CORE MARK INTERNATIONAL INC, 10-K405, 2000-03-27

CORE MARK INTERNATIONAL INC
10-K405, 2000-03-27
MISCELLANEOUS NONDURABLE GOODS

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999

[ ] 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 333-14217

============

Core-Mark International, Inc.

(Exact name of registrant as specified in its charter)

Delaware 91-1295550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

395 Oyster Point Boulevard, Suite 415

South San Francisco, CA 94080
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (650) 589-9445

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 _x_ No__

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [x]

As of February 29, 2000, all of the Registrant's voting stock was held
by affiliates of the Registrant. (See Item 12.)

Registrant's Common Stock outstanding at February 29, 2000 was
5,500,000 shares.

<PAGE>

FORWARD-LOOKING STATEMENTS OR INFORMATION

Certain statements contained in this annual report on Form 10-K under the
captions "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere herein and in the documents
incorporated herein by reference are not statements of historical fact but are
future-looking or forward-looking statements that may constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of such forward-looking
terminology as the words "believes," "expects," "may," "will," "should," or
"anticipates" (or the negative of such terms) or other variations thereon or
comparable terminology, or because they involve discussions of Core-Mark
International, Inc.'s strategy. Such forward-looking statements are based upon a
number of assumptions concerning future conditions that may ultimately prove to
be inaccurate. The ability of Core-Mark International, Inc. (the "Company") to
achieve the results anticipated in such statements is subject to various risks
and uncertainties and other factors which may cause the actual results, level of
activity, performance or achievements of the Company or the industry in which it
operates to be materially different from any future results, level of activity,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the general state of the economy
and business conditions in the United States and Canada; adverse changes in
consumer spending; the ability of the Company to implement its business
strategy, including the ability to integrate recently acquired businesses into
the Company; the ability of the Company to obtain financing; competition; the
level of retail sales of cigarettes and other tobacco products; possible effects
of legal proceedings against manufacturers and sellers of tobacco products; and
the effect of government regulations affecting such products. As a result of the
foregoing and other factors affecting the Company's business beyond the
Company's control, no assurance can be given as to future results, levels of
activity, performance or achievements and neither the Company nor any other
person assumes responsibility for the accuracy and completeness of these
statements.

PART I

ITEM 1. BUSINESS

GENERAL

The Company, with net sales of over $2.8 billion in 1999, is one of the
largest broad-line, full-service wholesale distributors of packaged consumer
products to the convenience retail industry in western North America. The
Company's principal customers include traditional and petroleum convenience
stores, grocery stores, drug stores, mass merchandisers and liquor stores. The
Company offers its customers a wide variety of products including cigarettes,
candy, snacks, fast food, groceries, health and beauty care products and other
general merchandise.

The Company's principal markets include the western United States and
western Canada. The Company services its United States customers from 15
distribution facilities, seven of which are located in California. In Canada,
the Company services its customers from four distribution facilities.

HISTORY

The Company's origins date back to 1888, when Glaser Bros., a
family-owned-and-operated candy and tobacco distribution business, was founded.
In August 1996, the Company completed a recapitalization. The Company's equity
is now held 75% by Jupiter Partners, L.P. ("Jupiter") and 25% by senior
management.

INDUSTRY OVERVIEW

Wholesale distributors provide valuable services to both manufacturers of
consumer products and convenience retailers. Manufacturers benefit from
wholesale distributors' broad retail coverage, inventory management and
efficient processing of small orders. Wholesale distributors provide convenience
retailers access to a broad product line, the ability to place small quantity
orders, inventory management and access to trade credit. In addition, large
full-service wholesale distributors such as the Company offer retailers the
ability to participate in manufacturer-sponsored marketing programs,
merchandising and category management services and systems focused on minimizing
customers' investment in inventory.

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<PAGE>

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 distributors such as the Company
benefit from several competitive advantages, including purchasing power, the
ability to service chain accounts, economies of scale in sales and operations,
the ability to spread fixed corporate costs over a larger revenue base and the
resources to invest in information technology ("IT") and other productivity
enhancing technology. These factors have led to a consolidation of the wholesale
distribution industry as companies either exit the industry or are acquired by
large distributors seeking to further leverage their existing operations.

BUSINESS STRATEGY

The Company's business strategy is to increase net sales and improve
operating margins. To achieve these goals, the Company intends to: (i) increase
sales to existing customers, particularly of higher gross margin, non-cigarette
products; (ii) add new customer locations in existing markets, particularly
along existing routes; (iii) continue to implement distribution productivity
enhancement programs; and (iv) make selective acquisitions.

INCREASE SALES TO EXISTING CUSTOMERS. Because the Company generally carries
many products that its typical retail store customer purchases from other
suppliers, a primary element of its growth strategy is to increase sales to
existing customers. The Company's typical customer purchases its products from
the Company, from manufacturers who distribute directly to retailers, and from a
variety of smaller local distributors or jobbers. The Company is particularly
focused on becoming the retail customer's primary supplier. The Company attempts
to do this by implementing programs designed to eliminate the need for
deliveries provided by local distributors and jobbers. Such programs are
centered on increasing non-cigarette sales that provide higher gross margins
than those associated with the distribution of cigarettes. As part of the
effort, the Company provides compensation incentives to its sales force as well
as a number of value-added services and marketing programs to its customers.
These programs include: (i) Tully's to Go (a turnkey food service operation that
maximizes profit with minimal labor); (ii) Smart Sets (which helps ensure that
retailers display the right product in the right place); (iii) SmartStock(R)
(which provides state of the art category management for key, high-volume,
high-impulse convenience retail categories); and (iv) Promo Power (a Company
publication which offers manufacturer promotions).

ADD NEW CUSTOMER LOCATIONS IN EXISTING MARKETS. The Company also seeks to
leverage its existing distribution network by securing additional customers
along existing routes. The Company believes it has many opportunities to add
additional customers at low marginal distribution costs. The Company continues
to focus on a number of new trade channels, including hotel gift shops, military
bases, correctional facilities, college bookstores, movie theaters and video
rental stores. The Company believes that there is significant opportunity to
increase net sales and profitability by adding new customers and maximizing
economies of scale.

PRODUCTIVITY ENHANCEMENT PROGRAMS. During the past five years, the Company
has devoted a significant portion of its capital spending to a variety of
productivity enhancement programs. These productivity enhancement programs
include: (i) BOSS, a batch order selection system that increases the efficiency
and reduces the cost of full-case order fulfillment; (ii) Pick-to-Light, a
paperless picking system that reduces the travel time for the selection of
less-than-full-case order fulfillment; (iii) Radio Frequency, a hand-held
wireless computer technology that eliminates paperwork and updates receiving
inventory levels and stocking requirements on a real-time basis; (iv) Checker
Automation, an on-line order verification system that has significantly reduced
labor costs by automating inspection of order accuracy; and (v) fleet management
tools such as Roadshow, a software program that optimizes the routing of
customer deliveries. The Company intends to continue to pursue cost reductions
by completing the roll-out of some of these and other programs.

SELECTIVE ACQUISITIONS. The wholesale distribution industry is highly
fragmented and comprised mainly of a large number of small, privately-held
businesses. Management believes that the consolidation that has taken place in
recent years will continue and that numerous attractive acquisition
opportunities will arise. Given the current utilization rates of the Company's
existing warehouse and distribution facilities as well as the quality of the
Company's in-house IT capability, management believes that a significant amount
of incremental sales can be integrated into the Company's operations without
significant additions to fixed costs.

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<PAGE>

PRODUCTS DISTRIBUTED

The products distributed by the Company include cigarettes, food products
such as candy, fast food, snacks, groceries and non-alcoholic beverages, and
non-food products such as film, batteries and other sundries, health and beauty
care products and tobacco products other than cigarettes. Cigarette net sales
constituted approximately 70% of the Company's total net sales in 1999.

CIGARETTE PRODUCTS

The Company offers substantially all brands of cigarettes from all of the
major manufacturers, including national premium labels such as Marlboro, Winston
and Player; discount labels such as Viceroy, Basic, GPC and Doral; and deep
discount labels such as the Company's private label brand, Best Buy(R), as well
as Best Value and Monarch.

FOOD AND NON-FOOD PRODUCTS

The Company offers its customers a wide variety of food and non-food
products (approximately 34,000 stock keeping units (SKU's)), including candy,
snacks, fast food, groceries, non-alcoholic beverages, health and beauty care
products and general merchandise. The Company's strategy is to offer its
convenience retail store customers a variety of food and non-food products at
reasonable prices in flexible quantities.

FOOD PRODUCTS. The Company's candy products include such brand name items
as Snickers, Hershey Kisses, M&M's, Lifesavers and Dentyne. The Company also
offers its own private label Cable Car(R) candy line. The Company's snack
products include brand names such as Keebler, Nabisco and Planters.

The Company's grocery products include national brand name items ranging
from canned vegetables, soups, cereals, baby food, frozen foods, soaps and paper
products to pet foods from such manufacturers as Del Monte, Carnation, Kellogg's
and Purina. The Company offers a variety of non-alcoholic beverages, including
juices, bottled water and sports drinks under brand names such as Tropicana,
Veryfine and Gatorade.

The Company's fast food products include prepared sandwiches, hot deli
foods, slush drinks, hot beverages, pastries and pizza, as well as packaged
supplies and paper goods, including brand name items such as Superior Coffee,
Tyson chicken, Oscar Mayer meats and Kraft and Heinz condiments. The Company
targets the hot beverage (coffee and hot chocolate) and frozen food product
categories, which present significant growth opportunities as sales in these
product categories are among the fastest growing product offerings of the
convenience store industry.

NON-FOOD PRODUCTS. General merchandise products range from film, tape,
batteries, cigarette lighters and glue to automotive products and include brand
names such as Fuji, Kodak, Scotch and Mead Envelope. Health and beauty care
products include analgesics, hair care, cosmetics, hosiery, dental products and
lotions, from manufacturers of brand names such as Crest, Tylenol, Johnson &
Johnson Band-Aid, Vicks, Gillette and Jergens. The Company's broad assortment of
tobacco products includes imported and domestic cigars, smokeless tobacco
(snuff), chewing tobacco, smoking tobacco and smoking accessories.

CUSTOMERS

The Company's current customer base is comprised of a wide range of
retailers, including traditional and petroleum convenience stores, grocery
stores, drug stores, mass-merchandisers and liquor stores. The Company also
provides services to hotel gift shops, military bases, correctional facilities,
college bookstores, movie theaters and video rental stores. In 1999, the
Company's largest customer accounted for 3.8% of net sales, and the Company's
ten largest customers accounted for approximately 28% of net sales. As a result
of its size and geographic coverage, the Company supplies a number of regional
and national chain corporations and, therefore, is able to distribute products
to all or substantially all of such customers' individual store locations in the
Company's market area.

The Company strives to offer its customers greater flexibility, service and
value than other distributors. The Company's willingness to work with retailers
to arrive at a suitable delivery time, thereby allowing the store owner to
schedule its labor requirements effectively, is an important facet of this
flexibility. The Company believes that its ability to provide fully integrated
technological services (electronic data interchange (EDI) services, store
automation integration, consultative services, retail price management systems
and UPC control), bar-coded shelf labels to assist in effective shelf space
management, timely communication of manufacturer price change information,
seasonal and holiday special product/promotional offerings and salesperson
assistance in order preparation are also important to the retailer in its
selection of the Company as its supplier.

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<PAGE>

SUPPLIERS AND MANUFACTURERS

The Company purchases products for resale to its customers from
approximately 2,100 suppliers and manufacturers located throughout the United
States and Canada. Although the Company purchases cigarette and tobacco products
from all major United States and Canadian manufacturers, approximately 32%, 14%,
10% and 8% of the Company's net sales in 1999 were derived from products
purchased by the Company from Philip Morris, R.J. Reynolds, Imperial Tobacco and
Brown & Williamson, respectively. No other supplier's products represented more
than 10% of net sales. In addition, Philip Morris manufactures the Company's
private label Best Buy(R) cigarettes. The loss of or a major change in the
Company's relationshipswith any of these manufacturers or in any of their
structured incentive programs (see Cigarette Products, below) could have a
material adverse effect on the Company's business and financial results.

The Company generally has no long-term purchase agreements (other than for
Best Buy(R) products) and buys substantially all its products as needed.

CIGARETTE PRODUCTS

The Company controls major purchases of cigarettes centrally in order to
minimize inventory levels. Daily replenishment of cigarette inventory and brand
selection is controlled by the local division based on demands of the local
market. The U.S. cigarette manufacturers charge all wholesale customers the same
price for national brand cigarettes regardless of volume purchased. However,
cigarette manufacturers do offer certain structured incentive programs
(including Philip Morris' Leaders Program and R.J. Reynolds' Partners Program)
to wholesalers instead of the routine allowances associated with non-cigarette
products. These programs are based upon, among other things, purchasing volume
and often include performance-based criteria related to the quality of the
Company's efforts to keep certain brands and volumes of cigarettes on the retail
shelves.

FOOD PRODUCTS

Food products (other than frozen foods) are purchased directly from
manufacturers by buyers in each of the Company's distribution facilities.
Management believes that decentralized purchasing of food products results in
higher service levels, improved product availability tailored to individual
markets and reduced inventory investment. Although each division has individual
buyers, the Company negotiates corporate pricing where possible to maximize
purchasing power.

In February 1996, the Company established its Artic Cascade division, a
consolidated frozen warehouse which purchases frozen foods for all of the
Company's United States divisions. By consolidating the frozen food purchases,
the Company is able to obtain such products at lower cost. Buying in one
location also allows the Company to offer a wide selection of quality products
to retailers at more competitive prices.

NON-FOOD PRODUCTS

The majority of the Company's non-food products, other than cigarettes and
tobacco products (primarily health and beauty care products and general
merchandise), are purchased by Allied Merchandising Industry ("AMI"), one of the
Company's operating divisions that specializes in these categories. This
specialization seeks to ensure a better selection and more competitive wholesale
costs and enables the Company to reduce its overall general merchandise and
health and beauty care inventory levels. Tobacco products, other than
cigarettes, are purchased directly from the manufacturers by each of the
divisions.

DISTRIBUTION

The Company maintains 19 distribution facilities, of which 15 are located
in the western United States and four are located in western Canada. These
distribution facilities include two consolidating warehouse operations, AMI and
Artic Cascade. Each distribution facility is outfitted with modern equipment
(including freezers and coolers as required) for receiving, stocking, order
selection and loading a large volume of customer orders on trucks for delivery.
Each facility provides warehouse, distribution, sales and support functions for
its geographic area under the supervision of a division manager. In addition,
the Company believes that the majority of its distribution facilities have the
capacity to absorb significant future growth in net sales.

The Company's trucking system includes straight trucks and tractors
(primarily leased by the Company) and trailers (primarily owned by the Company).
The Company's standard is to maintain its transportation fleet to an average age
of five years or less. The Company employs a state-of-the-art, computerized
truck routing system to efficiently construct delivery routes.

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<PAGE>

COMPETITION

The convenience retail distribution business is comprised of one national
distributor in the United States (McLane, a subsidiary of Wal-Mart) and several
national distributors in Canada, a number of large, multi-regional competitors
(participants with a presence in several contiguous regional markets) and a
large number of small, privately-owned businesses that compete in one or two
markets. Multi-regionals include the Company in the west, GSC Enterprises in the
south and southeast, H.T. Hackney in the southeast, and Eby-Brown Company in the
midwest. Relative to smaller competitors, multi-regional distributors such as
the Company benefit from several competitive advantages including greater
purchasing power, the ability to service chain accounts, scale cost advantages
in sales and warehouse operations, the ability to spread fixed corporate costs
over a larger revenue base and the resources to invest in both IT and
productivity enhancing technology. These factors have led to a consolidation of
the industry as small competitors exit the industry and some larger convenience
retail distributors seek acquisitions to increase the utilization of their
existing operations.

The Company also competes with wholesale clubs and certain retail stores
whose sales are primarily cigarettes, characterized by high volumes and very
aggressive pricing. These competitors have become a factor in the industry
within recent years, particularly in California markets. The wholesale clubs
have been aggressive in their pricing of cigarettes and candy, and wholesalers
have been forced to reduce margins to compete in densely populated markets with
a large number of wholesale clubs. Wholesale clubs require the convenience store
owner to take the time to travel, to shop at their location, pay cash and choose
from a very limited selection. They also provide none of the merchandising
support that the Company routinely offers. Consequently, national chains do not
routinely purchase product at the wholesale clubs.

The principal competitive factors in the Company's business include price,
customer order fill rates, trade credit and the level and quality of value-added
services offered. Management believes the Company competes effectively by
offering a full product line, flexible delivery schedules, competitive prices,
high levels of customer service and an efficient distribution network.

EMPLOYEES

As of December 31, 1999, the Company had 2,504 employees.

The Company is a party to local collective bargaining agreements with the
International Brotherhood of Teamsters covering clerical, warehouse and
transportation personnel at its facilities in Hayward, California, and covering
warehouse and transportation personnel in Las Vegas, Nevada. The Company is
party to a collective bargaining agreement with United Food Commercial Workers
covering warehouse and transportation personnel in Calgary, Alberta. The Company
is a party to a collective bargaining agreement with Industrial Wood and Allied
Workers of Canada covering warehouse personnel in Victoria, British Columbia.
The agreement covering warehouse and transportation employees in Hayward expires
on January 15, 2003, while the agreement covering Hayward clerical employees,
which was to expire on January 15, 2000, has been extended pending completion of
negotiations, which are in progress. The agreement covering employees in Las
Vegas expires on March 31, 2002. The agreement covering employees in Calgary
expires on August 31, 2001. The agreement covering employees in Victoria expires
on April 5, 2002. These agreements cover an aggregate of less than 10% of the
Company's employees.

Management believes that the Company's relations with its employees are
good.

ITEM 2. PROPERTIES

The Company does not own any real property. The principal executive offices
of the Company are located in South San Francisco, California, and consist of
approximately 22,000 square feet of leased office space. In addition, the
Company leases approximately 23,000 square feet in Vancouver, British Columbia
for its Canadian regional corporate, tax and information technology departments
and 8 small offices for use by sales personnel in certain parts of the United
States and Canada. The Company also leases its 19 distribution facilities, 15 of
which are located in the western United States and four in western Canada. Each
distribution facility is equipped with modern equipment (including freezers and
coolers at 18 facilities) for receiving, stocking, order selection and shipping
a large volume of customer orders. The Company believes that it currently has
sufficient capacity at its distribution facilities to meet its anticipated needs
and that its facilities are in satisfactory condition.

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<PAGE>

The Company's leases expire on various dates between 2000 and 2010, and in
many instances give the Company renewal options. The aggregate rent paid in
connection with the Company's distribution facilities, regional sales offices
and corporate and administrative offices was approximately $7.0 million in 1998
and $7.5 million in 1999. The Company's distribution facilities range from
28,000 to 194,000 square feet and account for approximately 1.7 million square
feet in aggregate. Management believes that the Company's current utilization of
warehouse facilities is approximately 70% to 80% in the aggregate.

ITEM 3. LEGAL PROCEEDINGS

REGULATORY AND LEGISLATIVE MATTERS

The tobacco industry is currently subject to significant regulatory
restrictions, such as the requirement that product packages display warning
labels, a prohibition on television and radio advertising and prohibitions on
sales to minors. In August 1996, the United States Food and Drug Administration
(the "FDA") determined that it had jurisdiction over cigarettes and smokeless
tobacco products and issued regulations restricting the sale, distribution and
advertising of cigarette and smokeless tobacco products, especially to minors.
The FDA regulations are significant not only because of their substance, but
also because the FDA determined that it has jurisdiction over cigarettes and
smokeless tobacco as "combination products having both a drug component,
including nicotine, and device components." The regulations regulate such
products as "devices." The major U.S. tobacco manufacturers challenged the
jurisdiction of the FDA to regulate tobacco products as "drugs" or "devices" and
in April 1997 the U.S. District Court for the Middle District of North Carolina
held that the FDA could impose restrictions on access to and labeling of tobacco
products, but did not have authority to restrict the promotion and advertisement
of such products. The court stayed implementation of the FDA regulations except
for those establishing a federal minimum age of 18 for the sale of tobacco
products and requiring proof of age for anyone under the age of 27. On August
14, 1998, however, the United States Court of Appeals for the Fourth Circuit
reversed the decision of the District Court, finding that the FDA lacked
statutory authority to regulate tobacco products altogether. The FDA's petition
for rehearing and rehearing en banc were denied, the FDA's petition for review
was granted by the Supreme Court, and on March 21, 2000, the Supreme Court ruled
5-4 that the FDA did not have authority to regulate tobacco products.

In November 1998, 46 states, five territories and the District of Columbia
entered into a settlement with four major tobacco companies to resolve
litigation over smoking-related costs incurred by state Medicaid programs.
Included in the terms of the settlement are conditions that tobacco companies
participating in the settlement may not: target youth in the advertising,
promotion or marketing of tobacco products (including the use of cartoons in
such promotion); use tobacco brand names to sponsor concerts, athletics events
or other events in which a significant percentage of the audience is under 18
years of age; advertise products in conspicuous places outdoors (such as
billboards) or on transit vehicles; merchandise a tobacco brand name through the
marketing, distribution or sale of apparel or other merchandise; provide free
samples of tobacco products in any area except an adults-only facility;
distribute or sell cigarettes in pack sizes of less than 20; or lobby state
legislatures on certain anti-tobacco initiatives (such as limitations on youth
access to vending machines). Many of these provisions took effect in November
1998; most of the remaining provisions will take effect by April 23, 1999. The
Company is unable to assess the effects that this agreement will have on the
sale of the Company's products; there can be no assurance that these new
restrictions will not result in a material reduction of the consumption of
tobacco products in the United States and thus will not have a material adverse
effect on the Company's business and financial position.

In addition, a number of bills were introduced in Congress during 1997 and
1998 that would confirm or expand the FDA's jurisdiction, but none were enacted.
No legislation addressing FDA jurisdiction over tobacco products was introduced
in 1999, but similar legislation in 2000 is nonetheless possible. In addition,
proposals have been made in recent years to require additional warning notices
on tobacco products, to disallow advertising and promotional expenses as
deductions under federal tax law and to further regulate the production and
distribution of cigarettes and smokeless tobacco. While neither the FDA
regulations, the state Medicaid litigation settlement, nor recent legislation
would impose restrictions on the sale of cigarettes and smokeless tobacco
products to adults, there can be no assurance such restrictions will not be
proposed in the future or that any such proposed legislation or regulations
would not result in a material reduction of the consumption of tobacco products
in the United States or would not have a material adverse effect on the
Company's business and financial position.

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<PAGE>

Over the past decade, various state and local governments have imposed
significant regulatory restrictions on tobacco products, including sampling and
advertising bans or restrictions, packaging regulations and prohibitions on
smoking in restaurants, office buildings and public places. With a limited
number of exceptions, the state Medicaid litigation settlement prohibits the
participating tobacco manufacturers from challenging any restriction relating to
tobacco control enacted prior to June 1, 1998. Additional state and local
legislative and regulatory actions are being considered and are likely to be
promulgated in the future. The Company is unable to assess the future effects
that these various proposals may have on the sale of the Company's products.

The Company is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and the presence of hazardous substances in the
workplace and establish standards for vehicle and employee safety and for the
handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Air Act, the Hazardous Materials
Transportation Act and the Occupational Safety and Health Act. Future
developments, such as stricter environmental or employee health and safety laws
and regulations thereunder, could affect the Company's operations. The Company
does not currently anticipate that the cost of its compliance with or of any
foreseeable liabilities under environmental and employee health and safety laws
and regulations will have a material adverse effect on its business and
financial condition.

LEGAL MATTERS

In November 1999, the Company was named in two separate law suits filed in
State Court in New Mexico by two individual plaintiffs. The other defendants
include the principal U.S. tobacco manufacturers, as well as other distributors.
The complaints seek compensatory and punitive damages for injuries allegedly
caused by the use of tobacco products.

The Company does not believe that these actions will have a material
adverse effect on the Company's financial condition. The Company has been
indemnified with respect to certain claims alleged in each of the above actions.

In addition, the Company is a party to other lawsuits incurred in the
ordinary course of its business. The Company believes it is adequately insured
with respect to such lawsuits or that such lawsuits will not result in losses
material to its consolidated financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Not applicable.

ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth selected historical consolidated financial
and other data for the Company. The historical financial data as of the end of
and for each year in the five year period ended December 31, 1999 have been
derived from the Company's audited consolidated financial statements. The
consolidated financial data set forth below should be read in conjunction with
the historical consolidated financial statements of the Company and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," all contained elsewhere in this Form 10-K.

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Core-Mark International, Inc. and Subsidiaries
Selected Historical
Consolidated Financial And Other Data
<TABLE>
<CAPTION>

Year Ended December 31,
(in thousands)

----------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:

Net sales (a)....................... $2,047,187 $2,175,367 $2,395,867 $2,476,376 $2,838,107
Costs of goods sold (b)............. 1,901,604 2,017,654 2,216,162 2,295,659 2,643,069
---------- ---------- ---------- ---------- ----------
Gross profit (b).................... 145,583 157,713 179,705 180,717 195,038
Operating and administrative
expenses........................ 125,245 130,493 148,902 150,977 155,128
---------- ---------- ---------- ---------- ----------
Operating income (b)................ 20,338 27,220 30,803 29,740 39,910
Interest expense, net............... 6,987 9,916 18,181 15,402 12,696
Amortization of debt
refinancing costs (c)........ 1,065 1,319 1,498 2,204 1,274
---------- ---------- ---------- ---------- ----------
Income before income taxes
and extraordinary item.......... 12,286 15,985 11,124 12,134 25,940
Income tax expense (d).............. 5,563 6,941 4,834 4,925 5,740
---------- ---------- ---------- ---------- ----------
Income before extraordinary item.... 6,723 9,044 6,290 7,209 20,200
Extraordinary item, net of tax (e).. -- (1,830) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (b)...................... $ 6,723 $ 7,214 $ 6,290 $ 7,209 $ 20,200
========== ========== ========== ========== ==========

Other Data:

EBITDAL (f)......................... $ 29,696 $ 35,169 $ 41,597 $ 56,419 $ 53,493
Cash provided by (used in):
Operating activities............ 12,529 26,621 17,547 5,933 40,781
Investing activities............ (16,896) (6,079) (30,739) (5,311) (6,575)
Financing activities............ 11,397 (18,972) 3,549 9,533 (42,789)
Depreciation and amortization (g)... 5,943 6,573 7,528 8,065 7,912
LIFO expense (b).................... 3,415 1,376 3,266 18,614 5,671
Capital expenditures................ 7,286 6,079 9,378 5,311 6,575
</TABLE>

As of December 31,
(in thousands)

---------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:

Total assets....................... $324,536 $329,036 $336,580 $359,390 $350,068
Total debt, including current
maturities..................... 101,598 193,463 197,012 208,124 165,335
</TABLE>

See Notes to Selected Historical Consolidated Financial and Other Data.

-8-
<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OTHER DATA

(a) In the second quarter of 1995, the Company completed two acquisitions which
added approximately $62 million in net sales for the year ended December
31, 1995. In February 1997, the Company completed an acquisition which
added approximately $136 million in net sales for the year ended December
31, 1997.

(b) The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis.
During periods of rising prices, the LIFO method of costing inventories
generally results in higher costs being charged against income compared to
the FIFO method ("LIFO expense") while lower costs are retained in
inventories. Conversely, during periods of declining prices or a decrease
of the Company's inventory quantities, the LIFO method of costing
inventories generally results in lower costs being charged against income
compared to the FIFO method ("LIFO income"). During the year ended December
31, 1998, the Company recognized LIFO expense of $18.6 million, primarily
due to several increases in domestic cigarette wholesale prices during
1998. However, the LIFO expense in 1998 was more than offset by profits
resulting from such price increases. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for more
information on the impact of the LIFO inventory valuation method on other
accounting periods.

(c) Amortization of debt refinancing costs reflects the amortization of all
costs associated with issuing, restructuring and refinancing debt.

(d) Prior to 1999, the Company had a significant valuation allowance that
reduced certain deferred tax assets, based upon management's assessment
that it was more likely than not that these deferred taxes would not be
realized. However, as a result of the Company's strong earnings history,
management has concluded that the tax benefits related to future
deductions, including net operating loss carryforwards, are now more likely
than not to be realized. Therefore, in 1999, the Company recorded a $6.2
million decrease in its valuation allowance, which resulted in a one-time
reduction of its tax rate of approximately 24%.

(e) In connection with the August 7, 1996 Recapitalization, the Company fully
repaid the outstanding debt under a previously existing credit facility.
The early extinguishment of this debt resulted in a one-time extraordinary
charge to income to write-off unamortized debt refinancing costs of $1.8
million, which is net of a $1.2 million income tax benefit.

(f) EBITDAL represents operating income before depreciation, amortization and
LIFO expense, each as defined herein. EBITDAL should not be considered in
isolation or as a substitute for net income, operating income, cash flows
or other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. EBITDAL is included because it is one measure
used by certain investors to determine a company's ability to service its
indebtedness.

(g) Depreciation and amortization includes depreciation on property and
equipment, amortization of goodwill and other non-cash charges, and
excludes amortization of debt refinancing costs.

-9-
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the "Selected
Historical Consolidated Financial and Other Data" and the consolidated financial
statements of Core-Mark International, Inc. (the "Company") and notes thereto
included elsewhere in this Form 10-K.

GENERAL

The Company is one of the largest broad-line, full-service wholesale
distributors of packaged consumer products to the convenience retail industry in
western North America. The products distributed by the Company include
cigarettes, food products such as candy, fast food, snacks, groceries and
non-alcoholic beverages, and non-food products such as film, batteries and other
sundries, health and beauty care products and tobacco products other than
cigarettes. In the year ended December 31, 1999, approximately 70%, 20% and 10%
of the Company's net sales were derived from cigarettes, food products and
non-food products, respectively.

TOBACCO INDUSTRY BUSINESS ENVIRONMENT

Manufacturers and distributors of cigarettes and other tobacco products are
currently facing a number of significant issues that affect the business
environment in which they operate including proposed additional governmental
regulation (see Item 3. "Legal Proceedings - Regulatory and Legislative
Matters"); actual and proposed excise tax increases (see "Impact of Tobacco
Taxes"); increased litigation involving health and other effects of cigarette
smoking and other uses of tobacco (see Item 3. "Legal Proceedings - Legal
Matters"); and potential litigation by the U.S. Department of Justice to recover
federal Medicare costs allegedly connected to smoking.

In August 1996, the United States Food and Drug Administration (the "FDA")
determined that it had jurisdiction over cigarettes and smokeless tobacco
products and issued regulations restricting the sale, distribution and
advertising of cigarette and smokeless tobacco products, especially to minors.
The FDA regulations are significant not only because of their substance, but
also because the FDA determined that it has jurisdiction over cigarettes and
smokeless tobacco as "combination products having both a drug component,
including nicotine, and device components." The regulations regulate such
products as "devices." In April 1997, the U.S. District Court for the Middle
District of North Carolina held that the FDA could impose restrictions on access
to and labeling of tobacco products, but did not have authority to restrict the
promotion and advertisement of such products. The court stayed implementation of
the FDA regulations except for those establishing a federal minimum age of 18
for the sale of tobacco products and requiring proof of age for anyone under the
age of 27. On August 14, 1998, however, the United States Court of Appeals for
the Fourth Circuit reversed the decision of the District Court, finding that the
FDA lacked statutory authority to regulate tobacco products altogether. The
FDA's petitions for rehearing and rehearing en banc were denied, the FDA's
petition for review was granted by the Supreme Court, and on March 21, 2000, the
Supreme Court ruled 5-4 that the FDA did not have authority to regulate tobacco
products.

In June 1997, a so called "national settlement" of many of these issues was
proposed following negotiations among major U.S. tobacco manufacturers, state
attorneys general, representatives of the public health community and attorneys
representing plaintiffs in certain smoking and health litigation. The national
settlement required implementation by federal legislation, however, and such
legislation was considered but not passed by the Congress in 1998. Similar
federal legislation has not been introduced to date in 2000.

In light of failure of the national settlement legislation, in November
1998, the four largest U.S. cigarette manufacturers and the attorneys general of
46 states, five territories, and the District of Columbia agreed to a settlement
of approximately $400 billion for public health-care costs allegedly connected
to smoking. The settlement - which takes effect in each settling jurisdiction
when the courts in each such jurisdiction enter a final consent decree and any
appeals of such decree are disposed of or become time-barred - allows for
payment of the agreed sum by the cigarette manufacturers over 25 years, settles
the state and territory health-care claims against the tobacco industry and
imposes a number of new marketing, advertising, sales and other restrictions on
tobacco products. As a direct result of this settlement, the major cigarette
manufacturers raised the wholesale price of cigarettes by $4.50 per carton,
effective November 24, 1998, bringing the total per-carton price increase in the
United States in 1998 to $6.35.

Included in the terms of the settlement are conditions that tobacco
companies participating in the settlement may not: target youth in the
advertising, promotion or marketing of tobacco products; use tobacco brand names

-10-
<PAGE>

to sponsor concerts, athletics events or other events in which a significant
percentage of the audience is under 18 years of age; advertise products in
conspicuous places outdoors (such as billboards) or on transit vehicles;
merchandise a tobacco brand name through the marketing, distribution or sale of
apparel or other merchandise; provide free samples of tobacco products in any
area except an adults-only facility; distribute or sell cigarettes in pack sizes
of less than 20; or lobby state legislatures on certain anti-tobacco initiatives
(such as limitations on youth access to vending machines). Many of these
provisions took effect in November 1998 and most of the remaining provisions
took effect by April 23, 1999. The Company is unable to assess the effects that
this agreement will have on the sale of the Company's products; there can be no
assurance that these new restrictions will not result in a material reduction of
the consumption of tobacco products in the United States and thus will not have
a material adverse effect on the Company's business and financial position.

On September 22, 1999, the U.S. Department of Justice filed "an action to
recover health care costs paid for and furnished...by the federal government for
lung cancer, heart disease, emphysema and other tobacco-related illnesses caused
by the fraudulent and tortious conduct of..." the major tobacco manufacturers.
The defendant companies announced that they would fight the litigation, and on
December 27, 1999 moved to dismiss the government's complaint. The government
opposed the motion to dismiss on February 25, 2000, and the court's decision is
pending. If the Justice Department prevails in the litigation, or if the
litigation is settled, there can be no assurance that the litigation will not
result in increased cigarette prices and/or a material reduction of the
consumption of tobacco products in the United States, and thus will not have a
material adverse affect on the Company's business and financial position.

Effective January 1, 1999, the State of California increased the state
excise tax on cigarettes by $5.00 per carton. California is the Company's
largest market, representing approximately 39% of carton sales during 1999.

The major U.S. cigarette manufacturers raised the wholesale price of
cigarettes by $1.80 per carton, effective August 30, 1999 and $1.30 per carton,
effective January 17, 2000.

The Company believes that price and tax increases of the magnitude recently
experienced, as well as increases which occur in the future (see "--Impact of
Tobacco Taxes"), will have a negative impact on overall industry unit sales and
will negatively affect the Company's sales of tobacco products. The Company does
not believe that it is able to quantify the impact of these higher prices and
taxes on future sales of cigarettes and other tobacco products. Manufacturer
price increases will also increase the Company's debt and interest expense
levels. The Company believes that it has adequate financing arrangements in
place at the present time to finance the additional working capital requirements
of the most recent manufacturer price increases. However, depending upon future
levels of manufacturer price increases, or if the terms or amounts of state and
provincial excise taxes were adversely changed, the Company may be required to
seek additional financing in order to meet future higher working capital
requirements.

The Company's business strategy has included, and continues to include,
increasing sales of higher margin, non-tobacco products, a strategy which is
intended to lessen the impact of potential future declines in unit sales and
profitability of its tobacco distribution business.

During the most recent five-year period, the Company's sales of cigarettes
were (in thousands):
<TABLE>
<CAPTION>

FOR THE YEAR ENDED
DECEMBER 31, NET SALES CARTONS
------------ --------- -------
<S> <C> <C>

1995 $1,446,697 88,933
1996 1,505,744 90,897
1997 1,603,362 92,368
1998 1,671,860 87,951
1999 1,989,890 78,972
</TABLE>
-11-
<PAGE>

IMPACT OF LIFO INVENTORY VALUATION METHOD

The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis using
Producer Price Indices as determined by the U.S. Department of Labor Statistics.
The Company's Canadian inventories are valued on a first-in, first-out (FIFO)
basis. The LIFO method of determining cost of goods sold has had a significant
impact on the results of operations, which is quantified separately in the
discussion below.

During periods of price inflation in the Company's product lines, the LIFO
methodology generally results in higher expenses being charged to cost of goods
sold ("LIFO expense") while lower costs are retained in inventories.
Historically, increases in the Company's cost of cigarettes resulted from a
combination of cost increases by cigarette manufacturers and increases in
federal and state excise taxes. In 1997, 1998 and 1999, LIFO expense of $3.3
million, $18.6 million and $5.7 million, respectively, is primarily the result
of increases in cigarette prices.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

NET SALES. Net sales for 1999 were $2,838.1 million, an increase of $361.7
million or 14.6% over 1998. The increase in net sales was due to higher net
sales in both cigarettes and food and non-food products.

Net sales of cigarettes for 1999 were $1,989.9 million, an increase of
$318.0 million or 19.0% over 1998. The Company's total cigarette unit sales for
1999 were 79.0 million cartons, a decrease of 9.0 million cartons or 10.2% from
1998. The increase in net sales dollars of cigarettes was principally due to
increases in manufacturers' list prices as well as the $5.00 per carton increase
in California state excise taxes which became effective January 1, 1999, all of
which were passed along to the Company's customers in the form of higher prices.
The decrease in carton sales occurred both in the U.S., which declined by 8.7
million cartons or 11.7% and Canada, which declined by 0.3 million cartons or
2.4%. In the U.S. the decrease in carton sales occurred primarily in California,
which declined by 8.3 million cartons or 21.3%. Outside of California, carton
sales decreased 1.0%. In addition to increased price competition, the California
market, which is generally the most price competitive market in which the
Company operates, has been significantly affected by sales of cigarettes
originally intended for export, but which are reintroduced into the domestic
market (known in the industry as "grey market" cigarettes). Although "grey
market" cigarettes are produced by the major tobacco companies, the product is
intended for export only, and traditional wholesalers, like the Company, are
prohibited from acquiring and selling these products by the manufacturers who
produce them. These "grey market" cigarettes sell for substantially less than
cigarettes intended for domestic sale, and the Company has lost volume because
of these products. However, in October 1999, the California Legislature passed
and the governor signed, bill SB702, which will make it illegal to affix state
tax stamps to grey market cigarettes. If enforced by the State of California,
this bill could result in an improvement in the Company's California cigarette
volume.

Net sales of food and non-food products in 1999 were $848.2 million, an
increase of $43.7 million or 5.4% over 1998. The increase occurred primarily in
grocery sales, which increased $10.3 million or 12.8%, fast food sales, which
increased $9.7 million or 9.6%, and general merchandise sales, which increased
$7.8 million or 11.8%.

GROSS PROFIT. Gross profit for 1999 was $195.0 million, an increase of
$14.3 million or 7.9% over 1998. The increase in gross profit was due primarily
to sales increases in the cigarette and food and non-food categories. The gross
profit margin in 1999 decreased slightly to 6.9% of net sales as compared to
7.3% of net sales in 1998. The decline in overall gross profit margin was
primarily due to a sharp increase in the wholesale cost of cigarettes over the
past year. Gross profit margins on cigarettes are significantly lower than the
margins on food and non-food products, and the much faster growth in cigarette
revenues caused the overall reduction in margins.

The Company recognized LIFO expense of $5.7 million in 1999, as compared to
$18.6 million in 1998. The majority of the Company's LIFO expense is the result
of price increases in the domestic cigarette categories. In 1999, in the U.S.,
the wholesale price of cigarettes increased by $1.80 per carton, as compared to
$6.35 per carton in 1998. The impact of LIFO expense on the financial statements
in 1999 and 1998, which was primarily caused by the increase in the price of
cigarettes, was essentially offset by profits resulting from such price
increases.

-12-
<PAGE>
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 1999 were $155.1 million, an increase of $4.2 million or 2.7% over
1998. However, such expenses in 1999 decreased to 5.5% of net sales as compared
to 6.1% for 1998. The decline in operating expenses as a percent of net sales is
primarily due to the higher level of cigarette net sales resulting from
cigarette price increases.

OPERATING INCOME. As a result of the foregoing factors, operating income
for 1999 was $39.9 million, an increase of $10.2 million or 34.2% compared to
1998. As a percentage of net sales, operating income for 1999 was 1.4%, as
compared to 1.2% in 1998.

NET INTEREST EXPENSE. Net interest expense for 1999 was $12.7 million, a
decrease of $2.7 million or 17.6% from 1998. The net decrease resulted from a
decrease in the Company's average debt levels and a decline in the average
borrowing rates primarily as a result of the accounts receivables securitization
which was effective April 1, 1998 and is described below (see "Indebtedness").

AMORTIZATION OF DEBT REFINANCING COSTS. Debt refinancing costs were $1.3
million for 1999, a decrease of $0.9 million or 42.2% from 1998. This decrease
resulted primarily from the 1998 write-off of a portion of unamortized costs
relating to the modification of the Revolving Credit Facility which took place
in April 1998 (see "Indebtedness").

INCOME TAXES. The tax rate on income declined from 40.6% in 1998 to 22.1%
in fiscal 1999. The decline in fiscal 1999 was primarily attributable to a $6.2
million reduction in the Company's income tax valuation allowance recorded
during the year due to changes in factors affecting the realizability of the
Company's deferred tax assets. Prior to 1999, the Company had a significant
valuation allowance that reduced certain deferred tax assets, based upon
management's assessment that it was more likely than not that these deferred tax
assets would not be realized. However, as a result of the Company's strong
earnings history, management has concluded that the tax benefits related to
future deductions, including net operating loss carryforwards, are now more
likely than not to be realized. Therefore, in 1999, the Company recorded a $6.2
million decrease in its valuation allowance, which resulted in a one-time
reduction of its tax rate of approximately 24%.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

NET SALES. Net sales for 1998 were $2,476.4 million, an increase of $80.5
million or 3.4% over 1997. The increase in net sales was due to higher net sales
in both cigarettes and food and non-food products.

Net sales of cigarettes for 1998 were $1,671.9 million, an increase of
$68.5 million or 4.3% over 1997. The Company's total cigarette unit sales for
1998 were 88.0 million cartons, a decrease of 4.4 million cartons or 4.8% from
1997. The increase in net sales dollars of cigarettes was principally due to
increases in manufacturers' list prices that were passed along to the Company's
customers. The decrease in carton sales occurred both in the U.S., which
declined by 3.2 million cartons or 4.2% and Canada, which declined by 1.2
million cartons or 7.8%. In the U.S. the decrease in carton sales occurred
primarily in California, and was principally due to increased price competition.
Outside of California, carton sales increased 6.7%. The California market, which
is generally the most price competitive market in which the Company operates,
has been significantly affected by sales of cigarettes originally intended for
export, but which are reintroduced into the domestic market (known in the
industry as "grey market" cigarettes). Although "grey market" cigarettes are
produced by the major tobacco companies, the product is intended for export
only, and traditional wholesalers, like the Company, are prohibited from
acquiring and selling these products by the manufacturers who produce them.
These "grey market" cigarettes sell for substantially less than cigarettes
intended for domestic sale, and the Company has lost volume because of these
products. In Canada, the decline in cigarette volume is primarily due to the
loss of one customer whose purchases were heavily oriented toward cigarettes.

Net sales of food and non-food products in 1998 were $804.5 million, an
increase of $12.0 million or 1.5% over 1997. The increase occurred primarily in
grocery sales, which increased $12.5 million or 18.5%, fast food sales, which
increased $9.2 million or 9.9%, and snack sales, which increased $7.1 million or
13.0%. The increases were partially offset by decreases in confection sales of
$21.0 million, or 8.3%, which resulted from the loss of one customer whose
purchases were heavily oriented towards confection products.

GROSS PROFIT. Gross profit for 1998 was $180.7 million, an increase of $1.0
million or 0.6% over 1997. Gross profit dollars in the cigarette category
increased over 1997, despite lower volumes, as gross profit dollars per carton
increased over the previous year. Gross profit margins on cigarette sales were
virtually unchanged from 1997.

Gross profit on food and non-food products declined slightly from 1997, on
a small increase in sales volume of $12 million. The Company experienced a small
decline in gross profit margins on these food and non-food product lines.

-13-
<PAGE>

The Company recognized LIFO expense of $18.6 million in 1998, as compared
to $3.3 million in 1997. The great majority of the Company's LIFO expense is the
result of price increases in the domestic cigarette categories. In 1998, the
wholesale price of cigarettes increased by $6.35 per carton, as compared to
$1.20 per carton in 1997. The impact of LIFO expense on the financial
statements, which was caused by the sharp increase in the price of cigarettes,
was more than offset by profits resulting from such price increases.

OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 1998 were $151.0 million, an increase of $2.1 million or 1.4% over
1997. However, such expenses in 1998 decreased to 6.1% of net sales as compared
to 6.2% for 1997. The higher expenses as a percent of net sales in 1997 reflect
approximately $2.4 million (0.1% of 1997 net sales) of one-time duplicative
facility costs incurred as a result of the Sosnick acquisition (see Note 9 in
the Notes to the Consolidated Financial Statements contained elsewhere in this
Form 10-K).

OPERATING INCOME. As a result of the foregoing factors, operating income
for 1998 was $29.7 million, a decrease of $1.1 million or 3.5% compared to 1997.
As a percentage of net sales, operating income for 1998 was 1.2%, as compared to
1.3% in 1997.

NET INTEREST EXPENSE. Net interest expense for 1998 was $15.4 million, a
decrease of $2.8 million or 15.3% from 1997. The net decrease resulted from a
decrease in the Company's borrowing rates as a result of the securitization of
certain receivables described below (see "Indebtedness") and a decrease in
average debt levels.

AMORTIZATION OF DEBT REFINANCING COSTS. Debt refinancing costs were $2.2
million for 1998, an increase of $0.7 million or 47.1% over 1997. This increase
resulted primarily from the write off of a portion of unamortized costs
resulting from the modification of the Revolving Credit Facility (see
"Indebtedness").

INDEBTEDNESS

On April 1, 1998, the Company entered into a transaction to securitize its
U.S. trade accounts receivable portfolio ("Accounts Receivable Facility"). In
connection with this transaction, the Company formed a wholly-owned special
purpose bankruptcy-remote subsidiary (the "Special Purpose Company" or "SPC"),
to which the U.S. trade accounts receivable originated by the Company are sold
or contributed, without recourse, pursuant to a receivables sale agreement. The
receivables have been assigned, with a call option by the SPC, to a trust formed
pursuant to a pooling agreement. On April 1, 1998, the SPC issued two classes of
term certificates with an aggregate principal value of $55 million, and variable
certificates of up to $30 million representing fractional undivided interests in
the receivables and the proceeds thereof.

On a daily basis, collections related to sold receivables are administered
by the Company acting as servicer, pursuant to a servicing agreement. Pursuant
to supplements to the pooling agreement, certificate holders' accrued interest
expense and other securitization expenses are reserved out of daily collections,
before such remaining collections are returned to the Company by the SPC to pay
for the SPC's purchase of newly originated receivables from the Company. The
revolving period of the securitization expires in January 2003, or earlier if an
early amortization event, as defined in the pooling agreement, occurs. The
interest rate on the fixed term certificates is 0.28% (Class A) and 0.65% (Class
B) above the Eurodollar Rate, which was 5.82% as of December 31, 1999. The
interest rate on the variable certificates is 0.25% above the commercial paper
rate (as defined in the securitization agreement), which was 5.6% as of December
31, 1999.

In connection with the securitization of accounts receivable, the Company
amended its Revolving Credit Facility. The amendment reduced the available
credit facility from $175 million to $120 million, reduced its interest rates
from 1.5% to 1.0% above the Prime Rate, and from 2.5% to 2.0% above the
Eurodollar Rate, as defined in the amendment, and extended the maturity through
April, 2003. As a result of this modification, the Company wrote off $0.9
million of unamortized refinancing costs relating to the Revolving Credit
Facility in the second quarter of 1998. Based on certain criteria in the
Revolving Credit Facility, the Company further reduced its interest rates
effective October 1, 1998 to 0.75% above the Prime Rate, and 1.75% above the
Eurodollar Rate, and again effective March 16, 1999, to 0.25% above the Prime
Rate, and 1.25% above the Eurodollar Rate, which are the rates in effect at
December 31, 1999. The bank's Prime Rate and Eurodollar Rate was 8.5% and 5.82%,
respectively, at December 31, 1999.

-14-
<PAGE>

The net result of the (i) securitization of the Company's U.S. trade
accounts receivable portfolio and (ii) the modification of the Revolving Credit
Facility was to lower the Company's cost of borrowings, and to increase its
variable-rate borrowing capacity from $175 million to $205 million. The Company
incurred approximately $1.6 million for legal, professional and other costs
related to the transactions described above. These costs were capitalized and
classified as other assets and are being amortized over the term of these
agreements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements arise primarily from the funding of
its working capital needs, capital expenditure programs and debt service
requirements with respect to its credit facilities. The Company has no mandatory
reductions of principal on its Revolving Credit Facility, its Accounts
Receivable Facility or its $75 million Senior Subordinated Notes prior to their
final maturities in 2003. The Company has historically financed its operations
through internally generated funds and borrowings under its credit facilities.

In November 1998, the four largest U.S. cigarette manufacturers and the
state attorneys general of almost all of the fifty states, agreed to a
multi-billion dollar settlement over public health costs connected to smoking
(see "Tobacco Industry Business Environment"). As a direct result of this
settlement, the cigarette manufacturers raised the wholesale price of cigarettes
by $4.50 per carton, effective November 24, 1998, in order to cover initial
costs of the settlement. This manufacturer price increase resulted in an
increase in inventories and trade accounts receivable for the Company, and
correspondingly higher debt and interest levels. The Company believes that it
will be able to adequately finance the corresponding increase in working capital
requirements relating to its existing business under its current credit
facilities. At current levels of business activity, the Company has substantial
excess borrowing capacity under its current credit facilities. However, if
manufacturers' price increases or federal excise tax increases (over and above
currently enacted increases) continued to sharply escalate, or if payment terms
for state and provincial taxes were adversely changed (see "Impact of Tobacco
Taxes"), the Company might be required to seek additional financing in order to
meet such higher working capital requirements.

The Company's debt obligations totaled $165.3 million at December 31, 1999,
a decrease of $42.8 million or 20.5% from $208.1 million at December 31, 1998.
As of December 31, 1999, the amount outstanding under the Revolving Credit
Facility was $10.3 million; an additional $104.0 million, after taking into
account the borrowing base, was available to be drawn. In addition, the amount
outstanding under the Accounts Receivable Facility was $80.0 million as of
December 31, 1999. Under this facility, at December 31, 1999, the Company had
sufficient collateral to issue up to its limit of variable certificates, or an
additional $5.0 million. The net decrease in outstanding debt is due primarily
to a decrease in working capital funding requirements and an increase in net
cash provided from operating activities experienced in 1999. Debt requirements
are generally the highest at December 31 when the Company historically carries
higher inventory.

The Company's principal sources of liquidity are net cash provided by
operating activities and its credit facilities. In 1999, net cash provided by
operating activities was $40.8 million as compared to $5.9 million in 1998. The
increase in operating cash flow in 1999, as compared to 1998, was primarily the
result of significantly higher earnings in 1999, and improvements in net working
capital. In 1999, the Company realized higher cigarette taxes payable
principally from a $5.00 per carton increase in cigarette taxes in California on
January 1, 1999. In 1998, accounts receivable and inventories were heavily
impacted by significant changes in the wholesale price of cigarettes during the
year. The decrease from 1997 to 1998 resulted principally from changes in net
working capital.

The Company made capital expenditures of $6.6 million in 1999. In 2000, the
Company estimates it will spend approximately $6.6 million for capital
requirements, principally consisting of warehouse facilities and other
equipment.

IMPACT OF TOBACCO TAXES

State and Canadian provincial tobacco taxes represent a significant portion
of the Company's net sales and cost of goods sold attributable to cigarettes and
other tobacco products. During 1999, such taxes on cigarettes represented
approximately 26% of cigarette net sales in the U.S. and 45% in Canada. In
general, such taxes have been increasing, and many states and Canadian provinces
are currently weighing proposals for higher excise taxes on cigarettes and other
tobacco products.

-15-
<PAGE>

Effective January 1, 1999, the State of California increased excise taxes
on cigarettes by $5.00 per carton, and also increased taxes on cigars and other
tobacco products.

Under current law, almost all state and Canadian provincial taxes are
payable by the Company under credit terms which, on the average, exceed the
credit terms the Company has approved for its customers to pay for products
which include such taxes. This practice has benefited the Company's cash flow.
If the Company were required to pay such taxes at the time such obligation was
incurred without the benefit of credit terms, the Company would incur a
substantial permanent increase in its working capital requirements and might be
required to seek additional financing in order to meet such higher working
capital requirements. Consistent with industry practices, the Company has
secured a bond to guarantee its tax obligations to those states and provinces
requiring such a surety (a majority of states in the Company's operating areas).

The U.S. federal excise tax on cigarettes is currently $3.40 per carton of
cigarettes, including a $1.00 per carton increase, which was effective January
1, 2000. Legislation was enacted that will raise the federal excise tax by an
additional $.50 per carton of cigarettes in 2002. In its fiscal year 2001
budget, the Administration proposed accelerating the scheduled increase for 2002
to take effect October 1, 2000. Congress has taken no action so far on this
proposal. Unlike the state and provincial taxes described above, U.S. federal
excise taxes on cigarettes are paid by the cigarette manufacturers and passed
through to the Company as a component of the cost of cigarettes. Such increases
in U.S. federal taxes will increase the Company's working capital requirements
by increasing the balances of its inventories and accounts receivable.

In 1999, the Clinton Administration proposed as part of its budget for
Fiscal Year 2000 that the excise tax on cigarettes be increased by 55 cents per
pack (in addition to the increase in 2000 and the one already scheduled for
2002), in order to avoid using the social security trust fund surplus to finance
unrelated federal spending. On October 19, 1999, the House of Representatives
defeated tax legislation that included this increase. While the Company is
unaware of additional legislation that might further increase the federal excise
tax on cigarettes, there can be no assurance that similar proposals will not be
considered in the future.

IMPACT OF YEAR 2000

The Company's systems that were assessed, modified, or converted for year
2000 compliance operated throughout the year 2000 century change without
material errors or interruptions when processing data and transactions
incorporating year 2000 dates. To date, the Company did not encounter any
material problems with any of the systems of customers, vendors, or other
constituents with whom the Company has material relationships relating to the
year 2000 century change.

The Company utilized internal resources to assess, modify or convert and
test for year 2000 compliance. The total cost for the assessment, modification
or conversion and testing of the Company's systems was approximately $1.1
million, all of which was incurred as of December 31, 1999 and approximately
$0.1 million incurred during 1999. As a result of the year 2000 compliance
effort, the Company believes that no information technology projects have been
deferred that will have a material impact on the Company's operations. All of
the costs related to year 2000 compliance have been expensed as incurred and
have been funded through operating cash flows. The costs associated with year
2000 compliance are based on management's estimates, which were derived using
numerous assumptions of resources, and other factors.

INFLATION

In response to increases or decreases in manufacturers' prices with respect
to any of the Company's products, the Company historically has adjusted its
selling price in order to maintain its gross profit dollars. Therefore,
inflation and deflation generally do not have a material impact on the Company's
gross profit. As described in "Tobacco Industry Business Environment",
significant increases in manufacturers' prices of cigarettes have occurred, due
to the settlement of a number of legal issues facing the industry. The Company
has been able to pass along to its customers all of the price increases that
have occurred to date, and, based upon the past experience of the Company, would
expect to pass along any future price or tax increases.

During the past several years, low levels of overall inflation have
resulted in historically low interest rates, which have benefited the Company's
results of operations because of the Company's high degree of leverage. If
interest rates were to increase, as a result of increased inflation or
otherwise, the Company could be adversely affected.

-16-
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

See Note 10 "New Accounting Pronouncements" included in the Notes to the
Consolidated Financial Statements contained elsewhere in this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's major risk exposure is changes in short-term interest rates
on its domestic variable rate debt. Depending upon the borrowing option chosen,
the variable rate debt is based upon either the bank's Prime Rate, the
Eurodollar Rate, or the Commercial Paper rate, plus an applicable margin over
one of these base rates. If interest rates on existing variable rate debt rose
59 basis points (which approximates 10%), the Company's results from operations
and cash flows would not be materially affected.

The Company conducts business in Canada. However, changes in the
U.S./Canadian exchange rate had no material impact on the overall results of the
Canadian operation, as virtually all revenues and expenses of such operations
are Canadian dollar based.

-17-

<PAGE>

ITEM 8. FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report (Deloitte & Touche LLP)................. 19

Independent Auditors' Report (KPMG LLP).............................. 20

Consolidated Balance Sheets as of December 31, 1998 and 1999......... 21

Consolidated Statements of Income for the years ended December 31,
1997, 1998 and 1999.. ............................................... 22

Consolidated Statements of Shareholders' Equity (Deficit) for the
years ended December 31, 1997, 1998 and 1999......................... 23

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....... ............................. 24

Notes to Consolidated Financial Statements........................... 25

-18-

<PAGE>

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS
CORE-MARK INTERNATIONAL, INC.:

We have audited the accompanying consolidated balance sheets of Core-Mark
International, Inc. and subsidiaries (the "Company") as of December 31, 1998 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for the years then ended. Our audits also included the 1998 and
1999 financial statement schedules of the Company listed in Item 14(a)2. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 1998 and 1999 consolidated financial statements
present fairly, in all material respects, the financial position of Core-Mark
International, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. Also in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

/S/ DELOITTE & TOUCHE LLP

SAN FRANCISCO, CALIFORNIA
FEBRUARY 25, 2000

-19-
<PAGE>

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS
CORE-MARK INTERNATIONAL, INC.:

We have audited the accompanying consolidated statements of income,
shareholders' equity (deficit) and cash flows for the year ended December 31,
1997 of Core-Mark International, Inc. and subsidiaries (the "Company"). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Core-Mark International, Inc. and subsidiaries for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.

/S/ KPMG LLP

SAN FRANCISCO, CALIFORNIA
FEBRUARY 20, 1998

-20-
<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
ASSETS

Current assets:
Cash ................................................................. $ 24,586 $ 17,279
Receivables:
Trade accounts, less allowance for doubtful
accounts of $2,761 and $2,320, respectively.................. 103,412 104,983
Other............................................................. 12,578 15,287
Inventories, net of LIFO allowance of $34,332 and
$40,003, respectively............................................. 112,481 109,139
Prepaid expenses and other............................................ 6,576 5,921
-------- --------
Total current assets.............................................. 259,633 252,609

Property and equipment:
Equipment............................................................. 52,032 57,036
Leasehold improvements................................................ 9,300 9,660
-------- --------
61,332 66,696
Less accumulated depreciation and amortization........................ (33,283) (37,277)
-------- --------
Net property and equipment........................................ 28,049 29,419

Other assets ............................................................. 7,227 5,642
Goodwill, net of accumulated amortization of
$19,375 and $21,458, respectively..................................... 64,481 62,398
-------- --------
$359,390 $350,068
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Trade accounts payable................................................ $ 48,867 $ 51,093
Cigarette and tobacco taxes payable................................... 45,073 59,975
Income taxes payable.................................................. 2,698 3,932
Deferred income taxes................................................. 6,992 4,851
Other accrued liabilities............................................. 34,514 31,073
-------- --------
Total current liabilities......................................... 138,144 150,924

Long-term debt............................................................. 208,124 165,335
Other accrued liabilities and deferred income taxes........................ 9,260 7,859
-------- --------
Total liabilities..................................................... 355,528 324,118

Commitments and contingencies

Shareholders' equity:
Common stock; $.01 par value; 10,000,000 shares authorized;
5,500,000 shares issued and outstanding........................... 55 55
Additional paid-in capital............................................ 26,121 26,121
Retained earnings (accumulated deficit)............................... (15,077) 5,123
Accumulated comprehensive loss:
Cumulative currency translation adjustments....................... (4,225) (2,949)
Additional minimum pension liability.............................. (3,012) (2,400)
-------- --------
Total shareholders' equity............................................ 3,862 25,950
-------- --------
$359,390 $350,068
======== ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

-21-
<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................ $2,395,867 $2,476,376 $2,838,107
Cost of goods sold................................... 2,216,162 2,295,659 2,643,069
---------- ---------- ----------
Gross profit................................... 179,705 180,717 195,038

Operating and administrative expenses................ 148,902 150,977 155,128
---------- ---------- ----------
Operating income............................... 30,803 29,740 39,910

Interest expense, net................................ 18,181 15,402 12,696
Amortization of debt refinancing costs............... 1,498 2,204 1,274
---------- ---------- ----------
Income before income taxes..................... 11,124 12,134 25,940

Income tax expense................................... 4,834 4,925 5,740
---------- ---------- ----------
Net income........................................... $ 6,290 $ 7,209 $ 20,200
========== ========== ===========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

-22-
<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED TOTAL
ADDITIONAL EARNINGS OTHER SHAREHOLDERS'
COMMON STOCK PAID-IN (ACCUMULATED COMPREHENSIVE EQUITY COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS)(DEFICIT) INCOME
------ ------ --------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ............... 5,500,000 $55 $26,121 $(28,576) $(4,600) $(7,000) $ 7,506
=======
Net income ............................... -- -- -- 6,290 -- 6,290 $ 6,290
Additional minimum pension liability ..... -- -- -- -- 945 945 945
Foreign currency translation adjustments.. -- -- -- -- (1,271) (1,271) (1,271)
--------- ---- ------- -------- ------- ------- -------
Balance, December 31, 1997 ............... 5,500,000 55 26,121 (22,286) (4,926) (1,036) $ 5,964
=======
Net income ............................... -- -- -- 7,209 -- 7,209 $ 7,209
Additional minimum pension liability ..... -- -- -- -- (965) (965) (965)
Foreign currency translation adjustments.. -- -- -- -- (1,346) (1,346) (1,346)
--------- ---- ------- -------- ------- ------- -------
Balance, December 31, 1998. .............. 5,500,000 55 26,121 (15,077) (7,237) 3,862 $ 4,898
=======
Net income ............................... -- -- -- 20,200 -- 20,200 $20,200
Additional minimum pension liability ..... -- -- -- -- 612 612 612
Foreign currency translation adjustments . -- -- -- -- 1,276 1,276 1,276
--------- ---- ------- -------- ------- ------- -------
Balance, December 31, 1999. .............. 5,500,000 $55 $26,121 $ 5,123 $(5,349) $25,950 $22,088
========= ==== ======= ======== ======= ======= =======
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

-23-

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH PROVIDED BY
OPERATING ACTIVITIES:

Net income............................................................. $ 6,290 $ 7,209 $ 20,200
Adjustments to reconcile net income to
net cash provided by operating activities:
LIFO expense.................................................. 3,266 18,614 5,671
Amortization of goodwill...................................... 2,073 2,082 2,083
Depreciation and amortization................................. 5,455 5,983 5,829
Amortization of debt refinancing fees......................... 1,498 2,204 1,274
Deferred income taxes......................................... 1,912 (1,183) (2,828)
Other adjustments for non-cash and
non-operating activities................................ (557) (71) (683)
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in trade accounts receivable.............. 690 (7,760) (260)
(Increase) decrease in other receivables...................... (679) 76 (2,554)
(Increase) decrease in inventories............................ 69 (29,151) (1,131)
(Increase) decrease in prepaid expenses and other............. (52) (1,236) 319
Increase (decrease) in trade accounts payable................. (253) (1,007) 1,554
Increase in cigarette and tobacco taxes payable............... 453 2,726 13,931
Increase (decrease) in other accrued
liabilities and income taxes payable.................... (2,618) 7,447 (2,624)
--------- --------- ----------
Net cash provided by operating activities.............................. 17,547 5,933 40,781
--------- --------- ----------
INVESTING ACTIVITIES:
Additions to property and equipment................................ (9,378) (5,311) (6,575)
Net assets of acquired businesses.................................. (21,361) -- --
--------- --------- ---------
Net cash used in investing activities.................................. (30,739) (5,311) (6,575)
--------- --------- ---------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit agreement......... 3,549 (62,888) (48,789)
Debt refinancing fees.............................................. -- (1,579) --
Net proceeds from securitization of trade accounts receivable...... -- 74,000 6,000
--------- --------- ---------
Net cash provided by (used in) financing activities................ 3,549 9,533 (42,789)
--------- --------- ---------

Effects of changes in foreign exchange rates........................... (845) (850) 1,276
--------- --------- ---------
Increase (decrease) in cash............................................ (10,488) 9,305 (7,307)
Cash, beginning of year................................................ 25,769 15,281 24,586
--------- --------- ---------
CASH, END OF YEAR $ 15,281 $ 24,586 $ 17,279
========= ========= =========

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the year for:
Interest......................................................... $ 17,937 $ 15,201 $ 12,451
Income taxes..................................................... 2,301 4,523 7,305
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

-24-

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

1. ORGANIZATION AND FORM OF BUSINESS

Core-Mark International, Inc. and subsidiaries (the "Company") is a
full-service wholesale distributor of tobacco, food and other consumer products
to convenience stores, grocery stores, mass merchandisers and liquor and drug
stores in western North America.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Management believes any differences resulting from
estimates will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions are
eliminated.

FOREIGN CURRENCY

Assets and liabilities of the Company's Canadian operations are translated
at exchange rates in effect at year-end. Income and expenses are translated at
average rates for the year. Adjustments resulting from such translation are
included in cumulative currency translation adjustments in other comprehensive
income, a separate component of shareholders' equity.

EXCISE TAXES

State and provincial excise taxes paid by the Company on cigarettes were
$505.4 million, $466.8 million and $583.5 million, for the years ended December
31, 1997, 1998 and 1999, respectively, and are included in net sales and cost of
goods sold.

INVENTORIES

Inventories are valued at the lower of cost or market. In the United
States, cost is determined on a last-in, first-out (LIFO) basis using Producer
Price Indices as determined by the Department of Labor and Statistics. Under
LIFO, current costs of goods sold are matched against current sales. Inventories
in Canada amount to $17.5 million and $24.2 million at December 31, 1998 and
1999, respectively, and are valued on a first-in, first-out (FIFO) basis.

During periods of rising prices, the LIFO method of costing inventories
generally results in higher current costs being charged against income while
lower costs are retained in inventories. An increase in cost of goods sold and a
decrease in inventories of $3.3 million, $18.6 million and $5.7 million resulted
from using the LIFO method for the years ended December 31, 1997, 1998 and 1999,
respectively.

-25-
<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided on the
straight-line method over the estimated useful lives of owned assets. The
estimated useful lives for equipment are principally 5 to 15 years. Leasehold
improvements are amortized over the estimated useful life of the property or
over the term of the lease, whichever is shorter.

GOODWILL

Goodwill, which is the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over a forty-year period.
Amortization expense for each of the years ended December 31, 1997, 1998 and
1999 was $2.1 million.

The Company assesses the recoverability of long-lived assets, including
goodwill, by determining whether the amortization of such assets over the
remaining life can be recovered through undiscounted future operating cash flows
of the related operations. Based on this calculation, the Company is of the
opinion that there is no impairment of long-lived assets as of December 31,
1999.

REVENUE RECOGNITION

The Company recognizes revenue at the time the product is shipped to the
customer.

STOCK-BASED COMPENSATION PLAN

The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"). The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation."

PENSION COSTS AND OTHER POSTRETIREMENT BENEFIT COSTS

Pension costs and other postretirement benefit costs charged to earnings
are determined on the basis of annual valuations by an independent actuary.
Adjustments arising from plan amendments, changes in assumptions and experience
gains and losses are amortized over the expected average remaining service life
of the employee group.

INCOME TAXES

The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", see note 6.

RECLASSIFICATIONS

Prior years' amounts in the consolidated financial statements have been
reclassified where necessary to conform to the current year's presentation.

-26-
<PAGE>

3. FINANCING

Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>

1998 1999
-------- --------
<S> <C> <C>
Accounts receivable facility.................. $ 74,000 $ 80,000
Revolving credit facility..................... 59,124 10,335
Senior subordinated notes..................... 75,000 75,000
-------- --------
Long-term debt............................. $208,124 $165,335
======== ========
</TABLE>

ACCOUNTS RECEIVABLE FACILITY

On April 1, 1998, the Company entered into a transaction to securitize its
U.S. trade accounts receivable portfolio ("Accounts Receivable Facility"). In
connection with this transaction, the Company formed a wholly-owned special
purpose, bankruptcy-remote subsidiary (the "Special Purpose Company" or "SPC"),
to which the U.S. trade accounts receivable originated by the Company are sold
or contributed, without recourse, pursuant to a receivables sale agreement. The
receivables have been assigned, with a call option by the SPC, to a trust formed
pursuant to a pooling agreement. On April 1, 1998, the SPC issued two classes of
term certificates with an aggregate principal value of $55 million, and variable
certificates of up to $30 million representing fractional undivided interests in
the receivables and the proceeds thereof.

The interest rate on the fixed term certificates is 0.28% (Class A) and
0.65% (Class B) above the Eurodollar Rate which was 5.82% as of December 31,
1999. The interest rate on the variable certificates is 0.25% above the
commercial paper rate (as defined in the securitization agreement), which was
5.60% as of December 31, 1999. There is a commitment fee and facility fee of
0.375% and 0.1%, respectively, on the total value of available variable
certificates. As of December 31, 1999, the amount outstanding under the Accounts
Receivable Facility was $80.0 million, with sufficient collateral to issue an
additional $5.0 million of variable certificates, the limit under this facility.

REVOLVING CREDIT FACILITY

In connection with the securitization of accounts receivable, on April 1,
1998, the Company amended its Revolving Credit Facility. The amendment reduced
the Revolving Credit Facility from $175 million to $120 million, extended the
maturity from June 30, 2001 through April 1, 2003, and reduced interest rates.
The Revolving Credit Facility initially provided for aggregate borrowings of up
to $210.0 million, consisting of: (i) a $35.0 million term loan, which was
repaid in 1996, and (ii) a revolving credit facility (the "Revolving Credit
Facility") under which borrowings in the amount of up to $175.0 million were
available for working capital and general corporate purposes. Borrowings under
this facility remain subject to borrowing base limitations based upon levels of
eligible inventories, accounts receivable, other receivables and cash. Included
in this facility are letters of credit up to a maximum of $40.0 million.

Under the Revolving Credit Facility, the Company must maintain certain
financial covenants as prescribed in the credit agreement, including, but not
limited to, current ratio, net worth, leverage and interest coverage, and
operating income before certain non-cash items. The Revolving Credit Facility
limits certain activities of the Company, including, but not limited to,
indebtedness, creation of liens, acquisitions and dispositions, capital
expenditures, investments and dividends.

Under the Revolving Credit Facility the Company has the option to borrow
under: (i) Revolving Credit Loans, which prior to the amendment, bore interest
at 1.5% above the bank's Prime Rate; or (ii) Eurodollar Loans, which prior to
the amendment, bore interest at 2.5% above the bank's Eurodollar Rate. The

-27-
<PAGE>

3. FINANCING (CONT.)

amendment reduced interest rates to 1.0% above the Prime Rate, and to 2.0% above
the Eurodollar Rate, as defined in the amendment. The Company has the ability to
further reduce interest rates based on certain leverage ratio criteria as
defined in the amendment. Based on this criteria, the Company reduced its
interest rates, effective October 1, 1998, to 0.75% above the Prime Rate and
1.75% above the Eurodollar Rate and again effective March 16, 1999, to 0.25%
above the Prime Rate and 1.25% above the Eurodollar Rate, which are the rates in
effect at December 31, 1999. The bank's Prime Rate and Eurodollar Rate was 8.5%
and 5.82%, respectively, at December 31, 1999.

As of December 31, 1999, the amount outstanding under the Revolving Credit
Facility was $10.3 million; an additional $104.0 million, after taking into
account the borrowing base, was available to be drawn. There is a commitment fee
of 0.325% on the unused portion of the Revolving Credit Facility. The
obligations are secured by all assets of the Company, with the exception of U.S.
trade accounts receivable, which are utilized to support the Accounts Receivable
Facility.

The Company had letters of credit of $4.9 million and $3.2 million
outstanding at December 31, 1998 and 1999, respectively. The letters of credit
are issued primarily to secure the Company's bond and insurance programs. The
Company pays fees of 1.25% per annum on the outstanding portion of letters of
credit. Prior to the amendment these fees were 2.50% per annum.

In 1996, the Company incurred approximately $8.7 million for legal,
professional, and other costs related to the original Revolving Credit Facility,
and the Senior Subordinated Notes described below. These costs were capitalized
and classified as other assets, and were initially amortized on a straight-line
basis over the term of those facilities. As a result of the amendment to the
Revolving Credit Facility described above, in 1998 the Company wrote off $0.9
million of costs relating to the original credit facility.

SENIOR SUBORDINATED NOTES

On September 27, 1996, the Company issued $75.0 million of 11 3/8% Senior
Subordinated Notes (the "Notes") which mature on September 15, 2003. Interest on
the Notes is payable semi-annually on March 15 and September 15 of each year.
The Notes limit certain activities of the Company, including, but not limited
to, changes in control, incurrence of indebtedness, creation of liens,
acquisitions and dispositions, investments and dividends.

4. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases the majority of its sales and warehouse distribution
facilities, automobiles and trucks under lease agreements expiring at various
dates through 2010, excluding renewal options. The leases generally require the
Company to pay taxes, maintenance and insurance. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.

-28-
<PAGE>

4. COMMITMENTS AND CONTINGENCIES (CONT.)

Future minimum rental payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) were as follows as of
December 31, 1999 (in thousands):

2000 ....................................................... $12,701
2001 ....................................................... 11,751
2002 ....................................................... 8,542
2003 ....................................................... 6,204
2004 ....................................................... 4,949
Thereafter.................................................. 9,782
-------
Total minimum lease payments........................... 53,929
Less minimum sublease rental income.................... (1,069)
-------
$52,860

Rental expense for operating leases was $13.3 million, $13.9 million and
$14.4 million for the years ended December 31, 1997, 1998 and 1999,
respectively.

CLAIMS AND ASSESSMENTS

The Company is a defendant to two claims seeking damages for injuries
allegedly arising from the use of tobacco products. The Company has been
indemnified with respect to certain claims in each of the lawsuits regarding
tobacco products. The Company is also a defendant to claims arising in the
ordinary course of business. Management believes that the disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

5. EMPLOYEE BENEFIT PLANS

PENSION PLAN

The Company sponsors a qualified pension plan and a non-pension
postretirement benefit plan for employees hired before September 1986. The
following tables provide a reconciliation of the changes in the plans' benefit
obligations and fair value of assets over the two-year period ending December
31, 1999, and a statement of the December 31 funded status for both years (in
thousands):
<TABLE>
<CAPTION>

PENSION BENEFITS OTHER BENEFITS
----------------- ----------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
BENEFIT OBLIGATION RECONCILIATION
January 1 obligation $ 14,791 $ 16,250 $ 2,063 $ 2,062
Service cost - - 22 26
Interest cost 1,115 1,093 135 140
Participant contributions - - 64 63
Actuarial (gain)/loss 1,480 (1,679) (93) (215)
Benefit payments (1,136) (1,152) (129) (149)
-------- -------- -------- --------
December 31 obligation $ 16,250 $ 14,512 $ 2,062 $ 1,927
======== ======== ======== ========
</TABLE>

-29-
<PAGE>

5. EMPLOYEE BENEFIT PLANS (CONT.)

FAIR VALUE OF PLAN ASSETS RECONCILIATION
<TABLE>
<CAPTION>

PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>

January 1 fair value of plan assets $ 14,558 $ 14,869 $ - $ -
Actual return (loss) on plan assets 1,447 (130) - -
Employer contributions - 143 65 86
Participant contributions - - 64 63
Benefit payments (1,136) (1,152) (129) (149)
-------- -------- -------- --------

December 31 fair value of plan assets $ 14,869 $ 13,730 $ - $ -
======== ======== ======== ========

FUNDED STATUS

December 31 funded status $ (1,381) $ (782) $ (2,062) $ (1,927)
Unrecognized:
Unamortized prior service cost - - (168) (151)
Actuarial loss 3,012 2,400 904 631
-------- -------- -------- --------
Net amount recognized $ 1,631 $ 1,618 $ 1,326 $ (1,447)
======== ======== ======== ========
</TABLE>

The following table provides the amounts recognized in the Company's
consolidated balance sheets as of December 31 (in thousands):
<TABLE>
<CAPTION>

PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>

Accrued benefit liability $ (1,381) $ (782) $ (1,326) $ (1,447)

Additional minimum pension
liability 3,012 2,400 - -
-------- -------- -------- --------
Net amount recognized $ 1,631 $ 1,618 $ (1,326) $ (1,447)
======== ======== ======== ========
</TABLE>

The following table provides components of the net periodic pension and other
benefit cost for fiscal years 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>

PENSION BENEFITS OTHER BENEFITS
----------------------------- -----------------------------
1997 1998 1999 1997 1998 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ - $ - $ - $ 37 $ 22 $ 26
Interest cost 1,072 1,115 1,093 145 135 140
Expected return on plan assets (966) (1,047) (1,078) - - -
Amortization of:
Prior service cost - - - (17) (17) (17)
Net actuarial loss 197 115 141 65 50 58
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 303 $ 183 $ 156 $ 230 $ 190 $ 207
======== ======== ======== ======== ======== ========
</TABLE>

The amount included within accumulated other comprehensive income in the
Company's consolidated statement of shareholders' equity was $2,400,000 at
December 31, 1999 and $3,012,000 at December 31, 1998.

-30-
<PAGE>

5. EMPLOYEE BENEFIT PLANS (CONT.)

The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and market-related value
of assets are amortized over the average remaining service period of active
participants.

The assumptions used in the measurement of the Company's benefit obligations are
shown in the following table:
<TABLE>
<CAPTION>

PENSION BENEFITS OTHER BENEFITS
----------------------- -----------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 31 weighted-average assumptions:
Discount rate 7.50% 7.00% 8.00% 7.50% 7.00% 8.00%
Expected return on plan assets 7.50 7.50 7.50 N/A N/A N/A
Rate of compensation increase N/A N/A N/A N/A N/A N/A
</TABLE>

For measurement purposes, an 11% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1997, 10% for 1998 and 9%
for 1999. The rate was assumed to decrease gradually each year to a rate of 6%
for 2002 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plans. A 1% change in
assumed health care cost trend rates would have the following effects (dollars
in thousands):
<TABLE>
<CAPTION>

1%
-------------------------
Increase Decrease
-------------------------
<S> <C> <C>

Effect on total of service and interest cost components of net periodic
postretirement health care benefit cost $ 23 $(19)

Effect on the health care component of the accumulated postretirement benefit
obligation 410 (326)
</TABLE>

SAVINGS PLANS

The Company maintains defined contribution plans in the United States,
subject to Section 401(k) of the Internal Revenue Code, and in Canada, subject
to the Department of National Revenue Taxation Income Tax Act. Eligible
employees may elect to contribute on a tax-deferred basis from 1% to 10% of
their compensation. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution. The Company's contributions to the
plans were $1,158,000, $1,133,000 and $1,145,000 for 1997, 1998 and 1999,
respectively.

STOCK-BASED COMPENSATION PLAN

During 1997, the Company adopted a Stock Option Plan ("Option Plan") for
its key employees, which provides for equity-based incentive awards. Upon
adoption of the Option Plan, the Company had 300,000 options available for
granting. Granted options vest over five years and become exercisable after
eight years, with certain exercise acceleration provisions, including a change
of control of the Company or an initial public stock offering. The Company
issues options to employees with a grant price equal to the fair value.
Accordingly, no compensation expense has been recognized on the Company's Option
Plan.

A summary of the Company's option activity and related information is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Options outstanding, beginning of the year.................... -- 211,000 215,000
Granted.................................................. 213,000 13,000 33,000
Exercised................................................ -- -- --
Forfeitures.............................................. (2,000) (9,000) (8,300)
-------- -------- --------
Options outstanding, end of year.............................. 211,000 215,000 239,700
======== ======== ========
Options exercisable at end of year............................ -- -- --
Options available for grant at end of year.................... 89,000 85,000 60,300
</TABLE>

-31-
<PAGE>

5. EMPLOYEE BENEFIT PLANS (CONT.)

The weighted-average exercise price of the Company's options for each of
the years ended December 31, 1997 and 1998 is $10.00 and for the year ended
December 31, 1999 it is $13.18. The Company's options outstanding at December
31, 1999 range in exercise price from $10.00 to $14.00, with a weighted-average
exercise price of $10.44 and a weighted-average remaining contractual life of
5.3 years.

Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had recorded compensation cost based on the
fair value of the awards at the grant dates. The fair value for the options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions: risk free interest rate of 5.76% for 1997, 4.76% for
1998 and 6.46% for 1999; volatility of 0.00%; dividend yield of 0.00%; and an
expected life of the option of 5 years for 1997 and 1998 and 4 years for 1999.
The weighted-average estimated fair value per option granted in 1997, 1998 and
1999, was $2.47, $2.10 and $2.96, respectively. For the purpose of pro forma
disclosure, the estimated fair value of the options is amortized to expense over
the options' vesting period. Based on these assumptions, pro forma net income
for 1997, 1998 and 1999 would have been $6,186,000, $7,103,000 and $20,074,000,
respectively.

6. INCOME TAXES

The Company's income tax expense consists of the following for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>

1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 1,646 $ 4,594 $ 6,313
State.................................................... 648 1,238 1,804
Foreign.................................................. 628 276 451
-------- -------- --------
2,922 6,108 8,568

Deferred:
Federal.................................................. 2,926 (750) 3,193
State.................................................... 388 62 63
Foreign.................................................. 166 94 155
-------- -------- --------
3,480 (594) 3,411

Decrease in valuation allowance .............................. (1,568) (589) (6,239)
-------- -------- --------
Income tax expense............................................ $ 4,834 $ 4,925 $ 5,740
======== ======== ========
</TABLE>

A reconciliation between the Company's income tax expense and income taxes
computed by applying the statutory federal income tax rate to income before
income taxes is as follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>

1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected federal income tax expense at the statutory rate..... $ 3,894 $ 4,247 $ 9,079
Increase (decrease) in taxes resulting from:
Goodwill amortization.................................... 692 692 692
State income tax expense, net of federal tax benefit..... 673 844 1,214
Change in valuation allowances........................... (1,568) (589) (6,239)
Other, net.................................................... 1,143 (269) 994
-------- -------- --------
Income tax expense............................................ $ 4,834 $ 4,925 $ 5,740
======== ======== ========
</TABLE>

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The tax effects of
significant temporary differences which comprise deferred tax assets and
liabilities are as follows at December 31 (in thousands):

-32-
<PAGE>

6. INCOME TAXES (CONT.)
<TABLE>
<CAPTION>

1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 7,953 $ 6,998
Employee benefits, including postretirement benefits.................. 3,847 3,600
Other................................................................. 6,031 4,114
-------- --------
Total deferred tax assets......................................... 17,831 14,712
Less valuation allowance.............................................. (7,153) (914)
-------- --------
Net deferred tax assets........................................... 10,678 13,798
-------- --------

Deferred tax liabilities:
Inventories........................................................... 8,077 7,790
Other................................................................. 11,560 12,191
-------- --------
Total deferred tax liabilities.................................... 19,637 19,981
-------- --------
Net deferred tax liabilities...................................... $ 8,959 $ 6,183
======== ========
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. At each balance sheet date, a valuation allowance
has been established against the deferred tax assets based on management's
assessment. Prior to 1999, the Company had a significant valuation allowance
that reduced certain deferred tax assets, based upon management's assessment
that it was more likely than not that these deferred tax assets would not be
realized. However, as a result of the Company's strong earnings history,
management has concluded that the tax benefits related to future deductions,
including net operating loss carryforwards, are now more likely than not to be
realized. At December 31, 1999, the Company had $0.9 million of valuation
allowance remaining on its balance sheet.

At December 31, 1999, the Company has available for U.S. federal income tax
return purposes net operating losses totaling approximately $20.8 million,
subject to certain limitations, which will expire between the years 2005 and
2007. The Company also has available for U.S. income tax return purposes
investment tax credits and alternative minimum tax credits totaling $0.4 million
and $1.1 million, respectively. The investment tax credits expire by the year
2000 while the alternative minimum tax credits have an indefinite utilization
period.

7. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The carrying amount for the Company's cash, trade accounts receivable,
other receivables, trade accounts payable, cigarette and tobacco taxes payable
and other accrued liabilities approximates fair market value because of the
short maturity of these financial instruments.

The carrying amount of the Revolving Credit Facility and Accounts
Receivable Facility, variable rate instruments, approximates fair market value.
The rate of interest, which is tied to either the bank's Prime Rate or
Eurodollar Rate or the commercial paper rate, fluctuates with market conditions.
The fair value of the Notes, calculated based on quoted market prices, was
$79,313,000, $76,125,000 and $71,250,000 at December 31, 1997, 1998 and 1999,
respectively.

8. SEGMENT INFORMATION

The Company is a broad-line, full service wholesale distributor of packaged
consumer products to the convenience retail industry in western North America,
with revenues generated from the sale of cigarettes, tobacco products, candy,
food, health and beauty aids and general merchandise. The Company's principal
customers include traditional and petroleum convenience stores, grocery stores,
drug stores, mass merchandisers and liquor stores. Management has determined
that the only reportable segment of the Company is its wholesale distribution
segment, based on the level at which executive management reviews the results of
operations in order to make decisions regarding performance assessment and
resource allocation. Wholesale distribution segment information as of and for
the years ended December 31 is set forth below (dollars in thousands):

-33-
<PAGE>

8. SEGMENT INFORMATION (CONT.)
<TABLE>
<CAPTION>

1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales from external customers............................. $2,395,867 $2,476,376 $2,838,107
Segment depreciation and amortization expense (1)............. 4,967 5,435 5,647
Segment interest expense..................................... 13,739 13,739 12,980
Segment pre-tax operating income (2).......................... 19,625 18,631 29,195
Capital expenditures.......................................... 9,378 5,311 6,575

Segment assets................................................ 341,583 338,038
</TABLE>

-----------------
(1) Represents depreciation of property and equipment, and
amortization of certain deferred assets that are shown as an
expense in arriving at segment pre-tax operating income.

(2) Represents operating income, including allocated interest expense,
but excluding amortization of goodwill and debt refinancing costs,
and income taxes.

A reconciliation of certain of the segment information reported above, to
the applicable items in the consolidated financial statements are as follows (in
thousands):

INCOME BEFORE INCOME TAXES
- --------------------------
<TABLE>
<CAPTION>

1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Segment information .......................................... $ 19,625 $ 18,631 $ 29,195
Less: Goodwill and other unallocated amortization ............ 2,561 2,630 2,265
Interest expense: unallocated and other................. 4,442 1,663 (284)
Amortization of debt refinancing costs ................. 1,498 2,204 1,274
-------- -------- --------
Consolidated total............................................ $ 11,124 $ 12,134 $ 25,940
======== ======== ========
</TABLE>

INTEREST EXPENSE
----------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Segment information........................................... $ 13,739 $ 13,739 $ 12,980
Add: Unallocated and other.................................... 4,442 1,663 (284)
-------- -------- --------
Consolidated total............................................ $ 18,181 $ 15,402 $ 12,696
======== ======== ========
</TABLE>

DEPRECIATION AND AMORTIZATION
-----------------------------

1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Segment information........................................... $ 4,967 $ 5,435 $ 5,647
Add: Unallocated and other.................................... 488 548 182
-------- -------- --------
Consolidated total............................................ $ 5,455 $ 5,983 $ 5,829
======== ======== ========
</TABLE>

-34-
<PAGE>

ASSETS
------

1998 1999
---- ----
<S> <C> <C>
Segment information........................................... $341,583 $338,038
Add: Corporate assets......................................... 17,807 12,030
-------- --------
Consolidated total............................................ $359,390 $350,068
======== ========
</TABLE>

8. SEGMENT INFORMATION (CONT.)

The Company operates in the United States and Canada. Foreign and domestic
net sales and identifiable assets are as follows as at and for the years ended
December 31, (in thousands):
<TABLE>
<CAPTION>

1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
United States................................................. $1,871,149 $2,008,813 $2,371,252
Canada........................................................ 524,718 467,563 466,855
---------- ---------- ----------
Total......................................................... $2,395,867 $2,476,376 $2,838,107
========== ========== ==========

Identifiable Assets:
United States................................................. $ 305,464 $ 294,583
Canada........................................................ 36,119 43,455
Corporate..................................................... 17,807 12,030
---------- ----------
Total......................................................... $ 359,390 $ 350,068
========== ==========
</TABLE>

9. ACQUISITION OF THE SOSNICK COMPANIES

On February 3, 1997, the Company acquired certain assets and the business
of two related companies, Melvin Sosnick Company and Capital Cigar Company
(collectively "Sosnick" or the "Sosnick Companies"), a wholesale distributor to
the convenience retail market in northern California and northern Nevada.

The assets acquired included trade accounts receivable, inventories and
warehouse equipment. The acquisition excluded the assumption of substantially
all of the liabilities of Sosnick (such as notes payable, trade accounts
payable, commitments to lease warehouse facilities and other liabilities). The
acquisition has been accounted for using the purchase method of accounting, and
the results of operations of Sosnick have been included in the consolidated
financial statements since the date of acquisition. The purchase price for the
assets and the business totaled $21.4 million.

The excess of the purchase price over the fair value of assets acquired and
liabilities assumed was $4.1 million and has been recorded as goodwill, and is
being amortized on a straight-line basis over a period of 40 years.

PROFORMA INFORMATION (UNAUDITED)

The Company's net sales for the year ended December 31, 1997 would have
been $2,410 million if the acquisition had occurred as of January 1, 1997. The
impact of the acquisition on net income would not have been material for the
year ended December 31, 1997.

10. NEW ACCOUNTING PRONOUNCEMENTS

In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivatives, requiring recognition as either
assets or liabilities on the balance sheet and measurement at fair value. As
amended in June 1999 by SFAS No. 137, this statement is effective for all fiscal
years beginning after June 15, 2000 and is not to be applied retrospectively to
financial statements for prior periods. The Company has not yet determined the
effect adoption of this statement will have on the Company's consolidated
financial position, results of operations or cash flows.

-35-
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

(a) Previous independent accountants

(1) (i) On January 27, 1998, the Registrant determined not to engage
KPMG Peat Marwick LLP as the independent public accountants for
its 1998 fiscal year and appointed Deloitte & Touche LLP as its
independent public accountants for its 1998 fiscal year. Deloitte
& Touche is currently the Company's independent public
accountants.

(ii) The reports of KPMG Peat Marwick LLP on the Registrant's
consolidated financial statements for the fiscal year ended
December 31, 1997 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.

(iii) The Audit Committee of the Registrant's Board of Directors
recommended the decision to change independent accountants, whose
decision was approved by the Board of Directors.

(iv) In connection with the audits of the Registrant's
consolidated financial statements for the fiscal year ended
December 31, 1997, and through March 20, 1998, there were no
disagreements with KPMG Peat Marwick LLP on any matters of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements
if not resolved to the satisfaction of KPMG Peat Marwick LLP,
would have caused KPMG Peat Marwick LLP to make reference to the
matter in connection with its report.

(v) During the Registrant's two most recent fiscal years prior to
engaging Deloitte & Touche and through March 20, 1998, there were
no "reportable events" as defined in Item 304 (a)(1)(v) of
Regulation S-K.

(2) The Registrant received from KPMG Peat Marwick LLP a letter addressed
to the Securities and Exchange Commission stating whether or not it
agrees with the above statements. The copy of the letter from KPMG
Peat Marwick LLP to the Securities and Exchange Commission dated March
20, 1998 is incorporated herein by reference as Exhibit 16.1.

(b) New Independent Auditors

(i) On January 27, 1998, the Registrant determined to engage Deloitte &
Touche LLP as its new independent accountants effective for the 1998
fiscal year. During the Registrant's two most recent fiscal years
prior to Deloitte & Touche's engagement, and through January 27, 1998,
neither the Registrant nor anyone else on its behalf consulted
Deloitte & Touche LLP regarding any of the matters or events set forth
in Item 304 (a)(2)(i) and (ii) of Regulation S-K.

None.

-36-
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company are as follows (as
of December 31, 1999):

Name Age Position
---- --- --------

Gary L. Walsh.................58 Chairman and Director
Robert A. Allen...............50 President, Chief Executive Officer and Director
Leo F. Korman.............. 52 Senior Vice President, Chief Financial Officer
and Secretary
Basil P. Prokop...............56 President, Canada Division
J. Michael Walsh..............51 Executive Vice President, Sales
Gerald J. Bolduc....... 54 Chief Information Officer, Vice President,
Information Technology
Henry J. Hautau...............57 Vice President, Employee and Corporate Services
Thomas A. Berglund............39 Director
Terry J. Blumer...............41 Director
John F. Klein.................36 Director
John A. Sprague...............47 Director

Gary L. Walsh has been Chairman and a director of the Company since 1990.
He served as Chief Executive Officer of the Company from 1990 through 1997.
Effective January 1, 1998, Mr. Walsh retired from his position as Chief
Executive Officer. Mr. Walsh served as President from 1990 until 1996.

Robert A. Allen has been Chief Executive Officer of the Company since
January 1998 and President since January 1996. He served as Chief Operating
Officer of the Company from January 1996 to December 1997. Prior to 1996, he
served as Senior Vice President, Distribution from 1992 through 1995, and as
Vice President, Distribution from 1989 to 1992. He has been a director of the
Company since 1994.

Leo F. Korman has been Senior Vice President and Chief Financial Officer of
the Company since January 1994 and served as Vice President and Chief Financial
Officer from 1991 to 1994.

Basil P. Prokop has been President of the Canada Division since 1992. Mr.
Prokop joined the Company in 1984.

J. Michael Walsh has been Executive Vice President, Sales since October
1999. He served as Senior Vice President, Distribution from January 1996 to
September 1999. Prior thereto, he served as Senior Vice President, Operations
since 1992 and served as Vice President, Operations from 1991 to 1992.

Gerald J. Bolduc has been Chief Information Officer of the Company since
December 1997 and Vice President, Information Technology since May 1985.

Henry J. Hautau has been Vice President, Employee and Corporate Services of
the Company since May 1992.

Thomas A. Berglund has been a director of the Company since August 1996. He
is a Partner at Jupiter and has been associated with the firm since 1994. Prior
to that he served for three years as an employee of the Invus Group, a privately
funded buy-out group specializing in food-related companies.

Terry J. Blumer has been a director of the Company since August 1996. Prior
to co-founding Jupiter in 1994, Mr. Blumer was associated with Goldman, Sachs &
Co. for over eight years, most recently as an Executive Director.

John F. Klein has been a director of the Company since August 1996. He is a
Partner at Jupiter and has been associated with the firm since 1995. Prior to
that, he served for three years as a consultant at Bain & Company, a management
consulting firm.

John A. Sprague has been a director of the Company since August 1996. Prior
to co-founding Jupiter in 1994, Mr. Sprague was associated with Forstmann Little
& Co. for eleven years, most recently as a partner. He is a director of Harmon
Industries.

-37-
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT.)

Directors are elected for one year terms and hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. The only family relationship between any
of the executive officers or directors is between Gary L. Walsh and J. Michael
Walsh, who are brothers.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Directors of the Company do not receive compensation for service as
directors other than reimbursement for reasonable expenses incurred in
connection with attending the meetings.

Executive Compensation

The following table summarizes the compensation paid to the Company's chief
executive officer and its four other most highly compensated executive officers
for the years ended December 31, 1999, 1998 and 1997.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
-------------------

ALL OTHER
FISCAL SALARY BONUS COMPENSATION
Name and Principal Position YEAR ($) ($) ($)(1)(2)(3)
- --------------------------- ---- ---- ---- ------------

Robert A. Allen ........................ 1999 $311,538 $300,000 $7,992
President and Chief Executive Officer 1998 $298,077 $300,000 $7,882
1997 $250,000 $ 87,000 $7,203

J. Michael Walsh ....................... 1999 $206,524 $127,500 $7,135
Executive Vice President, Sales 1998 $198,581 $110,000 $7,070
1997 $191,226 $ 60,000 $6,663

Leo F. Korman .......................... 1999 $214,785 $145,000 $7,203
Senior Vice President and 1998 $206,524 $140,000 $7,135
Chief Financial Officer 1997 $198,875 $ 74,000 $6,786

Basil P. Prokop ........................ 1999 $170,100 $ 60,578 $4,618
President, Canada Division 1998 $161,812 $ 21,565 $5,003
1997 $162,665 $ 64,996 $5,240

Henry J. Hautau ........................ 1999 $129,922 $ 60,763 $5,914
Vice President, Employee and 1998 $126,833 $ 50,157 $5,671
Corporate Services 1997 $117,936 $ 39,333 $5,456

- -----------

(1) These figures for 1999 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts: Mr.
Allen, $4,800; Mr. J.M. Walsh, $4,800; Mr. Korman, $4,800; and Mr. Hautau,
$4,204; (ii) Company matching contributions to the Registered Retirement Savings
Plan (defined below) for Mr. Prokop, $2,580; (iii) life and other insurance
premiums in the following amounts: Mr. Allen, $3,192; Mr. J.M. Walsh, $2,335;
Mr. Korman, $2,403; Mr. Prokop, $2,038; and Mr. Hautau $1,710.

-38-
<PAGE>

EXECUTIVE COMPENSATION (CONT.)

(2) These figures for 1998 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts: Mr.
Allen, $4,800; Mr. J.M. Walsh, $4,800; Mr. Korman, $4,800; and Mr. Hautau,
$3,986; (ii) Company matching contributions to the Registered Retirement Savings
Plan (defined below) for Mr. Prokop, $3,033; (iii) life and other insurance
premiums in the following amounts: Mr. Allen, $3,082; Mr. J.M. Walsh, $2,270;
Mr. Korman, $2,335; Mr. Prokop, $1,970; and Mr. Hautau, $1,685.

(3) These figures for 1997 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts: Mr.
Allen, $4,500; Mr. J.M. Walsh, $4,440; Mr. Korman, $4,500; and Mr. Hautau,
$3,844; (ii) Company matching contributions to the Registered Retirement Savings
Plan (defined below) for Mr. Prokop, $3,250; (iii) life and other insurance
premiums in the following amounts: Mr. Allen, $2,703; Mr. J.M. Walsh, $2,223;
Mr. Korman, $2,286; Mr. Prokop, $1,990; and Mr. Hautau, $1,612.

STOCK OPTIONS

During the year ended December 31, 1999 there were no stock options granted
to the Company's chief executive officer or its four other most highly
compensated executive officers.

The following table summarizes information with respect to the Company's
chief executive officer and its four other most highly compensated executive
officers concerning the exercise of options during 1999 and unexercised options
held on December 31, 1999. The only executive officer holding options at
December 31, 1999 is Henry J. Hautau.

Aggregated Option Exercises in 1999 and Fiscal Year End Option Values
<TABLE>
<CAPTION>

NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
-------------------------- ------------------
SHARES ACQUIRED
NAME ON EXERCISE (#) VALUE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE
- ---- --------------- ----------------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>

Henry J. Hautau.................... 0 $ 0 0 7,500 $ 0 N/A (1)
</TABLE>

(1) Because the Company does not have publicly traded stock this column has
been deemed not applicable.

CERTAIN AGREEMENTS WITH MANAGEMENT

Each of the following named executive officers; Mr. Robert A. Allen, Mr. J.
Michael Walsh, Mr. Leo F. Korman, and Mr. Basil P. Prokop has entered into an
agreement with the Company which provides that if the employment of such officer
party thereto is terminated other than for Cause (as defined therein) or as a
result of such officer's resignation for Good Reason (as defined therein), the
Company may, in its sole discretion, continue to pay to such officer, for a
period of up to one year following such termination, such officer's base salary
as in effect on the effective date of such termination. Under these agreements
each of such officers has agreed not to engage in activities that compete with
those of the Company (i) while such officer is an employee of the Company and
(ii) if the Company makes the severance payments described above to such
officer, for an additional period of one year after such employment terminates.

INDEMNIFICATION AGREEMENTS

Each of the Company's directors and Mr. Leo F. Korman, the Company's Chief
Financial Officer, and certain other officers of the Company (collectively, the
"Indemnitees"), is party to an identical indemnification agreement with the
Company. Pursuant to such agreements, the Company has agreed generally to
indemnify and hold harmless each Indemnitee against any losses incurred in
connection with any suit, arbitration or proceeding resulting from such
Indemnitee's service as an officer, agent, employee or director of the Company,
provided that the Company will generally not be required to indemnify an
Indemnitee in connection with losses arising out of the Indemnitee's own
fraudulent or willful misconduct. Each indemnification agreement terminates upon

-39-
<PAGE>

the occurrence of a Change of Control (as defined in the agreements) of the
Company, provided that the Company's obligations to indemnify for events
occurring prior to such Change of Control continue.

THE SAVINGS PLAN

The Company maintains the Core-Mark International, Inc. Nest Egg Savings
Plan (the "Savings Plan"), which is a defined contribution plan with a cash or
deferred arrangement (as described under Section 401(k) of the Internal Revenue
Code of 1986, as amended). All non-union U.S. employees of the Company and its
affiliates (unless a bargaining agreement expressly provides for participation)
are eligible to participate in the Savings Plan after completing one year of
service.

Eligible employees may elect to contribute on a tax deferred basis from 1%
to 10% of their compensation (as defined in the Savings Plan), subject to
statutory limitations. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution (all of which may be subject to
certain statutory limitations).

Each participant has a fully vested (nonforfeitable) interest in all
contributions made by the individual and all earnings thereon. Each participant
must be employed at the end of each quarter to receive an allocation of matching
contribution for the most recent calendar quarter.

The amount of Company matching contributions that the following officers
have accrued in the Savings Plan as of December 31, 1999 is as follows: Robert
A. Allen, $33,556; J. Michael Walsh, $33,439; Leo F. Korman, $32,813 and Henry
J. Hautau, $24,430.

THE REGISTERED RETIREMENT SAVINGS PLAN (CANADA)

The Company maintains the Core-Mark International, Inc. Group Retirement
Savings Plan (Canada) (the "Registered Retirement Savings Plan" or "RRSP"),
which is a defined contribution plan with a cash or deferred arrangement (as
described under the Department of National Revenue Taxation Income Tax Act). All
non-union Canadian employees of the Company and its affiliates (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Registered Retirement Savings Plan after completing one year
of service.

Eligible employees may elect to contribute on a tax deferred basis from 1%
to 10% of their compensation (as defined in the RRSP), subject to statutory
limitations. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution (all of which may be subject to
certain statutory limitations).

Basil P. Prokop has $30,391 of Company matching contributions in the
Registered Retirement Savings Plan as of December 31, 1999.

-40-
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of December 31, 1999, certain information
regarding the beneficial ownership of the common stock of the Company (i) by
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares of common stock of the Company, (ii) by each of the Company's
directors and executive officers and (iii) by all directors and executive
officers as a group. The Company believes that the beneficial owners of the
securities listed below, based on information furnished by such owners, have
sole investment and voting power with respect to all the shares of common stock
of the Company shown as being beneficially owned by them.

Number of
Shares of
Common Stock of Percentage of
the Company Total Shares of
Name and Address of Beneficially Common Stock of
Beneficial Owners(a) Owned the Company
-------------------- ----- -----------

Jupiter........................................ 4,125,000 75.0%
Robert A. Allen................................ 281,875 5.1
Leo F. Korman.................................. 213,125 3.9
Basil P. Prokop................................ 164,999 3.0
Gary L. Walsh.................................. 343,751 6.2
J. Michael Walsh............................... 213,125 3.9
Thomas A. Berglund............................. 4,125,000 (b) 75.0
Terry J. Blumer................................ 4,125,000 (b) 75.0
John F. Klein.................................. 4,125,000 (b) 75.0
John A. Sprague................................ 4,125,000 (b) 75.0
All directors and executive officers
as a group (9 persons) (b)................. 5,341,875 97.1%

- -----------

(a) The address for Jupiter, Mr. Berglund, Mr. Blumer, Mr. Klein and Mr. Sprague
is 30 Rockefeller Plaza, Suite 4525, New York, New York 10112. The address for
Gary L. Walsh, Mr. Allen, Mr. Korman, Mr. Prokop and J. Michael Walsh is 395
Oyster Point Boulevard, Suite 415, South San Francisco, California 94080.

(b) Represents the shares owned by Jupiter. Messrs. Sprague, Blumer, Berglund
and Klein exercise investment and voting power over the shares owned by Jupiter
and accordingly are deemed to "beneficially own" such shares in accordance with
Rule 13d-3 promulgated under the Exchange Act. Each of Messrs. Sprague, Blumer,
Berglund and Klein disclaim beneficial ownership of all shares of the Company
owned by Jupiter, except to the extent of their respective ownership interests
in such partnership.

STOCKHOLDERS AGREEMENT

On August 7, 1996, the Company entered into a Stockholders Agreement (the
"Stockholders Agreement") with Jupiter and certain executive officers
(individually, a "Management Stockholder" and collectively, the "Management
Stockholders"), which parties constitute all of the Company's common
stockholders. The Stockholders Agreement (a) places significant restrictions on
the ability of a Management Stockholder to transfer, pledge or otherwise dispose
of 60% of his shares of common stock of the Company (the "Restricted Shares")
prior to the Company's initial public offering of common stock, and limits the
amount of Restricted Shares that may be sold by such Management Stockholder
after such initial public offering, (b) restricts the ability of a Management
Stockholder to pledge his shares of common stock that do not constitute
Restricted Shares, (c) grants "tag-along" rights (i.e., rights to participate in
a sale on a pro rata basis) to each stockholder in connection with the sale (i)
by Jupiter of any of its common stock of the Company and (ii) by a Management
Stockholder of any of his Restricted Shares, and (d) grants to Jupiter
"drag-along" rights (i.e., the right to require Management Stockholders to
participate on a pro rata basis in a sale by Jupiter) with respect to shares of
common stock held by the Management Stockholders, whether or not Restricted
Shares, in connection with a sale by Jupiter of common stock constituting at
least 1% of the Company's common stock. The Stockholders Agreement also grants
to the Company, first, and Jupiter, second, certain call rights with respect to
the purchase of Restricted Shares held by a Management Stockholder in the event
that, prior to the fifth anniversary of the date of the Stockholders Agreement,
such Management Stockholder's employment with the Company is terminated (other
than as a result of death, disability or resignation for Good Reason (as defined
therein). The call provision also applies in the event such Management

-41-
<PAGE>

Stockholder breaches his obligations under the Severance and Non-Competition
Agreement described under "Certain Agreements with Management". The purchase
price with respect to such call rights under the Stockholders Agreement is the
lower of $10 per share and a specified formula described therein (the
"Repurchase Formula"), in the event the call right arises as a result of such
Management Stockholder's termination for Cause (as defined therein), his
resignation other than for Good Reason or a breach of his obligations under the
Severance and Non-Competition Agreement to which he is a party. The purchase
price with respect to a call right arising as a result of any other employment
termination is the Repurchase Formula. Jupiter has agreed that neither it nor
the Company will exercise their respective call rights with respect to the
Restricted Shares held by Gary L. Walsh in the event that, after December 31,
1997, his employment with the Company is terminated without cause or he resigns
without cause or for Good Reason. Mr. Walsh resigned as chief executive officer,
effective January 1, 1998.

REGISTRATION RIGHTS AGREEMENT

Pursuant to a Registration Rights Agreement, dated as of August 7, 1996
(the "Registration Rights Agreement"), the Company granted certain demand
registration rights to Jupiter and certain "piggy-back" registration rights to
Jupiter and the Management Stockholders with respect to the sale of common stock
of the Company held by them. In addition to customary priority cut-back
provisions relating to underwritten offerings, the Registration Rights Agreement
imposes limitations on the number of shares of common stock of the Company that
may be included in a "piggy-back" registration by a Management Stockholder.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

-42-
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following financial statements, schedules and exhibits are filed as part
of this report or are incorporated herein as indicated.

1. Financial Statements

The consolidated financial statements listed in Item 8. Financial
Statements, which appear on page 18, are included herein.

2. Financial Statement Schedule

The following financial statement schedule of Core-Mark International, Inc.
for the fiscal years ended December 31, 1997, 1998, and 1999 is filed as part of
this Report and should be read in conjunction with the Consolidated Financial
Statements of Core-Mark International, Inc. and subsidiaries.

Schedule II - Valuation and Qualifying Accounts

Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.

3. Exhibits

The following Exhibits are filed as part of, or incorporated by
reference into, this Report:

EXHIBIT
NUMBER EXHIBIT
------ -------

2.1 Stock Subscription Agreement, dated June 17, 1996, by and among
Jupiter Partners, L.P., as amended, incorporated herein by
reference from Exhibit 2.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

2.2 Stock Purchase Agreement, dated June 17, 1996, by and between
Core-Mark L.L.C. and the Company, as amended, incorporated herein
by reference from Exhibit 2.2 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

3.1.1 Articles of Incorporation of the Company, incorporated herein by
reference from Exhibit 3.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

3.1.2 Restated Articles of Incorporation of the Company dated August
18, 1998, incorporated herein by reference from exhibit 3.1.2 of
Core-Mark International, Inc. Annual Report on Form 10-K filed
March 19, 1999 (registration No. 333-14217).

3.2 Amended By-laws of the Company (filed herewith).

4.1 Indenture, dated as of September 27, 1996, between the Company
and Bankers Trust Company as Trustee, incorporated herein by
reference from Exhibit 4.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

4.2 Form of Face of Exchange Security, incorporated herein by
reference from Exhibit 4.4 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

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<PAGE>

10.1 Manufacturing Rights Agreement by and among Famous Value Brands,
Core-Mark International Inc., Core-Mark Interrelated Companies,
Inc. and C/M Products, Inc., incorporated herein by reference
from Exhibit 10.1 to Core-Mark International, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-14217).

*10.1.1 Amendment dated December 31, 1997 to Manufacturing Rights
Agreement by and among Famous Value Brands, Core-Mark
International Inc., Core-Mark Interrelated Companies, Inc. and
C/M Products, Inc., incorporated herein by reference from exhibit
10.11 to Core-Mark International Inc.'s Annual Report on Form
10-K filed March 20, 1998 (Registration No. 333-14217).

10.2 Manufacturing Agreement for "Best Buy" Cigarettes by and between
Famous Value Brands and C/M Products, Inc., incorporated herein
by reference from Exhibit 10.2 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

*10.2.1 Amendment dated December 31, 1997 to Manufacturing Agreement
for "Best Buy" Cigarettes by and between Famous Value Brands and
C/M Products, Inc., incorporated herein by reference from exhibit
10.12 to Core-Mark International Inc.'s Annual Report on Form
10-K filed March 20, 1998 (Registration No. 333-14217).

10.3 Trademark License Agreement by and between Famous Value Brands
and Core-Mark Interrelated Companies, Inc., incorporated herein
by reference from Exhibit 10.3 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

10.3.1 Amendment dated December 31, 1997 to Trademark License
Agreement by and between Famous Value Brands and Core-Mark
Interrelated Companies, Inc., incorporated herein by reference
from exhibit 10.13 to Core-Mark International Inc.'s Annual
Report on Form 10-K filed March 20, 1998 (Registration No.
333-14217).

10.4 Stockholders Agreement dated as of August 7, 1996, by and among
the Company and all of the holders of its Common Stock,
incorporated herein by reference from Exhibit 10.5 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).

10.5.1 Severance and Noncompetition Agreement, dated August 7, 1996,
between the Company and Gary L. Walsh, incorporated herein by
reference from Exhibit 10.6.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

10.5.2 Schedule of Severance and Non Competition Agreements omitted
pursuant to Instruction no. 2 to Item 601 of Regulation S-K,
incorporated herein by reference from Exhibit 10.6.2 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).

10.6 Letter, dated August 7, 1996, from Jupiter Partners LP to Gary L.
Walsh, incorporated herein by reference from Exhibit 10.7 to
Core-Mark International, Inc.'s Registration Statement on Form
S-4 (Registration No. 333-14217).

10.7 Purchase Agreement, dated September 24, 1996, between the
Company, Chase Securities Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, incorporated herein by reference from
Exhibit 10.8 to Core-Mark International, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-14217).

10.8.1 Indemnification Agreement, dated November 12, 1996, between the
Company and John F. Klein, incorporated herein by reference from
Exhibit 10.9.1 to Core-Mark International, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-14217).

10.8.2 Schedule of Indemnification Agreements omitted pursuant to
Instruction No. 2 to Item 601 of Regulation S-K, incorporated
herein by reference from Exhibit 10.9.2 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).

10.9 Purchase Agreement dated January 31, 1997 between the Company and
Melvin Sosnick Company and Capital Cigar Company, incorporated
herein by reference from Exhibit (i) to Core-Mark International,
Inc.'s Current Report on Form 8-K filed February 18, 1997
(Registration No. 333-14217).

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<PAGE>

10.10 $120,000,000 Amended and Restated Credit Agreement dated as of
April 1, 1998, among Core-Mark International, Inc., the Several
Lenders from time to time Parties Hereto and The Chase Manhattan
Bank, as Administrative Agent, incorporated herein by reference
from exhibit 10.14 to Core-Mark International Inc. Quarterly
Report on Form 10-Q filed August 14, 1998 (Registration No.
333-14217).

10.11 Amended and Restated Security Agreement dated as of April 1,
1998, among Core-Mark International, Inc., C/M Products, Inc.,
Core-Mark Interrelated Companies, Inc., and Core-Mark
Midcontinent, Inc., in favor of The Chase Manhattan Bank, as
Administrative Agent, incorporated herein by reference from
exhibit 10.16 to Core-Mark International Inc. Quarterly Report on
Form 10-Q filed August 14, 1998 (Registration No. 333-14217).

10.12 Amendment to Borrower Stock Pledge Agreement dated as of April
1, 1998, between Core-Mark International, Inc., and The Chase
Manhattan Bank, as Administrative Agent, incorporated herein by
reference from exhibit 10.17 to Core-Mark International, Inc.
Quarterly Report on Form 10-Q filed August 14, 1998 (Registration
No. 333-14217).

10.13 Pooling Agreement, dated as of April 1, 1998, among Core-Mark
Capital Corporation, Core-Mark International, Inc., as Servicer,
and The Chase Manhattan Bank, as Trustee, incorporated herein by
reference from exhibit 10.18 to Core-Mark International, Inc.
Quarterly Report on Form 10-Q filed August 14, 1998 (Registration
No. 333-14217).

10.14 Series 1998-1 Supplement to the Pooling Agreement, dated as of
April 1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., as Servicer, and The Chase Manhattan Bank,
incorporated herein by reference from exhibit 10.19 to Core-Mark
International, Inc. Quarterly Report on Form 10-Q filed August
14, 1998 (Registration No. 333-14217).

10.15 Series 1998-2 Supplement to the Pooling Agreement, dated as of
April 1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., as Servicer, and The Chase Manhattan Bank,
incorporated herein by reference from exhibit 10.20 to Core-Mark
International, Inc. Quarterly Report on Form 10-Q filed August
14, 1998 (Registration No. 333-14217).

10.16 Servicing Agreement, dated as of April 1, 1998, among Core-Mark
Capital Corporation, Core-Mark International, Inc., as Servicer,
Subsidiaries of Core-Mark International, Inc., as Subservicers,
and The Chase Manhattan Bank, incorporated herein by reference
from exhibit 10.21 to Core-Mark International, Inc. Quarterly
Report on Form 10-Q filed August 14, 1998 (Registration No.
333-14217).

10.17 Receivables Sale and Contribution Agreement, dated as of April 1,
1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., Core-Mark Midcontinent, Inc., and Core-Mark
Interrelated Companies, Inc., as Sellers, incorporated herein by
reference from exhibit 10.22 to Core-Mark International, Inc.
Quarterly Report on Form 10-Q filed August 14, 1998 (Registration
No. 333-14217).

16 Letter to Securities and Exchange Commission from KPMG Peat
Marwick LLP dated January 27, 1998 from Exhibit 16 to Core-Mark
International Inc.'s Current Report on Form 8-K filed January 27,
1998 (Registration No. 333-14217), incorporated herein by
reference from exhibit 16 to Core-Mark International Inc. Annual
Report on Form 10-K filed March 20, 1998 (Registration No.
333-14217).

16.1 Letter to Securities and Exchange Commission from KPMG Peat
Marwick LLP dated March 20, 1998, incorporated herein by
reference from exhibit 16.1 to Core-Mark International Inc.
Annual Report on Form 10-K filed March 20, 1998 (Registration No.
333-14217).

21 List of Subsidiaries of the Company, incorporated herein by
reference from Exhibit 21 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-14217).

-45-
<PAGE>

27 Financial Data Schedule

* Portions of these exhibits have been omitted pursuant to an Order
Granting Confidential Treatment Under the Securities Exchange Act
of 1934 by the Company with the Commission pursuant to Rule
24b-2, under the Securities Exchange Act of 1934, as amended.

(b) Reports on Form 8-K

None.

-46-
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of South
San Francisco, California, on March 22, 2000.

CORE-MARK INTERNATIONAL, INC.

By /s/ Leo F. Korman
-----------------------------------
Leo F. Korman, Senior Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Gary L. Walsh

-------------------------
Gary L. Walsh Chairman and Director March 22, 2000

/s/ Robert A. Allen

-------------------------
Robert A. Allen President, Chief Executive
Officer and Director March 22, 2000

/s/ Leo F. Korman

-------------------------
Leo F. Korman Senior Vice President,
Chief Financial Officer and March 22, 2000
Principal Accounting Officer

/s/ Thomas A. Berglund

-------------------------
Thomas A. Berglund Director March 22, 2000

/s/ Terry J. Blumer

-------------------------
Terry J. Blumer Director March 22, 2000

/s/ John F. Klein

-------------------------
John F. Klein Director March 22, 2000

/s/ John A. Sprague

-------------------------
John A. Sprague Director March 22, 2000

-47-

<PAGE>

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS
CORE-MARK INTERNATIONAL, INC.:

Under date of February 20, 1998, we reported on the consolidated balance
sheet of Core-Mark International, Inc. and subsidiaries as of December 31, 1997,
and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for the year ended December 31, 1997. In connection
with our audit of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audit.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

/S/ KPMG LLP

SAN FRANCISCO, CALIFORNIA
FEBRUARY 20, 1998

-48-
<PAGE>

SCHEDULE II

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>

Column C
Column A Column B Additions Column D Column E
-------- -------- -------------------- -------- --------

Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
- ------------------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>

ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31,
1997 ....................... $3,881 $1,237 $ _ $(2,168)(a) $2,950
1998 ....................... 2,950 810 _ (999)(a) 2,761
1999 ....................... 2,761 308 _ (749)(a) 2,320
</TABLE>

(a) Deductions consist of accounts determined to be uncollectible and charged
against reserves, net of collections on accounts previously charged off.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,279
<SECURITIES> 0
<RECEIVABLES> 120,270
<ALLOWANCES> 2,320
<INVENTORY> 109,139
<CURRENT-ASSETS> 252,609
<PP&E> 66,696
<DEPRECIATION> 37,277
<TOTAL-ASSETS> 350,068
<CURRENT-LIABILITIES> 150,924
<BONDS> 165,335
0
0
<COMMON> 55
<OTHER-SE> 25,895
<TOTAL-LIABILITY-AND-EQUITY> 350,068
<SALES> 2,838,107
<TOTAL-REVENUES> 2,838,107
<CGS> 2,643,069
<TOTAL-COSTS> 155,128
<OTHER-EXPENSES> 1,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,696
<INCOME-PRETAX> 25,940
<INCOME-TAX> 5,740
<INCOME-CONTINUING> 20,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,200
<EPS-BASIC> 0
<EPS-DILUTED> 0

</TABLE>