Welcome to the fourth quarter investor call. My name is John, and I'll be your operator for today's call. This call is scheduled for 60 minutes in length. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Milton Draper. Ms. Draper, you may begin.

Thank you, John, and welcome, everyone. I would now like to read the statements 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 10-K, our 10-Q and our press releases. We undertake no obligation to update these forward-looking statements. We are holding this call to review our fourth quarter results and to answer any questions you might have. If you have additional questions after this call, you may call me at (650) 589-9445. Joining me today is the Chief Executive Officer of Core-Mark, Thomas Perkins; and our 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 lineup for the call today is as follows: Tom Perkins will discuss the state of the business, our strategies and opportunities ahead, followed by Stacy Loretz who will go into some details about the financials. We will then open up the call for your questions. Now, I would like to turn the call over to our CEO, Tom Perkins.

Good morning, everybody. Before I get to the results, I want to say a few words. I feel very fortunate to have been promoted to CEO at a time when the company is in such a healthy position as we enter our 125th year in this business. I am very thankful to Mike Walsh, our former CEO, for all that he has done for this organization, and I think the shareholders feel the same way. It is now my responsibility to continue this legacy and take it to the next level. I embrace that challenge. Now, a brief review of the 2012 financial results. First and foremost, we achieved our EBITDA guidance of $102 million after backing out conversion and start-up costs for our recent acquisition. Both sales and EBITDA increased by roughly 10% and were record results. A significant portion of 2012 revenue growth was generated from the new contract we won in our largest customer in the Southeast from Forrest City acquired in May 2011. Overall, our strategies are working well, resulting in healthy growth and very sharp increases in certain targeted non-cigarette categories. Our non-cigarette sales grew at about 15%. And excluding our expansion activities, non-cigarette sales grew 6.4%. Remaining gross profit for our non-cigarette categories increased over $32 million. [Technical Difficulty] I'll just go back over the last sentence. Remaining gross profit for our non-cigarette categories increased over $32 million or 11% for the year despite an almost $4 million reduction in inventory holding gains. Cigarettes remaining gross profit increased about $12 million and excludes cigarette holding gains, which were relatively flat. The earnings improvement was driven by healthy sales growth in the higher-margin categories. Operating expenses as a percentage of sales were essentially flat excluding onetime items. We did experience higher operating expenses during the…

Great. Thank you, Tom, and good morning to everyone. I'd like to start with a brief discussion of our earnings per share. Diluted EPS for the fourth quarter was $0.83 compared to $0.45 last year. Or for those of you who model EPS, excluding LIFO expenses, this translates to $0.90 for the quarter compared to $0.75 last year, a 20% improvement. For the year, diluted EPS, which exceeded our guidance, is $2.91 compared to $2.23 for 2011, a 30% increase. On a FIFO basis, we earned $3.55 this year compared to $3.17 in 2011, a 12% increase. We had guided to a FIFO range of $3.53 to $3.63. However, our guidance does not include the costs associated with the Davenport acquisition, which lowered our earnings by approximately $0.09. In addition, the impact of lower inventory holding gains across all categories this year versus last of about $10 million equaled about $0.51 per share for comparative purposes. For 2013, we are guiding to an EPS range between $3.10 and $3.25, which includes an estimate of $16 million for LIFO expense, a 40% tax rate and 11.8 million diluted shares outstanding. We expect an increase in LIFO expense as we do not expect to lower LIFO inventory levels further and we expect some inflation from then nontobacco manufacturers this year. The $3.7 million year-over-year increase in LIFO expense has the effect of reducing our EPS guidance by about $0.19 on a GAAP basis. Excluding LIFO expense, our 2013 EPS guidance translates to a range of $3.90 to $4.05 per diluted share, a 10% to 14% increase over 2012 results. I think it's worth mentioning that we generated sufficient excess cash in 2012 to purchase Davenport, pay out dividends of $0.89 per share, including the 2013 Q1 dividend we accelerated into December and…

[Operator Instructions] Our first question comes from Andrew Gadlin from CJS Securities.

Wanted to ask you about your guidance and some of the components that go into it. Your guidance basically calls for about a $10 million to $13 million increase in EBITDA and I want to know how much of that is from Davenport inflation expectations, if there's any, and just organic sales increases?

We always plan some inflation, moderate inflation for the year in our guidance numbers. Definitely, Davenport is a big contributor to our increases in the revenue line and also in the EBITDA line. I would say about 4% is organic growth for next year and the remainder would come from the acquisition and also potentially any other large account wins we may have.

And in terms of the inflation, the modest inflation expectations, included in that guidance, is it more kind of a reversion to -- or a repeat of this year or a reversion to, longer term, what it has been?

We're looking for a return to normal inflation patterns. I think definitely what Stacy said and I've echoed, was that we really did have anemic inflation in our non-cigarette categories in 2012. And I think as we look out in 2013, we anticipate that getting more back to the normal levels.

Our next question comes from Ben Brownlow from Raymond James. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: Just to follow up on the guidance. How much inventory holding gains do you have included in the EPS guidance and same, I guess, with the stock option expense?

We have a moderate price inflation in the guidance.

And cigarettes, I would just -- Ben, I would just have you -- point you to historical levels. We usually, when we're looking forward, we're looking at historically what we've earned and we'll factor that into what we expect. And just on the food/non-food, we're expecting it to be a little bit higher going into 2013 just because of our expectation that the food manufacturers are going to have to pass through some of that costs. And your second question was related to stock comp, I believe? Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: Yes.

And I would assume a similar level as the current year, maybe a slight increase. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: Okay. And on the first quarter softness, is that weighted towards any specific category or broad based, and how would you characterize the demand as you progress through the quarter?

I think it's broad based right now. I've had -- we're seeing ourselves and I've had many discussions with similar key customers and they're seeing it. I think that it's sort of a consumer sticker shock where I think the customers, in particular, at the convenience stores, they see the higher fuel costs and it takes them a little bit of time to absorb and get accustomed to the higher price they pay for fuel. But I anticipate that as we progress throughout the end of this quarter and into the second quarter that we'll get back to those -- more of those normal sales patterns that we anticipate.

Our next question comes from John Lawrence from Stephens.

Tom, would you dig a little bit into the non-cigarette category? I mean, let's talk about the initiatives a little bit. You talked about the tool. Can you talk about the process that's -- how the tools are being implemented and maybe give us examples of what you're seeing as far as with some customers sets of how successful that's been?

We've been -- last year, we talked about how we've gone out and we've trained our territory managers, which really are key salespeople on the field on what we call concept selling, which is vendor consolidation, which is here's all the benefits from consolidating vendors on our trucks and here's the end goal is to increase your frequency of deliveries, gets you into the Fresh business, which your consumers are demanding and which will increase your profits at store level. And so we've gone through that process. We've developed internal systems, automated systems for our sales force to use. And so now what we've seen, we've been in this probably for about 2 -- a little over 2 months now, we're starting to get more and more traction. It's definitely a more harder sell to the independent retailers than the chain stores. I think the chains get it, vendor consolidation. And I think you're talking to, let's say, one person that covers a large number of stores whereas now it's an individual one-on-one conversation with independent retailers, I think they get it, but I also think that they also are dependent upon DSD suppliers for some of their labor at store level. So it definitely is a conversation that takes a little bit more time than you would expect. But right now, it's too early to tell. Right now, where we are, we do have quite a few customers, I would say, in excess of 500 customers that are in this, in our what we call our concept selling, a black box at some stage. And so I anticipate that just gathering steam as the year progresses and as our TMs get more and more comfortable selling the concept to our independent retailers.

So the tool itself, Tom, is helping you sell to more people more often? Is that the end result of the product end of that?

Yes, the end result is basically allowing -- telling them to go to an independent retailer and tell them that we can provide them the same product at the same price they buy today from DSDs, increase their numbers of deliveries and at the same time save them money on cost of goods through a dividend. And so I think that's a great story. And one of the things we try to do is try to improve our independent retailer's business because what we know is that they don't make as much money as the chain stores do and they miss those opportunities, so we're there to help them.

Our next question comes from Chris McGinnis from Sidoti & Company. Christopher McGinnis - Sidoti & Company, LLC: I guess, just on the -- Stacy, I think you mentioned that the increase in the margins on the non-cigarette, that's going to come down with the acquisition? Is that margin that you just put up, is that, I guess, a longer-term margin if you're not making acquisitions? Or could you higher than that, I guess, once -- just with all the different programs, just trying to get a better sense of that.

I think, Chris, I think the expectation is that they would go higher than that because we are growing our higher-margin non-cigarettes categories at a much faster pace than our cigarette category. And so if we didn't -- if everything was apples-to-apples and no acquisitions or no major account wins, large account wins, we would see that increase and probably that increase will get larger as the years progress.

And certainly, also would be benefited by a little bit of inflation because the inflation is definitely suppressing what our actual earning power is. Christopher McGinnis - Sidoti & Company, LLC: And then just on the acquisition of Davenport, they already have a fresh program in and can you maybe just maybe talk about, I guess, what you bring to them that's a little bit better?

They don't have a fresh program in. They were doing dairy on their trucks. They did have 3 temperature compartments on their trucks. They are actively bringing on our programs and really they're out and they source a commissary for fresh sandwiches and for fresh salads in that. So they are actively engaged in growing their fresh business, but they hadn't really been in prior to the acquisition.

[Operator Instructions] Our next question comes from Nelson Obus from Winfield.

I'd like to drill down a little bit in terms of the operating leverage that has been kind of very slow to come around. And let's start with health care costs. I'm very clear that this was a problem a couple of years ago and it appeared to have been brought under control. But it sort of just now raised its head again like Dracula and I wonder if you could discuss what's going on there because I thought we'd sort of put that behind us. Do we have a wellness program and what's our thinking there?

One thing I might mention, Nelson, just before -- certainly in the quarter, we had a tremendous impact but almost the entire increase in health and welfare occurred in the fourth quarter and a lot of that has to do with the timing and severity of claims that occur when they occur. But year-to-date, just to give you scale, the impact to operating expenses was only about 2 basis points. So year-to-date, it doesn't seem that out-of-control to us. We certainly are looking at the health and welfare programs on a regular basis and introducing a lower cost type of program to our employee base and trying to migrate employees from the higher-cost programs to the lower-cost programs. We have implemented wellness and we are working with outside consultants.

Right -- and exactly right. And I think what we've -- the focus we've had is that at our division level and improving their knowledge of how they in turn can control their own divisions' health care costs by utilizing our outside providers, doing wellness meetings, et cetera. So I think, again, the fourth quarter, we had -- it was a very tough comp because we were abnormally low in the fourth quarter of 2011. But like Stacy said, I think, for the year, I think our health care costs were okay. We didn't see any significant spikes. And so I think we're doing all the right things, Nelson. It's just a matter of timing, like Stacy said, on when those claims hit and when the severity of the claims hit.

Is this the kind of thing were a random claim or 2 can really move the dial?

Yes, absolutely.

Okay. Hey, look, I'll help you look at this as one question because I think it's all related to operating income. So the second part is the whole issue of, I guess, what I would characterize as long-term positives that have short-term drag and those would fall into 2 categories. One is extending your geographic footprint and the other would be, which is just something you mentioned that I hadn't really focused on that much, would be opening up a large account. So let me first start with expanding your geographic footprint. Isn't it true that we're sort of everywhere now, I mean, maybe except Appalachia or something? Let's start with that.

Well, Nelson, that's interesting to say. We are everywhere and we deliver to all 50 states and the provinces up in Canada up to Québec. But I think we have opportunities, synergistic opportunities, in geographies where we can actually lower our cost of service. The J.T. Davenport acquisition definitely filled a hole we had in really in the mid-Atlantic states, the Carolinas and Virginia and West Virginia areas. I think the last real hole that, that is apparent to us is up in the Ohio, Indiana area because we do service all those areas. It's out of our divisions but, it would be nice to have a division right centrally located there and we would definitely see some synergistic savings by doing that.

Isn't it true that if you were to double up in a geographic area, which what you'd call synergistic, that would have a less short-term impact on operating margins, or am I wrong about that?

Definitely, you would see it in the long term because once -- it would take a year to convert them. And then what we would do is we would rationalize the customer base. And then we would move customers from one division to another. And so you acquire the company, you get them converted into our systems probably over the first 12 months of that time period of that acquisition. And then the longer term is when you start to -- you implement our systems; in the second, you start to see savings from our systems implemented in their warehouses and in their delivery vehicles; and then we move customers and rationalize the customer base and that's really where the synergies come from when we open up a new division in a geography that we need sort of more density, again closer to the customers.

Okay, so there'd be some short-term effect.

Yes.

The second factor would be they're opening up a whole new customer base in nontraditional locales or a landing a big kahuna chain that you don't have now, and I assume there's not much you can say about that in terms of short-term compression on operating margins because that would vary depending on the arrangement you struck. Is that fair?

That's a fair statement. It would definitely -- it'll be based on the customer, their product mix, where they're located, et cetera. Yes, that's a fair statement.

Is it at all possible to make a statement about which factor, i.e., new customer versus new geographic area would in the average have more of a dampening effect on leverage -- on operating leverage?

Nelson, I don't know. I guess it would all depend on the specifics of the customer.

Fair enough, fair enough. I just want to say one thing and I just hope everybody understands it within the company and I think the shareholder base ultimately would feel more in agreement with what I'm about to say that obviously the incredible free cash generation of this company is a very, very positive thing that makes everybody quite enthusiastic about the company. But I think it would pale in relationship to what the reaction would be if we were to see a modicum of operating leverage. And I think you'd get a double whammy of both increased earnings and an increased multiple, and I just think that's an important goal to look at. And I'm not sure that whole operating leverage metric was broken out that much in the earnings -- in this release, but I do think that's the key metric that would create operating -- that would create earnings multiple expansion. And we're perpetually looking for it and hopefully you'll nail it down.

Thanks, Nelson. Yes, one of the things, and I think that as we move, our growth is in the fast -- is faster and more than the cigarette categories versus the non-cigarette categories, which are higher-margin categories. And so we -- I tend to look at and I think a more applicable metric is, one, is looking at a cost-per-cube basis because the sell point on a non-cigarette categories are lower than cigarettes. So the percentage of sales is impacted from that perspective. But the real -- the testament is are we growing our profits at a faster rate than our expenses? And so I look at operating expenses as a percentage of our gross profit. And if I look at that in the quarter and also the year, we do show improvement in growing our profits at a much faster pace than our expenses. So never happy, always want to leverage and leverage our expenses more and we did have some hiccups in 2012 that we're going to ensure we don't have this year. But again, that's a good metric that I use, is looking at expenses as a percentage of gross profit because I think that really tells the story as we grow our non-cigarette, higher-margin products and the expenses are a little bit more to handle those products.

Well, look, I know it's not going to happen overnight. I'm very glad to hear that that's an important metric for you. And frankly, I think you bring some unique skills to increase the likelihood that we see that over the next couple of years. So good luck.

Our next question comes from Chris McGinnis from Sidoti & Company. Christopher McGinnis - Sidoti & Company, LLC: I just had one follow-up question. I know it's probably early, but just on the Affordable Healthcare Act, any thoughts on how that may help or hinder how you're positioned for that?

Right now, we're good for up until 2014. We've established everything that needed to be established with -- and a lot of the stuff we were doing already in our health care programs. We definitely are involved right now in detailed studies on the impact for the next 5 years to that. But at this time, I don't have all that detail yet. But for the next year or 2, I think we're fine. We're not going to see any major impact to our health care from that.

And we have no further questions at this time.

Well, thank you for your participation in our conference call and for interest in Core-Mark. We are pleased with the results of the year and believe that 2013 will be another terrific year for the company as we work hard to leverage our competitive advantages and to grow sales in higher-margin categories. If you have any additional questions, please feel free to give me a call at (650) 589-9445. Thanks, John.

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