Income Taxes

3 Months Ended

Apr. 28, 2024

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

For the three months ended April 28, 2024 and April 30, 2023, the Company's effective tax rate was 24.6% and 18.9%, respectively. The variation between the Company's estimated effective tax rate and the U.S. and state statutory rates for the three months ended April 30, 2023 is primarily due to the portion of the Company's earnings attributable to non-controlling interests. The rate for the three months ended April 28, 2024 increased due to a substantial decrease in the non-controlling interest ownership that increased the allocation of net income to taxable entities.

Tax Receivable Agreements

The Company is party to a tax receivable agreement with certain stockholders affiliated with CD&R that transferred all of their Partnership Interests at the time of the initial public offering (the “Former Limited Partners Tax Receivable Agreement”) and a tax receivable agreement with certain stockholders affiliated with CD&R and Management Feeder that continued to own Partnership Interests beyond the time of the initial public offering (the “Continuing Limited Partners Tax Receivable Agreement”) (collectively, the “Tax Receivable Agreements”). The Company has generated tax attributes, and expects to generate additional tax attributes with future exchanges of Partnership Interests, that will reduce amounts that it would otherwise pay in the future to various tax authorities. The Tax Receivable Agreements provide payments to the parties subject to the Tax Receivable Agreements, or their permitted transferees, of 85% of the tax benefits realized by the Company, or in some circumstances are deemed to be realized.

The Company recorded payables to related parties pursuant to the Tax Receivable Agreements of $716 million and $717 million as of April 28, 2024 and January 28, 2024, respectively. Payments under the Tax Receivable Agreements within the next 12 months are expected to be $19 million, which 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 Management Feeder exchanged all of its remaining Partnership Interests at $57.32 per share of our Class A common stock (the closing stock price on April 26, 2024), (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, the Company would recognize an additional deferred tax asset (subject to offset with existing deferred tax liabilities) of approximately $147 million and a liability of approximately $125 million, payable over the life of the Continuing Limited Partners Tax Receivable Agreement. The full exchange will also decrease Core & Main's aforementioned deferred tax asset associated with its investment in Holdings by $6 million. The foregoing amounts are estimates and subject to change.