NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Company Information and Basis of Presentation
Business
Core-Mark Holding Company, Inc. and subsidiaries (referred to herein as the “Company” or “Core-Mark”) is one of the largest marketers of fresh, food and broad-line supply solutions to the convenience retail industry in North America. The Company offers a full range of products, marketing programs and technology solutions to customers in the United States (“U.S.”) and Canada. The Company’s customers include traditional convenience stores, drug stores, mass merchants, grocery stores, liquor stores and other specialty and small format stores that carry convenience products. The Company’s product offering includes cigarettes, other tobacco products (“OTP”), alternative nicotine products, candy, snacks, food, including fresh products, groceries, dairy, bread, beverages, general merchandise and health and beauty care products. The Company operates a network of 32 distribution centers in the U.S. and Canada (excluding two distribution facilities it operates as a third-party logistics provider). Twenty-seven distribution centers are located in the U.S. and five are located in Canada.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include Core-Mark and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. The Company considers the allowance for credit losses, claims liabilities and insurance recoverables, valuation of long-lived assets and goodwill and realizability of deferred income taxes to be those estimates which involve a higher degree of judgment and complexity. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Revenue Recognition
A contract with a customer exists when a customer invoice is generated. The Company considers each item on an invoice as an individual performance obligation. The Company recognizes revenue for each performance obligation when ordered items are delivered, control is transferred, and legal right of ownership passes to the customer. The Company includes fees charged to customers for shipping and handling activities in net sales and the related costs in cost of goods sold upon transfer of control of ordered products to a customer. Revenues are reported net of customer incentives, discounts and returns, including an allowance for estimated returns. The allowance for sales returns is calculated based on the Company’s returns experience, which has historically not been significant. The Company also earns management service fee revenue from operating third-party distribution centers belonging to certain customers. These revenues represented less than 1% of the Company’s total net sales for 2020, 2019 and 2018. Service fee revenue is recognized as earned on a monthly basis in accordance with the terms of the management service fee contracts and is included in net sales on the accompanying consolidated statements of operations. See Note 16 - Segment and Geographic Information for the disaggregation of net sales for each of the two geographic areas in which the Company operates and also by major product category.
Customers’ Sales Incentives
The Company provides consideration to customers, such as sales allowances or discounts, on a regular basis. Customers’ sales incentives are recorded as a reduction to net sales as each sales incentive is earned by the customer. Customer sales incentives include volume-based rebates that are accounted for as variable consideration. Additionally, the Company may provide allowances for the customers’ commitments to continue using Core-Mark as a supplier. These incentives are known as racking allowances and may be paid at the inception of the customer’s agreement or on a periodic basis. Allowances paid at the inception of the contract are deferred and amortized over the period of the distribution agreement as a reduction to sales.
Vendor Rebates and Promotional Allowances
Periodic payments from vendors in various forms including rebates, promotional allowances and volume discounts, are reflected in the carrying value of the related inventory when earned and in cost of goods sold when the related merchandise is sold. Up-front consideration received from vendors for purchase or other commitments is initially deferred and amortized ratably to cost of goods sold as the performance of the activities specified by the vendor is completed.
Cooperative marketing incentives received from vendors to fund specific programs first offset the costs of the program, and to the extent the consideration exceeds the costs relating to the program, the excess funds are recorded as reductions to cost of goods sold. These amounts are recorded in the period the related promotional or merchandising programs are provided. Certain vendor incentive promotions require the Company to make assumptions and judgments regarding, for example, the likelihood of achieving market share levels or attaining specified levels of purchases. Vendor incentives are at the discretion of the Company’s vendors and can fluctuate due to changes in vendor strategies and market requirements. Vendor rebates and promotional allowances earned totaled $236.5 million, $254.7 million and $237.7 million in 2020, 2019 and 2018, respectively.
Excise Taxes
The Company is responsible for collecting and remitting state, local and provincial excise taxes on cigarettes and other tobacco products and will continue to present excise taxes billed as part of revenue and remittances as part of cost of goods sold. These excise taxes are a significant component of the Company’s net sales and cost of goods sold. In 2020, 2019 and 2018, $3.3 billion, $3.3 billion and $3.5 billion, or 20%, 20% and 21% of the Company’s net sales, and 21%, 21% and 22% of its cost of goods sold, respectively, represented excise taxes. Additionally, federal excise taxes are levied on manufacturers who pass these taxes on to the Company as a portion of the product costs. As a result, federal excise taxes are not a component of the Company’s excise taxes, but are reflected in the cost of inventory until products are sold.
Stock-based Compensation
The Company accounts for stock-based compensation expense related to time-based restricted stock unit (“RSU”) awards and performance-based awards using the grant-date fair value of the awards. For service based awards, the Company recognizes the expense using a straight-line method. For performance based awards, the Company recognizes the expense ratably when achievement of performance conditions becomes probable.
Stock-based compensation expense is included in selling, general and administrative expenses on the consolidated statements of operations. Stock-based compensation expense is calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. The Company’s forfeiture experience since inception of its plans has been approximately 5% of the total grants. The historical rate of forfeiture is a component of the basis for predicting the future rate of forfeitures, which are also dependent on the remaining service period related to grants.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, their respective tax bases, and operating loss and tax credit carry-forwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when the Company does not consider it more likely than not that some portion or all of the deferred tax assets will be realized.
A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company has established an estimated liability for income tax exposures that arise and meet the criteria for accrual. The Company prepares and files tax returns based on its interpretation of tax laws and regulations and records estimates based on these judgments and interpretations. In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law resulting from legislation, regulation and/or as concluded through the various jurisdictions’ tax court systems. The Company classifies interest and penalties related to income taxes as income tax expense. Additionally, the Company releases income tax effects from AOCI as individual items are adjusted (see Note 10 - Income Taxes).
Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during each period, excluding unvested RSUs and performance shares. Diluted earnings per share is calculated by dividing net income by weighted-average shares outstanding including common stock equivalents. Common stock equivalents include RSUs and performance-based share awards, if the impact of the individual awards is dilutive, using the treasury stock method (see Note 12 - Earnings Per Share).
Cash, Cash Equivalents and Book Overdrafts
Cash and cash equivalents include cash, money market funds and highly liquid investments with original maturities of three months or less. The Company had book overdrafts of $31.1 million and $23.9 million at December 31, 2020 and 2019, respectively. Book overdrafts consist primarily of outstanding checks in excess of cash on hand in the corresponding bank accounts at the end of the period. The Company’s policy has been to fund these outstanding checks as they clear with cash held on deposit with other financial institutions or with borrowings under the Company’s revolving credit facility.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable consists of trade receivables from customers. The Company evaluates the collectability of accounts receivable and determines the appropriate allowance for credit losses based on historical experience, current economic conditions, and a review of specific customer accounts. Account balances are charged against the allowance when collection efforts have been exhausted and the receivable is deemed uncollectible (see Note 3 - Other Consolidated Balance Sheet Accounts Detail).
Other Receivables
Other receivables consist primarily of amounts due from vendors for promotional and other incentives, which are accrued as earned. The Company evaluates the collectability of amounts due from vendors and determines the appropriate allowance for credit losses based on historical experience, current economic conditions, and a review of specific amounts outstanding (see Note 3 - Other Consolidated Balance Sheet Accounts Detail).
Inventories
Inventories consist of finished goods, including cigarettes and other tobacco products, food and other consumable products held for re-sale and are valued at the lower of cost or net realizable value. In the Company’s U.S. divisions, cost is determined primarily on a last-in, first-out (“LIFO”) basis. The Company uses the link-chain dollar value LIFO method. The inventory price index computation (“IPIC”) is used to calculate LIFO inflation indices, for which the LIFO inflation source is the producer price indices (“PPI”) published by the U.S. Bureau of Labor Statistics (“BLS”). The Company uses the IPIC pooling method, for which LIFO pools are established for each PPI in accordance with current regulations. When the Company is aware of material price increases or decreases from manufacturers, the Company estimates the PPI for the respective period if it determines the price increase is not fully reflected in the PPI in order to more accurately reflect inflation rates. Under the LIFO method, current costs of goods sold are matched against current sales. Inventories in the Company’s Canadian divisions are valued on a first-in, first-out (“FIFO”) basis, as LIFO is not a permitted inventory valuation method in Canada. Approximately 90% and 89% of the Company’s inventory was valued on a LIFO basis at December 31, 2020 and 2019, respectively. The Company reduces inventory value for spoiled, aged and unrecoverable inventory based on amounts on-hand and historical experience (see Note 4 - Inventories, Net).
Fair Value Measurements
The Company’s financial assets and liabilities are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amount of cash equivalents, trade accounts receivable, other receivables, trade accounts payable, cigarette and tobacco taxes payable and other accrued liabilities approximates fair value because of the short maturity of these financial instruments. The carrying amount of the Company’s variable rate debt approximates fair value.
The Company calculates the fair value of certain assets related to acquisitions, investments and impairment evaluations using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and gives precedence to observable inputs in determining fair value. An instrument’s level within the hierarchy is based on the lowest level of any significant input to the fair value measurement. The following levels were established for each input:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 - Unobservable inputs for the asset or liability, which reflect the Company’s own assumptions about what market participants would assume when pricing the asset or liability.
Business Combinations
The Company accounts for all business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. Management may further adjust the acquisition date fair values for a period of up to one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization on new purchases is computed using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the property or the term of the lease, including available renewal option terms if it is reasonably assured that those options will be exercised. Upon retirement or sale, the cost and related accumulated depreciation of the assets are removed and any related gain or loss is reflected in the consolidated statements of operations. Maintenance and repairs are charged to expense as incurred (see Note 5 - Property and Equipment, Net).
The Company uses the following depreciable lives for its property and equipment:
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Useful Life in Years
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Office furniture and equipment
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3-10
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Delivery equipment
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3-10
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Warehouse equipment
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5-15
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Leasehold improvements
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3-25
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Buildings
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15-25
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Leases
The Company leases warehouse facilities, trucks, trailers, office equipment and certain sales offices. The Company determines if an arrangement is an operating or finance lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, net, accrued liabilities, and long-term debt on our consolidated balance sheets.
Certain of the Company’s real estate leases include one or more options to renew the applicable lease agreement, with the exercise of renewal options at the Company’s sole discretion; the Company generally includes only one real estate lease extension option in the recognition of ROU assets and lease liabilities when it is reasonably certain to be exercised. Certain of the Company’s vehicle leases have residual value guarantees.
Leases with a term of twelve months or less are not recorded on the balance sheet; the Company recognizes lease expenses for such leases on a straight-line basis over the lease term. The majority of the Company’s lease payments are fixed and are incorporated into the ROU lease assets and liabilities for leases with a term greater than twelve months. However, certain vehicle leases have variable payments, such as per-mile charges, which are expensed as incurred. The Company combines lease components and non-lease components across all asset classes for purposes of recognizing lease assets and liabilities. As most of the Company’s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Effective January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842). As a result, disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while comparative periods prior to January 1, 2019 have not been adjusted and continue to be reported under ASC 840 (see Note 6 - Leases).
Other Long-lived Assets
Intangible assets with definite lives are generally amortized on a straight-line basis over the following lives:
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Useful Life in Years
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Customer relationships
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9-15
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Non-competition agreements
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1-5
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Trade names
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1-2
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Internally developed and other purchased software
|
3-7
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|
|
The Company reviews its long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment of long-lived assets exists when the carrying amount of a long-lived asset, or asset group, exceeds its fair value, and impairment losses are recorded when the carrying amount of the impaired asset is not recoverable. Recoverability is determined by comparing the carrying amount of the asset (or asset group) to the undiscounted cash flows which are expected to be generated from its use, a Level 3 measurement under the fair value hierarchy. The Company has determined that it has six asset groups based on a review of its assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The determination of asset groups primarily considers revenue inter-dependencies related to larger chain customer agreements which are serviced by multiple distribution centers. During 2020, 2019 and 2018, the Company did not record impairment charges related to long-lived assets (see Note 5 - Property and Equipment, Net and Note 7 - Goodwill and Other Intangible Assets, Net).
Goodwill
Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. Goodwill is not amortized.
The Company tests goodwill for impairment annually as of October 1 or whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. The Company’s reporting units are its U.S. operations and Canadian operations. Whenever events or circumstances change, the Company assesses the related qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The tests to evaluate goodwill for impairment are performed at the reporting unit level. In the quantitative impairment test, the Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit is less than its carrying value, such excess represents the amount of goodwill for which an impairment loss would be recorded. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The estimated fair value of each reporting unit is based on the discounted cash flow method, which is based on historical and forecasted amounts specific to each reporting unit and considers net sales, gross profit, income from operations and cash flows and general economic and market conditions, as well as the impact of planned business and operational strategies and other estimates and assumptions for future growth rates, working capital and capital expenditures. The Company bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Measuring the fair value of reporting units constitutes a Level 3 measurement under the fair value hierarchy. There has been no impairment of goodwill for any periods presented (see Note 7 - Goodwill and Other Intangible Assets, Net).
Computer Software Developed or Obtained for Internal Use
The Company accounts for computer software systems, namely SAP Enterprise Resource Planning modules, the Company’s proprietary Distribution Center Management System (“DCMS”), and software purchased from third-party vendors, using certain criteria under which costs associated with this software are either expensed or capitalized and amortized over periods from three to seven years. During 2020, 2019 and 2018 the Company capitalized $4.4 million, $6.2 million and $2.0 million, respectively, of costs related to software developed or obtained for internal use (see Note 7 - Goodwill and Other Intangible Assets, Net).
Claims Liabilities and Insurance Recoverables
The Company maintains reserves related to workers’ compensation, auto, general, and health and welfare liability programs that are principally self-insured. The Company currently has a per-claim deductible of $500,000 for its workers’ compensation, auto and general liability self-insurance programs and a per-person annual claim deductible of $400,000 for its health and welfare program. The Company purchases insurance to cover the claims that exceed the deductible up to policy limits. Self-insured reserves are for pending or future claims that fall outside the policy and reserves include an estimate of expected settlements on pending claims and a provision for claims incurred but not reported. Estimates for workers’ compensation, auto and general liability insurance are based on the Company’s assessment of potential liability using an annual actuarial analysis of available information with respect to pending claims, historical experience and current cost trends. Reserves for claims under these programs are included in accrued liabilities (current portion) and claims liabilities, net of current portion on the accompanying consolidated balance sheets.
Claims liabilities and the related recoverables from insurance carriers for estimated claims in excess of the deductible and other insured events are presented in their gross amounts on the accompanying consolidated balance sheets because there is no right of offset. The carrying values of claims liabilities and insurance recoverables are not discounted. Insurance recoverables are included in other receivables, net and other non-current assets, net. The Company had gross liabilities for workers’ compensation, auto, general, and health and welfare liability self-insurance obligations in the amounts of $38.2 million long-term and $22.5 million short-term at December 31, 2020, and $36.1 million long-term and $20.4 million short-term at December 31, 2019. The Company’s liabilities net of insurance recoverables were $22.8 million long-term and $18.4 million short-term at December 31, 2020, and $21.7 million long-term and $17.3 million short-term at December 31, 2019.
Foreign Currency Translation
The operating assets and liabilities of the Company’s Canadian operations, whose functional currency is the Canadian dollar, are translated to U.S. dollars at exchange rates in effect at period-end. Translation gains and losses are recorded in AOCI as a component of stockholders’ equity. Revenue and expenses from Canadian operations are translated using the monthly average exchange rates in effect during the period in which the transactions occur. The Company also recognizes gains or losses on foreign currency exchange transactions between its Canadian and U.S. operations, net of applicable income taxes, in the consolidated statements of operations. The Company currently does not hedge Canadian foreign currency cash flows.
Risks and Concentrations
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash investments, accounts receivable and other receivables. The Company places its cash and cash equivalents in short-term instruments with high quality financial institutions and limits the amount of credit exposure in any one financial instrument.
A credit review is completed for new customers and ongoing credit evaluations of each customer’s financial condition are performed periodically, with reserves maintained for potential credit losses. Credit limits given to customers are based on a risk assessment of their ability to pay and other factors. Accounts receivable are typically not collateralized, but the Company may require prepayments or other guarantees whenever deemed necessary.
Murphy U.S.A. is the Company’s largest customer and accounted for 13.9%, 12.5% and 11.9% of total net sales in 2020, 2019 and 2018, respectively. No single customer accounted for 10% or more of accounts receivable at December 31, 2020 and 2019.
The Company’s significant suppliers include Altria Group, Inc. (parent company of Philip Morris USA, Inc.) and R.J. Reynolds Tobacco Company. Product purchased from Altria Group, Inc. accounted for approximately 33%, 32% and 33% of total product purchases in 2020, 2019 and 2018, respectively. Product purchases from R.J. Reynolds Tobacco Company were approximately 25%, 22% and 23% of total product purchases in 2020, 2019 and 2018, respectively.
Cigarette sales represented 66.7%, 65.3% and 66.9% of net sales in 2020, 2019 and 2018, respectively, and contributed 25.2%, 23.0% and 26.0% of gross profit in 2020, 2019 and 2018, respectively. Although cigarettes represent a significant portion of the Company’s total net sales, the majority of gross profit is generated from food/non-food products.
Adoption of Accounting Pronouncements
On June 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The Company adopted this pronouncement on a modified retrospective basis effective January 1, 2020. The new guidance replaces the incurred loss impairment approach with a methodology that incorporates all expected credit loss estimates, resulting in more timely recognition of losses. The adoption of
ASU 2016-13 and all subsequent amendments did not have a material impact on the Company’s consolidated financial statements.
On January 26, 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The Company adopted this pronouncement on a prospective basis effective January 1, 2020. The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. Accordingly, the Company has amended its methodology for determining any goodwill impairment calculations. The adoption of ASU 2017-04 did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Standards or Updates Not Yet Effective
On August 28, 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans -General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The new guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant for defined benefit pension and other post-retirement benefit plans. ASU 2018-14 requires retrospective application and is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The Company has determined that ASU 2018-14 will not have a material impact on its consolidated financial statements.
On December 18, 2019 the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The new guidance enhances and simplifies various aspects of the income tax accounting guidance, including requirements pertaining to hybrid tax regimes, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The Company has determined that ASU 2019-12 will not have a material impact on its consolidated financial statements.
3. Other Consolidated Balance Sheet Accounts Detail
Allowance for Credit Losses, Accounts Receivable
The changes in the allowance for credit losses due from customers consist of the following (in millions):
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Year Ended December 31,
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2020
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2019
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2018
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Balance, beginning of year
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$
|
14.5
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|
|
$
|
8.3
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|
|
$
|
7.3
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|
Net additions charged to operations(1)
|
7.6
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|
|
7.1
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|
|
3.6
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Less: Write-offs and adjustments
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(5.6)
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|
|
(0.9)
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|
|
(2.6)
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Balance, end of year
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$
|
16.5
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|
|
$
|
14.5
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|
|
$
|
8.3
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|
______________________________________________
(1) The net additions to the allowance for credit losses were recognized in the consolidated statements of operations as a component of the Company’s selling, general and administrative expenses.
Other Receivables, Net
Other receivables, net consist of the following (in millions):
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|
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|
|
December 31,
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2020
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2019
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Vendor receivables, net
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$
|
82.0
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|
|
$
|
73.1
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Insurance recoverables, current
|
4.1
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|
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3.1
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Other miscellaneous receivables(1)
|
19.4
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|
20.0
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Total other receivables, net
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$
|
105.5
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$
|
96.2
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______________________________________________
(1) Other miscellaneous receivables include amounts related primarily to notes receivables, miscellaneous tax receivables, receivables from the Company’s third-party logistics customers, and other miscellaneous receivables.
Deposits and Prepayments
Deposits and prepayments consist of the following (in millions):
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December 31,
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2020
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2019
|
Vendor prepayments
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$
|
59.6
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|
|
$
|
85.8
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|
Prepaid taxes
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2.0
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|
|
0.5
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|
Deposits(1)
|
7.1
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|
|
7.0
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Racking allowances, current
|
5.6
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|
|
6.8
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|
Other prepayments(2)
|
13.5
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|
|
15.9
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Total deposits and prepayments
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$
|
87.8
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|
|
$
|
116.0
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______________________________________________
(1) Deposits include amounts related primarily to cigarette stamps and workers’ compensation claims.
(2) Other prepayments include prepayments relating to insurance policies, software licenses, rent and other miscellaneous prepayments.
Other Non-current Assets, Net
Other non-current assets, net of current portion, consist of the following (in millions):
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December 31,
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2020
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2019
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Insurance recoverables
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$
|
15.4
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|
|
$
|
14.4
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Racking allowances, net
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1.6
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|
|
3.5
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Insurance deposits
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2.9
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|
|
3.4
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Debt issuance costs
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0.1
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|
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1.0
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Other assets
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4.4
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|
6.3
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Total other non-current assets, net
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$
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24.4
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$
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28.6
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Accrued Liabilities
Accrued liabilities consist of the following (in millions):
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|
|
|
|
|
|
December 31,
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|
2020
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2019
|
Accrued payroll and other benefits(1)
|
$
|
52.3
|
|
|
$
|
47.7
|
|
Accrued customer incentives payable
|
43.4
|
|
|
37.3
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|
Claims liabilities, current
|
22.5
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|
|
20.4
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|
Finance lease liabilities
|
15.3
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|
|
8.4
|
|
Income taxes payable
|
14.1
|
|
|
2.7
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|
Indirect taxes
|
10.2
|
|
|
9.3
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|
Vendor advances
|
3.1
|
|
|
3.1
|
|
Other accrued expenses(2)
|
27.1
|
|
|
22.1
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|
Total accrued liabilities
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$
|
188.0
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|
|
$
|
151.0
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|
______________________________________________
(1) The Company’s accrued payroll and other benefits include accruals for vacation, bonuses, wages and 401(k) benefit matching.
(2) The Company’s other accrued expenses include accruals for goods and services, construction in progress, legal expenses and other miscellaneous accruals.
4. Inventories, Net
Inventories consist of the following (in millions):
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|
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December 31,
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|
2020
|
|
2019
|
Inventories at FIFO, net of reserves
|
$
|
993.9
|
|
|
$
|
875.6
|
|
Less: LIFO reserve
|
(235.4)
|
|
|
(204.7)
|
|
Total inventories, net of reserves
|
$
|
758.5
|
|
|
$
|
670.9
|
|
During periods of rising prices, the LIFO method of costing inventories generally results in higher current costs being charged against income while lower costs are retained in inventories. Conversely, during periods of decreasing prices, the LIFO method of costing inventories generally results in lower current costs being charged against income and higher stated inventories. If the FIFO method had been used for valuing inventories in the U.S., inventories would have been $235.4 million and $204.7 million higher at December 31, 2020 and 2019, respectively. The Company recorded LIFO expense of $30.7 million, $27.6 million and $25.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company had a decrement in certain of its LIFO inventory layers of $20.1 million and $20.3 million in 2020 and 2019, respectively, which had the effect of reducing its LIFO expense by $0.7 million in 2020 and $2.8 million in 2019.
5. Property and Equipment, Net
Property and equipment, net consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Delivery, warehouse and office equipment(1)
|
$
|
460.3
|
|
|
$
|
409.1
|
|
Leasehold improvements
|
90.6
|
|
|
87.8
|
|
Land and buildings(2)
|
52.0
|
|
|
52.4
|
|
Construction in progress
|
16.9
|
|
|
1.0
|
|
|
619.8
|
|
|
550.3
|
|
Less: Accumulated depreciation and amortization
|
(343.8)
|
|
|
(300.4)
|
|
Total property and equipment, net
|
$
|
276.0
|
|
|
$
|
249.9
|
|
______________________________________________
(1) Includes equipment finance leases of $103.7 million for 2020 and $56.2 million for 2019.
(2) Includes warehouse finance leases of $20.6 million for 2020 and $21.8 million for 2019.
Depreciation and amortization expenses related to property and equipment were $51.1 million, $44.3 million and $42.2 million for 2020, 2019 and 2018, respectively.
6. Leases
Leases consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Assets
|
Classification
|
|
2020
|
2019
|
Operating
|
Operating lease ROU assets
|
|
$
|
203.6
|
|
$
|
199.8
|
|
Finance
|
Property and equipment, net
|
|
94.8
|
|
59.8
|
|
Total leases
|
|
|
$
|
298.4
|
|
$
|
259.6
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current:
|
|
|
|
|
Operating
|
Operating lease liabilities
|
|
$
|
32.9
|
|
$
|
39.5
|
|
Finance
|
Accrued liabilities
|
|
15.3
|
|
8.4
|
|
Non-current:
|
|
|
|
|
Operating
|
Long-term operating lease liabilities
|
|
179.7
|
|
173.4
|
|
Finance
|
Long-term debt
|
|
86.5
|
|
57.3
|
|
Total lease liabilities
|
|
|
$
|
314.4
|
|
$
|
278.6
|
|
The components of lease costs were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
Operating lease cost
|
|
|
|
$
|
48.6
|
|
|
$
|
51.8
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
Amortization of leased assets
|
|
|
|
14.0
|
|
|
6.0
|
|
|
Interest on lease liabilities
|
|
|
|
3.9
|
|
|
2.2
|
|
|
Short-term lease cost
|
|
|
|
1.5
|
|
|
1.7
|
|
|
Variable lease cost
|
|
|
|
5.9
|
|
|
20.7
|
|
|
Net lease cost
|
|
|
|
$
|
73.9
|
|
|
$
|
82.4
|
|
|
Maturity of lease liabilities as of December 31, 2020, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
Finance leases
|
|
Total
|
2021
|
$
|
41.8
|
|
|
$
|
19.0
|
|
|
$
|
60.8
|
|
2022
|
38.5
|
|
|
18.5
|
|
|
57.0
|
|
2023
|
31.9
|
|
|
17.9
|
|
|
49.8
|
|
2024
|
27.9
|
|
|
17.3
|
|
|
45.2
|
|
2025
|
25.0
|
|
|
15.0
|
|
|
40.0
|
|
2026 and thereafter
|
91.8
|
|
|
28.9
|
|
|
120.7
|
|
Total lease payments
|
256.9
|
|
|
116.6
|
|
|
373.5
|
|
Less: interest
|
(44.3)
|
|
|
(14.8)
|
|
|
(59.1)
|
|
Present value of lease liabilities
|
$
|
212.6
|
|
|
$
|
101.8
|
|
|
$
|
314.4
|
|
Weighted-average remaining lease term and weighted-average discount rate regarding the Company’s leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Lease term
|
|
2020
|
|
2019
|
|
Weighted-average remaining lease term (years):
|
|
|
|
|
|
Operating
|
|
7.3
|
|
7.3
|
|
Finance
|
|
7.4
|
|
7.6
|
|
Discount rate
|
|
|
|
|
|
Weighted-average discount rate:
|
|
|
|
|
|
Operating
|
|
4.7
|
%
|
|
4.9
|
%
|
|
Finance
|
|
4.7
|
%
|
|
4.8
|
%
|
|
Other information regarding the Company’s leases were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows used by operating leases
|
$
|
48.5
|
|
|
$
|
51.3
|
|
|
|
|
Operating cash flows used by finance leases
|
3.8
|
|
|
2.2
|
|
|
|
|
Financing cash flows used by finance leases
|
13.1
|
|
|
5.6
|
|
|
|
|
Lease liabilities arising from obtaining new ROU assets:
|
|
|
|
|
|
|
Operating leases
|
$
|
41.8
|
|
|
$
|
11.1
|
|
|
|
|
Finance leases
|
41.3
|
|
|
41.9
|
|
|
|
|
As of December 31, 2020, the Company had $31.0 million of leases, primarily for trailers, that had not yet commenced. The Company expects substantially all of these leases to commence during the first half of 2021.
7. Goodwill and Other Intangible Assets, Net
Goodwill
Goodwill represents the excess of the purchase consideration of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in certain business combinations. The carrying amount of goodwill during each of 2020 and 2019 was $72.8 million.
The Company did not record any impairment charges related to goodwill during the years ended December 31, 2020 and 2019 and there are no accumulated impairment losses as of December 31, 2020.
Other Intangible Assets, Net
The carrying amount and accumulated amortization of other intangible assets as of December 31, 2020 and 2019 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Gross
|
|
|
|
Net
|
|
Gross
|
|
|
|
Net
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
Customer relationships
|
$
|
48.0
|
|
|
$
|
(23.9)
|
|
|
$
|
24.1
|
|
|
$
|
48.0
|
|
|
$
|
(20.0)
|
|
|
$
|
28.0
|
|
Non-competition agreements
|
5.0
|
|
|
(4.8)
|
|
|
0.2
|
|
|
5.0
|
|
|
(4.4)
|
|
|
0.6
|
|
Trade names
|
3.8
|
|
|
(3.8)
|
|
|
—
|
|
|
3.8
|
|
|
(3.8)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally developed and other purchased software
|
45.3
|
|
|
(28.9)
|
|
|
16.4
|
|
|
42.0
|
|
|
(23.4)
|
|
|
18.6
|
|
Total other intangible assets
|
$
|
102.1
|
|
|
$
|
(61.4)
|
|
|
$
|
40.7
|
|
|
$
|
98.8
|
|
|
$
|
(51.6)
|
|
|
$
|
47.2
|
|
The amortization of intangible assets recorded in the consolidated statements of operations was $9.7 million for 2020 and $10.0 million for both 2019 and 2018.
Estimated future amortization expense for intangible assets is as follows (in millions):
|
|
|
|
|
|
Year ending December 31,
|
|
2021
|
$
|
9.8
|
|
2022
|
8.9
|
|
2023
|
5.9
|
|
2024
|
4.6
|
|
2025
|
4.2
|
|
2026 and thereafter
|
7.3
|
|
Total
|
$
|
40.7
|
|
8. Long-term Debt
Total long-term debt consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Amounts borrowed (Credit Facility)
|
$
|
258.0
|
|
|
$
|
324.8
|
|
Obligations under finance leases
|
86.5
|
|
|
57.3
|
|
Total long-term debt
|
$
|
344.5
|
|
|
$
|
382.1
|
|
The Company has a revolving credit facility (“Credit Facility”) with a borrowing capacity of $750.0 million as of December 31, 2020, limited by a borrowing base consisting of eligible accounts receivable and inventories. The Credit Facility expires in February 2026 and has an expansion feature which permits an increase of $200.0 million, subject to borrowing base requirements. All obligations under the Credit Facility are secured by first-priority liens on substantially all of the Company’s present and future assets. The terms of the Credit Facility permit prepayment without penalty at any time (subject to customary breakage costs with respect to London Interbank Offer Rate (“LIBOR”) or Canadian Dollar Offer Rate based loans prepaid prior to the end of an interest period). The Credit Facility contains customary affirmative and restrictive covenants. In addition, the Credit Facility allows for unlimited stock repurchases and dividends, as long as the Company meets certain credit availability percentages and fixed charge coverage ratios. As of December 31, 2020, the Company was in compliance with all of the financial covenants under the Credit Facility. See Note 18 - Subsequent Events for changes to the Company’s Credit Facility.
Amounts related to the Credit Facility are as follows (in millions, except interest rate data):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Amounts borrowed, net
|
$
|
258.0
|
|
|
$
|
324.8
|
|
Outstanding letters of credit
|
19.5
|
|
|
16.7
|
|
Amounts available to borrow(1)
|
402.4
|
|
|
341.7
|
|
Average borrowings
|
259.5
|
|
|
303.2
|
|
Range of borrowings
|
69.0 - 499.3
|
|
141.7 - 508.0
|
Unamortized debt issuance costs
|
0.9
|
|
|
1.7
|
|
Weighted-average interest rate(2)
|
1.8
|
%
|
|
3.4
|
%
|
______________________________________________
(1) Subject to borrowing base limitations, and excluding expansion feature of $200.0 million.
(2) Calculated based on the daily cost of borrowing, reflecting a blend of prime and LIBOR rates.
Long-term debt fees and charges were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
Unused credit facility and letter of credit participation(1)
|
$
|
1.4
|
|
|
$
|
1.2
|
|
|
$
|
1.2
|
|
Amortization of debt issuance costs(1)
|
0.8
|
|
|
0.8
|
|
|
0.8
|
|
______________________________________________
(1) Included in interest expense, net.
9. Commitments and Contingencies
Purchase Commitments
The Company enters into purchase commitments in the ordinary course of business. The Company had purchase obligations of $18.2 million and $19.6 million as of December 31, 2020 and 2019, respectively, related primarily to purchases of compressed natural gas for its trucking fleet, delivery and warehouse equipment, computer software and services and leasehold improvements. Purchase orders for the purchase of inventory and other services are not included in the purchase obligations as of December 31, 2020 and 2019, respectively, because purchase orders represent authorizations to purchase rather than binding agreements. For purposes of this disclosure, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The Company’s purchase orders are based on its current inventory needs and are fulfilled by its suppliers within short time periods. The Company also enters into contracts for outsourced services; however, the obligations under these contracts are not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.
Letters of Credit
As of December 31, 2020, the Company’s standby letters of credit issued under the Company’s Credit Facility were $19.5 million related primarily to casualty insurance. The majority of the standby letters of credit mature within one year. However, in the ordinary course of business, the Company will continue to renew or modify the terms of the letters of credit to support business requirements. The letters of credit are contingent liabilities, supported by the Company’s line of credit, and are not reflected in the consolidated balance sheets.
Litigation
The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is probable that the liability has been incurred and the amount of the liability can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. In the opinion of management, the outcome of pending litigation is not expected to have a material effect on the Company’s results of operations, financial condition or liquidity.
On October 2, 2019, the United States Judicial Panel on Multidistrict Litigation transferred and consolidated all then-pending personal injury cases against Juul Labs, Inc. (“JLI”) involving the distribution and sale of JUUL products to the Northern District of California (the “JUUL MDL”). Subsequently, on March 11, 2020, the plaintiffs in the JUUL MDL filed a Personal Injury Consolidated Master Complaint against JLI, Philip Morris and various Altria Group entities, JLI co-founders, early JLI investors and board members, certain e-liquid manufacturers, and numerous distributors and retailers of JUUL products, including Core Mark. Consequently, Core-Mark has been added as a defendant in a number of these personal injury suits. The JLI MDL litigation is currently in an early stage, and the personal injury plaintiffs have not made a monetary demand to the defendants. Core-Mark believes that it is entitled to contractual, statutory and/or common law indemnification from JLI for any liability that could result from the JUUL MDL. Core-Mark and JLI are in discussions regarding these indemnification rights.
10. Income Taxes
The Company’s income tax provision consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
Federal
|
$
|
32.8
|
|
|
$
|
17.4
|
|
|
$
|
10.6
|
|
State
|
5.5
|
|
|
4.4
|
|
|
3.7
|
|
Foreign
|
1.2
|
|
|
1.8
|
|
|
—
|
|
Total current tax provision
|
39.5
|
|
|
23.6
|
|
|
14.3
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(15.7)
|
|
|
(3.1)
|
|
|
(0.5)
|
|
State
|
(3.8)
|
|
|
(0.9)
|
|
|
0.1
|
|
Foreign
|
0.1
|
|
|
0.1
|
|
|
0.5
|
|
Total deferred tax (benefit) provision
|
(19.4)
|
|
|
(3.9)
|
|
|
0.1
|
|
|
|
|
|
|
|
Total income tax provision
|
$
|
20.1
|
|
|
$
|
19.7
|
|
|
$
|
14.4
|
|
A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate and income tax provision is as follows (in millions, except percentages)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Federal income tax provision at the statutory rate
|
$
|
17.5
|
|
|
21.0
|
%
|
|
$
|
16.2
|
|
|
21.0
|
%
|
|
$
|
12.6
|
|
|
21.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
1.1
|
|
|
1.3
|
|
|
1.9
|
|
|
2.5
|
|
|
2.9
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign tax rate differential
|
0.3
|
|
|
0.4
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
U.S. branch taxes
|
2.5
|
|
|
3.0
|
|
|
(0.1)
|
|
|
(0.1)
|
|
|
0.5
|
|
|
0.8
|
|
Excess tax benefits from stock-based award payments(2)
|
0.2
|
|
|
0.2
|
|
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.3
|
|
Change in valuation allowance
|
(1.1)
|
|
|
(1.3)
|
|
|
1.7
|
|
|
2.2
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other tax credits
|
(0.9)
|
|
|
(1.1)
|
|
|
(1.2)
|
|
|
(1.6)
|
|
|
(1.2)
|
|
|
(2.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
0.5
|
|
|
0.6
|
|
|
1.0
|
|
|
1.3
|
|
|
(0.6)
|
|
|
(0.9)
|
|
Income tax provision
|
$
|
20.1
|
|
|
24.1
|
%
|
|
$
|
19.7
|
|
|
25.5
|
%
|
|
$
|
14.4
|
|
|
24.0
|
%
|
______________________________________________
(1) Certain prior period amounts have been reclassified to conform with the current year’s presentation.
(2) As a result of the adoption of ASU 2016-09, the Company recognized excess tax deficiencies of $0.2 million, $0.1 million and $0.2 million in 2020, 2019 and 2018, respectively.
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 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Employee benefits, including post-retirement benefits
|
$
|
11.9
|
|
|
$
|
11.8
|
|
Trade and other receivables
|
4.1
|
|
|
3.7
|
|
Inventories
|
4.1
|
|
|
—
|
|
Self-insurance reserves
|
2.4
|
|
|
2.6
|
|
|
|
|
|
ROU liabilities
|
80.1
|
|
|
70.0
|
|
Other
|
3.1
|
|
|
3.0
|
|
Subtotal
|
105.7
|
|
|
91.1
|
|
Less: valuation allowance
|
(0.6)
|
|
|
(1.7)
|
|
Total deferred tax assets
|
$
|
105.1
|
|
|
$
|
89.4
|
|
Deferred tax liabilities:
|
|
|
|
Inventories
|
$
|
—
|
|
|
$
|
13.1
|
|
Property and equipment
|
26.9
|
|
|
29.1
|
|
ROU assets
|
75.1
|
|
|
65.3
|
|
Goodwill and intangibles
|
3.0
|
|
|
2.8
|
|
Other
|
2.2
|
|
|
1.7
|
|
Total deferred tax liabilities
|
$
|
107.2
|
|
|
$
|
112.0
|
|
|
|
|
|
Net deferred tax liabilities
|
$
|
(2.1)
|
|
|
$
|
(22.6)
|
|
|
|
|
|
Tax jurisdiction:
|
|
|
|
Net deferred liability (Canada)
|
$
|
(0.6)
|
|
|
$
|
(0.5)
|
|
Net deferred liability (U.S.)
|
$
|
(1.5)
|
|
|
$
|
(22.1)
|
|
At each balance sheet date, management assesses whether it is more likely than not that these deferred tax assets would not be realized. As of December 31, 2020, the Company had a valuation allowance of $0.6 million which consisted primarily of net operating loss carry-forwards for certain states. The Company had a valuation allowance of $1.7 million which consisted of $1.0 million of foreign tax credits and $0.7 million of net operating loss carry-forwards for certain states at December 31, 2019, and no valuation allowance at December 31, 2018.
The Company had no unrecognized tax benefits related to federal, state and foreign taxes at December 31, 2020, 2019, and 2018.
The Company files U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2017 to 2019 tax years remain subject to examination by federal and state tax authorities. The 2016 tax year is still open for certain state tax authorities. The 2013 to 2019 tax years remain subject to examination by the tax authorities in Canada.
11. Employee Benefit Plans
Pension Plans
The Company sponsored a qualified defined-benefit pension plan and a post-retirement benefit plan (collectively, “the Pension Plans”). The Pension Plans were frozen on September 30, 1986 and since then there have been no new entrants to the Pension Plans. In September 2016, the Company terminated the qualified defined-benefit pension plan and in December 2017, completed the plan settlement with an annuity transfer to a third-party insurance company.
The Company’s post-retirement benefit plan is not subject to ERISA. As a result, the post-retirement benefit plan is not required to be pre-funded, and accordingly, has no plan assets.
Other post-retirement benefit costs charged to operations are estimated on the basis of annual valuations with the assistance of an independent actuary. Adjustments arising from plan amendments, and changes in assumptions and experience gains and losses, are amortized over the average remaining future service of active employees expected to receive benefits for the post-retirement benefit plan.
The unfunded amount of liability recognized in the balance sheet related to the other post-retirement benefit plan was $2.8 million and $2.4 million, for the years ended December 31, 2020 and 2019, respectively. The net actuarial loss recognized in AOCI was $0.4 million and the net actuarial gain recognized in AOCI was $0.1 million for those same periods, respectively.
Multi-employer Defined Benefit Plan
The Company contributed $0.5 million for the years ended December 31, 2020, 2019, and 2018, to multi-employer defined benefit plans under the terms of a collective-bargaining agreement that covers its union-represented employees.
Savings Plans
The Company maintains defined-contribution plans in the U.S., subject to Section 401(k) of the Internal Revenue Code, and in Canada, subject to the Income Tax Act. For the year ended December 31, 2020, eligible U.S. employees could elect to contribute, on a tax-deferred basis, from 0% to 75% of their compensation to a maximum of $19,500. Eligible U.S. employees over 50 years of age could also contribute an additional $6,500 on a tax-deferred basis. In Canada, employees can elect to contribute up to a maximum of CAD $27,230. Effective January 1, 2021, the maximum contribution available to employees in Canada increased to CAD $27,830. As of December 31, 2020, the Company matches 50% of U.S. and Canada employee contributions up to 6% of base salary for a total maximum company contribution of 3%. In connection with the Company’s cost savings measures during 2020 due to the COVID-19 pandemic, this policy was temporarily halted between April 16, 2020 and September 30, 2020. For the years ended December 31, 2020, 2019 and 2018, the Company made matching payments of $3.1 million, $6.1 million and $5.6 million, respectively.
12. Earnings Per Share
The following table sets forth the computation of basic and diluted net earnings per share (dollars and shares in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
Net income
|
$
|
63.2
|
|
|
$
|
57.7
|
|
|
$
|
45.5
|
|
Shares
|
|
|
|
|
|
Weighted-average common shares outstanding (basic shares)
|
45.1
|
|
|
45.7
|
|
|
46.0
|
|
Adjustment for assumed dilution:
|
|
|
|
|
|
Restricted stock units
|
0.2
|
|
|
0.2
|
|
|
0.1
|
|
Performance shares
|
0.1
|
|
|
0.1
|
|
|
—
|
|
Weighted-average shares assuming dilution (diluted shares)
|
45.4
|
|
|
46.0
|
|
|
46.1
|
|
Earnings per share
|
|
|
|
|
|
Basic(1)
|
$
|
1.40
|
|
|
$
|
1.26
|
|
|
$
|
0.99
|
|
Diluted(1)
|
$
|
1.39
|
|
|
$
|
1.25
|
|
|
$
|
0.99
|
|
______________________________________________
(1) Basic and diluted earnings per share (“EPS”) are calculated based on unrounded actual amounts.
The number of common shares that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive were 266,101, 228,596, and 340,819 for the years ended December 31, 2020, 2019, and 2018, respectively.
13. Stock Incentive Plans
2019 Long-Term Incentive Plan
On May 21, 2019, the Company’s stockholders approved the 2019 Long-Term Incentive Plan (the “2019 LTIP”) which, among other things, replaces the Company’s 2010 Long-Term Incentive Plan (as amended, the “2010 LTIP”) and reserves for awards an aggregate of up to 4,236,959 shares. As of December 31, 2020, the total number of shares available for issuance under the 2019 LTIP was 3,156,745. The 2019 LTIP allows the Company to grant, among other things, time-vesting and performance-vesting restricted stock unit awards. Awards may be made under the 2019 LTIP through May 21, 2029. The Company issues new shares upon vesting of RSUs and performance share awards and they do not have an expiration date.
Prior Long-Term Incentive Plans
The 2007 Long-Term Incentive Plan (“2007 LTIP”) and 2010 LTIP provided for the granting of, among other things, stock appreciation rights, RSUs, other stock-based awards and performance share awards of the Company’s common stock to officers, employees and non-employee directors.
The majority of awards granted by the Company vested over a three-year period: one-third of the awards vested on the first anniversary of the vesting commencement date and the remaining awards vested in either equal quarterly or annual installments for the 2007 LTIP and 2010 LTIP, over the two-year period following the first anniversary of the vesting commencement date.
No further grants will be made under the 2007 LTIP or 2010 LTIP.
The following table summarizes the number of securities to be issued and remaining available for future issuance under all of the Company’s stock incentive plans as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities to be issued upon vesting of RSUs and performance share awards
|
|
Weighted-average exercise price of vesting of RSUs and performance share awards
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Long-Term Incentive Plan(1)
|
1,624
|
|
|
$
|
0.01
|
|
|
—
|
|
2010 Long-Term Incentive Plan(2)
|
330,750
|
|
|
0.01
|
|
|
—
|
|
2019 Long-Term Incentive Plan(2)
|
430,643
|
|
|
0.01
|
|
|
3,156,745
|
|
______________________________________________
(1) Includes RSUs.
(2) Includes RSUs and performance shares.
The following table summarizes the activity for all RSUs and performance shares under all of the Long-Term Incentive Plans (“LTIPs”) for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Activity during 2020
|
|
December 31, 2020
|
|
|
|
|
Outstanding
|
|
Granted
|
|
Vested / Exercised
|
|
Canceled/Forfeited
|
|
Outstanding
|
|
Exercisable
|
Plans
|
|
Securities
|
|
Number
|
|
Price
|
|
Number
|
|
Price
|
|
Number
|
|
Price
|
|
Number
|
|
Price
|
|
Number
|
|
Price
|
|
Number
|
|
Price
|
2007 LTIP
|
|
RSUs
|
|
1,624
|
|
|
$
|
0.01
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
1,624
|
|
|
$
|
0.01
|
|
|
1,624
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 LTIP
|
|
RSUs
|
|
442,116
|
|
|
0.01
|
|
|
—
|
|
(1)
|
—
|
|
|
(221,955)
|
|
|
0.01
|
|
|
(17,275)
|
|
|
0.01
|
|
|
202,886
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
|
|
Performance shares
|
|
225,252
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
|
(89,547)
|
|
|
0.01
|
|
|
(7,841)
|
|
|
0.01
|
|
|
127,864
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
2019 LTIP
|
|
RSUs
|
|
6,927
|
|
|
0.01
|
|
|
280,325
|
|
(1)
|
0.01
|
|
|
(2,309)
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
|
284,943
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
|
|
Performance shares
|
|
10,159
|
|
|
0.01
|
|
|
154,363
|
|
(2)
|
0.01
|
|
|
(3,386)
|
|
|
0.01
|
|
|
(15,436)
|
|
|
0.01
|
|
|
145,700
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
|
686,078
|
|
|
|
|
434,688
|
|
|
|
|
(317,197)
|
|
|
|
|
(40,552)
|
|
|
|
|
763,017
|
|
|
|
|
1,624
|
|
|
|
______________________________________________
Note: Price is weighted-average price per share.
(1)Consists of non-performance RSUs.
(2)In 2020, the Company awarded a maximum of 154,363 performance shares that would be received if the highest level of performance was achieved. Subsequent to December 31, 2020, 138,927 performance shares were earned based upon 2020 performance criteria.
The following table summarizes RSUs and performance shares that have vested and are expected to vest as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
Outstanding
|
|
Weighted-Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value(1)
(dollars in thousands)
|
Plans
|
|
Securities
|
|
Vested
|
|
Expected to vest(2)
|
|
Vested
|
|
Expected to vest(2)
|
|
Vested
|
|
Expected to vest(2)
|
2007 LTIP
|
|
RSUs
|
|
1,624
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
48
|
|
|
$
|
—
|
|
2010 LTIP
|
|
RSUs
|
|
—
|
|
|
195,462
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,739
|
|
|
|
Performance shares
|
|
—
|
|
|
127,261
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 LTIP
|
|
RSUs
|
|
—
|
|
|
275,198
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,080
|
|
|
|
Performance shares
|
|
—
|
|
|
144,243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,235
|
|
Total
|
|
|
|
1,624
|
|
|
742,164
|
|
|
|
|
|
|
$
|
48
|
|
|
$
|
21,790
|
|
______________________________________________
(1) Aggregate intrinsic value is calculated based upon the difference between the exercise price of RSUs and the Company’s closing common stock price on December 31, 2020 of $29.37, multiplied by the number of instruments that are vested or expected to vest. RSUs having grant prices greater than the closing stock price noted above are excluded from this calculation.
(2) RSUs and performance shares that are expected to vest are net of estimated future forfeitures.
The following table summarizes the aggregate intrinsic value of awards vested and exercised (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Aggregate intrinsic value of awards vested and exercised:
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
$
|
5.8
|
|
|
$
|
5.5
|
|
|
$
|
3.8
|
|
Performance shares
|
2.4
|
|
|
1.6
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions Used for Fair Value
The fair values for RSUs and performance shares, which are based on the fair market value of the Company’s stock at date of grant, are included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Weighted-average fair value per share of grants:
|
|
|
|
|
|
RSUs
|
$
|
25.38
|
|
|
$
|
29.67
|
|
|
$
|
23.66
|
|
Performance shares(1)
|
$
|
25.48
|
|
|
$
|
29.90
|
|
|
$
|
23.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
______________________________________________
(1) Of the 154,363 performance shares awarded in 2020, 138,927 were earned based upon 2020 performance criteria. Of the 154,511 performance shares awarded in 2019, all were earned based upon 2019 performance criteria.
Stock-based Compensation Expense
The Company recognized stock-based compensation expense of $10.2 million, $9.6 million and $8.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, total unrecognized compensation cost related to non-vested share-based compensation arrangements was $8.8 million, which is expected to be recognized over a weighted-average period of 1.3 years.
14. Stockholders’ Equity
Amendment to the Certificate of Incorporation
On May 22, 2018, the Company’s stockholders approved an amendment to the Certificate of Incorporation increasing the total number of authorized shares of common stock to 150,000,000 from 100,000,000.
Dividends
On October 19, 2011, the Company announced the commencement of a quarterly dividend program. The Company’s intentions are to continue increasing its dividends per share over time; however, the payment of any future dividends will be determined by the Company’s Board of Directors in light of then existing conditions, including the Company’s earnings, financial condition and capital requirements, strategic alternatives, restrictions in financing agreements, business conditions and other factors.
The Board of Directors approved the following cash dividends in 2020 (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend Per Share
|
|
Record Date
|
|
Cash Payment Amount(1)(2)
|
|
Payment Date
|
February 24, 2020
|
|
$0.12
|
|
March 16, 2020
|
|
$5.5
|
|
March 27, 2020
|
May 7, 2020
|
|
$0.12
|
|
May 22, 2020
|
|
$5.4
|
|
June 19, 2020
|
August 6, 2020
|
|
$0.12
|
|
August 21, 2020
|
|
$5.4
|
|
September 18, 2020
|
November 5, 2020
|
|
$0.13
|
|
November 20, 2020
|
|
$5.7
|
|
December 18, 2020
|
______________________________________________
(1) Includes cash payments on declared dividends and payments made on RSUs vested subsequent to the payment date.
(2) Amounts have been rounded for presentation purposes and may differ from unrounded amounts.
The Company paid total dividends of $22.0 million, $20.8 million and $18.9 million in 2020, 2019 and 2018, respectively. Dividends declared and paid per common share were $0.49, $0.45 and $0.41 in 2020, 2019 and 2018, respectively.
On March 1, 2021 the Board of Directors declared a quarterly cash dividend of $0.13 per common share, which is payable on March 26, 2021 to shareholders of record as of close of business on March 15, 2021.
Repurchase of Common Stock
On February 24, 2020, the Company’s Board of Directors authorized a $60.0 million stock repurchase program (the “2020 Program”), replacing the Company’s prior stock repurchase program (the “Prior Program”). At the time of approval, the Company had funds totaling $0.4 million remaining under the Prior Program which were subsequently retired unused. The timing, price and volume of purchases under the 2020 Program are based on market conditions, cash and liquidity requirements, relevant securities laws and other factors. The 2020 Program may be discontinued or amended at any time. The 2020 Program has no expiration date and terminates when the amount authorized has been expended or the Board of Directors withdraws its authorization. As of December 31, 2020, the Company had $49.6 million available for future share repurchases under the 2020 Program.
The following table summarizes the Company’s stock repurchase activities (in millions, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Number of shares repurchased
|
407,971
|
|
|
767,681
|
|
|
588,489
|
|
Average price per share
|
$
|
25.62
|
|
|
$
|
28.66
|
|
|
$
|
26.20
|
|
Total repurchase costs(1)
|
$
|
10.4
|
|
|
$
|
22.0
|
|
|
$
|
15.5
|
|
______________________________________________
(1) Amounts have been rounded for presentation purposes and may differ from unrounded results.
15. Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) (“OCI”) and the related tax effects were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
Before
|
|
Tax
|
|
of
|
|
Before
|
|
Tax
|
|
of
|
|
Before
|
|
Tax
|
|
of
|
|
Tax
|
|
Effect
|
|
Tax
|
|
Tax
|
|
Effect
|
|
Tax
|
|
Tax
|
|
Effect
|
|
Tax
|
Defined benefit plan adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain during the year
|
$
|
(0.5)
|
|
|
$
|
0.1
|
|
|
$
|
(0.4)
|
|
|
$
|
(0.3)
|
|
|
$
|
0.1
|
|
|
$
|
(0.2)
|
|
|
$
|
(0.4)
|
|
|
$
|
0.1
|
|
|
$
|
(0.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial gain included in net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Net (loss) gain during the year
|
(0.5)
|
|
|
0.1
|
|
|
(0.4)
|
|
|
(0.3)
|
|
|
0.1
|
|
|
(0.2)
|
|
|
(0.3)
|
|
|
0.1
|
|
|
(0.2)
|
|
Foreign currency translation gain (loss)
|
0.8
|
|
|
1.1
|
|
|
1.9
|
|
|
2.9
|
|
|
—
|
|
|
2.9
|
|
|
(5.5)
|
|
|
—
|
|
|
(5.5)
|
|
Other comprehensive income (loss)
|
$
|
0.3
|
|
|
$
|
1.2
|
|
|
$
|
1.5
|
|
|
$
|
2.6
|
|
|
$
|
0.1
|
|
|
$
|
2.7
|
|
|
$
|
(5.8)
|
|
|
$
|
0.1
|
|
|
$
|
(5.7)
|
|
The following table provides a summary of the changes in AOCI for the years presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
Defined
|
|
Currency
|
|
|
|
Benefit Plan
|
|
Translation
|
|
Total
|
Balance as of December 31, 2017
|
$
|
0.6
|
|
|
$
|
(2.7)
|
|
|
$
|
(2.1)
|
|
Other comprehensive loss
|
(0.2)
|
|
|
(5.5)
|
|
|
(5.7)
|
|
Balance as of December 31, 2018
|
$
|
0.4
|
|
|
$
|
(8.2)
|
|
|
$
|
(7.8)
|
|
Other comprehensive (loss) income
|
(0.2)
|
|
|
2.9
|
|
|
2.7
|
|
Balance as of December 31, 2019
|
$
|
0.2
|
|
|
$
|
(5.3)
|
|
|
$
|
(5.1)
|
|
Other comprehensive (loss) income
|
(0.4)
|
|
|
1.9
|
|
|
1.5
|
|
Balance as of December 31, 2020
|
$
|
(0.2)
|
|
|
$
|
(3.4)
|
|
|
$
|
(3.6)
|
|
16. Segment and Geographic Information
The Company identifies its operating segments based primarily on the way the Chief Operating Decision Maker (“CODM”) evaluates performance and makes decisions. The President and Chief Executive Officer of the Company has been identified as the CODM. From the perspective of the CODM, the Company is engaged primarily in the business of distributing packaged consumer products to convenience retail stores in the U.S. and Canada (collectively “North America”), which consists of customers that have similar characteristics. Therefore, the Company has determined that it has two operating segments, U.S. and Canada, that aggregate to one reportable segment. Additionally, the Company presents its segment reporting information based on business operations for each of the two geographic areas in which it operates and also by major product category.
Information about the Company’s business operations based on geographic areas is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Net sales:
|
|
|
|
|
|
United States
|
$
|
15,352.3
|
|
|
$
|
15,113.7
|
|
|
$
|
14,844.4
|
|
Canada
|
1,561.7
|
|
|
1,503.1
|
|
|
1,494.0
|
|
Corporate(1)
|
43.9
|
|
|
53.7
|
|
|
56.9
|
|
Total
|
$
|
16,957.9
|
|
|
$
|
16,670.5
|
|
|
$
|
16,395.3
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
United States
|
$
|
116.7
|
|
|
$
|
99.2
|
|
|
$
|
89.7
|
|
Canada
|
12.6
|
|
|
11.9
|
|
|
7.9
|
|
Corporate(2)
|
(46.0)
|
|
|
(33.7)
|
|
|
(37.7)
|
|
Total
|
$
|
83.3
|
|
|
$
|
77.4
|
|
|
$
|
59.9
|
|
|
|
|
|
|
|
Interest expense, net(3):
|
|
|
|
|
|
United States
|
$
|
58.7
|
|
|
$
|
56.6
|
|
|
$
|
54.7
|
|
Canada
|
0.7
|
|
|
1.5
|
|
|
1.0
|
|
Corporate(4)
|
(48.9)
|
|
|
(43.7)
|
|
|
(42.0)
|
|
Total
|
$
|
10.5
|
|
|
$
|
14.4
|
|
|
$
|
13.7
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
United States
|
$
|
45.9
|
|
|
$
|
42.6
|
|
|
$
|
42.1
|
|
Canada
|
3.5
|
|
|
2.6
|
|
|
2.3
|
|
Corporate(5)
|
17.2
|
|
|
15.7
|
|
|
15.1
|
|
Total
|
$
|
66.6
|
|
|
$
|
60.9
|
|
|
$
|
59.5
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
United States
|
$
|
25.6
|
|
|
$
|
20.3
|
|
|
$
|
18.6
|
|
Canada
|
1.6
|
|
|
2.5
|
|
|
1.5
|
|
|
|
|
|
|
|
Total
|
$
|
27.2
|
|
|
$
|
22.8
|
|
|
$
|
20.1
|
|
_____________________________________________
(1) Consists primarily of external sales made by the Company’s consolidating warehouses, management service fee revenue, allowance for sales returns and certain other sales adjustments.
(2) Consists primarily of expenses and other income, such as corporate incentives and salaries, LIFO expense, pension termination settlement, health care costs, insurance and workers’ compensation adjustments, elimination of overhead allocations and foreign exchange gains or losses.
(3) Includes $0.3 million, $0.5 million, and $0.3 million of interest income for 2020, 2019 and 2018, respectively.
(4) Consists primarily of intercompany eliminations for interest.
(5) Consists primarily of depreciation for the consolidation centers and amortization of intangible assets.
Identifiable assets by geographic area are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
|
Identifiable assets:
|
|
|
|
|
|
United States
|
$
|
1,781.0
|
|
|
$
|
1,741.4
|
|
|
|
Canada
|
173.7
|
|
|
157.0
|
|
|
|
Total
|
$
|
1,954.7
|
|
|
$
|
1,898.4
|
|
|
|
The net sales for the Company’s product categories are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
Product Category
|
2020
|
|
2019
|
|
2018
|
Cigarettes
|
$
|
11,310.5
|
|
|
$
|
10,892.7
|
|
|
$
|
10,974.5
|
|
Food
|
1,575.8
|
|
|
1,746.4
|
|
|
1,659.0
|
|
Fresh
|
509.3
|
|
|
502.8
|
|
|
474.2
|
|
Candy
|
1,004.0
|
|
|
1,039.0
|
|
|
992.0
|
|
Other tobacco products
|
1,558.6
|
|
|
1,438.9
|
|
|
1,387.2
|
|
Health, beauty & general
|
801.3
|
|
|
847.2
|
|
|
711.5
|
|
Beverages
|
197.2
|
|
|
202.1
|
|
|
191.0
|
|
Equipment/other
|
1.2
|
|
|
1.4
|
|
|
5.9
|
|
Total food/non-food products
|
$
|
5,647.4
|
|
|
$
|
5,777.8
|
|
|
$
|
5,420.8
|
|
Total net sales
|
$
|
16,957.9
|
|
|
$
|
16,670.5
|
|
|
$
|
16,395.3
|
|
17. Quarterly Financial Data (Unaudited)
The tables below provide the Company’s unaudited consolidated results of operations for each of the four quarters in 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(in millions, except per share data)(1)
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
2020
|
|
2020
|
|
2020
|
|
2020
|
Net sales — Cigarettes(2)
|
$
|
2,835.0
|
|
|
$
|
3,000.2
|
|
|
$
|
2,892.6
|
|
|
$
|
2,582.7
|
|
Net sales — Food/Non-food(2)
|
1,417.1
|
|
|
1,502.4
|
|
|
1,371.3
|
|
|
1,356.6
|
|
Net sales(2)
|
4,252.1
|
|
|
4,502.6
|
|
|
4,263.9
|
|
|
3,939.3
|
|
Cost of goods sold(3)
|
4,030.3
|
|
|
4,267.6
|
|
|
4,050.8
|
|
|
3,720.9
|
|
Gross profit
|
221.8
|
|
|
235.0
|
|
|
213.1
|
|
|
218.4
|
|
Warehousing and distribution expenses(3)
|
133.4
|
|
|
140.4
|
|
|
125.5
|
|
|
142.4
|
|
Selling, general and administrative expenses
|
61.2
|
|
|
57.3
|
|
|
59.8
|
|
|
63.9
|
|
Amortization of intangible assets
|
2.5
|
|
|
2.5
|
|
|
2.4
|
|
|
2.3
|
|
Total operating expenses
|
197.1
|
|
|
200.2
|
|
|
187.7
|
|
|
208.6
|
|
Income from operations
|
24.7
|
|
|
34.8
|
|
|
25.4
|
|
|
9.8
|
|
Interest expense, net
|
(2.1)
|
|
|
(2.1)
|
|
|
(2.8)
|
|
|
(3.5)
|
|
Foreign currency transaction losses, net
|
(0.2)
|
|
|
(0.5)
|
|
|
—
|
|
|
(0.2)
|
|
Income before income taxes
|
22.4
|
|
|
32.2
|
|
|
22.6
|
|
|
6.1
|
|
Income tax provision
|
(3.4)
|
|
|
(9.2)
|
|
|
(5.7)
|
|
|
(1.8)
|
|
Net income
|
19.0
|
|
|
23.0
|
|
|
16.9
|
|
|
4.3
|
|
Basic net income per share
|
$
|
0.42
|
|
|
$
|
0.51
|
|
|
$
|
0.38
|
|
|
$
|
0.09
|
|
Diluted net income per share
|
$
|
0.42
|
|
|
$
|
0.51
|
|
|
$
|
0.38
|
|
|
$
|
0.09
|
|
Shares used to compute basic net income per share
|
44.9
|
|
|
45.1
|
|
|
45.1
|
|
|
45.3
|
|
Shares used to compute diluted net income per share
|
45.4
|
|
|
45.4
|
|
|
45.3
|
|
|
45.4
|
|
|
|
|
|
|
|
|
|
Excise taxes(2)
|
$
|
824.8
|
|
|
$
|
888.3
|
|
|
$
|
857.4
|
|
|
$
|
770.3
|
|
Cigarette inventory holding gains(4)
|
9.4
|
|
|
5.6
|
|
|
7.7
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense
|
9.2
|
|
|
5.4
|
|
|
8.3
|
|
|
7.8
|
|
Depreciation and amortization
|
17.7
|
|
|
16.5
|
|
|
16.7
|
|
|
15.7
|
|
Stock-based compensation
|
3.5
|
|
|
2.6
|
|
|
2.1
|
|
|
2.0
|
|
Capital expenditures
|
9.3
|
|
|
8.1
|
|
|
4.8
|
|
|
5.0
|
|
____________________________________________
(1) Totals may not agree with full year amounts due to rounding.
(2) Excise taxes are included as a component of net sales and cost of goods sold.
(3) Warehousing and distribution expenses are not included as a component of the Company’s cost of goods sold. This presentation may differ from that of other registrants.
(4) Cigarette inventory holding gains represent income related to cigarette inventories on hand at the time cigarette manufacturers increase their prices. Such increases are reflected in customer pricing for all subsequent sales, including sales of inventory on hand at the time of the increase. Of the $31.8 million of cigarette inventory holding gains in 2020, $29.8 million and $2.0 million were attributable to the U.S. and Canada, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(in millions, except per share data)(1)
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
Net sales — Cigarettes(2)
|
$
|
2,711.2
|
|
|
$
|
2,880.0
|
|
|
$
|
2,834.0
|
|
|
$
|
2,467.5
|
|
Net sales — Food/Non-food(2)
|
1,443.6
|
|
|
1,542.6
|
|
|
1,505.0
|
|
|
1,286.6
|
|
Net sales(2)
|
4,154.8
|
|
|
4,422.6
|
|
|
4,339.0
|
|
|
3,754.1
|
|
Cost of goods sold(3)
|
3,924.3
|
|
|
4,176.0
|
|
|
4,100.1
|
|
|
3,545.9
|
|
Gross profit
|
230.5
|
|
|
246.6
|
|
|
238.9
|
|
|
208.2
|
|
Warehousing and distribution expenses(3)
|
140.2
|
|
|
148.6
|
|
|
143.2
|
|
|
134.2
|
|
Selling, general and administrative expenses
|
63.1
|
|
|
61.8
|
|
|
64.6
|
|
|
65.9
|
|
Amortization of intangible assets
|
2.3
|
|
|
2.3
|
|
|
2.7
|
|
|
2.7
|
|
Total operating expenses
|
205.6
|
|
|
212.7
|
|
|
210.5
|
|
|
202.8
|
|
Income from operations
|
24.9
|
|
|
33.9
|
|
|
28.4
|
|
|
5.4
|
|
Interest expense, net
|
(3.6)
|
|
|
(4.2)
|
|
|
(3.2)
|
|
|
(3.4)
|
|
Foreign currency transaction (losses) gains, net
|
(0.5)
|
|
|
0.9
|
|
|
(1.0)
|
|
|
(0.2)
|
|
Income before income taxes
|
20.8
|
|
|
30.6
|
|
|
24.2
|
|
|
1.8
|
|
Income tax provision
|
(4.6)
|
|
|
(8.1)
|
|
|
(6.5)
|
|
|
(0.5)
|
|
Net income
|
16.2
|
|
|
22.5
|
|
|
17.7
|
|
|
1.3
|
|
Basic net income per share
|
$
|
0.35
|
|
|
$
|
0.49
|
|
|
$
|
0.39
|
|
|
$
|
0.03
|
|
Diluted net income per share
|
$
|
0.35
|
|
|
$
|
0.49
|
|
|
$
|
0.38
|
|
|
$
|
0.03
|
|
Shares used to compute basic net income per share
|
45.7
|
|
|
45.8
|
|
|
45.9
|
|
|
45.9
|
|
Shares used to compute diluted net income per share
|
46.0
|
|
|
46.1
|
|
|
46.1
|
|
|
46.0
|
|
|
|
|
|
|
|
|
|
Excise taxes(2)
|
$
|
819.7
|
|
|
$
|
884.1
|
|
|
$
|
868.8
|
|
|
$
|
768.7
|
|
Cigarette inventory holding gains(4)
|
10.1
|
|
|
0.3
|
|
|
3.8
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
Candy inventory holding gain(5)
|
1.1
|
|
|
5.8
|
|
|
—
|
|
|
—
|
|
LIFO expense
|
5.9
|
|
|
7.3
|
|
|
7.4
|
|
|
7.0
|
|
Depreciation and amortization
|
15.1
|
|
|
14.9
|
|
|
15.5
|
|
|
15.4
|
|
Stock-based compensation
|
2.4
|
|
|
3.1
|
|
|
2.2
|
|
|
1.9
|
|
Capital expenditures
|
7.5
|
|
|
6.1
|
|
|
4.1
|
|
|
5.1
|
|
______________________________________________
(1) Totals may not agree with full year amounts due to rounding.
(2) Excise taxes are included as a component of net sales and cost of goods sold.
(3) Warehousing and distribution expenses are not included as a component of the Company’s cost of goods sold. This presentation may differ from that of other registrants.
(4) Cigarette inventory holding gains represent income related to cigarette inventories on hand at the time cigarette manufacturers increase their prices. Such increases are reflected in customer pricing for all subsequent sales, including sales of inventory on hand at the time of the increase. Of the $23.0 million of cigarette inventory holding gains in 2019, $21.3 million and $1.7 million were attributable to the U.S. and Canada, respectively.
(5) Candy inventory holding gains represent income related to candy inventories on hand at the time candy manufacturers increase their prices. Such increases are reflected in customer pricing for all subsequent sales, including sales of inventory on hand at the time of the increase. In 2019, the $6.9 million of candy inventory holding gains were attributable to the U.S.
18. Subsequent Events
Shareholder Return Plan
In February of 2021, the Company’s Board of Directors approved a new, three-year $375 million shareholder return plan, supporting increased share buy-backs and growth in the Company’s dividend. The new plan replaces the previous $60 million stock repurchase program.
Eleventh Amendment to the Credit Facility
On February 26, 2021, the Company entered into an Eleventh Amendment to its Credit Facility, which primarily extends the maturity date from March 28, 2022 to February 26, 2026. With the Eleventh Amendment, the size and expansion feature of the Credit Facility remain at $750 million and $200 million, respectively. In addition to extending the maturity date of the Credit Facility, among other changes, the Eleventh Amendment increases certain threshold amounts for reporting and notices and increases the size of certain baskets. The Eleventh Amendment also adds certain additional covenant baskets and incorporates customary language regarding LIBOR replacement, defaulting lenders, electronic execution, Bail-in acknowledgement and letters of credit. All obligations under the Credit Facility will continue to be secured by first-priority liens on substantially all of the Company’s present and future assets.