Arcosa, Inc. and Subsidiaries
Arcosa, Inc. and Subsidiaries
Note 1. Overview and Summary of Significant Accounting Policies
These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited combined financial statementsConsolidated Financial Statements of the Company included in its Annual Report on Form 1010-K for the year ended December 31, 2017.2021.
The following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially satisfied as of September 30, 20182022 and the percentage of the outstanding performance obligations as of September 30, 20182022 expected to be delivered during the remainder of 2018:2022:
The liability method is used to account for income taxes. Deferred income taxes represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized.
The Company considers all highly liquid debt instruments to be cash and cash equivalents if purchased with a maturity of three months or less. Financial instruments that potentially subject the Company to a concentration of credit risk are primarily cash investments and receivables. ConcentrationsThe Company places its cash investments in bank deposits and highly-rated money market funds, and its investment policy limits the amount of credit exposure to any one commercial issuer. We seek to limit concentrations of credit risk with respect to receivables are limited due towith control procedures that monitor the creditworthinesscredit worthiness of customers, together with the large number of customers in the Company's customer base and their dispersion across different industries and geographic areas. As receivables are generally unsecured, the Company maintains an allowance for doubtful accounts based upon the expected collectibility of all receivables.credit losses. Receivable balances determined to be uncollectible are charged against the allowance. To accelerate the conversion to cash, the Company may sell a portion of its trade receivables to third parties. The Company has no recourse to these receivables once they are sold but may have continuing involvement related to servicing and collection activities. The impact of these transactions in the Company's Consolidated Statements of Operations for the three and nine months ended September 30, 2022 was not significant. The carrying values of cash, and cash equivalents, receivables, and accounts payable are considered to be representative of their respective fair values.
14
Three Months EndedSeptember 30, 2017 |
| | | | | | | | | | | | | | | |
| Revenues | | Operating Profit (Loss) |
| External | | Intersegment | | Total | |
| (in millions) |
Construction aggregates | | | | | $ | 53.3 |
| | |
Other | | | | | 16.1 |
| | |
Construction Products Group | $ | 69.4 |
| | $ | — |
| | 69.4 |
| | $ | 13.6 |
|
| | | | | | | |
Wind towers and utility structures | | | | | 167.1 |
| | |
Other | | | | | 50.2 |
| | |
Energy Equipment Group | 216.0 |
| | 1.3 |
| | 217.3 |
| | 20.8 |
|
| | | | | | | |
Inland barges | | | | | 28.1 |
| | |
Steel components | | | | | 52.4 |
| | |
Transportation Products Group | 80.5 |
| | — |
| | 80.5 |
| | 9.8 |
|
| | | | | | | |
All Other | — |
| | — |
| | — |
| | — |
|
| | | | | | | |
Segment Totals before Eliminations and Corporate | 365.9 |
| | 1.3 |
| | 367.2 |
| | 44.2 |
|
Corporate | — |
| | — |
| | — |
| | (10.6 | ) |
Eliminations | — |
| | (1.3 | ) | | (1.3 | ) | | — |
|
Combined Total | $ | 365.9 |
| | $ | — |
| | $ | 365.9 |
| | $ | 33.6 |
|
Nine Months EndedSeptember 30, 2018 |
| | | | | | | | | | | | | | | |
| Revenues | | Operating Profit (Loss) |
| External | | Intersegment | | Total | |
| (in millions) |
Construction aggregates | | | | | $ | 166.6 |
| | |
Other | | | | | 60.1 |
| | |
Construction Products Group | $ | 226.7 |
| | $ | — |
| | 226.7 |
| | $ | 45.3 |
|
| | | | | | | |
Wind towers and utility structures | | | | | 427.5 |
| | |
Other | | | | | 145.6 |
| | |
Energy Equipment Group | 570.0 |
| | 3.1 |
| | 573.1 |
| | 12.5 |
|
| | | | | | | |
Inland barges | | | | | 123.0 |
| | |
Steel components | | | | | 166.3 |
| | |
Transportation Products Group | 289.3 |
| | — |
| | 289.3 |
| | 35.2 |
|
| | | | | | | |
All Other | — |
| | — |
| | — |
| | (0.1 | ) |
| | | | | | | |
Segment Totals before Eliminations and Corporate | 1,086.0 |
| | 3.1 |
| | 1,089.1 |
| | 92.9 |
|
Corporate | — |
| | — |
| | — |
| | (24.7 | ) |
Eliminations | — |
| | (3.1 | ) | | (3.1 | ) | | — |
|
Combined Total | $ | 1,086.0 |
| | $ | — |
| | $ | 1,086.0 |
| | $ | 68.2 |
|
Nine Months EndedSeptember 30, 2017 |
| | | | | | | | | | | | | | | |
| Revenues | | Operating Profit (Loss) |
| External | | Intersegment | | Total | |
| (in millions) |
Construction aggregates | | | | | $ | 155.1 |
| | |
Other | | | | | 39.7 |
| | |
Construction Products Group | $ | 194.8 |
| | $ | — |
| | 194.8 |
| | $ | 42.5 |
|
| | | | | | | |
Wind towers and utility structures | | | | | 514.4 |
| | |
Other | | | | | 136.9 |
| | |
Energy Equipment Group | 648.0 |
| | 3.3 |
| | 651.3 |
| | 63.2 |
|
| | | | | | | |
Inland barges | | | | | 124.3 |
| | |
Steel components | | | | | 147.8 |
| | |
Transportation Products Group | 272.1 |
| | — |
| | 272.1 |
| | 30.9 |
|
| | | | | | | |
All Other | — |
| | — |
| | — |
| | — |
|
| | | | | | | |
Segment Totals before Eliminations and Corporate | 1,114.9 |
| | 3.3 |
| | 1,118.2 |
| | 136.6 |
|
Corporate | — |
| | — |
| | — |
| | (28.0 | ) |
Eliminations | — |
| | (3.3 | ) | | (3.3 | ) | | — |
|
Combined Total | $ | 1,114.9 |
| | $ | — |
| | $ | 1,114.9 |
| | $ | 108.6 |
|
Note 4.5. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment as of September 30, 20182022 and December 31, 2017.2021. | | | | | | | | September 30, 2022 | | December 31, 2021 |
| September 30, 2018 | | December 31, 2017 | |
| (in millions) | | (in millions) |
Land | $ | 94.8 |
| | $ | 97.7 |
| Land | $ | 136.9 | | | $ | 137.3 | |
Mineral reserves | | Mineral reserves | 502.6 | | | 507.3 | |
Buildings and improvements | 256.0 |
| | 265.8 |
| Buildings and improvements | 295.2 | | | 301.0 | |
Machinery and other | 694.8 |
| | 676.9 |
| Machinery and other | 947.4 | | | 973.9 | |
Construction in progress | 32.6 |
| | 24.3 |
| Construction in progress | 73.6 | | | 45.4 | |
| 1,078.2 |
| | 1,064.7 |
| | 1,955.7 | | | 1,964.9 | |
Less accumulated depreciation | (507.7 | ) | | (481.6 | ) | |
Less accumulated depreciation and depletion | | Less accumulated depreciation and depletion | (784.3) | | | (763.0) | |
| $ | 570.5 |
| | $ | 583.1 |
| | $ | 1,171.4 | | | $ | 1,201.9 | |
Note 5. 6. Goodwill and Other Intangible Assets
Goodwill
Goodwill by segment is as follows: | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| | | |
| (in millions) |
Construction Products | $ | 484.0 | | | $ | 460.3 | |
Engineered Structures | 437.6 | | | 437.6 | |
Transportation Products | 37.0 | | | 37.0 | |
| $ | 958.6 | | | $ | 934.9 | |
|
| | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| (in millions) |
Construction Products Group | $ | 60.3 |
| | $ | 60.3 |
|
Energy Equipment Group | 416.9 |
| | 416.9 |
|
Transportation Products Group | 26.8 |
| | 17.1 |
|
| $ | 504.0 |
| | $ | 494.3 |
|
The increase in the TransportationConstruction Products Group goodwill during the nine months ended September 30, 2018 is2022 was due to an acquisition.the acquisition of RAMCO and the finalization of the purchase price allocations for StonePoint and Southwest Rock. See Note 2 "AcquisitionsAcquisitions and Divestitures".Divestitures.
Intangible Assets
Intangibles, net consisted of the following:
| | | | | | | | | | | | | | | | |
| | | | September 30, 2022 | | December 31, 2021 |
| | | | | | |
| | | | (in millions) |
Intangibles with indefinite lives - Trademarks | | | | $ | 34.1 | | | $ | 34.1 | |
| | | | | | |
Intangibles with definite lives: | | | | | | |
Customer relationships | | | | 136.9 | | 135.4 |
Permits | | | | 141.7 | | 87.5 |
Other | | | | 3.4 | | 3.9 |
| | | | 282.0 | | 226.8 |
Less accumulated amortization | | | | (54.7) | | (40.6) |
| | | | 227.3 | | 186.2 |
Intangible assets, net | | | | $ | 261.4 | | | $ | 220.3 | |
Note 6. Guarantees7. Debt
The following table summarizes the components of debt as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| | | |
| (in millions) |
Revolving credit facility | $ | 155.0 | | | $ | 125.0 | |
Term loan | 140.6 | | | 144.4 | |
Senior notes | 400.0 | | | 400.0 | |
Finance leases (see Note 8 Leases) | 20.5 | | | 16.3 | |
| 716.1 | | | 685.7 | |
Less: unamortized debt issuance costs | (5.6) | | | (6.2) | |
Total debt | $ | 710.5 | | | $ | 679.5 | |
Revolving Credit Facility and Term Loan
On November 1, 2018, the Company entered into a $400.0 million unsecured revolving credit facility that was scheduled to mature in November 2023. On January 2, 2020, the Company entered into an Amended and Restated Credit Agreement to increase the revolving credit facility to $500.0 million and add a term loan facility of $150.0 million, in each case with a maturity date of January 2, 2025. The entire term loan was advanced on January 2, 2020. As of September 30, 2022, the term loan had a remaining balance of $140.6 million.
As of September 30, 2018, Trinity's $600.02022, we had $155.0 million of outstanding loans borrowed under the revolving credit facility, and there were approximately $28.4 million of letters of credit issued, leaving $316.6 million available. During the nine months ended September 30, 2022 the Company borrowed a net of $30.0 million which was used to fund the acquisition of RAMCO. Of the outstanding letters of credit as of September 30, 2022, $3.3 million are expected to expire in 2022, with the remainder in 2023. The majority of our letters of credit obligations support the Company’s various insurance programs and generally renew by their terms each year. Subsequently, in October 2022, the Company used $155.0 million of cash proceeds from the sale of the storage tanks business to repay the outstanding loans borrowed under its revolving credit facility, leaving $471.6 million available. See Note 2 Acquisitions and Divestitures for additional information.
The interest rates under the revolving credit facility and term loan are variable based on LIBOR or an alternate base rate plus a margin. A commitment fee accrues on the average daily unused portion of the revolving facility. The margin for borrowing and commitment fee rate are determined based on the Company’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio. The margin for borrowing ranges from 1.25% to 2.00% and was set at LIBOR plus 1.75% as of September 30, 2022. The commitment fee rate ranges from 0.20% to 0.35% and was set at 0.30% at September 30, 2022.
The Company's revolving credit and term loan facilities require the maintenance of certain ratios related to leverage and interest coverage. As of September 30, 2022, we were in compliance with all such financial covenants. Borrowings under the credit agreement are guaranteed by certain wholly-owned subsidiaries of the Company.
In order to increase liquidity in anticipation of the acquisition of StonePoint, the Company entered into an unsecured corporate364-Day Credit Agreement on March 26, 2021 providing for a revolving line of credit of $150.0 million, with an outside maturity date of March 25, 2022. Pricing, covenants, and guarantees were substantially similar to the Company’s existing revolving credit and term loan facilities. Per the terms of the facility, it terminated on April 6, 2021 upon the closing of the Company’s private offering of $400.0 million in senior notes.
The carrying value of borrowings under our revolving credit and term loan facilities approximate fair value because the interest rate adjusts to the market interest rate (Level 3 input). See Note 3 Fair Value Accounting.
As of September 30, 2022, the Company had $1.1 million of unamortized debt issuance costs related to the revolving credit facility, which maturesare included in 2020 (the "Trinity Revolving Credit Facility") as well as itsother assets on the Consolidated Balance Sheet.
Senior Notes
On April 6, 2021, the Company issued $400.0 million aggregate principal amount of 4.55%4.375% senior note due 2024notes (the "Trinity Senior Notes"“Notes”) that mature in April 2029. Interest on the Notes is payable semiannually. The Notes are fully and unconditionally and jointly and severally guaranteed by certain subsidiariessenior unsecured obligations of the Company: Trinity Marine Products, Inc.; Trinity Meyer Utility Structures LLC;Company and Trinity Structural Towers, Inc. (the "Arcosa Guarantors").are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that is a guarantor under our revolving credit and term loan facilities. The Trinity Revolving Credit Facilityterms of the indenture governing the Notes, among other things, limit the ability of the Company and each of its subsidiaries to create liens on assets, enter into sale and leaseback transactions, and consolidate, merge or transfer all or substantially all of its assets and the Trinity Seniorassets of its subsidiaries. The terms of the indenture also limit the ability of the Company’s non-guarantor subsidiaries to incur certain types of debt.
At any time prior to April 15, 2024, the Company may redeem all or a portion of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. On and after April 15, 2024, the Company may redeem all or a portion of the Notes at redemption prices set forth in the indenture, plus accrued and unpaid interest to the redemption date. If a Change of Control Triggering Event (as defined in the indenture) occurs, the Company must offer to repurchase the Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest to the date of repurchase.
The estimated fair value of the Notes as of September 30, 2022 was $339.1 million based on a quoted market price in a market with little activity (Level 2 input).
In connection with the issuance of the Notes, the Company paid $6.6 million of debt issuance costs.
The remaining principal payments under existing debt agreements as of September 30, 2022 are also guaranteed by certain subsidiariesas follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
| | | | | | | | | | | |
| (in millions) |
Revolving credit facility(1) | $ | — | | | $ | — | | | $ | — | | | $ | 155.0 | | | $ | — | | | $ | — | |
Term loan | 3.8 | | | 8.4 | | | 8.4 | | | 120.0 | | | — | | | — | |
Senior notes | — | | | — | | | — | | | — | | | — | | | 400.0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1) In October 2022, the Company used $155.0 million of Trinity. There have been nocash proceeds from the sale of the storage tanks business to repay the outstanding loans borrowed under its revolving credit facility, leaving $471.6 million available.
Interest rate hedges
In December 2018, the Company entered into an interest rate swap instrument, effective as of January 2, 2019 and expiring in 2023, to reduce the effect of changes in the variable interest rates associated with borrowings under the Trinity RevolvingAmended and Restated Credit Facility. NoneAgreement. The instrument carried an initial notional amount of $100 million, thereby hedging the first $100 million of borrowings. The instrument effectively fixes the LIBOR component of borrowings at a monthly rate of 2.71%. As of September 30, 2022, the Company has recorded an asset of $1.6 million for the fair value of the Arcosa Guarantorsinstrument, all of which is recorded in accumulated other comprehensive income. See Note 3 Fair Value Accounting.
Note 8. Leases
We have been requiredvarious leases primarily for office space and certain equipment. At inception, we determine if an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease. For leases that contain options to make anypurchase, terminate, or extend, such options are included in the lease term when it is reasonably certain that the option will be exercised. Some of our lease arrangements contain lease components and non-lease components which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date in determining the present value of lease payments.
Future minimum lease payments under the guarantees. The guarantees by the Arcosa Guarantorsfor operating and finance lease obligations as of September 30, 2022 consisted of the Trinity Senior Notes were automatically terminated as of November 1, 2018,following:
| | | | | | | | | | | | | | |
| Operating Leases | | Finance Leases | | | |
| (in millions) |
2022 (remaining) | $ | 2.0 | | | $ | 1.7 | | | | |
2023 | 7.2 | | | 6.9 | | | | |
2024 | 6.3 | | | 6.8 | | | | |
2025 | 5.5 | | | 5.0 | | | | |
2026 | 4.4 | | | 1.3 | | | | |
Thereafter | 9.4 | | | 0.2 | | | | |
Total undiscounted future minimum lease obligations | 34.8 | | | 21.9 | | | | |
Less imputed interest | (2.4) | | | (1.4) | | | | |
Present value of net minimum lease obligations | $ | 32.4 | | | $ | 20.5 | | | | |
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The following table summarizes our operating and finance leases and their classification within the effective date of the spin-off transaction, in connection with the removal of the Arcosa Guarantors as guarantors under the Trinity Revolving Credit Facility in accordance with its terms. See Note 12 "Subsequent Events" for information regarding Arcosa's revolving credit facility.Consolidated Balance Sheet.
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| | | |
| (in millions) |
Assets | | | |
Operating - Other assets | $ | 29.6 | | | $ | 20.9 | |
Finance - Property, plant, and equipment, net | 23.7 | | | 16.9 | |
Total lease assets | 53.3 | | | 37.8 | |
| | | |
Liabilities | | | |
Current | | | |
Operating - Accrued liabilities | 6.5 | | | 4.8 | |
Finance - Current portion of long-term debt | 6.4 | | | 6.3 | |
Non-current | | | |
Operating - Other liabilities | 25.9 | | | 19.1 | |
Finance - Debt | 14.1 | | | 10.0 | |
Total lease liabilities | $ | 52.9 | | | $ | 40.2 | |
Note 7.9. Other, Net
Other, net (income) expense consists of the following items:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| (in millions) |
Interest income | $ | — | | | $ | — | | | $ | (0.1) | | | $ | (0.1) | |
Foreign currency exchange transactions | — | | | 0.1 | | | 1.5 | | | 0.6 | |
Other | (0.2) | | | — | | | (0.3) | | | (0.2) | |
Other, net (income) expense | $ | (0.2) | | | $ | 0.1 | | | $ | 1.1 | | | $ | 0.3 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Foreign currency exchange transactions | $ | — |
| | $ | (0.5 | ) | | $ | 2.2 |
| | $ | 0.3 |
|
Other | (0.2 | ) | | 0.3 |
| | (0.2 | ) | | (0.3 | ) |
Other, net (income) expense | $ | (0.2 | ) | | $ | (0.2 | ) | | $ | 2.0 |
| | $ | — |
|
Note 8.10. Income Taxes
The provision forFor interim income taxes results intax reporting, we estimate our annual effective tax rates that differ from the statutory rates. The following is a reconciliation between the statutory U.S. federal income tax rate and apply it to our year to date ordinary income (loss). Tax jurisdictions with a projected or year to date loss for which a tax benefit cannot be realized are excluded. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the Company’s effective incomeinterim period in which they occur. We have open tax rate on income before income taxes:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Statutory rate | 21.0 | % | | 35.0 | % | | 21.0 | % | | 35.0 | % |
State taxes | 2.3 |
| | 1.9 |
| | 2.3 |
| | 1.9 |
|
Foreign adjustments | 1.5 |
| | 3.1 |
| | 1.5 |
| | 3.1 |
|
Domestic production activities deduction | — |
| | (2.2 | ) | | — |
| | (2.2 | ) |
Impairment and other foreign losses | 53.2 |
| | 1.5 |
| | 6.6 |
| | 1.2 |
|
Changes in valuation allowance and reserves | (6.9 | ) | | — |
| | 0.1 |
| | — |
|
Effect of Federal Tax Reform | (10.2 | ) | | — |
| | (1.0 | ) | | — |
|
Prior year true-ups | (9.5 | ) | | 0.7 |
| | (1.5 | ) | | 0.4 |
|
Equity compensation | — |
| | — |
| | (1.1 | ) | | 0.5 |
|
Other, net | 0.1 |
| | (0.9 | ) | | (0.4 | ) | | (0.8 | ) |
Effective rate | 51.5 | % | | 39.1 | % | | 27.5 | % | | 39.1 | % |
years from 2014 to 2021 with various significant tax jurisdictions.Our effective tax rate reflects the Company's estimaterates of 21.2% and 21.6% for its state income tax expense, excess tax benefits or deficiencies related to equity compensation, and the impact of nondeductible impairment charges. A portion of the $23.2 million pre-tax impairment charge recorded in the three and nine months ended September 30, 2018 was attributable to certain of our foreign operations for2022, respectively, which taxes are not provided. This impairment charge increased the losses in those jurisdictions with no corresponding tax benefit. The related effect on our effective tax rate has been reflected in the rate reconciliation table above. See Note 2 "Acquisitions and Divestitures" for further information regarding the impairment charge.
The Act was enacted on December 22, 2017. The Act reducesdiffered from the U.S. federal corporatestatutory rate of 21.0% due to state income taxes, compensation-related items, and foreign income taxes, offset by benefits from statutory depletion deductions. For the three and nine months ended September 30, 2021, the effective tax rates of 21.3% and 19.9%, respectively, which differed from the U.S. federal statutory rate of 21.0% due to state income taxes, compensation-related items, and disallowed expenses connected to acquisitions offset by benefits from 35.0%statutory depletion deductions and prior year true ups.
In response to 21.0%the COVID-19 pandemic, on March 27, 2020 the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), requires companies to pay a one-time transitionwhich includes certain tax on earningsrelief and benefits that may impact the Company. As of certain foreign subsidiaries that were previously taxSeptember 30, 2022, the Company has deferred and creates new$5.4 million in payroll-related taxes on certain foreign-sourced earnings. In December 2017, we recorded a tax benefit afterin accordance with the initial assessmentprovisions of the tax effects of theCARES Act and we will continue refining this amount throughout 2018. We are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of our deferred tax balance or give riseis expected to new deferred tax amounts resulting in a final adjustmentbe paid in the fourth quarter of 2018.2022.
On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was enacted to reduce inflation and promote clean energy in the United States. Among other things, the IRA introduces a 15% alternative minimum tax for corporations with a three-year taxable year average annual adjusted financial statement income in excess of $1 billion and imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022. The IRA also provides for certain manufacturing, production, and investment tax credit incentives. The IRA is open for public comments and therefore is subject to the issuance of additional guidance and clarification. We have considered the applicable current IRA tax law changes in our tax provision for the three and nine months ended September 30, 2022, and continue to evaluate the impact of the Act may differ from our estimate due tothese tax law changes in the regulations, rulings, guidance, and interpretations issued by the Internal Revenue Service ("IRS") and the FASB as well as interpretations and assumptions made by the Company. The calculation of our estimated annual effective tax rate includes the estimated impact of provisions of the Act, such as interest limitations, and foreign limitations or inclusions. These estimates could change as additional information becomes available on these provisions of the Act.future periods.
Taxing authority examinations
The 2014-2016 tax years have been reviewed by the IRS with no significant adjustments. The 2014-2017 tax years remain open.
We have various subsidiaries in Mexico that file separate tax returns and are subject to examination by taxing authorities at different times. The entities are generally open for their 2010 tax years and forward.
Note 9.11. Employee Retirement Plans
Total Trinity employee retirement plan expense, which includes related administrative expenses, allocated to Arcosa was $2.5 million and $7.6 million for the three and nine months ended September 30, 2018 and 2017, respectively. These costs were funded through intercompany transactions with Trinity which are reflected within the Net Parent Investment balance on the accompanying Combined Balance Sheet.is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Defined contribution plans | $ | 3.4 | | | $ | 2.8 | | | $ | 10.2 | | | $ | 8.1 | |
Multiemployer plan | 0.4 | | | 0.4 | | | 1.2 | | | 1.4 | |
| $ | 3.8 | | | $ | 3.2 | | | $ | 11.4 | | | $ | 9.5 | |
The Company participates incontributes to a multiemployer defined benefit plan under the terms of a collective-bargaining agreement that covers certain union-represented employees.employees at one of the facilities of Meyer Utility Structures, a subsidiary of Arcosa. The Company contributed $0.5$0.4 million and $1.6$1.2 million to the multiemployer plan for the three and nine months ended September 30, 2018,2022, respectively. The Company contributed $0.5$0.4 million and $1.4$1.3 million to the multiemployer plan for the three and nine months ended September 30, 2017,2021, respectively. Total contributions to the multiemployer plan for 20182022 are expected to be approximately $2.3$1.6 million.
Note 12. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss for the nine months ended September 30, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Currency translation adjustments | | Unrealized loss on derivative financial instruments | | Accumulated other comprehensive loss |
| | | | | | |
| | (in millions) |
Balances at December 31, 2020 | | $ | (16.6) | | | $ | (5.5) | | | $ | (22.1) | |
Other comprehensive income (loss), net of tax, before reclassifications | | 0.1 | | | 0.8 | | | 0.9 | |
Amounts reclassified from accumulated other comprehensive loss, net of tax expense (benefit) of $0.0, ($0.3), and ($0.3) | | — | | | 1.0 | | | 1.0 | |
Other comprehensive income (loss) | | 0.1 | | | 1.8 | | | 1.9 | |
Balances at September 30, 2021 | | $ | (16.5) | | | $ | (3.7) | | | $ | (20.2) | |
| | | | | | |
Balances at December 31, 2021 | | $ | (16.3) | | | $ | (3.0) | | | $ | (19.3) | |
Other comprehensive income (loss), net of tax, before reclassifications | | (0.6) | | | 3.2 | | | 2.6 | |
Amounts reclassified from accumulated other comprehensive loss, net of tax expense (benefit) of $0.0, ($0.3), and ($0.3) | | — | | | 0.9 | | | 0.9 | |
Other comprehensive income (loss) | | (0.6) | | | 4.1 | | | 3.5 | |
Balances at September 30, 2022 | | $ | (16.9) | | | $ | 1.1 | | | $ | (15.8) | |
Note 10.13. Stock-Based Compensation
Stock-based compensation totaled approximately $2.7$5.4 million and $7.5$15.5 million for the three and nine months ended September 30, 2018,2022, respectively. Stock-based compensation totaled approximately $2.3$4.0 million and $6.7$12.8 million for the three and nine months ended September 30, 2017,2021, respectively.
Note 11.14. Earnings Per Common Share
Basic earnings per common share is computed by dividing net income remaining after allocation to unvested restricted shares, which includes unvested restricted shares of Arcosa stock held by employees of the Former Parent, by the weighted average number of basic common shares outstanding for the period. Except when the effect would be antidilutive, the calculation of diluted earnings per common share includes the weighted average net impact of nonparticipating unvested restricted shares. Total weighted average restricted shares were 1.4 million and 1.5 million shares for the three and nine months ended September 30, 2022, respectively. Total weighted average restricted shares were 1.6 million and 1.8 million three and nine months ended September 30, 2021, respectively.
The computation of basic and diluted earnings per share follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 |
| Income (Loss) | | Average Shares | | EPS | | Income (Loss) | | Average Shares | | EPS |
| | | | | | | | | | | |
| (in millions, except per share amounts) |
Net income | $ | 32.0 | | | | | | | $ | 23.7 | | | | | |
Unvested restricted share participation | (0.1) | | | | | | | (0.1) | | | | | |
Net income per common share – basic | 31.9 | | | 48.3 | | | $ | 0.66 | | | 23.6 | | | 48.2 | | | $ | 0.49 | |
Effect of dilutive securities: | | | | | | | | | | | |
Nonparticipating unvested restricted shares | — | | | 0.2 | | | | | — | | | 0.4 | | | |
Net income per common share – diluted | $ | 31.9 | | | 48.5 | | | $ | 0.66 | | | $ | 23.6 | | | 48.6 | | | $ | 0.49 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 |
| Income (Loss) | | Average Shares | | EPS | | Income (Loss) | | Average Shares | | EPS |
| | | | | | | | | | | |
| (in millions, except per share amounts) |
Net income | $ | 91.2 | | | | | | | $ | 60.4 | | | | | |
Unvested restricted share participation | (0.4) | | | | | | | (0.4) | | | | | |
Net income per common share – basic | 90.8 | | | 48.2 | | | $ | 1.88 | | | 60.0 | | | 48.1 | | | $ | 1.25 | |
Effect of dilutive securities: | | | | | | | | | | | |
Nonparticipating unvested restricted shares | — | | | 0.3 | | | | | — | | | 0.5 | | | |
Net income per common share – diluted | $ | 90.8 | | | 48.5 | | | $ | 1.87 | | | $ | 60.0 | | | 48.6 | | | $ | 1.23 | |
Note 15. Contingencies
The Company is involved in claims and lawsuits incidental to our business arising from various matters including commercial disputes, alleged product defect and/or warranty claims, intellectual property matters, personal injury claims, environmental issues, workplace laws,employment and/or workplace-related matters, and various governmental regulations. The Company evaluates its exposure to such claims and suits periodically and establishes accruals for these contingencies when a range of loss can be reasonably estimated. TheAt September 30, 2022, the range of reasonably possible losses for such matters, taking into consideration our rights in indemnity and recourse to third parties is $1.3$0.3 million to $11.5$0.4 million.
The Company evaluates its exposure to such claims and suits periodically and establishes accruals for these contingencies when probable losses can be reasonably estimated. At September 30, 2018,2022, total accruals of $5.2$0.8 million including environmental and workplace matters described below, are included in accrued liabilities in the accompanying CombinedConsolidated Balance Sheet. The Company believes any additional liability from such claims and suits would not be material to its financial position or results of operations.
Arcosa is subject to remedial orders and federal, state, local, and foreign laws and regulations relating to the environment and the workplace.environment. The Company has reserved $1.1$0.8 million as of September 30, 2018,2022, included in our total accruals of $5.2$0.8 million discussed above, to cover our probable and estimable liabilities with respect to the investigations, assessments, and remedial responses to such matters, taking into account currently available information and our contractual rights to indemnification and recourse to third parties. However, estimates
Estimates of liability arising from future proceedings, assessments, or remediation are inherently imprecise. Accordingly, there can be no assurance that we will not become involved in future litigation or other proceedings, involvingincluding those related to the environment and the workplace or, if we are found to be responsible or liable in any such litigation or proceeding, that such costs would not be material to the Company. We believe that we are currently in substantial compliance with environmental and workplace laws and regulations.
Note 12. Subsequent Events
Separation from Trinity
In connection with the separation, Trinity and Arcosa entered into various agreements that will govern the relationship between the parties going forward, including a separation and distribution agreement, transition services agreement, tax matters agreement, employee matters agreement, and intellectual property matters agreement. These agreements will provide for the allocation between Arcosa and Trinity of Trinity's and Arcosa's assets, employees, liabilities, and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the distribution date. For additional discussion of these agreements, see "Certain Relationships and Related Transactions" within our registration statement on Form 10.
Pursuant to the separation and distribution agreement, on October 31, 2018, Trinity contributed $200 million cash to Arcosa in connection with the separation.
Revolving Credit Facility
On November 1, 2018, the Company entered into a $400 million unsecured revolving credit facility that matures on November 1, 2023. The interest rates under the facility are variable based on LIBOR or an alternate base rate plus a margin that is determined based on Arcosa’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio, and initially are set at LIBOR plus 1.25%. A commitment fee will accrue on the average daily unused portion of the revolving facility at the rate of 0.20% to 0.35%, initially set at 0.20%. The revolving credit facility requires the maintenance of certain ratios related to leverage and interest coverage. Borrowings under the credit facility are guaranteed by certain 100%-owned subsidiaries of the Company. As of November 1, 2018, there were no outstanding loans borrowed under the facility and there were approximately $19.9 million in Letters of Credit issued.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide management'sa reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
•Company Overview
•Potential Impact of COVID-19 on our Business
•Executive SummaryOverview
•Results of Operations
•Liquidity and Capital Resources
•Recent Accounting Pronouncements
•Forward-Looking Statements
Our MD&A should be read in conjunction with the CombinedConsolidated Financial Statements of Arcosa, Inc. and its consolidated subsidiaries ("(“Arcosa," "Company," "we," and "our"” “Company,” “we,” or “our”) and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Audited AnnualConsolidated and Combined Financial Statements and related Notes in Item 8, “Financial Statements and Supplementary Data”, of our Annual Report on Form 10-K for the year ended December 31, 2017 in Amendment No. 6 to the Company's Registration Statement2021 (“2021 Annual Report on Form 10 filed10-K”).
Company Overview
Arcosa, headquartered in Dallas, Texas, is a provider of infrastructure-related products and solutions with leading brands serving construction, engineered structures, and transportation markets in North America. Arcosa is a Delaware corporation and was incorporated in 2018 in connection with the Securities and Exchange Commission ("SEC"separation (the “Separation”) on September 27, 2018 (“Form 10”).
Executive Summary
Spin-off Transaction
On December 12, 2017,of Arcosa from Trinity Industries, Inc. (together with its subsidiaries, "Trinity"(“Trinity” or “Former Parent”) announced its intention to separate its infrastructure-related businesses, which includes its construction products, energy equipment, and transportation products businesses, from the rest of Trinity by means of a spin-off. On September 25, 2018, Trinity’s Board of Directors formally approved the separation of its infrastructure-related businesses from Trinity through a distribution of all of the common stock of Arcosa held by Trinity to Trinity stockholders. Arcosa's Form 10 was declared effective by the SEC on October 1, 2018. On November 1, 2018 Trinity stockholders received one share of Arcosa, Inc. common stock for every three shares of Trinity common stock held as of 5:00 p.m. local New York City time on October 17, 2018, the record date for the distribution. The transaction was structured to be tax-free to both Trinity and Arcosa stockholders for U.S. federal income tax purposes.
Arcosa's historical Combined Financial Statements have been prepared on a standalone basis and are derived from Trinity's consolidated financial statements and accounting records. Therefore, the Combined Financial Statements reflect, in conformity with accounting principles generally accepted in the United States, Arcosa's financial position, results of operations, comprehensive income/loss, and cash flows as the business was historically operated as part of Trinity prior to the distribution. They may not be indicative of Arcosa's future performance and do not necessarily reflect what Arcosa's combined results of operations, financial condition, and cash flows would have been had Arcosa operated as an independent, publicly-traded company, duringlisted on the periods presented, particularly becauseNew York Stock Exchange.
Potential Impact of COVID-19 on our Business
Our highest priority is the health and safety of our employees and communities. We are committed to safety across our operations. Our businesses support critical infrastructure sectors and our plants have continued to operate throughout the COVID-19 pandemic. If one or more of Arcosa’s facilities become subject to governmental ordered closure, voluntary temporary closure, closure from a COVID-19 outbreak within the facility, or other COVID-19 related reason, the business, liquidity and financial condition, and results of operations for Arcosa expectscould be adversely affected.
The COVID-19 pandemic has disrupted global trade, commerce, financial and credit markets, and daily life throughout the world. The extent to which the COVID-19 pandemic impacts our business, liquidity and financial condition, and results of operations will depend on numerous evolving factors that changes will occur in Arcosa's operating structurewe may not be able to accurately predict, including: the duration and its capitalization as a resultscope of the spin-off from Trinity.
Arcosa’s Combined Financial Statements include its direct expensespandemic; governmental, business, and individuals’ actions taken in response to the pandemic; the impact of the pandemic on economic activity, and actions taken in response; the effect on our customers and customer demand for costour products and services; our ability to sell and provide our products and services; if key personnel are unable to perform their duties or have limited availability; the number of goods sold, salesemployees who contract or are directly exposed to COVID-19 and marketing,their availability to work in our plants and distributionfacilities; the ability to retain employees; the ability of our customers to pay for our products and administrationservices; any disruption in our supply chain; the ability to procure personal protective equipment; the availability of COVID-19 testing supplies; our ability to continue operations in compliance with COVID-19 related regulations; any closures of our and our customers’ facilities; increased cybersecurity and IT infrastructure risks; the impact on the health and safety of our employees; the impact on the demand for commodities served by our products and services; the impact of new COVID-19 variants; and the pace of recovery when the COVID-19 pandemic subsides, as well as, allocationsthe response to a potential reoccurrence.
We strive to continuously improve our procedures, processes, and management systems regarding employee health and safety. The continuance of certain selling, engineering,the COVID-19 pandemic has highlighted the critical importance of focusing on the health and administrative expenses provided by Trinitywellness of our employees. We have followed the federal, state, and local guidelines governing our facilities and shared best practices across the organization, with the goal of protecting our employees and communities. We continue to Arcosamonitor and allocationsimplement guidelines and best practices for COVID-19 mitigation procedures.
In addition to the extensive health and safety protocols already in place across our plants, we estimate that we are incurring less than $500 thousand per quarter of incremental costs related to COVID-19. We do not anticipate that the enhanced health and safety protocols will have a material impact on the productivity of our plants.
The preparation of the Company's Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and Parent’s investment, as applicable. The allocations have been determined on a reasonable basis; however,disclosure of contingent assets and liabilities at the amounts are not necessarily representativedate of the amounts that would have been reflected in the financial statements had Arcosa been an entity that operated independentlyas well as the reported amounts of Trinity. Related party allocations are further describedrevenues and expenses during the reporting period. At this time, we have not observed any material impairments of our assets or a significant change in Note 1, “Overview and Summarythe fair value of Significant Accounting Policies”assets due to the Combined Financial Statements. TrinityCOVID-19 pandemic. However, due to the factors discussed above, we are unable to determine or predict the overall impact the COVID-19 pandemic will continuehave on our business, results of operations, liquidity, or capital resources.
Market Outlook
•Within our Construction Products segment, our natural and recycled aggregates businesses have remained resilient, particularly in Texas, when seasonal weather conditions have been normal, and where states have reopened for business. We did experience a softening of demand for our specialty materials and shoring products businesses beginning in 2020 following the COVID-19 outbreak, but have largely recovered to provide somepre-pandemic demand levels in 2022. The outlook for public and private construction activity has improved driven by healthy demand and increased infrastructure spending. However, following the recent sharp rise in interest rates and the market expectation for additional tightening, the outlook for single-family residential housing has weakened. We are focused on managing inflationary pressures related to diesel, cement, and process fuels through proactive price increases and are monitoring potential impacts on overall demand as leading economic indicators indicate an increased probability of an economic slowdown in 2023.
•Within our Engineered Structures segment, our backlog as of September 30, 2022 provides good production visibility for the remainder of 2022. Our customers remain committed to taking delivery of these orders. In utility structures, order and inquiry activity continues to be healthy, as customers remain focused on grid hardening and reliability initiatives. The demand outlook for traffic and telecom structures also remains positive. Wind tower order quantities in 2022 have been impacted by high steel prices and uncertainty related to the renewal of the services related to these general and administrative functions onProduction Tax Credit (“PTC”), that expired at the end of 2021. As a transitional basis for a fee following the spin-off. These services will be received under the transition services agreement filed as an exhibit to Arcosa's Current Report on Form 8-K, filed on November 1, 2018.
Revolving Credit Facility
On November 1, 2018, the Company entered into a $400 million unsecured revolving credit facility that matures on November 1, 2023. The revolving credit facility requires the maintenance of certain ratios related to leverage and interest coverage. Borrowings under the credit facility bear interest at a defined index rate plus a margin and are guaranteed by certain 100%-owned subsidiaries of the Company. See "Liquidity and Capital Resources."
Definitive Agreement to Acquire ACG Materials
On November 14, 2018, the Company entered into a definitive agreement with an affiliate of H.I.G. Capital, LLC to acquire the ACG Materials business for approximately $315 million. The Company expects to fund the purchase price with a combination of cash on-hand and advances under its $400 million five-year credit facility. The transaction, which has been approved by the Company’s Board of Directors, is subject to customary closing conditions and regulatory provisions under the Hart-Scott-Rodino Act. The transaction is expected to closeresult, in the fourth quarter of 2018 or first2021, we idled our Clinton, Illinois wind tower facility in anticipation of lower volumes. The passage of the Inflation Reduction Act ("IRA") on August 16, 2022, which included a long-term extension of the PTC, is a significant catalyst for our wind towers business. However, the lapse in the PTC and the associated impact on our customers and the wind industry supply chain, has created a near-term lull in projects. Therefore, we are making appropriate reductions in our capacity and anticipate 2023 will be a transition year while we prepare for an expected strong multi-year rebound in volumes beginning in 2024.
•Within our Transportation Products segment, our backlog for inland barges as of September 30, 2022 of $128.9 million provides a base level of production visibility into 2023. Our customers remain committed to taking delivery of these orders. Barge order levels fell sharply at the onset of the pandemic and ensuing high steel prices further negatively impacted demand throughout 2021. To align with lower expected production levels in 2022, we have reduced capacity in our two active barge operating plants and completed the idling of our Madisonville, Louisiana facility in the fourth quarter of 2019.2021 to further reduce our cost structure. While high steel prices have continued to negatively impact order levels in 2022, the underlying fundamentals for a dry barge replacement cycle remain in place and order inquiries are increasing. The fleet continues to age, new builds have not kept pace with scrapping, and utilization rates are high. Our barge backlog extends into 2023 allowing us to remain flexible for an anticipated market recovery. We are currently monitoring the potential impacts of record low water conditions on the Mississippi River which, if continued, could lead to a temporary delay in our barge shipments and increased production inefficiencies based on an inability to launch.Demand for steel components, which was softening pre-COVID-19 due to a weakening North American rail transportation market, is increasing relative to 2020 and 2021 cyclical lows as the near-term outlook for the new railcar market has improved.
Executive Overview
Recent Developments
On October 3, 2022, the Company completed the previously-announced sale of its storage tanks business for $275 million. The storage tanks business, reported within the Engineered Structures segment, is a leading manufacturer of steel pressure tanks for the storage and transportation of propane, ammonia, and other gases serving the residential, commercial, energy, and agricultural markets with operations in the U.S. and Mexico. As of September 30, 2022, certain balances related to the storage tanks business were reclassified to assets held for sale and liabilities held for sale on the Consolidated Balance Sheet. The Company received pre-tax net cash proceeds at closing of approximately $263.5 million, after estimated transaction closing costs. In October 2022, the Company used $155.0 million of the cash proceeds to pay down the outstanding borrowings under its revolving credit facility. See Note 2 and Note 7 of the Notes to Consolidated Financial Statements.
Financial Operations and Operational Highlights
The Company's revenues•Revenues for the three and nine months ended September 30, 2018 were $378.62022 increased by 8.0% and 15.0% to $603.9 million and $1,086.0$1,742.5 million, respectively, representing an increase of 3.5% and a decrease of 2.6%, respectively, compared to the same periodsdriven by higher revenues in 2017. all segments.
•Operating profit for the three and nine months ended September 30, 20182022 totaled $6.4$49.0 million and $68.2$140.9 million, respectively, representing a decreasean increase of 81.0%$11.5 million and 37.2%,$49.2 million, respectively, forfrom the same periods in 2017. When compared to2021. For the same periods in 2017, revenuesthree and nine months ended September 30, 2022, increased operating profit was driven by increased volumes and pricing in Construction Products, higher margins on increased pricing in Engineered Structures, and higher volumes in our Construction Products Group increasedsteel components business within Transportation Products.
•As a percentage of revenue, selling, general, and administrative expenses was 11.3% for the three and nine months ended September 30, 2018 primarily due2022, compared to 11.2% and 12.2% for the same periods in 2021. Selling, general, and administrative expenses increased volumes, partially due to an acquisition. The Energy Equipment Group recorded lower revenues8.5% and operating profit6.2% for the three and nine months ended September 30, 2018 resulting primarily from a planned reduction in volumes in our wind towers product line and the impact of a $23.2 million impairment charge recorded in the third quarter of 2018. Revenues and operating profit from the Transportation Products Group were higher over the three and nine months ended September 30, 2018 when2022 compared to the same period last year. For the three months ended September 30, 2018, the increase is primarily related to increased barge deliveries. For the nine months ended September 30, 2018, the increase is primarily related to increased steel component deliveries. The effect of the required adoption of new revenue accounting rules effective January 1, 2018 was to increase revenues and operating profit by $8.3 million and $2.6 million, respectively, for the three months ended September 30, 2018 and decrease revenues and operating profit by $6.4 million and $1.0 million, respectively, for the nine months ended September 30, 2018 within our Energy Equipment Group. See Note 1 of the Combined Financial Statements.
Selling, engineering, and administrative expenses decreased by 4.3% and 2.9%, for the three and nine months ended September 30, 2018, respectively, when compared toperiods in the prior year, periods primarily resulting from lower compensation-related expenses.largely due to increased compensation costs.
•The Company's effective tax rate for the three and nine months ended September 30, 20182022 was 51.5%21.2% and 27.5%21.6%, respectively, compared to 39.1%21.3% and 39.1%19.9%, respectively, for the same periods in 2017, respectively.2021. The increase in the tax rate for the three months ended September 30, 2018 was primarily related to a portion of the $23.2 million impairment charge recorded in the third quarter of 2018 related to foreign operations for which taxes are not provided. The decrease in the tax rate for the nine months ended September 30, 20182022 is primarily due to increased foreign adjustments and disallowed compensation deductions in addition to a one-time benefit from state tax law changes in the impact prior period. See Note 10of the Tax Cuts and Jobs Act ("Notes to the Act"). See Note 8 of the CombinedConsolidated Financial Statements.
•Net income for the three and nine months ended September 30, 20182022 was $3.2$32.0 million and $48.0$91.2 million, respectively, compared with $20.6to $23.7 million and $66.1$60.4 million, respectively, for the same periods in 2017.2021.
Our Energy Equipment GroupEngineered Structures and Transportation Products Groupsegments operate in cyclical industries. Additionally, results in our Construction Products Groupsegment are affected by weather and seasonal fluctuations with the second and third quarters historically being the quarters with the highest revenues.
Unsatisfied Performance Obligations (Backlog)
As of September 30, 20182022, December 31, 2021, and 2017September 30, 2021, our unsatisfied performance obligations, or backlog, were as follows:
| | | | | | | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 |
| September 30, 2018 | | September 30, 2017 | | | | | | |
| (in millions) | | (in millions) |
Wind towers and utility structures | $ | 700.3 |
| | $ | 972.0 |
| |
Engineered Structures: | | Engineered Structures: | |
Utility, wind, and related structures | | Utility, wind, and related structures | $ | 370.4 | | | $ | 437.5 | | | $ | 465.9 | |
Storage tanks | | Storage tanks | 15.9 | | | 22.0 | | | 20.8 | |
| Transportation Products: | | Transportation Products: | |
Inland barges | $ | 210.4 |
| | $ | 126.0 |
| Inland barges | $ | 128.9 | | | $ | 92.7 | | | $ | 130.2 | |
Approximately 23%55% of the unsatisfied performance obligations for our utility, wind, towers and utilityrelated structures in our Engineered Structures segment are expected to be delivered during 2022, with substantially all of the year ending December 31, 2018remainder expected to be delivered during 2023. Approximately 22% of unsatisfied performance obligations for inland barges in our Transportation Products segment are expected to be delivered during 2022, with the remainder expected to be delivered through 2020. Approximately 21% of unsatisfied performance obligations for inland barges are expected to be delivered during the year ending December 31, 2018 with the remainder expected to be delivered through 2020.
Acquisition and Divestiture Activity
During the third quarter of 2018, the Company’s management team committed to plans to divest certain businesses whose revenues are included in the other revenues component of the Energy Equipment Group.2023. On October 31, 2018 and November 5, 2018,3, 2022, the Company completedsold the divestiture of these businesses, which accounted for approximately $20 million of revenuesstorage tanks business and had an operating loss for the nine months ended September 30, 2018. The net proceeds from these divestitures was not significant. We recorded a pre-tax impairment charge of $23.2 million during the three months ended September 30, 2018 associated with the write-down of the net assets of these businesses to their estimated fair values.its related backlog. See Note 2 of the Notes to our CombinedConsolidated Financial Statements for further information regarding these divestitures.Statements.
In March 2018, we completed the acquisition of certain assets of an inland barge business.
Results of Operations
Overall Summary
Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | Percent Change | | 2022 | | 2021 | | Percent Change |
| (in millions) | | | (in millions) | |
Construction Products | $ | 244.2 | | | $ | 227.4 | | | 7.4 | % | | $ | 701.6 | | | $ | 585.1 | | | 19.9 | % |
Engineered Structures | 277.0 | | | 250.1 | | | 10.8 | | | 796.1 | | | 699.6 | | | 13.8 | |
Transportation Products | 82.7 | | | 81.6 | | | 1.3 | | | 244.8 | | | 230.0 | | | 6.4 | |
| | | | | | | | | | | |
Segment Totals before Eliminations | 603.9 | | | 559.1 | | | 8.0 | | | 1,742.5 | | | 1,514.7 | | | 15.0 | |
Eliminations | — | | | — | | | | | — | | | (0.1) | | | |
Consolidated Total | $ | 603.9 | | | $ | 559.1 | | | 8.0 | | | $ | 1,742.5 | | | $ | 1,514.6 | | | 15.0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 | | Three Months Ended September 30, 2017 | | |
| | | |
| Revenues | | Revenues | | Percent |
| External | | Intersegment | | Total | | External | | Intersegment |
| | Total | | Change |
| ($ in millions) | | |
Construction Products Group | $ | 72.6 |
| | $ | — |
| | $ | 72.6 |
| | $ | 69.4 |
| | $ | — |
| | $ | 69.4 |
| | 4.6 | % |
Energy Equipment Group | 197.5 |
| | 0.9 |
| | 198.4 |
| | 216.0 |
| | 1.3 |
| | 217.3 |
| | (8.7 | ) |
Transportation Products Group | 108.5 |
| | — |
| | 108.5 |
| | 80.5 |
| | — |
| | 80.5 |
| | 34.8 |
|
Segment Totals before Eliminations | 378.6 |
| | 0.9 |
| | 379.5 |
| | 365.9 |
| | 1.3 |
| | 367.2 |
| | 3.3 |
|
Eliminations | — |
| | (0.9 | ) | | (0.9 | ) | | — |
| | (1.3 | ) | | (1.3 | ) | | |
Combined Total | $ | 378.6 |
| | $ | — |
| | $ | 378.6 |
| | $ | 365.9 |
| | $ | — |
| | $ | 365.9 |
| | 3.5 |
|
Our revenues for•Revenues increased by 8.0% and 15.0% during the three and nine months ended September 30, 2018 increased by 3.5%2022, respectively.
•Revenues from the prior year period primarily as result of increased barge deliveries in our Transportation Products Group and increased production volumes and impact of an acquisition in our Construction Products Group, partially offset by a planned reduction in volumes in our Energy Equipment Group. The decrease in revenues in our Energy Equipment Group was partially offset for the three months ended September 30, 2018increased primarily due to the required adoptionincreased pricing across most of new revenue accounting rules. See Note 1 of the Combined Financial Statements.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 | | Nine Months Ended September 30, 2017 | | |
| | | |
| Revenues | | Revenues | | Percent |
| External | | Intersegment | | Total | | External | | Intersegment |
| | Total | | Change |
| ($ in millions) | | |
Construction Products Group | $ | 226.7 |
| | $ | — |
| | $ | 226.7 |
| | $ | 194.8 |
| | $ | — |
| | $ | 194.8 |
| | 16.4 | % |
Energy Equipment Group | 570.0 |
| | 3.1 |
| | 573.1 |
| | 648.0 |
| | 3.3 |
| | 651.3 |
| | (12.0 | ) |
Transportation Products Group | 289.3 |
| | — |
| | 289.3 |
| | 272.1 |
| | — |
| | 272.1 |
| | 6.3 |
|
Segment Totals before Eliminations | 1,086.0 |
| | 3.1 |
| | 1,089.1 |
| | 1,114.9 |
| | 3.3 |
| | 1,118.2 |
| | (2.6 | ) |
Eliminations | — |
| | (3.1 | ) | | (3.1 | ) | | — |
| | (3.3 | ) | | (3.3 | ) | | |
Combined Total | $ | 1,086.0 |
| | $ | — |
| | $ | 1,086.0 |
| | $ | 1,114.9 |
| | $ | — |
| | $ | 1,114.9 |
| | (2.6 | ) |
Our revenues forour aggregate and specialty material businesses. For the nine months ended September 30, 2018 decreased by 2.6%2022, revenues also increased due to higher volumes from the prior year periodacquired businesses.
•Revenues from Engineered Structures increased primarily due to a planned reductionincreased pricing in volumesall product lines driven by higher steel prices.
•Revenues from Transportation Products increased primarily due to higher deliveries in our Energy Equipment Group,steel components, partially offset by lower tank barge deliveries.
Operating Costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | Percent Change | | 2022 | | 2021 | | Percent Change |
| | | | | | | | | |
| (in millions) | | | (in millions) | |
Construction Products | $ | 216.6 | | | $ | 200.6 | | | 8.0 | % | | $ | 629.2 | | | $ | 524.6 | | | 19.9 | % |
Engineered Structures | 239.9 | | | 226.5 | | | 5.9 | | | 689.2 | | | 629.4 | | | 9.5 | |
Transportation Products | 81.7 | | | 80.1 | | | 2.0 | | | 237.6 | | | 223.1 | | | 6.5 | |
| | | | | | | | | | | |
Segment Totals before Eliminations and Corporate Expenses | 538.2 | | | 507.2 | | | 6.1 | | | 1,556.0 | | | 1,377.1 | | | 13.0 | |
Corporate | 16.7 | | | 14.4 | | | 16.0 | | | 45.6 | | | 45.9 | | | (0.7) | |
Eliminations | — | | | — | | | | | — | | | (0.1) | | | |
Consolidated Total | $ | 554.9 | | | $ | 521.6 | | | 6.4 | | | $ | 1,601.6 | | | $ | 1,422.9 | | | 12.6 | |
| | | | | | | | | | | |
Depreciation, depletion, and amortization(1) | $ | 39.6 | | | $ | 39.0 | | | 1.5 | | | $ | 116.9 | | | $ | 107.0 | | | 9.3 | |
(1)Depreciation, depletion, and amortization are components of operating costs.
2022 versus 2021
•Operating costs increased steel component deliveries in our Transportation Products Groupby 6.4% and increased production volumes12.6% during the three and impactnine months ended September 30, 2022, respectively.
•Cost of acquisitions in ourrevenues for Construction Products Group. Revenues in our Energy Equipment Group was also lower forincreased primarily due to inflationary-related cost increases, including diesel, cement, and process fuels. For the nine months ended September 30, 20182022, cost of revenues also increased due to the required adoptionhigher volumes from acquired businesses.
•Cost of new revenue accounting rules. See Note 1 of the Combined Financial Statements.
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | Percent Change | | 2018 | | 2017 | | Percent Change |
| (in millions) | | | (in millions) | |
Construction Products Group | $ | 57.3 |
| | $ | 55.8 |
| | 2.7 | % | | $ | 181.4 |
| | $ | 152.3 |
| | 19.1 | % |
Energy Equipment Group | 211.6 |
| | 196.5 |
| | 7.7 |
| | 560.6 |
| | 588.1 |
| | (4.7 | ) |
Transportation Products Group | 95.0 |
| | 70.7 |
| | 34.4 |
| | 254.1 |
| | 241.2 |
| | 5.3 |
|
All Other | 0.1 |
| | — |
| |
| | 0.1 |
| | — |
| | |
Segment Totals before Eliminations and Corporate Expenses | 364.0 |
| | 323.0 |
| | 12.7 |
| | 996.2 |
| | 981.6 |
| | 1.5 |
|
Corporate | 9.1 |
| | 10.6 |
| | (14.2 | ) | | 24.7 |
| | 28.0 |
| | (11.8 | ) |
Eliminations | (0.9 | ) | | (1.3 | ) | | (30.8 | ) | | (3.1 | ) | | (3.3 | ) | | (6.1 | ) |
Combined Total | $ | 372.2 |
| | $ | 332.3 |
| | 12.0 |
| | $ | 1,017.8 |
| | $ | 1,006.3 |
| | 1.1 |
|
Operating costsrevenues for the three months ended September 30, 2018Engineered Structures increased by 12.0% over the same period in 2017. The increase in our Construction Products Group was primarily due to higher shipment levels in our construction aggregates and other businesses. Operating costssteel prices.
•Cost of revenues for the Energy Equipment Group were higher for the three months ended September 30, 2018,Transportation Products increased primarily due to the impact of a $23.2 million impairment charge recordedincreased steel component volumes and higher steel costs in the third quarter of 2018. Operating costs of the Transportation Products Group were higher for the three months ended September 30, 2018 due to higher barge deliveries.inland barges.
Operating costs for the nine months ended September 30, 2018•Depreciation, depletion, and amortization increased by 1.1% over the same period in 2017. The increase in our Construction Products Group was primarily due to higher shipment levels in our construction aggregates and other businesses. Operating costs forrecent acquisitions, including the Energy Equipment Group were lower for the nine months ended September 30, 2018, primarily due to a planned reduction in volumes in our wind tower product line, partially offset by the impactfair value mark up of a $23.2 million impairment charge recorded in the third quarter of 2018. Operating costs of the Transportation Products Group were higher for the nine months ended September 30, 2018 due to higher steel component deliveries.long-lived assets.
•Selling, engineering,general, and administrative expenses including Corporate expenses, decreasedincreased 8.5% and 6.2% for the three and nine months ended September 30, 2018, by 4.3% and 2.9%, respectively, as a result of lower compensation-related expenses.2022 compared to the same periods in the prior year, largely due to increased compensation costs. As a percentage of revenue,revenues, selling, engineering,general, and administrative expenses were 10.6%was 11.2% and 10.8%, respectively,11.3% for the three and nine months ended September 30, 2018 as2022, respectively compared to 11.5%11.2% and 10.8%, respectively,12.2% for the same periods in 2017.2021, respectively.
Operating Profit (Loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | Percent Change | | 2022 | | 2021 | | Percent Change |
| (in millions) | | | (in millions) | |
Construction Products | $ | 27.6 | | | $ | 26.8 | | | 3.0 | % | | $ | 72.4 | | | $ | 60.5 | | | 19.7 | % |
Engineered Structures | 37.1 | | | 23.6 | | | 57.2 | | | 106.9 | | | 70.2 | | | 52.3 | |
Transportation Products | 1.0 | | | 1.5 | | | (33.3) | | | 7.2 | | | 6.9 | | | 4.3 | |
| | | | | | | | | | | |
Segment Totals before Corporate Expenses | 65.7 | | | 51.9 | | | 26.6 | | | 186.5 | | | 137.6 | | | 35.5 | |
Corporate | (16.7) | | | (14.4) | | | 16.0 | | | (45.6) | | | (45.9) | | | (0.7) | |
| | | | | | | | | | | |
Consolidated Total | $ | 49.0 | | | $ | 37.5 | | | 30.7 | | | $ | 140.9 | | | $ | 91.7 | | | 53.7 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | Percent Change | | 2018 | | 2017 | | Percent Change |
| (in millions) | | | (in millions) | |
Construction Products Group | $ | 15.3 |
| | $ | 13.6 |
| | 12.5 | % | | $ | 45.3 |
| | $ | 42.5 |
| | 6.6 | % |
Energy Equipment Group | (13.2 | ) | | 20.8 |
| | (163.5 | ) | | 12.5 |
| | 63.2 |
| | (80.2 | ) |
Transportation Products Group | 13.5 |
| | 9.8 |
| | 37.8 |
| | 35.2 |
| | 30.9 |
| | 13.9 |
|
All Other | (0.1 | ) | | — |
| | | | (0.1 | ) | | — |
| | |
Segment Totals before Eliminations and Corporate Expenses | 15.5 |
| | 44.2 |
| | (64.9 | ) | | 92.9 |
| | 136.6 |
| | (32.0 | ) |
Corporate | (9.1 | ) | | (10.6 | ) | | (14.2 | ) | | (24.7 | ) | | (28.0 | ) | | (11.8 | ) |
Eliminations | — |
| | — |
| |
| | — |
| | — |
| |
|
Combined Total | $ | 6.4 |
| | $ | 33.6 |
| | (81.0 | ) | | $ | 68.2 |
| | $ | 108.6 |
| | (37.2 | ) |
2022 versus 2021•Operating profit increased by 30.7% and 53.7% during the three and nine months ended September 30, 2022, respectively.
•Operating profit in Construction Products increased primarily due to increase pricing, partially offset by inflationary-related cost increases, including diesel, cement, and process fuels. For the nine months ended September 30, 2022, operating profit also increased due to higher volumes from acquired businesses.
•Operating profit in Engineered Structures increased primarily due to higher revenues and improved margins in our utility structures and storage tanks businesses.
•Operating profit in Transportation Products decreased for the three months ended September 30, 2018 decreased2022 driven by 81.0% when compared tolower tank barge deliveries. For the same period in 2017. Operating profit in the Construction Products Group increased for the threenine months ended September 30, 2018 when compared to the prior year period2022, operating profit increased primarily due to higher volumes in our construction aggregates business and higher volumes in the Group's other businesses as a result of the trench shoring products acquisition in the third quarter of 2017. Operating profit of our Energy Equipment Group decreased for the three months ended September 30, 2018 compared to the prior year period as a result of a planned reduction in volumes in the wind towers product line and the impact of a $23.2 million impairment charge recorded in the third quarter of 2018. The decrease in operating profit in our Energy Equipment Group was partially offset for the three months ended September 30, 2018 by the required adoption of the new revenue accounting rules. See Note 1 of the Combined Financial Statements. Operating profit in our Transportation Products Group increased for the three months ended September 30, 2018 primarily due to increased barge deliveries compared to the same period in 2017.steel components.
Operating profit for the nine months ended September 30, 2018 decreased by 37.2% when compared to the same period in 2017. Operating profit in the Construction Products Group increased for the nine months ended September 30, 2018 when compared to the prior year period primarily due to higher volumes as a result of an acquisition in our lightweight aggregates business in the fourth quarter of 2017 and higher volumes in the Group's other businesses as a result of the trench shoring products acquisition in the third quarter of 2017. Operating profit of our Energy Equipment Group decreased for the nine months ended September 30, 2018 compared to the prior year period as a result of a planned reduction in volumes in the wind towers product line and the impact of a $23.2 million impairment charge recorded in the third quarter of 2018. Operating profit in our Energy Equipment Group was also lower for the nine months ended September 30, 2018 due to the required adoption of the new revenue accounting rules. See Note 1 of the Combined Financial Statements. Operating profit in our Transportation Products Group increased for the nine months ended September 30, 2018 primarily due to increased steel component deliveries compared to the same period in 2017.
For a further discussion of revenues, costs, and the operating results of individual segments, see Segment Discussion below.
Other Income and Expense.
Other, income andnet (income) expense is summarized inconsists of the following table:items:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in millions) |
Interest income | $ | — | | | $ | — | | | $ | (0.1) | | | $ | (0.1) | |
Foreign currency exchange transactions | — | | | 0.1 | | | 1.5 | | | 0.6 | |
Other | (0.2) | | | — | | | (0.3) | | | (0.2) | |
Other, net (income) expense | $ | (0.2) | | | $ | 0.1 | | | $ | 1.1 | | | $ | 0.3 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| (in millions) |
Foreign currency exchange transactions | $ | — |
| | $ | (0.5 | ) | | $ | 2.2 |
| | $ | 0.3 |
|
Other | (0.2 | ) | | 0.3 |
| | (0.2 | ) | | (0.3 | ) |
Other, net | $ | (0.2 | ) | | $ | (0.2 | ) | | $ | 2.0 |
| | $ | — |
|
Income Taxes.
Taxes
The provision for income taxes results in effective tax rates that differ from the statutory rates. The Company's effective tax rate for the three and nine months ended September 30, 20182022 was 51.5%21.2% and 27.5%21.6%, respectively, compared to 39.1%21.3% and 39.1%19.9% for the same periods in 2017, respectively.2021. The increase in the tax rate for the nine months ended September 30, 2022 is primarily due to increased foreign adjustments and disallowed compensation deductions in addition to a one-time benefit from state tax law changes in the prior period.
Our effective tax rate reflects the Company's estimate for its state income tax expense, excess tax benefits or deficiencies related to equity compensation, and the impact of nondeductible impairment charges. A portionforeign tax benefits. See Note 10 of the $23.2 million pre-tax impairment charge recorded in the three and nine months ended September 30, 2018 was attributableNotes to certain of our foreign operations for which taxes are not provided. This impairment charge increased the losses in those jurisdictions with no corresponding tax benefit.
The Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. In December 2017, we recorded a tax benefit after the initial assessment of the tax effects of the Act, and we will continue refining this amount throughout 2018. We are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of our deferred tax balance or give rise to new deferred tax amounts resulting in a final adjustment in the fourth quarter of 2018. The impact of the Act may differ from our estimate due to changes in the regulations, rulings, guidance, and interpretations issued by the Internal Revenue Service ("IRS") and the FASB as well as interpretations and assumptions made by the Company. The calculation of our estimated annual effective tax rate includes the estimated impact of provisions of the Act, such as interest limitations, and foreign limitations or inclusions. These estimates could change as additional information becomes available on these provisions of the Act.
See Note 8 of the CombinedConsolidated Financial Statements for a further discussion of income taxes.
Segment Discussion
Construction Products Group
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | Percent | | 2018 | | 2017 | | Percent |
| ($ in millions) | | Change | | ($ in millions) | | Change |
Revenues: | | | | | | | | | | | |
Construction aggregates | $ | 52.9 |
| | $ | 53.3 |
| | (0.8 | )% | | $ | 166.6 |
| | $ | 155.1 |
| | 7.4 | % |
Other | 19.7 |
| | 16.1 |
| | 22.4 |
| | 60.1 |
| | 39.7 |
| | 51.4 |
|
Total revenues | 72.6 |
| | 69.4 |
| | 4.6 |
| | 226.7 |
| | 194.8 |
| | 16.4 |
|
| | | | | | | | | | | |
Operating costs: | | | | | | | | | | | |
Cost of revenues | 49.9 |
| | 48.4 |
| | 3.1 |
| | 159.9 |
| | 133.3 |
| | 20.0 |
|
Selling, engineering, and administrative costs | 7.4 |
| | 7.4 |
| | — |
| | 21.5 |
| | 19.0 |
| | 13.2 |
|
Operating profit | $ | 15.3 |
| | $ | 13.6 |
| | 12.5 |
| | $ | 45.3 |
| | $ | 42.5 |
| | 6.6 |
|
Operating profit margin | 21.1 | % | | 19.6 | % | | | | 20.0 | % | | 21.8 | % | | |
| | | | | | | | | | | |
Depreciation and amortization(1) | $ | 5.2 |
| | $ | 4.7 |
| | 10.6 |
| | $ | 15.4 |
| | $ | 13.3 |
| | 15.8 |
|
(1)DepreciationIn response to the COVID-19 pandemic, on March 27, 2020 the U.S. Congress passed the Coronavirus Aid, Relief, and amortization are componentsEconomic Security Act (the “CARES Act”), which includes certain tax relief and benefits that may impact the Company. As of operating profit.
Revenues and cost of revenues increased 4.6% and 3.1%, respectively, for the three months ended September 30, 2018, when compared2022, the Company has deferred $5.4 million in payroll-related taxes in accordance with the provisions of the CARES Act that we expect to pay during the year ended December 31, 2022.
On August 16, 2022, the IRA was enacted to reduce inflation and promote clean energy in the United States. Among other things, the IRA introduces a 15% alternative minimum tax for corporations with a three-year taxable year average annual adjusted financial statement income in excess of $1 billion and imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022. The IRA also provides for certain manufacturing, production, and investment tax credit incentives. The IRA is open for public comments and therefore is subject to the same period in 2017 primarily from higher volumesissuance of additional guidance and clarification. We have considered the applicable current IRA tax law changes in our other product lines as a result of our trench shoring products acquisition in the third quarter of 2017. Selling, engineering and administrative costs for the three months ended September 30, 2018 remained unchanged compared to the same period in 2017.
Revenues and cost of revenues increased by 16.4% and 20.0%, respectively, for the nine months ended September 30, 2018, when compared to the same period in 2017 primarily from higher volumes from acquisitions in both our lightweight aggregates business and trench shoring products business in 2017. Selling, engineering, and administrative costs increased by 13.2% for the nine months ended September 30, 2018, compared to the same period in 2017, primarily due to the trench shoring acquisition in the third quarter of 2017.
Energy Equipment Group
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | Percent | | 2018 | | 2017 | | Percent |
| ($ in millions) | | Change | | ($ in millions) | | Change |
Revenues: | | | | | | | | | | | |
Wind towers and utility structures | $ | 147.0 |
| | $ | 167.1 |
| | (12.0 | )% | | $ | 427.5 |
| | $ | 514.4 |
| | (16.9 | )% |
Other | 51.4 |
| | 50.2 |
| | 2.4 |
| | 145.6 |
| | 136.9 |
| | 6.4 |
|
Total revenues | 198.4 |
| | 217.3 |
| | (8.7 | ) | | 573.1 |
| | 651.3 |
| | (12.0 | ) |
| | | | | | | | | | | |
Operating costs: | | | | | | | | | | | |
Cost of revenues | 171.0 |
| | 178.8 |
| | (4.4 | ) | | 484.0 |
| | 532.1 |
| | (9.0 | ) |
Selling, engineering, and administrative costs | 17.4 |
| | 17.7 |
| | (1.7 | ) | | 53.4 |
| | 56.0 |
| | (4.6 | ) |
Impairment charge | 23.2 |
| | — |
| |
|
| | 23.2 |
| | — |
| | |
Operating profit | $ | (13.2 | ) | | $ | 20.8 |
| | (163.5 | ) | | $ | 12.5 |
| | $ | 63.2 |
| | (80.2 | ) |
Operating profit margin | (6.7 | )% | | 9.6 | % | | | | 2.2 | % | | 9.7 | % | | |
| | | | | | | | | | | |
Depreciation and amortization(1) | $ | 7.4 |
| | $ | 7.5 |
| | (1.3 | ) | | $ | 22.6 |
| | $ | 22.7 |
| | (0.4 | ) |
(1)Depreciation and amortization are components of operating profit.
Revenues decreased by 8.7% for the three months ended September 30, 2018 when compared to the same period in 2017. Revenues from our wind towers and utility structures product lines decreased by 12.0% driven primarily by a planned reduction in volumes in our wind towers product line. Revenues from other product lines increased by 2.4% as a result of increased volumes. Cost of revenues decreased by 4.4% for the three months ended September 30, 2018 compared to 2017, primarily driven by reduced
volumes in our wind towers product line, and partially offset by a $6.1 million reserve on finished goods inventory related to an order for a single customer in our utility structures business.
Revenues decreased by 12.0% for the nine months ended September 30, 2018 when compared to the same period in 2017. Revenues from our wind towers and utility structures product lines decreased by 16.9%, driven primarily by a planned reduction in volumes in our wind towers product line. Revenues from other product lines increased by 6.4% as a result of increased shipping volumes. Cost of revenues decreased by 9.0% for the nine months ended September 30, 2018 compared to 2017, driven primarily by the reduced volumes in our wind towers product line and a $3.9 million insurance recovery, partially offset by a $6.1 million reserve on finished goods inventory related to an order for a single customer in our utility structures business.
Selling, engineering, and administrative costs decreased by 1.7% and 4.6%, respectively,tax provision for the three and nine months ended September 30, 20182022, and continue to evaluate the impact of these tax law changes on future periods.
Segment Discussion
Construction Products | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | Percent | | 2022 | | 2021 | | Percent |
| ($ in millions) | | Change | | ($ in millions) | | Change |
Revenues: | | | | | | | | | | | |
Aggregates and specialty materials | $ | 216.8 | | | $ | 202.3 | | | 7.2 | % | | $ | 620.9 | | | $ | 519.1 | | | 19.6 | % |
Construction site support | 27.4 | | | 25.1 | | | 9.2 | | | 80.7 | | | 66.0 | | | 22.3 | |
Total revenues | 244.2 | | | 227.4 | | | 7.4 | | | 701.6 | | | 585.1 | | | 19.9 | |
| | | | | | | | | | | |
Operating costs: | | | | | | | | | | | |
Cost of revenues | 191.2 | | | 176.8 | | | 8.1 | | | 552.6 | | | 458.4 | | | 20.5 | |
Selling, general, and administrative expenses | 25.4 | | | 23.8 | | | 6.7 | | | 76.6 | | | 66.2 | | | 15.7 | |
Operating profit | $ | 27.6 | | | $ | 26.8 | | | 3.0 | | | $ | 72.4 | | | $ | 60.5 | | | 19.7 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Depreciation, depletion, and amortization(1) | $ | 26.3 | | | $ | 25.2 | | | 4.4 | | | $ | 77.2 | | | $ | 64.8 | | | 19.1 | |
(1)Depreciation, depletion, and amortization are components of operating profit.
Three Months Ended September 30, 2022 versus Three Months Ended September 30, 2021
•Revenues increased 7.4% primarily driven by strong pricing gains across most of our product lines in our aggregates and specialty materials businesses, partially offset by lower volumes. Revenue from recent acquisitions were mostly offset by divestitures. Revenues from our trench shoring business increased 9.2% driven by higher volumes.
•Cost of revenues increased 8.1% primarily due to inflationary-related cost increases, including diesel, cement, and process fuels. This increase was partially offset by $2.6 million recognized in the prior period for the amortization of the fair value mark up of acquired inventory. As a percent of revenues, cost of revenues increased slightly.
•Selling, general, and administrative costs increased 6.7% primarily due to additional costs from acquired businesses. Selling, general, and administrative costs in our legacy businesses were lower than the previous period as a percentage of revenues.
•Operating profit increased 3.0% as increased revenues from pricing gains were largely offset by inflationary-related cost increases.
•Depreciation, depletion, and amortization expense increased primarily due to recent acquisitions, including the impact of the fair value mark up of long-lived assets.
Nine Months Ended September 30, 2022 versus Nine Months Ended September 30, 2021
•Revenues increased 19.9% primarily driven by recent acquisitions, which on a combined basis increased segment revenues by approximately 10%, net of divestitures. The additional increase in revenues was driven by strong pricing gains across most of our product lines in our aggregates and specialty materials businesses as well as increased volumes in our legacy recycled aggregates business. Revenues from our trench shoring business increased 22.3% driven by higher volumes and increased pricing.
•Cost of revenues increased 20.5% due to higher volumes from recently acquired businesses and legacy recycled aggregates. Cost of revenues also increased due to higher depreciation, depletion, and amortization expense from acquired businesses, as well as higher inflationary-related costs, including diesel, cement, and process fuels. As a percent of revenues, cost of revenues increased slightly.
•Selling, general, and administrative costs increased 15.7% primarily due to additional costs from acquired businesses. Selling, general, and administrative costs were slightly lower than the previous period as a percentage of revenues.
•Operating profit increased 19.7% due to additional revenues from acquired businesses partially offset by higher depreciation, depletion, and amortization expense.
•Depreciation, depletion, and amortization expense increased primarily due to recently acquired businesses, including the impact of the fair value mark up of long-lived assets.
Engineered Structures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | Percent | | 2022 | | 2021 | | Percent |
| | | | | | | | | | | |
| ($ in millions) | | Change | | ($ in millions) | | Change |
Revenues: | | | | | | | | | | | |
Utility, wind, and related structures | $ | 211.2 | | | $ | 189.4 | | | 11.5 | % | | $ | 608.5 | | | $ | 545.0 | | | 11.7 | % |
Storage tanks | 65.8 | | | 60.7 | | | 8.4 | | | 187.6 | | | 154.6 | | | 21.3 | |
Total revenues | 277.0 | | | 250.1 | | | 10.8 | | | 796.1 | | | 699.6 | | | 13.8 | |
| | | | | | | | | | | |
Operating costs: | | | | | | | | | | | |
Cost of revenues | 219.5 | | | 207.6 | | | 5.7 | | | 631.2 | | | 572.1 | | | 10.3 | |
Selling, general, and administrative expenses | 20.4 | | | 18.9 | | | 7.9 | | | 58.0 | | | 57.3 | | | 1.2 | |
| | | | | | | | | | | |
Operating profit | $ | 37.1 | | | $ | 23.6 | | | 57.2 | | | $ | 106.9 | | | $ | 70.2 | | | 52.3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Depreciation and amortization(1) | $ | 8.1 | | | $ | 8.3 | | | (2.4) | | | $ | 24.1 | | | $ | 25.1 | | | (4.0) | |
(1)Depreciation and amortization are components of operating profit.
Three Months Ended September 30, 2022 versus Three Months Ended September 30, 2021
•Revenues increased 10.8% due to increased pricing in our utility structures and storage tanks businesses, primarily driven by higher steel prices.
•Cost of revenues increased 5.7% primarily driven by higher steel prices.
•Selling, general, and administrative costs increased primarily due to higher compensation costs. Selling, general, and administrative costs decreased as a percentage of revenues to 7.4% compared to 7.6% in the prior period.
•Operating profit increased 57.2% primarily due to higher revenues and improved margins in our utility structures and storage tanks businesses.
Nine Months Ended September 30, 2022 versus Nine Months Ended September 30, 2021
•Revenues increased 13.8% primarily due to increased pricing across all product lines, partially offset by lower volumes.
•Cost of revenues increased 10.3% primarily driven by higher steel prices, partially offset by lower volumes. Additionally, in the second quarter of 2022 and the first quarter of 2021, the Company recognized gains of $1.6 million and $3.9 million, respectively, resulting in a net increase in cost of revenues for the nine months ended September 30, 2022 compared to the same periodsperiod in 20172021. Both transactions related to the disposition of manufacturing facilities not required to support operations.
•Selling, general, and administrative costs increased slightly but decreased as a percentage of revenues to 7.3% compared to 8.2% in the prior period.
•Operating profit increased 52.3% primarily due to decreased bad debt expense related to the same singlehigher revenues and improved margins in our utility structures customer.and storage tanks businesses as well as improved pricing across all product lines. This increase was partially offset by a $7.7 million one-time customer resolution that increased operating profit in 2021.
The Company recorded an impairment charge
Unsatisfied Performance Obligations (Backlog)
As of $23.2September 30, 2022, the backlog for utility, wind, and related structures was $370.4 million, incompared to $437.5 million and $465.9 million as of December 31, 2021 and September 30, 2021, respectively. Approximately 55% of these unsatisfied performance obligations are expected to be delivered during the third quarter of 2018 associatedyear ending December 31, 2022 with the write-downsubstantially all of the net assetsremainder expected to be delivered in 2023. Future wind tower orders are subject to uncertainty as the recent extension and modification of certain businesses classified as heldPTC eligibility for sale.new wind farm projects is currently being evaluated by the industry. On October 3, 2022, the Company sold the storage tanks business and its related backlog. See Note 2 of the Notes to Consolidated Financial Statements.
Transportation Products | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | Percent | | 2022 | | 2021 | | Percent |
| ($ in millions) | | Change | | ($ in millions) | | Change |
Revenues: | | | | | | | | | | | |
Inland barges | $ | 50.9 | | | $ | 58.4 | | | (12.8) | % | | $ | 151.7 | | | $ | 165.3 | | | (8.2) | % |
Steel components | 31.8 | | | 23.2 | | | 37.1 | | | 93.1 | | | 64.7 | | | 43.9 | |
Total revenues | 82.7 | | | 81.6 | | | 1.3 | | | 244.8 | | | 230.0 | | | 6.4 | |
| | | | | | | | | | | |
Operating costs: | | | | | | | | | | | |
Cost of revenues | 76.4 | | | 74.7 | | | 2.3 | | | 221.1 | | | 207.2 | | | 6.7 | |
Selling, general, and administrative expenses | 5.3 | | | 5.4 | | | (1.9) | | | 16.5 | | | 15.9 | | | 3.8 | |
| | | | | | | | | | | |
Operating profit | $ | 1.0 | | | $ | 1.5 | | | (33.3) | | | $ | 7.2 | | | $ | 6.9 | | | 4.3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Depreciation and amortization (1) | $ | 3.9 | | | $ | 4.6 | | | (15.2) | | | $ | 11.8 | | | $ | 13.7 | | | (13.9) | |
(1) Depreciation and amortization are components of operating profit.
Three Months Ended September 30, 2022 versus Three Months Ended September 30, 2021
•Revenues increased slightly as a 37.1% increase in steel components revenues was largely offset by a 12.8% decrease in revenues from inland barges. The increase in steel components revenues reflected higher deliveries as the Combined Financial StatementsNorth American railcar market shows signs of a modest recovery, and the decline in inland barge revenues resulted from lower tank barge deliveries.
•Cost of revenues increased 2.3% driven by higher steel component volumes and higher steel raw material costs.
•Selling, general, and administrative costs were substantially unchanged and decreased as a percentage of revenues to 6.4% compared to 6.6% in the prior period.
•Operating profit decreased due to lower tank barge deliveries and higher steel raw material costs, partially offset by higher steel component volumes.
Nine Months Ended September 30, 2022 versus Nine Months Ended September 30, 2021
•Revenues increased 6.4% led by a 43.9% increase in steel components revenues due to increased deliveries resulting from improving demand conditions in the North American railcar market. The segment increase was partially offset by a 8.2% decrease in revenues from inland barges, reflecting weakened demand conditions from both the COVID-19 pandemic and higher steel prices.
•Cost of revenues increased 6.7% driven by higher steel component volumes, partially offset by lower tank barge volumes.
•Selling, general, and administrative costs were up slightly due to overall higher volumes, but decreased as a percentage of revenues to 6.7% compared to 6.9% in the prior period .
•Operating profit increased 4.3% due to higher steel component volumes, partially offset by lower tank barge volumes.
Unsatisfied Performance Obligations (Backlog)
As of September 30, 2022, the backlog for further information about the impairment charge.
In additioninland barges was $128.9 million, compared to the changes described above, revenues and operating profit were also higher by $8.3$92.7 million and $2.6$130.2 million respectively,as of December 31, 2021 and September 30, 2021, respectively. Approximately 22% of unsatisfied performance obligations for inland barges are expected to be delivered during the year ending December 31, 2022 with the remainder expected to be delivered in 2023.
Corporate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | Percent | | 2022 | | 2021 | | Percent |
| (in millions) | | Change | | (in millions) | | Change |
Corporate overhead costs | $ | 16.7 | | | $ | 14.4 | | | 16.0 | % | | $ | 45.6 | | | $ | 45.9 | | | (0.7) | % |
2022 versus 2021
•Corporate overhead costs increased 16.0% for the three months ended September 30, 20182022 primarily due to increased compensation-related expenses. The increase was partially offset by lower acquisition and lower by $6.4divestiture-related expenses of $1.6 million and $1.0for the three months ended September 30, 2022, compared to $2.5 million respectively,for the same period in 2021.
•Corporate overhead costs were roughly flat for the nine months ended September 30, 2018 due2022 as lower acquisition and divestiture-related expenses of $5.0 million in the current period, compared to the required adoption of new revenue accounting rules. See Note 1 of the Combined Financial Statements.
The backlog$10.0 million for wind towers and utility structures was $700.3 million and $972.0 million at September 30, 2018 and 2017, respectively.
Transportation Products Group
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | Percent | | 2018 | | 2017 | | Percent |
| ($ in millions) | | Change | | ($ in millions) | | Change |
Revenues: | | | | | | | | | | | |
Inland barges | $ | 49.3 |
| | $ | 28.1 |
| | 75.4 | % | | $ | 123.0 |
| | $ | 124.3 |
| | (1.0 | )% |
Steel components | 59.2 |
| | 52.4 |
| | 13.0 |
| | 166.3 |
| | 147.8 |
| | 12.5 |
|
Total Revenues | 108.5 |
| | 80.5 |
| | 34.8 |
| | 289.3 |
| | 272.1 |
| | 6.3 |
|
| | | | | | | | | | | |
Operating costs: | | | | | | | | | | | |
Cost of revenues | 88.8 |
| | 64.7 |
| | 37.2 |
| | 236.6 |
| | 223.7 |
| | 5.8 |
|
Selling, engineering, and administrative costs | 6.2 |
| | 6.0 |
| | 3.3 |
| | 17.5 |
| | 17.5 |
| | — |
|
Operating profit | $ | 13.5 |
| | $ | 9.8 |
| | 37.8 |
| | $ | 35.2 |
| | $ | 30.9 |
| | 13.9 |
|
Operating profit margin | 12.4 | % | | 12.2 | % | | | | 12.2 | % | | 11.4 | % | | |
| | | | | | | | | | | |
Depreciation and amortization (1) | $ | 4.2 |
| | $ | 4.5 |
| | (6.7 | ) | | $ | 11.7 |
| | $ | 12.2 |
| | (4.1 | ) |
(1) Depreciation and amortization are components of operating profit.
Revenues and cost of revenues increased for the three months ended September 30, 2018 by 34.8% and 37.2%, respectively, compared to the same period in 2017 primarily from higher barge deliveries. Revenues and cost of revenues increased for the nine months ended September 30, 20182021, were offset by 6.3% and 5.8%, respectively, compared to the same period in 2017 primarily from higher steel component deliveries. Selling, engineering, and administrative costs increased by 3.3% for the three months ended September 30, 2018 due to higher compensation-related expenses and were substantially unchanged for the nine months ended September 30, 2018 compared to the same periods in 2017.expenses.
As of September 30, 2018, the backlog for the Transportation Products Group was $210.4 million compared to $126.0 million as of September 30, 2017.
Corporate
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | Percent | | 2018 | | 2017 | | Percent |
| ($ in millions) | | Change | | ($ in millions) | | Change |
Corporate overhead costs | $ | 9.1 |
| | $ | 10.6 |
| | (14.2 | )% | | $ | 24.7 |
| | $ | 28.0 |
| | (11.8 | )% |
Corporate overhead costs consist of costs not previously allocated to Trinity's business units and have been allocated to Arcosa based on an analysis of each cost function and the relative benefits received by Arcosa for each of the periods using methods management believes are consistent and reasonable.
The decrease in corporate overhead costs for the three and nine months ended September 30, 2018 compared to 2017 is primarily due to lower compensation-related expenses.
As an independent public company, Arcosa expects to incur incremental costs, including costs to replace services and fees previously provided or incurred by Trinity as well as other standalone costs. •We estimate that these additionalfourth quarter 2022 corporate costs will range from $10.0of approximately $14 to $15 million, excluding non-recurring acquisition and divestiture-related expenses. We estimate fourth quarter acquisition and divestiture-related expenses of approximately $5.9 to $15.0 million in fiscal year 2019.$6.4 million.
Liquidity and Capital Resources
Arcosa’s primary liquidity requirements are primarily to fundrequirement consists of funding our business operations, including capital expenditures, working capital requirements,investment, and disciplined acquisitions, and operational restructuring activities.acquisitions. Our primary sources of liquidity areinclude cash flowsflow from operations, our existing cash balance, and, as necessary, borrowingsavailability under the revolving credit facility, and, as necessary, the issuance of additional long-term debt or equity. To the extent we generate discretionary cash flow,have available liquidity, we may also consider using this additional cash flow to undertakeundertaking new capital investment projects, executeexecuting additional strategic acquisitions, returnreturning capital to stockholders, or forfunding other general corporate purposes.
Pursuant to the separation and distribution agreement, on October 31, 2018, Trinity contributed $200 million cash to Arcosa in connection with the separation.
On November 1, 2018, the Company entered into a $400 million unsecured revolving credit facility that matures on November 1, 2023. The interest rates under the facility are variable based on LIBOR or an alternate base rate plus a margin that is determined based on Arcosa’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio, and initially are set at LIBOR plus 1.25%. A commitment fee will accrue on the average daily unused portion of the revolving facility at the rate of 0.20% to 0.35%, initially set at 0.20%. As of November 1, 2018, there were no outstanding loans borrowed under the facility and there were approximately $19.9 million in Letters of Credit issued.
The credit agreement includes customary representations, warranties, conditions, covenants and events of default. The covenants under the credit agreement include, among other things, two financial covenants: a minimum interest coverage ratio and a maximum leverage ratio. The credit agreement requires us to maintain a minimum interest coverage ratio as of the last day of each fiscal quarter, which is defined as consolidated EBITDA divided by consolidated interest expense, in each case for the four fiscal quarters then ended, of not less than 2.50 to 1.00, beginning with the fiscal quarter ended September 30, 2018. The credit agreement also requires us to maintain a maximum leverage ratio as of the last day of each fiscal quarter, which is defined as consolidated total debt as of the last day of such fiscal quarter, divided by consolidated EBITDA for the four fiscal quarters then ended, of not greater than 3.00 to 1.00, beginning with the fiscal quarter ended September 30, 2018. Following qualified acquisitions (as defined in the credit agreement), we may elect up to two times to permit the maximum leverage ratio to be greater than 3.00 to 1.00 but not greater than 3.50 to 1.00. As of September 30, 2018, we were in compliance with the financial covenants in the credit agreement.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 20182022 and 2017:2021:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| | | |
| (in millions) |
Total cash provided by (required by): | | | |
Operating activities | $ | 182.6 | | | $ | 76.8 | |
Investing activities | (129.5) | | | (569.3) | |
Financing activities | (12.0) | | | 462.8 | |
Net increase (decrease) in cash and cash equivalents | $ | 41.1 | | | $ | (29.7) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
| (in millions) |
Total cash provided by (required by): | | | |
Operating activities | $ | 118.5 |
| | $ | 134.3 |
|
Investing activities | (55.4 | ) | | (91.3 | ) |
Financing activities | (59.5 | ) | | (46.8 | ) |
Net (decrease) increase in cash, cash equivalents, and restricted cash | $ | 3.6 |
| | $ | (3.8 | ) |
Operating Activities. Net cash provided by operating activities for the nine months ended September 30, 20182022 was $118.5$182.6 million compared to net cash provided by operating activities of $134.3$76.8 million for the nine months ended September 30, 2017.2021.
Receivables at•The changes in current assets and liabilities resulted in a net use of cash of $34.2 million for the nine months ended September 30, 2018 decreased2022 compared to a net use of cash of $86.7 million for the nine months ended September 30, 2021. The current year activity was primarily driven by $10.9 million or 6.6% since December 31, 2017 primarilyincreased receivables and inventories due to lower trade receivables in our Energy Equipment Groupincreased volumes and higher steel prices, partially offset by higher trade receivablesincreases in our Transportation Products Group driven by an increase in Inland Barge revenues. Raw materials inventory at September 30, 2018 increased by $35.1 million or 38.4% primarily in our Transportation Products Group. Work in process inventory decreased by $13.4 million or 28.4% and Finished goods inventory decreased by $33.8 million or 31.2% since December 31, 2017 primarily in our Energy Equipment Group. Accounts payable increased by $6.7 million, while accrued liabilities decreased by $13.8 million from December 31, 2017. We continually review reserves related to collectibility as well as the adequacy of lower of cost or net realizable value with regard to accounts receivable and inventory.payable.
Investing Activities. Net cash required by investing activities for the nine months ended September 30, 20182022 was $55.4$129.5 million compared to $91.3$569.3 million for the nine months ended September 30, 2017. 2021.
•Capital expenditures for the nine months ended September 30, 20182022 were $33.0$85.9 million compared to $45.9$60.8 million for the same period last year. Full-year capital expenditures are expected to be approximately $125 to $135 million in 2022. We expect maintenance capital expenditures of $75 to $80 million and capital expenditures related to additional growth to be approximately $50 to $55 million in 2022.
•Proceeds from the sale of property, plant, and equipment and other assets totaled $2.6$31.5 million for the nine months ended September 30, 2018,2022, compared to $2.1$14.9 million for the same period in 2017. Net2021.
•Cash paid for acquisitions, net of cash required related to acquisitions amounted to $25.0 million and $47.5acquired, was $75.1 million for the nine months ended September 30, 2018 and 2017, respectively.2022 compared to $523.4 million for the same period in 2021. There was no divestiture activity for the nine months ended September 30, 20182022 and 2017.2021.
Financing Activities. Net cash required by financing activities during the nine months ended September 30, 20182022 was $59.5$12.0 million compared to $46.8 million ofnet cash requiredprovided by financing activities of $462.8 million for the same period in 2017. Net transfers2021.
•Current year activity primarily related to Trinity totaled $56.3borrowings and repayments under the revolving credit facility as well as $15.0 million of share repurchases under the current repurchase authorization. Prior year to date activity primarily related to the net proceeds from the issuance of the $400 million Senior Notes and $100 million of additional borrowings under our revolving credit facility.
Other Investing and Financing Activities
Revolving Credit Facility and Senior Notes
On January 2, 2020, the Company entered into an Amended and Restated Credit Agreement to increase the revolving credit facility to $500.0 million and added a term loan facility of $150.0 million, in each case with a maturity date of January 2, 2025. The entire term loan was advanced on January 2, 2020. As of September 30, 2022, the term loan had a remaining balance of $140.6 million.
As of September 30, 2022, we had $155.0 million of outstanding loans borrowed under the revolving credit facility and there were approximately $28.4 million of letters of credit issued, leaving $316.6 million available for borrowing. Subsequently, in October 2022, the Company used $155.0 million of cash proceeds from the sale of the storage tanks business to pay off the outstanding loans borrowed under its revolving credit facility.
The interest rates under the revolving credit facility and term loan are variable based on LIBOR or an alternate base rate plus a margin. A commitment fee accrues on the average daily unused portion of the revolving facility. The margin for borrowing and commitment fee rate are determined based on Arcosa’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio. The margin for borrowing ranges from 1.25% to 2.00% and was set at LIBOR plus 1.75% as of September 30, 2022. The commitment fee rate ranges from 0.20% to 0.35% and was set at 0.30% as of September 30, 2022.
The Company's revolving credit and term loan facilities require the maintenance of certain ratios related to leverage and interest coverage. As of September 30, 2022, we were in compliance with all such financial covenants. Borrowings under the credit agreement are guaranteed by certain wholly-owned subsidiaries of the Company.
In order to increase liquidity in anticipation of the acquisition of StonePoint the Company entered into an unsecured 364-Day Credit Agreement on March 26, 2021 providing for a revolving line of credit of $150.0 million, with an outside maturity date of March 25, 2022, with pricing, covenants, and guarantees substantially similar to the Company’s existing revolving credit and term loan facilities. Per the terms of the facility, it terminated on April 6, 2021 upon the closing of the Company’s private offering of $400 million in senior notes.
On April 6, 2021, the Company issued $400.0 million aggregate principal amount of 4.375% senior notes (the “Notes”) that mature in April 2029. Interest on the Notes is payable semiannually. The Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that is a guarantor under our revolving credit and term loan facilities.
We believe, based on our current business plans, that our existing cash, available liquidity, and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for the foreseeable future. The Company further believes that its financial resources will allow it to manage the anticipated impact of COVID-19 on the Company's business operations for the foreseeable future. The macroeconomic uncertainties posed by COVID-19 are evolving. Consequently, the Company will continue to evaluate its financial position in light of future developments, particularly those relating to COVID-19, including its variants.
Dividends and Repurchase Program
In September 2022, the Company declared a quarterly cash dividend of $0.05 per share that was paid on October 31, 2022.
In December 2020, the Company’s Board of Directors authorized a new $50 million share repurchase program effective January 1, 2021 through December 31, 2022 to replace a program of the same amount that expired on December 31, 2020. Under the program, the Company repurchased 298,629 shares during the nine months ended September 30, 2022. As of September 30, 2022, the Company had a remaining authorization of $25.7 million under the program. See Note 1 of the Notes to the Consolidated Financial Statements.
Derivative Instruments
In December 2018, comparedthe Company entered into an interest rate swap instrument, effective as of January 2, 2019 and expiring in 2023, to $47.3reduce the effect of changes in the variable interest rates associated with borrowings under the Amended and Restated Credit Agreement. The instrument carried an initial notional amount of $100.0 million, thereby hedging the first $100.0 million of borrowings. The instrument effectively fixes the LIBOR component of the borrowings at a monthly rate of 2.71%. As of September 30, 2022, the Company has recorded an asset of $1.6 million for the nine months ended September 30, 2017.fair value of the instrument, all of which is recorded in accumulated other comprehensive income. See Note 3 and Note 7 of the Notes to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Recent Accounting Pronouncements
See Note 1 of the CombinedNotes to the Consolidated Financial Statements for information about recent accounting pronouncements.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements.statements and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts. TheArcosa uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should”“should,” “plans,” and similar expressions generallyto identify these forward-looking statements. Forward-looking statements involve risks and uncertainties thatPotential factors, which could cause our actual results of operations to differ materially from those in the forward-looking statements including,include, among others:
•the impact of the COVID-19 pandemic on our sales, operations, supply chain, employees, and financial condition;
•market conditions and customer demand for Arcosa'sour business products and services;
•the cyclical nature of the industries in which Arcosa competes;we compete;
•variations in weather in areas where Arcosaour construction products are sold, used, or installed;
naturally-occurring•naturally occurring events and other events and disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;
•competition and other competitive factors;
•our ability to identify, consummate, or integrate acquisitions of new businesses or products, or divest any business;
•the timing of introduction of new products;
•the timing and delivery of customer orders or a breach of customer contracts;
•the credit worthiness of customers and their access to capital;
•product price changes;
•changes in mix of products sold;
•the costs incurred to align manufacturing capacity with demand and the extent of its utilization;
•the operating leverage and efficiencies that can be achieved by Arcosa'sour manufacturing businesses;
•availability and costs of steel, component parts, supplies, and other raw materials;
competition and other competitive factors;
•changing technologies;
•surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies and other raw materials;
•increased costs due to increased inflation;
•interest rates and capital costs;
•counter-party risks for financial instruments;
•long-term funding of our operations;
•taxes;
•the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
•changes in import and export quotas and regulations;
•business conditions in emerging economies;
•costs and results of litigation;
•changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies;
•legal, regulatory, and environmental issues, including compliance of Arcosa'sour products with mandated specifications, standards, or testing criteria and obligations to remove and replace Arcosa'sour products following installation or to recall our products and install different products manufactured by Arcosaus or our competitors;
•actions by the executive and legislative branches of the U.S. government relative to federal government budgeting, taxation policies, government expenditures, U.S. borrowing/debt ceiling limits, and trade policies, including tariffs;tariffs, and border closures;
•the inability to sufficiently protect our intellectual property rights;
•our ability to mitigate against cybersecurity incidents, including ransomware, malware, phishing emails, and other electronic security threats;
•the improper use of social orand other digital media to disseminate false, misleading, and/or unreliable or inaccurate information;information about the Company or demonstrate actions that negatively reflect on the Company;
•if the inability to sufficiently protect our intellectual property rights;Company's ESG efforts are not favorably received by stockholders;
•if Arcosathe Company does not realize some or all of the benefits expected to result from the spin-off,Separation, or if such benefits are delayed;
Arcosa's ongoing businesses may be adversely affected and subject to certain risks and consequences as a result
•if the distribution of shares of Arcosa resulting from the Separation, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, the Company's stockholders at the time of the distribution and the Company could be subject to significant tax liability; and
•if the spin-off transactionSeparation does not comply with state and federal fraudulent conveyance laws and legal dividend requirements.
Any forward-looking statement speaks only as of the date on which such statement is made. We undertakeArcosa undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as required by applicable federal securities laws. Factorsmade. For a discussion of risks and uncertainties that could cause actual results or events to differ materially from those anticipated includecontained in the matters described under the section entitledforward-looking statements, see Item 1A, “Risk Factors” in theour 2021 Annual Report on Form 10.10-K and future Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in our market risks since December 31, 20172021 as set forth in our 2021 Annual Report on Form 10.10-K. See Note 79 of the CombinedNotes to Consolidated Financial Statements for the impact of foreign exchange rate fluctuations for the three and nine months ended September 30, 2018.2022.
Item 4. Controls and Procedures.Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that it is able to collect and record the information it is required to disclose in the reports it files with the SEC,Securities and Exchange Commission (“SEC”), and to process, summarize, and disclose this information within the time periods specified in the rules of the SEC. The Company’s Chief Executive and Chief Financial Officers are responsible for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluating their effectiveness. Based on their evaluation of the Company’s disclosure controls and procedures that took place as of the end of the period covered by this report, the Chief Executive and Chief Financial Officers believe that these procedures are effective to 1) ensure that the Company is able to collect, process, and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods and 2) accumulate and communicate this information to the Company’s management, including its Chief Executive and Chief Financial Officers, to allow timely decisions regarding this disclosure.
Changes in Internal Control over Financial Reporting
During the period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
As permitted by the SEC Staff interpretive guidance for recently acquired businesses, management's assessment and conclusion on the effectiveness of the Company's disclosure controls and procedures as of September 30, 2022 excludes an assessment of the internal control over financial reporting of the RAMCO business acquired in May 2022. RAMCO represents approximately 3% of consolidated total assets and less than 1% of consolidated revenues as of and for the nine months ended September 30, 2022.
PART II
Item 1.Legal Proceedings
The information provided inSee Note 1115 of the CombinedConsolidated Financial Statements is hereby incorporated into this Part II, Item 1 by reference.regarding legal proceedings.
Item 1A.Risk Factors
Our business and common stock are subject to a number of risks and uncertainties. The discussion of such risks and uncertainties may be found under "Risk Factors" in the Form 10 filed. There have been no material changes to suchin the Company's risk factors.factors from those set forth in our 2021 Annual Report on Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.This table provides information with respect to purchases by the Company of shares of its common stock during the quarter ended September 30, 2022:
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Period | | Number of Shares Purchased (1) | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
July 1, 2022 through July 31, 2022 | | 80 | | | $ | 44.76 | | | — | | | $ | 25,656,442 | |
August 1, 2022 through August 31, 2022 | | 11 | | | $ | 51.78 | | | — | | | $ | 25,656,442 | |
September 1, 2022 through September 30, 2022 | | 752 | | | $ | 57.19 | | | — | | | $ | 25,656,442 | |
Total | | 843 | | | $ | 55.94 | | | — | | | $ | 25,656,442 | |
(1) These columns include the following transactions during the three months ended September 30, 2022: (i) the surrender to the Company of 843 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and (ii) the purchase of no shares of common stock on the open market as part of the stock repurchase program.
(2) In December 2020, the Company’s Board of Directors authorized a new $50 million share repurchase program effective January 1, 2021 through December 31, 2022 to replace a program of the same amount that expired on December 31, 2020.
Item 3.Defaults Upon Senior Securities
Not Applicable.applicable.
Item 4.Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Form 10-Q.
Item 5.Other Information
None.
Item 6. Exhibits
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NO. | | DESCRIPTION |
3.1 | | |
3.2 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
95 | | |
101.INS | | Inline XBRL Instance Document (filed electronically herewith). |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document (filed electronically herewith). |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith). |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith). |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith). |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed electronically herewith). |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
_____________________________
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.
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| Arcosa, Inc. |
| (Registrant) |
| | |
ARCOSA, INC.November 3, 2022 | ByBy: | /s/ Scott BeasleyGail M. Peck |
Registrant | | Gail M. Peck |
| | Scott Beasley |
| | Chief Financial Officer |
| | November 14, 2018 |