Acquisition

Acquisition of J.T. Davenport & Sons, Inc.

On December 17, 2012, we acquired J.T. Davenport & Sons, Inc. (“Davenport”), a convenience wholesaler based in North Carolina, which thereafter became a subsidiary of Core-Mark. Davenport services customers in the eight states of North Carolina, South Carolina, Georgia, Maryland, Ohio, Kentucky, West Virginia and Virginia. This acquisition increased Core-Mark's market presence primarily in the Southeastern U.S. and further supported our ability to cost effectively service national and regional retailers.

As of March 31, 2013, total purchase consideration to acquire Davenport was approximately $40.2 million of which $34.3 million was paid at closing. The purchase price allocation presented herein is based on a preliminary valuation and is subject to the completion of a closing adjustment period under the agreement. During the first quarter of 2013 the total consideration increased by $1.3 million representing an estimate of the net amount due to the former owners during the closing adjustment period. The Company expects to finalize the net amount due under the closing adjustment period in the second quarter of 2013. The acquisition was funded with a combination of cash on hand and borrowings under our revolving credit facility.

The following table presents the assets acquired and liabilities assumed based on their preliminary estimated fair values and purchase consideration as of the acquisition date, which are subject to change for up to one year from the acquisition date (in millions).



	December 17, 2012
Cash	$	0.3
Accounts receivable	21.2
Other receivables	3.7
Inventory	20.3
Prepaid expenses / other assets	2.6
Property, plant and equipment	5.9
Intangible assets	2.6
Goodwill	6.5
Net deferred tax liabilities	(1.5		)
Capital lease liability	(10.9		)
Other liabilities	(10.5		)
Total consideration	$	40.2

There is a $4.0 million indemnity holdback for any post-closing liabilities in connection with the acquisition, which will be released, less indemnity claims, to the former owners in equal installments over the next four years. Total purchase consideration includes $0.6 million in contingent payments related to non-competition agreements. While we do not expect any material changes in the fair value of assets and liabilities, any changes in the purchase price or the estimated fair values may change the amount allocable to goodwill.

Intangible assets include $1.9 million for customer relationships which is being amortized over 10 years and $0.7 million for non-competition agreements, the majority of which is being amortized over five years. The estimated fair value of the intangible assets was determined using the income approach, which discounts expected future cash flows to present value.

The acquisition resulted in $6.5 million of non-amortizing goodwill which represents the excess of the cash paid over the fair value of net assets acquired and liabilities assumed, net of deferred tax liabilities. The goodwill arising from the acquisition reflects the synergies the Company expects to realize as a result of the business combination. The goodwill is not deductible for tax purposes. The $1.5 million of net deferred tax liabilities resulting from the acquisition were related primarily to the difference between the book and tax bases of the assets, whose estimated fair value was determined by the valuation. Simultaneous with the closing of the acquisition, we executed a capital lease for a warehouse facility in Sanford, North Carolina with some of the former owners of Davenport who are now employees of the Company. The lease has an initial 10 year term and a capital lease obligation of $10.8 million as of March 31, 2013.

Results of operations of Davenport have been included in Core-Mark’s consolidated statements of operations and comprehensive income since the date of acquisition. In addition, we incurred $0.2 million of acquisition related costs which are included in our selling, general and administrative expenses for the three months ended March 31, 2013.

We did not consider the Davenport acquisition to be a material business combination and therefore have not disclosed pro-forma results of operations for the acquired business.