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What changed in Core & Main, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Core & Main, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+478 added−613 removedSource: 10-K (2023-03-28) vs 10-K (2022-03-30)

Top changes in Core & Main, Inc.'s 2023 10-K

478 paragraphs added · 613 removed · 372 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

86 edited+9 added−13 removed35 unchanged
Biggest changeWhile pricing is important to our customers, availability, convenience, reliability and expertise are also important factors in their purchase decisions. In addition to many of our other capabilities, our ability to coordinate the logistics of on-time, last-mile jobsite delivery provides us with a competitive advantage over many competitors who offer a more limited selection of services.
Biggest changeIn addition, our project management capabilities provides us with a competitive advantage over many competitors who offer a more limited selection of services. 6 Pipes, Valves & Fittings Pipes, valves, hydrants and fittings are used in the distribution and flow control of water within water and wastewater transmission networks.
Our products are often installed while breaking ground on new lot development during the initial construction phase, though some products, like storm drainage, are used during both new construction and repair and replace activities.
Our products are often installed while breaking ground on new lot development during the initial construction phase, though some products, like storm drainage products, are used during both new construction and repair and replace activities.
Our award-winning training programs enable us to accelerate development of our top talent to drive profitable growth while maintaining a supportive and mission-driven culture. We intend to continue investing our already strong talent base by attracting and developing associates. Our training and leadership curricula and expanded diversity and inclusion programs drive high associate engagement and a positive associate experience.
Our award-winning training programs enable us to accelerate development of our top talent to drive profitable growth while maintaining a supportive and mission-driven culture. We intend to continue investing in our already strong talent base by attracting and developing associates. Our training and leadership curricula and expanded diversity and inclusion programs drive high associate engagement and a positive associate experience.
Our category management team has identified numerous opportunities to continue shifting spend to suppliers with the best pricing and payment programs in order to optimize supplier incentives to expand gross margins. Additionally, we have a specialized team dedicated to driving sustainable margin improvement through pricing analytics.
Our category management team has identified numerous opportunities to continue shifting spend to suppliers with the best pricing and payment programs in order to optimize supplier incentives to expand gross margins. 5 Additionally, we have a specialized team dedicated to driving sustainable margin improvement through pricing analytics.
Meters Our smart meters are used for water volume measurement and regulation and include automated meter reading and advanced metering infrastructure technologies. We offer multi-stage smart metering solutions to our customers, including meter installation, network infrastructure and software installation, training and long-term service contracts to deliver cost efficiencies to our customers.
Meters Our smart meters are used for water volume measurement and regulation and include automated meter reading and advanced metering infrastructure technologies. We offer multi-stage smart metering solutions to our customers, including meter accessories, meter installation, network infrastructure and software installation, training and long-term service contracts to deliver cost efficiencies to our customers.
We believe this allows each local branch manager to tailor his or her branch’s strategy, marketing and product and service offerings to address the needs of customers in each of their markets, while maintaining many of the benefits of our company’s scale.
We believe this allows each local branch manager to tailor his or her branch’s strategy, marketing and product and service offerings to address the specific needs of customers in each of their markets, while maintaining many of the benefits of our company’s scale.
Given our extensive geographic footprint and technical knowledge of products and local specifications, we believe we are best equipped to anticipate and serve local needs as well as large private underground utility contractors who require national reach and an extensive product offering.
Given our extensive geographic footprint and technical knowledge of products and local specifications, we believe we are well-equipped to anticipate and serve local needs as well as large private underground utility contractors who require national reach and an extensive product offering.
Our specialized fleet of delivery equipment allows us to deliver materials to our customers’ worksites in a timely and cost-efficient manner. We also offer direct distribution options to our customers on a wide range of products.
Our specialized fleet of delivery equipment allows us to deliver materials to our customers’ worksites in a timely and cost-efficient manner. 8 We also offer direct distribution options to our customers on a wide range of products.
Growth in our industry is driven by a broad array of factors, including municipal water infrastructure spending, water and wastewater utility rates, commercial construction, housing starts, population growth and other demographic trends.
Growth in our industry is driven by a broad array of factors, including municipal water infrastructure spending, water and wastewater utility rates, interest rates, commercial construction, housing starts, population growth and other demographic trends.
We strategically conduct business with our top suppliers in order to optimize our scale advantages, but we also have the flexibility to source the majority of our products from a number of alternate suppliers when necessary. 7 Our Competition The U.S. water, wastewater, storm drainage and fire protection products wholesale distribution industry, and the end markets we serve, are highly fragmented.
We strategically conduct business with our top suppliers in order to optimize our scale advantages, but we also have the flexibility to source the majority of our products from a number of alternate suppliers when necessary. Our Competition The U.S. water, wastewater, storm drainage and fire protection products distribution industry, and the end markets we serve, are highly fragmented.
Benefits Our comprehensive benefits program, “Live Well,” reflects our overall belief that benefits should address the whole associate experience, including health and well-being. We offer associates a comprehensive benefits package, which includes access to a concierge service to help them navigate their benefits. These efforts are representative of our focus on promoting a consistent, positive experience for all associates.
Benefits Our comprehensive benefits program reflects our overall belief that benefits should address the whole associate experience, including health and well-being. We offer associates a comprehensive benefits package, which includes access to a concierge service to help them navigate their benefits. These efforts are representative of our focus on promoting a consistent, positive experience for all associates.
Non-Residential We estimate that approximately 39% of our net sales in fiscal 2021 were directly related to clean water and wastewater infrastructure, storm drainage and fire protection systems supporting U.S. non-residential construction activity, including industrial, commercial, institutional, warehouse and multi-family development projects.
Non-Residential We estimate that approximately 39% of our net sales in fiscal 2022 were directly related to clean water and wastewater infrastructure, storm drainage and fire protection systems supporting U.S. non-residential construction activity, including industrial, commercial, institutional, warehouse and multi-family development projects.
Our mission is to serve as an industry leader, supplying local expertise, products and services to build innovative water, wastewater, storm drainage and fire protection solutions for the communities we serve. We support our customers and their communities in their efforts to find both short- and long-term solutions to conserve water and manage consumption.
Our mission is to serve as an industry leader, supplying local expertise, products and services to build innovative water, wastewater, storm drainage and fire protection solutions for the communities we serve. We support our customers and our communities in their efforts to find both short- and long-term solutions to conserve water.
Item 1. Business Our Company Core & Main, Inc. (“Core & Main” and collectively with its subsidiaries, the “Company,” “we,” “our” or “us”) is a holding company and its sole material asset is its direct and indirect ownership interest in Core & Main Holdings, LP, a Delaware limited partnership (“Holdings”).
Item 1. Business Our Company Core & Main, Inc. (“Core & Main” and collectively with its subsidiaries, the “Company,” “we,” “our” or “us”) is a holding company and its primary material asset is its direct and indirect ownership interest in Core & Main Holdings, LP, a Delaware limited partnership (“Holdings”).
We believe our ability to leverage our global sourcing capabilities and strong international supplier relationships, as well as the potential for automated distribution and logistics, will continue to create competitive pricing advantages. We are expanding our direct sourcing and distribution capabilities in order to drive further margin expansion in the future.
We believe our global sourcing capabilities and strong international supplier relationships, as well as the potential for automated distribution and logistics, will continue to create competitive pricing advantages. We are expanding our direct sourcing and distribution capabilities in order to drive further margin expansion in the future.
However, due to limited available funding over the last decade, the pace of investment has significantly lagged the need to upgrade water systems throughout the U.S. and has resulted in significant underinvestment in water supply, water safety and wastewater management.
However, due to limited available funding over the last decade, the pace of investment has significantly lagged the need for investment to upgrade water systems throughout the U.S., which has resulted in significant underinvestment in water supply, water safety and wastewater management.
We believe that we are well-positioned to grow our share with these customers due to our dedicated sales team that includes engineers and other experts who can provide significant insights on large, complex projects, including cases in which our customers are asked to design and build new water systems or wastewater treatment plans.
We believe we are well-positioned to grow our share with these customers due to our dedicated sales team, which includes engineers and other experts who can provide significant insights on large, complex projects, including cases in which our customers are asked to design and build new water systems or wastewater treatment plants.
Each branch carries approximately 4,500 SKUs on average, with many of them on hand as inventory and the rest available for delivery. Our branch managers have the autonomy to optimize their product and service offerings based on the local specifications, regulations and customer preferences within each local market.
Each branch carries approximately 4,500 SKUs on average, with many of them on hand as inventory and the rest available for delivery. Our branch managers have the autonomy to optimi ze their product and service offerings based on the local specifications, regulations and customer preferences within each local market.
Each region is led by a regional vice president who manages a multistate territory. This regional structure enables us to address the specific management, strategic and operational needs of each region. Our Distribution Network Our branch-based business model is the core of our operations and the primary component of our distribution network.
Each region is led by a regional vice president who manages a multistate territory. This regional structure enables us to address the specific management, strategic and operational needs of each region. Our Distribution Network Our branch-based b usiness model is the core of our operations and the primary component of our distribution network.
Core & Main is a holding company, and its sole material asset is its ownership interest in Holdings, a portion of which is held indirectly through CD&R WW, LLC.
Core & Main is a holding company, and its primary material asset is its ownership interest in Holdings, a portion of which is held indirectly through CD&R WW, LLC.
Municipal We estimate that approximately 39% of or net sales in fiscal 2021 were to contractors and municipalities for municipal funded projects, including the repair, replacement, upgrade and new construction of water and wastewater supply, filtration, storage and distribution systems. Municipalities establish local product specifications based on regulatory requirements and engineering standards.
Municipal We estimate that approximately 39% of our net sales in fiscal 2022 were to contractors and municipalities for municipal funded projects, including the repair, replacement, upgrade and new construction of water and wastewater supply, filtration, storage and distribution systems. Municipalities establish local product specifications based on regulatory requirements and engineering standards.
We intend to continue to pursue opportunities to strengthen our presence in metropolitan statistical areas (“MSAs”) where we have an established footprint as well as in certain underserved markets. We believe we are well-positioned to do so through our market intelligence and ability to attract and develop sales talent. We also intend to continue to selectively drive greenfield expansion.
We intend to continue pursuing opportunities to strengthen our presence in metropolitan statistical areas (“MSAs”) where we have an established footprint as well as in certain underserved markets. We believe we are well-positioned to do so through our market intelligence and our ability to attract and develop sales talent. We also intend to continue selectively driving greenfield expansion.
We face competition on a national level from only one other national distributor, but we are unique in our dedicated focus on the water sector. The remainder of our market is served by hundreds of regional, local and specialty niche distributors, and through direct sales by manufacturers to end users.
We face competition on a national level from only one other national distributor, but we are unique in our dedicated focus on water and fire protection infrastructure. The remainder of our market is served by hundreds of regional, local and specialty niche distributors, and through direct sales by manufacturers to end users.
Our sales representatives are highly experienced with in-depth product and technical knowledge, significant local insights and strong long-term customer relationships, all of which are critical to our success. On average, our field sales representatives have over 10 years of experience in the water, wastewater, storm drainage and fire protection industry.
Our sales representatives are highly experienced with in-depth product and technical knowledge, significant local insights and strong long-term customer relationships, all of which are critical to our success. On average, our field sales representatives have over 13 years of experience in the water, wastewater, storm drainage and fire protection industries.
Our fire protection products are typically installed at later stages of construction projects compared to most of our products and exhibit less seasonal patterns because they are generally installed indoors and are therefore less impacted by weather conditions.
Our fire protection products are typically installed at later stages of construction projects compared to most of our other products and exhibit less seasonal patterns since they are generally installed indoors and are therefore less impacted by weather conditions.
Our branch associates have the opportunity to earn competitive compensation through our performance-based compensation plans, which are based on local performance. We support our network of approximately 300 branches with the following company-wide resources: strategic accounts, product specialists, category management, sourcing, supply chain, finance, tax, accounting, pricing analytics, payroll, marketing communications, human resources, legal, safety and information technology.
Our branch associates have the opportunity to earn competitive compensation through our performance-based compensation plans, which are based on local performance. We support our network of approximately 320 branches with the following company-wide resources: strategic account management, product specialists, category management, sourcing, supply chain, finance, tax, accounting, payroll, marketing & communications, human resources, legal, safety and information technology.
Our smart meters and advanced metering technology provide labor savings benefits for our municipal customers and help reduce water loss through leak detection. Meter products accounted for approximately 8% of our net sales in fiscal 2021. Our Customers We have a fragmented customer base that consists of over 60,000 customers.
Our smart meters and advanced metering technology provide labor savings benefits for our municipal customers and help reduce water loss through leak detection. Meter products accounted for approximately 7% of our net sales in fiscal 2022. Our Customers We have a fragmented customer base that consists of approximately 60,000 customers.
Our sales force also includes a deep and dedicated team of nearly 200 technical product specialists at the national and regional levels who have expertise in specific product and service offerings, and who support our other sales representatives with product training and technical support.
Our sales force also includes a deep and dedicated team of over 240 technical product specialists at the national and regional levels who have expertise in specific product and service offerings, and who support our other sales representatives with product training and technical support.
We believe we can efficiently open new branches in geographies with attractive market trends given our highly capable talent pool, ability to capitalize on our scale and learning curve advantages based on past successes in entering new geographies.
We believe we can efficiently open new branches in attractive markets given our highly capable talent pool, our ability to capitalize on our scale, and learning curve advantages based on past successes in entering new geographies.
For specific smart metering, treatment plant, storm drainage and erosion control, or fusible pipe solutions, our sales associates partner with a deep and dedicated team of nearly 200 national and regional product specialists to assist customers in project scoping and specialized product selection.
For specific smart metering, treatment plant, storm drainage or fusible HDPE pipe solutions, our sales associates partner with a deep and dedicated team of nearly 240 national and regional product specialists to assist customers in project scoping and specialized product selection.
As of January 30, 2022, we have a network of approximately 300 branch locations in 48 states across the U.S, which serve as a critical link between over 4,500 suppliers and a diverse and long-standing base of over 60,000 customers.
As of January 29, 2023, we have a network of approximately 320 branch locations in 48 states across the U.S., which serve as a critical link between over 4,500 suppliers and a diverse and long-standing base of approximately 60,000 customers.
We have a balanced mix of sales across product categories, end markets and construction sectors. We derived approximately 39% of our net sales for the fiscal year ended January 30, 2022 (“fiscal 2021”) from the municipal construction sector, 39% from the non-residential construction sector, and 22% from the residential construction sector.
We have a balanced mix of sales across product categories, end markets and construction sectors. We derived approximately 39% of our net sales for the fiscal year ended January 29, 2023 (“fiscal 2022”) from the municipal construction sector, 39% from the non-residential construction sector, and 22% from the residential construction sector.
Demand across the U.S. non-residential construction market has historically lagged residential construction activity as commercial development is necessary to support new housing development. With the recent growth in residential housing, we expect non-residential construction activity to increase as communities expand and demand increases for our waterworks, storm drainage and fire protection products.
Demand across the U.S. non-residential construction market has historically lagged residential construction activity as commercial development is necessary to support new housing development. Over the long term, we expect non-residential construction activity to increase as suburban communities expand and demand increases for our waterworks, storm drainage and fire protection products.
In November 2021, the Infrastructure Investment and Jobs Act was signed into law, which includes $55 billion to invest in water infrastructure across the United States.
In November 2021, the Infrastructure Investment and Jobs Act (“IIJA”) was signed into law, which includes $55 billion to invest in water infrastructure across the U.S.
“Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Significant Events During Fiscal 2021”) and our holding company structure, see Note 1 to the consolidated financial statements included elsewhere in the Annual Report on Form 10-K. Available Information Our principal executive offices are located at 1830 Craig Park Court, St.
“Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Initial Public Offering and Secondary Offerings”) and our holding company structure, see Note 1 to the consolidated financial statements included elsewhere in the Annual Report on Form 10-K. Available Information Our principal executive offices are located at 1830 Craig Park Court, St.
Furthermore, the Infrastructure Investment and Jobs Act provides funding to protect against droughts, floods, heat and wildfires, funding to repair roads and bridges, and funding to create more modern and resilient airport infrastructure, which could provide sustained benefits for non-residential construction activity. 4 Residential We estimate that approximately 22% of our net sales in fiscal 2021 were directly related to clean water and wastewater infrastructure projects to supply and service U.S. residential construction activity.
Furthermore, the IIJA provides funding to protect against droughts, floods, heat and wildfires, funding to repair roads and bridges, and funding to create more modern and resilient airport infrastructure, which could provide benefits for non-residential construction activity over the next several years. 4 Residential We estimate that approximately 22% of our net sales in fiscal 2022 were directly related to clean water and wastewater infrastructure projects to supply and service residential construction activity.
We offer a comprehensive portfolio of approximately 200,000 stock keeping units (“SKUs”) covering a full spectrum of specialized products and services, including pipes, valves & fittings, storm drainage and erosion control solutions, fire protection products and fabrication services, and smart metering products and technology. Our products are unique to our industry and are tailored to local specifications.
We offer a comprehensive portfolio of more than 200,000 stock keeping units (“SKUs”) covering a full spectrum of specialized products and services, including pipes, valves & fittings, storm drainage products, fire protection products and fabrication services, and smart metering products and technology. Our products are generally unique to our industry and must meet local specifications.
Examples include the advancement of smart metering and fusible HDPE solutions to waterworks customers, fabrication and kitting assemblies for fire protection contractors and new water retention and erosion control products for residential and non-residential developers. We have identified a number of underpenetrated product categories in large and attractive markets where we can grow and enhance our market share.
Examples include the advancement of smart metering and fusible high-density polyethylene (“HDPE”) solutions for municipal customers, fabrication and kitting assemblies for fire protection contractors, and geosynthetics and erosion control products for residential and non-residential developers. We have identified a number of underpenetrated product categories in large and attractive markets where we can grow and enhance our market share.
Their knowledge, expertise and growth are critical to our company’s success. We believe that our continued investment in the development and well-being of our people, and our focus on our foundational core values of honesty and integrity, support our commitment to hands-on customer service.
We believe that our continued investment in the development and well-being of our people, and our focus on our foundational core values of honesty and integrity, support our commitment to hands-on customer service.
Our largest single supplier represented 7% of product expenditures in fiscal 2021, and our top ten suppliers represented 42% of total product expenditures during the same period.
Our largest single supplier represented 8% of product expenditures in fiscal 2022, and our top ten suppliers represented 47% of total product expenditures during the same period.
As of January 30, 2022, we employed approximately 4,100 associates, including approximately 250 in branch management positions, 1,200 in branch operations, 1,600 in sales positions, 500 in warehouse positions and 550 in other positions supporting the company. Approximately 100 of our associates were covered by collective bargaining agreements.
As of January 29, 2023, we employed approximately 4,500 associates, including approximately 250 in branch management positions, 1,300 in branch operations, 1,700 in sales positions, 600 in warehouse positions and 650 in other positions supporting the company. Approximately 105 of our associates were covered by collective bargaining agreements.
Residential spending in our industry is driven by new land and lot development for single-family housing. U.S. residential construction activity has accelerated in recent years and is expected to continue to grow as a result of population growth, low housing inventory, affordable interest rates and demographic population shifts.
Residential spending in our industry is driven by new land and lot development for single-family housing. Over the long-term, U.S. residential construction activity is expected to grow as a result of population growth, low housing inventory and demographic population shifts.
We believe that we can expand our presence in these underpenetrated product categories without investing significant capital or incurring substantial incremental costs as a result of our existing branch network, favorable supplier relationships and low working capital requirements. Opportunistically Pursue Strategic Acquisitions We have a strong track record of acquiring and integrating businesses.
We believe that we can expand our presence in these underpenetrated product categories without investing significant capital or incurring substantial costs as a result of our existing branch network, favorable supplier relationships and low working capital requirements.
Our storm drainage product offering includes corrugated HDPE and metal piping systems, retention basins, inline drains, manholes, grates and other related products. Our storm drainage product offering varies by market depending on local codes and engineering specifications.
Our storm drainage product offering includes corrugated HDPE and metal piping systems, retention basins, inline drains, manholes, grates, geosynthetics and erosion control products, and other related products. Our storm drainage product offering varies by market depending on local codes and engineering specifications. Storm drainage products accounted for approximately 14% of our net sales in fiscal 2022.
Year after year, associates rate our learning opportunities as one of the most valuable aspects of working at Core & Main. 9 Diversity and Inclusion We believe our diversity and inclusion efforts are critical to the success of our talent strategy.
Year after year, associates rate our learning opportunities as one of the most valuable aspects of working at Core & Main. Diversity and Inclusion We believe our diversity and inclusion efforts are critical to the success of our talent strategy. A core element of our mission is to build strong relationships with one another and in the communities we serve.
In addition, we deliver attractive career growth opportunities to our associates while leveraging their knowledge and expertise. Our Products & Services Our comprehensive product portfolio consists of over 200,000 SKUs from approximately 4,500 suppliers.
In addition, we deliver attractive career growth opportunities to our associates while leveraging their knowledge and expertise. Our Products & Services Our comprehensive product portfolio consists of more than 200,000 SKUs from approximately 4,500 suppliers. Our offering consists of pipes, valves & fittings, storm drainage products, fire protection products and fabrication services, and smart metering products and technology.
Pipes, Valves & Fittings Pipe, valves, hydrants and fittings are used in the distribution and flow control of water within water and wastewater transmission networks. Our pipe products, which typically range in diameter from 1/2” to 60”, include materials such as PVC, ductile iron, fusible high-density polyethylene, steel and copper tubing.
Our pipe products, which typically range in diameter from 1/2” to 60”, include materials such as PVC, ductile iron, HDPE, steel and copper. Our valves are used to control the flow of water within water transmission networks and are often specified to meet the needs of each project.
Our Strategies We intend to capitalize on our competitive strengths to deliver profitable growth and create shareholder value through the following core strategies: Utilize Scale and Platform to Accelerate New Product Adoption We utilize our vast geographic footprint, customer relationships, local industry knowledge and training capabilities to introduce and accelerate the adoption of new products and technology in our industry.
Utilize Scale and Platform to Accelerate New Product Adoption We utilize our vast geographic footprint, customer relationships, local industry knowledge and training capabilities to introduce and accelerate the adoption of new products and technology in our industry.
Our local sales associates take a consultative sales approach, using knowledge of the local regulatory requirements and specifications to provide customer-specific product and service solutions. We are deeply involved in our customers’ planning processes, and we have the ability to support our customers by converting engineered drawings and specifications into accurate and comprehensive material project plans.
We are deeply involved in our customers’ planning processes, and we have the ability to support our customers by converting engineered drawings and specifications into accurate and comprehensive material project plans.
We believe our customer facing technology tools build customer loyalty and drive repeat business, and also create a competitive advantage over smaller competitors who may not have the scale or resources to provide similar technology or services. Our Suppliers We have a diverse base of suppliers who view us as integral partners in the supply chain.
We believe our customer facing technology tools build customer loyalty and drive repeat business, and also create a competitive advantage over smaller competitors who may not have the scale or resources to provide similar technology or services. 7 Our Suppliers We have strong relationships with our suppliers due to our long history in the industry, substantial purchasing scale, national footprint and ability to reach a fragmented customer base.
Pipes, valves & fittings products accounted for approximately 67% of our net sales in fiscal 2021. Storm Drainage Our storm drainage products are used in the construction of stormwater and erosion control management systems to retain, detain and divert stormwater runoff.
This category also includes other complementary products and services used for the service, repair and replacement of underground water infrastructure. Pipes, valves & fittings products accounted for approximately 68% of our net sales in fiscal 2022. Storm Drainage Our storm drainage products are used in the construction of stormwater management systems to retain, detain and divert stormwater runoff.
We believe we are one of the largest volume customers for many of our suppliers, leading to favorable purchasing arrangements regarding product availability, payment terms and pricing.
Our national footprint and reach to local communities are essential to our suppliers, as we have a highly developed understanding of the local markets, customer base and growth opportunities. We believe we are one of the largest volume customers for many of our suppliers, leading to favorable purchasing arrangements regarding product availability, payment terms and pricing.
We also provide customized training, talent reviews and early career rotational programs for college graduates to develop as future leaders. We utilize our suppliers to enhance our knowledge base as new products and best practices are continually rolled out.
We also provide customized training, talent reviews and early career rotational programs for college graduates to develop as future leaders.
Contractors work with our sales teams throughout all phases of the project life cycle, including estimating and material “take-off,” product sourcing and bid preparation through delivery.
Contractors work with our sales teams throughout all phases of the project life cycle, including estimating and material “take-off,” product sourcing and bid preparation through delivery. Leveraging our vast supplier network, we are able to arrange convenient direct shipment to jobs, which can be aligned to each phase of the project.
Through favorable purchasing capabilities, overhead cost reduction, facility optimization and our scalable information technology platform, we have been able to generate significant margin improvement and synergistic value from our acquired businesses.
Through favorable purchasing capabilities, fixed cost leverage, facility optimization, access to products and working capital optimization, we have been able to generate significant margin improvement and synergistic value from businesses we acquire.
Furthermore, we had an equal mix of sales related to construction on new projects and existing repair and replace projects in fiscal 2021. Our company and our people are committed to the provision of safe and sustainable water infrastructure.
Furthermore, we estimate that we had a near-equal mix of sales related to construction on new projects and existing repair and replace projects in fiscal 2022. Our company and our people are committed to advancing reliable infrastructure with local service, nationwide.
Our customers choose us for our breadth of products and services, extensive industry knowledge, familiarity with local specifications, convenient branch locations, and timely and reliable delivery. We utilize our deep supply chain relationships to provide customers with a “one-stop-shop” experience and customized support in their efforts to maintain and construct water, wastewater, storm drainage and fire protection systems.
We utilize our deep supply chain relationships to provide customers with a “one-stop-shop” experience and customized support in their efforts to maintain and construct water, wastewater, storm drainage and fire protection systems. Our scale and geographic footprint allows us to obtain preferred access to products for our customers, even during periods of material shortages.
In August 2017, HD Supply Waterworks was acquired by Clayton, Dubilier & Rice, LLC (“CD&R”) from HD Supply and was subsequently rebranded as Core & Main. On July 27, 2021, we completed our initial public offering of Class A common stock (the “IPO”).
In 2007, a group of private equity investors acquired the HD Supply business from The Home Depot and subsequently executed an initial public offering in 2013. In August 2017, HD Supply Waterworks was acquired by Clayton, Dubilier & Rice, LLC (“CD&R”) from HD Supply and was subsequently rebranded as Core & Main.
Regulation We are subject to various federal, state, and local laws and regulations, compliance with which increases our operating costs and subjects us to the possibility of regulatory actions or proceedings.
Assertions by third parties that we violate their intellectual property rights could have a material adverse effect on our business, financial condition and results of operations. Regulation We are subject to various federal, state, and local laws and regulations, compliance with which increases our operating costs and subjects us to the possibility of regulatory actions or proceedings.
Our End Markets We have diversified end market exposure across three primary construction sectors: (i) municipal; (ii) non-residential; and (iii) residential. Based on management’s estimates, we believe that our addressable market in the U.S. for the wholesale distribution of water, wastewater, storm drainage and fire protection products, and related services, represented approximately $32 billion in revenue in 2021.
Based on management’s estimates, we believe that our addressable market in the U.S. for the distribution of water, wastewater, storm drainage and fire protection products, and related services, represented approximately $40 billion in sales in fiscal 2022.
This talent-first approach enables us to develop and promote top talent to drive profitable growth while maintaining a supportive and mission-driven culture.
We utilize our suppliers to enhance our knowledge base as new products and best practices are continually rolled out. 9 This talent-first approach enables us to develop and promote top talent to drive profitable growth while maintaining a supportive and mission-driven culture.
We are a leading specialized distributor of water, wastewater, storm drainage and fire protection products, and related services, to municipalities, private water companies and professional contractors across municipal, non residential and residential end markets nationwide. Our specialty products and services are used in the maintenance, repair, replacement and new construction of water and fire protection infrastructure.
Core & Main is a leader in advancing reliable infrastructure with local service, nationwide. As a leading specialized distributor with a focus on water, wastewater, storm drainage and fire protection products, and related services, we provide solutions to municipalities, private water companies and professional contractors across municipal, non-residential and residential end markets, nationwide.
Typical fire protection products include pipe, sprinkler heads and devices, fire suppression systems, accessories and specialty fabrication services. Our fire protection products meet strict quality standards, and our offering often varies by market based on local specifications, regulations and fire codes. Fire protection products accounted for approximately 11% of our net sales in fiscal 2021.
We also offer customized fabrication and kitting services, providing a comprehensive solution for all fire protection product needs. Our fire protection products meet strict quality standards, and our offering varies by market based on local specifications, regulations and fire codes. Fire protection products accounted for approximately 11% of our net sales in fiscal 2022.
Our “local business, nationwide” philosophy incentivizes both our sales force and our operations team to be entrepreneurial, making decisions grounded in a customer-centric approach. Most other associates also participate in a profit sharing plan that aligns their compensation to profitability and return on investment. Training and Development Our associates are the most essential resource to our company.
Most other associates also participate in a profit sharing plan that aligns their compensation to profitability and return on investment. Training and Development Our associates are the most essential resource to our company. Their knowledge, expertise and growth are critical to our company’s success.
These field sales representatives remain attuned to activity in their local market, identifying and tracking active projects, and are responsible for generating sales and identifying new customers and projects. They also directly assist and educate customers, taking a consultative approach and helping with custom projects and product solutions tailored to our customers’ needs.
They also directly assist and educate customers, taking a consultative approach and helping with custom projects and product solutions tailored to our customers’ needs.
We have identified over 170 MSAs where we believe we are underpenetrated and thus have opportunities to pursue greenfield expansion or offer more product lines and services.
We have identified over 170 MSAs where we believe we are underpenetrated and thus have opportunities to pursue greenfield expansion or offer more product lines and services, which we have estimated to be an approximately $1.1 billion sales opportunity. Opportunistically Pursue Strategic Acquisitions We have a strong track record of acquiring and integrating businesses.
The principal competitive factors in our industry include the breadth, availability and pricing of products and services, technical knowledge and project planning capabilities, local expertise, as well as delivery capability and reliability. We believe that we are a leader in the local markets that we serve, and our national scale gives us meaningful competitive advantages compared to our smaller competitors.
We believe that we are a leader in the local markets that we serve, and our national scale gives us meaningful competitive advantages compared to our smaller competitors.
We have complemented these initiatives with accretive acquisitions, which has resulted in sustained margin expansion. Our private label initiative has accelerated since our acquisition of Long Island Pipe Supply, Inc. ("LIP"), through which we gained access to a highly scalable assortment of private brands and products utilized throughout the fire protection product line.
We have complemented these initiatives with accretive acquisitions, which has resulted in sustainable margin expansion. Our private label initiative accelerated after our acquisition of Long Island Pipe Supply, Inc.
We have executed 16 acquisitions since becoming an independent company in 2017, adding more than $645 million in annualized net sales. We take a disciplined approach to sourcing, acquiring and integrating complementary businesses that help us expand into new geographic areas, acquire key talent or offer new products and services.
We take a disciplined approach to sourcing, acquiring and integrating complementary businesses that help us expand into new geographic areas, acquire key talent or offer new products and services. In addition, we evaluate and pursue opportunistic acquisitions in industries adjacent to those we currently serve.
More recently, we have created an internal diversity and inclusion advisory group, a mental health council, and an associate caring fund. Through our training programs, we are taking a proactive approach to grow and retain our own talent and develop more diverse leaders in our industry.
Some of our efforts are well established, such as our Women’s Network, and are intended to develop women in our industry. More recently, we have created an internal diversity and inclusion advisory group, a mental health council, and an associate caring fund.
Our valves are used to control the flow of water within water transmission networks and are often custom engineered to meet the specific needs of each project. Our hydrants provide a point-of-access for fire fighters to quickly tap into pressurized water systems and vary based on local specifications and regulations.
Our hydrants provide a point-of-access for fire fighters to quickly tap into pressurized water systems, and they vary based on local specifications and regulations. Our fittings and restraints, made from a variety of materials depending on local specifications and regulations, are used to connect pipe sections, valves and other devices to each other.
Erosion control is representative of these opportunities as it is a complementary product offering to existing customers in a fragmented market and furthers our focus on clean water given its role in stormwater run-off prevention.
Geosynthetics and erosion control is representative of these opportunities as it is a complementary product offering to existing customers in a large and fragmented market with significant growth opportunity.
We believe our strategic partnerships and national supplier relationships will continue to generate cross-selling opportunities and future business, while driving adoption within our distribution model. 5 Execute on Gross Margin Enhancement Initiatives From the fiscal year ended February 3, 2019 (“fiscal 2018”) to fiscal 2021, our gross margin has improved by roughly 350 basis points in part through several initiatives, including our private label program, category management optimization, data-driven pricing strategies and an expansion of value-added products and services.
Execute on Margin Enhancement Initiatives From the fiscal year ended January 31, 2021 (“fiscal 2020”) to fiscal 2022, our gross margin improved by approximately 290 basis points in part due to several initiatives, including private label product expansion, category management optimization, data-driven pricing strategies and an expansion of value-added products and services.
We are one of only two national distributors operating across large and highly fragmented markets, which we estimate to represent approximately $32 billion in annual revenue.
Our specialty products and services are used primarily in the maintenance, repair, replacement and new construction of water, wastewater, storm drainage and fire protection infrastructure. We are one of only two national distributors operating across large and highly fragmented markets, which we estimate to represent approximately $40 billion in annual sales.
Our top 50 customers represented approximately 12% of our net sales in fiscal 2021, with our largest customer accounting for less than 1% of net sales.
Our top 50 customers represented approximately 12% of our net sales in fiscal 2022, with our largest customer accounting for less than 1% of net sales. Our customers choose us for our breadth of products and services, extensive industry knowledge, familiarity with local specifications, convenient branch locations and project management capabilities.
The collective bargaining agreements for 46 of these associates will expire in 2022. Pay for Performance We believe that our strong culture, consistent investment in our people and competitive compensation programs result in low turnover rates among our associates.
Pay for Performance We believe that our strong culture, consistent investment in our people and competitive compensation programs result in low turnover rates across key roles. Sales associates have the opportunity to earn competitive compensation through our performance-based compensation structure, which aligns our interests with those of our associates.
Increase Penetration with Strategic Accounts Through our strategic accounts program, we partner with national contractors and private water companies who typically pursue large-scale, complex projects that require greater technical expertise and specialized procurement needs. Sales through our strategic accounts program represented less than 5% of our fiscal 2021 net sales.
We believe these gross margin initiatives, in addition to our ability to leverage fixed costs, create a path to drive margin expansion over the long-term. Increase Share with Strategic Accounts Through our strategic accounts program, we partner with national contractors and private water companies who typically pursue large-scale, complex projects that require greater technical expertise and specialized procurement needs.
Under The Home Depot’s ownership, we became HD Supply Waterworks and completed several small acquisitions to further expand our geographic footprint. In 2007, a group of private equity investors acquired the HD Supply business from The Home Depot and subsequently executed an initial public offering in 2013.
In 2005, The Home Depot acquired National Waterworks Holdings and subsequently merged it with Hughes Supply Inc. to establish one of the leading waterworks distributors in the U.S. Under The Home Depot’s ownership, we became HD Supply Waterworks and completed several small acquisitions to further expand our geographic footprint.
Our partnerships with these customers extend throughout the entire project lifecycle, from the pre-bidding design phase to post-project support.
Our partnerships with these customers extend throughout the entire project lifecycle, from the pre-bidding design phase to post-project support. We believe our strategic partnerships and national supplier relationships will continue to generate cross-selling opportunities and future business, while driving adoption within our distribution model.
Inside sales representatives are responsible for project management, coordinating incoming orders, providing estimates and ordering material. Our sales representatives also include approximately 525 field sales representatives who directly support customers outside of local branches.
Our Sales Force As of January 29, 2023, we had approximately 1,700 sales representatives, the majority of whom were inside sales representatives based at local branches. Inside sales representatives are responsible for project management, coordinating incoming orders, providing estimates and ordering material.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny uncertainty about current or future economic conditions can pose a risk to our business, financial position, results of operations and cash flows, as participants in the U.S. residential and non-residential construction industries may postpone spending in response to tighter credit, negative financial news or declines in income or asset values, which could have a material negative effect on the demand for our products. 11 Our business and the market for our products and services generally are subject to slowdowns in municipal infrastructure spending, which have in the past, and may in the future, result in a decrease in our net sales and operating results through reduced sales of our products to our municipal and contractor customers.
Biggest changeThis uncertainty about current or future economic conditions and potential volatility in U.S. residential and non-residential construction markets may lead to reduced demand for our products, which could have a material adverse effect on our business or financial condition. 11 Our business and the market for our products and services generally are subject to slowdowns in municipal infrastructure spending which may result in reduced net sales.
Depending on the ultimate scope and duration of supply chain disruptions, we may experience increases in product costs which we may not be able to pass on to our customers, loss of sales due to lack of product availability or potential customer claims from the inability to provide products in accordance with contractual terms.
Depending on the ultimate scope and duration of the supply chain disruptions, we may experience increases in product costs which we may not be able to pass on to our customers, loss of sales due to lack of product availability or potential customer claims from the inability to provide products in accordance with contractual terms.
Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. The cybersecurity landscape continues to evolve and presents novel risks and we may become increasingly vulnerable to such risks if we fail to assess and identify cybersecurity risks associated with our operations.
Information security and cyber risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. The cybersecurity landscape continues to evolve and presents novel risks and we may become increasingly vulnerable to such risks if we fail to assess and identify cybersecurity risks associated with our operations.
The Second Amended and Restated Agreement of Limited Partnership of Holdings (the “Amended and Restated Limited Partnership Agreement of Holdings”) restricts our ability to incur additional indebtedness or refinance our existing indebtedness in a manner that would materially and adversely affect Holdings’ ability to make tax distributions to holders of limited partner interests of Holdings (“Partnership Interests”) or distributions to us to fund payments under the Tax Receivable Agreements (as defined below under “Risks Related to our Organizational Structure”).
The Second Amended and Restated Agreement of Limited Partnership of Holdings (as amended, the “Amended and Restated Limited Partnership Agreement of Holdings”) restricts our ability to incur additional indebtedness or refinance our existing indebtedness in a manner that would materially and adversely affect Holdings’ ability to make tax distributions to holders of limited partner interests of Holdings (“Partnership Interests”) or distributions to us to fund payments under the Tax Receivable Agreements (as defined below under “Risks Related to our Organizational Structure”).
For example, our Certificate of Incorporation and By-laws collectively: • authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt; • provide for a classified board of directors, which divides our board of directors into three classes, with members of each class serving staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting; • limit the ability of stockholders to remove directors if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock; • provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office; • prohibit stockholders from calling special meetings of stockholders if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock; • prohibit stockholder action by consent in writing or electronic transmission, thereby requiring all actions to be taken at a meeting of the stockholders, if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock; • opt out of Section 203 of the Delaware General Corporation Law (the “DGCL”), which prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, or any successor provision to Section 203, until Section 203 by its terms would, but for the applicable provisions of our Certificate of Incorporation, apply to us and the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 5% of the total voting power of the outstanding shares of our common stock; • establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders; and 36 • require the approval of holders of at least 66 2/3% of the voting power of the outstanding shares of our common stock then entitled to vote thereon to amend our By-laws and certain provisions of our Certificate of Incorporation if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock.
For example, our Certificate of Incorporation and By-laws collectively: • authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt; • provide for a classified board of directors, which divides our board of directors into three classes, with members of each class serving staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting; • limit the ability of stockholders to remove directors if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock; • provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office; • prohibit stockholders from calling special meetings of stockholders if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock; • prohibit stockholder action by consent in writing or electronic transmission, thereby requiring all actions to be taken at a meeting of the stockholders, if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock; • opt out of Section 203 of the Delaware General Corporation Law (the “DGCL”), which prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, or any successor provision to Section 203, until Section 203 by its terms would, but for the applicable provisions of our Certificate of Incorporation, apply to us and the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 5% of the total voting power of the outstanding shares of our common stock; • establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders; and • require the approval of holders of at least 66 2/3% of the voting power of the outstanding shares of our common stock then entitled to vote thereon to amend our By-laws and certain provisions of our Certificate of Incorporation if the CD&R Investors (together with their affiliates) cease to beneficially own shares of our common stock representing at least 40% of the total voting power of the outstanding shares of our common stock.
Among the factors that could affect our stock price are: • industry, regulatory or general market conditions; • domestic and international economic factors unrelated to our performance; • new regulatory pronouncements and changes in regulatory guidelines; • lawsuits, enforcement actions and other claims by third parties or governmental authorities; • actual or anticipated fluctuations in our quarterly operating results; • lack of research coverage and reports by industry analysts or changes in any securities analysts’ estimates of our financial performance; • action by institutional stockholders or other large stockholders, including future sales of our Class A common stock; • failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices; • announcements by us of significant impairment charges; • speculation in the press or investment community; • investor perception of us or our industry; • changes in market valuations or earnings of similar companies; • the impact of short selling or the impact of a potential “short squeeze” resulting from a sudden increase in demand for our Class A common stock; • announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships; • war, terrorist acts, epidemic disease or pandemic disease, including COVID-19; • any future sales of our Class A common stock or other securities; • additions or departures of key personnel; and • misconduct or other improper actions of our associates .
Among the factors that could affect our stock price are: • industry, regulatory or general market conditions; • domestic and international economic factors unrelated to our performance; • new regulatory pronouncements and changes in regulatory guidelines; • lawsuits, enforcement actions and other claims by third parties or governmental authorities; • actual or anticipated fluctuations in our quarterly operating results; • lack of research coverage and reports by industry analysts or changes in any securities analysts’ estimates of our financial performance; • action by institutional stockholders or other large stockholders, including future sales of our Class A common stock; • failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices; • announcements by us of significant impairment charges; • speculation in the press or investment community; • investor perception of us or our industry; • changes in market valuations or earnings of similar companies; • the impact of short selling or the impact of a potential “short squeeze” resulting from a sudden increase in demand for our Class A common stock; • announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships; • war, terrorist acts, epidemic disease or pandemic disease; • any future sales of our Class A common stock or other securities; • additions or departures of key personnel; and • misconduct or other improper actions of our associates .
The procurement process for this work is based in part on price and the acceptance of certain risks, including risks related to fixed-price contracts and cost-overruns. We may lose business to lower-cost competitors from price-sensitive customers who do not appropriately value our sales reach, technical knowledge, broad product portfolio, customer service and project planning and delivery capabilities.
The procurement process for this work is based in part on price and the acceptance of certain risks, including risks related to fixed-price contracts and cost-overruns. We may lose business to lower-cost competitors from price-sensitive customers who do not value our sales reach, technical knowledge, broad product portfolio, customer service and project planning and delivery capabilities.
Each Tax Receivable Agreement provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, nonpayment for a specified period which constitutes a material breach of a material obligation under such Tax Receivable Agreement, or if, at any time, we elect an early termination of such Tax Receivable Agreement, then our obligations, or our successor’s obligations, under such Tax Receivable Agreement to make payments thereunder would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to such Tax Receivable Agreement. 30 As a result of the foregoing, (i) we could be required to make payments under such Tax Receivable Agreement that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to such Tax Receivable Agreement and (ii) if we elect to terminate such Tax Receivable Agreement early, we would be required to make an immediate cash payment equal to the specified percentage of the present value of the anticipated future tax benefits that are the subject of such Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits.
Each Tax Receivable Agreement provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, nonpayment for a specified period which constitutes a material breach of a material obligation under such Tax Receivable Agreement, or if, at any time, we elect an early termination of such Tax Receivable Agreement, then our obligations, or our successor’s obligations, under such Tax Receivable Agreement to make payments thereunder would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to such Tax Receivable Agreement. 28 As a result of the foregoing, (i) we could be required to make payments under such Tax Receivable Agreement that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to such Tax Receivable Agreement and (ii) if we elect to terminate such Tax Receivable Agreement early, we would be required to make an immediate cash payment equal to the specified percentage of the present value of the anticipated future tax benefits that are the subject of such Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits.
Our ability to deliver the expected benefits from any strategic transactions that we do complete is subject to numerous uncertainties and risks, including our ability to integrate personnel, labor models, financial, supply chain and logistics, IT and other systems successfully; disruption of our ongoing business and distraction of management and other critical personnel; hiring additional management and other critical personnel; and increasing the scope, geographic diversity and complexity of our operations.
Our ability to deliver the expected benefits from any strategic transactions that we complete is subject to numerous uncertainties and risks, including our ability to integrate personnel, labor models, financial, supply chain and logistics, IT and other systems successfully; disruption of our ongoing business and distraction of management and other critical personnel; hiring additional management and other critical personnel; and increasing the scope, geographic diversity and complexity of our operations.
If we are unable to pass these cost increases on to our customers, it would reduce our gross margins, increase our selling, general and administrative expenses and reduce our net income. 19 In addition, many of our municipal water products and infrastructure customers are regulated by federal and state government agencies, such as the U.S.
If we are unable to pass these cost increases on to our customers, it would reduce our gross margins, increase our selling, general and administrative expenses and reduce our net income. In addition, many of our municipal water products and infrastructure customers are regulated by federal and state government agencies, such as the U.S.
We are subject to regulation and regulatory change, and our costs of doing business could increase as a result of changes in U.S. federal, state, local or international regulations. Our operations are principally affected by various statutes, regulations and laws in the U.S. states in which we operate.
We are subject to regulation and regulatory change, and our costs of doing business could increase as a result of changes in federal, state or local regulations. Our operations are principally affected by various statutes, regulations and laws in the U.S. states in which we operate.
This consolidation could cause our industry to become more competitive as greater economies of scale are achieved by competitors, or as competitors with new lower cost transactional business models are able to operate with lower prices.
This consolidation could cause our industry to become more competitive as greater economies of scale are achieved by customers, or as competitors with new lower cost transactional business models are able to operate with lower prices.
Although our Class A common stock is currently listed on the NYSE under the symbol “CNM,” an active trading market for our shares may not be sustained.
An active, liquid trading market for our common stock may not be sustained. Although our Class A common stock is currently listed on the NYSE under the symbol “CNM,” an active trading market for our shares may not be sustained.
Approximately 22% and 39% of our net sales in fiscal 2021 were directly related to the U.S. residential and non-residential end markets, respectively. The level of activity in the U.S. residential and non-residential construction markets is based on numerous factors such as availability of credit, interest rates, general economic conditions, consumer confidence and other factors that are beyond our control.
Approximately 22% and 39% of our net sales in fiscal 2022 were directly related to the U.S. residential and non-residential end markets, respectively. The level of activity in the U.S. residential and non-residential construction markets is based on numerous factors such as availability of credit, interest rates, general economic conditions, consumer confidence and other factors that are beyond our control.
In connection with any acquisitions, we may acquire liabilities or defects such as legal claims, including those not identified during due diligence, such as third-party liability and other tort claims; claims for breach of contract; employment-related claims; environmental, health and safety liabilities, conditions or damage; permitting, regulatory or other compliance with law issues; liability for hazardous materials; or trade liabilities.
In connection with any acquisition, we may acquire liabilities or defects such as legal claims, including those not identified during due diligence, such as third-party liability and other tort claims; claims for breach of contract; employment-related claims; environmental, health and safety liabilities, conditions or damage; permitting, regulatory or other compliance with law issues; liability for hazardous materials; or trade liabilities.
Accordingly, if an active trading market for our Class A common stock is not maintained, the liquidity of our Class A common stock, your ability to sell your shares of our Class A common stock when desired and the prices that you may obtain for your shares of Class A common stock will be adversely affected. 32 Future sales of shares by us or our existing stockholders could cause our stock price to decline.
Accordingly, if an active trading market for our Class A common stock is not maintained, the liquidity of our Class A common stock, your ability to sell your shares of our Class A common stock when desired and the prices that you may obtain for your shares of Class A common stock will be adversely affected. 30 Future sales of shares by us or our existing stockholders could cause our stock price to decline.
Of the outstanding shares of Class A common stock, all of the Class A common stock shares sold in our IPO and Secondary Offering are immediately tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act (“Rule 144”).
Of the outstanding shares of Class A common stock, all of the Class A common stock shares sold in our IPO and Secondary Offerings are immediately tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act (“Rule 144”).
Although we currently maintain insurance, including, but not limited to, workers’ compensation, automobile and product/general liability coverage, there can be no assurance that we will be able to maintain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate protection against potential liabilities.
Although we currently maintain insurance, including, but not limited to, workers’ compensation, automobile and general liability, there can be no assurance that we will be able to maintain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate protection against potential liabilities.
If we overestimate demand and purchase too much of a particular product, we face a risk that the price of that product will fall, leaving us with inventory that we cannot sell at historical profit margins or record a significant charge if we are required to write-down inventory at net realizable value .
If we overestimate demand and purchase too much of a particular product, we face a risk that the price of that product will fall, leaving us with inventory that we cannot sell at historical profit margins or record a material charge if we are required to write-down inventory at net realizable value .
Damage to us or to our suppliers or customers resulting from such incidents could subject us to liability under U.S. state and federal and foreign laws that require us to implement adequate data security and to protect confidential personal data, which could result in increased costs, loss of revenues, settlement costs and/or substantial penalties that may either not be insured or not be fully covered through insurance.
Damage to us or to our suppliers or customers resulting from such incidents could subject us to liability under U.S. state and federal and foreign laws that require us to implement certain data security protocols and to protect confidential personal data, which could result in increased costs, loss of revenues, settlement costs and/or substantial penalties that may either not be insured or not be fully covered through insurance.
In addition, market disruptions, such as those experienced in 2008 and 2009 and more recently in 2020, as well as our indebtedness levels, may increase our cost of borrowing or adversely affect our ability to refinance our obligations as they become due.
In addition, market disruptions, such as those experienced in 2008 and 2009 and more recently in 2022, as well as our indebtedness levels, may increase our cost of borrowing or adversely affect our ability to refinance our obligations as they become due.
Approximately 98% of our net sales volume in fiscal 2021 was facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the industry in the areas in which they operate.
Approximately 98% of our net sales volume in fiscal 2022 was facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the industry in the areas in which they operate.
A shortage of available manufacturing capacity, or excess capacity, in the industry can result in significant increases or declines in the supply of our products, which in turn results in fluctuations in the market prices for our products, often within a short period of time.
A shortage of available manufacturing capacity, or excess capacity, in the industry can result in significant increases or declines in the supply of our products, which in turn results in fluctuations in the market prices for our products, sometimes within a short period of time.
The full exchange by the Continuing Limited Partners will also decrease our aforementioned deferred tax asset associated with our investment in Holdings by $153 million. These amounts are estimates only and are subject to change.
The full exchange by the Continuing Limited Partners will also decrease our aforementioned deferred tax asset associated with our investment in Holdings by $145 million. These amounts are estimates only and are subject to change.
A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches has in the past, and could in the future, disrupt our business.
A failure in or breach of our operational or information security systems, or those of our third-party service providers (or their downstream service providers), as a result of cyber-attacks or information security breaches has in the past, and could in the future, disrupt our business.
We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act. 31 As the general partner of Holdings, we control and operate Holdings.
We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act. 29 As the general partner of Holdings, we control and operate Holdings.
Economic downturns in any of our markets could reduce the level of infrastructure spending and construction activity and thus our net sales. In addition, municipal budget processes and conditions in the municipal bond market can impact municipal spending.
Economic downturns in any of our markets could reduce municipal tax revenues and the level of infrastructure spending and construction activity and thus our net sales. In addition, municipal budget processes and conditions in the municipal bond market can impact municipal spending.
The market for the distribution of our products and services is affected by national, regional and local slowdowns in the amount spent by municipalities on waterworks infrastructure. We supply many of our products to contractors in connection with municipal projects. Approximately 39% of our net sales in fiscal 2021 were related to the municipal market.
The market for the distribution of our products and services is affected by national, regional and local slowdowns in the amount spent by municipalities on infrastructure. We supply many of our products to contractors in connection with municipal projects. Approximately 39% of our net sales in fiscal 2022 were related to the municipal market.
Historically, we have not engaged in material hedging strategies for purchases of commodity-based products. We generally sell our products on a spot basis and not under long-term contracts.
Historically, we have not engaged in material hedging strategies for purchases of products. We generally sell our products on a spot basis and not under long-term contracts.
Our ability to identify and develop relationships with qualified suppliers and enter into exclusive or restrictive distribution rights agreements with suppliers who can satisfy our standards for quality and our need to access products and supplies in a timely and efficient manner is a significant challenge. In fiscal 2021, our top supplier accounted for approximately 7% of our product expenditures.
Our ability to identify and develop relationships with qualified suppliers and enter into exclusive or restrictive distribution rights agreements with suppliers who can satisfy our standards for quality and our need to access products and supplies in a timely and efficient manner is a significant challenge. In fiscal 2022, our top supplier accounted for approximately 8% of our product expenditures.
Insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may negatively impact our gross margin. We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence due to changing customer or consumer requirements and fluctuating commodity prices.
Insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may negatively impact our gross margin. We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence due to changing customer or consumer requirements and fluctuating product costs.
Many of our customers, including those in our municipal end market, may also choose or be forced to delay the commencement of infrastructure projects until such funds are allocated, may choose or be forced to re-scope construction-ready infrastructure projects to qualify for federal funding or may not be able to timely pay for products or services provided, which could delay any benefits we expect to receive from the Infrastructure Investment and Jobs Act.
Many of our customers, including those in our municipal end market, may also choose or be forced to delay the commencement of infrastructure projects until such funds are allocated, may choose or be forced to re-scope construction-ready infrastructure projects to qualify for federal funding or may not be able to timely pay for products or services provided, which could delay any benefits we expect to receive from the IIJA.
For example, the U.S. is currently experiencing a shortage of qualified professional commercial truck drivers, which has increased freight costs and impacted our suppliers’ ability to deliver products to us and our ability to deliver products on a timely basis.
For example, the U.S. is currently experiencing a shortage of qualified professional commercial truck drivers, which has impacted our suppliers’ ability to deliver products to us and our ability to deliver products on a timely basis.
An increase in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability, decrease our liquidity and impact our solvency. Our indebtedness under the Senior ABL Credit Facility and under the Senior Term Loan Facility bears interest at variable rates.
An increase in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability, increase cash outflows, decrease our liquidity or impact our solvency. Our indebtedness under the Senior ABL Credit Facility and under the Senior Term Loan Facility bears interest at variable rates.
Because of our substantial indebtedness: • our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements, pay dividends and make other distributions or to purchase, redeem or retire capital stock or for general corporate purposes and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future; • a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes; • we are exposed to the risk of increased interest rates because a significant portion of our borrowings are at variable rates of interest; • it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness; • we may be more vulnerable to general adverse economic and industry conditions; • we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns; • our ability to refinance indebtedness may be limited or the associated costs may increase; • our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; • our ability to pay dividends and make other distributions or to purchase, redeem or retire capital stock may be limited; and • we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve our operating margins. 25 Despite our indebtedness levels, we and our subsidiaries may be able to incur substantially more indebtedness, which may increase the risks to our financial condition and results of operations created by our indebtedness.
Because of our indebtedness: • our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements, pay dividends and make other distributions or to purchase, redeem or retire capital stock or for general corporate purposes and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future; • a portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes; • we are exposed to the risk of increased interest rates because a significant portion of our borrowings are at variable rates of interest; • it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness; • we may be more vulnerable to general adverse economic and industry conditions; • we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns; • our ability to refinance indebtedness may be limited or the associated costs may increase; • our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; • our ability to pay dividends and make other distributions or to purchase, redeem or retire capital stock may be limited; and • we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve our operating margins.
We cannot accurately predict the amount and timing of any impairment of assets, and, in the future, we may be required to take additional goodwill or other asset impairment charges. Any such non-cash charges could have a material adverse effect on our financial position or results of operations.
We cannot accurately predict the amount and timing of any impairment of assets, and, in the future, we may be required to take additional goodwill or other asset impairment charges. Any such non-cash charges could have a material adverse effect on our business or financial condition.
Based upon certain assumptions, described in greater detail in Note 7 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we estimate that if we exercised our termination right as of January 30, 2022, the amount of the termination payment pursuant to the Tax Receivable Agreements recorded on the Consolidated Balance Sheets for the exchange of Partnership Interests would be approximately $130 million and the amount of the termination payment to Continuing Limited Partners holding the remaining exchangeable Partnership Interests would be approximately $465 million.
Based upon certain assumptions, described in greater detail in Note 7 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we estimate that if we exercised our termination right as of January 29, 2023, the amount of the termination payment pursuant to the Tax Receivable Agreements recorded on the Consolidated Balance Sheets for the exchange of Partnership Interests would be approximately $123 million and the amount of the termination payment to Continuing Limited Partners holding the remaining exchangeable Partnership Interests would be approximately $262 million.
If we were to fail to comply with the FCPA, other anti-corruption laws, applicable import-export control regulations, data privacy laws or other applicable rules and regulations, we could be subject to substantial civil and criminal penalties and the possible loss of export or import privileges, which could have a material adverse effect on our business, financial position, results of operations and cash flows.
If we were to fail to comply with the FCPA, other anti-corruption laws, applicable import-export control regulations, data privacy laws or other applicable rules and regulations, we could be subject to substantial civil and criminal penalties and the possible loss of export or import privileges, which could have a material adverse effect on our business or financial condition.
Even an isolated incident, such as a high-profile product recall, or the aggregate effect of individually insignificant incidents, can erode trust and confidence, particularly if such incident or incidents result in adverse publicity, governmental investigations or litigation, and as a result, could tarnish our brand and lead to a material adverse effect on our business, financial position, results of operations and cash flows.
Even an isolated incident, such as a high-profile product recall, or the aggregate effect of individually insignificant incidents, can erode trust and confidence, particularly if such incident or incidents result in adverse publicity, governmental investigations or litigation, and as a result, could tarnish our brand and lead to a material adverse effect on our business or financial condition.
As of January 30, 2022, assuming all Senior ABL Credit Facility revolving loans were fully drawn, and excluding the impact of any interest rate hedging instruments, each one percentage point change in interest rates would have resulted in an approximately $23 million increase in annual interest expense on the Senior ABL Credit Facility and the Senior Term Loan Facility.
As of January 29, 2023, assuming all Senior ABL Credit Facility revolving loans were fully drawn, and excluding the impact of any interest rate hedging instruments, each one percentage point change in interest rates would have resulted in an approximately $27 million increase in annual interest expense on the Senior ABL Credit Facility and the Senior Term Loan Facility.
Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price. At such time as the CD&R Investors no longer control a majority of the voting power of our outstanding Class A common stock, we will no longer be a “controlled company” within the meaning of rules.
Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price. 34 At such time as the CD&R Investors no longer control a majority of the voting power of our outstanding common stock, we will no longer be a “controlled company” within the meaning of the NYSE corporate governance standards.
Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including: • the requirement that a majority of the board of directors consist of independent directors; • the requirement that our Nominating and Governance Committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; • the requirement that we have a Compensation Committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and • the requirement for an annual performance evaluation of the Nominating and Governance and Compensation Committees.
Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including: • the requirement that our Nominating and Governance Committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and • the requirement that we have a Compensation Committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of any other litigation, and any negative publicity associated therewith or negative effects on associate morale, could have a material adverse effect on our business, financial position, results of operations and cash flows.
As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of any other litigation, and any negative publicity associated therewith or negative effects on associate morale, could have a material adverse effect on our business or financial condition.
In addition, if significant numbers of associates, key personnel and/or senior management become unavailable due to sickness, legal requirements or self-isolation, our operations could be disrupted and materially adversely affected. Measures taken in response to COVID-19 could adversely impact our ability to retain and attract associates, including key personnel.
In addition, if significant numbers of associates, key personnel and/or senior management become unavailable due to sickness, legal requirements or self-isolation, our operations could be disrupted and materially adversely affected. Measures taken in response to a public health crisis could adversely impact our ability to retain and attract associates, including key personnel.
We estimate that approximately 50 to 100 basis points of the fiscal 2021 margin increases could be temporary in nature and may not be sustainable once market pricing stabilizes and product supply dynamics return to normal.
We estimate that approximately 100 to 150 basis points of the fiscal 2022 gross margin increases could be temporary in nature and may not be sustainable once product supply dynamics return to normal and market pricing stabilizes.
As we have experienced significant product cost increases over a relatively short period, there is increased risk in future periods that we may experience a higher level of deflation, net sales declines or net sales growth at substantially lower rates than in recent periods following improvements in the availability of labor, transportation and products.
As we have experienced significant product cost increases over the past twenty-four months, there is increased risk in future periods that we may experience a higher level of deflation, net sales declines or net sales growth at substantially lower rates than in recent periods following improvements in the availability of labor, transportation and products.
Although the majority of our overall product offerings relate to distribution for which we engage in no significant manufacturing, we do perform light fabrication services for certain fire protection and fusible piping products, which accounted for less than 5% of our net sales in fiscal 2021 and which we believe are products with significant opportunities for growth.
Although the majority of our overall product offerings relate to distribution for which we engage in no significant manufacturing, we do perform light fabrication services for certain product categories, including fire protection, storm drainage and fusible piping products, which collectively accounted for less than 5% of our net sales in fiscal 2022 and which we believe are products with significant opportunities for growth.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the agreements governing our indebtedness provide our subsidiaries with the flexibility to incur a substantial amount of indebtedness in the future, which indebtedness may be secured or unsecured.
The terms of the agreements governing our indebtedness provide our subsidiaries with the flexibility to incur a substantial amount of indebtedness in the future, which indebtedness may be secured or unsecured.
In addition, if Holdings does not have sufficient funds to make distributions, our ability to declare and pay cash dividends on our Class A common stock will also be restricted or impaired. See “—Risks Related to Our Class A Common Stock”.
In addition, if Holdings does not have sufficient funds to make distributions, our ability to declare and pay cash dividends on our Class A common stock will also be restricted or impaired.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), as a result of our ownership of Holdings, applicable restrictions could make it impractical for us to continue our business as currently contemplated and could have a material adverse effect on our business, financial position, results of operations and cash flows.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), as a result of our ownership of Holdings, applicable restrictions could make it impractical for us to continue our business as currently contemplated and could have a material adverse effect on our business or financial condition.
Additionally, we do not carry insurance for all categories of risk that our business may encounter (including asbestos claims for which insurance is not attainable). Any significant liability that is uninsured or not fully insured may require us to pay substantial amounts.
Additionally, we do not carry insurance for all categories of risk that our business may encounter (including asbestos claims for which insurance is not attainable). Any significant liability that is uninsured or not fully insured may require us to pay substantial amounts. See additional discussion in Item 1.
If a court were to find these provisions of our Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial position, results of operations and cash flows.
If a court were to find these provisions of our Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business or financial condition. Item 1B.
If we experience delays and defaults in client payments and we pay our suppliers before receiving payment from our customers for the related products or services, we could experience a material adverse effect on our business, financial position, results of operations and cash flows. A change in supplier terms could adversely affect our income and margins .
If we experience delays and defaults in client payments and we pay our suppliers before receiving payment from our customers for the related products or services, we could experience a material adverse effect on our business or financial condition. A change in supplier terms could adversely affect our income and margins .
However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial position, results of operations and cash flows.
However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business or financial condition.
Our organizational structure, including the Tax Receivable Agreements, confers certain benefits upon the Continuing Limited Partners and certain Former Limited Partners that will not benefit Class A common stockholders to the same extent as it will benefit Continuing Limited Partners or such Former Limited Partners.
See “—Risks Related to Our Class A Common Stock”. 27 Our organizational structure, including the Tax Receivable Agreements, confers certain benefits upon the Continuing Limited Partners and certain Former Limited Partners that will not benefit Class A common stockholders to the same extent as it will benefit Continuing Limited Partners or such Former Limited Partners.
Fluctuations in federal funding can also negatively impact municipal spending. Reduced federal funding and corresponding reductions in federal fund appropriations can adversely affect many of our customers, who derive funding from federal, state and local bodies, which in turn can reduce the demand for our products and services.
Reduced federal funding and corresponding reductions in federal fund appropriations can adversely affect many of our customers, who derive funding from federal, state and local bodies, which in turn can reduce the demand for our products and services.
In addition, any unanticipated liabilities or obligations arising, for example, out of the discovery of previously unknown conditions or changes in law or enforcement policies, could materially and adversely affect our business, financial position, results of operations and cash flows.
In addition, any unanticipated liabilities or obligations arising, for example, out of the discovery of previously unknown conditions or changes in law or enforcement policies, could materially and adversely affect our business or financial condition.
As of January 30, 2022, 107,406,124 shares of our Class A common stock were restricted securities within the meaning of Rule 144 under the Securities Act, but were eligible for resale subject to applicable volume, means of sale, holding period and other limitations of Rule 144 under the Securities Act or pursuant to an exemption from registration under Rule 701 under the Securities Act, or “Rule 701,” subject to any lock-up agreements.
As of January 29, 2023, 100,526,523 shares of our Class A common stock were restricted securities within the meaning of Rule 144 under the Securities Act, but were eligible for resale subject to applicable volume, means of sale, holding period and other limitations of Rule 144 under the Securities Act or pursuant to an exemption from registration under Rule 701 under the Securities Act, or “Rule 701,” subject to any lock-up agreements.
In addition, Delaware law imposes additional requirements that may restrict our ability to pay dividends to holders of our Class A common stock. 37 We expect to continue to be a “controlled company” within the meaning of the NYSE listing standards and, as a result, we will qualify for, and currently intend to rely on, exemptions from certain corporate governance requirements.
In addition, Delaware law imposes additional requirements that may restrict our ability to pay dividends to holders of our Class A common stock. We are a “controlled company” within the meaning of the NYSE listing standards and, as a result, currently rely on exemptions from certain corporate governance requirements.
We may be a target of this type of litigation in the future. The defense and disposition of litigation of this type could result in substantial costs and divert resources and the time and attention of our management, which could materially and adversely affect our business, financial position, results of operations and cash flows.
We may be a target of this type of litigation in the future. The defense and disposition of litigation of this type could result in substantial costs and divert resources and the time and attention of our management, which could materially and adversely affect our business or financial condition.
Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our internal controls, it may negatively impact our business, financial position, results of operations and reputation.
Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our internal controls, it may negatively impact our business or financial condition and reputation.
We currently intend to continue to utilize the exemptions from the requirements that a majority of our board of directors consist of independent directors and that each of the Nominating and Governance Committee and Compensation Committee be composed entirely of independent directors.
We currently intend to continue to utilize the exemptions from the requirements that each of the Nominating and Governance Committee and Compensation Committee be composed entirely of independent directors. As a result, each of our Nominating and Governance Committee and Compensation Committee do not consist entirely of independent directors.
In addition, each of the Tax Receivable Agreements requires that any debt document that refinances or replaces our existing indebtedness be no more restrictive on our ability to make payments under each Tax Receivable Agreement than our current indebtedness, unless CD&R Waterworks Holdings, L.P. a Delaware limited partnership, and the Former Limited Partners (as defined below) (collectively, the “CD&R Investors”) otherwise consent.
We may be unable to secure additional financing or refinance our existing indebtedness on favorable terms as a result of such restriction. 25 In addition, each of the Tax Receivable Agreements requires that any debt document that refinances or replaces our existing indebtedness be no more restrictive on our ability to make payments under each Tax Receivable Agreement than our current indebtedness, unless CD&R Waterworks Holdings, L.P., a Delaware limited partnership, and the Former Limited Partners (as defined below) (collectively, the “CD&R Investors”) otherwise consent.
In addition, we are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by business entities for the purpose of obtaining or retaining business.
Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by business entities for the purpose of obtaining or retaining business.
As a result, cybersecurity and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us.
Cybersecurity and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access are and will continue to be a priority for us.
The NYSE rules require that we (i) have a majority of independent directors on our board of directors within one year of the date we no longer qualify as a “controlled company,” (ii) have at least one independent director on each of the Compensation and Nominating and Governance Committees on the date we no longer qualify as a “controlled company,” have at least a majority of independent directors on each of the Compensation and Nominating and Governance Committees within 90 days of such date and that the Compensation and Nominating and Governance Committees be composed entirely of independent directors within one year of such date and (iii) perform an annual performance evaluation of the Nominating and Governance and Compensation Committees.
The NYSE rules require that we have at least one independent director on each of the Compensation and Nominating and Governance Committees on the date we no longer qualify as a “controlled company,” have at least a majority of independent directors on each of the Compensation and Nominating and Governance Committees within 90 days of such date and that the Compensation and Nominating and Governance Committees be composed entirely of independent directors within one year of such date.
Conversely, increased federal funding can also adversely affect our business by slowing down state and local spending as a result of delays in appropriating such federal funding to our end customers. In November 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, which includes $55 billion to invest in water infrastructure across the United States.
Conversely, increased federal funding can also adversely affect our business by slowing down state and local spending as a result of delays in appropriating such federal funding to our end customers. In November 2021, the IIJA, which includes $55 billion to invest in water infrastructure across the U.S., was signed into law.
We have been, and may continue to be, adversely impacted by declines and volatility in the U.S. residential and non-residential construction markets. Our business is largely dependent on activity in the U.S. residential and non-residential construction markets, which are volatile and subject to cyclical market pressures. The length and magnitude of these cycles have varied over time and by market.
Our business is largely dependent on activity in the U.S. residential and non-residential construction markets, which are volatile and subject to cyclical market pressures. The length and magnitude of these cycles have varied over time and by market.
Although our IT systems are protected through physical and software safeguards and remote processing capabilities exist, our IT systems and confidential data, or those of our suppliers and customers, are still vulnerable to natural disasters, power losses, unauthorized access (including through any intentional or malicious attacks, whether by a virus or an outsider seeking to compromise our IT systems, or by a rogue associate), telecommunication failures and other problems.
Our IT systems, confidential data, as well as our remote processing capabilities and physical and software safeguards or those of our suppliers and customers, may be vulnerable to natural disasters, power losses, cyber attacks, theft, or unauthorized access (including through any intentional or malicious attacks, whether by a virus, malware or an outsider seeking to compromise our IT systems, or by a rogue associate), telecommunication failures and other problems.
Acquisitions frequently result in the recording of goodwill and other intangible or long-lived assets. As of January 30, 2022, goodwill and amortizing intangible assets, net of accumulated amortization, represented 34% and 20%, respectively, of our total assets. Goodwill and indefinite-lived intangible assets are not amortized and are subject to impairment testing at least annually using a fair value-based approach.
Acquisitions frequently result in the recording of goodwill and other intangible or long-lived assets. As of January 29, 2023, goodwill and amortizing intangible assets, net of accumulated amortization, represented 31% and 16%, respectively, of our total assets. Goodwill is not amortized and is subject to impairment testing at least annually using a fair value-based approach.
Any payments made by us under the Tax Receivable Agreements will generally reduce the amount of overall cash flow that might have otherwise been available to us.
The amount of the cash payments that we will be required to make under the Tax Receivable Agreements is expected to be substantial. Any payments made by us under the Tax Receivable Agreements will generally reduce the amount of overall cash flow that might have otherwise been available to us.
In addition, after giving effect to $9 million of letters of credit issued under the Senior ABL Credit Facility, as of January 30, 2022, Core & Main LP would have been able to borrow an additional $841 million under the Senior ABL Credit Facility, subject to borrowing base availability.
In addition, after giving effect to $12 million of letters of credit issued under the Senior ABL Credit Facility, as of January 29, 2023, Core & Main LP would have been able to borrow an additional $1,238 million under the Senior ABL Credit Facility, subject to borrowing base availability.
If we are unable to fabricate certain products or find suitable replacements for them, it could have a material adverse effect on our business, financial position, results of operations and cash flows. We are subject to certain safety and labor risks associated with the distribution of our products.
If we are unable to fabricate certain products, find suitable replacements for them or experience product defect liabilities it could have a material adverse effect on our business or financial condition. We are subject to certain safety and labor risks associated with the distribution and fabrication of our products.
As of January 30, 2022, we employed approximately 4,100 associates in total, a significant percentage of whom work at our branch locations.
As of January 29, 2023, we employed approximately 4,500 associates in total, a significant percentage of whom work at our branch locations.
The public health crisis caused by COVID-19 and certain government restrictions to prevent its spread have had, and could continue to have, an adverse impact on our business, results of operations and financial condition as well as the operations of some of our suppliers.
A public health crisis and associated government restrictions to prevent its spread could have, an adverse impact on our business, results of operations and financial condition as well as the operations of some of our suppliers.
Even after an inventory write-down we would likely not be able to sell the inventory at historical product margins. If we underestimate demand and purchase insufficient quantities of products, inventory shortages could result in delayed revenue, loss of sales opportunities, and/or reduced profit margins.
Even after an inventory write-down we would likely not be able to sell the inventory at historical product margins. If we underestimate demand and purchase insufficient quantities of products, inventory shortages could result in delayed revenue, loss of sales opportunities, and/or reduced profit margins. Either of these scenarios could have a material adverse effect on our business or financial condition.
Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC.
Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting.
While a portion of our net sales are made to customers with whom we have contractual relationships, many of these contracts are requirements contracts under which we supply a percentage of a customer’s requirements over a period of time, without any specific commitment by the customer to purchase a particular unit volume.
If our customers do not renew orders, our business or financial condition could be negatively affected. 21 While a portion of our net sales are made to customers with whom we have contractual relationships, many of these contracts are requirements contracts under which we supply a percentage of a customer’s requirements over a period of time, without any specific commitment by the customer to purchase a particular unit volume.
If there are material weaknesses or failures in our ability to meet any of the requirements related to the maintenance and reporting of our internal controls, investors may lose confidence in the accuracy and completeness of our financial reports, which in turn could cause the price of our Class A common stock to decline.
If there are material weaknesses or failures in our ability to meet any of the requirements related to the maintenance and reporting of our internal controls, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, which in turn could cause the price of our Class A common stock to decline.
Any material shortage of products in the market as a result of natural disasters or similar extreme weather events can negatively impact our net sales, and we may not be able to offset our product costs via corresponding price increases. See Item 7.
Any material shortage of products in the market as a result of natural disasters or similar extreme weather events can negatively impact our net sales, and we may not be able to offset increased product costs via corresponding price increases. Additionally, the conflict in Ukraine resulted in increases in costs associated with products containing ductile iron and steel.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur facilities typically include a small office space, an in-store counter and/or merchandising display area, inside warehouse space and a yard for outside storage. We enter into leases with terms typically ranging from two to five years that include renewal options. We believe that these facilities are well-maintained and adequate to support the current needs of our business.
Biggest changeWe enter into leases with terms typically ranging from two to five years that include renewal options. We believe that these facilities are well-maintained and adequate to support the current needs of our business. 35
Item 2. Properties We own our headquarters, located in St. Louis, Missouri, which we use for our principal corporate activities. In addition to our headquarters, as of January 30, 2022, we leased 271 properties and owned 35 properties.
Item 2. Properties We own our headquarters, located in St. Louis, Missouri, which we use for our principal corporate activities. In addition to our headquarters, as of January 29, 2023, we leased 282 properties and owned 35 properties.
Added
Our facilities typically include a small office space, an in-store counter and/or merchandising display area, inside warehouse space and a yard for outside s torage. In addition, we have 12 distribution fac ilities strategically located around the U.S. to maximize efficiency of product distribution.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest change“Risk Factors—Risks Related to Our Business—The nature of our business exposes us to product liability, construction defect and warranty claims and other litigation and legal proceedings.” Despite facing two current asbestos-related claims, we expect to receive additional claims in the future. 39 Item 4. Mine Safety Disclosures Not applicable 40 PART II - OTHER INFORMATION
Biggest change“Risk Factors—Risks Related to Our Business—The nature of our business exposes us to product liability, construction defect and warranty claims and other litigation and legal proceedings.” Item 4. Mine Safety Disclosures Not applicable. PART II - OTHER INFORMATION
Such product liability claims in the past have included, and may in the future include, allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. In particular, we have been and continue to be a defendant in asbestos-related litigation matters.
Such product liability claims in the past have included, and may in the future include, allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. In particular, we have been and continue to be a defendant in asbestos-related litigation matters. See Item 1A.
Removed
Asbestos-related claims have not historically had a material impact on our financial position or results of operations, but there can be no guarantee that any such claims will not have a material adverse effect on us in the future. See Item 1A.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe number or amount of shares of stock, other property or cash covered by outstanding awards, the number and type of shares of stock that have been authorized for issuance under the Omnibus Incentive Plan, the exercise or base price or purchase price of each outstanding award, and the other terms and conditions of outstanding awards, will be subject to adjustment by the Administrator, in its discretion, in the event of any stock dividend, extraordinary dividend, stock split or share combination or any recapitalization, merger, consolidation, exchange of shares, spin-off, liquidation or dissolution of the Company or other similar transaction affecting our common stock. 41 Performance Graph The following graph and table compare the total shareholder return from July 23, 2021, the date on which our Class A common stock commenced trading on the New York Stock Exchange, through January 30, 2022 of (i) our Class A common stock, (ii) the Standard and Poor's 500 Stock Index, or S&P 500 Index, and (iii) the Russell 2000 Index.
Biggest changeOur Class B common stock is not entitled to receive dividends, or to receive a distribution upon our liquidation, dissolution or winding-up. 36 Performance Graph The following graph and table compare the total shareholder return from July 23, 2021, the date on which our Class A common stock commenced trading on the New York Stock Exchange, through January 29, 2023 of (i) our Class A common stock, (ii) the Standard and Poor's 500 Stock Index, or S&P 500 Index, (iii) the Russell 2000 Index and (iv) the S&P MidCap 400 Industrials Index.
Holders of Record As of January 30, 2022, there were six holders of record of our Class A common stock. We believe there are a significantly larger number of beneficial owners of our common stock because many shares are held by brokers and other institutions on behalf of stockholders.
Holders of Record As of January 29, 2023, there were six holders of record of our Class A common stock. We believe there are a significantly larger number of beneficial owners of our common stock because many shares are held by brokers and other institutions on behalf of stockholders.
Investors should not purchase our Class A common stock with the expectation of receiving cash dividends. Our Class B common stock is not entitled to receive dividends, or to receive a distribution upon our liquidation, dissolution or winding-up.
Investors should not purchase our Class A common stock with the expectation of receiving cash dividends. The payment of any dividend on our Class A common stock would require a distribution from Holdings.
Removed
Dividend Policy We do not currently expect to declare or pay dividends on our Class A common stock for the foreseeable future. Instead, we currently intend to use our future earnings, if any, to service debt, fund our growth, develop our business, fund working capital needs and for general corporate purposes.
Added
Dividend Policy We do not currently have an approved plan to pay dividends on our Class A common stock.
Removed
Securities authorized for issuance under equity compensation plans In connection with our IPO, our board of directors adopted the Core & Main, Inc. 2021 Omnibus Equity Incentive Plan, or the “Omnibus Incentive Plan,” effective July 22, 2021, pursuant to which we can make grants of long-term equity incentive compensation to our employees, directors and certain other eligible service providers.
Added
Any distributions made by Holdings to fund dividends will be made on a pro rata basis to all limited partners of Holdings, including Core & Main, in accordance with the terms of the Amended and Restated Limited Partnership Agreement of Holdings.
Removed
Under the Omnibus Incentive Plan, we can make awards in the form of stock options, which may be either incentive stock options or non-qualified stock options; restricted stock; restricted stock units; performance shares; performance units; stock appreciation rights, or “SARs”; dividend equivalents; and other stock-based awards.
Added
Indexed Returns Quarters Ended Company/Index July 23, 2021 August 1, 2021 October 31, 2021 January 30, 2022 May 1, 2022 July 31, 2022 October 30, 2022 January 29, 2023 Core & Main (1) $ 100.00 $ 111.81 $ 115.44 $ 98.95 $ 100.25 $ 101.86 $ 99.41 $ 91.43 S&P 500 Index 100.00 99.63 104.39 100.45 93.66 93.62 88.42 92.27 Russell 2000 Index 100.00 100.75 103.96 89.07 84.36 85.32 83.58 86.51 S&P MidCap 400 Industrials Index 100.00 101.33 105.17 96.77 91.52 95.11 93.99 102.27 (1) For the July 23, 2021 initial investment in Core & Main, we utilized the closing market price of $23.70. 37 Issuer Purchases of Equity Securities The following is a summary of our repurchases of shares of Class A common stock during the fiscal quarter ended January 29, 2023: Period Total Number of Shares (or Units) Purchased (1) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) or Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 31, 2022 - November 30, 2022 366 $ 23.00 N/A N/A December 1, 2022 -December 31, 2022 — — N/A N/A January 1, 2023 - January 29, 2023 3,793 21.42 N/A N/A 4,159 $ 21.56 — — (1) The repurchases of Class A common stock during fiscal 2022 were pursuant to employee tax withholding obligations and strike price settlement upon exercise of unit appreciation rights and vesting of restricted stock units pursuant to terms of the Company’s 2021 Omnibus Equity Incentive Plan.
Removed
Cash awards may also be granted under the Omnibus Incentive Plan as annual or long-term incentives.
Removed
Under the Omnibus Incentive Plan, 12,600,000 shares of Class A common stock, plus 633,683 shares of Class A common stock in respect of stock appreciation rights that were converted from unit appreciation rights of Holdings outstanding prior to the IPO, are reserved and available for future issuance.
Removed
Shares issued under the Omnibus Incentive Plan may be either authorized but unissued shares or shares reacquired by us.
Removed
The following table sets forth the number of shares of our Class A common stock reserved for issuance under our equity compensation plans as of January 30, 2022: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 19,973 (1) — 12,580,027 Equity compensation plans not approved by security holders — — — (1) Consists of restricted stock units granted under the Omnibus Incentive Plan.
Removed
Indexed Returns Quarters Ended Company/Index July 23, 2021 August 1, 2021 October 31, 2021 January 30, 2022 Core & Main (1) $ 100.00 $ 111.81 $ 115.44 $ 98.95 S&P 500 Index 100.00 99.63 104.39 100.45 Russell 2000 Index 100.00 100.75 103.96 89.07 (1) For the July 23, 2021 initial investment in Core & Main, we utilized the closing market price of $23.70.
Removed
Issuer Purchases of Equity Securities There were no repurchases of equity securities during the year ended January 30, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

93 edited+36 added−102 removed70 unchanged
Biggest changeIn turn, Holdings and Core & Main LP utilized the net proceeds from the IPO directly or indirectly received from Core & Main in the Refinancing Transactions (as defined and described under “—Refinancing Transactions.”) 43 On August 20, 2021, we issued 5,232,558 shares of Class A common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares of Class A common stock in connection with the IPO at the initial public offering price of $20.00 per share before underwriting discounts and commissions (the “IPO Overallotment Option Exercise”) .
Biggest changeIn turn, Holdings and Core & Main LP utilized the net proceeds of the IPO directly or indirectly received from Core & Main, together with the net proceeds from borrowings under the Senior Term Loan Facility (as defined in Note 6 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K) and cash on hand to undertake the Refinancing Transactions (as defined in Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K). 39 On August 20, 2021, we issued 5,232,558 shares of Class A common stock at the initial public offering price of $20.00 per share and we received net proceeds of approximately $100 million after deducting underwriting discounts and commissions as part of the IPO Overallotment Option Exercise (as defined in Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K) .
Financing Activities Net cash used in financing activities was $146 million for fiscal 2021 compared with net cash from financing activities of $215 million for fiscal 2020 .
Net cash used in financing activities was $146 million for fiscal 2021 compared with net cash from financing activities of $215 million for fiscal 2020 .
Fiscal Years Ended January 30, 2022 January 31, 2021 Percentage Change (dollars in millions) Pipes, valves & fittings products $ 3,361 $ 2,373 41.6 % Storm drainage products 687 489 40.5 % Fire protection products 565 414 36.5 % Meter products 391 366 6.8 % Total net sales $ 5,004 $ 3,642 50 Gross Profit Gross profit for fiscal 2021 increased $402 million, or 45.8%, to $1,280 million compared with $878 million for fiscal 2020 .
Fiscal Years Ended January 30, 2022 January 31, 2021 Percentage Change (dollars in millions) Pipes, valves & fittings products $ 3,361 $ 2,373 41.6 % Storm drainage products 687 489 40.5 % Fire protection products 565 414 36.5 % Meter products 391 366 6.8 % Total net sales $ 5,004 $ 3,642 Gross Profit Gross profit for fiscal 2021 increased $402 million, or 45.8%, to $1,280 million compared with $878 million for fiscal 2020 .
The increase in operating income was attributable to higher net sales and gross profit, primarily from volume growth, price inflation, and acquisitions. These factors were partially offset by higher SG&A expenses. Interest Expense Interest expense was $98 million for fiscal 2021 compared with $139 million for fiscal 2020 .
The increase in operating income was attributable to higher net sales and gross profit, primarily from volume growth, price inflation, and acquisitions. These factors were partially offset by higher SG&A expenses. Interest Expense Interest expense was $98 million for fiscal 2021 compared with $139 million during fiscal 2020 .
The effective tax rates in fiscal 2021 were lower than fiscal 2020 due to certain fixed tax expenses and permanent differences decreasing as a percentage of income before provision for income taxes. 51 Net Income Net income for fiscal 2021 increased $188 million to $225 million compared with $37 million for fiscal 2020 .
The effective tax rates in fiscal 2021 were lower than fiscal 2020 due to certain fixed tax expenses and permanent differences decreasing as a percentage of income before provision for income taxes. Net Income Net income for fiscal 2021 increased $188 million to $225 million compared with $37 million for fiscal 2020 .
Gross Profit Gross profit represents the difference between the product cost from suppliers (net of earned rebates and discounts and including the cost of inbound freight) and the net sale price to our customers. Gross profit may be impacted by the time between changes in supplier costs and tariffs and changes in our customer pricing.
Gross Profit Gross profit represents the difference between the product cost from suppliers (net of earned rebates and discounts and including the cost of inbound freight) and the net sale price to our customers. Gross profit may be impacted by the time between changes in supplier costs and changes in our customer pricing.
On July 27, 2021, we completed our initial public offering of 34,883,721 shares of Class A common stock at a price to the public of $20.00 per share. We received net proceeds of approximately $664 million, after deducting underwriting discounts and commissions.
Initial Public Offering and Secondary Offerings On July 27, 2021, we completed our initial public offering of 34,883,721 shares of Class A common stock at a price to the public of $20.00 per share. We received net proceeds of approximately $664 million, after deducting underwriting discounts and commissions.
Recently Issued and Adopted Accounting Pronouncements and Accounting Pronouncements Issued But Not Yet Adopted See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 60 Critical Accounting Policies and Estimates A summary of our significant accounting policies is included in Note 2 of our audited consolidated annual financial statements.
Recently Issued and Adopted Accounting Pronouncements and Accounting Pronouncements Issued But Not Yet Adopted See Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 53 Critical Accounting Policies and Estimates A summary of our significant accounting policies is included in Note 2 of our audited consolidated annual financial statements.
Basis of Presentation The Company is a holding company and its sole material asset is its direct and indirect ownership interest in Holdings. Holdings has no operations and no material assets of its own other than its indirect ownership interest in Core & Main LP, a Florida limited partnership, the legal entity that conducts the operations of Core & Main.
Basis of Presentation The Company is a holding company and its primary material asset is its direct and indirect ownership interest in Holdings. Holdings has no operations and no material assets of its own other than its indirect ownership interest in Core & Main LP, a Florida limited partnership, the legal entity that conducts the operations of Core & Main.
Despite these efforts, unfavorable movement in interest rates may result in higher interest expense and cash payments. Acquisitions In addition to our organic growth strategy, we opportunistically pursue strategic asset and business acquisitions to grow our business.
Despite these efforts, unfavorable movement in interest rates may further result in higher interest expense and cash payments. 41 Acquisitions In addition to our organic growth strategy, we opportunistically pursue strategic asset and business acquisitions to grow our business.
Pipe includes PVC, ductile iron, fusible HDPE, steel and copper tubing. • Storm drainage products primarily include corrugated piping systems, retention basins, manholes, grates, geosynthetics used in erosion control and other related products. • Fire protection products primarily include fire protection pipe, sprinkler heads and devices as well as custom fabrication services. • Meter products primarily include smart meter products, installation, software and other services.
Pipe includes PVC, ductile iron, fusible HDPE, steel and copper tubing. • Storm drainage products primarily include corrugated piping systems, retention basins, manholes, grates, geosynthetics, erosion control and other related products. • Fire protection products primarily include fire protection pipe, sprinkler heads and devices as well as custom fabrication services. • Meter products primarily include smart meter products, meter accessories, installation, software and other services.
(2) Represents expenses associated with acquisition activities, including transaction costs, post-acquisition employee retention bonuses, severance payments, expense recognition of purchase accounting fair value adjustments (excluding amortization) and contingent consideration adjustments. (3) Represents costs related to the IPO and Secondary Offering reflected in SG&A expenses in our Statement of Operations.
(2) Represents expenses associated with acquisition activities, including transaction costs, post-acquisition employee retention bonuses, severance payments, expense recognition of purchase accounting fair value adjustments (excluding amortization) and contingent consideration adjustments. (3) Represents costs related to the IPO and subsequent secondary offerings reflected in SG&A expenses in our Statement of Operations.
Net income attributable to Core & Main, Inc. is the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA. 59 We use EBITDA and Adjusted EBITDA to assess the operating results and effectiveness and efficiency of our business.
Net income attributable to Core & Main, Inc. is the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA. 52 We use EBITDA and Adjusted EBITDA to assess the operating results and effectiveness and efficiency of our business.
Our products include pipes, valves, fittings, storm drainage products, fire protection products, meter products and other products for use in the construction, maintenance and repair of water and waste-water systems as well as fire protection systems.
Our products include pipes, valves, fittings, storm drainage products, fire protection products, meter products and other products for use in the construction, maintenance and repair of water and wastewater systems as well as fire protection systems.
In the coming years, including as a result of the Infrastructure Investment and Jobs Act, we expect increased federal infrastructure investment to have a core focus on the upgrade, repair and replacement of municipal waterworks systems and to address demographic shifts and serve the growing population.
In the coming years, including as a result of the IIJA, we expect increased federal infrastructure investment to have a core focus on the upgrade, repair and replacement of municipal waterworks systems and to address demographic shifts and serve the growing population.
During fiscal 2021, we experienced significant price inflation in respect of certain of our commodity-based products as well as other product categories, and supply chain, which we expect to continue to experience in the near-term and have sought to mitigate through inventory management, effective sourcing and customer pricing.
During fiscal 2022 and fiscal 2021 , we experienced significant price inflation and product surcharges in respect of certain of our products we sell as well as other product categories, and supply chain, which we expect to continue to experience in the near-term and have sought to mitigate through inventory management, effective sourcing and customer pricing.
The decrease was attributable to our ability to leverage our fixed costs, partially offset by higher equity-based compensation. Depreciation and Amortization Expense Depreciation and amortization (“D&A”) expense for fiscal 2021 was $138 million compared with $137 million during fiscal 2020 .
The decrease was attributable to our ability to leverage our fixed costs, partially offset by higher equity-based compensation. Depreciation and Amortization Expense D&A expense for fiscal 2021 was $138 million compared with $137 million during fiscal 2020 .
Over the course of fiscal 2021, we experienced increasing pressure on our supply chain due to several factors, including, but not limited to, delays from our suppliers, labor availability, global logistics and the availability of raw materials, in part due to the impact of COVID-19 on the global economy that limited product availability and further exacerbated the effects of inflation.
Over the course of fiscal 2022 and fiscal 2021, we experienced increasing pressure on our supply chain due to several factors, including, but not limited to, unpredictable lead times and delays from our suppliers, labor availability, global logistics and the availability of raw materials, in part due to the impact of COVID-19 on the global economy and the conflict in Ukraine that limited product availability and further exacerbated the effects of inflation.
The overall increase in gross profit as a percentage of net sales was primarily attributable to strategic inventory investments ahead of announced price increases, a favorable pricing environment, the execution of our gross margin initiatives, achievement of growth based supplier incentives and accretive acquisitions.
The overall increase in gross profit as a percentage of net sales was primarily attributable to strategic inventory investments ahead of announced price increases, a favorable pricing environment, the execution of our gross margin initiatives and accretive acquisitions.
Payments to the Former Limited Partners are expected to commence in fiscal year 2023 and payments to the Continuing Limited Partner involved in the Secondary Offering are expected to commence in fiscal year 2024.
Payments to the Former Limited Partners will commence in fiscal year 2023 and payments to the Continuing Limited Partner involved in the Secondary Offerings are expected to commence in fiscal year 2024.
See “—Non-GAAP Financial Measures” for further discussion of Adjusted EBITDA and a reconciliation to net income or net income attributable to Core & Main, Inc., the most directly comparable measure under U.S. generally accepted accounting principles (“GAAP”), as applicable . 49 Results of Operations Fiscal Year Ended January 30, 2022 Compared with Fiscal Year Ended January 31, 2021 Fiscal Years Ended January 30, 2022 January 31, 2021 (dollars in millions) Net sales $ 5,004 $ 3,642 Cost of sales 3,724 2,764 Gross profit 1,280 878 Operating expenses: Selling, general and administrative 717 556 Depreciation and amortization 138 137 Total operating expenses 855 693 Operating income 425 185 Interest expense 98 139 Loss on debt modification and extinguishment 51 — Income before provision for income taxes 276 46 Provision for income taxes 51 9 Net income 225 $ 37 Less: net income attributable to non-controlling interests 59 Net income attributable to Core & Main, Inc. $ 166 Earnings per share: Basic $ 0.57 Diluted $ 0.55 Non-GAAP Financial Data: Adjusted EBITDA $ 604 $ 342 Net Sales Net sales for fiscal 2021 increased $1,362 million, or 37.4%, to $5,004 million compared with $3,642 million for fiscal 2020 .
For a reconciliation of Adjusted EBITDA to net income or net income attributable to Core & Main, Inc., the most comparable GAAP financial metric, as applicable, see “—Non-GAAP Financial Measures.” 46 Fiscal Year Ended January 30, 2022 Compared with Fiscal Year Ended January 31, 2021 Fiscal Years Ended January 30, 2022 January 31, 2021 (dollars in millions) Net sales $ 5,004 $ 3,642 Cost of sales 3,724 2,764 Gross profit 1,280 878 Operating expenses: Selling, general and administrative 717 556 Depreciation and amortization 138 137 Total operating expenses 855 693 Operating income 425 185 Interest expense 98 139 Loss on debt modification and extinguishment 51 — Income before provision for income taxes 276 46 Provision for income taxes 51 9 Net income 225 $ 37 Less: net income attributable to non-controlling interests 59 Net income attributable to Core & Main, Inc. $ 166 Earnings per share: Basic $ 0.57 Diluted $ 0.55 Non-GAAP Financial Data: Adjusted EBITDA $ 604 $ 342 Net Sales Net sales for fiscal 2021 increased $1,362 million, or 37.4%, to $5,004 million compared with $3,642 million for fiscal 2020 .
For a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP financial metric, see “—Non-GAAP Financial Measures.” 54 Liquidity and Capital Resources Historically, we have financed our liquidity requirements through cash flows from operating activities, borrowings under our credit facilities, issuances of equity and debt securities and working capital management activities.
For a reconciliation of Adjusted EBITDA to net income or net income attributable to Core & Main, Inc., the most comparable GAAP financial metric, as applicable, see “—Non-GAAP Financial Measures.” Liquidity and Capital Resources Historically, we have financed our liquidity requirements through cash flows from operating activities, borrowings under our credit facilities, issuances of equity and debt securities and working capital management activities.
Holdings’ ability to pay dividends may be limited as a practical matter by our growth plans as well as our credit agreements and other debt instruments insofar as we may seek to pay dividends out of funds made available to us by Core & Main LP, because our credit agreements directly or indirectly restrict Core & Main LP’s ability to pay dividends or make loans to Holdings.
Holdings’ ability to pay dividends, which is required to fund aspects of our capital allocation policy, may be limited as a practical matter by our growth plans as well as our credit agreements and other debt instruments insofar as we may seek to pay dividends out of funds made available to us by Core & Main LP, because our credit agreements directly or indirectly restrict Core & Main LP’s ability to pay dividends or make loans to Holdings.
We seek to mitigate our exposure to interest rate volatility through the entry into interest rate swap instruments, such as our current interest rate swap that effectively converts $1,000 million of our variable rate debt to fixed rate debt, which notional amount decreases to $900 million on July 27, 2023, $800 million on July 27, 2024, and $700 million on July 27, 2025 through the instrument maturity on July 27, 2026.
We seek to mitigate our exposure to interest rate volatility through the entry into interest rate swap instruments, such as our current interest rate swap, associated with borrowings under the Senior Term Loan Facility, which effectively converts $1,000 million of our variable rate debt to fixed rate debt, with notional amount decreases to $900 million on July 27, 2023, $800 million on July 27, 2024, and $700 million on July 27, 2025 through the instrument maturity on July 27, 2026.
( “ L&M ” ) Storm Drainage August 2021 $60 Pacific Pipe Company, Inc. ( “ Pacific Pipe ” ) Pipes, Valves & Fittings; Storm Drainage August 2021 103 Other 2021 Acquisitions Pipes, Valves & Fittings Various 11 Water Works Supply Co. Pipes, Valves & Fittings; Storm Drainage August 2020 12 R&B Co.
( “ Pacific Pipe ” ) Pipes, Valves & Fittings; Storm Drainage August 2021 103 Other 2021 Acquisitions Pipes, Valves & Fittings Various 11 Water Works Supply Co. Pipes, Valves & Fittings; Storm Drainage August 2020 12 R&B Co.
Our specialty products and services are used in the maintenance, repair, replacement, and construction of water and fire protection infrastructure. We reach customers through a nationwide network of approximately 300 branches across 48 states.
Our specialty products and services are used primarily in the maintenance, repair, replacement and new construction of water, wastewater, storm drainage and fire protection infrastructure. We reach customers through a nationwide network of approximately 320 branches across 48 states.
The following table sets forth a reconciliation of net income or net income attributable to Core & Main, Inc. to EBITDA and Adjusted EBITDA for the periods presented: Fiscal Years Ended January 30, 2022 January 31, 2021 February 2, 2020 Net income attributable to Core & Main, Inc. $ 166 Plus: net income attributable to non-controlling interests 59 Net income 225 $ 37 $ 36 Depreciation and amortization (1) 142 141 129 Provision for income taxes 51 9 6 Interest expense 98 139 113 EBITDA $ 516 $ 326 $ 284 Loss on debt modification and extinguishment 51 — — Equity-based compensation 25 4 4 Acquisition expenses (2) 7 12 10 Offering expenses (3) 5 — — Adjusted EBITDA $ 604 $ 342 $ 298 (1) Includes depreciation of certain assets which are reflected in “cost of sales” in our Statement of Operations.
The following table sets forth a reconciliation of net income or net income attributable to Core & Main, Inc. to EBITDA and Adjusted EBITDA for the periods presented: Fiscal Years Ended January 29, 2023 January 30, 2022 January 31, 2021 Net income attributable to Core & Main, Inc. $ 366 $ 166 Plus: net income attributable to non-controlling interests 215 59 Net income 581 225 $ 37 Depreciation and amortization (1) 143 142 141 Provision for income taxes 128 51 9 Interest expense 66 98 139 EBITDA $ 918 $ 516 $ 326 Loss on debt modification and extinguishment — 51 — Equity-based compensation 11 25 4 Acquisition expenses (2) 5 7 12 Offering expenses (3) 1 5 — Adjusted EBITDA $ 935 $ 604 $ 342 (1) Includes depreciation of certain assets which are reflected in “cost of sales” in our Statement of Operations.
The establishment of the $92 million liability under the Former Limited Partners Tax Receivable Agreements and the $61 million liability under the Continuing Limited Partners Tax Receivable Agreements as of January 30, 2022 did not impact earnings as the payments were recorded against equity since Core & Main entered into the Tax Receivable Agreements as part of common control transactions.
The establishment of the $91 million liability under the Former Limited Partners Tax Receivable Agreements and the $94 million liability under the Continuing Limited Partners Tax Receivable Agreements as of January 29, 2023 did not impact earnings as the payments were recorded against equity since Core & Main entered into the Tax Receivable Agreements as part of common control transactions.
Below is a summary of the acquisitions that closed in fiscal 2021, fiscal 2020 and fiscal 2019 and the related transaction value (in each case, excluding working capital and other purchase price adjustments, unless otherwise noted). Name Product Lines Closing Date Transaction Value (in millions) L&M Bag & Supply Co., Inc.
Below is a summary of the acquisitions that closed in fiscal 2022, fiscal 2021 and fiscal 2020 and the related transaction value (in each case, excluding working capital and other purchase price adjustments, unless otherwise noted). Name Product Lines Closing Date Transaction Value (in millions) Trumbull Industries, Inc.
Municipal demand has been relatively steady over the long term due to the consistent and immediate need to replace broken infrastructure, however activity levels are subject to the availability of funding for municipal projects.
Infrastructure spending and the non-residential and residential construction markets are subject to cyclical market pressures. Municipal demand has been relatively steady over the long term due to the consistent and immediate need to replace broken infrastructure; however, activity levels are subject to the availability of funding for municipal projects.
We complemented our core products through additional offerings, including smart meter systems, fusible high-density polyethylene (“fusible HDPE”) piping solutions and specifically engineered treatment plant products, services and geosynthetics used in erosion control. Our services and capabilities allow for integration with customers and form part of their sourcing and procurement function.
We complement our core products through additional offerings, including smart meter systems, fusible HDPE piping solutions, specifically engineered treatment plant products, geosynthetics and erosion control products. Our services and capabilities allow for integration with customers and form part of their sourcing and procurement function.
The amount of these payments are dependent upon various factors, including the amount of taxable income allocated to them from Holdings, changes in the ownership percentage of the non-controlling interest holders (which changes from the IPO and subsequent secondary offerings), changes in tax rates and the timing of distributions relative to the corresponding tax year.
The amount of these payments are dependent upon various factors, including the amount of taxable income allocated to them from Holdings, changes in the ownership percentage of the non-controlling interest holders, changes in tax rates and the timing of distributions relative to the corresponding tax year. Tax distributions to non-controlling interest holders were $57 million in fiscal 2022 .
As of January 30, 2022, after giving effect to approximately $9 million of letters of credit issued under the Senior ABL Credit Facility, Core & Main LP would have been able to borrow approximately $841 million under the Senior ABL Credit Facility, subject to borrowing base availability.
As of January 29, 2023, after giving effect to approximately $12 million of letters of credit issued under the Senior ABL Credit Facility, Core & Main LP would have been able to borrow approximately $1,238 million under the Senior ABL Credit Facility, subject to borrowing base availability.
The timing of payments associated with the Tax Receivable Agreements are summarized below: Fiscal 2022 $ — Fiscal 2023 7 Fiscal 2024 10 Fiscal 2025 10 Fiscal 2026 10 Thereafter 116 Total Tax Receivable Agreements liability $ 153 55 Further exchanges by the Continuing Limited Partners will result in additional tax deductions to us and require additional payables pursuant to Tax Receivable Agreements.
The timing of payments associated with the Tax Receivable Agreements are summarized below: Fiscal 2023 $ 5 Fiscal 2024 12 Fiscal 2025 11 Fiscal 2026 11 Fiscal 2027 11 Thereafter 135 Total Tax Receivable Agreements liability $ 185 Further exchanges by the Continuing Limited Partners will result in additional tax deductions to us and require additional payables pursuant to Tax Receivable Agreements.
Net Income Net income represents our net sales less our cost of sales, operating expenses, depreciation and amortization, interest expense, other expense and our provision for income taxes for Core & Main and the consolidation of Holdings and its subsidiaries. Net Income Attributable to Core & Main, Inc.
Net Income Net income represents our net sales less our cost of sales, operating expenses, depreciation and amortization, interest expense, other expense and our provision for income taxes. Net Income Attributable to Core & Main, Inc. Net income attributable to Core & Main, Inc. represents net income less income attributable to non-controlling interests.
Our ability to reflect these changes, in a timely manner, in our customer pricing may impact our financial performance. If we are able to pass through price increases to our customers, our net sales will increase; conversely, during periods of deflation, our customer pricing may decrease to remain competitive, resulting in decreased net sales.
If we are able to pass through price increases to our customers, our net sales will increase; conversely, during periods of deflation, our customer pricing may decrease to remain competitive, resulting in decreased net sales.
The decrease was attributable to a $38 million decrease in acquisitions partially offset by an $8 million increase in capital expenditures and a $5 million payment in fiscal 2021 for the settlement of an interest rate swap.
The decrease was attributable to a $38 million decrease in acquisitions partially offset by an $8 million increase in capital expenditures and a $5 million payment in fiscal 2021 for the settlement of an interest rate swap. Financing Activities Net cash used in financing activities was $73 million for fiscal 2022 compared with $146 million for fiscal 2021 .
Secondary Offering On January 10, 2022, a secondary public offering of 20,000,000 shares of Class A common stock by certain selling stockholders affiliated with Clayton, Dubilier & Rice, LLC (the “Selling Stockholders”) was completed at a price to the public of $26.00 per share (the “Secondary Offering”) .
On January 10, 2022 and September 19, 2022 secondary public offerings of 20,000,000 and 11,000,000 shares, respectively, of Class A common stock by certain selling stockholders affiliated with Clayton, Dubilier & Rice, LLC (the “Selling Stockholders”) were completed at a price to the public of $26.00 per share and $23.75 per share, respectively.
Substantially all of Core & Main LP’s assets secure the Senior Term Loan Facility and the Senior ABL Credit Facility. 56 Information about our cash flows, by category, is presented in the consolidated Statements of Cash Flows and is summarized as follows: Fiscal Years Ended January 30, 2022 January 31, 2021 February 2, 2020 (dollars in millions) Cash flows (used in) provided by operating activities $ (31) $ 214 $ 194 Cash flows (used in) investing activities (203) (229) (234) Cash flows (used in) provided by financing activities (146) 215 184 (Decrease) increase in cash and cash equivalents $ (380) $ 200 $ 144 Operating Activities Net cash used in operating activities was $31 million for fiscal 2021 compared with net cash from operating activities of $214 million for fiscal 2020 .
Substantially all of Core & Main LP’s assets secure the Senior Term Loan Facility and the Senior ABL Credit Facility. 50 Information about our cash flows, by category, is presented in the consolidated Statements of Cash Flows and is summarized as follows: Fiscal Years Ended January 29, 2023 January 30, 2022 January 31, 2021 Cash flows provided by (used in) operating activities $ 401 $ (31) $ 214 Cash flows (used in) investing activities (152) (203) (229) Cash flows (used in) provided by financing activities (73) (146) 215 Increase (decrease) in cash and cash equivalents $ 176 $ (380) $ 200 Operating Activities Net cash provided by operating activities increased by $432 million to $401 million of cash inflow for fiscal 2022 compared with cash used in operating activities of $31 million for fiscal 2021 .
We seek to reflect these changes in our customer pricing in a timely manner, which will increase net sales if we are able to pass along price increases and decrease net sales if we are required to reduce our customer prices as a result of competitive dynamics.
This will increase net sales if we are able to pass along price increases and decrease net sales if we are required to reduce our customer prices as a result of competitive dynamics.
Our affiliates may also purchase debt from time to time, through open market purchases or other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the terms of such debt, and we would continue to reflect the debt as outstanding in our consolidated Balance Sheets.
In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the terms of such debt and we would continue to reflect the debt as outstanding in our consolidated Balance Sheets.
As a result, net sales are typically lower in our first and fourth fiscal quarters, especially in northern geographic regions. Abnormal levels of precipitation may negatively impact our operating results as it may result in the delay of construction projects. Our operating results may also be adversely affected by hurricanes, which typically occur during our third fiscal quarter.
Abnormal levels of precipitation may negatively impact our operating results as it may result in the delay of construction projects. Our operating results may also be adversely affected by hurricanes, which typically occur during our third fiscal quarter.
Petroleum prices have recently experienced significant increases as a result of the conflict in Ukraine. In addition, we are exposed to fluctuations in prices for imported products due to logistical challenges and changes in labor, fuel, container and other importation-related costs. We may also face price fluctuations on other products due to constrained labor availability and manufacturing capacity.
In addition, we are exposed to fluctuations in prices for imported products due to logistical challenges and changes in labor, fuel, container and other importation-related costs. We may also face price fluctuations on other products due to constrained labor availability and manufacturing capacity of our suppliers.
Accordingly, the consolidated financial information of Core & Main presented herein, including the accompanying audited consolidated financial statements included in this Annual Report on Form 10-K, includes the consolidated financial information of Holdings and its subsidiaries.
Accordingly, the consolidated financial information of Core & Main presented herein, including the accompanying audited consolidated financial statements included in this Annual Report on Form 10-K, includes the consolidated financial information of Holdings and its subsidiaries. The Partnership Interests in Holdings held by the Continuing Limited Partners is reflected as non-controlling interests in Core & Main’s consolidated financial statements.
As we have experienced significant inflation over a relatively short period, there is increased risk that we may experience a higher level of deflation or substantially lower net sales growth than in recent periods to the extent there are improvements in the availability of labor, transportation and products.
As we have experienced significant inflation over a relatively short period, there is increased risk that we may experience a higher level of deflation or substantially lower net sales growth than in recent periods, particularly as a result of greater product availability for certain suppliers and product lines.
(“Maskell”) Pipes, Valves & Fittings February 2019 19 Other 2019 acquisitions Various Various 2 As we integrate these and other acquisitions into our existing operations, we may not be able to identify the specific financial statement impacts associated with these acquisitions.
(“R&B”) Pipes, Valves & Fittings; Storm Drainage March 2020 215 As we integrate these and other acquisitions into our existing operations, we may not be able to identify the specific financial statement impacts associated with these acquisitions.
Earnings Per Share The Class A common stock basic earnings per share and diluted earnings per share for fiscal 2021 were $0.57 and $0.55, respectively.
The Class A common stock basic earnings per share and diluted earnings per share for the period from July 23, 2021 through January 30, 2022 were $0.57 and $0.55, respectively.
Borrowings under the Senior ABL Credit Facility bear interest at either a LIBOR rate plus an applicable margin ranging from 1.25% to 1.75%, or an alternate base rate plus an applicable margin ranging from 0.25% to 0.75%, depending on the borrowing capacity under the Senior ABL Credit Facility.
Senior ABL Credit Facility (1) 1,250 July 27, 2026 Term SOFR rate plus an applicable margin ranging from 1.25% to 1.75%, or an alternate base rate plus an applicable margin ranging from 0.25% to 0.75%, depending on the borrowing capacity under the Senior ABL Credit Facility.
Investing Activities Net cash used in investing activities decreased by $26 million to $203 million for fiscal 2021 compared with $229 million for fiscal 2020.
These factors were partially offset by a $5 million increase in capital expenditures. Net cash used in investing activities decreased by $26 million to $203 million for fiscal 2021 compared with $229 million for fiscal 2020.
Future aggregate rental payments under non-cancelable operating leases as of January 30, 2022 were as follows: $51 million in fiscal 2022 , $41 million in fiscal 2023 , $30 million in fiscal 2024 , $21 million in fiscal 2025, $13 million in fiscal 2026 and $16 million thereafter.
Future aggregate rental payments under non-cancelable operating leases as of January 29, 2023 were as follows: $57 million in fiscal 2023 , $46 million in fiscal 2024 , $36 million in fiscal 2025 , $23 million in fiscal 2026, $15 million in fiscal 2027 and $21 million thereafter.
Our short term debt obligations of $15 million are related to quarterly amortization principal payments on the Senior Term Loan Facility.
Our short term debt obligations of $15 million are related to quarterly amortization principal payments on the Senior Term Loan Facility. We are required to make cash payments in future periods under the Tax Receivable Agreements.
Interest Rates Certain of our indebtedness, including borrowings under the Senior Term Loan Facility and the Senior ABL Credit Facility , are subject to variable rates of interest and expose us to interest rate risk.
Our ability to reflect these changes, in a timely manner, in our customer pricing may impact our financial performance. Interest Rates Certain of our indebtedness, including borrowings under the Senior Term Loan Facility and the Senior ABL Credit Facility , are subject to variable rates of interest and expose us to interest rate risk.
We recognize sales, net of sales tax, customer incentives, returns and discounts. Net sales fluctuate as a result of changes in commodity-based product costs and tariffs.
We recognize sales, net of sales tax, customer incentives, returns and discounts. Net sales fluctuate as a result of changes in product costs as we seek to reflect these changes in our customer pricing in a timely manner.
Net income attributable to Core & Main, Inc. represents net income less income attributable to non-controlling interests. Non-controlling interests represent owners of Partnership Interests of Holdings other than Core & Main.
Non-controlling interests represent owners of Partnership Interests of Holdings other than Core & Main.
As the Reorganization Transactions (as defined below under “—Significant Events During Fiscal 2021”) are accounted for as transactions between entities under common control, the financial statements for the periods prior to our IPO and Reorganization Transactions have been adjusted to combine previously separate entities for presentation purposes.
As the Reorganization Transactions (as defined in Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K) are accounted for as transactions between entities under common control, the financial statements for the periods prior to our IPO and Reorganization Transactions have been adjusted to combine previously separate entities for presentation purposes.
Quarters within the fiscal year include 13-week periods, unless a fiscal year includes a 53 rd week, in which case the fourth quarter of the fiscal year will be a 14-week period. The fiscal years ended January 30, 2022, January 31, 2021 and February 2, 2020 included 52 weeks.
Fiscal Year Our fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31 st . Quarters within the fiscal year include 13-week periods, unless a fiscal year includes a 53 rd week, in which case the fourth quarter of the fiscal year will be a 14-week period.
Net income attributable to Core & Main, Inc. for fiscal 2021 was $166 million. The net income attributable to Core & Main, Inc. includes the net income of Holdings for the period from February 1, 2021 to July 22, 2021.
Net income attributable to Core & Main, Inc. for fiscal 2021 was $166 million.
In addition to making distributions to Core & Main, Inc. to fund tax obligations and payments under the Tax Receivable Agreements, in accordance with the Partnership Agreement, Holdings also makes distributions to the Continuing Limited Partners representing the non-controlling interests of Core & Main, Inc. to fund their income tax obligations with various taxing authorities.
The actual amount and timing of the additional payments under the Tax Receivable Agreements will vary depending upon a number of factors as discussed further in Note 7 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 49 In addition to making distributions to Core & Main, Inc. to fund tax obligations and payments under the Tax Receivable Agreements, in accordance with the Partnership Agreement, Holdings also makes distributions to the Continuing Limited Partners representing the non-controlling interests of Core & Main, Inc. to fund their income tax obligations with various taxing authorities.
The Senior Term Loan Facility bears interest at a rate equal to (i) LIBOR plus, in each case, an applicable margin of 2.50% or (ii) the base rate, which will be the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) the overnight federal funds rate plus 0.50% per annum and (z) one-month LIBOR (adjusted for maximum reserves) plus 1.00% per annum, plus, in each case, an applicable margin of 1.50%.
The outflows were partially offset by net proceeds from the IPO and the IPO Overallotment Option Exercise of approximately $756 million, after deducting underwriting discounts, commissions and offering expenses paid. 51 Financing Our debt obligations (in millions) consist of the following: Original Aggregate Principal/Borrowing Capacity Maturity Date Interest Senior Term Loan $ 1,500 July 27, 2028 (i) Term SOFR plus, in each case, an applicable margin of 2.50% and a credit spread adjustment of 0.10%, or (ii) the base rate, which will be the highest of (x) the corporate base rate established by the administrative agent as its prime rate in effect at its principal office in New York City from time to time, (y) the overnight federal funds rate plus 0.50% per annum and (z) one-month Term SOFR (adjusted for maximum reserves) plus 1.00% per annum, plus, in each case, an applicable margin of 1.50%.
Following the Reorganization Transactions, Holdings expects to continue making distributions based on Partnership Interests, including distributions to us. Key Factors Affecting Our Business End-Markets and General Economic Conditions Historically, demand for our products has been closely tied to municipal infrastructure spending, residential construction and non-residential construction in the U.S.
Key Factors Affecting Our Business End-Markets and General Economic Conditions Historically, demand for our products has been closely tied to municipal infrastructure spending, non-residential construction and residential construction in the U.S. We estimate that, based on fiscal 2022 net sales, our exposure by end market was approximately 39% municipal, 39% non-residential and 22% residential.
The next fiscal year ending January 29, 2023 (“fiscal 2022”) will also include 52 weeks.
The fiscal years ended January 29, 2023, January 30, 2022 and January 31, 2021 included 52 weeks. The next fiscal year ending January 28, 2024 (“fiscal 2023”) will also include 52 weeks.
The measurement period of the instrument commenced on July 27, 2021 with a notional amount of $1,000 million. The notional amount decreases to $900 million on July 27, 2023, $800 million on July 27, 2024, and $700 million on July 27, 2025 through the instrument maturity on July 27, 2026.
There were no amounts outstanding under the Senior ABL Credit Facility as of January 29, 2023. (2) Notional amount of $1,000 million as of January 29, 2023 . The notional amount decreases to $900 million on July 27, 2023, $800 million on July 27, 2024, and $700 million on July 27, 2025 through the instrument maturity on July 27, 2026.
Our actual results could differ materially from those discussed below and elsewhere in this Annual Report on Form 10-K for a number of important factors, particularly those described under the caption “Cautionary Note Regarding Forward-Looking Statements. ” Overview We are a leading specialized distributor of water, wastewater, storm drainage and fire protection products and related services to municipalities, private water companies and professional contractors across municipal, non-residential and residential end markets nationwide.
Our actual results could differ materially from those discussed below and elsewhere in this Annual Report on Form 10-K for a number of important factors, particularly those described under the caption “Cautionary Note Regarding Forward-Looking Statements. ” Overview Core & Main is a leader in advancing reliable infrastructure with local service, nationwide.
The increase in net sales contributed $61 million of gross profit and the increase in gross profit as a percentage of net sales contributed $28 million. Gross profit as a percentage of net sales for fiscal 2020 was 24.1% compared with 23.3% for fiscal 2019 .
The increase in net sales contributed an additional $422 million of gross profit and the increase in gross profit as a percentage of net sales contributed $93 million. Gross profit as a percentage of net sales for fiscal 2022 was 27.0% compared with 25.6% for fiscal 2021 .
The increase in gross profit as a percentage of net sales was primarily attributable to acquisitions along with sourcing and pricing improvements. 53 Selling, General and Administrative Expenses SG&A expenses for fiscal 2020 increased $47 million, or 9.3%, to $556 million compared with $509 million during fiscal 2019 .
The overall increase in gross profit as a percentage of net sales was primarily attributable to strategic inventory investments ahead of announced price increases, a favorable pricing environment, the execution of our gross margin initiatives, achievement of growth based supplier incentives and accretive acquisitions. 47 Selling, General and Administrative Expenses SG&A expenses for fiscal 2021 increased $161 million, or 29.0%, to $717 million compared with $556 million during fiscal 2020 .
Cyclicality can also have an impact on the products we procure for our customers or our related services, as further discussed under “—Price Fluctuations” below. In November 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (the “Infrastructure Investment and Jobs Act”), which includes $55 billion to invest in water infrastructure across the United States.
Cyclicality can also have an impact on the products we procure for our customers or our related services, as further discussed under “—Price Fluctuations” below.
If interest rates increase, our debt service obligations on our variable-rate indebtedness would increase and our net income would decrease, even though the amount borrowed under the facilities remained the same. As of January 30, 2022, we had $1,493 million of outstanding variable-rate debt.
The Senior Term Loan Facility and the Senior ABL Credit Facility each bear interest based on Term SOFR. If interest rates further increase, our debt service obligations on our variable-rate indebtedness will further increase and our net income would decrease, even though the amount borrowed under the facilities remains the same.
The carrying value of inventory includes the capitalization of inbound freight costs and is net of supplier rebates and purchase discounts for products not yet sold. Consideration Received from Suppliers We enter into agreements with many of our suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified volume purchasing levels and purchase discounts.
The carrying value of inventory includes the capitalization of inbound freight costs and is net of supplier rebates and purchase discounts for an estimate of products not yet sold. Acquisitions We enter into acquisitions to strategically expand in underpenetrated products and markets.
The outflows were partially offset by net proceeds from the IPO and the IPO Overallotment Option Exercise of approximately $756 million, after deducting underwriting discounts, commissions and offering expenses paid.
This was partially offset by fiscal 2021 inflows related to net proceeds from the IPO and IPO Overallotment Option Exercise ( as defined in Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K ) of approximately $756 million, after deducting underwriting discounts, commissions and offering expenses paid.
Our principal historical liquidity requirements have been for working capital, capital expenditures, acquisitions and servicing indebtedness. As of January 30, 2022, our cash and cash equivalents totaled $1 million and we had no outstanding borrowings on our Senior ABL Credit Facility, which provides for borrowings of up to $850 million, subject to borrowing base availability.
However, this still results in concentration of cash and cash equivalents across these financial institutions in excess of FDIC-insured limits. As of January 29, 2023, we had no outstanding borrowings on our Senior ABL Credit Facility, which provides for borrowings of up to $1,250 million, subject to borrowing base availability.
For example, access to certain meter products that we sell is dependent on the ability of our suppliers to obtain semi-conductor chips. The global supply shortage of semi-conductor chips has impacted various industries and companies, including us, and there is no certainty as to when availability will return to historic levels.
The global supply shortage of technology components has impacted various industries and companies, including us, and there is no certainty as to when availability will return to historic levels. For fiscal 2023, we expect recent year-over-year growth rates to moderate as we anniversary the effects of inflation in fiscal 2022.
Net cash used in investing activities decreased by $5 million to $229 million in fiscal 2020 compared with $234 million in fiscal 2019, primarily attributable to a decrease in acquisition outflows and reduction in capital expenditures.
Investing Activities Net cash used in investing activities decreased by $51 million to $152 million for fiscal 2022 compared with $203 million for fiscal 2021, primarily attributable to a $51 million decrease in cash outflows for acquisitions and the fiscal 2021 cash outflow of $5 million for the payment for the settlement of an interest rate swap.
The increase in operating income was attributable to higher net sales and gross profit, primarily from acquisitions, partially offset by higher SG&A expenses and amortization from acquisitions. Interest Expense Interest expense was $139 million for fiscal 2020 compared with $113 million during fiscal 2019 .
Operating Income Operating income for fiscal 2022 increased $350 million, or 82.4%, to $775 million compared with $425 million during fiscal 2021 . The increase in operating income was attributable to higher net sales and gross profit, primarily from higher selling prices, volume growth and acquisitions, and lower equity-based compensation expense in fiscal 2022.
These purchase obligations are generally cancelable, but the Company foresees no intent to cancel. Payment is generally expected to be made during fiscal 2022 for these obligations. Leases The Company occupies certain facilities and operates certain equipment and vehicles under operating leases that expire at various dates through the year 2036.
Leases The Company occupies certain facilities and operates certain equipment and vehicles under operating leases that expire at various dates through the year 2037.
Fiscal Years Ended January 31, 2021 February 2, 2020 Percentage Change (dollars in millions) Pipes, valves & fittings products $ 2,373 $ 2,164 9.7 % Storm drainage products 489 455 7.7 % Fire protection products 414 387 6.9 % Meter products 366 383 (4.4) % Total net sales $ 3,642 $ 3,389 Gross Profit Gross profit for fiscal 2020 increased $89 million, or 11.3%, to $878 million compared with $789 million for fiscal 2019 .
Fiscal Years Ended January 29, 2023 January 30, 2022 Percentage Change (dollars in millions) Pipes, valves & fittings products $ 4,548 $ 3,361 35.3 % Storm drainage products 949 687 38.1 % Fire protection products 701 565 24.1 % Meter products 453 391 15.9 % Total net sales $ 6,651 $ 5,004 44 Gross Profit Gross profit for fiscal 2022 increased $515 million, or 40.2%, to $1,795 million compared with $1,280 million for fiscal 2021 .
The expiration of certain CARES Act provisions with respect to the Code resulted in increased partner distributions by Holdings and tax payments by Core & Main in fiscal 2021 as compared to fiscal 2020. 48 Key Business Metrics Net Sales We generate net sales primarily from the sale of water, wastewater, storm drainage and fire protection products and the provision of related services to approximately 60,000 customers, as of January 30, 2022, including municipalities, private water companies and professional contractors.
There can be no assurance that the anticipated benefits of the acquisitions will be realized on the timeline we expect, or at all. 42 Key Business Metrics Net Sales We generate net sales primarily from the sale of water, wastewater, storm drainage and fire protection products and the provision of related services to approximately 60,000 customers, as of January 29, 2023, including municipalities, private water companies and professional contractors.
We believe these dynamics create the backdrop for a favorable funding environment and accelerated investment in projects that will benefit our business. Seasonality Our operating results within a fiscal year are typically impacted by seasonality. Although weather patterns affect our operating results throughout the year, adverse winter weather historically has reduced construction, maintenance and repair activity.
We believe these dynamics, coupled with expanding municipal budgets, create the backdrop for a favorable funding environment and accelerated investment in projects that will benefit our business.
We record interest and penalties related to uncertain tax positions in the provision for income taxes in the audited Consolidated Statements of Operations. Tax Receivable Agreements Under the Tax Receivable Agreements, we expect to generate tax attributes that will reduce amounts that we would otherwise pay in the future to various tax authorities.
Trademark intangible assets represent the value associated with the brand names in place at the date of the acquisition. 54 Tax Receivable Agreements Under the Tax Receivable Agreements, we expect to generate tax attributes that will reduce amounts that we would otherwise pay in the future to various tax authorities.
The increase was attributable to amortization expense related to the R&B acquisition and a full year of amortization related to the LIP acquisition in fiscal 2020 . These increases were partially offset by lower amortization associated with customer relationship intangible assets. Operating Income Operating income for fiscal 2020 was $185 million compared with $155 million during fiscal 2019 .
Depreciation and Amortization Expense Depreciation and amortization (“D&A”) expense for fiscal 2022 was $140 million compared with $138 million during fiscal 2021 . The increase primarily was attributable to amortization related to recent acquisitions, partially offset by lower amortization on existing customer relationship intangible assets.
Provision for Income Taxes The provision for income taxes for fiscal 2020 increased $3 million to $9 million compared with $6 million during fiscal 2019 . For fiscal 2020 and fiscal 2019 , our effective tax rate was 19.6% and 14.6%, respectively.
Provision for Income Taxes The provision for income taxes for fiscal 2022 increased $77 million to $128 million compared with $51 million for fiscal 2021 due to increased income before provision for income taxes . For fiscal 2022 and fiscal 2021, our effective tax rates were 18.1% and 18.5%, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+2 added−1 removed3 unchanged
Biggest changeOur operating performance may be affected by both upward and downward price fluctuations. To the extent we are able to pass price increases on to our customers in a timely manner, increases in our product costs correspondingly increase the price levels of the products we sell.
Biggest changePrice Risk We are exposed to price fluctuations in the cost to procure substantially all the products we sell and our ability to reflect these changes, in a timely manner, in our customer pricing. Our operating performance may be affected by both upward and downward price fluctuations.
In fiscal 2021, our 50 largest customers accounted for approximately 12% of our net sales, with our largest customer accounting for less than 1% of net sales. We maintain provisions for potential credit losses and such losses to date have normally been within our expectations.
In fiscal 2022 , our 50 largest customers accounted for approximately 12% of our net sales, with our largest customer accounting for less than 1% of net sales. We maintain provisions for potential credit losses and such losses to date have normally been within our expectations.
Conversely, decreases in our product costs can correspondingly reduce our margins if we are required to lower the price levels of the products we sell in order to remain competitive in our markets.
Conversely, decreases in our product costs can correspondingly lower the price levels of the products we sell in order to remain competitive in our markets.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk In the normal course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These risks include fluctuations in interest rates and prices, including price fluctuations related to our commodity-based products.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk In the normal course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These risks include fluctuations in interest rates and prices, including price fluctuations related to substantially all of our products. Interest Rate Risk Our credit facilities bear interest at a floating rate.
As of January 30, 2022, excluding the impact of any interest rate swap instruments, each one percentage point change in interest rates would result in an approximately $15 million change in the annual interest expense on the Senior Term Loan Facility.
As of January 29, 2023, our Senior Term Loan Facility had borrowings of $1,478 million. As such, excluding the impact of any interest rate swap, each one percentage point change in interest rates would result in an approximately $15 million change in the annual interest expense on the Senior Term Loan Facility.
Interest Rate Risk Our credit facilities bear interest at a floating rate, generally LIBOR plus an applicable margin. As a result, we are exposed to fluctuations in interest rates to the extent of our net borrowings under the Senior Term Loan Facility and the Senior ABL Credit Facility, which were $1,493 million at January 30, 2022.
Both the Senior Term Loan Facility and the Senior ABL Credit Facility bear interest generally equal to Term SOFR plus an applicable margin. As a result, we are exposed to fluctuations in interest rates to the extent of our net borrowings under the Senior Term Loan Facility and the Senior ABL Credit Facility.
As of January 30, 2022, assuming availability was fully utilized and excluding the impact of any interest rate swap instruments, each one percentage point change in interest rates would result in an approximately $8 million change in annual interest expense on the Senior ABL Credit Facility. See Item 7.
As of January 29, 2023, assuming availability under our Senior ABL Credit Facility was fully utilized, each one percentage point change in interest rates would result in an approximately $12 million change in annual interest expense. See Item 7.
We seek to minimize the effects of inflation and changing prices through economies of purchasing and inventory management resulting in cost reductions and productivity improvements as well as price increases to maintain reasonable gross margins. Such price fluctuations have from time to time produced volatility in our financial performance and could do so in the future. 64
We seek to minimize the effects of changing prices through economies of purchasing, inventory management based on the predictability of product lead teams and recovering product costs by passing cost increases on to customers. Such price fluctuations have from time to time produced volatility in our financial performance and could do so in the future. 56
Removed
Price Risk We are exposed to price fluctuations in our products and our ability to reflect these changes, in a timely manner, in our customer pricing. These price fluctuations may be more volatile in commodity-based products, including PVC, ductile iron, fusible HDPE and steel and copper pipe and tubing products.
Added
We have a limited ability to control the timing an amount of changes in the cost to procure our products. We seek to recover increases in our product costs by passing product cost increases on to our customers.
Added
Changes to product costs may lead to a risk of a reduction to our margins, which we seek to minimize through strategic inventory investments ahead of announced price increases, the execution of our gross margin initiatives and accretive acquisitions.

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