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Acquisition of Farner-Bocken Company
On July 10, 2017, the Company completed the acquisition of substantially all of the assets of Farner-Bocken Company (“Farner-Bocken”), a regional convenience wholesaler headquartered in Carroll, Iowa. The acquisition increased the Company’s market presence primarily in the Midwestern U.S. and will further enhance the Company’s ability to cost effectively service national and regional retailers. The acquisition was accounted for as a business combination in accordance with ASC 805 - Business Combinations. The total purchase consideration was $174.0 million of which $169.0 million was paid at closing. The remaining $5.0 million indemnity holdback was released in annual installments over two years from the date of the agreement, less amounts related to indemnification claims made pursuant to the purchase agreement, if any. In July 2018 and 2019, the Company released $2.5 million, respectively, as annual installments of the indemnity holdback. The acquisition was funded through borrowings under the Company’s revolving credit facility.
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches, all Level 3 measurements under the fair value hierarchy. The income approach was primarily used to value the intangible assets, consisting primarily of acquired customer relationships and trade names. The income approach estimates fair value for an asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used primarily for property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.
The Company determined the fair values of tangible fixed assets and intangible assets acquired with the assistance of independent valuation consultants. Goodwill is calculated as the difference between the acquisition date fair value of the total purchase consideration and the fair value of the net assets acquired, and represents the future economic benefits that the Company expects to achieve as a result of the acquisition. The following table presents the assets acquired and liabilities assumed, based on their fair values and purchase consideration as of the acquisition date (in millions):
July 10, 2017
Accounts receivable$43.2 
Inventories35.5 
Deposits and prepayments10.2 
Other receivables0.4 
Property and equipment43.1 
Goodwill (tax deductible)36.8 
Other intangible assets22.6 
Less: Capital lease liability(15.8)
Less: Accrued liabilities(2.0)
   Total consideration$174.0 

Based on the Company’s final valuation, intangible assets acquired include the following (in millions, except useful life data):
 Fair ValueUseful Life in Years
Customer relationships$19.7 
9-11
Non-competition agreements0.1 
4-6
Trade names2.8
1-2
   Total other intangible assets$22.6 

The results of Farner-Bocken’s operations have been included in the Company’s consolidated financial statements since the date of acquisition. The Company incurred $1.8 million of acquisition-related costs, which are included in selling, general and administrative expenses for the year ended December 31, 2017. Simultaneous with the closing of the acquisition, the Company executed a capital lease for a warehouse facility in Carroll, Iowa. The lease had an initial 15 year term and an initial capital lease obligation of $15.8 million based on the valuation as of December 31, 2017.
Pro Forma Information
The consolidated financial statements for 2017 include Farner-Bocken’s results from operations from July 10, 2017 through December 31, 2017, with the Company’s consolidated statement of income including $703.4 million in net sales and $9.4 million in operating income.
The following unaudited pro forma information presents the combined results of operations as if the asset acquisition of Farner-Bocken had occurred as of January 1, 2016, giving effect on a pro forma basis to purchase accounting adjustments such as depreciation of property and equipment, amortization of intangible assets, and acquisition-related costs. The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had the assets of Farner-Bocken been operated as part of the Company since January 1, 2016. Furthermore, the pro forma results do not intend to project the future results of operations of the Company (in millions, except per share amounts):
(Unaudited)
Year Ended December 31,
2017(1)
2016(1)
Pro formaPro forma
Net sales$16,427.9 $15,973.6 
Net income38.1 63.6 
Basic and diluted earnings per share0.82 1.37 
__________________________________________________
(1)    Includes consolidated results of Farner-Bocken.
174.0169.05.0two years2.52.5The following table presents the assets acquired and liabilities assumed, based on their fair values and purchase consideration as of the acquisition date (in millions):
July 10, 2017
Accounts receivable$43.2 
Inventories35.5 
Deposits and prepayments10.2 
Other receivables0.4 
Property and equipment43.1 
Goodwill (tax deductible)36.8 
Other intangible assets22.6 
Less: Capital lease liability(15.8)
Less: Accrued liabilities(2.0)
   Total consideration$174.0 
43.235.510.20.443.136.822.615.82.0174.0
Based on the Company’s final valuation, intangible assets acquired include the following (in millions, except useful life data):
 Fair ValueUseful Life in Years
Customer relationships$19.7 
9-11
Non-competition agreements0.1 
4-6
Trade names2.8
1-2
   Total other intangible assets$22.6 
19.70.12.822.61.81515.8703.49.4
The following unaudited pro forma information presents the combined results of operations as if the asset acquisition of Farner-Bocken had occurred as of January 1, 2016, giving effect on a pro forma basis to purchase accounting adjustments such as depreciation of property and equipment, amortization of intangible assets, and acquisition-related costs. The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had the assets of Farner-Bocken been operated as part of the Company since January 1, 2016. Furthermore, the pro forma results do not intend to project the future results of operations of the Company (in millions, except per share amounts):
(Unaudited)
Year Ended December 31,
2017(1)
2016(1)
Pro formaPro forma
Net sales$16,427.9 $15,973.6 
Net income38.1 63.6 
Basic and diluted earnings per share0.82 1.37 
__________________________________________________
(1)    Includes consolidated results of Farner-Bocken.
16,427.915,973.638.163.60.821.379114612
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
    Annual Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
            For the Fiscal Year Ended December 31, 2020
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
            For the transition period from                      to                     .  
Commission File Number: 000-51515
https://cdn.kscope.io/d74df5835dfaad99b2e258732a71163e-core-20201231_g1.jpg
Core-Mark Holding Company, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware20-1489747
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1500 Solana Boulevard, Suite 340076262
Westlake,Texas
(Address of principal executive offices)(Zip Code)
(940) 293-8600
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:  
Title of each class
 
Trading symbol
Name of each exchange
on which registered
 
Common Stock, par value $0.01 per shareCORENASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
Yes   No   
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter: $1,104,348,744.
As of February 22, 2021, the registrant had 45,162,600 shares of its common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K will be included in an amendment to this Form 10-K or incorporated by reference to the registrant’s 2021 definitive proxy statement to be filed pursuant to Regulation 14A.



FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
  Page
 
 
 
 


i


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K that are not statements of historical fact are forward-looking statements made pursuant to the safe-harbor provisions of the Securities Exchange Act of 1934 and the Securities Act of 1933.
Forward-looking statements in some cases can be identified by the use of words such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “would,” “project,” “predict,” “continue,” “plan,” “propose” or other similar words or expressions. Forward-looking statements are made only as of the date of this Form 10-K and are based on our current intent, beliefs, plans and expectations. They involve risks and uncertainties that could cause actual future results, performance or developments to differ materially from historical results or those described in or implied by such forward-looking statements.
A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Part I, Item 1A, “Risk Factors” of this Form 10-K. Management of Core-Mark Holding Company, Inc. (“Core-Mark”) undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

SEC Regulation - Non-GAAP Information

The financial statements in this Annual Report on Form 10-K are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Core-Mark uses certain non-GAAP financial measures including (i) Adjusted EBITDA, (ii) net sales, less excise taxes, (iii) remaining gross profit (including cigarette remaining gross profit and food/non-food remaining gross profit), (iv) remaining gross profit margin (including cigarette remaining gross profit margin and food/non-food remaining gross profit margin), (v) remaining gross profit margin less excise taxes (including cigarette remaining gross profit margin less excise taxes and food/non-food remaining gross profit margin less excise taxes), (vi) cigarette remaining gross profit per carton, and (vii) operating expenses (and the components thereof) as a percentage of remaining gross profit. We believe these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful period-to-period evaluation. We also believe these measures allow investors to view the results in a manner similar to the method used by our management. Management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in Core-Mark’s underlying business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. These measures may be defined differently than other companies and therefore, such measures used by other companies may not be comparable to ours. We strongly encourage readers to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. More information about such measures are included in Item 7 - Non-GAAP Financial Information.

ii

Table of Contents

PART I
ITEM 1.     BUSINESS
Unless the context indicates otherwise, all references in this Annual Report on Form 10-K to “Core-Mark,” “the Company,” “we,” “us,” or “our” refer to Core-Mark Holding Company, Inc. and its subsidiaries.

Company Overview
Core-Mark is one of the largest wholesale distributors to the convenience retail industry in North America, providing sales, marketing, technology, distribution and logistics services to approximately 40,000 customer locations across the United States (“U.S.”) and Canada through 32 distribution centers (excluding two distribution facilities we operate as a third-party logistics provider). Our origins date back to 1888, when Glaser Bros., a family-owned-and-operated candy and tobacco distribution business, was founded in San Francisco, California.
Our mission is to be the most valued marketer of fresh, food and broad-line supply solutions to the convenience retail industry. Consistent with this mission, our strategic framework is centered around three key initiatives: growing sales and margins faster than the industry, providing industry-leading category management solutions and leveraging our cost structure.
We operate in an industry where, in 2019, total in-store sales at convenience retail locations across both the U.S. and Canada were approximately $293.5 billion. In the U.S., total in-store sales at convenience locations in 2019 were approximately $251.9 billion, an increase of 4.0% over the prior year, based on the National Association of Convenience Stores (“NACS”) State of the Industry (“SOI”) report. Over the ten years from 2010 through the end of 2019, U.S. convenience in-store sales have increased by a compounded annual growth rate of approximately 2.8%. The most recent NACS Convenience Industry Store Count noted that the U.S. had approximately 153,000 convenience store locations as of December 31, 2019. Approximately 100,000, or 65%, of the convenience stores in the U.S. are considered independents with ten or fewer stores. In Canada, we estimate that total in-store sales at convenience locations in 2019 were approximately CAD $55.2 billion generated through approximately 25,000 stores, based on the Convenience Industry Council of Canada 2020 SOI report.
Core-Mark is one of two national distributors to the convenience store industry in the U.S. and is the largest distributor in Canada. Our established national market presence rests primarily with our ability to service customers in every geographic region within the U.S. through 27 distribution centers and to service customers in Canada through our five Canadian distribution centers. We offer a wide array of products, marketing programs and services that leverage our scale to assist our customers in growing their business. Our leading category management strategies including our Vendor Consolidation Initiative (“VCI”), Focused Marketing Initiative (“FMI”) and “Fresh” products and food service programs have a proven track record of helping our customers grow their sales and profits at an accelerated rate. We believe this gives us a strong competitive advantage in the North American convenience retail industry.
Company Highlights
In 2020, our operating results were impacted by the effects of the novel coronavirus pandemic (“COVID-19”). We experienced a significant shift in our sales mix as a result of changes in consumer buying habits related to the COVID-19 pandemic and, in response, implemented cost savings initiatives which allowed us to achieve the following significant accomplishments:
Record net sales of $16.96 billion.
Our net income increased 9.5% to $63.2 million.
Adjusted EBITDA increased 6.0% to $202.2 million.
Although we are seeing signs of recovery as consumer purchase trends improve, we expect future results to continue to be impacted by the effects of the COVID-19 pandemic.
Our growth the past several years has been driven primarily by our business strategies described more fully below. We believe these strategies have positioned us to continue to grow our approximate 7% market share of North American convenience store merchandise sales, and to take advantage of growth opportunities through acquisition and with other retail store formats.

1


Business Strategy Overview
Our overarching strategic mission is to increase shareholder return by growing faster and more profitably than our industry, being the industry leader in category management solutions and leveraging operating costs to increase profitability. We accomplish these strategic priorities through numerous vehicles designed to differentiate Core-Mark from its competition and bring value to convenience retail formats across our North American distribution area. Some key success drivers in this pursuit are:
Fresh Products and Food Service. There is an increasing trend among consumers to purchase fresh food and food service products from convenience and other retail store formats. To meet this demand, we have modified and upgraded our refrigerated capacity, including investing in chill docks, and tri-temperature (“tri-temp”) trailers, which provide the infrastructure to deliver a significant range of chilled items including milk, produce, fresh and food service items to retail outlets. We have established partnerships with leading national commissaries, strategically-located dairies, fresh kitchens, food service providers and bakeries to further enable us to deliver premium consumer items such as fresh pizza, fried chicken, fresh made sandwiches, wraps, cut-fruit, parfaits, pastries, doughnuts, bread and home meal replacement solutions. We continue to promote our fresh products through the development of unique and comprehensive marketing and equipment programs that assist retailers in showcasing their fresh product offerings. We believe our investments in infrastructure, combined with our strategically located suppliers and in-house expertise, positions us as a leader in providing fresh food and food service products and programs to the convenience retail industry. Fresh items are increasingly driving consumer decisions and will continue to be an important category.
Vendor Consolidation Initiative. We expect our VCI program will allow us to continue to grow our sales by capitalizing on the highly fragmented supply chain that services the convenience retail industry. A convenience retailer generally receives store merchandise through a large number of direct-store deliveries. This represents a highly inefficient and costly process for retailers. Our VCI program targets inefficiencies in the convenience store supply chain by offering the retailer the ability to receive multiple weekly deliveries for their products, including dairy and other merchandise they previously purchased from multiple direct-store delivery companies. This simplifies the customer supply chain and provides retailers with an opportunity to improve inventory turns and working capital, reduce operational and transaction costs, and greatly diminish their out-of-stocks.
Focused Marketing Initiative. Designed to enhance our relationship with our independent customer base and to further differentiate us in the market place, our FMI program is centered on increasing the sales and profitability of the independent store through improved category insights, optimized retail price strategy and demographic decision-making, along with providing Core-Mark’s marketing solutions to create a comprehensive retail marketing strategy. We believe our innovative approach, which focuses on building a trusted partnership with our customers, has established us as the market leader in providing valuable marketing and supply chain solutions to the convenience retail industry.
Center of Excellence (“COE”). During the first quarter of 2020, we opened the COE at our Westlake, Texas campus. The COE is a dynamic collaboration space for leaders in the convenience retail channel designed to inspire, educate and challenge visitors to think big in growing their sales and profits. Within the 14,000 sq. ft. space, we have created an environment that combines forward-looking consumer trends with real time data, which will allow us to align with our customers and define the future of convenience. The COE is physically designed with five unique hubs – Insights and Data Center, Collaboration Hub, Store Innovation, Culinary Test Kitchen and People Training Facility – to deliver an immersive experience for convenience retailers and strategic vendors.
Technology & Digital Solutions. We are committed to providing tangible value to our retail partners, and in doing so will create a level of differentiation from our competition. We have recently formed exclusive strategic partnerships that will bring operational and business-to-consumer technology solutions to our retailers, that will help them grow their sales, increase market share, meet consumer expectations and more effectively manage their business. These solutions include a two-tiered loyalty platform, enabling retailers to better connect and engage with their consumers to drive behavior in a meaningful way. Additionally, we offer scan data aggregation software and back-office solutions that will help retailers better manage their business and also capitalize on consumer packaged goods strategies for their benefit. And lastly, we can provide a frictionless checkout and payment solution, designed to enhance the experience of the consumers, while, over time, reducing demands on labor. As technologies advance, we are committed to providing relevant and compelling solutions, in our pursuit to be the leader in category management.
Acquisitions and Expansion. We believe there remains a significant opportunity to increase our market presence and revenue growth through strategic and opportunistic acquisitions and the continued expansion of our facility infrastructure. We completed five acquisitions and added four primary distribution centers between 2011 and 2020, which expanded our distribution network, product selection and customer base. We will continue to be opportunistic in pursuing acquisitions that
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allow further leveraging of our geographic footprint and bring Fresh Products, Food Service and our other category management solutions to a broader customer base.
Business Transformation. As a contributor to cost leverage, we have embarked on a multiyear transformation and efficiency process. Starting with the implementation of SAP in 2016, we sought to bring a technology solution that would help build a more efficient infrastructure for our finance organization. Leveraging this tool, we have consolidated numerous transactional activities such as accounts payable and payment processing along with enhancing value in our overall accounting function. In addition to our finance transformation, we have completed a significant sales transformation focused on driving growth and compensation alignment. From the operations and transportation front, we continue to add technologies, such as Omni-Trac One, pick-to-voice, and robotic tote sortation and stacking, and continue to look for other leverage and efficiency opportunities to provide further cost leverage.
Competitive Strengths
We believe we have the following fundamental competitive strengths, which form the foundation for our business strategy:
Innovation and Flexibility. Wholesale distributors typically provide convenience retailers access to a broad product line, the ability to place small quantity orders, inventory management and access to trade credit. Our capability to increase sales and profitability with existing and new customers is based on our ability to deliver consistently high levels of service, innovative category management and marketing programs, technology solutions and logistics support. We believe we are the best in class at capitalizing on emerging trends and bringing retailers our unique category management solutions such as fresh foods, food service solutions and healthier options, as well as our VCI and FMI initiatives.
Distribution Capabilities. The wholesale distribution industry is highly fragmented and historically has consisted of a large number of small, privately-owned businesses and a small number of large, full-service wholesale distributors serving multiple geographic regions. Relative to smaller competitors, large national distributors such as Core-Mark benefit from several competitive advantages including: increased purchasing power, the ability to service large national chain accounts, economies of scale in sales and operations, and the resources to invest in information technology and other productivity-enhancing technologies. Our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, availability of multi-time per week delivery through the elimination of unnecessary vendors and speed of delivery, and optimizing inventory management.
Customers
We service approximately 40,000 customer locations in all 50 states in the U.S., five Canadian provinces and two Canadian territories. Our traditional convenience store customers include many of the national and super-regional convenience store operators, as well as independently owned convenience stores. Our alternative outlet customers comprise a variety of store formats, including grocery stores, drug stores, mass merchants, liquor stores, cigarette and tobacco shops, hotel gift shops, military exchanges, college and corporate campuses, casinos, airport concessions and other specialty and small format stores that carry convenience products.
Our top ten customers accounted for approximately 41% of our net sales in 2020 including Murphy U.S.A., our largest customer, which accounted for 13.9% of our total net sales.
Products
We purchase a variety of brand name and private label products, representing approximately 61,000 stock keeping units (“SKUs”), from suppliers and manufacturers. Cigarette products represent less than 4% of our total SKUs purchased. We offer customers a variety of food/non-food products, including, candy, snacks, groceries, food, fresh products, dairy, bread, beverages, other tobacco products, alternative nicotine products, general merchandise, and health and beauty care products.
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Below is a comparison of our net sales mix by primary product category for the last three years (in millions, except percentages):
Year Ended December 31,
202020192018
Product CategoryNet Sales% of Net SalesNet Sales% of Net SalesNet Sales% of Net Sales
Cigarettes$11,310.5 66.7 %$10,892.7 65.3 %$10,974.5 66.9 %
Food1,575.8 9.3 1,746.4 10.5 1,659.0 10.1 
Fresh509.3 3.0 502.8 3.0 474.2 2.9 
Candy 1,004.0 5.9 1,039.0 6.2 992.0 6.1 
Other tobacco products (“OTP”)1,558.6 9.2 1,438.9 8.6 1,387.2 8.5 
Health, beauty & general801.3 4.7 847.2 5.1 711.5 4.3 
Beverages197.2 1.2 202.1 1.2 191.0 1.2 
Equipment/other1.2 — 1.4 — 5.9 — 
Total food/non-food products5,647.4 33.3 %5,777.8 34.7 %5,420.8 33.1 %
Total net sales
$16,957.9 100.0 %$16,670.5 100.0 %$16,395.3 100.0 %
Cigarette Products. We purchase cigarette products from major U.S. and Canadian manufacturers. We have no long-term cigarette purchase agreements and buy substantially all of our products on an as-needed basis. Cigarette manufacturers historically offer structured incentive programs to wholesalers based on maintaining market share and executing promotional programs. Net sales of the cigarettes category increased 3.8% in 2020 to $11,310.5 million, accounting for approximately 66.7% of our total net sales and 25.2% of our total gross profit. We control major purchases of cigarettes centrally to optimize inventory levels and purchasing opportunities.
In 2020, our cigarette carton sales in the U.S. and Canada increased 0.2% and 0.7%, respectively. The increase in carton sales in the U.S. was driven primarily by an increase in sales to existing customers, partially offset by a net decrease in the number of stores serviced during the year. Cigarette carton sales to existing customers during 2020 outperformed the historical industry rate of decline arising primarily from changes in consumer buying behavior as a result of the novel coronavirus (“COVID-19”) pandemic.
In the industry overall, U.S. and Canadian cigarette consumption has steadily declined over the last decade. Based on data compiled from the U.S. Department of Agriculture - Economic Research Service and provided by the Tobacco Merchants Association (“TMA”), total cigarette consumption in the U.S. declined from 309 billion cigarettes in 2010 to 229 billion cigarettes in 2019, or a compounded annual decline of approximately 3.0%. Total cigarette consumption declined in Canada from 32 billion cigarettes in 2010 to 25 billion cigarettes in 2019, or a compounded annual decline of approximately 2.4% based on statistics provided by the TMA. Although it is difficult to predict future cigarette consumption trends given the current COVID-19 pandemic environment, longer term we expect overall cigarette consumption to return to historical levels of decline. We expect cigarette manufacturers will continue to raise prices for the foreseeable future as carton sales decline in order to maintain or enhance their overall profitability.
Excise taxes are levied on cigarettes and other tobacco products by the U.S. and Canadian federal governments and are also imposed by various states, localities and provinces. We collect state, local, and provincial excise taxes from our customers and remit these amounts to the appropriate authorities based on the credit terms, if applicable, extended by each jurisdiction. Net sales and cost of sales includes amounts related to state, local and provincial excise taxes which were $3.3 billion, $3.3 billion and $3.5 billion for 2020, 2019 and 2018, respectively.
Food/Non-food Products. Our food products include food, candy, snacks, groceries, beverages and fresh products such as sandwiches, juices, salads, produce, dairy and bread. Our non-food products include cigars, tobacco, alternative nicotine products, health and beauty care products, general merchandise and equipment. In 2020, we experienced a significant shift in our sales mix as a result of changes in consumer buying habits related to the COVID-19 pandemic. Net sales of the combined food/non-food product categories declined 2.3% in 2020 to $5,647.4 million, which was 33.3% of our total net sales. While the changes in consumer buying habits impacted most of our food/non-food products, the largest sales declines were in the food, HB&G and candy categories, partially offset by growth in OTP sales. In addition to the impact of the COVID-19 pandemic on consumer buying habits, our HB&G category was also impacted by a decline in sales of alternative nicotine products due to the enactment of regulations governing the sale of flavored products. Combined sales of our Food and Fresh categories decreased $164.1 million, or 7.3%, to $2,085.1 million and the HB&G category decreased $45.9 million or 5.4% in 2020. Total sales of OTP increased $119.7 million, or 8.3%.
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Our strategy is to continue to grow sales of food/non-food products through our category management solutions including Fresh and Food Service, VCI and FMI. In order to take advantage of the significantly higher margins earned by food/non-food products, two of our key business strategies, Fresh and VCI, focus primarily on the highest margin categories in the food/non-food group. Gross profit for food/non-food categories declined $47.1 million, or 6.6%, to $664.7 million in 2020, which was 74.8% of our total gross profit. The decline in food/non-food gross profit in 2020 was driven primarily by the impact of the COVID-19 pandemic and the shift in sales mix away from higher margin product categories such as food and HB&G.

Suppliers
We purchase products for resale from approximately 2,400 active trade suppliers and manufacturers located across the U.S. and Canada. In 2020, we purchased approximately 81% of our products from our top 20 suppliers, with our top two suppliers, Altria Group, Inc. (the parent company of Philip Morris USA, Inc.) and R.J. Reynolds Tobacco Company, accounting for approximately 33% and 25% of our purchases, respectively. We coordinate our purchasing from suppliers by negotiating, on a company-wide basis, special arrangements to obtain volume discounts and additional incentives, while also taking advantage of promotional and marketing incentives offered to us as a wholesale distributor. In addition, buyers in each of our distribution facilities purchase products directly from manufacturers, improving product mix and availability for individual markets.
Operations
As of December 31, 2020, we operated a network of 32 distribution centers in the U.S. and Canada (excluding two distribution facilities we operate as a third-party logistics provider). Twenty-seven of our distribution centers are located in the U.S. and five are located in Canada.
The map below depicts the scope of our operations and the names of our distribution centers.
https://cdn.kscope.io/d74df5835dfaad99b2e258732a71163e-core-20201231_g2.jpg
We operate five consolidation centers which buy products from our suppliers in bulk quantities and then redistribute the products to many of our other distribution centers. The products purchased by our consolidation centers may include frozen and chilled items, candy, snacks, beverages, health and beauty care and general merchandise products. We operate two additional facilities as a third-party logistics provider dedicated solely to supporting the logistics and management requirements of one of our major customers, Alimentation Couche-Tard, Inc. (“Couche-Tard”). These distribution facilities are located near Phoenix, Arizona and San Antonio, Texas.
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Our proprietary Distribution Center Management System platform provides our distribution centers with the flexibility to adapt rapidly to changing business needs and allows them to provide our customers with necessary information technology requirements and integration capabilities.
Distribution
As of December 31, 2020, we employed approximately 2,100 personnel in our transportation department, including delivery drivers, shuttle drivers, routers, training supervisors and managers, all of whom focus on achieving safe, on-time deliveries. Our daily orders are picked and loaded nightly in route sequence, with the majority reaching their destination within 24 hours. At December 31, 2020, our distribution fleet consisted of approximately 1,600 leased tractors and trailers and approximately 1,100 additional owned tractors and trailers. Our “tri-temp” trailer fleet gives us the capability to deliver frozen, chilled and non-refrigerated goods in one delivery and provides us the multiple temperature zone capability needed to support our focus on delivering fresh products to our customers. Substantially all of our trailers were “tri-temp” as of December 31, 2020.
A portion of our fleet runs on Compressed Natural Gas (“CNG”), which allows us to reduce our carbon footprint and lower our transportation costs. We utilize seven CNG stations, two of which we own (located in Wilkes-Barre, Pennsylvania and Corona, California). The other five are owned and operated by U.S. Oil (a division of U.S. Venture, Inc.) under the name GAIN Clean Fuel (“GAIN”) and are located in Aurora, Colorado; Forrest City, Arkansas; Sanford, North Carolina; Atlanta, Georgia; and Tampa, Florida. In addition to providing fuel to our fleet, the GAIN stations are also open to other public fleets for fueling.
Competition
Competition within the industry is based primarily on the range and quality of the services provided, price, product selection and the reliability of wholesalers’ logistics as well as proximity to the customer’s stores. We operate from a perspective that focuses heavily on flexibility and providing outstanding customer service, order fulfillment rates, on-time delivery, innovative marketing solutions and merchandising support as well as competitive pricing.
Core-Mark is one of the two largest wholesale convenience distributors (measured by annual sales) serving North America. We service both convenience store chain customers and independent operators with ten or fewer stores which comprise approximately 65% of the convenience retail store market. The McLane Company, Inc., a subsidiary of Berkshire Hathaway Inc., our largest competitor, focuses primarily on servicing large regional or national convenience store chains as well as chain customers in other trade channels. There are two other large companies that primarily cover the eastern half of the U.S.: H.T. Hackney Company and Eby-Brown Company, a division of Performance Food Group. In addition, there are many local distributors serving small regional chains and independent convenience retailers. In Canada, in addition to Core-Mark, several companies make-up the competitive landscape. Wallace & Carey, Inc., has national distribution capabilities. Sobeys Inc. is a large national convenience store and grocery wholesaler.
Beyond the traditional wholesale supply channels, we face potential competition from at least three other supply avenues. First, certain consumer product manufacturers such as Anheuser-Busch Companies, Inc., MillerCoors LLC, The Coca-Cola Company, and PepsiCo (including its Frito-Lay, Inc. division) deliver their products directly to convenience retailers. Secondly, club wholesalers such as Costco Wholesale Corporation and Sam’s West, Inc. (“Sam’s Club”) provide a limited selection of products at generally competitive prices; however, they often have limited delivery options and limited services. Finally, some large convenience retail chains self-distribute products due to the geographic density of their stores and their belief that they can economically service such locations.
We face competition from the diversion into certain U.S. and Canadian markets of cigarettes intended for sale outside of these markets, including the sale of cigarettes in non-taxable jurisdictions, inter-state/provincial and international smuggling of cigarettes, the sale of counterfeit cigarettes by third parties, the sale of cigarettes by third parties over the internet and by other means designed to avoid collection of applicable taxes. The competitive environment also continues to face a continued influx of generic products, tobacco, and nicotine alternatives that challenge sales of higher priced cigarettes.
Working Capital Practices
We sell products on credit terms to our customers that averaged, as measured by days sales outstanding, about nine days for each of 2020, 2019 and 2018. Credit terms may impact pricing and are competitive within our industry. Many of our customers remit payment electronically, which facilitates efficient and timely monitoring of payment risk. Canadian days sales outstanding in receivables tend to be lower as Canadian industry practice is for shorter credit terms than in the U.S.
We maintain our inventory of products based on the level of sales of the particular product and manufacturer replenishment cycles. The number of days a particular item of inventory remains in our distribution centers varies by product and is principally driven by the turnover of that product and economic order quantities. We typically order and carry in
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inventory additional amounts of certain critical products to assure high order fulfillment levels for these items. Periodically, we may carry higher levels of inventory to take advantage of anticipated manufacturer price increases. The number of days of cost of sales in inventory averaged about 18 days, 17 days and 14 days, in 2020, 2019 and 2018, respectively. The cigarette category averaged 14 days, 12 days and 7 days, in 2020, 2019 and 2018, respectively. The food/non-food categories averaged 27 days, 27 days and 25 days in 2020, 2019 and 2018, respectively.
We obtain terms from our vendors and certain taxing jurisdictions based on industry practices, consistent with our credit standing. We take advantage of the full complement of term offerings, which may include enhanced cash discounts for earlier payment or prepayment. Terms for our accounts payable and cigarette and tobacco taxes payable range anywhere from three days prepaid to 120 days credit. Days payable outstanding for both categories, excluding the impact of prepayments, averaged 10 days, 10 days and 11 days, in 2020, 2019 and 2018, respectively.
Employees and Human Capital Resources
The following chart provides a breakdown of our employees by function and geographic region (including employees at our third-party logistics facilities) as of December 31, 2020:
TOTAL EMPLOYEES BY BUSINESS FUNCTION
 U.S.CanadaTotal
Sales and marketing1,020 70 1,090 
Warehousing and distribution4,987 467 5,454 
Management, administration, finance and purchasing837 153 990 
Total for all categories
6,844 690 7,534 
Four of our distribution centers, Hayward, Las Vegas, Los Angeles and Calgary, have employees who are covered by collective bargaining agreements with local affiliates of The International Brotherhood of Teamsters (Hayward, Las Vegas and Los Angeles) and the United Food and Commercial Workers International Union (Calgary). Approximately 400 employees, or 5% of our workforce, are unionized. There have been no disruptions in customer service, strikes, work stoppages or slowdowns as a result of union activities, and we believe we have satisfactory relations with our employees.
We consider our employees to be the foundation for our growth and are critical to our continued success. As such, we believe that the future of Core-Mark depends in large part on our ability to attract, train, retain, and motivate qualified personnel. Helping our Core-Mark family grow and develop to reach their full potential is an integral part of our core values. We are also committed to cultivating and fostering a culture of diversity and inclusion and appreciate that the Company’s ultimate success is linked to its ability to identify and hire talented individuals from all backgrounds and perspectives.
Regulation
As a distributor of food, nicotine and health-related products in the U.S., we are subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated by the U.S. Food and Drug Administration (“FDA”). In Canada, similar standards related to food and over-the-counter medications are governed by Health Canada. The products we distribute are also subject to federal, state, provincial and local regulation through such measures as: the licensing of our facilities; enforcement by state, provincial and local health agencies of relevant standards for the products we distribute; and regulation of our trade practices in connection with the sale of our products. Our facilities are inspected periodically by federal, state, provincial and local authorities, including the Occupational Safety and Health Administration (“OSHA”) under the U.S. Department of Labor, which require us to comply with certain health and safety standards to protect our employees.
We are also subject to regulation by the U.S. and Canadian Departments of Transportation, and similar state, provincial and local agencies. Our distribution centers in the U.S. and Canada are subject to a broad spectrum of federal, state, provincial and local environmental protection statutes including those that govern emissions to air, soil and water, and the disposal of hazardous substances.
Our policy is to comply with all regulatory and legal requirements, and management is not aware of any related issues that may have a material effect upon our business, financial condition or results of operations.
Trademarks
We have trademarks including the following: Arcadia Bay®, Arcadia Bay Coffee Company®, Cable Car®, Core-Mark®, Core Solutions Group®, EMERALD®, Java Street®, SmartStock®, Pine State Convenience™, Taco Depot® and Farner-Bocken™.
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Segment and Geographic Information
We have two operating segments which aggregate into one reportable segment. We also present certain financial information by operating segment region — the U.S. and Canada. See Note 16 - Segment and Geographic Information to our consolidated financial statements.
Seasonality
We typically generate higher net sales and gross profits during the warm weather months (April through September) than other times of the year. This occurs because the convenience store industry benefits from miles traveled and outdoor activity which accelerates during the summer months.

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Corporate and Contact Information
Our corporate headquarters is located at 1500 Solana Boulevard, Suite 3400, Westlake, Texas, 76262 and our telephone number is (940) 293-8600.
Our website address is www.core-mark.com. We provide free access to various reports that we file with or furnish to the U.S. Securities and Exchange Commission (“SEC”) through our website, as soon as they have been filed or furnished. These reports include, but are not limited to, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports. Our SEC reports can be accessed through the “Investors” section of our website under “Financials & Filings,” or through www.sec.gov.
Also available on our website are printable versions of Core-Mark’s Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Business Conduct and Ethics, Corporate Governance Guidelines and Principles and other corporate information. Copies of these documents may also be requested from the address above.
Code of Business Conduct and Ethics and Whistle Blower Policy
Our Code of Business Conduct and Ethics is designed to promote honest, ethical and lawful conduct by all employees, officers and directors and is available on the “Investors” section of our website at www.core-mark.com under “Corporate Governance.”
Additionally, the Audit Committee of the Board of Directors of Core-Mark has established procedures to receive, retain, investigate and act on complaints and concerns of employees, stockholders and others regarding accounting, internal accounting controls and auditing matters, including complaints regarding attempted or actual circumvention of internal accounting controls or complaints regarding violations of our accounting policies. The procedures are also described on our website at www.core-mark.com under “Corporate Governance” in the “Investors” section.

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ITEM 1A.     RISK FACTORS
Our business is subject to a variety of risks. Set forth below are certain of the important risks that we face, the occurrence of which may have a material effect on our business, financial condition or results of operations.
Risks Related to Our Business and Industry
The novel coronavirus (or “COVID-19”) pandemic and the responsive actions taken by governments and others to mitigate its spread have significantly impacted worldwide economic conditions and could have a material adverse effect on our operations and business.
The COVID-19 pandemic and the responsive actions taken by governments and others, including mandatory and voluntary closures, shelter-in-place orders and social distancing protocols, began to adversely impact our operations late in the first quarter of 2020 and are likely to continue to affect our business for an indeterminate amount of time. These actions could materially adversely affect our ability to adequately staff and maintain our operations, cause disruptions in the supply chain and impact our ability to maintain adequate inventory and liquidity. While we and the vast majority of our customers have been permitted to continue to operate as essential businesses, the unprecedented impact of the COVID-19 pandemic, including an increase in the level of shelter-in-place orders by states, provinces, cities and counties, has resulted in a significant downturn in miles driven, causing a substantial decline in convenience retail store visits across North America. In addition to adversely affecting our revenues, the decrease in convenience retail store visits could also negatively impact our customers’ ability to pay for our goods and services or cause some customers’ businesses to fail. The COVID-19 pandemic has produced significant shifts in the mix of our business with a larger decline in food/non-food sales relative to cigarette sales, which we anticipate will result in lower gross margins until the impacts of the COVID-19 pandemic dissipate. As we cannot predict the duration or scope of the COVID-19 pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated, but could be material and last for an extended period of time.
A significant portion of our sales volume is dependent upon the distribution of cigarettes, sales of which are generally declining.
The distribution of cigarettes is currently a significant portion of our business. In 2020, approximately 66.7% of our net sales (including excise taxes) and 25.2% of our gross profit were generated from the distribution of cigarettes. Due to increases in the prices of cigarettes, increases in cigarette regulation and excise taxes, health concerns, increased pressure from anti-tobacco groups, the rise in popularity of tobacco alternatives, including electronic cigarettes, other alternative nicotine products, and other factors, cigarette consumption in the U.S. and Canada has been declining gradually over the past few decades. In many instances, tobacco alternatives, such as electronic cigarettes, are not subject to federal, state, provincial and local excise taxes like the sale of conventional cigarettes or other tobacco products. We expect consumption trends of legal cigarette products will continue to be negatively impacted by the factors described above. In addition, rising prices may lead to a higher percentage of consumers purchasing cigarettes through illicit markets, or by other means designed to avoid payment of cigarette taxes. If we are unable to sell other products to make up for these declines in cigarette unit sales, our operating results may suffer.
We are largely dependent on the convenience retail industry, and our results of operations could suffer if it experiences an overall decline or consolidation.
The majority of our sales are generated from convenience retail stores which inherently involve industry-specific risks. These risks include: declining sales in the convenience retail industry due to general economic conditions, including rising energy and fuel costs, which may impact “in-store” retail sales; competition from internet retailers such as Amazon.com, Inc. (“Amazon”), club stores, grocery stores and other retail outlets; termination of customer relationships; and consolidation of our customer base. Such events could cause us to experience decreases in revenues, put pressure on our margins and increase our credit risk and potential bad debt exposure.
We depend on attracting and retaining qualified labor including our senior management and other key personnel.
We depend on the continued services and performance of our senior executive officers as named in our Proxy Statement and other key employees. We do not maintain key person life insurance policies on these individuals. The loss of the services of one or more of our senior executive officers or other key personnel could harm our business.
We compete with other businesses in each of our markets to attract and retain qualified employees. A shortage of qualified employees in any given market could require us to enhance our wage and benefit packages in order to compete effectively in the hiring and retention of qualified employees or to hire more expensive temporary employees in the affected market. Any such shortage of qualified employees could decrease our ability to effectively serve our customers and might lead to lower profits due to higher labor costs.
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Our ability to meet our labor needs is generally subject to numerous other external factors, including prevailing wage rates, changing demographics, health and other insurance costs, and adoption of new or revised employment and labor laws and regulations. These external factors could prevent us from locating, attracting or retaining qualified personnel, which could adversely impact the quality of the services we provide to our customers, as well as our financial performance.
Many of the markets in which we compete are highly competitive and we may lose market share and suffer a decline in sales and profitability in these markets if we are unable to outperform our competition.
Our distribution centers operate in highly competitive markets. A substantial amount of our sales are made under non-binding agreements or short-term contracts with convenience retail stores which inherently involve potential risks. We face competition from local, regional and national tobacco and consumable products distributors on the basis of service, price, reliability, delivery schedules, and variety of products offered. We also face competition from club stores and alternate sources that sell consumable products to convenience retailers. Some of our competitors, including The McLane Company, Inc. (a subsidiary of Berkshire Hathaway Inc.), have substantial financial resources and long-standing customer relationships. In addition, heightened competition among our existing competitors, or by new entrants into the distribution market, could create additional competitive pressures that may result in the loss of major customers, reduced margins, or other adverse effects on our business. If we fail to successfully respond to these competitive pressures or to implement our strategies effectively, we may lose market share, and our results of operations could suffer.
Our ability to operate effectively could be impaired by the risks and costs associated with expansion activities.
Our business continues to expand and market share growth is one of our key company initiatives. To accomplish this growth, we have focused on strategic acquisitions and securing regional and national customers as key elements of success. Any significant expansion activity comes with inherent risks. Acquisitions may entail various risks, such as identifying suitable candidates, realizing acceptable rates of return on investment, identifying potential liabilities, obtaining adequate financing, negotiating acceptable terms and conditions, and successfully integrating operations and converting systems post acquisition. Integrating a large new customer has similar risks related to realizing acceptable returns on invested working capital and negotiating acceptable pricing and service levels, while managing resources and business interruptions as we integrate the new business into our current infrastructure. We may realize higher costs, lower margins or fewer benefits than originally anticipated and may experience disruption to our base business in connection with such acquisitions and other new customer integration activities.
Our failure to maintain relationships with large customers could potentially harm our business.
We have relationships with many large regional and national convenience and other store chains. While we expect to maintain these relationships for the foreseeable future, any termination, non-renewal or reduction in services that we provide to such customers could cause our revenues and operating results to suffer.
We may lose business if manufacturers or large retail customers convert to direct distribution of their products.
In the past, certain large manufacturers and customers have elected to engage in direct distribution or third-party distribution of their products and ceased relying on wholesale distributors such as Core-Mark. Similarly, manufacturers or other providers may choose to move their product distribution to Amazon or other e-commerce providers. If other manufacturers or retail customers make similar elections in the future, our revenues and profits would be adversely affected and there can be no assurance that we will be able to mitigate such losses.
Our business is sensitive to fuel prices and related transportation costs, which could adversely affect our business.
Our operating results may be adversely affected by unexpected increases in fuel or other transportation-related costs, including costs from the use of third-party carriers, temporary staff and overtime. Historically, we have been able to pass on a substantial portion of increases in our own fuel or other transportation costs to our customers in the form of fuel or delivery surcharges, but our ability to continue to pass through these increases is not assured. If we are unable to continue to pass on fuel and transportation-related cost increases to our customers, do not realize the benefits we expect from converting a large percentage of our trucks to operate on natural gas or incur higher expenses due to decreases in diesel fuel prices that are not matched by similar decreases in natural gas prices, our operating results could be negatively affected.
Information technology systems may be subject to failure, disruptions, security breaches (such as malware, viruses, hacking, break-ins, business e-mail compromises, phishing attacks, attempts to overload our services or other cyber-attacks) which could compromise our ability to conduct business, seriously harm our business and adversely affect our financial results.
Our business is highly dependent on our enterprise information technology systems. We rely on these systems and our information technology staff to maintain the information required to operate our distribution centers and support corporate
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departments in providing our customers with fast, efficient and reliable services. We continue to take steps to increase redundancy in our information technology systems and have resiliency and recovery plans in place to mitigate events that could disrupt our systems’ service. However, if our systems fail or are not reliable, we may suffer disruptions in service to our customers and our results of operations could suffer.
In addition, we retain sensitive data, including intellectual property, proprietary business information and personally identifiable information, in our secure data centers and on our networks. As the number of global cyber-attacks continue to escalate, we may face increased threats of unauthorized access, security breaches and other system disruptions to our environment. To help mitigate the risk, we utilize the expertise of internal and external security resources to monitor our environment and install/upgrade tools that protect our systems and data. We strive to maintain a sustainable security program that balances the need to protect against the needs to run our business, however, despite these measures, our infrastructure may be vulnerable to attacks by experienced hackers or other disruptive events as “perfect protection” is unfortunately not possible.
Computer malware, viruses, hacking, break-ins, business e-mail compromises, phishing attacks, attempts to overload our servers and other cyber-attacks have become more prevalent and may occur on our systems in the future. Intruders may also take the form of parties that attempt to fraudulently induce employees or other users of our systems to disclose sensitive or confidential information, make unauthorized cash payments or funds transfers, or otherwise disrupt operations. Any such security breach may compromise information stored on our networks and may result in significant data losses or theft of intellectual property, proprietary business information or personally identifiable information belonging to us or our customers, business partners or employees. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability and security affects the availability of our technical infrastructure and technology-based services. Any such failure may harm our reputation and our ability to retain existing customers and attract new customers and could impact our results of operation. We attempt to address these risks, in part, by continuously providing communications to our employees regarding the threats and characteristics of phishing attempts and have established a formal ongoing security training program to increase the level of awareness across the Company.
In many cases our systems are integrated with customers and vendors, through enterprise resource planning, electronic data interchange or other integration. Accordingly, if our customers’ or vendors’ systems are compromised, fail, or are not reliable, we may suffer disruptions in services to customers, our payments to vendors may be delayed or could be misappropriated, and our results of operations and cash flows could suffer.
Cigarette and consumable goods distribution is a low-margin business sensitive to inflation and deflation.
We derive most of our revenues from the distribution of cigarettes, other tobacco products, candy, snacks, fast food, groceries, fresh products, dairy, beverages, general merchandise and health and beauty care products. Our industry is characterized by a high volume of sales with low profit margins. Our food/non-food sales are generally priced based on the manufacturer’s cost of the product plus a percentage markup. As a result, our profit levels may be negatively impacted during periods of cost deflation or stagnation for these products, even though our gross profit as a percentage of the price of goods sold may remain relatively constant. In addition, periods of product cost inflation may have a negative impact on our gross profit margins with respect to sales of cigarettes because gross profits on cigarette sales are generally fixed on a cents per carton basis. Therefore, as cigarette prices increase, gross profit generally decreases as a percentage of sales. In addition, if the cost of the cigarettes that we purchase increases due to manufacturer price increases, reduced or eliminated manufacturer discounts and incentive programs, or increases in applicable excise tax rates, our inventory carrying costs and accounts receivable could rise, placing pressure on our working capital requirements.
We rely on manufacturer discount and incentive programs and cigarette excise stamping allowances, and any material changes in these programs could adversely affect our results of operations.
We receive payments from manufacturers on the products we distribute for allowances, discounts, volume rebates and other merchandising and incentive programs. These payments are a substantial contributor to our gross profit. The amount and timing of these payments are affected by changes in the programs by manufacturers, our ability to sell specified volumes of a particular product, attaining specified levels of purchases by our customers and the duration of carrying a specified product. In addition, we receive discounts from certain taxing jurisdictions in connection with the collection of excise taxes. If manufacturers or taxing jurisdictions change or discontinue these programs or change the timing of payments, or if we are unable to maintain the volume of our sales required by such programs, our results of operations could be negatively affected.
We depend on relatively few suppliers for a large portion of our products, and any interruptions in the supply of the products that we distribute could adversely affect our results of operations.
We obtain the products we distribute from third-party suppliers. At December 31, 2020, we had approximately 2,400 vendors and during 2020 we purchased approximately 81% of our products from our top 20 suppliers, with purchases from our top two suppliers, Altria Group, Inc. (parent of Philip Morris USA, Inc.) and R.J. Reynolds Tobacco Company, representing
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approximately 33% and 25% of our purchases, respectively. We do not have any long-term contracts with our suppliers committing them to provide products to us. Our suppliers may not provide the products we distribute in the quantities we request on favorable terms, or at all. We are also subject to delays caused by interruptions in production due to conditions outside our control, such as slow-downs or strikes by employees of suppliers, inclement weather, transportation interruptions, regulatory requirements and natural disasters. Our inability to obtain adequate supplies of the products we distribute could cause us to fail to meet our contractual and other obligations to our customers and reduce the volume of our sales and profitability.
We may be subject to product liability claims and counterfeit product claims which could materially adversely affect our business.
As a distributor of food and consumer products, we face the risk of exposure to product liability claims in the event that the use of a product sold by us causes injury or illness. In addition, certain products that we distribute may be subject to counterfeiting. Our business could be adversely affected if consumers lose confidence in the safety and quality of the food and other products we distribute. Further, our operations could be subject to disruptions as a result of manufacturer recalls. This risk may increase as we continue to expand our distribution of food products. If we do not have adequate insurance, if contractual indemnification from the supplier or manufacturer of the defective, contaminated or counterfeit product is not available, or if a supplier or manufacturer cannot fulfill its indemnification obligations to us, the liability relating to such product claims or disruption as a result of recall efforts could adversely impact our results of operations.
We may not be able to achieve the expected benefits from the implementation of marketing and category management initiatives.
We are continuously improving our competitive performance through a series of strategic marketing and category management initiatives, such as our Focused Marketing Initiative, SmartStock and Vendor Consolidation Initiative. The goal of this effort is to develop and implement a comprehensive and competitive business strategy, addressing the special needs of the convenience industry environment, increasing our market position within the industry and ultimately creating increased stockholder value. Customer acceptance of new marketing or category management initiatives may not be as anticipated or competitive pressures may cause us to curtail or abandon these initiatives, resulting in lower revenue and profit growth.
Maintaining our brand and reputation is necessary for the success of our business.
Our established brand and reputation within the market largely contributes to our success. Our current and future business could be negatively impacted if we were poorly represented or garnered negative publicity through various media channels, which include but are not limited to print, broadcast, web-based and social media. Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation. Even if the aforementioned situations were unfounded or not material to our business, these events could still decrease demand for our products and services and erode customer confidence. If any of these events were to occur, they could have a negative impact on our results of operations and financial condition.
We may be subject to various claims and lawsuits that could result in significant expenditures.
The nature of our business exposes us to the potential for various claims and litigation related to labor and employment, personal injury, property damage, business practices, environmental liability and other matters. Any material litigation or a catastrophic accident or series of accidents could have a material adverse effect on our business, financial position, results of operations and cash flows.
Unions may attempt to organize our employees.
As of December 31, 2020, approximately 5% of our 7,534 employees were covered by collective bargaining agreements with labor organizations, under agreements that expire at various times. We cannot assure that we will be able to renew our respective collective bargaining agreements on favorable terms, that employees at other facilities will not unionize or that our labor costs will not increase. In addition, we are subject to changes in rules, regulations, and laws that could impact our ability to manage our labor force and wage successful campaigns preventing further unionization of our employees. To the extent we suffer business interruptions as a result of strikes or other work stoppages or slow-downs, or our labor costs increase and we are not able to recover such increases through increased prices charged to customers or offsets by productivity gains, our results of operations could be materially adversely affected.
Employee health benefit costs represent a significant expense to us and may negatively affect our profitability.
With approximately 5,400 employees and their families participating in our health plans, our expenses relating to employee health benefits are substantial. In past years, we have experienced significant increases in certain of these costs, largely as a result of economic factors beyond our control, including, in particular, ongoing increases in health care costs well in
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excess of the rate of inflation. Increased participation in our health plans, continued increasing health care costs, as well as changes in laws, regulations and assumptions used to calculate health and benefit expenses, may adversely affect our business, financial position and results of operations. In addition, the Patient Protection and Affordable Care Act (“ACA”) may continue to increase our employee healthcare-related costs. We have migrated a significant number of employees to our high deductible plan, resulting in a reduction in our claims exposure and offsetting other costs related to ACA. While we have taken steps to minimize the impact of ACA, there is no guarantee our efforts will be successful.
Changes to minimum wage laws and other governmental legislation or regulations could increase our costs substantially.
As of December 31, 2020, we believe we had no employees who were paid under the minimum wage in their respective locations. Several bills have been introduced in the U.S. legislature over the past few years to increase the federal minimum wage. In addition, several states have adopted or are considering adopting minimum wage statutes that exceed the federal minimum wage rate. Any increases in federal or state minimum wages could require us to increase the wages paid to our minimum wage employees and create pressure to raise wages for other employees who already earn above-minimum wages. Further, changes to wage and hour laws and/or new legislation increasing mandatory paid leave can add costs to our business. If we are unable to pass these additional labor costs on to our customers in the form of increased prices or surcharges, our business and results of operations would be adversely affected.
If we are unable to comply with governmental regulations that affect our business or if there are substantial changes in these regulations, our business could be adversely affected.
As a distributor of food, tobacco and nicotine items, products containing cannabidiol and other consumer goods, we are subject to regulation by the FDA, Health Canada and similar regulatory authorities at the federal, state, provincial and local levels. In addition, our employees operate tractor trailers, trucks, forklifts and various other powered material handling equipment, and we are therefore subject to regulation by the U.S. and Canadian Departments of Transportation. Our operations are also subject to regulation by OSHA, the U.S. Drug Enforcement Administration and a myriad of other federal, state, provincial and local agencies. Each of these regulatory authorities has broad administrative powers with respect to our operations. Regulations, the uncertainty and pace of regulatory change and the costs of complying with those regulations, have been increasing in recent years. If we fail to adequately comply with government regulations, we could experience increased inspections or audits, regulatory authorities could take remedial action including imposing fines, suspending or canceling our licenses, or shutting down our operations, or we could be subject to increased compliance costs. If any of these events were to occur, our results of operations would be adversely affected.
Natural disaster damage could have a material adverse effect on our business.
Several of our warehouses in California, and one warehouse located near Vancouver, British Columbia, Canada, are in or near high hazard earthquake zones. We also have operations in areas that have been affected by natural disasters such as hurricanes, tornados, floods, and ice and snow storms. While we maintain insurance to cover us for certain potential losses, our insurance may not be sufficient in the event of a significant natural disaster, or payments under our policies may not be received timely enough to prevent adverse impacts on our business. Our customers could also be affected by similar events, which could adversely affect our sales and results of operations. While we maintain two data centers in geographically disparate locations, each of which can provide core services for the other if required, in the event of a natural disaster our insurance may not be sufficient to cover our losses, insurance payments may be delayed and our business may nevertheless be interrupted and adversely affected.
Insurance and claims expenses could have a material adverse effect on us.
We have a combination of both self-insurance and high-deductible insurance programs for the risks arising out of the services we provide and the nature of our operations throughout North America, including claims exposure resulting from personal injury, property damage, business interruption and workers’ compensation. Workers’ compensation, automobile and general liabilities are determined using actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims. Our accruals for insurance reserves reflect certain actuarial assumptions and management judgments, which are subject to a high degree of variability. If the number or severity of claims for which we are retaining risk increases, our financial condition and results of operations could be adversely affected. If we lose our ability to self-insure these risks, our insurance costs could materially increase and we may find it difficult to obtain adequate levels of insurance coverage.

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Risks Related to the Distribution of Cigarettes and Other Tobacco Products
Legislation, regulation and other matters are negatively affecting the cigarette, tobacco and alternative nicotine industries.
The cigarette, tobacco and alternative nicotine industries are subject to a wide range of laws and regulations regarding the marketing, distribution, sale, taxation and use of their products imposed by governmental entities. Effective December 20, 2019, the U.S. raised the legal age to buy cigarettes, tobacco and alternative nicotine products to 21 years. On January 2, 2020, the FDA issued final guidance that banned most flavored cartridge-based e-cigarettes, except for tobacco and menthol flavors. The guidance temporarily permits the sale of e-liquid flavors used in open vaping systems and in disposable, single-use vape products. In addition, various jurisdictions have adopted or are considering legislation and regulations restricting displays and marketing of tobacco and alternative nicotine products, requiring the disclosure of ingredients used in the manufacture of tobacco and alternative nicotine products, and imposing restrictions on public smoking and vaping. The FDA has been empowered to regulate changes to nicotine yields and the chemicals and flavors used in tobacco and alternative nicotine products (including cigars, pipe and e-cigarette products), require ingredient listings be displayed on tobacco and alternative nicotine products, prohibit the use of certain terms which may attract youth or mislead users as to the risks involved with using tobacco and alternative nicotine products, as well as limit or otherwise impact the marketing of tobacco and alternative nicotine products by requiring additional labels or warnings that must be pre-approved by the FDA. Such legislation and related regulation is likely to continue adversely impacting the market for tobacco and alternative nicotine products and, accordingly, our sales of such products.
In Canada, several provinces have enacted legislation authorizing and facilitating the recovery by provincial governments of tobacco-related health care costs from the tobacco industry by way of lawsuit. Some Canadian provincial governments have either already initiated lawsuits or indicated an intention that such lawsuits will be filed. It is unclear at this time how such restrictions and lawsuits may affect Core-Mark and its Canadian operations.
Our distribution of cigarettes and other tobacco products exposes us to potential liabilities.
In June 1994, the Mississippi attorney general brought an action against various tobacco industry members on behalf of the state to recover state funds paid for health care costs related to tobacco use. Most other states sued the major U.S. cigarette manufacturers based on similar theories. In November 1998, the major U.S. tobacco product manufacturers entered into a Master Settlement Agreement (“MSA”) with 46 states, the District of Columbia and certain U.S. territories. The other four states: Mississippi, Florida, Texas and Minnesota (“non-MSA states”), settled their litigations with the major cigarette manufacturers by separate agreements. The MSA and the other state settlement agreements settled health care cost recovery actions and monetary claims relating to future conduct arising out of the use of, or exposure to, tobacco products, imposed a stream of future payment obligations on major U.S. cigarette manufacturers and placed significant restrictions on the ability to market and sell cigarettes. The payments required under the MSA result in higher pricing of products sold by the participating manufacturers than those sold by non-MSA state manufacturers. In addition, the growth in market share of discount brands since the MSA was signed has had an adverse impact on the total volume of the cigarettes that we sell.
In connection with the MSA, we were indemnified by most of the tobacco product manufacturers from which we purchased cigarettes and other tobacco products, for liabilities arising from our sale of the tobacco products that they supplied to us. Should the MSA ever be invalidated, we could be subject to substantial litigation due to our distribution of cigarettes and other tobacco products, and we may not be indemnified for such costs by the tobacco product manufacturers in the future. In addition, even if we are indemnified by cigarette manufacturers that are parties to the MSA, future litigation awards against such cigarette manufacturers could be so large as to prevent the manufacturers from satisfying their indemnification obligations.
Risks Related to Financial Matters, Financing and Foreign Exchange
If a tax jurisdiction changes its tax legislation or a material change occurs in our credit terms, it could have a material adverse effect on our business and results of operations.
From time to time, new tax legislation is adopted by the federal government and various states or other regulatory bodies. Significant changes in tax legislation or administrative policies in any taxing jurisdiction could adversely affect our business or results of operations in a material way.  Increases in federal or state excise taxes, differing interpretation of tax law, final determination of a tax audit or a reduction in credit terms could materially impact our financial results and restrict our working capital.
Cigarettes and tobacco products are subject to substantial excise taxes in the U.S. and Canada. Significant increases in cigarette-related taxes and/or fees have been proposed or enacted and are likely to continue to be proposed or enacted by various taxing jurisdictions within the U.S. and Canada as a means of increasing government revenues. These tax increases
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may negatively impact consumption. Additionally, they may cause a shift in sales from premium brands to discount brands, illicit channels or tobacco alternatives, such as electronic cigarettes, as smokers seek lower priced options.
In addition, in the U.S. the federal government has in the past proposed legislation which effectively could limit, or even eliminate, use of the last-in, first-out (“LIFO”) inventory method for financial and income tax purposes. Although the final outcome of any such proposals cannot be ascertained, the ultimate financial impact to us of the transition from LIFO to another inventory method could be material to our operating results. Given the unpredictability of possible changes and their potential interdependency, it is very difficult to assess whether the overall effect of such potential tax changes would be cumulatively positive or negative for our earnings and cash flow, but such changes could adversely impact our financial results.
Taxing jurisdictions have the ability to change or rescind credit terms currently extended for the remittance of taxes that we collect on their behalf. If these excise taxes are substantially increased, or credit terms are substantially reduced, it could have a negative impact on our liquidity. Accordingly, we may be required to obtain additional debt financing, which we may not be able to obtain on satisfactory terms or at all.
There can be no assurance that we will continue to declare cash dividends in the future or in any particular amounts and if there is a reduction in dividend payments, our stock price may be harmed.
Since the fourth quarter of 2011, we have paid a quarterly cash dividend to our stockholders. We intend to continue to pay quarterly dividends subject to capital availability and periodic determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all applicable laws and agreements to which we are a party. Future dividends may be affected by a variety of factors such as available cash, anticipated working capital requirements, overall financial condition, credit agreement restrictions, future prospects for earnings and cash flows, capital requirements for acquisitions, stock repurchase programs, reserves for legal risks and changes in federal and state income tax or corporate laws. Our Board of Directors may, at its discretion, decrease or entirely discontinue the payment of dividends at any time. Any such action could have a material, negative effect on our stock price.
Currency exchange rate fluctuations could have an adverse effect on our revenues and financial results.
We generate a portion of our revenues in Canadian dollars, approximately 10% in 2020 and 9% in 2019. We also incur a significant portion of our expenses in Canadian dollars. To the extent that we are unable to match revenues received in Canadian dollars with costs paid in the same currency, exchange rate fluctuations in Canadian dollars could have an adverse effect on our financial results. During times of a strengthening U.S. dollar, our reported sales and earnings from Canadian operations will be reduced because the Canadian currency will be translated into fewer U.S. dollars. Conversely, during times of a weakening U.S. dollar, our reported sales and earnings from our Canadian operations will be increased because the Canadian currency will be translated into more U.S. dollars. U.S. GAAP requires that foreign currency transaction gains or losses on short-term intercompany transactions be recorded currently as gains or losses within the consolidated statement of operations. To the extent we incur losses on such transactions, our net income will be reduced. We currently do not hedge our Canadian foreign currency cash flows.
We may not be able to borrow additional capital to provide us with sufficient liquidity and capital resources necessary to meet our future financial obligations.
We expect that our principal sources of funds will be cash generated from our operations and, if necessary, borrowings under a $750 million revolving credit facility (“Credit Facility”) as of December 31, 2020. The Credit Facility, initially dated as of October 12, 2005, as amended or otherwise modified from time to time, is between us, as Borrowers, the Lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent. The Credit Facility expires in February 2026. While we believe our sources of liquidity are adequate, we cannot guarantee that these sources will be available or continue to provide us with sufficient liquidity and capital resources required to meet our future financial obligations, or to provide funds for our working capital, capital expenditures and other needs. As such, additional equity or debt financing sources may be necessary and we may not be able to expand our existing Credit Facility or obtain new financing on terms satisfactory to us.
Our operating flexibility is limited in significant respects by the restrictive covenants in our Credit Facility.
Our Credit Facility imposes restrictions on us that could increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our business and industry. Specifically, these restrictions place limits on our ability to, among other things, incur additional indebtedness, pay dividends, issue stock of subsidiaries, make investments, repurchase stock, create liens, enter into transactions with affiliates, merge or consolidate, or transfer and sell our assets. In addition, under our Credit Facility, under certain circumstances we are required to meet a fixed charge coverage ratio. Our ability to comply with this covenant may be affected by factors beyond our control and a breach of the covenant could result in an event of default under our Credit Facility, which would permit the lenders to declare all amounts incurred thereunder to be immediately due and payable and to terminate their commitments to make further extensions of credit.
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Our actual business and financial results could differ as a result of the accounting methods, estimates and assumptions that we use in preparing our financial statements, which may negatively impact our results of operations and financial condition.
To prepare financial statements in conformity with GAAP, management is required to exercise judgment in selecting and applying accounting methodologies and making estimates and assumptions. These methods, estimates, and assumptions are subject to uncertainties and changes, which affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimation by our management include but are not limited to the following: allowance for credit losses, provisions for income taxes, valuation of goodwill and long-lived assets, valuation of assets and liabilities in connection with business combinations, stock-based compensation expense and accruals for estimated liabilities including litigation and self-insurance reserves.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    PROPERTIES
Our headquarters are located in Westlake, Texas, and consists of approximately 40,000 square feet of office space. Effective January 2021, we leased an additional 25,000 square feet of office space to expand our headquarters in Westlake. We also lease approximately 20,000 square feet for use by our information technology and tax personnel in Richmond, British Columbia, approximately 6,000 square feet for use by our information technology personnel in Plano, Texas, and approximately 6,000 square feet and 5,600 square feet of additional office space in Sacramento, California and Phoenix, Arizona, respectively. We lease approximately 5.6 million square feet and own approximately 0.6 million square feet of distribution space.
Distribution Center Facilities by City and State/Province of Location(1) 
Albuquerque, New MexicoHayward, CaliforniaTampa, Florida
Atlanta, GeorgiaHenderson, NevadaWhitinsville, Massachusetts
Aurora, ColoradoLeitchfield, Kentucky
Wilkes-Barre, Pennsylvania(5)
Bakersfield, CaliforniaLos Angeles, CaliforniaBurnaby, British Columbia
Carroll, IowaMinneapolis, MinnesotaCalgary, Alberta
Corona, California(2)
Portland, Oregon
Mississauga, Ontario(6)
Forrest City, Arkansas(3)
Sacramento, California(4)
Milton, Ontario
Fort Worth, TexasSalt Lake City, UtahWinnipeg, Manitoba
Gardiner, MaineSanford, North Carolina
Glenwillow, OhioSpokane, Washington
(1)    Excluding outside storage facilities or depots and two distribution facilities that we operate as a third-party logistics provider. Depots are defined as a secondary location for a division which may include any combination of sales offices, operational departments and/or storage. We own distribution center facilities located in Wilkes-Barre, Pennsylvania; Leitchfield, Kentucky; and Forrest City, Arkansas. All other facilities listed are leased. The facilities we own are subject to encumbrances under our Credit Facility.
(2)    This location includes two facilities, a distribution center and our AMI/Artic West consolidating warehouse.
(3)    This facility includes a distribution center and our AMI/Artic East consolidating warehouse.
(4)    This location includes a distribution center and our Artic Cascade consolidating warehouse.
(5)    This location includes a distribution center and our AMI/Artic Northeast consolidating warehouse.
(6)    This facility is our Canadian consolidating warehouse.
We also operate distribution centers on behalf of one of our major customers, Couche-Tard: one in Phoenix, Arizona and one in San Antonio, Texas. Each facility is leased or owned by Couche-Tard for their use.
ITEM 3.    LEGAL PROCEEDINGS
For information with respect to our legal proceedings, see Note 9 - Commitments and Contingencies to our consolidated financial statements included in this Form 10-K.

ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.
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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
        AND ISSUER PURCHASES OF EQUITY SECURITIES

Market and Stockholders
Our common stock trades on the NASDAQ Global Market under the symbol “CORE.” According to the records of our transfer agent, we had 1,291 stockholders of record as of February 22, 2021.
We paid cash dividends of $22.0 million and $20.8 million in 2020 and 2019, respectively. Our Credit Facility, as of December 31, 2020, allows for unlimited dividends, as long as we meet certain credit availability percentages and fixed charge coverage ratios. (See Note 8 - Long-term Debt to our consolidated financial statements included in this Form 10-K for additional details on the Credit Facility). We intend to continue increasing our dividends per share over time; however, the payment of any future dividends will be determined by our Board of Directors in light of then existing conditions, including our earnings, financial condition and capital requirements, strategic alternatives, restrictions in financing agreements, business conditions and other factors.
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PERFORMANCE COMPARISON

The graph below presents a comparison of cumulative total return to stockholders for Core-Mark’s common stock at the end of each year from 2015 through 2020, as well as the cumulative total returns of the Russell 2000 Index, the NASDAQ Non-financial Stock Index, the Standard and Poor’s (“S&P”) SmallCap 600 Index, and a peer group of companies (“Performance Peer Group”).
Cumulative total return to stockholders is measured by the change in the share price for the period, plus any dividends, divided by the share price at the beginning of the measurement period. Core-Mark’s cumulative stockholder return is based on an investment of $100 on December 31, 2015, and is compared to the total return of the Russell 2000 Index, the NASDAQ Non-financial Index, the S&P SmallCap 600 Index, and the weighted-average performance of the Performance Peer Group over the same period with a like amount invested, including the assumption that any dividends have been reinvested. We regularly compare our performance to the Russell 2000 Index since it includes primarily companies with relatively small market capitalization similar to us.
The companies composing the Performance Peer Group are: United Natural Foods, Inc. (“UNFI”), Performance Food Group Co. (“PFGC”), AMCON Distributing Co. (“DIT”), and SpartanNash Co. (“SPTN”).

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CORE-MARK, THE RUSSELL 2000, NASDAQ NON-FINANCIAL STOCK, S&P SMALLCAP 600 INDEXES AND THE PERFORMANCE PEER GROUP

https://cdn.kscope.io/d74df5835dfaad99b2e258732a71163e-core-20201231_g3.jpg
Investment Value at December 31,
201520162017201820192020
CORE$100.00 $106.01 $78.67 $58.89 $69.81 $76.71 
Russell 2000 Index100.00 121.31 139.08 123.76 155.35 186.36 
NASDAQ Non-financial Index100.00 107.65 141.25 137.64 189.30 280.07 
S&P SmallCap 600100.00 126.56 143.30 131.15 161.03 179.20 
Performance Peer Group100.00 123.90 133.99 88.31 123.28 126.34 
Issuer Purchases of Equity Securities
On February 24, 2020, our Board of Directors authorized a $60.0 million stock repurchase program (the “2020 Program”), replacing our prior stock repurchase program (the “Prior Program”). At the time of approval, we 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.
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In 2020, all stock repurchases were made under the 2020 Program, and we repurchased 407,971 shares of common stock for a total cost of $10.4 million, or an average price of $25.62 per share. As of December 31, 2020, $49.6 million remained available for future share repurchases under the 2020 Program. In 2019, under the Prior Program, we repurchased 767,681 shares of common stock for a total cost of $22.0 million, or an average price of $28.66 per share.
The following table provides the repurchases of shares of common stock during the three months ended December 31, 2020 (in millions, except share and per share data):
Calendar month in which
purchases were made:
Total Number of Shares Repurchased
Average Price Paid per Share(1)
Total Cost of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
October 1, 2020 to October 31, 2020172,627 $28.96 $5.0 $49.6 
November 1, 2020 to November 30, 2020— — — 49.6 
December 1, 2020 to December 31, 2020— — — 49.6 
Total repurchases for the three months ended December 31, 2020172,627 28.96 $5.0 49.6 
_____________________________________________
(1)    Includes related transaction fees.

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ITEM 6.    SELECTED FINANCIAL DATA
Basis of Presentation
The selected consolidated financial data for the five years from 2016 to 2020 are derived from our audited consolidated financial statements included in our Annual Reports on Form 10-K. The following financial data should be read in conjunction with the consolidated financial statements and notes thereto and with Item 7 - Managements Discussion and Analysis of Financial Condition and Results of Operations.
SELECTED CONSOLIDATED FINANCIAL DATA
 Year Ended December 31,
(In millions except per share amounts)202020192018
2017(1)
2016(2)
Statement of Operations Data:
Net sales$16,957.9 $16,670.5 $16,395.3 $15,687.6 $14,529.4 
Gross profit(3)
888.3 924.2 867.5 791.7 736.9 
Warehousing and distribution expenses(3)
541.7 566.2 540.6 504.1 431.2 
Selling, general and administrative expenses242.2 255.4 245.1 224.3 210.3 
Amortization of intangible assets9.7 10.0 10.0 8.5 5.3 
Income from operations94.7 92.6 71.8 54.8 90.1 
Interest expense, net(4)
10.5 14.4 13.7 11.0 5.1 
Foreign currency transaction losses (gains), net0.9 0.8 (1.8)(1.8)(0.5)
Pension termination settlement— — — 17.2 — 
(Provision) benefit for income taxes(5)
(20.1)(19.7)(14.4)5.1 (31.3)
Net income63.2 57.7 45.5 33.5 54.2 
Per Share Data:
Basic earnings per share$1.40 $1.26 $0.99 $0.72 $1.17 
Diluted earnings per share$1.39 $1.25 $0.99 $0.72 $1.17 
Shares Used to Compute Earnings Per Share:
Basic45.1 45.7 46.0 46.3 46.3 
Diluted45.4 46.0 46.1 46.4 46.5 
Cash Dividends Declared Per Share$0.49 $0.45 $0.41 $0.37 $0.33 
Other Financial Data:
Excise taxes(6)
$3,340.8 $3,341.3 $3,491.4 $3,462.6 $3,022.0 
Cigarette inventory holding gains(7)
31.8 23.0 19.6 16.1 15.3 
Other inventory holding gains(8)(9)
— 6.9 7.4 — — 
OTP tax items(10)
— — — 3.3 — 
LIFO expense30.7 27.6 25.2 21.5 13.2 
Capital expenditures(11)
27.2 22.8 20.1 48.2 54.3 
Adjusted EBITDA (non-GAAP)(12)
202.2 190.7 164.7 135.7 152.3 
 December 31,
 20202019201820172016
Balance Sheet Data:
Total assets$1,954.7 $1,898.4 $1,666.1 $1,782.5 $1,492.2 
Long-term debt(13)
344.5 382.1 346.2 512.9 347.7 
______________________________________________
(1)    Farner-Bocken Company was acquired in July 2017 and the results of operations have been included in the selected consolidated financial data since the date of the acquisition.
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(2)    Pine State Convenience (“Pine State”) was acquired in June 2016 and the results of operations have been included in the selected consolidated financial data since the date of the acquisition.
(3)    Gross profit represents the amount of profit after deducting cost of goods sold, certain surcharges and other items from net sales. Warehousing and distribution expenses are not included as a component of our cost of goods sold. Accordingly, gross profit may not be comparable to those of other entities.
(4)    Interest expense, net, is reported net of interest income.
(5)    Benefit for income taxes for 2017 included a $14.6 million net income tax benefit as a result of the impacts of the 2017 Tax Cuts and Jobs Act.
(6)    State, local and provincial excise taxes (predominantly cigarettes and tobacco) paid by us are included in net sales and cost of goods sold.
(7)    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. The higher gross profits are referred to as inventory holding gains. This income is not predictable and is dependent on inventory levels and the timing of manufacturer price increases.
(8)    In 2019, we recognized $6.9 million in candy inventory holding gains. 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. The higher gross profits are referred to as inventory holding gains. This income is not predictable and is dependent on inventory levels and the timing of manufacturer price increases.
(9)    We realized net cigarette tax stamp inventory holding gains of $7.4 million, offset by associated fees in 2018. Cigarette tax stamp inventory holding gains represent income related to tax stamp inventories on hand that may be realized at the time taxing jurisdictions increase their excise taxes, depending on the statutory requirements relating to the inventory on hand at the time such excise tax increases. Such tax increases are reflected in customer pricing for all subsequent sales, including sales of inventory on hand at the time of the increase. The incremental gross profits resulting from such tax increases are referred to as inventory holding gains. This income is not predictable and is dependent on inventory levels and the aforementioned statutory requirements.
(10)    In 2017, we received OTP tax refunds of $3.9 million related to prior years’ taxes, offset by $0.6 million of related expenses.
(11)    Capital expenditures in 2020 include approximately $13.7 million for a new building for our Portland division. Capital expenditures in 2017 include expansion projects, including investments associated with our supply agreement with Walmart and maintenance investments. Capital expenditures in 2016 include leasehold improvements for a new building for our Las Vegas division and other building upgrades, as well as logistical equipment to accommodate new business.
(12)    The following table provides the components of Adjusted EBITDA for each year presented (in millions):
Year Ended December 31,
20202019201820172016
Net income$63.2 $57.7 $45.5 $33.5 $54.2 
Interest expense, net10.5 14.4 13.7 11.0 5.1 
Provision (benefit) for income taxes(a)
20.1 19.7 14.4 (5.1)31.3 
Depreciation and amortization66.6 60.9 59.5 54.4 42.9 
LIFO expense30.7 27.6 25.2 21.5 13.2 
Stock-based compensation expense10.2 9.6 8.2 5.0 6.1 
Foreign currency transaction losses (gains), net0.9 0.8 (1.8)(1.8)(0.5)
Pension termination settlement(b)
— — — 17.2 — 
Adjusted EBITDA (non-GAAP)
$202.2 $190.7 $164.7 $135.7 $152.3 
______________________________________________
    (a) Benefit for income taxes for 2017 included a $14.6 million net income tax benefit as a result of the impacts of the 2017 Tax Cuts and Jobs Act.
    (b) In December 2017, we settled our qualified defined-benefit pension obligation which resulted in a non-cash charge within the consolidated statements of operations related to unrecognized actuarial losses in accumulated other comprehensive income.
(13)    Includes amounts borrowed under our Credit Facility and long-term finance lease obligations.
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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with the accompanying audited consolidated financial statements and notes thereto that are included under Part II, Item 8, of this Form 10-K. Also refer to “Special Note Regarding Forward-Looking Statements,” which is included after the Table of Contents in this Form 10-K. This discussion and analysis also includes non-GAAP financial measures that we believe provide important perspective in understanding trends that may impact our business. These non-GAAP financial measures are discussed, including reconciliation of these measures to GAAP, under “Non-GAAP Financial Information.”
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and filed with the Securities and Exchange Commission on March 2, 2020.
Our Business
Core-Mark is one of the largest marketers of fresh, food and broad-line supply solutions to the convenience retail industry in North America. We offer a full range of products, marketing programs and technology solutions to approximately 40,000 customer locations in the U.S. and Canada. Our customers include traditional convenience stores, drug stores, mass merchants, grocery stores, liquor stores, and other specialty and small format stores that carry convenience products. Our 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. We operate a network of 32 distribution centers in the U.S. and Canada (excluding two distribution facilities we operate as a third-party logistics provider).
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Business Strategy Overview
Core-Mark’s mission is to be the most valued marketer of fresh, food and broad-line supply solutions to the convenience retail industry. Consistent with this mission, our strategic framework is centered around three key initiatives: growing sales and margins faster than the industry, providing industry-leading category management solutions and leveraging our cost structure. The convenience wholesale and retail industry remains highly fragmented, supporting significant opportunities for both organic growth and growth through strategic acquisitions. Core-Mark is one of the largest wholesale distributors to the convenience retail industry in North America, one of two national convenience distributors in the U.S. and the largest in Canada, and represents an estimated 7% market share of the in-store sales of convenience stores in North America.
Our growth initiatives include elevating same store sales, gaining share of North American convenience stores and being opportunistic with traditional and industry-adjacent acquisition opportunities. While serving traditional convenience retailers remains the primary driver for our business, we serve a wide variety of alternative convenience retail formats including mass merchandisers, casinos, colleges and airports. Driving growth through these alternative convenience retail formats and channels is a core component of our strategy and we see significant opportunities to drive growth organically, through acquisitions and strategic partnerships. Our focus on providing industry-leading category management solutions to our customers positions us to partner with retailers to help increase their sales and profits. We offer a wide array of marketing programs, innovative product alternatives, data aggregation and loyalty solutions to our customers in pursuit of category management excellence. Core-Mark is also actively engaged in efforts to increase the leverage of our operating cost structure through a range of initiatives, including technology investments, centralizing transactional processes and employee engagement aimed at increasing productivity.

We believe consistent execution on the aforementioned strategic priorities will position Core-Mark as the leader in convenience retail distribution and provides a strong pathway to achieve sustainable shareholder returns.
Other Business Developments
The effects of the COVID-19 pandemic had an impact on our operating results during the year ended December 31, 2020, and we expect the pandemic will continue to affect our business for some period of time. While the vast majority of our customers are convenience retailers that continue to operate as essential businesses, the unprecedented impact of the COVID-19 pandemic since the second quarter of 2020, including shelter-in-place orders by states, provinces, cities and counties resulted in a significant downturn in miles driven, resulting in a decline in convenience retail store visits across North America. Although we are seeing recovery as consumer purchase trends improve, we expect future results to continue to be impacted by the effects of the COVID-19 pandemic.

Dividends
The Board of Directors approved the following cash dividends in 2020 (in millions, except per share data):
Declaration DateDividend Per ShareRecord Date
Cash Payment Amount(1)(2)
Payment Date
February 24, 2020$0.12March 16, 2020$5.5March 27, 2020
May 7, 2020$0.12May 22, 2020$5.4June 19, 2020
August 6, 2020$0.12August 21, 2020$5.4September 18, 2020
November 5, 2020$0.13November 20, 2020$5.7December 18, 2020
______________________________________________
(1)    Includes cash payments on declared dividends and payments made on time-based restricted stock units (“RSUs”) and performance share awards that vested subsequent to the payment date.
(2)    Amounts have been rounded for presentation purposes and may differ from unrounded amounts.
We paid dividends of $22.0 million and $20.8 million in 2020 and 2019, respectively.
Share Repurchase Program
On February 24, 2020, our Board of Directors authorized a $60.0 million stock repurchase program (the “2020 Program”), replacing our prior stock repurchase program (the “Prior Program”). At the time of approval, we 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.
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In 2020, all stock repurchases were made under the 2020 Program, and we repurchased 407,971 shares of common stock for a total cost of $10.4 million, or an average price of $25.62 per share. As of December 31, 2020, $49.6 million remained available for future share repurchases under the 2020 Program. In 2019, under the Prior Program, we repurchased 767,681 shares of common stock for a total cost of $22.0 million, or an average price of $28.66 per share.

Overview of 2020 Results
During 2020, we continued to build on our sales and operational capabilities, as well as our financial foundation, to drive our long-term growth strategy. We delivered strong financial results and further enhanced our industry-leading offering of products and services despite the backdrop of the COVID-19 pandemic.
Our net sales in 2020 increased 1.7%, or $287.4 million, to $16,957.9 million compared to $16,670.5 million for 2019. The increase in net sales for the year was driven primarily by strong cigarette sales, including increases in cigarette manufacturers’ prices and growth in cigarette carton sales, partially offset by a 2.3% decrease in sales of food/non-food. Sales of cigarettes and food/non-food products for the year were impacted by changes in consumer buying habits as a result of the COVID-19 pandemic.
Gross profit in 2020 decreased $35.9 million, or 3.9%, to $888.3 million from $924.2 million in 2019, driven primarily by a shift in overall sales mix to cigarettes, which have lower margins compared with food/non-food products, and higher LIFO expense, partially offset by $1.9 million of incremental net inventory holding gains.
Gross profit margin was 5.24% of total net sales for 2020 compared to 5.54% in 2019. Remaining gross profit margin(1) decreased to 5.23% for 2020 from 5.53% in 2019. The decline in remaining gross profit margin was driven primarily by the change in the sales mix between cigarettes and food/non-food and a decline in margins within the food/non-food category resulting from a shift in sales mix and lower gross profit margins in certain categories. We expect our gross profit margin to continue to be impacted by both sales mix and lower margins in certain product categories for some period of time as a direct result of the impacts of the COVID-19 pandemic.
Operating expenses in 2020 decreased 4.6%, or $38.0 million, to $793.6 million from $831.6 million in 2019. The decrease was driven primarily by increased productivity and cost savings initiatives, implemented mainly in response to the COVID-19 pandemic. As outlined in our press release on April 14, 2020, we took steps during the second quarter to reduce operating costs to better align them with sales volume trends and to preserve liquidity. We also achieved cost savings through actions to reduce other non-essential costs including travel, meetings and events and other discretionary expenditures. Operating expenses were 4.7% of total net sales for 2020 compared to 5.0% in 2019. Operating expenses were 89.4% of remaining gross profit(1) for 2020, compared to 90.2% of remaining gross profit in 2019.
Net income in 2020 increased 9.5%, or $5.5 million, to $63.2 million from $57.7 million in 2019. Adjusted EBITDA(1) increased $11.5 million, or 6.0%, to $202.2 million in 2020 from $190.7 million in 2019.
________________________________________ 
(1)Remaining gross profit margin, Adjusted EBITDA and operating expenses as a percentage of remaining gross profit are non-GAAP financial measures and should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”). See “Non-GAAP Financial Information” for reconciliation.
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Results of Operations
Comparison of 2020 and 2019 (in millions, except percentages)(1):
20202019
Increase (Decrease)Amounts% of Net sales% of Net sales, less excise taxesAmounts% of Net sales% of Net sales, less excise taxes
Net sales$287.4 $16,957.9 100.0 %— %$16,670.5 100.0 %— %
Net sales — Cigarettes417.8 11,310.5 66.7 61.7 10,892.7 65.3 59.7 
Net sales — Food/Non-food(130.4)5,647.4 33.3 38.3 5,777.8 34.7 40.3 
Net sales, less excise taxes (non-GAAP)(2)
287.9 13,617.1 80.3 100.0 13,329.2 80.0 100.0 
Gross profit(3)(4)
(35.9)888.3 5.2 6.5 924.2 5.5 6.9 
Warehousing and distribution expenses
(24.5)541.7 3.2 4.0 566.2 3.4 4.2 
Selling, general and administrative expenses
(13.2)242.2 1.4 1.8 255.4 1.5 1.9 
Amortization of intangible assets
(0.3)9.7 0.1 0.1 10.0 0.1 0.1 
Income from operations2.1 94.7 0.6 0.7 92.6 0.6 0.7 
Interest expense, net(3.9)(10.5)0.1 0.1 (14.4)0.1 0.1 
Foreign currency transaction gains (losses), net(0.1)(0.9)— — (0.8)— — 
Income before taxes5.9 83.3 0.5 0.6 77.4 0.5 0.6 
Provision for income taxes
0.4 (20.1)0.1 0.1 (19.7)0.1 0.1 
Net income5.5 63.2 0.4 0.5 57.7 0.3 0.4 
Adjusted EBITDA
(non-GAAP)(5)
11.5 202.2 1.2 1.5 190.7 1.1 1.4 
______________________________________________
(1)    Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.
(2)    See the reconciliation of net sales, less excise taxes to net sales in “Non-GAAP Financial Information.”
(3)    Gross profit may not be comparable to those of other entities because warehousing and distribution expenses are not included as a component of our cost of goods sold.
(4)    Gross profit for 2020 includes LIFO expense of $30.7 million compared to $27.6 million in 2019.
(5)    See the reconciliation of Adjusted EBITDA to net income in “Non-GAAP Financial Information.”
Net Sales. Net sales increased by $287.4 million, or 1.7%, to $16,957.9 million in 2020 from $16,670.5 million in 2019. The increase in net sales was driven primarily by strong cigarette sales, including increases in cigarette manufacturers’ prices and growth in cigarette carton sales, partially offset by a decrease in food/non-food sales to existing customers and a net decrease in the number of stores serviced during the year. Sales of both cigarettes and food/non-food products in 2020 were impacted by changes in consumer buying habits as a result of the COVID-19 pandemic.
Net Sales of Cigarettes. Net sales of cigarettes in 2020 increased by $417.8 million, or 3.8%, to $11,310.5 million from $10,892.7 million in 2019. The increase in cigarette sales was driven primarily by a 3.6% increase in the average sales price per carton due to cigarette manufacturers’ price increases and a 0.3% increase in carton sales. Cigarette carton sales increased by 0.2% and 0.7% in the U.S. and Canada, respectively, driven by a 2.3% increase in carton sales to existing customers, partially offset by a net decrease in the number of stores serviced during the year. Cigarette carton sales to existing customers in 2020 outperformed recent downward trends, due primarily to changes in consumer buying behavior as a result of the COVID-19 pandemic.
We believe long-term cigarette consumption will be adversely impacted by rising prices, increases in excise taxes and other legislative actions, diminishing social acceptance, sales through illicit markets and increasing use of alternative nicotine products. We expect cigarette manufacturers will raise prices as carton sales decline in order to maintain or enhance their
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overall profitability, thus partially mitigating the effect of the declines to distributors. Historical industry data indicates that convenience retailers have more than offset cigarette profit declines through sales growth in food/non-food products.
Net cigarette sales as a percentage of total net sales were 66.7% in 2020 compared to 65.3% in 2019. The increase in the percentage of net cigarette sales in 2020 was due primarily to changes in consumer buying behavior as a result of the COVID-19 pandemic.
Net Sales of Food/Non-food Products. Net sales of food/non-food products in 2020 decreased $130.4 million, or 2.3%, to $5,647.4 million from $5,777.8 million in 2019.
The following table provides net sales by product category for our food/non-food products (in millions, except percentages) (1):
20202019Increase (Decrease)
Product CategoryNet SalesNet SalesAmountsPercentage
Food$1,575.8 $1,746.4 $(170.6)(9.8)%
Fresh509.3 502.8 6.5 1.3 %
Candy1,004.0 1,039.0 (35.0)(3.4)%
OTP1,558.6 1,438.9 119.7 8.3 %
Health, beauty & general (“HB&G”)801.3 847.2 (45.9)(5.4)%
Beverages197.2 202.1 (4.9)(2.4)%
Equipment/other1.2 1.4 (0.2)N/A
Total food/non-food products
$5,647.4 $5,777.8 $(130.4)(2.3)%
______________________________________________
(1)    Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.

The decrease in food/non-food sales in 2020 was driven primarily by a decrease in sales to existing customers and a net decrease in the number of stores serviced during the year due primarily to the changes in consumer buying behavior as a result of the COVID-19 pandemic. The largest sales declines were in the food, HB&G and candy categories, partially offset by growth in OTP sales to existing customers. Our HB&G category was also impacted by a decline in sales of alternative nicotine products, which was impacted by both the changes in consumer buying behavior due to the COVID-19 pandemic and the enactment of regulations governing the sale of flavored product categories.
Total net sales of food/non-food products as a percentage of total net sales were 33.3% in 2020 compared to 34.7% in 2019.
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Gross Profit. Gross profit represents profit after deducting cost of goods sold from net sales during the period. Inventory holding gains represent incremental revenues whereas vendor incentives, OTP tax refunds and changes in LIFO reserves are components of cost of goods sold. Gross profit in 2020 decreased $35.9 million, or 3.9%, to $888.3 million from $924.2 million in 2019, driven primarily by the overall shift in sales mix to cigarettes, which have lower margins than food/non-food products, and higher LIFO expense, partially offset by $1.9 million of incremental inventory holding gains.
The following table provides the components comprising the change in gross profit as a percentage of net sales for 2020 and 2019 (in millions, except percentages)(1):
20202019
 Increase (Decrease) in Gross ProfitAmounts% of Net sales% of Net sales, less excise taxesAmounts% of Net sales% of Net sales, less excise taxes
Net sales$287.4 $16,957.9 100.0 %— %$16,670.5 100.0 %— %
Net sales, less excise taxes
(non-GAAP)(2)
287.9 13,617.1 80.3 100.0 13,329.2 80.0 100.0 
Components of gross profit:
Cigarette inventory holding gains(3)
$8.8 $31.8 0.19 %0.23 %$23.0 0.14 %0.17 %
Other inventory holding gains(4)
(6.9)— — — 6.9 0.04 0.05 
LIFO expense(5)
(3.1)(30.7)(0.18)(0.23)(27.6)(0.17)(0.21)
Remaining gross profit
(non-GAAP)(6)
(34.7)887.2 5.23 6.52 921.9 5.53 6.92 
Gross profit
$(35.9)$888.3 5.24 %6.52 %$924.2 5.54 %6.93 %
______________________________________________
(1)    Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.
(2)    See the reconciliation of net sales, less excise taxes to net sales in “Non-GAAP Financial Information.”
(3)    In 2020, $29.8 million and $2.0 million of the cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. In 2019, $21.3 million and $1.7 million of the cigarette inventory holding gains were attributable to the U.S. and Canada, respectively.
(4)    In 2019, all $6.9 million of candy inventory holding gains were attributable to the U.S.
(5)    The increase of $3.1 million in LIFO expense in 2020 was due primarily to an increase in the Producer Price Index (“PPI”) for cigarettes and an increase in inventory levels (see Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements).
(6)    Remaining gross profit is a non-GAAP financial measure, which we provide to segregate the effects of LIFO expense, cigarette inventory holding gains and other items that significantly affect the comparability of gross profit (see reconciliation of remaining gross profit to gross profit in “Non-GAAP Financial Information.”)

Gross profit margin decreased 30 basis points to 5.24% of total net sales during 2020 from 5.54% in 2019. The change in the sales mix between cigarettes and food/non-food contributed to approximately 47% of the gross profit margin decline. In addition, the decrease in gross profit margin for 2020 was driven primarily by an overall decline in food/non-food margins as a result of a shift in sales mix toward lower margin items, such as OTP, due primarily to changes in consumer buying habits as a result of the COVID-19 pandemic. In addition, lower margins within the HB&G category, primarily in alternative nicotine products, also contributed to the decline in overall food/non-food gross profit margin.
Distributors such as Core-Mark may, from time to time, earn higher gross profits on inventory and excise tax stamp quantities on hand at the time manufacturers increase their prices or when states, localities or provinces increase their excise taxes. Such increases are reflected in customer pricing for all subsequent sales, including sales of inventory on hand at the time of the increase. The resulting higher gross profits are referred to as inventory holding gains. In 2020, we had $1.9 million higher inventory holding gains compared to 2019. Cigarette inventory holding gains, which were impacted by the timing and amount of cigarette manufacturers’ price increases, increased $8.8 million in 2020, offset by $6.9 million in inventory holding gains related to a candy price increase in 2019. Historically, significant price increases from candy manufacturers have only occurred every three to four years.
We expect cigarette manufacturers will continue to raise prices as carton sales decline in order to maintain or enhance their overall profitability and the various taxing jurisdictions will raise excise taxes to make up for lost tax dollars related to consumption declines.

LIFO expense was $30.7 million in 2020 compared to $27.6 million in 2019. Since we value our inventory in the U.S. on a LIFO basis, our gross profit can be positively or negatively impacted depending on the relative level of price inflation or
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deflation in manufacturer prices as reported in the Bureau of Labor Statistics PPI used to estimate and record our book LIFO expense (see Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements).
Remaining gross profit, a non-GAAP financial measure (see reconciliation of remaining gross profit to gross profit in “Non-GAAP Financial Information”), decreased $34.7 million, or 3.8%, to $887.2 million in 2020 from $921.9 million in 2019. Remaining gross profit margin, a non-GAAP financial measure (see reconciliation of remaining gross profit margin, as well as an explanation of its significance, in “Non-GAAP Financial Information”) decreased to 5.23% in 2020 compared to 5.53% in 2019, driven primarily by the impact of a shift in sales mix towards lower margin cigarettes, a shift in the sales mix within food/non-food towards lower margin categories and lower margins within the HB&G category, primarily in alternative nicotine products.
Cigarette remaining gross profit, a non-GAAP financial measure (see reconciliation of cigarette remaining gross profit to cigarette gross profit in “Non-GAAP Financial Information”), increased $7.3 million, or 3.4%, to $220.9 million in 2020 from $213.6 million for the same period in 2019. The increase in cigarette remaining gross profit was driven primarily by a 3.1% increase in remaining gross profit per carton and a 0.3% increase in cigarette carton sales.
Food/non-food remaining gross profit, a non-GAAP financial measure (see reconciliation of food/non-food remaining gross profit to food/non-food gross profit in “Non-GAAP Financial Information”), decreased $42.0 million or 5.9% to $666.3 million, in 2020 from $708.3 million in 2019. Food/non-food remaining gross profit margin, a non-GAAP financial measure (see reconciliation of food/non-food remaining gross profit margin in “Non-GAAP Financial Information”), decreased to 11.80% in 2020 from 12.26% in 2019, driven primarily by a decrease in sales in certain higher margin categories including food and HB&G, an increase in sales in our lower margin OTP category, and a decline in margin rate, primarily in alternative nicotine products within the HB&G category.
In 2020, our remaining gross profit for food/non-food products was 75.1% of our total remaining gross profit compared to 76.8% for 2019.
Operating Expenses.  Our operating expenses include costs related to warehousing and distribution, SG&A expenses and amortization of intangible assets. In 2020, operating expenses decreased by $38.0 million, or 4.6%, to $793.6 million from $831.6 million in 2019. The decrease was driven primarily by increased productivity and cost savings initiatives implemented mainly in response to the COVID-19 pandemic. As a percentage of total net sales, operating expenses were 4.7% in 2020 compared to 5.0% in 2019. Operating expenses were 89.4% of remaining gross profit, a non-GAAP financial ratio (see reconciliation of operating expenses as a percentage of remaining gross profit, as well as an explanation of its significance, in “Non-GAAP Financial Information”) in 2020, compared to 90.2% of remaining gross profit in 2019. The decrease in operating expenses as a percentage of remaining gross profit was due primarily to operating expense reductions that more than offset the decline in remaining gross profit.
Warehousing and Distribution Expenses.  Warehousing and distribution expenses decreased $24.5 million, or 4.3%, to $541.7 million in 2020 from $566.2 million in 2019. The decrease in warehousing and distribution expenses was due primarily to cost reductions, an increase in productivity and fewer deliveries. Warehousing and distribution expenses were 3.2% of total net sales in 2020 compared to 3.4% of total net sales in 2019. Warehousing and distribution expenses were 61.1% of remaining gross profit, a non-GAAP financial ratio (see reconciliation of operating expenses as a percentage of remaining gross profit, as well as an explanation of its significance, in “Non-GAAP Financial Information”), in 2020, compared to 61.4% of remaining gross profit in 2019.
Selling, General and Administrative (“SG&A”) Expenses.  SG&A expenses decreased $13.2 million, or 5.2%, to $242.2 million in 2020 from $255.4 million in 2019. The reduction in SG&A expenses was due primarily to cost savings initiatives. SG&A expenses for 2019 included $2.3 million of incremental costs related to the relocation of our headquarters. SG&A expenses were 1.4% of total net sales in 2020 compared to 1.5% of total net sales in 2019. SG&A was 27.3% of remaining gross profit, a non-GAAP financial ratio (see reconciliation of operating expenses as a percentage of remaining gross profit, as well as an explanation of its significance, in “Non-GAAP Financial Information”), in 2020, compared to 27.7% of remaining gross profit in 2019.
Amortization Expense.  Amortization expense decreased $0.3 million, or 3.0%, to $9.7 million in 2020 from $10.0 million in 2019.
Interest Expense, Net.  Interest expense, net decreased $3.9 million, or 27.1%, to $10.5 million in 2020 compared to $14.4 million in 2019. Interest expense, net, includes interest, amortization of loan origination costs related to borrowings and facility fees and interest on finance lease obligations. The decrease in net interest expense was due primarily to a decrease in the average borrowing rate and lower average borrowings. Average borrowings in 2020 were $259.5 million with a weighted-average interest rate of 1.8% compared to average borrowings of $303.2 million and a weighted-average interest rate of 3.4% in 2019.
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Foreign Currency Transaction Losses, Net.  We recognized a foreign currency transaction loss of $0.9 million in 2020 compared to a loss of $0.8 million in 2019. During times of a strengthening U.S. dollar, we generally record foreign currency losses from our Canadian operations. Conversely, during times of a weakening U.S. dollar, we generally record foreign currency gains.
Income Taxes.  For the year ended December 31, 2020, our effective tax rate was a provision of 24.1% in 2020 compared to a provision of 25.5% in 2019.
Adjusted EBITDA.  Adjusted EBITDA, a non-GAAP financial measure (see reconciliation of Adjusted EBITDA to net income in “Non-GAAP Financial Information”), increased $11.5 million, or 6.0%, to $202.2 million in 2020 from $190.7 million for the same period in 2019. The increase in Adjusted EBITDA was driven primarily by higher operating income in 2020 attained through cost leverage and an increase in inventory holding gains.
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Non-GAAP Financial Information
The financial statements in this Annual Report on Form 10-K are prepared in accordance with GAAP. Core-Mark uses certain non-GAAP financial measures including (i) Adjusted EBITDA, (ii) net sales, less excise taxes, (iii) remaining gross profit (including cigarette remaining gross profit and food/non-food remaining gross profit), (iv) remaining gross profit margin (including cigarette remaining gross profit margin and food/non-food remaining gross profit margin), (v) remaining gross profit margin less excise taxes (including cigarette remaining gross profit margin less excise taxes and food/non-food remaining gross profit margin less excise taxes), (vi) cigarette remaining gross profit per carton and (vii) operating expenses (and the components thereof) as a percentage of remaining gross profit. We believe these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful period to period evaluation. We also believe these measures allow investors to view results in a manner similar to the method used by our management. Management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. These measures may be defined differently than other companies and therefore, such measures used by other companies may not be comparable to ours. We strongly encourage investors and stockholders to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. These non-GAAP measures are defined as follows:
(i) Adjusted EBITDA is a measure used by management to measure operating performance. Adjusted EBITDA is equal to net income adding back net interest expense, provision for income taxes, depreciation and amortization, LIFO expense, stock-based compensation expense, net foreign currency transaction gains or losses. See the table below for additional details on the components of Adjusted EBITDA. We believe Adjusted EBITDA is one of the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our results to other companies.
(ii) Net sales less excise taxes is a non-GAAP financial measure which we provide to separate the increase in sales and gross profits due to product sales growth and increases in state, local and provincial excise taxes, which we are responsible for collecting and remitting. Federal excise taxes are levied on the manufacturers who pass the tax on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette taxes result in higher net sales, our overall gross profit percentage may be reduced.
(iii) Remaining gross profit (including cigarette remaining gross profit and food/non-food remaining gross profit), (iv) remaining gross profit margin (including cigarette remaining gross profit margin and food/non-food remaining gross profit margin), (v) remaining gross profit margin less excise taxes (including cigarette remaining gross profit margin less excise taxes and food/non-food remaining gross profit margin less excise taxes), and (vi) cigarette remaining gross profit per carton, are non-GAAP financial measures, which we provide to segregate the effects of LIFO expense, cigarette holding gains and certain other items that significantly affect the comparability of gross profit.
(vii) Operating expenses (and the components thereof) as a percentage of remaining gross profit is a non-GAAP financial measure, which is used by management to measure operating leverage. Although management also uses operating expenses as a percentage of net sales, this metric may be impacted on a comparable basis by, among other items, excise taxes, changes in manufacturers’ prices (including inflation), and our continuing trend in sales mix shift from cigarettes to higher-margin food/non-food items which have substantially lower selling prices.
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The following table reconciles Adjusted EBITDA to net income, as net income is the most comparable financial measure under U.S. GAAP (in millions):
Year Ended December 31,
202020192018
Net income$63.2 $57.7 $45.5 
Interest expense, net(1)
10.5 14.4 13.7 
Provision for income taxes20.1 19.7 14.4 
Depreciation and amortization66.6 60.9 59.5 
LIFO expense30.7 27.6 25.2 
Stock-based compensation expense10.2 9.6 8.2 
Foreign currency transaction losses (gains), net0.9 0.8 (1.8)
Adjusted EBITDA (non-GAAP)
$202.2 $190.7 $164.7 
______________________________________________
(1)    Interest expense, net, is reported net of interest income.

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The following tables reconcile net sales, less excise taxes to net sales and remaining gross profit to gross profit (including cigarette remaining gross profit and food/non-food remaining gross profit), their most comparable financial measures under U.S. GAAP (in millions, except percentages)(1):
Year Ended December 31,
202020192018
Net sales$16,957.9 $16,670.5 $16,395.3 
Excise taxes(2)
(3,340.8)(3,341.3)(3,491.4)
Net sales, less excise taxes (non-GAAP)$13,617.1 $13,329.2 $12,903.9 
Gross profit(3)(4)
$888.3 $924.2 $867.5 
Cigarette inventory holding gains(31.8)(23.0)(19.6)
Other inventory holding gains(5)
— (6.9)(7.4)
LIFO expense30.7 27.6 25.2 
Remaining gross profit (non-GAAP)$887.2 $921.9 $865.7 
Gross profit %5.24 %5.54 %5.29 %
Gross profit % less excise taxes (non-GAAP)6.52 %6.93 %6.72 %
Remaining gross profit % (non-GAAP)5.23 %5.53 %5.28 %
Remaining gross profit % less excise taxes (non-GAAP)6.52 %6.92 %6.71 %
Year Ended December 31,
Cigarettes:202020192018
Net sales$11,310.5 $10,892.7 $10,974.5 
Excise taxes(2)
(2,909.0)(2,929.6)(3,082.4)
Net sales, less excise taxes (non-GAAP)$8,401.5 $7,963.1 $7,892.1 
Gross profit(3)
$223.6 $212.4 $225.6 
Cigarette inventory holding gains(31.8)(23.0)(19.6)
Other inventory holding gains(5)
— — (7.4)
LIFO expense29.1 24.2 22.1 
Remaining gross profit (non-GAAP)$220.9 $213.6 $220.7 
Gross profit %1.98 %1.95 %2.06 %
Gross profit % less excise taxes (non-GAAP)2.66 %2.67 %2.86 %
Remaining gross profit % (non-GAAP)1.95 %1.96 %2.01 %
Remaining gross profit % less excise taxes (non-GAAP)2.63 %2.68 %2.80 %
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Year Ended December 31,
Food/Non-food:202020192018
Net sales$5,647.4 $5,777.8 $5,420.8 
Excise taxes(2)
(431.8)(411.7)(409.0)
Net sales, less excise taxes (non-GAAP)$5,215.6 $5,366.1 $5,011.8 
Gross profit(4)
$664.7 $711.8 $641.9 
Other inventory holding gains(5)
— (6.9)— 
LIFO expense1.6 3.4 3.1 
Remaining gross profit (non-GAAP)$666.3 $708.3 $645.0 
Gross profit %11.77 %12.32 %11.84 %
Gross profit % less excise taxes (non-GAAP)12.74 %13.26 %12.81 %
Remaining gross profit % (non-GAAP)11.80 %12.26 %11.90 %
Remaining gross profit % less excise taxes (non-GAAP)12.78 %13.20 %12.87 %
______________________________________________
(1)    Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results.
(2)    Excise taxes included in our net sales consist of state, local and provincial excise taxes, for which we are the primary obligor and held responsible for remitting to the appropriate tax authorities. Federal excise taxes are levied on the manufacturers who pass the tax on to us as part of the product cost and thus are not a component of our excise taxes. Although increases in cigarette excise taxes result in higher net sales, our overall gross profit percentage may be reduced since gross profit dollars generally remain the same.
(3)    Cigarette gross profit includes (i) cigarette inventory holding gains related to manufacturers’ price increases, (ii) increases in state, local and provincial excise taxes and (iii) LIFO effects. Cigarette inventory holding gains for the years 2020, 2019 and 2018 were $31.8 million, $23.0 million and $19.6 million, respectively. For 2018, we recognized cigarette tax stamp inventory holding gains, in the U.S. of $7.4 million.
(4)    Food/non-food gross profit includes (i) inventory holding gains related to manufacturers’ price increases, (ii) increases in state, local and provincial excise taxes, and (iii) LIFO effects.
(5)    In 2019, we recognized $6.9 million of candy inventory holding gains attributable to the U.S. In 2018, other inventory holding gains consisted of $7.4 million cigarette tax stamp inventory holding gains attributable to the U.S.
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The following table provides operating expenses as a percentage of remaining gross profit (in millions, except percentages)(1):
Year Ended
December 31,
202020192018
Gross profit$888.3 $924.2 $867.5 
Cigarette inventory holding gains(2)
(31.8)(23.0)(19.6)
Other inventory holding gains(3)
— (6.9)(7.4)
LIFO expense30.7 27.6 25.2 
Remaining gross profit (non-GAAP)$887.2 $921.9 $865.7 
Warehousing and distribution expenses$541.7 $566.2 $540.6 
Selling, general and administrative expenses242.2 255.4 245.1 
Amortization of intangible assets9.7 10.0 10.0 
Total operating expenses$793.6 $831.6 $795.7 
Warehouse and distribution expense as a percentage of remaining gross profit (non-GAAP)
61.1 %61.4 %62.4 %
Selling, general and administrative expense as a percentage of remaining gross profit (non-GAAP)
27.3 %27.7 %28.3 %
Amortization of intangible assets as a percentage of remaining gross profit (non-GAAP)
1.1 %1.1 %1.2 %
Total operating expense as a percentage of remaining gross profit (non-GAAP)
89.4 %90.2 %91.9 %
______________________________________________
(1)    Amounts and percentages have been rounded for presentation purposes and may differ from unrounded results.
(2)    For the year ended December 31, 2020, $29.8 million and $2.0 million of the cigarette inventory holding gains were attributable to the U.S. and Canada, respectively. For the year ended December 31, 2019, $21.3 million and $1.7 million of the cigarette holding gains were attributable to the U.S. and Canada, respectively. For the year ended December 31, 2018, $17.3 million and $2.3 million of the cigarette holding gains were attributable to the U.S. and Canada, respectively.
(3)    For the year ended December 31, 2019, $6.9 million of the other inventory holding gains consisted of candy inventory holding gains attributable to the U.S. For the year ended December 31, 2018, $7.4 million of the other inventory holding gains consisted of cigarette tax stamp inventory holding gains attributable to the U.S.

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Liquidity and Capital Resources
Our cash and cash equivalents were $22.8 million and $14.1 million as of December 31, 2020 and 2019, respectively.
Our liquidity requirements arise primarily from our working capital, capital expenditures, debt service requirements for our revolving credit facility (“Credit Facility”), income taxes, repurchases of common stock and dividend payments. We have historically funded our liquidity requirements through our cash flows from operations and external borrowings. For the year ended December 31, 2020, our cash flows provided by operating activities were $147.8 million. Subject to borrowing base limitations, we had $402.4 million of borrowing capacity available under our Credit Facility, excluding the expansion feature of $200.0 million, as of December 31, 2020.
We are potentially exposed to increased credit risk as a result of the COVID-19 crisis. While the vast majority of our customers are convenience retailers that continue to operate as essential businesses, our customers include smaller independent convenience retailers that may face liquidity constraints as a result of reduced store traffic. Our customers also include non-convenience store formats including hotel gift shops, casinos, tobacco shops, schools, airport concessions and other specialty and small format stores that carry convenience products. Some of these customers may have temporarily ceased, or significantly reduced, operations due to government-imposed restrictions, while others have seen a material decline in store traffic.
We have taken actions to help preserve liquidity, including reducing operating costs to better align with the current sales volume trends and closely managing our accounts receivable and capital expenditures.
Given our financial strength coming into the pandemic and ample availability of capital, we expect to be able to maintain adequate liquidity through the current environment, subject to the severity and duration of the COVID-19 pandemic.
Cash Flows from Operating Activities
Our cash flows from operating activities provided net cash of $147.8 million for the year ended December 31, 2020 compared to net cash provided of $89.7 million for the same period in 2019, an increase of $58.1 million. The increase was primarily attributable to changes in working capital, which was a cash use of $16.2 million or $54.0 million lower than the comparative period, and an increase in Adjusted EBITDA (see reconciliation of Adjusted EBITDA to net income in “Non-GAAP Financial Information”).
Our cash flows from operating activities were impacted by the following movements in working capital (in millions):
Year Ended December 31,
20202019Change
Accounts receivable, net$33.1 $(5.2)$38.3 
Other receivables, net(9.0)(6.2)(2.8)
Inventories, net(119.8)(5.0)(114.8)
Deposits, prepayments and other non-current assets20.2 (42.9)63.1 
Accounts payable(1.2)(8.6)7.4 
Cigarette and tobacco taxes payable21.5 (20.0)41.5 
Pension, claims, accrued and other long-term liabilities
39.0 17.7 21.3 
Net cash (used in) provided by changes in operating assets and liabilities
$(16.2)$(70.2)$54.0 

Working capital contributions used cash of $16.2 million for 2020, compared to cash used of $70.2 million for 2019. These contributions for the comparative periods were impacted by, among other items, an increase of inventory levels and cigarette and tobacco taxes payable, partially offset by a decrease of deposits, prepayments and other non-current assets due primarily to the timing of prepayments to cigarette vendors.
Cash Flows from Investing Activities
Our investing activities used net cash of $29.6 million for the year ended December 31, 2020 compared to $31.0 million for the same period in 2019, a decrease in cash use of $1.4 million. Capitalization of software and related development costs were $3.5 million for 2020 compared to $6.0 million for 2019. Additions to property and equipment were $27.2 million for 2020 compared to $22.8 million for the same period in 2019, an increase in cash use of $4.4 million. We expect capital expenditures for 2021 to be approximately $45 million, which will be utilized primarily for maintenance and technology initiatives, as well as upgrades to certain distribution facilities and the relocation of one distribution facility.
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Cash Flows from Financing Activities
Our financing activities used net cash of $107.9 million for the year ended December 31, 2020 compared to $71.2 million of net cash used for the same period in 2019, a change of $36.7 million. Net repayments under our Credit Facility during the year ended December 31, 2020, were $66.8 million compared to net borrowings of $4.8 million in 2019. Book overdrafts increased $7.2 million, caused by the level of cash on hand in relation to the timing of accounts payable and vendor prepayments. During the year ended December 31, 2020, we repurchased $10.4 million of our common stock under the 2020 Program, compared to repurchases of $22.0 million in 2019 under the Prior Program.
Our Credit Facility
We have a Credit Facility with a borrowing capacity of $750 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 up to an additional $200 million, subject to borrowing base requirements. All obligations under the Credit Facility are secured by first-priority liens on substantially all of our 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 the 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 we meet certain credit availability percentages and fixed charge coverage ratios. As of December 31, 2020, we were in compliance with all of the covenants under the Credit Facility. See Note 18 - Subsequent Events for changes to our Credit Facility.
Amounts related to the Credit Facility are as follows (in millions):
December 31,
 20202019
Amounts borrowed, net$258.0 $324.8 
Outstanding letters of credit19.5 16.7 
Amounts available to borrow(1)
402.4 341.7 
Average borrowings for the year(2)
259.5 303.2 
Range of borrowings for the year69.0 - 499.3141.7 - 508.0
______________________________________________
(1)    Subject to borrowing base limitations, and excluding expansion feature of $200.0 million.
(2)    See Liquidity and Capital Resources for additional details on the decrease in average borrowings.

Contractual Obligations and Commitments
Contractual Obligations. The following table presents information regarding our contractual obligations that existed as of December 31, 2020 (in millions):
TotalLess than 1 Year1 - 3 Years3 - 5 YearsMore than 5 Years
Credit Facility(1)
$258.0 $— $258.0 $— $— 
Purchase obligations(2)
18.2 6.9 10.0 1.3 — 
Letters of credit19.5 19.5 — — — 
Operating leases(3)
256.9 41.8 70.4 52.9 91.8 
Finance leases(4)
116.6 19.0 36.4 32.3 28.9 
Total contractual obligations(5)
$669.2 $87.2 $374.8 $86.5 $120.7 
______________________________________________
(1)    Represents amounts borrowed under our Credit Facility and does not include interest costs associated with the Credit Facility due to the variation of outstanding debt at Prime-based or LIBOR-based interest rates. See