Acquisition

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

On December 17, 2012, the Company acquired J.T. Davenport & Sons, Inc. (“Davenport”), a convenience wholesaler based in North Carolina, which is now a subsidiary of Core-Mark. This acquisition increased the Company’s market presence primarily in the Southeastern U.S. and further enhanced the Company’s ability to cost effectively service national and regional retailers.

Total purchase consideration to acquire Davenport was approximately $41.2 million, of which $34.3 million was paid at closing. The total purchase consideration increased by $2.3 million in 2013 resulting from certain post-closing purchase price adjustments. The acquisition was funded with a combination of cash on hand and borrowings under a revolving credit facility and was accounted for as a business combination.

The following table presents the fair values of assets acquired and liabilities assumed and purchase consideration as of the acquisition date (in millions).



	December 17, 2012
Cash	$	0.3
Accounts receivable	21.2
Other receivables	3.9
Inventory	20.3
Prepaid expenses / other assets	2.6
Property, plant and equipment	5.3
Intangible assets	2.6
Goodwill	6.7
Net deferred tax liabilities	(1.0		)
Capital lease liability	(10.9		)
Other liabilities	(9.8		)
Total consideration	$	41.2

The total purchase consideration included (i) a $4.0 million indemnity holdback for any post-closing liabilities to be released, less any indemnity claims, to the former owners of Davenport in equal installments over four years on the anniversary date of the closing of the acquisition; and (ii) $0.6 million of contingent payments related to future employment services. As of December 31, 2014, the Company had $2.0 million of future payment obligations remaining under the indemnity holdback and none for employment service provisions. The intangible assets were comprised of (i) $1.9 million of customer relationships, which are being amortized over 10 years; and (ii) $0.7 million of non-competition agreements, the majority of which are being amortized over five years. The estimated fair value of the purchased intangible assets was determined using the income approach, which discounts expected future cash flows attributable to the specific assets to their present value. The purchase price allocation also included $1.0 million of net deferred tax liabilities related primarily to the difference between the book and tax bases of the assets acquired.

The acquisition resulted in $6.7 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, which is not deductible for tax purposes, reflects synergies the Company expects to realize.

Simultaneous with the closing of the acquisition, the Company entered into a capital lease arrangement for a warehouse facility in Sanford, North Carolina with certain of the former owners of Davenport, who are now employees of Core-Mark. The term of the lease is for 10 years, excluding renewal options, and the related capital lease obligation was $9.8 million at December 31, 2014.

Results of operations of Davenport have been included in the Company’s statements of operations and comprehensive income since the date of acquisition. The Company incurred costs of approximately $1.6 million and $1.3 million related primarily to the acquisition and integration of Davenport’s operations in 2013 and 2012, respectively. These costs are included in selling, general and administrative expenses on the consolidated statements of operations for the years ended December 31, 2013 and 2012. No additional costs were incurred in 2014.

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