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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 20, 2002
FLEMING COMPANIES, INC.
---------------
(Exact name of registrant as specified in its charter)
Oklahoma 1-8140 48-0222760
---------------------------- --------------------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1945 Lakepointe Drive, Lewisville, Texas 75057
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(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (972) 906-8000
Not Applicable
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(Former name or former address, if changed since last report)
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1
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
On April 23, 2002, we entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among Fleming Companies, Inc., Platform Corporation,
our wholly owned subsidiary ("Buyer Sub"), Core-Mark International, Inc.
("Core-Mark") and the stockholders of Core-Mark, pursuant to which Buyer Sub
will merge with and into Core-Mark. Our acquisition of Core-Mark is subject to
a number of customary closing conditions.
(a) Financial Statements of Business To Be Acquired
i. Core-Mark Condensed Consolidated Balance Sheet as of
March 31, 2002
ii. Core-Mark Condensed Consolidated Statements of Income for
the three months ended March 31, 2001 and 2002
iii. Core-Mark Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2001 and 2002
iv. Notes to Core-Mark Condensed Consolidated Financial
Statements
v. Independent Auditors' Report
vi. Core-Mark Consolidated Balance Sheets as of December 31,
2000 and 2001
vii. Core-Mark Consolidated Statements of Income for the years
ended December 31, 1999, 2000 and 2001
viii. Core-Mark Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 2000 and 2001
ix. Core-Mark Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 2000 and 2001
x. Notes to Core-Mark Consolidated Financial Statements
2
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
MARCH 31, 2002
--------------
ASSETS
Current assets:
Cash ........................................................................ $ 23,542
Receivables:
Trade accounts, less allowance for doubtful accounts of $4,183 .......... 111,879
Other ................................................................... 19,023
Inventories, net of LIFO allowance of $52,133 ............................... 118,278
Prepaid expenses and other .................................................. 8,610
---------------
Total current assets .................................................... 281,332
Property and equipment ........................................................... 77,970
Less accumulated depreciation ............................................... (46,555)
---------------
Net property and equipment .................................................. 31,415
Other assets ..................................................................... 6,034
Goodwill, net of accumulated amortization of $25,623 ............................. 57,684
---------------
Total assets ..................................................................... $ 376,465
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ...................................................... $ 55,884
Cigarette and tobacco taxes payable ......................................... 59,088
Income taxes payable ........................................................ 7,079
Deferred income taxes ....................................................... 4,869
Current portion of long-term debt ........................................... 76,000
Other accrued liabilities ................................................... 31,674
---------------
Total current liabilities ............................................... 234,594
Long-term debt ................................................................... 75,000
Other accrued liabilities and deferred income taxes .............................. 12,527
---------------
Total liabilities ........................................................... 322,121
Commitments and contingencies:
Shareholders' equity:
Common stock; $.01 par value; 10,000,000 shares authorized;
5,500,000 shares issued and outstanding ................................. 55
Additional paid-in capital .................................................. 26,121
Retained earnings ........................................................... 37,443
Accumulated comprehensive loss:
Cumulative currency translation adjustments ............................. (5,447)
Additional minimum pension liability .................................... (3,828)
---------------
Total shareholders' equity .............................................. 54,344
---------------
Total liabilities and shareholders' equity ....................................... $ 376,465
===============
See Notes to Condensed Consolidated Financial Statements
3
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2002
------------ ------------
Net sales ................................... $ 754,266 $ 825,153
Cost of goods sold .......................... 705,121 774,297
------------ ------------
Gross profit ........................... 49,145 50,856
Operating and administrative expenses ....... 42,150 41,463
------------ ------------
Operating income ....................... 6,995 9,393
Interest expense, net ....................... 3,042 2,488
Amortization of debt refinancing costs ...... 318 318
------------ ------------
Income before income taxes ............. 3,635 6,587
Income tax expense .......................... 1,633 2,832
------------ ------------
Net income ............................. $ 2,002 $ 3,755
============ ============
See Notes to Condensed Consolidated Financial Statements.
4
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
------------------------------
2001 2002
------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income ...................................................... $ 2,002 $ 3,755
Adjustments to reconcile net income to
net cash provided by operating activities:
LIFO expense ............................................... 397 219
Amortization of goodwill ................................... 521 0
Depreciation and amortization .............................. 1,954 2,052
Amortization of debt refinancing fees ...................... 318 318
Deferred income taxes ...................................... 318 135
Other ...................................................... 719 440
Changes in operating assets and liabilities ................ 42,638 5,045
------------ ------------
Net cash provided by operating activities ....................... 48,867 11,964
------------ ------------
INVESTING ACTIVITIES:
Additions to property and equipment ........................ (517) (152)
------------ ------------
Net cash used in investing activities ........................... (517) (152)
------------ ------------
FINANCING ACTIVITIES:
Net payments under accounts receivable securitization ...... (30,000) (500)
Net payments under revolving credit agreement .............. (26,617) (11,967)
------------ ------------
Net cash used in financing activities ........................... (56,617) (12,467)
------------ ------------
Effects of changes in foreign exchange rates .................... (1,027) (33)
------------ ------------
Decrease in cash ................................................ (9,294) (688)
Cash, beginning of period ....................................... 28,129 24,230
------------ ------------
CASH, END OF PERIOD ............................................. $ 18,835 $ 23,542
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the period for:
Interest, net of interest received ......................... $ 5,215 $ 4,548
Income taxes, net of refunds ............................... 155 (318)
See Notes to Condensed Consolidated Financial Statements.
5
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of March 31, 2002 and the
condensed consolidated statements of income and of cash flows for the three
months ended March 31, 2001 and 2002 have been prepared by Core-Mark
International, Inc. and subsidiaries (the "Company"). In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at March 31,
2002, and the results of its operations and cash flows for the interim periods
ended March 31, 2001 and 2002, have been included. The results of operations for
the interim periods are not necessarily indicative of the operating results for
the full year.
2. INVENTORIES
The condensed consolidated financial statements have been prepared
using the LIFO method of accounting for inventories. The use of the LIFO method
resulted in an increase in cost of goods sold and a corresponding decrease in
inventories of $0.4 million and $0.2 million for the three months ended March
31, 2001 and 2002, respectively. Interim LIFO calculations are based on
management's estimates of year-end inventory levels and inflation rates for the
year.
3. EXCISE TAXES
State and provincial excise taxes on cigarettes included in sales and
cost of goods sold were $141.4 million and $153.5 million for the three months
ended March 31, 2001 and 2002, respectively.
4. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No.142, "Goodwill and Other Intangible Assets". SFAS No.
141 requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS No. 142 addresses the initial recognition and measurement of
intangibles assets acquired outside of a business combination and the
recognition and measurement of goodwill and other intangibles assets subsequent
to their acquisition. The Company adopted SFAS No. 142 on January 1, 2002 and
goodwill is no longer being amortized but is required to be tested for
impairment at least annually. The Company is evaluating the impact that the
adoption SFAS No. 142 will have on its financial position, results of operations
and cash flows. The Company will complete the impairment analysis for goodwill
during the second quarter. Goodwill amortization expense totaled $2.1 million
for the fiscal year ended December 31, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." While SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", it retains many of the fundamental provisions of that
Statement. SFAS No. 144 also supersedes the accounting and reporting provision
of APB No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequently Occurring Events and Transactions" for the disposal of a business.
It retains, however, the
6
requirement in APB No. 30 to report separately discontinued operations, and
extends that reporting to a component of an entity that either has been disposed
of or is classified as held for sale. The Company adopted SFAS No. 144 on
January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on
the Company's financial position, results of operations or cash flows.
5. COMPREHENSIVE INCOME
The Company's comprehensive income was $1.0 million and $3.7 million
for the three months ended March 31, 2001 and 2002 respectively, which included
net income and other comprehensive losses related to foreign currency
translation adjustments.
6. SEGMENT INFORMATION
Management has determined that the only reportable segment of the
Company is its wholesale distribution segment, based on the level at which
executive management reviews the results of operations in order to make
decisions regarding performance assessment and resource allocation. There has
been no change in the segment reported or the basis of measurement of segment
profit or loss from that which was reported in the Company's 2001 Form 10-K.
Wholesale distribution segment information for the three months ended March 31
and asset information as of March 31, 2002 is set forth below (dollars in
thousands):
THREE MONTHS
ENDED MARCH 31,
------------------------------
2001 2002
------------ ------------
Net sales from external customers ................... $ 754,266 $ 825,153
Segment pre tax operating income (1) ................ $ 3,625 $ 5,727
Less: Goodwill and other unallocated amortization ... 587 109
Interest expense: unallocated and other .... (915) (1,287)
Amortization of debt refinancing costs ..... 318 318
------------ ------------
Consolidated income before income taxes ............. $ 3,635 $ 6,587
============ ============
Assets MARCH 31,
2002
------------
Segment information ................................... $ 368,585
Add: Corporate and other .............................. 7,880
------------
Consolidated assets ................................... $ 376,465
============
------------
(1) Represents operating income, including allocated interest expense, but
excluding amortization of goodwill and debt refinancing costs, and income taxes.
7. AGREEMENT AND PLAN OF MERGER WITH FLEMING COMPANIES
Core-Mark International, Inc., Fleming Companies, Inc., and Platform
Corporation, a wholly owed subsidiary of Fleming Companies, Inc. entered into an
Agreement and Plan of Merger dated as of April 23, 2002, pursuant to which
Fleming Companies, Inc. will acquire the Company. The consummation of the
transaction is subject to certain conditions being met as described in the
Merger Agreement.
7
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
CORE-MARK INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheets of
Core-Mark International, Inc. and subsidiaries (the "Company") as of December
31, 2000 and 2001, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Core-Mark International, Inc. and
subsidiaries as of December 31, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
SAN FRANCISCO, CALIFORNIA
FEBRUARY 22, 2002
8
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001
(IN THOUSANDS OF DOLLARS)
2000 2001
------------ ------------
ASSETS
Current assets:
Cash .......................................................................... $ 28,129 $ 24,230
Receivables:
Trade accounts, less allowance for doubtful accounts of $2,660 and $3,798,
respectively ................................................................ 109,594 112,166
Other ....................................................................... 17,055 20,002
Inventories, net of LIFO allowance of $46,319 and $51,914, respectively ....... 111,983 128,168
Prepaid expenses and other .................................................... 7,694 8,547
------------ ------------
Total current assets .................................................... 274,455 293,113
Property and equipment:
Equipment ..................................................................... 61,816 66,589
Leasehold improvements ........................................................ 11,138 11,438
------------ ------------
72,954 78,027
Less accumulated depreciation and amortization ................................ (41,888) (45,180)
------------ ------------
Net property and equipment .............................................. 31,066 32,847
Other assets ..................................................................... 9,588 6,497
Goodwill, net of accumulated amortization of $23,540 and $25,623, respectively ... 59,767 57,684
------------ ------------
TOTAL ASSETS ..................................................................... $ 374,876 $ 390,141
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable ........................................................ $ 51,791 $ 63,364
Cigarette and tobacco taxes payable ........................................... 52,933 53,771
Income taxes payable .......................................................... 3,476 4,067
Deferred income taxes ......................................................... 3,759 4,879
Other accrued liabilities ..................................................... 31,851 37,620
------------ ------------
Total current liabilities ............................................... 143,810 163,701
Long-term debt ................................................................... 186,617 163,467
Other accrued liabilities and deferred income taxes .............................. 8,591 12,345
------------ ------------
Total liabilities ....................................................... 339,018 339,513
Commitments and contingencies
Shareholders' equity:
Common stock; $.01 par value; 10,000,000 shares authorized; 5,500,000 shares
issued and outstanding ...................................................... 55 55
Additional paid-in capital .................................................... 26,121 26,121
Retained earnings ............................................................. 16,178 33,688
Accumulated comprehensive loss:
Cumulative currency translation adjustments ................................. (3,836) (5,408)
Additional minimum pension liability ........................................ (2,660) (3,828)
------------ ------------
Total shareholders' equity .............................................. 35,858 50,628
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................... $ 374,876 $ 390,141
============ ============
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
9
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS OF DOLLARS)
1999 2000 2001
------------ ------------ ------------
Net sales ................................ $ 2,838,107 $ 3,035,379 $ 3,425,024
Cost of goods sold ....................... 2,643,069 2,840,334 3,211,160
------------ ------------ ------------
Gross Profit .......................... 195,038 195,045 213,864
Operating and administrative expenses .... 155,128 160,143 169,691
------------ ------------ ------------
Operating income ...................... 39,910 34,902 44,173
Interest expense, net .................... 12,696 12,852 11,121
Amortization of debt refinancing costs ... 1,274 1,274 1,274
------------ ------------ ------------
Income before income taxes ............... 25,940 20,776 31,778
Income tax expense .................... 5,740 9,721 14,268
------------ ------------ ------------
Net income ............................... $ 20,200 $ 11,055 $ 17,510
============ ============ ============
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
10
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
RETAINED
EARNINGS ACCUMULATED
COMMON STOCK ADDITIONAL (ACCUMU- OTHER TOTAL
-------------------------- PAID-IN LATED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) EQUITY INCOME
------------ ------------ ------------ ------------ ------------ ------------ -------------
Balance, December 31, 1998 ...... 5,500,000 $ 55 $ 26,121 $ (15,077) $ (7,237) $ 3,862
Net income ...................... -- -- -- 20,200 -- 20,200 $ 20,200
Additional minimum pension
liability .................... -- -- -- -- 612 612 612
Foreign currency translation
adjustments .................. -- -- -- -- 1,276 1,276 1,276
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 ...... 5,500,000 55 26,121 5,123 (5,349) 25,950 $ 22,088
============
Net income ...................... -- -- -- 11,055 -- 11,055 $ 11,055
Additional minimum pension
liability .................... -- -- -- -- (260) (260) (260)
Foreign currency translation
adjustments .................. -- -- -- -- (887) (887) (887)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 ...... 5,500,000 55 26,121 16,178 (6,496) 35,858 $ 9,908
============
Net income ...................... -- -- -- 17,510 -- 17,510 $ 17,510
Additional minimum pension
liability .................... -- -- -- -- (1,168) (1,168) (1,168)
Foreign currency translation
adjustments .................. -- -- -- -- (1,572) (1,572) (1,572)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 ...... 5,500,000 $ 55 $ 26,121 $ 33,688 $ (9,236) $ 50,628 $ 14,770
============ ============ ============ ============ ============ ============ ============
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
11
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS OF DOLLARS)
1999 2000 2001
------------ ------------ ------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income ................................................. $ 20,200 $ 11,055 $ 17,510
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
LIFO expense ............................................. 5,671 6,316 5,595
Amortization of goodwill ................................. 2,083 2,082 2,083
Depreciation and amortization ............................ 5,829 6,829 7,595
Amortization of debt refinancing fees .................... 1,274 1,274 1,274
Deferred income taxes .................................... (2,828) (916) 3,338
Other .................................................... (683) 1,170 1,451
Changes in operating assets and liabilities:
Increase in trade accounts receivable .................... (260) (5,537) (4,544)
Increase in other receivables ............................ (2,554) (1,886) (3,137)
Increase in inventories .................................. (1,131) (10,010) (22,976)
(Increase) decrease in prepaid expenses and other ........ 319 (8,112) (737)
Increase in trade accounts payable ....................... 1,554 1,221 12,412
Increase (decrease) in cigarette and tobacco taxes
payable ................................................ 13,931 (6,389) 1,633
Increase (decrease) in other accrued liabilities and
income taxes payable ................................... (2,624) 978 6,714
------------ ------------ ------------
Net cash provided by (used in) operating activities ........ 40,781 (1,925) 28,211
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to property and equipment ...................... (6,575) (7,620) (7,916)
------------ ------------ ------------
Net cash used in investing activities ...................... (6,575) (7,620) (7,916)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit
agreement .............................................. (48,789) 16,282 (14,650)
Net borrowings (payments) under accounts receivable
facility ............................................... 6,000 5,000 (8,500)
------------ ------------ ------------
Net cash provided by (used in) financing activities ........ (42,789) 21,282 (23,150)
------------ ------------ ------------
Effects of changes in foreign exchange rates ............... 1,276 (887) (1,044)
------------ ------------ ------------
Increase (decrease) in cash ................................ (7,307) 10,850 (3,899)
Cash, beginning of year .................................... 24,586 17,279 28,129
------------ ------------ ------------
CASH, END OF YEAR ............................................. $ 17,279 $ 28,129 $ 24,230
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
cash payments during the year for:
Interest ................................................. $ 12,451 $ 12,354 $ 11,221
Income taxes ............................................. 7,305 11,159 10,410
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
12
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
1. ORGANIZATION AND FORM OF BUSINESS
Core-Mark International, Inc. and subsidiaries (the "Company") is a
full-service wholesale distributor of tobacco, food and other consumer products
to convenience stores, grocery stores, mass merchandisers and liquor and drug
stores in western North America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
These financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America. This requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Management
considers the allowance for doubtful accounts, inventory reserves,
recoverability of goodwill, and self-insurance obligations to be those estimates
which involve a higher degree of judgments, estimates, and complexity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and all of
its wholly-owned subsidiaries including a Special Purpose Company (SPC) used to
securitize its receivables. All significant intercompany balances and
transactions are eliminated.
FOREIGN CURRENCY
Assets and liabilities of the Company's Canadian operations are
translated at exchange rates in effect at year-end. Income and expenses are
translated at average rates for the year. Adjustments resulting from such
translation are included in cumulative currency translation adjustments in other
comprehensive income (loss), a separate component of shareholders' equity.
EXCISE TAXES
State and provincial excise taxes paid by the Company on cigarettes
were $583.5 million, $597.5 million and $626.5 million, for the years ended
December 31, 1999, 2000 and 2001, respectively, and are included in net sales
and cost of goods sold.
INVENTORIES
Inventories are valued at the lower of cost or market. In the United
States, cost is determined on a last-in, first-out (LIFO) basis using Producer
Price Indices as determined by the Department of Labor and Statistics. Under
LIFO, current costs of goods sold are matched against current sales. Inventories
in Canada amount to $18.6 million and $21.7 million at December 31, 2000 and
2001, respectively, and are valued on a first-in, first-out (FIFO) basis.
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. An increase in cost of goods sold and a
decrease in inventories of $5.7 million, $6.3 million and $5.6 million resulted
from using the LIFO method for the years ended December 31, 1999, 2000 and 2001,
respectively.
The Company provides inventory valuation adjustments for estimated
spoiled, aged, and unrecoverable inventory based on historical shrinkage and
sales experience.
13
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
COST OF GOODS SOLD
Cost of goods sold includes costs of inventory sold during the period,
including product costs net of vendor payment discounts. Vendor allowances and
credits that relate to the Company's buying and merchandising activities are
recognized as a reduction of cost of goods sold as earned.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided on the
straight-line method over the estimated useful lives of owned assets. The
estimated useful lives for equipment are principally 5 to 15 years. Leasehold
improvements are amortized over the estimated useful life of the property or
over the term of the lease, whichever is shorter.
GOODWILL
Goodwill is amortized on a straight-line basis over a forty-year
period. Amortization expense for each of the years ended December 31, 1999, 2000
and 2001 was $2.1 million.
The Company assesses the recoverability of long-lived assets, including
goodwill, by determining whether the amortization of such assets over the
remaining life can be recovered through undiscounted future operating cash flows
of the related operations. Based on this calculation, the Company is of the
opinion that there is no impairment of long-lived assets as of December 31,
2001.
REVENUE RECOGNITION
The Company recognizes revenue at the time the product is shipped, or
the services are provided to the customer. Promotional incentives and discounts
provided to the Companies' customers are recorded as a reduction of net sales as
they are earned.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
SHIPPING AND HANDLING CHARGES
As a wholesale distributor, the Company classifies the costs of
shipping and handling product to its customers as operating and administrative
expenses. The Company's net sales to its customers include markups, which are
designed to cover these costs.
STOCK-BASED COMPENSATION PLAN
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company has adopted
the disclosure-only provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation."
PENSION COSTS AND OTHER POSTRETIREMENT BENEFIT COSTS
Pension costs and other postretirement benefit costs charged to
earnings are determined on the basis of annual valuations by an independent
actuary. Adjustments arising from plan amendments, changes in assumptions and
experience gains and losses are amortized over the expected average remaining
service life of the employee group.
14
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
INCOME TAXES
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", see note 6.
SELF-INSURANCE RESERVES
The Company maintains reserves related to health and welfare and
workers compensation programs that are principally self-insured programs.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," which revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires entities that
have securitized financial assets to provide specific disclosures. SFAS No. 140
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. The Company adopted the standard
effective April 1, 2001, as required. The adoption of SFAS No. 140 did not have
an impact on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be accounted for under
the purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangibles assets
acquired outside of a business combination and the recognition and measurement
of goodwill and other intangibles assets subsequent to their acquisition. The
Company is required to adopt SFAS No. 142 on January 1, 2002 at which time
goodwill will no longer be amortized but will be required to be tested for
impairment at least annually. Intangible assets with definitive useful lives
will be amortized over their useful life and intangible assets with an
indefinite useful life are not amortized, but will rather be tested at least
annually for impairment. The Company is evaluating the impact that the adoption
SFAS No. 142 will have on its financial position, results of operations and cash
flows. Upon implementation of SFAS No. 142, the Company will cease to record
amortization expense, which totaled $2.1 million for the fiscal year ended
December 31, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." While SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", it retains many of the fundamental provisions of that
Statement. SFAS No. 144 also supersedes the accounting and reporting provision
of APB No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequently Occurring Events and Transactions" for the disposal of a business.
It retains, however, the requirement in APB No. 30 to report separately
discontinued operations, and extends that reporting to a component of an entity
that either has been disposed of or is classified as held for sale. SFAS No. 144
is effective for the Company on January 1, 2002. The Company is currently
evaluating the impact that the adoption of SFAS No. 144 will have on its
financial position, results of operations and cash flows.
Effective January 1, 2002, EITF No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products,"
requires that consideration paid to a distributor or retailer to promote the
vendor's products, such as slotting fees or buydowns, generally be characterized
as a reduction of revenue when recognized in the vendor's income statement. The
Company adopted EITF No. 00-25 in 2001 and classified the applicable costs as a
reduction of net sales rather than as selling, general and administrative
expense. The adoption of EITF No. 00-25 did not materially impact the Company's
consolidated financial position, results of operations and cash flows.
15
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. FINANCING
Long-term debt consisted of the following at December 31 (in
thousands):
2000 2001
------------ ------------
Accounts receivable facility .... $ 85,000 $ 76,500
Revolving credit facility ....... 26,617 11,967
Senior subordinated notes ....... 75,000 75,000
------------ ------------
Long-term debt ......... $ 186,617 $ 163,467
============ ============
ACCOUNTS RECEIVABLE FACILITY
On April 1, 1998, the Company entered into a transaction to securitize
its U.S. trade accounts receivable portfolio ("Accounts Receivable Facility").
In connection with this transaction, the Company formed a wholly-owned special
purpose, bankruptcy-remote subsidiary (the "Special Purpose Company" or "SPC"),
to which the U.S. trade accounts receivable originated by the Company are sold
or contributed, without recourse, pursuant to a receivables sale agreement. The
receivables have been assigned, with a call option by the SPC, to a trust formed
pursuant to a pooling agreement. On April 1, 1998, the SPC issued two classes of
term certificates with an aggregate principal value of $55 million, and variable
certificates of up to $30 million representing fractional undivided interests in
the receivables and the proceeds thereof. The SPC is included in the Company's
consolidated financial position and results of operations, and therefore all
assets and liabilities of the SPC are reflected on the consolidated balance
sheet of the Company.
On a daily basis, collections related to sold receivables are
administered by the Company acting as servicer, pursuant to a servicing
agreement. Pursuant to supplements to the pooling agreement, certificate
holders' accrued interest expense and other securitization expenses are reserved
out of daily collections, before such remaining collections are returned to the
Company by the SPC to pay for the SPC's purchase of newly originated receivables
from the Company. The revolving period of the securitization expires in January
2003, or earlier if an early amortization event, as defined in the pooling
agreement, occurs.
The interest rate on the fixed term certificates is 0.28% (Class A) and
0.65% (Class B) above the Eurodollar Rate which was 1.87% as of December 31,
2001. The interest rate on the variable certificates is 0.25% above the
commercial paper rate (as defined in the securitization agreement), which was
1.78% as of December 31, 2001. There is a commitment fee and facility fee of
0.375% and 0.1%, respectively, on the total value of available variable
certificates. As of December 31, 2001, the amount outstanding under the Accounts
Receivable Facility was $76.5 million, with sufficient collateral to borrow an
additional $8.5 million, the limit under this facility.
REVOLVING CREDIT FACILITY
In connection with the securitization of accounts receivable, on April
1, 1998, the Company amended its Revolving Credit Facility. The amendment
reduced the Revolving Credit Facility from $175 million to $120 million,
extended the maturity from June 30, 2001 through April 1, 2003, and reduced
interest rates. The Revolving Credit Facility initially provided for aggregate
borrowings of up to $210.0 million, consisting of: (i) a $35.0 million term
loan, which was repaid in 1996, and (ii) a revolving credit facility (the
"Revolving Credit Facility") under which borrowings in the amount of up to
$175.0 million were available for working capital and general corporate
purposes. Borrowings under this facility remain subject to borrowing base
limitations based upon levels of eligible inventories, accounts receivable,
other receivables and cash. Included in this facility are letters of credit up
to a maximum of $40.0 million.
Under the Revolving Credit Facility, the Company must maintain certain
financial covenants as prescribed in the credit agreement, including, but not
limited to, current ratio, net worth, leverage and interest coverage, and
operating income before certain non-cash items. The Revolving Credit Facility
limits certain activities of the
16
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company, including, but not limited to, indebtedness, creation of liens,
acquisitions and dispositions, capital expenditures, investments and dividends.
Under the Revolving Credit Facility the Company has the option to
borrow under: (i) Revolving Credit Loans, which prior to the amendment, bore
interest at 1.5% above the bank's Prime Rate; or (ii) Eurodollar Loans, which
prior to the amendment, bore interest at 2.5% above the bank's Eurodollar Rate.
The amendment reduced interest rates to 1.0% above the Prime Rate, and to 2.0%
above the Eurodollar Rate, as defined in the amendment. The Company has the
ability to further reduce interest rates based on certain leverage ratio
criteria as defined in the amendment. Based on this criteria, the Company
reduced its interest rates, effective October 1, 1998, to 0.75% above the Prime
Rate and 1.75% above the Eurodollar Rate and again effective March 16, 1999, to
0.25% above the Prime Rate and 1.25% above the Eurodollar Rate, which are the
rates in effect at December 31, 2001. The bank's Prime Rate and Eurodollar Rate
was 4.75% and 1.87%, respectively, at December 31, 2001.
As of December 31, 2001, the amount outstanding under the Revolving
Credit Facility was $12.0 million, with a sufficient borrowing base to draw an
additional $108.0 million, the limit under this facility. There is a commitment
fee of 0.325% on the unused portion of the Revolving Credit Facility. The
obligations are secured by all assets of the Company, with the exception of U.S.
trade accounts receivable, which are utilized to support the Accounts Receivable
Facility.
The Company had letters of credit of $3.4 million and $5.3 million
outstanding at December 31, 2000 and 2001, respectively. The letters of credit
are issued primarily to secure the Company's bond and insurance programs. The
Company pays fees of 1.25% per annum on the outstanding portion of letters of
credit. Prior to the amendment these fees were 2.50% per annum.
The net result of the (i) securitization of the Company's U.S. trade
accounts receivable portfolio and (ii) the modification of the Revolving Credit
Facility was to lower the Company's cost of borrowings, and to increase its
variable-rate borrowing capacity from $175 million to $205 million. The Company
incurred approximately $1.6 million for legal, professional and other costs
related to the transactions described above. These costs were capitalized and
classified as other assets and are being amortized over the term of these
facilities.
SENIOR SUBORDINATED NOTES
On September 27, 1996, the Company issued $75.0 million of 11 3/8%
Senior Subordinated Notes (the "Notes") which mature on September 15, 2003.
Interest on the Notes is payable semi-annually on March 15 and September 15 of
each year. The Notes limit certain activities of the Company, including, but not
limited to, changes in control, incurrence of indebtedness, creation of liens,
acquisitions and dispositions, investments and dividends.
MATURITY OF LONG-TERM DEBT IN 2003
The revolving period of the Accounts Receivable Facility expires in
January 2003. This facility is structured such that, upon expiration, the
subsequent collections of U.S. trade receivables are used to pay the outstanding
balance until it is paid in full. The Revolving Credit Facility expires on April
30, 2003. The Senior Subordinated notes mature on September 15, 2003. The
Company intends to refinance all outstanding long-term debt prior to their
maturities and is currently exploring alternatives. These alternatives include
arrangements similar to existing arrangements such as a new accounts receivable
securitization, a revolving facility, new senior subordinated notes, as well as
other financing vehicles. Depending on the market conditions at the time of the
refinancing, the terms obtained by the Company may, or may not be as favorable
as the current terms.
17
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases the majority of its sales and warehouse distribution
facilities, automobiles and trucks under lease agreements expiring at various
dates through 2011, excluding renewal options. The leases generally require the
Company to pay taxes, maintenance and insurance. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.
Future minimum rental payments under non-cancelable operating leases
(with initial or remaining lease terms in excess of one year) were as follows as
of December 31, 2001 (in thousands):
2002................................................................ $ 12,242
2003................................................................ 10,409
2004................................................................ 8,908
2005................................................................ 7,473
2006................................................................ 6,420
Thereafter.......................................................... 9,264
-----------
Total minimum lease payments............................... $ 54,716
===========
Rental expense for operating leases was $14.4 million, $15.3 million
and $16.1 million for the years ended December 31, 1999, 2000 and 2001,
respectively.
CLAIMS AND ASSESSMENTS
The Company is a defendant to claims arising in the ordinary course of
business. Management believes that the disposition of these matters will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
5. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company sponsors a qualified pension plan and a non-pension
postretirement benefit plan for employees hired before September 1986. The
following tables provide a reconciliation of the changes in the plans' benefit
obligations and fair value of assets over the two-year period ending December
31, 2001, and a statement of the December 31 funded status for both years (in
thousands):
PENSION BENEFITS OTHER BENEFITS
------------------------------ ------------------------------
2000 2001 2000 2001
------------ ------------ ------------ ------------
Benefit Obligation Reconciliation
January 1 obligation .......................... $ 14,512 $ 14,936 $ 1,927 $ 2,201
Service cost .................................. -- -- 35 39
Interest cost ................................. 1,123 1,140 161 164
Participant contributions ..................... -- -- 40 37
Actuarial loss ................................ 433 1,123 221 83
Benefit payments .............................. (1,132) (1,182) (183) (132)
------------ ------------ ------------ ------------
December 31 obligation ........................ $ 14,936 $ 16,017 $ 2,201 $ 2,392
============ ============ ============ ============
18
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
PENSION BENEFITS OTHER BENEFITS
------------------------------ ------------------------------
2000 2001 2000 2001
------------ ------------ ------------ ------------
Fair Value Of Plan Assets Reconciliation
January 1 fair value of plan assets ........... $ 13,730 $ 13,462 $ -- $ --
Actual return on plan assets .................. 864 6 -- --
Employer contributions ........................ -- 722 143 95
Participant contributions ..................... -- -- 40 37
Benefit payments .............................. (1,132) (1,182) (183) (132)
------------ ------------ ------------ ------------
December 31 fair value of plan assets ......... $ 13,462 $ 13,008 $ -- $ --
============ ============ ============ ============
Funded Status
December 31 funded status ..................... $ (1,474) $ (3,009) $ (2,201) $ (2,392)
Unrecognized:
Unamortized prior service cost .............. -- -- (134) (117)
Actuarial loss .............................. 2,833 4,764 770 788
------------ ------------ ------------ ------------
Net amount recognized ......................... $ 1,359 $ 1,755 $ (1,565) $ (1,721)
============ ============ ============ ============
The following table provides the amounts recognized in the Company's
consolidated balance sheets as of December 31 (in thousands):
PENSION BENEFITS OTHER BENEFITS
-------------------------- --------------------------
2000 2001 2000 2001
---------- ---------- ---------- ----------
Accrued benefit liability ................ $ (1,474) $ (3,009) $ (1,565) $ (1,721)
Additional minimum pension liability ..... 2,833 4,764 -- --
---------- ---------- ---------- ----------
Net amount recognized .................... $ 1,359 $ 1,755 $ (1,565) $ (1,721)
========== ========== ========== ==========
The following table provides components of the net periodic pension and
other benefit cost for fiscal years 1999, 2000 and 2001 (in thousands):
PENSION BENEFITS OTHER BENEFITS
------------------------------------------ ------------------------------------------
1999 2000 2001 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
Service cost ...................... $ -- $ -- $ -- $ 26 $ 35 $ 39
Interest cost ..................... 1,093 1,123 1,140 140 161 164
Expected return on plan assets .... (1,078) (988) (989) -- -- --
Amortization of:
Prior service cost ............. -- -- -- (17) (17) (17)
Net actuarial loss ............. 141 124 176 58 83 64
---------- ---------- ---------- ---------- ---------- ----------
Net periodic benefit cost ......... $ 156 $ 259 $ 327 $ 207 $ 262 $ 250
========== ========== ========== ========== ========== ==========
The amount included within accumulated other comprehensive income
(loss) in the Company's consolidated statement of shareholders' equity was
$3,828,000 at December 31, 2001 and $2,660,000 at December 31, 2000, which is
net of income taxes.
The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and market-related value
of assets are amortized over the average remaining service period of active
participants.
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table:
19
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
PENSION BENEFITS OTHER BENEFITS
--------------------------- ------------------------------
1999 2000 2001 1999 2000 2001
------ ------ ------- ------- ------- -------
December 31 weighted-average assumptions:
Discount rate 8.00% 7.75% 7.25% 8.00% 7.75% 7.25%
Expected return on plan assets 7.50 7.50 7.50 N/A N/A N/A
Rate of compensation increase N/A N/A N/A N/A N/A N/A
For measurement purposes, a 9% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999, 8% for 2000
and 7% for 2001. The rate was assumed to decrease gradually each year to a rate
of 6% for 2002 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plans. A 1% change in
assumed health care cost trend rates would have the following effects (dollars
in thousands):
1%
------------------------------
INCREASE DECREASE
----------- ------------
Effect on total of service and interest cost components of net periodic
postretirement health care benefit cost................................... $27 $(22)
Effect on the health care component of the accumulated postretirement benefit
obligation................................................................ 480 (380)
SAVINGS PLANS
The Company maintains defined contribution plans in the United States,
subject to Section 401(k) of the Internal Revenue Code, and in Canada, subject
to the Department of National Revenue Taxation Income Tax Act. Eligible
employees may elect to contribute on a tax-deferred basis from 1% to 22%, and
from 1% to 18% of their compensation in the U.S. and Canada, respectively. A
contribution of up to 6% is considered to be a "basic contribution" and the
Company makes a matching contribution of $0.50 for each dollar of a
participant's basic contribution. The Company's contributions to the plans were
$1,145,000, $1,203,000 and $1,241,000 for 1999, 2000 and 2001, respectively.
STOCK-BASED COMPENSATION PLAN
During 1997, the Company adopted a Stock Option Plan ("Option Plan")
for its key employees, which provides for equity-based incentive awards. Upon
adoption of the Option Plan, the Company had 300,000 options available for
granting. Granted options vest over five years and become exercisable after
eight years, with certain exercise acceleration provisions, including a change
of control of the Company or an initial public stock offering. The Company
issues options to employees with a grant price equal to the fair value.
Accordingly, no compensation expense has been recognized on the Company's Option
Plan.
A summary of the Company's option activity and related information is
as follows:
1999 2000 2001
---------- ---------- ----------
Options outstanding, beginning of the year ... 215,000 239,700 238,700
Granted ................................... 33,000 8,000 24,000
Forfeitures ............................... (8,300) (9,000) (1,200)
---------- ---------- ----------
Options outstanding, end of year ............. 239,700 238,700 261,500
========== ========== ==========
Options exercisable at end of year ........... -- -- --
Options available for grant at end of year ... 60,300 61,300 38,500
20
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The weighted-average exercise price of the Company's granted options
for each of the years ended December 31, 1999, 2000 and 2001 was $13.18, $14.00
and $16.00, respectively. The Company's options outstanding at December 31, 2001
range in exercise price from $10.00 to $16.00, with a weighted-average exercise
price of $11.06 and a weighted-average remaining contractual life of 3.8 years.
Pro forma information regarding net income is required by SFAS 123, and
has been determined as if the Company had recorded compensation cost based on
the fair value of the awards at the grant dates. The fair value for the options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions: risk free interest rate of 6.46% for 1999, 5.29%
for 2000 and 4.57% for 2001; volatility of 0.00%; dividend yield of 0.00%; and
an expected life of the option of 4 years for 1999, 3 years for 2000 and 2 years
for 2001. The weighted-average estimated fair value per option granted in 1999,
2000 and 2001, was $2.96, $2.03 and $1.38, respectively. For the purpose of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting period. Based on these assumptions, pro forma
net income for 1999, 2000 and 2001 would have been $20,074,000, $10,928,000 and
$17,367,000, respectively.
6. INCOME TAXES
The Company's income tax expense consists of the following for the
years ended December 31 (in thousands):
1999 2000 2001
--------------- --------------- ---------------
Current:
Federal ....................................................... $ 6,313 $ 8,380 $ 8,333
State ......................................................... 1,804 1,801 2,048
Foreign ....................................................... 451 417 549
--------------- --------------- ---------------
8,568 10,598 10,930
Deferred:
Federal ....................................................... 3,193 (375) 2,860
State ......................................................... 63 (396) 243
Foreign ....................................................... 155 155 194
--------------- --------------- ---------------
3,411 (616) 3,297
Increase (decrease) in valuation allowance ....................... (6,239) (261) 41
--------------- --------------- ---------------
Income tax expense ............................................... $ 5,740 $ 9,721 $ 14,268
=============== =============== ===============
A reconciliation between the Company's income tax expense and income
taxes computed by applying the statutory federal income tax rate to income
before income taxes is as follows for the years ended December 31 (in
thousands):
1999 2000 2001
--------------- --------------- ---------------
Expected federal income tax expense at the statutory rate ........ $ 9,079 $ 7,272 $ 11,122
Increase (decrease) in taxes resulting from:
Goodwill amortization ......................................... 692 692 692
State income tax expense, net of federal tax benefit .......... 1,214 913 1,489
Change in valuation allowances ................................ (6,239) (261) 41
Other, net ....................................................... 994 1,105 924
--------------- --------------- ---------------
Income tax expense ............................................... $ 5,740 $ 9,721 $ 14,268
=============== =============== ===============
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The tax effects of
significant temporary differences which comprise deferred tax assets and
liabilities are as follows at December 31 (in thousands):
21
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2000 2001
---------- ----------
Deferred tax assets:
Net operating loss carryforwards ........................ $ 6,220 $ 5,237
Employee benefits, including postretirement benefits .... 3,814 5,118
Other ................................................... 4,512 4,301
---------- ----------
Total deferred tax assets ............................. 14,546 14,656
Less valuation allowance ................................ (653) (694)
---------- ----------
Net deferred tax assets ............................... 13,893 13,962
---------- ----------
Deferred tax liabilities:
Inventories ............................................. 6,350 7,951
Property & equipment .................................... 3,898 4,441
Other ................................................... 8,878 9,309
---------- ----------
Total deferred tax liabilities ........................ 19,126 21,701
---------- ----------
Net deferred tax liabilities .......................... $ 5,233 $ 7,739
========== ==========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. At each balance sheet date, a
valuation allowance has been established against the deferred tax assets based
on management's assessment. Prior to 1999, the Company had a significant
valuation allowance that reduced certain deferred tax assets, based upon
management's assessment that it was more likely than not that these deferred tax
assets would not be realized. However, as a result of the Company's strong
earnings history, management concluded in 1999 that the tax benefits related to
future deductions, including net operating loss carryforwards, were more likely
than not to be realized, and therefore reduced the valuation allowance by $6.2
million. At December 31, 2001, the Company had $0.7 million of valuation
allowance remaining on its balance sheet.
At December 31, 2001, the Company has available for U.S. federal income
tax return purposes net operating losses totaling approximately $15.2 million,
subject to certain limitations, which will expire between the years 2005 and
2007. The Company also has available for U.S. income tax return purposes
alternative minimum tax credits totaling $1.1 million, which have an indefinite
utilization period.
7. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for the Company's cash, trade accounts receivable,
other receivables, trade accounts payable, cigarette and tobacco taxes payable
and other accrued liabilities approximates fair market value because of the
short maturity of these financial instruments.
The carrying amount of the Revolving Credit Facility and Accounts
Receivable Facility, which are variable rate instruments, approximates fair
market value. The rate of interest, which is tied to either the bank's Prime
Rate or Eurodollar Rate or the commercial paper rate, fluctuates with market
conditions. The fair value of the Notes, calculated based on quoted market
prices, was $71,250,000 and $72,000,000 at December 31, 2000 and 2001,
respectively. The Company's Notes are very thinly traded, and the prices used to
determine the fair value of the Notes, while based on actual transactions, may
or may not be indicative of prices received for larger dollar transactions.
8. SEGMENT INFORMATION
The Company is a broad-line, full service wholesale distributor of
packaged consumer products to the convenience retail industry in western North
America, with revenues generated from the sale of cigarettes, tobacco products,
candy, food, health and beauty aids and general merchandise. The Company's
principal customers include traditional and petroleum convenience stores,
grocery stores, drug stores, mass merchandisers and liquor stores. Management
has determined that the only reportable segment of the Company is its wholesale
distribution segment, based on the level at which executive management reviews
the results of operations in order to make decisions
22
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
regarding performance assessment and resource allocation. Wholesale distribution
segment information as of and for the years ended December 31 is set forth below
(dollars in thousands):
1999 2000 2001
------------- ------------- -------------
Net sales from external customers.......................... $ 2,838,107 $ 3,035,379 $ 3,425,024
Segment depreciation and amortization expense (1).......... 5,647 6,544 7,299
Segment interest expense................................... 12,980 13,816 16,623
Segment pre-tax operating income (2)....................... 29,195 23,454 29,928
Capital expenditures....................................... 6,575 7,620 7,916
Segment assets............................................. 338,038 362,593 382,015
(1) Represents depreciation of property and equipment, and amortization of
certain deferred assets that are shown as an expense in arriving at
segment pre-tax operating income.
(2) Represents operating income, including allocated interest expense, but
excluding amortization of goodwill and debt refinancing costs, and
income taxes.
A reconciliation of certain of the segment information reported above,
to the applicable items in the consolidated financial statements are as follows
(in thousands):
INCOME BEFORE INCOME TAXES
1999 2000 2001
---------- ---------- ----------
Segment information........................................ $ 29,195 $ 23,454 $ 29,928
Less: Goodwill and other unallocated amortization......... 2,265 2,368 2,378
Interest expense: unallocated and other................ (284) (964) (5,502)
Amortization of debt refinancing costs.................. 1,274 1,274 1,274
---------- ---------- ----------
Consolidated total......................................... $ 25,940 $ 20,776 $ 31,778
========== ========== ==========
INTEREST EXPENSE
1999 2000 2001
---------- ---------- ----------
Segment information........................................ $ 12,980 $ 13,816 $ 16,623
Add: Unallocated and other................................ (284) (964) (5,502)
---------- ---------- ----------
Consolidated total......................................... $ 12,696 $ 12,852 $ 11,121
========== ========== ==========
DEPRECIATION AND AMORTIZATION
1999 2000 2001
---------- ---------- ----------
Segment information........................................ $ 5,647 $ 6,544 $ 7,299
Add: Unallocated and other................................ 182 285 296
---------- ---------- ----------
Consolidated total......................................... $ 5,829 $ 6,829 $ 7,595
========== ========== ==========
23
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
ASSETS
2000 2001
---------- ----------
Segment information........................................ $ 362,593 $ 382,015
Add: Corporate assets..................................... 12,283 8,126
---------- ----------
Consolidated total......................................... $ 374,876 $ 390,141
========== ==========
The Company operates in the United States and Canada. Foreign and
domestic net sales and identifiable assets are as follows as of and for the
years ended December 31, (in thousands):
1999 2000 2001
------------- ------------- -------------
Net Sales:
United States........................................... $ 2,371,252 $ 2,565,330 $ 2,932,500
Canada.................................................. 466,855 470,049 492,524
------------- ------------- -------------
Total $ 2,838,107 $ 3,035,379 $ 3,425,024
============= ============= =============
Identifiable Assets:
United States........................................... $ 323,733 $ 339,665
Canada.................................................. 38,860 42,350
Corporate............................................... 12,283 8,126
------------- -------------
Total................................................... $ 374,876 $ 390,141
============= =============
24
(b) Pro Forma Financial Information.
The following pro forma consolidated information has been derived by
the application of pro forma adjustments to the consolidated financial
statements of (i) Fleming as of April 20, 2002 and Core-Mark as of March 31,
2002; (ii) Fleming for the 52 weeks ended December 29, 2001 and Core-Mark for
the 12 months ended December 31, 2001; (iii) Fleming for the 16 weeks ended
April 20, 2002 and Core-Mark for the three months ended March 31, 2002; and (iv)
Fleming for the 52 weeks ended April 20, 2002 and Core-Mark for the 12 months
ended March 31, 2002.
The pro forma consolidated balance sheet gives effect to Fleming's
proposed acquisition of Core-Mark (the "Acquisition") for approximately $295
million in cash, plus Fleming's assumption of all of Core-Mark's net debt
outstanding as of the closing of the Acquisition (which we currently expect to
be approximately $95 million, for a total purchase price of approximately $390
million) and the related financing transactions (together with the Acquisition,
the "Transactions") as if they had occurred as of April 20, 2002. The pro forma
consolidated statements of income give effect to the Acquisition and the related
financing transactions as if they had occurred (i) on December 31, 2000, with
respect to the pro forma consolidated statement of income for the 52 weeks ended
December 29, 2001; (ii) on December 30, 2001, with respect to the pro forma
consolidated statement of income for the 16 weeks ended April 20, 2002; and
(iii) on April 22, 2001, with respect to the pro forma consolidated statement of
income for the 52 weeks ended April 20, 2002. The adjustments necessary to
fairly present this pro forma consolidated financial information have been made
based on available information and in the opinion of Fleming's management are
reasonable and are described in the accompanying notes. This pro forma
information reflects our assumption that the Acquisition will be financed by a
combination of borrowings under a new credit facility and potential public
offerings of debt and equity. The pro forma consolidated financial information
should not be considered indicative of actual results that would have been
achieved had the Acquisition and the related financing transactions been
consummated on the respective dates indicated and do not purport to indicate
balance sheet data or income statement data as of any future date or for any
future period. We cannot assure you that the assumptions used in the preparation
of the pro forma consolidated financial information will prove to be correct.
The pro forma adjustments were applied to the historical consolidated
financial statements to reflect and account for the Acquisition and the related
financing transactions. As a result, these adjustments have no impact on the
historical basis of the assets and liabilities. Our purchase of Core-Mark is
not complete. We expect to complete the Acquisition in June, 2002. Our
allocation of the agreed-upon purchase price will depend on the fair values of
the assets and liabilities at the date of the Acquisition. Our final allocation
of purchase price may differ from this presentation due to potential changes in
working capital, our fair value analysis of leases, and the appraisal results
for identifiable intangibles.
25
PRO FORMA COMBINING BALANCE SHEET INFORMATION
FOR FLEMING AS OF APRIL 20, 2002
(IN THOUSANDS)
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
Assets
Current Assets:
Cash and cash equivalents $ 3,974 $ 23,542 $ (23,000)(a) $ 4,516
Cash held by Trustee for refinancing 263,125 263,125
Receivables, net 588,321 130,902 -- 719,223
Inventories 954,174 118,278 52,133 (b) 1,124,585
Assets held for sale 28,666 -- -- 28,666
Other current assets 76,169 8,610 (27,804)(c) 56,975
----------- --------- --------- -----------
Total current assets 1,914,429 281,332 1,329 2,197,090
Investments and notes receivable, net 102,073 -- -- 102,073
Investment in direct financing leases 76,941 -- -- 76,941
Property and equipment 1,676,372 77,970 (46,555)(d) 1,707,787
Less accumulated depreciation and amortization (734,388) (46,555) 46,555 (d) (734,388)
----------- --------- --------- -----------
Net property and equipment 941,984 31,415 -- 973,399
Other assets 233,693 6,034 74,917 (e) 314,644
Goodwill, net 554,388 57,684 166,122 (f) 778,194
----------- --------- --------- -----------
Total assets $ 3,823,508 $ 376,465 242,368 $ 4,442,341
=========== ========= ========= ===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 835,205 $ 114,972 $ -- $ 950,177
Current maturities of long-term debt 39,747 76,000 (76,000)(g) 39,747
Current obligations under capital leases 21,751 -- -- 21,751
Debt to be refinanced 263,125 -- -- 263,125
Other current liabilities 183,711 43,622 (4,869)(h) 222,464
----------- --------- --------- -----------
Total current liabilities 1,343,539 234,594 (80,869) 1,497,264
Long-term debt 1,527,016 75,000 189,946 (i) 1,791,962
Long-term obligations under capital leases 328,295 -- -- 328,295
Other liabilities 106,749 12,527 (2,334)(j) 116,942
Shareholders' equity:
Common stock 111,661 55 19,945 (k) 131,661
Capital in excess of par value 562,235 26,121 143,848 (k) 732,204
Reinvested earnings (deficit) (96,551) 37,443 (37,443)(k) (96,551)
Accumulated other comprehensive income--
Cumulative currency translation adjustments -- (5,447) 5,447 (k) --
Additional minimum pension liability (59,436) (3,828) 3,828 (k) (59,436)
----------- --------- --------- -----------
Total shareholders' equity 517,909 54,344 135,625 707,878
----------- --------- --------- -----------
Total liabilities and shareholders' equity $ 3,823,508 $ 376,465 $ 242,368 $ 4,442,341
=========== ========= ========= ===========
26
NOTES TO UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of the transactions on
Fleming's Consolidated Balance Sheet as of April 20, 2002, the following
pro forma adjustments have been made:
(a) Cash and cash equivalents -
Reflect Core-Mark cash used to reduce debt $ (23,000)
=========
(b) Inventories:
Eliminate Core-Mark LIFO inventory reserve - offset to deferred tax $ 20,853
Eliminate Core-Mark LIFO inventory reserve - offset to goodwill 31,280
---------
$ 52,133
=========
(c) Other current assets:
Reclass Core-Mark current deferred tax liability to Fleming current deferred tax asset $ (4,869)
Eliminate Core-Mark LIFO inventory reserve (see note (b)) (20,853)
Eliminate Core-Mark prepaid pension amount (2,082)
---------
$ (27,804)
=========
(d) Property and equipment:
Offset Core-Mark accumulated depreciation and amortization against cost of
property and equipment with our initial assumption that net book value
approximates fair value $ (46,555)
Eliminate Core-Mark accumulated depreciation and amortization 46,555
---------
$ --
=========
(e) Other assets:
Reclass Core-Mark long-term deferred tax liability to Fleming long-term deferred tax asset $ (3,005)
Eliminate existing Core-Mark deferred financing costs due to early debt retirement (1,501)
Reflect estimated financing costs from the debt portion of the transaction 24,407
Reflect deferred tax adjustment on Core-Mark pension liability (936)
Reflect estimate of other intangibles acquired as a result of this transaction 55,952
---------
$ 74,917
=========
(f) Goodwill, net:
Eliminate existing Core-Mark net goodwill $ (57,684)
Reflect goodwill from this transaction 223,806
---------
$ 166,122
=========
(g) Current maturities of long-term debt -
Reflect payment of existing Core-Mark debt $ (76,000)
=========
(h) Other current liabilities -
Reclass Core-Mark current deferred tax liability to Fleming current deferred tax asset $ (4,869)
(see note (c)) =========
27
(i) Long-term debt:
Payment of existing Core-Mark debt $ (75,000)
Reflect redemption premium on existing Core-Mark debt 2,133
Reflect new financing to fund the transaction 223,000
Reflect estimated transaction fees:
Debt (see note (e)) 24,407
Equity (see note (k)) 10,031
Merger and acquisition 5,375
---------
$ 189,946
=========
(j) Other liabilities:
Reclass Core-Mark long-term deferred tax liability
to Fleming long-term deferred tax asset (see note (e)) $ (3,005)
Adjust Core-Mark post-retirement liability 671
---------
$ (2,334)
=========
(k) Shareholders' equity:
Eliminate Core-Mark common stock $ (55)
Issue Fleming common stock ($2.50 par value, 8,000 shares) 20,000
---------
19,945
Eliminate Core-Mark common stock - excess capital impact (26,121)
Issue Fleming common stock - excess capital impact ($25 per share less par value,
8,000 shares) 180,000
Reflect equity transaction fees (10,031)
---------
143,848
Eliminate Core-Mark retained earnings (37,443)
Eliminate Core-Mark currency translation adjustments 5,447
Eliminate Core-Mark additional minimum pension liability 3,828
---------
$ 135,625
=========
28
PRO FORMA COMBINING INCOME STATEMENT INFORMATION
FOR FLEMING 52 WEEKS ENDED DECEMBER 29, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ------------
Net sales $ 15,558,102 $3,425,024 $ -- $ 18,983,126
Costs and expenses (income):
Cost of sales 14,368,199 3,211,160 76,680 (a) 17,656,039
Selling and administrative 960,590 169,691 (61,978)(b) 1,068,303
Interest expense 165,534 12,395 10,655 (c) 188,584
Interest income and other (24,053) -- (834)(d) (24,887)
Impairment/restructuring credit (23,595) -- -- (23,595)
Litigation charge 48,628 -- -- 48,628
------------ ---------- ---------- ------------
Total costs and expenses 15,495,303 3,393,246 24,523 18,913,072
------------ ---------- ---------- ------------
Income before taxes 62,799 31,778 (24,523) 70,054
Taxes on income 36,022 14,268 (15,009)(e) 35,281
------------ ---------- ---------- ------------
Income before extraordinary charge 26,777 17,510 (9,514) 34,773
Extraordinary charge from early retirement
of debt (net of taxes) (3,469) -- -- (3,469)
------------ ---------- ---------- ------------
Net income $ 23,308 $ 17,510 $ (9,514) $ 31,304
============ ========== ========== ============
Basic income per share:
Income before extraordinary charge $ 0.63 $ 0.69
Extraordinary charge from early retirement
of debt (net of taxes) (0.08) (0.07)
------------ ------------
Net income $ 0.55 $ 0.62
============ ============
Diluted income per share:
Income before extraordinary charge $ 0.60 $ 0.66
Extraordinary charge from early retirement
of debt (net of taxes) (0.08) (0.07)
------------ ------------
Net income $ 0.52 $ 0.59
============ ============
Weighted average shares outstanding:
Basic 42,588 8,000 (f) 50,588
Diluted 44,924 8,000 (g) 52,924
29
PRO FORMA COMBINING INCOME STATEMENT INFORMATION
FOR FLEMING 16 WEEKS ENDED APRIL 20, 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
Net sales $ 4,686,139 $ 825,153 $ -- $ 5,511,292
Costs and expenses (income):
Cost of sales 4,346,460 774,297 18,711 (a) 5,139,468
Selling and administrative 255,012 41,463 (17,312)(b) 279,163
Interest expense 50,413 2,806 4,286 (c) 57,505
Interest income and other (6,966) -- (141)(d) (7,107)
----------- ----------- ----------- -----------
Total costs and expenses 4,644,919 818,566 5,544 5,469,029
----------- ----------- ----------- -----------
Income before taxes 41,220 6,587 (5,544) 42,263
Taxes on income 16,611 2,832 (2,415)(e) 17,028
----------- ----------- ----------- -----------
Net income $ 24,609 $ 3,755 $ (3,129) $ 25,235
=========== =========== =========== ===========
Basic income per share $ 0.56 $ 0.48
=========== ===========
Diluted income per share $ 0.52 $ 0.46
=========== ===========
Weighted average shares outstanding:
Basic 44,175 8,000(f) 52,175
Diluted 50,601 8,000(g) 58,601
30
PRO FORMA COMBINING INCOME STATEMENT INFORMATION
FOR FLEMING 52 WEEKS ENDED APRIL 20, 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
FLEMING CORE-MARK ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
Net sales $ 16,106,882 $ 3,495,911 $ -- $ 19,602,793
Costs and expenses (income):
Cost of sales 14,943,544 3,280,336 77,425 (a) 18,301,305
Selling and administrative 898,289 169,004 (64,999)(b) 1,002,294
Interest expense 158,445 11,841 11,209 (c) 181,495
Interest income and other (22,098) -- (736)(d) (22,834)
Impairment/restructuring charge 3,264 -- -- 3,264
Litigation charge 48,628 -- -- 48,628
------------ ------------ ------------ ------------
Total costs and expenses 16,030,072 3,461,181 22,899 19,514,152
------------ ------------ ------------ ------------
Income before taxes 76,810 34,730 (22,899) 88,641
Taxes on income 40,890 15,467 (13,467)(e) 42,890
------------ ------------ ------------ ------------
Net income $ 35,920 $ 19,263 $ (9,432) $ 45,751
============ ============ ============ ============
Basic income per share $ 0.82 $ 0.88
============ ============
Diluted income per share $ 0.79 $ 0.85
============ ============
Weighted average shares outstanding:
Basic 43,813 8,000(f) 51,813
Diluted 50,866 3,045(g) 53,911
31
NOTES TO UNAUDITED PRO FORMA COMBINING INCOME STATEMENTS
(DOLLARS IN THOUSANDS)
Fleming's Financial Statements for the 52 weeks ended December 29, 2001 reflect
the retroactive reclassification to decrease net sales and cost of sales by
approximately $70 million with no effect on gross margin due to the adoption of
EITF 01-9. Core-Mark early adopted EITF 01-9 in 2001.
For the purpose of determining the pro forma effect of the transactions on
Fleming's Consolidated Income Statement for the 52 weeks ended April 20, 2002,
the Consolidated Income Statement information for Fleming's 16 weeks ended April
20, 2002 was combined with the Consolidated Income Statement information for
Fleming's 52 weeks ended December 29, 2001, and the Consolidated Income
Statement information for Fleming's 16 weeks ended April 21, 2001 was
subtracted. Fleming has presented information for the 52 weeks ended April 20,
2002 because Fleming's first quarter of 2001 includes results related to our
disposition of conventional retail operations.
For the purpose of determining the pro forma effect of the transactions on
Fleming's Consolidated Income Statements for the 52 weeks ended December 29,
2001, the 16 weeks ended April 20, 2002 and the 52 weeks ended April 20, 2002,
the following pro forma adjustments have been made:
(a) The adjustment to cost of sales reflects the following:
FLEMING 52 WEEKS FLEMING 16 FLEMING 52
ENDED DECEMBER 29, WEEKS ENDED WEEKS ENDED
2001 APRIL 20, 2002 APRIL 20, 2002
------------------ -------------- ---------------
Reclass Core-Mark distribution and warehouse expense from
selling and administrative (see note (b))............ $ 76,680 $ 18,711 $ 77,425
========== ========== ========
32
(b) The adjustment to selling and administrative reflects the following:
FLEMING 52 WEEKS FLEMING 16 FLEMING 52
ENDED DECEMBER 29, WEEKS ENDED WEEKS ENDED
2001 APRIL 20, 2002 APRIL 20, 2002
------------------ -------------- ---------------
Reclass Core-Mark distribution and warehouse expense to cost
of sales (see note (a)).......................................... $(76,680) $ (18,711) $(77,425)
Eliminate Core-Mark goodwill amortization............................ (2,083) -- (1,562)
Amortize goodwill acquired as a result of the transaction
(estimate of 20 years)........................................... 11,190 -- 8,393
Amortize other intangible assets acquired as a result of the
transaction (estimate of 10 years)............................... 5,595 1,399 5,595
-------- --------- --------
$(61,978) $ (17,312) $(64,999)
======== ========= ========
(c) The adjustment for interest expense reflects the following:
FLEMING 52 WEEKS FLEMING 16 FLEMING 52
ENDED DECEMBER 29, WEEKS ENDED WEEKS ENDED
2001 APRIL 20, 2002 APRIL 20, 2002
------------------ -------------- ---------------
Reclassify Core-Mark interest income from interest
expense (see note (d))............................... $ 834 $ 141 $ 736
Eliminate Core-Mark interest expense to reflect debt
repayment............................................ (13,229) (2,947) (12,577)
Reflect Fleming interest expense on new financing to fund
the transaction...................................... 23,050 7,092 23,050
---------- -------- --------
$ 10,655 $ 4,286 $ 11,209
========== ======== ========
(d) The adjustment for interest income and other reflects the following:
FLEMING 52 WEEKS FLEMING 16 FLEMING 52
ENDED DECEMBER 29, WEEKS ENDED WEEKS ENDED
2001 APRIL 20, 2002 APRIL 20, 2002
------------------ -------------- ---------------
Reclassify Core-Mark interest income from interest expense
(see note (c))....................................... $ (834) $ (141) $ (736)
======= ======= =======
33
(e) The adjustment for taxes on income reflects the following:
FLEMING 52 WEEKS FLEMING 16 FLEMING 52
ENDED DECEMBER 29, WEEKS ENDED WEEKS ENDED
2001 APRIL 20, 2002 APRIL 20, 2002
------------------ -------------- ---------------
Eliminate Core-Mark taxes on income................................ $ (14,268) $ (2,832) $(15,467)
Reflect tax provision on Core-Mark results of operations net
of pro forma adjustments....................................... (741) 417 2,000
--------- --------- --------
$ (15,009) $ (2,415) $(13,467)
========= ========= ========
(f) The adjustment for basic weighted average shares outstanding reflects
the following:
FLEMING 52 WEEKS FLEMING 16 FLEMING 52
ENDED DECEMBER 29, WEEKS ENDED WEEKS ENDED
2001 APRIL 20, 2002 APRIL 20, 2002
------------------ -------------- ---------------
Reflect Fleming common shares issued to partially fund the
transaction (assuming no exercise of the underwriters'
over-allotment option).......................................... 8,000 8,000 8,000
===== ===== =====
(g) The adjustment for diluted weighted average shares outstanding reflects
the following:
FLEMING 52 WEEKS FLEMING 16 FLEMING 52
ENDED DECEMBER 29, WEEKS ENDED WEEKS ENDED
2001 APRIL 20, 2002 APRIL 20, 2002
------------------ -------------- ---------------
Reflect Fleming common shares issued to partially fund the
transaction (assuming no exercise of the underwriters'
over-allotment option).......................................... 8,000 8,000 8,000
Reflect adjustment to Fleming's diluted weighted average
shares outstanding due to the impact of Fleming's 5 1/4%
convertible notes (anti-dilutive for the 52 weeks ended
April 20, 2002)................................................. -- -- (4,955)
----- ----- ------
8,000 8,000 3,045
===== ===== ======
34
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23 Consent of Deloitte & Touche LLP.
35
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 hereunto duly authorized.
FLEMING COMPANIES, INC.
By: /s/ MATTHEW H. HILDRETH
---------------------------------------
Matthew H. Hildreth
Senior Vice President -- Finance
and Treasurer
Dated: May 20, 2002
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23 Consent of Deloitte & Touche LLP.