Core & Main, Inc 10-Q for FY2023 Q3
Core & Main, Inc. (CNM)
10-Q
2022-12-13
For: 2022-10-30
View Original
Added on
April 07, 2026
About this 10-Q
Core & Main, Inc filed this 10-Q on December 13, 2022, covering the quarter ended October 30, 2022 (FY2023 Q3).
Headline figures
Quarter ended October 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.82B
- up 29.4% from $1.41B a year earlier
- Net income
- $111M
- Diluted EPS
- $0.65
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended October 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For transition period from to
Commission File Number 001-40650
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(314 ) 432-4700
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| ☒ | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of December 9, 2022, there were 172,399,331 shares of the registrant’s Class A common stock, par value $0.01 per share, and 73,498,925 shares of the registrant’s Class B common stock, par value $0.01 per share, outstanding.
Table of Contents
| PAGE | |||||
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, without limitation, all statements other than statements of historical facts contained in this Quarterly Report, including statements relating to our intentions, beliefs, assumptions or current expectations concerning, among other things, our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding expected growth, future capital expenditures and debt service obligations, and the anticipated impact of the novel coronavirus, or COVID-19, on our business.
Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or the negative versions of these words or other comparable terms.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be outside our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition, cash flows and the development of the market in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed under the captions “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 30, 2022 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. Furthermore, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:
•declines, volatility and cyclicality in the U.S. residential and non-residential construction markets;
•slowdowns in municipal infrastructure spending and delays in appropriations of federal funds;
•price fluctuations in our product costs, particularly with respect to the commodity-based products that we sell;
•our ability to manage our inventory effectively, including during periods of supply chain disruptions;
•our ability to obtain product;
•general business and economic conditions;
•risks involved with acquisitions and other strategic transactions, including our ability to identify, acquire, close or integrate acquisition targets successfully;
•the impact of seasonality and weather-related impacts, including natural disasters or similar extreme weather events;
•the fragmented and highly competitive markets in which we compete and consolidation within our industry;
•our ability to competitively bid for municipal and private contracts;
•the development of alternatives to distributors of our products in the supply chain;
•our ability to hire, engage and retain key personnel, including sales representatives, qualified branch, district and region managers and senior management;
•our ability to identify, develop and maintain relationships with a sufficient number of qualified suppliers and the potential that our exclusive or restrictive supplier distribution rights are terminated;
•the availability and cost of freight and energy, such as fuel;
•the ability of our customers to make payments on credit sales;
•changes in supplier rebates or other terms of our supplier agreements;
•our ability to identify and introduce new products and product lines effectively;
•the impact of interest rates on the level of activity in the U.S. residential and non-residential construction markets;
3
•increases in interest rates and the impact of transitioning from LIBOR (as defined herein) as the benchmark rate in contracts;
•the spread of, and response to, COVID-19, and the inability to predict the ultimate impact on us;
•costs and potential liabilities or obligations imposed by environmental, health and safety laws and requirements;
•regulatory change and the costs of compliance with regulation;
•exposure to product liability, construction defect and warranty claims and other litigation and legal proceedings;
•potential harm to our reputation;
•difficulties with or interruptions of our fabrication services;
•safety and labor risks associated with the distribution of our products as well as work stoppages and other disruptions due to labor disputes;
•impairment in the carrying value of goodwill, intangible assets or other long-lived assets;
•the domestic and international political environment with regard to trade relationships and tariffs, as well as difficulty sourcing products as a result of import constraints;
•our ability to operate our business consistently through highly dispersed locations across the United States;
•interruptions in the proper functioning of our information technology systems, including from cybersecurity threats;
•risks associated with raising capital;
•our ability to continue our customer relationships with short-term contracts;
•risks associated with exporting our products internationally;
•our ability to renew or replace our existing leases on favorable terms or at all;
•our ability to maintain effective internal controls over financial reporting and remediate any material weaknesses;
•our substantial indebtedness and the potential that we may incur additional indebtedness;
•the limitations and restrictions in the agreements governing our indebtedness, the Second Amended and Restated Agreement of Limited Partnership of Holdings and the Tax Receivable Agreements (each as defined herein);
•changes in our credit ratings and outlook;
•our ability to generate the significant amount of cash needed to service our indebtedness;
•our organizational structure, including our payment obligations under the Tax Receivable Agreements, which may be significant;
•our ability to sustain an active, liquid trading market for our Class A common stock;
•the significant influence that CD&R (as defined herein) has over us and potential conflicts between the interests of CD&R and other stockholders; and
•risks related to other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 30, 2022.
You should read this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended January 30, 2022 completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.
4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORE & MAIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in millions (except share and per share data), unaudited
| October 30, 2022 | January 30, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Receivables, net of allowance for credit losses of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued compensation and benefits | |||||||||||
| Current operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Payable to related parties pursuant to Tax Receivable Agreements | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
Class A common stock, par value $ | |||||||||||
Class B common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Total stockholders’ equity attributable to Core & Main, Inc. | |||||||||||
| Non-controlling interests | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CORE & MAIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in millions (except share and per share data), unaudited
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 30, 2022 | October 31, 2021 | October 30, 2022 | October 31, 2021 | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||
| Loss on debt modification and extinguishment | ||||||||||||||||||||||||||
| Income before provision for income taxes | ||||||||||||||||||||||||||
| Provision for income taxes | ||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Less: net income attributable to non-controlling interests | ||||||||||||||||||||||||||
Net income attributable to Core & Main, Inc. (1) | $ | $ | $ | $ | ||||||||||||||||||||||
Earnings per share (2) | ||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
Number of shares used in computing EPS (2) | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
(1) For the nine months ended October 31, 2021, the net income attributable to Core & Main, Inc. includes net income prior to the Reorganization Transactions (as defined in Note 1) of $74 million, and net income subsequent to the Reorganization Transactions of $44 million. Refer to the Statements of Changes in Stockholders’ Equity/Partners’ Capital for a summary of net income (loss) attributable to Core & Main, Inc. prior to and subsequent to the Reorganization Transactions. See Note 1 for a description of the Basis of Presentation of the consolidated financial statements.
(2) For the nine months ended October 31, 2021, this represents basic and diluted earnings per share of Class A common stock and weighted average shares of Class A common stock outstanding for the period from July 23, 2021 through October 31, 2021, which is the period following the Reorganization Transactions described in Note 1. Refer to calculation of earnings per share in Note 10.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
CORE & MAIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Amounts in millions, unaudited
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 30, 2022 | October 31, 2021 | October 30, 2022 | October 31, 2021 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
Net interest rate swap gain, net of tax (expense) of $( | |||||||||||||||||||||||
| Total comprehensive income | |||||||||||||||||||||||
| Less: comprehensive income attributable to non-controlling interests | |||||||||||||||||||||||
| Total comprehensive income attributable to Core & Main, Inc. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
CORE & MAIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/PARTNERS’ CAPITAL
Amounts in millions (except share and per share data), unaudited
| Class A Common Stock | Class B Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Partners’ Capital | Shares | Amount | Shares | Amount | Additional Paid In Capital | Accumulated Other Comprehensive Income | Retained Earnings | Non-Controlling Interests | Total Stockholders’ Equity/ Partners’ Capital | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at January 30, 2022 | $ | — | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest rate swap gain, net of tax | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest holders | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exchange of Partnership Interests and Class B Shares for Class A Shares | — | — | ( | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment of deferred tax liability associated with Core & Main investment in Core & Main Holdings, LP | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity under equity-based compensation plans, net of tax withholdings | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of Class A Shares and Partnership Interests | — | ( | — | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest adjustments for vesting of Core & Main Holdings, LP Partnership Interests held by non-controlling interests | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at May 1, 2022 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest rate swap loss, net of tax | — | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest holders | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exchange of Partnership Interests and Class B Shares for Class A Shares | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment of deferred tax liability associated with Core & Main investment in Core & Main Holdings, LP | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of Tax Receivable Agreements | — | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity under equity-based compensation plans, net of tax withholdings | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at July 31, 2022 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest rate swap gain, net of tax | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest holders | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exchange of Partnership Interests for Class A Shares | — | — | ( | — | 2 | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment of deferred tax liability associated with Core & Main investment in Core & Main Holdings, LP | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of Tax Receivable Agreements | — | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity under equity-based compensation plans, net of tax withholdings | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest adjustments for purchase of Partnership Interests and vesting of Core & Main Holdings, LP Partnership Interests held by non-controlling interests | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at October 30, 2022 | $ | — | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
8
| Class A Common Stock | Class B Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Partners’ Capital | Shares | Amount | Shares | Amount | Additional Paid In Capital | Accumulated Other Comprehensive Income | Retained Earnings | Non-Controlling Interests | Total Stockholders’ Equity/ Partners’ Capital | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at January 31, 2021 | $ | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to partners' capital | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest rate swap gain, net of tax | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to partners | ( | — | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at May 2, 2021 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to partners' capital | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest rate swap gain, net of tax | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to partners | ( | — | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at July 22, 2021 prior to Reorganization Transactions and IPO | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of partners’ capital | ( | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reorganization transactions | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of non-controlling interests upon reorganization | — | — | — | — | — | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A Shares, net of issuance costs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interests adjustment for purchase of Partnership Interests from Core & Main Holdings, LP | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment of deferred tax liability associated with Core & Main investment in Core & Main Holdings, LP | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of Former Limited Partners Tax Receivable Agreement | — | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net old interest rate swap gain, net of tax | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net new interest rate swap loss, net of tax | — | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interests adjustment for vesting of Core & Main Holdings, LP Partnership Interests held by non-controlling interests | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at August 1, 2021 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net new interest rate swap gain, net of tax | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest holders | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A Shares, net of issuance costs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment of deferred tax liability associated with Core & Main investment in Core & Main Holdings, LP | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of Former Limited Partners Tax Receivable Agreement | — | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interests adjustment for purchase of Partnership Interests and vesting of Core & Main Holdings, LP Partnership Interests held by non-controlling interests | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at October 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
CORE & MAIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in millions, unaudited
| Nine Months Ended | |||||||||||
| October 30, 2022 | October 31, 2021 | ||||||||||
| Cash Flows From Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net cash from operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Equity-based compensation expense | |||||||||||
| Loss on debt modification and extinguishment | |||||||||||
| Other | ( | ( | |||||||||
| Changes in assets and liabilities: | |||||||||||
| (Increase) decrease in receivables | ( | ( | |||||||||
| (Increase) decrease in inventories | ( | ( | |||||||||
| (Increase) decrease in other assets | ( | ( | |||||||||
| Increase (decrease) in accounts payable | |||||||||||
| Increase (decrease) in accrued liabilities | |||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash Flows From Investing Activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Acquisitions of businesses, net of cash acquired | ( | ( | |||||||||
| Settlement of interest rate swap | ( | ||||||||||
| Proceeds from the sale of property and equipment | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows From Financing Activities: | |||||||||||
| IPO proceeds, net of underwriting discounts and commissions | |||||||||||
| Offering proceeds from underwriters’ option, net of underwriting discounts and commissions | |||||||||||
| Payments for offering costs | ( | ||||||||||
| Distributions to non-controlling interest holders | ( | ( | |||||||||
| Borrowings on asset-based revolving credit facility | |||||||||||
| Repayments on asset-based revolving credit facility | ( | ||||||||||
| Issuance of long-term debt | |||||||||||
| Repayments of long-term debt | ( | ( | |||||||||
| Payment of debt redemption premiums | ( | ||||||||||
| Debt issuance costs | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at the beginning of the period | |||||||||||
| Cash and cash equivalents at the end of the period | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for taxes | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
CORE & MAIN, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in millions, except as noted, unaudited
1) BASIS OF PRESENTATION & DESCRIPTION OF BUSINESS
Organization
Core & Main, Inc. (“Core & Main”) is a Delaware corporation that was incorporated on April 9, 2021 for the purpose of facilitating an initial public offering and other related transactions, as described below, in order to carry on the business of Core & Main Holdings, LP, a Delaware limited partnership (“Holdings”), and its consolidated subsidiaries. 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. Holdings has no operations and no material operating 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. Core & Main, together with its wholly-owned subsidiaries, including Holdings and its consolidated subsidiaries, are referred to as the “Company”.
The Company is 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. The Company’s specialty products and services are used in the maintenance, repair, replacement, and construction of water and fire protection infrastructure. The Company reaches customers through a nationwide network of approximately 300 branches across 48 states. The Company’s 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. The Company has complemented its 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. The Company’s services and capabilities allow for integration with customers and form part of their sourcing and procurement function. All of the Company’s long-lived assets are located within the United States (“U.S.”).
Initial Public Offering
On July 27, 2021, Core & Main completed its initial public offering of 34,883,721 shares of Class A common stock at a price to the public of $20.00 per share (the “IPO”). Core & Main received net proceeds of approximately $664 million, after deducting underwriting discounts and commissions. All of the net proceeds from the IPO, less $8 million of transaction costs directly attributable to the IPO, were utilized to purchase 34,883,721 newly issued limited partner interests of Holdings (“Partnership Interests”) for approximately $656 million in the aggregate. In 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 below and described in Note 6) and cash on hand to redeem (i) all $300 million aggregate principal amount of the senior unsecured notes due September 15, 2024 issued by Holdings (the “Senior 2024 Notes”) and (2) all $750 million aggregate principal amount of the senior unsecured notes due August 15, 2025 issued by Core & Main LP (the “Senior 2025 Notes”). Additionally, Core & Main LP amended the terms of the credit agreement governing the senior term loan facility with an original principal balance of $1,300 million maturing on August 1, 2024 issued by Core & Main LP (the “Prior Term Loan Facility”) in order to, among other things, enter into a new $1,500 million seven-year senior term loan (the “Senior Term Loan Facility”).
On August 20, 2021, Core & Main 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”). Core & Main received net proceeds of approximately $100 million after deducting underwriting discounts and commissions. All of the net proceeds were utilized to purchase 5,232,558 newly issued Partnership Interests of Holdings at a price per unit equal to the public offering price per share less underwriting discounts and commissions. In turn, Holdings and Core & Main LP utilized the net proceeds of the IPO Overallotment Option Exercise directly or indirectly received from Core & Main for general corporate purposes.
11
Secondary Offerings
On January 10, 2022, a secondary public offering of 20,000,000 shares of Class A common stock on behalf of 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 “Fiscal 2021 Secondary Offering”). As part of the Fiscal 2021 Secondary Offering, 7,455,242 Partnership Interests were exchanged, together with the retirement of a corresponding number of shares of Class B common stock, for an equal number of shares of Class A common stock, which were a portion of the shares sold by the Selling Stockholders. These shares were sold along with an existing 12,544,758 shares of Class A common stock held by the Selling Stockholders.
On September 19, 2022, a secondary public offering of 11,000,000 shares of Class A common stock on behalf of the Selling Stockholders was completed at a price to the public of $23.75 per share (the “Fiscal 2022 Secondary Offering” and, together with the Fiscal 2021 Secondary Offering, the “Secondary Offerings”). As part of the Fiscal 2022 Secondary Offering, 4,123,399 Partnership Interests were exchanged, together with the retirement of a corresponding number of shares of Class B common stock, for an equal number of shares of Class A common stock, which were a portion of the shares sold by the Selling Stockholders. These shares were sold along with an existing 6,876,601 shares of Class A common stock held by the Selling Stockholders.
The Company did not receive any of the proceeds from the sales. The Company paid the costs associated with the sale of shares by the Selling Stockholders in the Secondary Offerings, other than underwriting discounts and commissions.
Reorganization Transactions
In connection with the IPO, the Company completed the following transactions (collectively, the “Reorganization Transactions”):
•the formation of Core & Main as a Delaware corporation to function as the direct and indirect parent of Holdings and a publicly traded entity;
•the amendment and restatement of the limited partnership agreement of Holdings to, among other things first, modify the capital structure of Holdings and second, admit Core & Main as the general partner and a limited partner of Holdings;
•Core & Main’s acquisition of the Partnership Interests held by certain Former Limited Partners (as defined below) and the issuance of Class A common stock to the Former Limited Partners, pursuant to the mergers of CD&R WW Advisor, LLC and CD&R WW Holdings, LLC (the “Blocker Companies”) with and into Core & Main via merger subsidiaries of Core & Main (the “Blocker Mergers”); and
•entry into a Master Reorganization Agreement, dated as of July 22, 2021 (the “Master Reorganization Agreement”), with Holdings, the Continuing Limited Partners (as defined below), the Blocker Companies, CD&R Waterworks Holdings GP, CD&R Associates X Waterworks, L.P., CD&R WW Holdings, L.P., Core & Main GP, LLC, CD&R Plumb Buyer, LLC, CD&R Fund X Advisor Waterworks B, L.P., CD&R Fund X Waterworks B1, L.P., CD&R Fund X-A Waterworks B, L.P., CD&R WW, LLC, Brooks Merger Sub 1, Inc. and Brooks Merger Sub 2, Inc. Pursuant to the Master Reorganization Agreement, the Former Limited Partners received Partnership Interests in exchange for their indirect ownership interests in Holdings and exchanged these Partnership Interests for shares of Class A common stock of Core & Main prior to the consummation of the IPO.
The Former Limited Partners are defined as CD&R Fund X Advisor Waterworks B, L.P., CD&R Fund X Waterworks B1, L.P., CD&R Fund X-A Waterworks B, L.P. and the other Original Limited Partners (as defined below) that transferred all or a portion of their Partnership Interests (including those held indirectly through the Blocker Companies) for shares of Class A common stock in connection with the Reorganization Transactions and the IPO, and represent entities that transferred all of their Partnership Interests (including Partnership Interests held indirectly through certain “blocker” corporations) for shares of Class A common stock in connection with the consummation of the Reorganization Transactions.
The Continuing Limited Partners are defined as CD&R Waterworks Holdings, LLC (“CD&R Waterworks Holdings”) and Core & Main Management Feeder, LLC (“Management Feeder”), and represent the Original Limited Partners that continued to own Partnership Interests after the Reorganization Transactions and that are entitled to exchange their Partnership Interests, together with the retirement of a corresponding number of shares of Class B common stock for shares of Class A common stock.
The Original Limited Partners are defined as CD&R Waterworks Holdings, the Former Limited Partners and Management Feeder and represent the direct and indirect owners of Holdings prior to the Reorganization Transactions and the IPO.
12
The shareholder ownership as of October 30, 2022 include the following:
•the shareholders of Core & Main, excluding the Continuing Limited Partners and Former Limited Partners, collectively held 71,870,438 shares of Class A common stock;
•the Former Limited Partners collectively held 100,521,370 shares of Class A common stock;
•Core & Main, directly or indirectly through our wholly-owned subsidiary, held 172,396,996 Partnership Interests; and
•the Continuing Limited Partners collectively held 5,188 shares of Class A common stock, 73,498,925 Partnership Interests and 73,498,925 shares of Class B common stock.
As the Reorganization Transactions were between entities under common control, the financial statements for the periods prior to the IPO and Reorganization Transactions have been adjusted to combine previously separate entities for presentation purposes. These entities include Core & Main, Holdings and its consolidated subsidiaries and the Blocker Companies. Prior to the Reorganization Transactions, Core & Main had no operations and the Blocker Companies were holding companies for indirect investments in Holdings. The Blocker Companies had no operations but did receive distributions from Holdings associated with their tax obligations from allocations of Holdings' taxable income. As such, the Blocker Companies' financial statements reflected tax provisions and operating cash outflows for payments to taxing authorities. Their balance sheets collectively included $330 million of goodwill and deferred tax liabilities and equity. In connection with the Blocker Mergers, Core & Main assumed the balance sheets of the Blocker Companies.
Basis of Presentation
Accounting Policies
The Company’s significant accounting policies are discussed in Note 2 to the audited consolidated financial statements in our 2021 Annual Report on Form 10-K. There have been no significant changes to these policies which have had a material impact on the Company’s interim unaudited condensed consolidated financial statements and related notes during the three and nine months ended October 30, 2022.
13
2) RECENT ACCOUNTING PRONOUNCEMENTS
Reference Rate Reform - In March 2020, the Financial Accounting Standards Board issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by ASU 2020-04 are effective for prospective contract modifications made and qualifying hedging relationships entered into as of March 12, 2020 through December 31, 2024.
In July 2022, the Company amended the terms of the Senior ABL Credit Facility (as defined below) in order to, among other things, implement a forward-looking rate based on the secured overnight financing rate (“SOFR”) in lieu of LIBOR. The guidance of ASU 2020-04 did not have an impact on the assessment of the Senior ABL Credit Facility amendment.
At the time of a qualifying future transaction that replace LIBOR with a new interest rate index, the Company will consider the application of ASU 2020-04.
3) REVENUE
Disaggregation of Revenue
The following table represents net sales disaggregated by product category:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Product Category | October 30, 2022 | October 31, 2021 | October 30, 2022 | October 31, 2021 | |||||||||||||||||||
| Pipes, valves & fittings products | $ | $ | $ | $ | |||||||||||||||||||
| Storm drainage products | |||||||||||||||||||||||
| Fire protection products | |||||||||||||||||||||||
| Meter products | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
4) ACQUISITIONS
Trumbull Acquisition
On October 3, 2022, the Company completed the acquisition of certain assets and assumption of certain liabilities of the municipal waterworks division of Trumbull Industries, Inc., as well as certain assets and assumption of certain liabilities of an affiliated entity, Trumbull Manufacturing, Inc. (collectively “Trumbull”), in a transaction valued up to $45 million, subject to working capital adjustments (the “Trumbull Acquisition”). Trumbull has three locations and distributes a variety of infrastructure products to the waterworks industry. The transaction price was funded with cash on hand. Given the size of the purchase price, a full purchase price allocation has not been presented. The preliminary purchase price allocation include $24 million to net working capital, $18 million to customer relationships and $7 million to goodwill.
Earthsavers Acquisition
On June 28, 2022, the Company completed the acquisition of certain assets and assumption of certain liabilities of Earthsavers Erosion Control, LLC (“Earthsavers”) in a transaction valued up to $25 million, subject to working capital adjustments (the “Earthsavers Acquisition”). Earthsavers has three locations and produces and distributes a variety of geosynthetic materials, including wattles, erosion control blankets and a broad array of geotextile products. The transaction price was funded with cash on hand. Given the size of the purchase price, a full purchase price allocation has not been presented. The preliminary purchase price allocation include $9 million to net working capital, $9 million to goodwill and $7 million to customer relationships.
14
L&M Acquisition
On August 30, 2021, the Company completed the acquisition of certain assets and assumption of certain liabilities of L&M Bag & Supply Co., Inc. (“L&M”) in a transaction valued up to $60 million, subject to working capital adjustments (the “L&M Acquisition”). L&M is a specialized supplier of geotextile fabrics and geogrids, silt fences, turbidity barriers and safety fences, weed control fabric and sod staples. The transaction price was funded with cash on hand.
Pacific Pipe Acquisition
On August 9, 2021, the Company completed the acquisition of all of the outstanding shares of Pacific Pipe Company, Inc. (“Pacific Pipe”) in a transaction valued up to $103 million, subject to working capital adjustments (the “Pacific Pipe Acquisition”). Pacific Pipe has four branch locations and serves municipalities and contractors in the water, wastewater, storm drainage and irrigation industries throughout Hawaii, with a broad product offering. The transaction price was funded with cash on hand.
Other Acquisitions
During the nine months ended October 30, 2022, the Company completed the acquisitions of certain assets and liabilities in transactions valued at $40 million in total, subject to working capital adjustments (the “Other 2022 Acquisitions”). During the nine months ended October 31, 2021, the Company completed the acquisitions of certain assets and liabilities in transactions valued at $6 million in total, subject to working capital adjustments (the “Other 2021 Acquisitions”). Given the immateriality of these transactions, a full purchase price allocation has not been presented. However, a substantial portion of the aggregate purchase price was allocated to customer relationships, goodwill and net working capital.
In the above transactions, to the extent applicable, the excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents the assembled workforce and anticipated long-term growth in new markets, customers and products. Goodwill associated with the Trumbull Acquisition, the Earthsavers Acquisition, the L&M Acquisition, Other 2022 Acquisitions and Other 2021 Acquisitions are fully deductible by the Company for U.S. income tax purposes.
The following table represents the final allocation of the transaction price to the fair value of identifiable assets acquired and liabilities assumed in the L&M Acquisition and Pacific Pipe Acquisition:
| L&M Acquisition | Pacific Pipe Acquisition | |||||||||||||||||||
| Cash | $ | $ | ||||||||||||||||||
| Accounts receivable | ||||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||||||||
| Other assets, current and non-current | ||||||||||||||||||||
| Total assets acquired | ||||||||||||||||||||
| Accounts payable | ||||||||||||||||||||
| Deferred income taxes | ||||||||||||||||||||
| Operating lease liabilities | ||||||||||||||||||||
| Net assets acquired | $ | $ | ||||||||||||||||||
The following reconciles the total consideration to net assets acquired:
| L&M Acquisition | Pacific Pipe Acquisition | |||||||||||||||||||
| Total consideration, net of cash | $ | $ | ||||||||||||||||||
| Plus: Cash acquired in acquisition | ||||||||||||||||||||
| Net assets acquired; investing cash outflow | $ | $ | ||||||||||||||||||
15
Pro Forma Financial Information
The following pro forma information presents a summary of the results of operations for the periods indicated as if the Pacific Pipe and L&M acquisitions had been completed as of February 3, 2020. The pro forma financial information is based on the historical financial information for the Company and Pacific Pipe and L&M, along with certain pro forma adjustments. These pro forma adjustments consist primarily of:
•increased amortization expense related to the intangible assets acquired in the Pacific Pipe and L&M acquisitions;
•reclassification of direct acquisition transaction costs, retention bonuses and inventory fair value adjustments from the period incurred to periods these expenses would have been recognized given the assumed transaction dates identified above; and
•the related income tax effects of the aforementioned adjustments to the provision for income taxes for Core & Main.
The following pro forma information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the Pacific Pipe and L&M acquisitions occurred on the assumed dates, nor is it necessarily an indication of future operating results. In addition, the pro forma information does not reflect the cost of any integration activities, benefits from any synergies that may be derived from the Pacific Pipe and L&M acquisitions or revenue growth that may be anticipated.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| October 31, 2021 | October 31, 2021 | |||||||||||||||||||||||||
| Net sales | $ | $ | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
As a result of integration of the Pacific Pipe and L&M acquisitions, including the consolidation of certain acquired and existing branches, it is impracticable to identify the explicit financial performance associated with the Pacific Pipe and L&M acquisitions. As such, the Company has not presented the post-acquisition net sales and net income for the Pacific Pipe and L&M acquisitions.
Intangible Assets
For the Pacific Pipe and L&M acquisitions discussed above, the Company valued intangible assets acquired, which included customer relationships and trademarks.
The customer relationship intangible assets represent the value associated with those customer relationships in place at the date of the Pacific Pipe and L&M acquisitions. The Company valued the customer relationships using an excess earnings method using various inputs such as customer attrition rate, revenue growth rate, gross margin percentage and discount rate. Cash flows associated with the existing relationships are expected to diminish over time due to customer turnover. The Company reflected this expected diminishing cash flow through the utilization of an annual customer attrition rate assumption and in its method of amortization.
The trademark intangible asset represents the value associated with the brand names in place at the date of the Pacific Pipe acquisition.
| Intangible Asset Amount | Amortization Period | Discount Rate | Attrition Rate | ||||||||||||||||||||
| L&M Acquisition | |||||||||||||||||||||||
| Customer relationships | $ | % | % | ||||||||||||||||||||
| Pacific Pipe Acquisition | |||||||||||||||||||||||
| Customer relationships | $ | % | % | ||||||||||||||||||||
| Trademark | % | N/A | |||||||||||||||||||||
16
5) GOODWILL AND INTANGIBLE ASSETS
Goodwill
The carrying amount of the Company’s goodwill included in its Balance Sheets is as follows:
| October 30, 2022 | January 30, 2022 | ||||||||||
| Gross Goodwill | $ | $ | |||||||||
| Accumulated Impairment | |||||||||||
| Net Goodwill | $ | $ | |||||||||
The changes in the carrying amount of goodwill are as follows:
| Nine Months Ended | |||||
| October 30, 2022 | |||||
| Beginning Balance | $ | ||||
| Goodwill acquired during the year | |||||
| Ending balance | $ | ||||
Goodwill acquired during the nine months ended October 30, 2022 was related to the Trumbull Acquisition, Earthsavers Acquisition and Other 2022 Acquisitions, as further described in Note 4.
Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company does not amortize goodwill, but does assess the recoverability of goodwill on an annual basis during the fourth quarter. If an event occurs or circumstances change that would “more likely than not” reduce the fair value of a reporting unit below its carrying value, an interim impairment test would be performed between annual tests.
Intangible Assets
The Company’s intangible assets included in its Balance Sheets consist of the following:
| October 30, 2022 | January 30, 2022 | ||||||||||||||||||||||||||||||||||
| Gross Intangible | Accumulated Amortization | Net Intangible | Gross Intangible | Accumulated Amortization | Net Intangible | ||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Other intangible assets | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Amortization expense related to intangible assets was as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 30, 2022 | October 31, 2021 | October 30, 2022 | October 31, 2021 | ||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | |||||||||||||||||||
The estimated aggregate amortization expense on intangible assets owned by the Company for the remainder of fiscal 2022 and the next four full fiscal years is expected to be as follows:
Fiscal 2022 | $ | ||||
Fiscal 2023 | |||||
Fiscal 2024 | |||||
Fiscal 2025 | |||||
Fiscal 2026 | |||||
17
6) DEBT
| October 30, 2022 | January 30, 2022 | ||||||||||||||||||||||
| Principal | Unamortized Discount and Debt Issuance Costs | Principal | Unamortized Discount and Debt Issuance Costs | ||||||||||||||||||||
| Current maturities of long-term debt: | |||||||||||||||||||||||
| Senior Term Loan due July 2028 | $ | $ | — | $ | $ | — | |||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||
| Senior ABL Credit Facility due July 2026 | |||||||||||||||||||||||
| Senior Term Loan due July 2028 | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The Company’s debt obligations as of October 30, 2022 included the following debt agreements:
Senior Term Loan Facility
On July 27, 2021, Core & Main LP entered into a $1,500 million Senior Term Loan Facility, which matures on July 27, 2028. The Senior Term Loan Facility requires quarterly principal payments, payable on the last business day of each fiscal quarter in an amount equal to approximately 0.25 % of the original principal amount of the Senior Term Loan Facility. The remaining balance is payable upon final maturity of the Senior Term Loan Facility on July 27, 2028. 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 Senior Term Loan Facility is subject to a LIBOR “floor” of 0.00 %. The weighted average interest rate, excluding the effect of the interest rate swap, of Core & Main LP’s outstanding borrowings under the Senior Term Loan Facility as of October 30, 2022 was 6.53 %. See further discussion of the interest rate swap below. Based on quotes from financial institutions (i.e., level 2 of the fair value hierarchy), the fair value of the Senior Term Loan Facility was $1,442 million as of October 30, 2022.
Asset-Based Credit Facility
On July 29, 2022, Core & Main LP amended the terms of the credit agreement governing the senior asset-based revolving credit facility (as amended, the “Senior ABL Credit Facility”) in order to, among other things, increase the aggregate amount of commitments under the asset-based revolving credit facility by $400 million to $1,250 million overall, subject to borrowing base availability, and implement a rate based on SOFR in lieu of LIBOR. The Senior ABL Credit Facility has a maturity date of July 27, 2026. Borrowings under the Senior ABL Credit Facility bear interest at either the 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. Additionally, Core & Main LP pays a fee of 0.25 % on unfunded commitments under the Senior ABL Credit Facility. As of October 30, 2022, there was $90 million outstanding under the Senior ABL Credit Facility with a weighted average interest rate of 4.14 %. The book value of the Senior ABL Credit Facility approximates fair value due to the variable interest rate nature of these borrowings.
The aforementioned debt agreements include customary affirmative and negative covenants, which include, among other things, restrictions on Core & Main LP’s ability to pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets and merge or consolidate with any other person. The Senior Term Loan Facility may require accelerated repayment based upon cash flows generated in excess of operating and investing requirements when the Consolidated Secured Leverage Ratio (as defined in the agreement governing the Senior Term Loan Facility) is greater than or equal to 3.25 . In addition, the Senior ABL Credit Facility requires Core & Main LP to comply with a consolidated fixed charge coverage ratio of greater than or equal to 1.00 when availability under the Senior ABL Credit Facility is less than 10.0 % of the lesser of (i) the then applicable borrowing base or (ii) the then aggregate effective commitments.
Substantially all of Core & Main LP’s assets are pledged as collateral for the Senior Term Loan Facility and the Senior ABL Credit Facility.
18
The aggregate amount of debt payments for the remainder of fiscal 2022 and the next four full fiscal years are as follows:
Fiscal 2022 | $ | ||||
Fiscal 2023 | |||||
Fiscal 2024 | |||||
Fiscal 2025 | |||||
Fiscal 2026 | |||||
Interest Rate Swaps
On February 28, 2018, Core & Main LP entered into an instrument pursuant to which it made payments to a third-party based upon a fixed interest rate of 2.725 % and received payments based upon the three-month LIBOR rate, based on a $500 million notional amount, which mirrored then outstanding borrowings under the Prior Term Loan Facility. On July 27, 2021, Core & Main LP repaid the approximately $1,258 million outstanding under the Prior Term Loan Facility and settled the interest rate swap.
| Nine Months Ended | |||||||||||||||||
| Accumulated Other Comprehensive Loss | October 31, 2021 | ||||||||||||||||
| Beginning of period balance | $ | ( | |||||||||||||||
| Reclassification of expense to interest expense | |||||||||||||||||
| Loss on debt modification and extinguishment | |||||||||||||||||
| Tax expense on interest rate swap adjustments | |||||||||||||||||
| Reclassification of expense to interest expense | ( | ||||||||||||||||
| Loss on debt modification and extinguishment | |||||||||||||||||
| End of period balance | $ | ||||||||||||||||
On July 27, 2021, Core & Main LP entered into an instrument in which it makes payments to a third-party based upon a fixed interest rate of 0.74 % and receives payments based upon the one-month LIBOR rate, based on notional amounts associated with borrowings under the Senior Term Loan Facility. The measurement period of the interest rate swap 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. This instrument is intended to reduce the Company's exposure to variable interest rates under the Senior Term Loan Facility. As of October 30, 2022, this instrument resulted in an effective fixed rate of 3.24 %, based upon the 0.74 % fixed rate plus an applicable margin of 2.50 %, on $1,000 million of borrowings under the Senior Term Loan Facility.
The fair value of this cash flow interest rate swap was a $103 million and $31 million asset as of October 30, 2022 and January 30, 2022, respectively, which is included within other assets in the Balance Sheet. Fair value is based upon the present value of future cash flows under the terms of the contract and observable market inputs (level 2). Significant inputs used in determining fair value include forward-looking one-month LIBOR rates and the discount rate applied to projected cash flows.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| Accumulated Other Comprehensive Income | October 30, 2022 | October 31, 2021 | October 30, 2022 | October 31, 2021 | |||||||||||||||||||
| Beginning of period balance | $ | $ | ( | $ | $ | ||||||||||||||||||
| Measurement adjustment gain for interest rate swap | |||||||||||||||||||||||
| Reclassification of (income) expense to interest expense | ( | ( | |||||||||||||||||||||
| Tax benefit (expense) on interest rate swap adjustments | |||||||||||||||||||||||
| Measurement adjustment gain for interest rate swap | ( | ( | ( | ( | |||||||||||||||||||
| Reclassification of (income) expense to interest expense | |||||||||||||||||||||||
| End of period balance | $ | $ | $ | $ | |||||||||||||||||||
As of October 30, 2022, the Company estimates $41 million of the cash flow interest rate swap gains will be reclassified from accumulated other comprehensive income into earnings over the next 12 months.
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7) INCOME TAXES
For the three months ended October 30, 2022 and October 31, 2021, the Company's effective tax rate was 18.3 % and 18.6 %, respectively. For the nine months ended October 30, 2022 and October 31, 2021, the Company's effective tax rate was 17.9 % and 19.0 %, respectively. The variations between the Company's estimated effective tax rate and the U.S. and state statutory rates are primarily due to the portion of the Company's earnings attributable to non-controlling interests following the Reorganization Transactions partially offset by certain permanent book-tax differences.
Tax Receivable Agreements and Reorganization Transactions
In connection with the Reorganization Transactions and the IPO, Core & Main entered into a tax receivable agreement with the Former Limited Partners (the “Former Limited Partners Tax Receivable Agreement”) and a tax receivable agreement with the Continuing Limited Partners (the “Continuing Limited Partners Tax Receivable Agreement”) (collectively, the “Tax Receivable Agreements”). Core & Main expects to generate additional tax attributes, associated with future exchanges of Partnership Interests by Continuing Limited Partners, that will reduce amounts that it would otherwise pay in the future to various tax authorities. The Tax Receivable Agreements provide for the payment to either the Former Limited Partners or Continuing Limited Partners, or their permitted transferees, of 85 % of the tax benefits realized by the Company, or in some circumstances are deemed to realize.
The Company recorded $92 million and $93 million payables to related parties pursuant to the Former Limited Partners Tax Receivable Agreement and the Continuing Limited Partners Tax Receivable Agreement, respectively, as of October 30, 2022. As of January 30, 2022, the Company had recorded $92 million and $61 million payables to related parties pursuant to the Former Limited Partners Tax Receivable Agreement and the Continuing Limited Partners Tax Receivable Agreement, respectively. Payments to the Former Limited Partners are expected to commence in fiscal year 2023 for which $6 million is included within other current liabilities in the Balance Sheet.
The actual amount and timing of any payments under the Tax Receivable Agreements will vary depending upon a number of factors, including the timing of exchanges by the holders of Partnership Interests, the amount of gain recognized by such holders of Partnership Interests, the amount and timing of the taxable income the Company generates in the future and the federal tax rates then applicable. Assuming (i) that the Continuing Limited Partners exchanged all of their Partnership Interests at $23.56 per share of our Class A common stock (the closing stock price on October 28, 2022), (ii) no material changes in relevant tax law, (iii) a constant corporate tax rate of 25.1 %, which represents a pro forma tax rate that includes a provision for U.S. federal income taxes and assumes the highest statutory rate apportioned to each state and local jurisdiction and (iv) that the Company earns sufficient taxable income in each year to realize on a current basis all tax benefits that are subject to the Continuing Limited Partners Tax Receivable Agreement, the Company would recognize a deferred tax asset (subject to offset with existing deferred tax liabilities) of approximately $564 million and a Continuing Limited Partners Tax Receivable Agreement liability of approximately $479 million, payable to the Continuing Limited Partners over the life of the Continuing Limited Partners Tax Receivable Agreement. The full exchange by the Continuing Limited Partners will also decrease Core & Main's aforementioned deferred tax asset associated with its investment in Holdings by $151 million. The foregoing amounts are estimates and subject to change.
8) SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Receivables
| October 30, 2022 | January 30, 2022 | ||||||||||
| Trade receivables, net of allowance for credit losses | $ | $ | |||||||||
| Supplier rebate receivables | |||||||||||
| Receivables, net of allowance for credit losses | $ | $ | |||||||||
Depreciation Expense
Depreciation expense is classified within cost of sales and depreciation and amortization. Depreciation expense related to property, plant and equipment, including capitalized software, was as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 30, 2022 | October 31, 2021 | October 30, 2022 | October 31, 2021 | ||||||||||||||||||||
| Depreciation expense | $ | $ | $ | $ | |||||||||||||||||||
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Accrued Compensation and Benefits
| October 30, 2022 | January 30, 2022 | ||||||||||
| Accrued bonuses and commissions | $ | $ | |||||||||
| Other compensation and benefits | |||||||||||
| Accrued compensation and benefits | $ | $ | |||||||||
Other Current Liabilities
| October 30, 2022 | January 30, 2022 | ||||||||||
| Accrued non-income taxes | $ | $ | |||||||||
| Accrued income taxes | |||||||||||
| Other | |||||||||||
| Other current liabilities | $ | $ | |||||||||
Leases
The table below presents cash and non-cash impacts associated with leases:
| Nine Months Ended | |||||||||||||||||||||||
| October 30, 2022 | October 31, 2021 | ||||||||||||||||||||||
| Cash paid for amounts included in the measurements of lease liabilities | |||||||||||||||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||||||||||||||
| Right-of-use assets obtained in exchange for new lease liabilities | |||||||||||||||||||||||
| Operating leases | $ | $ | |||||||||||||||||||||
The non-cash impact related to right-of-use assets obtained in exchange for new operating lease liabilities in the table above excludes the impact from acquisitions. Right-of-use assets acquired as part of the Pacific Pipe and L&M acquisitions are presented in Note 4.
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9) NON-CONTROLLING INTERESTS
Core & Main is the general partner of Holdings and operates and controls all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conducts the Company's business. Accordingly, Core & Main consolidates the consolidated financial statements of Holdings and attributes a portion of net income and equity of Holdings to non-controlling interests related to the vested Partnership Interests held by the Continuing Limited Partners. Income or loss is attributed to the non-controlling interests based on the weighted average percentage of Partnership Interests held by Continuing Limited Partners, excluding unvested Partnership Interests held by Management Feeder, relative to all Partnership Interests of Holdings during the period following the Reorganization Transactions. Holdings equity is attributed to non-controlling interests based on the Partnership Interests held by Continuing Limited Partners, excluding unvested Partnership Interests held by Management Feeder, relative to all Partnership Interests as of the balance sheet date. The non-controlling interests’ ownership percentage may fluctuate over time as the Continuing Limited Partners exchange Partnership Interests, together with the retirement of a corresponding number of shares of Class B common stock, for shares of Class A common stock and Partnership Interests held by Management Feeder vest. The following table summarizes the ownership of Partnership Interests of Holdings (excluding unvested Partnership Interests held by Management Feeder):
| Partnership Interests | Ownership Percentage | |||||||||||||||||||||||||||||||||||||
| Core & Main | Continuing Limited Partners | Total | Core & Main | Continuing Limited Partners | Total | |||||||||||||||||||||||||||||||||
Balances at January 30, 2022 | % | % | % | |||||||||||||||||||||||||||||||||||
| Issuance of Partnership Interests | ||||||||||||||||||||||||||||||||||||||
| Exchange of Partnership Interests | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Forfeiture of Partnership Interests | ( | ( | ||||||||||||||||||||||||||||||||||||
| Vesting of Partnership Interests | ( | |||||||||||||||||||||||||||||||||||||
Balances at October 30, 2022 | % | % | % | |||||||||||||||||||||||||||||||||||
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10) BASIC AND DILUTED EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per share for the three and nine months ended October 30, 2022, the three months ended October 31, 2021 and from July 23, 2021 to October 31, 2021, the period following the Reorganization Transactions.
Basic earnings per share is computed by dividing net income attributable to Core & Main for the period by the weighted average number of shares of Class A common stock outstanding during the same period. Shares of Class A common stock issued during the period were weighted for the portion of the period in which the shares of Class A common stock were outstanding. The Company did not apply the two-class method because shares of Class B common stock do not participate in earnings or losses of Core & Main. As a result, the shares of Class B common stock are not considered participating securities and are not included in the weighted average shares outstanding for purposes of earnings per share. Net income allocated to holders of non-controlling interests was excluded from net income available to the Class A common stock. There were no preferred dividends and no shares of preferred stock outstanding for the period.
The diluted earnings per share calculation includes the basic weighted average number of shares of Class A common stock outstanding plus the dilutive impact of potential outstanding shares of Class A common stock that would be issued upon exchange of Partnership Interests, together with the retirement of a corresponding number of shares of Class B common stock, under the if-converted method, if dilutive. The treasury stock method is applied to outstanding awards, including unvested Partnership Interests and outstanding stock appreciation rights, restricted stock units and stock options.
| Three Months Ended | Nine Months Ended October 30, 2022 | July 23, 2021 through October 31, 2021 | ||||||||||||||||||||||||
| Basic earnings per share: | October 30, 2022 | October 31, 2021 | ||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Net income attributable to non-controlling interests | ||||||||||||||||||||||||||
| Net income available to Class A common stock | ||||||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||||
| Net income per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per share: | ||||||||||||||||||||||||||
| Net income available to common shareholders - basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Increase to net income attributable to dilutive instruments | ||||||||||||||||||||||||||
| Net income available to common shareholders - diluted | ||||||||||||||||||||||||||
| Weighted average shares outstanding - basic | ||||||||||||||||||||||||||
| Incremental shares of common stock attributable to dilutive instruments | ||||||||||||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||||||||||||
| Net income per share - diluted | $ | $ | $ | $ | ||||||||||||||||||||||
11) RELATED PARTIES
CD&R affiliates
During the three and nine months ended October 30, 2022, the Company had less than $1 million and $1 million, respectively, in purchases of product from affiliates of Clayton, Dubilier & Rice, LLC (“CD&R”), including other companies invested in by funds affiliated with or managed by CD&R (the “CD&R Funds”). During the three and nine months ended October 31, 2021, the Company had $1 million and $2 million, respectively, in purchases of product from affiliates of CD&R, including other companies invested in by CD&R Funds. There were no 1 million and $2 million in sales to affiliates of CD&R for the three and nine months ended October 30, 2022, respectively. There was less than $1 million and $5 million in sales to affiliates of CD&R for the three and nine months ended October 31, 2021, respectively. The Company had no
Tax Receivable Agreements
In connection with the Reorganization Transactions, Core & Main entered into the Former Limited Partners Tax Receivable Agreement with the Former Limited Partners and the Continuing Limited Partners Tax Receivable Agreement with the Continuing Limited Partners. See further discussion in Note 7.
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Exchange Agreement
In connection with the Reorganization Transactions, Core & Main entered into the Exchange Agreement, dated as of July 22, 2021 (as amended, the “Exchange Agreement”), by and among Core & Main Holdings, LLC and Core & Main Management Feeder, LLC. Pursuant to the Exchange Agreement, the Continuing Limited Partners (or their permitted transferees) will have the right, subject to the terms of the Exchange Agreement, to exchange their Partnership Interests, together with the retirement of a corresponding number of shares of Class B common stock, for shares of Class A common stock generally on a one-for-one basis or for cash in limited circumstances as specified in the Exchange Agreement. The Exchange Agreement also provides that in connection with any such exchange, to the extent that Holdings has, since consummation of the Reorganization Transactions and the IPO, made distributions to the applicable Continuing Limited Partner that are proportionately lesser or greater than the distributions made to Core & Main, on a pro rata basis, the number of shares of Class A common stock to be issued or cash to be paid to such Continuing Limited Partner will be adjusted to take into account the amount of such discrepancy that is allocable to the Partnership Interests, and Class B common stock, subject to such exchange. Core & Main expects to cause Holdings to make distributions to its partners in such a manner as generally to limit increases to the number of shares of Class A common stock to be issued or cash to be paid to exchanging Continuing Limited Partners in connection with the adjustment described in the preceding sentence.
12) SUBSEQUENT EVENTS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto of Core & Main, Inc. for the fiscal year ended January 30, 2022 included in our 2021 Annual Report on Form 10-K. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed below and elsewhere in this Quarterly Report on Form 10-Q for a number of important factors, particularly those described under the caption “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A of the 2021 Annual Report on Form 10-K.
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 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 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. 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.
Basis of Presentation
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”). Holdings has no operations and no material operating 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. Because Core & Main is the general partner of Holdings, it operates and controls all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conducts our business. Accordingly, the condensed consolidated financial information of Core & Main presented herein, including the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, includes the consolidated financial information of Holdings and its subsidiaries. The ownership interest of the Continuing Limited Partners related to Partnership Interests (each as defined in Note 1 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) held by the Continuing Limited Partners is reflected as non-controlling interests in Core & Main’s condensed consolidated financial statements.
Fiscal Year
Our fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31st. Quarters within the fiscal year include 13-week periods, unless a fiscal year includes a 53rd week, in which case the fourth quarter of the fiscal year will be a 14-week period. Each of the three months ended October 30, 2022 and three months ended October 31, 2021 included 13 weeks and each of the nine months ended October 30, 2022 and nine months ended October 31, 2021 included 39 weeks. The current fiscal year ending January 29, 2023 (“fiscal 2022”) will include 52 weeks.
Significant Events During Fiscal 2022
Secondary Offering
On September 19, 2022, a secondary public offering of 11,000,000 shares of Class A common stock on behalf of certain selling stockholders affiliated with Clayton, Dubilier & Rice, LLC (the “Selling Stockholders”) was completed at a price to the public of $23.75 per share (the “Fiscal 2022 Secondary Offering”). As part of the Fiscal 2022 Secondary Offering, 4,123,399 Partnership Interests were exchanged, together with the retirement of a corresponding number of shares of Class B common stock, for an equal number of shares of Class A common stock, which were a portion of the shares sold by the Selling Stockholders. These shares were sold along with an existing 6,876,601 shares of Class A common stock held by the Selling Stockholders. The Company did not receive any of the proceeds from the sale. The Company paid the costs associated with the sale of shares by the Selling Stockholders, other than underwriting discounts and commissions.
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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 net sales for the fiscal year ended January 30, 2022 (“fiscal 2021”) , our exposure by end market was approximately 39% municipal, 39% non-residential and 22% residential. 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. Non-residential and residential construction activities are primarily driven by availability of credit, interest rates, general economic conditions, consumer confidence and other factors that are beyond our control. The length and magnitude of these cycles have varied over time and by market. 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. 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. We believe these dynamics create the backdrop for a favorable funding environment and accelerated investment in projects that will benefit our business.
In August 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), which includes a 15% book-income alternative minimum tax on corporations with average applicable financial statement income over $1 billion for any 3-year period ending with 2022 or later and a 1% excise tax on the fair market value of stock that is repurchased by publicly traded U.S. corporations or their specified affiliates. The alternative minimum tax and the excise tax are effective in taxable years beginning after December 31, 2022. Currently, we do not qualify for the alternative minimum tax. As part of our approach to our capital allocation, we will evaluate any impact related to the excise tax on stock repurchases by the Company.
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. 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. Our cash flows from operating activities are typically lower during the first and second fiscal quarters due to investment in working capital and annual incentive compensation payments and are typically higher during the third and fourth fiscal quarters due to cash inflows associated with receivable collections and reduced inventory purchases. We have recently experienced periods where customers have accelerated certain orders due to product availability constraints and inflation, diverging from typical seasonality trends. Customer acceleration of orders earlier in fiscal 2022, improving product availability and traditional seasonality may increase the risk of lower net sales during the fourth quarter of fiscal 2022 if customer orders are lower and commodity prices decline, as further discussed under "— Price Fluctuations" below.
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Price Fluctuations
Our financial performance is impacted by price fluctuations in commodity-based products and our ability to reflect these changes, in a timely manner, in our customer pricing. Such commodity-based products include PVC, ductile iron, fusible HDPE and steel and copper pipe and tubing products, which collectively accounted for approximately 32% of our net sales in fiscal 2021.
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 cost to procure the products we sell are historically volatile and subject to fluctuations arising from changes in supply and demand, national and international economic conditions, labor costs, competition, market speculation, government regulation, weather events, trade policies and periodic delays in the delivery of our products. During fiscal 2021 and fiscal 2022, we experienced significant price inflation and product surcharges 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. Over the course of fiscal 2021 and fiscal 2022, 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 and the conflict in Ukraine that limited product availability and further exacerbated the effects of inflation. 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. For the remainder of fiscal 2022, we expect recent year-over-year growth rates to moderate as we anniversary the initial effects of inflation in fiscal 2021. 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.
We are also exposed to fluctuations in costs for petroleum as we distribute a substantial portion of our products by truck. Petroleum prices have recently experienced significant increases as a result of the conflict in Ukraine and other factors. 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. 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 $1,500 million seven-year senior term loan (the “Senior Term Loan Facility”) and the asset-based revolving credit facility with a borrowing capacity of up to $1,250 million and a maturity date of July 27, 2026 (the “Senior ABL Credit Facility”), are subject to variable rates of interest and expose us to interest rate risk. The Senior Term Loan Facility bears interest based on the London Interbank Offered Rate (“LIBOR”) and the Senior ABL Credit Facility bears interest based on the secured overnight financing rate (“SOFR”). As 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. As of October 30, 2022, we had $1,571 million of outstanding variable-rate debt. 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, 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. Despite these efforts, unfavorable movement in interest rates may further result in higher interest expense and cash payments.
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Acquisitions
In addition to our organic growth strategy, we opportunistically pursue strategic asset and business acquisitions to grow our business. Below is a summary of the acquisitions that closed during the nine months ended October 30, 2022 and fiscal 2021 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. (“Trumbull”) | Pipes, Valves & Fittings | October 2022 | $45 | ||||||||||||||||||||
Earthsavers Erosion Control, LLC (“Earthsavers”) | Storm Drainage | June 2022 | 25 | ||||||||||||||||||||
| Other 2022 Acquisitions | Pipes, Valves & Fittings | Various | 40 | ||||||||||||||||||||
L&M Bag & Supply Co., Inc. (“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 | 6 | ||||||||||||||||||||
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. There can be no assurance that the anticipated benefits of the acquisitions will be realized on the timeline we expect, or at all.
COVID-19 Pandemic Supply Chain Impacts
As we monitor the ongoing impact of the COVID-19 pandemic, including the effects of variants of the virus, we have continued to operate as an essential business, providing products and services to our customers needed to invest in and maintain our nation’s infrastructure. During fiscal 2021 and fiscal 2022, we have experienced increasing pressure on our supply chain due to several factors, including, but not limited to, longer lead times from our suppliers, labor availability, global logistics and availability of raw materials that are in part due to the impact of COVID-19 on the global economy. 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. We continue to proactively monitor the situation and our supply chain and assess further possible implications to our business.
CARES Act
On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act allowed for the deferral of the employer share of social security taxes for the period from March 27, 2020 through December 31, 2020. As of October 30, 2022, we have deferred payment of $5 million in employer share of social security taxes in accordance with the CARES Act that are required to be repaid by December 31, 2022, which are expected to result in additional operating cash outflows during fiscal 2022.
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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. 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 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.
We categorize our net sales into pipes, valves & fittings, storm drainage products, fire protection products and meter products:
•Pipe, valves, hydrants, fittings include these products and other complementary products and 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 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.
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 may not be comparable to those of other companies, as other companies may include all of the costs related to their distribution network in cost of sales.
Operating Expenses
Operating expenses are primarily comprised of selling, general and administrative costs, which include personnel expenses (salaries, wages, incentive compensation, associate benefits and payroll taxes), rent, insurance, utilities, professional fees, freight out, fuel and repair and maintenance.
Net Income
Net income represents net sales less cost of sales, operating expenses, depreciation and amortization, interest expense, other expense and the 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. Non-controlling interests represent owners of Partnership Interests of Holdings other than Core & Main.
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA further adjusted for certain items management believes are not reflective of the underlying operations of our business, including (a) loss on debt modification and extinguishment, (b) equity-based compensation, (c) expenses associated with the initial public offering of 34,883,721 shares of Class A common stock at a price to the public of $20.00 per share (the “IPO”) and subsequent secondary offerings and (d) expenses associated with acquisition activities. Adjusted EBITDA includes amounts otherwise attributable to non-controlling interests as we manage the consolidated company and evaluate operating performance in a similar manner. We use Adjusted EBITDA to assess the operating results and effectiveness of our business. 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.
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Results of Operations
Three Months Ended October 30, 2022 Compared with Three Months Ended October 31, 2021
Amounts in millions (except per share data)
| Three Months Ended | |||||||||||
| October 30, 2022 | October 31, 2021 | ||||||||||
Net sales | $ | 1,818 | $ | 1,405 | |||||||
Cost of sales | 1,318 | 1,034 | |||||||||
| Gross profit | 500 | 371 | |||||||||
| Operating expenses: | |||||||||||
| Selling, general and administrative | 231 | 188 | |||||||||
Depreciation and amortization | 35 | 36 | |||||||||
Total operating expenses | 266 | 224 | |||||||||
Operating income | 234 | 147 | |||||||||
Interest expense | 16 | 12 | |||||||||
| Loss on debt modification and extinguishment | — | 1 | |||||||||
Income before provision for income taxes | 218 | 134 | |||||||||
Provision for income taxes | 40 | 25 | |||||||||
Net income | 178 | 109 | |||||||||
| Less: net income attributable to non-controlling interests | 67 | 45 | |||||||||
| Net income attributable to Core & Main, Inc. | $ | 111 | $ | 64 | |||||||
| Earnings per share: | |||||||||||
| Basic | $ | 0.65 | $ | 0.41 | |||||||
| Diluted | $ | 0.65 | $ | 0.39 | |||||||
| Non-GAAP Financial Data: | |||||||||||
| Adjusted EBITDA | $ | 275 | $ | 189 | |||||||
Net Sales
Net sales for the three months ended October 30, 2022 increased $413 million, or 29.4%, to $1,818 million compared with $1,405 million for the three months ended October 31, 2021. The increase in net sales was primarily attributable to price inflation, volume growth and acquisitions, with price inflation representing approximately three-fourths of the net sales increase. The volume increases were driven by market volume growth, which helped drive growth across all product lines, and share gains from execution of sales initiatives. Net sales growth for pipes, valves & fittings and storm drainage products benefited from price inflation, end-market growth and acquisitions. Net sales growth for fire protection products also benefited from price inflation and end-market growth. Net sales growth for meter products benefited from higher volumes due to improving supply chains for semi-conductor chips, which are components of certain smart meter products.
| Three Months Ended | |||||||||||||||||
| October 30, 2022 | October 31, 2021 | Percentage Change | |||||||||||||||
Pipes, valves & fittings products | $ | 1,238 | $ | 943 | 31.3 | % | |||||||||||
Storm drainage products | 282 | 206 | 36.9 | % | |||||||||||||
Fire protection products | 180 | 152 | 18.4 | % | |||||||||||||
Meter products | 118 | 104 | 13.5 | % | |||||||||||||
Total net sales | $ | 1,818 | $ | 1,405 | |||||||||||||
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Gross Profit
Gross profit for the three months ended October 30, 2022 increased $129 million, or 34.8%, to $500 million compared with $371 million for the three months ended October 31, 2021. The increase in net sales contributed an additional $109 million of gross profit and the increase in gross profit as a percentage of net sales contributed $20 million. Gross profit as a percentage of net sales for the three months ended October 30, 2022 was 27.5% compared with 26.4% for the three months ended October 31, 2021. The overall increase in gross profit as a percentage of net sales was primarily attributable to strategic inventory investments ahead of announced price increases, favorable product mix and the execution of our gross margin initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the three months ended October 30, 2022 increased $43 million, or 22.9%, to $231 million compared with $188 million during the three months ended October 31, 2021. The increase was primarily attributable to an increase of $31 million in personnel expenses, which was primarily driven by higher variable compensation costs and headcount. In addition, distribution and facility costs increased related to volume and inflation. SG&A expenses as a percentage of net sales was 12.7% for the three months ended October 30, 2022 compared with 13.4% for the three months ended October 31, 2021. The decrease was attributable to our ability to leverage our fixed costs during fiscal 2022.
Depreciation and Amortization Expense
Depreciation and amortization (“D&A”) expense for the three months ended October 30, 2022 was $35 million compared with $36 million during the three months ended October 31, 2021. The decrease was primarily attributable to lower amortization on existing customer relationship intangible assets, partially offset by amortization related to the Trumbull and Earthsavers acquisitions.
Operating Income
Operating income for the three months ended October 30, 2022 increased $87 million, or 59.2%, to $234 million compared with $147 million during the three months ended October 31, 2021. The increase in operating income was attributable to higher net sales and gross profit, primarily from price inflation and volume growth. These factors were partially offset by higher variable compensation costs and higher personnel expenses due to increased headcount.
Interest Expense
Interest expense was $16 million for the three months ended October 30, 2022 compared with $12 million for the three months ended October 31, 2021. The increase was primarily attributable to borrowings under the Senior ABL Credit Facility and an increase in interest rates on our variable-rate debt.
Provision for Income Taxes
The provision for income taxes for the three months ended October 30, 2022 increased $15 million to $40 million compared with $25 million for the three months ended October 31, 2021. For the three months ended October 30, 2022 and October 31, 2021, our effective tax rate was 18.3% and 18.6%, respectively. The effective tax rate for each period reflects only the portion of net income that is attributable to taxable entities. The lower effective tax rate is attributable to lower permanent differences and fixed tax amounts coupled with higher income before provision for income taxes in fiscal 2022.
Net Income
Net income for the three months ended October 30, 2022 increased $69 million, or 63.3%, to $178 million compared with $109 million for the three months ended October 31, 2021. The increase in net income was primarily attributable to higher operating income, partially offset by higher interest expense and provision for income taxes.
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests for the three months ended October 30, 2022 was $67 million compared with net income attributable to non-controlling interests of $45 million for the three months ended October 31, 2021. The increase was primarily attributable to higher net income of Holdings.
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Net Income Attributable to Core & Main, Inc.
Net income attributable to Core & Main, Inc. for the three months ended October 30, 2022 was $111 million compared with $64 million for the three months ended October 31, 2021. The increase was primarily attributable to higher net income of Holdings, partially offset by increased provision for income taxes for Core & Main, Inc.
Earnings Per Share
The Class A common stock basic earnings per share for the three months ended October 30, 2022 was $0.65 compared with $0.41 for the three months ended October 31, 2021. The Class A common stock diluted earnings per share for the three months ended October 30, 2022 was $0.65 compared with $0.39 for the three months ended October 31, 2021. These increases were primarily attributable to higher net income.
Adjusted EBITDA
Adjusted EBITDA for the three months ended October 30, 2022 increased $86 million, or 45.5%, to $275 million compared with $189 million for the three months ended October 31, 2021. Growth in Adjusted EBITDA was primarily attributable to higher net sales, improved gross profit margins, and leveraging our cost structure on the increase in net sales. 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.”
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Nine Months Ended October 30, 2022 Compared with Nine Months Ended October 31, 2021
Amounts in millions (except per share data)
| Nine Months Ended | |||||||||||
| October 30, 2022 | October 31, 2021 | ||||||||||
Net sales | $ | 5,277 | $ | 3,758 | |||||||
Cost of sales | 3,855 | 2,805 | |||||||||
| Gross profit | 1,422 | 953 | |||||||||
| Operating expenses: | |||||||||||
| Selling, general and administrative | 667 | 534 | |||||||||
Depreciation and amortization | 104 | 103 | |||||||||
Total operating expenses | 771 | 637 | |||||||||
Operating income | 651 | 316 | |||||||||
Interest expense | 46 | 85 | |||||||||
| Loss on debt modification and extinguishment | — | 51 | |||||||||
Income before provision for income taxes | 605 | 180 | |||||||||
Provision for income taxes | 108 | 34 | |||||||||
Net income | 497 | 146 | |||||||||
| Less: net income attributable to non-controlling interests | 185 | 28 | |||||||||
| Net income attributable to Core & Main, Inc. | $ | 312 | $ | 118 | |||||||
| Earnings per share: | |||||||||||
| Basic | $ | 1.85 | $ | 0.27 | |||||||
| Diluted | $ | 1.82 | $ | 0.26 | |||||||
| Non-GAAP Financial Data: | |||||||||||
| Adjusted EBITDA | $ | 771 | $ | 453 | |||||||
Net Sales
Net sales for the nine months ended October 30, 2022 increased $1,519 million, or 40.4%, to $5,277 million compared with $3,758 million for the nine months ended October 31, 2021. The increase in net sales was primarily attributable to price inflation, volume growth and acquisitions, with price inflation representing approximately three-fourths of the net sales increase. The volume increases were driven by market volume growth and share gains in part due to preferred access to products during a period of material shortages, which helped drive growth across all product lines, and execution of our sales initiatives. Net sales growth for pipes, valves & fittings and storm drainage products benefited from price inflation, end-market growth and acquisitions. Net sales growth for fire protection products also benefited from price inflation and end-market growth. Net sales of meter products grew at a slower pace primarily due to continued shortages of semi-conductor chips, which are components of certain smart meter products.
| Nine Months Ended | |||||||||||||||||
| October 30, 2022 | October 31, 2021 | Percentage Change | |||||||||||||||
Pipes, valves & fittings products | $ | 3,639 | $ | 2,536 | 43.5 | % | |||||||||||
Storm drainage products | 757 | 509 | 48.7 | % | |||||||||||||
Fire protection products | 544 | 409 | 33.0 | % | |||||||||||||
Meter products | 337 | 304 | 10.9 | % | |||||||||||||
Total net sales | $ | 5,277 | $ | 3,758 | |||||||||||||
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Gross Profit
Gross profit for the nine months ended October 30, 2022 increased $469 million, or 49.2%, to $1,422 million compared with $953 million for the nine months ended October 31, 2021. The increase in net sales contributed an additional $386 million of gross profit and the increase in gross profit as a percentage of net sales contributed $83 million. Gross profit as a percentage of net sales for the nine months ended October 30, 2022 was 26.9% compared with 25.4% for the nine months ended October 31, 2021. 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.
Selling, General and Administrative Expenses
SG&A expenses for the nine months ended October 30, 2022 increased $133 million, or 24.9%, to $667 million compared with $534 million during the nine months ended October 31, 2021. The increase was primarily attributable to an increase of $107 million in personnel expenses, which was primarily driven by higher variable compensation costs and headcount from acquisitions. In addition, distribution and facility costs increased related to volume, inflation and acquisitions. These factors were partially offset by a $13 million decrease related to equity-based compensation expense due to accounting for a modification to equity awards in the prior year period. SG&A expenses as a percentage of net sales was 12.6% for the nine months ended October 30, 2022 compared with 14.2% for the nine months ended October 31, 2021. The decrease was attributable to our ability to leverage our fixed costs and lower equity-based compensation expense during fiscal 2022.
Depreciation and Amortization Expense
D&A expense for the nine months ended October 30, 2022 was $104 million compared with $103 million during the nine months ended October 31, 2021. The increase primarily was attributable to amortization related to the Trumbull, Earthsavers, Pacific Pipe and L&M acquisitions, partially offset by lower amortization on existing customer relationship intangible assets.
Operating Income
Operating income for the nine months ended October 30, 2022 increased $335 million, or 106.0%, to $651 million compared with $316 million during the nine months ended October 31, 2021. The increase in operating income was attributable to higher net sales and gross profit, primarily from price inflation, volume growth and acquisitions, and lower equity-based compensation expense in fiscal 2022. These factors were partially offset by higher variable compensation costs and higher personnel expenses and facility costs due to increased headcount and facilities from acquisitions.
Interest Expense
Interest expense was $46 million for the nine months ended October 30, 2022 compared with $85 million for the nine months ended October 31, 2021. The decrease was primarily attributable to the redemption of the Senior 2024 Notes and the Senior 2025 Notes (each as defined in Note 1 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) completed on July 27, 2021, partially offset by borrowings on the Senior ABL Credit Facility and an increase in interest rates on our variable-rate debt.
Loss on Debt Modification and Extinguishment
For the nine months ended October 31, 2021, we recognized a loss on debt modification and extinguishment of $51 million. The loss on debt modification and extinguishment included (i) a write off of $8 million in deferred financing fees associated with the redemption of the Senior 2024 Notes, (ii) a write off of $13 million in deferred financing fees associated with the redemption of the Senior 2025 Notes, (iii) a write off of $5 million in deferred financing fees associated with the settlement of the Prior Term Loan Facility, (iv) redemption premiums of $6 million and $12 million for the Senior 2024 Notes and Senior 2025 Notes, respectively, (v) the settlement of the cash flow interest rate swap of $5 million, and (vi) third-party expenses for the Senior Term Loan Facility of $2 million.
Provision for Income Taxes
The provision for income taxes for the nine months ended October 30, 2022 increased $74 million to $108 million compared with $34 million for the nine months ended October 31, 2021. For the nine months ended October 30, 2022 and October 31, 2021, our effective tax rate was 17.9% and 19.0%, respectively. The effective tax rate for each period reflects only the portion of net income that is attributable to taxable entities. The lower effective tax rate is attributable to lower permanent differences and fixed tax amounts coupled with higher income before provision for income taxes in fiscal 2022.
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Net Income
Net income for the nine months ended October 30, 2022 increased $351 million, or 240.4%, to $497 million compared with $146 million for the nine months ended October 31, 2021. The increase in net income was primarily attributable to higher operating income, the $51 million loss on debt modification and extinguishment and equity award modification expense, both of which occurred in fiscal 2021, and lower interest expense, partially offset by an increase in income taxes.
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests for the nine months ended October 30, 2022 was $185 million compared with a net income attributable to non-controlling interests of $28 million for the nine months ended October 31, 2021. This includes the allocation of the Holdings’ net income for the nine months ended October 30, 2022 to holders of Partnership Interests other than Core & Main. For the nine months ended October 31, 2021, the allocation of Holdings’ net income to holders of Partnership Interests other than Core & Main is for the period from July 23, 2021 through October 31, 2021, which was partially offset by Core & Main’s share of the $51 million loss on debt modification and extinguishment that occurred on July 27, 2021.
Net Income Attributable to Core & Main, Inc.
Net income attributable to Core & Main, Inc. for the nine months ended October 30, 2022 was $312 million compared with $118 million for the nine months ended October 31, 2021. This represents the allocation of Holdings’ net income for the nine months ended October 30, 2022 to Core & Main. For the nine months ended October 31, 2021, the allocation of Holdings’ net income to Core & Main, Inc. includes net income of Holdings for the period from February 1, 2021 to July 22, 2021.
Earnings Per Share
The Class A common stock basic earnings per share and diluted earnings per share for the nine months ended October 30, 2022 were $1.85 and $1.82, respectively. The Class A common stock basic earning per share and diluted earnings per share for the nine months ended October 31, 2021 represent the period from July 23, 2021 through October 31, 2021, the period following the Reorganization Transactions. The Class A common stock basic earning per share and diluted earning per share for the period from July 23, 2021 through October 31, 2021 were $0.27 and $0.26, respectively. The net income attributable to Core & Main, Inc. for the period from July 23, 2021 through October 31, 2021 was partially offset by Core & Main's share of the $51 million loss on debt modification and extinguishment that occurred on July 27, 2021.
Adjusted EBITDA
Adjusted EBITDA for the nine months ended October 30, 2022 increased $318 million, or 70.2%, to $771 million compared with $453 million for the nine months ended October 31, 2021. Growth in Adjusted EBITDA was primarily attributable to higher net sales, improved gross profit margins, and leveraging our cost structure on the increase in net sales. 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.”
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Liquidity and Capital Resources
Historically, we have financed our liquidity requirements through cash flows from operating activities, borrowings under our credit facilities and issuances of equity and debt securities. Our principal historical liquidity requirements have been for working capital, capital expenditures, acquisitions and servicing indebtedness.
As of October 30, 2022, our cash and cash equivalents was approximately zero and we had $90 million outstanding borrowings on our Senior ABL Credit Facility, which provides for borrowings of up to $1,250 million, subject to borrowing base availability. As of October 30, 2022, after giving effect to approximately $9 million of letters of credit issued under the Senior ABL Credit Facility and outstanding borrowings under the Senior ABL Credit Facility, Core & Main LP would have been able to borrow approximately $1,151 million under the Senior ABL Credit Facility, subject to borrowing base availability. 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. Payments to the Former Limited Partners are expected to commence in fiscal year 2023 and payments to the Continuing Limited Partner are expected to commence in fiscal year 2024. Payments under the Tax Receivable Agreements are only required to be made to the extent that we utilize the corresponding new or existing tax assets to reduce payments to federal, state and local taxing authorities. These payments are in an amount that represents 85% of the reduction in payments to federal, state and local taxing authorities. As such, the cash savings from the incremental tax deductions are expected to exceed the payments under the Tax Receivable Agreements over the life of these arrangements. Based on the anticipated filing date of income tax returns and contractual payment terms in the Tax Receivable Agreements, we expect these payments to occur two fiscal years after we utilize the corresponding tax deductions. For additional information related to the impacts to deferred tax asset and Tax Receivable Agreement liability balances for future exchanges of Partnership Interests, see Note 7 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
We believe that our current sources of liquidity, which include cash generated from operations, existing cash and cash equivalents and available borrowing capacity under the Senior ABL Credit Facility, will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Our growth strategy contemplates future acquisitions for which we will need sufficient access to capital. To finance future acquisitions, particularly larger acquisitions, we may issue additional equity or incur additional indebtedness. Any such additional indebtedness would increase our debt leverage. See “Risk Factors” in Part I, Item 1A of the 2021 Annual Report on Form 10-K.
Additionally, we continuously evaluate our approach to our capital allocation, which may include acquisitions, greenfields, debt reduction (including through open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt), stock repurchases, dividends or other distributions. The execution of these, and other, capital allocation activities may be at the discretion of, and subject to the approval by, our board of directors and will depend on our financial condition, earnings, liquidity and capital requirements, market conditions, level of indebtedness, contractual restrictions, compliance with our debt covenants, restrictions imposed by Delaware law, general business conditions and any other factors that our board of directors deems relevant in making any such determination. Therefore, there can be no assurance that we will engage in any or all of these actions or to what amount of capital we will allocate to each option. Our affiliates may also purchase our 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.
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. The Senior Term Loan Facility may require accelerated repayment based upon cash flows generated in excess of operating and investing requirements when Core & Main LP’s net total leverage ratio is greater than or equal to 3.25. In addition, the Senior ABL Credit Facility requires us to comply with a consolidated fixed charge coverage ratio of greater than or equal to 1.00 when availability is less than 10.0% of the lesser of (i) the then applicable borrowing base and (ii) the then aggregate effective commitments under the Senior ABL Credit Facility. Substantially all of Core & Main LP’s assets secure the Senior Term Loan Facility and the Senior ABL Credit Facility.
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Information about our cash flows, by category, is presented in the Condensed Consolidated Statements of Cash Flows and is summarized as follows:
| Nine Months Ended | |||||||||||
| October 30, 2022 | October 31, 2021 | ||||||||||
| Cash flows provided by (used in) operating activities | $ | 94 | $ | (66) | |||||||
| Cash flows used in investing activities | (133) | (189) | |||||||||
| Cash flows provided by (used in) financing activities | 38 | (121) | |||||||||
| Decrease in cash and cash equivalents | $ | (1) | $ | (376) | |||||||
Operating Activities
Net cash provided by operating activities increased by $160 million to $94 million of cash inflows for the nine months ended October 30, 2022 compared with cash used in operating activities of $66 million for the nine months ended October 31, 2021. The improvement in operating cash flows was primarily driven by higher operating income and $67 million in lower cash interest payments due to the redemption of the Senior 2024 Notes and Senior 2025 Notes completed on July 27, 2021. These factors were partially offset by a higher investment in working capital based on strong net sales growth, strategic inventory purchases and a $78 million increase in tax payments due to higher income before provision for income taxes.
Investing Activities
Net cash used in investing activities decreased by $56 million to $133 million for the nine months ended October 30, 2022 compared with $189 million for the nine months ended October 31, 2021, primarily attributable to a $58 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. These factors were partially offset by an $8 million increase in capital expenditures.
Financing Activities
Net cash provided by financing activities was $38 million for the nine months ended October 30, 2022 compared with net cash used in financing activities of $121 million for the nine months ended October 31, 2021. The change of $159 million was primarily attributable to a $923 million decrease in outflows for debt repayments, net of debt issuances, discounts, issuance costs and modification costs. 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 unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) of approximately $756 million, after deducting underwriting discounts, commissions and offering expenses paid and an $8 million increase in distributions to non-controlling interest holders during fiscal 2022.
Financing
Senior Term Loan Facility
Core & Main LP’s Senior Term Loan Facility has an original aggregate principal amount of $1,500 million, which matures on July 27, 2028. The Senior Term Loan Facility requires quarterly principal payments, payable on the last business day of each fiscal quarter in an amount equal to approximately 0.25% of the original principal amount of the Senior Term Loan Facility. The remaining balance is payable upon final maturity of the Senior Term Loan Facility on July 27, 2028. 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 Senior Term Loan Facility is subject to a LIBOR “floor” of 0.00%. The weighted average interest rate, excluding the effect of the interest rate swap, of Core & Main LP's outstanding borrowings under the Senior Term Loan Facility as of October 30, 2022 was 6.53%. See further discussion of the interest rate swap below. Based on quotes from financial institutions (i.e., level 2 of the fair value hierarchy) the fair value of the Senior Term Loan Facility was $1,442 million at October 30, 2022.
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Asset-Based Credit Facility
On July 29, 2022, Core & Main LP amended the terms of the Senior ABL Credit Facility in order to, among other things, increase the aggregate amount of commitments by $400 million to $1,250 million overall, subject to borrowing base availability, and implement a rate based on SOFR in lieu of LIBOR. The Senior ABL Credit Facility has a maturity date of July 27, 2026. Borrowings under the Senior ABL Credit Facility bear interest at either the 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. Additionally, Core & Main LP pays a fee of 0.25% on unfunded commitments under the Senior ABL Credit Facility. As of October 30, 2022, there was $90 million outstanding under the Senior ABL Credit Facility with a weighted average interest rate of 4.14%. The book value of the Senior ABL Credit Facility approximates fair value due to the variable interest rate nature of these borrowings.
Interest Rate Swap
On July 27, 2021, Core & Main LP entered into an interest rate swap in which it makes payments to a third-party based upon a fixed interest rate of 0.74% and receives payments based upon the one-month LIBOR rate, based on notional amounts associated with borrowings under the Senior Term Loan Facility. 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. This instrument is intended to reduce our exposure to variable interest rates under the Senior Term Loan Facility. As of October 30, 2022, this instrument resulted in an effective fixed rate of 3.24%, based upon the 0.74% fixed rate plus an applicable margin of 2.50%, on $1,000 million of borrowings under the Senior Term Loan Facility.
The fair value of this cash flow interest rate swap was a $103 million and $31 million asset as of October 30, 2022 and January 30, 2022, respectively, which is included within other assets in the Balance Sheet. Fair value is based upon the present value of future cash flows under the terms of the contract and observable market inputs (level 2). Significant inputs used in determining fair value include forward looking one-month LIBOR rates and the discount rate applied to projected cash flows.
Purchase Obligations
As of October 30, 2022, the Company had agreements in place with various suppliers to purchase goods and services, primarily inventory, in the aggregate amount of $1,485 million. These purchase obligations are generally cancelable, but the Company foresees no intent to cancel. Payment is dependent on lead times from our suppliers, and could be extended due to supply chain disruptions. Payments are generally expected to be made during fiscal 2022 and fiscal 2023 for these obligations.
Non-GAAP Financial Measures
In addition to providing results that are determined in accordance with GAAP, we present EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. These measures are not considered measures of financial performance or liquidity under GAAP and the items excluded therefrom are significant components in understanding and assessing our financial performance or liquidity. These measures should not be considered in isolation or as alternatives to GAAP measures such as net income or net income attributable to Core & Main, Inc., as applicable, cash provided by or used in operating, investing or financing activities or other financial statement data presented in our financial statements as an indicator of our financial performance or liquidity.
We define EBITDA as net income, or net income attributable to Core & Main, Inc., as applicable, adjusted for non-controlling interests, depreciation and amortization, provision for income taxes and interest expense. We define Adjusted EBITDA as EBITDA as further adjusted for certain items management believes are not reflective of the underlying operations of our business, including (a) loss on debt modification and extinguishment, (b) equity-based compensation, (c) expenses associated with the IPO and subsequent secondary offerings and (d) expenses associated with acquisition activities. Net income attributable to Core & Main, Inc. is the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA.
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We use EBITDA and Adjusted EBITDA to assess the operating results and effectiveness and efficiency of our business, Adjusted EBITDA includes amounts otherwise attributable to non-controlling interests as we manage the consolidated company and evaluate operating performance in a similar manner. We present these non-GAAP financial measures because we believe that investors consider them to be important supplemental measures of performance, and we believe that these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Non-GAAP financial measures as reported by us may not be comparable to similarly titled metrics reported by other companies and may not be calculated in the same manner. These measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
• do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on debt;
• do not reflect income tax expenses, the cash requirements to pay taxes or related distributions;
• do not reflect cash requirements to replace in the future any assets being depreciated and amortized; and
• exclude certain transactions or expenses as allowed by the various agreements governing our indebtedness.
EBITDA and Adjusted EBITDA are not alternative measures of financial performance or liquidity under GAAP and therefore should be considered in conjunction with net income, net income attributable to Core & Main, Inc. and other performance measures such as gross profit or net cash provided by or used in operating, investing or financing activities and not as alternatives to such GAAP measures. In evaluating Adjusted EBITDA, you should be aware that, in the future, we may incur expenses similar to those eliminated in this presentation.
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:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 30, 2022 | October 31, 2021 | October 30, 2022 | October 31, 2021 | ||||||||||||||||||||
| Net income attributable to Core & Main, Inc. | $ | 111 | $ | 64 | $ | 312 | $ | 118 | |||||||||||||||
| Less: net income attributable to non-controlling interest | 67 | 45 | 185 | 28 | |||||||||||||||||||
| Net income | 178 | 109 | 497 | 146 | |||||||||||||||||||
Depreciation and amortization (1) | 37 | 37 | 107 | 106 | |||||||||||||||||||
| Provision for income taxes | 40 | 25 | 108 | 34 | |||||||||||||||||||
| Interest expense | 16 | 12 | 46 | 85 | |||||||||||||||||||
| EBITDA | $ | 271 | $ | 183 | $ | 758 | $ | 371 | |||||||||||||||
| Loss on debt modification and extinguishment | — | 1 | — | 51 | |||||||||||||||||||
| Equity-based compensation | 2 | 2 | 9 | 22 | |||||||||||||||||||
Acquisition expenses (2) | 1 | 3 | 3 | 6 | |||||||||||||||||||
Offering expenses (3) | 1 | — | 1 | 3 | |||||||||||||||||||
| Adjusted EBITDA | $ | 275 | $ | 189 | $ | 771 | $ | 453 | |||||||||||||||
(1)Includes depreciation of certain assets which is reflected in “cost of sales” 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.
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Recently Issued and Adopted Accounting Pronouncements and Accounting Pronouncements Issued But Not Yet Adopted
See Note 2 of our unaudited condensed consolidated financial statements.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies are discussed in Note 2 to the audited consolidated financial statements in our 2021 Annual Report on Form 10-K. The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Our estimates and assumptions are based on historical experiences and changes in the business environment. However, actual results may differ from estimates under different conditions, sometimes materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results of operations and require management judgment. There have been no significant changes to these policies which have had a material impact on the Company’s interim unaudited condensed consolidated financial statements and related notes during the three and nine months ended October 30, 2022.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of October 30, 2022.
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Item 3. 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.
Interest Rate Risk
Our credit facilities bear interest at a floating rate. The Senior Term Loan Facility bears interest generally equal to LIBOR plus an applicable margin. The Senior ABL Credit Facility bears interest generally equal to 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, which were $1,571 million at October 30, 2022. As of October 30, 2022, 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. As of October 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 $13 million change in annual interest expense on the Senior ABL Credit Facility. See “Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Key Factors Affecting Our Business—Interest Rates.”
Credit Risk
We are exposed to credit risk on accounts receivable balances. This risk is mitigated due to our large, diverse customer base. 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. We evaluate the solvency of our customers on an ongoing basis to determine if additional allowances for doubtful accounts receivable need to be recorded. We have historically not been exposed to a material amount of uncollectible receivable balances.
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. Our 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. 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. 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. We are also exposed to fluctuations in petroleum costs as we deliver a substantial portion of the products we sell by truck and fluctuations in prices for imported products due to logistical challenges. 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.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) concluded that, as of October 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are, from time to time, party to various claims and legal proceedings arising in the ordinary course of our business. We do not believe that any existing claims or proceedings, individually or in the aggregate, will have a material adverse effect on our business, consolidated financial condition or results of operations.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Part I, Item1A "Risk Factors” in our Fiscal 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a. Sales of Unregistered Securities
None.
b. Use of Proceeds from Public Offering of Common Stock
None.
c. Issuer Purchases of Equity Securities
The following is a summary of our repurchases of shares of Class A common stock during the three months ended October 30, 2022:
| 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 | ||||||||||||||||||||||
| August 1 - August 31 | 2,222 | $ | 24.52 | N/A | N/A | |||||||||||||||||||||
| September 1 - September 30 | 68 | 23.36 | N/A | N/A | ||||||||||||||||||||||
| October 1 - October 30 | — | — | N/A | N/A | ||||||||||||||||||||||
| 2,290 | $ | 24.49 | — | — | ||||||||||||||||||||||
(1) The repurchases of Class A common stock during the quarter were pursuant to employee tax withholding obligations upon issuance of unit appreciation rights and vesting of restricted stock units pursuant to terms of the Company’s 2021 Omnibus Equity Incentive Plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Number | Description | |||||||
| 10.1† | ||||||||
| 10.2† | ||||||||
| 10.3† | ||||||||
31.1 | ||||||||
31.2 | ||||||||
32.1 | ||||||||
32.2 | ||||||||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.* | |||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document).* | |||||||
* Filed herewith.
** Furnished herewith.
† Identifies each management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: December 13, 2022 | CORE & MAIN, INC. | |||||||
By: | /s/ Stephen O. LeClair | |||||||
Name: Stephen O. LeClair | ||||||||
Title: Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
By: | /s/ Mark R. Witkowski | |||||||
Name: Mark R. Witkowski | ||||||||
Title: Chief Financial Officer | ||||||||
(Principal Financial Officer) | ||||||||
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Exhibit 10.1
Director Restricted Stock Unit Agreement
This Director Restricted Stock Unit Agreement (the “Agreement”), by and between Core & Main, Inc., a Delaware corporation (the “Company”), and the Director whose name is set forth on Exhibit A hereto, is being entered into pursuant to the Core & Main, Inc. 2021 Omnibus Equity Incentive Plan (the “Plan”) and is dated as of the date it is accepted and agreed to by the Employee in accordance with Section 6(p). Capitalized terms that are used but not defined herein shall have the respective meanings given to them in the Plan.
Section 1.Grant of Restricted Stock Units. The Company hereby evidences and confirms its grant to the Director, effective as of the date set forth on Exhibit A hereto (the “Grant Date”), of the number of Restricted Stock Units set forth on Exhibit A hereto, as satisfaction of the equity portion of the Director’s annual fee for the current year. This Agreement is entered into pursuant to, and the Restricted Stock Units granted hereunder are subject to, the terms and conditions of the Plan, which are incorporated by reference herein. If there is any inconsistency between any express provision of this Agreement and any express term of the Plan, the express term of the Plan shall govern.
Section 2.Vesting of Restricted Stock Units.
(a)Vesting. Except as otherwise provided in this Section 2, the Restricted Stock Units shall become vested, if at all, on the first to occur of (i) the first anniversary of the Grant Date or (ii) the date of the next annual shareholders meeting (the “Vesting Date”), subject to the Director’s continued service as a member of the Board through such date. Vested Restricted Stock Units shall be settled as provided in Section 3 of this Agreement.
(b)Effect of Termination of Service.
(i)If the Director’s service is terminated by reason of the Director’s death or Disability (such termination, a “Special Termination”), all outstanding unvested Restricted Stock Units shall immediately vest as of the date of such Special Termination. Vested Restricted Stock Units shall be settled as provided in Section 3 of this Agreement.
(ii)Any Other Reason. Upon termination of the Director’s service for any reason other than a Special Termination (whether initiated by the Company or by the Director), any unvested Restricted Stock Units shall be forfeited and canceled effective as of the date of such termination.
(c)Effect of a Change in Control. In the event of a Change in Control, the treatment of any unvested Restricted Stock Units shall be governed by Article XIV of the Plan.
(d)Discretionary Acceleration. Notwithstanding anything contained in this Agreement to the contrary, the Administrator, in its sole discretion, may accelerate the vesting with respect to any unvested Restricted Stock Units under this Agreement, at such times and upon such terms and conditions as the Administrator shall determine.
(e)No Other Accelerated Vesting. The vesting and settlement provisions set forth in this Section 2, or in Section 3, or expressly set forth in the Plan, shall be the exclusive vesting and exercisability provisions applicable to the Restricted Stock Units and shall supersede any other provisions relating to vesting and exercisability, unless such other such provision expressly refers to the Plan by name and this Agreement by name and date.
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Section 3.Settlement of Restricted Stock Units.
(a)Timing of Settlement. Subject to Section 6(a), any outstanding Restricted Stock Units that became vested shall be settled into an equal number of shares of Company Common Stock on a date selected by the Company that is within 30 days following the Vesting Date (the “Settlement Date”).
(b)Mechanics of Settlement. On the Settlement Date, the Company shall electronically issue to the Director one whole share of Company Common Stock for each Restricted Stock Unit that then became vested (except as provided in Section 6(a)), and, upon such issuance, the Director’s rights in respect of such Restricted Stock Unit shall be extinguished. In the event that there are any fractional Restricted Stock Units that became vested on such date, such fractional Restricted Stock Units shall be settled through a cash payment equal to the portion of Restricted Stock Unit multiplied by the Fair Market Value of the Company Common Stock on the Settlement Date. No fractional shares of Company Common Stock shall be issued.
Section 4.Securities Law Compliance. Notwithstanding any other provision of this Agreement, the Director may not sell the shares of Company Common Stock acquired upon settlement of the Restricted Stock Units unless such shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or, if such shares are not then so registered, such sale would be exempt from the registration requirements of the Securities Act. The sale of such shares must also comply with other applicable laws and regulations governing the Company Common Stock, and the Director may not sell the shares of Company Common Stock if the Company determines that such sale would not be in material compliance with such laws and regulations.
Section 5.Restriction on Transfer; Non-Transferability of Restricted Stock Units. The Restricted Stock Units are not assignable or transferable, in whole or in part, and they may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including, but not limited to, by gift, operation of law or otherwise) other than by will or by the laws of descent and distribution to the estate of the Director upon the Director’s death. Any purported transfer in violation of this Section 5 shall be void ab initio.
Section 6.Miscellaneous.
(a)Dividend Equivalents. Unless otherwise determined by the Administrator, in the event that the Company pays any ordinary dividend in cash on a share of Company Common Stock following the Grant Date and prior to the Settlement Date, there shall be credited to the account of the Director in respect of each outstanding Restricted Stock Unit an amount equal to the amount of such dividend. The amount so credited shall be deferred (without interest, unless the Administrator determines otherwise) until the settlement of such related Restricted Stock Unit and then paid in cash but shall be forfeited upon the forfeiture of such related Restricted Stock Unit.
(b)Authorization to Share Personal Data. The Director authorizes the Company or any Affiliate of the Company that has or lawfully obtains personal data relating to the Director to divulge or transfer such personal data to the Company or to a third party, in each case in any jurisdiction, if and to the extent reasonably appropriate in connection with this Agreement or the administration of the Plan.
(c)No Rights as Stockholder; No Voting Rights. Except as provided in Section 6(b), the Director shall have no rights as a stockholder of the Company with respect to any shares of Company Common Stock covered by the Restricted Stock Units prior to the issuance of such shares of Company Common Stock.
(d)No Right to Continued Service. Nothing in this Agreement shall be deemed to confer on the Director any right to continue in the service of the Company or any Subsidiary.
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(e)Interpretation. The Administrator shall have full power and discretion to construe and interpret the Plan (and any rules and regulations issued thereunder) and this Award. Any determination or interpretation by the Administrator under or pursuant to the Plan or this Award shall be final and binding and conclusive on all persons affected hereby.
(f)Forfeiture of Awards. The Restricted Stock Units granted hereunder (and gains earned or accrued in connection therewith) shall be subject to such generally applicable policies as to forfeiture and recoupment (including, without limitation, upon the occurrence of material financial or accounting errors, financial or other misconduct or Competitive Activity) as may be adopted by the Administrator or the Board from time to time and communicated to the Director or as required by applicable law, and are otherwise subject to forfeiture or disgorgement of profits as provided by the Plan.
(g)Consent to Electronic Delivery. By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, the Director hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Director pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Restricted Stock Units via Company website or other electronic delivery.
(h)Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.
(i)Waiver; Amendment.
(i)Waiver. Any party hereto or beneficiary hereof may by written notice to the other parties (A) extend the time for the performance of any of the obligations or other actions of the other parties under this Agreement, (B) waive compliance with any of the conditions or covenants of the other parties contained in this Agreement and (C) waive or modify performance of any of the obligations of the other parties under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party or beneficiary, shall be deemed to constitute a waiver by the party or beneficiary taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto or beneficiary hereof of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by a party or beneficiary to exercise any right or privilege hereunder shall be deemed a waiver of such party’s or beneficiary’s rights or privileges hereunder or shall be deemed a waiver of such party’s or beneficiary’s rights to exercise the same at any subsequent time or times hereunder.
(ii)Amendment. This Agreement may not be amended, modified or supplemented orally, but only by a written instrument executed by the Director and the Company.
(j)Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or the Director without the prior written consent of the other party.
(k)Applicable Law. This Agreement shall be governed in all respects, including, but not limited to, as to validity, interpretation and effect, by the internal laws of the State of Delaware, without reference to principles of conflict of law that would require application of the law of another jurisdiction.
3
(l)Waiver of Jury Trial. Each party hereby waives, to the fullest extent permitted by applicable law, any right he, she or it may have to a trial by jury in respect of any suit, action or proceeding arising out of this Agreement or any transaction contemplated hereby. Each party (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that he, she or it and the other party hereto have been induced to enter into the Agreement by, among other things, the mutual waivers and certifications in this Section 6(l).
(m)Limitations of Actions. No lawsuit relating to this Agreement may be filed before a written claim is filed with the Administrator and is denied or deemed denied as provided in the Plan and any lawsuit must be filed within one year of such denial or deemed denial or be forever barred.
(n)Section and Other Headings, etc. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
(o)Acceptance of Restricted Stock Units and Agreement. The Director has timely indicated his or her consent and acknowledgement of the terms of this Agreement pursuant to the instructions provided to the Director by or on behalf of the Company on Exhibit A hereto (or as otherwise instructed by the Company in writing or via the Director’s stock plan portal). The Director acknowledges receipt of the Plan, represents to the Company that he or she has read and understood this Agreement and the Plan, and, as an express condition to the grant of the Restricted Stock Units under this Agreement, agrees to be bound by the terms of both this Agreement and the Plan. The Director and the Company each agrees and acknowledges that the use of electronic media (including, without limitation, a clickthrough button or checkbox on a website of the Company or a third-party administrator) to indicate the Director’s confirmation, consent, signature, agreement and delivery of this Agreement and the Restricted Stock Units is legally valid and has the same legal force and effect as if the Director and the Company signed and executed this Agreement in paper form. The same use of electronic media may be used for any amendment or waiver of this Agreement.
(p)Acceptance of Restricted Stock Units and Agreement. The Director has indicated his or her consent and acknowledgement of the terms of this Agreement pursuant to the instructions provided to the Director by or on behalf of the Company. The Director acknowledges receipt of the Plan, represents to the Company that he or she has read and understood this Agreement and the Plan, and, as an express condition to the grant of the Restricted Stock Units under this Agreement, agrees to be bound by the terms of both this Agreement and the Plan. The Director and the Company each agrees and acknowledges that the use of electronic media (including, without limitation, a clickthrough button or checkbox on a website of the Company or a third-party administrator) to indicate the Director’s confirmation, consent, signature, agreement and delivery of this Agreement and the Restricted Stock Units is legally valid and has the same legal force and effect as if the Director and the Company signed and executed this Agreement in paper form. The same use of electronic media may be used for any amendment or waiver of this Agreement.
4
Exhibit A to
Director Restricted Stock Unit Agreement
Director Restricted Stock Unit Agreement
| Director: | ||||||||
| Grant Date:* | ||||||||
Restricted Stock Units granted hereby:* | ||||||||
* Important Notice to Director: Pursuant to Section 6(o) of this Agreement, this grant of Restricted Stock Units is conditioned upon the Director’s timely acceptance of the terms of this Agreement. Accordingly, unless the Director affirmatively accepts this Award within 90 days of the Grant Date (as specified in the Director’s personal Fidelity portal) or another time period directed by the Company to the Director in writing (or in the Director’s personal Fidelity portal), this Agreement shall be void ab initio and the Director shall not be entitled to receive the Restricted Stock Units and shall have no rights under this Agreement whatsoever.
5
Exhibit 10.2
Form of
Participant Restricted Stock Unit Agreement
This Participant Restricted Stock Unit Agreement (the “Agreement”), by and between Core & Main, Inc., a Delaware corporation (the “Company”), and the Participant whose name is set forth on Exhibit A hereto, is being entered into pursuant to the Core & Main, Inc. 2021 Omnibus Equity Incentive Plan (the “Plan”) and is dated as of the date it is accepted and agreed to by the Participant in accordance with Section 6(q). Capitalized terms that are used but not defined herein shall have the respective meanings given to them in the Plan.
WHEREAS, the Company has adopted the Plan to provide equity-based incentive awards to eligible employees and service providers to encourage them to maintain shareholder value, act consistent with the interest of the Company’s shareholders, deliver outcomes and/or continue in the service of the Company and the Subsidiaries; and
WHEREAS, the Participant’s participation in the terms of the Plan and this Agreement through acceptance of Restricted Stock Units is entirely voluntary, and is not a term and/or condition of employment, and is not compensation for services rendered, but is instead an award granted on a discretionary basis to align the Participant’s interests with those of the Company’s shareholders and is an award that the Participant is free to decline at the Participant’s discretion.
Section 1.Grant of Restricted Stock Units. The Company hereby evidences and confirms its grant to the Participant, effective as of the date set forth on Exhibit A hereto (the “Grant Date”), of the number of Restricted Stock Units set forth on Exhibit A hereto. This Agreement is entered into pursuant to, and the Restricted Stock Units granted hereunder are subject to, the terms and conditions of the Plan, which are incorporated by reference herein. If there is any inconsistency between any express provision of this Agreement and any express term of the Plan, the express term of the Plan shall govern.
The Participant acknowledges and recognizes that an important purpose of this Agreement is to align the interests of the Participant with those of the shareholders and to ensure that the Participant does not engage in activity detrimental to the interests of the Company’s shareholders if the Participant is going to be allowed the opportunity to participate in the financial rewards that result from this Agreement and their relationship to the value of equity participation in the Company. In addition, the Participant acknowledges that an ancillary purpose consistent with protecting the interests of the shareholders arises with respect to the Participant because the Participant will be allowed access to confidential and proprietary information (including, but not limited to, trade secrets) about the Company and one or more of the Subsidiaries’ businesses, as well as access to the prospective and actual customers, suppliers, investors, clients and partners involved in those businesses, and the goodwill associated with the Company and one or more of the Subsidiaries. Accordingly, in consideration of the receipt of the Restricted Stock Units, the Participant agrees to be bound by the covenants set forth in Exhibit B to this Agreement (the “Commitment to Avoid Competitive Activities Agreement”). The Participant further affirms and understands that he or she shall be required to comply with such restrictive covenants for the periods provided in the Commitment to Avoid Competitive Activities Agreement, to the extent permitted by applicable law, even if the Participant has not vested in or has forfeited all of the Restricted Stock Units. These covenants shall be in addition to, and shall not supersede, the covenants set forth in any other agreement to which the Participant and the Company or any of its Subsidiaries are or hereafter become parties. The Participant acknowledges and agrees that the Company would not have entered into this Agreement and issued Restricted Stock Units under this Agreement if the Participant did not agree to these covenants. The Participant acknowledges and agrees not to contest or dispute the Company’s position that the prohibition of competitive activities provided for in Exhibit B is inextricably connected to and part of the Company’s governance of its internal affairs and relates directly to the interests of the Company’s shareholders.
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Section 2.Vesting of Restricted Stock Units.
(a)Vesting. Except as otherwise provided in this Section 2, the Restricted Stock Units shall become vested, if at all, in the percentage(s), and on the vesting date(s) set forth on Exhibit A hereto (each, a “Vesting Date”), subject to the continued employment of the Participant by the Company or any Subsidiary thereof through such date. Vested Restricted Stock Units shall be settled as provided in Section 3 of this Agreement.
(b)Effect of Termination of Employment.
(i)If the Participant’s employment is terminated by reason of the Participant’s death or Disability (such termination, a “Special Termination”), all outstanding unvested Restricted Stock Units shall immediately vest, as of the date of such Special Termination. Vested Restricted Stock Units shall be settled as provided in Section 3 of this Agreement.
(ii)Qualifying Retirement. If the Participant’s employment is terminated by reason of the Participant’s Qualifying Retirement (as defined below), at any time before all of the Participant’s Restricted Stock Units have fully vested, all outstanding unvested Restricted Stock Units that were granted at least six (6) months prior to the date of such termination shall immediately vest and be settled as provided in Section 3 of this Agreement. Any unvested Restricted Stock Units that do not vest in accordance with this Section 2(b)(ii) shall be forfeited immediately upon such termination. “Qualifying Retirement” means the Participant’s “separation from service” within the meaning of Section 409A of the Code after the Participant has attained age 62 and completed at least 10 years of employment with the Company or a Subsidiary. Any Other Reason. Upon termination of the Participant’s employment for any reason other than a Special Termination (whether initiated by the Company or by the Participant), any unvested Restricted Stock Units shall be forfeited and canceled effective as of the date of such termination.
(c)Effect of a Change in Control. In the event of a Change in Control, the treatment of any unvested Restricted Stock Units shall be governed by Article XIV of the Plan.
(d)Discretionary Acceleration. Notwithstanding anything contained in this Agreement to the contrary, the Administrator, in its sole discretion, may accelerate the vesting with respect to any Restricted Stock Units under this Agreement, at such times and upon such terms and conditions as the Administrator shall determine.
(e)No Other Accelerated Vesting. The vesting and settlement provisions set forth in this Section 2, or in Section 3, or expressly set forth in the Plan, shall be the exclusive vesting and exercisability provisions applicable to the Restricted Stock Units and shall supersede any other provisions relating to vesting and exercisability, unless such other such provision expressly refers to the Plan by name and this Agreement by name and date.
Section 3.Settlement of Restricted Stock Units.
(a)Timing of Settlement. Subject to Section 6(a), any outstanding Restricted Stock Units that became vested in accordance with the terms of this Agreement shall be settled into an equal number of shares of Company Common Stock on a date selected by the Company that is within 30 days following the date of vesting (each such date, a “Settlement Date”).
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Notwithstanding any other provisions of the Plan to the contrary, to the extent necessary to comply with the requirements of Section 409A with respect to any individual who is a “specified employee” within the meaning of Section 409A, delivery of shares of Company Common Stock on account of termination of the Participant’s employment with the Company or any Subsidiary may not be made before the date that is six (6) months after the date of such termination of employment (or, if earlier, the date of the Participant’s death).
(b)Mechanics of Settlement. On each Settlement Date, the Company shall electronically issue to the Participant one whole share of Company Common Stock for each Restricted Stock Unit that then became vested (except as provided in Section 6(a)), and, upon such issuance, the Participant’s rights in respect of such Restricted Stock Unit shall be extinguished. In the event that there are any fractional Restricted Stock Units that became vested on such date, such fractional Restricted Stock Units shall be settled through a cash payment equal to the portion of Restricted Stock Unit multiplied by the Fair Market Value of the Company Common Stock on such Settlement Date. No fractional shares of Company Common Stock shall be issued.
Section 4.Securities Law Compliance. Notwithstanding any other provision of this Agreement, the Employee may not sell the shares of Company Common Stock acquired upon settlement of the Restricted Stock Units unless such shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or, if such shares are not then so registered, such sale would be exempt from the registration requirements of the Securities Act. The sale of such shares must also comply with other applicable laws and regulations governing the Company Common Stock, and the Participant may not sell the shares of Company Common Stock if the Company determines that such sale would not be in material compliance with such laws and regulations.
Section 5.Restriction on Transfer; Non-Transferability of Restricted Stock Units. The Restricted Stock Units are not assignable or transferable, in whole or in part, and they may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including, but not limited to, by gift, operation of law or otherwise) other than, upon the Participant’s death, by designation of a beneficiary pursuant to Section 6(o), will or by the laws of descent and distribution to the estate of the Participant. Any purported transfer in violation of this Section 5 shall be void ab initio.
Section 6.Miscellaneous.
(a)Tax Withholding. The Company or one of the Subsidiaries shall require the Participant to satisfy any applicable U.S. federal, state and local and non-U.S. tax withholding obligations that may arise in connection with the Restricted Stock Units and the related issuance of shares of Company Common Stock. Accordingly, unless the Company determines otherwise, (i) except as set forth in clause (ii) of this Section 6(a), with respect to all withholding obligations in connection with the Restricted Stock Units, the Company shall retain a number of shares of Company Common Stock issuable in respect of the Restricted Stock Units then vesting or issued that have an aggregate Fair Market Value as of the applicable date equal to the amount of such taxes required to be withheld, not to exceed the amount necessary to avoid liability award accounting (plus any additional withholding amount resulting from imputed income to the Participant resulting from such withholding, if applicable), and the number of shares of Company Common Stock to be issued in respect of the Restricted Stock Units shall thereupon be reduced by the number of shares of Company Common Stock so retained (ii) with respect to any Federal Insurance Contributions Act (FICA) withholding amounts the Company determines to be due as a result of the Participant having met the qualifications for a Qualifying Retirement, at such time or times as determined by the Company in its discretion, the Company or its Subsidiary shall, to the extent permitted by applicable law and the Code, withhold an amount in cash (through payroll deduction or otherwise) from Participant’s salary (or any other amount owed by the Company or its Subsidiaries to the Participant) equal to the Company’s estimate of such FICA withholding obligation, not to exceed the amount necessary to avoid liability award accounting. The Company, in its discretion, may, as an alternative to the withholding methods described in the
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preceding portion of this Section 6(a), permit or require the Participant to satisfy all such withholding obligations by another means, including by remitting cash to the Company in an amount sufficient to satisfy all or any portion of the relevant taxes required to be withheld. No method of withholding that would violate any financing instrument of the Company or any of the Subsidiaries shall be permitted.
(b)Dividend Equivalents. Unless otherwise determined by the Administrator, in the event that the Company pays any ordinary dividend in cash on a share of Company Common Stock following the Grant Date and prior to an applicable Settlement Date, there shall be credited to the account of the Participant in respect of each outstanding Restricted Stock Unit an amount equal to the amount of such dividend. The amount so credited shall be deferred (without interest, unless the Administrator determines otherwise) until the settlement of such related Restricted Stock Unit and then paid in cash but shall be forfeited upon the forfeiture of such related Restricted Stock Unit.
(c)Authorization to Share Personal Data. The Participant authorizes the Company or any Affiliate of the Company that has or lawfully obtains personal data relating to the Participant to divulge or transfer such personal data to the Company or to a third party, in each case in any jurisdiction, if and to the extent reasonably appropriate in connection with this Agreement or the administration of the Plan.
(d)No Rights as Stockholder; No Voting Rights. Except as provided in Section 6(b), the Participant shall have no rights as a stockholder of the Company with respect to any shares of Company Common Stock covered by the Restricted Stock Units prior to the issuance of such shares of Company Common Stock.
(e)No Right to Awards. The Participant acknowledges and agrees that the grant of any Restricted Stock Units (i) is being made on an exceptional basis and is not intended to be renewed or repeated, (ii) is entirely voluntary on the part of the Company and the Subsidiaries and (iii) should not be construed as creating any obligation on the part of the Company or any of the Subsidiaries to offer any Restricted Stock Units or other Awards in the future.
(f)No Right to Continued Employment. Nothing in this Agreement shall be deemed to confer on the Participant any right to continue in the employ of the Company or any Subsidiary, or to interfere with or limit in any way the right of the Company or any Subsidiary to terminate such employment at any time.
(g)Interpretation. The Administrator shall have full power and discretion to construe and interpret the Plan (and any rules and regulations issued thereunder) and this Award. Any determination or interpretation by the Administrator under or pursuant to the Plan or this Award shall be final and binding and conclusive on all persons affected hereby.
(h)Forfeiture of Awards. The Restricted Stock Units granted hereunder (and gains earned or accrued in connection therewith) shall be subject to such generally applicable policies as to forfeiture and recoupment (including, without limitation, upon the occurrence of material financial or accounting errors, financial or other misconduct or Competitive Activity) as may be adopted by the Administrator or the Board from time to time and communicated to the Participant or as required by applicable law, and are otherwise subject to forfeiture or disgorgement of profits as provided by the Plan.
(i)Consent to Electronic Delivery. By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Restricted Stock Units via Company website or other electronic delivery.
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(j)Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.
(k)Waiver; Amendment; Notice.
(i)Waiver. Any party hereto or beneficiary hereof may by written notice to the other parties (A) extend the time for the performance of any of the obligations or other actions of the other parties under this Agreement, (B) waive compliance with any of the conditions or covenants of the other parties contained in this Agreement and (C) waive or modify performance of any of the obligations of the other parties under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party or beneficiary, shall be deemed to constitute a waiver by the party or beneficiary taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto or beneficiary hereof of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by a party or beneficiary to exercise any right or privilege hereunder shall be deemed a waiver of such party’s or beneficiary’s rights or privileges hereunder or shall be deemed a waiver of such party’s or beneficiary’s rights to exercise the same at any subsequent time or times hereunder.
(ii)Amendment. This Agreement may not be amended, modified or supplemented orally, but only by a written instrument executed by the Participant and the Company.
(iii)Notice. Any notice required hereunder shall be made in writing, as applicable, to the Company in care of the Company’s General Counsel at his principal office location, with a copy to the Company’s Chief Human Resources Officer at her principal office location, or to the Participant at the Participant’s principal office location or home address most recently on file with the Company, such notice to be deemed effective on the earlier of receipt or two (2) days after it is issued.
(l)Assignability. Except as expressly provided herein, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or the Participant without the prior written consent of the other party.
(m)Applicable Law; Venue. This Agreement shall be governed in all respects, including, but not limited to, as to validity, interpretation and effect, by the internal laws of the State of Delaware, without reference to principles of conflict of law that would require application of the law of another jurisdiction. Any suit, action or proceeding with respect to this Agreement (or any provision incorporated by reference) that can be pursued or enforced in a court of law, shall be brought in the U.S. District Court for the District of Delaware or in any other court of competent subject matter jurisdiction located in the State of Delaware. The Company and the Participant, each hereby submits to the exclusive jurisdiction of the courts of proper subject matter jurisdiction located in Delaware (the “Chosen Venue”), consents to the exercise of personal jurisdiction over them by such courts, and irrevocably waives (a) any objections which they may now or hereafter have to the laying of the venue of any suit, action, or proceeding arising out of or relating to this Agreement that can be pursued in a court of law in the Chosen Venue; and (b) any claim that any such suit, action, or proceeding brought in the Chosen Venue has been brought in any inconvenient forum.
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(n)Waiver of Jury Trial. Each party hereby waives, to the fullest extent permitted by applicable law, any right he, she or it may have to a trial by jury in respect of any suit, action or proceeding arising out of this Agreement or any transaction contemplated hereby. Each party (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that he, she or it and the other party hereto have been induced to enter into the Agreement by, among other things, the mutual waivers and certifications in this Section 6(n).
(o)Beneficiary. The Participant may file with the Administrator a written designation of a beneficiary on such form as may be prescribed by the Administrator and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant’s estate shall be deemed to be the Participant’s beneficiary.
(p)Limitations of Actions. No lawsuit relating to this Agreement may be filed before a written claim is filed with the Administrator and is denied or deemed denied as provided in the Plan and any lawsuit must be filed within one year of such denial or deemed denial or be forever barred.
(q)Section and Other Headings, etc. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
(r)Acceptance of Restricted Stock Units and Agreement. The Participant has timely indicated his or her consent and acknowledgement of the terms of this Agreement pursuant to the instructions provided to the Participant by or on behalf of the Company on Exhibit A hereto (or as otherwise instructed by the Company in writing or via the Participant’s stock plan portal). The Participant acknowledges receipt of the Plan, represents to the Company that he or she has read and understood this Agreement and the Plan, and, as an express condition to the grant of the Restricted Stock Units under this Agreement, agrees to be bound by the terms of both this Agreement and the Plan. The Participant and the Company each agrees and acknowledges that the use of electronic media (including, without limitation, a clickthrough button or checkbox on a website of the Company or a third-party administrator) to indicate the Participant’s confirmation, consent, signature, agreement and delivery of this Agreement and the Restricted Stock Units is legally valid and has the same legal force and effect as if the Participant and the Company signed and executed this Agreement in paper form. The same use of electronic media may be used for any amendment or waiver of this Agreement.
(s)Section 409A. This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Grantee on account of non-compliance with Section 409A of the Code.
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Exhibit A to
Participant Restricted Stock Unit Agreement
Participant Restricted Stock Unit Agreement
| Participant: | ||||||||||||||
| Grant Date:* | ||||||||||||||
Vesting Commencement Date: | ||||||||||||||
Restricted Stock Units granted hereby:* | ||||||||||||||
| Vesting Date | Percentage of RSUs Vesting on such Vesting Date | ||||
1st anniversary of Vesting Commencement Date | 33.33% | ||||
2nd anniversary of Vesting Commencement Date | 33.33% | ||||
3rd anniversary of Vesting Commencement Date | 33.33% | ||||
* Important Notice to Participant: Pursuant to Section 6(r) of this Agreement, this grant of Restricted Stock Units is conditioned upon the Participant’s timely acceptance of the terms of this Agreement. Accordingly, unless the Participant affirmatively accepts this Award within 90 days of the Grant Date (as specified in the Participant’s personal Fidelity portal) or another time period directed by the Company to the Participant in writing (or in the Participant’s personal Fidelity portal), this Agreement shall be void ab initio and the Participant shall not be entitled to receive the Restricted Stock Units and shall have no rights under this Agreement whatsoever.
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Exhibit B to
Participant Restricted Stock Unit Agreement
Participant Restricted Stock Unit Agreement
Commitment to Avoid Competitive Activities
Capitalized terms that are used but not defined herein shall have the respective meanings given to them in the Participant Restricted Stock Unit Agreement to which this Commitment to Avoid Competitive Activities Agreement is attached.
The Participant acknowledges that as an individual being presented with the opportunity to share in the growth and value of the Company through RSUs, it is important to avoid certain activities that would be detrimental to the Company’s business and its potential value to shareholders while engaged to provide services to Core & Main LP (“CMLP”) or any other Subsidiary and for a reasonable period of time thereafter. The Participant agrees that it is reasonable for the Company to require a commitment from the Participant of this nature to allow the Participant to participate in the Plan and retain the benefits of the RSUs. Accordingly, the Participant agrees that any activity or conduct by the Participant that violates one of the restrictions or obligations provided for in Sections 1 and 3 of this Exhibit B (the “Restrictive Covenants”) will be considered a Competitive Activity violation.
Section 1 Confidential Information.
1.1 The Participant will honor all agreements with CMLP, the Company and/or any of the Company’s other Subsidiaries (collectively, the “Company Group”) regarding maintaining the confidentiality of information that qualifies as contractually protected “Confidential Information”, protect and preserve the value of the Company Group’s trade secrets and proprietary information to the Company Group (irrespective of whether same is also covered by the contractual definition of Confidential Information), and comply with the Company Group’s policies and directives regarding the handling of the Company Group’s records, files, computer system access, materials and property at all times. To the extent the Participant is not otherwise subject to another contractual agreement with the Company Group covering Confidential Information, the Participant agrees that until such time as the Confidential Information is readily available publicly (other than as a result of disclosure by the Participant), the Participant shall not disclose Confidential Information to any person or use, copy, download, upload or transfer any Confidential Information, whether or not created in whole or in part by the efforts of the Participant, and regardless of whether the Participant is still employed by the Company Group. The Participant will only disclose or use, copy, download, upload or transfer such Confidential Information as is required by law or as necessary in the performance of the Participant’s duties on behalf of the Company Group. If Participant is subject to another contractual agreement that defines what constitutes the Company’s “Confidential Information”, that definition shall control. Absent such a controlling definition, it is understood “Confidential Information” means an item of information or compilation of information in any form (tangible or intangible) related to the Company Group’s businesses that Participant acquires or gains access to during their employment that the Company Group has not authorized public disclosure of, and that is not readily available to the public or persons outside the Company Group through proper means. By way of example and not limitation, Confidential Information is understood to include: (1) trade secrets; (2) any information Participant has reason to know that the Company Group treats as confidential for any purpose; (3) unpublished financial records; (4) all business plans and marketing strategies; (5) information concerning existing and prospective markets, suppliers and customers; (6) information concerning the development of new products, services or promotional lines; (7) technical and nontechnical data related to software programs, design, specifications, compilations, inventions, improvements, patent applications, studies, research, methods, devices, prototypes, processes, procedures and techniques; (8) sales information or events; (9) customer account information; (10) vendor pricing agreements; (11) marketing and forecasting information and strategies; and (12) unpublished pricing, proposals, plans, including fees, costs and pricing structures, underlying pricing-related variables such as costs, volume discounting options, and profit margins; and (13) and information concerning existing and prospective clients, distributors, agents, suppliers and customers and other information related thereto.
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1.2 The Participant’s obligations under this Section 1 are indefinite in term until such time as such Confidential Information has become public knowledge other than as a result of Participant’s breach of this Section 1 or breach by those acting in concert with Participant or on Participant’s behalf; provided, however, if applicable law requires a time limit to be place on the restrictions in Section 1 for the restriction to enforceable, then this restriction on Participant’s use of Confidential Information that is not a trade secret will expire two (2) years after Participant’s employment or other association with the Company Group ends. This time limit will not apply to Confidential Information that qualifies as a trade secret as trade secrets will remain protected for as long as they qualify as trade secrets under applicable law.
Section 2 Return of Company Property.
2.1 The Participant acknowledges that all tangible items containing any confidential or proprietary information or trade secrets, including without limitation: memoranda, photographs, records, reports, manuals, drawings, blueprints, prototypes, notes, documents, drawings, specifications, software, media and other materials, including any copies thereof (including electronically recorded copies), are the exclusive property of the Company, and its Subsidiaries, and the Participant shall deliver to the Company all such material in the Participant’s possession or control upon the Company request and in any event upon the termination of the Participant’s employment with the Company Group. The Participant shall also return any keys, equipment, identification or credit cards, or other property belonging to the Company or its Subsidiaries upon termination of the Participant’s employment or the Company request.
Section 3 Noncompetition and Nonsolicitation.
3.1 Avoidance of Competition and Other Competitive Acts During Engagement.
While employed or otherwise engaged as an individual to provide services to the Company Group (as an employee, consultant, or otherwise), the Participant will comply with each of the restrictions and obligations below.
a. The Participant will comply at all times with the Participant’s duty of loyalty to the Company Group as an employee or agent of the Company Group placed in a position of special trust and confidence which shall be understood to include, but not be limited to,
(i) an obligation not to engage or participate in the business of, or become employed with a Competitor as an employee, owner, member, partner, consultant, director or otherwise, without the express written consent of the Company Group,
(ii) an obligation not to interfere with or otherwise knowingly cause harm to the Company Group’s ongoing or prospective business relationship with a Company Group employee, consultant or individual providing services as an independent contractor, or a supplier, distributor, vendor, customer, or other person or entity that does business with the Company Group or that the Company Group has a reasonable expectation of doing business with, and
(iii) and to inform the Company Group of business opportunities that fall within the Company Group’s lines of business and not pursue them for personal gain separate from the Company Group without the Company Group’s express written consent in advance, or otherwise participate in any conduct or relationship that creates a conflict of interest in violation of Company Group policies.
b. The Participant will not knowingly participate in or pursue activities that harm the value of the Company Group’s intellectual property and will honor all agreements with the Company Group concerning the ownership and protection of proprietary works and intellectual property. The Participant will be responsible for understanding, complying with, and implementing the Company Group’s confidential and proprietary information policies and guidelines published by the Company Group as they apply to the Participant’s position and area of accountability at the Company Group.
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c. The “Business” of the Company Group is the distribution of water, sewer, storm drainage, fire protection, and geosynthetics products and related services (each individually a “line of Business”). The Company Group competes directly with persons and entities engaged in the Business on a local and national scope. The term “Competitor” means any person or entity engaged in the developing, marketing or selling of any product(s) or service(s) the Company Group is developing, marketing or selling or has plans to develop, market or sell at the time of the Participant’s termination of employment, in which the Participant had involvement or about which the Participant was provided Confidential Information during the last two years of their employment with CMLP or any other Subsidiary (or such shorter period of time as Participant is employed)(the “Look Back Period”). For avoidance of doubt, if the Participant is a senior officer of CMLP or any other Subsidiary, it is presumed the Participant was provided Confidential Information about all of the Company Group’s lines of business.
3.2. Avoidance of Competition and Other Detrimental Acts After Vesting.
The Participant will comply with the following restrictions for a period of one (1) year after Participant’s employment or other services engagement with CMLP or any of the Subsidiaries end, or a period of four years after all Restricted Stock Units covered by this Agreement have fully vested, whichever period ends earlier (“Restricted Period”):
a. Noncompete. The Participant will not, anywhere within the Territory, directly or through the direction or control of others, acting individually or as an owner, shareholder, partner, employee, contractor, agent or otherwise, on behalf of a Competitor: (i) provide, supervise or manage services that are the same as or similar in function or purpose to the services the Participant provided to the Company Group during the Look Back Period; (ii) assist in the development or improvement of a competing product or service; or (iii) provide services that are otherwise likely or probable to result in the use or disclosure of Confidential Information to a Competitor. The term “Territory” as used in this Exhibit B will depend upon Participant’s position as follows: (x) if Participant is in a position where Participant’s responsibilities are not geographically limited to an assigned location or territory or where Participant is provided Confidential Information that is not geographically limited to an assigned location or territory (such as, by way of example but not limitation, senior management positions, administrative leadership positions, and operations employees), then Territory means the United States (including state and state-equivalents and county and county-equivalents within the United States); (y) if Participant is in a position with responsibilities and Confidential Information that are limited to an assigned territory or territories during the Look Back Period, then Territory shall be the specific geographic territory or territories assigned to Participant during the Look Back Period; and (z) in the event that neither (x) or (y) apply, then the Territory is the county or counties that Participant performed services in or on behalf of the Company Group during the Look Back Period.
b. Worker Nonsolicit. The Participant will not, directly or indirectly through providing assistance to others, knowingly: (i) participate in soliciting or communicating (verbally, electronically, or in other written form) with a Covered Worker for the purpose of persuading the Covered Worker to go to work for a Competitor or to end or modify the Covered Worker’s relationship with the Company Group, or (ii) assist a Competitor in efforts to hire a Covered Worker away from the Company Group. A “Covered Worker” means an employee or individual worker engaged as an independent contractor of Company Group that the Participant works with, gains knowledge of or is provided Confidential Information about in the Look Back Period. A worker who resigns will continue to be considered a Covered Worker for a period of six months after the worker’s employment or other engagement with the Company Group ends except where doing so would make this restriction unenforceable.
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c. Customer Nonsolicit. The Participant will not, working alone or in conjunction with one or more other persons or entities, whether for compensation or not, on behalf of (or for the benefit of) a Competitor: (i) solicit, assist in soliciting, or facilitate the solicitation of, competing business from a customer of the Company Group that the Participant had material contact or involvement with or was provided Confidential Information about during the Look Back Period (“Covered Customer”); or (ii) interfere with the Company Group’s business relationship with any such Covered Customer. Material interaction is presumed present if Participant participated in or supervised communications with the customer (other than through mass mailings or cold calls) or received commissions, bonuses, or other beneficial credit or attribution for business done with the customer. Unless it would make the restriction unenforceable, a customer will be presumed to include any prospect (person or entity) who is in active negotiations or communication with the Company Group about doing business with it at the time Participant’s employment ends. The restrictions contained in Sections 3.2(b) and (c) are understood to be reasonably limited by geography to those locations, and counties, where the Covered Customer and Covered Worker are present and available for solicitation. However, to the extent additional geographic limitations are required to make the restrictions enforceable, they shall be deemed limited to the Territory.
d. Business Relationship Interference. The Participant will not, directly or indirectly through providing assistance to others, knowingly interfere with the Company Group’s ongoing (or where allowed by law, prospective) business relationship with a supplier, distributor, or vendor that the Company Group has a reasonable expectation of doing business with, and that the Participant had material contact or involvement with or gained knowledge of through the Participant’s role with the Company Group in the Look Back Period, by soliciting, inducing or otherwise encouraging the supplier, distributor, or vendor to cease or reduce doing business with the Company Group or to give a valuable business opportunity to a Competitor.
Section 4 Remedies.
4.1 The Company and the Participant agree that the provisions of this Exhibit B do not impose an undue hardship on the Participant and are not injurious to the public; that these provisions are necessary to protect the business of the Company and its Subsidiaries; that the nature of the Participant’s responsibilities with the Company Group provide and/or will provide the Participant with access to confidential or proprietary information or trade secrets that are valuable and confidential to the Company and its Subsidiaries; that the Company Group would not issue Restricted Stock Units to the Participant if the Participant did not agree to the provisions of this Exhibit B; that the provisions of this Exhibit B are reasonable in terms of length of time and scope; and that adequate consideration supports the provisions of this Exhibit B. Except where otherwise expressly indicated, Participant’s obligations under this Exhibit B are severable and/or subject to reformation or partial enforcement. Except where otherwise expressly indicated, Participant’s obligations under this Agreement are severable and/or subject to reformation or partial enforcement. In the event that a court determines that any provision of this Exhibit B is unreasonably broad or extensive (such as to time, scope or geography), the Participant agrees that such court should narrow such provision to the extent necessary to make it reasonable and enforce the provisions as narrowed for the protection of the Company Group’s interests and prevention of irreparable harm which is the express intent of the parties. If, despite the forgoing, any provision of this Agreement is by a court or arbitrator of competent jurisdiction determined to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The period of time during which the provisions of Section 3.2 shall be in effect shall be extended by the length of time during which the Participant is in breach of the terms hereof as determined by any court of competent jurisdiction on the Company Group’s application for injunctive relief.
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4.2 In the event the Plan Administrator has reason to believe Participant has engaged in any Competitive Activities, or is pursuing a course of conduct that threatens to violate the Restrictive Covenants, the Company Group shall have the right to suspend the vesting schedule with respect to any unvested RSUs until it determines that a violation has occurred and/or that any threatened violation has been resolved so as to longer be a threat. The type of harm to the Company Group caused by a violation of the Restrictive Covenants cannot be fully measured and remedied through monetary damages and would be irreparable in nature. Accordingly, in addition to the forgoing, the Company Group shall retain all rights and remedies available in law or equity to enforce the restrictions and obligations that Participant has committed to in Exhibit B.
4.3 Participant’s Commitment to Avoid Competitive Activities and the terms of this Agreement awarding RSU’s to Participant are mutually dependent, material terms. Accordingly, in the event the enforceability of the Restrictive Covenants are challenged by Participant and found by court or arbitrator of competent jurisdiction to be void or unenforceable in any part deemed material by the Company Group, then the Company Group shall have the right to demand and receive from Participant within 10 business days of the Company Group’s request to the Participant, the aggregate after-tax proceeds (taking into account all amounts of tax that would be recoverable upon a claim of loss for payment of such proceeds in the year of repayment) the Participant received upon the sale or other disposition of, or distributions in respect of, the RSUs or shares of Company Common Stock issued in settlement of the RSUs.
Section 5. Limitations.
a. Notwithstanding anything in this Exhibit B to the contrary, nothing herein prohibits the Participant from owning a non-controlling interest consisting of two percent (2%) or less of any class of securities in any publicly traded company or passive investments through an independently controlled fund such as a mutual fund, provided that Participant is not a controlling person of, or a member of a group that controls, such business that is a Competitor, and further provided that the Participant does not otherwise participate in any conduct prohibited under this Agreement. In addition, nothing herein shall be construed to prohibit Participant’s employment in a separately operated subsidiary or other business unit of a company that would not be a Competitor but for common ownership with a Competitor so long as Participant provides written assurances regarding the non-competitive nature of Participant’s position that are satisfactory to the Company Group and Participant remains employed solely in such non-competitive entity or unit during the pendency of the restrictions in Section 3.2(a). Nothing herein is intended to be or is to be construed as a prohibition against general generic advertising of a company’s products, services or job openings to the public such as “help wanted” ads that are not targeted at the Company Group. Where (and only where) a different form of geographic limitation is required by applicable law for enforcement, the covenants in Section 3.2 (b) through (d) will be considered limited to the Territory.
b. It is the intent of the Company Group to apply Exhibit B in a manner that does not violate any law that is deemed to be the controlling law for the parties with respect to the obligations in the Agreement. CALIFORNIA: If Participant is a resident of California, and when Participant last worked for CMLP or any other Subsidiary, Participant primarily resided and worked in California, Section 3.2 in this Exhibit B and Sections 6(m) (Applicable Law; Venue) and (n) (Waiver of Jury Trial) in the Agreement shall not apply to them. However, any conduct relating to the solicitation of Company Group’s customers or employees that involves the misappropriation of the Company’s trade secret information, such as its protected customer information, will remain prohibited conduct at all times. DISTRICT OF COLUMBIA: If the Company Group is deemed to operate in the District of Columbia and when Participant last worked for the Company or any of its Subsidiaries, Participant worked for it in the District of Columbia, then nothing in Exhibit B will be applied to prohibit Participant from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating Participant’s own business. However, conduct involving disclosure of confidential, proprietary, or sensitive information, client lists, customer lists, or a trade secret (as defined in the Uniform Trade Secrets Act) will remain prohibited.
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c. Nothing in this Agreement prohibits the Participant from opposing or reporting to the relevant law-enforcement agency (such as the Securities and Exchange Commission, Equal Employment Commission, or Department of Labor) an event that the Participant reasonably and in good faith believes is a violation of law, requires notice to or approval from the Company Group before doing so, or prohibits the Participant from cooperating in an investigation conducted by such a government agency. The Participant acknowledges notice that the Defend Trade Secrets Act provides that no individual will be held criminally or civilly liable under Federal or State trade secret law for the disclosure of a trade secret that: (a) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and made solely for the purpose of reporting or investigating a suspected violation of law; or, (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal so that it is not made public. It also provides that an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may in pursuing such lawsuit disclose trade secrets to his/her attorney and use trade secrets in court submissions so long as documents containing the trade secret are filed under seal and do not disclose trade secrets except as permitted by court order.
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Exhibit 10.3
Form of
Participant Stock Option Agreement
This Participant Stock Option Agreement (the “Agreement”), by and between Core & Main, Inc., a Delaware corporation (the “Company”), and the Participant whose name is set forth on Exhibit A hereto, is being entered into pursuant to the Core & Main, Inc. 2021 Omnibus Equity Incentive Plan (the “Plan”) and is dated as of the date it is accepted and agreed to by the Participant in accordance with Section 7(o). Capitalized terms that are used but not defined herein shall have the respective meanings given to them in the Plan.
WHEREAS, the Company has adopted the Plan to provide equity-based incentive awards to eligible employees and service providers to encourage them to maintain shareholder value, act consistent with the interest of the Company’s shareholders, deliver outcomes and/or continue in the service of the Company and the Subsidiaries; and
WHEREAS, the Participant’s participation in the terms of the Plan and this Agreement through acceptance of Options is entirely voluntary, and is not a term and/or condition of employment, and is not compensation for services rendered, but is intend an award granted on a discretionary basis to align the Participant’s interests with those of the Company’s shareholders and is an award that the Participant is free to decline at the Participant’s discretion.
The Company and the Participant hereby agree as follows:
Section 1.Grant of Options
(a)Confirmation of Grant. The Company hereby evidences and confirms, effective as of the date set forth on Exhibit A hereto (the “Grant Date”), its grant to the Participant of the number of options to purchase Shares as set forth on Exhibit A hereto (the “Options”). The Options are not intended to be incentive stock options under the Code. This Agreement is entered into pursuant to, and the terms of the Options are subject to, the terms of the Plan. If there is any inconsistency between this Agreement and the terms of the Plan, the terms of the Plan shall govern.
(b)Option Price. The Option Price for each Share covered by the Options is the price set forth on Exhibit A hereto.
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(c)Restrictive Covenants. The Participant acknowledges and recognizes that an important purpose of this Agreement is to align the interests of the Participant with those of the shareholders and to ensure that the Participant does not engage in activity detrimental to the interests of the Company’s shareholders if the Participant is going to be allowed the opportunity to participate in the financial rewards that result from this Agreement and their relationship to the value of equity participation in the Company. In addition, the Participant acknowledges that an ancillary purpose consistent with protecting the interests of the shareholders arises with respect to the Participant because the Participant will be allowed access to confidential and proprietary information (including, but not limited to, trade secrets) about the Company and one or more of the Subsidiaries’ businesses, as well as access to the prospective and actual customers, suppliers, investors, clients, and partners involved in those businesses, and the goodwill associated with the Company and one or more of the Subsidiaries. Accordingly, in consideration of the receipt of the Options, the Participant agrees to be bound by the covenants set forth in Exhibit B to this Agreement (the “Commitment to Avoid Competitive Activities Agreement”). The Participant further affirms and understands that he or she shall be required to comply with such restrictive covenants for the periods provided in the Commitment to Avoid Competitive Activities Agreement, to the extent permitted by applicable law, even if the Participant has not vested in or has forfeited all of the Options. These covenants shall be in addition to, and shall not supersede, the covenants set forth in any other agreement to which the Participant and the Company or any of its Subsidiaries are or hereafter become parties. The Participant acknowledges and agrees that the Company would not have entered into this Agreement and issued the Options under this Agreement if the Participant did not agree to these covenants. The Participant acknowledges and agrees not to contest or dispute the Company’s position that the prohibition of competitive activities provided for in Exhibit B is inextricably connected to and part of the Company’s governance of its internal affairs and relates directly to the interests of the Company’s shareholders.
Section 2.Vesting and Exercisability
(a)Vesting. Except as otherwise provided in Section 5 or Section 2(b) of this Agreement, the Options shall become vested, if at all, in the percentage(s), and on the vesting date(s) set forth on Exhibit A hereto (each, a “Vesting Date”); provided that if the Participant’s employment with the Company is terminated by reason of the Participant’s death or Disability (either, a “Special Termination”), all outstanding unvested Options held by the Participant shall vest, as of the effective date of such Special Termination.
(b)Qualifying Retirement. If the Participant’s employment is terminated by reason of the Participant’s Qualifying Retirement (as defined below), at any time before all of the Participant’s Options have fully vested, all outstanding unvested Options that were granted at least six (6) months prior to the date of such termination shall immediately vest. Any Options that do not vest in accordance with this Section 2(b) shall be forfeited immediately upon such termination. “Qualifying Retirement” means the Participant’s “separation from service” within the meaning of Section 409A of the Code after the Participant has attained age 62 and completed at least 10 years of employment with the Company or a Subsidiary
(c)Discretionary Acceleration. The Administrator, in its sole discretion, may accelerate the vesting or exercisability of all or a portion of the Options, at any time and from time to time.
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(d)Exercise. Once vested in accordance with the provisions of this Agreement, the Options may be exercised at any time and from time to time prior to the date such Options terminate pursuant to Section 3. Options may only be exercised with respect to whole shares of Company Common Stock and must be exercised in accordance with Section 4.
(e)No Other Accelerated Vesting. The vesting and exercisability provisions set forth in this Section 2 or in Section 5, or expressly set forth in the Plan, shall be the exclusive vesting and exercisability provisions applicable to the Options and shall supersede any other provisions relating to vesting and exercisability, unless such other such provision expressly refers to the Plan by name and this Agreement by name and date.
Section 3.Termination of Options
(a)Normal Termination Date. Unless earlier terminated pursuant to Section 3(b) or Section 5, the Options shall terminate on the tenth anniversary of the Grant Date (the “Normal Termination Date”), if not exercised prior to such date.
(b)Early Termination. If the Participant’s employment with the Company terminates for any reason, any Options held by the Participant that have not vested before the effective date of such termination of employment (determined without regard to any statutory or deemed or express contractual notice period) or that do not become vested on such date in accordance with Section 2 shall terminate immediately upon such termination of employment and, if the Participant’s employment is terminated for Cause, all Options (whether or not then vested or exercisable) shall automatically terminate immediately upon such termination. All vested Options held by the Participant following the effective date of a termination of employment shall remain exercisable until the first to occur of (i) the 90th day following the effective date of the Participant’s termination of employment (or the 180th day in the case of a Special Termination or Qualifying Retirement), (ii) the Normal Termination Date or (iii) the cancellation of the Options pursuant to Section 5, and if not exercised within such period the Options shall automatically terminate upon the expiration of such period. If on the first date of the periods set forth in Section 3(b)(i) through Section 3(b)(iii) the Options are not exercisable solely due to any of the restrictions set forth in Section 4(b)(A), (B) or (C), the Options will not expire until the earlier of the Normal Termination Date or the number of days in in which exercise of the Options would otherwise have been permitted immediately following the first date on which exercise of the Option ceases to be barred by any such restriction.
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Section 4.Manner of Exercise
(a)General. Subject to such reasonable administrative regulations as the Administrator may adopt from time to time, the exercise of vested Options by the Participant shall be pursuant to procedures contained in the Plan and such other procedures established by the Administrator from time to time and shall include the Participant specifying in writing the proposed date on which the Participant desires to exercise a vested Option (the “Exercise Date”), the number of whole shares with respect to which the Options are being exercised (the “Exercise Shares”) and the aggregate Option Price for such Exercise Shares (the “Exercise Price”), or such other or different requirements as may be specified by the Administrator. Unless otherwise determined by the Administrator, (i) on or before the Exercise Date the Participant shall deliver to the Company full payment for the Exercise Shares in United States dollars in cash, or cash equivalents satisfactory to the Company, in an amount equal to the Exercise Price plus any required withholding taxes or other similar taxes, charges or fees, or, so long as there is a public market for the Shares at such time, pursuant to a broker-assisted exercise program established by the Company, the Participant may exercise vested Options by an exercise and sell procedure (cashless exercise) in which the Exercise Price (together with any required withholding taxes or other similar taxes, charges or fees) is deducted from the proceeds of the exercise of an Option and paid promptly to the Company and (ii) the Company shall register the issuance of the Exercise Shares on its records (or direct such issuance to be registered by the Company’s transfer agent). The Administrator may require the Participant to furnish or execute such other documents as the Administrator shall reasonably deem necessary (i) to evidence such exercise or (ii) to comply with or satisfy the requirements of the Securities Act, applicable state or non-U.S. securities laws or any other law.
(b)Restrictions on Exercise. Notwithstanding any other provision of this Agreement, the Options may not be exercised in whole or in part, (A) unless all requisite approvals and consents of any governmental authority of any kind shall have been secured, (B) unless the purchase of the Exercise Shares shall be exempt from registration under applicable U.S. federal and state securities laws, and applicable non-U.S. securities laws, or the Exercise Shares shall have been registered under such laws, (C) at any time that exercise of the Option would violate the Company’s insider trading policy and unless, if applicable, the Participant has obtained pre-trading clearance for the exercise and (D) unless all applicable U.S. federal, state and local and non-U.S. tax withholding requirements shall have been satisfied. The Company shall use its commercially reasonable efforts to obtain any consents or approvals referred to in clause (A) of the preceding sentence, but shall otherwise have no obligations to take any steps to prevent or remove any impediment to exercise described in such sentence.
Section 5.Change in Control. In the event of a Change in Control, the treatment of any outstanding Options shall be governed by Article XIV of the Plan.
Section 6.Certain Definitions. As used in this Agreement, capitalized terms that are not defined herein have the respective meaning given in the Plan, and the following additional terms shall have the following meanings:
“Agreement” means this Participant Stock Option Agreement, as amended from time to time in accordance with the terms hereof.
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“Code” means the United States Internal Revenue Code of 1986, as amended, and any successor thereto.
“Company” means Core & Main, Inc., provided that for purposes of determining the status of Participant’s employment with the “Company,” such term shall include the Company and/or any of the Subsidiaries that employ the Participant.
“Participant” means the grantee of the Options, whose name is set forth on Exhibit A hereto; provided that for purposes of Section 4 and Section 7, following such person’s death “Participant” shall be deemed to include such person’s beneficiary or estate and following such Person’s Disability, “Participant” shall be deemed to include such person’s legal representative.
“Exercise Date” has the meaning given in Section 4(a).
“Exercise Price” has the meaning given in Section 4(a).
“Exercise Shares” has the meaning given in Section 4(a).
“Grant Date” has the meaning given in Section 1(a), which is the date on which the Options are granted to the Participant.
“Normal Termination Date” has the meaning given in Section 3(a).
“Option” means the right granted to the Participant hereunder to purchase one share of Company Common Stock for a purchase price equal to the Option Price subject to the terms of this Agreement and the Plan.
“Option Price” means, with respect to each share of Company Common Stock covered by an Option, the purchase price specified in Section 1(b) for which the Participant may purchase such share of Company Common Stock upon exercise of an Option.
“Plan” has the meaning given in the preamble to this Agreement.
“Special Termination” has the meaning given in Section 2(a).
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Section 7.Miscellaneous.
(a)Withholding. The Company or one of the Subsidiaries shall require the Participant to satisfy any applicable U.S. federal, state and local and non-U.S. tax withholding or other similar charges or fees that may arise in connection with the grant, vesting, exercise or purchase of the Options.
(b)No Rights as Stockholder; No Voting Rights. The Participant shall have no rights as a stockholder of the Company with respect to any shares covered by the Options until the exercise of the Options and delivery of the shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the delivery of the shares.
(c)No Right to Awards. The Participant acknowledges and agrees that the grant of any Options (i) is being made on an exceptional basis and is not intended to be renewed or repeated, (ii) is entirely voluntary on the part of the Company and the Subsidiaries and (iii) should not be construed as creating any obligation on the part of the Company or any of the Subsidiaries to offer any Options or other Awards in the future.
(d)No Right to Continued Employment. Nothing in this Agreement shall be deemed to confer on the Participant any right to continue in the employ of the Company or any Subsidiary, or to interfere with or limit in any way the right of the Company or any Subsidiary to terminate such employment at any time.
(e)Non-Transferability of Options. The Options may be exercised only by the Participant, or, following the Participant’s death, by his designated beneficiary or by his estate in the absence of a designated beneficiary. The Options are not assignable or transferable, in whole or in part, and they may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including, but not limited to, by gift, operation of law or otherwise) other than, upon the Participant’s death, by designation of a beneficiary pursuant to Section 7(m), will or by the laws of descent and distribution to the estate of the Participant or with the Company’s consent. Any purported transfer in violation of this Section 7(e) shall be void ab initio.
(f)Forfeiture of Awards. The Options granted hereunder (and gains earned or accrued in connection therewith) shall be subject to such generally applicable policies as to forfeiture and recoupment (including, without limitation, upon the occurrence of material financial or accounting errors, financial or other misconduct or Competitive Activity, including a material breach of Exhibit B hereto) as may be adopted by the Administrator or the Board from time to time and communicated to the Participant or as required by applicable law, and are otherwise subject to forfeiture or disgorgement of profits as provided by the Plan.
(g)Consent to Electronic Delivery. By entering into this Agreement and accepting the Options evidenced hereby, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Options via Company website or other electronic delivery.
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(h)Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.
(i) Waiver; Amendment; Notice.
(i)Waiver. Any party hereto or beneficiary hereof may by written notice to the other parties (A) extend the time for the performance of any of the obligations or other actions of the other parties under this Agreement, (B) waive compliance with any of the conditions or covenants of the other parties contained in this Agreement and (C) waive or modify performance of any of the obligations of the other parties under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party or beneficiary, shall be deemed to constitute a waiver by the party or beneficiary taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto or beneficiary hereof of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by a party or beneficiary to exercise any right or privilege hereunder shall be deemed a waiver of such party’s or beneficiary’s rights or privileges hereunder or shall be deemed a waiver of such party’s or beneficiary’s rights to exercise the same at any subsequent time or times hereunder.
(ii)Amendment. This Agreement may not be amended, modified or supplemented orally, but only by a written instrument executed by the Participant and the Company.
(iii)Notice. Any notice required hereunder shall be made in writing, as applicable, to the Company in care of the Company’s General Counsel at his principal office location, with a copy to the Company’s Chief Human Resources Officer at her principal office location, or to the Participant at the Participant’s principal office location or home address most recently on file with the Company, such notice to be deemed effective on the earlier of receipt or two (2) days after it is issued.
(j)Assignability. Except as expressly provided herein, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or the Participant without the prior written consent of the other party.
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(k)Applicable Law; Venue. This Agreement shall be governed in all respects, including, but not limited to, as to validity, interpretation and effect, by the internal laws of the State of Delaware, without reference to principles of conflict of law that would require application of the law of another jurisdiction. Any suit, action or proceeding with respect to this Agreement (or any provision incorporated by reference) that can be pursued or enforced in a court of law, shall be brought in the U.S. District Court for the District of Delaware or in any other court of competent subject matter jurisdiction located in the State of Delaware. The Company and the Participant, each hereby submits to the exclusive jurisdiction of the courts of proper subject matter jurisdiction located in Delaware (the “Chosen Venue”), consents to the exercise of personal jurisdiction over them by such courts, and irrevocably waives (a) any objections which they may now or hereafter have to the laying of the venue of any suit, action, or proceeding arising out of or relating to this Agreement that can be pursued in a court of law in the Chosen Venue; and (b) any claim that any such suit, action, or proceeding brought in the Chosen Venue has been brought in any inconvenient forum.
(l)Waiver of Jury Trial. Each party hereby waives, to the fullest extent permitted by applicable law, any right he, she or it may have to a trial by jury in respect of any suit, action or proceeding arising out of this Agreement or any transaction contemplated hereby. Each party (i) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that he, she or it and the other party hereto have been induced to enter into the Agreement by, among other things, the mutual waivers and certifications in this Section 7(l).
(m)Beneficiary. The Participant may file with the Administrator a written designation of a beneficiary on such form as may be prescribed by the Administrator and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant’s estate shall be deemed to be the Participant’s beneficiary.
(n)Limitations of Actions. No lawsuit relating to this Agreement may be filed before a written claim is filed with the Administrator and is denied or deemed denied as provided in the Plan and any lawsuit must be filed within one year of such denial or deemed denial or be forever barred.
(o)Section and Other Headings, etc. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
(p)Acceptance of Options and Agreement. The Participant has timely indicated his or her consent and acknowledgement of the terms of this Agreement pursuant to the instructions provided to the Participant by or on behalf of the Company on Exhibit A hereto (or as otherwise instructed by the Company in writing or via the Participant’s stock plan portal). The Participant acknowledges receipt of the Plan, represents to the Company that he or she has read and understood this Agreement and the Plan, and, as an express condition to the grant of the Options under this Agreement, agrees to be bound by the terms of both this Agreement and the Plan. The Participant and the Company each agrees and acknowledges that the use of electronic media (including, without limitation, a clickthrough button or checkbox on a website of the Company or a third-party administrator) to indicate the Participant’s confirmation, consent, signature, agreement and delivery of this Agreement and the Options is legally valid and has the same legal force and effect as if the Participant and the Company signed and executed this Agreement in paper form. The same use of electronic media may be used for any amendment or waiver of this Agreement.
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Exhibit A to
Participant Stock Option Agreement
Participant Stock Option Agreement
| Participant: | ||||||||||||||
Grant Date:* | ||||||||||||||
Options granted hereby:* | ||||||||||||||
Option Price: | $ | |||||||||||||
| Vesting Date | Percentage Vesting on such Vesting Date | |||||||||||||
| 1st anniversary of Vesting Date | 33.33% | |||||||||||||
| 2nd anniversary of Vesting Date | 33.33% | |||||||||||||
| 3rd anniversary of Vesting Date | 33.33% | |||||||||||||
* Important Notice to Participant: Pursuant to Section 7(p) of this Agreement, this grant of Options is conditioned upon the Participant’s timely acceptance of the terms of this Agreement. Accordingly, unless the Participant affirmatively accepts this Award within 90 days of the Grant Date (as specified in the Participant’s personal Fidelity portal) or another time period directed by the Company to the Participant in writing (or in the Participant’s personal Fidelity portal), this Agreement shall be void ab initio and the Participant shall not be entitled to receive the Options and shall have no rights under this Agreement whatsoever.
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Exhibit B to
Participant Stock Option Agreement
Participant Stock Option Agreement
Commitment to Avoid Competitive Activities
Capitalized terms that are used but not defined herein shall have the respective meanings given to them in the Participant Stock Option Agreement to which this Commitment to Avoid Competitive Activities Agreement is attached.
The Participant acknowledges that as an individual being presented with the opportunity to share in the growth and value of the Company through Options, it is important to avoid certain activities that would be detrimental to the Company’s business and its potential value to shareholders while engaged to provide services to Core & Main LP (“CMLP”) or any other Subsidiary and for a reasonable period of time thereafter. The Participant agrees that it is reasonable for the Company to require a commitment from the Participant of this nature to allow the Participant to participate in the Plan and retain the benefits of the Options. Accordingly, the Participant agrees that any activity or conduct by the Participant that violates one of the restrictions or obligations provided for in Sections 1 and 3 of this Exhibit B (the “Restrictive Covenants”) will be considered a Competitive Activity violation.
Section 1 Confidential Information.
1.1 The Participant will honor all agreements with CMLP, the Company and/or any of the Company’s other Subsidiaries (collectively, the “Company Group”) regarding maintaining the confidentiality of information that qualifies as contractually protected “Confidential Information”, protect and preserve the value of the Company Group’s trade secrets and proprietary information to the Company Group (irrespective of whether the same is also covered by the contractual definition of Confidential Information), and comply with the Company Group’s policies and directives regarding the handling of the Company Group’s records, files, computer system access, materials and property at all times. To the extent the Participant is not otherwise subject to another contractual agreement with the Company Group covering Confidential Information, the Participant agrees that until such time as the Confidential Information is readily available publicly (other than as a result of disclosure by the Participant), the Participant shall not disclose Confidential Information to any person or use, copy, download, upload or transfer any Confidential Information, whether or not created in whole or in part by the efforts of the Participant, and regardless of whether the Participant is still employed by the Company Group. The Participant will only disclose or use, copy, download, upload or transfer such Confidential Information as is required by law or as necessary in the performance of the Participant’s duties on behalf of the Company Group. If Participant is subject to another contractual agreement that defines what constitutes the Company’s “Confidential Information”, that definition shall control. Absent such a controlling definition, it is understood “Confidential Information” means an item of information or compilation of information in any form (tangible or intangible) related to the Company Group’s businesses that Participant acquires or gains access to during their employment that the Company Group has not authorized public disclosure of, and that is not readily available to the public or persons outside the Company Group through proper means. By way of example and not limitation, Confidential Information is understood to include: (1) trade secrets; (2) any information Participant has reason to know that the Company Group treats as confidential for any purpose; (3) unpublished financial records; (4) all business plans and marketing strategies; (5) information concerning existing and prospective markets, suppliers and customers; (6) information concerning the development of new products, services, or promotional lines; (7) technical and nontechnical data related to software programs, design, specifications, compilations, inventions, improvements, patent applications, studies, research, methods, devices, prototypes, processes, procedures and techniques; (8) sales information
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or events; (9) customer account information; (10) vendor pricing agreements; (11) marketing and forecasting information and strategies; and (12) unpublished pricing, proposals, plans, including fees, costs and pricing structures, underlying pricing-related variables such as cost, volume discounting options, and profit margins; and (13) information concerning existing and prospective clients, distributors, agents, suppliers, and customers and other information related thereto.
1.2 The Participant’s obligations under this Section 1 are indefinite in term until such time as such Confidential Information has become public knowledge other than as a result of Participant’s breach of this Section 1 or breach by those acting in concert with Participant or on Participant’s behalf; provided, however, if applicable law requires a time limit to be place on the restrictions in Section 1 for the restriction to enforceable, then this restriction on Participant’s use of Confidential Information that is not a trade secret will expire two (2) years after Participant’s employment or other association with the Company Group ends. This time limit will not apply to Confidential Information that qualifies as a trade secret as trade secrets will remain protected for as long as they qualify as trade secrets under applicable law.
Section 2 Return of Company Property.
2.1 The Participant acknowledges that all tangible items containing any confidential or proprietary information or trade secrets, including without limitation: memoranda, photographs, records, reports, manuals, drawings, blueprints, prototypes, notes, documents, drawings, specifications, software, media and other materials, including any copies thereof (including electronically recorded copies), are the exclusive property of the Company, and its Subsidiaries, and the Participant shall deliver to the Company all such material in the Participant’s possession or control upon the Company request and in any event upon the termination of the Participant’s employment with the Company Group. The Participant shall also return any keys, equipment, identification or credit cards, or other property belonging to the Company or its Subsidiaries upon termination of the Participant’s employment or the Company request.
Section 3 Noncompetition and Nonsolicitation.
3.1 Avoidance of Competition and Other Competitive Acts During Engagement.
While employed or otherwise engaged as an individual to provide services to the Company Group (as an employee, consultant, or otherwise), the Participant will comply with each of the restrictions and obligations below.
a. The Participant will comply at all times with the Participant’s duty of loyalty to the Company Group as an employee or agent of the Company Group placed in a position of special trust and confidence which shall be understood to include, but not be limited to,
(i) an obligation not to engage or participate in the business of, or become employed with a Competitor as an employee, owner, member, partner, consultant, director or otherwise, without the express written consent of the Company Group,
(ii) an obligation not to interfere with or otherwise knowingly cause harm to the Company Group’s ongoing or prospective business relationship with a Company Group employee, consultant or individual providing services as an independent contractor, or a supplier, distributor, vendor, customer, or other person or entity that does business with the Company Group or that the Company Group has a reasonable expectation of doing business with, and
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(iii) and to inform the Company Group of business opportunities that fall within the Company Group’s lines of business and not pursue them for personal gain separate from the Company Group without the Company Group’s express written consent in advance, or otherwise participate in any conduct or relationship that creates a conflict of interest in violation of Company Group policies.
b. The Participant will not knowingly participate in or pursue activities that harm the value of the Company Group’s intellectual property and will honor all agreements with the Company Group concerning the ownership and protection of proprietary works and intellectual property. The Participant will be responsible for understanding, complying with, and implementing the Company Group’s confidential and proprietary information policies and guidelines published by the Company Group as they apply to the Participant’s position and area of accountability at the Company Group.
c. The “Business” of the Company Group is the distribution of water, sewer, storm drainage, fire protection, and geosynthetics products and related services (each individually a “line of Business”). The Company Group competes directly with persons and entities engaged in the Business on a local and national scope. The term “Competitor” means any person or entity engaged in the developing, marketing or selling of any product(s) or service(s) the Company Group is developing, marketing or selling or has plans to develop, market or sell at the time of the Participant’s termination of employment, in which the Participant had involvement or about which the Participant was provided Confidential Information during the last two years of their employment with CMLP or any other Subsidiary (or such shorter period of time as Participant is employed)(the “Look Back Period”). For avoidance of doubt, if the Participant is a senior officer of CMLP or any other Subsidiary, it is presumed the Participant was provided Confidential Information about all of the Company Group’s lines of business.
3.2 Avoidance of Competition and Other Detrimental Acts After Vesting.
The Participant will comply with the following restrictions for a period of one (1) year after Participant’s employment or other services engagement with CMLP or any of the Subsidiaries ends, or a period of four years after all Options covered by this Agreement have fully vested, whichever period ends earlier (“Restricted Period”):
a. Noncompete. The Participant will not, anywhere within the Territory, directly or through the direction or control of others, acting individually or as an owner, shareholder, partner, employee, contractor, agent or otherwise, on behalf of a Competitor: (i) provide, supervise or manage services that are the same as or similar in function or purpose to the services the Participant provided to the Company Group during the Look Back Period; (ii) assist in the development or improvement of a competing product or service; or (iii) provide services that are otherwise likely or probable to result in the use or disclosure of Confidential Information to a Competitor. The term “Territory” as used in this Exhibit B will depend upon Participant’s position as follows: (x) if Participant is in a position where Participant’s responsibilities are not geographically limited to an assigned location or territory or where Participant is provided Confidential Information that is not geographically limited to an assigned location or territory (such as, by way of example but not limitation, senior management positions, administrative leadership positions, and operations employees), then Territory means the United States (including state and state-equivalents and county and county-equivalents within the United States); (y) if Participant is in a position with responsibilities and Confidential Information that are limited to an assigned territory or territories during the Look Back Period, then Territory shall be the specific geographic territory or territories assigned to Participant during the Look Back Period; and (z) in the event that neither (x) or (y) apply, then the Territory is the county or counties that Participant performed services in or on behalf of the Company Group during the Look Back Period.
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b. Worker Nonsolicit. The Participant will not, directly or indirectly through providing assistance to others, knowingly: (i) participate in soliciting or communicating (verbally, electronically, or in other written form) with a Covered Worker for the purpose of persuading the Covered Worker to go to work for a Competitor or to end or modify the Covered Worker’s relationship with the Company Group, or (ii) assist a Competitor in efforts to hire a Covered Worker away from the Company Group. A “Covered Worker” means an employee or individual worker engaged as an independent contractor of Company Group that the Participant works with, gains knowledge of or is provided Confidential Information about in the Look Back Period. A worker who resigns will continue to be considered a Covered Worker for a period of six months after the worker’s employment or other engagement with the Company Group ends except where doing so would make this restriction unenforceable.
c. Customer Nonsolicit. The Participant will not, working alone or in conjunction with one or more other persons or entities, whether for compensation or not, on behalf of (or for the benefit of) a Competitor: (i) solicit, assist in soliciting, or facilitate the solicitation of, competing business from a customer of the Company Group that the Participant had material contact or involvement with or was provided Confidential Information about during the Look Back Period (“Covered Customer”); or (ii) interfere with the Company Group’s business relationship with any such Covered Customer. Material interaction is presumed present if Participant participated in or supervised communications with the customer (other than through mass mailings or cold calls) or received commissions, bonuses, or other beneficial credit or attribution for business done with the customer. Unless it would make the restriction unenforceable, a customer will be presumed to include any prospect (person or entity) who is in active negotiations or communication with the Company Group about doing business with it at the time Participant’s employment ends. The restrictions contained in Sections 3.2(b) and (c) are understood to be reasonably limited by geography to those locations, and counties, where the Covered Customer and Covered Worker are present and available for solicitation. However, to the extent additional geographic limitations are required to make the restrictions enforceable, they shall be deemed limited to the Territory.
d. Business Relationship Interference. The Participant will not, directly or indirectly through providing assistance to others, knowingly interfere with the Company Group’s ongoing (or where allowed by law, prospective) business relationship with a supplier, distributor, or vendor that the Company Group has a reasonable expectation of doing business with, and that the Participant had material contact or involvement with or gained knowledge of through the Participant’s role with the Company Group in the Look Back Period, by soliciting, inducing or otherwise encouraging the supplier, distributor, or vendor to cease or reduce doing business with the Company Group or to give a valuable business opportunity to a Competitor
B-4
Section 4 Remedies.
4.1 The Company and the Participant agree that the provisions of this Exhibit B do not impose an undue hardship on the Participant and are not injurious to the public; that these provisions are necessary to protect the business of the Company and its Subsidiaries; that the nature of the Participant’s responsibilities with the Company Group provide and/or will provide the Participant with access to confidential or proprietary information or trade secrets that are valuable and confidential to the Company and its Subsidiaries; that the Company would not issue Options to the Participant if the Participant did not agree to the provisions of this Exhibit B; that the provisions of this Exhibit B are reasonable in terms of length of time and scope; and that adequate consideration supports the provisions of this Exhibit B. Except where otherwise expressly indicated, Participant’s obligations under this Exhibit B are severable and/or subject to reformation or partial enforcement. In the event that a court determines that any provision of this Exhibit B is unreasonably broad or extensive (such as to time, scope, or geography), the Participant agrees that such court should narrow such provision to the extent necessary to make it reasonable and enforce the provisions as narrowed for the protection of the Company Group’s interests and prevention of irreparable harm which is the express intent of the parties. If, despite the forgoing, any provision of this Agreement is by a court or arbitrator of competent jurisdiction determined to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The period of time during which the provisions of Section 3.2 shall be in effect shall be extended by the length of time during which the Participant is in breach of the terms hereof as determined by any court of competent jurisdiction on the Company Group’s application for injunctive relief.
4.2 In the event the Plan Administrator has reason to believe Participant has engaged in any Competitive Activities, or is pursuing a course of conduct that threatens to violate the Restrictive Covenants, the Company Group shall have the right to suspend the vesting schedule with respect to any unvested Options until it determines that a violation has occurred and/or that any threatened violation has been resolved so as to longer be a threat. The type of harm to the Company Group caused by a violation of the Restrictive Covenants cannot be fully measured and remedied through monetary damages and would be irreparable in nature. Accordingly, in addition to the forgoing, the Company Group shall retain all rights and remedies available in law or equity to enforce the restrictions and obligations that Participant has committed to in Exhibit B.
4.3 Participant’s Commitment to Avoid Competitive Activities and the terms of this Agreement awarding Options to Participant are mutually dependent, material terms. Accordingly, in the event the enforceability of the Restrictive Covenants are challenged by Participant and found by court or arbitrator of competent jurisdiction to be void or unenforceable in any part deemed material by the Company Group, then the Company Group shall have the right to demand and receive from Participant within 10 business days of the Company Group’s request to the Participant, the aggregate after-tax proceeds (taking into account all amounts of tax that would be recoverable upon a claim of loss for payment of such proceeds in the year of repayment) the Participant received upon the sale or other disposition of, or distributions in respect of, the Options.
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Section 5. Limitations.
a. Notwithstanding anything in this Exhibit B to the contrary, nothing herein prohibits the Participant from owning a non-controlling interest consisting of two percent (2%) or less of any class of securities in any publicly traded company or passive investments through an independently controlled fund such as a mutual fund, provided that Participant is not a controlling person of, or a member of a group that controls, such business that is a Competitor, and further provided that the Participant does not otherwise participate in any conduct prohibited under this Agreement. In addition, nothing herein shall be construed to prohibit Participant’s employment in a separately operated subsidiary or other business unit of a company that would not be a Competitor but for common ownership with a Competitor so long as Participant provides written assurances regarding the non-competitive nature of Participant’s position that are satisfactory to the Company Group and Participant remains employed solely in such non-competitive entity or unit during the pendency of the restrictions in Section 3.2(a). Nothing herein is intended to be or is to be construed as a prohibition against general generic advertising of a company’s products, services or job openings to the public such as “help wanted” ads that are not targeted at the Company Group. Where (and only where) a different form of geographic limitation is required by applicable law for enforcement, the covenants in Section 3.2 (b) through (d) will be considered limited to the Territory.
b. It is the intent of the Company Group to apply Exhibit B in a manner that does not violate any law that is deemed to be the controlling law for the parties with respect to the obligations in the Agreement. CALIFORNIA: If Participant is a resident of California, and when Participant last worked for CMLP or any other Subsidiary, Participant primarily resided and worked in California, Section 3.2 in this Exhibit B and Sections 7(k) (Applicable Law; Venue) and (l) (Waiver of Jury Trial) in the Agreement shall not apply to them. However, any conduct relating to the solicitation of Company Group’s customers or employees that involves the misappropriation of the Company’s trade secret information, such as its protected customer information, will remain prohibited conduct at all times. DISTRICT OF COLUMBIA: If the Company Group is deemed to operate in the District of Columbia and when Participant last worked for the Company or any of its Subsidiaries, Participant worked for it in the District of Columbia, then nothing in Exhibit B will be applied to prohibit Participant from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating Participant’s own business. However, conduct involving disclosure of confidential, proprietary, or sensitive information, client lists, customer lists, or a trade secret (as defined in the Uniform Trade Secrets Act) will remain prohibited.
c. Nothing in this Agreement prohibits the Participant from opposing or reporting to the relevant law-enforcement agency (such as the Securities and Exchange Commission, Equal Employment Commission, or Department of Labor) an event that the Participant reasonably and in good faith believes is a violation of law, requires notice to or approval from the Company Group before doing so, or prohibits the Participant from cooperating in an investigation conducted by such a government agency. The Participant acknowledges notice that the Defend Trade Secrets Act provides that no individual will be held criminally or civilly liable under Federal or State trade secret law for the disclosure of a trade secret that: (a) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and made solely for the purpose of reporting or investigating a suspected violation of law; or, (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal so that it is not made public. It also provides that an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may in pursuing such lawsuit disclose trade secrets to his/her attorney and use trade secrets in court submissions so long as documents containing the trade secret are filed under seal and do not disclose trade secrets except as permitted by court order.
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen O. LeClair, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Core & Main, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: December 13, 2022 | /s/ Stephen O. LeClair | ||||
Stephen O. LeClair | |||||
Chief Executive Officer | |||||
(Principal Executive Officer) | |||||
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark R. Witkowski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Core & Main, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: December 13, 2022 | /s/ Mark R. Witkowski | ||||
Mark R. Witkowski | |||||
Chief Financial Officer | |||||
(Principal Financial Officer) | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Core & Main, Inc. (the “Company”) on Form 10-Q for the quarter ended October 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen O. LeClair, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: December 13, 2022 | /s/ Stephen O. LeClair | ||||
Stephen O. LeClair | |||||
Chief Executive Officer | |||||
(Principal Executive Officer) | |||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Core & Main, Inc. (the “Company”) on Form 10-Q for the quarter ended October 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark R. Witkowski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: December 13, 2022 | /s/ Mark R. Witkowski | ||||
Mark R. Witkowski | |||||
Chief Financial Officer | |||||
(Principal Financial Officer) | |||||