We would like to welcome you to Core-Mark Holding Company's first-quarter earnings call. (Operator Instructions). At this time, I would like to turn the call over to Ms. Milton Gray Draper, Director of Investor Relations. Please go ahead.

Thank you, operator, and welcome, everyone. I would now like to now read a statement about the use of forward-looking statements and non-GAAP financial measures during this call. Statements made in the course of this call that state the company's or management's hopes, beliefs, expectations or predictions of the future are forward-looking statements. Actual results may differ materially from those projections. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our SEC filings including our Form 10-K, our 10-Qs, and our press releases. We undertake no obligation to update these forward-looking statements. We are holding this call to review our first-quarter results and to answer any questions you might have. If you have additional follow-up questions after the call, please call me at 650-589-9445. Joining me today is the Chief Executive Officer of Core-Mark, Michael Walsh; and the Chief Financial Officer, Stacy Loretz-Congdon. Also in the room is Chris Miller, our Chief Accounting Officer, and Greg Antholzner, our Vice President of Finance and Treasurer. Our line-up for the call today is as follows. Mike Walsh will discuss the state of our business and our strategy going forward, followed by Stacy Loretz-Congdon, who will review the financial results for the first quarter. We will then open up the call for your questions. Now, I would like to turn the call over to our CEO, Mike Walsh.

Good morning. As many as you are aware, we recently signed a definitive purchase agreement with Auburn Merchandise Distributors, Inc., or AMD, which we believe is an excellent fit for us. They have built a solid profitable business based on great customer service. Combined with our convenience marketing programs and technology, both companies see the opportunities to leverage the synergies. As always, our first priority will be on assuring customer satisfaction. We want those retailers to know that we are truly focused on helping them grow their sales. For you, our investors, I'm sure you will recognize this initiative to be consistent with our stated strategy of taking the Core-Mark business model to where more consumers and customers are located. I am truly very pleased to have the AMD organization join us and help make that stated strategy a reality. We intend to close this deal sometime in June. As our press release explained, we expect this asset deal to cost approximately $28 million. As we did in our Klein acquisition, we plan to use the inventories and accounts receivables from this new division to expand our borrowing base and to increase our tax payables for the states in which AMD does business. We believe the total of these two items will be in the neighborhood of $23 million. We will invest some funds to incorporate our technology, and we will incur startup cost of approximately $1.4 million. The best news is that we expect this division to be adding to the bottomline in 2008, excluding those startup costs. This acquisition constitutes an excellent use of shareholder capital. I would like now to comment on our first quarter results. The first quarter was a pretty good one for us given the current business environment we are all hearing and reading…

Thanks, Mike, and good morning to everyone. I'd like to take this opportunity to recap some of what Mike covered and to provide a little more detail on the financial results for the first quarter. First, many of you may have seen in our 10-Q that we purchased almost 100,000 of our shares at a cost of about $3 million. This represents 10% of the $30 million share repurchase program approved by our Board of Directors. We believe this is a good use of our excess cash, especially at these price levels, and we plan to continue to purchase opportunistically in conformity with the SEC guidelines. Also, we believe the pending acquisition of AMD is a very good use of our excess debt capacity, considering the potential of future earnings and strategic fit in our long-term vision. As with all investments of this type, we have spent time reviewing their financials and trends, and our shared vision over the next five years meets our investment criteria and RONA hurdles. AMD will give us additional infrastructure and additional capacity to service existing customers and potential future customers in this Northeastern region of the United States. This acquisition makes a lot of sense. And we are very excited that the two organizations will provide AMD's customers with additional tools and product lines that will help them grow their profits. Now, on to the quarter. Sales to our customers increased by 5.4% or $69.3 million. Our cigarette sales grew by 3% and non-cigarette categories grew by 11%. Excise taxes, which are embedded in our revenues, increased by approximately $22 million or 7%. Foreign currency translation accounts for approximately $30 million of the overall sales increase, of which approximately $20 million is related to the cigarette category. Keep in mind that a portion of…

(Operator Instructions). Our first question comes from Jonathan Lichter from Sidoti & Company. Please go ahead. Jonathan Lichter - Sidoti & Company: Good morning.

Good morning. Jonathan Lichter - Sidoti & Company: The non-cigarette margin, I think Stacy had mentioned it is sustainable. Is there any possibility for some upside there the rest of the year, or is this the peak?

No, that's really going to be a function of continuing to drive VCI and the fresh opportunity. And our long-range plans are to grow our margins. That's going to be a function of sort of a product mix shift, if you will. Jonathan Lichter - Sidoti & Company: Okay. So other than the candy, there wasn't anything else unusual in the quarter?

No. The candy price increase did have a positive impact in the quarter and actually gave it a boost for the first quarter. Going into second quarter, a portion of that will be sustained because we do earn profits on a cost plus markup basis, but you may see a little bit of compression there because the floor gain won't be there.

But you take out the cigarette price increase our margins on non-cigarettes grew nonetheless.

They grew nonetheless. They actually improved quarter-over-quarter.

Our next question comes from Richard Whitman from Benchmark Capital. Please go ahead.

Yeah. I have three of them so I will just spit them out and you answer them in whatever order. Any progress on recovery in the bankruptcy, number one? Number two, could you talk about potential geographic expansion in the East? And three, in terms of new product initiatives that you've spoken of recently, prepared foods, breads, fresh fruits, et cetera?

Greg, do you want to talk about the Ameristop?

Certainly. Yeah, at this point we are very much involved in the Creditors Committee. As you know, bankruptcies and the proceedings go rather slowly, so there is not a lot to report. They've sold some properties off. But at this point in time it is still early on. We still expect some recovery, but it's very, very uncertain at this point in time. And that goes for both Ameristop and Big A, our other large bankruptcy.

Let me speak to geographic expansion. We believe that there's some opportunity still out there. We are in dialogue with some potential operations. The last year, we were really focusing on more the strategic kinds of things, which really took a lot of focus and time and energy. We're now looking at more I guess you would say tuck-in acquisitions, that sort of thing. And there are some out there. We are pursuing them as we speak, and I expect that we will be doing some in the foreseeable future. So, absolutely. Now as far as new products, like in the fresh area, we've developed a modular store set for all these new products, kind of spearheaded by Rob Hoefs, our new Director of Fresh. We have been out presenting that to the marketplace through trade shows and other and we have enjoyed some pretty good traction there. I don't have the numbers right off the top of my head, but I think we are picking up 100 stores a month or something like that with these new store sets. Our movement of milk continues to grow, I'm going to say 100 stores a month or something recently. That sort of just steady eddy grinding, no big chain accounts that we've picked up in the first quarter to pick up milk and that sort of thing. So it's not sort of a project; it is just a long-term keep marketing, keep selling, keep introducing these. I would say we have only scratched the surface with fresh, and we're doing pretty good with that. And I have been talking to CEOs of large retailers, and I am more and more convinced that that's where the industry is going and I'm more and more convinced that Core-Mark is well positioned to take advantage of it. And we are growing the business, certainly double-digits in those categories. So I think those are the -- if that answers your questions.

Our next question comes from Kian Ghazi from Hawkshaw. Please go ahead.

A few questions. One on the inventory gains on the candy. Can you guys help us a little bit more on trying to quantify that? As you've noted on your cigarette inventory gains, they can be volatile and meaningfully impact results on a quarter-to-quarter basis. It would be helpful if you would also break out for us how much that candy gained helps the gross margins and the non-cigarette revenues.

I will take that. Kian, we normally don't break that out or call it out specifically. It's partially due to the fact that the floor gain displaces some of our normal merchandise income and it's hard to segregate the two from one another. There is overlap, so to break out an exact number would be a guesstimate. And so we traditionally do not call that out.

The other thing is you get price increases from manufacturers every week, every month, and I think we are a little reticent to get into the game. Cigarettes are clearly different. Cigarettes are very substantial, and you need to know about that. I understand, I sympathize with you, but we don't want to get into this quagmire because there is no end to it. There is always a price increase. We've always sort of viewed that as part of the normal course of business. It's nice. You get it from time to time, but you get it on other products as well. I would say, yeah, candy is a little bigger, a little richer, a little nicer when you get it. But it's really kind of part of the continuum of the normal course of business.

You mentioned that the non-cigarette gross margins were up quarter-over-quarter. Were they up year-over-year including this gain as well?

I'm sorry. We were comparing to first quarter of last year versus first quarter of this year when we made that statement.

I think over the last two or three years, our margins have steadily been growing quarter-over-quarter and year-over-year. And I believe that that will continue to happen as we see a larger acceptance by the industry of fresh and the VCI concepts.

Got you. Secondly, on your auditor fees, they are still very high. A few years ago they were $5 million, this past year they were $4 million. When I look at your peers in the distribution business, if I look at companies your size they are much less, let's call it $700,000 to $2 million tops. $4 million seems way out of whack for the business that you run, the size company that you are. Where do you think you can get those auditor fees over time and how are you actually pursuing an effort to get them down?

I'm going to comment at 10,000 feet and then I'm going to turn it over to Stacy who will give a cogent, I'm sure, technical explanation of that. I would have to say that I'm very frustrated over the cost of being public in general and audit cost. However, I think when you compare us with other companies, when we emerged from bankruptcy, because we were privately held, I didn't know a whole lot and the management team at that time did not know a whole lot about being public. We were slapped with a number of material weaknesses. There was a change of auditors and we were trying to get help as best we could. I think the risk from the auditors point of view, who, by the way, are very good, very professional, I think they would say, well, as we took you on, we viewed Core-Mark as a higher risk because of the number of material weaknesses or material deficiencies that we had. Now, the fact that we've gotten rid of these, I think that we should look to more market rates, in line with the risks that we now have or don't have. But it is, nonetheless, amazing to me the costs that we bear on that. And I think that with the forces working with the SEC and all this going on, just the way our system is set up of auditing and oversight and so forth, there is not a whole lot the management team can do to that, except to continue to press and negotiate and point out that we are not a company at risk. We're a straightforward company. I mean, we have 25 distribution centers, but it is the same business. Its one business replicated 25 times. So I'm with you 100%, but part of this is driven by just what is coming out of Washington. I would hope that you investors would have a little more influence on that than the people that are targeted to receive this onerous oversight. But Stacy, so what is the real answer?

No, I mean you touched on a lot of it. A lot of it has to do with that we were perceived in 2007 still as a high-risk account because of the remaining material weakness. A couple other things to note is our materiality threshold is extremely small because of what we do in our industry. And as a wholesaler we have a small bottomline, which we are measured against, and that causes their magnifying glass to be that much larger.

You understand what she was saying? I think the materiality was like, if you have a thing that is 5% of your pre-tax net in one quarter, well, ExxonMobil, for example, would be held to the same standard that Core-Mark is. And so, we're trying to point out that, look, 5% of our pretax net in a quarter is slightly smaller than 5% of Exxon Mobil's pre-tax net. So it sounds like Core-Mark is being held to 100 times more difficult standard on materiality. But that's the rules of the game that we have to live by, and there is no sense to it.

And I think also there's other things that we are putting in place in order to elevate the view. We're focusing on our entity level controls, putting more analytics in place, so that we can try to get the auditors out of the transaction details. Because as you know, we have millions of transactions, and when they get down to that minutia it takes more time, it is more labor-intensive. So we are elevating that and restructuring some of our internal controls in order to provide them with a better approach. We are working with Deloitte very closely to identify efficiencies in order to reduce their hours. So, it's definitely something that Chris Miller and I are extremely focused on and that Mike is reminding us of on every chance he gets. So it is something we are anticipating we will bring down in 2008 and we're just working very hard at it. Does that answer your question, hopefully?

The next question is from [Matt Vedricks] from Bond Street Capital. Please go ahead.

Good quarter, guys. I've got a quick question about your non-tobacco sales, though. Could you actually breakout what percent of the increase in non-tobacco sales was due to price increases versus organic growth?

That was sort of the same question I think the other gentlemen asked. We will continue to break out the impacts of cigarette price increases. But on the non-cigarette stuff, we get price increases on all commodities throughout the year. Candy is a little more impactful. But we tried to say, look, that is part of the normal course of business. We're trying not to get too deep into the minutia because the next thing we will be breaking out price increases on batteries and things like that. It's a path you go down that gets too sticky.

Can you give us a directional guidance, perhaps maybe say if it's half, or more than half, less than half?

Matt, I would just add that in the non-cigarette categories we don't really track it that way in our system. For cigarettes, it's very easy to track because we do monitor carton volume. But for the eaches and boxes and the cases of all the other categories, as far as segregating the sales dollars into what was inflationary versus what wasn't, it's not the way that our system currently works.

And the other thing, you know, you do get a little bit of a load in, but you're carrying inventory longer and you're sacrificing future what we call merchandising income.

Correct.

So if you give it a number you would sort of have to say, well, but then I am not going to get X amount the next month. It just gets complicated.

Okay. Fair point. Thank you.

We have a follow-up question from Richard Whitman from Benchmark Capital.

No, I don't have any follow-up questions.

Sorry. Thank you. Our next question comes from Jonathan Lichter from Sidoti & Company. Jonathan Lichter - Sidoti & Company: When do you expect the Toronto division to kind of be able to leverage its fixed assets there? When do you expect additional customers?

In the next year there will be bids that we will be competing for on large accounts that we currently service in Western Washington, I mean Western Canada, beg your pardon. So, our whole strategy was that we believed that we were the distributor of choice in Western Canada, and that if we established a presence in Central Canada where more people are, as long as we're still providing the service they are looking for at a competitive price, that there would be some rationale for them to choose us. You know, one distributor handling more of their business. And we still view that that way, and we're optimistic that we will do well in competing for that business. Those are bids, they roll every three or four years, and some of those are coming up in the next 12 months. Jonathan Lichter - Sidoti & Company: Okay. Thank you.

Follow-up question from Kian Ghazi from Hawkshaw, please go ahead.

Thanks. I had gotten cut off earlier. Just in response to your feedback on the auditor fees, and I don't need more explanations, but I just wanted to give you guys some feedback in that I am looking at other distributors with similar business models as yours. I would imagine they face similar thresholds for materiality and also have many DCs like yours and many operating units. I just think that when I look at all of them, there is no one paying anywhere near the fees that you guys pay. So I don't think it's the structure of your business. I imagine it is your auditors taking advantage of the material weaknesses that you had. And I would encourage you guys, as you have been a public company for some time now, and have gotten your material weaknesses under control, and have built up your finance department, that you push back very hard on them, because I don't see any other firm paying anywhere near what you are paying given your size and given the business that you guys operate.

We hear you loud and clear. This benchmarking, that's something we have talked about that I think we're going to come to our auditors with saying, look, here is what other companies are paying. We agree with you. We do feel that we are out of sync. The only thing we can say is that I think that this kind of a hangover from when we first became public we got slapped with what was it, Chris, 11 material weaknesses, and that's been sort of a hangover. But we hear you loud and clear. I absolutely agree with your observation, and trust me, we will be having conversations with our good partners who audit us to try to get us back into more of a market rate.

To be clear, if you guys come out and say we're changing auditors because we are being charged too much, no one is going to penalize you for that. I mean a lot of times there is some fear around changing auditors; but given the egregious fees that you guys are paying, I don't think any investors would be concerned if there were a change at this point. On a separate issue, I did want to bring up some of the kind of investor relation practices of the company, just some feedback, mainly just in a public forum maybe for the Board to hear as well, there's a few things that I have a little bit of issue with and I just wanted to air them here.

Sure.

First, I'm indifferent to whether or not you guys provide guidance, so none of this is around your guidance policy, but a few things. I do think if you're not going to provide quarterly or annual guidance, which again indifferent to, I do think it's important that the company have longer-term goals that they espouse to the market and are held accountable to over a multi-year time frame. Short-term investors are not going to like that. But long-term investors, those who hopefully are your larger investors, want to see that you guys have benchmarks that you are aiming for and we can gauge your success or failure against those over time. I don't see any reason not to do that. I don't think that hurts your Company in any way, and it certainly provides, I think, appropriate goals to be measured against over time. Second, if you guys are going to provide annual revenue guidance, it seems to me a much more valuable benchmark would be revenues net of excise taxes. You have no control over those excise taxes and they should not be factored into whether or not you guys are "meeting or beating your target." So I would encourage the benchmark that you use to be net revenues. I would also encourage the company to use that in their compensation plans as well, because again that is something you don't have control over. The VP of Western distribution operation should not necessarily be penalized or aided by the fact that excise taxes were high or low in a particular year. The other thing I would like to raise is that I know of no other company out there that has this two-day gap between when you have your conference call and when you report your numbers. I don't know what the reason is, but whatever the reason is, I can't imagine it is a particularly good one. In those two days in between, you have the potential for the disclosure on a selective basis to certain investors and not to all investors to certain information, and you eliminate that risk if you have your conference call within, let's call it 12 hours of when you report your results and all the information is disseminated at the same time.

Okay, good observation. By the way, I just will comment on our MBOs. We do adjust; we don't let anybody in management get some kind of windfall because there was a huge unplanned excise tax increase in one of the states. We do do that.

Great.

But I hear you. Good comments. We will follow up.

Thank you.

Our next question comes [Tom Samik from Hydrotech]. Please go ahead.

Recently the company stopped delivery of milk to 600 Max stores in Ontario only after two months of operation. And I was wondering what does that mean for the future of the VCI strategy that you spoke about in the last conference?

It will not have any bearing on the VCI strategy. That was a unique situation that was created by a miscommunication of specifications. Let's just put it this way. The timing of doing the milk was not appropriate for us at the prices they believed were that we did. And it got to a point where we just simply couldn't do it for the price. It was just a misunderstanding. So the dairy is now doing the milk. But that has nothing to do with the long-term view of the economics of vendor consolidation. That's sort of a unique situation.

I have a follow-up. If things were to deteriorate further for you in Canada, would you consider exiting the Canadian market?

That is a hypothetical question. We are not dogmatically tied to anything, anytime, anywhere. We're going to do what we think is in the best interest of the business. But I'm certainly not at that point with Canada. Canada has over the years proven to be a profitable contributor to the overall company. We still believe that the potential is there for us to return to that profitability. You would have to say there's been some rather unusual events that have gone on in the Canadian marketplace in that industry that has caused ripples in the pond for all of us. But we think it would be premature to start considering just doing something that dramatic. I mean we're in business to make money and to get a return on our investment. Other than that, there are no rules other than doing it legally, ethically, and morally.

Thank you.

(Operator Instructions). And at this moment we don't show further questions in queue.

Well, I'd just like to thank everyone for joining call. If you have follow-up questions, please give me a call. Thanks.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.