Welcome to the Second Quarter Investor Call. My name is Chris, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the call over to Ms. Milton Draper. Ms. Draper, you may begin.

Thank you, Chris, 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 second 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, everyone. I would like to begin with a brief overview of the quarter and then discuss the industry and our strategies. We have generated solid sales momentum in the second quarter with the addition of Turkey Hill, which rolled out in the middle of May. Sales for the quarter increased 10% driven by a 14% increase in non-cigarette sales. I was particularly pleased to see the robust sales for the non-cigarette products that are such a critical component of our key strategy and tactics. The same-store non-cigarette sales increased 6.8% on healthy demand by the consumers and by the positive impact of our FMI, VCI and Fresh programs. The sales momentum continues with the recent win of Rutter's, which we began delivering from our Pennsylvania division a few days ago. In their press release, Rutter's indicated that we were chosen as their supplier because of our capacity to deliver more frequently, with shorter fulfillment times and superior category management skills. As you can imagine, we were very pleased to see that public endorsement, and we will do everything we can to service this important retailer to the best of our abilities. The healthy pace of the growth in sales in the second quarter generated 11.7% increase in our gross profits. Non-cigarette remaining gross profits, which grew 14%, was the primary driver. Non-cigarette margins were up 4 basis points or 12 basis points excluding the compressing effects of the new Turkey Hill business. As we move our organization towards selling of higher margin non-cigarette items, we are going to incur additional operating costs, particularly as measured as a percent of sales. That being said, we continue to monitor these metrics, which did increase 6 basis points in the second quarter. We also watched cubic feet data to measure operational…

Thanks, Tom, and good morning, everyone. The second quarter results were strong, and we are on pace to meet guidance in all respects. Adjusted EBITDA for the second quarter increased 9%, and year-to-date was up about 4%. The second quarter more than offsetting soft first quarter results. Year-to-date, adjusted EBITDA was $48.4 million and represents about 42% to 43% of our annual guidance, which is $112 million to $115 million for the year. We expect our current momentum and new contract wins will tip the back half of this year and allow us to deliver our EBITDA guidance. Diluted EPS for the second quarter was $1.01 compared to $0.87 last year, a 16% increase. Excluding LIFO expense, EPS was $1.20 for the quarter compared to $1.09 last year, a 10% increase. Year-to-date, diluted EPS was $1.23 compared to $1.18 last year. Excluding LIFO expense, EPS was $1.57 versus $1.54, the second quarter making up and surpassing our first quarter GAAP as expected. We are still forecasting diluted EPS between $3.10 and $3.25 for 2013, which includes an estimate of $16 million for LIFO expense, a 40% tax rate and 11.8 million diluted shares outstanding. 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. Moving onto the details for the quarter, sales reached $2.5 billion in the second quarter, an increase of $223 million or 9.7%. Cigarette sales increased 8% for the quarter, and carton sales increased 7.6% driven by the addition of our Carolina division and the new Turkey Hill contract. We also saw a cigarette price increase at the beginning of June that increased our sales and cost of sales. Cigarette product sales increased 10.5% compared to cigarette excise taxes increasing only…

[Operator Instructions] Our first question comes from Andrew Wolf. Andrew P. Wolf - BB&T Capital Markets, Research Division: Wanted -- do you have any theories on why there's no inflation in food or in the other categories or very little? Do you think it's more of the input cost and the sort of cyclicality of energy prices being down and Ag prices? Or do you think it's some kind of competition with the vendors, and they're just keeping the prices low and absorbing any -- factor costs into....

I think it's probably -- Andrew, I think it's a combination of all of the above. I think one of the things we have seen is we're, in particular with candy manufacturers, where they're actively reducing their pack size, but yet maybe keeping their cost at the same level. But I think one of the -- you could surmise that they're helping to offset their cost increases by doing that. But it is -- I think it's a combination of everything. We had anticipated with the drought last year and commodity prices increasing because of that, that we would see some inflation this year, but it just hasn't happened, and we're not hearing any rumbling from our manufacturing community out there about it happening in the near future. Andrew P. Wolf - BB&T Capital Markets, Research Division: The pack-size thing has been going on for a while.

I think that's the way that they can really offset any smaller incremental cost increases. I'm sure if there was big commodity increases that I don't think they would be able to do that through pack -- smaller pack sizes. Andrew P. Wolf - BB&T Capital Markets, Research Division: On the Rutter's farm pickup, is that related to a competitor kind of leaving the market, or is that more related to pure pickup on, on some of the other attributes?

They were with another distributor for many years, and they were looking for a new supplier to partner with them going into the future. And so that was basically being able to convince them, and by sharing with them how we go-to-market, what our strategies are, which aligned with their strategies. And so we're really excited that they chose Core-Mark. Andrew P. Wolf - BB&T Capital Markets, Research Division: I don't know how much you're willing to share this, and I can understand competitively, but would you say where price versus VCI and Fresh, and particularly, Fresh and factor -- the attributes Core-Mark brings that maybe others don't in a differentiated manner versus price, and not necessarily here, but just overall, how much, when you win a bid or maybe don't win a bid, how much that factors in?

In every bidding situation, we know we have to be competitive, right? Because this is just a competitive business. But secondly and probably more importantly is our flexibility and our strategies, which are really focused on increasing the customers' profitability. And that's really #1. And I think what pushes us over the edge, I believe if we're competitive from a pricing perspective, what pushes us over the edge when we win major accounts is because of that. The focus on the customers' profitability in partnering with them to deliver on their key strategies, but then also our flexibility to get it done. And I think that in our past wins, I think that's really what has driven those wins. Andrew P. Wolf - BB&T Capital Markets, Research Division: And just one last question, and I'll get back in the queue. Tom, you mentioned the variable contribution rate being about twice that. Is that -- when you talk about that, is that for the -- just for the Fresh, or is that for all of the non-cigarette? And I guess to some extent, you've [indiscernible], it looks like maybe this quarter didn't quite come through that way, and you're seeing a lot of that as mix and data your getting at Turkey Hill. But it also sounded from Stacy's presentation that while you had a lot of individually nonsignificant cost increases that maybe if you added them all up, it might have been a little more -- might have meant something. So if you could reflect on that, and that's it for me.

A couple of things. We talked about really our, the mid-variable contribution, 2x greater than our normal, it's really when we talk about our Fresh and our vendor consolidation items, in particular, dairy and bread and usually those other categories we take away from DSD suppliers. And that's 2x greater than our traditional C-store mixes. So I think as we continue to grow, as Stacy said, our Fresh categories grew 20% for the quarter, we'll continue to see the margin to increase now. It does happen when we do have a large win like a Turkey Hill and/or a new acquisition. We do see the pressure in our margins until we start to either develop the vendor consolidation and Fresh opportunities and/or in both the new account wins and also in our new acquisitions. As far as the cost, as we sell 6% more cubes, we definitely are going to incur higher costs. Now, the metric, I think, is important really from a warehouse and delivery is that cost per cube metric because I think that really tells us, are we leveraging those additional cubes through our system? And I think in the second quarter showed that. Secondly, at the end of the day is our goal is we have to grow our margins faster than our expenses. And I think as we saw the 9% growth in EBITDA, I think we're showing that we're doing that. So we definitely are moving in that direction. The other thing, too, is there is an investment in our sales force. And we definitely have spent more training, more development, more time with our territory managers because, again, this is an investment in the future, and it really is all about our independent retailers and making them relevant in the industry. And so we really need to take all of the things that our best-in-class retailers are doing and really get those into our independent retailers. And so definitely there is an investment we're spending in our sales force.

Our next question comes from Ben Brownlow. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: Tom, I think you said in your prepared comments that you were working on an acquisition for later 2013.

Yes, we always have activity going on. And as you know, Ben, it takes 2 people to tango, right? And so it's early stages, and hopefully, we'll have something. But it's just 1 of those things we could see until the final agreement is signed, nothing's for sure. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: And that is an acquisition of a broad-line distributor, it's not an account win.

That's correct. We always -- yes. Definitely, when we talk about acquisitions, we were speaking of a broad-line supplier, right? And that's not to say we don't have some account wins that we're working on also, because we always have a pipeline full of those. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: In the past, you said there's still holes, especially in the Midwest and kind of East of Mississippi to fill, is that still a fair statement?

Yes. I think if you look at our geography, I think that we definitely have offset some of the opportunities, the great opportunity lies. Because again, I think as I talked about, it's really, for instance, our acquisition of J.T. Davenport versus our new Carolina division. Really what that does for us is improves -- it will improve once we convert them on our systems -- our logistical -- from a logistics perspective. And so I think that's where the Midwest would really where we could get some great efficiencies from, if we had an acquisition in the Midwest. Benjamin Brownlow - Raymond James & Associates, Inc., Research Division: If you could just take a moment and kind of highlight what you've done with the Carolina division, under the major system conversion of this fall. But where are the expected cost, if you can break that out with the conversion, and how does it rank relative to the other divisions and just kind of highlight what the major milestones have done since that acquisition?

So, so far, today, everything is geared towards preparing them for the conversion from their systems onto our systems. And that means it's from inventory to invoicing to pricing to financial statements, right? So a lot of work is being -- a lot of preparation work is being done at the division to prepare them for that. In addition, the division is out in the marketplace, communicating with their customers. We had to go through a retagging process because we have different item numbers. So we have to prepare the customers from that perspective. On average, I would say when we do a conversion like this, it ranges from $1.25 million to $1.75 million, on average. And so that -- and again, keep in mind that we have to -- not only are we converting them to the system, but we have to then train all their employees on the new system. And so we definitely fly in a lot of our best warehouse people and our drivers, et cetera, to help them. The other area is marketing programs. Now they've been out in full force for the last 3 months, really incorporating and selling our marketing programs, including Arcadia Bay Coffee program, our SmartStock program, et cetera. So from that perspective, they're ahead of the ballgame, as well as to get the kind of local commissaries signed up, so they could start delivering fresh salads and sandwiches, et cetera.

Our next question comes from John Lawrence.

Tom, would you discuss a little bit the flow of the quarter? I mean a little softer first quarter, picked up in the second quarter. Talk about that sort of geographically and what happened in the regions and when you saw that real pickup start to happen?

I think one of the things we saw in the first quarter, in particular, was we saw a very weak cigarette cartons across the board. And I think even the manufacturers indicated that also in their public communication. And then as we entered into March, we really saw the cartons get back more in line to what the anticipation was, so that was good. That was 1 of the key issues that we had in the first quarter. Secondly is we just -- there wasn't a lot of foot traffic at the convenience stores. And I think for a variety of reasons, people talked about the weather, they talked about gas prices. They talked about the tax that went to -- the employee tax that went into effect in the first quarter. And I think as people -- as the consumers really sort of absorbed all those, I think we really started to see some improvement in March, and then it just continued on into April. And it continued to grow as we went through May and June. And of course, adding Turkey Hill in the middle of May and then having the full month of June also assisted us.

And was there any particular part of the country was that deviation was wider?

I think that, definitely, versus -- if you look at it versus last year, I think definitely, the Northeast suffered more than the Northeast this year versus last year because I think last year, I think if I remember right, really they didn't really have a winter. And this year they did. And so it's taken them a little longer to get out of those doldrums than probably the rest of the country.

And secondly, on the -- when you talk about VCI, and I guess, you got the number right. $26 million in the quarter, $36 million year-to-date, is that right?

That's correct.

So did that $26 million just -- was June the strongest month of that? I mean is sequentially just on a weekly basis getting better?

Yes, it is getting better. And it's interesting because as we go forward throughout the year is Hostess, which was a huge DSD vendor, right, within the C-Store channel. Well, I think they -- unfortunately, it was a failed business model, and that's why they filed bankruptcy. And so now, they realized that the way to get their product into a larger share of the market is through the wholesale suppliers. And so we started selling Hostess in July. And as they get their production correct, I think we'll continue to see that growth in that area, which will just help us -- which will help that VCI and Fresh number grow.

Great. And then last question, you touched on acquisitions a little bit. Can you -- you have any comments regarding the channel blurring we've discussed and you've talked about publicly? Any -- do you see anything there that, that trend over the last weeks and months have gotten any stronger, the desire on these players to want to move that direction continues increase?

I think that indications are -- and I think they want to move that way. I just think that, again, it's like that big oil tanker on the ocean, right? I mean if you want to make a 5-degree turn, you've got to start a week ahead of time just to turn the ship. And I think when they're -- and it is a risk, right? So it's probably the right thing to do. So I think it takes time to develop and then make sure that it's the right decision. So yes, I would love to have it quicker, but unfortunately, it isn't.

But those discussions continue?

Those discussions do continue.

Our next question comes from Chris McGinnis. Christopher McGinnis - Sidoti & Company, LLC: Just a question, Tom, I think you referenced the black box that your -- this new kind of data that you're bringing customer base. Can you just maybe expand on that? It sounds like you were maybe a little disappointed with the growth of the VCI, or maybe it's -- some of it's not working? How does that, how is that helping that 1,000 store base that you've already [indiscernible]?

I liken it to our focus marketing issue with FMI. So when we rolled out FMI, it's a culture and behavior change, for not only our sales force, right, but also for our customers, especially independent customers. Because the independent customer tends to be 1 close with the vest with information. They also tend to be skeptical and as to really, are you helping me? And thirdly, especially when it comes to consolidation is -- sometimes the DSD vendors do provide a lot of in-store labor for their stores. And so as we take in this concept in this program out to the market with their territory managers, as you can imagine, there's a lot of obstacles and barriers to overcome. And so we're seeing stores that we're getting DSDs consolidated under our trucks, but not at the level that we need to or we would expect to. And I think it's because there's some tentativeness on our independence. And to say, well, let's see how this works first before I give you any more DSD vendor information. And so it's definitely a work in progress, it's very early. We've been after this probably a little over 6 months in the field. And so just like anything is everyday we learn something new, we come up with a different tactic, a different selling strategy for it. And I expect and am optimistic that, that we'll continue to grow with that, and we'll continue to add volume from DSDs on to our trucks that are delivering to the DSD -- to the independent retailers. Christopher McGinnis - Sidoti & Company, LLC: And I guess with your prior experience of -- its been pretty successful obviously, with the rollout. Were they just early adopters that maybe was it the larger chains, and then -- it's just a little bit slow to adopt it?

It is, because I think when you're talking to a chain, whether it's a chain of 10 stores or 100 stores or 1,000 stores, you have decision-makers for all those stores. So basically, you're focused on selling the concept and strategy to that decision-maker who probably has a broader view of the world and what the opportunities are and what the synergies and the savings are. And so I think when you're talking one-on-one, it's the owner whose trying to run his cash register, et cetera, and trying to -- it's a concept that we're selling to this owner. And so it's a little bit difficult and it takes more time. Christopher McGinnis - Sidoti & Company, LLC: Just on Canada, can you just maybe talk about decline? Is that cigarette-related?

It is. I mean we did lose a couple of mid-sized chains last year, which are impacting that this year. In addition, we had some account issues that -- from 1 of our accounts up there from a bad debt perspective. But if you sort of normalize it for that base, they would have showed improvement versus last year in the quarter. We also have -- we've been investing in one -- some new business we brought on in the Western region, in the Western part of Canada. And also, we're investing in some infrastructure for some new business that we'll be bringing on board toward the latter part of the year. Christopher McGinnis - Sidoti & Company, LLC: And just one last question. I remember last year, I think in Q2 and then also it spilled into Q3, just over time, how is that? I know the summer, I think, has seemingly been a little bit -- or the weather's been a little bit, maybe favoring that. Just how did that play out, and has that issue creeped up at all --

It's creeped up some in July. But it's definitely better than it was last year. The one thing we do have is with the chain the size of Turkey Hill, when we bring that chain into our business, we do have incremental operating costs because we have, basically, 6 weeks to get that onboard, so we have higher, multiple number of employees in the warehouse in our delivery and transportation group, and your training them on the fly to get them ready to go. And so you tend to -- you definitely have a higher operating cost, which tend to leads into higher overtime in the divisions that handle that big volume. So definitely, we're better -- we were better in the second quarter than we were last year, and we're still better in July than we were last year. But that is just, that's 1 thing that, again, I focus on and consistently remind our Senior VPs and our Division Presidents and our corporate operations that we can't lose sight of that.

Our next question comes from Nelson Obus.

I had -- first, I wanted a clarification, then I had a quick question. In the conference call, you talked about a contract that put a little pressure on margins. And then later on in the conference call, you alluded to something that sounded very similar that you put Turkey Hill -- you tagged Turkey Hill. So are we talking about the same thing here?

Yes, yes. The Turkey Hill contract, that's correct. Because of the size of the customer.

And the second question is, so if I go into a Duane Reade and I see all this Fresh and everything else that's there -- at Walgreens actually, or any of that new initiative that you alluded to early in your comments. Who's doing the distribution at this point? Who do you have to supplant?

It depends on the chain you're talking about. For instance, I think in New York City, with Duane Reade, they have a third-party transport company that delivers the product from central commissaries. If you look at other chains, they're using a multitude of DSD vendors. So they have a dairy vendor, they have a fruit vendor, they have a sandwich vendor, et cetera. So again, they use a multitude of DSD vendors to deliver that product.

Is it the same value proposition that you would utilize in going after a convenience store, or is it slanted in a different manner?

It's the same concept because what it's about, it's about vendor consolidation and streamlining the supply chain. Because again, as we've seen in the convenience store industry is there are cost of goods savings, as well as in-stock level improvements and inventory level reductions, et cetera. So it's the same concept that works for these other alternative channels. It's all about vendor consolidation and really making the supply chain more efficient.

Got it. Just in a related area, I just -- I'm sure that the industry, the distribution industry has kept an eye on the decision that was probably made 1.5 years ago by Gatorade to get their own distribution. Have there been any sort of postmortems on that, essentially succeeded, in a sense that the company made an error in doing that? Because that was really sort of counterintuitive on their part.

I think that when they put Gatorade on their trucks -- I think if you talk to Pepsi, I think that they -- that was a success for them. But I am hearing rumblings that there are some of the other brands that were sort of consolidated onto the soft drink trucks are not doing as well. And because they're not the primary brand, they're off-ball [ph] brands. So I think again, I think Gatorade was -- I think Pepsi would say it probably is a win. And I'm not sure if their retailers have seen any detriment of that. But I do know there's rumblings of maybe not-so-good wins on other products that were consolidated in the soft drink trucks.

[Operator Instructions] At this time, we have no further questions.

Well, thank you for your participation in our conference call and for your interest in Core-Mark. The second quarter was very healthy and as expected. It's clearly back on track to reach our 2013 guidance. We continue to focus on the execution of our key strategies, which we believe will drive our growth and our market share over time. If you have additional questions, please feel free to call me at (650) 589-9445. Thanks, Chris.

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