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. 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 strengthens the Company's ability to cost effectively service national and regional retailers.

The total purchase consideration to acquire Davenport was approximately $40.8 million, of which $34.3 million was paid at closing. The total purchase consideration, which increased by $1.9 million during the first six months of 2013 resulting from certain post-closing adjustments, did not change in the third quarter this year. The acquisition was funded with a combination of cash on hand and borrowings under a 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	3.8
Inventory	20.3
Prepaid expenses / other assets	2.6
Property, plant and equipment	5.3
Intangible assets	2.6
Goodwill	6.8
Net deferred tax liabilities	(1.3		)
Capital lease liability	(10.9		)
Other liabilities	(9.9		)
Total consideration	$	40.8

The total purchase consideration includes (i) a $4.0 million indemnity holdback for any post-closing liabilities, which will be released, less any indemnity claims, to the former owners of Davenport in equal installments over the four year period following the closing of the acquisition; and (ii) $0.6 million of contingent payments related to future employment services. Purchased intangible assets are comprised of (i) $1.9 million of customer relationships, which is being amortized over 10 years; (ii) $0.7 million of non-competition agreements, the majority of which is 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 includes $1.3 million of net deferred tax liabilities primarily related to the difference between the book and tax bases of the assets acquired.

The acquisition resulted in $6.8 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 purpose, reflects synergies the Company expects to realize. While the Company does 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 allocated to goodwill.

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, and the related capital lease obligation at September 30, 2013 was $10.5 million.

Results of operations of Davenport have been included in the Company’s consolidated statements of operations and comprehensive income since the date of acquisition. In addition, the Company incurred approximately $0.2 million and $0.5 million of acquisition and integration related costs for the three and nine months ended September 30, 2013 which are included in our selling, general and administrative expenses.

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.