~will be able to ~~contractual, statutory and/or common law indemnification from JLI for any liability~~demonstrate that ~~could result from the JUUL MDL. Core-Mark and JLI are in discussions regarding these indemnification rights.~~valid permits did exist.

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6. Earnings Per Share

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Earnings	Earnings									Earnings
Net income	Net income	$	23.0	$	22.5	$	44.2	$	41.5	Net income	$	8.5	$	4.3
Shares	Shares									Shares
Weighted-average common shares outstanding (basic shares)	Weighted-average common shares outstanding (basic shares)	45.1		45.8		45.1		45.8		Weighted-average common shares outstanding (basic shares)	45.2		45.3
Adjustment for assumed dilution:	Adjustment for assumed dilution:									Adjustment for assumed dilution:
Restricted stock units	Restricted stock units	0.2		0.2		0.1		0.2		Restricted stock units	0.1		0
Performance shares	Performance shares	0.1		0.1		0.1		0.1		Performance shares	0.1		0.1
Weighted-average shares assuming dilution (diluted shares)	Weighted-average shares assuming dilution (diluted shares)	45.4		46.1		45.3		46.1		Weighted-average shares assuming dilution (diluted shares)	45.4		45.4
Earnings per share	Earnings per share									Earnings per share
Basic(1)	Basic(1)	$	0.51	$	0.49	$	0.98	$	0.91	Basic(1)	$	0.19	$	0.09
Diluted(1)	Diluted(1)	$	0.51	$	0.49	$	0.98	$	0.90	Diluted(1)	$	0.19	$	0.09

(1) Basic and diluted earnings per share are calculated based on unrounded actual amounts.

The number of common shares that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive were ~~10,279~~437,362 and ~~263,983~~469,302 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and March 31, 2020, ~~respectively, and 10,279 and 205,748, for the same periods in 2019,~~ respectively.

7. Stock-Based Compensation Plans

2019 Long-Term Incentive Plan

On May 21, 2019, the Company’s stockholders approved the 2019 Long-Term Incentive Plan (“2019 LTIP”) which, among other things, ~~replaces~~replaced the Company’s 2010 Long-Term Incentive Plan (as amended, the “2010 LTIP”) and ~~reserves~~reserved for awards an aggregate of up to 4,236,959 shares. As of ~~September 30, 2020,~~March 31, 2021, the total number of shares available for issuance under the 2019 LTIP was ~~3,136,192~~.2,792,616. The 2019 LTIP allows the Company to grant, among other things, time-vesting and performance-based restricted stock unit awards. Awards may be made under the 2019 LTIP through May 21, 2029.

Grant Activities

During the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company granted ~~280,325~~225,724 and ~~230,235,~~271,107, respectively, of time-vesting restricted stock units to certain of its employees and non-employee directors at a weighted-average grant date fair value of ~~$25.38~~$30.68 and ~~$29.67,~~$25.32, respectively.

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company granted ~~154,363~~149,524 performance-based restricted stock units to certain of its employees at a weighted-average grant date fair value of ~~$25.48~~.$30.67. The ~~154,363~~149,524 performance-based restricted stock units represent the maximum number that can be earned. The number of performance-based restricted stock

~~Table~~of ~~Content~~s

units that employees ultimately earn will be based on the Company’s achievement of certain specified performance targets for the full year of ~~2020.~~ 2021. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company granted ~~154,511~~140,536 performance-based restricted stock units to certain of its employees at a weighted-average grant date fair value of ~~$29.90, all~~$25.32, of which126,482 were ultimately earned, based upon ~~2019~~2020 performance criteria achieved.

Stock-Based Compensation Cost

Total stock-based compensation cost included in selling, general and administrative expenses was ~~$2.6~~$2.4 million and ~~$3.1~~$2.0 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation cost of $6.7 million and $7.2 million,~~ respectively. Total unrecognized stock-based compensation cost related to unvested share-based compensation arrangements was ~~$14.1~~$17.5 million at ~~September 30, 2020,~~March 31, 2021, which is expected to be recognized over a weighted-average period of ~~1.6~~2.0 years. Total unrecognized stock-based compensation cost is adjusted for any unearned or estimated not to be earned performance-based restricted stock units or forfeited shares.

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8. Stockholders’ Equity

Shareholder Return Plan

In February of 2021, the Company’s Board of Directors approved a three-year, $375 million shareholder return plan (the “Plan”), supporting increased stock repurchases and growth in the Company’s cash dividend. The Plan replaces the Company’s previous $60 million stock repurchase program, which was terminated, with funds totaling $49.6 million remaining that were unused.

Dividends

The Board of Directors approved the following cash dividends in ~~2020~~2021 (in millions, except per share data):

Declaration Date Dividend Per Share Record Date Cash Payment Amount Payment Date
February 24, 2020 $0.12 March 16, 2020 $5.5 March 27, 2020
May 7, 2020 $0.12 May 22, 2020 $5.4 June 19, 2020
August 6, 2020 $0.12 August 21, 2020 $5.4 September 18, 2020
November 5, 2020 $0.13 November 20, 2020
N/A(1)
December 18, 2020

Declaration Date

Dividend Per Share

Record Date

Cash Payment Amount

Payment Date

March 1, 2021

$0.13

March 15, 2021

$6.2

March 26, 2021

May 5, 2021

$0.13

May 21, 2021

N/A(1)

June 25, 2021

(1) Amount will be determined based on common stock outstanding as of the record date.

Repurchase of Common Stock

On February 24, 2020, the Company’s Board of Directors authorized a $60.0 million stock repurchase program (the “Program”), replacing the Company’s prior stock repurchase program. At the time of approval, the Company had funds totaling $0.4 million remaining under the prior stock repurchase program, which were subsequently retired unused. The timing, price and volume of purchases under the ~~Program~~Plan are based on market conditions, cash and liquidity requirements, relevant securities laws and other factors. The ~~Program~~Plan may be discontinued or amended at any time. The ~~Program~~Plan has no expiration date and terminates when the amount authorized has been expended or the Board of Directors withdraws its authorization.

On April 14, 2020, the Company announced that spending under the Program would be temporarily postponed due to the volatility related to the novel coronavirus pandemic (“COVID-19”). During the three months ended September 30, 2020, 0 shares of common stock were purchased under the Program. During the nine months ended September 30, 2020, the Company spent $5.4 million to repurchase 235,344 shares of common stock under the Program. During the three and nine months ended September 30, 2019, 250,925 shares of common stock were repurchased under the prior stock repurchase program. As of September 30, 2020, there was $54.6 million available for future share repurchases under the Program.

9. Segment and Geographic Information

The Company identifies its operating segments based primarily on the way the Chief Operating Decision Maker (“CODM”) evaluates performance and makes decisions. The President and Chief Executive Officer of the Company has been identified as the CODM. From the perspective of the CODM, the Company is engaged primarily in the business of distributing packaged consumer products to convenience retail stores in the U.S. and Canada (collectively “North America”), each of which consists of customers that have similar characteristics. Therefore, the Company has determined that it has 2 operating segments, U.S. and Canada, which aggregate to 1 reportable segment. Additionally, the Company presents its segment reporting information based on business operations for each of the 2 geographic areas in which it operates and also by major product category.

Table of of ~~Content~~sContents

Information about the Company’s business operations based on geographic areas is as follows (in millions):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Net sales:	Net sales:									Net sales:
United States	United States	$	4,059.1	$	3,999.3	$	11,498.7	$	11,348.2	United States	$	3,570.1	$	3,579.6
Canada	Canada	431.6		415.7		1,174.6		1,132.4		Canada	354.4		348.4
Corporate(1)	Corporate(1)	11.9		7.6		32.5		35.1		Corporate(1)	7.7		11.3
Total	Total	$	4,502.6	$	4,422.6	$	12,705.8	$	12,515.7	Total	$	3,932.2	$	3,939.3

Income before income taxes:	Income before income taxes:									Income before income taxes:
United States		$	42.9	$	33.5	$	78.2	$	74.1
Canada		5.0		3.8		9.2		7.7
United States(2)										United States(2)	$	25.5	$	9.2
Canada(3)										Canada(3)	0.6		2.4
Corporate~~(2)~~(4)	Corporate~~(2)~~(4)	(15.7)		(6.7)		(26.5)		(25.2)		Corporate~~(2)~~(4)	(15.0)		(5.5)
Total	Total	$	32.2	$	30.6	$	60.9	$	56.6	Total	$	11.1	$	6.1

Interest expense, net:~~(3)~~(5)	Interest expense, net:~~(3)~~(5)									Interest expense, net:~~(3)~~(5)
United States	United States	$	14.1	$	15.6	$	44.0	$	41.4	United States	$	14.5	$	14.6
Canada	Canada	0.1		0.2		0.4		1.0		Canada	0.7		0.5
Corporate~~(4)~~(6)	Corporate~~(4)~~(6)	(12.1)		(11.6)		(36.0)		(31.6)		Corporate~~(4)~~(6)	(12.1)		(11.6)
Total	Total	$	2.1	$	4.2	$	8.4	$	10.8��	Total	$	3.1	$	3.5

Depreciation and amortization:	Depreciation and amortization:									Depreciation and amortization:
United States	United States	$	12.1	$	10.6	$	33.9	$	32.0	United States	$	12.5	$	10.8
Canada	Canada	0.9		0.7		2.5		1.9		Canada	1.1		0.8
Corporate~~(5)~~(7)	Corporate~~(5)~~(7)	3.5		3.6		12.5		11.9		Corporate~~(5)~~(7)	3.8		4.1
Total	Total	$	16.5	$	14.9	$	48.9	$	45.8	Total	$	17.4	$	15.7

Capital expenditures:	Capital expenditures:									Capital expenditures:
United States	United States	$	7.9	$	5.4	$	16.1	$	13.9	United States	$	4.1	$	4.4
Canada	Canada	0.2		0.7		1.8		1.4		Canada	0.8		0.6

Total	Total	$	8.1	$	6.1	$	17.9	$	15.3	Total	$	4.9	$	5.0

(1) Consists primarily of external sales made by the Company’s consolidating warehouses, management service fee revenue, allowance for sales returns and certain other sales adjustments.

(2) Includes $8.3 million of cigarette inventory tax stamp holding gains recognized in Colorado.

(3) Includes $3.8 million associated with an OTP tax claim in Ontario (see Note 5 - Contingencies).

(4) Consists primarily of expenses and other income, such as corporate incentives and salaries, LIFO expense, health care costs, insurance and workers’ compensation adjustments, elimination of overhead allocations and foreign exchange gains or losses.

~~(3)~~(5) Includes $0.1 ~~million and $0.2~~ million of interest income for the three ~~and nine~~ months ended ~~September 30, 2020, respectively. Includes $0.1 million and $0.3 million of interest income for the three and nine months ended September 30, 2019, respectively.~~March 31, 2020.

~~(4)~~(6) Consists primarily of intercompany eliminations for interest.

~~(5)~~(7) Consists primarily of depreciation for the consolidation centers and amortization of intangible assets.

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Identifiable assets by geographic area are as follows (in millions):

September 30,
2020 December 31,
2019
Identifiable assets:
United States $ 1,870.2 $ 1,741.4
Canada 141.8 157.0
Total $ 2,012.0 $ 1,898.4

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	March 31, 2021		December 31, 2020
Identifiable assets:
United States	$	1,808.1	$	1,781.0
Canada	174.0		173.7
Total	$	1,982.1	$	1,954.7

The net sales mix for the Company’s primary product categories is as follows (in millions):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
Product Category	Product Category	2020		2019		2020		2019		Product Category	2021		2020
Cigarettes	Cigarettes	$	3,000.2	$	2,880.0	$	8,475.5	$	8,181.5	Cigarettes	$	2,587.7	$	2,582.7
Food	Food	424.3		476.8		1,186.8		1,314.6		Food	365.7		399.5
Fresh	Fresh	139.4		135.8		381.8		376.1		Fresh	120.1		120.5
Candy	Candy	259.1		269.7		759.3		782.8		Candy	244.6		256.4
OTP	OTP	403.6		370.4		1,154.5		1,068.9		OTP	387.6		360.0
Health, beauty & general	Health, beauty & general	212.5		226.0		594.8		630.3		Health, beauty & general	184.7		180.0
Beverages	Beverages	64.1		63.9		153.2		160.2		Beverages	41.7		39.7
Equipment/other	Equipment/other	(0.6)		0		(0.1)		1.3		Equipment/other	0.1		0.5
Total food/non-food products	Total food/non-food products	1,502.4		1,542.6		4,230.3		4,334.2		Total food/non-food products	1,344.5		1,356.6
Total net sales	Total net sales	$	4,502.6	$	4,422.6	$	12,705.8	$	12,515.7	Total net sales	$	3,932.2	$	3,939.3

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with the unaudited condensed consolidated interim financial statements, including the related notes, and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q that are not statements of historical fact are forward-looking statements made pursuant to the safe-harbor provisions of the Securities Exchange Act of 1934 and the Securities Act of 1933.

Forward-looking statements in some cases can be identified by the use of words such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “would,” “project,” “predict,” “continue,” “plan,” “propose” or other similar words or expressions. Forward-looking statements are made only as of the date of this Form 10-Q and are based on our current intent, beliefs, plans and expectations. They involve risks and uncertainties that could cause actual future results, performance or developments to differ materially from historical results or those described in or implied by such forward-looking statements.

Factors that might cause or contribute to such differences include, but are not limited to, the extent and duration of the disruption to business activities caused by the global health crisis associated with the novel coronavirus ~~pandemic~~ (“COVID-19”) pandemic outbreak, including the effects on vehicle miles driven, on the financial health of our business partners, on supply chains, and on financial and capital markets; declining cigarette sales volumes; our dependence on the convenience retail industry for our revenues; our dependence on qualified labor, senior management and other key personnel; competition in our distribution markets, including product, service and pricing pressures related to ~~COVID-19;~~the COVID-19 pandemic; risks and costs associated with efforts to grow our business through acquisitions; the dependence of some of our distribution centers on a few relatively large customers; manufacturers or retail customers adopting direct distribution channels; fuel and other transportation costs; failure, disruptions or security breaches of our information technology systems; the low-margin nature of cigarette and consumable goods distribution; our reliance on manufacturer discount and incentive programs and cigarette excise stamping allowances; our dependence on relatively few suppliers and our ability to maintain favorable supplier arrangements; disruptions in suppliers’ operations, including the impact of the COVID-19 pandemic on our suppliers as well as supply chain, including potential problems with inventory availability and the potential result of higher cost of product and freight due to high demand of products and low supply for an unpredictable period of time; product liability and counterfeit product claims and manufacturer recalls of products, including ongoing litigation related to Juul products; our ability to achieve the expected benefits of implementation of marketing initiatives; failing to maintain our brand and reputation; unexpected outcomes in legal proceedings; attempts by unions to organize our employees; increasing expenses related to employee health benefits; changes to minimum wage laws; failure to comply with governmental regulations or substantial changes to governmental regulations, including increased regulation of electronic cigarette and other alternative nicotine products; risks related to changes to our workforce, including reductions to hours, headcount and benefits as a result of ~~COVID-19;~~the COVID-19 pandemic; earthquake and natural disaster damage; increases in the number or severity of insurance and claims expenses; legislation, regulations and other matters negatively affecting the cigarette, tobacco and alternative nicotine industry; increases in excise taxes or reduction in credit terms by taxing jurisdictions; potential liabilities associated with sales of cigarettes and other tobacco products (“OTP”); changes to federal, state or provincial income tax legislation; reduction in the payment of dividends; currency exchange rate fluctuations; our ability to borrow additional capital; restrictive covenants in our Credit Facility; and changes to accounting rules or regulations. For a more detailed discussion of such factors, please refer to Part II, Item 1A, “Risk Factors” of any quarterly report on Form 10-Q and to Part I, Item 1A of our Annual Report on Form 10-K, for the year ended December 31, ~~2019~~2020 filed with the SEC on March ~~2, 2020.~~1, 2021. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Our Business

Core-Mark is one of the largest marketers of fresh, food 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 ~~41,000~~40,000 customer locations in the U.S. and Canada. Our customers include traditional convenience stores, drug stores, mass merchants, grocery stores, liquor stores and other specialty and small format stores that carry convenience products. Our product offering includes cigarettes, OTP, alternative nicotine products, candy, snacks, food, including fresh products, groceries, dairy, bread, beverages, general merchandise and health and beauty care products. As of ~~September 30, 2020,~~March 31, 2021, we operated a network of thirty-two distribution centers in the U.S. and Canada (excluding two distribution facilities we operate as a third-party logistics provider).

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Business Strategy Overview

Core-Mark’s mission is to be the most valued marketer of fresh, food and broad-line supply solutions to the convenience retail industry. Consistent with this mission, our strategic framework is centered around three key initiatives: growing sales and margins faster than the industry, providing industry-leading category management solutions and leveraging our cost structure. The convenience wholesale and retail landscape remains highly fragmented, supporting significant opportunities for both organic growth and growth through strategic acquisitions. Core-Mark is one of the largest wholesale distributors to the convenience retail industry in North America, one of two national convenience distributors in the U.S. and the largest in Canada, and represents an estimated 7%market share of the in-store sales of convenience stores in North America.

Our growth initiatives include elevating same store sales, gaining share of ~~the more than 180,000~~ North American convenience stores and being opportunistic with traditional and industry-adjacent acquisition opportunities. While serving traditional convenience retailers remains the primary driver for our business, we serve a wide variety of alternative convenience retail formats including mass merchandisers, casinos, colleges and airports to name a few. Driving growth through these alternative convenience retail formats and channels is a core component of our strategy. Our focus on providing industry-leading category management solutions to our customers positions us to ~~partner with retailers to~~ help our retail partners increase their sales and profits. We offer a wide array of marketing programs, innovative product alternatives, ~~data aggregation~~ and ~~loyalty~~technology solutions to ~~name a few key elements we provide~~our customers in pursuit of category management excellence. The final major component of our strategic framework is focused on leveraging costs. Core-Mark is actively engaged in efforts to increase the leverage of our operating cost structure through a range of initiatives, including technology investments, centralizing transactional processes and employee engagement aimed at increasing productivity.

We believe consistent execution on the aforementioned strategic priorities will position Core-Mark as the leader in convenience retail distribution and provides a strong pathway to achieve sustainable shareholder returns.

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Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.

Due to the COVID-19 pandemic, there has been increased uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of ~~November 5, 2020,~~May 6, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

For further information about our critical accounting policies and estimates, see the discussion in Item 7, ~~“Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC on March ~~2, 2020~~1, 2021.

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~~Third~~First Quarter Overview and COVID-19 Update

The effects of the COVID-19 p~~andemic did have~~pandemic had an impact on our operating results during the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, and we expect it will continue to affect our business for some period of time. While the vast majority of our customers are convenience retailers that continue to operate as essential businesses, the unprecedented impact of the COVID-19 ~~during~~pandemic since the second ~~and third~~ quarter of 2020, including shelter-in-place orders by states, provinces, cities and counties resulted in a significant downturn in miles driven, resulting in a decline in convenience retail store visits across North America. Although we are seeing recovery as consumer purchase trends improve, we expect future results to continue to be impacted by the effects of ~~COVID-19.~~the COVID-19 pandemic.

Our net sales in the ~~third~~first quarter of ~~2020~~2021 were ~~$4,502.6~~$3,932.2 million compared to ~~$4,422.6~~$3,939.3 million for the same period in ~~2019, an increase~~2020, a decrease of ~~1.8%~~0.2%, or ~~$80.0~~$7.1 million. ~~The increase in~~Adjusting for the impacts of foreign exchange and one less selling day this year, total net sales increased approximately 1% for the ~~third~~first quarter of 2020 was driven primarily by strong carton sales and increases in cigarette manufacturers’ prices, partially offset by a 2.6% decrease in sales of food/non-food. Sales of cigarettes and food/non-food products in the third quarter of 2020 continued to be impacted by changes in consumer buying habits as a result of COVID-19.2021.

Gross profit in the ~~third~~first quarter of ~~2020~~2021 decreased ~~4.7%~~0.5%, or ~~$11.6~~$1.0 million, to ~~$235.0~~$217.4 million from ~~$246.6~~$218.4 million for the same period in ~~2019,~~2020, driven primarily by ~~the decrease~~an increase in LIFO expense, an OTP tax claim this year, and a shift in sales mix within our food/non-food ~~sales and margins~~category to ~~existing customers.~~lower margin products driven primarily by changes in consumer behavior relating to the pandemic, largely offset by the benefit of higher inventory holding gains.

Gross profit margin was~~5.22%~~ 5.53% of total net sales during the ~~third~~first quarter of ~~2020~~2021 compared to ~~5.58%~~5.54% for the same period in ~~2019.~~2020. Remaining gross profit margin(1) decreased to ~~5.21%~~5.35% for the ~~third~~first quarter of ~~2020~~2021 from ~~5.60%~~5.51% for the same period in ~~2019.~~2020. The decline in remaining gross profit margin was driven primarily by the change in the sales mix between cigarettes and food/non-food and a decline in margins within food/non-food as a result of a shift in sales mix and lower gross profit margins in certain categories. We expect our gross profit margin to continue to be impacted by both sales mix and lower margins in certain product categories for some period of time as a direct result of the impacts of ~~COVID-19.~~the COVID-19 pandemic.

Operating expenses in the ~~third~~first quarter of ~~2020~~2021 decreased ~~5.9%~~2.5%, or ~~$12.5~~$5.2 million, to ~~$200.2~~$203.4 million from ~~$212.7~~$208.6 million for the same period in ~~2019.~~2020. The decrease in operating expenses was driven primarily by increased productivity and cost savings initiatives implemented mainly in response to COVID-19. As outlined in our press release on April 14, 2020, we took steps during the second quarter to reduce operating costs to better align them with sales volume trends and preserve liquidity.~~We also achieved cost savings through actions to reduce other non-essential costs including travel, meetings and events and other discretionary expenditures.~~initiatives. Operating expenses were ~~4.4%~~5.2% of total net sales for the ~~third~~first quarter of ~~2020~~2021 compared to ~~4.8%~~5.3% of total net sales for the same period in ~~2019.~~2020. Operating expenses were ~~85.3%~~96.8% of remaining gross profit(1) for the ~~third~~first quarter of ~~2020,~~2021, compared to ~~85.8%~~96.1% of remaining gross profit for the same period in ~~2019.~~2020.

Net income in the ~~third~~first quarter of ~~2020~~2021 increased ~~$0.5~~$4.2 million to ~~$23.0~~$8.5 million compared to ~~$22.5~~$4.3 million for the same period in ~~2019.~~2020. Adjusted EBITDA(1) was ~~$59.3~~$44.3 million for the ~~third~~first quarter of ~~2020~~2021 compared to ~~$59.2~~$35.3 million for the same period in ~~2019.~~2020.

(1) Remaining gross profit margin, Adjusted EBITDA and operating expenses as a percentage of remaining gross profit are non-GAAP financial measures and should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”). See “Non-GAAP Financial Information.”

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Results of Operations

Comparison of the Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in millions, except percentages)(1):

Three Months Ended Three Months Ended
September 30, 2020 September 30, 2019
Increase (Decrease) Amounts % of Net sales % of Net sales, less excise taxes Amounts % of Net sales % of Net sales, less excise taxes
Net sales $ 80.0 $ 4,502.6 100.0 % — % $ 4,422.6 100.0 % — %
Net sales — Cigarettes 120.2 3,000.2 66.6 61.6 2,880.0 65.1 59.4
Net sales — Food/Non-food (40.2) 1,502.4 33.4 38.4 1,542.6 34.9 40.6
Net sales, less excise taxes
(non-GAAP)(2)
75.8 3,614.3 80.3 100.0 3,538.5 80.0 100.0
Gross profit(3)
(11.6) 235.0 5.2 6.5 246.6 5.6 7.0
Warehousing and distribution expenses (8.2) 140.4 3.1 3.9 148.6 3.4 4.2
Selling, general and administrative expenses (4.5) 57.3 1.3 1.6 61.8 1.4 1.7
Amortization of intangible assets 0.2 2.5 0.1 0.1 2.3 0.1 0.1
Income from operations 0.9 34.8 0.8 1.0 33.9 0.8 1.0
Interest expense, net (2.1) (2.1) — (0.1) (4.2) (0.1) (0.1)
Foreign currency transaction (losses) gains, net (1.4) (0.5) — — 0.9 — —
Income before income taxes 1.6 32.2 0.7 0.9 30.6 0.7 0.9
Net income 0.5 23.0 0.5 0.6 22.5 0.5 0.6
Adjusted EBITDA (non-GAAP)(4)
0.1 59.3 1.3 1.6 59.2 1.3 1.7

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

~~(2) See the reconciliation of net sales to net sales, less excise taxes in “Non-GAAP Financial Information.”~~

~~(3) Gross profit 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) See the reconciliation of net income to Adjusted EBITDA in “Non-GAAP Financial Information.”~~

~~Net Sales.~~ Net sales in the third quarter of 2020 increased by $80.0 million, or 1.8%, to $4,502.6 million, from $4,422.6 million for the same period in 2019. The increase in net sales was driven primarily by strong carton volumes and cigarette manufacturers’ price increases, partially offset by a decrease in food/non-food sales to existing customers and a net decrease in the number of stores serviced during the quarter. Sales of cigarettes and food/non-food products in the third quarter of 2020 were impacted by changes in consumer buying habits as a result of COVID-19.

~~Net Sales of Cigarettes.~~ Net sales of cigarettes in the third quarter of 2020 increased by $120.2 million, or 4.2%, to $3,000.2 million from $2,880.0 million for the same period in 2019. The increase was driven primarily by a 4.2% increase in the average sales price per carton due primarily to cigarette manufacturers’ price increases and a 0.1% increase in carton sales. Cigarette carton sales remained flat in the U.S and increased by 1.6% in Canada, driven by a 2.9% increase in carton sales to existing customers, partially offset by a net decrease in the number of stores serviced during the quarter. Cigarette carton sales to existing customers during the third quarter of 2020 outperformed the historical industry rate of decline ar~~ising primarily from changes in consumer buying behavior as a result of COVID-19.~~

We believe long-term cigarette consumption will be adversely impacted by rising prices, increases in excise taxes and other legislative actions, diminishing social acceptance, sales through illicit markets and increasing use of alternative nicotine products. We expect cigarette manufacturers will raise prices as carton sales decline in order to maintain or enhance their overall profitability, thus partially mitigating the effect of the declines to distributors. Historical industry data indicates that convenience retailers have more than offset cigarette profit declines through sales growth in food/non-food products.

~~Net cigarette sales as a percentage of total net sales was 66.6% in the third quarter of 2020 compared to 65.1% for the same period last year.~~

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~~Net Sales of Food/Non-food Products.~~ ~~Net sales of food/non-food products in the third quarter of 2020 decreased $40.2 million, or 2.6%, to $1,502.4 million from $1,542.6 million for the same period in 2019.~~

~~The following table provides net sales by product category for our food/non-food products (in millions, except percentages)(1)~~:

Three Months Ended
September 30, Increase (Decrease)
Product Category 2020 2019 Amounts Percentage
Food $ 424.3 $ 476.8 $ (52.5) (11.0) %
Fresh 139.4 135.8 3.6 2.7 %
Candy 259.1 269.7 (10.6) (3.9) %
OTP 403.6 370.4 33.2 9.0 %
Health, beauty & general (“HB&G”) 212.5 226.0 (13.5) (6.0) %
Beverages 64.1 63.9 0.2 0.3 %
Equipment/other (0.6) — (0.6) — %
Total food/non-food products $ 1,502.4 $ 1,542.6 $ (40.2) (2.6) %

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

The decrease in food/non-food sales for the third quarter of 2020 was driven by a decrease in sales to existing customers and a net decrease in the number of stores serviced during the quarter. The largest declines were in the food, HB&G and candy categories which were impacted by changes in consumer buying behavior related primarily to COVID-19, partially offset by growth in OTP sales to existing customers. Our HB&G category was also impacted by a decline in sales of alternative nicotine products due primarily to the enactment of regulations governing the sale of flavored product categories.

~~Net sales of food/non-food products as a percentage of total net sales was 33.4% for the third quarter of 2020 compared to 34.9% for the same period in 2019.~~

~~Gross Profit.~~ Gross profit represents profit after deducting cost of goods sold from net sales during the period. Inventory holding gains represent incremental revenues, whereas vendor incentives, OTP tax refunds and changes in last-in, first-out (“LIFO”) reserves are components of cost of goods sold. Gross profit in the third quarter of 2020 decreased $11.6 million, or 4.7%, to $235.0 million from $246.6 million for the same period in 2019, driven primarily by a decrease in food/non-food sales and margins to existing customers as a result of COVID-19.

Gross profit margin was 5.22% of total net sales during the third quarter of 2020 compared to 5.58% for the same period in 2019. The change in the sales mix between cigarettes and food/non-food contributed to approximately 40% of the gross profit margin decline. In addition, the decrease in gross profit margin was driven by a decline in margins within food/non-food as a result of a shift in sales mix toward lower margin items, including growth in our lower margin OTP category, and lower margins within the HB&G category, primarily in alternative nicotine products.

Distributors such as Core-Mark, may from time to time, earn higher gross profits on inventory and excise tax stamp quantities on hand at the time manufacturers increase their prices or when states, localities or provinces increase their excise taxes. Such increases are reflected in customer pricing for all subsequent sales, including sales of inventory on hand at the time of the increase. The resulting higher gross profits are referred to as inventory holding gains. The third quarter of 2020 had $0.5 million lower inventory holding gains as compared to the same period in 2019. Cigarette inventory holding gains, which were impacted by the timing and amount of cigarette manufacturers’ price increases, increased $5.3 million for the third quarter of 2020, offset by $5.8 million in inventory holding gains related to a candy price increase in the third quarter of 2019. Historically, significant price increases from candy manufacturers have only occurred every three to four years.

We expect cigarette manufacturers will continue to raise prices as carton sales decline in order to maintain or enhance their overall profitability and the various taxing jurisdictions will raise excise taxes to make up for lost tax dollars related to consumption declines.

LIFO expense was $5.4 million for the third quarter of 2020 compared to $7.3 million for the same period of 2019. Since we value our inventory in the U.S. on a LIFO basis, our gross profit can be positively or negatively impacted depending on the relative level of price inflation or deflation in manufacturer prices as reported in the Bureau of Labor Statistics Purchase Price Index (“PPI”) used to estimate and record our book LIFO expense. The decrease in LIFO expense for the third quarter of 2020 was due primarily to a decline in expected price inflation for food/non-food products.

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~~The following table provides the components of gross profit (in millions, except percentages)(1)~~:

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

~~(2) See reconciliation of net sales to net sales, less excise taxes in “Non-GAAP Financial Information.”~~

(3) For the third quarter of 2020, $4.9 million and $0.7 million of cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. For the third quarter of 2019, $0.2 million and $0.1 million of cigarette inventory holding gains were attributable to the U.S. and Canada, respectively.

~~(4) In 2019, we recognized $5.8 million of candy inventory holding gains which were attributable to the U.S.~~

~~(5) The reduction of $1.9 million in LIFO expense in 2020 was due primarily to a reduction in the Producer Price Index (“PPI”) for food and fresh category.~~

(6) Remaining gross profit is a non-GAAP financial measure, which we provide to segregate the effects of LIFO expense, cigarette inventory holding gains and other items that significantly affect the comparability of gross profit.

Remaining gross profit, a non-GAAP financial measure (see reconciliation of gross profit to remaining gross profit in “Non-GAAP Financial Information”), decreased $13.0 million, or 5.2%, to $234.8 million for the third quarter of 2020 from $247.8 million for the same period in 2019. Remaining gross profit margin, a non-GAAP financial measure (see reconciliation of remaining gross profit margin, as well as an explanation of its significance, in “Non-GAAP Financial Information”) decreased to 5.21% for the third quarter of 2020 from 5.60% for the same period in 2019, driven by the impact of a shift in sales mix towards lower margin cigarettes and a shift in the sales mix within food/non-food towards lower margin categories and a decline in margins in certain categories.

Cigarette remaining gross profit, a non-GAAP financial measure (see reconciliation of cigarette gross profit to cigarette remaining gross profit in “Non-GAAP Financial Information”), increased $0.1 million, or 0.2%, to $57.7 million for the third quarter of 2020 from $57.6 million for the same period in 2019. The increase in cigarette remaining gross profit was driven primarily by a 0.1% increase in cigarette carton sales.

Food/non-food remaining gross profit, a non-GAAP financial measure (see reconciliation of food/non-food gross profit to food/non-food remaining gross profit in “Non-GAAP Financial Information”), decreased $13.1 million, or 6.9%, to $177.1 million for the third quarter of 2020 from $190.2 million the same period in 2019. Food/non-food remaining gross profit margin, a non-GAAP financial measure (see reconciliation of food/non-food remaining gross profit margin in “Non-GAAP Financial Information”) in the third quarter of 2020 decreased to 11.79% from ~~12.33%~~ for the same period in 2019. The decline in remaining gross profit margin was driven primarily by a decrease in sales in certain higher margin categories including food and HB&G, an increase in sales in our lower margin OTP category, and a decline in margin rate, primarily in alternative nicotine products within the HB&G category.

~~For the third quarter of 2020, our remaining gross profit for food/non-food products was 75.4% of our total remaining gross profit compared to 76.8% for the same period in 2019.~~

~~Operating Expenses.~~ Our operating expenses include costs related to warehousing and distribution, SG&A expenses and amortization of intangible assets. In the third quarter of 2020, operating expenses decreased by $12.5 million, or 5.9%, to $200.2 million from $212.7 million for the same period in 2019. The decrease in operating expenses was driven primarily by increased productivity and cost savings initiatives implemented mainly in response to COVID-19. As a percentage of total net sales, operating expenses were 4.4% for the third quarter of 2020 compared to 4.8% for the same period in 2019. Operating expenses were 85.3% of remaining gross profit, a non-GAAP financial ratio, (see reconciliation of operating expenses as a percentage of remaining gross profit, as well as an explanation of its significance, in “Non-GAAP Financial Information”) for the third quarter of 2020, compared to 85.8% of remaining gross profit for the same period in 2019. The decrease in operating

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~~expenses as a percentage of remaining gross profit was due primarily to operating expense reductions that more than offset the decline in remaining gross profit.~~

~~Warehousing and Distribution Expenses~~.Warehousing and distribution expenses decreased $8.2 million, or 5.5%, to $140.4 million in the third quarter of 2020 from $148.6 million for the same period in 2019. The reduction in warehousing and distribution expenses was due primarily to cost reductions, an increase in productivity and fewer deliveries. Warehousing and distribution expenses were 3.1% of total net sales for the third quarter of 2020 compared to 3.4% of total net sales for the same period in 2019. Warehousing and distribution expenses were 59.8% of remaining gross profit, a non-GAAP financial ratio, (see reconciliation, as well as an explanation of its significance, in “Non-GAAP Financial Information”) for the third quarter of 2020, compared to 60.0% of remaining gross profit in 2019.

~~Selling, General and Administrative (“SG&A”) Expenses.~~ SG&A expenses decreased $4.5 million, or 7.3%, to $57.3 million in the third quarter of 2020 from $61.8 million for the same period in 2019. SG&A expenses were 1.3% of total net sales for the third quarter of 2020 as compared to 1.4% of total net sales for the same period in 2019. SG&A expenses were 24.4% of remaining gross profit, a non-GAAP financial ratio (see reconciliation, as well as an explanation of its significance, in “Non-GAAP Financial Information”), for the third quarter of 2020 compared to 24.9% for the same period in 2019. The reduction in SG&A expenses was due primarily to cost savings initiatives.

~~Amortization Expense~~. ~~Amortization expense increased $0.2 million, or 8.7%, in the third quarter of 2020 to $2.5 million from $2.3 million for the same period in 2019.~~

~~Interest Expense, Net.~~ Interest expense, net includes interest income and expense, amortization of loan origination costs related to borrowings, facility fees and interest on finance lease obligations. Interest expense, net decreased to $2.1 million in the third quarter of 2020 from $4.2 million for the same period in 2019. The decrease in net interest expense was due primarily to a decrease in the average borrowing rate, and lower average borrowings during the third quarter of 2020. Average borrowings in the third quarter of 2020 were $163.4 million with a weighted-average interest rate of 1.4% compared to average borrowings of $371.1 million with a weighted-average interest rate of 3.5% for the same period in 2019.

~~Foreign Currency Transaction (Losses) Gains, Net.~~ We recognized a foreign currency loss of $0.5 million in the third quarter of 2020 compared to a gain of $0.9 million for the same period in 2019. During times of a strengthening U.S. dollar, we generally record foreign currency losses from our Canadian operations. Conversely, during times of a weakening U.S. dollar, we generally record foreign currency gains.

~~Income Taxes.~~ ~~For the third quarter of 2020, our effective tax rate was a provision of~~ ~~28.6%~~ compared to a provision of 26.5% for the same period in 2019. The increase in our effective tax rate was due primarily to adjustments related to prior year taxes made in the third quarter of 2020. We expect our effective tax rate to be approximately 27% for 2020.

~~Adjusted EBITDA.~~ Adjusted EBITDA, a non-GAAP financial measure (see the reconciliation of net income to Adjusted EBITDA in “Non-GAAP Financial Information”), was $59.3 million for the third quarter of 2020 compared to $59.2 million for the same period last year. A decline in gross profit for the third quarter of 2020, driven primarily by the impacts of COVID-19 and a reduction in ~~inventory holding gains of $0.5 million, was partially offset bylower operating expenses compared with the same period in 2019.~~

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~~Results of Operations~~

~~Comparison of the Nine Months Ended September 30, 2020 and 2019 (in millions, except percentages)(1)~~:


				Nine Months Ended						Nine Months Ended									Three Months Ended						Three Months Ended
				September 30, 2020						September 30, 2019									March 31, 2021						March 31, 2020
		Increase (Decrease)		Amounts		% of Net sales		% of Net sales, less excise taxes		Amounts		% of Net sales		% of Net sales, less excise taxes			Increase (Decrease)		Amounts		% of Net sales		% of Net sales, less excise taxes		Amounts		% of Net sales		% of Net sales, less excise taxes
Net sales	Net sales	$	190.1	$	12,705.8	100.0	%	—	%	$	12,515.7	100.0	%	—	%	Net sales	$	(7.1)	$	3,932.2	100.0	%	—	%	$	3,939.3	100.0	%	—	%
Net sales — Cigarettes	Net sales — Cigarettes	294.0		8,475.5		66.7		61.6		8,181.5		65.4		59.7		Net sales — Cigarettes	5.0		2,587.7		65.8		60.9		2,582.7		65.6		60.3
Net sales — Food/Non-food	Net sales — Food/Non-food	(103.9)		4,230.3		33.3		38.4		4,334.2		34.6		40.3		Net sales — Food/Non-food	(12.1)		1,344.5		34.2		39.1		1,356.6		34.4		39.7
Net sales, less excise taxes (non-GAAP)(2)	Net sales, less excise taxes (non-GAAP)(2)	195.7		10,189.8		80.2		100.0		9,994.1		79.9		100.0		Net sales, less excise taxes (non-GAAP)(2)	(8.0)		3,161.0		80.4		100.0		3,169.0		80.4		100.0
Gross profit(3)	Gross profit(3)	(27.2)		666.5		5.2		6.5		693.7		5.5		6.9		Gross profit(3)	(1.0)		217.4		5.5		6.9		218.4		5.5		6.9
Warehousing and distribution expenses	Warehousing and distribution expenses	(17.7)		408.3		3.2		4.0		426.0		3.4		4.3		Warehousing and distribution expenses	(5.1)		137.3		3.5		4.3		142.4		3.6		4.5
Selling, general and administrative expenses	Selling, general and administrative expenses	(11.3)		181.0		1.4		1.8		192.3		1.5		1.9		Selling, general and administrative expenses	(0.5)		63.4		1.6		2.0		63.9		1.6		2.0
Amortization of intangible assets	Amortization of intangible assets	(0.5)		7.2		0.1		0.1		7.7		0.1		0.1		Amortization of intangible assets	0.4		2.7		0.1		0.1		2.3		0.1		0.1
Income from operations	Income from operations	2.3		70.0		0.6		0.7		67.7		0.5		0.7		Income from operations	4.2		14.0		0.4		0.4		9.8		0.2		0.3
Interest expense, net	Interest expense, net	(2.4)		(8.4)		(0.1)		(0.1)		(10.8)		(0.1)		(0.1)		Interest expense, net	(0.4)		(3.1)		(0.1)		(0.1)		(3.5)		(0.1)		(0.1)

Foreign currency transaction losses, net		(0.4)		(0.7)		—		—		(0.3)		—		—
Foreign currency transaction gains (losses), net																Foreign currency transaction gains (losses), net	0.4		0.2		—		—		(0.2)		—		—
Income before income taxes	Income before income taxes	4.3		60.9		0.5		0.6		56.6		0.5		0.6		Income before income taxes	5.0		11.1		0.3		0.4		6.1		0.2		0.2
Net income	Net income	2.7		44.2		0.3		0.4		41.5		0.3		0.4		Net income	4.2		8.5		0.2		0.3		4.3		0.1		0.1
Adjusted EBITDA (non-GAAP)(4)	Adjusted EBITDA (non-GAAP)(4)	4.7		147.1		1.2		1.4		142.4		1.1		1.4		Adjusted EBITDA (non-GAAP)(4)	9.0		44.3		1.1		1.4		35.3		0.9		1.1

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

(2) See the reconciliation of net sales, less excise taxes to net sales in “Non-GAAP Financial Information.”

(3) Gross profit 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) See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Financial Information.”

Net Sales.Net sales ~~for~~in the ~~nine months ended September 30, 2020 increased~~first quarter of 2021 decreased by ~~$190.1~~$7.1 million, or ~~1.5%~~0.2%, to ~~$12,705.8~~$3,932.2 million, from ~~$12,515.7~~$3,939.3 million for the same period in ~~2019.~~2020. Adjusting for the impacts of foreign exchange and one less selling day this year, total net sales increased approximately 1% for the first quarter of 2021. The increase in net sales was driven primarily by cigarette ~~manufacturers’~~ price ~~increases,~~inflation and an increase in food/non-food sales ~~of cigarette cartons~~ to existing customers, ~~and an extra selling day during the nine months ended September 30, 2020 compared to the same period in 2019. These increases were partially~~ offset by a ~~decrease~~decline in ~~food/non-food~~cigarette carton sales to existing customers and a net decrease in the number of stores serviced during the quarter.

Net Sales of Cigarettes. Net sales of cigarettes in the first quarter of 2021 increased by $5.0 million, or 0.2%, to $2,587.7 million from $2,582.7 million for the same period in 2020. The increase was driven primarily by a 7.2% increase in the average sales price per carton due primarily to cigarette manufacturers’ price increases, partially offset by a 6.6% decrease in carton sales. Cigarette carton sales decreased by 6.9% and 3.7% in the U.S. and Canada, respectively, reflecting a decrease in carton sales to existing customers, a net decrease in the number of stores ~~serviced. Sales~~serviced during the quarter and one less selling day. The first quarter of 2020 benefited from a 1.5% increase in cigarette carton sales to existing customers leading into the height of the COVID-19 pandemic. Although sales of cigarettes ~~and food/non-food products~~ in ~~2020 were~~the first quarter of 2021 continued to be impacted by changes in consumer buying habits as a result of ~~COVID-19.~~

~~Net Sales of Cigarettes.~~ ~~Net~~the COVID-19 pandemic, sales of cigarettes for the nine months ended September 30, 2020 increased by $294.0 million, or 3.6%, to $8,475.5 million from $8,181.5 million for the same period in 2019. The increase in net sales of cigarettes was driven primarily by a 3.3% increasetrends late in the ~~average~~first quarter of 2021 reflected increased normalization of consumer behavior towards more pre-COVID levels.

Consistent with historical trends, we believe long-term cigarette consumption will be adversely impacted by rising prices, increases in excise taxes and other legislative actions, diminishing social acceptance, sales ~~price per carton due to~~through illicit markets and increasing use of alternative nicotine products. We expect cigarette ~~manufacturers’ price increases and an extra selling day during the nine months ended September 30, 2020 compared to the corresponding period in 2019. Cigarette~~manufacturers will raise prices as carton sales ~~increased by 0.2% and 0.3%~~decline in order to maintain or enhance their overall profitability, thus partially mitigating the ~~U.S. and Canada, respectively, driven primarily by an extra selling day and an increase~~effect of the declines to distributors. Historical industry data indicates that convenience retailers have more than offset cigarette profit declines through sales growth in ~~carton sales to existing customers, partially offset by a net decrease in the number~~food/non-food products.

Table of stores serviced. Cigarette carton sales to existing customers during the second and third quarter of 2020 outperformed the historical industry rate of decline arising primarily from changes in consumer buying behavior as a result of COVID-19.Contents

Net cigarette sales as a percentage of total net sales was ~~66.7% for~~65.8% in the ~~nine months ended September 30, 2020~~first quarter of 2021 compared to ~~65.4%~~65.6% for the same period last year.

~~Table~~of ~~Content~~s

Net Sales of Food/Non-food Products. Net sales of food/non-food products ~~for~~in the ~~nine months ended September 30, 2020~~first quarter of 2021 decreased ~~$103.9~~$12.1 million, or ~~2.4%~~0.9%, to ~~$4,230.3~~$1,344.5 million from ~~$4,334.2~~$1,356.6 million for the same period in ~~2019.~~2020.

The following table provides net sales by product category for our food/non-food products (in millions, except percentages)(1):


		Nine Months Ended									Three Months Ended
		September 30,				Increase (Decrease)					March 31,				Increase (Decrease)
Product Category	Product Category	2020		2019		Amounts		Percentage		Product Category	2021		2020		Amounts		Percentage
Food	Food	$	1,186.8	$	1,314.6	$	(127.8)	(9.7)	%	Food	$	365.7	$	399.5	$	(33.8)	(8.5)	%
Fresh	Fresh	381.8		376.1		5.7		1.5	%	Fresh	120.1		120.5		(0.4)		(0.3)	%
Candy	Candy	759.3		782.8		(23.5)		(3.0)	%	Candy	244.6		256.4		(11.8)		(4.6)	%
OTP	OTP	1,154.5		1,068.9		85.6		8.0	%	OTP	387.6		360.0		27.6		7.7	%
HB&G		594.8		630.3		(35.5)		(5.6)	%
Health, beauty & general (“HB&G”)										Health, beauty & general (“HB&G”)	184.7		180.0		4.7		2.6	%
Beverages	Beverages	153.2		160.2		(7.0)		(4.4)	%	Beverages	41.7		39.7		2.0		5.0	%
Equipment/other	Equipment/other	(0.1)		1.3		(1.4)		(107.7)	%	Equipment/other	0.1		0.5		(0.4)		(80.0)	%
Total food/non-food Products		$	4,230.3	$	4,334.2	$	(103.9)	(2.4)	%
Total food/non-food products										Total food/non-food products	$	1,344.5	$	1,356.6	$	(12.1)	(0.9)	%

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

~~The decrease in food/non-food sales for the nine months ended September 30, 2020 was driven primarily by a decreasein sales to existing customers and a net decrease~~Sales growth in the ~~number of stores serviced, partially~~OTP, beverages and HB&G categories was offset by ~~an extra selling day during the nine months ended September 30,2020 compared to the corresponding period in 2019. The largest~~ sales declines ~~were~~ in the food ~~HB&G~~ and candy categories which were impacted by changes in consumer buying behavior ~~as a result of COVID-19, partially offset by growth in OTP sales to existing customers. Our HB&G category was also impacted by a decline in sales of alternative nicotine products due~~related primarily to the ~~enactment~~COVID-19 pandemic. Sales trends late in the first quarter of ~~regulations governing the sale~~2021 reflected increased normalization of ~~flavored product categories.~~consumer behavior towards more pre-COVID levels.

Net sales of food/non-food products as a percentage of total net sales was ~~33.3%~~34.2% for the ~~nine months ended September 30, 2020~~first quarter of 2021 compared to ~~34.6%~~34.4% for the same period in ~~2019.~~

2020.

Gross Profit.Gross profit ~~for~~represents profit after deducting cost of goods sold from net sales during the ~~nine months ended September 30, 2020~~period. Inventory holding gains represent incremental revenues, whereas vendor incentives, OTP tax refunds and expenses and changes in last-in, first-out (“LIFO”) reserves are components of cost of goods sold. Gross profit in the first quarter of 2021 decreased ~~$27.2~~$1.0 million, or ~~3.9%~~0.5%, to ~~$666.5~~$217.4 million from ~~$693.7~~$218.4 million for the same period in ~~2019. The decrease in gross profit was~~2020, driven primarily by an increase in LIFO expense, an OTP tax claim, a ~~decrease~~shift in sales mix within our food/non-food ~~sales~~category to lower margin products and ~~margins related primarily to COVID-19, partially~~one less selling day in the first quarter this year, largely offset by ~~$3.7~~higher inventory holding gains.

Distributors such as Core-Mark, may from time to time, earn higher gross profits on inventory and excise tax stamp quantities on hand at the time manufacturers increase their prices or when states, localities or provinces increase their excise taxes. Such increases are reflected in customer pricing for all subsequent sales, including sales of inventory on hand at the time of the increase. The resulting higher gross profits are referred to as inventory holding gains. The first quarter of 2021 had $11.7 million ~~of net incremental cigarette and candy~~higher inventory holding gains ~~during the nine months ended September 30, 2020~~ as compared to the same period in ~~2019 and the impact of an extra selling day during the nine months ended September 30,~~ 2020.

~~Gross profit margin was~~ ~~5.25%~~ ~~of total net sales for the nine months ended September 30, 2020 co~~mpared to 5.54% for the same period in 2019. The change in the sales mix between cigarettes and food/non-food contributed to approximately 42% of the gross profit margin decline. In addition, the decrease in gross profit margin was driven by a decline in margins within food/non-food as a result of a shift in sales mix toward lower margin items, including growth in our lower margin OTP category, and lower margins within the HB&G category, primarily in alternative nicotine products.

~~Our~~ Cigarette inventory holding gains, which were ~~$22.4 million for the nine months ended September 30, 2020 compared to $18.7 million for the same period in 2019. The increase in holding gains was due primarily to~~impacted by the timing and amount of cigarette manufacturers’ price increases, ~~partially offset by~~increased $3.4 million for the first quarter of 2021. The first quarter of 2021 also included the benefit of an $8.3 million cigarette tax stamp inventory holding ~~gains of $5.8 million related to a candy price increase in the third quarter of 2019. Historically, significant price increases from candy manufacturers have only occurred every three to four years.~~ gain.

LIFO expense was ~~$21.5~~$10.5 million for the ~~nine months ended September 30, 2020~~first quarter of 2021 compared to ~~$21.7~~$7.8 million for the same period ~~in 2019. Because~~of 2020. Since we value our inventory in the U.S. on a LIFO basis, our gross profit can be positively or negatively impacted depending on the relative level of price inflation or deflation in manufacturer prices as reported in the Bureau of Labor Statistics ~~PPI~~Purchase Price Index (“PPI”) used to estimate and record our book LIFO expense. The increase in LIFO expense for the first quarter of 2021 was due primarily to an increase in expected price inflation for cigarettes and other tobacco products.

2319

Table of of ~~Content~~sContents

The following table provides the components of gross profit (in millions, except percentages)(1):


				Nine Months Ended						Nine Months Ended									Three Months Ended						Three Months Ended
				September 30, 2020						September 30, 2019									March 31, 2021						March 31, 2020
		Increase (Decrease)		Amounts		% of Net sales		% of Net sales, less excise taxes		Amounts		% of Net sales		% of Net sales, less excise taxes			Increase (Decrease)		Amounts		% of Net sales		% of Net sales, less excise taxes		Amounts		% of Net sales		% of Net sales, less excise taxes
Net sales	Net sales	$	190.1	$	12,705.8	100.0	%	—	%	$	12,515.7	100.0	%	—	%	Net sales	$	(7.1)	$	3,932.2	100.0	%	—	%	$	3,939.3	100.0	%	—	%
Net sales, less excise taxes (non-GAAP)(2)	Net sales, less excise taxes (non-GAAP)(2)	195.7		10,189.8		80.2		100.0		9,994.1		79.9		100.0		Net sales, less excise taxes (non-GAAP)(2)	(8.0)		3,161.0		80.4		100.0		3,169.0		80.4		100.0
Components of gross profit:	Components of gross profit:															Components of gross profit:
Cigarette inventory holding gains(3)	Cigarette inventory holding gains(3)	$	9.5	$	22.4	0.18	%	0.22	%	$	12.9	0.10	%	0.13	%	Cigarette inventory holding gains(3)	$	3.4	$	12.5	0.32	%	0.40	%	$	9.1	0.23	%	0.29	%
Candy inventory holding gains(4)		(5.8)		—		—		—		5.8		0.05		0.05

Cigarette tax stamp inventory holding gains(4)																Cigarette tax stamp inventory holding gains(4)	8.3		8.3		0.21		0.26		—		—		—
OTP tax claim(5)																OTP tax claim(5)	(3.1)		(3.1)		(0.08)		(0.10)		—		—		—
LIFO expense~~(5)~~(6)	LIFO expense~~(5)~~(6)	0.2		(21.5)		(0.17)		(0.21)		(21.7)		(0.18)		(0.22)		LIFO expense~~(5)~~(6)	(2.7)		(10.5)		(0.27)		(0.33)		(7.8)		(0.20)		(0.25)
Remaining gross profit (non-GAAP)~~(6)~~(7)	Remaining gross profit (non-GAAP)~~(6)~~(7)	(31.1)		665.6		5.24		6.53		696.7		5.57		6.97		Remaining gross profit (non-GAAP)~~(6)~~(7)	(6.9)		210.2		5.35		6.65		217.1		5.51		6.85
Gross profit	Gross profit	$	(27.2)	$	666.5	5.25	%	6.54	%	$	693.7	5.54	%	6.94	%	Gross profit	$	(1.0)	$	217.4	5.53	%	6.88	%	$	218.4	5.54	%	6.89	%

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

(2) See reconciliation of net sales to net sales, less excise taxes ~~to net sales~~ in “Non-GAAP Financial Information.”

(3) For the ~~nine months ended September 30, 2020, $20.4~~first quarter of 2021, $10.9 million and ~~$2.0~~$1.6 million of ~~the~~ cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. For the ~~same period in 2019, $11.3~~first quarter of 2020, $7.8 million and ~~$1.6~~$1.3 million of ~~the~~ cigarette inventory holding gains were attributable to the U.S. and Canada, respectively.

(4) ~~In 2019, we recognized $5.8~~For the first quarter of 2021, all $8.3 million of ~~candy~~cigarette tax stamp inventory holding gains ~~which~~ were attributable to the U.S.

(5) For the first quarter of 2021, the $3.1 million of OTP tax claim was related to a Canadian provincial tax assessment and excludes $0.7 million of interest expense.

(6) The ~~reduction~~increase of ~~$0.2~~$2.7 million in LIFO expense in ~~2020~~2021 was due primarily to ~~a reduction~~an increase in the Producer Price Index (“PPI”) for ~~cigarettes, food, fresh and candy category.~~the food/non-food products.

~~(6)~~(7) Remaining gross profit is a non-GAAP financial measure, which we provide to segregate the effects of LIFO expense, cigarette inventory holding gains and other items that significantly affect the comparability of gross profit.

Gross profit margin was 5.53% of total net sales during the first quarter of 2021 compared to 5.54% for the same period in 2020. Remaining gross profit, a non-GAAP financial measure (see reconciliation of remaining gross profit to gross profit in “Non-GAAP Financial Information”), decreased ~~$31.1~~$6.9 million, or ~~4.5%~~3.2%, to ~~$665.6~~$210.2 million for the ~~nine months ended September 30, 2020~~first quarter of 2021 from ~~$696.7~~$217.1 million for the same period in ~~2019.~~2020. Remaining gross profit margin, a non-GAAP financial measure (see reconciliation of remaining gross profit margin, as well as an explanation of its significance, in “Non-GAAP Financial Information”) ~~was 5.24%~~decreased to 5.35% for the ~~nine months ended September 30, 2020 compared to 5.57%~~first quarter of 2021 from 5.51% for the same period in ~~2019.~~

2020, driven primarily by the change in the sales mix between cigarettes and food/non-food and a decline in margins within food/non-food as a result of a shift in sales mix towards lower margin categories and lower gross profit margins in certain categories.

Cigarette remaining gross profit, a non-GAAP financial measure (see reconciliation of cigarette remaining gross profit to cigarette gross profit in “Non-GAAP Financial Information”), ~~increased $0.4~~decreased $1.4 million, or ~~0.2%~~2.8%, to ~~$163.5~~$48.3 million for the ~~nine months ended September 30, 2020~~first quarter of 2021 from ~~$163.1~~$49.7 million for the same period in ~~2019.~~2020. Cigarette remaining gross profit margin, a non-GAAP financial measure (see reconciliation of cigarette remaining gross profit margin, as well as an explanation of its significance, in “Non-GAAP Financial Information”) decreased to 1.87% for the first quarter of 2021 from 1.92% for the same period in 2020. The ~~increase~~decrease in cigarette remaining gross profit margin was driven primarily by the impact of cigarette price inflation, partially offset by an increase in ~~cigarette carton sales, including the benefit of an extra selling day during the nine months ended September 30, 2020.~~remaining gross profit per carton.

Food/non-food remaining gross profit, a non-GAAP financial measure (see reconciliation of food/non-food remaining gross profit to food/non-food gross profit in “Non-GAAP Financial Information”), decreased ~~$31.5~~$5.5 million, or ~~5.9%~~3.3%, to ~~$502.1~~$161.9 million for the ~~nine months ended September 30, 2020~~first quarter of 2021 from ~~$533.6~~$167.4 million the same period in ~~2019.~~2020. Food/non-food remaining gross profit margin, a non-GAAP financial measure (see reconciliation of food/non-food remaining gross profit margin in “Non-GAAP Financial Information”) ~~for~~in the ~~nine months ended September 30, 2020 was 11.87% compared~~first quarter of 2021 decreased to ~~12.31%~~12.04% from 12.34% for the same period in ~~2019.~~2020. The ~~decrease~~decline in ~~food/non-food~~ remaining gross profit margin was driven primarily by a decrease in sales inof certain higher margin categories including food and HB&G, an increase in sales in our lower margin OTP category, and a decline in ~~margins,~~margin rate, primarily in alternative nicotine products within the HB&G category.

Table of Contents

For the ~~nine months ended September 30, 2020,~~first quarter of 2021, our remaining gross profit for food/non-food products was ~~75.4%~~77.0% of our total remaining gross profit compared to ~~76.6%~~77.1% for the same period in ~~2019.~~

~~Table~~of ~~Content~~s

2020.

Operating Expenses. Our operating expenses include costs related to warehousing and distribution, selling, general and administration (“SG&A&A”) expenses and amortization of intangible assets. ~~For~~In the ~~nine months ended September 30, 2020,~~first quarter of 2021, operating expenses decreased by ~~$29.5~~$5.2 million, or ~~4.7%~~2.5%, to ~~$596.5~~$203.4 million from ~~$626.0~~$208.6 million for the same period in ~~2019.~~2020. The decrease in operating expenses was driven primarily by increased productivity and cost savings ~~initiatives implemented mainly in response to COVID-19.~~ ~~In addition, 2019 operating expenses included~~ ~~$2.3 million of incremental costs related to the relocation of our headquarters.~~ initiatives. As a percentage of total net sales, ~~total~~ operating expenses were ~~4.7%~~5.2% for the ~~nine months ended September 30, 2020~~first quarter of 2021 compared to ~~5.0%~~5.3% for the same period in ~~2019.~~2020. Operating expenses were ~~89.6%~~96.8% of remaining gross profit, a non-GAAP financial ratio, (see reconciliation of operating expenses as a percentage of remaining gross profit, as well as an explanation of its significance, in “Non-GAAP Financial Information”) for the ~~nine months ended September 30, 2020,~~first quarter of 2021, compared to ~~89.9%~~96.1% of remaining gross profit for the same period in ~~2019.~~2020. The increase in operating expenses as a percentage of remaining gross profit was due primarily to higher remaining gross profit margins and the benefit of lower employee bonus expense in the first quarter of 2020.

Warehousing and Distribution Expenses. Warehousing and distribution expenses decreased ~~$17.7~~$5.1 million, or ~~4.2%~~3.6%, to ~~$408.3~~$137.3 million ~~for~~in the ~~nine months ended September 30, 2020~~first quarter of 2021 from ~~$426.0~~$142.4 million for the same period in ~~2019.~~2020. The ~~decrease~~reduction in warehousing and distribution expenses was duedue primarily to ~~lower salaries~~cost reductions, an increase in productivity and ~~related benefits,~~fewer deliveries. Warehousing and ~~other operational costs associated with reduced sales volume and deliveries as a result of COVID-19 as well as productivity improvements.As a percentage~~distribution expenses were 3.5% of total net sales ~~warehousing and distribution expenses were 3.2%~~ for the ~~nine months ended September 30, 2020~~first quarter of 2021 compared to ~~3.4%~~3.6% of total net sales for the same period in ~~2019. Warehouse~~2020. Warehousing and distribution expenses were ~~61.3%~~65.3% of remaining gross profit, a non-GAAP financial ratio, (see reconciliation of operating expenses as a percentage of remaining gross profit, as well as an explanation of its significance, in “Non-GAAP Financial Information”) for the ~~nine months ended September 30, 2020,~~first quarter of 2021, compared to ~~61.1%~~65.6% of remaining gross profit ~~for the same period~~ in ~~2019.~~

2020.

SG&A Expenses. SG&A expenses decreased ~~$11.3~~$0.5 million, or ~~5.9%~~0.8%, ~~for~~to $63.4 million in the ~~nine months ended September 30, 2020, to~~ ~~$181.0 million~~first quarter of 2021 from ~~$192.3~~$63.9 million for the same period in ~~2019.~~2020. The reduction in SG&A expenses was due primarily to ~~cost savings initiatives. Operating expenses for the nine months ended September 30, 2019 included $2.3 million of costs~~reductions related to ~~the relocation of~~ our ~~headquarters. As a percentage of net~~ sales force restructure. SG&A expenses were ~~1.4%~~1.6% of total net sales for both the ~~nine months ended September 30, 2020 compared to 1.5% for the same period in 2019.~~first quarter of 2021 and 2020. SG&A ~~was 27.2%~~expenses were 30.2% of remaining gross profit, a non-GAAP financial ratio (see reconciliation of operating expenses as a percentage of remaining gross profit, as well as an explanation of its significance, in “Non-GAAP Financial Information”), for the ~~nine months ended September 30, 2020,~~first quarter of 2021 compared to ~~27.6% of remaining gross profit~~29.4% for the same period in ~~2019.~~2020. The increase in SG&A expenses as a percentage of remaining gross profit was due primarily to the benefit of lower employee bonus expense in the first quarter of 2020.

Amortization ~~Expense.~~ Expense~~Amortizati~~. onAmortization expense ~~decreased $0.5~~increased $0.4 million, or ~~6.5%~~17.4%, ~~for~~in the ~~nine months ended September 30, 2020,~~first quarter of 2021 to ~~$7.2~~$2.7 million from ~~$7.7~~$2.3 million for the same period in ~~2019.~~2020.

Interest Expense, Net.Interest expense, net includes interest income and expense, amortization of loan origination costs related to borrowings, facility fees and interest on finance lease obligations. Interest expense, net decreased ~~$2.4~~to $3.1 million ~~to $8.4 million for~~in the ~~nine months ended September 30, 2020,~~first quarter of 2021 from ~~$10.8~~$3.5 million for the same period in ~~2019.~~2020. The decrease in net interest expense was due primarily to a decrease in the average borrowing rate, and lower average ~~borrowings.~~borrowings during the first quarter of 2021. Interest expense in the first quarter of 2021 also included approximately $0.7 million in interest costs associated with an OTP tax claim in Ontario. Average borrowings ~~for~~in the ~~nine months ended September 30, 2020~~first quarter of 2021 were ~~$284.2~~$202.5 million with a weighted-average interest rate of ~~1.9%,~~1.4% compared to average borrowings of ~~$295.0~~$336.4 million ~~and~~with a weighted-average interest rate of ~~3.6%~~2.7% for the same period in ~~2019.~~2020.

Foreign Currency Transaction ~~Losses,~~Gains (Losses), Net. We recognized a foreign currency ~~loss~~gain of ~~$0.7~~$0.2 million ~~for~~in the ~~nine months ended September 30, 2020~~first quarter of 2021 compared to a loss of ~~$0.3~~$0.2 million for the same period in ~~2019. The change was due primarily to fluctuations in~~2020. During times of a strengthening U.S. dollar, we generally record foreign currency losses from our ~~net intercompany borrowing positions and the Canadian/~~Canadian operations. Conversely, during times of a weakening U.S. ~~exchange rate.~~

dollar, we generally record foreign currency gains.

Income Taxes.~~The~~ For the first quarter of 2021, our effective tax rate ~~for the nine months ended September 30, 2020~~ was ~~27.4%~~a provision of 23.4% compared to ~~26.7%~~a provision of 29.5% for the same period in ~~2019.~~2020. The decrease in our effective tax rate was due primarily to an increase in the year-over-year tax basis stock compensation expense deduction as a result of a higher average stock price in the first quarter of 2021 as compared to the first quarter of 2020. We expect our effective tax rate to be approximately ~~27%~~26.5% for ~~2020.~~

2021.

Adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure (see the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Financial Information”), ~~increased $4.7 million, or 3.3%, to $147.1~~was $44.3 million for the ~~nine months ended September 30, 2020 from $142.4~~first quarter of 2021 compared to $35.3 million for the same period last ~~year driven primarily by higher~~year. The increase in Adjusted EBITDA included the benefit of an $11.7 million increase in inventory holding ~~gains. Additionally, a decline in gross profit related primarily to COVID-19 was~~gains, partially offset by ~~cost reductions and productivity improvements.~~$3.1 million in costs associated with an OTP tax claim.

Non-GAAP Financial Information

The financial statements in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. Core-Mark uses certain non-GAAP financial measures including (i) Adjusted EBITDA, (ii) net sales, less excise taxes, (iii) remaining gross profit (including cigarette remaining gross profit and food/non-food remaining gross profit), (iv) remaining gross profit margin (including cigarette remaining gross profit margin and food/non-food remaining gross profit margin), (v) remaining gross profit

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margin less excise taxes (including cigarette remaining gross profit margin less excise taxes and food/non-food remaining gross profit margin less excise taxes), (vi) cigarette remaining gross profit per carton and (vii) operating expenses (and the components thereof) as a percentage of remaining gross profit. We believe these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful period

~~Table~~of ~~Content~~s

to period evaluation. We also believe these measures allow investors to view results in a manner similar to the method used by our management. Management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. These measures may be defined differently than other companies and therefore, such measures may not be comparable to ours. We strongly encourage investors and stockholders to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. These non-GAAP measures are defined as follows:

(i) Adjusted EBITDA is a measure used by management to measure operating performance. Adjusted EBITDA is equal to net income adding back net interest expense, provision for income taxes, depreciation and amortization, LIFO expense, stock-based compensation expense and net foreign currency transaction gains or losses. See the Adjusted EBITDA tables in our Management’s Discussion and Analysis for additional details on the components of Adjusted EBITDA. We believe Adjusted EBITDA is one of the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our results to other companies.

(ii) Net sales, less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales and gross profits due to product 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 taxes result in higher net sales, our overall gross profit percentage may be reduced.

(iii) Remaining gross profit (including cigarette remaining gross profit and food/non-food remaining gross profit), (iv) remaining gross profit margin (including cigarette remaining gross profit margin and food/non-food remaining gross profit margin), (v) remaining gross profit margin less excise taxes (including cigarette remaining gross profit margin less excise taxes and food/non-food remaining gross profit margin less excise taxes), and (vi) cigarette remaining gross profit per carton, are non-GAAP financial measures, which we provide to segregate the effects of LIFO expense, cigarette inventory holding gains and certain other items that significantly affect the comparability of gross profit.

(vii) Operating expenses (and the components thereof) as a percentage of remaining gross profit is a non-GAAP financial measure, which is used by management to measure operating leverage. Although management also uses operating expenses as a percentage of net sales, this metric may be impacted on a comparable basis by, among other items, excise taxes, changes in manufacturers’ prices (including inflation), and our continuing trend in sales mix shift from cigarettes to higher-margin food/non-food items which have substantially lower selling prices.

2622

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The following table reconciles Adjusted EBITDA to net income, ~~to Adjusted EBITDA,~~ as net income is the most comparable financial measure under U.S. GAAP (in millions, except percentages)(1):


		Three Months Ended					Nine Months Ended						Three Months Ended
		September 30,				%	September 30,				%		March 31,				%
		2020		2019		Change	2020		2019		Change		2021		2020		Change
Net income	Net income	$	23.0	$	22.5	2.2%	$	44.2	$	41.5	6.5%	Net income	$	8.5	$	4.3	97.7%
Interest expense, net(2)	Interest expense, net(2)	2.1		4.2			8.4		10.8			Interest expense, net(2)	3.1		3.5
Provision for income taxes	Provision for income taxes	9.2		8.1			16.7		15.1			Provision for income taxes	2.6		1.8
Depreciation and amortization	Depreciation and amortization	16.5		14.9			48.9		45.8			Depreciation and amortization	17.4		15.7
LIFO expense	LIFO expense	5.4		7.3			21.5		21.7			LIFO expense	10.5		7.8
Stock-based compensation expense	Stock-based compensation expense	2.6		3.1			6.7		7.2			Stock-based compensation expense	2.4		2.0
Foreign currency transaction losses (gains), net		0.5		(0.9)			0.7		0.3
Foreign currency transaction (gains) losses, net												Foreign currency transaction (gains) losses, net	(0.2)		0.2
Adjusted EBITDA (non-GAAP)	Adjusted EBITDA (non-GAAP)	$	59.3	$	59.2	0.2%	$	147.1	$	142.4	3.3%	Adjusted EBITDA (non-GAAP)	$	44.3	$	35.3	25.5%

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

(2) Interest expense, net, is reported net of interest income.

The following tables reconcile net sales, less excise taxes to net sales, ~~less excise taxes,~~ and remaining gross profit to ~~remaining~~ gross profit (including cigarette remaining gross profit and food/non-food remaining gross profit), their most comparable financial measures under U.S. GAAP (in millions, except percentages)(1):


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,						September 30,							March 31,
		2020			2019			2020			2019				2021			2020
Net sales	Net sales	$	4,502.6		$	4,422.6		$	12,705.8		$	12,515.7		Net sales	$	3,932.2		$	3,939.3
Excise taxes	Excise taxes	(888.3)			(884.1)			(2,516.0)			(2,521.6)			Excise taxes	(771.2)			(770.3)
Net sales, less excise taxes (non-GAAP)	Net sales, less excise taxes (non-GAAP)	$	3,614.3		$	3,538.5		$	10,189.8		$	9,994.1		Net sales, less excise taxes (non-GAAP)	$	3,161.0		$	3,169.0

Gross profit	Gross profit	$	235.0		$	246.6		$	666.5		$	693.7		Gross profit	$	217.4		$	218.4
Cigarette inventory holding gains(2)	Cigarette inventory holding gains(2)	(5.6)			(0.3)			(22.4)			(12.9)			Cigarette inventory holding gains(2)	(12.5)			(9.1)

Candy inventory holding gains(3)		—			(5.8)			—			(5.8)

Cigarette tax stamp inventory holding gains(3)														Cigarette tax stamp inventory holding gains(3)	(8.3)			—
OTP tax claim(4)														OTP tax claim(4)	3.1			—
LIFO expense	LIFO expense	5.4			7.3			21.5			21.7			LIFO expense	10.5			7.8
Remaining gross profit (non-GAAP)	Remaining gross profit (non-GAAP)	$	234.8		$	247.8		$	665.6		$	696.7		Remaining gross profit (non-GAAP)	$	210.2		$	217.1

Gross profit %	Gross profit %	5.22		%	5.58		%	5.25		%	5.54		%	Gross profit %	5.53		%	5.54		%
Gross profit % less excise taxes (non-GAAP)	Gross profit % less excise taxes (non-GAAP)	6.50		%	6.97		%	6.54		%	6.94		%	Gross profit % less excise taxes (non-GAAP)	6.88		%	6.89		%
Remaining gross profit % (non-GAAP)	Remaining gross profit % (non-GAAP)	5.21		%	5.60		%	5.24		%	5.57		%	Remaining gross profit % (non-GAAP)	5.35		%	5.51		%
Remaining gross profit % less excise taxes (non-GAAP)	Remaining gross profit % less excise taxes (non-GAAP)	6.50		%	7.00		%	6.53		%	6.97		%	Remaining gross profit % less excise taxes (non-GAAP)	6.65		%	6.85		%

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

(2) For the three months ended ~~September 30, 2020,~~March 31, 2021, the ~~$4.9~~$10.9 million and ~~$0.7~~$1.6 million of cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. For the three months ended ~~September 30, 2019,~~March 31, 2020, the ~~$0.2~~$7.8 million and $0.1 million of the cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. For the nine months ended September 30, 2020, $20.4 million and $2.0 million of the cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. For the same period in 2019, $11.3 million and $1.6$1.3 million of the cigarette inventory holding gains were attributable to the U.S. and Canada, respectively.

(3) For the three ~~and nine~~ months ended ~~September 30, 2019, $5.8~~March 31, 2021, all $8.3 million of ~~candy~~cigarette tax stamp inventory holding gains ~~was~~were attributable to the U.S.

(4) For the three months ended March 31, 2021, the $3.1 million of OTP tax claim was related to a Canadian provincial tax assessment.

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		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,						September 30,							March 31,
		2020			2019			2020			2019				2021			2020

Cigarettes:	Cigarettes:													Cigarettes:
Net sales	Net sales	$	3,000.2		$	2,880.0		$	8,475.5		$	8,181.5		Net sales	$	2,587.7		$	2,582.7
Excise taxes	Excise taxes	(775.0)			(777.7)			(2,195.0)			(2,213.0)			Excise taxes	(661.4)			(672.2)
Net sales, less excise taxes (non-GAAP)	Net sales, less excise taxes (non-GAAP)	$	2,225.2		$	2,102.3		$	6,280.5		$	5,968.5		Net sales, less excise taxes (non-GAAP)	$	1,926.3		$	1,910.5

Gross profit	Gross profit	$	56.6		$	52.0		$	166.8		$	158.1		Gross profit	$	59.9		$	51.9
Cigarette inventory holding gains(2)	Cigarette inventory holding gains(2)	(5.6)			(0.3)			(22.4)			(12.9)			Cigarette inventory holding gains(2)	(12.5)			(9.1)

Cigarette tax stamp inventory holding gains(3)														Cigarette tax stamp inventory holding gains(3)	(8.3)			—
LIFO expense	LIFO expense	6.7			5.9			19.1			17.9			LIFO expense	9.2			6.9
Remaining gross profit (non-GAAP)	Remaining gross profit (non-GAAP)	$	57.7		$	57.6		$	163.5		$	163.1		Remaining gross profit (non-GAAP)	$	48.3		$	49.7

Gross profit %	Gross profit %	1.89		%	1.81		%	1.97		%	1.93		%	Gross profit %	2.31		%	2.01		%
Gross profit % less excise taxes (non-GAAP)	Gross profit % less excise taxes (non-GAAP)	2.54		%	2.47		%	2.66		%	2.65		%	Gross profit % less excise taxes (non-GAAP)	3.11		%	2.72		%
Remaining gross profit % (non-GAAP)	Remaining gross profit % (non-GAAP)	1.92		%	2.00		%	1.93		%	1.99		%	Remaining gross profit % (non-GAAP)	1.87		%	1.92		%
Remaining gross profit % less excise taxes (non-GAAP)	Remaining gross profit % less excise taxes (non-GAAP)	2.59		%	2.74		%	2.60		%	2.73		%	Remaining gross profit % less excise taxes (non-GAAP)	2.51		%	2.60		%

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

(3) For the ~~nine~~three months ended ~~September 30, 2020, $20.4 million and $2.0~~March 31, 2021, all $8.3 million of ~~the~~ cigarette tax stamp inventory holding gains were attributable to the U.S. ~~and Canada, respectively. For the same period in 2019, $11.3 million and $1.6 million of the cigarette inventory holding gains were attributable to the U.S. and Canada, respectively.~~

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Food/Non-food:
Net sales $ 1,502.4 $ 1,542.6 $ 4,230.3 $ 4,334.2
Excise taxes (113.3) (106.4) (321.0) (308.6)
Net sales, less excise taxes (non-GAAP) $ 1,389.1 $ 1,436.2 $ 3,909.3 $ 4,025.6
Gross profit $ 178.4 $ 194.6 $ 499.7 $ 535.6
Candy inventory holding gains(2)
— (5.8) — (5.8)
LIFO expense (1.3) 1.4 2.4 3.8
Remaining gross profit (non-GAAP) $ 177.1 $ 190.2 $ 502.1 $ 533.6
Gross profit % 11.87 % 12.62 % 11.81 % 12.36 %
Gross profit % less excise taxes (non-GAAP) 12.84 % 13.55 % 12.78 % 13.30 %
Remaining gross profit % (non-GAAP) 11.79 % 12.33 % 11.87 % 12.31 %
Remaining gross profit % less excise taxes (non-GAAP) 12.75 % 13.24 % 12.84 % 13.26 %

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

~~(2) For the three and nine months ended September 30, 2019,~~ ~~$5.8 million~~ ~~of candy inventory holding gains was attributable to the U.S.~~

~~Table~~of ~~Content~~s

~~The following table provides operating expenses as a percentage of remaining gross profit (in millions, except percentages)(1)~~:

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Gross profit $ 235.0 $ 246.6 $ 666.5 $ 693.7
Cigarette inventory holding gains(2)
(5.6) (0.3) (22.4) (12.9)
Candy inventory holding gains(3)
— (5.8) — (5.8)
LIFO expense 5.4 7.3 21.5 21.7
Remaining gross profit (non-GAAP) $ 234.8 $ 247.8 $ 665.6 $ 696.7
Warehousing and distribution expenses $ 140.4 $ 148.6 $ 408.3 $ 426.0
Selling, general and administrative expenses 57.3 61.8 181.0 192.3
Amortization of intangible assets 2.5 2.3 7.2 7.7
Total operating expenses $ 200.2 $ 212.7 $ 596.5 $ 626.0
Warehouse and distribution expense as a percentage of remaining gross profit (non-GAAP) 59.8 % 60.0 % 61.3 % 61.1 %
Selling, general and administrative expense as a percentage of remaining gross profit (non-GAAP) 24.4 % 24.9 % 27.2 % 27.6 %
Amortization of intangible assets as a percentage of remaining gross profit (non-GAAP) 1.1 % 0.9 % 1.1 % 1.1 %
Total operating expense as a percentage of remaining gross profit (non-GAAP) 85.3 % 85.8 % 89.6 % 89.9 %


	Three Months Ended
	March 31,
	2021			2020

Food/Non-food:
Net sales	$	1,344.5		$	1,356.6
Excise taxes	(109.8)			(98.1)
Net sales, less excise taxes (non-GAAP)	$	1,234.7		$	1,258.5

Gross profit	$	157.5		$	166.5

OTP tax claim(2)	3.1			—

LIFO expense	1.3			0.9
Remaining gross profit (non-GAAP)	$	161.9		$	167.4

Gross profit %	11.71		%	12.27		%
Gross profit % less excise taxes (non-GAAP)	12.76		%	13.23		%
Remaining gross profit % (non-GAAP)	12.04		%	12.34		%
Remaining gross profit % less excise taxes (non-GAAP)	13.11		%	13.30		%

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

(2) For the three months ended ~~September 30, 2020,~~March 31, 2021, the ~~$4.9~~$3.1 million of OTP tax claim was related to a Canadian provincial tax assessment.

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The following table provides operating expenses as a percentage of remaining gross profit (in millions, except percentages)(1):


	Three Months Ended
	March 31,
	2021			2020
Gross profit	$	217.4		$	218.4
Cigarette inventory holding gains(2)	(12.5)			(9.1)

Cigarette tax stamp inventory holding gains(3)	(8.3)			—
OTP tax claim(4)	3.1			—
LIFO expense	10.5			7.8
Remaining gross profit (non-GAAP)	$	210.2		$	217.1

Warehousing and distribution expenses	$	137.3		$	142.4
Selling, general and administrative expenses	63.4			63.9
Amortization of intangible assets	2.7			2.3
Total operating expenses	$	203.4		$	208.6

Warehouse and distribution expense as a percentage of remaining gross profit (non-GAAP)	65.3		%	65.6		%
Selling, general and administrative expense as a percentage of remaining gross profit (non-GAAP)	30.2		%	29.4		%
Amortization of intangible assets as a percentage of remaining gross profit (non-GAAP)	1.3		%	1.1		%
Total operating expense as a percentage of remaining gross profit (non-GAAP)	96.8		%	96.1		%

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

(2) For the three months ended March 31, 2021, the $10.9 million and ~~$0.7~~$1.6 million of cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. For the three months ended ~~September 30, 2019, $0.2~~March 31, 2020, $7.8 million and ~~$0.1~~$1.3 million of cigarette inventory holding gains were attributable to the U.S. and Canada, respectively.

~~(3)~~(4) For the three ~~and nine~~ months ended ~~September 30, 2019, $5.8~~March 31, 2021, the $3.1 million of ~~candy inventory holding gains~~OTP tax claim was ~~attributable~~related to ~~the U.S.~~a Canadian provincial tax assessment.

~~Table~~of ~~Content~~s

Liquidity and Capital Resources

Our cash and cash equivalents were ~~$11.7~~$43.5 million and $~~14.1~~22.8 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Our liquidity requirements arise primarily from our working capital, ~~needs,~~ capital expenditures, debt service requirements for our revolving credit facility (“Credit Facility”), income taxes, repurchases of common stock and dividend payments. We have historically funded our liquidity requirements through our cash flows from operations and external borrowings. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, our cash flows ~~used in~~provided by operating activities were ~~$7.7~~$41.4 million. Subject to borrowing base limitations, we had ~~$352.1~~$406.9 million of borrowing capacity available under our Credit Facility, excluding our expansion feature of $200.0 million, as of ~~September 30, 2020.~~March 31, 2021.

We are potentially exposed to increased credit risk as a result of the COVID-19 ~~crisis.~~pandemic. While the vast majority of our customers are convenience retailers that continue to operate as essential businesses, our customers include smaller independent convenience retailers that may face liquidity constraints as a result of reduced store traffic. Our customers also include non-convenience store formats including hotel gift shops, casinos, tobacco shops, schools, airport concessions and other specialty and small format stores that carry convenience products. Some of these customers may have temporarily ceased, or significantly reduced, operations due to government-imposed restrictions while others have seen a material decline in store traffic.

We have taken actions to help preserve liquidity, including reducing operating costs to better align with the current sales volume trend and closely managing our accounts receivable and capital expenditures.

~~Given our financial strength coming into the pandemic and ample availability~~

Table of ~~capital, we expect to be able to maintain adequate liquidity through the current environment subject to the severity and duration of COVID-19.~~Contents

Cash Flows from Operating Activities

Our cash flows from operating activities, including net income, net non-cash additions to net income and changes in operating assets and liabilities (working capital), ~~used~~provided net cash of ~~$7.7~~$41.4 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$111.1~~$32.5 million of net cash ~~used~~provided for the same period in ~~2019,~~2020, an increase of ~~$103.4~~$8.9 million. The increase was primarily attributable to an increase in net non-cash additions to net income, partially offset by a decrease in changes in working capital during the comparative periods.

Working capital used ~~cash~~$14.0 million of ~~$136.8 million~~cash for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$233.9~~$0.8 million of cash used for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$97.1~~$13.2 million. These contributions for the comparative periods were impacted primarily by ~~a decrease~~an increase in accounts receivable, net, ~~and~~ a ~~decrease~~smaller decline in deposits, prepayments and other non-current assets, a smaller increase in accounts payable and a larger decrease in cigarette and tobacco taxes payable. The increased cash use in working capital associated with these factors was more than offset by a smaller increase in inventory due primarily to ~~lower prepayments~~the timing of cigarette ~~vendors, among other items.~~manufacturers’ price increases and larger ending inventory during the year ended December 31, 2020, as compared to December 31, 2019.

Our cash flows from operating activities were impacted by the following movements in working capital (in millions):


		Nine Months Ended							Three Months Ended
		September 30,							March 31,
		2020		2019		Change			2021		2020		Change
Accounts receivable, net	Accounts receivable, net	$	9.1	$	(29.9)	$	39.0	Accounts receivable, net	$	(15.7)	$	12.0	$	(27.7)
Other receivables, net	Other receivables, net	(14.1)		(21.6)		7.5		Other receivables, net	10.9		(5.5)		16.4
Inventories, net	Inventories, net	(185.4)		(199.5)		14.1		Inventories, net	(7.3)		(102.4)		95.1
Deposits, prepayments and other non-current assets	Deposits, prepayments and other non-current assets	23.3		(22.9)		46.2		Deposits, prepayments and other non-current assets	(0.7)		31.8		(32.5)
Accounts payable	Accounts payable	51.2		74.2		(23.0)		Accounts payable	58.9		79.5		(20.6)
Cigarette and tobacco taxes payable	Cigarette and tobacco taxes payable	(53.6)		(61.3)		7.7		Cigarette and tobacco taxes payable	(46.0)		(17.9)		(28.1)
Claims, accrued and other long-term liabilities	Claims, accrued and other long-term liabilities	32.7		27.1		5.6		Claims, accrued and other long-term liabilities	(14.1)		1.7		(15.8)
Net cash used in changes in working capital		$	(136.8)	$	(233.9)	$	97.1
Net cash provided by (used in) changes in working capital								Net cash provided by (used in) changes in working capital	$	(14.0)	$	(0.8)	$	(13.2)

Cash Flows from Investing Activities

Our investing activities used net cash of ~~$19.5~~$5.3 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to net cash used of ~~$20.9~~$5.8 million for the same period in ~~2019.~~2020. Capitalization of software and related development costs were ~~$2.7~~$0.4 million and ~~$3.3~~$0.8 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Additions to property, plant and equipment were ~~$17.9~~$4.9 million and ~~$15.3~~$5.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~Additionally, proceeds from the sale of other non-current assets provided net cash of $1.1 million for the nine months ended September 30, 2020.~~ We expect our capital expenditures for ~~2020~~2021 to be approximately ~~$35~~$45 million for the ~~year.~~

~~Table~~year, which will be utilized primarily for maintenance and technology initiatives, as well as upgrades to certain distribution facilities and the relocation of ~~Content~~s

one distribution facility.

Cash Flows from Financing Activities

Our financing activities ~~provided~~used net cash of ~~$24.3~~$15.5 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to net cash ~~provided~~used of ~~$131.2~~$15.2 million for the same period in ~~2019,~~2020, a decrease of ~~$106.9~~$0.3 million. Net borrowings of our Credit Facility during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 were ~~$38.2~~$1.0 million compared to net ~~borrowings~~repayments of ~~$168.0~~$11.8 million for the same period in ~~2019.~~2020.

Our Credit Facility

We have a Credit Facility with a capacity of ~~$750.0~~$750 million as of ~~September 30, 2020,~~March 31, 2021 and expansion feature of $200.0 million, limited by a borrowing base consisting of eligible accounts ~~receivable~~receivables and inventories. ~~The~~On February 26, 2021, the Company entered into an Eleventh Amendment to its Credit Facility, ~~expires in~~which primarily extends the maturity date from March 28, 2022 to February 26, 2026. With the Eleventh Amendment, the size and ~~has an~~ expansion feature ~~which permits an increase~~ of ~~up to $200.0 million, subject to borrowing base requirements.~~the Credit Facility remain unchanged and certain threshold amounts for reporting and notices as well as the size of certain baskets were increased. The Eleventh Amendment also added certain additional covenant baskets and incorporated customary language regarding London Interbank Offered Rate (“LIBOR”) replacement, defaulting lenders, electronic execution, Bail-in acknowledgement and letters of credit. All obligations under the Credit Facility are secured by first-priority liens on substantially all of ~~our~~the Company’s 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 London Interbank Offered Rate~~LIBOR or ~~Canadian Dollar Offered Rate~~CDOR based loans prepaid prior to the end of an interest period).

Amounts related to the Credit Facility are as follows (in millions):

September 30, December 31,
2020 2019
Amounts borrowed, net $ 363.0 $ 324.8
Outstanding letters of credit 19.4 16.7
Amounts available to borrow(1)
352.1 341.7

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	March 31,		December 31,
	2021		2020
Amounts borrowed, net	$	259.0	$	258.0
Outstanding letters of credit	43.6		19.5
Amounts available to borrow(1)	406.9		402.4

(1) Subject to borrowing base limitations, and excluding expansion feature of $200.0 million.

Average borrowings during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 were ~~$163.4~~$202.5 million, ~~and $284.2 million, respectively,~~ with outstanding amounts borrowed at any one time ranging from ~~$69.0~~$142.5 million to ~~$499.3~~$301.0 million over the ~~nine-month~~three-month period. For the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, average borrowings were ~~$371.1~~$336.4 million, ~~and $295.0 million, respectively,~~ with outstanding amounts borrowed at any one time ranging from ~~$141.7~~$151.5 million to ~~$489.0~~$499.3 million over the ~~nine-month~~three-month period. The increase in the outstanding letters of credit as of March 31, 2021, is due primarily to a change in insurance carriers for casualty coverage. The increased letters of credit supports potential run-off claims under the previous insurance policy and is expected to decline over time as potential claims are resolved.

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Off-Balance Sheet Arrangements

There have been no material changes to the information provided in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC on March ~~2, 2020,~~1, 2021, regarding off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk disclosures set forth in Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC on March ~~2, 2020,~~1, 2021, did not change materially during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We conducted, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on our evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 30, 2020,~~March 31, 2021, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is both (a) probable that the liability has been incurred and (b) 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. In the opinion of management, the outcome of pending litigation is not expected to have a material effect on the Company’s results of operations, financial condition or liquidity.

On October 2, 2019, the United States Judicial Panel on Multidistrict Litigation transferred and consolidated all then-pending personal injury cases against Juul Labs, Inc. (“JLI”) involving the distribution and sale of JUUL products to the Northern District of California (the “JUUL MDL”). Subsequently, on March 11, 2020, the plaintiffs in the JUUL MDL filed a Personal Injury Consolidated Master Complaint against JLI, Philip Morris and various Altria Group entities, JLI co-founders, early JLI investors and board members, certain e-liquid manufacturers, and numerous distributors and retailers of JUUL products, including Core Mark. Consequently, Core-Mark has been added as a defendant in a number of these personal injury suits. The JLI MDL litigation is currently in an early stage, and the personal injury plaintiffs have not made a monetary demand to the defendants. JLI is indemnifying Core-Mark ~~believes~~in the JUUL MDL.

ITEM 1A. RISK FACTORS

~~Other than the risk factor set forth below, there~~There have been no material changes from the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC on March ~~2, 2020.~~

The COVID-19 pandemic and the responsive actions taken by governments and others to mitigate its spread have significantly impacted worldwide economic conditions and could have a material adverse effect on our operations and business.

The novel coronavirus (or “COVID-19”) pandemic and the responsive actions taken by governments and others, including mandatory and voluntary closures, shelter-in-place orders and social distancing protocols, began to adversely impact our operations late in the first quarter of 2020 and are likely to continue to affect our business for an indeterminate amount of time. These actions could materially adversely affect our ability to adequately staff and maintain our operations, cause disruptions in the supply chain and impact our ability to maintain adequate inventory and liquidity. While we and the vast majority of our customers have been permitted to continue to operate as essential businesses, the unprecedented impact of COVID-19, including an increase in the level of shelter-in-place orders by states, provinces, cities and counties, has resulted in a significant downturn in miles driven, causing a substantial decline in convenience retail store visits across North America. In addition to adversely affecting our revenues, the decrease in convenience retail store visits could also negatively impact our customers’ ability to pay for our goods and services or cause some customers’ businesses to fail. COVID-19 has produced significant shifts in the mix of our business with a larger decline in food/non-food sales relative to cigarette sales, which we anticipate will result in lower gross margins until the impacts of COVID-19 starts to moderate. As we cannot predict the duration or scope of the COVID-19 pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated, but could be material and last for an extended period of time.1, 2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no repurchases of common stock by the Company during the three months ended ~~September 30, 2020.~~March 31, 2021.

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ITEM 6. EXHIBITS


Exhibit No.						Description

3.1						Certificate of Incorporation of Core-Mark Holding Company, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form 10 filed on September 6, 2005).

3.2						Certificate of Amendment to Certificate of Incorporation of Core-Mark Holding Company, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed May 21, 2015).

3.3						Certificate of Amendment to Certificate of Incorporation of Core-Mark Holding Company, Inc. (incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed on May 23, 2018).

10.1						Eleventh Amendment to Credit Agreement, dated February 26, 2021, among Core-Mark Holding Company, Inc., Core-Mark International, Inc., Core-Mark Midcontinent, Inc., Core-Mark Interrelated Companies, Inc., Core-Mark Distributors, Inc., as Borrowers, Sources LLC, as a Loan Party, the Lenders Signatory Thereto as Lenders and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.21 of the Company’s Annual Report on Form 10-K filed on March 1, 2021).

31.1						Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350*.

32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350*.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File - formatted in Inline XBRL and included as Exhibit 101

*						This Exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing pursuant to Item 601 of Regulation S-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.









	Core-Mark Holding Company, Inc.
	(Registrant)

~~November 5, 2020~~May 6, 2021	By:	/s/ CHRISTOPHER M. MILLER
	Name:	Christopher M. Miller
	Title:	~~Senior~~Executive Vice President, Chief Financial Officer
		(Principal Financial and Accounting Officer and Authorized Signatory)

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